-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DaLDBHrm96Gw9+bTu9mO8LRwrWxfLz7O1QB5E6GjjohleJEHsegbI3+rrndDK/DH zdSDk8QoUdnwVdx9bfWIbg== 0000950153-98-000309.txt : 19980401 0000950153-98-000309.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950153-98-000309 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 50 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STARWOOD HOTELS & RESORTS CENTRAL INDEX KEY: 0000048595 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 520901263 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06828 FILM NUMBER: 98583218 BUSINESS ADDRESS: STREET 1: 2231 E CAMELBACK RD STREET 2: STE 410 CITY: PHOENIX STATE: AZ ZIP: 80516 BUSINESS PHONE: 6028523900 MAIL ADDRESS: STREET 1: 2231 E CAMELBACK RD STREET 2: STE 410 CITY: PHOENIX STATE: AZ ZIP: 85016 FORMER COMPANY: FORMER CONFORMED NAME: STARWOOD LODGING TRUST DATE OF NAME CHANGE: 19950215 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS TRUST /MD/ DATE OF NAME CHANGE: 19930506 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS TRUST DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STARWOOD HOTEL & RESORTS WORLDWIDE INC CENTRAL INDEX KEY: 0000316206 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 521193298 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07959 FILM NUMBER: 98583219 BUSINESS ADDRESS: STREET 1: 2231 E CAMELBACK RD, 4TH FL STREET 2: SUITE 400 CITY: PHOENIX STATE: AZ ZIP: 85016 BUSINESS PHONE: 6028523900 MAIL ADDRESS: STREET 1: 2231 E CAMELBACK RD. 4TH FL STREET 2: SUITE 4O0 CITY: PHOENOX STATE: AZ ZIP: 85016 FORMER COMPANY: FORMER CONFORMED NAME: STARWOOD LODGING CORP DATE OF NAME CHANGE: 19950215 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS CORP DATE OF NAME CHANGE: 19920703 10-K 1 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ FORM 10-K [X] JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ----------------------------- COMMISSION FILE NUMBER: 1-6828 COMMISSION FILE NUMBER: 1-7959 STARWOOD HOTELS & STARWOOD HOTELS & RESORTS RESORTS WORLDWIDE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CHARTER) MARYLAND MARYLAND (STATE OR OTHER JURISDICTION (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) OF INCORPORATION OR ORGANIZATION) 52-0901263 52-1193298 (I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.) 2231 E. CAMELBACK ROAD, SUITE 410 2231 E. CAMELBACK ROAD, SUITE 400 PHOENIX, ARIZONA 85016 PHOENIX, ARIZONA 85016 (ADDRESS OF PRINCIPAL EXECUTIVE (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) OFFICES, INCLUDING ZIP CODE) (602) 852-3900 (602) 852-3900 (REGISTRANT'S TELEPHONE NUMBER, (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common shares of beneficial interest, par value New York Stock Exchange $.01 Pacific Exchange per share, of Starwood Hotels & Resorts ("Trust Shares") paired with shares of Common Stock, par value $.01 per share, of Starwood Hotels & Resorts Worldwide, Inc. ("Corporation Shares")
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Indicate 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 27, 1998, the aggregate market value of the Registrants' voting and non-voting common equity held by non-affiliates(1) was $9,845,566,727. As of March 27, 1998, the Trust had 184,196,766 outstanding Trust Shares, and the Corporation had outstanding 184,196,766 Corporation Shares. - --------------- (1) For purposes of this Joint Annual Report only, includes all shares other than those held by the Registrants' Trustees, Directors and executive officers. 2 TABLE OF CONTENTS
ITEM NUMBER IN FORM 10-K PAGE - ------- ---- PART I 1. Business.................................................... 8 2. Properties.................................................. 32 3. Legal Proceedings........................................... 47 4. Submission of Matters to a Vote of Security Holders......... 48 PART II 5. Market for Registrants' Common Equity and Related Stockholder Matters......................................... 49 6. Selected Financial Data..................................... 51 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 52 8. Financial Statements and Supplementary Data................. 65 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 65 PART III 10. Trustees, Directors and Executive Officers of the Registrants................................................. 65 11. Executive Compensation...................................... 72 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 80 13. Certain Relationships and Related Transactions.............. 84 PART IV 14. Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K........................... 86
3 This Joint Annual Report is filed by Starwood Hotels & Resorts, a Maryland real estate investment trust (the "Trust"), and Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the "Corporation"). Unless the context otherwise requires, (i) 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"); (ii) 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"); and (iii) and all references to "Starwood Hotels" or the "Company" refer to the Trust, the Corporation and their respective subsidiaries, collectively. The common shares of beneficial interest, par value $.01 per share, of the Trust ("Trust Shares") and the shares of common stock, par value $.01 per share, of the Corporation ("Corporation Shares") are "paired" and may be held or transferred only in units consisting of one Trust Share and one Corporation Share (a "Paired Share"). Unless otherwise stated herein, all information with respect to the Paired Shares has been restated to give effect to the three-for-two stock split effective January 27, 1997. ------------------------ 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 sections of Items 1 and 2 captioned "Operating Strategy," "Development Opportunities; Future Acquisitions; Sales" and "Other Information" Structure and Item 5, 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 Hotels, its Trustees or Directors or its officers with respect to the matters discussed in this Joint Annual Report. All such forward-looking statements involve risks and uncertainties and that could cause actual results to differ materially from those in 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 statement to reflect current or future events or circumstances. RECENTLY PROPOSED LEGISLATION On March 26, 1998, the Chairman of the Ways and Means Committee of the United States House of Representatives and the Chairman of the Finance Committee of the United States Senate introduced identical bills ("H.R. 3558") that would, if enacted, limit the ability of the Company to manage or operate real property that it acquires after March 26, 1998. If enacted, H.R. 3558 would make it difficult for the Company to acquire and operate hotels after March 26, 1998 in the same manner as the Company has in the past. As a result, enactment of H.R. 3558 could have a material adverse effect on the results of operations, financial condition and prospects of the Company. No assurance can be given that H.R. 3558 will not be enacted in its current form or that other new legislation, regulations or administrative interpretations with respect to the grandfathering of the Company will not be adopted. The Company is evaluating its options in the event that H.R. 3558 (or a similar measure) were to be adopted. FAILURE TO MANAGE RAPID GROWTH The full benefits of the Company's acquisition of Westin Hotels & Resorts Worldwide, Inc. ("Westin Worldwide") and certain of its affiliates (collectively, "Westin"), of ITT Corporation ("ITT") and of the other hotel properties acquired during 1997 and thereafter will require the integration of administrative, finance, sales and marketing organizations; the coordination of sales efforts; and the implementation of appropriate operations, financial and management systems and controls in order to realize the efficiencies, revenue enhancements and cost reductions that are expected from such acquisitions. Although the Company's management team has experience integrating acquisitions, none of the prior acquisitions have been of comparable magnitude to, or included the breadth of operations involved in, the acquisition of Westin or ITT. The diversion of management attention, as well as any other difficulties which may be encountered in the transition and integration process, could have an adverse impact on the revenue and operating results of the Company. There can be no assurance that the Company will be able to integrate successfully the operations of the acquired properties with those of the Company or that anticipated synergies will be realized or, if realized, that such synergies will occur when anticipated. 2 4 The Company's future success and its ability to manage future growth depends in large part upon the efforts of its senior management and its ability to attract and retain key officers and other highly qualified personnel. Competition for such personnel is intense. Since January 1996, the Company has experienced significant changes in its senior management, including executive officers. (See Item 10, Trustees, Directors and Executive Officers of the Registrants, of this Joint Annual Report.) There can be no assurance that the Company will continue to be successful in attracting and retaining qualified personnel. Accordingly, there can be no assurance that the Company's senior management will be able successfully to execute and implement the Company's growth and operating strategies. TAX RISKS Failure to Qualify as a REIT. The Trust believes that it has operated so as to qualify as a "real estate investment trust" (a "REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), commencing with the Trust's taxable year ended December 31, 1995, and the Trust intends to continue to so operate. No assurance, however, can be given that the Trust will remain qualified as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations. The complexity of these provisions is greater in the case of a REIT that owns hotels and leases them to a corporation with which its stock is paired. As a result, the Trust is likely to encounter a greater number of interpretive issues under the REIT qualification rules, and more such issues which lack clear guidance, than are other REITs. The determination of various factual matters and circumstances not entirely within the Trust's control may affect its ability to qualify as a REIT. In addition, no assurance can be given that new legislation, new regulations, administrative interpretations or court decisions will not significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification. Furthermore, the qualification of the Trust as a REIT will depend on the Trust's continuing ability to meet various requirements concerning, among other things, the ownership of Paired Shares and other equity securities of the Trust, the nature of the Trust's assets, the sources of its income and the amounts of its distributions to its shareholders. In connection with the acquisition of Westin in January 1998 and ITT in February 1998, the Trust acquired new assets and operations (including the leasing of newly acquired assets, loans to the Corporation and the ownership of certain corporations that own hotels or intangible assets). By increasing the complexity of the Company's operations, these assets and operations may make it more difficult for the Trust to continue to satisfy the REIT qualification requirements. The Trust's ability to qualify as a REIT is also dependent on its continued exemption from the anti-pairing rules of Section 269B(a)(3) of the Code. Section 269B(a)(3) would ordinarily prevent a company from qualifying as a REIT if its stock is paired with the stock of another company whose activities are inconsistent with REIT status, such as the Corporation. The "grandfathering rules" governing Section 269B(a)(3) generally provide, however, that Section 269B(a)(3) does not apply to a paired REIT if the shares of the REIT and its paired operating company were paired on or before June 30, 1983 and the REIT was taxable as a REIT on or before June 30, 1983. There are, however, no judicial or administrative authorities interpreting the grandfathering rules governing Section 269B(a)(3). If in any taxable year the Trust were to fail to qualify as a REIT, the Trust would not be allowed a deduction for distributions to shareholders in computing its taxable income and would be subject to federal income tax on its taxable income at regular corporate rates. Unless entitled to relief under certain Code provisions, the Trust would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. The failure of the Trust to qualify as a REIT would reduce its net earnings available for distribution to shareholders because of the additional tax liability to the Trust for the year or years involved. In addition, distributions would no longer be required to be made. To the extent that distributions to shareholders would have been made in anticipation of the Trust qualifying as a REIT, the Trust might be required to borrow funds or to liquidate certain of its investments to pay the applicable tax. The failure to qualify as a REIT would also constitute a default under certain debt obligations of the Trust. Required Distributions to Shareholders. In order to obtain and retain REIT status, the Trust must distribute to its shareholders at least 95% of its REIT taxable income (excluding any net capital gain). In 3 5 addition, the Trust will be subject to tax on its undistributed net taxable income and net capital gain, and a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by the Trust with respect to any calendar year are less than the sum of (i) 85% of the Trust's ordinary income, (ii) 95% of its capital gain net income for that year and (iii) 100% of its undistributed income from prior years. The Trust intends to make distributions to its shareholders to comply with the distribution requirements of the Code and to avoid federal income taxes and the nondeductible federal excise tax. The Trust (or the Realty Partnership) could be required to borrow funds on a short-term basis to meet the REIT distribution requirements, which borrowing may not otherwise be advisable for the Company. Distributions by the Trust and Corporation will be determined by the Trust's Board of Trustees (the "Board of Trustees") or the Corporation's Board of Directors (the "Board of Directors"), as applicable, and will depend on a number of factors, including the amount of cash available for distributions, the Company's financial condition, decisions by either such board to reinvest funds rather than to distribute such funds, the Company's capital expenditures, the annual distribution requirements under the REIT provisions of the Code (in the case of the Trust) and such other factors as either Board deems relevant. For federal income tax purposes, distributions paid to shareholders may consist of ordinary income, capital gains (in the case of the Trust), nontaxable return of capital, or a combination thereof. DEBT FINANCING As a result of incurring debt, the Company is 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 the Company maintains floating rate indebtedness) interest rates will fluctuate; and (iii) the agreements governing the Company's loan and credit facilities contain covenants imposing certain limitations on the Company's ability to acquire and dispose of assets. In addition, although the Company anticipates that it will be able to repay or refinance its existing indebtedness and any other indebtedness when it matures, there can be no assurance that the Company will be able to do so or that the terms of such refinancings will be favorable. In connection with the acquisitions of Westin and ITT, the Company incurred a substantial amount of additional debt, thereby increasing its exposure to the risks associated with debt financing. The Company's increased leverage may have important consequences, including the following: (i) the ability of the Company 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 the Company; (ii) a substantial decrease in operating cash flow or an increase in expenses of the Company could make it difficult for the Company to meet its debt service requirements and force it to modify its operations; (iii) the Company's higher level of debt and resulting interest expense may place it at a competitive disadvantage with respect to certain competitors with lower amounts of indebtedness and/or higher credit ratings; and (iv) the Company's greater leverage may make it more vulnerable to a downturn in its business or in the economy generally. LIMITS ON CHANGE OF CONTROL AND OWNERSHIP LIMITATION Ownership Limitation. In order for the Trust to maintain its qualification as a REIT, not more than 50% in value of its outstanding shares may be owned, directly or indirectly, by five or fewer individuals (which term is defined in the Code to include certain entities) at any time during the last half of the Trust's taxable year. Furthermore, actual or constructive ownership of a sufficient number of the Paired Shares could cause the Operating Partnership or the Corporation to become a "related party tenant" of the Trust, which would result in the loss of the Trust's REIT status. In order to help preserve the Trust's REIT status, the Declaration of Trust and the Articles of Incorporation prohibit actual or constructive ownership by any one person or group of related persons of more than 8.0% of the shares of the Trust or the Corporation, whether measured by vote, value or number of shares (the "Ownership Limit"). Generally, the Paired Shares owned by related or affiliated persons will be aggregated and certain options and warrants will be treated as exercised for purposes of the Ownership Limit. 4 6 The constructive ownership rules of the Code are extensive and complex and may cause Paired Shares owned, directly or indirectly, by certain direct or indirect partners in any partnership, including the direct and indirect owners of interests in the Realty Partnership and the Operating Partnership, and other classes of related individuals and/or entities, to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than 8.0% of the Paired Shares (or the acquisition of an interest in an entity which owns Paired Shares) by an individual or entity could cause that individual or entity (or another individual or entity) to own constructively in excess of 8.0% of the Paired Shares, and thus subject such Paired Shares to the Ownership Limit. Direct or constructive ownership in excess of the Ownership Limit would cause the violative transfer or ownership to be void, or cause such shares to be converted into "Excess Shares," which have limited economic rights, to the extent necessary to ensure that the purported transfer or other event does not result in a violation of the Ownership Limit. Notwithstanding the Ownership Limit, given the breadth of the Code's constructive ownership rules and that it is not possible for the Trust and the Corporation continuously to monitor direct and constructive ownership of Paired Shares, it is possible that an individual or entity could at some time constructively own sufficient Paired Shares to cause termination of the Trust's REIT status. Limits on Change of Control. Certain provisions of the Trust's declaration of trust, as amended (the "Declaration of Trust"), and the Corporation's articles of incorporation, as amended (the "Articles of Incorporation"), including, without limitation, those providing for the ability to issue preferred shares and the maintenance of staggered terms for Trustees and Directors, may have the effect of discouraging a third party from making an acquisition proposal for the Trust and the Corporation and may thereby delay, defer or prevent a change in control under circumstances that could otherwise give the holders of Paired Shares or other equity securities of the Company the opportunity to realize a premium over then-prevailing market prices. INFLUENCE BY STARWOOD CAPITAL Individuals employed by or otherwise affiliated with Starwood Capital Group, L.L.C. ("Starwood Capital") hold two positions on the Board of Trustees and two positions on the Board of Directors. Although the Company has a policy requiring a majority of its Trustees and Directors to be "independent," Starwood Capital may have the ability to exercise certain influence over the affairs of the Company. Barry S. Sternlicht is the President and Chief Executive Officer of, and controls, Starwood Capital. Mr. Sternlicht also is a Trustee of the Trust and the Chairman and Chief Executive Officer of the Trust. In addition, Mr. Sternlicht is Chairman of the Board of Directors of the Corporation. As a consequence, Mr. Sternlicht has the ability to exercise certain influence over the affairs of the Company. Starwood Capital and certain of its affiliates own limited partnership interests in the Realty Partnership and the Operating Partnership ("Units") that are exchangeable for Paired Shares. As a result, and due to its different tax situation, prior to the exchange of its Units into Paired Shares, Starwood Capital's objectives regarding the pricing, structure and timing of any sale of certain properties or the restructuring or sale of certain mortgage loans may differ from the objectives of the shareholders of the Company or current management of the Company. RISKS RELATING TO HOTEL OPERATIONS Operating Risks. The properties of the Company are subject to all operating risks common to the hotel industry. These risks include changes in general economic conditions (as described below); decreases in the level of demand for rooms and related services; cyclical over-building in the hotel industry; restrictive changes in zoning and similar land use laws and regulations or in health, safety and environmental laws, rules and regulations; the inability to obtain property and liability insurance fully to protect against all losses or to obtain such insurance at reasonable rates; and changes in travel patterns. In addition, the hotel industry is highly competitive. The properties of the Company compete with other hotel properties in their geographic markets, and some of the Company's competitors may have substantially greater marketing and financial resources than the Company. Acquisition Risks. The Company competes for acquisition opportunities with other owners of hotel properties, some of which may have substantially greater financial resources than the Company. These 5 7 competitors may generally be able to accept more risk than the Company can prudently manage. Competition may generally reduce the number of suitable investment opportunities offered to the Company and increase the bargaining power of property owners seeking to sell. Further, management believes that the Company will face competition for acquisition opportunities from entities organized for purposes substantially similar to the objectives of the Company. Seasonality of Hotel Business. The hotel industry is seasonal in nature. This seasonality may cause quarterly fluctuations in the operating results of the Company and the market prices of the Paired Shares. Capital Intensive Business. The Company's properties are capital intensive and, in order to remain attractive and competitive, must be well maintained as well as periodically modernized and refurbished. This creates an on-going need for capital and, to the extent such capital expenditures may not be funded from cash generated by the Company, financial results may be sensitive to the cost and availability of funds. REAL ESTATE INVESTMENT RISKS General Risks. Real property investments are subject to varying degrees of risk. 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, income from properties and real estate values are also affected by a variety of other factors, such as governmental regulations and applicable laws (including real estate, zoning, tax and eminent domain laws), interest rate levels and the availability of financing. For example, existing or new 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. Governments can, under eminent domain laws, take real property, sometimes for less compensation than the owner believes the property is worth. When prevailing interest rates increase, the expense of acquiring, developing, expanding or renovating real property increases, and values decrease as it becomes more difficult to sell property because the number of potential buyers decreases. Similarly, as financing becomes less available, it becomes more difficult both to acquire real property and, because of the diminished number of potential buyers, to sell real property. Any of these factors could have a material adverse impact on the Company's results of operations or financial condition, as well as on the Trust's ability to make distributions to its shareholders. In addition, equity real estate investments, such as the investments held by the Company and any additional properties that may be acquired by the Company, are relatively illiquid. If the properties of the Company do not generate revenue sufficient to meet operating expenses, including debt service and capital expenditures, the income of the Company and the Trust's ability to make distributions to shareholders will be adversely affected. Hotel Development. The Company intends to develop hotel properties as suitable opportunities arise and is currently developing several upscale hotels. New project development is subject to a number of risks, including risks of construction delays or cost overruns that may increase project costs; receipt of zoning, occupancy and other required governmental permits and authorization; and the incurring of development costs that are not pursued to completion. There can be no assurance that any development project will be completed in a timely manner or within budget. Possible Liability Relating to Environmental Matters. Under various federal, state, local and foreign environmental laws, ordinances and regulations, 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, or the failure properly to remediate such substances when present, 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 disposal or treatment facility, regardless of whether such facility is owned or 6 8 operated by such person. Other federal, state, local and foreign laws, ordinances and regulations require abatement or removal of certain asbestos-containing materials in the event of demolition or certain renovations or remodeling and govern emissions of and exposure to asbestos fibers in the air. The operation and subsequent removal of certain underground storage tanks also are regulated by federal, state, local and foreign laws. RISKS RELATING TO GAMING OPERATIONS Regulation of Gaming Operations. The Company owns and operates a number of casino gaming facilities, including Caesars Palace and The Desert Inn Resort & Casino in Las Vegas, Nevada; Caesars Atlantic City in Atlantic City, New Jersey; and Caesars Tahoe in Stateline, Nevada. Other gaming facilities are located in Nevada, New Jersey, Delaware, Indiana and Mississippi; in four foreign countries; and on cruise ships operating in international waters. Each of these gaming operations is subject to extensive licensing, permitting and regulatory requirements administered by various governmental entities. Typically, gaming regulatory authorities have broad powers with respect to the licensing of gaming operations, and may revoke, suspend, condition or limit the gaming approvals and licenses of the Company and its gaming subsidiaries, impose substantial fines and take other actions, any of which could have a material adverse effect on the business and the value of the Company's hotel/casinos. Directors, officers and certain key employees of the Company and its gaming subsidiaries are subject to licensing or suitability determinations by various gaming authorities. If any of such gaming authorities were to find a person occupying any such position unsuitable, the Company would be required to sever its relationship with that person. Increased Gaming Competition. The Company faces significant domestic and international competition from both established casinos and newly emerging gaming operations. Proposals have been made for a significant number of casinos, both land-based and those involving vessels on navigable waters, in a number of jurisdictions and large metropolitan areas. Legalization of gaming in additional jurisdictions may also provide opportunities for expansion by the Company's competitors that could adversely affect the Company's existing gaming operations. The Company believes that the adoption of legalized gaming in any jurisdiction near Nevada (particularly California or other states in the southwestern United States) or near New Jersey (particularly New York or Pennsylvania) or the advent of gaming on nearby Native American lands could have a material adverse effect on the Company's operations in Las Vegas and Atlantic City. Risks Associated with High-End Gaming. There are risks associated with the high end gaming business that currently comprises a portion of the Company's Caesars Palace and Desert Inn operations. High-end gaming is more volatile than other forms of gaming, and variances attributable to high-end gaming could, under certain circumstances, have a positive or negative impact on cash flow, earnings and other financial measures in a particular quarter. In addition, a substantial portion of the Company's table gaming revenues from its Caesars Palace and Desert Inn operations is attributable to the play of a relatively small number of international customers. The loss of, or a reduction in play of, the most significant of such customers could have an adverse effect on the Company's future operating results. FOREIGN OPERATIONS AND CURRENCY FLUCTUATIONS The Company has significant international operations, including, as of March 1, 1998, 31 owned properties in Europe, two properties owned in Africa/the Middle East, 15 properties owned in Latin America and three properties owned in Asia/Pacific. International operations generally are subject to various political and other risks that are not present in U.S. operations, including, among other things, the risk of war or civil unrest, expropriation and nationalization. In addition, certain 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 subjects the Company to risks associated with currency fluctuations. Currency devaluations and unfavorable changes in international monetary and tax policies and other changes in the international regulatory climate and international economic conditions could materially adversely affect the Company's profitability and financing 7 9 plans. Other than Italy, where the Company is subject to certain risks due to currency fluctuations, the Company's properties are geographically diversified and not concentrated in any particular region. POSSIBLE LIABILITY OF TRUST SHAREHOLDERS Both the Maryland statute governing real estate investment trusts formed under the laws of that state (the "Maryland REIT Law") and the Declaration of Trust provide that no shareholder of the Trust will be personally liable for any obligation of the Trust solely as a result of such shareholder's status as a shareholder of the Trust. The Declaration of Trust further provides that the Trust shall indemnify each shareholder against any claim or liability to which the shareholder may become subject by reason of being or having been a shareholder. In addition, it is the Trust's policy to include a clause in its contracts which provides that shareholders assume no personal liability for obligations entered into on behalf of the Trust. However, with respect to tort claims, contractual claims where shareholder liability is not so negated, claims for taxes and certain statutory liabilities, the shareholders may, in some jurisdictions, be personally liable to the extent that such claims are not satisfied by the Trust. Inasmuch as the Trust does and will carry public liability insurance which it considers adequate, any risk of personal liability to shareholders is limited to situations in which the Trust's assets plus its insurance coverage would be insufficient to satisfy the claims against the Trust and its shareholders. RISKS RELATING TO GENERAL ECONOMIC CONDITIONS The Company's hotel and gaming operations may be adversely affected by moderate or severe economic downturns, including conditions which may be isolated to one or more geographic regions. As a result, the Company's ability to achieve or sustain substantial improvements in funds from operations and other important financial tests may be adversely affected by general economic conditions. Further, an economic downturn in the countries from which the Company's gaming operations draw high-end international customers could cause a reduction in the frequency of visits and the revenues generated by such customers. Similarly, the collectibility of receivables from international gaming customers could be adversely affected by future business or economic trends, or by significant events, in the countries in which such customers reside. RISKS RELATING TO ACTS OF GOD AND WAR The Company's financial and operating performance may be adversely affected by acts of God, such as natural disasters, in both the locations in which the Company owns and/or operates significant properties and areas of the world from which the Company draws a large number of customers. Similarly, wars, political unrest and other forms of civil strife may cause the Company's results to differ materially from predicted results. PART I ITEM 1. BUSINESS. Starwood Hotels & Resorts Worldwide, Inc. and Starwood Hotels & Resorts are, together with their subsidiaries, one of world's leading hotel operating companies and the largest real estate investment trust in the United States, respectively. The Corporation conducts its hotel business both directly and through its subsidiaries ITT Sheraton Corporation ("Sheraton") and Ciga, S.P.A. ("Ciga"), and engages in the gaming business principally through its subsidiary Caesars World, Inc. ("Caesars"). Through the Sheraton, Westin, The Luxury Collection, St. Regis, Ciga, Four Points Hotels and Caesars brand names, Starwood Hotels is represented in most major markets of the world. At December 31, 1997, the Trust owned fee, ground leasehold and mortgage loan interests in hotel properties located throughout the United States and in Mexico and Scotland. At December 31, 1997, the Corporation leased properties from the Trust and operated them directly or through third-party management companies. As of March 30, 1998, Starwood Hotels owned equity interests in approximately 220 hotel properties, held mortgage interests in eight hotel properties, operated 8 10 approximately 180 hotel properties on behalf of third-party owners and earned franchise fees by licensing one of its brand names to approximately 240 hotel properties. Gaming operations generally are marketed under either the Caesars or Sheraton brand name and service mark and are currently represented in, among other areas, Las Vegas, Atlantic City and Tunica County, Mississippi, in five foreign countries and on two cruise ships that operate in international waters. At December 31, 1997, Starwood Hotels owned fee or ground leasehold interests in 102 hotel properties and mortgage interests in another eight hotel properties. Of the 102 hotels in which Starwood Hotels owned an equity interest, 12 hotels were being managed by third-party operators, including four hotels leased to third parties. In addition, the Corporation managed nine hotels for third-party owners. In furtherance of the Company's strategy to enhance, expand and diversify its hotel portfolio and to develop or acquire global brands, on January 2, 1998, the Company acquired Westin and on February 23, 1998, the Company acquired ITT. ITT Prior to its acquisition by the Company, ITT was one of the world's largest hotel and gaming companies. ITT conducts its hotel and gaming business through its subsidiaries Sheraton, Ciga and Caesars. Through the Sheraton, The Luxury Collection, Ciga, Four Points Hotels and Caesars brand names, ITT is represented in most major markets of the world. In 1997, ITT hosted over 4.5 million customer nights at ITT's properties in 63 countries. Gaming operations are marketed under either the Caesars or Sheraton brand name and service mark, and are currently represented in Las Vegas (Nevada), Atlantic City (New Jersey), Halifax and Sydney (Nova Scotia), Lake Tahoe (Nevada), Tunica County (Mississippi), Lima (Peru), Cairo (Egypt), Windsor (Ontario) and Townsville (Australia). BUSINESS SEGMENTS Business segment information for ITT is as follows:
REVENUES NET INCOME -------------------------- ----------------------- 1997 1996 1995 1997 1996 1995 ------ ------ ------ ----- ----- ----- (IN MILLIONS) Hotels................................ $4,687 $4,433 $4,164 $ 400 $ 371 $ 197 Gaming................................ 1,123 1,159 1,045 151 219 191 ------ ------ ------ ----- ----- ----- Ongoing Segments.................... 5,810 5,592 5,209 551 590 388 Dispositions.......................... 89 126 187 (47) (8) 11 ------ ------ ------ ----- ----- ----- Total Segments...................... 5,899 5,718 5,396 504 582 399 Other................................. (739) (83) (5) ----- ----- ----- (235) 499 394 Interest expense, net................. (94) (96) (152) Miscellaneous income (expense), net... 227 3 5 Income tax expense.................... (159) (173) (87) Minority equity....................... (9) (7) 1 ----- ----- ----- Income (loss) from continuing operations.......................... (270) 226 161 Discontinued operations (after tax)... 25 23 (14) Extraordinary item.................... (42) -- -- Cumulative effect of accounting change.............................. (11) -- -- ------ ------ ------ ----- ----- ----- $5,899 $5,718 $5,396 $(298) $ 249 $ 147 ====== ====== ====== ===== ===== =====
9 11 HOTEL OPERATIONS ITT's revenues from hotel operations are derived worldwide from Sheraton's owned, leased and managed hotels and ITT's 70.3% ownership interest in Ciga, a group of luxury hotels in Europe. ITT also earns franchise fees by licensing the "Sheraton" and "Four Points Hotels" brands to owners of independent hotels. Revenues in the hotel business (excluding franchised hotels) are essentially a function of number of rooms, average daily rate charged for rooms and number of rooms occupied. ITT's gaming operations in hotels in the Sheraton network and the gaming operations of Caesars are discussed below under "Gaming Operations." The tables contained in this "Hotel Operations" section of Item 1 of this Joint Annual Report do not include information relating to hotel/casinos owned by Sheraton or Caesars. The following table illustrates the sources of revenues of ITT's hotel operations for the years ended December 31, 1997 and December 31, 1996, respectively.
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Owned and Leased Hotels..................................... 33% 33% Managed and Joint Venture Hotels(1)......................... 64% 64% Franchised Hotels(2)........................................ 1% 1% Other(3).................................................... 2% 2% ---- ---- 100% 100% ==== ====
- --------------- (1) Includes 100% of the revenues of managed and joint venture hotels. (2) Includes franchise fees paid to Sheraton, not revenues of franchised hotels. (3) Other revenues primarily include revenues from reservation services and Sheraton Club International operations. Sheraton's hotel operations are conducted worldwide. As of December 31, 1997, Sheraton owned or leased 17 properties in North America. Generally, outside of North America, Sheraton manages hotels and, to a limited extent, invests equity in hotels. As of December 31, 1997, Sheraton had an equity interest of 50% or less in eight properties in Europe, five properties in the Asia/Pacific region, one property in Latin America and one property in the Africa/Middle East region. 10 12 Owned and Leased Hotels The following table illustrates, for owned and leased properties classified by geographic region and hotel type, the average number of years since purchase or major renovation, total revenue (in millions), average daily occupancy rate, average daily rate and revenue per available room ("REVPAR") for the years ended December 31, 1997 and 1996 and the number of rooms and the number of properties at December 31, 1997 and 1996. The amounts shown in the table reflect the U.S. dollar equivalent of all local currencies; in some cases, currency fluctuations may have an adverse effect on the comparison of any region or individual property for the periods presented.
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ NORTH AMERICA -- LUXURY Average number of years since purchase or major renovation................................................ 9 8 Total revenues.............................................. $216.3 $ 193.3 Average daily occupancy rate(1)............................. 78% 75% Average daily rate(2)....................................... $ 335 $ 309 REVPAR(3)................................................... $ 258 $ 231 Number of rooms............................................. 1,152 1,145 Number of properties........................................ 3 3 NORTH AMERICA -- UPSCALE: Average number of years since purchase or major renovation................................................ 6 4 Total revenues.............................................. $521.5 $ 520.7 Average daily occupancy rate(1)............................. 75% 72% Average daily rate(2)....................................... $ 155 $ 137 REVPAR(3)................................................... $ 115 $ 99 Number of rooms............................................. 7,668 9,797 Number of properties........................................ 14 18 NORTH AMERICA -- TOTAL: Average number of years since purchase or major renovation................................................ 8 5 Total revenues.............................................. $737.8 $ 714.0 Average daily occupancy rate(1)............................. 75% 72% Average daily rate(2)....................................... $ 177 $ 155 REVPAR(3)................................................... $ 131 $ 112 Number of rooms............................................. 8,820 10,942 Number of properties........................................ 17 21 EUROPE/CIGA -- LUXURY: Average number of years since purchase or major renovation................................................ 3 2 Total revenues.............................................. $253.6 $ 263.3 Average daily occupancy rate(1)............................. 72% 66% Average daily rate(2)....................................... $ 228 $ 225 REVPAR(3)................................................... $ 161 $ 149 Number of rooms............................................. 3,350 3,188 Number of properties........................................ 18 17
11 13
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ EUROPE/CIGA -- UPSCALE: Average number of years since purchase or major renovation................................................ 5 4 Total revenues.............................................. $248.0 $ 218.5 Average daily occupancy rate(1)............................. 74% 72% Average daily rate(2)....................................... $ 125 $ 129 REVPAR(3)................................................... $ 92 $ 93 Number of rooms............................................. 3,829 3,537 Number of properties........................................ 15 15 EUROPE/CIGA -- TOTAL Average number of years since purchase or major renovation................................................ 4 3 Total revenues.............................................. $501.6 $ 481.8 Average daily occupancy rate(1)............................. 73% 69% Average daily rate(2)....................................... $ 168 $ 171 REVPAR(3)................................................... $ 122 $ 119 Number of rooms............................................. 7,179 7,622 Number of properties........................................ 33 32 AFRICA/MIDDLE EAST -- UPSCALE AND TOTAL: Average number of years since purchase or major renovation................................................ N/A(4) 16 Total revenues.............................................. $ 2.5 Average daily occupancy rate(1)............................. 67% Average daily rate(2)....................................... $ 11 REVPAR(3)................................................... $ 7 Number of rooms............................................. 164 Number of properties........................................ 2 LATIN AMERICA -- LUXURY: Average number of years since purchase or major renovation................................................ 4 6 Total revenues.............................................. $ 36.3 $ 25.9 Average daily occupancy rate(1)............................. 65% 63% Average daily rate(2)....................................... $ 258 $ 238 REVPAR(3)................................................... $ 162 $ 150 Number of rooms............................................. 470 425 Number of properties........................................ 3 2 LATIN AMERICA -- UPSCALE: Average number of years since purchase or major renovation................................................ 12 14 Total revenues.............................................. $191.5 $ 172.3 Average daily occupancy rate(1)............................. 74% 69% Average daily rate(2)....................................... $ 105 $ 98 REVPAR(3)................................................... $ 77 $ 67 Number of rooms............................................. 4,256 4,008 Number of properties........................................ 9 8
12 14
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ LATIN AMERICA -- TOTAL Average number of years since purchase or major renovation................................................ 10 13 Total revenues.............................................. $227.8 $ 198.2 Average daily occupancy rate(1)............................. 73% 68% Average daily rate(2)....................................... $ 118 $ 106 REVPAR(3)................................................... $ 85 $ 73 Number of rooms............................................. 4,726 4,433 Number of properties........................................ 12 10 ASIA/PACIFIC -- LUXURY: Average number of years since purchase or major renovation................................................ 2 1 Total revenues.............................................. $ 50.9 $ 14.5 Average daily occupancy rate(1)............................. 83% 84% Average daily rate(2)....................................... $ 167 $ 173 REVPAR(3)................................................... $ 135 $ 145 Number of rooms............................................. 559 559 Number of properties........................................ 1 1 ASIA/PACIFIC -- UPSCALE: Average number of years since purchase or major renovation................................................ 2 2 Total revenues.............................................. $ 32.8 $ 16.1 Average daily occupancy rate(1)............................. 72% 76% Average daily rate(2)....................................... $ 144 $ 142 REVPAR(3)................................................... $ 99 $ 108 Number of rooms............................................. 563 567 Number of properties........................................ 2 2 ASIA/PACIFIC -- TOTAL: Average number of years since purchase or major renovation................................................ 2 1 Total revenues.............................................. $ 83.7 $ 30.6 Average daily occupancy rate(1)............................. 77% 79% Average daily rate(2)....................................... $ 156 $ 154 REVPAR(3)................................................... $ 117 $ 122 Number of rooms............................................. 1,112 1,112 Number properties........................................... 3 3
- --------------- (1) Occupied rooms in the period divided by rooms available for sale in the same period. (2) Room revenues for the period divided by rooms occupied for the same period. (3) REVPAR was computed as room revenue divided by rooms available for sale. (4) There were no properties in this geographic region for the period presented. During 1996, subsidiaries of Sheraton leased two properties; these leases were terminated in 1997 and Sheraton entered into new management agreements for these properties. The hotel properties that are owned and leased by Sheraton are, in many cases, subject to mortgage and lease indebtedness. As of December 31, 1997, the aggregate mortgage and lease indebtedness relating to these hotels was approximately $252 million. For ITT's leased properties, a subsidiary of Sheraton generally leases the land upon which the hotel has been built and the hotel building. At the end of the lease, the buildings and other leasehold improvements revert to the landlord. Usually, a Sheraton subsidiary is responsible for repairs, 13 15 maintenance, operating expenses and lease rentals and retains managerial discretion over operations. Generally, Sheraton pays a percentage rental based on total revenues or gross operating profit for the facility, but sometimes with a minimum fixed annual rent or a preferential rent. During 1997 and 1996, Sheraton paid aggregate rentals, including rentals attributable to the leased properties, of $28 million and $22 million, respectively. In June 1997, Sheraton sold to FelCor Suite Hotels, Inc. five hotel properties (the Park Central (Dallas), the O'Hare Gateway (Chicago), the Crescent (Phoenix), the Atlanta Galleria and the Atlanta Gateway) for $200 million in cash and retained a 20-year contract to manage these hotels. Managed and Joint Venture Hotels Through its subsidiaries, ITT manages, usually under a long-term agreement with the owner, a number of hotels throughout the world. The following table illustrates, for managed and joint venture properties, classified by geographic region, total revenue (in millions), average daily occupancy rate, average daily rate, REVPAR for the years ended December 31, 1997 and 1996 and the number of rooms and number of properties at December 31, 1997 and 1996. The amounts shown in the table reflect the U.S. dollar equivalent of all local currencies; in some cases, currency fluctuations may have an adverse effect on the comparison of any region or individual property for the periods presented.
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ NORTH AMERICA: Total revenues.............................................. $1,375.2 $1,231.0 Average daily occupancy rate(1)............................. 75% 72% Average daily rate(2)....................................... $ 148 $ 139 REVPAR(3)................................................... $ 109 $ 101 Number of rooms............................................. 25,987 22,091 Number of properties........................................ 49 37 EUROPE/CIGA: Total revenues.............................................. $ 464.8 $ 444.9 Average daily occupancy rate(1)............................. 69% 69% Average daily rate(2)....................................... $ 141 $ 140 REVPAR(3)................................................... $ 96 $ 97 Number of rooms............................................. 8,743 7,339 Number of properties........................................ 31 26 AFRICA/MIDDLE EAST: Total revenues.............................................. $ 415.8 $ 382.8 Average daily occupancy rate(1)............................. 65% 61% Average daily rate(2)....................................... $ 90 $ 91 REVPAR(3)................................................... $ 57 $ 55 Number of rooms............................................. 9,933 9,244 Number of properties........................................ 37 34
14 16
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ LATIN AMERICA: Total revenues.............................................. $ 35.1 $ 21.0 Average daily occupancy rate(1)............................. 54% 59% Average daily rate(2)....................................... $ 91 $ 66 REVPAR(3)................................................... $ 48 $ 39 Number of rooms............................................. 1,464 1,084 Number of properties........................................ 6 4 ASIA/PACIFIC: Total revenues.............................................. $ 713.4 $ 790.9 Average daily occupancy rate(1)............................. 69% 68% Average daily rate(2)....................................... $ 133 $ 138 REVPAR(3)................................................... $ 89 $ 93 Number of rooms............................................. 12,658 11,790 Number of properties........................................ 39 34
- --------------- (1) Occupied rooms in the period divided by rooms available for sale in the same period. (2) Room revenues for the period divided by rooms occupied for the same period. (3) REVPAR was computed as room revenue divided by rooms available for sale. Under its standard management agreement, Sheraton operates lodging facilities under long-term arrangements with property owners. Sheraton's responsibilities include hiring, training and supervising the managers and employees required to operate these facilities. For additional fees, Sheraton provides reservation services. Sheraton also coordinates national advertising and certain marketing and promotional services. Sheraton prepares and implements annual budgets for lodging facilities under its management and is responsible for allocating property-owner funds for periodic maintenance and repair of buildings and furnishings. Sheraton's management fee is generally based on a percentage of the hotel's total revenues plus, in certain instances, an incentive fee based on the hotel's operating performance. During 1997, Sheraton invested approximately $18 million, in hotel joint ventures, including investments in Key West-Florida, Schiphol Airport-Amsterdam, The Netherlands and Beijing International Club-Beijing, China. In each of these projects, Sheraton owns an equity interest and is, or will be, the manager of the hotel. During 1997, Sheraton signed agreements to manage 45 additional hotels, of which 14 had opened as of December 31, 1997. Sheraton did not invest in the ownership of any of these hotels. Of these 45 hotels, seven are in North America, 16 in Asia/Pacific, four in Europe, 10 in Africa or the Middle East and eight in Latin America. Franchised Hotels Sheraton franchises properties located primarily in North America. Of Sheraton's over 200 franchised hotels and inns, as of December 31, 1997, only 23 were located outside of North America. For Sheraton's franchise business (which includes properties operated under the "Four Points Hotels" name), the following table illustrates the number of properties, number of room nights available, average daily 15 17 occupancy rate and average daily rate for the years ended December 31, 1997 and December 31, 1996, respectively.
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Number of properties........................................ 216 208 Number of room nights available............................. 19,180,437 18,867,329 Average daily occupancy rate(1)............................. 68% 67% Average daily rate(2)....................................... $87 $81
- --------------- (1) Occupied rooms in the period divided by rooms available for sale in the same period. (2) Room revenues for the period divided by rooms occupied for the same period. Hotels that are franchised by Sheraton are permitted to operate under the "Sheraton" trade name and to use the stylized "S" and wreath service mark. Sheraton franchised hotels are generally smaller than the hotels owned, leased or managed by Sheraton. Sheraton approves certain plans for, and the location of, franchised hotels and reviews their design. In general, each franchisee pays Sheraton an initial minimum fee plus an additional fee for every room over 100. There is a continuing monthly license fee based on a percentage of the facility's room revenues. Although Sheraton does not directly participate in the day-to-day management or operation of its franchised hotels, Sheraton or an agent of Sheraton periodically inspects the hotels to ensure that Sheraton's standards are maintained. In 1995, Sheraton began offering its franchised hotel owners the opportunity to convert inns that are franchised by Sheraton to the "Four Points Hotels" name, a new mid-priced hotel brand. As of December 31, 1997, Sheraton had 68 franchised properties operating under the Four Points Hotels brand name. Of these properties, 37 were properties converted from Sheraton franchises, 28 properties were converted from competing brands and three were newly constructed. Sheraton expects that each Four Points Hotel will be operated and marketed by its owners with a view toward providing hospitality services to the business-oriented traveler. During 1997, Sheraton executed 37 new franchise agreements, of which 10 had been opened as of December 31, 1997. Of these, 15 are or will be operated under the Sheraton name and 22 are or will be operated under the Four Points Hotels name. At December 31, 1997, there were 216 franchised hotels in operation under the Sheraton and Four Points Hotels names. GAMING OPERATIONS Currently, ITT's gaming operations consist of 15 casinos or other gaming facilities, including Caesars Palace in Las Vegas, Nevada; Caesars Atlantic City in Atlantic City, New Jersey; Caesars Tahoe in Stateline, Nevada; The Desert Inn Resort & Casino in Las Vegas, Nevada; The Sheraton Casino & Hotel in Tunica County, Mississippi; and various other casino/hotel operations under Sheraton and Caesars outside the United States. In April 1997, ITT announced its intention to sell The Desert Inn Resort & Casino. Beginning in June 1996, ITT undertook a capital expenditure program to upgrade and expand ITT's existing gaming operations. Upon completion of this program, approximately $500 million will have been invested at Caesars Palace, approximately $272 million will have been invested at Caesars Atlantic City, and approximately $193 million has been invested at The Desert Inn Resort & Casino, excluding in each case capitalized interest and pre-opening expenses. ITT is also in the process of constructing a riverboat casino and a hotel in Harrison County, Indiana. 16 18 Caesars World Caesars operates three destination gaming resorts: Caesars Palace in Las Vegas, Nevada; Caesars Tahoe in Stateline, Nevada; and Caesars Atlantic City in Atlantic City, New Jersey. Caesars also owns one-half of a management company that operates Casino Windsor, a casino in Windsor, Canada that is owned by the Government of the Province of Ontario. Caesars subsidiaries also operate small casinos on two cruise ships and operate a 1,000 machine slot operation at Dover Downs in Dover, Delaware. Caesars Palace. Caesars Palace, which opened in 1966 as the first themed casino on the "Strip" in Las Vegas, Nevada, is a casino/hotel complex located on approximately 80 acres. At December 31, 1997, Caesars Palace had approximately 2,469 hotel rooms and suites in service, 10 restaurants, a 1,126-seat showroom, a convention complex with approximately 171,000 square feet of meeting and banquet space, numerous bars and lounges, The Forum Shops (a retail shopping arcade), health spas and an "Omnimax" theater. Currently, the Caesars Palace casino is approximately 125,000 square feet, and offers wagering limits that are among the highest in Nevada. As part of its capital expenditure program, Caesars has invested approximately $406 million at Caesars Palace during the two years ended February 28, 1998. The project is intended to create a more attractive, exciting gaming environment, while satisfying previously unmet room demand. The project has resulted in the addition of approximately 1,130 rooms, which have increased the total number of rooms at Caesars Palace to approximately 2,470. Construction of the room tower was completed during the fourth quarter of 1997. Enhancements to the casino include the addition of gaming space for slot machines and table games. Other improvements include the development of the second phase of The Forum Shops (which was developed by a third party and opened in the third quarter of 1997) with 250,000 square feet of retail space, and the addition of 112,000 square feet of meeting and convention facilities. Construction of a new health club and spa is underway and the facility is expected to open in April 1998. The average occupancy rate at Caesars Palace was 93% and 92.3% for 1997 and 1996, including occupancy of 43% and 42%, respectively, of the occupied rooms and suites by guests receiving complimentary rooms. Caesars Atlantic City. Caesars Atlantic City is a casino/hotel on the Boardwalk in Atlantic City, New Jersey. At December 31, 1997, Caesars Atlantic City had approximately 1,144 rooms in service, a 78,000-square foot casino, including table games and slots, and approximately 6,000 square feet of gaming space for keno, poker and race simulcasting. It also had 13 restaurants and bars, 40,000 square feet of meeting and banquet space, a 1,100-seat showroom, a shopping arcade, a Roman-themed transportation center that accommodates 2,500 cars and 11 buses, a health club and two tennis courts. The property on which Caesars Atlantic City stands consists of approximately 8.1 acres, including contiguous parcels totaling approximately 5.4 acres bounded on three sides by Missouri, Arkansas and Pacific Avenues, with an entire block of Boardwalk frontage. Improvements at Caesars Atlantic City are expected to cost approximately $272 million during the 1997-1998 period. These improvements will bring the total number of rooms to approximately 1,125 and will increase casino space by approximately 30,000 square feet. As part of this project, Caesars Atlantic City is constructing a new entrance and central four-story atrium, a grand multi-function ballroom and expanded dining facilities. The design incorporates an elaborate Roman theme with Corinthian columns, large statues and extensive fountains. These improvements are expected to enable Caesars Atlantic City to increase its convention business and to satisfy substantial unmet room demand. The exterior renovations are designed to further enhance Caesar's visibility on the center of the Boardwalk to attract more "walk-in" patrons. Caesars also owns the Ocean One retail mall. The Ocean One mall is constructed on a pier that extends out 900 feet over the Atlantic Ocean and is located directly in front of the Boardwalk entrance to Caesars Atlantic City. Ocean One contains approximately 400,000 square feet of restaurant and retail space on three floors. Under current applicable local and state laws, and subject to certain restrictions, Ocean One may be used for gaming or lodging activities. The average occupancy rate at Caesars Atlantic City was 93.5% and 17 19 95.6% for 1997 and 1996, including occupancy of 88.5% and 88.7%, respectively, of the available rooms and suites by guests receiving complimentary rooms. Caesars Tahoe. Caesars Tahoe casino/hotel opened in 1979 and is located in Stateline, Nevada, adjacent to Lake Tahoe. At that time, Caesars entered into a long-term lease of the 24-acre property on which the casino/hotel stands. At December 31, 1997, Caesars Tahoe had 440 rooms and suites in service, five restaurants, a 1,500-seat showroom, 16,000 square feet of convention space, a Roman-themed nightclub, a 40,000-square foot casino including a race and sports book, bars, shops, four outdoor tennis courts and an indoor health spa containing a swimming pool and a racquetball court. The average occupancy rate at Caesars Tahoe was 80.5% and 82.7% for 1997 and 1996, including occupancy of 22.1% and 24.8%, respectively, of the available rooms and suites by guests receiving complimentary rooms. Casino Windsor. Caesars owns a one-half interest in Windsor Casino Limited ("Windsor"). Windsor is the operator of Casino Windsor, a 50,000-square foot interim casino in Windsor, Ontario, which is owned by the Ontario provincial government. Caesars anticipates that the interim casino will be replaced by a permanent facility in the second quarter of 1998, which is expected to include a hotel of approximately 400 rooms, a 100,000-square foot casino and entertainment and meeting facilities. Harrison County Riverboat Development. In May 1996, Caesars was granted a certificate of suitability by the Indiana Gaming Commission to construct and operate a riverboat casino. The land-based and marine facilities will be located on the Indiana side of the Ohio River across the river from Louisville, Kentucky. Construction of the riverboat casino and related improvements is subject to receipt of various consents, permits and approvals, all of which have been secured. The Desert Inn Resort & Casino The Desert Inn Resort & Casino, which ITT purchased in November 1993, is a casino/hotel complex located on approximately 200 acres on the "Strip" in Las Vegas, Nevada. The Desert Inn underwent extensive renovations in 1996 and 1997 at a total cost of approximately $193 million. At December 31, 1997, The Desert Inn had 715 rooms and suites, six restaurants, a 636-seat showroom, a convention complex with approximately 27,000 square feet of meeting and banquet space, numerous bars and lounges, swimming pools, tennis facilities, an 18-hole championship golf course, a spa and other facilities. Its casino is approximately 30,000 square feet. The average occupancy rate at The Desert Inn was 70.2% and 75.4% for 1997 and 1996, including occupancy of 22.3% and 22.7%, respectively, of the available rooms and suites by guests receiving complimentary rooms. The Sheraton Casino & Hotel The Sheraton Casino opened in Tunica County, Mississippi, in August 1994; in November 1997, the hotel opened a 150-room tower and was renamed "Sheraton Casino & Hotel." The Sheraton Casino & Hotel has three restaurants, three bars and lounges and other facilities. Its casino has approximately 31,000 square feet of gaming space. Other Sheraton Gaming Operations Sheraton also operates casinos in Lima, Peru at the Sheraton Lima Hotel & Casino, which has 438 rooms and suites; in Halifax, Nova Scotia at the Sheraton Halifax Hotel & Casino, which has 351 rooms and suites; in Sydney, Cape Breton, Nova Scotia at the Sheraton Casino Sydney, which is a stand-alone casino; in Townsville, Australia at the Sheraton Breakwater, which has 192 rooms and 16 suites; and in Cairo, Egypt at the Cairo Sheraton and the El Gezirah Sheraton, which have 433 rooms and 86 suites and 477 rooms and 68 suites, respectively. Termination of Planet Hollywood Development In June 1996, ITT entered into an agreement in principle to form a joint venture with Planet Hollywood International, Inc. ("Planet Hollywood") to develop, own and operate "Planet Hollywood" themed hotel/ 18 20 casinos. The Company does not expect that the definitive agreement with Planet Hollywood will be executed or that the Company will develop "Planet Hollywood" themed hotel/casinos. OTHER ASSETS AND OPERATIONS; CERTAIN RECENT DEVELOPMENTS Potential Disposition of ITT Educational In addition to its hotel and gaming businesses, ITT owns 83.3% of the outstanding shares of ITT Educational Services, Inc. ("ITT Educational"). The shares of common stock of ITT Educational are traded on the New York Stock Exchange under the symbol "ESI". The term "ITT Technical Institutes" (in singular or plural form) refers to educational institutions owned and operated by ITT Educational. Starwood Hotels is currently exploring a range of disposition strategies for ITT's equity interest in ITT Educational. As part of this disposition strategy, on February 13, 1998, ITT Educational filed a registration statement with the Securities and Exchange Commission for the sale by ITT in an underwritten public offering of up to 12,650,000 shares (assuming the underwriters' overallotment option is exercised in full) of ITT Educational common stock. ITT Educational is a leading proprietary provider of technology-oriented post-secondary degree programs in the United States. ITT Educational offers associate, bachelor and master degree programs and non-degree diploma programs to over 24,000 students through a system of 63 ITT Technical Institutes located in 27 states. The education programs are designed, after consultation with employers, to help graduates prepare for careers in a variety of fields involving technology. As of December 31, 1997, approximately 97% were enrolled in a degree program, with approximately 74% of ITT Technical Institute students enrolled in programs related to electronics engineering technology and approximately 23% enrolled in programs related to computer-aided drafting technology. While most graduates of ITT Technical Institutes are initially employed by numerous small, technology-oriented companies, employers have also included well recognized corporations, such as AT&T, Boeing, Intel, NCI, Microsoft, Motorola, IBM and General Electric. Additionally, the institutes' graduates have been hired by some federal and local government agencies, including the Federal Bureau of Investigation and the Central Intelligence Agency. ITT Educational has experienced significant growth, acquiring three and establishing 50 new technical institutes since 1981. Of the 63 institutes currently operating, 20 have been established since January 1, 1993. The number of students attending ITT Technical Institutes has increased 32.1% from 18,539 students at December 31, 1992 to 24,498 at December 31, 1997. Total revenues from ITT Technical Institutes have increased 74% from $150.4 million (excluding discontinued operations) in 1992 to $261.7 million in 1997. ITT Educational opened three new institutes in 1997. ITT Educational intends to continue expanding by opening new institutes (including six new institutes in 1998) and offering a broader range of programs at its institutes. Madison Square Garden In August 1994, Madison Square Garden, L.P. ("MSG"), a partnership among subsidiaries of ITT and Cablevision Systems Corporation ("Cablevision"), was formed to acquire the business previously operated by Madison Square Garden Corporation. MSG is the owner of the New York Knickerbockers basketball franchise (the "Knicks"), and New York Rangers hockey franchise (the "Rangers"), the Madison Square Garden Arena and the MSG cable television network. At the time MSG was formed, MSG Eden Corporation ("MSGE") was the general partner and owner of a 1% general partnership interest in MSG, and was owned by ITT Eden Corporation ("ITTE") and Rainbow Garden Corp. ("RGC"), a subsidiary of Cablevision; ITT MSG Inc. ("ITT MSG") and Garden L.P. Holding Corp. ("GHC"), another subsidiary of Cablevision, each owned a 49.5% limited partnership interest in MSG. On April 15, 1997, ITT, ITTE and ITT MSG entered into a Partnership Interest Transfer Agreement (the "Transfer Agreement") with MSG and Cablevision that provides for the sale of ITT MSG's interest in MSG to Cablevision for $650 million plus the assumption of approximately $115 million of indebtedness. 19 21 Pursuant to the Transfer Agreement, on July 17, 1997, MSG redeemed, for $493.5 million, a portion of ITT MSG's limited partnership interest in MSG, MSGE redeemed all of ITTE's ownership interest in MSGE for $6.5 million and Cablevision caused Sports Channel Associates to be contributed to MSG. After such redemptions and contribution, ITT (through ITT MSG) owned a 10.2% limited partnership interest in MSG. In March 1998, ITT MSG was notified that, as permitted by MSG's partnership agreement, affiliates of Cablevision had contributed approximately $450 million of additional capital to MSG, thereby reducing ITT MSG's limited partnership interest in MSG to approximately 7.81%. The Transfer Agreement provides that ITT MSG (i) had an initial "put" option to require Cablevision to purchase (or cause MSG to redeem) one half of ITT's continuing interest in MSG for $94 million on June 17, 1998 and (ii) has a second "put" option to require Cablevision to purchase (or cause MSG to redeem) ITT MSG's then remaining interest on June 17, 1999 for $94 million. In addition, on June 17, 2000, Cablevision has the right to purchase (or cause MSG to redeem) ITT MSG's then remaining interest in MSG at a price determined by an investment banking firm to be the fair market value, subject to a "floor" price equal to the proportionate "put" price. ITT MSG exercised the initial "put" option in March 1998. Pursuant to an Aircraft Contribution Agreement dated as of April 15, 1997, among GHC, MSGE, ITT MSG, ITT Flight Operations, Inc. ("ITTF") and MSG, on December 31, 1997, ITTF contributed to MSG an ITT-owned aircraft that MSG had used for the Knicks and the Rangers, which was valued at $38 million. In the event the remaining put and call rights are not exercised, ITT's percentage interest in MSG will be increased to reflect the contribution to MSG of the aircraft described above. WBIS+ In July 1996, ITT purchased, in partnership with Dow Jones & Co. ("Dow Jones"), television station WNYC-TV, Channel 31 in New York City, from The City of New York. The purchase price of $207 million was paid one-half by ITT and one-half by Dow Jones, and the partnership is managed on a 50/50 basis. The station was renamed WBIS+ and, in January 1997, introduced a new format of business and sports programming. In March 1998, ITT and Dow Jones sold WBIS+ to Paxson Communications Corporation for a cash purchase price of approximately $257.5 million. ITT's proceeds from the sale of approximately $128.8 million were used to pay down existing indebtedness of the Corporation . Disposition of ITT World Directories In February 1998, ITT disposed of ITT World Directories, Inc., the subsidiary through which ITT conducted its telephone directories publishing business, to VNU International B.V., a leading international publishing and information company based in The Netherlands, for a total gross consideration valued at $2.1 billion. Proceeds from the disposition were used, in part, to acquire certain outstanding debt of Starwood Hotels. WESTIN As of December 31, 1997, Westin owned, managed, franchised or represented 97 luxury or upscale hotel and resort properties worldwide, excluding 15 Westin hotels owned by the Company. Westin's primary strategy is to provide, for its own hotels and to the other owners of Westin's hotel and resort properties, focused, responsive, high quality marketing, reservations, management and, as appropriate, franchise services that are designed to increase the operating revenues and profitability of the properties and to increase hotel and resort customer satisfaction. Westin Hotel Company, originally founded as Western Hotels in 1930, became Western International Hotels in 1963 and adopted the Westin name and logo in the late 1970s. It grew from its initial 17 hotels located in the Pacific Northwest to 82 properties when it was acquired by W&S Hotel L.L.C. in May 1995, and grew to its 97 luxury or upscale hotel and resort properties (excluding 15 Westin hotels owned by the 20 22 Company) throughout the world at December 31, 1997 through a combination of Westin's own development efforts and management, franchise and representation agreements with other hotel owners. Westin hotel and resort properties are located throughout the United States and in Argentina, Brazil, Canada, China, England, France, Germany, Guatemala, Indonesia, Japan, Korea, Malaysia, Mexico, the Netherlands, Panama, the Philippines, Portugal, Singapore, Switzerland and Thailand. As of December 31, 1997, the Westin portfolio (excluding 15 Westin hotels owned by the Company) consisted of 12 owned hotels with approximately 5,900 rooms, five joint ventures with approximately 3,200 rooms, 37 managed hotels with approximately 20,500 rooms, 28 franchised hotels with approximately 8,400 rooms and 15 represented hotels with approximately 5,300 rooms. Owned Hotels The following table illustrates, for each hotel owned by Westin at December 31, 1997, the total number of guest rooms at that date, the year the hotel was first operated, and for 1997, the average daily occupancy rate, average daily room rate and REVPAR:
1997 ------------------------------- AVERAGE AVERAGE FIRST DAILY DAILY YEAR ROOM RATE OCCUPANCY REVPAR HOTEL(1) LOCATION ROOMS OPERATED ($) RATE (%) ($) - -------- -------- ----- -------- --------- --------- ------- Westin South Coast Plaza.... Costa Mesa, CA 390 1975 113.31 75.4 85.44 Westin San Francisco Airport................... Millbrae, CA 391 1987 128.52 83.3 107.06 Cherry Creek Inn............ Denver, CO 320 1979 61.16 85.5 52.29 Westin Tabor Center......... Denver, CO 420 1985 141.82 77.1 109.34 Westin Fort Lauderdale...... Fort Lauderdale, FL 293 1986 68.50 78.6 53.84 Westin Peachtree Plaza...... Atlanta, GA 1,068 1976 120.64 69.9 84.33 Westin Indianapolis......... Indianapolis, IN 573 1989 103.84 73.1 75.91 Westin Cincinnati........... Cincinnati, OH 448 1981 111.85 69.1 77.29 Westin Galleria Houston..... Houston, TX 485 1977 109.35 75.3 82.34 Westin Oaks................. Houston, TX 406 1971 109.35 75.3 82.34 Westin Resort............... St. John, US Virgin Islands 285 1997(2) N/A N/A N/A Westin Seattle.............. Seattle, WA 865 (3) 133.43 75.0 100.07 ----- 5,994
- --------------- (1) The Trust (or, as to the properties in Atlanta, Georgia and St. John, US Virgin Islands, the Operating Partnership) acquired a 100% equity interest in each of these hotels on January 2, 1998. See "Structure -- Acquisition of Westin" below. (2) Substantially destroyed by a hurricane in September 1995 and reopened in December 1997 following significant renovations and reconstruction. (3) South Tower, 1969; North Tower, 1982. 21 23 Joint Venture Hotels At December 31, 1997, Westin also had an equity interest in five joint ventures that owned the following hotels:
HOTEL LOCATION ROOMS WESTIN'S EQUITY INTEREST(%)(1) - ----- ----------------- ----- ------------------------------ Westin London, Ontario................. London, Canada 322 10.0 Westin O'Hare.......................... Chicago, IL 525 48.6 Westin Michigan Avenue................. Chicago, IL 740 8.3 Westin Galleria Dallas................. Dallas, TX 431 20.0 Westin St. Francis..................... San Francisco, CA 1,200 8.3 ----- 3,218
- --------------- (1) Acquired by the Corporation on January 2, 1998. See "Structure -- Acquisition of Westin" below. Managed, Franchised and Represented Hotels The following table lists the hotels managed, franchised or represented by Westin at December 31, 1997, and the number of guest rooms per property at that date. Each of these hotels is now managed, franchised or represented by the Corporation; see "Structure -- Acquisition of Westin" below.
HOTEL LOCATION ROOMS - ----- ---------------------------- ------ MANAGED: Westin Calgary................................... Calgary, Canada 525 Westin Edmonton.................................. Edmonton, Canada 413 Westin Ottawa.................................... Ottawa, Canada 478 Westin Harbour Castle............................ Toronto, Canada 980 Westin Bayshore.................................. Vancouver, Canada 517 Le Hameau du Trianon, a Westin Hotel............. Versailles, France 190 Westin Grand, Berlin............................. Berlin, Germany 358 Westin Bellevue, Dresden......................... Dresden, Germany 339 Westin Resort.................................... Tumon Bay, Guam 420 Westin Surabaya.................................. Surabaya, Indonesia 418 Westin Tokyo..................................... Tokyo, Japan 445 Westin Resort.................................... Coloane Ihla, Macau 208 Westin Dragonara Resort.......................... St. Julians, Malta 311 Las Brisas....................................... Acapulco, Mexico 265 Westin Brisas Resort............................. Ixtapa, Mexico 428 Westin Galleria Plaza............................ Mexico City, Mexico 439 Westin Philippine Plaza.......................... Manila, Philippines 609 Westin Plaza..................................... Singapore 796 Westin Stamford.................................. Singapore 1,253 Westin Chosun Beach.............................. Pusan, South Korea 290 Westin Chosun.................................... Seoul, South Korea 479 Westin Banyan Tree............................... Bangkok, Thailand 216 Westin Chiangmai................................. Chiang Mai, Thailand 528 Westin Copley Place.............................. Boston, MA 800 Westin Charlotte................................. Charlotte, NC 410 Westin River North............................... Chicago, IL 422 Westin Innisbrook Resort......................... Tarpon Springs, FL 850 Westin Renaissance Center........................ Detroit, MI 1,392 Westin Resort.................................... Hilton Head Island, SC 412
22 24
HOTEL LOCATION ROOMS - ----- ---------------------------- ------ Westin Maui...................................... Kaanapali Beach, HI 742 Westin Crown Center.............................. Kansas City, MO 725 Westin Century Plaza Hotel and Tower............. Los Angeles, CA 1,072 Westin Canal Place............................... New Orleans, LA 438 Westin Santa Clara............................... Santa Clara, CA 500 Walt Disney World Swan........................... Orlando, FL 758 Westin William Penn.............................. Pittsburgh, PA 595 Westin La Paloma................................. Tucson, AZ 487 ------ 20,508 ------ FRANCHISED: Westin Nova Scotian.............................. Halifax, Canada 307 Le Westin Mont-Royal............................. Montreal, Canada 300 Westin Prince Toronto............................ Toronto, Canada 381 Westin Shanghai.................................. Shanghai, China 495 Westin Demeure Hotels (Astor).................... Paris, France 125 Westin Demeure Hotels (Baltimore)................ Paris, France 105 Westin Demeure Hotels (Castille)................. Paris, France 111 Westin Demeure Hotels (Le Parc).................. Paris, France 120 Westin Demeure Hotels (Marignan-Elysees)......... Paris, France 73 Westin Casuarina Resort.......................... Grand Cayman Islands 343 Westin Osaka..................................... Osaka, Japan 304 Westin San Luis Potosi........................... San Luis Potosi, Mexico 123 Westin Demeure Hotels (The Grand)................ Amsterdam, Netherlands 182 Westin Rio Mar Beach Resort & Casino............. Rio Mar Beach, Puerto Rico 600 Westin Demeure Hotels (Hotel D'Angleterre)....... Geneva, Switzerland 45 Westin Demeure Hotels (47 Park Street)........... London, England 52 Westin Carambola Beach Resort.................... St. Croix, US Virgin Islands 150 Westin Alyeska Prince............................ Girdwood, AK 307 Westin Atlanta Airport........................... Atlanta, GA 496 Westin Columbus.................................. Columbus, OH 196 Westin Beach Resort.............................. Key Largo, FL 200 Hapuna Beach Prince Hotel........................ Kohala Coast, HI 350 Mauna Kea Beach Hotel............................ Kohala Coast, HI 310 Westin Bonaventure Hotel and Suites.............. Los Angeles, CA 1,369 Biltmore Hotel................................... Coral Gables, FL 275 Westin Resort.................................... Miami Beach, FL 423 Westin Providence................................ Providence, RI 350 Westin Washington DC, City Center................ Washington, DC 400 ------ 8,492 ------ REPRESENTED:(*) Caesar Park Buenos Aires......................... Buenos Aires, Argentina 173 Caesar Park Hotel................................ Fortaleza, Brazil 230 Caesar Park Hotel Ipanema........................ Rio de Janeiro, Brazil 221 Caesar Park Sao Paulo............................ Sao Paulo, Brazil 177 Camino Real Tikal................................ El Remate, Peten, Guatemala 72 Camino Real...................................... Guatemala City, Guatemala 404 Westin Kyoto Takara-ga-ike Prince Hotel.......... Kyoto, Japan 322
23 25
HOTEL LOCATION ROOMS - ----- ---------------------------- ------ Hotel Grand Palace............................... Tokyo, Japan 464 Palace Hotel..................................... Tokyo, Japan 391 Caesar Park Cancun Beach & Golf Resort........... Cancun, Mexico 426 Caesar Park Hotel................................ Panama City, Panama 491 Caesar Park Penha Longa Golf Resort.............. Sintra, Portugal 176 Hawaii Prince Hotel Waikiki...................... Honolulu, HI 521 Maui Prince Hotel................................ Makena, HI 310 New York Palace.................................. New York, NY 985 ------ 5,363 ------ 43,525 ======
- --------------- * Westin provides reservation and marketing services for these hotels, but does not allow hotels to use the Westin name. 24 26 OTHER ACQUISITIONS 1997 Acquisitions During the year ended December 31, 1997, Starwood Hotels acquired equity interests in the following 44 hotels (the "1997 Properties"):
PURCHASE NUMBER OF DATE OF PRICE GUEST HOTEL(1) LOCATION PURCHASE (000'S) ROOMS - -------- ---------------------- -------- ------------ --------- Deerfield Beach Hilton............. Deerfield Beach, FL 01/08/97 $ 11,500 220 Radisson Denver South.............. Denver, CO 01/20/97 21,750 263 The HEI Owned Hotels, consisting of: Sheraton Hotel................... Long Beach, CA 02/14/97 460 Omni Waterside Hotel............. Norfolk, VA 02/14/97 446 BWI Airport Marriott............. Baltimore, MD 02/14/97 310 Crowne Plaza Edison.............. Edison, NJ 02/14/97 274 Courtyard by Marriott Crystal City.......................... Arlington, VA 02/14/97 272 Charleston Hilton................ Charleston, SC 02/14/97 296 Park Ridge Hotel................. King of Prussia, PA 02/14/97 265 Sonoma County Hilton............. Santa Rosa, CA 02/14/97 245 Novi Hilton...................... Novi, MI 02/14/97 239 Embassy Suites................... Atlanta, GA 02/14/97 233 ---------- ------ 312,000 3,040 Days Inn Lake Shore Drive.......... Chicago, IL 02/21/97 48,000 578 Westin Hermitage................... Nashville, TN 03/11/97 15,800 120 Hotel De La Poste.................. New Orleans, LA 03/12/97 16,000 100 San Diego Marriott Suites.......... San Diego, CA 04/03/97 32,500 264 Tremont Hotel...................... Chicago, IL 04/04/97 14,400 130 Raphael Hotel...................... Chicago, IL 05/07/97 17,750 172 Sheraton Stamford.................. Stamford, CT 06/12/97 14,600 480 Westin Southfield -- Detroit....... Southfield, MI 07/10/97 40,000 385 Westin Regina Portfolio, consisting of: Westin Regina Resort............. Cabo San Lucas, Mexico 08/21/97 229 Westin Regina Resort............. Cancun, Mexico 08/21/97 385 Puerto Vallarta, Westin Regina Resort............. Mexico 08/21/97 280 ---------- ------ 133,000 894 The Flatley Portfolio, consisting of: Wayfarer Inn..................... Bedford, NH 09/11/97 194 Sheraton Tara Hotel.............. Braintree, MA 09/11/97 376 Tara's Ferncroft Conference Resort........................ Danvers, MA 09/11/97 367 Sheraton Tara Hotel.............. Framingham, MA 09/11/97 375 Tara's Cape Codder Hotel......... Hyannis, MA 09/11/97 261 Tara Hyannis Hotel & Resort...... Hyannis, MA 09/11/97 224 Sheraton Tara Lexington Inn...... Lexington, MA 09/11/97 119 Colonial Hilton and Resort....... Lynnfield, MA 09/11/97 280 Merrimack Hotel & Conference Center........................ Merrimack, NH 09/11/97 200 Sheraton Tara Hotel.............. Nashua, NH 09/11/97 337 Sheraton Tara Hotel(3)........... Newton, MA 09/11/97 272 Sheraton Tara Hotel.............. Parsippany, NJ 09/11/97 383
25 27
PURCHASE NUMBER OF DATE OF PRICE GUEST HOTEL(1) LOCATION PURCHASE (000'S) ROOMS - -------- ---------------------- -------- ------------ --------- Sheraton Tara Hotel.............. South Portland, ME 09/11/97 220 Tara Stamford Hotel.............. Stamford, CT 09/11/97 328 Sheraton Tara Airport Hotel...... Warwick, RI 09/11/97 207 ---------- ------ 469,970 4,143 Crowne Plaza....................... New Orleans, LA 09/23/97 58,750 439 One Washington Circle.............. Washington, DC 09/30/97 19,000 151 Radisson Plaza & Suite Hotel....... Indianapolis, IN 10/30/97 54,000 552 Westin Aquila...................... Omaha, NE 12/08/97 14,000 145 Westin Mission Hills Resort........ Rancho Mirage, CA 12/15/97 118,000(2) 512 Turnberry Hotel and Golf Resort.... Ayreshire, Scotland 12/23/97 51,500 132 ---------- ------ $1,462,520 12,720 ========== ======
- --------------- (1) Starwood Hotels acquired a 100% fee or ground leasehold interest in each of these hotel properties except for the Westin Mission Hills Resort and the Sheraton Tara Hotel in Newton, Massachusetts. See footnotes (2) and (3) below. (2) Amount shown represents a 100% interest; Starwood Hotels acquired a 95% interest in a joint venture that acquired the property. (3) Starwood Hotels acquired an operating leasehold in this property. Of the 44 hotel properties acquired in 1997, all but four were acquired by the Realty Partnership. The Turnberry Hotel and Golf Resort and the Westin Regina Portfolio are owned by the Operating Partnership. HEI Acquisition On February 14, 1997, in addition to the 10 hotels referred to above as the HEI Owned Hotels that were acquired from Prudential Property Investment Separate Account II, an institutional real estate investment fund ("PRISA II") managed by Prudential Real Estate Investors, and HEI Hotels LLC ("HEI"), a Westport, Connecticut based hotel operating company, the Company also acquired HEI and contracts to manage the following nine hotels (the "HEI Managed Hotels"):
HOTEL LOCATION ROOMS ----- ------------------ ----- Sheraton Gateway Houston Airport.................... Houston, TX 418 Ontario Airport Hilton.............................. Ontario, CA 309 Grand Junction Hilton............................... Grand Junction, CO 264 Danbury Hilton & Towers............................. Danbury, CT 242 Residence Inn By Marriott........................... Princeton, NJ 208 Long Island Sheraton Hotel.......................... Smithtown, NY 211 Wilmington Hilton Hotel............................. Wilmington, DE 193 Ramada Hotel Bethesda............................... Bethesda, MD 160 The Pavilion Towers Hotel........................... Virginia Beach, VA 292 ----- 2,297
As consideration for the HEI Owned Hotels, HEI and the nine management contracts (collectively the "HEI Portfolio"), the Company paid an aggregate of $112 million in cash and notes and issued Units exchangeable for a total of 6,548,000 Paired Shares (which Units were valued for purposes of the transaction at approximately $215 million). 26 28 Al-Anwa Portfolio On January 15, 1998, Starwood Hotels acquired the following four hotels (the "Al-Anwa Portfolio") for a combination of approximately $150 million in cash and approximately 3.7 million Paired Shares (which shares were valued for purposes of the acquisition at approximately $184 million):
1997 ---------------------------------- YEAR AVERAGE OCCUPANCY HOTEL LOCATION ROOMS OPENED DAILY RATE RATE REVPAR ----- -------------- ----- ------ ---------- --------- ------- The Al-Anwa Portfolio: ITT Sheraton Luxury Collection Hotel Aspen(1).............. Aspen, CO 257 1992 $255.12 67.6% $172.35 ITT Sheraton Luxury Collection Hotel Houston............... Houston, TX 232 1981 153.29 70.7% 108.32 ITT Sheraton Luxury Collection Hotel Washington, DC........ Washington, DC 213 1929 199.03 55.7% 110.77 ITT Sheraton Luxury Collection Hotel New York(2)............... New York, NY 214 1929 312.09 71.5% 223.24 --- 916
- --------------- (1) Re-flagged as a St. Regis following the acquisition. (2) Re-flagged as a Westin following the acquisition. DEVELOPMENT OPPORTUNITIES; FUTURE ACQUISITIONS; SALES Development Opportunities Starwood Hotels also intends to develop, on a limited basis, new hotels, either through new construction or conversion of office buildings, in certain under-served markets. In this respect, in November 1996, the Trust paid approximately $7.0 million to acquire a site in downtown Seattle, Washington, which has full entitlements for construction of a 426-room hotel. The Trust began construction on this hotel in August 1997. This hotel is estimated to cost approximately $73 million and is expected to open in early 1999. In May 1997, Starwood Hotels paid $11.9 million to acquire the site and development rights to construct, and began to build, a 30-story, 423-room hotel in downtown San Francisco, California. The hotel is estimated to cost approximately $73 million and is expected to open in May 1999. In October 1997, Starwood Hotels formed a joint venture to convert a 474,000-square-foot, 31-story office building located in downtown Denver into a 540-room, four-star hotel that is expected to open in 1999. Conversion of the building is expected to begin in early 1998. The Company paid approximately $9 million to acquire a 50% interest in the leasehold of the office building. The estimated cost of the project is $68.6 million. Future Acquisitions Starwood Hotels intends to continue to expand and diversify its hotel portfolio through the acquisition of primarily upscale hotels in major metropolitan areas. Starwood Hotels believes that hotels in this segment can be purchased at prices below replacement cost and offer better potential for cash flow growth than hotels in other market segments. Starwood Hotels generally seeks investments in hotels where management believes that profits can be increased by the introduction of more professional and efficient management techniques, a change of franchise affiliation or the injection of capital for renovating, repositioning or expanding a property. Properties are targeted throughout the world, but Starwood Hotels generally focuses on properties with favorable demographic trends, significant barriers to entry or with major room demand generators such as 27 29 office or retail complexes, airports, tourist attractions or universities. The Company intends to finance future acquisitions of hotel properties through cash flow from operations, through borrowings under new or existing credit facilities and, when market conditions warrant, through the issuance of debt or equity securities. Sales As part of its continuous evaluation of its portfolio and efforts to redeploy capital in high growth assets, the Company has identified certain properties for sale. These properties include hotels primarily in market segments that the Company believes have limited growth potential. In 1997, the Company sold the Radisson Marque in Winston-Salem, North Carolina for approximately $7.6 million and three Best Western hotels in Savannah, Georgia; El Paso, Texas; and Las Cruces, New Mexico for approximately $12 million, recognizing losses of approximately $614,000 and $314,000, respectively. The Corporation has entered into an agreement to sell the personal property relating to the King 8 Hotel & Casino in Las Vegas, Nevada (the "King 8") for $3 million and expects the closing to occur in June 1998 following receipt by the purchaser of required gaming approvals. The Trust sold the real property of the King 8 in 1996 for approximately $18.8 million, recognizing a gain of approximately $5.6 million. The Company is currently engaged in efforts to sell the Milwaukee Sheraton in Brookfield, Wisconsin; the Tyee Hotel in Olympia, Washington; and the Bay Valley Hotel & Resort in Bay City, Michigan. In February 1998, the Company sold three Vagabond hotels in Rosemead, California; Woodland Hills, California; and Sacramento, California, respectively, for approximately $7.7 million, recognizing a loss of approximately $105,000. STRUCTURE AND OPERATING STRATEGY Current Structure As of the date of this Joint Annual Report, the structure of Starwood Hotels is as follows: [PAIRED SHARES CHART] The limited partnership interests of the Realty Partnership and the Operating Partnership held by the limited partners are (subject to the ownership limitation provisions of the Trust and the Corporation) 28 30 exchangeable for, at the option of the Trust and the Corporation, either cash, Paired Shares representing up to 5.9% of the Paired Shares after such exchange (based on the number of Paired Shares outstanding on March 30, 1998), or a combination of cash and such Paired Shares. The ownership limitation provisions of the Declaration of Trust are designed to preserve the status of the Trust as a REIT for tax purposes by providing in general that no shareholder may own, directly or indirectly, more than 8% of the outstanding Paired Shares. The Trust controls the Realty Partnership as its sole general partner; the Corporation controls the Operating Partnership as its sole general partner. As of December 31, 1997, the Realty Partnership held fee interests, ground leaseholds and mortgage loan interests in 120 hotel properties containing over 32,800 rooms located in 34 states throughout the United States and the District of Columbia, and in Mexico and Scotland. The Operating Partnership leased from the Realty Partnership all but four of the 96 hotel properties owned in fee or held pursuant to long-term leases by the Realty Partnership. In addition, the Operating Partnership owned, as of December 31, 1997, the Milwaukee Sheraton, the Midland Hotel in Chicago, Illinois, the Westin Regina Portfolio and the Turnberry Hotel and Golf Resort, all subject to mortgages to the Trust, and managed nine hotels for third-party owners. Tax Status of the Trust The Trust elected to be taxed as a REIT, commencing with its taxable year ended December 31, 1995. The Trust expects to also make this election for the year ended December 31, 1997, when it files its tax return for such period, which is due no later than September 15, 1998. The Trust was taxed as a REIT beginning in 1969 through and including its taxable year ended December 31, 1990. During 1994, the Trust discovered that it may not have qualified as a REIT in 1991 through 1994, due to its failure to comply with certain procedural requirements of the Code. The Trust requested and received a letter from the Internal Revenue Service providing that the Trust's election to be taxed as a REIT terminated beginning with the Trust's taxable year ended December 31, 1991, and permitting the Trust to re-elect to be taxed as a REIT commencing with its taxable year ended December 31, 1995. Because the Trust had net losses for tax purposes for its 1991 through 1994 taxable years, the Trust does not owe any Federal income tax for such years. Acquisition of Westin On January 2, 1998, pursuant to a Transaction Agreement dated as of September 8, 1997 (the "Westin Transaction Agreement") among WHWE L.L.C. ("WHWE"), Woodstar Investor Partnership ("Woodstar"), Nomura Asset Capital Corporation ("Nomura"), Juergen Bartels (Mr. Bartels together with WHWE, Woodstar and Nomura, the "Members"), Westin Worldwide, W&S Lauderdale Corp. ("Lauderdale"), W&S Seattle Corp. ("Seattle"), Westin St. John Hotel Company, Inc. ("St. John"), W&S Denver Corp. ("Denver"), W&S Atlanta Corp. ("Atlanta"), W&S Hotel L.L.C. ("W&S LLC" and, together with Westin, the "Westin Companies"), the Trust, the Realty Partnership, the Corporation and the Operating Partnership, the Company acquired Westin. Pursuant to the terms of the Westin Transaction Agreement: (i) Westin Worldwide merged into the Trust (the "Westin Merger"). In connection with the Westin Merger, all of the issued and outstanding shares of capital stock of Westin Worldwide (other than shares held by Westin and its subsidiaries or by the Company) were converted into an aggregate of 6,285,783 Class A Exchangeable Preferred Shares, par value $.01 per share (the "Class A EPS"), of the Trust and 5,294,783 Class B Exchangeable Preferred Shares, liquidation value $38.50 per share (the "Class B EPS" and together with the Class A EPS, the "EPS"), of the Trust and $177.9 million in cash; (ii) The stockholders of Lauderdale, Seattle and Denver contributed all of the outstanding shares of such companies to the Realty Partnership. In exchange for such contribution and after giving effect to the deemed exchange of certain units, the Realty Partnership issued to such stockholders an aggregate of 470,309 limited partnership units of the Realty Partnership and the Trust issued to such stockholders an aggregate of 127,534 shares of Class B EPS. In addition, in connection with the foregoing share contribution, the Realty Partnership assumed, repaid or refinanced the indebtedness of Lauderdale, 29 31 Seattle and Denver and assumed $84.2 million of indebtedness incurred by the Members prior to such contributions; and (iii) The stockholders of Atlanta and St. John contributed all of the outstanding shares of such companies to the Operating Partnership. In exchange for such contribution and after giving effect to the deemed exchange of certain units, the Operating Partnership issued to such stockholders an aggregate of 312,741 limited partnership units of the Operating Partnership and the Trust issued to such stockholders an aggregate of 80,415 shares of Class B EPS. In addition, in connection with the foregoing share contributions, the Operating Partnership assumed, repaid or refinanced indebtedness of Atlanta and St. John and assumed $3.4 million of indebtedness incurred by the Members prior to such contributions. The contributions of shares of stock of each of Seattle, Lauderdale, Denver, Atlanta and St. John (collectively, the "Westin Subsidiaries") are referred to in this Joint Annual Report as the "Subsidiary Contributions." The aggregate principal amount of debt assumed by the Company pursuant to the Westin Transaction Agreement was approximately $1.0 billion. The shares of Class A EPS, the shares of Class B EPS and the limited partnership interests issued in connection with the Westin Merger and the contribution of Seattle, Lauderdale, Denver, St. John and Atlanta to the Partnerships are directly or indirectly exchangeable on a one-to-one basis (subject to certain adjustments) for Paired Shares (subject to the right of the Company to elect to pay cash in lieu of issuing such shares). The limited partnership interests also are exchangeable on a one-to-one basis for shares of Class B EPS. The shares of Class B EPS have a liquidation preference of $38.50 per share and provide the holders with the right, from and after the fifth anniversary of the closing date of the Westin acquisition, to require the Trust to redeem such shares at a price of $38.50. Acquisition of ITT On February 23, 1998, pursuant to an Amended and Restated Agreement and Plan of Merger dated as of November 12, 1997 (the "ITT Merger Agreement") among the Corporation, Chess Acquisition Corp., a newly formed Nevada corporation and a subsidiary of the Company ("Merger Sub"), the Trust and ITT, the Company acquired ITT. Pursuant to the terms of the ITT Merger Agreement, Merger Sub was merged with and into ITT (the "ITT Merger"), whereupon the separate corporate existence of Merger Sub ceased and ITT continued as the surviving corporation. As a result of the ITT Merger, ITT was owned jointly by the Trust and the Corporation. Immediately after the effective time of the ITT Merger, the Corporation purchased all of the common stock, no par value, of ITT ("ITT Common Stock") owned by the Trust for a combination of cash and notes. Upon such purchase, ITT became a wholly owned subsidiary of the Corporation. Under the terms of the ITT Merger Agreement, each outstanding share of ITT Common Stock, together with the associated right to purchase shares of Series A Participating Cumulative Preferred Stock of ITT (the "Rights" and, together with the ITT Common Stock, "ITT Shares"), other than those that were converted into cash pursuant to a cash election by the holder (and other than ITT Shares owned directly or indirectly by ITT or Starwood Hotels, which shares were canceled), was converted into 1.543 Paired Shares. Pursuant to cash election procedures, 35,195,664 ITT Shares, representing approximately 30% of the outstanding ITT Shares, were converted into $85 in cash per share. In addition, each ITT Share was converted into additional cash consideration in the amount of $.37493151, which amount represents the interest that would have accrued (without compounding) on $85 at an annual rate of 7% during the period from and including January 31, 1998 to but excluding the date of the closing (February 23, 1998). The aggregate value of the ITT acquisition in cash, Paired Shares and assumed debt was approximately $14.6 billion. Reorganization Effective January 1, 1995 (the "Reorganization Date"), the Trust and the Corporation consummated a reorganization (the "Reorganization") with Starwood Capital and certain affiliates of Starwood Capital (collectively, the "Starwood Partners"). 30 32 The Reorganization involved a number of related transactions that occurred simultaneously on the Reorganization Date. Such transactions included (i) the formation of the Realty Partnership, and the contribution by the Trust to the Realty Partnership of substantially all of the properties and assets of the Trust, subject to substantially all of the liabilities of the Trust, in exchange for an approximately 28.3% interest as a general partner in the Realty Partnership; (ii) the contribution by the Starwood Partners to the Realty Partnership of approximately $12.6 million in cash and certain hotel properties and first mortgage notes, in exchange for Units representing the remaining approximately 71.7% interest in the Realty Partnership; (iii) the formation of the Operating Partnership, and the contribution by the Corporation and its subsidiaries to the Operating Partnership of substantially all of their properties and operating assets (except for their gaming assets), subject to substantially all of their liabilities, in exchange for an approximately 28.3% interest as a general partner in the Operating Partnership; and (iv) the contribution by the Starwood Partners to the Operating Partnership of approximately $1.4 million in cash and fixtures, furnishings and equipment of certain hotel properties, in exchange for Units representing the remaining approximately 71.7% interest in the Operating Partnership. On March 24, 1995, a Starwood Partner exchanged $12 million of debt of the Realty Partnership for additional Units, resulting in the Starwood Partners owning approximately 74.6% of each of the Partnerships on such date. Operating Strategy The Trust and the Corporation intend that the Corporation lease and operate hotels owned or acquired by the Trust or the Realty Partnership, thereby retaining for shareholders the economic benefits otherwise captured by third-party operators. During 1997, the Corporation assumed management of 48 hotels, including 38 hotels acquired by the Company. The Corporation intends to continue to reposition hotels in order to increase cash flows and asset values by changing or initiating franchise affiliations to one of the brands acquired in 1998 and implementing renovations, expansions and upgrades of hotel facilities. In 1997, the Corporation entered into new franchise affiliations with respect to three hotels, of which two were acquired and converted to the Westin brand in 1997. The other was acquired in 1996 and converted to the Westin brand in 1997. The Corporation also intends to manage hotels on behalf of third-party owners, thereby capitalizing on the enhanced operational management infrastructure of the Corporation. The Company believes that third-party management contracts could provide the Company with an additional source of earnings as well as a source of potential acquisitions, including minority equity investments in hotel properties. Additionally, the Company intends to continue to acquire debt interests in hotels at discounts to their face amounts with the intention of acquiring the hotel. OTHER INFORMATION Seasonality and Competition The hotel and gaming industries are seasonal in nature; however, the periods during which the Company's properties experience higher hotel revenues or gaming activities vary from property to property and depend principally upon location. Although the Company's revenues historically have been lower in the first than in the second, third or fourth quarters, the acquisitions of Westin and ITT are expected to affect, and future acquisitions may further affect, seasonal fluctuations in revenues and cash flows. Competition in the hotel and gaming industries is vigorous and is generally based on quality and consistency of room, restaurant, casino, entertainment and convention facilities and services, attractiveness of locations, availability of a global distribution system, price and other factors. Management believes that the Company competes favorably in these areas. The properties of the Company compete with other hotel and casino properties in their geographic markets. The principal competitors of the Company include other hotel REITs, hotel operating and gaming companies and national hotel brands. Some of the Company's competitors may have greater marketing and financial resources than the Company. 31 33 The Company may compete for acquisition opportunities with entities which have greater financial resources than the Company or which may accept more risk than the Company. Competition may generally reduce the number of suitable investment opportunities and increase the bargaining power of property owners seeking to sell. Further, management of the Company believes that it will face competition for acquisition opportunities from entities organized for purposes substantially similar to the objectives of the Trust or the Company. Environmental Matters The Company 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. The Company uses certain substances and generates certain wastes that may be deemed hazardous or toxic under applicable Environmental Laws, and the Company 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 of its properties, the Company could be held liable for the costs of remedial or other action with respect to PCBs, USTs or CFCs. 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 and poor drinking water quality. 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. Regulation and Licensing The ownership and operation of the casino gaming facilities of the Company are subject to extensive licensing, permitting and regulatory requirements administered by various governmental entities. See "Regulation and Licensing" included in Item 2 of this Joint Annual Report. Employees As of December 31, 1997, the Trust had four employees and the Corporation had approximately 15,000 employees. As a result of the acquisitions of ITT and Westin, the Corporation has, as of March 1, 1998, approximately 100,000 employees. 32 34 Executive Offices The Trust's executive offices are located at 2231 East Camelback Road, Suite 410, Phoenix, Arizona 85016 (telephone (602) 852-3900) and the Corporation's executive offices are located at 2231 East Camelback Road, Suite 400, Phoenix, Arizona 85016 (telephone (602) 852-3900). Industry Segments Financial information with respect to the two segments of the hospitality industry (hotels and gaming) and the domestic and foreign segments in which the Corporation operated during the year ended December 31, 1997 is included in Note 22 of the Notes to Financial Statements included in Item 8 of this Joint Annual Report. ITEM 2. PROPERTIES. For information with respect to the properties owned, managed, franchised or represented by ITT and Westin, see Item 1 of this Joint Annual Report. At December 31, 1997, the Company owned, operated and managed a geographically diversified portfolio of hotel assets, including fee, ground lease and first mortgage interests in 120 hotel properties containing approximately 32,800 guest rooms located in 34 states and the District of Columbia, Mexico and Scotland. At that time, 92 of such hotels were operated under licensing, membership, franchise or management agreements or leases with national hotel organizations, including Ritz Carlton(R), Westin(R), Marriott(R), Hilton(R), Sheraton(R), Omni(R), Doubletree(R), Embassy Suites(R), Crowne Plaza(R), Courtyard By Marriott(R), Wyndham(R), Ramada(R), Radisson(R), Clarion(R), Holiday Inn(R), Residence Inn(R), Days Inn(R), Best Western(R) and Vagabond Inn(R). EQUITY INVESTMENTS As of December 31, 1997, the Company had equity investments in 102 properties containing a total of over 27,500 guest rooms. All but six of the properties are owned by the Trust. Those six properties -- the Milwaukee Sheraton, the Midland Hotel, the Turnberry Hotel and Golf Resort and the Westin Regina Resorts in Cancun, Cabo San Lucas and Puerto Vallarta, Mexico -- are owned by the Operating Partnership; all are subject to mortgages held by the Trust. Of the 96 hotels owned by the Trust at December 31, 1997, all but four are leased to the Corporation or its subsidiaries pursuant to leases between the Trust and the Corporation (the "Intercompany Leases"). Each of the Intercompany Leases provides for the lessee's payment of annual minimum rent in a specified amount plus additional rent based on a percentage of the gross revenues (or items thereof) of the leased property. The Intercompany Leases have an average remaining term of three years. The Intercompany Leases are "triple-net" -- i.e., the lessee is generally responsible for paying all operating expenses of the hotel property, including maintenance and repair costs, insurance premiums and real estate and personal property taxes, and for making all rental and other payments required pursuant to any underlying ground leases. As lessee, the Operating Partnership retains all of the profits, net of rents and other expenses, and bears all risk of losses, generated by the hotel property's operations. Of the four Trust hotels not subject to Intercompany Leases, the three Vagabond Inns (the "Vagabond Inns") as of December 31, 1997 were leased by the Trust to a third party pursuant to ground leases that expire in 2001, 2007 and 2008, respectively. In February 1998, the Trust sold its leasehold interests in the Vagabond Inns for approximately $7.7 million. The remaining property, the Doral Inn, is leased by the Trust to a third party; such lease expires in 2005. The Trust owns the land underlying the Doral Inn and holds a leasehold mortgage on the building and personal property; the Operating Partnership operates the hotel pursuant to a sublease. Lastly, the Marriott Forrestal Village is leased by the Trust to the Corporation, which, in turn, leases the property to a third party. Both such leases expire in 2007. The following table sets forth the average occupancy rate, average daily rate ("ADR"), REVPAR and certain other information concerning the Company's non-gaming hotels (excluding the Vagabond Inns) for the year ended December 31, 1997. Each hotel in the following table is owned by the Trust and leased to the Corporation, except as noted. 33 35
YEAR ENDED DECEMBER 31, 1997 YEAR YEAR ----------------------------- HOTEL LOCATION ROOMS OPENED ACQUIRED(1) ADR($) OCCUP(%) REVPAR($) ----- ------------------- ----- ------ ----------- ------ -------- --------- Embassy Suites Phoenix Airport....... Phoenix, AZ 227 1981 1983 101.54 71.9 72.99 Tempe Embassy Suites................. Tempe, AZ 224 1984 1995 115.55 78.3 90.43 Hotel Park Tucson.................... Tucson, AZ 215 1986 1996 78.32 67.8 53.08 Plaza Hotel & Conference Center(15)......................... Tucson, AZ 149 1971 1983 58.21 60.2 35.05 Sheraton Hotel....................... Long Beach, CA 460 1988 1997 87.12 70.4 61.33 Westin Los Angeles Airport(19)....... Los Angeles, CA 723 1986 1996 68.75 72.3 49.68 Clarion at San Francisco Airport..... Millbrae, CA 442 1962 1996 94.29 74.4 70.17 Palm Desert Embassy Suites........... Palm Desert, CA 198 1985 1996 112.54 72.7 81.86 Doubletree Club Hotel Rancho Bernardo........................... Rancho Bernardo, CA 209 1988 1995 81.07 70.3 56.96 Westin Mission Hills Resort(13)...... Rancho Mirage, CA 512 1987 1997 155.00 68.5 106.19 San Diego Marriott Suites............ San Diego, CA 264 1989 1997 125.09 72.8 91.10 Westin Horton Plaza San Diego........ San Diego, CA 450 1987 1996 125.46 73.4 92.10 Sonoma County Hilton................. Santa Rosa, CA 245 1984 1997 82.13 67.2 55.18 Westwood Marquis Hotel & Gardens(7).. Westwood, CA 257 1969 1996 185.51 59.1 109.58 Radisson Denver South................ Englewood, CO 263 1986 1997 90.33 68.5 61.84 Sheraton Stamford(9)................. Stamford, CT 480 1985 1997 101.92 60.6 61.74 Tara Stamford Hotel.................. Stamford, CT 445 1984 1997 103.25 57.6 59.45 Capitol Hill Suites.................. Washington, DC 152 1955 1995 104.55 70.0 73.17 One Washington Circle................ Washington, DC 151 1964 1997 113.35 82.5 93.56 Westin Washington, DC................ Washington, DC 263 1984 1995 133.59 65.2 87.06 Wyndham Hotel at Ft. Lauderdale Airport............................ Dania, FL 251 1986 1996 82.61 79.4 65.58 Deerfield Beach Hilton............... Deerfield Beach, FL 220 1985 1997 82.16 74.2 61.00 Doubletree Guest Suites Cypress Creek.............................. Fort Lauderdale, FL 254 1985 1996 85.19 76.5 65.18 Gainesville Radisson Hotel........... Gainesville, FL 195 1974 1986 69.13 52.7 36.40 Westin Tampa Airport................. Tampa, FL 260 1987 1996 93.71 64.5 60.48 Holiday Inn -- Albany................ Albany, GA 151 1989 1989 64.43 60.5 38.98 Lenox Inn............................ Atlanta, GA 180 1965 1995 79.62 65.8 52.37 Marque of Atlanta.................... Atlanta, GA 275 1980 1996 95.89 63.1 60.49 Sheraton Colony Square............... Atlanta, GA 462 1973 1995 111.49 66.6 74.26 Terrace Garden Hotel................. Atlanta, GA 364 1975 1995 93.82 63.8 59.86 Westin Atlanta North at Perimeter.... Atlanta, GA 370 1986 1996 111.10 65.7 72.99 Embassy Suites Hotel................. College Park, GA 233 1989 1997 102.12 68.9 70.31 Arlington Park Hilton................ Arlington Heights, 422 1968 1996 92.54 73.5 68.06 IL Days Inn Lake Shore Drive............ Chicago, IL 578 1965 1997 104.07 70.2 73.04 Midland Hotel(2)..................... Chicago, IL 257 1934 1996 139.87 73.4 102.66 Raphael Hotel........................ Chicago, IL 172 1978 1997 135.59 67.5 91.50 Tremont Hotel........................ Chicago, IL 129 1974 1997 157.35 62.0 97.61 Radisson Plaza & Suite Hotel(18)..... Indianapolis, IN 552 1983 1997 92.29 75.0 69.19 Harvey Hotel......................... Wichita, KS 259 1974 1995 58.71 59.8 35.10 Doubletree Guest Suites.............. Lexington, KY 155 1989 1995 91.89 70.3 64.62 Crowne Plaza(10)..................... New Orleans, LA 439 1984 1997 116.23 72.4 84.17 Hotel De La Poste.................... New Orleans, LA 100 1973 1997 124.31 72.7 90.39 Park Plaza Hotel(5).................. Boston, MA 960 1927 1996 131.61 77.1 101.45 Sheraton Tara Hotel.................. Braintree, MA 376 1971 1997 114.86 76.1 87.36 Tara's Ferncroft Conference Resort... Danvers, MA 367 1978 1997 101.03 55.7 56.25 Sheraton Tara Hotel.................. Framingham, MA 375 1973 1997 105.52 64.0 67.55 Tara Hyannis Hotel & Resort.......... Hyannis, MA 224 1967 1997 105.79 56.4 59.66 Tara's Cape Codder Hotel............. Hyannis, MA 261 1975 1997 87.85 48.1 42.26 Sheraton Tara Lexington Inn.......... Lexington, MA 119 1958 1997 114.34 76.1 87.02 Colonial Hilton and Resort........... Lynnfield, MA 280 1966 1997 107.71 63.3 68.21 Sheraton Needham..................... Needham, MA 247 1986 1996 112.80 76.7 86.46 Sheraton Tara Hotel(20).............. Newton, MA 272 1968 1997 114.29 72.8 83.21 Westin Waltham Hotel................. Waltham, MA 347 1990 1996 126.88 73.3 93.03 BWI Airport Marriott................. Baltimore, MD 310 1988 1997 112.12 75.6 84.71 Holiday Inn -- Calverton............. Beltsville, MD 206 1987 1995 73.15 63.7 46.62
34 36
YEAR ENDED DECEMBER 31, 1997 YEAR YEAR ----------------------------- HOTEL LOCATION ROOMS OPENED ACQUIRED(1) ADR($) OCCUP(%) REVPAR($) ----- ------------------- ----- ------ ----------- ------ -------- --------- Sheraton Tara Hotel.................. South Portland, ME 220 1973 1997 90.51 66.2 59.93 Bay Valley Hotel & Resort(4)......... Bay City, MI 151 1973 1984 65.26 51.9 33.90 Novi Hilton.......................... Novi, MI 239 1985 1997 94.68 70.4 66.63 Westin Southfield -- Detroit......... Southfield, MI 385 1987 1997 102.43 66.0 67.57 Doubletree Hotel Minneapolis Airport at the Mall........................ Bloomington, MN 321 1975 1996 98.63 74.7 73.72 Sheraton Metrodome................... Minneapolis, MN 254 1980 1996 83.65 72.3 60.45 Ritz Carlton -- Kansas City.......... Kansas City, MO 373 1973 1996 138.66 78.4 108.65 St. Louis Embassy Suites............. St. Louis, MO 297 1985 1996 101.24 68.5 69.38 Omni Hotel........................... Chapel Hill, NC 168 1981 1995 93.27 71.2 66.37 Westin Aquila........................ Omaha, NE 145 1995 1997 102.94 63.8 65.70 Wayfarer Inn......................... Bedford, NH 194 1966 1997 77.07 63.5 48.98 Merrimack Hotel & Conference Center............................. Merrimack, NH 200 1979 1997 60.51 37.9 22.91 Sheraton Tara Hotel.................. Nashua, NH 337 1980 1997 80.51 59.0 47.46 Crowne Plaza Edison.................. Edison, NJ 274 1987 1997 85.58 72.4 61.99 Sheraton Tara Hotel.................. Parsippany, NJ 389 1987 1997 115.60 73.6 85.07 Marriott Forrestal Village Hotel(3)........................... Princeton, NJ 294 1987 1996 117.38 84.4 99.07 Best Western Airport Inn (16)........ Albuquerque, NM 123 1980 1984 59.40 68.0 40.39 Doral Court(6)(14)................... New York, NY 199 1927 1996 165.28 75.5 124.78 Doral Inn(8)......................... New York, NY 652 1927 1996 126.60 63.0 79.82 Doral Tuscany(6)(14)................. New York, NY 121 1935 1996 188.98 73.6 139.02 Days Inn City Center................. Portland, OR 173 1962 1984 77.55 68.3 52.96 Riverside Inn........................ Portland, OR 137 1964 1984 96.27 65.9 63.47 Allentown Hilton..................... Allentown, PA 224 1981 1996 70.94 69.6 49.37 Park Ridge Hotel..................... King of Prussia, PA 265 1973 1997 100.38 76.1 76.40 Days Inn Airport(12)................. Philadelphia, PA 177 1984 1996 70.14 74.6 52.34 Ritz Carlton -- Philadelphia......... Philadelphia, PA 290 1990 1996 166.53 82.5 137.31 Westin Philadelphia International Airport(12)........................ Philadelphia, PA 251 1985 1996 101.58 64.2 65.17 Sheraton Tara Airport Hotel.......... Warwick, RI 207 1979 1997 87.48 71.1 62.18 Charleston Hilton North.............. Charleston, SC 296 1983 1997 78.01 70.5 55.00 Westin Hermitage..................... Nashville, TN 120 1910 1997 129.18 65.7 84.92 Radisson Dallas Park Central......... Dallas, TX 438 1972 1972 78.55 45.9 36.04 Doubletree Guest Suites DFW Airport............................ Irving, TX 308 1985 1996 107.70 73.7 79.40 Courtyard by Marriott Crystal City... Arlington, VA 272 1990 1997 106.40 68.8 73.22 Omni Waterside Hotel................. Norfolk, VA 446 1976 1997 90.16 60.4 54.44 Residence Inn Tyson's Corner......... Vienna, VA 96 1984 1984 119.47 83.0 99.14 Tyee Hotel(4)........................ Olympia, WA 145 1961 1987 65.27 49.3 32.20 Days Inn -- Town Center(17).......... Seattle, WA 90 1957 1984 78.28 71.4 55.86 Edmond Meany Hotel................... Seattle, WA 155 1932 1984 95.06 57.8 54.93 Sixth Avenue Inn(17)................. Seattle, WA 166 1959 1984 91.00 65.2 59.34 Milwaukee Sheraton(2)(4)............. Brookfield, WI 393 1972 1990 81.67 72.8 59.45 Turnberry Hotel and Golf Resort(2)... Ayreshire, Scotland 132 1905 1997 156.12 49.5 77.31 Westin Regina Resort(2)(11).......... Cancun, Mexico 385 1991 1997 111.25 72.0 80.10 Westin Regina Resort(2)(11).......... Puerto Vallarta, 280 1992 1997 98.99 67.5 66.82 Mexico Westin Regina Resort(2) (11)......... Cabo San Lucas, 229 1994 1997 204.36 74.7 152.75 Mexico TOTAL OWNED (99 HOTELS).............. 109.41 68.6 75.08 MANAGED: Ontario Airport Hilton............... Ontario, CA 309 1997 78.85 71.6 56.47 Grand Junction Hilton................ Grand Junction, CO 264 1997 69.57 68.7 47.81 Danbury Hilton & Towers.............. Danbury, CT 242 1997 93.49 80.3 75.09 Wilmington Hilton Hotel.............. Wilmington , DE 193 1997 83.73 68.8 57.42 Atlanta Hilton Northeast............. Atlanta, GA 272 1997 93.40 63.0 58.86 Ramada Hotel......................... Bethesda, MD 160 1997 84.35 70.8 59.70
35 37
YEAR ENDED DECEMBER 31, 1997 YEAR YEAR ----------------------------- HOTEL LOCATION ROOMS OPENED ACQUIRED(1) ADR($) OCCUP(%) REVPAR($) ----- ------------------- ----- ------ ----------- ------ -------- --------- Long Island Sheraton Hotel........... Smithtown, NY 211 1997 93.05 80.7 75.06 Sheraton Gateway Houston Airport..... Houston, TX 418 1997 72.06 65.8 47.40 Pavillion Towers Hotel............... Virginia Beach, VA 292 1997 65.55 38.4 25.17 TOTAL MANAGED (9 HOTELS)............. 82.07 66.6 54.64
- --------------- (1) "Year acquired" represents the calendar year in which the Trust or Corporation (or a predecessor) made its initial investment in the property. (2) Property is owned by the Corporation subject to a first mortgage to the Trust. (3) Property is subject to a ground lease expiring in December 2055, which is terminable by the ground lessor after September 1999 and prior to that time, upon six months' notice under certain circumstances. (4) Property is an asset held for sale at December 31, 1997. (5) The Trust owns a 58.2% general partnership interest in the partnership that owns this hotel. The property is subject to the BPP Mortgage (as defined in "Liquidity and Capital Resources -- Cash Flows from Investing and Financing Activities -- Credit Facilities and Recent Stock Sales" included in Item 7 of this Joint Annual Report). (6) Property is subject to a mortgage under the Doral Mortgage(as defined in "Liquidity and Capital Resources -- Cash Flows from Investing and Financing Activities -- Loan and Credit Facilities" included in Item 7 of this Joint Annual Report). (7) The Trust owns a 93.5% general partnership interest in the partnership that owns this hotel. (8) The Trust owns the land and holds a leasehold mortgage on the hotel building and personal property; the Operating Partnership operates the hotel pursuant to a sublease. (9) Property is subject to a mortgage under the Stamford Note (as defined in "Liquidity and Capital Resources -- Cash Flows from Investing and Financing Activities -- Loan and Credit Facilities" included in Item 7 of this Joint Annual Report). (10) Property is subject to the Crowne Plaza Mortgage (as defined in "Liquidity and Capital Resources -- Cash Flows from Investing and Financing Activities -- Loans and Credit Facilities" included in Item 7 of this Joint Annual Report). (11) Property is subject to a mortgage under the Bancomer Note (as defined in"Liquidity and Capital Resources -- Cash Flows from Investing and Financing Activities -- Loans and Credit Facilities" included in Item 7 of this Joint Annual Report). (12) Property is subject to a mortgage under the Tax Exempt Bonds (as defined in "Liquidity and Capital Resources -- Cash Flows from Investing and Financing Activities -- Loans and Credit Facilities" included in Item 7 of this Joint Annual Report). (13) The Trust owns a 95% interest in this property. (14) The Trust owns a 49% interest in this property. (15) Property is subject to ground leases that expire between 1999 to 2007, depending on the parcel. (16) Property is subject to a ground lease expiring in 2029. (17) Property is subject to a ground lease expiring in 1999. (18) Property is subject to a ground lease expiring in 2067. (19) Property is subject to a ground lease expiring in 2054. (20) Property is subject to a ground lease expiring in 2010. 36 38 FRANCHISE AGREEMENTS Seventy-three of the 102 hotel properties in which Starwood Hotels had an equity interest at December 31, 1997 were operated at such time pursuant to franchise or license agreements ("Franchise Agreements"), including 14 Franchise Agreements with Westin and 13 Franchise Agreements with Sheraton. The Franchise Agreements generally require the payment of a monthly royalty fee based on gross room revenue and various other fees associated with certain marketing or advertising and centralized reservation services, which fees also are generally based on gross room revenues. The Franchise Agreements have various durations but generally may be terminated upon not more than three years' prior notice or upon payment of certain specified fees. The Franchise Agreements generally contain specific standards for, and restrictions and limitations on, the operation and maintenance of the hotels, which standards are established by the franchisors to maintain uniformity in the system created by each such franchisor. Such standards generally regulate the appearance of the hotel, the quality and type of goods and services offered, signage and usage of trade and service marks. The Franchise Agreements also typically contain financial reporting requirements relating to the calculation of royalty and other fees and insurance requirements with respect to coverage for specified liabilities, approved coverage limits and minimum insurance company ratings. The Franchise Agreements generally require the consent of the franchisor to a transfer of an interest in the applicable franchise, and both the consent of the franchisor and the execution of a new franchise agreement in the event of a transfer of all or a controlling portion of the franchisee under the relevant Franchise Agreement. In addition, some Franchise Agreements may require payment of an initial fee upon establishment of a franchise relationship. The Company intends to convert many of its hotels to a Westin or Sheraton brand. MANAGEMENT AGREEMENTS As of December 31, 1997, nine of the Company-owned hotels were managed by third-party operators. The Marriott Forrestal Village is operated by Marriott International, Inc. ("Marriott") pursuant to a lease expiring in 2007, and the Ritz Carlton Hotels in Philadelphia, Pennsylvania, and Kansas City, Missouri are operated by an affiliate of Marriott pursuant to operating agreements that terminate in 1999 but are subject to earlier termination if certain annual financial performance standards are not met. The Westin Regina Resorts in Cabo San Lucas, Cancun and Puerto Vallarta, Mexico, the Westin Mission Hills Resort in Rancho Mirage, California; the Westin Aquila in Omaha, Nebraska; and the Turnberry Hotel and Golf Resort in Ayreshire, Scotland have been operated by Westin Worldwide since their respective acquisition dates by the Company. Each of the management agreements described above provides that the operator has the exclusive right to direct the operations of the hotel subject to that agreement. The operator is responsible for maintaining and making all necessary repairs to the managed hotel, hiring, training and supervising all hotel employees, and performing all hotel bookkeeping and other administrative duties. Each operator is required to submit to the Company for its approval an annual budget that includes proposed capital expenditures, and the operator makes only those capital expenditures that are approved by the Company. The Company is required to make available to each operator sufficient working capital to operate the hotel. For their services in managing the hotels, each operator receives a fee equal to a specified percentage (generally 2%-4%) of the gross revenues of the managed hotel, plus additional incentive fees based upon the hotel's operating profits. As of December 31 1997, the Company managed nine hotels owned by third parties. Certain of these management agreements are currently month-to-month; others have expiration dates ranging from 1999 to 2016. Management fees ranging from 2.5% of hotel revenues to 4% of hotel revenues. 37 39 MORTGAGE AND OTHER NOTES RECEIVABLES At December 31, 1997, the Trust held nine promissory notes issued by the Operating Partnership. Three of those notes ($31.8 million in aggregate principal amount at December 31, 1997) are secured by the Sheraton Hotel in Milwaukee, Wisconsin; one note ($40.3 million in principal amount at December 31, 1997) is secured by the Doral Inn in New York, New York; one note ($20.0 million in principal amount at December 31, 1997) is secured by the Midland Hotel in Chicago, Illinois; one note ($42.3 million in principal amount at December 31, 1997) is secured by the Westin Regina in Cancun, Mexico; one note ($54.7 million in principal amount at December 31, 1997) is secured by the Westin Regina in Cabo San Lucas, Mexico; one note ($25.3 million in principal amount at December 31, 1997) is secured by the Westin Regina in Puerto Vallarta, Mexico; and one note ($27.0 million in principal amount at December 31, 1997) is secured by the Turnberry Hotel and Golf Resort in Ayreshire, Scotland. At December 31, 1997, the Trust held 11 promissory notes that were either contributed by the Starwood Partners to the Realty Partnership as part of the Reorganization, executed by third-party purchasers of the Trust's hotels, or purchased by the Trust, all of which are secured by mortgages (including deeds of trust) on eight hotels in the aggregate. Of these 11 promissory notes, eight notes ($63.0 million in aggregate principal amount at December 31, 1997) are secured by first mortgages and three notes ($0.2 million in aggregate principal amount as of December 31, 1997) are secured by second mortgages. Seven of these 11 notes have fixed interest rates that currently range from 8% to 10% per annum; one note has a variable interest rate that was the three-month London Interbank Offered Rate ("LIBOR") plus 1.25% per annum at December 31, 1997; one note also provides for contingent interest based on a percentage of the gross revenue of the property securing such note and three notes are non-interest bearing. The maturity dates of the 11 notes range from current to December 2006. For additional information with respect to the mortgage notes receivable held by the Trust, see Notes 14 and 15 and Schedule IV of Notes to Financial Statements included in Item 8 of this Joint Annual Report. In December 1987, in connection with the acquisition by the Company of an interest in two Atlanta, Georgia area hotels (which have been subsequently sold), a former officer of the Trust assumed certain obligations of the seller, which obligations are evidenced by an unsecured promissory note to the Trust in the principal amount of $800,000. Interest on the outstanding principal amount of this note accrues interest at an annual rate of 10% and is payable annually; the entire principal amount of the note is due in December 1999. During 1995, the Trust loaned another former officer of the Trust, on an unsecured basis, $250,000, of which $100,000 was outstanding as of December 31, 1997. The remaining principal amount is due in July 2005 and bears interest at an annual rate equal to the lowest applicable rate prescribed by Section 1274(d) of the Code. During 1996, the Corporation made a $150,000 non-interest bearing bridge loan to a former officer of the Corporation, Eric A. Danziger, which loan was repaid in February 1998; and a $250,000 non-interest bearing loan to Theodore W. Darnall, an officer of the Corporation, of which $150,000 remained outstanding as of December 31, 1997. This loan is secured by a second mortgage on Mr. Darnall's residence in Phoenix, Arizona, and will mature as to $150,000 upon termination of Mr. Darnall's employment with the Corporation. (See Note 21 of Notes to Financial Statements included in Item 8 of this Joint Annual Report and "Employment and Compensation Agreements with Executive Officers" included in Item 11 hereof.) REGULATION AND LICENSING Casino Gaming Regulation -- General. As a result of the ITT Merger, Starwood Hotels' gaming operations include Caesars Palace and the Desert Inn Resort & Casino ("Desert Inn"), both in Las Vegas, Nevada; Caesars Atlantic City in Atlantic City, New Jersey; Caesars Tahoe in Stateline, Nevada; the Sheraton Casino in Tunica County, Mississippi; the Sheraton Lima Hotel and Casino in Lima, Peru; the Sheraton Halifax Hotel and Casino in Halifax, Nova Scotia; the Sheraton Casino Sydney in Sydney, Cape Breton, Nova Scotia. Caesars also owns one-half of a management company that operates Casino Windsor, a casino in Windsor, Canada, which is owned by Government of the Province of Ontario. A Caesars subsidiary operates small casinos on two cruise ships as well. Sheraton also operates casinos in Australia and Egypt. In 38 40 May 1996, Caesars was granted a certificate of suitability by the Indiana Gaming Commission to construct and operate a riverboat casino on the Ohio River in Harrison County, Indiana, across the river from Louisville, Kentucky. Construction of the facility is subject to receipt of various consents, permits and approvals. Another subsidiary of the Corporation, Hotel Investors Corporation of Nevada ("HICN"), leases and operates the King 8 Hotel in Las Vegas, Nevada. The Trust sold the King 8 in 1996 pursuant to an arrangement in which HICN agreed to continue to operate the hotel and casino to the earlier of when the purchaser or his designee obtains required gaming licenses and approvals or June 30, 1998. The Desert Inn is owned and operated by Sheraton Desert Inn Corporation ("SDI"), which is a wholly owned subsidiary of Sheraton Gaming Corporation ("SGC"), which is a wholly owned subsidiary of Sheraton (Sheraton, SGC and SDI are collectively referred to as the "Sheraton Desert Inn Companies"). The Sheraton Casino in Tunica County, Mississippi, is owned and operated by Sheraton Tunica Corporation ("STC"), which is a wholly owned subsidiary of SDI. Caesars' casino gaming operations in Las Vegas, Nevada and Stateline, Nevada are conducted by Desert Palace, Inc. ("DPI"), which is a wholly owned subsidiary of Caesars Palace Corporation ("CPC"), which is a wholly owned subsidiary of Caesars (Caesars, CPC and DPI are hereinafter collectively referred to as the "Caesars Nevada Companies"). Caesars is a wholly owned subsidiary of Sheraton. Caesars' casino gaming operations in Atlantic City are conducted by Boardwalk Regency Corporation ("BRC"), which is a wholly owned subsidiary of Caesars New Jersey, Inc. ("CNJ"), which is a wholly owned subsidiary of Caesars (as required by the context, Caesars, CNJ and BRC are collectively referred to as the "Caesars New Jersey Companies"). In addition, DPI owns all of the issued and outstanding capital stock of Tele/Info, Inc. ("Tele/Info"), which is a Nevada licensed disseminator of horse race simulcasts for the purpose of receiving and disseminating live telecasts of horse racing information. The ownership and/or operation of casino gaming facilities in the United States are subject to extensive Federal, state and local regulations. Under Federal Law, Starwood Hotels' casino gaming operations are specifically subject to the compliance with the Gambling Devices Act of 1962, as amended, and the Bank Secrecy Act, as amended. These statutes govern the ownership, possession, manufacture, distribution and transportation in interstate commerce of gaming devices, and the recording and reporting of currency transactions, respectively. Starwood Hotels' Nevada casino gaming operations are subject to the Nevada Gaming Control Act and the regulations promulgated thereunder (the "Nevada Act"), and the licensing and regulatory control of the Nevada Gaming Commission (the "Nevada Commission") and the Nevada State Gaming Control Board (the "Nevada Board"), as well as, certain county government agencies (collectively referred to as the "Nevada Gaming Authorities"). Due to the development of a riverboat gaming facility located on the Ohio River in Harrison County, Indiana, Starwood Hotels' casino gaming operations in Indiana are subject to the Indiana Gaming Control Act (the "Indiana Act"), and the licensing and regulatory control of the Indiana Gaming Commission, as well as various local, county and state regulatory agencies. Starwood Hotels' New Jersey casino gaming operations are subject to the New Jersey Casino Control Act (the "New Jersey Act"), and the licensing and regulatory control of the New Jersey Casino Control Commission (the "New Jersey Commission"), and the New Jersey Department of Law & Public Safety, Divisions of Gaming Enforcement (the "New Jersey DGE"), as well as various local, county and state regulatory agencies (collectively referred to as the "New Jersey Gaming Authorities"). Starwood Hotels' Mississippi casino gaming operations are subject to the Mississippi Gaming Control Act (the "Mississippi Act"), and the licensing and regulatory control of the Mississippi Gaming Commission (the "Mississippi Commission"), as well as various local, county and state regulatory agencies (collectively referred to as the "Mississippi Gaming Authorities"). Starwood Hotels' Ontario casino gaming operations are subject to the Ontario Gaming Control Act (the "Ontario Act"), and the licensing and regulatory control of the Ontario Gaming Control Commission (the "Ontario Commission"), as well as various local, provincial and federal regulatory agencies (collectively referred to as the "Ontario Gaming Authorities"). Starwood Hotels' Nova Scotia casino gaming operations are subject to the Nova Scotia Gaming Control Act (the "Nova Scotia Act"), and the licensing and regulatory control of the Nova Scotia Gaming Control Commission (the "Nova Scotia Commission"), as well as various local, provincial and federal regulatory agencies (collectively referred to as the "Nova Scotia Gaming Authorities"). 39 41 The casino gaming laws, regulations and supervisory procedures of Nevada, New Jersey, Indiana, Mississippi, Ontario and Nova Scotia are extensive and reflect certain public policy considerations as to (i) the integrity of casino gaming operations and their participants; (ii) the need for strict governmental and regulatory control of casino gaming operations; (iii) the creation of economic development, taxes and employment; and, (iv) the maintenance and development of public confidence and trust in casino gaming regulation and control. Changes to these laws, regulations and supervisory procedures could have an adverse effect on Starwood Hotels' casino gaming operations. Nevada Gaming Regulation. The gaming laws, regulations and supervisory procedures of Nevada seek to (i) prevent unsavory or unsuitable persons from having any direct or indirect involvement with gaming at any time or in any capacity; (ii) establish and maintain responsible accounting practices and procedures; (iii) maintain effective control over the financial practices of licensees, including establishing minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record-keeping, and making periodic reports to the applicable casino gaming authority; (iv) prevent cheating and fraudulent practices; and, (v) provide a source of state and local revenues through taxation and licensing fees. Starwood Hotels, ITT and Caesars are registered with the Nevada Commission as publicly traded corporations and Starwood Hotels has been found suitable by the Nevada Gaming Authorities to own all of the outstanding capital stock of ITT and HICN. The Nevada Gaming Authorities have found suitable ITT as the sole shareholder of Sheraton. Sheraton is registered with the Nevada Commission as an intermediary company and been found suitable by the Nevada Gaming Authorities to own all the outstanding capital stock of Caesars and SGC. Similarly, SGC is registered with the Nevada Commission as an intermediary company and been found suitable by the Nevada Gaming Authorities to own all the outstanding capital stock of SDI. SDI operates the Desert Inn, DPI operates both Caesars Palace and Caesars Tahoe, and HICN operates the King 8 pursuant to licenses granted by the Nevada Gaming Authorities. These casino gaming licenses are not transferrable and must be renewed periodically by the payment of various gaming license fees and taxes. No person may become a stockholder of, or receive any percentage of profits from SDI, DPI or HICN without first obtaining certain required licenses and approvals from the Nevada Gaming Authorities. The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, a corporation which is involved in gaming activities. Officers, directors and key employees of each of SDI, DPI and HICN must be individually licensed by, and changes in corporate positions must be reported to the Nevada Gaming Authorities, which changes may be disapproved by the Nevada Gaming Authorities. Certain of Starwood Hotels' officers, directors and key employees and those of Starwood Hotels' subsidiaries who are actively and directly involved in Starwood Hotels' gaming activities have been, and others may be, required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. If the Nevada Gaming Authorities find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with Starwood Hotels, ITT, the Sheraton Desert Inn Companies, the Caesars Nevada Companies or HICN, the companies involved would be required to sever all relationships with such person. In addition, the Nevada Gaming Authorities may require a registered company or licensee to terminate the employment of any person who refuses to file appropriate applications or disclosures. Starwood Hotels, ITT, the Sheraton Desert Inn Companies, the Caesars Nevada Companies and HICN are required to submit detailed financial and operating reports to the Nevada Commission. Substantially all loans, leases, sales of securities and similar financing transactions by either SDI, DPI or HICN must be reported to or approved by the Nevada Commission. Nevada law prohibits a corporation registered by the Nevada Commission from making a public offering of its securities without the prior approval of the Nevada Commission if any part of the proceeds of the offering of the securities is, or the securities themselves are, to be used either to (i) finance the construction, acquisition or operation of gaming facilities in Nevada; or (ii) retire or extend obligations incurred for one or more such purposes. 40 42 If it were determined that the Nevada Act was violated by SDI, DPI or HICN, the gaming license each holds could be limited, conditioned, suspended or revoked. In addition, at the discretion of the Nevada Commission, Starwood Hotels, ITT, the Sheraton Desert Inn Companies and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act by the Desert Inn. Similarly, and also at the discretion of the Nevada Commission, Starwood Hotels, ITT, the Caesars Nevada Companies and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act by either Caesars Palace or Caesars Tahoe. Likewise, the Nevada Commission may exercise its discretion to impose substantial fines on Starwood Hotels, HICN and the persons involved for each separate violation of the Nevada Act by the King 8. Furthermore, a supervisor could be appointed by the Nevada Commission to operate the gaming property of SDI, DPI or HICN and, under certain circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental value of the affected gaming property) could be forfeited to the State of Nevada. Any suspension or revocation of the licenses or approvals, or the appointment of a supervisor, would have a material adverse effect on SDI, DPI or HICN, as the case may be. The Nevada Gaming Authorities may investigate and require a finding of suitability of any holder of any class of Starwood Hotels' voting securities at any time. Nevada law requires any person who acquires more than 5% of any class of Starwood Hotels' voting securities to report the acquisition to the Nevada Commission and such person may be investigated and found suitable or not suitable. Any person who becomes a beneficial owner of more than 10% of any class of Starwood Hotels' voting securities must apply for a finding of suitability by the Nevada Commission within 30 days after the Nevada Board Chairman mails a written notice requiring such filing, and must pay the costs and fees incurred by the Nevada Board in connection with the investigation. Under certain circumstances, an "institutional investor," as defined by the Nevada Act, that acquires more than 10% but not more than 15% of Starwood Hotels' voting securities may apply to the Nevada Commission for a waiver of such finding of suitability requirements if such institutional investor holds the voting securities for investment purposes only. An institutional investor will not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of either the Board of Directors or the Board of Trustees, any change in Starwood Hotels' corporate charter, bylaws, management, policies or operations or any of Starwood Hotels' casino gaming operations, or any other action which the Nevada Commission finds to be inconsistent with holding Starwood Hotels' voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and, (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. If the stockholder who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information, including a list of beneficial holders of its ownership interests. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission or by the Chairman of the Nevada Board may be found unsuitable. Any person found unsuitable who holds, directly or indirectly, any beneficial ownership of Starwood Hotels' debt or equity voting securities beyond such period or periods of time as may be prescribed by the Nevada Commission may be guilty of a gross misdemeanor. Starwood Hotels, ITT, the Desert Inn Companies or the Caesars Nevada Companies could be subject to disciplinary action if, without the prior approval of the Nevada Commission and after receipt of notice that a person is unsuitable to be an equity or debt security holder or to have any other relationship with Starwood Hotels, ITT, the Sheraton Desert Inn Companies or the Caesars Nevada Companies, any of such entities either (i) pays to the unsuitable person any dividend, interest or any distribution whatsoever; (ii) recognizes any voting right by such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form; (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction; or, (v) fails to pursue all lawful efforts to require such unsuitable person to relinquish his securities including, if necessary, the immediate purchase of such securities for cash at fair market value. 41 43 Regulations of the Nevada Commission provide that control of a registered publicly traded corporation cannot be changed through merger, consolidation, acquisition of assets, management or consulting agreements, or any form of takeover without the prior approval of the Nevada Commission. Persons seeking approval to control a registered publicly traded corporation must satisfy the Nevada Commission as to a variety of stringent standards prior to assuming control of such corporation. The failure of a person to obtain such approval prior to assuming control over the registered publicly traded corporation may constitute grounds for finding such person unsuitable. Regulations of the Nevada Commission also prohibit certain repurchases of securities by registered publicly traded corporations without the prior approval of the Nevada Commission. Transactions covered by these regulations are generally aimed at discouraging repurchases of securities at a premium over market price from certain holders of more that 3% of the outstanding securities of the registered publicly traded corporation. The regulations of the Nevada Commission also require prior approval for a "plan of recapitalization." Generally, a plan of recapitalization is a plan proposed by the management of a registered publicly traded corporation that contains recommended action in response to a proposed corporate acquisition opposed by management of the corporation if such acquisition would require the prior approval of the Nevada Commission. Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (collectively "Licensees"), and who proposes to become involved in a gaming operation outside the State of Nevada is required to deposit with the Nevada Control Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation by the Nevada Board of the Licensees' participation in such foreign gaming; the revolving fund is subject to increase or decrease in the discretion of the Nevada Commission. Once such revolving fund is established, the Licensees may engage in gaming activities outside the State of Nevada without seeking the approval of the Nevada Commission provided (i) such activities are lawful in the jurisdiction where they are to be conducted; and, (ii) the Licensees comply with certain reporting requirements imposed by the Nevada Act. Licensees are subject to disciplinary action by the Nevada Commission if they (i) knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operation; (ii) fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations; (iii) engage in activities that are harmful to the State of Nevada or its ability to collect gaming taxes and fees; or, (iv) employ a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the ground of personal unsuitability. New Jersey Gaming Regulation. The New Jersey gaming laws and regulations primarily concern (a) the financial stability and character of casino operators, their employees, their security holders and others financially interested in casino operations; and, (b) the operating methods and the financial and accounting procedures used in connection with casino operations. The New Jersey gaming laws and regulations include, among other requirements, detailed provisions concerning (i) the type, manner and number of applications and licenses required to conduct casino gaming and ancillary activities; (ii) the licensing, regulation and curricula of gaming schools; (iii) the establishment of minimum standards of accounting and internal control, including the issuance and enforceability of casino credit; (iv) the manufacture, sale, distribution and possession of gaming equipment; (v) the rules of the games; (vi) the exclusion of undesirable persons; (vii) the use, regulation and reporting of junket activities; (viii) the possession, sale and distribution of alcoholic beverages; (ix) the regulation and licensing of suppliers to licensed casino operators; (x) the conduct of entertainment within licensed casino facilities; (xi) equal employment opportunity for employees of licensed casino operators, contractors for casino facilities and other entities; (xii) the payment of gross revenue taxes and similar fees and expenses; (xiii) the conduct of casino simulcasting; and, (xiv) the imposition and discharge of casino reinvestment development obligations. A number of these regulations require practices which are different from those in many casinos elsewhere and some of them result in casino operating costs greater than those in comparable facilities elsewhere. As a prerequisite to being licensed, a New Jersey hotel/ casino facility must meet certain facilities requirements concerning, among other things, the size and number of guest rooms. 42 44 BRC is licensed to operate Caesars Atlantic City by the New Jersey Commission, which has broad discretion with regard to the issuance, renewal, revocation or suspension of licenses. A New Jersey casino license is not transferable and must be renewed at designated periods of up to four years. Renewal is not automatic and involves an extensive review by the New Jersey DGE, a report by the New Jersey DGE to the New Jersey Commission, an independent review by the New Jersey Commission, and the affirmative vote of at least four of the five sitting Commissioners of the New Jersey Commission. The casino license to operate Caesars Atlantic City was renewed on November 30, 1996, and expires on November 30, 2000. As a prerequisite to BRC holding a license, ITT, Caesars and CNJ have been and are approved by the New Jersey Commission due to their corporate relationship to BRC. Starwood Hotels also is required to be approved by the New Jersey Commission, and has received interim casino authorization. Except for certain banking and lending institutions exempted under the New Jersey Act, all financial backers, investors, mortgagees, debt holders, landlords under leases relating to Starwood Hotels' New Jersey hotel/casino facilities, all lenders to BRC, all officers and directors of BRC and all employees who work at Caesars Atlantic City have to be qualified, licensed, approved or registered by or with the New Jersey Commission. In addition, all contracts and leases entered into by BRC are subject to approval by the New Jersey Commission. Any holder of the debt or equity securities of Starwood Hotels, Caesars or CNJ must be found qualified; the qualification requirement may be waived based on an express finding by the New Jersey Commission, with the consent of the Director of the New Jersey DGE, that the security holder either (a)(i) is not significantly involved in the activities of BRC; (ii) does not have the ability to control Starwood Hotels, ITT, Caesars, CNJ or BRC; and (iii) does not have the ability to elect one or more members of the Board of Directors, the Board of Trustees, or the respective boards of directors of ITT, Caesars, CNJ or BRC; or (b) is an "institutional investor." The New Jersey Act presumes that any security holder that is not an "institutional investor" who owns or beneficially holds 5% or more of Starwood Hotels' equity securities has the ability to control Starwood Hotels, ITT, Caesars, CNJ or BRC, unless such presumption is rebutted by clear and convincing evidence. The New Jersey Act and regulations define an "institutional investor" as (i) any retirement fund administered by a public agency for the exclusive benefit of Federal, state or local public employees; (ii) an investment company registered under the Investment Company Act of 1940; (iii) a collective investment trust organized by banks under Part Nine of the Rules of the Comptroller of the Currency; (iv) a closed end investment trust; (v) a chartered or licensed life insurance company or property and casualty insurance company; (vi) banking or other licensed or chartered lending institutions; (vii) an investment advisor registered under the Investment Advisors Act of 1940; or, (viii) such other persons as the New Jersey Commission may determine for reasons consistent with the policies of the New Jersey Act. In the absence of a prima facie showing by the Director of the DGE that there is any cause to believe that such institutional investor may be found unqualified, upon application and for good cause shown, an institutional investor holding either (a) less than 10% of Starwood Hotels' equity securities; or, (b) debt securities constituting less than 20% of Starwood Hotels' outstanding debt and less than 50% of the issue involved may be granted a waiver of qualification as to such holdings if (i) such securities are those of a publicly traded corporation; (ii) the institutional investor's holdings of such securities were purchased for investment purposes only; and, (iii) upon request by the New Jersey Commission, the institutional investor files with the New Jersey Commission a certified statement to the effect that the institutional investor has no intention of influencing or affecting the affairs of Starwood Hotels, ITT, Caesars, CNJ or BRC; notwithstanding the foregoing, the institutional investor is permitted to vote on matters put to the vote of the outstanding security holders of Starwood Hotels. If an institutional investor who has been granted a waiver subsequently determines to influence or affect Starwood Hotels' affairs, the institutional investor must provide to the New Jersey Commission not less than 30 days' prior notice of such intent and the institutional investor must file with the New Jersey Commission an application for qualification before taking any action that may influence or affect Starwood Hotels' affairs; notwithstanding the foregoing, the institutional investor is permitted to vote on matters put to the vote of Starwood Hotels' outstanding security holders. If an institutional investor changes its investment intent, or if 43 45 the New Jersey Commission finds reasonable cause to believe that the institutional investor may be found unqualified, no action other than divestiture shall be taken by that institutional investor until there has been compliance with the interim casino authorization provisions of the New Jersey Act, including the execution of a trust agreement. Starwood Hotels, ITT, Caesars, CNJ and BRC are required to immediately notify the New Jersey Commission and the New Jersey DGE of any information about, or action of an institutional investor holding Starwood Hotels' equity or debt securities where such information or action may impact on the eligibility of such institutional investor for a waiver. If the New Jersey Commission finds an institutional investor unqualified or if the New Jersey Commission finds that, by reason of the extent or nature of its holdings, an institutional investor is in the position to exercise a substantial impact on the controlling interests of BRC so that qualification of the institutional investor is necessary to protect the public interest, the New Jersey Act vests in the New Jersey Commission the power to take all necessary action to protect the public interest, including the power to require that the institutional investor submit to qualification and become qualified under the New Jersey Act. Any holder of Starwood Hotels' debt or equity securities, including an institutional investor, who is required to be found qualified by the New Jersey Commission must submit an application for qualification within 30 days after being ordered to do so or divest all security holdings within 120 days after the New Jersey Commission determines such qualification is required. The application for qualification must include a trust agreement by which the security holder places its interest in Starwood Hotels' securities in trust with a trustee qualified by the New Jersey Commission. If the security holder is ultimately found qualified, the trust agreement is terminated. In connection with the ITT Merger, Starwood Hotels petitioned for and, on January 28, 1998 received, interim casino authorization under the provisions of the New Jersey Act, including the execution of a trust agreement. Starwood Hotels has filed an application for plenary qualification, which, pursuant to the New Jersey Act, the New Jersey Commission will act upon within nine months from the date interim casino authorization was granted. If the security holder is not found qualified or withdraws its application for qualification, the trustee will be empowered with all rights of ownership pertaining to such security holder's securities, including all voting rights and the power to sell the securities; in any event, the unqualified security holder will not be entitled to receive in exchange for its securities an amount in excess of the lower of (i) the actual cost the security holder incurred in acquiring the securities; or, (ii) the value of such securities, calculated as if the investment had been made on the date the trust became operative. If the security holder is not found qualified, it is unlawful for the security holder to (i) receive any dividends or interest on such securities; (ii) exercise, directly or through any trustee or nominee, any right conferred by such securities; or, (iii) receive any remuneration in any form from Starwood Hotels, ITT, Caesars, CNJ or BRC for services rendered or otherwise. Each officer, director, lender and certain other persons of Starwood Hotels, ITT, Caesars and CNJ must be found qualified unless the New Jersey Commission, with the consent of the Director of the New Jersey Commission, with the consent of the Director of the New Jersey DGE, finds that such officer, director, lender or other person is not significantly involved in the affairs of BRC and is thus waived from qualification. New Jersey law requires that an officer or director of Starwood Hotels, ITT, Caesars or CNJ must apply for temporary qualification at least 30 days before assuming any duties. The New Jersey Act requires that each of Starwood Hotels, ITT, Caesars, CNJ and BRC maintain financial stability and capability. For purposes of these requirements, the New Jersey Commission has adopted regulations defining "financial stability" and has set forth certain standards for determining compliance with the financial stability regulations. Under the regulations of the New Jersey Commission, "financial stability" has been defined as (i) the ability to assure the financial integrity of casino operations by the maintenance of a casino bankroll or equivalent provisions adequate to pay winning wagers to casino patrons when due; (ii) the ability to meet ongoing operating expenses which are essential to the maintenance of continuous and stable casino operations; (iii) the ability to pay, as and when due, all local, state and Federal taxes and any and all fees imposed by the New Jersey Act; (iv) the ability to make necessary capital and maintenance expenditures in a timely manner which are adequate to insure maintenance of a superior first class facility of exceptional quality as required by the New Jersey Act; and, (v) the ability to pay, exchange, refinance or extend debts, including long-term and short-term principal and interest and capital lease obligations, which will mature or 44 46 otherwise come due and payable during either the license term or within 12 months after the end of the license term or to otherwise manage such debts and any default with respect to the debts. The New Jersey Commission regulations provide that the financial stability standards concerning casino bankroll, operating expenses and capital and maintenance expenditures are met if the following is shown by clear and convincing evidence: (i) casino bankroll -- the maintenance, on a daily basis, of a casino bankroll at least equal to the average daily casino bankroll, calculated on a monthly basis, for the corresponding month in the previous year; (ii) operating expenses -- the demonstration of the ability to achieve positive gross operating profit measured on an annual basis; and, (iii) capital and maintenance expenditures -- the demonstration that its capital and maintenance expenditures over the five-year period, which includes the previous 36 calendar months and the upcoming license period, average at least 5% of net revenue per annum. Starwood Hotels believes that, at current operating levels, BRC will have no difficulty in complying with these requirements. The New Jersey Commission has the authority to restrict or prohibit the transfer of cash or the assumption of liabilities by BRC if such action will adversely impact the financial stability of BRC and the prior approval of the New Jersey Commission is required to incur indebtedness and guarantees of affiliated indebtedness by BRC involving amounts greater than $25 million. If it were determined that New Jersey gaming laws were violated by BRC, BRC could be subject to fines or its casino license could be limited, conditioned, suspended or revoked. In addition, if a security holder of Starwood Hotels, ITT, Caesars, CNJ or BRC is found disqualified but does not dispose of the securities, the New Jersey Commission is authorized to take any necessary action to protect the public interest, including the suspension or revocation of the casino license. The New Jersey Commission, however, will not take any action against Starwood Hotels, ITT, Caesars, CNJ or BRC in connection with a disqualified holder if the New Jersey Commission finds that (i) Starwood Hotels has provided in its corporate and trust charters that Starwood Hotels' securities are held subject to the condition that, if a holder is found to be disqualified by the New Jersey Commission pursuant to the provisions of the New Jersey Act, such holder shall dispose of its interest in Starwood Hotels; (ii) Starwood Hotels has made a good faith effort, including the prosecution of all legal remedies, to comply with any order of the New Jersey Commission requiring the divestiture of the interest held by the disqualified holder; and, (iii) such disqualified holder does not have the ability to control Starwood Hotels, ITT, Caesars, CNJ or BRC or to elect one or more members of the Board of Directors, the Board of Trustees or the respective boards of directors of ITT, Caesars, CNJ or BRC. If BRC's license is revoked, not renewed or suspended for a period in excess of 120 days, the New Jersey Commission is empowered to appoint a conservator to operate, and to dispose of, BRC's casino/hotel facilities. If a conservator operates the casino/hotel facilities, payments to shareholders would be limited to a "fair return" on their investment, with any excess going to the State of New Jersey. If a conservator is appointed, the conservator's charges and expenses become a lien against the property which has priority over all prior and subsequent liens. Any suspension or revocation of the licenses or approvals, or the appointment of a conservator would have a material adverse effect on BRC. Mississippi Gaming Regulation. Gaming in Mississippi can be legally conducted only on vessels of a certain minimum size either in navigable waters of counties bordering the Mississippi River or in the waters of the State of Mississippi which lie adjacent to the coastline of the three counties bordering the Gulf of Mexico. STC possesses a license for the ownership and operation of The Sheraton Casino & Hotel in Robinsonville, Tunica County, Mississippi issued by the Mississippi Commission pursuant to the Mississippi Act. The Mississippi Act does not restrict the amount or percentage of space on a vessel that may be utilized for casino gaming; the Mississippi Act also does not limit the number of licenses that the Mississippi Commission can grant for a particular area. Starwood Hotels, ITT and STC are required to submit detailed financial, operating and other reports to the Mississippi Commission. Substantially all loans, leases, sales of securities and similar financing transactions entered into by Starwood Hotels, ITT or by STC must be reported to or approved by the Mississippi Commission. Starwood Hotels, ITT and STC are also required periodically to submit detailed financial and operating reports to the Mississippi Commission and to furnish any other information which the Mississippi Commission may require. 45 47 Each of the directors, officers and certain key employees of Starwood Hotels, ITT and STC who are actively and directly engaged in the administration or supervision of casino gaming in Mississippi, or who have any other significant involvement with the activities of STC, must be found suitable therefor and may be required to be licensed by the Mississippi Commission. A finding of suitability is comparable to licensing, and both require the submission of detailed personal and financial information followed by a thorough investigation. An application for licensing may be denied for any cause deemed reasonable by the Mississippi Commission. Changes in licensed positions must be reported to the Mississippi Commission. In addition to its authority to deny an application for a license, the Mississippi Commission has the authority to disapprove a change in corporate position. If the Mississippi Commission finds a director, officer or key employee of Starwood Hotels, ITT or STC unsuitable for licensing or unsuitable to continue having a relationship with Starwood Hotels, ITT or STC, such entity is required to suspend, dismiss and sever all relationships with such person. Starwood Hotels, ITT and STC have similar obligations with regard to any person who fails or refuses to file appropriate applications. Each gaming employee must obtain a work permit; the Mississippi Commission may refuse to issue a work permit to a gaming employee (i) if the employee has committed larceny, embezzlement or any other crime of moral turpitude or knowingly violated the Mississippi Act or the regulations of the Mississippi Commission; or (ii) for any other reasonable cause. Mississippi gaming licenses are not transferable and must be renewed periodically. The Mississippi Commission is empowered to deny, limit, condition, revoke and/or suspend any license, finding of suitability or registration, and to fine any person as it deems reasonable and in the public interest, subject to the due process considerations of notice and an opportunity for a hearing. The Mississippi Commission may fine any licensee or other person that is subject to the Mississippi Act up to $100,000 for each violation of the Mississippi Act that is the subject of an initial complaint and up to $250,000 for each violation of the Mississippi Act that is the subject of any subsequent complaint. License fees and taxes, computed in various ways depending on the type of casino gaming involved, are payable to the State of Mississippi and to the counties and cities in which gaming operations are located. Generally, these fees and taxes are based on a percentage of the gross gaming revenues received by the casino operation, the number of slot machines operated by such casino, or the number of table games operated by such casino. Moreover, several local governments have been authorized to impose either additional gross fees on adjusted gross gaming revenues or, alternatively, per person boarding fees and annual license fees based on the number of gaming devices aboard the vessel. License fees paid to the State of Mississippi are allowed as a credit against Mississippi state income taxes. In all other material respects, casino gaming regulation in Mississippi is similar to the regulation of casino gaming in Nevada and New Jersey. Ontario Gaming Regulation. Windsor Casino Limited ("WCL"), which is half-owned by Caesars and which operates the casino in Windsor, Ontario, Canada, is required to comply with licensing requirements similar to Nevada and New Jersey and is also subject to operational regulation by the Province of Ontario. Pursuant to the Ontario Act, the Registrar of the Ontario Commission must approve any change in the directors or officers of WCL. The Ontario Act also provides that the Ontario Commission may require the submission of certain disclosures and informational material from any person who has an interest in WCL. Starwood Hotels will submit in a timely manner to the Registrar the required disclosures and informational material. Under the Ontario Act, no person may provide goods or services for a casino or other business operated by, on behalf of or under contract with the Ontario Casino Corporation unless, among other things, that person is registered as a supplier under the Ontario Act. The Registrar has the power, subject to the Ontario Act, to grant, renew, suspend or revoke registrations. The Registrar is entitled to make such inquiries and conduct such investigations as are necessary to determine that applicants for registration meet the requirements of the Ontario Act and to require information or material from any person who has an interest in an applicant for registration as a registrant. The criteria to be considered in connection with registration under the Ontario Act include financial responsibility, integrity, honesty and the public interest. The Registrar may, at any time, 46 48 subject to the provisions of the Ontario Act, revoke, suspend or refuse to renew WCL's registration under the Ontario Act. Nova Scotia Gaming Regulation. Sheraton Casino Nova Scotia ("SCNS"), the subsidiary of ITT that owns and operates the casino in the City of Halifax, Nova Scotia, and operates the casino in the City of Sydney, Nova Scotia, is required to comply with licensing requirements similar to the Province of Ontario and is also subject to operational regulation by the Province of Nova Scotia. Under the Nova Scotia Act, the Director of Registration of the Nova Scotia Commission must be notified, within 15 days, of any change in the officers or directors of SCNS. SCNS is also required to file a disclosure form with the Director of Registration within 15 days of (i) a person acquiring a beneficial interest in the business of SCNS; (ii) a person exercising control, either directly or indirectly, over the business of SCNS; or (iii) a person providing financing, either directly or indirectly, to the business of SCNS. The Nova Scotia Act also provides that the Director of Registration may require information or material from SCNS or any person who has an interest in SCNS. Starwood Hotels has or will submit on a timely basis all required disclosure forms and informational materials as applicable. Indiana Gaming Regulation. As a result of Caesars' planned riverboat casino development in Harrison County, Indiana, Starwood Hotels and ITT are subject to the gaming regulations in force in that state. Indiana currently imposes regulations on gaming companies similar to, and in Starwood Hotels' opinion, no more restrictive than, the gaming regulations in force in Nevada and New Jersey. The riverboat also must comply with U.S. Coast Guard requirements as to boat design, on-board facilities, equipment, personnel and safety and must hold a Certificate of Seaworthiness or must be approved by the American Bureau of Shipping for stabilization and flotation. The U.S. Coast Guard requirements establish design standards, set limits on the operation of the vessel and require individual licensing of all personnel involved with the operation of the vessel. Loss of the vessel's Certificate of Seaworthiness or the American Bureau of Shipping approval would preclude its use as a floating casino. The land-based facilities developed and used in connection with the riverboat are subject to local zoning and building codes. Under the Indiana Act and regulations prior approval of the ITT Merger was not required and Starwood Hotels must file for approval of the ITT Merger within 45 days of the closing of the ITT Merger. Starwood Hotels will file all required applications in a timely manner. Provisions of the Corporation's Articles of Incorporation Related to Casino Gaming. The Articles of Incorporation provide that (i) all Starwood Hotels' securities are subject to redemption to the extent necessary to prevent the loss, or to secure the reinstatement, of any casino gaming license held by any of Starwood Hotels' subsidiaries in any jurisdiction within or without the United States; (ii) all Starwood Hotels' securities are held subject to the condition that if a holder is found by a gaming authority in any jurisdiction to be disqualified or unsuitable pursuant to any gaming law, such holder will be required to dispose of all such securities; failing such disposition, the Corporation may redeem the securities at the lesser of their market price or the disqualified holder's original purchase price; and (iii) it is unlawful for any such disqualified person to (a) receive payments of interest or dividends on any such securities; (b) exercise, directly or indirectly, any rights conferred by any such securities; or (c) receive any remuneration in any form, for services rendered or otherwise, from the subsidiary that holds the gaming license in the applicable jurisdiction. ITEM 3. LEGAL PROCEEDINGS. There are various legal actions pending against the Company, some of which involve claims for substantial amounts. Although there can be no assurance as to the ultimate outcome of any litigation involving the Company, managements of the Trust and the Corporation do not believe that any pending legal proceeding will have, after taking into account the Company's existing insurance coverage, indemnification rights and provisions for such liabilities, a material adverse effect on the consolidated financial condition of the Company. 47 49 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. THE TRUST On December 12, 1997, the Trust held its 1997 annual meeting of shareholders (the "Trust Meeting"). At the Trust Meeting, the shareholders of the Trust (i) approved the Company's acquisition of Westin by the Company pursuant to the Westin Transaction Agreement; (ii) approved an amendment to the Declaration of Trust changing the name of the Trust and increasing the number of authorized shares of beneficial ownership of the Trust; (iii) elected to the Board of Trustees Jean-Marc Chapus, Bruce W. Duncan and Barry S. Sternlicht, each to serve for a three-year term; and (iv) approved the amendment and restatement of the Starwood Hotels & Resorts 1995 Long-Term Incentive Plan (the "Trust's LTIP"). Messrs. Stuart M. Rothenberg, Barry S. Sternlicht, Steven R. Goldman, Roger S. Pratt, Stephen R. Quazzo, Madison F. Grose, and George J. Mitchell continued to serve as Trustees following the Trust Meeting. The following table sets forth, with respect to each matter voted upon at the Trust Meeting, the number of votes cast for, the number of votes cast against, and the number of votes abstaining (or, with respect to the election of Trustees, the number of votes withheld) with respect to such matter:
VOTES VOTES VOTES FOR AGAINST ABSTENTIONS WITHHELD ---------- --------- ----------- -------- Acquisition of Westin......................... 40,620,168 31,988 42,251 Amendment of the Declaration of Trust......... 40,610,170 36,130 48,083 Election of Trustees: Jean-Marc Chapus............................ 44,832,723 51,063 Bruce W. Duncan............................. 44,840,223 43,563 Barry S. Sternlicht......................... 44,830,743 53,043 Amendment and Restatement of the Starwood Hotels & Resorts 1995 Long-Term Incentive Plan........................................ 36,442,273 4,171,142 80,991
THE CORPORATION On December 12, 1997, the Corporation held its 1997 annual meeting of stockholders (the "Corporation Meeting"). At the Corporation Meeting, the stockholders of the Corporation (i) approved the Company's acquisition of Westin pursuant to the Westin Transaction Agreement; (ii) approved an amendment to the Articles of Incorporation changing the name of the Corporation and increasing the number of authorized Corporation Shares; (iii) elected as Directors Jonathan D. Eilian and Barry S. Sternlicht, each to serve for a three-year term; and (iv) approved the amendment and restatement of the Starwood Hotels & Resorts Worldwide, Inc. 1995 Long-Term Incentive Plan (the "Corporation's LTIP"). Messrs. Juergen Bartels, Barry S. Volpert, Michael A. Leven, Daniel H. Stern, Bruce M. Ford, Graeme W. Henderson, Earle F. Jones and Daniel W. Yih continued to serve as Directors following the Corporation Meeting. The following table sets forth, with respect to each matter voted upon at the Corporation Meeting, the number of votes cast for, the number of votes cast against, and the number of votes abstaining (or, with respect to the election of Directors, the number of votes withheld) with respect to such matter:
VOTES VOTES VOTES FOR AGAINST ABSTENTIONS WITHHELD ---------- --------- ----------- -------- Acquisition of Westin......................... 40,613,653 30,271 51,000 Amendment of the Articles of Incorporation.... 40,600,579 37,075 57,269 Election of Directors: Jonathan D. Eilian.......................... 44,839,367 44,419 Barry S. Sternlicht......................... 44,827,160 56,626 Amendment and Restatement of the Starwood Hotels & Resorts Worldwide, Inc. 1995 Long- Term Incentive Plan......................... 35,110,792 5,487,347 83,478
48 50 PART II ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET INFORMATION The Paired Shares are traded principally on the New York Stock Exchange (the "NYSE") under the symbol "HOT." The following table sets forth, for the fiscal periods indicated, the high and low sales prices per Paired Share on the NYSE Composite Tape.
HIGH LOW ------ ------ 1997 Fourth quarter............................................. $60.38 $52.13 Third quarter.............................................. $57.44 $41.56 Second quarter............................................. $42.81 $34.25 First quarter.............................................. $45.88 $34.50 1996 Fourth quarter............................................. $36.75 $27.42 Third quarter.............................................. $27.92 $22.08 Second quarter............................................. $25.75 $21.17 First quarter.............................................. $23.25 $19.67
HOLDERS As of March 27, 1998, there were approximately 47,936 holders of record of Paired Shares, including approximately 25,883 holders of record of ITT Shares converted into Paired Shares in connection with the ITT Merger who have not yet surrendered their certificates. 49 51 DISTRIBUTIONS MADE/DECLARED The following table sets forth certain information with respect to distributions made by the Trust during the years ended December 31, 1997 and 1996:
DISTRIBUTIONS RETURN OF CAPITAL MADE GAAP Basis (a) ------------- ----------------- 1997 Fourth quarter.............................................. $0.48(b) $0.23 Third quarter............................................... $0.48 $0.48 Second quarter.............................................. $0.39 $0.01 First quarter............................................... $0.39 $0.21 1996 Fourth quarter.............................................. $0.39(c)(d) $0.22 Third quarter............................................... $0.33 $0.14 Second quarter.............................................. $0.33 -- First quarter............................................... $0.31 $0.11
- --------------- (a) Represents distributions per Paired Share in excess of net income per Paired Share on a generally accepted accounting principles ("GAAP") basis, and is not the same as return of capital on a tax basis. (b) The Trust declared a distribution for the fourth quarter of 1997 to shareholders of record on December 31, 1997. The distribution was paid in January 1998. (c) The Trust declared a distribution for the fourth quarter of 1996 to shareholders of record on December 30, 1996. The distribution was paid in January 1997. (d) During the fourth quarter of 1996, the Trust and the Corporation each declared a three-for-two stock split in the form of a 50% stock dividend payable to shareholders of record on December 30, 1996. The stock dividend was paid in January 1997. 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. Under the terms of the Company's current credit facilities, the Trust is generally permitted to distribute to its shareholders on an annual basis cash in an amount equal to the greater of (i) 55% of adjusted funds from operations (as defined) for any four consecutive calendar quarters and (ii) the minimum amount necessary to maintain the Trust's tax status as a REIT. 50 52 ITEM 6. SELECTED FINANCIAL DATA. The following data sets forth certain financial information for each of the Trust and the Corporation, and the Trust and the Corporation on a combined basis. This information is based on and should be read in conjunction with the financial statements and the notes thereto appearing elsewhere in this Joint Annual Report.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) OPERATING DATA Revenue: Trust................................. $270,768 $115,059 $ 44,023 $ 21,671 $ 20,342 Corporation........................... 913,688 410,156 149,184 110,962 114,828 Combined(1)........................... 933,583 428,538 161,716 113,997 117,155 Income (Loss) before Extraordinary Items: Trust(2).............................. $ 50,747 $ 33,589 $ 12,864 $ (3,465) $ (3,889) Corporation(2)........................ (9,223) (7,715) (1,739) (1,198) (3,143) -------- -------- -------- -------- -------- Combined.............................. $ 41,524 $ 25,874 $ 11,125 $ (4,663) $ (7,032) Income (Loss) from Continuing Operations: Trust(2).............................. $ 47,295 $ 33,589 $ 10,709 $ (3,465) $ (3,889) Corporation(2)........................ (9,223) (6,638) (1,739) (1,198) (3,143) -------- -------- -------- -------- -------- Combined.............................. $ 38,072 $ 26,951 $ 8,970 $ (4,663) $ (7,032) Income (Loss) before Extraordinary Items Per Share/Paired Share(3): Trust................................. $ 1.10 $ 1.15 $ 1.10 $ (1.14) $ (1.28) Corporation(4)........................ (0.20) (0.26) (0.15) (0.39) (1.04) Combined(4)........................... 0.90 0.88 0.95 (1.53) (2.32) Income (Loss) from Continuing Operations Per Share/Paired Share(3): Trust................................. $ 1.03 $ 1.14 $ 0.92 $ (1.14) $ (1.28) Corporation(4)........................ (0.20) (0.22) (0.15) (0.39) (1.04) Combined(4)........................... 0.83 0.92 0.77 (1.53) (2.32) Income (Loss) from Continuing Operations Per Share/Paired Share Assuming Dilution(3): Trust................................. $ 0.97 $ 1.12 $ 0.92 $ (1.14) $ (1.28) Corporation(4)........................ (0.20) (0.22) (0.15) (0.39) (1.04) Combined(4)........................... 0.78 0.90 0.77 (1.53) (2.32)
AT DECEMBER 31, -------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA Total Assets: Trust.............................. $2,772,423 $1,233,366 $425,737 $162,245 $232,845 Corporation........................ 558,651 185,192 120,721 48,626 49,993 Combined(1)........................ 3,009,464 1,312,740 459,994 183,955 195,352 Total Debt: Trust.............................. $1,439,294 $ 477,603 $119,200 $146,734 $156,526 Corporation........................ 448,330 107,781 90,749 40,664 101,846 Combined(1)........................ 1,566,014 479,566 123,485 160,482 170,886 Shareholders' Equity (Deficit): Trust.............................. $ 982,626 $ 569,300 $204,728 $ 10,450 $ 72,205 Corporation........................ 38,997 23,361 10,740 (1,742) (58,879) ---------- ---------- -------- -------- -------- Combined........................... 1,021,623 592,661 215,468 8,708 13,326 Paired Shares outstanding at end of period(3).......................... 51,346 40,078 20,697 3,033 3,033
51 53
AS OF AND FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1997 1996 1995 1994 1993 ----------- --------- --------- -------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) CASH FLOW AND DIVIDEND DATA Net cash provided by (used in) operating activities: Trust.............................. $ 176,671 $ 61,589 $ 11,267 $ 4,455 $ 3,136 Corporation........................ (19,738) 12,578 5,144 4,438 2,396 Combined........................... 156,933 74,167 16,411 8,893 5,532 Net cash provided by (used in) investing activities: Trust.............................. $(1,217,133) $(726,427) $(175,506) $ 8,239 $ 2,474 Corporation........................ (93,230) (33,774) (44,003) 215 (4,426) Combined(1)........................ (1,220,138) (746,800) (181,995) 4,489 (3,645) Net cash provided by (used in) financing activities: Trust.............................. $ 1,046,470 $ 667,938 $ 164,694 $(13,357) $(7,307) Corporation........................ 104,996 34,190 42,671 (4,577) (1,138) Combined(1)........................ 1,061,241 688,727 169,851 (13,969) (6,752) Cash distributions to shareholders -- Trust.............................. $ 98,554 $ 46,218 $ 9,265 -- -- Corporation........................ 1,054 -- -- -- -- Cash distributions per share -- Trust(3)........................... $ 1.74 $ 1.36 $ 0.62 -- -- Corporation........................ -- -- -- -- --
- --------------- (1) The individual amounts with respect to the Trust and Corporation do not add to Combined amounts due to accounting elimination entries. (2) For the Trust, includes gains (losses) on sales in the amount of $3,171,000, $4,290,000, ($125,000), $432,000 and ($53,000) for the years ended December 31, 1997, 1996, 1995, 1994 and 1993, respectively; a charge for the settlement of Treasury locks of $25,000,000 for the year ended December 31, 1997; and provisions for investment losses of $759,000 and $2,369,000 in the years ended December 31, 1994 and 1993, respectively. For the Corporation, includes gains on sales of $3,864,000, $24,000 and $74,000 for the years ended December 31, 1997, 1994 and 1993, respectively. (3) As adjusted for a one-for-six reverse stock split in June 1995 and a three-for-two stock split in January 1997. (4) Options to purchase approximately 2.3 million Paired Shares and 557,000 Paired Shares and restricted stock grants of approximately 329,000 Paired Shares and 85,000 Paired Shares were outstanding during 1997 and 1996, respectively,but were not included in the computation of earnings per share assuming dilution for the Corporation because the effect would have been antidilutive. Accordingly, the individual amounts with respect to the Trust and Corporation may not add to the Combined amounts for 1997 and 1996. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. HISTORICAL RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 THE TRUST Rents from the Corporation, which are based largely on hotel revenues, increased $146.9 million for the year ended December 31, 1997, as compared to the corresponding period of 1996. The increase was primarily 52 54 the result of rents earned by the Trust on the 40 hotels acquired by the Trust during 1997. (See "Other Acquisitions -- 1997 Acquisitions" included in Item 1 of this Joint Annual Report.) The increase was also the result of earning a full year of rents by the Trust on hotels acquired by the Trust during 1996 (the "1996 Acquired Hotels"). The investment in the 1997 Acquired Hotels and the 1996 Acquired Hotels accounted for increased rents for the year ended December 31, 1997 of $87.4 million and $61.0 million, respectively, as compared to the corresponding period in 1996. In addition, rents earned by the Trust from continuously owned properties leased to the Corporation decreased by $1.5 million for the year ended December 31, 1997, as compared to the corresponding period in 1996, due to 1997 and 1996 sales of hotel assets. Interest from the Corporation increased by $7.3 million for the year ended December 31, 1997, as compared to the corresponding period of 1996. The increase in interest income was primarily a result of interest relating to first mortgages on the Westin Regina Portfolio, which was acquired by the Corporation in August 1997 and interest on the first mortgage on the Midland Hotel, which hotel was acquired by the Corporation in March 1996. Interest from mortgage and other notes amounted to $13.7 million for the year ended December 31, 1997, as compared to $11.3 million for the corresponding period in 1996. The increase resulted from the purchase during 1996 of debt, a portion of which was secured by the 305-room Holiday Inn in Milpitas, California and which was repaid in December 1997, and a first mortgage note secured by the King 8 which was received as partial consideration for the sale of the Trust's interest in the King 8 in the fourth quarter of 1996. The increase was offset in part by principal amortization. Other income for the year ended December 31, 1997 includes a $1.2 million gain (net of related expenses) realized in conjunction with the sale of securities. Interest expense increased by $41.8 million for the year ended December 31, 1997, as compared to the corresponding period of 1996. The increase was due to borrowings under the Doral Mortgage Note, the BPP Mortgage, the Tax Exempt Bonds, the Stamford Note, and the Crowne Plaza Note used to acquire the 1996 Acquired Hotels and the 1997 Acquired Hotels. The increase was offset by the net proceeds from the offerings of Paired Shares made in 1997 used to partially fund the acquisition of the above-mentioned properties. Depreciation and amortization expense increased by $57.6 million during the year ended December 31, 1997, as compared to the corresponding period of 1996, principally due to the acquisition of the 1997 Acquired Hotels and a full year of depreciation expense relating to the 1996 Acquired Hotels. Administrative and general expenses for the year ended December 31, 1997, increased by $8.1 million to $12.2 million, as compared to $4.1 million for the corresponding period of 1996. The increase resulted predominantly from expenses related to the Trust's LTIP and the increase in payroll costs commensurate with the Company's growth. Net income for the year ended December 31, 1997 includes a $25 million charge relating to an accrual for a settlement of three interest rate protection agreements which expired on January 30, 1998 and were settled in January 1998. The Company did not issue the debt anticipated by such agreements due to various factors including its financing of the ITT Merger. Net income also includes an extraordinary loss of $4.4 million before minority interest resulting from early extinguishment of debt. The extraordinary loss represents financing costs associated with the Company's existing indebtedness which was retired upon entering into the $1.2 Billion Facility (as defined below). Minority interest represents primarily the interest of the Starwood Partners and other limited partners in the Realty Partnership for the year ended December 31, 1997, $2.7 million relating to the 41.8% minority interest of a third party in the joint venture that owns the Boston Park Plaza hotel and $1.4 million relating to the minority interest of a third party in the joint venture that owns the Doral Court and Doral Tuscany hotels. THE CORPORATION Hotel revenues increased by $503.8 million for the year ended December 31, 1997, as compared to the corresponding period of 1996. The assumption of management of the 1997 Acquired Hotels and the addition 53 55 of the Westin Regina Portfolio and the Turnberry Hotel and Golf Resort resulted in an increase in hotel revenues of $270.3 million for the year ended December 31, 1997. The remaining increase of $233.5 million for the year ended December 31, 1997, is attributable to the full year impact of revenues from the 1996 Acquired Hotels and other continuously owned properties. Hotel gross margin for the year ended December 31, 1997, was $274.8 million, or 30.9% of hotel revenues, as compared to $110.1 million, or 28.6% of hotel revenues, for the same period of 1996. Gaming revenues for the year ended December 31, 1997 as compared to the corresponding period of 1996 decreased by $8.6 million to $15.0 million. Gaming gross margin for the year ended December 31, 1997 was a loss of $1.5 million, as compared to a profit of $1.8 million for the corresponding period in 1996. The decrease in gaming revenues and the decline in gaming gross margin predominately resulted from operations at Bourbon Street, which was sold on September 12, 1996. The real property of the King 8 was also sold in 1996 for approximately $18.8 million. The sale of the personal property of the King 8, for $3 million, is scheduled to close following the receipt by the purchaser or his designee of required gaming approval. HICN, a subsidiary of the Corporation, leases the real property from the purchaser and has agreed to continue to operate the hotel and casino while the purchaser obtains required gaming licenses and approvals. Management fees and other income for the year ended December 31, 1997, includes $1.1 million of management fee income from the joint venture that owns the Boston Park Plaza hotel and $2.5 million of management fee income from the HEI Managed Hotels. Administrative and general expenses for the year ended December 31, 1997, increased to $15.0 million or 1.6% of revenues as compared to $12.4 million or 3.0% of revenues for the corresponding period of 1996. The increase was primarily a result of increases in payroll costs commensurate with the Company's growth, the assumption of management of hotels and expenses incurred as a result of the Corporation's LTIP. Administrative and general expenses for the year ended December 31, 1996, included a $1.9 million charge for costs relating to the relocation of the corporate office from Los Angeles, California to Phoenix, Arizona. Depreciation and amortization expense increased by $12.1 million for the year ended December 31, 1997, as compared to the corresponding period of 1996. The increase was primarily a result of depreciation relating to hotels acquired by the Corporation. Minority interest represents primarily the interest of the Starwood Partners and other limited partners in the Operating Partnership and approximately $2.9 million related to the 41.8% minority interest of a third party in the joint venture that owns the Boston Park Plaza hotel. For more information with respect to rent and interest paid to the Trust during the years ended December 31, 1997 and 1996, see "The Trust" immediately above. EXTERNAL GROWTH During the year ended December 31, 1997, the Company acquired equity interests in 44 hotels containing more than 12,800 rooms at a combined cost exceeding $1.4 billion. For a list of the hotels acquired during 1997, see "Other Acquisitions -- 1997 Acquisitions" included in Item 1 of this Joint Annual Report. INTERNAL GROWTH On a same-store-sales basis, including the results of all hotels acquired prior to December 31, 1997 except the Doral Inn in New York City, New York, which underwent a substantial renovation during 1997, and three hotels held for sale (the Milwaukee Sheraton in Milwaukee, Wisconsin; the Bay Valley Hotel & Resort in Bay City, Michigan; and the Tyee Hotel in Olympia, Washington), for the period from their respective dates of acquisition (if acquired in 1997) as compared to the same period in 1996, REVPAR for the year ended December 31, 1997, increased 8.0% from $67.33 to $72.69 over the same period in 1996. The increase in REVPAR resulted from an increase in ADR of 8.6%, from $96.16 to $104.41, while the occupancy rate decreased slightly to 69.6% from 70.0%. Excluding the Doral Inn and the three hotels held for sale as well as 54 56 six hotels in Atlanta, Georgia whose results are not comparable to 1996 due to the nonrecurrence of the Olympic games, REVPAR increased 9.4% to $73.31 from $67.00 in the corresponding period in 1996. The overall increase in REVPAR for the year ended December 31, 1997, was largely attributable to the strong increase in REVPAR at the Company's upscale hotels. These hotels experienced an increase in REVPAR of 8.5% for the year ended December 31, 1997, as compared to the corresponding period of 1996. ADR for the Company's upscale hotels increased 8.1% for the year ended December 31, 1997, as compared to the corresponding period in 1996. The following tables summarize average occupancy, ADR and REVPAR for the Company's 99 owned and operated (including owned but third-party managed hotels and including the Acquired Properties and properties acquired by the Corporation for the period beginning with their respective dates of acquisition and ending at the end of each period; and excluding the Doral Inn and the three hotels held for sale), non-gaming hotels for the years ended December 31, 1997 and 1996:
YEAR ENDED DECEMBER 31, ----------------- 1997 1996 ------- ------ 95 NON-GAMING HOTELS: Occupancy rate.............................................. 69.6% 70.0% ADR......................................................... $104.41 $96.16 REVPAR...................................................... $ 72.69 $67.33 REVPAR % change............................................. 8.0%
YEAR ENDED DECEMBER 31, ----------------- 1997 1996 ------- ------ 78 UPSCALE/LUXURY HOTELS: Occupancy rate.............................................. 69.5% 69.3% ADR......................................................... $108.07 $99.99 REVPAR...................................................... $ 75.14 $69.26 REVPAR % change............................................. 8.5%
YEAR ENDED DECEMBER 31, ---------------- 1997 1996 ------ ------ 17 MIDSCALE/ECONOMY HOTELS: Occupancy rate.............................................. 70.1% 73.9% ADR......................................................... $85.62 $77.63 REVPAR...................................................... $60.03 $57.39 REVPAR % change............................................. 4.6%
Management believes that increases in REVPAR resulted primarily from increases in demand due to continued favorable economic conditions which have resulted in increased business and leisure travel throughout the United States, while the supply of hotel rooms has not increased as rapidly, particularly in major urban locations. Revenue increases for the year were greatest at the recently renovated Radisson Park Central in Dallas, Texas; the recently acquired properties in the Southern California and New England regions; and the three resort properties in Mexico. REVPAR declined significantly at the Doral Inn in New York, New York, which was partially closed for renovation during the year. Management believes that there are several important factors that have contributed to the improved profitability of hotel properties, including increased ADR and effective cost management. Because a substantial portion of the hotels' operating costs and expenses are generally fixed, the Company derives substantial operating leverage from increases in revenue. However, the Company's continued investment in full-service properties has led to a larger component of food and beverage revenue when compared to the same period last year. Despite the larger food and beverage component, the Company's continued focus on 55 57 increasing gross margins through cost containment and cost reductions resulted in increases in gross margins of 340 basis points from 33.6% to 37.0% for the year ended December 31, 1997. During the year ended December 31, 1997, consistent with its business objective to capture the economic benefits otherwise retained by a third-party operator, the Company assumed management of a total of 48 hotels including 38 hotels acquired during the period. Management believes that the assumption of direct control over the operations of these hotels will allow the Company to effectively use the experience of management to improve operations. During the year ended December 31, 1997, the Company completed an approximately $12.0 million renovation of the Radisson Park Central hotel in Dallas, Texas; an approximately $6.0 million renovation of the Westin in Washington, DC; an approximately $5.0 million renovation of the Edmond Meany Tower hotel in Seattle, Washington; an approximately $4.0 million renovation of the Westin Tampa Airport in Tampa, Florida; an approximately $7.0 million renovation of the Sheraton Colony Square hotel in Atlanta, Georgia; and an approximately $5.7 million renovation of the Westin Guest Suites at the Philadelphia International Airport in Philadelphia, Pennsylvania. Renovations have also been scheduled and should be completed in 1998 and 1999 for the Terrace Garden in Atlanta, Georgia (approximately $8.5 million); the Atlanta Marque in Atlanta, Georgia (approximately $6.8 million); the Days Inn at the Philadelphia Airport (approximately $3.4 million); the Midland Hotel in Chicago, Illinois (approximately $13.0 million); and the Park Plaza hotel in Boston, Massachusetts (approximately $49.2 million). 56 58 RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 THE TRUST Rents from the Corporation, which are based largely on hotel revenues, increased $60.9 million for the year ended December 31, 1996, as compared to the corresponding period of 1995. The increase was primarily the result of rents earned by the Trust on the 1996 Acquired Hotels. The investment in the 1996 Acquired Hotels accounted for increased rents of $59.7 million for the year ended December 31, 1996, as compared to the corresponding period in 1995. In addition, rents earned by the Trust from continuously owned properties leased to the Corporation increased by $1.2 million for the year ended December 31, 1996, as compared to the corresponding period in 1995. Interest from the Corporation increased by $4.3 million for the year ended December 31, 1996, as compared to the corresponding period of 1995. The increase in interest income was primarily a result of interest on the mortgage interests relating to the Milwaukee Sheraton Hotel, which mortgage interests were purchased by the Trust in July 1995, and interest on the first mortgage of the Midland Hotel, which hotel was acquired by the Corporation in March 1996. Interest from mortgage and other notes amounted to $11.2 million for the year ended December 31, 1996, as compared to $10.8 million for the corresponding period in 1995. The increase resulted from the purchase during the year of debt, a portion of which is secured by the 305-room Holiday Inn in Milpitas, California, offset in part by principal amortization. Other income for the year ended December 31, 1996 included a $290,000 gain (net of related expenses) realized in conjunction with the sale of securities which were purchased in contemplation of acquiring a portfolio of hotel properties and a $750,000 gain (net of related expenses) realized in connection with the sale of other securities. Also included in other income is $314,500 recorded as a result of a litigation settlement. Interest expense increased by $10.7 million for the year ended December 31, 1996, as compared to the corresponding period of 1995. The increase was due to borrowings under loan and credit facilities, the Doral Mortgage and the BPP Mortgage, used to acquire the above mentioned properties offset by the net proceeds from offerings of Paired Shares made in 1996 used to partially fund the acquisition of the above mentioned properties. Depreciation and amortization expense increased by $33.5 million during the year ended December 31, 1996, as compared to the corresponding period of 1995, principally due to the acquisition of the 1996 Acquired Hotels. Administrative and general expenses for the year ended December 31, 1996 increased by $1.7 million to $4.1 million, as compared to $2.4 million for the corresponding period of 1995. The increase resulted predominantly from expenses related to the Trust's LTIP as well as costs incurred relating to the investigation of hotels which ultimately were not acquired. Administrative and general expenses includes payments of approximately $242,000 to a former officer of the Trust pursuant to his separation agreement with the Trust. Minority interest represents primarily the interest of the Starwood Partners in the Realty Partnership for the year ended December 31, 1996, and the 41.8% minority interest of a third party in the joint venture that owns the Boston Park Plaza hotel. THE CORPORATION Hotel revenues increased by $263.9 million for the year ended December 31, 1996, as compared to the corresponding period of 1995. The assumption of management of the 1996 Acquired Hotels and the addition of the 652-room Doral Inn in New York, New York; the 293-room Radisson Marque hotel in Winston-Salem, North Carolina and the 257-room Midland Hotel in Chicago, Illinois resulted in increases in hotel revenues of $249.1 million for the year ended December 31, 1996. The remaining increase of $14.8 million for the year ended December 31, 1996 is attributable to other continuously owned properties. 57 59 Hotel gross margin for the year ended December 31, 1996 was $110.1 million, or 28.6% of hotel revenues, as compared to $36.2 million, or 29.9% of hotel revenues, for the same period of 1995. The decrease in gross margin was primarily due to the increase in the food and beverage revenue component of total hotel revenue resulting from the Company's continued investment in full-service hotels offset, in part, by increases in REVPAR and the termination of third-party management agreements. Gaming revenues for the year ended December 31, 1996 as compared to the corresponding period of 1995 decreased by $3.3 million to $23.6 million. Gaming gross margin for the year ended December 31, 1996 was $1.8 million or 8% of gaming revenues, as compared to $2.7 million or 10% of gaming revenues, for the corresponding period in 1995. The decrease in gaming revenues and the decline in gaming gross margin predominately resulted from the sale of the Bourbon Street hotel/casino and the real property of the other gaming asset, the King 8 in 1996. Management fees and other income for the year ended December 31, 1996 includes a $314,500 litigation settlement and $953,500 of management fee income from the joint venture that owns the Boston Park Plaza hotel. Administrative and general expenses for the year ended December 31, 1996 increased to $12.4 million or 3.0% of revenues as compared to $3.3 million or 2.2% of revenues for the corresponding period of 1995. The increase was primarily a result of increases in payroll costs commensurate with the Company's growth, the assumption of management of hotels previously operated by third parties, and expenses related to the Corporation's LTIP. Administrative and general expenses for the year ended December 31, 1996 included a $1.9 million charge relating to costs incurred in relocating the corporate office from Los Angeles, California to Phoenix, Arizona. Depreciation and amortization expense increased by $6.7 million for the year ended December 31, 1996, as compared to the corresponding period of 1995. The increase was primarily a result of depreciation relating to hotels acquired by the Corporation. Minority interest represents primarily the interest of the Starwood Partners in the Operating Partnership and the 41.8% minority interest of a third party in the joint venture that owns the Boston Park Plaza hotel. Net income for the year ended December 31, 1996, includes an extraordinary gain of $1.5 million before minority interest resulting from early extinguishment of debt. The extraordinary gain resulted from the early payoff, at a discount, of a note secured by the Milwaukee Sheraton. In addition, the Corporation purchased the remaining equity interest for $240,000 and became the 100% owner of the hotel. For more information with respect to rent and interest paid to the Trust during the years ended December 31, 1996 and 1995, see "The Trust" immediately above. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW PROVIDED BY OPERATING ACTIVITIES The principal source of cash to be used to fund the Company's operating expenses, interest expense, recurring capital expenditures and distribution payments by the Trust will be cash flow provided by operating activities. The Company anticipates that cash flow provided by operating activities will provide the necessary funds on a short and long-term basis to meet operating cash requirements including all distributions to shareholders by the Trust. During the first quarter of 1997, the Trust paid a distribution of $0.39 per share for the fourth quarter of 1996. During the second quarter of 1997, the Trust paid a distribution of $0.39 per share for the quarter ending March 31, 1997. During the third quarter of 1997, the Trust paid a distribution of $0.39 per share for the quarter ended June 30, 1997. During the fourth quarter of 1997, the Trust paid a distribution of $0.48 per share for the quarter ended September 30, 1997 and declared a distribution of $0.48 per share for the quarter ended December 31, 1997. This distribution was paid on January 26, 1998. 58 60 CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES The Company intends to finance the acquisition of additional hotel properties, hotel renovations and capital improvements and provide for general corporate purposes through its credit facilities described below, through additional lines of credit, and when market conditions warrant, to issue additional equity or debt securities. Loans and Credit Facilities. In March 1996, the Realty Partnership entered into a $24 million, one-year, non-recourse secured term loan (the "Term Loan") to fund the acquisition of the 257-room Midland Hotel in Chicago, Illinois; in April 1996, the amount of the Term Loan was increased to $94 million. The Term Loan was secured by nine properties of the Company, but was non-recourse to the Realty Partnership. The Term Loan accrued interest at a rate equal to one-, two- or three-month LIBOR, at the Company's option, plus (a) 1.95% for the first $24 million of borrowings and (b) 1.75% for the balance of amounts borrowed under the Term Loan. The maturity date of the Term Loan was extended to October 1997 with a right to further extend at the Company's option to April 1998. In September 1997, the Company retired the Term Loan with a portion of the proceeds from the $1.2 Billion Facility (defined below). In March 1996, the joint venture that owns the Boston Park Plaza ( in which the Company holds a 58.2% interest) refinanced a mortgage secured by the Boston Park Plaza with a new non-recourse mortgage due July 2003 (the "BPP Mortgage") in the amount of $25 million with the Life Insurance Company of Georgia. The BPP Mortgage bears interests at an annual interest rate of 8.4%; as of December 31, 1997, the balance outstanding under the BPP Mortgage was $24.8 million. In July 1996, the maturity date of the Company's mortgage loan funding facility with Lehman Brothers, Inc. ("Lehman Brothers" and such facility the "Mortgage Facility"), which was secured by six notes receivable, was extended from January 25, 1997 to July 25, 1997 and, in July 1997, was further extended to October 1997. In September 1997, the Company retired the Mortgage Facility with a portion of the proceeds from the $1.2 Billion Facility. In August 1996, the Company entered into a facility with an affiliate of Goldman, Sachs & Co. ("Goldman, Sachs" and such facility the "Goldman Facility") for a one-year (extendible to 18 months) loan of up to $300 million to fund a portion of the acquisition cost of a portfolio of nine hotels acquired from Hotels of Distinction Ventures, Inc. (the "HOD Portfolio") and for general corporate purposes. The Goldman Facility bore interest at one-month LIBOR plus 1.75% (2.75% during the six-month extension period), and was secured by a portfolio of eight hotels acquired from a financial institution and the HOD Portfolio. In September 1997, the Company retired the Goldman Facility with a portion of the proceeds from the $1.2 Billion Facility. In September 1996, upon the acquisition of the Doral Court and Doral Tuscany in New York, the Company assumed liability under and amended the terms of a mortgage note with The Sumitomo Trust and Banking Co., Ltd. (the "Doral Mortgage Note"). As amended, the Doral Mortgage Note is recourse to the Realty Partnership, bears interest at an annual rate of 7.64% and is due September 2001. As of December 31, 1997, the balance outstanding under the Doral Mortgage Note was $27.4 million. In February 1997, the Corporation issued (and the Trust guaranteed) tax-exempt bonds (the "Tax Exempt Bonds") due October 2013 in the aggregate principal amount of $39.5 million. The Tax Exempt Bonds, which bear interest at a rate of 6.5%, were issued at a discount to yield 6.7% per year and are secured by two hotels of the Company located at the Philadelphia International Airport. Net proceeds from the Tax Exempt Bonds of approximately $37.6 million were used to partially fund the acquisition of the 578-room Days Inn in Chicago, Illinois. As of December 31, 1997, the balance outstanding under the Tax Exempt Bonds was $39.5 million. In February 1997, in connection with the acquisition of the HEI Portfolio, the Company obtained a short-term loan from the Prudential Insurance Company of America on behalf of Prudential Property Investment Separate Account II in the principal amount of $97.5 million (the "Prudential Loan"). The Prudential Loan bore interest at a rate of 7.0% per annum and was originally due May 30, 1997. During the second quarter of 1997, the Company extended the maturity date of the Prudential Loan to July 14, 1997. In July 1997, the 59 61 Company refinanced the Prudential Loan with a portion of the proceeds from the $200 Million Facility (as defined below). On June 12, 1997, the Company acquired ownership and operational control of the 480-room Stamford Sheraton Hotel in Stamford, Connecticut. In connection with this transaction, the Company executed a $10.25 million mortgage note (the "Stamford Note") in favor of Lehman Brothers and certain of its affiliates. The Stamford Note is secured by the Stamford Sheraton Hotel, bears interest at LIBOR plus 225 basis points and matures on January 31, 2000. As of December 31, 1997, the balance outstanding under the Stamford Note was $10.25 million. In July 1997, the Company entered into a $200 million three-year unsecured term loan facility arranged by Bankers Trust Company (the "$200 Million Facility"). Proceeds from the $200 Million Facility, which bore interest at one-, two- or three-month LIBOR plus 1.75% per annum, were used to repay the Prudential Loan and for other acquisitions. In September 1997, the Company retired the $200 Million Facility with a portion of the proceeds from the $1.2 Billion Facility. On August 5, 1997, in connection with the acquisition of the Westin Regina Portfolio, the Company obtained a $118.75 million loan from Bancomer, SA (the "Bancomer Loan"). The Bancomer Loan is secured by mortgages on the Westin Regina Portfolio, bears interest at one-month LIBOR plus 169 basis points and matures on May 14, 1998. As of December 31, 1997, the balance outstanding under the Bancomer Loan was $118.75 million. On September 10, 1997, the Company obtained a $1.2 billion three-year unsecured revolving credit and term loan facility (the "$1.2 Billion Facility"). The $1.2 Billion Facility was arranged and structured by Bankers Trust Company and co-arranged by affiliates of Lehman Brothers with Bank Boston and Bank of Montreal. The $1.2 Billion Facility was structured as a $600 million unsecured revolving credit facility and a $600 million term loan. At closing, the Company used proceeds from the $1.2 Billion Facility to retire approximately $650 million of its existing indebtedness and to fund the acquisition of the Flatley Portfolio for approximately $470 million. As of December 31, 1997, the balance outstanding under the $1.2 Billion Facility was $1.183 billion. On September 24, 1997, in connection with the acquisition of the 439-room Crowne Plaza Hotel in New Orleans, Louisiana, the Company entered into a $29.0 million mortgage loan agreement with Hibernia National Bank (the "Crowne Plaza Mortgage"). The Crowne Plaza Mortgage is secured by the Crowne Plaza Hotel in New Orleans, bears interest at one-month LIBOR plus 200 basis points and matures on September 1, 2002. As of December 31, 1997, the balance outstanding under the Crowne Plaza Mortgage was $29.0 million. On December 31, 1997, in connection with the Westin Merger, certain assets of the Westin Companies were transferred to the Corporation. As consideration for such asset transfers, the Corporation has executed and delivered to the Westin Companies certain promissory notes in an aggregate principal amount of approximately $125.7 million. The notes bear interest at 6% per annum, were acquired by the Trust as part of the Westin Merger on January 2, 1998 and are currently payable on demand. On January 2, 1998, the Company obtained a $2.265 billion credit facility (the "$2.2 Billion Facility") from a group of lenders led by Bankers Trust Company and The Chase Manhattan Bank to fund the cash portion of the purchase of Westin for approximately $178 million and to repay an aggregate of approximately $1.0 billion of outstanding debt of Westin and of the Company under the $1.2 Billion Facility. On February 23, 1998, the Company obtained two additional credit facilities ($5.6 billion in total) with Lehman Brothers, Bankers Trust Company and The Chase Manhattan Bank to fund the cash portion of the ITT Merger consideration, to refinance a portion of the Company's existing indebtedness (including indebtedness outstanding under the $2.2 Billion Facility) and to provide funds for general corporate purposes. These facilities are comprised of a $3.1 billion senior secured credit facility (the "$3.1 Billion Facility") and a $2.5 billion, five-year increasing rates notes facility (the "IRN Facility"). The $3.1 Billion Facility has three tranches: a $1.0 billion, one year term loan, a $1.0 billion, a five year term loan, and a $1.1 billion, five-year revolving credit facility. The Corporation, the Trust and certain of their 60 62 respective direct and indirect subsidiaries may be designated as borrowers or co-borrowers under all or a portion of the $3.1 Billion Facility. The interest rate for the $3.1 Billion Facility is one-, two- or three-month LIBOR, at the Company's option, plus 187.5 basis points for the four months ending June 24, 1998, one-, two-or three-month LIBOR plus 162.5 basis points for the two months ending August 24, 1998, and thereafter is determined pursuant to a pricing "grid" with rates based on the Company's leverage and/or senior unsecured debt rating. Quarterly amortization of the five-year term loan begins in the third year, with total amortization of 10%, 20% and 70% of the principal amount over the third, forth and fifth year, respectively. Repayment of amounts borrowed under the $3.1 Billion Facility is guaranteed by the Trust and the Corporation and substantially all of their respective significant subsidiaries (including the Partnerships) other than gaming subsidiaries, and is secured by a pledge of all the capital stock, partnership interests and other equity interests of the guarantor subsidiaries. The IRN facility consists of a single drawdown senior increasing rate, non-amortizing five-year term loan for $2.5 billion. The Corporation is the borrower under the IRN Facility; the Trust and all subsidiaries of the Corporation and the Trust that are borrowers or guarantors of the $3.1 Billion Facility are guarantors of the IRN Facility. The IRN Facility is secured equally and ratably by all the collateral securing the $3.1 Billion Facility and is pari passu in right of payment with all other senior indebtedness of the borrower and the guarantors, including the $3.1 Billion Credit Facility. Amounts borrowed under the IRN Facility bear interest at one-, two- or three-month LIBOR plus 175 basis points for the three months ending May 24, 1998, with the interest rate increasing by 50 basis points every three months thereafter, up to a maximum rate of one-, two-or three-month LIBOR plus 375 basis points. Recent Stock Sales. On March 26, 1997, the Company sold 3,000,000 Paired Shares at a net price to the Company of approximately $43.35 per share in a public offering. The net proceeds of approximately $130.0 million were used, in part, to fund the acquisitions of the 264-suite Marriott Suites Hotel in San Diego, California, the 172-room Raphael Hotel in Chicago, Illinois and the 130-room Tremont Hotel in Chicago, Illinois, and for general corporate purposes. On October 2, 1997, the Company completed the sale of approximately 2.5 million Paired Shares at the net price of $53.00 per Paired Share to a group of institutional buyers in a direct placement. Net proceeds from this sale of approximately $131.6 million were used to repay existing indebtedness. On October 15, 1997, the Company sold to Union Bank of Switzerland ("UBS") 2,185,000 Paired Common Shares (the "UBS Shares"), in a private placement, at a net price of $57.25 per share. Net proceeds of this offering (after payment of a customary placement fee to UBS) were used to repay existing indebtedness. Separately, the Company entered into a Forward Stock Agreement with UBS (the "UBS Price Adjustment Agreement"). The UBS Price Adjustment Agreement provides for a settlement payment to be made, in the form of Paired Shares, by the Company to UBS, or by UBS to the Company, based on the market price of the UBS Shares over a specified unwind period, as compared to a "Forward Price" (as defined, but essentially equal to $57.25 per Paired Share, plus an implicit interest factor less dividends declared on the UBS Shares, in each case during the term of the UBS Price Adjustment Agreement). The Company has the right at any time during a preliminary term of one year to elect to deliver or receive Paired Shares in settlement of the UBS Price Adjustment Agreement. The Company has the further right, but not the obligation, to settle by repurchasing for cash all of the UBS Shares at the Forward Price. The Company has the obligation to settle the UBS Price Adjustment Agreement at the end of one year unless UBS agrees to extend its term. UBS has the right to cause an earlier settlement upon the occurrence of certain events of default or a substantial decline in the market price of the Paired Shares. The Company has the right under the UBS Price Adjustment Agreement to settle the Company's obligation (if any) by making a cash payment, but cannot compel UBS to settle UBS's obligation through the payment of cash to the Company. In the event that at various quarterly dates during the term of the UBS Price Adjustment Agreement the Forward Price is higher than the then current market price of the Paired Common Stock, the Company is obligated to deliver additional Paired Shares (or at the Company's election, cash) to UBS to be held as 61 63 security for the Company's settlement obligation. In February 1998 the Company paid $7,835,000 to UBS as such security. The Company may, prior to April 15, 1998, deliver Paired Shares to UBS and receive the return of the Company's cash deposit. Any and all Paired Shares delivered as security will be issued and outstanding when delivered and will adjust the Forward Price in accordance with the formula contained in the UBS Price Adjustment Agreement. Upon final settlement of the UBS Price Adjustment Agreement, the Company is obligated to pay a placement fee based on the amount of the net stock settlement, if any, as well as an unwind accretion fee equal to one-half of the settlement amount multiplied by an interest factor calculated for the number of actual days the UBS Price Adjustment Agreement was in effect prior to final settlement. The Company is required to cause to be registered under the Securities Act of 1933, for resale by UBS, the Paired Shares sold to UBS on October 15, 1997 and the Paired Shares issued or issuable to UBS under the UBS Price Adjustment Agreement. On February 24, 1998, the Company sold an aggregate of 4,641,000 Paired Shares to Merrill Lynch International, NMS Services, Inc. and Lehman Brothers Inc. (collectively, the "February Purchasers"), in a private placement, for $245.0 million. The Company paid the February Purchasers a customary placement fee. Separately, the Company entered into agreements (the "February Price Adjustment Agreements") with the February Purchasers (and with Merrill Lynch, Pierce, Fenner & Smith Incorporated, NationsBanc Montgomery Securities LLC and Lehman Brothers Finance S.A., each of which is an affiliate of a February Purchaser) with terms that are essentially the same as the terms of the UBS Price Adjustment Agreement, except that (i) under the February Price Adjustment Agreements, the Company does not have any right to deliver cash in settlement of its obligation to deliver Paired Shares or any right to repurchase the shares sold to the February Purchasers, and (ii) the Forward Price under the February Price Adjustment Agreements is based on a price of $53.875 per share. The Company is required to cause to be registered under the Securities Act of 1933, for resale by the February Purchasers, the Paired Shares sold to the February Purchasers on February 24, 1998 and the Paired Shares issued or issuable to the February Purchasers under the February Price Adjustment Agreements. Treasury Locks. The Company from time to time has entered into interest rate protection agreements ("Treasury Locks") as a means of managing interest rate exposure on anticipated transactions. The Treasury Locks have the effect of fixing the base rate of interest for long-term debt that the Company intends to issue. The Treasury Locks provide that, on their settlement date, the Company will receive or pay an amount that will depend upon whether the interest rate for ten-year Treasury Notes in effect on that date (the "Treasury Rate") has increased or declined since the dates the Company entered into the Treasury Locks. If by the settlement date the related debt has been issued by the Company, these amounts will be capitalized and amortized over the term of such debt as an increase or decrease in interest expense. To the extent that the Company has not issued the related debt by the settlement date, the Company will be required to recognize the amount so paid or received as, respectively, gain or loss from continuing operations. In addition, if any time prior to the settlement date the Company changes its intention with respect to the issuance of the related debt, the Company will be required to recognize gain or loss as if the settlement had occurred at that time. The amount of such unrecognized gain or loss fluctuates with the Treasury Rate. In order for the amount paid or received to be deferred under such agreements, and therefore treated as a hedge, the Company must determine that it is probable that the future issuance of debt anticipated by the contract will occur. In order to assess whether this criterion has been met, the Company reviews current projections to determine if the issuance of such debt is still in line with the Company's plans and whether the Company has the ability to issue such debt. On May 27, 1997, the Company entered into an interest rate protection agreement which had the effect of fixing the base rate of interest at 6.773% for debt with an aggregate notional principal amount of $100 million and a term to maturity of five years. On October 10, 1997, the Company extended the settlement date to January 30, 1998, which had the effect of fixing the base rate of interest at 6.9105% for debt that the Company intended to issue in the first quarter of 1998. 62 64 On July 29, 1997, the Company extended the settlement date of a previously transacted interest rate protection agreement to January 30, 1998, which had the effect of fixing the base rate of interest at 6.09725% for debt that the Company intended to issue in the first quarter of 1998 with an aggregate notional principal amount of $100 million and a term to maturity of seven years. On July 29, 1997, the Company extended the settlement date of a previously transacted interest rate protection agreement to January 30, 1998, which had the effect of fixing the base rate of interest at 6.95% for debt that the Company intended to issue in the first quarter of 1998 with an aggregate notional principal amount of $150 million and a term to maturity of 10 years. During the fourth quarter of 1997, the Company determined that, due to various factors including its financing plans related to the ITT Merger, the Company no longer intended to issue the debt anticipated by the interest rate hedging agreements described above. Accordingly, the Company recorded a charge in the amount of $25 million for the year ended December 31, 1997 and in January 1998 settled the three Treasury Locks for approximately $22.4 million. CAPITAL IMPROVEMENTS As previously discussed, during the year ended December 31, 1997, the Company completed an approximately $16 million renovation of the Radisson Park Central hotel in Dallas, Texas; an approximately $7 million renovation of the Westin in Washington, DC; an approximately $6 million renovation of the Edmond Meany Tower hotel in Seattle, Washington; an approximately $4 million renovation of the Westin Tampa Airport in Tampa, Florida; an approximately $8 million renovation of the Sheraton Colony Square hotel in Atlanta, Georgia; and an approximately $6 million renovation of the Westin Guest Suites at the Philadelphia International Airport in Philadelphia, Pennsylvania. Renovations have also been scheduled and should be completed in 1998 and 1999 for the Terrace Garden in Atlanta, Georgia (approximately $9 million); the Atlanta Marque in Atlanta, Georgia (approximately $7 million); the Days Inn at the Philadelphia Airport (approximately $4 million); the Midland Hotel in Chicago, Illinois (approximately $13.0 million); and the Park Plaza Hotel in Boston, Massachusetts (approximately $49.2 million). Major and minor renovations, expansions and upgrades of other hotels are also being contemplated. In addition, the Company intends to develop new hotels on a selective basis. Sources of capital for major renovations, expansions and upgrades of hotels as well as new construction are expected to be: (i) excess funds from operations, (ii) additional debt financing, and (iii) additional equity raised in the public and private markets. Between January 1, 1995 and December 31, 1997, the Company invested over $2.5 billion in hotel assets (including approximately $157 million in capital expenditures for the year ended December 31, 1997); an additional $16.4 billion was invested in connection with the acquisitions of Westin and ITT. As part of its investment strategy, the Company plans to acquire additional hotels. Future acquisitions are expected to be funded through further draws under the Company's current credit facilities, draws under new lines of credit, issuance of long-term debt on either a secured or unsecured basis, issuance of limited partnership interests in the Realty Partnership and the Operating Partnership exchangeable for Paired Shares and the issuance of additional equity or debt securities. The Company intends to incur additional indebtedness in a manner consistent with its policy of maintaining a Debt-to-Total Market Capitalization Ratio (defined as total debt outstanding divided by the sum of total debt outstanding and the fair market value of the Paired Shares on a fully diluted basis, after giving effect to the conversion of outstanding Units) of not more than 50%. As of December 31, 1997, the Company had approximately $1.57 billion aggregate principal amount of debt outstanding and approximately 10% of the Company's owned hotels were encumbered by debt. Substantially all of this debt is subject to cross-default provisions (subject to certain limitations). As of March 30, 1998, the Company had approximately $8.1 billion aggregate principal amount of debt outstanding; see "Cash Flows from Investing and Financing Activities" immediately above. Although the Company's governing documents do not provide any limitations on the incurring of indebtedness, as discussed above, management currently plans to maintain a Debt-to-Total Market Capitalization Ratio of no more than 50%. During the year ended December 31, 1997, the Company's Debt-to-Total Market Capitalization Ratio did not exceed 50%. 63 65 Management believes that the Company will have access to capital resources sufficient to satisfy the cash requirements of each of the Trust and the Corporation and to expand and develop their business in accordance with their strategy for future growth. FUNDS FROM OPERATIONS Management believes that funds from operations ("FFO") is one measure of financial performance of an equity REIT such as the Trust. Combined FFO (as defined by the National Association of Real Estate Investment Trusts)(1) for the year ended December 31, 1997, grew by 130% to $190.1 million, compared to combined FFO of $82.7 million for the corresponding period in 1996. The following table shows the calculation of historical combined FFO for the indicated periods:
YEAR ENDED DECEMBER 31, ----------------------- 1997 1996 ---------- --------- (IN THOUSANDS) Income before extraordinary item and minority interest...... $ 60,208 $36,112 Depreciation and amortization............................... 125,446 55,745 Amortization of financing costs............................. (4,079) (4,548) Minority interest -- consolidated joint ventures............ (9,483) (2,121) Gain on sales of hotel assets............................... (7,035) (4,290) Corporate relocation costs.................................. -- 1,850 Treasury lock settlement.................................... 25,000 -- -------- ------- Funds From Operations....................................... $190,057 $82,748 ======== =======
FFO includes $5.5 million and $3.1 million of interest income recognized in excess of the interest received on mortgage notes receivable (as a result of the notes having been purchased at a discount) for the years ended December 31, 1997 and 1996, respectively. YEAR 2000 Many computer systems were originally designed to recognize calendar years by their last two digits. Calculations performed using these shortened fields may not work properly with dates from the year 2000 and beyond. The Company is undertaking a review and an evaluation of its existing computerized systems as part of a program to bring all such systems into Year 2000 compliance. As a part of this evaluation, the Company expects that its central reservation system will be Year 2000 compliant by the end of the third quarter of 1998. The Company is also communicating with vendors of the Company's third-party software to obtain Year 2000 compliance certification. The Company expects, to the extent necessary, to either modify or upgrade third-party software to ensure Year 2000 compliance. The Company has not yet determined the total cost of modifications to its computerized systems; however, based upon the review and evaluations conducted to date, the Company believes the costs associated with this process will not have a material adverse effect on the Company's results of operations or liquidity. - --------------- (1) Management and industry analysts generally consider funds from operations to be one measure of the financial performance of an equity REIT that provides a relevant basis for comparison among REITs and FFO is presented to assist investors in analyzing the performance of the Company. FFO is defined as income before minority interest (computed in accordance with generally accepted accounting principles), excluding gains (losses) from debt restructuring and sales of property, and real estate related depreciation and amortization (excluding amortization of financing costs). FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered an alternative to net income as an indication of the Company's financial performance or as an alternative to cash flows from operating activities as a measure of liquidity. 64 66 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and supplementary data required by this Item are included in Item 14 of this Joint Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. TRUSTEES, DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS. TRUSTEES AND EXECUTIVE OFFICERS OF THE TRUST The Board of Trustees currently has nine members, each of whom serves a three-year term. The following table sets forth, for each of the members of the Board of Trustees as of the date of this Joint Annual Report, the class of Trustees to which such Trustee has been elected and certain other information regarding the Trustees and executive officers of the Trust. TRUSTEES WHOSE TERMS EXPIRE AT THE 2000 ANNUAL MEETING
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE TRUSTEE SINCE ------------ -------------------------------------------- -------------- Jean-Marc Chapus (38)......... Managing Director and Portfolio Manager of November 1997 Trust Company of the West and President of TCW/Crescent Mezzanine L.L.C., a private investment fund, since March 1995. Prior to that time, Mr. Chapus was a Managing Director and Principal of Crescent Capital Corporation with primary responsibility for the firm's private lending and private placement activities. Mr. Chapus was a Director of the Corporation from August 1995 to November 1997, and is currently a member of the Board of Directors of Home Asset Management Company and Firstamerica Automotive, Inc. Bruce W. Duncan (46).......... President and Chief Executive Officer of The August 1995 Cadillac Fairview Corporation Limited since December 1995. From October 1994 to December 1995, President of Blakely Capital, Inc., a private firm focusing on investments in real estate and telecommunications. From 1992 to April 1994, Mr. Duncan was President and Co-Chief Executive Officer of JMB Institutional Realty Corporation and from 1984 to 1991 Executive Vice President of JMB Realty Corporation. Mr. Duncan is a member of the Board of Directors of the Canadian Institute of Public Real Estate Companies, the Urban Land Institute and the Board of Trustees of Kenyon College.
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NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE TRUSTEE SINCE ------------ -------------------------------------------- -------------- Stuart M. Rothenberg (34)..... Managing Director in the Real Estate January 1998 Principal Investment Area of Goldman, Sachs and the head of acquisitions for that company's Whitehall Real Estate Funds. Over the past 10 years, Mr. Rothenberg has held various management and other positions with Goldman, Sachs. Mr. Rothenberg is a director of The Archon Group, Gestion d'Actifs Haussmann and The Wellsford Whitehall, L.L.C. Pursuant to the Westin Transaction Agreement, the Trust has agreed to include Mr. Rothenberg (and such successors to Mr. Rothenberg as shall be designated by The Goldman Sachs Group, L.P. ("GS Group") or an affiliate thereof designated by GS Group) on each management slate of nominees to the Board of Trustees. This right to designate a Trustee will expire if affiliates of the GS Group sell (to unaffiliated persons) more than 75% of the securities of the Company received by affiliates of the GS Group in the transactions provided for in the Westin Transaction Agreement (or securities of the Company issued in exchange for such securities). Barry S. Sternlicht (37)...... Chairman and Chief Executive Officer of the December 1994 Trust. Mr. Sternlicht is the founder and General Manager of Starwood Capital Group, L.L.C., and was a co-founder in 1991 of its predecessor Starwood Capital Group, L.P. Mr. Sternlicht also has been the President and Chief Executive Officer of Starwood Capital Group, L.P. since its formation. Mr. Sternlicht is currently the Chairman of the Board of Directors of the Corporation, a Trustee of each of Equity Residential Properties Trust (a multi-family REIT) and Starwood Financial Trust (a REIT), and a Director of each of U.S. Franchise Systems and ITT Educational. Mr. Sternlicht is on the Board of Governors of National Association of Real Estate Investment Trusts ("NAREIT") and is a member of the Urban Land Institute and of the National Multi-Family Housing Council. Mr. Sternlicht is a member of the Board of Directors of the Council for Christian and Jewish Understanding, is a member of the Young Presidents Organization and is on the Board of Directors of Junior Achievement for Fairfield County, Connecticut.
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TRUSTEES WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE TRUSTEE SINCE ------------ -------------------------------------------- -------------- Steven R. Goldman (36)........ Executive Vice President of Acquisition and September 1996 Development of the Trust since March 1998. Mr. Goldman was Senior Vice President of the Trust from September 1996 through March 1998 and Senior Vice President of the Corporation from March 1995 to September 1996. Mr. Goldman was a Vice President of Starwood Capital Group, L.P. specializing in hotel acquisitions and hotel asset management from August 1993 to February 1995. From 1990 to 1993, he was Senior Development Manager of Disney Development Company, the real estate investment development and management division of The Walt Disney Company. Roger S. Pratt (45)........... Managing Director and Senior Portfolio February 1997 Manager of Prudential Real Estate Investors. Since January 1992, Mr. Pratt has been the portfolio manager for Prudential Property Investment Separate Account II, a real estate fund managed by Prudential Real Estate Investors for pension fund clients. Mr. Pratt has been with The Prudential Insurance Company of America ("Prudential") for more than 15 years, serving in a variety of roles in development, asset management, hotel management and administration. Mr. Pratt is a member of the American Institute of Certified Planners and serves on the Multi-Family Council of the Urban Land Institute. He is also a trustee of the George Street Playhouse. Mr. Pratt is the designee of Prudential on the Board of Trustees pursuant to a Contribution Agreement dated as of January 15, 1997, which entitles Prudential to be represented on the Board of Trustees for so long as Prudential meets certain share ownership criteria. Stephen R. Quazzo (38)........ Managing Director, Chief Executive Officer August 1995 and co-founder of Transwestern Investment Company, L.L.C., a real estate principal investment firm, since March 1996. From April 1991 to March 1996, Mr. Quazzo was President of Equity Institutional Investors, Inc., a subsidiary of Equity Group Investments, Inc., a Chicago-based holding company controlled by Samuel Zell. Mr. Quazzo is an advisory board member of City Year Chicago. TRUSTEES WHOSE TERMS EXPIRE AT THE 1998 ANNUAL MEETING Madison F. Grose (44)......... Managing Director and General Counsel of December 1994 Starwood Capital Group, L.L.C. (and its predecessor entities) since July 1992. From November 1983 through June 1992, he was a Partner in the law firm of Pircher, Nichols & Meeks. Mr. Grose is currently a Trustee of Starwood Financial Trust.
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TRUSTEES WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE TRUSTEE SINCE --------------------------- -------------------------------------------- -------------- George J. Mitchell (64)....... Special Counsel to the law firm of Verner, November 1997 Liipfert, Bernhard, McPherson and Hand since January 1995. Senator Mitchell served as a United States Senator from January 1980 to January 1995. While in the Senate, Senator Mitchell served on the Finance, Veterans Affairs and Environment and Public Works Committees, and was the Majority Leader from 1989 to 1995. Senator Mitchell serves as a director of The Walt Disney Company, Federal Express Corporation, Xerox Corporation and UNUM Corporation. In addition, Senator Mitchell serves as Chairman of the International Crisis Group, a non-profit organization dedicated to the prevention of crises in international affairs. From 1995 to 1997, Senator Mitchell served as the Special Advisor to the President of the United States on economic initiatives in Ireland. At the request of the British and Irish Governments, he served as Chairman of the International Commission on Disarmament in Northern Ireland, and now serves as Chairman of the peace negotiations in Northern Ireland. Senator Mitchell serves as Chairman of the Ethics Committee of the U.S. Olympic Committee and as Chairman of the National Health Care Commission created by the Pew Charitable Foundation.
The executive officers of the Trust serve at the pleasure of the Board of Trustees. There is no family relationship among any of the Trustees or executive officers of the Trust. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION The Board of Directors of the Corporation consists of 10 members, each of whom serves for a three-year term. The following table sets forth, for each of the members of the Corporation's Board of Directors as of the date of this Joint Annual Report, the class of Directors to which such Director has been elected and certain other information regarding such Director. DIRECTORS WHOSE TERMS EXPIRE AT THE 2000 ANNUAL MEETING
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DIRECTOR SINCE ------------ -------------------------------------------- -------------- Juergen Bartels (57).......... Chief Executive of the Company's Hotel Group January 1998 since March 1998. From May 1995 to March 1998, Chairman and Chief Executive Officer of Westin Hotels & Resorts. Prior to joining Westin, Mr. Bartels was the President and Chief Executive Officer of Carlson Hospitality Group, Inc. ("Carlson"), which controls Radisson Hotels International, T.G.I. Friday's restaurants and Country Inns and Suites. Prior to joining Carlson in 1983, Mr. Bartels was the President of Ramada's worldwide holding company and founder of Ramada Renaissance Hotels.
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NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DIRECTOR SINCE ------------ -------------------------------------------- -------------- Jonathan D. Eilian (30)....... Managing Director of Starwood Capital Group, August 1995 L.L.C. (and a senior executive of its predecessor entities) since its formation in September 1991. Prior to being a founding member of Starwood Capital, Mr. Eilian served as an Associate for JMB Realty Corporation, a real estate investment firm, and for The Palmer Group, L.P., a private investment firm specializing in corporate acquisitions. Mr. Eilian is currently a Trustee of Starwood Financial Trust. Barry S. Sternlicht (37)...... Chairman and Chief Executive Officer of the December 1994 Trust. Mr. Sternlicht is the founder and General Manager of Starwood Capital Group, L.L.C., and was a co-founder in 1991 of its predecessor Starwood Capital Group, L.P. Mr. Sternlicht also has been the President and Chief Executive Officer of Starwood Capital Group, L.P. since its formation. Mr. Sternlicht is currently the Chairman of the Board of Directors of the Corporation, a Trustee of each of ITT Educational Services, Inc., Equity Residential Properties Trust and Starwood Financial Trust, and a director of U.S. Franchise Systems. Mr. Sternlicht is on the Board of Governors of NAREIT and is a member of the Urban Land Institute and of the National Multi-Family Housing Council. Mr. Sternlicht is a member of the Board of Directors of the Council for Christian and Jewish Understanding, is a member of the Young Presidents Organization and is on the Board of Directors of Junior Achievement for Fairfield County, Connecticut. Barry S. Volpert (38)......... Managing Director in the Principal January 1998 Investment Area of Goldman, Sachs. Over the past 11 years, Mr. Volpert has held various other management positions with that company. Mr. Volpert is a director of Elifin S.A. (Luxembourg), Insilco Corp. and Rockefeller Center Properties, Inc. DIRECTORS WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING Michael A. Leven (60)......... Chairman of the Board, President and Chief August 1995 Executive Officer of U.S. Franchise Systems, a hotel franchising and development company, since September 1995. From October 1990 to September 1995, Mr. Leven was President and Chief Operating Officer of Holiday Inn Worldwide. Mr. Leven is a director of U.S. Franchise Systems and Servico, Inc. Mr. Leven is also a member of the Board of Governors, the Chairman of the BioMedical Services Board and a member of the Executive Committee, of the American Red Cross. Daniel H. Stern (37).......... President of Reservoir Capital Group, November 1997 L.L.C., a New York based investment management firm, since July 1997. Mr. Stern was a Trustee of the Trust from August 1995 to November 1997. From December 1992 to July 1997, Mr. Stern was President of Ziff Brothers Investments, L.L.C., a diversified investment management firm.
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NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DIRECTOR SINCE ------------ -------------------------------------------- -------------- DIRECTORS WHOSE TERMS EXPIRE AT THE 1998 ANNUAL MEETING Bruce M. Ford (58)............ President of F.K.B. Management Corporation, September 1983 a hotel and restaurant management company, since 1988. Member of Gibson 25 Associates, LLC, a hotel developer, since March 1995. President of Ford Management Corporation, a hotel/motel management and development company, since June 1988. President of FST and Associates from 1988 until August 1997. Prior to that time, Mr. Ford was Senior Vice President of Operations of Ramada Inns. Graeme W. Henderson (64)...... Chairman of the Trust from July 1989 to September 1986 December 1994 and Trustee of the Trust from September 1986 to December 1994. He has been a private investor since January 1990. Prior to January 1990, Mr. Henderson was President of Henderson Consulting, Inc., a private financial consulting firm. Mr. Henderson has been President of Capstan, Inc. (formerly Seymour, Inc.), a manufacturer of machine tool controls, since 1982. Mr. Henderson is currently a director of Capital Southwest Corporation. Earle F. Jones (71)........... Mr. Jones was the Chairman of the Board of September 1985 Directors of the Corporation from February 1989 to September 1997. He has been Co-Chairman since 1988 of MMI Hotel Group, a hotel company. From 1967 to 1968, Mr. Jones was President of the International Association of Holiday Inns and served two terms as a director. Mr. Jones is a Trustee and Chairman of Communications Improvement Trust, whose beneficiaries are public broadcasting and Tougaloo College Trust, a member of the Board of Trustees for each of Millsap College and the Catholic Foundation and Co-Chairman of the Mississippi Olympic Committee. Mr. Jones is a general partner of Orlando Plaza Suite Hotel, Ltd-A, which filed a petition under Chapter 11 of the U.S. Bankruptcy Code in May 1996. An order confirming the debtor's plan of reorganization was issued by the court on January 27, 1997. Daniel W. Yih (39)............ A general partner of Chilmark Partners, L.P. August 1995 since June 1995. Mr. Yih served as interim Chief Financial Officer of Midway Airlines (from September 1995 to December 1995), President of Merco-Savory, Inc., a manufacturer of food preparation equipment (from March 1995 to June 1995) and as a senior executive of Welbilt Corporation (from September 1993 to March 1995).
Pursuant to the Westin Transaction Agreement, the Corporation has agreed to include Barry S. Volpert (and such successors to Mr. Volpert as shall be designated by the GS Group or an affiliate thereof) and Juergen Bartels (to the extent he continues as Chief Executive Officer) on each management slate of nominees to the Board of Directors. This right to designate Directors of the Corporation will expire if affiliates of the GS Group sell (to unaffiliated persons) more than 50% of the securities of the Company received by affiliates of the GS Group in the transactions provided for in the Westin Transaction Agreement (or securities of the Company issued in exchange therefor). 70 72 The following table includes certain information with respect to each of the Corporation's current executive officers other than Mr. Bartels:
NAME AGE POSITION(S) WITH THE CORPORATION ---- --- -------------------------------- Susan R. Bolger...................... 44 Executive Vice President of Human Resources Ronald C. Brown...................... 43 Executive Vice President and Chief Financial Officer Theodore W. Darnall.................. 40 Executive Vice President, Hotel Operations, North America
Susan R. Bolger. Ms. Bolger has been Executive Vice President of Human Resources of the Corporation since March 1998 and was Senior Vice President of Human Resources of the Corporation from September 1996 to March 1998. From November 1994 to September 1996, she was Corporate Vice President of Human Resources for Wyndham Hotels and Resorts; prior to that time, she was Vice President for Human Resources for Arrow Industries, a division of Conagra. Ronald C. Brown. Mr. Brown has been Executive Vice President and Chief Financial Officer of the Corporation since March 1998 and was Senior Vice President and Chief Financial Officer of the Trust from July 1995 through March 1998. Prior to joining the Trust, Mr. Brown was President of Sonoran Hotel Advisors, L.L.C., a hotel REIT advisory firm, from August 1994 to July 1995. From December 1993 to August 1994, Mr. Brown was President of Doubletree Corporation, a public hotel operating company. From December 1990 to December 1993, Mr. Brown was Executive Vice President and Chief Financial Officer, and from April 1992, Chairman and Chief Executive Officer, of Doubletree Hotels Corporation. From March 1988 to April 1992, Mr. Brown was Vice President -- Finance & Accounting and Chief Financial Officer, and then Executive Vice President and Chief Financial Officer, for Canadian Pacific Hotels Corporation, a hotel operating company. Mr. Brown is also the Vice Chairman and a Director of Phoenix Children's Hospital. Theodore W. Darnall. Mr. Darnall was named the Corporation's Executive Vice President, Hotel Operations, North America in March 1998. From April 1996 to March 1998 he served as the Executive Vice President and Chief Operating Officer of the Corporation. Prior to joining the Corporation, Mr. Darnall served as the Senior Vice President -- Operations of Interstate Hotel Company from August 1995 to April 1996. Prior to that time, he served as the Regional Vice President -- Operations of Interstate Hotel Company. The executive officers of the Corporation serve at the pleasure of the Board of Directors. There is no family relationship among any of the Directors or executive officers of the Corporation. 71 73 ITEM 11. EXECUTIVE COMPENSATION SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION THE TRUST The following table provides certain summary information concerning the compensation paid for the fiscal years ended December 31, 1997, 1996 and 1995 to the Trust's Chief Executive Officer and each person serving as an executive officer of the Trust during the year ended December 31, 1997. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION --------------------------- RESTRICTED STOCK ANNUAL COMPENSATION AWARD(S) SECURITIES --------------------- ---------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) OPTIONS(#)(2) COMPENSATION($) --------------------------- ---- --------- --------- ---------- ------------- --------------- Barry S. Sternlicht........... 1997 307,500 2,650,00 400,000 Chairman and Chief 1996 181,252 250,000 956,250(3) 1,554,000 Executive Officer 1995 91,667 150,000 625,500 Gary M. Mendell(4)............ 1997 319,368 300,000 President Ronald C. Brown(5)............ 1997 200,000 250,000 40,000 Senior Vice President and 1996 175,000 100,000 540,000(6) 85,500 163,963(7) Chief Financial Officer 1995 66,666 65,000 82,500 Steven R. Goldman(8).......... 1997 200,000 250,000 50,000 Senior Vice President 1996 43,750 75,000 900,000(9) 90,000 44,112(7)
- --------------- (1) Value is calculated by multiplying the number of shares by the closing market price of the Paired Shares on the date of grant. (2) For additional information with respect to these options, see "Option Exercises and Holdings" below. (3) In February 1996, Mr. Sternlicht received restricted stock awards in the form of two warrants to purchase an aggregate of 45,000 Paired Shares at an exercise price of $0.67 per Paired Share. One warrant was exercisable in full on the grant date; the second warrant became exercisable in full in January 1997; and the exercisability of both warrants generally was conditioned upon Mr. Sternlicht's continued employment by the Trust. Mr. Sternlicht exercised both of these warrants in full in 1997, and the restricted stock issued upon these exercises has fully vested. Dividends were paid to Mr. Sternlicht with respect to this restricted stock award. The value of such Paired Shares at December 31, 1997 was $2,604,375, based on the closing price of the Paired Shares on the NYSE on such date ($57.875). (4) Mr. Mendell became an officer of the Trust in January 1997 and resigned such position in March 1998. (5) Mr. Brown became an officer of the Trust in July 1995; in March 1998 he resigned this position to become an executive officer of the Corporation. (6) Mr. Brown was granted a restricted stock award of 22,500 Paired Shares in August 1996. Such restricted stock award was originally scheduled to vest in annual installments during the three years ended August 12, 1999. In accordance with the change of control provisions of the Trust's LTIP, upon the consummation of the ITT Merger, such restricted stock award vested in full. Dividends were paid to Mr. Brown with respect to such restricted stock award. As of December 31, 1997, the value of such 22,500 Shares was $1,302,188, based on the closing price of the Paired Shares on the NYSE on such date ($57.875). (7) Amount shown reflects taxable reimbursement of relocation expenses. (8) Mr. Goldman became an executive officer of the Trust in September 1996. Prior to September 1996, Mr. Goldman was an officer of the Corporation. For services rendered during 1996, the Corporation paid Mr. Goldman $131,250 in salary and a bonus of $25,000. 72 74 (9) Mr. Goldman was granted a restricted stock award of 37,500 Paired Shares in August 1996. Such restricted stock award was originally scheduled to vest in annual installments during the three years ended August 12, 1999. In accordance with the change of control provisions of the Trust's LTIP, upon the consummation of the ITT Merger, such restricted stock award vested in full. Dividends were paid to Mr. Goldman with respect to such restricted stock award. As of December 31, 1997, the value of such 37,500 Paired Shares was $2,170,313 based on the closing price of the Paired Shares on the NYSE on such date ($57.875). THE CORPORATION The following table provides certain summary information concerning the compensation paid for the fiscal years ended December 31, 1997, 1996 and 1995 to the Corporation's Chief Executive Officer and each person serving as an executive officer of the Corporation during the year ended December 31, 1997. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION --------------------------- RESTRICTED STOCK ANNUAL COMPENSATION AWARD(S) SECURITIES -------------------- ---------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) OPTIONS(#)(2) COMPENSATION($) --------------------------- ---- --------- -------- ---------- ------------- --------------- Eric A. Danziger(3)............ 1997 365,000 375,000 President and Chief 1996 175,711 150,000 2,455,451(4) 300,000 201,312(5) Executive Officer Theodore W. Darnall(6)......... 1997 269,000 250,000 40,000 Executive Vice-President 1996 191,790 137,500 1,000,011(7) 150,000 41,758(5) and Chief Operating Officer Steven R. Goldman(8)........... 1996 131,250 25,000 Senior Vice President 1995 114,583 75,000 69,000 19,800(9) Alan M. Schnaid................ 1997 110,000 120,000 25,000 Vice President and Corporate 1996 85,228 22,500 9,750 69,918(10) Controller 1995 55,000 8,500 6,750
- --------------- (1) Value is calculated by multiplying the number of shares by the closing market price of the Paired Shares on the date of grant. (2) For information with respect to these options, see "Options Exercises and Holdings" below. (3) Mr. Danziger became an officer of the Corporation in July 1996 and resigned in February 1998. (4) Mr. Danziger was granted a restricted stock award of 100,222 Paired Shares in August 1996. Such restricted stock award was originally scheduled to vest in annual installments over the three years ended June 27, 1999. In accordance with the provisions of Mr. Danziger's employment contract, upon the termination of Mr. Danziger's employment with the Corporation, such restricted stock award vested in full. Dividends were paid to Mr. Danziger with respect to such restricted stock award. As of December 31, 1997, the value of such 101,222 Paired Shares was $5,800,348.25, based on the closing price of the Paired Shares on the NYSE on such date ($57.875). (5) Amount shown reflects taxable reimbursement of relocation expenses. (6) Mr. Darnall became an officer of the Corporation in April 1996. (7) Mr. Darnall was granted a restricted stock award of 45,283 Paired Shares in August 1996. Such restricted stock award was originally scheduled to vest in annual installments over the three years ended April 26, 1999. In accordance with the change of control provisions of the Corporation's LTIP, upon the consummation of the ITT Merger, such restricted stock award vested in full. Dividends were paid to Mr. Darnall with respect to such restricted stock award. As of December 31, 1997, the value of such 45,283 Paired Shares was $2,620,753.63, based on the closing price of the Paired Shares on the NYSE on such date ($57.875). 73 75 (8) Mr. Goldman resigned as an officer of the Corporation in September 1996, at which time he became an executive officer of the Trust. During 1996, the Trust paid Mr. Goldman $43,750 in salary and a bonus of $75,000, and reimbursed Mr. Goldman on a taxable basis for $44,112 of relocation expenses. (9) Amount shown reflects cash paid by the Corporation for housing allowance. (10) Amount shown reflects $46,635 for relocation allowance and $23,303 for taxable reimbursement of relocation expenses. OPTION GRANTS The following table shows, as to each executive officer of the Trust and each executive officer of the Corporation named in the Summary Compensation Tables above, certain information concerning the options granted to that officer during the year ended December 31, 1997. OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS --------------------------------------------------------- NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE SECURITIES OPTIONS/ AT ASSUMED ANNUAL RATES OF UNDERLYING SARS GRANTED STOCK PRICE APPRECIATION OPTIONS/ TO EMPLOYEES EXERCISE FOR OPTION TERM* SARS IN LAST PRICE --------------------------- NAME GRANTED FISCAL YEAR ($/SH.) EXPIRATION DATE 5%($) 10%($) ---- ---------- ------------ -------- ------------------ ------------ ------------ Barry S. Sternlicht.... 400,000 23.15 53.00 September 25, 2007 13,332,566 33,787,340 Ronald C. Brown........ 40,000 2.32 53.00 September 25, 2007 1,333,257 3,378,734 Steven R. Goldman...... 50,000 2.89 53.00 September 25, 2007 1,666,571 4,223,418 Theodore W. Darnall.... 40,000 2.32 53.00 September 25, 2007 1,333,257 3,378,734 Alan M. Schnaid........ 10,000 0.58 38.50 March 3, 2007 242,124 613,591 15,000 0.87 53.00 September 25, 2007 499,971 1,267,025 Gary M. Mendell........ 300,000 17.36 37.417 February 14, 2007 7,059,405 17,889,918
- --------------- * The dollar gains under these columns result from calculations assuming 5% and 10% growth rates as set by the Securities and Exchange Commission and are not intended to forecast future price appreciation of the Paired Shares. The gains reflect a future value based upon growth at these prescribed rates. The Company did not use an alternative formula for a grant date valuation, an approach that would state gains at present, and therefore lower, value. The Company is not aware of any formula that will determine with reasonable accuracy a present value based on future unknown or volatile factors. It is important to note that options have value to recipients, including the listed executives, only if the price of the Paired Shares advances beyond the grant date price shown in the table during the effective option period. The per Paired Share exercise price of each option listed in the table above is equal to the fair market value of a Paired Share on the day that option was granted. Each of the options listed in the table above (other than the option granted to Mr. Mendell) originally was to become exercisable in three equal annual installments commencing on the first anniversary of the option grant date. In accordance with the change of control provisions of the LTIPs, upon consummation of the ITT Merger, all of these options became immediately exercisable for the full amount of Paired Shares subject thereto. The option granted to Mr. Mendell originally became exercisable as to one-fifth of the shares subject thereto on each of the second, third and fourth anniversaries of the option grant date, and as to the balance of these shares on the fifth anniversary of the grant date. Upon the termination of Mr. Mendell's employment with the Corporation, the option became exercisable in full. 74 76 OPTION EXERCISES AND HOLDINGS The following table provides certain information with respect to the options held as of December 31, 1997 by the executive officers of the Trust and the executive officers of the Corporation named in the Summary Compensation Tables above. AGGREGATED OPTION/SAR EXERCISES IN 1997 AND DECEMBER 31, 1997 OPTION VALUES
NUMBER OF SHARES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT FISCAL OPTIONS/SARS VALUE YEAR-END(#) AT FISCAL YEAR-END($)(*) SHARES ACQUIRED REALIZED --------------------------- --------------------------- NAME ON EXERCISE(#)(1) ($)(*) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------------- -------- ----------- ------------- ----------- ------------- Barry S. Sternlicht..... 794,001 1,785,499 30,613,742 50,853,584 Gary M. Mendell......... 0 300,000 0 6,126,900 Ronald C. Brown......... 6,153 139,981 64,847 137,000 2,604,987 3,756,318 Steven R. Goldman....... 66,500 142,500 2,710,028 3,618,647 Eric A. Danziger........ 62,500 237,500 2,083,750 7,983,838 Theodore W. Darnall..... 25,000 165,000 893,918 4,525,660 Alan M. Schnaid......... 5,500 33,750 212,121 594,601
- --------------- (*) Value is calculated by subtracting the exercise price from the assumed fair market value of the Paired Shares underlying the option at December 31, 1997 and multiplying the result by the number of shares for which the option is "in the money." Fair market value was calculated based upon the average of the high and low sales prices of the Paired Shares as reported by the NYSE at December 31, 1997 ($57.84). There is no assurance that if and when any such option is exercised, the option will have this value. COMPENSATION OF TRUSTEES AND DIRECTORS On the last day of March, July, September and December of each calendar year, each Trustee and each Director then in office who is not an employee of the Trust or the Corporation is awarded, under the Trust's LTIP or the Corporation's LTIP, as applicable, and on a current or deferred basis at the election of such Trustee or Director, that number of Paired Shares (rounded to the nearest whole share) equal to one-quarter of the "Annual Fee" (as defined below) divided by the fair market value of a Paired Share on the immediately preceding December 31 (a "Fee Award"); provided, however, that the number of Paired Shares issued in payment of such Annual Fee may be reduced, at the option of the recipient, by up to one-half to the extent that such Trustee or Director indicates in advance his or her election to receive cash (a "Cash Election") in such amount in lieu of Paired Shares prior to such immediately preceding December 31 or, with respect to any person who becomes a non-employee Trustee or Director subsequent to that date, within 10 days of becoming such a Trustee or Director. In addition, on or before each December 31 (or in the case of a person who first becomes a Trustee or Director subsequent to December 31, within 10 days of becoming a Trustee or Director), a Trustee or Director may, by written notice to the Trust or Corporation, elect to defer receipt of any or all of the Paired Shares to be received as a Fee Award or the cash to be received pursuant to a Cash Election. Effective January 1, 1998, the Annual Fee was increased from $25,000 to $50,000; to the extent that any award to be made to a Trustee or Director exceeds the maximum amount constituting a Fee Award under the applicable LTIP, such award will take the form of a discretionary grant. On June 30, 1997, each non-employee Trustee and Director received options to purchase 4,500 Paired Shares at an exercise price of $42.8125 per Paired Share, the fair market value of a Paired Share on that date. On June 30, 1998 and on June 30 of each subsequent year, each non-employee Trustee or Director will also receive options to purchase 4,500 Paired Shares at an exercise price per share equal to the fair market value of a Paired Share on the first business day prior to the date of grant. 75 77 In addition to the compensation described above, each non-employee Trustee or Director receives a fee of $750 (or, in the case of telephonic meetings, $500) for each meeting in which he participates and a fee of $500 ($1,000 per meeting for committee chairmen) for each committee meeting in which he participates. Mr. Jones also received an additional fee of $2,500 per year (prorated) for his services as Chairman of the Board of Directors. All Trustees and Directors are reimbursed for out-of-pocket expenses incurred in attending meetings of the Board of Trustees or the Board of Directors. EMPLOYMENT AND COMPENSATION AGREEMENTS WITH EXECUTIVE OFFICERS The Trust In February 1998, Barry S. Sternlicht and the Trust entered into an amended and restated employment agreement pursuant to which Mr. Sternlicht has agreed to continue to serve as the Chairman and Chief Executive Officer of the Trust until at least December 31, 1999. The amended and restated employment agreement provides that Mr. Sternlicht will receive a minimum annual base salary of $1,000,000 and a guaranteed minimum bonus for 1998 of $1,325,000. In addition, the Trust will purchase for Mr. Sternlicht a $10,000,000 life insurance policy on his life, and will pay to Mr. Sternlicht cash in an amount equal to the amount of any excise tax imposed on him as a result of the accelerated vesting of certain outstanding stock options. Mr. Sternlicht also will receive a cash payment in respect of taxes payable by Mr. Sternlicht as a result of the vesting of the restricted stock award granted in August 1996 to Starwood Capital under the Trust's LTIP. In connection with such modifications, Mr. Sternlicht waived the accelerated vesting (as a result of the ITT Merger or the Westin Merger) of all awards to him under the Trust's LTIP that otherwise would have vested in 1998; such awards accordingly will vest in accordance with their terms, as modified. Mr. Sternlicht's employment is terminable by the Trust with or without cause. In the event Mr. Sternlicht's employment by the Trust is terminated by the Trust other than for "cause" or by Mr. Sternlicht for "good reason" (each as defined), the Trust has agreed to pay to Mr. Sternlicht as a severance benefit an amount equal to two times the sum of his annual base salary then in effect plus the average of his bonus for the preceding two years. In addition, all then unvested awards made to Mr. Sternlicht under the Trust's LTIP will vest in full, subject to certain exceptions. In connection with the execution and delivery of the amended and restated employment agreement, the Trust granted to Mr. Sternlicht an option under the Trust's LTIP to purchase 2,500,000 Paired Shares, exercisable at $54.69 per Paired Share (the market value of a Paired Share on the date of grant); this option vests in three equal annual installments, subject generally to Mr. Sternlicht's continued employment by the Trust. Until June 30, 1998, and subject to certain limitations, Mr. Sternlicht may transfer the right to purchase an aggregate of up to 500,000 of the Paired Shares subject to this option. In connection with the HEI Acquisition, Gary M. Mendell and the Trust entered into an employment agreement dated as of January 15, 1997, pursuant to which Mr. Mendell was employed as the President of the Trust and elected as a member of the Board of Trustees. Pursuant to the employment agreement, Mr. Mendell received a minimum base salary of $365,000 and annual incentive compensation; in addition, he was granted (i) an option to purchase 300,000 Paired Shares exercisable at $37.417 per Paired Share (the market value of a Paired Share on the date of grant), which option vests in five equal annual increments beginning on the second anniversary of the grant date, and (ii) a performance award under the Trust's LTIP entitling him to receive all distributions paid on the Paired Shares if certain performance criteria are satisfied over the five-year period ended December 5, 2001. Mr. Mendell's employment by the Trust was terminable by either party with or without cause, and was terminated by Mr. Mendell in March 1998. As a result of such termination, Mr. Mendell is entitled to a payment equal to the sum of his most recent annual base salary plus $255,500 and the immediate vesting of the option and the related performance award. As of March 25, 1998, Steven R. Goldman and the Trust entered into a new employment agreement in connection with Mr. Goldman's assuming the new position of Executive Vice President, Acquisitions and Development, for the Trust. Under the new agreement, Mr. Goldman's annual salary will be $325,000, with a bonus to be determined in accordance with a new plan that is expected to be considered by the Board of Trustees, and an additional retention bonus of one year's salary (at the current base salary level) conditioned upon Mr. Goldman's staying with the Trust at least one year after the closing of the ITT Merger. 76 78 Mr. Goldman will also receive, conditioned upon Mr. Goldman's staying with the Trust for the same one-year period, a cash payment in respect of taxes payable by Mr. Goldman as a result of the vesting of the restricted stock award granted to Mr. Goldman in August 1996. The Trust also undertakes to recommend to the Option Committee of the Board of Trustees that Mr. Goldman be granted an option under the Trust's LTIP at an exercise price equal to the fair market value of Paired Shares on the date of grant; the option will be for such number of Paired Shares as is determined by the Option Committee and will vest over a three-year period. In addition, the new agreement calls for the Trust to pay (i) Mr. Goldman's reasonable out-of-pocket expenses in connection with his relocation to the Fairfield/Westchester county area, (ii) relocation costs relating to a third-party purchase of Mr. Goldman's home in Phoenix to facilitate an expedient relocation and (iii) mortgage duplication expenses for a period not to exceed six months. The Trust also has agreed to make a five-year, non-interest-bearing loan to Mr. Goldman in the amount of $400,000, to be secured by a second mortgage on Mr. Goldman's new home in the Fairfield/Westchester county area. Mr. Goldman's employment is terminable by the Trust or Mr. Goldman with or without cause. In the event his employment is terminated by the Trust without cause or by Mr. Goldman due to breach by the Trust, Mr. Goldman will be entitled to severance benefits of one year's base salary and the accelerated vesting of all outstanding options. The Corporation As of March 19, 1998, Juergen Bartels and the Corporation entered into an employment agreement in connection with Mr. Bartels's assuming the new position of Chief Executive Officer of the Hotel Group for the Corporation. Under the agreement, Mr. Bartels's annual salary will be $525,000, with a bonus to be determined in accordance with a new bonus plan expected to be considered by the Board of Directors. The Corporation also undertakes to recommend to the Option Committee of the Board of Directors that Mr. Bartels be granted an option under the Corporation's LTIP at an exercise price equal to the fair market value of a Paired Share on the date of grant; the option will be for such number of Paired Shares as is determined by the Option Committee and will vest over a three-year period. In addition, the employment agreement calls for the Corporation to pay (i) Mr. Bartels's reasonable out-of-pocket expenses in connection with his relocation to the Fairfield/Westchester county area and (ii) relocation costs relating to a third-party purchase of Mr. Bartels's home in Seattle to facilitate an expedient relocation. Mr. Bartels's employment is terminable by the Corporation or Mr. Bartels with or without cause. In the event his employment is terminated by the Corporation without cause or by Mr. Bartels due to breach by the Corporation, Mr. Bartels will be entitled to severance benefits of one year's base salary and the accelerated vesting of all outstanding options. Eric A. Danziger and the Corporation entered into an employment agreement dated as of June 27, 1996, pursuant to which Mr. Danziger was employed as President and Chief Executive Officer of the Corporation at an annual salary of $365,000 and was guaranteed a minimum bonus of $150,000 for 1996. Mr. Danziger also received an option to purchase up to 187,500 Paired Shares at a price of $24.50 per Paired Share (the fair market value of the Paired Shares on the date of grant) and a restricted stock award of 100,222 Paired Shares. (See "The Corporation -- Summary Compensation Table" above.) The Corporation also reimbursed Mr. Danziger for expenses incurred in connection with moving his residence from Dallas, Texas to Phoenix, Arizona, and provided Mr. Danziger with a one-year non-interest bearing loan for $150,000 secured by a second mortgage on his new residence in Phoenix. This loan was paid in full by Mr. Danziger in February 1998. As a result of the termination of Mr. Danziger's employment in February 1998, Mr. Danziger is entitled to severance benefits of one year's base salary and the immediate vesting of all outstanding options and restricted stock awards. As of March 25, 1998, Theodore W. Darnall and the Corporation entered into a new employment agreement in connection with Mr. Darnall's assuming the new position of Executive Vice President of Hotel Operations for the Corporation. Under the new agreement, Mr. Darnall's annual salary will be $350,000, with a bonus to be determined in accordance with the anticipated new bonus plan, and an additional retention bonus of one year's salary (at the current base salary level) conditioned upon Mr. Darnall's staying with the Corporation at least one year after the closing of the ITT Merger. Mr. Darnall will also receive, conditioned upon Mr. Darnall's staying with the Corporation for the same one-year period, a cash payment in respect of taxes payable by Mr. Darnall as a result of the vesting of the restricted stock award originally granted to 77 79 Mr. Darnall in August 1996. The Corporation also undertakes to recommend to the Option Committee of the Board of Directors that Mr. Darnall be granted an option under the Corporation's LTIP at an exercise price equal to the fair market value of a Paired Share on the date of grant; the option will be for such number of Paired Shares as is determined by the Option Committee and will vest over a three-year period. In addition, the new agreement calls for the Corporation to pay (i) Mr. Darnall's reasonable out-of-pocket expenses in connection with his relocation to the Fairfield/Westchester county area and (ii) relocation costs in connection with a third-party purchase of Mr. Darnall's home in Phoenix to facilitate an expedient relocation. The Corporation also has agreed to make a five-year, non-interest-bearing loan to Mr. Darnall in the amount of $600,000, to be secured by a second mortgage on Mr. Darnall's new home in the Fairfield/Westchester county area. Mr. Darnall's employment is terminable by the Corporation or Mr. Darnall with or without cause. In the event his employment is terminated by the Corporation without cause or by Mr. Darnall due to breach by the Corporation, Mr. Darnall will be entitled to severance benefits of one year's base salary and the accelerated vesting of all outstanding options. In March 1998, Ronald C. Brown resigned as an officer of the Trust and became an executive officer of the Corporation; see "Directors and Executive Officers of the Corporation" included in Item 10 of this Joint Annual Report. As of March 10, 1998, Ronald C. Brown and the Corporation entered into a new employment agreement in connection with Mr. Brown's assuming the new position of Executive Vice President and Chief Financial Officer for the Corporation. Under the new agreement, Mr. Brown's annual salary will be $325,000, with a bonus to be determined in accordance with the anticipated new bonus plan. Mr. Brown also will receive, conditioned upon Mr. Brown's staying with the Corporation at least one year after the closing of the ITT Merger, a cash payment in respect of taxes payable by Mr. Brown as a result of the vesting of the restricted stock award originally granted to Mr. Brown in August 1996. The Corporation also undertakes to recommend to the Options Committee of the Board of Directors that Mr. Brown be granted an option under the Corporation's LTIP at an exercise price equal to the fair market value of a Paired Share on the date of grant; the option will be for such number of Paired Shares as is determined by the Option Committee and will vest over a three-year period. Mr. Brown's employment is terminable by the Corporation or Mr. Brown with or without cause. In the event his employment is terminated by the Corporation without cause or by Mr. Brown due to breach by the Corporation, Mr. Brown will be entitled to severance benefits of one year's base salary and the accelerated vesting of all outstanding options. As of March 2, 1998, Susan R. Bolger and the Corporation entered into a new employment agreement in connection with Ms. Bolger's assuming the new position of Executive Vice President of Human Resources for the Corporation. Under the new agreement, Ms. Bolger's annual salary will be $300,000, with a bonus to be determined in accordance with the anticipated new bonus plan. For 1998 Ms. Bolger is guaranteed a minimum bonus equal to 50% of her base salary prorated for the calendar year, an additional bonus of $75,000 in respect of calendar year 1997, and an additional retention bonus of one year's salary (at the current base salary level) conditioned upon Ms. Bolger's staying with the Corporation at least one year after the closing of the ITT Merger. Ms. Bolger will also receive, conditioned upon Ms. Bolger's staying with the Corporation for the same one-year period, a cash payment in respect of taxes payable by Ms. Bolger as a result of the vesting of the restricted stock award granted to Ms. Bolger in August 1996. The Corporation also undertakes to recommend to the Option Committee of the Board of Directors that Ms. Bolger be granted an option under the Corporation's LTIP at an exercise price equal to the fair market value of a Paired Share on the date of grant; the option will be for such number of Paired Shares as is determined by the Option Committee and will vest over a three-year period. In addition, the new agreement calls for the Corporation to pay (i) Ms. Bolger's reasonable out-of-pocket expenses in connection with his relocation to the Fairfield/Westchester county area, (ii) relocation costs in connection with a third-party purchase of Ms. Bolger's home in Phoenix to facilitate an expedient relocation and (iii) mortgage duplication expenses for a period not to exceed six months. The Corporation also has agreed to make a five-year, non-interest-bearing loan to Ms. Bolger in the amount of $400,000, to be secured by a second mortgage on Ms. Bolger's new home in the Fairfield/Westchester county area. Ms. Bolger's employment is terminable by the Corporation or Ms. Bolger with or without cause. In the event her employment is terminated by the Corporation without cause or by Ms. Bolger due to breach by the Corporation, Ms. Bolger will be entitled to severance benefits of one year's base salary and the accelerated vesting of all outstanding options. 78 80 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During early 1997, the Compensation Committee of the Board of Trustees (the "Trust Compensation Committee") was comprised of Messrs. Sternlicht, Grose and William E. Simms. Mr. Simms resigned from the Board of Trustees in June 1997. Based on informal discussions, the Trust Compensation Committee made recommendations to the Board of Trustees regarding the compensation of the Trust's executive officers other than Mr. Sternlicht. The Option Committee of the Board of Trustees (whose members during 1997 were Messrs. Duncan, Quazzo and (from November 1997) Chapus) made recommendations during 1997 to such Board regarding Mr. Sternlicht's compensation. Based in part on the recommendations of the Trust Compensation Committee and, as to Mr. Sternlicht, the Trust Option Committee, the Board of Trustees made decisions with respect to the compensation of the Trust's executive officers. Messrs. Sternlicht and Goldman, who are executive officers of the Trust and members of the Board of Trustees, did not participate at meeting of the Trustees in discussions or votes with respect to their own compensation. During most of 1997, the Compensation Committee of the Board of Directors (the "Corporation Compensation Committee") was made up of Messrs. Sternlicht, Jones and Chapus. Mr. Chapus resigned from the Board of Directors and became a Trustee of the Trust in November 1997. The Corporation Compensation Committee met informally during 1997 to discuss the compensation of the Corporation's executive officers. Based in part on the recommendations of the Corporation Compensation Committee, the Board of Directors made decisions with respect to the compensation of the Corporation's executive officers. Mr. Danziger did not participate at meetings of the Directors in discussions or votes with respect to his own compensation. Mr. Sternlicht, the Chairman and Chief Executive Officer and a Trustee of the Trust and the Chairman of the Board of Directors of the Corporation, serves as a director of U.S. Franchise Systems, Inc. Michael A. Leven, a Director of the Corporation, serves as Chairman of the Board and Chief Executive Officer of U.S. Franchise Systems, Inc. Mr. Sternlicht controls and has been the President and Chief Executive Officer of Starwood Capital since its formation. Mr. Stern is an affiliate of a limited partner of Starwood Capital. For information with respect to certain transactions involving the Company and Starwood Capital, see "Starwood Capital" included in Item 13 of this Joint Annual Report, which information is incorporated in this item by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. CERTAIN BENEFICIAL OWNERS To the knowledge of the Trust and the Corporation, as of March 27, 1998, no person owned beneficially 5% or more of the Paired Shares, except as follows:
AMOUNT PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1) ------------------------------------ ------------------ ---------- Starwood Capital Group, L.L.C., its affiliated entities and Barry S. Sternlicht........... 10,223,750(2) 5.3%(2) Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 FMR Corp.................................................... 6,589,082(3) 3.6%(3) 82 Devonshire Street Boston, MA 02109
- --------------- (1) Based on the number of Paired Shares outstanding on March 27, 1998. (2) Based on information in Amendment No. 2 to Schedule 13D dated December 31, 1996 filed by Starwood Capital Group, L.L.C., Barry S. Sternlicht, BSS Capital Partners, L.P., Sternlicht Holdings II, Inc., Harveywood Hotel Investors, L.P., Starwood Hotel Investors II-L.P., Starwood Opportunity Fund II, L.P. and Firebird Consolidated Partners, L.P. (collectively, the "Starwood Partners"), and additional information provided to the Company, Mr. Sternlicht may be deemed to beneficially own, directly or 79 81 through entities controlled by him, 467,069 Paired Shares and may be deemed to have either sole or shared power to vote and dispose of such Paired Shares. Mr. Sternlicht may also be deemed to beneficially own 1,763,167 Paired Shares subject to presently exercisable options. Mr. Sternlicht holds, directly or through trusts created by him for the benefit of members of his family, Units that are exchangeable for an aggregate of 508,120 Paired Shares. Starwood Partners may be deemed to hold shares of Class A EPS and shares of Class B EPS that are exchangeable for an aggregate of 4,014,809 Paired Shares, and Units that are exchangeable for an aggregate of 3,470,585 Paired Shares. The amount beneficially owned and the percent of class calculated assumes that Starwood Capital Group, its affiliated entities and Mr. Sternlicht exchange Units for Paired Shares to the maximum extent permitted within the Ownership Limit Provision. (3) Based on information contained in Amendment No. 2 to Schedule 13G dated February 14, 1998, filed by FMR Corp. and certain affiliates, 5,962,833 Paired Shares are held by Fidelity Management & Research Company, a wholly owned subsidiary of FMR Corp. ("FMRC") and 626,249 Paired Shares are held by Fidelity Management Trust Company, a wholly owned subsidiary of FMR Corp. ("FMTC"). FMR Corp. has sole voting power with respect to 626,249 Paired Shares and dispositive power with respect to 6,589,082 Paired Shares. The amount beneficially owned and the percent of class shown do not include 11,159,400 ITT Shares held by FMRC and 363,622 ITT Shares held by FMTC (as reported in Amendment No. 3 to Schedule 13G dated February 14, 1998, filed with respect to ITT Corporation), constituting approximately 9.8% of the ITT Shares outstanding on February 23, 1998. Such Amendment No. 3 also reported that FMR Corp. had sole voting power with respect to 287,922 ITT Shares and dispositive power with respect to 11,523,022 ITT Shares. The Company believes, based upon the foregoing report, that not less than 10,673,476 Paired Shares were issued to FMR Corp. in connection with the ITT Merger. Based on additional information provided to the Company, all Paired Shares reported as held by, or believed by the Company to have been issued to, FMR and its affiliates are held by various separate entities no one of which, directly or by attribution, holds in excess of 8.0% of the outstanding Paired Shares. TRUSTEES AND EXECUTIVE OFFICERS OF THE TRUST The following table sets forth the beneficial ownership of Paired Shares as of March 27, 1998, by each Trustee and each executive officer of the Trust named in the Summary Compensation Table included in Item 11 hereof who owns Paired Shares and by all Trustees and executive officers of the Trust as a group. Except as otherwise provided below, each beneficial owner has sole voting and investment power with respect to all Paired Shares beneficially owned.
AMOUNT PERCENT OF NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1) ------------------------ ------------------ ---------- Ronald C. Brown............................................. 121,806(2) (3) Jean-Marc Chapus............................................ 24,680(4) (3) Bruce W. Duncan............................................. 37,999(5) (3) Steven R. Goldman........................................... 222,116(6) (3) Madison F. Grose............................................ 214,174(7) (3) Gary M. Mendell............................................. 935,612(8) (3) George J. Mitchell.......................................... 2,910(9) (3) Roger S. Pratt.............................................. 4,534,187(10) 2.4% Stephen R. Quazzo........................................... 29,627(11) (3) Stuart M. Rothenberg........................................ 4,394,371(12) 2.3% Barry S. Sternlicht......................................... 10,223,750(13) 5.3% All Trustees and officers as a group........................ 20,741,232(14) 10.3%
- --------------- (1) Based on the number of Paired Shares outstanding on March 27, 1998, including any exercise of options to purchase Paired Shares or any exchange of Units for Paired Shares. 80 82 (2) Includes 85,500 Paired Shares subject to presently exercisable options. (3) Less than 1%. (4) Includes 22,500 Paired Shares subject to presently exercisable options. (5) Includes 22,500 Paired Shares subject to presently exercisable options. (6) Includes 159,000 Paired Shares subject to presently exercisable options and Units that are exchangeable for 22,616 Paired Shares. (7) Includes 120,000 Paired Shares subject to presently exercisable options, EPS that are exchangeable for an aggregate of 3,223 Paired Shares, and Units that are exchangeable for an aggregate of 43,299 Paired Shares. Also includes shares of EPS that are exchangeable for an aggregate of 25,990 Paired Shares and Units that are exchangeable for an aggregate of 2,382 Paired Shares, all owned by Mr. Grose's wife. (8) Includes 300,000 Paired Shares subject to presently exercisable options and Units that are exchangeable for an aggregate of 599,112 Paired Shares. Also includes Units owned by a limited partnership of which Mr. Mendell is general partner and exchangeable for 36,500 Paired Shares. (9) Includes 2,910 Paired Shares subject to presently exercisable options. (10) Includes 4,500 Paired Shares subject to presently exercisable options. Also includes 2,775,680 Paired Shares and Units that are exchangeable for an aggregate of 1,754,007 Paired Shares, all of which are owned by Prudential on behalf of Prudential Property Investment Separate Account II ("PRISA II"); by virtue of his investment control over PRISA II, Mr. Pratt may be deemed to have an indirect pecuniary interest in these Units and Paired Shares. Does not include 508,720 Paired Shares held by Prudential on behalf of other accounts. (11) Includes 22,500 Paired Shares subject to presently exercisable options, 6,430 Paired Shares owned by a trust of which Mr. Quazzo is settlor and over which he shares investment control, and 397 Paired Shares owned by a trust of which Mr. Quazzo's wife is settlor and over which she exercises some investment control. (12) Includes 2,219 Paired Shares subject to presently exercisable options. Also includes shares of EPS that are exchangeable for an aggregate of 4,188,035 Paired Shares and Units that are exchangeable for an aggregate of 194,861 Paired Shares, all of which may be deemed to be owned by Goldman, Sachs and The Goldman Sachs Group, L.P. through certain investment partnerships; Mr. Rothenberg is a managing director of Goldman, Sachs & Co. and may be deemed to have an indirect pecuniary interest in such securities. Mr. Rothenberg has disclaimed beneficial ownership of these securities except to the extent of his pecuniary interest therein. (13) See Note (2) under "Certain Beneficial Owners" above. Includes (i) 467,069 Paired Shares that may be deemed to be beneficially owned by Mr. Sternlicht, either directly or through entities controlled by him; (ii) 1,763,167 Paired Shares subject to presently exercisable options; (iii) shares of EPS that may be deemed to be beneficially owned by Mr. Sternlicht, either directly or through entities controlled by him, that are exchangeable for an aggregate of 4,014,809 Paired Shares; and (iv) Units that may be deemed to be beneficially owned by Mr. Sternlicht, either directly or through entities controlled by him, that are exchangeable for an aggregate of 3,978,705 Paired Shares. Mr. Sternlicht has disclaimed beneficial ownership of all such Paired Shares, shares of EPS and Units except to the extent of his actual pecuniary interest therein. By virtue of his service as both a Trustee of the Trust and a Director of the Corporation, Mr. Sternlicht's options, Paired Shares, shares of EPS and Units are listed and totaled both here and in the chart below. (14) Includes 2,529,796 Paired Shares that may be acquired upon the exercise of presently exercisable options, 8,232,057 Paired Shares issuable upon the exchange of shares of EPS and 6,631,482 Paired Shares issuable upon the exchange of Units. 81 83 DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION The following table sets forth the beneficial ownership of Paired Shares as of March 27, 1998, by each Director and each executive officer of the Corporation named in the Summary Compensation Table included in Item 11 hereof who owns Paired Shares and by all Directors and executive officers of the Corporation as a group. Except as otherwise provided below, each beneficial owner has sole voting and investment power with respect to all Paired Shares beneficially owned.
NUMBER OF SHARES PERCENT OF NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1) ------------------------ ------------------ ---------- Juergen Bartels............................................. 815,269(2) (3) Eric A. Danziger............................................ 400,222(4) (3) Theodore W. Darnall......................................... 196,783(5) (3) Jonathan D. Eilian.......................................... 123,680(6) (3) Bruce M. Ford............................................... 24,332(7) (3) Graeme W. Henderson......................................... 25,072(8) (3) Earle F. Jones.............................................. 32,178(9) (3) Michael A. Leven............................................ 23,180(10) (3) Alan M. Schnaid............................................. 24,250(11) (3) Daniel H. Stern............................................. 23,180(12) (3) Barry S. Sternlicht......................................... 10,223,750(13) 5.3% Barry S. Volpert............................................ 4,394,371(14) 2.3% Daniel W. Yih............................................... 25,611(15) (3) All Directors and officers as a group....................... 15,931,656(16) 8.0%
- --------------- (1) Based on the number of Paired Shares outstanding on March 27, 1998, including any exercise of options to purchase Paired Shares or any exchange of Units for Paired Shares. (2) Includes shares of EPS that are exchangeable for an aggregate of 815,269 Paired Shares. (3) Less than 1%. (4) Includes 300,000 Paired Shares subject to presently exercisable options. (5) Includes 150,000 Paired Shares subject to presently exercisable options. (6) Includes 120,000 Paired Shares subject to presently exercisable options. (7) Includes 22,500 Paired Shares subject to presently exercisable options and 85 Paired Shares owned by Mr. Ford's wife. (8) Includes 22,500 Paired Shares subject to presently exercisable options. (9) Includes 13,500 Paired Shares subject to presently exercisable options. (10) Includes 22,500 Paired Shares subject to presently exercisable options. (11) Includes 24,250 Paired Shares subject to presently exercisable options. (12) Includes 22,500 Paired Shares subject to presently exercisable options. (13) See Note (2) under "Certain Beneficial Owners" above. Includes (i) 467,069 Paired Shares that may be deemed to be beneficially owned by Mr. Sternlicht, either directly or through entities controlled by him; (ii) 1,763,167 Paired Shares subject to presently exercisable options; (iii) shares of EPS that may be deemed to be beneficially owned by Mr. Sternlicht, either directly or through entities controlled by him, that are exchangeable for an aggregate of 4,014,809 Paired Shares; and (iv) Units that may be deemed to be beneficially owned by Mr. Sternlicht, either directly or through entities controlled by him, that are exchangeable for an aggregate of 3,978,705 Paired Shares. Mr. Sternlicht has disclaimed beneficial ownership of all such Paired Shares, shares of EPS and Units except to the extent of his actual pecuniary interest therein. By virtue of his service as both a Director of the Corporation and a Trustee of the Trust, Mr. Sternlicht's options, Paired Shares, shares of EPS and Units are listed and totaled both here and above. 82 84 (14) Includes 2,219 Paired Shares subject to presently exercisable options. Also includes shares of EPS that are exchangeable for an aggregate of 4,188,035 Paired Shares and Units that are exchangeable for an aggregate of 194,861 Paired Shares, all of which may be deemed to be owned by Goldman, Sachs & Co. and The Goldman Sachs Group, L.P. through certain investment partnerships; Mr. Volpert is a managing director of Goldman, Sachs & Co. and may be deemed to have an indirect pecuniary interest in such securities. Mr. Volpert has disclaimed beneficial ownership of these securities except to the extent of his pecuniary interest therein. (15) Includes 22,500 Paired Shares subject to presently exercisable options. (16) Includes 2,185,636 Paired Shares that may be acquired upon the exercise of presently exercisable options, 9,018,113 Paired Shares issuable upon the exchange of shares of EPS and 4,173,566 Paired Shares issuable upon the exchange of Units. COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(A) Section 16(a) of the Exchange Act requires the Trustees, Directors and executive officers of the Company, and persons who own more than 10 percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Paired Shares and other equity securities of the Company. Trustees, Directors, officers and greater than 10 percent shareholders are required to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 1997, all Section 16(a) filing requirements applicable to its Trustees, Directors, officers and greater than 10 percent beneficial owners were complied with for the most recent fiscal year and prior fiscal years, with the exception that through inadvertence, Mr. Sternlicht in 1994 did not include in his Form 3 an indirect pecuniary interest in Paired Shares held by a partnership that he may be deemed to indirectly control, and omitted in 1995 to file two Forms 4 reporting the indirect pecuniary interest in Units exchangeable for Paired Shares acquired in exchange for assets contributed to the Partnerships in the Reorganization by limited partnerships that Mr. Sternlicht may be deemed to indirectly control. A Form 5 reporting these holdings and transactions was promptly filed by Mr. Sternlicht after the oversight was discovered. The Company believes that all such holdings and transactions were properly and timely reported by Mr. Sternlicht on Schedule 13D and amendments thereto, and that all such holdings and transactions have been properly and timely disclosed in the Company's proxy statements and annual reports. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Starwood Capital Barry Sternlicht, the Chairman and Chief Executive Officer and a Trustee of the Trust and the Chairman of the Board of Directors of the Corporation, controls and has been the President and Chief Executive Officer of Starwood Capital since its formation. In addition, Madison Grose, a Trustee of the Trust, is the General Counsel of Starwood Capital, and Messrs. Grose and Jonathan Eilian, a Director of the Corporation, are Managing Directors of, and hold indirect interests in, Starwood Capital. As of March 27, 1998, Starwood Capital and its affiliates and Mr. Sternlicht beneficially owned 5.2% of the Paired Shares then outstanding on a fully diluted basis. See "Security Ownership of Certain Beneficial Owners and Management -- Certain Beneficial Owners" in Item 12 of this Joint Annual Report. Daniel Stern, a Director of the Corporation, also is an affiliate of a limited partner of Starwood Capital. Starwood Capital Reimbursement Agreement. Starwood Capital and the Company have agreed that subject to approval by the independent Trustees or Directors, as appropriate, the Company will reimburse Starwood Capital for its out-of-pocket expenses and internal costs (including allocation of overhead) for services provided to the Company, other than internal costs of Starwood Capital for services of senior management of Starwood Capital or (effective August 12, 1997) services of any employee of Starwood 83 85 Capital. Starwood Capital's engagement to act as financial advisor to the Company in connection with the ITT Merger was not subject to this reimbursement limitation. Starwood Capital Noncompete. In connection with the Reorganization, Starwood Capital agreed (the "Starwood Capital Noncompete") that it would not compete within the United States directly or indirectly with the Realty Partnership or the Operating Partnership and would present to the Partnerships all acquisitions of (i) fee or ground interests or other equity interests in hotels in the United States and (ii) 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. During the term of the Starwood Noncompete, Starwood Capital is not to acquire any such interest. The term of the Starwood Noncompete is until the later of July 1998 or the time at which no officer, director, general partner or employee of Starwood Capital is on either the Board of Trustees or the Board of Directors (subject to exception for certain reorganizations, mergers or other combination transactions with unaffiliated parties). During 1997, the Company granted a limited number of waivers of the Starwood Noncompete. On February 20, 1997, the Board of Trustees and the Board of Directors granted a waiver of the Starwood Noncompete to an affiliate of Starwood Capital to permit such affiliate to purchase a fixed stream of lease payments and residuals in a portfolio of hotels formerly leased to and operated by Red Lion Hotels. On May 19, 1997 the Board of Trustees and the Board of Directors granted a waiver of the Starwood Noncompete to Starwood Capital to permit an affiliate of Starwood Capital to invest in certain time-share properties in Mexico. On July 25, 1997 the Board of Trustees and the Board of Directors granted Starwood Capital a waiver of the Starwood Noncompete to permit an affiliate of Starwood Capital to sell its interest in the Davidson Hotel Properties 15-hotel portfolio, taking into account the fact that such a sale would result in the termination of any option the Company might have to purchase such portfolio. On September 8, 1997 the Board of Trustees and the Board of Directors waived the Starwood Noncompete to the extent necessary to permit an affiliate of Starwood Capital to purchase and immediately resell the Radisson Golden Triangle Hotel in Raleigh, North Carolina. On September 25, 1997, the Board of Trustees and the Board of Directors approved a waiver of the Starwood Noncompete with respect to the proposed purchase of the Hillsborough Days Inn by an affiliate of Starwood Capital. As described below, Starwood Capital owned an interest in Westin. Prior to the Westin acquisition, the Trust and the Corporation entered into an agreement with Westin pursuant to which Westin agreed that during the period in which an officer, director, general partner or employee of Starwood Capital is on either the Board of Trustees or the Board of Directors, and Starwood Capital co-controlled Westin, Westin would not acquire or seek to acquire hotel equity interests in the United States, other than certain specified acquisitions, including, without limitation, minority equity investments made in connection with Westin's acquisition of a management contract. The Trust and the Corporation each waived the foregoing restriction to the extent applicable with respect to a hotel property in the U.S. Virgin Islands. The Trust and the Corporation also agreed that under certain circumstances, if Westin were prohibited from consummating an opportunity that was not being independently pursued by the Trust and the Corporation prior to such prohibition, the Trust and the Corporation would not pursue such opportunity for 270 days after such prohibition. Upon the consummation of the Westin Merger, the agreements with Westin described in this paragraph were terminated. Acquisition of Westin. Prior to the Westin Merger, Starwood Capital and certain of its affiliates and certain Trustees, Directors and executive officers had interests in Westin as follows: (i) WHWE held an approximately 50% voting (an approximately 35.16% interest in profits) Class A membership interests in W&S LLC, which owned in excess of 99% of the outstanding equity securities of each of Westin Worldwide, Seattle, Lauderdale, Atlanta, St. John and Denver (the "Westin Subsidiaries"). The majority of the interests in WHWE were held by investment funds under the indirect control of The Goldman Sachs Group, L.P. The Goldman Sachs. Group, L.P. nay be deemed to have been the beneficial owners of the shares held by WHWE and Messrs. Volpert and Rothenberg may be deemed to have been the beneficial owners of the shares of Westin Worldwide and a similar proportion number of shares of the other Westin Subsidiaries beneficially owned by WHWE or The Goldman Sachs Group, L.P. through partnership in or employment by Goldman Sachs or one or more of its affiliates; however, such beneficial ownership was disclaimed. 84 86 (ii) Starwood Capital, through certain of its affiliates, was the general partner of Woodstar, which held an approximately 50% voting interest (an approximately 35.23% interest in profits) in WHWE. Starwood Capital and, therefore, Mr. Sternlicht, may be deemed to have been the beneficial owner of the shares held by Woodstar Investor Partnership, a privately held real property investment partnership. (iii) Mr. Stern was a director of Westin immediately prior to the Westin Merger, and Mr. Sternlicht had been a director of Westin prior to September 1997. (iv) Mr. Bartels held a 2.69% Class A interest in the profits of the LLC and accordingly may be deemed to have been the beneficial owner of 2.69% of Westin Worldwide and a similar proportional number of shares of the other Westin Subsidiaries; however, Mr. Bartels disclaimed such beneficial ownership. (v) Messrs. Sternlicht, Grose and Eilian were investors in, and Mr. Stern was an affiliate of an investor in, Marswood, a partner in Woodstar. In connection with the Westin Merger, all of the outstanding shares of Westin Worldwide were canceled and the Members received their proportionate shares (which approximated their respective profit interests in the LLC) of the shares of Class A EPS and the shares of Class B EPS that were issued in the Westin merger. In connection with the Subsidiary Contributions, the Members received their proportionate shares (which approximated their profit interests in the LLC ) of the Class A RP Units and the Class B OP Units that were issued in connection with the Subsidiary Contributions. Other Westin Relationships. Starwood Capital and its affiliates hold a 37% interest in a golf course management company that currently manages one golf course that is associated with a Westin hotel and a 20% interest in a Mexican company that operates timeshare resorts adjacent to the three Westin hotels that make up the Westin Regina Portfolio. Individuals affiliated with Starwood Capital, including individuals who are Trustees and Directors, and certain other affiliates of Starwood Capital hold a 75% interest in the company that operates the Westin Innisbrook Resort and the Tamarron Hilton. Acquisition of ITT. Starwood Hotels engaged Starwood Capital to act as financial advisor to the Company in connection with the transactions contemplated by the ITT Merger Agreement. Starwood Capital received a fee of $17.5 million (of which $10.5 million was paid in cash and $7 million was paid in Paired Shares) plus a tax gross-up payment of $5 million upon the closing of the ITT Merger as full consideration for services rendered in connection with the ITT Merger and related dispositions. Pursuant to its engagement by Starwood Hotels, the principals of Starwood Capital led the structuring and negotiations of the ITT Merger, conducted and coordinated the due diligence investigation (including conducting management interviews, reviewing and analyzing financial data and visiting properties), advised and procured financing, oversaw the implementation of the public and investor relations and political lobbying campaigns, coordinated the receipt of gaming regulatory approvals and coordinated legal and tax advice. In addition, the principals of Starwood Capital have led and continue to lead negotiations for the disposition of non-strategic ITT assets, including the disposition of ITT World Directories, and are advising Starwood Hotels with respect to the integration of both ITT and Westin into Starwood Hotels. Trademark License. Starwood Capital has granted to the Company an exclusive, non-transferable royalty-free license to use the "Starwood" name and trademarks in connection with the hotel and hospitality services business in North America, and to use the "Starwood" name in its corporate name worldwide, in perpetuity. Loans to Officers During 1996, the Corporation made a $150,000 non-interest-bearing loan to Eric A. Danziger, President and Chief Executive Officer of the Corporation, secured by a second mortgage on Mr. Danziger's residence in Phoenix, Arizona. The loan was repaid in full in February 1998. During 1996, the Corporation made a $266,000 non-interest-bearing loan to Theodore W. Darnall, then Executive Vice President and Chief Operating Officer (and currently) Executive Vice President of the Hotel 85 87 Group of the Corporation. The loan is secured by a second mortgage on Mr. Darnall's residence in Phoenix, Arizona. Upon the sale of Mr. Darnall's home in Pittsburgh in 1997, $116,000 of the loan was repaid. The unpaid loan balance of $150,000 matures upon termination of Mr. Darnall's employment with the Corporation. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are filed as a part of this Joint Annual Report: 1. The financial statements and financial statements schedules listed in the Index to Financial Statements and Financial Statements Schedules following the signature pages hereof. 2. Exhibits:
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(1)). 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) (the "S-2 Registration Statement")). 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 (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). 3.1 Declaration of Trust of the Trust, amended and restated as of June 6, 1988, as amended through February 23, 1998.(3) 3.2 Articles of Incorporation of the Corporation, amended and restated as of February 1, 1995, as amended through March 19, 1998.(3) 3.3 Amended and Restated Trustee's Regulations of the Trust, as amended through December 18, 1997.(3) 3.4 Amended and Restated Bylaws of the Corporation, as amended through December 18, 1997.(3) 4.1 Pairing Agreement, dated June 25, 1986, between the Trust and the Corporation (incorporated by reference to Exhibit 4.1 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1994 (the "1994 Form 10-K")). 4.2 Amendment No. 1 to the Pairing Agreement, dated as of February 1, 1995, between the Trust and the Corporation (incorporated by reference to Exhibit 4.2 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1995 (the "1995 Form 10-K")). 4.3 Amendment No. 2 to the Pairing Agreement, dated as of January 2, 1998, between the Trust and the Corporation.(3) 10.1 Form of Second Amended and Restated Limited Partnership Agreement for Realty Partnership, dated November 14, 1997, among the Trust and the limited partners of Realty Partnership, together with the First Amendment thereto, dated January 1, 1998, and Certificate of Admission of Realty Partnership, effective January 2, 1998.(3)
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.2 Form of Second Amended and Restated Limited Partnership Agreement for Operating Partnership, dated November 14, 1997, among the Corporation and the limited partners of Operating Partnership, together with the First Amendment thereto, dated January 1, 1998, and Certificate of Admission of Operating Partnership, effective January 2, 1998.(3) 10.3 Form of Amended and Restated Lease Agreement, entered into as of January 1, 1993, between the Trust as Lessor and the Corporation (or a subsidiary) as Lessee (incorporated by reference to Exhibit 10.19 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1992). 10.4 Form of Stock Purchase Agreement, dated as of February 23, 1998, between the Trust and the Corporation.(3) 10.5 Amended and Restated Employment Agreement, dated as of February 17, 1998, between the Trust and Barry S. Sternlicht, together with an amendment, dated as of March 11, 1998.(2)(3) 10.6 Non-Qualified Stock Option Agreement, dated as of February 17, 1998, between the Trust and Barry S. Sternlicht.(2)(3) 10.7 Employment Agreement, dated March 2, 1998, between the Corporation and Susan R. Bolger.(2)(3) 10.8 Employment Agreement, dated March 25, 1998, between the Corporation and Ronald C. Brown.(2)(3) 10.9 Employment Agreement, dated March 25, 1998, between the Corporation and Juergen Bartels.(2)(3) 10.10 Employment Agreement, dated March 25, 1998, between the Corporation and Theodore W. Darnall.(2)(3) 10.11 Employment Agreement, dated March 25, 1998, between the Trust and Steven R. Goldman.(2)(3) 10.12 Employment Agreement, dated June 27, 1996, between the Corporation and Eric A. Danziger (incorporated by reference to Exhibit 10.4 to the Trust's and the Corporation's Joint Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 (the "1996 Form 10-Q2").(2) 10.13 Employment Agreement, dated as of January 15, 1997, between the Trust and Gary M. Mendell (incorporated by reference to Exhibit 10.1 to the Trust's and the Corporation's Joint Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997 (the "1997 Form 10-Q1").(2) 10.14 Separation Agreement, dated June 18, 1996, between the Trust and Jeffrey C. Lapin (incorporated by reference to Exhibit 10.5 to the 1996 Form 10-Q2).(2) 10.15 Starwood Hotels & Resorts 1995 Long-Term Incentive Plan (Amended and Restated as of November 12, 1997) (the "Trust LTIP") (incorporated by reference to Exhibit C to the Trust's and the Corporation's Joint Proxy Statement, dated November 12, 1997 (the "1997 Proxy Statement")).(2) 10.16 Starwood Hotels & Resorts Worldwide, Inc., 1995 Long-Term Incentive Plan (Amended and Restated as of November 12, 1997) (the "Corporation LTIP") (incorporated by reference to Exhibit D to the 1997 Proxy Statement).(2) 10.17 Form of Indemnification Agreement and Amendment No. 1 to Indemnification Agreement between the Trust and each of its Trustees and executive officers (incorporated by reference to Exhibit 10.7 to the 1995 Form 10-K).(2) 10.18 Form of Indemnification Agreement and Amendment No. 1 to Indemnification Agreement between the Corporation and each of its Directors and executive officers (incorporated by reference to Exhibit 10.8 to the 1995 Form 10-K).(2) 10.19 Form of Amendment No. 2 to Indemnification Agreement, dated June 26, 1997, between the Trust and each of its Trustees and executive officers (incorporated by reference to Exhibit 10.1 to the Trust's and the Corporation's Joint Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (the "1997 Form 10-Q2")).(2) 10.20 Form of Amendment No. 2 to Indemnification Agreement, dated June 26, 1997, between the Corporation and each of its Directors and executive officers (incorporated by reference to Exhibit 10.2 to the 1997 Form 10-Q2).(2)
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.21 Form of Westin/HOT Agreement, dated as of May 1995, among W&S Hotel L.L.C., W&S Hotel Holding Corp., Westin Hotel Company, Realty Partnership, Operating Partnership, WHWE L.L.C. and Woodstar Limited Partnership (incorporated by reference to Exhibit 10.24 to the S-2 Registration Statement). 10.22 Form of Trademark License Agreement, dated as of December 10, 1997, between Starwood Capital and the Trust.(3) 10.23 Exchange Rights Agreement, dated as of January 1, 1995, among the Trust, the Corporation, Realty Partnership, Operating Partnership and the Starwood Partners (incorporated by reference to Exhibit 2B to the Trust's and the Corporation's Joint Current Report on Form 8-K dated January 31, 1995 (the "Formation Form 8-K")). 10.24 Registration Rights Agreement, dated as of January 1, 1995, among the Trust, the Corporation and Starwood Capital (incorporated by reference to Exhibit 2C to the Formation Form 8-K). 10.25 Amended and Restated Loan Agreement, dated as of April 26, 1996, among Realty Partnership, CP Hotel Realty Partnership Limited Partnership ("CP Hotel"), Midland Building Corporation ("Midland"), the Trust and Lehman Capital (incorporated by reference to Exhibit 10.31 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1996, as amended by the Form 10-K/A dated April 25, 1997, and by the Form 10-K/A dated December 18, 1997 (collectively, the "1996 Form 10-K")). 10.26 Form of Amendment No. 2, dated as of April 25, 1997, to Amended and Restated Loan Agreement among Realty Partnership, the Trust, CP Hotel, Midland and Lehman Capital (incorporated by reference to Exhibit 10.3 to the 1997 Form 10-Q2). 10.27 Purchase and Sale Agreement, dated as of May 3, 1996, among, inter alia, 730 Cal Hotel Properties II, Inc., Cal Hotel Properties I Associates, Realty Partnership and Operating Partnership (incorporated by reference to Exhibit 10.6 to the 1996 Form 10-Q2). 10.28 Exchange Rights Agreement, dated as of June 3, 1996, among the Trust, the Corporation, Realty Partnership, Operating Partnership, Philadelphia HIR Limited Partnership and Philadelphia HSR Limited Partnership (incorporated by reference to Exhibit 10.1 to the 1996 Form 10-Q2). 10.29 Registration Rights Agreement, dated as of June 3, 1996, among the Trust, the Corporation and Philadelphia HSR Limited Partnership (incorporated by reference to Exhibit 10.2 to the 1996 Form 10-Q2). 10.30 Asset Purchase Agreement, dated as of March 25, 1996, between Hotels of Distinction, Inc., and Realty Partnership (effective July 3, 1996) (incorporated by reference to Exhibit 10.7 to the 1996 Form 10-K). 10.31 Loan Agreement, dated as of August 16, 1996, between the Realty Partnership and the Trust, as the borrower, and Goldman Sachs Mortgage Company, as lender (incorporated by reference to Exhibit 10.33 to the 1996 Form 10-K). 10.32 Contribution Agreement, dated as of January 15, 1997, by and among HEI Hotels, L.L.C., Westport Management, L.L.C., Savior Limited Partnership, Judith Rushmore, Orna L. Shulman, Murray Dow, Steve Mendell, Gary Mendell, Zapco Communications, Inc., Westport Hospitality, Inc., the Corporation and Operating Partnership (incorporated by reference to Exhibit 10.3 to the 1997 Form 10-Q1). 10.33 Contribution Agreement, dated as of January 15, 1997, by and among, inter alia, Realty Partnership, Operating Partnership, the Trust, the Corporation, Prudential HEI Joint Venture and Gary M. Mendell (incorporated by reference to Exhibit 10.4 to the 1997 Form 10-Q1). 10.34 Units Exchange Rights Agreement, dated as of February 14, 1997, by and among, inter alia, the Trust, the Corporation, Realty Partnership, Operating Partnership and the Starwood Partners.(3) 10.35 Class A Exchange Rights Agreement, dated as of February 14, 1997, by and among, inter alia, the Trust, the Corporation, Operating Partnership and the Starwood Partners.(3) 10.36 Promissory Note, dated as of February 14, 1997, by Realty Partnership and the Trust, the Corporation, and Operating Partnership, in favor of The Prudential Insurance Company of America ("Prudential"), on behalf of Prudential Property Investment Separate Account II ("PRISA II") (incorporated by reference to Exhibit 10.2 to the 1997 Form 10-Q1). 10.37 Form of letter, dated April 9, 1997, from Realty Partnership and the Trust to PRISA II extending the maturity date of the Promissory Note, dated as of February 14, 1997 (incorporated by reference to Exhibit 10.4 to the 1997 Form 10-Q2).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.38 Form of Amendment to Purchase Money Promissory Note, dated April 26, 1997, between Realty Partnership and the Trust in favor of Prudential, on behalf of PRISA II (incorporated by reference to Exhibit 10.5 to the 1997 Form 10-Q2). 10.39 Form of Amendment No. 2 to Purchase Money Promissory Note, dated May 28, 1997, between Realty Partnership and the Trust in favor of Prudential, on behalf of PRISA II (incorporated by reference to Exhibit 10.6 to the 1997 Form 10-Q2). 10.40 Amended and Restated Installment Sale Agreement, dated as of February 1, 1997, between Philadelphia Authority for Industrial Development and Realty Partnership (incorporated by reference to Exhibit 10.5 to the 1997 Form 10-Q1). 10.41 Exchange Rights Agreement, dated as of March 11, 1997, among the Corporation, the Trust, Realty Partnership, Operating Partnership and the Hermitage, L.P.(3) 10.42 Registration Rights Agreement, dated as of March 11, 1997, among the Corporation, the Trust, Realty Partnership, Operating Partnership and the Hermitage, L.P.(3) 10.43 Credit Agreement, dated as of August 18, 1997, among SLT Mexico, S. de R.L. de C.V., as Borrower, Realty Partnership and the Trust, as Guarantors, the Lenders party thereto and Bancomer, S.A., Cayman Islands Branch, as Agent.(3) 10.44 Purchase and Sale Agreement, dated as of July 18, 1997, by and among, inter alia, Thomas J. Flately, Tara Hotel Management Co. LLC, Realty Partnership and Operating Partnership (incorporated by reference to Exhibit 2 to the Trust's and the Corporation's Joint Current Report on Form 8-K dated September 10, 1997, as amended by the Form 8-K/A dated December 18, 1997). 10.45 Credit Agreement, dated as of September 10, 1997, between Realty Partnership and the Trust and BTC, Lehman Capital, BankBoston, N.A., and Bank of Montreal (incorporated by reference to Exhibit 10.1 to the Trust's and the Corporation's Joint Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997, as amended by the Form 10-Q/A dated November 10, 1997 (as so amended, the "1997 Form 10-Q3")). 10.46 Purchase Agreement, dated as of October 10, 1997, by and among the Trust, the Corporation, UBS Limited, Union Bank of Switzerland, London Branch and UBS Securities LLC.(3) 10.47 ISDA Master Agreement and Forward Stock Contract, each dated as of October 13, 1997, by and among the Trust, the Corporation, UBS Limited, Union Bank of Switzerland, London Branch and UBS Securities LLC.(3) 10.48 Loan Agreement, dated as of December 29, 1997, among Woodstar, the Lenders party thereto, BT Alex. Brown Incorporated ("Alex Brown") and Chase Securities Inc. as Arranging Agents and BTC and Chase Bank as Administrative Agents.(3) 10.49 Loan Agreement, dated as of December 29, 1997, among WHWE L.L.C., the Lenders party thereto, Alex Brown and Chase Securities Inc. as Arranging Agents and BTC and Chase Bank as Administrative Agents.(3) 10.50 Exchange Rights Agreement, dated as of January 2, 1998, among, inter alia, the Trust, Realty Partnership and Woodstar.(3) 10.51 Exchange Rights Agreement, dated as of January 2, 1998, among, inter alia, the Corporation, Operating Partnership and Woodstar.(3) 10.52 Registration Rights Agreement, dated as of January 2, 1998, among, inter alia, the Trust, the Corporation, and Woodstar.(3) 10.53 Purchase and Sale Agreement and Joint Escrow Instructions, dated as of December 30, 1997, by and among the Corporation, the Trust and New Remington Partners.(3) 10.54 Stock Agreement and Registration Rights Agreement, each dated as of January 15, 1998 by and among the Corporation, the Trust and New Remington Partners.(3) 10.55 Purchase and Sale Agreement and Joint Escrow Instructions, dated as of December 30, 1997, by and among the Corporation, the Trust and Savannah Limited Partnership.(3) 10.56 Stock Agreement and Registration Rights Agreement, each dated as of January 15, 1998, by and among the Corporation, the Trust and Savannah Limited Partnership.(3) 10.57 Purchase and Sale Agreement and Joint Escrow Instructions, dated as of December 30, 1997, by and among the Corporation, the Trust and N.Y. Overnight Partners, L.P.(3) 10.58 Stock Agreement and Registration Rights Agreement, each dated as of January 15, 1998, by and among the Corporation, the Trust and N.Y. Overnight Partners, L.P.(3)
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.59 Purchase and Sale Agreement and Joint Escrow Instructions, dated as of December 30, 1997, by and among the Corporation, the Trust and D.C. Overnight Partners, L.P.(3) 10.60 Stock Agreement and Registration Rights Agreement, each dated as of January 15, 1998, by and among the Corporation, the Trust and D.C. Overnight Partners, L.P.(3) 10.61 Credit Agreement, dated as of February 23, 1998, among the Trust, Realty Partnership, the Corporation, Chess (and ITT as its successor by merger), certain additional borrowers, various lenders, BTC and The Chase Manhattan Bank ("Chase Bank"), as Administrative Agents, and Lehman Paper and Bank of Montreal, as Syndication Agents (incorporated by reference to Exhibit 10.1 to the Trust's and the Corporation's Joint Current Report on Form 8-K dated February 23, 1998 (the "ITT Form 8-K")). 10.62 First Amendment to the Credit Agreement, dated as of March 3, 1998, among the Trust, Realty Partnership, the Corporation, ITT, the lenders party to the Credit Agreement, BTC and The Chase Manhattan Bank, as Administrative Agents, and Lehman Paper and Bank of Montreal, as Syndication Agents, and the new lenders (incorporated by reference to Exhibit 10.2 to the ITT Form 8-K). 10.63 Pledge and Security Agreement, dated as of February 23, 1998, executed and delivered by the Trust, the Corporation and the other Pledgors party thereto, in favor of BTC as Collateral Agent.(3) 10.64 Senior Secured Increasing Rate Note Agreement, dated as of February 23, 1998, by and among the Corporation, the Trust, the Guarantors named therein and the Lenders named therein (incorporated by reference to Exhibit 10.3 to the ITT Form 8-K). 10.65 Loan Agreement, dated as of February 23, 1998, between the Trust and the Corporation, together with Promissory Note executed in connection therewith, by the Corporation to the order of the Trust, in the principal amount of $3,282,000,000.(3) 10.66 Loan Agreement, dated as of February 23, 1998, between the Trust and the Corporation, together with Promissory Note executed in connection therewith, by the Corporation to the order of the Trust, in the principal amount of $100,000,000.(3) 10.67 Loan Agreement, dated as of February 23, 1998, between the Trust and the Corporation, together with Promissory Note executed in connection therewith, by the Corporation to the order of the Trust, in the principal amount of $50,000,000.(3) 10.68 Purchase Agreement, dated as of February 23, 1998, by and among the Trust, the Corporation, Lehman Brothers Inc. and Lehman Brothers Finance S.A., together with Price Adjustment Agreement entered into in connection therewith.(3) 10.69 Purchase Agreement, dated as of February 23, 1998, by and among the Trust, the Corporation, NationsBanc Montgomery Securities LLC and NMS Services, Inc., together with Price Adjustment Agreement entered into in connection therewith.(3) 10.70 Purchase Agreement, dated as of February 23, 1998, by and among the Trust, the Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch International, together with Price Adjustment Agreement entered into in connection therewith.(3) 11.0 Combined statement regarding computation of per share earnings (incorporated by reference to Exhibit 11 on the First Quarter 10-Q). 21.1 Subsidiaries of the Trust.(3) 21.2 Subsidiaries of the Corporation.(3) 21.3 Subsidiaries of ITT Corporation.(3) 23. Consent of Coopers & Lybrand L.L.P.(3) 27.1 Financial Data Schedule for Starwood Hotels & Resorts Worldwide, Inc.(3) 27.2 Financial Data Schedule for Starwood Hotels & Resorts(3)
- --------------- (1) The SEC file numbers of all filings made by the Trust and the Corporation pursuant to the Securities Act of 1934, as amended, and referenced herein are: 1-6828 (the Trust) and 1-7959 (the Corporation). (2) Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K. (3) Filed herewith. 90 92 (b) Reports on Form 8-K. During the fourth quarter of 1997, the Trust and the Corporation filed the following Joint Current Reports on Form 8-K: On October 21, 1997, the Company filed a Joint Current Report on Form 8-K (as amended by the Form 8-K/A dated October 29, 1997) reporting under Item 5 the execution and delivery of the ITT Merger Agreement. On November 13, 1997, the Company filed a Joint Current Report on Form 8-K (as amended by the Form 8-K/A dated December 18, 1997 and the Form 8-K/A dated January 7, 1998) to file, under Item 7, pro forma financial statements in connection with the Westin Merger. On November 13, 1997, the Company filed a Joint Current Report on Form 8-K to report under Item 5 of Form 8-K the amendment of the ITT Merger Agreement. On December 18, 1997, the Company filed a Form 8-K/A dated December 18, 1997 as an amendment to a Joint Current Report on Form 8-K, dated February 10, 1997, which was filed to report under Item 5 the acquisition of HEI. On December 18, 1997, the Company filed a Joint Current Report on Form 8-K/A amending the Joint Current Report on Form 8-K dated September 9, 1997, which was filed to report under Item 5 the Company's acquisition of the Flatley Portfolio. On December 18, 1997, the Company filed a Joint Current Report on Form 8-K/A amending the Joint Current Report on Form 8-K dated September 10, 1997, which was filed to report under Item 5 the entering into of the Westin Merger Agreement. 91 93 SIGNATURE 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. STARWOOD HOTELS & RESORTS By: /s/ BARRY S. STERNLICHT ------------------------------------ Barry S. Sternlicht, Chairman and Chief Executive Officer Date: March 31, 1998 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.
SIGNATURE TITLE DATE --------- ----- ---- /s/ BARRY S. STERNLICHT Chairman, Chief Executive Officer March 31, 1998 - --------------------------------------------------- and Trustee (Principal Executive, Barry S. Sternlicht Financial and Accounting Officer) Trustee March , 1998 - --------------------------------------------------- Steven R. Goldman /s/ JEAN-MARC CHAPUS Trustee March 31, 1998 - --------------------------------------------------- Jean-Marc Chapus /s/ BRUCE W. DUNCAN Trustee March 31, 1998 - --------------------------------------------------- Bruce W. Duncan Trustee March , 1998 - --------------------------------------------------- Madison F. Grose Trustee March , 1998 - --------------------------------------------------- George J. Mitchell /s/ ROGER S. PRATT Trustee March 31, 1998 - --------------------------------------------------- Roger S. Pratt /s/ STEPHEN R. QUAZZO Trustee March 31, 1998 - --------------------------------------------------- Stephen R. Quazzo /s/ STUART M. ROTHENBERG Trustee March 31, 1998 - --------------------------------------------------- Stuart M. Rothenberg
92 94 SIGNATURE 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. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. By: /s/ RONALD C. BROWN ------------------------------------ Ronald C. Brown, Executive Vice President and Chief Financial Officer Date: March 31, 1998 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.
SIGNATURE TITLE DATE --------- ----- ---- /s/ BARRY S. STERNLICHT Chairman of the Board of March 31, 1998 - --------------------------------------------------- Directors and Director Barry S. Sternlicht /s/ RONALD C. BROWN Executive Vice President and March 31, 1998 - --------------------------------------------------- Chief Financial Officer Ronald C. Brown (Principal Financial and Accounting Officer) /s/ JUERGEN BARTELS Chief Executive, Hotel Operating March 31, 1998 - --------------------------------------------------- Group and Director (Principal Juergen Bartels Executive Officer) /s/ JONATHAN D. EILIAN Director March 31, 1998 - --------------------------------------------------- Jonathan D. Eilian /s/ BRUCE M. FORD Director March 31, 1998 - --------------------------------------------------- Bruce M. Ford Director March , 1998 - --------------------------------------------------- Graeme W. Henderson /s/ EARLE F. JONES Director March 31, 1998 - --------------------------------------------------- Earle F. Jones /s/ MICHAEL A. LEVEN Director March 31, 1998 - --------------------------------------------------- Michael A. Leven Director March , 1998 - --------------------------------------------------- Daniel H. Stern Director March , 1998 - --------------------------------------------------- Barry S. Volpert /s/ DANIEL W. YIH Director March 31, 1998 - --------------------------------------------------- Daniel W. Yih
93 95 STARWOOD HOTELS & RESORTS STARWOOD HOTELS & RESORTS WORLDWIDE, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES AS OF DECEMBER 31, 1997 AND 1996 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997 INDEPENDENT AUDITOR'S REPORT................................ F-2 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC.: Combined Consolidated Balance Sheets................... F-3 Combined Consolidated Statements of Operations......... F-4 Combined Consolidated Statements of Cash Flows......... F-5 Combined Consolidated Statements of Shareholders' Equity................................................ F-6 STARWOOD HOTELS & RESORTS: Consolidated Balance Sheets............................ F-7 Consolidated Statements of Operations.................. F-8 Consolidated Statements of Cash Flows.................. F-9 Consolidated Statements of Shareholders' Equity........ F-10 STARWOOD HOTELS & RESORTS WORLDWIDE, INC.: Consolidated Balance Sheets............................ F-11 Consolidated Statements of Operations.................. F-12 Consolidated Statements of Cash Flows.................. F-13 Consolidated Statements of Shareholders' Equity........ F-14 NOTES TO FINANCIAL STATEMENTS............................... F-15 SCHEDULES: Schedule III -- Real Estate and Accumulated Depreciation.......................................... F-51 Schedule IV -- Mortgage Loans on Real Estate........... F-58
F-1 96 INDEPENDENT AUDITOR'S REPORT To the Boards of Trustees and Directors and Shareholders of Starwood Hotels & Resorts and Starwood Hotels & Resorts Worldwide, Inc.: We have audited the accompanying separate and combined consolidated financial statements and financial statement schedules of Starwood Hotels & Resorts (a Maryland real estate investment trust) and its subsidiaries (the "Trust") and Starwood Hotels & Resorts Worldwide, Inc. (a Maryland corporation) and its subsidiaries (the "Corporation"), collectively the "Company," as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, listed in the foregoing index to financial statements and financial statement schedules. These financial statements and financial statement schedules are the responsibility of the Trust's and the Corporation's managements. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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, such separate and combined financial statements present fairly, in all material respects, the financial position of the Company and the financial position of the Trust and the Corporation at December 31, 1997 and 1996, and the respective results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. COOPERS & LYBRAND L.L.P. Phoenix, Arizona February 27, 1998 F-2 97 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. COMBINED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ ASSETS Hotel assets held for sale -- net........................... $ 37,924 $ 21,644 Hotel assets -- net......................................... 2,590,939 1,100,030 ---------- ---------- 2,628,863 1,121,674 Mortgage notes receivable -- net............................ 51,197 90,741 Investments................................................. 1,698 948 ---------- ---------- Total real estate investments..................... 2,681,758 1,213,363 Cash and cash equivalents................................... 23,462 25,426 Accounts, interest and rents receivable..................... 77,687 43,278 Notes receivable -- net..................................... 35,856 2,930 Inventories, prepaid expenses and other assets.............. 190,701 27,743 ---------- ---------- $3,009,464 $1,312,740 ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Collateralized notes payable and lines of credit............ $1,221,727 $ 422,334 Mortgage and other notes payable............................ 344,287 57,232 Accounts payable and other liabilities...................... 121,164 57,296 Distributions payable....................................... 30,374 19,258 ---------- ---------- 1,717,552 556,120 ---------- ---------- Commitments and contingencies MINORITY INTEREST........................................... 270,289 163,959 ---------- ---------- SHAREHOLDERS' EQUITY Trust common shares of beneficial interest at December 31, 1997 and 1996; $.01 par value; authorized 100,000,000 shares; outstanding 51,346,000 and 40,078,000 at December 31, 1997 and 1996, respectively........................... 513 401 Corporation common stock at December 31, 1997 and 1996; $.01 par value; authorized 100,000,000 shares; outstanding 51,346,000 and 40,078,000 at December 31, 1997 and 1996, respectively.............................................. 513 401 Additional paid-in capital.................................. 1,335,532 827,760 Distributions in excess of earnings......................... (314,935) (235,901) ---------- ---------- 1,021,623 592,661 ---------- ---------- $3,009,464 $1,312,740 ========== ==========
See accompanying notes to financial statements. F-3 98 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
TWELVE MONTHS ENDED DECEMBER 31, --------------------------------- 1997 1996 1995 --------- --------- --------- REVENUE Rooms..................................................... $577,318 $260,175 $ 87,270 Food and beverage......................................... 248,072 94,816 26,609 Other..................................................... 63,524 30,119 7,371 -------- -------- -------- Total hotel revenue............................... 888,914 385,110 121,250 Gaming.................................................... 15,003 23,630 26,929 Interest from mortgage and other notes.................... 13,680 11,262 10,905 Rents from leased hotel properties and income from investments............................................ 883 822 791 Management fees and other income.......................... 8,068 3,424 1,966 Gain (loss) on sale of real estate investments............ 7,035 4,290 (125) -------- -------- -------- 933,583 428,538 161,716 -------- -------- -------- EXPENSES Rooms..................................................... 141,872 67,017 37,121 Food and beverage......................................... 181,430 72,696 19,520 Other..................................................... 290,852 135,302 28,376 -------- -------- -------- Total hotel expenses.............................. 614,154 275,015 85,017 Gaming.................................................... 16,499 21,834 24,242 Interest.................................................. 65,035 23,337 13,138 Depreciation and amortization............................. 125,446 55,745 15,469 Administrative and general................................ 27,241 16,495 5,712 Treasury lock settlement.................................. 25,000 -- -- -------- -------- -------- 873,375 392,426 143,578 -------- -------- -------- Income before minority interest........................... 60,208 36,112 18,138 Minority interest......................................... 18,684 10,238 7,013 -------- -------- -------- Income before extraordinary items......................... 41,524 25,874 11,125 Extraordinary items due to early extinguishment of debt (net of $971,000, $413,000 and $163,000 minority interest, respectively)................................ (3,452) 1,077 (2,155) -------- -------- -------- NET INCOME........................................ $ 38,072 $ 26,951 $ 8,970 ======== ======== ======== EARNINGS PER PAIRED SHARE Income before extraordinary items......................... $ 0.90 $ 0.88 $ 0.95 Extraordinary items....................................... (0.07) 0.04 (0.18) -------- -------- -------- NET INCOME PER PAIRED SHARE....................... $ 0.83 $ 0.92 $ 0.77 ======== ======== ======== EARNINGS PER PAIRED SHARE ASSUMING DILUTION Income before extraordinary items......................... $ 0.85 $ 0.86 $ 0.95 Extraordinary items....................................... (0.07) 0.04 (0.18) -------- -------- -------- NET INCOME PER PAIRED SHARE ASSUMING DILUTION..... $ 0.78 $ 0.90 $ 0.77 ======== ======== ======== Weighted Average Number of Paired Shares.................... 46,022 29,204 11,657 ======== ======== ======== Weighted Average Number of Paired Shares Assuming Dilution.................................................. 48,663 29,884 11,710 ======== ======== ========
See accompanying notes to financial statements. F-4 99 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
TWELVE MONTHS ENDED DECEMBER 31, ----------------------------------- 1997 1996 1995 ----------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income............................................... $ 38,072 $ 26,951 $ 8,970 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest..................................... 18,684 10,238 7,013 Extraordinary items due to early extinguishment of debt................................................ 3,452 (1,077) 2,155 Depreciation and amortization......................... 125,446 55,745 15,469 Accretion of discount................................. (5,530) (3,140) (3,285) Deferred interest..................................... -- -- 649 Provision for doubtful accounts....................... 1,293 1,044 470 Warrants and paired shares issued as compensation..... 3,400 -- -- (Gain) loss on sale of real estate investments........ (7,035) (4,290) 125 Changes in operating assets and liabilities: Increase in accounts receivable, inventories, prepaid expenses and other assets........................... (77,300) (46,676) (21,805) Increase in accounts payable and other liabilities.... 56,451 35,372 6,650 ----------- --------- --------- Net cash provided by operating activities........ 156,933 74,167 16,411 ----------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of hotel properties.......................... (1,100,401) (720,969) (160,880) Improvements and additions to hotel assets............... (157,258) (27,775) (5,331) Purchase of investments.................................. (1,450) (1,871) -- Sale of investments...................................... 940 3,764 -- Net proceeds from sale of real estate investments........ 18,549 21,991 -- Purchase of mortgage and other notes receivable.......... (34,200) (25,206) (19,795) Principal received on mortgage and other notes receivable............................................ 53,682 3,266 6,825 Reorganization costs..................................... -- -- (2,814) ----------- --------- --------- Net cash used in investing activities............ (1,220,138) (746,800) (181,995) ----------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under collateralized notes payable and lines of credit............................................. 1,864,328 367,561 119,100 Borrowings under mortgage and other notes payable........ 101,755 3,497 9,637 Payments on collateralized notes payable and lines of credit................................................ (1,064,980) (64,327) (102,899) Principal payments on mortgage and other notes payable... (98,667) (1,535) (104,722) Net proceeds from equity offerings....................... 383,081 429,618 245,701 Contributed capital and adjustments...................... 1,056 131 13,599 Stock repurchase......................................... (25,724) -- -- Distributions paid....................................... (99,608) (46,218) (9,265) Purchase of warrants..................................... -- -- (1,300) ----------- --------- --------- Net cash provided by financing activities........ 1,061,241 688,727 169,851 ----------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... (1,964) 16,094 4,267 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD... 25,426 9,332 5,065 ----------- --------- --------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD......... $ 23,462 $ 25,426 $ 9,332 =========== ========= =========
See accompanying notes to financial statements. F-5 100 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. COMBINED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
TRUST SHARES CORPORATION ADDITIONAL DISTRIBUTIONS TOTAL OF BENEFICIAL COMMON PAID-IN IN EXCESS OF SHAREHOLDERS' INTEREST STOCK CAPITAL EARNINGS EQUITY ------------- ----------- ---------- ------------- ------------- Balance December 31, 1994........ $ 12,133 $ 1,213 $ 210,251 $(214,889) $ 8,708 Decrease in par value to $0.01....................... (12,012) (1,092) 13,104 -- -- One-for-six reverse stock split....................... (101) (101) 202 -- -- Contributed capital............ -- -- 59,120 -- 59,120 Equity offerings............... 118 118 245,465 -- 245,701 Minority interest.............. -- -- (92,735) -- (92,735) Net income..................... -- -- -- 8,970 8,970 Distributions.................. -- -- -- (12,996) (12,996) Warrant purchase............... -- -- (1,300) -- (1,300) -------- ------- ---------- --------- ---------- Balance December 31, 1995........ 138 138 434,107 (218,915) 215,468 Three-for-two stock dividend... 135 135 (270) -- -- Contributed capital............ -- -- 7,783 -- 7,783 Equity offerings............... 128 128 429,362 -- 429,618 Net income..................... -- -- -- 26,951 26,951 Distributions.................. -- -- -- (43,937) (43,937) Change in minority interest.... -- -- (43,222) -- (43,222) -------- ------- ---------- --------- ---------- Balance December 31, 1996........ 401 401 827,760 (235,901) 592,661 Contributed capital............ 53 53 233,558 -- 233,664 Equity offerings............... 63 63 382,955 -- 383,081 Stock repurchase............... (4) (4) (12,493) (13,223) (25,724) Net income..................... -- -- -- 38,072 38,072 Distributions.................. -- -- -- (103,883) (103,883) Change in minority interest.... -- -- (96,248) -- (96,248) -------- ------- ---------- --------- ---------- Balance December 31, 1997........ $ 513 $ 513 $1,335,532 $(314,935) $1,021,623 ======== ======= ========== ========= ==========
See accompanying notes to financial statements. F-6 101 STARWOOD HOTELS & RESORTS CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ ASSETS Hotel assets held for sale -- net........................... $ 16,591 $ 12,615 Hotel assets -- net......................................... 2,293,947 988,309 ---------- ---------- 2,310,538 1,000,924 Mortgage notes receivable -- net............................ 51,197 90,741 Mortgage notes receivable -- Corporation.................... 241,432 88,077 Investments................................................. 1,451 948 ---------- ---------- Total real estate investments..................... 2,604,618 1,180,690 Cash and cash equivalents................................... 9,818 3,810 Accounts, interest and rents receivable..................... 5,203 12,617 Notes receivable -- net..................................... 35,255 2,237 Notes receivable -- Corporation............................. 80,178 17,741 Prepaid expenses and other assets........................... 37,351 16,271 ---------- ---------- $2,772,423 $1,233,366 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Collateralized notes payable and lines of credit............ $1,221,727 $ 422,334 Mortgage and other notes payable............................ 217,567 55,269 Accounts payable and other liabilities...................... 61,135 9,200 Distributions payable....................................... 30,250 19,258 ---------- ---------- 1,530,679 506,061 ---------- ---------- Commitments and contingencies MINORITY INTEREST........................................... 259,118 158,005 ---------- ---------- SHAREHOLDERS' EQUITY Trust common shares of beneficial interest at December 31, 1997 and 1996; $.01 par value; authorized 100,000,000 shares; outstanding 51,346,000 and 40,078,000 at December 31, 1997 and 1996, respectively........................... 513 401 Additional paid-in capital.................................. 1,211,196 729,276 Distributions in excess of earnings......................... (229,083) (160,377) ---------- ---------- 982,626 569,300 ---------- ---------- $2,772,423 $1,233,366 ========== ==========
See accompanying notes to financial statements. F-7 102 STARWOOD HOTELS & RESORTS CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
TWELVE MONTHS ENDED DECEMBER 31, ---------------------------------- 1997 1996 1995 --------- --------- -------- REVENUE Rents from Corporation.................................... $234,537 $ 87,593 $26,730 Interest from Corporation................................. 16,336 9,084 4,761 Interest from mortgage and other notes.................... 13,680 11,262 10,792 Rents from leased hotel properties and income from investments............................................ 883 822 791 Other income.............................................. 2,161 2,008 1,074 Gain (loss) on sale of real estate investments............ 3,171 4,290 (125) -------- -------- ------- 270,768 115,059 44,023 -------- -------- ------- EXPENSES Interest.................................................. 64,872 23,088 12,429 Depreciation and amortization............................. 100,151 42,517 8,977 Administrative and general................................ 12,212 4,134 2,439 Treasury lock settlement.................................. 25,000 -- -- -------- -------- ------- 202,235 69,739 23,845 -------- -------- ------- Income before minority interest........................... 68,533 45,320 20,178 Minority interest......................................... 17,786 11,731 7,314 -------- -------- ------- Income before extraordinary items......................... 50,747 33,589 12,864 Extraordinary items due to early extinguishment of debt (net of $971,000 and $163,000 minority interest in 1997 and 1995, respectively)................................ (3,452) -- (2,155) -------- -------- ------- NET INCOME........................................ $ 47,295 $ 33,589 $10,709 ======== ======== ======= EARNINGS PER SHARE Income before extraordinary items......................... $ 1.10 $ 1.15 $ 1.10 Extraordinary items....................................... (0.07) -- (0.18) -------- -------- ------- NET INCOME PER SHARE.............................. $ 1.03 $ 1.15 $ 0.92 ======== ======== ======= EARNINGS PER SHARE ASSUMING DILUTION Income before extraordinary items......................... $ 1.04 $ 1.12 $ 1.10 Extraordinary items....................................... (0.07) -- (0.18) -------- -------- ------- NET INCOME PER SHARE ASSUMING DILUTION............ $ 0.97 $ 1.12 $ 0.92 ======== ======== ======= Weighted Average Number of Shares........................... 46,022 29,204 11,657 ======== ======== ======= Weighted Average Number of Shares Assuming Dilution......... 48,663 29,884 11,710 ======== ======== =======
See accompanying notes to financial statements. F-8 103 STARWOOD HOTELS & RESORTS CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
TWELVE MONTHS ENDED DECEMBER 31, ------------------------------------- 1997 1996 1995 ----------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income................................................ $ 47,295 $ 33,589 $ 10,709 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest....................................... 17,786 11,731 7,314 Extraordinary items due to early extinguishment of debt.................................................. 3,452 -- 2,155 Depreciation and amortization........................... 100,151 42,517 8,977 Accretion of discount................................... (5,530) (3,140) (3,285) Deferred interest....................................... -- -- 649 Deferred interest -- Corporation........................ (7,935) (2,055) -- Warrants and paired shares issued as compensation....... 3,177 -- -- (Gain) loss on sale of real estate investments.......... (3,171) (4,290) 125 Changes in operating assets and liabilities: Increase in rent and interest receivable, prepaid expenses and other assets............................. (23,072) (18,649) (17,056) Increase in accounts payable and other liabilities...... 44,518 1,886 1,679 ----------- --------- --------- Net cash provided by operating activities.......... 176,671 61,589 11,267 ----------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of hotel properties........................... (1,033,305) (699,438) (118,896) Improvements and additions to hotel assets................ (116,994) (15,661) (4,660) Purchase of investments................................... (1,443) (1,871) -- Sale of investments....................................... 940 3,764 -- Net proceeds from sale of real estate investments......... 10,271 21,991 -- Purchase of mortgage and other notes receivable........... (34,200) (25,012) (19,795) Purchase of mortgage notes receivable -- Corporation...... (27,000) (18,216) -- Principal received on mortgage and other notes receivable.............................................. 47,823 3,201 6,766 Reorganization costs...................................... -- -- (1,407) Net change in notes receivable -- Corporation............. (63,225) 4,815 (37,514) ----------- --------- --------- Net cash used in investing activities.............. (1,217,133) (726,427) (175,506) ----------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under collateralized notes payable and lines of credit.................................................. 1,864,328 367,561 119,100 Borrowings under mortgage and other notes payable......... 101,755 2,829 9,637 Payments on collateralized notes payable and lines of credit.................................................. (1,064,980) (64,327) -- Principal payments on mortgage and other notes payable.... (97,767) (35) (198,158) Net proceeds from equity offerings........................ 363,952 408,000 233,418 Contributed capital and adjustments....................... 2,174 128 11,197 Stock repurchase.......................................... (24,438) -- -- Distributions paid........................................ (98,554) (46,218) (9,265) Purchase of warrants...................................... -- -- (1,235) ----------- --------- --------- Net cash provided by financing activities.......... 1,046,470 667,938 164,694 ----------- --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS....................... 6,008 3,100 455 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD.... 3,810 710 255 ----------- --------- --------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD.......... $ 9,818 $ 3,810 $ 710 =========== ========= =========
See accompanying notes to financial statements. F-9 104 STARWOOD HOTELS & RESORTS CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
TRUST SHARES ADDITIONAL DISTRIBUTIONS TOTAL OF BENEFICIAL PAID-IN IN EXCESS OF SHAREHOLDERS' INTEREST CAPITAL EARNINGS EQUITY ------------- ---------- ------------- ------------- Balance January 1, 1995................... $ 12,133 $ 146,059 $(147,742) $ 10,450 Decrease in par value to $0.01.......... (12,012) 12,012 -- -- One-for-six reverse stock split......... (101) 101 -- -- Contributed capital..................... -- 52,495 -- 52,495 Equity offerings........................ 118 233,300 -- 233,418 Minority interest....................... -- (88,113) -- (88,113) Net income.............................. -- -- 10,709 10,709 Distributions........................... -- -- (12,996) (12,996) Warrant purchase........................ -- (1,235) -- (1,235) -------- ---------- --------- --------- Balance December 31, 1995................. 138 354,619 (150,029) 204,728 Three-for-two stock dividend............ 135 (135) -- -- Contributed capital..................... -- 7,780 -- 7,780 Equity offerings........................ 128 407,872 -- 408,000 Net income.............................. -- -- 33,589 33,589 Distributions........................... -- -- (43,937) (43,937) Change in minority interest............. -- (40,860) -- (40,860) -------- ---------- --------- --------- Balance December 31, 1996................. 401 729,276 (160,377) 569,300 Contributed capital..................... 53 220,309 -- 220,362 Equity offerings........................ 63 363,888 -- 363,951 Stock repurchase........................ (4) (11,869) (12,565) (24,438) Net income.............................. -- -- 47,295 47,295 Distributions........................... -- -- (103,436) (103,436) Change in minority interest............. -- (90,408) -- (90,408) -------- ---------- --------- --------- Balance December 31, 1997................. $ 513 $1,211,196 $(229,083) $ 982,626 ======== ========== ========= =========
See accompanying notes to financial statements. F-10 105 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ ASSETS Hotel assets held for sale -- net........................... $ 21,333 $ 9,029 Hotel assets -- net......................................... 296,992 111,721 -------- -------- 318,325 120,750 Investments................................................. 247 -- -------- -------- Total real estate investments..................... 318,572 120,750 Cash and cash equivalents................................... 13,644 21,616 Accounts receivable......................................... 72,484 30,661 Notes receivable............................................ 601 693 Inventories, prepaid expenses and other assets.............. 153,350 11,472 -------- -------- $558,651 $185,192 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Mortgage and other notes payable............................ $126,720 $ 1,963 Mortgage notes payable -- Trust............................. 241,432 88,077 Notes payable -- Trust...................................... 80,178 17,741 Accounts payable and other liabilities...................... 60,029 48,096 Distributions payable....................................... 124 -- -------- -------- 508,483 155,877 -------- -------- Commitments and contingencies MINORITY INTEREST........................................... 11,171 5,954 -------- -------- SHAREHOLDERS' EQUITY Corporation common stock at December 31, 1997 and 1996; $.01 par value; authorized 100,000,000 shares; outstanding 51,346,000 and 40,078,000 at December 31, 1997 and 1996, respectively.............................................. 513 401 Additional paid-in capital.................................. 124,336 98,484 Accumulated deficit......................................... (85,852) (75,524) -------- -------- 38,997 23,361 -------- -------- $558,651 $185,192 ======== ========
See accompanying notes to financial statements. F-11 106 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
TWELVE MONTHS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- REVENUE Rooms.................................................... $577,318 $260,175 $ 87,270 Food and beverage........................................ 248,072 94,816 26,609 Other.................................................... 63,524 30,119 7,371 -------- -------- -------- Total hotel revenue.............................. 888,914 385,110 121,250 Gaming................................................... 15,003 23,630 26,929 Interest from notes receivable........................... -- -- 113 Management fees and other income......................... 5,907 1,416 892 Gain on sale of real estate investments.................. 3,864 -- -- -------- -------- -------- 913,688 410,156 149,184 -------- -------- -------- EXPENSES Rooms.................................................... 141,872 67,017 37,121 Food and beverage........................................ 181,430 72,696 19,520 Other.................................................... 290,852 135,302 28,376 -------- -------- -------- Total hotel expenses............................. 614,154 275,015 85,017 Gaming................................................... 16,499 21,834 24,242 Rent -- Trust............................................ 234,537 87,593 26,730 Interest -- Trust........................................ 16,336 9,084 4,761 Interest -- other........................................ 163 249 709 Depreciation and amortization............................ 25,295 13,228 6,492 Administrative and general............................... 15,029 12,361 3,273 -------- -------- -------- 922,013 419,364 151,224 -------- -------- -------- Loss before minority interest............................ (8,325) (9,208) (2,040) Minority interest........................................ 898 (1,493) (301) -------- -------- -------- Loss before extraordinary items.......................... (9,223) (7,715) (1,739) Extraordinary items due to early extinguishment of debt (net of $413,000 minority interest)................... -- 1,077 -- -------- -------- -------- NET LOSS......................................... $ (9,223) $ (6,638) $ (1,739) ======== ======== ======== LOSS PER SHARE Loss before extraordinary items.......................... $ (0.20) $ (0.26) $ (0.15) Extraordinary items...................................... -- 0.04 -- -------- -------- -------- NET LOSS PER SHARE............................... $ (0.20) $ (0.22) $ (0.15) ======== ======== ======== LOSS PER SHARE ASSUMING DILUTION Loss before extraordinary items.......................... $ (0.20) $ (0.26) $ (0.15) Extraordinary items...................................... -- 0.04 -- -------- -------- -------- NET LOSS PER SHARE ASSUMING DILUTION............. $ (0.20) $ (0.22) $ (0.15) ======== ======== ======== Weighted Average Number of Shares.......................... 46,022 29,204 11,657 ======== ======== ======== Weighted Average Number of Shares Assuming Dilution........ 46,022 29,204 11,657 ======== ======== ========
See accompanying notes to financial statements. F-12 107 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
TWELVE MONTHS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss................................................. $ (9,223) $ (6,638) $ (1,739) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Minority interest..................................... 898 (1,493) (301) Extraordinary items due to early extinguishment of debt................................................ -- (1,077) -- Depreciation and amortization......................... 25,295 13,228 6,492 Deferred interest -- Trust............................ 7,935 2,055 -- Paired shares issued as compensation.................. 223 -- -- Gain on sale.......................................... (3,864) -- -- Provision for doubtful accounts....................... 1,293 1,044 470 Changes in operating assets and liabilities: Increase in accounts receivable, inventories, prepaid expenses and other assets........................... (54,228) (28,027) (4,749) Increase in accounts payable and other liabilities.... 11,933 33,486 4,971 -------- -------- -------- Net cash provided by (used in) operating activities..................................... (19,738) 12,578 5,144 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of hotel properties.......................... (67,096) (21,531) (21,551) Improvements and additions to hotel assets............... (40,264) (12,114) (21,104) Purchase of investments.................................. (7) -- -- Changes in investments................................... -- -- -- Net proceeds from sale of real estate investments........ 8,278 -- -- Purchase of notes receivable............................. -- (194) -- Principal received on notes receivable................... 5,859 65 59 Reorganization costs..................................... -- -- (1,407) -------- -------- -------- Net cash used in investing activities............ (93,230) (33,774) (44,003) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under mortgage and other notes payable........ -- 668 -- Borrowings under mortgage notes payable -- Trust......... 27,000 18,216 -- Principal payments on mortgage and other notes payable... (900) (1,500) (9,463) Net proceeds from equity offerings....................... 19,129 21,618 12,283 Contributed capital and adjustments...................... (1,118) 3 2,402 Stock repurchase......................................... (1,286) -- -- Distributions paid....................................... (1,054) -- -- Purchase of warrants..................................... -- -- (65) Net change in notes payable -- Trust..................... 63,225 (4,815) 37,514 -------- -------- -------- Net cash provided by financing activities........ 104,996 34,190 42,671 -------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... (7,972) 12,994 3,812 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD... 21,616 8,622 4,810 -------- -------- -------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD......... $ 13,644 $ 21,616 $ 8,622 ======== ======== ========
See accompanying notes to financial statements. F-13 108 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
CORPORATION ADDITIONAL DISTRIBUTIONS TOTAL COMMON PAID-IN IN EXCESS OF SHAREHOLDERS' STOCK CAPITAL EARNINGS EQUITY ----------- ---------- ------------- ------------- Balance January 1, 1995..................... $ 1,213 $ 64,192 $(67,147) $(1,742) Decrease in par value to $0.01............ (1,092) 1,092 -- -- One-for-six reverse stock split........... (101) 101 -- -- Contributed capital....................... -- 6,625 -- 6,625 Equity offerings.......................... 118 12,165 -- 12,283 Minority interest......................... -- (4,622) -- (4,622) Net loss.................................. -- -- (1,739) (1,739) Warrant purchase.......................... -- (65) -- (65) ------- -------- -------- ------- Balance December 31, 1995................... 138 79,488 (68,886) 10,740 Contributed capital....................... -- 3 -- 3 Three-for-two stock split................. 135 (135) -- -- Equity offerings.......................... 128 21,490 -- 21,618 Net loss.................................. -- -- (6,638) (6,638) Change in minority interest............... -- (2,362) -- (2,362) ------- -------- -------- ------- Balance December 31, 1996................... 401 98,484 (75,524) 23,361 Contributed capital....................... 53 13,249 -- 13,302 Equity offerings.......................... 63 19,067 -- 19,130 Stock repurchase.......................... (4) (624) (658) (1,286) Net loss.................................. -- -- (9,223) (9,223) Distributions............................. -- -- (447) (447) Change in minority interest............... -- (5,840) -- (5,840) ------- -------- -------- ------- Balance December 31, 1997................... $ 513 $124,336 $(85,852) $38,997 ======= ======== ======== =======
See accompanying notes to financial statements. F-14 109 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND DESCRIPTION OF BUSINESS. General The accompanying financial statements include the accounts of Starwood Hotels & Resorts and its subsidiaries (the "Trust") and Starwood Hotels & Resorts Worldwide, Inc. and its subsidiaries (the "Corporation" and, together with the Trust, the "Company"). The Trust was formed in 1969 and elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code. In 1980, the Trust formed the Corporation and made a distribution to the Trust's shareholders of one share of common stock of the Corporation (a "Corporation Share") for each common share of beneficial interest of the Trust (a "Trust Share"). Trust Shares and Corporation Shares are paired on a one-for-one basis and, pursuant to an agreement between the Trust and the Corporation, may be held or transferred only in units ("Paired Shares") consisting of one Trust Share and one Corporation Share. As of December 31, 1997, the Company owned and operated primarily upscale hotels located throughout the United States, Mexico and Scotland and leased and operated one hotel/casino in Las Vegas, Nevada. The hotels, ranging in size from 90 to 960 rooms, offer services to both business and leisure travelers. Reorganization Effective January 1, 1995 (the "Reorganization Date"), the Trust and the Corporation consummated a reorganization (the "Reorganization") with a predecessor of Starwood Capital Group, L.L.C. ("Starwood Capital") and certain affiliates of Starwood Capital (together with Starwood Capital, the "Starwood Partners"). The Reorganization involved a number of related transactions that occurred simultaneously on the Reorganization Date. Such transactions included (i) the formation of SLT Realty Limited Partnership (the "Realty Partnership") and the contribution by the Trust to the Realty Partnership of substantially all the properties and assets of the Trust, at book value, subject to substantially all the liabilities of the Trust (including the senior debt of the Trust), in exchange for a 28.3% interest as general partner in the Realty Partnership, (ii) the contribution by the Starwood Partners to the Realty Partnership of approximately $12.6 million in cash in addition to certain hotel properties and first mortgage notes, at book value, in exchange for limited partnership units representing the remaining 71.7% interest in the Realty Partnership, (iii) the formation of SLC Operating Limited Partnership (the "Operating Partnership," and together with the Realty Partnership, the "Partnerships") and the contribution by the Corporation of all its properties and operating assets (except gaming assets, which are to be contributed upon approval by Nevada gaming authorities), subject to substantially all liabilities, to the Operating Partnership, in exchange for a 28.3% interest as general partner in the Operating Partnership, and (iv) the contribution by the Starwood Partners to the Operating Partnership of approximately $1.4 million in cash in addition to furniture, fixtures and equipment of the hotel properties, at book value, in exchange for limited partnership units representing the remaining 71.7% interest in the Operating Partnership. In addition, on March 24, 1995, a Starwood Partner exchanged $12 million of senior debt of the Trust for additional limited partnership units of the Realty Partnership and the Operating Partnership. After giving effect to the Reorganization and this exchange of senior debt, the Trust had a 25.4% general partnership interest in the Realty Partnership, the Corporation had a 25.4% general partnership interest in the Operating Partnership, and the Starwood Partners held limited partnership interests representing the remaining 74.6% interest in each of the Realty Partnership and the Operating Partnership. On July 6, 1995, the Company completed the 1995 Offering (see Note 19 -- Shareholders' Equity). Net proceeds of the 1995 Offering were contributed by the Trust and the Corporation to the Realty Partnership and the Operating Partnership, respectively. After giving effect to the 1995 Offering, the Trust and the F-15 110 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Corporation had a majority general partnership interest in the Realty Partnership and the Operating Partnership, respectively. Accordingly, the Realty Partnership and the Operating Partnership are included in the consolidated financial statements of the Trust and the Corporation, respectively. 2. SIGNIFICANT ACCOUNTING POLICIES. Cash and cash equivalents Cash and cash equivalents are defined as cash on hand and in banks plus all short-term investments with a maturity, at the date of purchase, of three months or less. Investments Gains and losses on sales of investments are calculated based on the specific identification method and are recognized at the time the investments are sold. Inventories Inventories, consisting primarily of food and beverage, are stated at the lower of cost or market with cost determined on a first-in, first-out basis. Debt issuance costs The costs incurred in connection with certain of the Company's debt financings are included in prepaid expenses and other assets and are being amortized using the effective interest method over the term of the related debt. Hotel assets Hotel assets are stated at the lower of cost or fair value and are depreciated using the straight-line method over estimated useful lives of 20 to 30 years for buildings and improvements and 3 to 12 years for furniture, fixtures and equipment. Amounts allocated to leasehold interests are amortized using the straight-line method over the lease terms. The Company evaluates the carrying values of each of the Company's hotel assets on a quarterly basis for any possible impairment. For each hotel asset not held for sale, the expected undiscounted future cash flows of the asset (generally over a five-year period) are compared to the net book values of the asset. If the expected undiscounted future cash flows are less than the net book value of the asset, the excess of the net book value over the estimated fair value is charged to current earnings. When an asset is identified by management as held for sale, the Company discontinues depreciating the asset and estimates the fair value of such asset. If in management's opinion the fair value of a hotel asset which has been identified for sale is less than the net book value of the asset, a reserve for losses is established. Fair value is determined based upon discounted cash flows of the hotel assets at rates (approximately 10%) deemed reasonable for the type of property and prevailing market conditions, appraisals and, if appropriate, current estimated net sales proceeds from pending offers. A gain or loss is recorded to the extent the amounts ultimately received for the sale of hotel assets differ from the adjusted book values of the hotel assets. Gains and losses on sales of hotel assets are recognized at the time the hotel 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. F-16 111 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Mortgage notes receivable Interest income is not accrued for delinquent loans or loans for which collectibility is uncertain and the fair value of the underlying property collateralizing the loan is less than the outstanding principal and accrued interest. An allowance for loss is established based upon an analysis of the net realizable value of the underlying property collateralizing the loan. Intangible assets Intangible assets are included in other assets and are amortized on a straight-line basis using lives ranging from 5 to 40 years based on management's assessment of the future value of the intangible assets. The intangible assets are valued based on market studies of the assets purchased. The Company evaluates the carrying values of intangible assets in the same manner that it evaluates the carrying values of hotel assets. Derivatives The Company enters into interest-rate protection agreements to manage interest rate exposure on anticipated transactions. The differential to be paid or received under these agreements is accrued consistent with the terms of the agreements and market interest rates and is recognized in interest expense over the term of the related debt using the effective interest method (the accrual accounting method). The related amounts payable to or receivable from counterparties are included in other liabilities or assets. The fair value of the swap agreements and changes in the fair value as a result of changes in market interest rates are not recognized in the financial statements. In order for the amounts paid or received to be deferred under such agreements, and therefore treated as a hedge, the Company must determine that it is probable that the future issuance of debt anticipated by the contract will occur. In order to assess whether this criteria has been met, the Company reviews current projections to determine if the issuance of such debt is in line with the Company's plans and whether the Company has the ability to issue such debt. Interest-rate protection agreements associated with debt for which the Company deems issuance to be improbable are recorded as an asset or liability at fair value with changes in fair value reported as treasury lock settlement on the statements of operations (the fair value method). Hotel revenue Revenue is recognized as earned. Earned is generally defined as the date upon which a guest occupies a room and/or utilizes the hotel's services. Ongoing credit evaluations are performed and potential credit losses are expensed at the time the account receivable is estimated to be uncollectible. Historically, credit losses have not been material to the hotels' results of operations. Gaming revenue Gaming revenue includes the net win from gaming activities, as well as room, food and beverage and other revenues, net of promotional allowances for the Company's gaming properties. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles 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 F-17 112 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 1996 and 1995 financial statements to conform with the 1997 financial statement presentation. Principles of consolidation The combined consolidated financial statements reflect the consolidated financial statements of the Trust and the Corporation. The consolidated financial statements of the Trust and the Corporation reflect the activities of Starwood Hotels & Resorts and its subsidiaries and Starwood Hotels & Resorts Worldwide, Inc. and its subsidiaries, respectively. All material intercompany balances and transactions between the consolidated Trust and the consolidated Corporation have been eliminated in the combined consolidated financial statements. Earnings (loss) per share All earnings per share amounts for all periods have been presented and, where appropriate, restated to conform to Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128). The weighted average number of shares and Paired Shares were determined as if the six-for-one reverse stock split that occurred June 19, 1995 and the three-for-two stock split that occurred on January 27, 1997 were both effective January 1, 1995. Historical per share and per Paired Share information has been restated accordingly. The outstanding limited partnership units of the Realty Partnership and the Operating Partnership have been excluded from the diluted earnings per share calculations as there would be no effect on the amounts since the minority interests' share of income would also be added back to net income. Share option plans The Company has elected to apply APB Opinion 25 and related Interpretations in accounting for its share option plans. However, the Company discloses pro forma compensation cost consistent with Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). Impact of recently issued accounting standards In February 1997, the Securities and Exchange Commission issued Financial Reporting Release No. 48, Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments and Disclosure of Quantitative and Qualitative Information about Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments (FRR 48). FRR 48 requires clarification and expansion of existing disclosures in the footnotes to the financial statements for derivative financial instruments, other financial instruments and derivative commodity instruments, as defined therein. These disclosures are required in filings that include financial statements for periods ending after June 15, 1997 and, accordingly, have been included herein in the footnotes to the Company's financial statements for the year ended December 31, 1997. Additionally, the amendments expand existing disclosure requirements to include quantitative and qualitative discussions with respect to market risk inherent in market risk sensitive instruments. These amendments are designed to provide additional information about market risk sensitive instruments which investors can use to better understand and evaluate market risk exposures of registrants, including the F-18 113 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Company. These disclosures, subject to certain market capitalization requirements, as defined, are effective for filings that include annual financial statements for years ending after September 15, 1998. In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130), which establishes standards for the reporting and display of comprehensive income and its components. This statement requires a separate statement to report the components of comprehensive income for each period reported. The provisions of this statement are effective for fiscal years beginning after December 15, 1997. Management believes this statement will require expanded disclosure in the Company's financial statements. In June 1997, the FASB also issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131), which establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. This statement is effective for financial statements for periods beginning after December 15, 1997. Management believes this statement will require expanded disclosure in the Company's financial statements. 3. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK. At December 31, 1997 and 1996, the Company had significant amounts in banks that were in excess of federally insured amounts. The financial position of the Company at December 31, 1997 and 1996 includes certain financial instruments which may have a fair value that is different from the value currently reflected on the financial statements. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practical to estimate that value. However, considerable judgment is necessary to interpret market data and develop the related estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Investments Fair value is based on market prices for the last day of the period if the investment trades on quoted exchanges. For non-traded investments, fair value was estimated based on the underlying value of the investment. Mortgage and other notes receivable For adjustable rate mortgages, fair value approximates carrying value due to the variable nature of the interest rates. For fixed rate mortgages, fair value is determined based upon discounted cash flows from the note at rates deemed reasonable for the type of note and prevailing market conditions, appraisals and, if appropriate, current estimated net sales proceeds from pending offers. Collateralized notes payable, lines of credit, mortgage and other notes payable 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. F-19 114 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The following balances represent the carrying amount and fair value of the Trust's financial instruments as of December 31, 1997 and 1996 (in thousands):
1997 1996 --------------------- ------------------- FOOTNOTE CARRYING FAIR CARRYING FAIR REFERENCE AMOUNT VALUE AMOUNT VALUE --------- ---------- ------- -------- ------- Investments............... Note 5 $ 1,451 $ --(4) $ 948 $ 2,085 Notes receivable.......... -- 35,255 --(2) 2,237 --(2) Mortgage notes receivable -- variable................ Note 14 10,344 --(1) 45,228 --(1) Mortgage notes receivable -- fixed..... Note 14 40,853 40,187(3) 45,513 47,800 Collateralized notes payable and lines of credit.................. Note 11 1,221,727 --(1) 422,334 --(1) Mortgage and other notes payable................. Note 12 217,567 --(1) 55,269 --(1)
The following balances represent the carrying amount and fair value of the Corporation's financial instruments as of December 31, 1997 and 1996 (in thousands):
1997 1996 --------------------- ------------------- FOOTNOTE CARRYING FAIR CARRYING FAIR REFERENCE AMOUNT VALUE AMOUNT VALUE --------- ---------- ------- -------- ------- Investments............... Note 5 $ 247 $ 253 $ -- $ -- Notes receivable.......... -- 601 601 693 693 Mortgage and other notes payable................. Note 12 126,720 --(2) 1,963 --(1)
- --------------- (1) The carrying value approximates fair value due to the interest rates being variable or in line with market rates. (2) The carrying value approximates fair value due to the short-term nature. (3) These mortgage notes are collateralized by the hotel property which has a fair value that is at least equal to the carrying value. (4) The carrying value approximates fair value based on market prices and the value of the underlying collateral. 4. INTANGIBLE ASSETS. A summary of intangible assets at December 31 is as follows (in thousands):
TRUST CORPORATION ------------------ ------------------ 1997 1996 1997 1996 ------- ------- ------- ------- Organizational costs................ $ 3,541 $ 3,541 $ 3,541 $ 3,541 Management company.................. -- -- 14,500 -- Accumulated amortization............ (2,110) (1,373) (2,714) (1,373) ------- ------- ------- ------- Intangible assets, net.............. $ 1,431 $ 2,168 $15,327 $ 2,168 ======= ======= ======= =======
5. INVESTMENTS. For the year ended December 31, 1997, the Trust recorded a $1.2 million gain (net of related expenses) realized in conjunction with the sale of securities. F-20 115 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) For the year ended December 31, 1996, the Trust recorded a $290,000 gain (net of related expenses) realized in conjunction with the sale of securities which were purchased in contemplation of acquiring a portfolio of hotel properties and a $750,000 gain (net of related expenses) realized in connection with the sale of securities. 6. ALLOWANCE FOR ACCOUNTS RECEIVABLE. For the years ended December 31, 1997 and 1996, the Corporation recorded an allowance for doubtful accounts of approximately $2.9 million and $1.5 million, respectively. 7. INCOME TAXES. The Trust has elected to be treated as a REIT under the provisions of the Internal Revenue Code ("IRC") beginning with the 1995 year. As a result, the Trust will not be subject to Federal income tax on its taxable income at corporate rates to the extent it distributes annually 100% of its taxable income to its shareholders and complies with certain other requirements. Components of deferred income taxes for the Corporation as of December 31, 1997 and 1996 are as follows (in thousands):
1997 1996 -------- -------- Deferred income tax assets: Net operating loss carryforwards..................... $ 7,574 $ 7,574 Investments in partnerships.......................... 2,725 2,725 Property and equipment............................... 3,669 745 Other................................................ 2,267 251 -------- -------- Total deferred income tax assets.................. 16,235 11,295 Valuation allowance.................................... (16,235) (11,295) -------- -------- Net deferred income tax................................ $ -- $ -- ======== ========
As of December 31, 1997, the Corporation had net operating loss carry forwards ("NOL") for federal income tax purposes of approximately $22.3 million. The NOL expires in various years beginning in 2006 through 2011. The utilization of the Corporation's NOL will be limited by the provisions of IRC Section 382. A valuation allowance is provided for the full amount of the NOL as the realization of tax benefits from the NOL is not assured. 8. EXTRAORDINARY ITEMS. During 1997, the Trust recognized an extraordinary loss of $4.4 million before minority interest resulting from early extinguishment of debt. The extraordinary loss represents financing costs associated with the Trust's then existing indebtedness that was retired upon entering into a new $1.2 billion credit facility (the "$1.2 Billion Facility"). During 1996, the Corporation repaid a note secured by the Milwaukee Sheraton at a discount of approximately $1.5 million. As a result, the Corporation recognized an extraordinary gain from early extinguishment of debt of $1.5 million before minority interest. Under the terms of a Credit Agreement dated January 28, 1993 (the "1993 Credit Agreement"), the Trust restructured its debt existing at such time. Management concluded that restructuring represented a F-21 116 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) "troubled debt restructuring" as defined under generally accepted accounting principles and, accordingly, upon execution of the 1993 Credit Agreement, accrued all known current or future identifiable debt restructuring costs as of December 31, 1992. Upon execution of an Amended and Restated Credit Agreement dated March 24, 1995 (the "1995 Credit Agreement"), the Realty Partnership recognized extraordinary income of approximately $1.3 million relating to the extinguishment of debt under the terms of the 1993 Credit Agreement, representing the remaining amount of the accrual at March 24, 1995. Additionally, in July 1995, the Realty Partnership repaid existing indebtedness borrowed under the 1995 Credit Agreement and recorded an extraordinary charge to net income of approximately $3.6 million relating to the extinguishment of such debt. 9. LOAN RESTRUCTURING COSTS. All restructuring costs in relation to the "troubled debt restructuring" referred to in Note 8 were expensed as incurred. In 1993, upon execution of the definitive debt restructuring agreement, $700,000 was paid by the Trust to certain institutional lenders and approximately $4.0 million was added to the loan balance under the terms of a credit agreement for restructuring costs due the institutional lenders for legal and other experts. Previously accrued restructuring costs of $611,000 were paid during the year ended December 31, 1995. As disclosed in Note 8 above, an additional $1.3 million of previously accrued restructuring costs was recognized as extraordinary income during 1995. At December 31, 1997 and 1996, there were no accrued loan restructuring costs included in accounts payable and other liabilities. 10. SUPPLEMENTAL CASH FLOW DISCLOSURE. Interest paid in cash by the Trust, net of amounts capitalized, for the years ended December 31, 1997, 1996 and 1995 was approximately $55.7 million, $21.5 million and $15.2 million, respectively. Interest paid in cash by the Corporation in the years ended December 31, 1997, 1996 and 1995 was approximately $16.5 million, $9.3 million and $1.3 million, respectively. Dividends declared by the Trust in December 1997 and 1996 of approximately $30.3 million and $19.3 million were paid in January 1998 and 1997, respectively. Interest expense incurred by the Corporation of approximately $3.0 million on intercompany debt with the Trust was deferred in the year ended December 31, 1995. A summary of non-cash items incurred by the Trust in the years ended December 31, 1997, 1996 and 1995 is as follows: Investing and operating activities 1997: - Additional payments to the seller of the Westin Grand, Washington, DC, of $3.0 million were accrued. - Severance payments of $4.3 million, relating to the acquisition of HEI Hotels L.L.C. and certain related hotels and management contracts (the "HEI Portfolio"), were accrued. Investing activities 1997: - Approximately $2.1 million (net of $229,000 of accumulated depreciation) in furniture, fixtures and equipment was received from the Corporation increasing the intercompany payable by the same amount. F-22 117 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 1996: - Approximately $3.9 million (net of $116,000 of accumulated depreciation) in furniture, fixtures and equipment was received from the Corporation increasing the intercompany payable by the same amount. - Approximately $19.8 million in mortgage notes receivable (net of discounts of $3.4 million and allowances of $224,000) was reclassified in conjunction with the acquisition of the equity of the Westin Hotel, Washington, DC. - Approximately $7.3 million in collateralized notes receivable was issued in conjunction with the sale of the King 8 Hotel & Casino. 1995: - Approximately $7.2 million (net of accumulated depreciation) in furniture, fixtures and equipment was transferred to the Corporation increasing the intercompany receivable by the same amount. Investing and financing activities 1997: - Approximately $29.0 million in mortgage debt was assumed in conjunction with the acquisition of the New Orleans Crowne Plaza Hotel. - Approximately $10.3 million in mortgage debt was assumed and $137,000 of mortgage notes receivable was reclassified in conjunction with the acquisition of the Stamford Sheraton Hotel. - Approximately $215.0 million in limited partnership units and Paired Shares was issued in conjunction with the acquisition of the HEI Portfolio. - Approximately $9.4 million in limited partnership units was issued in conjunction with the acquisition of the Nashville Hermitage Hotel. - Acquisitions of hotel properties were adjusted by approximately $2.1 million representing the minority interest in the Westwood Marquis hotel. - Approximately $118.8 million in mortgage debt was assumed in conjunction with the acquisition of the three Westin Regina Resorts in Mexico (the "Westin Reginas"). 1996: - Approximately $1.7 million in partnership units were issued in conjunction with the acquisition of the Days Inn and Doubletree Guest Suites in Philadelphia, PA. - A one-time grant of approximately $6.0 million in restricted stock was made in conjunction with the acquisition of a portfolio of eight upscale and luxury full-service hotels containing 3,141 total rooms acquired from an institutional seller (the "Institutional Portfolio"). - Approximately $25.0 million in mortgage debt was assumed in conjunction with the acquisition of the Boston Park Plaza hotel. - Approximately $27.4 million in mortgage debt and $2.9 million in accounts payable and other liabilities was assumed in conjunction with the acquisition of the Doral Court and the Doral Tuscany. F-23 118 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) - Acquisitions of hotel properties of approximately $29.5 million were reduced representing the minority interest in the Boston Park Plaza hotel. 1995: - In conjunction with the Reorganization in 1995, the Starwood Partners contributed approximately $30.2 million (net of $474,000 of depreciation) in land and buildings, approximately $49.2 million (net of discounts of approximately $24.9 million and allowances of approximately $2.9 million) in mortgage notes receivable and approximately $52.9 million (net of $6.0 million of debt forgiven by the Starwood Partners) in long-term debt obligations for limited partnership units in the Realty Partnership. - A Starwood Partner exchanged approximately $12.0 million of senior debt for partnership units of the Realty Partnership. A summary of non-cash items incurred by the Corporation in the years ended December 31, 1997, 1996 and 1995 is as follows: Operating and financing activities 1997: - In conjunction with the January 1998 acquisition of Westin Hotels & Resorts Worldwide, Inc. ("Westin Hotels & Resorts") and certain affiliates (collectively, "Westin" and such acquisition, the "Westin Acquisition"), other assets including a wholly owned captive insurance company and wholly owned payroll companies were purchased in December 1997 with a note payable to Westin Hotels & Resorts for approximately $125.7 million (see Note 26 -- Subsequent Events). Investing and financing activities 1997: - Approximately $2.1 million (net of $229,000 of accumulated depreciation) in furniture, fixtures and equipment was transferred to the Trust increasing the intercompany receivable by the same amount. - In conjunction with the acquisition of the Westin Regina Portfolio, mortgage notes payable to the Trust increased by approximately $118.8 million. 1996: - Approximately $3.9 million (net of $116,000 of accumulated depreciation) in furniture, fixtures and equipment was transferred to the Trust increasing the intercompany receivable by the same amount. 1995: - In conjunction with the Reorganization in 1995, the Starwood Partners contributed approximately $3.7 million (net of $757,000 of depreciation) of furniture, fixtures and equipment for limited partnership units of the Operating Partnership. - A Starwood Partner exchanged approximately $12.0 million of senior debt for partnership units of the Operating Partnership. - Approximately $7.2 million (net of accumulated depreciation) in furniture, fixtures and equipment was received from the Trust increasing the intercompany payable by the same amount. F-24 119 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 11. COLLATERALIZED NOTES PAYABLE AND REVOLVING LINES OF CREDIT. The following is a summary of the Trust's credit facilities (the "Facilities") as of December 31, 1997 and 1996 (in thousands):
AMOUNT AMOUNT AMOUNT OF OUTSTANDING OUTSTANDING FACILITY/LENDER EXPIRATION DATE FACILITY AT 12/31/97 AT 12/31/96 INTEREST TERMS --------------- ------------------ ---------- ----------- ----------- ------------------------- $1.2 Billion Facility/Bankers Trust Company............................. September 10, 2000 $1,200,000 $1,183,000 $ -- One-, two-, or three-month LIBOR + 1.75% Tax Exempt Bonds..................... October 2013 39,470 38,727 -- 6.70% Goldman Facility/Goldman Sachs....... August 16, 1997 300,000 -- 140,000 One-month LIBOR + 1.75% Acquisition Facility/Lehman Brothers............................ October 1, 1998 135,000 -- 117,800 One-, two-, or three-month LIBOR + 1.625% Term Loan/Lehman Brothers............ April 26, 1997 93,960 -- 93,960 One-, two-, or three-month LIBOR + 1.95% for $23.96 million & +1.75% for $70 million Mortgage Facility/Lehman Brothers.... July 25, 1997 71,000 -- 70,600 One-month LIBOR + 1.75% ---------- ---------- -------- Totals............................... $1,839,430 $1,221,727 $422,360 ========== ========== ======== FACILITY/LENDER COLLATERAL --------------- ----------------------- $1.2 Billion Facility/Bankers Trust Company............................. Unsecured Tax Exempt Bonds..................... Westin Philadelphia and Days Inn Philadelphia Goldman Facility/Goldman Sachs....... Certain properties of the Company Acquisition Facility/Lehman Brothers............................ Certain properties of the Company Term Loan/Lehman Brothers............ Certain properties of the Company Mortgage Facility/Lehman Brothers.... Certain mortgage loans Totals...............................
At December 31, 1997 and 1996, unused commitments on the Facilities were $17.0 million and $177.6 million, respectively. At December 31, 1997, all Facilities outstanding at December 31, 1996 have been repaid. At December 31, 1997, the only Facility that had covenants was the $1.2 Billion Facility. This Facility required that the Company maintain a specified debt service ratio, loan to value ratio, and minimum net worth. In addition, the $1.2 Billion Facility placed restrictions on distributions and required the Trust to maintain its REIT status. As of December 31, 1997 and 1996, the Company was in compliance with its covenants. On May 27, 1997, the Company entered into an interest rate protection agreement which had the effect of fixing the base rate of interest at 6.773% for debt with an aggregate notional principal amount of $100 million and a term to maturity of five years. On October 10, 1997, the Company rolled this position to January 30, 1998, which had the effect of fixing the base rate of interest at 6.9105%. The actual interest rate was to be determined by reference to this base rate. As of December 31, 1997, the Company determined that it did not intend to issue debt using this treasury lock agreement and, accordingly, accrued $6.6 million. In January 1998, the Company settled this treasury lock agreement. On July 29, 1997, the Company rolled a previously transacted interest rate protection agreement to January 30, 1998, which had the effect of fixing the base rate of interest at 6.09725% for debt that the Company intended to issue in the first quarter of 1998 with an aggregate notional principal amount of $100 million and a term to maturity of seven years. The actual interest rate was to be determined by reference to this base rate. As of December 31, 1997, the Company determined that it did not intend to issue debt using this treasury lock agreement and, accordingly, accrued $3.2 million. In January 1998, the Company settled this treasury lock agreement. On July 29, 1997, the Company rolled a previously transacted interest rate protection agreement to January 30, 1998, which had the effect of fixing the base rate of interest at 6.95% for debt that the Company intended to issue in the first quarter of 1998 with an aggregate notional principal amount of $150 million and a term to maturity of ten years. The actual interest rate was to be determined by reference to this base rate. As F-25 120 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) of December 31, 1997, the Company determined that it did not intend to issue debt using this treasury lock agreement and, accordingly, accrued $15.2 million. In January 1998, the Company settled this treasury lock agreement. 12. MORTGAGE AND OTHER NOTES PAYABLE. At December 31, 1997 and 1996, the Trust had the following outstanding mortgage and other notes payable (in thousands):
FACILITY/LENDER DUE DATE 1997 1996 INTEREST TERMS --------------- -------------- -------- ------- ------------------------- Bancomer Note/ Bancomer SA......... May 1998 $118,750 $ -- One-, two- or three-month LIBOR + 1.69% Crowne Plaza Note/ Hibernia National Bank................ September 2002 29,000 -- One-month LIBOR + 2.00% Doral Mortgage/ Sumitomo............ September 2001 27,375 27,375 7.64% BPP Mortgage/ Georgia Life................ July 2003 24,797 25,000 8.42% Stamford Note/ Lehman Brothers............ January 2000 10,250 -- One-month LIBOR + 2.25% Term Note/Westin Hotels & Resorts.... November 1999 7,395 2,830 Non-interest bearing Other................. -- 64 Various -------- ------- Total Mortgage and Other Notes Payable............. $217,567 $55,269 ======== =======
The Company intends to extend the terms of the Bancomer Note due in May 1998 or refinance this facility. Minimum principal payments on the Trust's indebtedness for the years ending December 31 are due as follows (in thousands):
1998 1999 2000 2001 2002 THEREAFTER -------- ------ ------- ------- ------- ---------- Total........................... $119,274 $7,965 $10,870 $28,049 $29,733 $21,676
At December 31, 1997 and 1996, the Corporation had the following outstanding mortgage and other notes payable (in thousands):
FACILITY/LENDER DUE DATE 1997 1996 INTEREST TERMS --------------- ------------ -------- ------ -------------- Westin Hotels & Resorts.................. January 1998 $125,657 $ -- 6.00% First Mortgage Note...................... 1997 -- 341 9.75% Other Notes Payable...................... 69 449 Various Capital Leaseholds....................... 994 1,173 Various -------- ------ Total Mortgage and Other Notes Payable... $126,720 $1,963 ======== ======
F-26 121 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Minimum lease and principal payments on the Corporation's indebtedness for the years ending December 31 are due as follows (in thousands):
MINIMUM FUTURE PRINCIPAL PAYMENTS YEAR LEASE PAYMENTS DUE UNDER NOTES ---- -------------- ------------------ 1998........................................ $ 244 $125,726 1999........................................ 244 -- 2000........................................ 244 -- 2001........................................ 100 -- 2002........................................ 100 -- Thereafter.................................. 400 -- ------ -------- Total............................. 1,332 $125,726 ======== Amount representing interest................ (338) ------ Future minimum lease payments............... $ 994 ======
At December 31, 1997 and 1996, the Corporation had approximately $1.2 million in assets (less $388,000 and $233,000, respectively, in accumulated amortization) recorded under capital leaseholds. Such amounts are included in furniture, fixtures and equipment. 13. SALES OF REAL ESTATE INVESTMENTS AND RESERVE FOR LOSSES. During the year ended December 31, 1997, the Company sold its interests in four hotel assets: the Radisson Marque Hotel located in Winston-Salem, North Carolina; the Best Western located in Las Cruces, New Mexico; the Best Western Airport located in El Paso, Texas; and the Best Western located in Savannah, Georgia. The Radisson Marque was sold for approximately $7.6 million in cash recognizing a loss of approximately $614,000. The Las Cruces, El Paso and Savannah properties were sold concurrent with the Company's acquisition of the Crowne Plaza Hotel in New Orleans, Louisiana, for approximately $12.0 million in cash recognizing a loss of approximately $314,000. For the year ended December 31, 1997, the Trust recognized a gain of $3.2 million on sales of real estate investments including $2.5 million resulting from the payoff of the mortgage notes receivable relating to properties located in Atlantic City, New Jersey, and $322,000 resulting from the payoff of the mortgage note receivable relating to a property located in Milpitas, California. For the year ended December 31, 1997, the Corporation recognized a gain of $3.9 million on sales of real estate investments including $4.5 million resulting from the payoff of notes receivable relating to a property located in Milpitas, California. For the year ended December 31, 1997, the Trust accrued a loss of $1.8 million on three of its hotels held for sale at December 31, 1997. The loss was calculated by subtracting the offer amount from the net book value of the hotel assets. These hotels were subsequently sold in February 1998. During the year ended December 31, 1996, the Company sold its interests in three hotel assets: the Best Western Columbus North located in Columbus, Ohio; the Bourbon Street Hotel & Casino located in Las Vegas, Nevada; and the King 8 Hotel & Casino located in Las Vegas, Nevada. The Columbus property was sold for an all cash price of approximately $3.1 million. The Bourbon Street property was sold for an all cash price of $7.6 million. The King 8 Hotel & Casino real property was sold for $18.8 million, consisting of $11.6 million in cash and a $7.2 million promissory note collateralized by the hotel and the casino. The note bears interest at 13.5% per annum through November 5, 1997, 14.5% per annum through November 5, 1998, 15.5% per annum through November 5, 1999 and 16.5% per annum thereafter. Accrued interest on the note is due monthly with all unpaid principal and accrued interest due in May 2000. The $7.2 million note was repaid F-27 122 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) in 1997. The personal property and casino equipment of the King 8 Hotel & Casino will be sold for approximately $3.0 million to the hotel purchaser following receipt by the purchaser of required gaming approvals. A subsidiary of the Corporation, Hotel Investors Corporation of Nevada, leases the real property from the purchaser and has agreed to continue to operate the hotel and casino to the earlier of when the purchaser or his designee obtains required gaming licenses and approvals or June 30, 1998. During the year ended December 31, 1996, the Company sold an office building adjacent to the Doubletree Guest Suites located in Lexington, Kentucky, for an all cash price of approximately $675,000. For the year ended December 31, 1996, the Trust recognized a gain of approximately $4.3 million and the Corporation recognized no gain or loss on sales of real estate investments. During the year ended December 31, 1995, the Company did not sell any of its real estate investments. 14. MORTGAGE NOTES RECEIVABLE. A summary of the Trust's mortgage notes receivable at December 31 is as follows (in thousands):
1997 1996 -------------------------------- -------------------------------- FIXED(1) VARIABLE(2) TOTAL FIXED(1) VARIABLE(2) TOTAL -------- ----------- ------- -------- ----------- ------- First mortgage............... $40,953 $10,344 $51,297 $45,479 $45,228 $90,707 Second, third, fourth mortgage................... -- -- -- 134 -- 134 Allowance for loan loss...... (100) (100) ------- ------- Total.............. $51,197 $90,741 ======= =======
Aggregate principal payments under the mortgage notes receivable at December 31, 1997 are as follows (in thousands):
1998 1999 2000 2001 2002 THEREAFTER ------ ------- ------ ------ ------- ---------- Total.................... $7,429 $15,231 $3,664 $3,966 $31,213 $1,492
- --------------- (1) The fixed rate first mortgages had interest rates ranging from 8.0% to 10.0% per annum at December 31, 1997 and 1996. The one fixed rate second mortgage note had an interest rate of 7.0% per annum at December 31, 1996. (2) The variable first mortgages had an interest rate of 6.97% per annum at December 31, 1997 and 6.81% to 13.5% per annum at December 31, 1996. 15. MILWAUKEE SHERATON. In December 1985, the Trust sold its interest in the Milwaukee Sheraton to Milwaukee Brookfield Limited Partnership ("Brookfield"). In connection with the sale, the Trust received a second mortgage note from Brookfield. In July 1991, ownership and operation of the Milwaukee Sheraton was reorganized and ownership of the hotel was transferred from Brookfield to Moorland Hotel Limited Partnership ("MHLP"), a limited partnership in which the Corporation (the sole general partner) at such time had a 51% interest and Brookfield (the sole limited partner) at such time had the remaining 49% interest. The operations of MHLP have been consolidated into the Corporation's financial statements from the date of reorganization, and accordingly, the Trust has recorded the notes receivable from MHLP as notes receivable from the Corporation (see accompanying Schedule IV). The Corporation and MHLP entered into an agreement for the Corporation to manage the property. F-28 123 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) During 1996, the Corporation purchased the remaining 49% interest in MHLP for $240,000 and assumed all outstanding MHLP debt. Also in 1996, the Corporation negotiated the repayment of all third-party debt at a discount of $1.5 million. As a result, the Corporation recorded an extraordinary gain from early extinguishment of debt (see Extraordinary Items in Note 8). 16. HOTEL PROPERTIES. A summary of hotel assets at December 31 is as follows (in thousands):
TRUST CORPORATION ------------------------ -------------------- 1997 1996 1997 1996 ---------- ---------- -------- -------- Land......................... $ 354,901 $ 164,472 $ 22,311 $ 3,111 Buildings and improvements... 1,797,944 807,918 246,069 93,876 Furniture, fixtures and equipment.................. 261,584 85,717 115,692 68,395 Construction in progress..... 61,737 16,939 19,679 3,525 Accumulated depreciation and amortization............... (161,459) (70,654) (85,038) (47,769) Reserve for losses........... (4,169) (3,469) (388) (388) ---------- ---------- -------- -------- Hotel assets -- net..... $2,310,538 $1,000,924 $318,325 $120,750 ========== ========== ======== ========
17. REAL ESTATE INVESTMENTS AND INTERCOMPANY TRANSACTIONS. At December 31, 1997, the Trust owned equity interests in 96 hotels. Of that number, ninety properties were owned in fee and six were held pursuant to long-term leases. Ninety-three of the Trust's hotels are leased to the Corporation. As of December 31, 1997, three hotels were leased to and operated by Imperial Hotels Corporation, formerly Vagabond Inns, Inc. pursuant to ground leases. These hotels were subsequently sold in February 1998. As of December 31, 1997, five of the hotels leased by the Corporation from the Trust were managed by third-party operators. The management agreements are for various terms, expiring between 1999 and 2009, and are subject to certain cancellation provisions. One management agreement has management fees calculated as a percentage of operating profit, whereas the other agreements provide for base management fees that range from 3% to 3.5% of gross revenues with incentive management fees based upon hotel profitability. 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. Total rental expense paid by the Corporation to the Trust under such leases was approximately $234.5 million, $87.6 million and $26.7 million for the years ended December 31, 1997, 1996 and 1995, respectively, of which approximately $98.9 million, $26.8 million and $5.4 million was contingent. The lessee is also generally responsible for any payments required pursuant to underlying ground leases. The Trust's minimum future rents at December 31, 1997 to be received under non-cancelable operating leases for the years ending December 31 are as follows (in thousands):
1998 1999 2000 2001 2002 THEREAFTER -------- -------- ------- ------- ------ ---------- Corporation.......... $218,912 $201,983 $98,662 $19,548 $7,570 $23,949 -------- -------- ------- ------- ------ ------- Total........... $218,912 $201,983 $98,662 $19,548 $7,570 $23,949 ======== ======== ======= ======= ====== =======
F-29 124 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Corporation's minimum future rents at December 31, 1997 to be received under non-cancelable operating leases for the years ending December 31 are as follows (in thousands):
1998 1999 2000 2001 2002 THEREAFTER ------ ------ ------ ---- ---- ---------- Other......................... $2,378 $1,882 $1,551 $837 $550 $1,933 ------ ------ ------ ---- ---- ------ Total.................... $2,378 $1,882 $1,551 $837 $550 $1,933 ====== ====== ====== ==== ==== ======
The Corporation's minimum future rents at December 31, 1997 payable under non-cancelable operating leases for the years ended December 31 are as follows (in thousands):
1998 1999 2000 2001 2002 THEREAFTER -------- -------- -------- ------- ------ ---------- Trust................ $218,912 $201,983 $ 98,662 $19,548 $7,570 $23,949 Other................ 4,589 3,389 2,692 2,144 1,927 72,486 -------- -------- -------- ------- ------ ------- Total........... $223,501 $205,372 $101,354 $21,692 $9,497 $96,435 ======== ======== ======== ======= ====== =======
The Corporation is committed under its leases with the Trust to pay the rents payable with respect to ground leases which expire in 1999 through 2067, including renewal options. The ground leases generally provide for a minimum rent plus a percentage of gross revenues of the properties in excess of the minimum rent. Future minimum lease payments under the ground leases are included in other rents payable in the table above. The Trust is the primary obligor under the leases; however, the Corporation as lessee/operator of the hotels makes payments under these leases directly to the lessors. Rent expense incurred by the Corporation as a lessee/operator under these ground leases was approximately $2.0 million, $871,000 and $739,000 in the years ended December 31, 1997, 1996 and 1995, respectively. The Corporation leases certain equipment for the hotel's operations under various lease agreements. The leases extend for varying periods through 2014 and generally are for a fixed amount each month. Future minimum lease payments under the non-cancelable operating leases are also included in other rents payable in the table above. The Trust's rents receivable from leased hotel properties at December 31 are summarized as follows (in thousands):
1997 1996 1995 ------- ---- ---- Corporation: Minimum....................................... $16,666 $ -- $ -- Contingent.................................... 4,240 510 -- ------- ---- ---- 20,906 510 -- ------- ---- ---- Other: Contingent.................................... 413 373 362 ------- ---- ---- 413 373 362 ------- ---- ---- Total.................................... $21,319 $883 $362 ======= ==== ====
F-30 125 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) A summary of the Corporation's indebtedness to the Trust at December 31, 1997 and 1996 is as follows (in thousands):
FOOTNOTE REFERENCE 1997 1996 --------- -------- -------- Intercompany Mortgage Notes: Doral Lease Obligation............................ Note 17 $ 40,250 $ 40,250 MHLP Mortgage Notes............................... Note 15 31,785 29,611 Midland Hotel..................................... 19,975 18,216 Westin Regina Resort -- Cancun.................... 42,335 -- Westin Regina Resort -- Los Cabos................. 54,693 -- Westin Regina Resort -- Puerto Vallarta........... 25,327 -- Turnberry Hotel and Golf Resort................... 27,067 -- -------- -------- Total Intercompany Mortgage Notes......... 241,432 88,077 General Intercompany Notes.......................... 80,178 17,741 -------- -------- Total Intercompany Indebtedness........... $321,610 $105,818 ======== ========
Effective January 1, 1995, the general intercompany notes bear interest at prime plus 2% with interest payable monthly and are due on January 1, 2000. On September 20, 1995, the Realty Partnership purchased land for $3.0 million and mortgage notes receivable collateralized by the Doral Inn for $40.3 million. The mortgage note bears interest at 9.5% and matures on October 1, 2006. The Realty Partnership also entered into a long-term lease agreement with SBK Delaware Realty Holdings, L.L.C. ("SBK"), the owners of the Doral Inn, to lease SBK the land for $240,000 per year. Simultaneously, the Operating Partnership entered into a long-term lease agreement with SBK to lease the land and the building for $240,000 per year, plus the debt service on the mortgage held by the Realty Partnership. The Operating Partnership lease agreement includes a clause under which SBK is paid a management fee of 0.5% of gross revenues. Under certain circumstances, SBK may be entitled to a share of hotel profits above certain thresholds. The Realty Partnership has the option of acquiring the building for the value of the mortgage note plus $400,000 after ten years. It is management's intention to exercise that option. The Operating Partnership has recorded the transaction as a capitalized lease with an intercompany obligation to the Realty Partnership. 18. STOCK-BASED COMPENSATION AND EMPLOYEE BENEFITS. Warrants to purchase Paired Shares In 1996, two restricted stock awards were granted in the form of warrants to purchase 22,500 Paired Shares each at an exercise price of $0.67. The Company recognized $515,000 and $500,000 in compensation expense during 1997 and 1996, respectively, related to the grant of these warrants. The warrants were exercised in 1997. At December 31, 1995, there were outstanding 414,993 warrants to purchase Paired Shares at an exercise price of $67.80 per Paired Share through September 15, 1996. At the expiration date, each 100 warrants were convertible into one Paired Share. Pursuant to the warrant agreement, the warrants were converted into 3,954 Paired Shares and 196 fractional warrants were paid in cash at the then current market value of a single Paired Share. F-31 126 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Restricted stock awards The Company recognized approximately $2.2 million and $811,000 in compensation expense during 1997 and 1996, respectively, related to the grant of 218,714 restricted stock awards granted in 1996 with a weighted average fair value at the date of grant of $23.60 with a three-year vesting period. In 1996, the Company granted a restricted stock award of 250,870 Paired Shares in connection with the acquisition of the Institutional Portfolio. Such restricted stock award vests as to two-thirds of such amount on August 12, 1997 and as to the remaining amount on August 12, 1998. The fair value of the restricted stock (approximately $6 million based on the Paired Share closing price on the date of award) at the date of grant was capitalized to hotel assets. Share option plans The Trust and the Corporation each adopted Incentive and Non-Qualified Share Option Plans in 1986 which provided for the purchase of up to an aggregate of 175,000 Paired Shares by Trustees, Directors, officers and employees pursuant to option grants. During the year ended December 31, 1995, the Trust and the Corporation granted options to purchase 85,338 Paired Shares at exercise prices ranging from $11.00 to $14.50 per Paired Share. Such options, which have exercise prices equal to the Paired Shares' fair market value on the date of grant, vest over three years. During 1995, the Trust and the Corporation each also adopted a 1995 Share Option Plan (the "Plans") which provided for the purchase of Paired Shares by Trustees, Directors, officers, employees, consultants and advisors, pursuant to option grants. The aggregate number of Paired Shares subject to options which were available to be granted under the Plans was approximately 2.4 million plus 8% of any additional partnership units or Paired Shares issued subsequent to August 17, 1995 (other than Paired Shares issued in exchange for partnership units, Paired Shares issued pursuant to employee benefit plans or Paired Shares that were previously issued and re-acquired by the Trust or the Corporation). During 1996, the Trust and the Corporation each adopted an amendment and restatement of their respective 1995 Share Option Plans (as amended, the "LTIPs"). The LTIPs increased the number of Paired Shares which may be issued pursuant to awards granted under each LTIP to approximately 6.4 million and provided for the grant of Paired Shares that are subject to performance measures or restriction periods and performance awards in tandem with certain Paired Options to be paid in cash subject to performance measures. The LTIPs also reduced the automatic annual grant of Paired Options (as defined) to Trustees and Directors from options for 9,000 Paired Shares to options for 4,500 Paired Shares and provides for the annual fee of Trustees and Directors to be paid in Paired Shares, subject to each Trustee's and Director's option to receive up to half in cash and to defer receipt of such annual fee until after terminating service with the Company. During 1997, the Trust and the Corporation each adopted a further amendment and restatement of their respective LTIPs. The LTIP amendments increased the number of Paired Shares for which awards may be granted under each LTIP to approximately 9.85 million. Under the provisions of SFAS 123, no compensation cost has been recognized for the Company's stock option plans. However, had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS 123, the Company's net income and earnings per Paired Share would have been reduced to the pro forma amounts indicated below. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for 1997 and 1996, respectively (the F-32 127 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) statement is effective for grants starting in 1995): dividend yield of 3.96% and 3.9%, expected volatility of 30.36% and 57.21%, risk-free interest rate of U.S. zero coupon bonds with time to maturity approximately equal to the options' average time to exercise, and expected lives of the full vesting period for each option.
COMBINED COMBINED 1997 1996 -------- -------- Net Income (in thousands) Pro forma.............................................. $25,677 $16,908 Earnings per Paired Share Pro forma.............................................. $ 0.56 $ 0.57 Earnings per Paired Share Assuming Dilution Pro forma.............................................. $ 0.53 $ 0.56
During the years ended December 31, 1997 and 1996, the Trust and the Corporation granted options under the LTIPs to purchase approximately 1.7 million and 2.9 million Paired Shares, respectively, to Trustees, Directors, officers and employees, at exercise prices ranging from $34.75 to $57.44 and $15.33 to $26.50 per Paired Share during 1997 and 1996, respectively. At December 31, 1997, outstanding options granted under all plans of the Trust and Corporation (including options granted to officers and directors of a company previously acquired by the Trust) aggregated approximately 5.6 million Paired Shares. At December 31, 1997, options for approximately 1.9 million Paired Shares were fully vested with exercise prices ranging from $11.00 to $61.50 per Paired Share. A summary of the Company's stock option activity and related information for the years ended December 31 follows:
1997 1996 1995 --------------------------- --------------------------- --------------------------- OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE (000'S) EXERCISE PRICE(1) (000'S) EXERCISE PRICE(1) (000'S) EXERCISE PRICE(1) ------- ----------------- ------- ----------------- ------- ----------------- Outstanding -- beginning of year............... 4,195 $21.06 1,503 $15.70 38 $20.46 Granted.............. 1,716 $43.57 2,890 $23.60 1,485 $15.45 Exercised............ (203) $17.12 (99) $11.96 (16) $ 4.66 Cancellations........ (129) $27.96 (99) $22.85 (4) $15.33 ----- ----- ----- Outstanding -- end of year............... 5,579 $26.78 4,195 $21.06 1,503 $15.70 ===== ===== ===== Exercisable -- end of year............... 1,877 $22.21 681 $17.39 195 $16.63 ===== ===== =====
- --------------- (1) The weighted average exercise price equals weighted average fair value at date of grant as all options were granted at fair market value on the date of grant. F-33 128 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) A summary of the Company's outstanding and exercisable options and related information at December 31, 1997 follows:
OPTIONS OUTSTANDING --------------------------------------------- OPTIONS EXERCISABLE WEIGHTED-AVERAGE -------------------------- RANGES OF OPTIONS REMAINING WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE EXERCISE PRICES (000'S) CONTRACTUAL LIFE EXERCISE PRICE (000'S) EXERCISE PRICE - --------------- ------- ---------------- ---------------- ------- ---------------- $ 0.00 - $15.33 1,061 7.30 $15.32 757 $15.32 $16.25 - $22.92 721 7.99 $21.20 291 $20.72 $23.92 - $23.92 1,687 8.61 $23.92 325 $23.92 $24.25 - $38.50 1,345 8.35 $33.22 444 $30.66 $40.63 - $61.50 765 9.65 $50.98 60 $44.44 ----- ----- 5,579 8.37 $26.78 1,877 $22.21 ===== =====
401(k) savings plan Effective April 1, 1997, the Company implemented the Star Saver 401(k) savings plan ("401(k) Plan"), which is a voluntary, defined contribution plan. All employees are eligible to participate in the 401(k) Plan following completion of one year of continuous service with the Company. Each participant may contribute on a pre-tax basis between 1% and 15% of such participant's compensation. The Company makes matching contributions on the participant's behalf equal to 100% of each dollar contributed by the participant up to the first 2% of the participant's compensation plus 50% of each dollar contributed by the participant up to an additional 2% of the participant's compensation. The Company made matching contributions of approximately $1.6 million for the year ended December 31, 1997. 19. SHAREHOLDERS' EQUITY. Preferred shares The Corporation has 10.0 million authorized preferred shares, $0.01 par value, none of which were issued or outstanding at December 31, 1997. The Offerings At December 31, 1997 and 1996, minority interest includes the 18.8% and 18.2%, respectively, limited partnership interests of the Realty Partnership and the Operating Partnership, the 41.8% limited partnership interest in the joint venture that owns the Boston Park Plaza, and various other interests in joint ventures. The minority interest is adjusted to its relative ownership interest at year end by reclassification from additional paid-in capital. The total number of units outstanding were approximately 63.3 million and 49.0 million at December 31, 1997 and 1996, respectively. On March 26, 1997, the Company completed a public offering of 3.0 million Paired Shares (the "March 1997 Offering"). Net proceeds of approximately $130.0 million were contributed by the Trust and the Corporation to the Realty Partnership and the Operating Partnership, respectively. On October 2, 1997, the Company sold approximately 2.5 million Paired Shares (the "October 1997 Direct Placement") to a group of institutional buyers in a direct placement. Net proceeds of approximately $131.6 million were contributed by the Trust and the Corporation to the Realty Partnership and the Operating Partnership, respectively. On October 15, 1997, the Company sold approximately 2.2 million Paired Shares (the "UBS Shares") to Union Bank of Switzerland ("UBS") in a private placement (the "October 1997 UBS Placement" and F-34 129 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) together with the March 1997 Offering and the October 1997 Direct Placement, the "1997 Offerings"). Net proceeds of approximately $125.0 million were contributed by the Trust and the Corporation to the Realty Partnership and the Operating Partnership, respectively. Separately, the Company entered into a Forward Stock Agreement with UBS. (See Note 20 -- Commitments and Contingencies). On April 12, 1996, the Company completed a public offering of 3.0 million Paired Shares (the "April 1996 Offering"). Net proceeds of the April 1996 Offering of approximately $62.4 million were contributed by the Trust and the Corporation to the Realty Partnership and the Operating Partnership, respectively. On August 12, 1996, the Company completed a public offering (the "August 1996 Offering") of 16.2 million Paired Shares at a price of $23.92 per Paired Share. Net proceeds of approximately $367.2 million were contributed by the Trust and the Corporation to the Realty Partnership and the Operating Partnership, respectively. On July 6, 1995, the Company completed a public offering (the "1995 Offering") of 17.7 million Paired Shares at a price of $15.33 per Paired Share. Net proceeds of the 1995 Offering of approximately $245.7 million were contributed by the Trust and the Corporation to the Realty Partnership and the Operating Partnership, respectively. F-35 130 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Earnings per share The following sets forth the computation of basic and diluted earnings per share for the years ended December 31 (in thousands except per share data):
1997 1996 1995 ----------------------------------- ----------------------------------- --------------------- COMBINED(1) TRUST CORPORATION COMBINED(1) TRUST CORPORATION COMBINED(1) TRUST ----------- ------- ----------- ----------- ------- ----------- ----------- ------- NUMERATOR: Numerator for basic and diluted earnings per share/Paired Share -- income (loss) before extraordinary items...................... $41,524 $50,747 $(9,223) $25,874 $33,589 $(7,715) $11,125 $12,864 Extraordinary items.......... (3,452) (3,452) -- 1,077 -- 1,077 (2,155) (2,155) ------- ------- ------- ------- ------- ------- ------- ------- Numerator for basic and diluted earnings per share/Paired Share --income (loss) from continuing operations................. $38,072 $47,295 $(9,223) $26,951 $33,589 $(6,638) $ 8,970 $10,709 ======= ======= ======= ======= ======= ======= ======= ======= DENOMINATOR: Denominator for basic earnings per share/Paired Share -- weighted-average shares..................... 46,022 46,022 46,022 29,204 29,204 29,204 11,657 11,657 Effect of dilutive securities: Employee stock options(2)............... 2,310 2,310 -- 557 557 -- 53 53 Restricted stock awards.... 329 329 -- 85 85 -- -- -- Deferred stock grants...... 2 2 -- -- -- -- -- -- Warrants................... -- -- -- 38 38 -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- Dilutive potential common shares..................... 2,641 2,641 -- 680 680 -- 53 53 Denominator for earnings per share/Paired Share assuming dilution................... 48,663 48,663 46,022 29,884 29,884 29,204 11,710 11,710 ======= ======= ======= ======= ======= ======= ======= ======= Earnings (loss) per share/Paired Share before extraordinary items........ $ 0.90 $ 1.10 $ (0.20) $ 0.88 $ 1.15 $ (0.26) $ 0.95 $ 1.10 Earnings (loss) per share/Paired Share from continuing operations...... $ 0.83 $ 1.03 $ (0.20) $ 0.92 $ 1.15 $ (0.22) $ 0.77 $ 0.92 Earnings (loss) per share/Paired Share before extraordinary items assuming dilution.......... $ 0.85 $ 1.04 $ (0.20) $ 0.86 $ 1.12 $ (0.26) $ 0.95 $ 1.10 Earnings (loss) per share/Paired Share from continuing operations assuming dilution.......... $ 0.78 $ 0.97 $ (0.20) $ 0.90 $ 1.12 $ (0.22) $ 0.77 $ 0.92 1995 ----------- CORPORATION ----------- NUMERATOR: Numerator for basic and diluted earnings per share/Paired Share -- income (loss) before extraordinary items...................... $(1,739) Extraordinary items.......... -- ------- Numerator for basic and diluted earnings per share/Paired Share --income (loss) from continuing operations................. $(1,739) ======= DENOMINATOR: Denominator for basic earnings per share/Paired Share -- weighted-average shares..................... 11,657 Effect of dilutive securities: Employee stock options(2)............... -- Restricted stock awards.... -- Deferred stock grants...... -- Warrants................... -- ------- Dilutive potential common shares..................... -- Denominator for earnings per share/Paired Share assuming dilution................... 11,657 ======= Earnings (loss) per share/Paired Share before extraordinary items........ $ (0.15) Earnings (loss) per share/Paired Share from continuing operations...... $ (0.15) Earnings (loss) per share/Paired Share before extraordinary items assuming dilution.......... $ (0.15) Earnings (loss) per share/Paired Share from continuing operations assuming dilution.......... $ (0.15)
For the Corporation, the following dilutive securities were not included in the computation of earnings per share assuming dilution because the effect would have been antidilutive (in thousands):
1997 1996 1995 ----- ---- ---- Employee stock options(2).............................. 2,310 557 53 Restricted stock awards................................ 329 85 -- Deferred stock grants.................................. 2 -- -- Warrants............................................... -- 38 -- ----- --- -- Total antidilutive securities for the Corporation................................ 2,641 680 53 ===== === ==
F-36 131 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) For additional disclosures regarding stock-based compensation, see Note 18. - --------------- (1) The individual amounts with respect to the Trust and the Corporation do not add to the Combined amounts in the computation of earnings per share assuming dilution due to the exclusion of antidilutive securities for the Corporation. (2) For 1997, 169,576 antidilutive weighted shares/Paired Shares have been excluded. 20. COMMITMENTS AND CONTINGENCIES. Year 2000 Many computer systems were originally designed to recognize calendar years by their last two digits. Calculations performed using these shortened fields may not work properly with dates from the year 2000 and beyond. The Company is undertaking a review and an evaluation of its existing computerized systems as part of a program to bring all such systems into Year 2000 compliance. As a part of this evaluation, the Company expects that its central reservation system will be Year 2000 compliant by the end of the third quarter of 1998. The Company is also communicating with vendors of the Company's third-party software to obtain Year 2000 compliance certification. The Company expects, to the extent necessary, to either modify or upgrade third-party software to ensure Year 2000 compliance. The Company has not yet determined the total cost of modifications to its computerized systems; however, based upon the review and evaluations conducted to date, the Company believes the costs associated with this process will not have a material adverse effect on the Company's results of operations or liquidity. Stock commitment In October 1997, the Company entered into a Forward Stock Agreement with UBS (the "UBS Price Adjustment Agreement"). The UBS Price Adjustment Agreement provides for a settlement payment to be made, in the form of Paired Shares, by the Company to UBS, or by UBS to the Company, based on the market price of the UBS Shares over a specified unwind period, as compared to a "Forward Price" (as defined, but essentially equal to $57.25 per Paired Share, plus an implicit interest factor less dividends declared on the UBS Shares, in each case during the term of the UBS Price Adjustment Agreement). The Company has the right at any time during a preliminary term of one year to elect to deliver or receive Paired Shares in settlement of the UBS Price Adjustment Agreement. The Company has the further right, but not the obligation, to settle by repurchasing for cash all of the UBS Shares at the Forward Price. The Company has the obligation to settle the UBS Price Adjustment Agreement at the end of one year unless UBS agrees to extend its term. UBS has the right to cause an earlier settlement upon the occurrence of certain events of default or a substantial decline in the market price of the Paired Shares. The Company has the right under the UBS Price Adjustment Agreement to settle the Company's obligation (if any) by making a cash payment, but cannot compel UBS to settle UBS's obligation through the payment of cash to the Company. In the event that at various quarterly dates during the term of the UBS Price Adjustment Agreement the Forward Price is higher than the then current market price of the Paired Shares, the Company is obligated to deliver additional Paired Shares (or at the Company's election, cash) to UBS to be held as security for the Company's settlement obligation. In February 1998, the Company paid $7,835,000 to UBS as such security. The Company may, prior to April 15, 1998, deliver Paired Shares to UBS and receive the \return of the Company's cash deposit. Any and all Paired Shares delivered as security will be issued and outstanding when delivered and will adjust the Forward Price in accordance with the formula contained in the UBS Price Adjustment Agreement. F-37 132 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Upon final settlement of the UBS Price Adjustment Agreement, the Company is obligated to pay a placement fee based on the amount of the net stock settlement, if any, as well as an unwind accretion fee equal to one-half of the settlement amount multiplied by an interest factor calculated for the number of actual days the UBS Price Adjustment Agreement was in effect prior to final settlement. The Company is required to cause to be registered under the Securities Act of 1933 for resale by UBS, the Paired Shares sold to UBS on October 15, 1997 and the Paired Shares issued or issuable to UBS under the UBS Price Adjustment Agreement. Litigation There are various legal actions pending against the Company, some of which involve claims for substantial amounts. Although there can be no assurance as to the ultimate outcome of any litigation involving the Company, managements of the Trust and the Corporation do not believe that any pending legal proceeding will have, after taking into account the Company's existing insurance coverage, indemnification rights and provisions for such liabilities, a material adverse effect on the consolidated financial condition of the Company. During the year ended December 31, 1995, the Trust and the Corporation completed settlements of two purported class action complaints and one complaint which was purportedly brought on behalf of the Trust and the Corporation (collectively, the "Shareholder Actions"). Holders of an aggregate of 299,750 Paired Shares (approximately 0.7% of the outstanding Paired Shares as of December 31, 1996), all of which were owned by Mr. Leonard Ross and his affiliates (collectively, "Ross"), opted out of the Shareholder Actions and did not share in the settlement. Ross threatened to bring a separate action alleging similar causes of action as those alleged in the Shareholder Actions as well as other alleged causes of action. In November 1994, Ross assigned to Starwood Capital all of his claims against the Trust and Corporation. In connection with such assignment, Starwood Capital agreed to purchase all of Ross's Paired Shares at Ross's election during a 60-day period beginning in December 1995, at a price of $22.50 per Paired Share (as adjusted for the three-for-two stock split in January 1997) subject to certain adjustments. Starwood Capital, as the assignee of Ross's claims against the Trust and the Corporation, agreed that the maximum amount Starwood Capital may recover under such claims would not exceed an aggregate of $1.8 million and the Trust and the Corporation agreed to toll the statute of limitations respecting such claims until January 31, 1996. The Trust and Corporation also agreed that under certain circumstances they may be obligated severally to indemnify Starwood Capital with respect to Starwood Capital's obligations to Ross, up to a maximum of $1.8 million, upon receipt of a full release from Starwood Capital of all of the claims assigned by Ross. Ross elected to sell his Paired Shares, and in January 1996, those Paired Shares were sold to a third-party through Merrill Lynch. The Paired Shares were sold at a price of $19.75 per Paired Share (as adjusted for the three-for-two stock split in January 1997); the Trust and Corporation paid Starwood Capital approximately $1.4 million in the aggregate pursuant to their indemnity obligations, and Starwood Capital released the Trust and the Corporation from all the claims assigned to it by Ross. Environmental matters The Company 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 F-38 133 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. The Company uses certain substances and generates certain wastes that may be deemed hazardous or toxic under applicable Environmental Laws, and the Company 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 of its properties, the Company could be held liable for the costs of remedial or other action with respect to PCBs, USTs or CFCs. 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 and poor drinking water quality. 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. Franchise Agreements Seventy-three of the 102 hotel properties in which the Trust had an equity interest at December 31, 1997, were operated at such time pursuant to franchise or license agreements ("Franchise Agreements") including 14 with Westin and 13 with Sheraton. The Franchise Agreements generally require the payment of a monthly royalty fee based on gross room revenue and various other fees associated with certain marketing or advertising and centralized reservation services, also generally based on gross room revenues. The Franchise Agreements have various durations but generally may be terminated upon not more than three years' prior notice or upon payment of certain specified fees. The Franchise Agreements generally contain specific standards for, and restrictions and limitations on, the operation and maintenance of the hotels which are established by the franchisors to maintain uniformity in the system created by each such franchisor. Such standards generally regulate the appearance of the hotel, quality and type of goods and services offered, signage, and protection of marks. Compliance with such standards may from time to time require significant expenditures for capital improvements. The Franchise Agreements also generally contain financial reporting requirements relating to the calculation of royalty and other fees and insurance requirements with respect to specified liabilities, approved coverage limits and minimum insurance company rating. The Franchise Agreements generally require the consent of the franchisor to a transfer of an interest in the applicable franchise, and both the consent of the franchisor and the execution of a new franchise F-39 134 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) agreement in the event of a transfer of all or controlling portion of the franchisee under the relevant Franchise Agreement. In addition, some Franchise Agreements may require payment of an initial fee upon establishment of a franchise relationship. The Company intends to convert many of its hotels to a Westin or Sheraton brand. Performance bonds and restricted cash The Corporation is required to post performance bonds or cash collateral for certain obligations. At December 31, 1997 and 1996, the Corporation had posted performance bonds totaling approximately $786,000 and $780,000, respectively, to cover such obligations; however, no amounts had been drawn against such bonds. These amounts are included in inventories, prepaid expenses and other assets and are restricted as to use at December 31, 1997 and 1996. 21. RELATED PARTY TRANSACTIONS. Starwood Capital The Company and Starwood Capital have agreed that, subject to approval by the independent Trustees or Directors, as appropriate, Starwood Capital will be reimbursed for out-of-pocket costs and expenses for any services provided to the Company. Prior to August 12, 1996, Starwood Capital was also reimbursed for its internal costs (including allocation of overhead) for services provided to the Company, provided that, where such costs were currently expensed by the Company, such reimbursement could not exceed $250,000 for the twelve months ending June 30, 1996. In connection with the acquisition of the Institutional Portfolio in August 1996, the Trust granted Starwood Capital a restricted stock award of 250,870 Paired Shares (an approximate value of $6.0 million based on the Paired Share closing price on the date of award). Effective August 12, 1996, the Company's reimbursement arrangement with Starwood Capital was changed so as to eliminate reimbursements for internal costs of Starwood Capital for any services of senior management of Starwood Capital (subject to the same annual limitation of $250,000 as set forth above for services of employees of Starwood Capital other than such senior management) and after one year, for any services of any employee of Starwood Capital. The Company engaged Starwood Capital to act as its financial advisor in connection with the ITT Merger. This engagement is not subject to the reimbursement arrangement described above. During 1997, the Company did not make any reimbursements to Starwood Capital for internal costs. During 1996, the Company reimbursed Starwood Capital for $414,000 of internal costs, of which $226,000 related to 1995. Aside from Starwood Capital's internal costs, during 1996, Starwood Capital incurred approximately $199,000 of costs paid directly by the Company to third-party vendors for services provided to the Company, representing costs associated with the Reorganization, the Offerings and hotel acquisitions. Westin At December 31, 1997, Starwood Capital owned an interest in Westin, which owns equity interests in domestic and international hotels and manages, franchises or represents hotels worldwide. On January 2, 1998, pursuant to a Transaction Agreement dated September 8, 1997, the Company acquired Westin (see Note 26 -- Subsequent Events). As of December 31, 1997, the Company converted six hotels to Westins. In connection with the conversions, at December 31, 1997 and 1996, the Trust had interest-free indebtedness to Westin of $7.4 million and $2.8 million, respectively, to cover certain conversion and termination costs. F-40 135 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) On December 19, 1997, the Trust loaned approximately $2.0 million and $1.1 million to Westin WC Sport L.L.C. ("WC Sport") and Westin MV Sport L.L.C. ("MV Sport"), respectively, wholly owned subsidiaries of Westin, under two separate note agreements. The loans, which are included in other assets, bear interest at the 90-day LIBOR rate and mature as to principal and accrued interest on December 22, 1998. On January 2, 1998, in conjunction with the Westin Acquisition, WC Sport and MV Sport were acquired by the Trust thereby eliminating these notes receivable. On December 29, 1997, the Trust loaned $34.2 million to W&S Atlanta Corp. ("Atlanta"), a wholly owned subsidiary of Westin. The loan bears interest at the Prime lending rate to be paid monthly and matures on December 2, 1998. On January 2, 1998, in conjunction with the Westin Acquisition, Atlanta's note payable to the Trust was assumed by the Corporation. On December 31, 1997, the Corporation purchased other assets valued at approximately $125.7 million from Westin entering into a note payable to Westin for the same amount bearing interest at 6.0%. On January 2, 1998, the note matured and was paid in conjunction with the Westin Acquisition. During 1997, in conjunction with the Westin Acquisition, the Company paid Daniel W. Yih, Director of the Corporation, and Stephen R. Quazzo, Trustee of the Trust, each $200,000 in cash and an award of 5,000 Paired Shares (an approximate value of $220,000 each based on the Paired Share closing price on the date of award) as compensation for acting as Chairmen of the Special Committees. Loans to officers and former officers At December 31, 1997, the Trust has a receivable of approximately $268,000 from an officer of the Trust, Steven R. Goldman, for tax withholdings paid by the Trust on Mr. Goldman's behalf related to the vesting of restricted stock. At December 31, 1997 and 1996, the Trust holds an $800,000 uncollateralized note receivable from a former President and Chief Executive Officer of the Trust. The principal amount of the note receivable is due in 1999 and bears interest due annually at 10%. During 1996, the Corporation made a $150,000 non-interest bearing bridge loan to an officer of the Corporation, Eric A. Danziger, secured by a second mortgage on Mr. Danziger's residence in Phoenix, Arizona. The bridge loan matured in September 1997 and was repaid in February 1998. During 1996, the Corporation made a $266,000 non-interest bearing bridge loan to an officer of the Corporation, Theodore W. Darnall. The bridge loan is secured by a second mortgage on Mr. Darnall's residence in Phoenix, Arizona. During 1997, the bridge loan matured as to $100,000 upon the sale of Mr. Darnall's home in Pittsburgh at which time $116,000 of the loan was repaid. The unpaid balance of $150,000 matures upon termination of Mr. Darnall's employment with the Corporation. During 1995, the Trust loaned $250,000 to a former officer of the Trust. The loan has a term of 10 years and bears interest, to be paid quarterly, at the lowest applicable rate prescribed by IRC Section 1274(d). At December 31, 1997, the loan had an applicable rate of 6.6% and was current. During 1997, the Trust forgave $150,000 of the loan pursuant to a separation agreement with such officer. 22. INDUSTRY SEGMENT INFORMATION. Gaming The Corporation operated in two segments of the hospitality industry, hotel and gaming. The hotel segment consists of room, food and beverage and other revenues recognized in connection with the operation of hotels owned by the Corporation or under lease from the Trust, and income from management contracts. F-41 136 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Company has disclosed these segments in the combined and separate statements of operations. The gaming segment consists of net win from casino operations, as well as room, food and beverage and other revenues recognized in connection with the operation of the two hotel/casinos under lease from the Trust or a third party unaffiliated with Starwood Hotels. For the years ended December 31, 1997 and 1996, the gaming segment was not a material component of the Corporation's operations. As a result, 1997 and 1996 segment information relating to gaming is not disclosed herein. The following information summarizes revenue and operating results for the gaming segment for the year ended December 31, 1995 (in thousands):
YEAR ENDED DECEMBER 31, 1995 ----------------- GAMING: Revenue: Casino................................................. $14,009 Rooms.................................................. 4,682 Food and beverage...................................... 5,155 Other.................................................. 5,313 Less promotional allowances............................ (2,230) ------- Gaming revenues........................................ 26,929 ------- Expenses: Casino................................................. 6,156 Rooms.................................................. 2,220 Food and beverage...................................... 4,896 Other (including undistributed operating expenses and fixed charges)....................................... 10,970 ------- Expenses of gaming operations.......................... 24,242 Rent to Trust.......................................... 2,400 Depreciation and amortization.......................... 205 ------- Total expenses......................................... 26,847 ------- Operating income............................................ $ 82 =======
A reconciliation of the combined segment operating income to the net loss of the Corporation is as follows (in thousands):
YEAR ENDED DECEMBER 31, 1995 ----------------- Hotel operating income...................................... $ 5,419 Gaming operating income..................................... 82 ------- Combined operating income................................... 5,501 Interest and other income................................... 632 Interest expense............................................ (5,470) Corporate expenses.......................................... (2,703) ------- Loss before minority interest.......................... $(2,040) =======
F-42 137 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Additional financial data by industry segment for the Corporation is as follows (in thousands):
YEAR ENDED DECEMBER 31, 1995 ----------------- DEPRECIATION AND AMORTIZATION: Hotel................................................ $5,126 Gaming............................................... 205 Corporate and other.................................. 1,161 ------ Total...................................... $6,492 ======
The Trust is an owner/lessor of real property and does not "operate" in different segments, and is therefore not subject to disclosure by segment. The Trust's net investment (initial cost less accumulated depreciation and provision for loss) in the two Las Vegas hotel/casinos was approximately $20.5 million at December 31, 1995. The Trust sold its interest in the two properties during 1996. Foreign operations In 1997, the Corporation purchased four hotels located in Mexico and Scotland. The foreign segment consists of hotel revenue and expense from foreign hotels. The following information summarizes revenue and operating results for the foreign segment for the year ended December 31, 1997 (in thousands):
YEAR ENDED DECEMBER 31, 1997 ----------------- FOREIGN OPERATIONS: Hotel revenue: Rooms........................................... $11,447 Food and beverage............................... 5,588 Other........................................... 1,973 ------- Foreign hotel revenues.......................... 19,008 ------- Hotel expenses: Rooms........................................... 1,899 Food and beverage............................... 3,190 Other........................................... 7,779 ------- Foreign hotel expenses.......................... 12,868 Interest -- Trust............................... 3,681 Depreciation and amortization................... 2,847 ------- Foreign expenses................................ 19,396 ------- Operating income..................................... $ (388) =======
F-43 138 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation of the consolidated segment results to the net loss of the Corporation is as follows (in thousands):
YEAR ENDED DECEMBER 31, 1997 ----------------- Domestic hotel operating income............................. $ 1,035 Foreign hotel operating loss................................ (388) Gaming operating loss....................................... (1,646) -------- Consolidated operating income............................... (999) Management fees and other income............................ 5,907 Gain on sale of real estate investments..................... 3,864 Depreciation and amortization -- Corporate.................. (2,068) Corporate expenses.......................................... (15,029) -------- Loss before minority interest.......................... $ (8,325) ========
Additional financial data by industry segment for the Corporation is as follows (in thousands):
YEAR ENDED DECEMBER 31, 1997 ----------------- REVENUE: Domestic hotel.............................................. $869,906 Foreign hotel............................................... 19,008 -------- Total............................................. $888,914 ======== IDENTIFIABLE ASSETS: Domestic hotel.............................................. $313,816 Foreign hotel............................................... 189,411 Corporate................................................... 55,424 -------- Total............................................. $558,651 ======== CAPITAL EXPENDITURES: Domestic hotel.............................................. $ 54,090 Foreign hotel............................................... 185,293 Corporate................................................... 8,629 -------- Total............................................. $248,012 ======== DEPRECIATION AND AMORTIZATION: Domestic hotel.............................................. $ 20,380 Foreign hotel............................................... 2,847 Corporate................................................... 2,068 -------- Total............................................. $ 25,295 ========
F-44 139 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 23. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED).
COMBINED TRUST CORPORATION -------------------- ------------------ -------------------- 1997 1996 1997 1996 1997 1996 -------- -------- ------- ------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE DATA) First Quarter Revenue..................... $172,719 $ 60,579 $49,087 $18,801 $167,113 $ 57,486 Net income (loss)........... 7,786 4,090 12,183 7,142 (4,397) (3,052) Net income (loss) per share/Paired Share....... 0.19 0.20 0.29 0.35 (0.10) (0.15) Net income (loss) per share/Paired Share Assuming Dilution........ 0.18 0.20 0.28 0.35 (0.10) (0.15) Second Quarter Revenue..................... $223,149 $ 82,665 $60,913 $18,959 $219,550 $ 79,871 Net income.................. 18,135 9,598(2) 16,844 5,600 1,291 3,998(2) Net income (loss) per share/Paired Share....... 0.40 0.41 0.37 0.24 0.03 0.17 Net income per share/Paired Share Assuming Dilution................. 0.38 0.41 0.35 0.24 0.03 0.17 Third Quarter Revenue..................... $236,920 $122,138 $70,760 $30,565 $232,712 $119,695 Net income (loss)........... (1,127)(1) 6,099 2,092(1) 7,608 (3,219) (1,509) Net income (loss) per share/Paired Share....... (0.03) 0.18 0.04 0.23 (0.07) (0.05) Net income (loss) per share/Paired Share Assuming Dilution........ (0.03) 0.19 0.04 0.23 (0.07) (0.05) Fourth Quarter Revenue..................... $300,795 $163,156 $90,008 $46,734 $294,313 $153,104 Net income (loss)........... 13,278(3) 7,164 16,176(3) 13,239 (2,898)(3) (6,075) Net income (loss) per share/Paired Share....... 0.26 0.18 0.32 0.33 (0.06) (0.15) Net income (loss) per share/Paired Share Assuming Dilution........ 0.25 0.17 0.30 0.32 (0.06) (0.15)
- --------------- (1) During the quarter ended September 30, 1997, the Trust recorded an extraordinary loss of approximately $3.5 million (net of minority interest of $971,000) relating to extinguishment of debt (see Note 8). (2) During the quarter ended June 30, 1996, the Corporation recorded an extraordinary gain of approximately $1.1 million (net of minority interest of $413,000) relating to extinguishment of debt (see Note 8). (3) During the quarter ended December 31, 1997, the Company recorded depreciation adjustments related to cost segregation studies performed on properties acquired in 1997 which resulted in a decrease in depreciation expense of approximately $27.4 million for the Trust and an increase in depreciation expense of $1.7 million for the Corporation. The Trust recorded a loss on anticipated treasury lock settlements of approximately $25.0 million (see Note 11 for further discussion). The Trust recorded an adjustment of approximately $2.6 million in the fourth quarter for 1997 executive bonuses. F-45 140 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 24. PURCHASE BUSINESS COMBINATIONS. The following represents all purchase business combinations for the year ending December 31, 1997:
DATE OF PURCHASE PRICE HOTEL(1) PURCHASE(4) (000'S)(7) -------- ----------- -------------- Deerfield Beach Hilton..................................... 01/08/97 $ 11,500 Radisson Denver South...................................... 01/20/97 21,750 The HEI Owned Hotels consisting of: 312,000 Sheraton Hotel........................................... 02/14/97 Omni Waterside Hotel..................................... 02/14/97 BWI Airport Marriott..................................... 02/14/97 Crowne Plaza Edison...................................... 02/14/97 Courtyard by Marriott Crystal City....................... 02/14/97 Charleston Hilton........................................ 02/14/97 Park Ridge Hotel......................................... 02/14/97 Sonoma County Hilton..................................... 02/14/97 Novi Hilton.............................................. 02/14/97 Embassy Suites........................................... 02/14/97 Days Inn Chicago........................................... 02/21/97 48,000 Westin Hermitage........................................... 03/11/97 15,800(5) Hotel De La Poste.......................................... 03/12/97 16,000 San Diego Marriott Suites.................................. 04/03/97 32,500 Tremont Hotel.............................................. 04/04/97 14,400 Raphael Hotel.............................................. 05/07/97 17,750 Sheraton Stamford.......................................... 06/12/97 14,600 Westin Southfield -- Detroit............................... 07/10/97 40,000 Westin Regina Portfolio consisting of: 133,000(3) Westin Regina Resort -- Cancun........................... 08/21/97 Westin Regina Resort -- Los Cabos........................ 08/21/97 Westin Regina Resort -- Puerto Vallarta.................. 08/21/97 The Flatley Portfolio consisting of: 469,970 Wayfarer Inn............................................. 09/11/97 Sheraton Tara Hotel -- Braintree......................... 09/11/97 Tara's Ferncroft Conf. Resort............................ 09/11/97 Sheraton Tara Hotel -- Framingham........................ 09/11/97 Tara's Cape Codder Hotel................................. 09/11/97 Tara Hyannis Hotel & Resort.............................. 09/11/97 Sheraton Tara Lexington Inn.............................. 09/11/97 Colonial Hilton and Resort............................... 09/11/97 Merrimack Hotel & Conference Center...................... 09/11/97 Sheraton Tara Hotel -- Nashua............................ 09/11/97 Sheraton Tara Hotel -- Newton............................ 09/11/97 Sheraton Tara Hotel -- Parsippany........................ 09/11/97 Sheraton Tara Hotel -- South Portland.................... 09/11/97 Tara Stamford Hotel...................................... 09/11/97 Sheraton Tara Airport Hotel.............................. 09/11/97 Crowne Plaza............................................... 09/23/97 58,750(6) One Washington Circle...................................... 09/30/97 19,000 Radisson Plaza & Suite Hotel............................... 10/30/97 54,000 Westin Aquila.............................................. 12/08/97 14,000 Westin Mission Hills Resort................................ 12/15/97 118,000(2) Turnberry Hotel and Golf Resort............................ 12/23/97 51,500(3) ---------- $1,462,520 ==========
F-46 141 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) On February 14, 1997, in addition to the acquisition of the ten hotels referred to above as the HEI Owned Hotels from PRISA II, an institutional real estate investment fund managed by Prudential Real Estate Investors, and HEI Hotels LLC ("HEI"), a Westport, Connecticut based hotel operating company, the Company also completed the acquisition of HEI (together with the HEI Owned Hotels, the "HEI Portfolio"). The Company paid $112 million in cash and notes and the remainder in limited partnership interests in the Realty Partnership and the Operating Partnership exchangeable for 6.548 million Paired Shares of the Trust and Corporation (valued for purposes of the transaction at approximately $215 million). See Note 4 for discussion on the value of the HEI Management Company, an intangible asset. The HEI Portfolio also included contracts to manage the following nine hotels: Sheraton Gateway Houston Airport, Ontario Airport Hilton, Grand Junction Hilton, Danbury Hilton & Towers, Residence Inn By Marriott, Long Island Sheraton Hotel, Wilmington Hilton Hotel, Ramada Hotel Bethesda and The Pavillion Towers Hotel. - --------------- (1) The Trust acquired a 100% equity interest in each of these hotel properties except for the Westin Mission Hills Resort (see footnote (2) below), the Westin Regina Portfolio and Turnberry Hotel & Golf Resort (see footnote (3) below). (2) Represents 100% interest. The Trust acquired a 95% interest in a joint venture that acquired the property. (3) The Corporation acquired a 100% equity interest in these hotel properties. (4) The results of operations are included in the Corporation for the period from date of purchase through December 31, 1997. (5) The purchase price consists of approximately $6.4 million in cash and limited partnership interests in Realty & Operating exchangeable for 233,106 Paired Shares (valued for the purpose of this transaction at $9.4 million). (6) The purchase price consists of approximately $29.0 million in assumed debt, approximately $17.8 million in cash and approximately $12.0 million for the sale of three of the Company's hotels (see further information in Note 13). (7) For all purchases, the Company records the allocation of the purchase price between Land, Building and Furniture, Fixtures and Equipment based upon the purchase agreements, if applicable, or based upon a cost segregation study. 25. COMBINED PRO FORMA FINANCIAL INFORMATION (UNAUDITED). Due to the impact of the 44 hotels acquired by the Company in 1997 and the 1997 Offerings, the following combined pro forma statements of operations are presented to supplement the historical statements of operations. These combined pro forma statements reflect the 1997 Offerings and the acquisitions of the HEI Portfolio and the Flatley Portfolio as if they occurred on January 1, 1996:
YEAR ENDED DECEMBER 31, -------------------------- 1997 1996 ------------ ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues............................................. $1,054,178 $694,066 Net income........................................... $ 29,036 $ 7,540 Net income per share................................. $ 0.58 $ 0.26 Net income per share assuming dilution............... $ 0.55 $ 0.25
F-47 142 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 26. SUBSEQUENT EVENTS (UNAUDITED). Acquisition of Westin On January 2, 1998, pursuant to a Transaction Agreement dated as of September 8, 1997 (the "Westin Transaction Agreement"), among WHWE L.L.C. ("WHWE"), Woodstar Investor Partnership ("Woodstar"), Nomura Asset Capital Corporation ("Nomura"), Juergen Bartels (Mr. Bartels together with WHWE, Woodstar and Nomura, the "Members"), Westin Worldwide, W&S Lauderdale Corp. ("Lauderdale"), W&S Seattle Corp. ("Seattle"), Westin St. John Hotel Company, Inc. ("St. John"), W&S Denver Corp. ("Denver"), W&S Atlanta Corp. ("Atlanta"), W&S Hotel L.L.C. ("W&S LLC" and, together with Westin, the "Westin Companies"), the Trust, the Realty Partnership, the Corporation and the Operating Partnership, the Company acquired Westin. Pursuant to the terms of the Transaction Agreement, (i) Westin Worldwide merged into the Trust (the "Westin Merger"). In connection with the Westin Merger, all of the issued and outstanding shares of capital stock of Westin Worldwide (other than shares held by Westin and its subsidiaries or by the Company) were converted into an aggregate of 6,285,783 Class A Exchangeable Preferred Shares, par value $.01 per share (the "Class A EPS"), of the Trust and 5,294,783 Class B Exchangeable Preferred Shares, liquidation value $38.50 per share (the "Class B EPS" and together with the Class A EPS, the "EPS"), of the Trust and cash in the amount of $177.9 million; (ii) The stockholders of Lauderdale, Seattle and Denver contributed all of the outstanding shares of such companies to the Realty Partnership. In exchange for such contribution and after giving effect to the deemed exchange of certain units, the Realty Partnership issued to such stockholders an aggregate of 470,309 limited partnership units of the Realty Partnership and the Trust issued to such stockholders an aggregate of 127,534 shares of Class B EPS. In addition, in connection with the foregoing share contribution, the Realty Partnership assumed, repaid or refinanced the indebtedness of Lauderdale, Seattle and Denver and assumed $84.2 million of indebtedness incurred by the Members prior to such contributions; and (iii) The stockholders of Atlanta and St. John contributed all of the outstanding shares of such companies to the Operating Partnership. In exchange for such contribution and after giving effect to the deemed exchange of certain units, the Operating Partnership issued to such stockholders an aggregate of 312,741 limited partnership units of the Operating Partnership and the Trust issued to such stockholders an aggregate of 80,415 shares of Class B EPS. In addition, in connection with the foregoing share contributions, the Operating Partnership assumed, repaid or refinanced indebtedness of Atlanta and St. John and assumed $3.4 million of indebtedness incurred by the Members prior to such contributions. The aggregate principal amount of debt assumed by the Company pursuant to the Westin Transaction Agreement was approximately $1.0 billion. The shares of Class A EPS, the shares of Class B EPS and the limited partnership interests issued in connection with the Westin Merger and the contribution of Seattle, Lauderdale, Denver, St. John and Atlanta to the Partnerships are directly or indirectly exchangeable on a one-to-one basis (subject to certain adjustments) for Paired Shares (subject to the right of the Company to elect to pay cash in lieu of issuing such shares). The limited partnership interests also are exchangeable on a one-to-one basis for shares of Class B EPS. The shares of Class B EPS have a liquidation preference of $38.50 per share and provide the holders with the right, from and after the fifth anniversary of the closing date of the Westin acquisition, to require the Trust to redeem such shares at a price of $38.50. F-48 143 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) On January 2, 1998, the Company obtained a $2.265 billion credit facility (the "$2.2 Billion Facility") from a group of lenders led by Bankers Trust Company and the Chase Manhattan Bank to fund the cash portion of the purchase of Westin for approximately $178 million and to repay an aggregate of approximately $1.0 billion of outstanding debt of Westin and of the Company under the $1.2 Billion Facility. Acquisition of ITT On February 23, 1998, pursuant to an Amended and Restated Agreement and Plan of Merger dated as of November 12, 1997 (the "ITT Merger Agreement") among the Corporation, Chess Acquisition Corp., a newly formed Nevada corporation and a subsidiary of the Corporation ("Merger Sub"), the Trust and ITT, the Company acquired ITT. Pursuant to the terms of the ITT Merger Agreement, Merger Sub was merged with and into ITT (the "ITT Merger"), whereupon the separate corporate existence of Merger Sub ceased and ITT continued as the surviving corporation. As a result of the ITT Merger, ITT was owned jointly by the Trust and the Corporation. Immediately after the effective time of the ITT Merger, the Corporation purchased all of the common stock, no par value, of ITT ("ITT Common Stock") owned by the Trust for a combination of cash and notes. After such purchase, ITT became a wholly owned subsidiary of the Corporation. Under the terms of the ITT Merger Agreement, each outstanding share of ITT Common Stock, together with the associated right to purchase shares of Series A Participating Cumulative Preferred Stock of ITT (the "Rights" and, together with the ITT Common Stock, "ITT Shares"), other than those that were converted into cash pursuant to a cash election by the holder (and other than ITT Shares owned directly or indirectly by ITT or Starwood Hotels, which shares were canceled), was converted into 1.543 Paired Shares. Pursuant to cash election procedures, approximately 35,195,664 ITT Shares, representing approximately 30% of the outstanding ITT Shares, were converted into $85 in cash per share. In addition, each ITT Share was converted into additional cash consideration in the amount of $.37493151, which amount represents the interest that would have accrued (without compounding) on $85 at an annual rate of 7% during the period from and including January 31, 1998 to but excluding the date of the closing (February 23, 1998). The aggregate value of the ITT acquisition in cash, Paired Shares and assumed debt was approximately $14.6 billion. On February 23, 1998, the Company obtained two additional credit facilities ($5.6 billion in total) with Lehman Brothers, Bankers Trust and The Chase Manhattan Bank to fund the cash portion of the ITT Merger consideration, to refinance a portion of the Company's existing indebtedness (including indebtedness outstanding under the $2.2 Billion Facility) and to provide funds for general corporate purposes. These facilities are comprised of a $3.1 billion senior secured credit facility (the "$3.1 Billion Facility") and a $2.5 billion, five-year increasing rates notes facility (the "IRN Facility"). The $3.1 Billion Facility has three tranches: a $1.0 billion, one year term loan, a $1.0 billion, a five year term loan, and a $1.1 billion, five-year revolving credit facility. The Corporation, the Trust and certain of their respective direct and indirect subsidiaries may be designated as borrowers or co-borrowers under all or a portion of the $3.1 Billion Facility. The interest rate for the $3.1 Billion Facility is one-, two- or three-month LIBOR, at the Company's option, plus 187.5 basis points for the four months ending June 24, 1998, one-, two-or three-month LIBOR plus 162.5 basis points for the two months ending August 24, 1998, and thereafter is determined pursuant to a pricing "grid" with rates based on the Company's leverage and/or senior unsecured debt rating. Quarterly amortization of the five-year term loan begins in the third year, with total amortization of 10%, 20% and 70% of the principal amount over the third, forth and fifth year, respectively. Repayment of amounts borrowed under the $3.1 Billion Facility is guaranteed by the Trust and the Corporation and substantially all of their respective significant subsidiaries (including the Partnerships) other than gaming subsidiaries, and is secured by a pledge of all the capital stock, partnership interests and other equity interests of the guarantor subsidiaries. F-49 144 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The IRN facility consists of a single drawdown senior increasing rate, non-amortizing five-year term loan for $2.5 billion. The Corporation is the borrower under the IRN Facility; the Trust and all subsidiaries of the Corporation and the Trust that are borrowers or guarantors of the $3.1 Billion Facility are guarantors of the IRN Facility. The IRN Facility is secured equally and ratably by all the collateral securing the $3.1 Billion Facility and is pari passu in right of payment with all other senior indebtedness of the borrower and the guarantors, including the $3.1 Billion Credit Facility. Amounts borrowed under the IRN Facility bear interest at one-, two- or three-month LIBOR plus 175 basis points for the three months ending May 24, 1998, with the interest rate increasing by 50 basis points every three months thereafter, up to a maximum rate of one-, two-or three-month LIBOR plus 375 basis points. In conjunction with the acquisition of ITT, the Amended and Restated Declaration of Trust of the Trust was further amended increasing the authorized shares of beneficial interests in the Trust to 1.35 billion shares. The charter of the Corporation was amended increasing the authorized stock of the Corporation to 1.35 billion shares. In conjunction with the acquisition of ITT, the Company sold an aggregate of 4,641,000 Paired Shares to Merrill Lynch International, NMS Services, Inc. and Lehman Brothers Inc. (collectively, the "February Purchasers"), in a private placement, for approximately $245.0 million. The Company paid the February Purchasers a customary placement fee. Separately, the Company entered into agreements (the "February Price Adjustment Agreements") with the February Purchasers (and with Merrill Lynch, Pierce, Fenner & Smith Incorporated, NationsBanc Montgomery Securities LLC and Lehman Brothers Finance S.A., each of which is an affiliate of a February Purchaser) with terms that are essentially the same as the terms of the UBS Price Adjustment Agreement, except that (i) under the February Price Adjustment Agreements, the Company does not have any right to deliver cash in settlement of its obligation to deliver Paired Shares or any right to repurchase the Shares sold to the February Purchasers, and (ii) the Forward Price under the February Price Adjustment Agreements is based on a price of $53.875 per share. The Company is required to cause to be registered under the Securities Act of 1933, for resale by the February Purchasers the Paired Shares sold to the February Purchasers on February 24, 1998 and the Paired Shares issued or issuable to the February Purchasers under the February Price Adjustment Agreement. Other On January 15, 1998, the Company completed the purchase of four Sheraton Hotel assets with 916 hotel rooms located in Aspen, Colorado; Houston, Texas; Washington, DC; and New York, New York for $334 million, which consists of approximately $150 million in cash and 3.718 million Paired Shares of the Trust and the Corporation (valued for purposes of this transaction at approximately $184 million). F-50 145 SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION STARWOOD HOTELS & RESORTS DECEMBER 31, 1997 (IN THOUSANDS)
GROSS AMOUNT BOOK INITIAL COST TO COSTS SUBSEQUENT TO VALUE COMPANY ACQUISITION AT DECEMBER 31, 1997 ------------------------ ---------------------- ----------------------- (1) (3) (1) ACCUMULATED BUILDING AND BUILDING AND BUILDING AND DEPRECIATION & DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS AMORTIZATION ----------- -------- ------------ ------- ------------ -------- ------------ -------------- HOTEL ASSETS: Embassy Suites Phoenix Airport -- Phoenix, AZ........... $ 2,889 $ 11,658 $ 877 $ 2,889 $ 12,535 $ 5,645 Tempe Embassy Suites -- Tempe, AZ............................... 1,000 14,458 179 1,000 14,637 1,165 Hotel Park Tucson -- Tucson, AZ.... 1,800 7,911 108 1,800 8,019 523 Plaza Hotel & Conference Center -- Tucson, AZ............. 350 4,357 574 350 4,931 1,521 Sheraton Hotel -- Long Beach, CA... 4,280 27,390 4,280 27,390 1,270 Westin Los Angeles Airport -- Los Angeles, CA...................... 8,800 22,397 1,651 8,800 24,048 1,634 Westwood Marquis Hotel & Gardens -- Westwood, CA.......... 5,250(4) 23,558(4) 3,049 5,250 26,607 1,294 Clarion at San Francisco Airport -- Millbrae, CA.......... 7,210 19,537 139 7,210 19,676 1,630 Palm Desert Embassy Suites -- Palm Desert, CA....................... 2,790 9,309 94 2,790 9,403 618 Doubletree Club Hotel -- Rancho Bernardo, CA..................... 1,256 6,275 17 1,256 6,292 624 Westin Mission Hills Resort -- Rancho Mirage, CA...... 14,149 85,374 14,149 85,374 359 Vagabond Inn -- Rosemead, CA....... 700 2,100 700 2,100 1,135 Vagabond Inn -- Sacramento, CA..... 700 3,200 700 3,200 1,408 San Diego Marriott Suites -- San Diego, CA........................ 2,200 27,243 2,200 27,243 1,021 Westin Horton Plaza San Diego -- San Diego, CA........... 6,500 35,732 1,191 6,500 36,923 2,554 Sonoma County Hilton -- Santa Rosa, CA............................... 1,830 15,208 1,830 15,208 698 Vagabond Inn -- Woodland Hills, CA............................... 1,200 3,200 1,200 3,200 1,408 Radisson Denver South -- Denver, CO............................... 2,270 17,000 2,270 17,000 777 Sheraton Stamford -- Stamford, CT............................... 375 16,443 375 16,443 431 Tara Stamford Hotel -- Stamford, CT............................... 8,951 41,410 8,951 41,410 689 Deerfield Beach Hilton -- Deerfield, FL.......... 1,510 8,862 1,510 8,862 436 Doubletree Guest Suites Cypress Creek -- Ft. Lauderdale, FL...... 3,050 17,718 423 3,050 18,141 1,482 Wyndham Hotel at Ft. Lauderdale Airport -- Dania, FL............. 2,910 17,017 915 2,910 17,932 1,210 Gainesville Radisson Hotel -- Gainesville, FL......... 1,002 3,759 1,932 1,002 5,691 1,857 Westin Tampa Airport -- Tampa, FL............................... 2,340 16,941 1,557 2,340 18,498 1,442 Holiday Inn -- Albany, GA.......... 796 4,980 361 796 5,341 1,477 Embassy Suites Hotel -- College Park, GA......................... 1,530 19,177 1,530 19,177 892 Lenox Inn -- Atlanta, GA........... 4,383 4,197 155 4,383 4,352 308 Marque of Atlanta -- Atlanta, GA... 3,780 15,777 350 3,780 16,127 1,053 YEAR OF DATE DESCRIPTION CONSTRUCTION ACQUIRED LIFE ----------- ------------ -------- ---- HOTEL ASSETS: Embassy Suites Phoenix Airport -- Phoenix, AZ........... 1981 12/13/83 35 Tempe Embassy Suites -- Tempe, AZ............................... 1984 07/25/95 35 Hotel Park Tucson -- Tucson, AZ.... 1986 08/16/96 35 Plaza Hotel & Conference Center -- Tucson, AZ............. 1971 09/16/86 35 Sheraton Hotel -- Long Beach, CA... 1988 02/14/97 30 Westin Los Angeles Airport -- Los Angeles, CA...................... 1986 08/12/96 35 Westwood Marquis Hotel & Gardens -- Westwood, CA.......... 1969 12/30/96 35 Clarion at San Francisco Airport -- Millbrae, CA.......... 1962 04/25/96 35 Palm Desert Embassy Suites -- Palm Desert, CA....................... 1985 08/16/96 35 Doubletree Club Hotel -- Rancho Bernardo, CA..................... 1988 01/01/95 35 Westin Mission Hills Resort -- Rancho Mirage, CA...... 1987 12/15/97 30 Vagabond Inn -- Rosemead, CA....... 1974 09/16/86 35 Vagabond Inn -- Sacramento, CA..... 1975 09/16/86 35 San Diego Marriott Suites -- San Diego, CA........................ 1989 04/03/97 30 Westin Horton Plaza San Diego -- San Diego, CA........... 1987 08/12/96 35 Sonoma County Hilton -- Santa Rosa, CA............................... 1984 02/14/97 30 Vagabond Inn -- Woodland Hills, CA............................... 1973 09/16/86 35 Radisson Denver South -- Denver, CO............................... 1986 01/20/97 30 Sheraton Stamford -- Stamford, CT............................... 1985 06/12/97 30 Tara Stamford Hotel -- Stamford, CT............................... 1984 09/11/97 30 Deerfield Beach Hilton -- Deerfield, FL.......... 1985 01/08/97 30 Doubletree Guest Suites Cypress Creek -- Ft. Lauderdale, FL...... 1985 04/26/96 35 Wyndham Hotel at Ft. Lauderdale Airport -- Dania, FL............. 1985 08/12/96 35 Gainesville Radisson Hotel -- Gainesville, FL......... 1974 11/24/86 35 Westin Tampa Airport -- Tampa, FL............................... 1987 04/26/96 35 Holiday Inn -- Albany, GA.......... 1989 06/08/89 35 Embassy Suites Hotel -- College Park, GA......................... 1989 02/14/97 30 Lenox Inn -- Atlanta, GA........... 1965 10/31/95 35 Marque of Atlanta -- Atlanta, GA... 1980 08/16/96 35
F-51 146
SCHEDULE III (CONTINUED) REAL ESTATE AND ACCUMULATED DEPRECIATION STARWOOD HOTELS & RESORTS DECEMBER 31, 1997 (IN THOUSANDS) GROSS AMOUNT BOOK INITIAL COST TO COSTS SUBSEQUENT TO VALUE COMPANY ACQUISITION AT DECEMBER 31, 1997 ------------------------ ---------------------- ----------------------- (1) (1) BUILDING AND BUILDING AND BUILDING AND DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS ----------- -------- ------------ ------- ------------ -------- ------------ Sheraton Colony Square -- Atlanta, GA............................... 2,000 25,285 4,146 2,000 29,431 Terrace Garden Hotel -- Atlanta, GA............................... 5,875 19,944 476 5,875 20,420 Westin Atlanta North at Perimeter -- Atlanta, GA......... 5,370 41,977 674 5,370 42,651 Arlington Park Hilton -- Arlington Heights, IL...................... 5,500 6,877 571 5,500 7,448 Days Inn Lake Shore Drive -- Chicago, IL............. 11,280 30,857 11,280 30,857 Raphael Hotel -- Chicago, IL....... 2,950 12,837 2,950 12,837 Tremont Hotel -- Chicago, IL....... 3,170 9,980 3,170 9,980 Radisson Plaza & Suite Hotel -- Indianapolis, IN........ 8,236 41,049 8,236 41,049 Harvey Hotel -- Wichita, KS........ 341 3,571 337 341 3,908 Doubletree Guest Suites -- Lexington, KY.......... 1,237 9,573 319 1,237 9,892 Crowne Plaza -- New Orleans, LA.... 8,820 43,557 8,820 43,557 Hotel De La Poste -- New Orleans, LA............................... 1,730 12,463 1,730 12,463 Park Plaza Hotel -- Boston, MA..... 21,000(4) 66,619(4) 1,768 21,000 68,387 Sheraton Tara Hotel -- Braintree, MA............................... 8,034 38,103 8,034 38,103 Tara's Ferncroft Conference Resort -- Danvers, MA............ 12,315 43,466 12,315 43,466 Sheraton Tara Hotel -- Framingham, MA............................... 7,905 37,463 7,905 37,463 Cape Codder -- Hyannis, MA......... 1,602 7,121 1,602 7,121 Hotel & Resort -- Hyannis, MA...... 4,459 15,708 4,459 15,708 Sheraton Tara Lexington Inn -- Lexington, MA............. 3,136 12,639 3,136 12,639 Colonial Hilton and Resort -- Lynnfield, MA.......... 14,107 43,600 14,107 43,600 Sheraton Needham -- Needham, MA.... 3,040 14,167 74 3,040 14,241 Sheraton Tara Hotel -- Newton, MA............................... 17,884 17,884 Westin Waltham Hotel -- Waltham, MA............................... 5,000 31,703 198 5,000 31,901 BWI Airport Marriott -- Baltimore, MD............................... 3,600 36,291 3,600 36,291 Holiday Inn Calverton -- Beltsville, MD...... 1,636 8,489 9 215 1,645 8,704 Sheraton Tara Hotel -- South Portland, ME..................... 2,708 12,504 2,708 12,504 Bay Valley Hotel & Resort -- Bay City, MI......................... 2,500 5,472 2 1,407 2,502 6,879 Novi Hilton -- Novi, MI............ 1,800 29,456 1,800 29,456 Westin Southfield Detroit -- Southfield, MI........ 1,700 32,508 1,700 32,508 Doubletree Mall of America -- Bloomington, MN....... 2,890 30,491 352 2,890 30,843 Sheraton Metrodome -- Minneapolis, MN............................... 1,830(4) 13,759 211 1,830 13,970 SCHEDULE III (CONTINUED) REAL ESTATE AND ACCUMULATED DEPRECIATION STARWOOD HOTELS & RESORTS DECEMBER 31, 1997 (IN THOUSANDS) (3) ACCUMULATED DEPRECIATION & YEAR OF DATE DESCRIPTION AMORTIZATION CONSTRUCTION ACQUIRED LIFE ----------- -------------- ------------ -------- ---- Sheraton Colony Square -- Atlanta, GA............................... 2,056 1973 07/18/95 35 Terrace Garden Hotel -- Atlanta, GA............................... 1,452 1975 10/31/95 35 Westin Atlanta North at Perimeter -- Atlanta, GA......... 2,972 1986 08/12/96 35 Arlington Park Hilton -- Arlington Heights, IL...................... 455 1968 08/16/96 35 Days Inn Lake Shore Drive -- Chicago, IL............. 1,280 1965 02/21/97 30 Raphael Hotel -- Chicago, IL....... 426 1929 05/07/97 30 Tremont Hotel -- Chicago, IL....... 362 1974 04/04/97 30 Radisson Plaza & Suite Hotel -- Indianapolis, IN........ 341 1983 10/30/97 30 Harvey Hotel -- Wichita, KS........ 358 1974 01/01/95 35 Doubletree Guest Suites -- Lexington, KY.......... 956 1989 01/01/95 35 Crowne Plaza -- New Orleans, LA.... 543 1984 09/23/97 30 Hotel De La Poste -- New Orleans, LA............................... 517 1973 03/12/97 30 Park Plaza Hotel -- Boston, MA..... 6,548 1927 01/24/96 35 Sheraton Tara Hotel -- Braintree, MA............................... 634 1971 09/11/97 30 Tara's Ferncroft Conference Resort -- Danvers, MA............ 485 1978 09/11/97 30 Sheraton Tara Hotel -- Framingham, MA............................... 622 1973 09/11/97 30 Cape Codder -- Hyannis, MA......... 118 1975 09/11/97 30 Hotel & Resort -- Hyannis, MA...... 261 1967 09/11/97 30 Sheraton Tara Lexington Inn -- Lexington, MA............. 210 1958 09/11/97 30 Colonial Hilton and Resort -- Lynnfield, MA.......... 725 1966 09/11/97 30 Sheraton Needham -- Needham, MA.... 939 1986 08/16/96 35 Sheraton Tara Hotel -- Newton, MA............................... 496 1968 09/11/97 30 Westin Waltham Hotel -- Waltham, MA............................... 2,248 1990 08/12/96 35 BWI Airport Marriott -- Baltimore, MD............................... 1,678 1988 02/14/97 30 Holiday Inn Calverton -- Beltsville, MD...... 595 1987 11/30/95 35 Sheraton Tara Hotel -- South Portland, ME..................... 208 1973 09/11/97 30 Bay Valley Hotel & Resort -- Bay City, MI......................... 2,768 1973 05/10/84 35 Novi Hilton -- Novi, MI............ 1,354 1985 02/14/97 30 Westin Southfield Detroit -- Southfield, MI........ 813 1987 07/10/97 30 Doubletree Mall of America -- Bloomington, MN....... 2,158 1975 08/12/96 35 Sheraton Metrodome -- Minneapolis, MN............................... 917 1980 09/05/96 35
F-52 147
SCHEDULE III (CONTINUED) REAL ESTATE AND ACCUMULATED DEPRECIATION STARWOOD HOTELS & RESORTS DECEMBER 31, 1997 (IN THOUSANDS) GROSS AMOUNT BOOK INITIAL COST TO COSTS SUBSEQUENT TO VALUE COMPANY ACQUISITION AT DECEMBER 31, 1997 ------------------------ ---------------------- ----------------------- (1) (1) BUILDING AND BUILDING AND BUILDING AND DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS ----------- -------- ------------ ------- ------------ -------- ------------ St. Louis Embassy Suites -- St. Louis, MO........................ 2,330 14,895 111 2,330 15,006 Ritz Carlton Kansas City -- Kansas City, MO......................... 9,420 29,990 21 9,420 30,011 Omni Hotel -- Chapel Hill, NC...... 500 8,920 97 500 9,017 Westin Aquila -- Omaha, NE......... 1,783 10,776 1,783 10,776 Wayfarer Inn -- Bedford, NH........ 2,151 10,036 2,151 10,036 Merrimack Hotel & Conference Center -- Merrimack, NH.......... 595 2,597 595 2,597 Sheraton Tara Hotel -- Nashua, NH............................... 4,345 20,036 4,345 20,036 Crowne Plaza Edison -- Edison, NJ............................... 1,700 17,045 1,700 17,045 Sheraton Tara Hotel -- Parsippany, NJ............................... 11,077 55,232 11,077 55,232 Marriott Forrestal Village Hotel -- Princeton, NJ........... 3,150 14,724 60 3,150 14,784 Best Western Airport Inn -- Albuquerque, NM........... 5,165 189 5,354 Doral Court -- New York, NY........ 6,060(4) 12,673(4) 1,132 6,060 13,805 Doral Inn -- New York, NY.......... 3,112 3,112 Doral Tuscany -- New York, NY...... 1,700(4) 9,723(4) 816 1,700 10,539 Days Inn City Center -- Portland, OR............................... 1,900 3,768 120 563 2,020 4,331 Riverside Inn -- Portland, OR...... 1,300 3,375 120 2,921 1,420 6,296 Allentown Hilton -- Allentown, PA............................... 1,200 5,343 126 1,200 5,469 Park Ridge Hotel -- King of Prussia, PA...................... 3,111 21,896 3,111 21,896 Days Inn Airport -- Philadelphia, PA............................... 1,900 1,672 397 1,900 2,069 Westin Philadelphia International Airport -- Philadelphia, PA...... 2,850 12,400 987 2,850 13,387 Ritz Carlton Philadelphia -- Philadelphia, PA............................... 5,220 25,072 198 5,220 25,270 Sheraton Tara Airport Hotel -- Warwick, RI............. 2,095 9,707 2,095 9,707 Charleston Hilton North -- Charleston, SC.......... 2,600 17,368 2,600 17,368 Westin Hermitage -- Nashville, TN............................... 2,350 11,824 2,350 11,824 Radisson Park Central -- Dallas, TX............................... 11,832 1,830 12,359 1,830 24,191 Doubletree Guest Suites DFW Airport -- Irving, TX............ 3,080 21,707 539 3,080 22,246 Courtyard by Marriott Crystal City -- Arlington, VA............ 3,740 23,695 3,740 23,695 Omni Waterside Hotel -- Norfolk, VA............................... 5,200 40,913 5,200 40,913 Residence Inn Tyson's Corner -- Vienna, VA............. 1,418 4,119 568 1,418 4,687 Tyee Hotel -- Olympia, WA(2)....... 1,008 1,562 (63) 1,097 945 2,659 SCHEDULE III (CONTINUED) REAL ESTATE AND ACCUMULATED DEPRECIATION STARWOOD HOTELS & RESORTS DECEMBER 31, 1997 (IN THOUSANDS) (3) ACCUMULATED DEPRECIATION & YEAR OF DATE DESCRIPTION AMORTIZATION CONSTRUCTION ACQUIRED LIFE ----------- -------------- ------------ -------- ---- St. Louis Embassy Suites -- St. Louis, MO........................ 990 1985 08/16/96 35 Ritz Carlton Kansas City -- Kansas City, MO......................... 2,110 1973 08/12/96 35 Omni Hotel -- Chapel Hill, NC...... 822 1981 04/07/95 35 Westin Aquila -- Omaha, NE......... 45 1924 12/08/97 30 Wayfarer Inn -- Bedford, NH........ 167 1966 09/11/97 30 Merrimack Hotel & Conference Center -- Merrimack, NH.......... 43 1979 09/11/97 30 Sheraton Tara Hotel -- Nashua, NH............................... 333 1980 09/11/97 30 Crowne Plaza Edison -- Edison, NJ............................... 781 1987 02/14/97 30 Sheraton Tara Hotel -- Parsippany, NJ............................... 919 1987 09/11/97 30 Marriott Forrestal Village Hotel -- Princeton, NJ........... 963 1987 08/29/96 35 Best Western Airport Inn -- Albuquerque, NM........... 1,912 1980 09/16/86 35 Doral Court -- New York, NY........ 792 1927 09/19/96 35 Doral Inn -- New York, NY.......... 1927 09/20/95 35 Doral Tuscany -- New York, NY...... 610 1935 09/19/96 35 Days Inn City Center -- Portland, OR............................... 1,480 1962 09/16/86 35 Riverside Inn -- Portland, OR...... 1,407 1964 09/16/86 35 Allentown Hilton -- Allentown, PA............................... 355 1981 08/16/96 35 Park Ridge Hotel -- King of Prussia, PA...................... 1,020 1973 02/14/97 30 Days Inn Airport -- Philadelphia, PA............................... 124 1984 06/28/96 35 Westin Philadelphia International Airport -- Philadelphia, PA...... 988 1985 06/01/96 35 Ritz Carlton Philadelphia -- Philadelphia, PA............................... 1,775 1990 08/12/96 35 Sheraton Tara Airport Hotel -- Warwick, RI............. 162 1979 09/11/97 30 Charleston Hilton North -- Charleston, SC.......... 791 1983 02/14/97 30 Westin Hermitage -- Nashville, TN............................... 489 1910 03/11/97 30 Radisson Park Central -- Dallas, TX............................... 6,437 1972 09/09/88 35 Doubletree Guest Suites DFW Airport -- Irving, TX............ 1,814 1985 04/26/96 35 Courtyard by Marriott Crystal City -- Arlington, VA............ 1,098 1990 02/14/97 30 Omni Waterside Hotel -- Norfolk, VA............................... 1,880 1976 02/14/97 30 Residence Inn Tyson's Corner -- Vienna, VA............. 1,982 1984 07/01/84 35 Tyee Hotel -- Olympia, WA(2)....... 783 1961 02/17/87 35
F-53 148
SCHEDULE III (CONTINUED) REAL ESTATE AND ACCUMULATED DEPRECIATION STARWOOD HOTELS & RESORTS DECEMBER 31, 1997 (IN THOUSANDS) GROSS AMOUNT BOOK INITIAL COST TO COSTS SUBSEQUENT TO VALUE COMPANY ACQUISITION AT DECEMBER 31, 1997 ------------------------ ---------------------- ----------------------- (1) (1) BUILDING AND BUILDING AND BUILDING AND DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS ----------- -------- ------------ ------- ------------ -------- ------------ Days Inn Town Center -- Seattle, WA............................... 1,733 288 2,021 Edmond Meany Tower Hotel -- Seattle, WA(2).......... 1,700 6,270 120 4,631 1,820 10,901 Sixth Avenue Inn -- Seattle, WA.... 2,720 210 2,930 Capitol Hill Suites -- Washington, DC............................... 1,276 6,868 385 1,276 7,253 One Washington Circle -- Washington DC............................... 2,850 14,343 2,850 14,343 Westin Washington, DC -- Washington, DC............. 8,470 22,422 5,907 8,470 28,329 -------- ---------- ------- ------- -------- ---------- $352,763 $1,740,022 $ 2,138 $57,922 $354,901 $1,797,944 ======== ========== ======= ======= ======== Land............................... 354,901 Furniture, fixtures & equipment.... 261,584 Construction in progress........... 61,737 ---------- $2,476,166 ========== SCHEDULE III (CONTINUED) REAL ESTATE AND ACCUMULATED DEPRECIATION STARWOOD HOTELS & RESORTS DECEMBER 31, 1997 (IN THOUSANDS) (3) ACCUMULATED DEPRECIATION & YEAR OF DATE DESCRIPTION AMORTIZATION CONSTRUCTION ACQUIRED LIFE ----------- -------------- ------------ -------- ---- Days Inn Town Center -- Seattle, WA............................... 1,628 1957 09/16/86 13 Edmond Meany Tower Hotel -- Seattle, WA(2).......... 2,575 1932 09/16/86 35 Sixth Avenue Inn -- Seattle, WA.... 2,453 1959 09/16/86 13 Capitol Hill Suites -- Washington, DC............................... 697 1955 01/01/95 35 One Washington Circle -- Washington DC............................... 175 1964 09/30/97 30 Westin Washington, DC -- Washington, DC............. 2,330 1984 01/04/96 35 -------- $114,986 Land............................... Furniture, fixtures & equipment.... 50,642 Construction in progress........... -------- $165,628 ========
- --------------- (1) As of December 31, 1997, real estate and furniture, fixtures and equipment have a cost for federal income tax purposes which reasonably approximates their carrying value. (2) Land costs represent costs allocated to leasehold interest in land. (3) Includes reserve for losses discussed in Notes 1 and 13 of Notes to the Financial Statements. (4) Certain amounts may have been adjusted due to cost segregation studies and other adjustments. F-54 149 SCHEDULE III (CONTINUED) REAL ESTATE AND ACCUMULATED DEPRECIATION STARWOOD HOTELS & RESORTS A reconciliation of the Trust's investment in real estate, furniture and fixtures and related accumulated depreciation is as follows:
YEAR ENDED DECEMBER 31, ------------------------------------ 1997 1996 1995 ---------- ---------- -------- (IN THOUSANDS) REAL ESTATE AND FURNITURE AND FIXTURES: Balance at beginning of period.......................... $1,075,047 $ 305,637 $188,608 Additions during period: Acquisitions....................................... 1,295,429 803,895 100,749 Contributed properties............................. -- -- 30,642 Improvements....................................... 116,994 15,661 4,660 Transfer of Properties............................. 2,372 4,014 -- Deductions during period: Sale of properties................................. (13,676) (54,160) -- Transfer of properties............................. -- -- (19,022) ---------- ---------- -------- Balance at end of period................................ $2,476,166 $1,075,047 $305,637 ========== ========== ======== ACCUMULATED DEPRECIATION: Balance at beginning of period.......................... $ 74,123 $ 64,027 $ 71,899 Additions during period: Depreciation expense............................... 95,018 39,137 7,674 Contributed properties............................. -- -- 890 Transfer of properties............................. 229 116 -- Deductions during period: Sale of properties................................. (3,742) (29,157) -- Transfer of properties............................. -- -- (16,436) ---------- ---------- -------- Balance at end of period................................ $ 165,628 $ 74,123 $ 64,027 ========== ========== ========
F-55 150 SCHEDULE III (CONTINUED) REAL ESTATE AND ACCUMULATED DEPRECIATION STARWOOD HOTELS & RESORTS WORLDWIDE, INC. DECEMBER 31, 1997 (IN THOUSANDS)
COSTS SUBSEQUENT TO GROSS AMOUNT BOOK VALUE INITIAL COST TO COMPANY ACQUISITION AT DECEMBER 31, 1997 ----------------------- ------------------- ------------------------ (1) (1) BUILDING AND BUILDING AND BUILDING AND DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS ----------- ------- ------------ ---- ------------ -------- ------------- HOTEL ASSETS: Corporate office -- Phoenix, AZ................ $ 243 $ 243 Plaza Hotel & Conference Center -- Tucson, AZ........................................... $ 595 383 978 Midland Hotel -- Chicago, IL................... $ 1,551(4) 17,215 11,879 $ 1,551 29,094 Best Western Airport Inn -- Albuquerque, NM.... 325 47 372 Doral Inn -- New York, NY...................... 33,948 5,208 39,156 Days Inn City Center -- Portland, OR........... 2,185 2,185 Riverside Inn -- Portland, OR.................. 2,123(4) 2,123 Days Inn Town Center -- Seattle, WA............ 429(4) 429 Edmond Meany Tower Hotel -- Seattle, WA........ 3,437(4) 3,437 Sixth Avenue Inn -- Seattle, WA................ 1,515(4) 1,515 Milwaukee Marriott -- Brookfield, WI(3)........ 2,500 17,422 3,706 2,500 21,128 Westin Washington, DC -- Washington, DC........ 345 345 Westin Regina Resort -- Cancun, Mexico......... 4,200 37,197 4,200 37,197 Westin Regina Resort -- Cabo San Lucas, Mexico....................................... 5,392 47,991 5,392 47,991 Westin Regina Resort -- Puerto Vallarta, Mexico....................................... 2,500 22,261 2,500 22,261 Turnberry Hotel and Golf Resort -- Ayreshire, Scotland..................................... 6,168 37,615 6,168 37,615 ------- -------- -- ------- ------- -------- $22,311 $224,603 $0 $21,466 $22,311 $246,069 ======= ======== == ======= ======= ======== Land........................................... 22,311 Furniture, fixtures & equipment................ 115,692 Construction in progress....................... 19,679 -------- $403,751 ======== (2) ACCUMULATED DEPRECIATION & YEAR OF DATE DESCRIPTION AMORTIZATION CONSTRUCTION ACQUIRED LIFE ----------- -------------- ------------ -------- ---- HOTEL ASSETS: Corporate office -- Phoenix, AZ................ $ 4 N/A N/A 30 Plaza Hotel & Conference Center -- Tucson, AZ........................................... 277 1971 09/16/86 35 Midland Hotel -- Chicago, IL................... 20,038 1934 03/22/96 35 Best Western Airport Inn -- Albuquerque, NM.... 130 1980 09/16/86 35 Doral Inn -- New York, NY...................... 2,545 1927 09/20/95 35 Days Inn City Center -- Portland, OR........... 702 1962 09/16/86 35 Riverside Inn -- Portland, OR.................. 682 1964 09/16/86 35 Days Inn Town Center -- Seattle, WA............ 358 1957 09/16/86 13 Edmond Meany Tower Hotel -- Seattle, WA........ 1,105 1932 09/16/86 35 Sixth Avenue Inn -- Seattle, WA................ 1,321 1959 09/16/86 13 Milwaukee Marriott -- Brookfield, WI(3)........ 4,097 1972 07/01/91 35 Westin Washington, DC -- Washington, DC........ 181 1984 01/04/96 35 Westin Regina Resort -- Cancun, Mexico......... 617 1991 08/21/97 30 Westin Regina Resort -- Cabo San Lucas, Mexico....................................... 795 1994 08/21/97 30 Westin Regina Resort -- Puerto Vallarta, Mexico....................................... 368 1992 08/21/97 30 Turnberry Hotel and Golf Resort -- Ayreshire, Scotland..................................... 1905 12/23/97 30 ------- $33,220 ======= Land........................................... Furniture, fixtures & equipment................ 52,206 Construction in progress....................... ------- $85,426 =======
- --------------- (1) As of December 31, 1997, real estate and furniture, fixtures and equipment have a cost for federal income tax purposes which reasonably approximates their carrying value. (2) Includes reserve for losses discussed in Notes 1 and 13 of Notes to the Financial Statements. (3) Land costs represent costs allocated to leasehold interest in land. (4) Certain amounts may have been adjusted due to cost segregation studies and other adjustments. F-56 151 SCHEDULE III (CONTINUED) REAL ESTATE AND ACCUMULATED DEPRECIATION STARWOOD HOTELS & RESORTS WORLDWIDE, INC. A reconciliation of the Corporation's investment in real estate, furniture and fixtures and related accumulated depreciation is as follows:
YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- (IN THOUSANDS) REAL ESTATE AND FURNITURE AND FIXTURES: Balance at beginning of period............................. $168,907 $134,722 $ 51,741 Additions during period: Acquisitions.......................................... 185,293 29,939 38,396 Contributed properties................................ 22,455 -- 4,459 Improvements.......................................... 40,264 12,114 21,104 Transfer of properties................................ -- -- 19,022 Deductions during period: Transfer of properties................................ (2,372) (4,014) -- Sale of properties.................................... (10,796) (3,854) -- -------- -------- -------- Balance at end of period................................... $403,751 $168,907 $134,722 ======== ======== ======== ACCUMULATED DEPRECIATION: Balance at beginning of year............................... $ 48,157 $ 39,374 $ 17,266 Additions during period: Depreciation expense.................................. 23,419 12,191 5,269 Transfer of properties................................ -- -- 16,436 Contributed properties................................ 15,980 -- 403 Deductions during period: Transfer of properties................................ (229) (116) -- Sale of properties.................................... (1,901) (3,292) -- -------- -------- -------- Balance at end of period................................... $ 85,426 $ 48,157 $ 39,374 ======== ======== ========
F-57 152 SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE STARWOOD HOTELS AND RESORTS DECEMBER 31, 1997 (IN THOUSANDS)
PRINCIPAL AMOUNT ORIGINAL OF LOANS SUBJECT FACE CARRYING TO DELINQUENT INTEREST FINAL PRIOR AMOUNT OF AMOUNT OF PRINCIPAL OR DESCRIPTION RATE MATURITY PERIODIC PAYMENT LIENS MORTGAGES MORTGAGES(1) INTEREST ----------- ---------- -------- ---------------- ----- --------- ------------ ---------------- First Mortgages: Vagabond Inns -- Modesto, CA................... 10.00% 2006 (3) no $ 1,995 $ 1,126 Ramada Inn -- Tucker, GA................... 9.00% 1998 16,700(4) no 1,985 1,878 Ramada Inn -- Jacksonville, FL................... 9.00% 2001 18,500(5) no 2,300 2,252 Ramada Inn -- Fayetteville, NC................... 9.00% 2006 9,100(6) no 800 668 Ramada Suites -- Secaucus, NJ................... (2) 1999 Adjustable(7) no 13,813 10,344 Harvey Hotel Addison -- Dallas, TX................... 8.00% 2002 323,600(8) no 11,250 6,900 Harvey Bristol Suites -- Dallas, TX................... 8.00% 2002 517,800(9) no 18,000 11,079 Harvey DFW Airport Hotel -- Dallas, TX................... 8.00% 2002 805,500(10) no 28,000 17,050 Second Mortgages: Harvey Hotel Addison -- Dallas, TX................... Prin. Only 2002 1,900(11) yes 75 -- Harvey Bristol Suites -- Dallas, TX................... Prin. Only 2002 4,800(12) yes 190 -- Harvey DFW Airport Hotel -- Dallas, TX................... Prin. Only 2002 1,800(13) yes 72 -- Allowance for loan losses................... (100) -------- -------- $ 78,480 $ 51,197 ======== ======== Intercompany Mortgage Loans First Mortgages: Midland Hotel -- Chicago, IL................... 10.00% 1999 (14) no $ 17,000 $ 19,975 Milwaukee Sheraton -- Milwaukee, WI (Aetna)........... 10.50% 1998 (15) no 10,000 8,494 Milwaukee Sheraton -- Milwaukee, WI (Aetna Addition)............ 1998 (15) yes 600 Doral Inn -- New York, NY................... 9.50% 2006 (16) no 40,250 40,250 Westin Regina Resort -- Cancun, Mexico............... (17) 1998 (17) no 41,088 42,335 Westin Regina Resort -- Cabo San Lucas, Mexico........ (17) 1998 (17) no 53,081 54,693 Westin Regina Resort -- Puerto Vallarta, Mexico..... (17) 1998 (17) no 24,581 25,327 Turnberry Hotel and Golf Resort -- Ayreshire, Scotland............. 10.00% 2000 (18) no 27,000 27,067 Third Mortgages: Milwaukee Sheraton -- Milwaukee, WI................... 10.50% 1998 (15) yes 1,000 1,000 Fourth Mortgages: Milwaukee Sheraton -- Milwaukee, WI................... 10.50% 1998 (15) yes 12,667 21,691 -------- -------- $226,667 $241,432 ======== ========
(Continued) F-58 153 - --------------- (1) As of December 31, 1997, the aggregate cost (before allowance for loan losses) for federal income tax purposes is not significantly different from that used for book purposes. (2) The interest rate is the ninety-day LIBOR plus 1.25% or prime rate, at borrower's option. At December 31, 1997, the rate was 6.97%. (3) The note provides for monthly payments of interest plus additional annual payments based on a percentage of the hotel's sales, a portion of which is applied to principal. On April 29, 1996, the borrower exercised its right under the terms of the note to extend the maturity of the note to June 2006. (4) Principal and interest due monthly based on a 25-year amortization schedule with unpaid principal of approximately $1.8 million due in June 1998. (5) Principal and interest due monthly based on a 30-year amortization schedule with unpaid principal of approximately $2.2 million due in December 2001. (6) Principal and interest due monthly based on a 12-year amortization schedule with unpaid principal of $9,000 due in December 2006. (7) Principal and interest due monthly. Principal amount adjusts annually based on note schedule. The note carrying amount is net of approximately $1.7 million discount. (8) Principal and interest due quarterly based on note schedule. The note carrying amount is net of approximately $2.0 million discount. A 25% participation on both the first and second mortgages was sold to a third party in 1995. (9) Principal and interest due quarterly based on note schedule. The note carrying amount is net of approximately $3.1 million discount. (10) Principal and interest due quarterly based on note schedule. The note carrying amount is net of approximately $5.0 million discount. (11) Forty equal principal payments of $125,125 each of which the Realty Partnership has a 1.5% interest. The note carrying amount is net of $47,000 allowance. The face amount represents the Realty Partnership's 1.5% interest in the mortgage loan. The remaining payment amounts are passed through to the participants. (12) Forty equal principal payments of $237,500 each of which the Realty Partnership has a 2% interest. The note carrying amount is net of $95,000 allowance. The face amount represents the Realty Partnership's 2% interest in the mortgage loan. The remaining payment amounts are passed through to the participants. (13) Forty equal principal payments of $90,000 each of which the Realty Partnership has a 2% interest. The note carrying amount is net of $36,000 allowance. The face amount represents the Realty Partnership's 2% interest in the mortgage loan. The remaining payment amounts are passed through to the participants. (14) Interest only payable monthly. Principal and all accrued and unpaid interest are due March 1999. (15) In June 1997, the maturity of the notes was extended to June 1998. (16) One hundred thirty-two equal installments of interest only. Principal and all accrued and unpaid interest are due October 2006. (17) The interest rate is the ninety-day LIBOR plus 2.69%. At December 31, 1997, the rate was 8.34%. Principal and all accrued and unpaid interest are due May 1998. (18) Interest only payable monthly. Principal and all accrued and unpaid interest are due December 2000. (Continued) F-59 154 SCHEDULE IV (CONTINUED) RECONCILIATION OF MORTGAGE LOANS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ----------------------------- 1997 1996 1995 ------- ------- ------- Balance at beginning of period.............................. $90,741 $79,261 $14,049 Additions -- New mortgage loans........................................ -- 31,289 71,779 Amortization of discount.................................. 5,575 3,140 3,285 Deductions -- Principal repayments...................................... (45,245) (22,949) (6,940) Allowance for loan loss................................... 126 -- (2,912) ------- ------- ------- Balance at end of period.................................... $51,197 $90,741 $79,261 ======= ======= =======
INTERCOMPANY MORTGAGE LOANS
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 -------- ------- ------- Balance at beginning of period.............................. $ 88,077 $68,486 $16,916 Additions -- New mortgage loans........................................ 145,750 18,216 50,073 Accrued interest (1)...................................... 7,935 2,055 2,010 Deductions -- Principal repayments...................................... (330) (680) (513) -------- ------- ------- Balance at end of period.................................... $241,432 $88,077 $68,486 ======== ======= =======
- --------------- (1) 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. F-60 EX-3.1 2 EX-3.1 1 Exhibit 3.1 AMENDED AND RESTATED DECLARATION OF TRUST OF STARWOOD HOTELS & RESORTS Dated as of August 15, 1969 as Amended and Restated as of June 6, 1988 Amended as of February 23, 1998 2 AMENDED AND RESTATED DECLARATION OF TRUST OF STARWOOD HOTELS & RESORTS TABLE OF CONTENTS
PAGE ARTICLE I. The Trust; Definitions....................................................... 1 1.1 Name......................................................................... 1 1.2 Place of Business............................................................ 1 1.3 Nature of Trust.............................................................. 1 1.4 Definitions.................................................................. 2 ARTICLE II. Trustees..................................................................... 6 2.1 Number, Term of Office, Qualifications of Trustees........................... 6 2.2 Compensation and Other Remuneration.......................................... 7 2.3 Resignation, Removal and Death of Trustees................................... 7 2.4 Vacancies.................................................................... 8 2.5 Successor and Additional Trustees............................................ 8 2.6 Actions by Trustees.......................................................... 8 2.7 Executive Committee.......................................................... 8 2.8 Names and Addresses of Trustees and Officers................................. 8 2.9 Non-Affiliated Trustees...................................................... 9 ARTICLE III. Trustees' Powers................................................................. 9 3.1 Power and Authority of Trustees.............................................. 9 3.2 Specific Powers and Authorities.............................................. 10 3.3 Trustees Regulations......................................................... 14 3.4 Additional Powers............................................................ 14 3.5 Incorporation................................................................ 14 ARTICLE IV. Advisor; Limitation on Operating Expenses......................................... 14 4.1 Employment of Advisor........................................................ 14 4.2 Term......................................................................... 15 4.3 Restrictions on Advisor...................................................... 15 4.4 Limitation on Operating Expenses............................................. 15 4.5 Initial Advisor.............................................................. 18 4.6 Sale of Shares of the Advisor................................................ 18 ARTICLE V. Investment Policy.................................................................. 18 5.1 General Statement of Policy.................................................. 18 5.2 [Deleted.]................................................................... 19 5.3 [Deleted.]................................................................... 19 5.4 Obligor's Default............................................................ 19 5.5 Changes Investment Policies and Restrictions................................. 19 5.6 [Deleted.]................................................................... 19
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PAGE ARTICLE VI. The Shares and Shareholders....................................................... 19 6.1 Shares....................................................................... 19 6.2 Legal Ownership of Trust Estate.............................................. 20 6.3 Shares Deemed Personal Property.............................................. 21 6.4 Share Record: Issuance and Transferability Shares............................ 21 6.5 Dividends or Distributions to Shareholders................................... 22 6.6 Transfer Agent, Dividend Distributing Agent and Registrar.................... 22 6.7 Shareholders' Meeting........................................................ 22 6.8 Proxies...................................................................... 23 6.9 Reports to Shareholders...................................................... 23 6.10 Fixing Record Date........................................................... 23 6.11 Notice to Shareholders....................................................... 24 6.12 Restrictions on Transfer..................................................... 24 6.13 Excess Shares................................................................ 29 6.14 Pairing...................................................................... 32 6.15 See Exhibit A................................................................ 32 6.16 See Exhibit A................................................................ 32 ARTICLE VII. Liability of Trustees, Shareholders and Officers, and Other Matters.............. 32 7.1 Exculpation of Trustee and Officers.......................................... 32 7.2 Limitation of Liability of Shareholders, Trustees and Officers............... 33 7.3 Express Exculpatory Clauses and Instruments.................................. 33 7.4 Indemnification of Trustees, Officers, Employees and Other Agents............ 34 7.5 Right of Trustees and officers to Own Shares or Other Property and to Engage in Other Business.................................................. 34 7.6 Transactions Between the Trustees and the Trust.............................. 35 7.7 Restriction of Duties and Liabilities........................................ 37 7.8 Persons Dealing with Trustees or Officers.................................... 37 7.9 Reliance..................................................................... 37 7.10 Income Tax Status............................................................ 37 ARTICLE VIII. Duration, Amendment, Termination and Qualification of Trust..................... 38 8.1 Duration of Trust............................................................ 38 8.2 Termination of Trust......................................................... 38 8.3 Amendment Procedure.......................................................... 39 8.4 Qualification Under the REIT Provisions of the Internal Revenue Code......... 39 ARTICLE IX. Miscellaneous..................................................................... 39 9.1 Applicable Law............................................................... 39 9.2 Index and Headings for Reference Only........................................ 39 9.3 Successors in Interest....................................................... 39 9.4 Inspection of Records........................................................ 39 9.5 Counterparts................................................................. 40
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PAGE 9.6 Provisions of the Trust in Conflict with Law or Regulations.................. 40 9.7 Certifications............................................................... 40 9.8 Recording and Filing......................................................... 41 9.9 Resident Agent............................................................... 41
5 AMENDED AND RESTATED DECLARATION OF TRUST As of August 15, 1969, the initial Trustees agreed, pursuant to a Declaration of Trust dated as of said date (the "Declaration of Trust"), to hold in trust as trustees any and all property, real, personal or otherwise, tangible or intangible, which is transferred, conveyed or paid to them as such Trustees and all rents, income, profits and gains therefrom for the benefit of the Shareholders thereunder, subject to the terms and conditions and for the uses and purposes set forth therein. As of August 5, 1970, the Trustees who were a majority of the Trustees on said date agreed, pursuant to an Amended Declaration of Trust dated as of said date to restate in its entirety the Declaration of Trust, as theretofore amended, The effect of this Amended and Restated Declaration of Trust shall be to restate in its entirety said Amended Declaration of Trust as heretofore amended (the "Amended Declaration of Trust"), and it shall not have the effect of dissolving or terminating or in any way affecting the continuity of, but shall continue without interruption, the trust created by the Declaration of Trust (the "Trust"). The undersigned, being a majority of the Trustees as of June 6, 1988, under the Amended Declaration of Trust, do hereby set forth this Amended and Restated Declaration of Trust, do hereby agree to be bound by this Amended and Restated Declaration of Trust and do hereby certify that the amendments to the Amended Declaration of Trust included in this Amended and Restated Declaration of Trust were duly adopted by the Shareholders of the Trust in accordance with the Amended Declaration of Trust. ARTICLE I. The Trust; Definitions 1.1 Name. The name of the Trust shall be "Starwood Hotels & Resorts." As far as practicable and except as otherwise provided in this Declaration, the Trustees shall conduct the Trust's activities, execute all documents, and sue or be sued in the name of Starwood Hotels & Resorts, or in their names as Trustees of Starwood Hotels & Resorts. 1.2 Place of Business. The principal office of the Trust shall be in the State of Maryland. However, the Trustees may, from time to time, change such location and maintain other offices or places of business. 1.3 Nature of Trust. The Trust is a real estate investment trust organized under Article 78C of the Annotated Code of the State of Maryland. It is intended that the Trust shall carry on business as a "real estate investment trust" (hereinafter called "REIT" or "Real Estate Investment Trust") as described in the REIT Provisions of the Internal Revenue Code. The Trust is not a general partnership, limited partnership, joint venture, corporation or joint stock company or association (but nothing herein shall preclude the Trust from being taxed as an association under the REIT Provisions of the Internal Revenue Code) nor shall the Trustees or Shareholders or any of them for any purpose be, or be deemed to be treated in any way whatsoever to be, liable or responsible hereunder as partners or joint ventures. The 6 relationship of the Shareholders to the Trustees shall be solely that of beneficiaries of the Trust and their rights shall be limited to those conferred upon them by this Declaration. 1.4 Definitions. The terms defined in this Section 1.4 whenever used in this Declaration shall unless the context otherwise requires, have the respective meanings hereinafter specified in this Section 1.4. In this Declaration, words in the singular number include the plural and in the plural number include the singular. (a) Accommodations Field. "Accommodations Field" shall mean the hotel, motel, motor inn, restaurant, and lodgings field generally, and shall also be deemed to include activities undertakings and businesses directly allied or connected with, or directly related to, hotels, motels, motor inns, restaurants or lodgings. (b) Advisor. "Advisor" shall mean the Person employed by the Trustees under the provisions of Article IV. (c) Affiliate. "Affiliate" shall mean (i) with respect to any Person, any other Person (A) which such Person directly or indirectly controls, is controlled by, or is under common control with or (B) of which such Person is a director, officer, employee, partner or trustee or (C) of which such Person directly or indirectly owns, controls or holds with power to vote five percent (5%) or more of the outstanding voting securities or (D) which directly or indirectly owns, controls or holds with power to vote five percent (5%) or more of the outstanding voting securities of such Person and (ii) with respect to the Trust, the Advisor and any other investment adviser, manager or independent contractor (as that term is defined in Section 856(d)(3) of the Internal Revenue Code) of the Trust. (d) Annual Meeting of Shareholders. "Annual Meeting of Shareholders" shall have the meaning set forth in the first sentence of Section 6.7. (e) Annual Report. "Annual Report" shall have the meaning set forth in Section 6.9. (f) Appraisal. "Appraisal" shall mean the fair market value, as of the date of the appraisal, of Real Property in its existing state or in a state as to be created or improved, as determined by the Trustees or as determined by any bank, insurance company or other Person which makes appraisals in connection with its lending or services activities or as determined by a disinterested Person having no interest in the Real Property, provided, however, that, any such Person, is, in the sole judgment of the Trustees properly qualified to make a determination; provided further that an appraisal shall be included within the meaning of the term Appraisal as used herein upon which the Trustees may in good faith rely if it is made on behalf of a Person or Persons other than the Trust at or prior to the time of the investment by the Trust if the Trust is acquiring an interest (either in whole or in part) in the investment with respect to which such appraisal is or has been made. 7 (g) Construction Loans. "Construction Loans" shall mean Mortgage Loans incurred to finance all or part of the cost of acquiring and improving land (including leaseholds therein) and the construction or improvement of buildings and other improvements thereon. (h) Declaration. "Declaration" shall mean this Declaration of Trust and all amendments or modifications thereof, References in this Declaration to "herein" and "hereunder" shall be deemed to refer to this Declaration and shall not be limited to the particular text, article or section in which such words appear. (i) Development Loans. "Development Loans" shall mean Mortgage Loans incurred to finance all or part of the cost of acquiring and improving vacant land and developing it into a site or sites suitable for the construction of buildings thereon or suitable for other residential, commercial, industrial or public uses. (j) Equity Investments. "Equity Investments" shall mean investments in Real Property (other than Mortgage Loans), or in borrowing or leasing entities or other organizations owning, operating or managing Real Property. (k) Equity Participations. "Equity Participations" shall mean participations acquired in connection with making any Real Property Investment including, but not limited to, participations in contingent interest based upon operating revenues, participations in the ownership of Real Property, participations in rental based upon operating revenues or based upon a percentage of sales or room rents, or participations in the ownership of borrowing or leasing entities or other organizations owning, operating or managing Real Property. (l) First Mortgage. "First Mortgage" shall mean a Mortgage which takes priority or precedence over all other charges or liens upon the Real Property and which must be satisfied before such other charges are entitled to participate in the proceeds of any sale. Such priority shall not be deemed as abrogated by liens for taxes, or assessments which are not delinquent or remain payable without penalty, contracts (other than contracts for repayment of borrowed moneys), or leases, mechanics and materialman's liens for work performed and materials furnished which are not in default or are in good faith being contested and other claims normally deemed in the same local jurisdiction not to abrogate the priority of a first mortgage. (m) First Mortgage Loans. "First Mortgage Loans" shall mean Mortgage Loans secured or collateralized at the time of acquisition thereof by the Trust by First Mortgages. (n) Interim Loans, "Interim Loans" shall mean Mortgage Loans secured or collateralized by Mortgages made on improved properties and having a maturity of three years or less, (o) Junior Mortgage. "Junior Mortgage" shall mean any Mortgage (other than a Mortgage securing a Wrap-Around Mortgage Loan or a Mortgage securing the junior portion of a Mortgage Loan with respect to which a Senior Participation has been issued) which has the same priority or precedence over all charges or encumbrances on Real Property as is 8 required for a First Mortgage, except that it is subject to the priority of one or more Mortgages which must be satisfied before such Junior Mortgage is entitled to participate in the proceeds of any sale or other disposition of such Real Property, (p) Junior Mortgage Loans. "Junior Mortgage Loans" shall mean Mortgage Loans (other than Wrap-Around Mortgage Loans and the junior portion of Mortgage Loans with respect to which a Senior Participation has been sold) secured or collateralized by Junior Mortgages. (q) Long Term. "Long Term" shall mean, when used with respect to a Mortgage Loan, a Mortgage Loan other than an Interim Loan or a Construction Loan and, when used with respect to any other Real Property Investment, shall mean such an investment which is not expected to be amortized in full within a period of three years from the date on which such investment is made. (r) Mortgage Loans. "Mortgage Loans" shall mean notes, debentures, bonds and other evidence of indebtedness or obligation which are negotiable or non-negotiable and which are secured or collateralized by Mortgages. (s) Mortgages. "Mortgages" shall mean mortgages, deeds of trust or other security deeds on Real Property or rights or interests in Real Property. (t) National Hotel Companies. "National Hotel Companies" shall mean Hilton Hotels Corporation, Marriott Corporation, Holiday Inns, Inc., TraveLodge International, Inc. and any other nationally known hotel companies which are engaged in operations in the Accommodations Field or the granting of franchises to other Persons with respect to such operations and the Affiliates of any of them. (u) Net Assets. "Net Assets" shall mean the "Total Assets of the Trust", after deducting therefrom all liabilities of the Trust; provided, however, that depreciable assets shall be included in such Assets at the lesser of either: (i) the cost of such Assets on the books of the Trust less depreciation thereof on a straight-line basis over the useful life of such Assets in accordance with generally accepted accounting principles, and in making such calculation the useful life of such Assets shall correspond to the useful life used as the basis of depreciation on the Trust's federal income tax returns; or (ii) fair market value of such Assets, in the judgment of the Trustees. (v) Person. "Person" shall mean and include individuals, corporations, limited partnerships, general partnerships, joint stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts, or other entities and governments and agencies and political subdivisions thereof. 9 (w) Real Property. "Real Property" shall mean and include land, rights in land, leasehold interests (including but not limited to interests of a lessor or lessee therein), and any building, structures, improvements, fixtures and equipment located on or used in connection with land, leasehold interests and rights in land or interest therein, but does not include Mortgages, Mortgage Loans or interests therein. (x) Real Property Investments. "Real Property Investments" shall mean and include investments in Real Property or in obligations secured, directly or indirectly, by liens on Real Property, including, but not limited to, Long-Term Mortgage Loans (with or without Equity Participations), interim Loans, Development Loans, Construction Loans, First Mortgage Loans, Junior Mortgage Loans, Wrap-Around Mortgage Loans and Equity Investments in Real Property (including, but not limited to, land leaseback and leasehold mortgage loans, net lease financings and sale and leaseback transactions). (y) REIT Provisions of the Internal Revenue Code. "REIT Provisions of the Internal Revenue Code" shall mean Part 11, Subchapter M of Chapter 1, of the Internal Revenue Code of 1954, as now enacted or hereafter amended, or successor statutes and regulations promulgated thereunder. (z) Securities. "Securities" shall mean any stock, shares, voting trust certificates, bonds, debentures, notes, or other evidences of indebtedness, or in general any instruments commonly known as "securities" or any certificates of interest shares or participations in temporary or interim certificates for, receipts for, guarantees of, or warrants, options or rights to subscribe to, purchase or acquire any of the foregoing. (aa) Senior Participation. "Senior Participation" shall mean a participation or interest which shall have been sold by the Trust in a Mortgage Loan, on terms and conditions satisfactory to the Trustees, pursuant to which the participation sold takes priority or precedence as to charges and liens upon the mortgaged property and satisfaction out of the proceeds of any sale over the junior portion of the Mortgage Loan retained by the Trust; provided, however, that a participation sold in a Mortgage Loan shall not be deemed to be a Senior Participation as such term is used in this Declaration unless such Mortgage Loan, considered as a single Mortgage Loan including the junior portion retained by the Trust, would satisfy all of the requirements relating to the investment by the Trust in a First Mortgage Loan. (bb) Shares, "Shares" shall mean the shares of beneficial interest of the Trust as described in Section 6.1. (cc) Shareholders. "Shareholders" shall mean, as of any particular time, all holders of record of outstanding Shares at such time. (dd) Total Assets of the Trust. "Total Assets of the Trust" shall mean the value of all the assets of the Trust Estate as such value appears an the most recent quarterly balance sheet of :he Trust available to the Trustees. 10 (ee) Trust. "Trust" shall mean the Trust created by this Declaration. (ff) Trustees. "Trustees" shall mean, as of any particular time Trustees holding office under this Declaration at such time, whether they be the Trustees named herein or additional or successor Trustees, and shall not include the officers, representatives or agents of the Trust, or the Shareholders, but nothing herein shall be deemed to preclude the Trustees from also serving as officers, representatives, or agents of the Trust, or owning Shares. (gg) Trust Estate. "Trust Estate" shall mean. as of any particular time, any and all property, real, personal, or otherwise, tangible or intangible, which is owned or held by the Trust or the Trustees, including, but not limited to, property which is transferred, conveyed or paid to the Trust or Trustees, and all rents, income, profits and gains therefrom. (hh) Trustees' Regulations. "Trustees' Regulations" shall have the meaning set forth in Section 3.3. (ii) Wrap-Around Mortgage Loans. "Wrap-Around Mortgage Loans" shall mean Mortgage Loans which are subject to prior First Mortgages (which have been created prior to or simultaneously with the creation of the Wrap-Around Mortgage Loan) and are made on the basis of the current values of the mortgaged properties without regard to and without discharging the prior First Mortgages; provided, however, that a Mortgage Loan shall not be included in the term Wrap-Around Mortgage Loan for purposes of this Declaration unless the indebtedness evidenced by the Wrap-Around Mortgage Loan when added to the indebtedness evidenced by the prior First Mortgage and considered as a single First Mortgage Loan would comply in all respects with the requirements relating to an investment by the Trust in such a First Mortgage Loan. ARTICLE II. Trustees 2.1 Number, Term of Office, Qualifications of Trustees. There shall be no less than three (3) nor more than fifteen (15) Trustees. The initial Trustees shall be the signatories to this Declaration as originally executed. Within the limits set forth in this Section 2.1, the number of Trustees may be fixed, increased or decreased from time to time by the Trustees or by the Shareholders at any particular time provided however that, subject to the provisions of section 2.3, each Trustee shall hold office until the expiration of his term and until the election and qualification of his successor, Trustees may be re-elected, The Trustee shall be an individual at least twenty-one (21) years of age who is not under legal disability Such individual shall qualify as a Trustee when he has either signed the Declaration or agreed in writing to be bound by it. Unless otherwise required by law, no Trustee shall be required to give bond, surety or security in any jurisdiction for the performance of any duties or obligations hereunder. The Trustees, in their capacity as trustees, shall no; be required to devote their entire time to the business and affairs of the Trust. The Trustees shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as reasonably possible, with the term of 11 office of the first class to expire at the 1995 Annual Meeting of Shareholders, the term of office of the second class to expire at the 1996 Annual Meeting of Shareholders and the term of office of the third class to expire at the 1997 Annual Meeting of Shareholders, with each Trustee to hold office until his or her successor shall have been duly elected and qualified. At each Annual Meeting of Shareholders, commencing with the 1995 Annual Meeting, (i) Trustees elected to succeed those Trustees whose terms then expire shall be elected for a term of office to expire at the third succeeding Annual Meeting of Shareholders after their election, with each Trustee to hold office until his or her successor shall have been duly elected and qualified, and (ii) if authorized by a resolution of the Board of Trustees, Trustees may be elected to fill any vacancy on the Board of Trustees, regardless of how such vacancy shall have been created. 2.2 Compensation and Other Remuneration. The Trustees shall be entitled to receive such reasonable compensation for their services as Trustees as they may determine from time to time. The Trustees, either directly or indirectly, shall also be entitled to receive remuneration for services rendered to the Trust in any other capacity. Such services may include, without limitation, services as an officer of the Trust, legal, accounting or other professional services, or services as a broker, transfer agent or underwriter, whether performed by a Trustee or any person affiliated with a Trustee. Notwithstanding the foregoing, except as provided in Section 7.6, no Trustee shall receive any fee or other remuneration, directly or indirectly, as a result of any sale of property to or purchase of property from the Trust. 2.3 Resignation, Removal and Death of Trustees. A Trustee may resign at any time by giving written notice in recordable form to the remaining Trustees at the principal office of the Trust. Such resignation shall take effect on the date such notice is given, or at any later time specified in the notice, without need for prior accounting. A Trustee may be removed at any time, with or without cause, by vote or written consent of holders of two-thirds (2/3rds) of the outstanding Shares entitled to vote thereon, or with cause by all remaining Trustees. A Trustee judged incompetent, or for whom a guardian or conservator has been appointed, shall be deemed to have resigned as of the date of such adjudication or appointment. Upon the resignation or removal of any Trustee, or his otherwise ceasing to be a Trustee, he shall execute and deliver such documents as the remaining Trustee shall require for the conveyance of any Trust property held in his name, and shall account to the remaining Trustee or Trustees, as they require, for all property which he holds as Trustee, and shall thereupon be discharged as Trustee. Upon the incapacity or death of any Trustee, his legal representative shall perform the acts set forth in the preceding sentence and the discharge mentioned therein shall run to such legal representative and to the incapacitated Trustee or the estate of the deceased Trustee, as the case may be. 2.4 Vacancies. If any or all of the Trustees cease to be Trustees hereunder, whether by reason of resignation, removal, incapacity, death or otherwise, such event shall not terminate the Trust or affect its continuity, Until vacancies are filled, the remaining Trustee or Trustees, if any (even though less than three (3)), may exercise the powers of the Trustees hereunder. Vacancies occurring among the Trustees (including vacancies created by increases in number) may be filled by a majority of the remaining Trustees, though less than a quorum, 12 or by a sole remaining Trustee, and the person so appointed shall hold office for a term expiring at the Annual Meeting of Shareholders at which the term of office of the class to which they have been appointed expires and until his successor is elected and qualified. If at any time there shall be no Trustees in office, successor Trustees shall be elected by the Shareholders as provided in Section 6.7. 2.5 Successor and Additional Trustees. The right, title and interest of the Trustees in and to the Trust Estate shall also vest in successor and additional Trustees upon their qualification, and they shall thereupon have all the rights and obligations of Trustees hereunder. Such right, title and interest shall vest in the Trustees, whether or not conveyance documents have been executed and delivered pursuant to Section 2.3, or otherwise. 2.6 Actions by Trustees. A quorum for all meetings of the Trustees shall be a majority of the Trustees. Common or interested Trustees may be counted in determining the presence of a quorum at a meeting of the Trustees. Unless specifically provided otherwise in this Declaration, the Trustees may act by a vote or resolution at a meeting at which a quorum is present, or without a meeting by a written vote, resolution, or other writing consenting to said action, signed by a majority of the Trustees. Any agreement, deed, mortgage, lease or other instrument or writing executed by one or more of the Trustees, or by any authorized person, shall be valid and binding upon the Trustees and upon the Trust when ratified by action of the Trustees. 2.7 Executive Committee. The Trustees may appoint from among their own number an executive committee of two or more persons to whom they may delegate from time to time such of the powers herein given to the Trustees as they may deem advisable. 2.8 Names and Addresses of Trustees and Officers. The names and addresses of the Trustees and officers of the Trust on the date hereof2 are as follows:
Name Address ---- ------- John P. Traynor 6308 Midnight Pass Road Villa 4 Trustee and Chairman Sarasota, Florida 33581 Harold W, Milner 1503 Walden Drive Trustee and President McLean, Virginia Raymond C. Brophy 1725 DeSales N.W. Trustee Washington, D.C. Richard S. Ellwood 10 Heron Road Trustee Middletown, New Jersey 07748 Charles J, Kelley, Jr. 400 East 57th Street
2 Refers to date of the Amended Declaration of Trust (August 5, 1970). 13
Name Address ---- ------- Trustee New York, New-York Frederick X. Wilson 7009 Chansory Lane Trustee Hyattsville, Maryland 20782 C. Lawrence Wiser 12702 Littleton Street Trustee and Secretary Silver Spring, Maryland 20906 - Treasurer
2.9 Non-Affiliated Trustees. Affiliates of the Advisor and of any National Hotel Company may be Trustees; however, there shall at all times be at least a majority of the Trustees who are not Affiliates of the Advisor or of any National Hotel Company or Affiliates of such Affiliates. If at any time, by reason of one or more vacancies, there shall not be at least a majority of such Trustees who are not such Affiliates, then within sixty (60) days after such vacancy occurs, the continuing Trustee or Trustees then in office shall appoint, pursuant to Section 2.4, a sufficient number of other Persons who are not such Affiliates so that there shall be at least a majority of such Trustees in office. ARTICLE III. Trustees' Powers 3.1 Power and Authority of Trustees. The Trustees, subject only to the specific limitations contained in this Declaration, shall have without further or other authorization, and free from any power or control on the part of the Shareholders, full, absolute and exclusive power, control and authority over the Trust Estate and over the business and affairs of the Trust to the same extent as if the Trustees were the sole owners thereof in their own right, and to do all such acts and things as in their sole judgment and discretion are necessary or incidental to, or desirable, for the carrying out of any of the purposes of the Trust or conducting the business of the Trust. Any determination made in good faith by the Trustees of the purposes of the Trust or the existence of any power or authority hereunder shall be conclusive. In construing the provisions of this Declaration, presumption shall be in favor of the grant of powers and authority to the Trustees. The enumeration of any specific power or authority herein shall not be construed as limiting the general powers or authority or any other specified power or authority conferred herein upon the Trustees. 3.2 Specific Powers and Authorities. Subject only to the express limitations contained in this Declaration and in addition to any powers and authorities conferred by this Declaration or which the Trustees may have by virtue of any present or future statute or rule or law, the Trustees without any action or consent by the Shareholders shall have and may exercise at any time and from time to time the following powers and authorities which may or may not be exercised by them in their sole judgment and discretion and in such manner and upon such terms and conditions as they may from time to time deem proper: (a) To retain, invest and reinvest the capital or other funds of the Trust in real or personal property of any kind, all without regard to whether any such property is authorized 14 by law for the investment of trust funds and to possess and exercise all the rights, powers and privileges appertaining to the ownership of the Trust Estate and to increase the capital of the Trust at any time by the issuance of additional Shares for such consideration as they deem appropriate. (b) For such consideration as they deem proper, to invest in, purchase or otherwise acquire for cash or other property or through the issuance of Shares or through the issuance of notes, debentures, bonds or other obligations of the Trust and hold for investment the entire of any participating interest in notes, bonds, or other obligations which are secured by Mortgages, In connection with any such investment, purchase or acquisition, the Trustees shall have the power to acquire a share of rents, lease payments or other gross income from or a share of the profits from or a share in the equity or ownership of Real Property, either directly or through joint venture, general or limited partnership, or other lawful combinations or associations; to invest in loans secured by the pledge or transfer of mortgage obligations; to develop, operate, pool, utilize, grant production payments out of or lease or otherwise dispose of mineral, oil and gas properties and rights. (c) To sell, rent, lease, hire, exchange, release, partition, assign, mortgage, pledge, hypothecate, grant security interests in, encumber, negotiate, convey, transfer or otherwise dispose of any and all of the Trust Estate by deeds, trust deeds, assignments, bills of sale, transfers, leases, mortgages, financing statements, security agreements and other instruments for any of such purposes executed and delivered for and on behalf of the Trust or the Trustees by one or more of the Trustees or by a duly authorized officer, employee, agent or any nominee of the Trust. (d) To issue Shares, bonds, debentures, notes or other evidences of indebtedness which may be secured or unsecured and may be subordinated to any indebtedness of the Trust and may be convertible into Shares and which may include options, warrants and rights to subscribe to, purchase or acquire any of the foregoing, all without vote of or other action by the Shareholders to such Persons for such cash, property or other consideration (including Securities issued or created by, or interest in any Person) at such time or times and on such terms as the Trustees may deem advisable and to list any of the foregoing Securities issued by the Trust on any securities exchange and to purchase or otherwise acquire, hold, cancel, reissue, sell and transfer any of such Securities. (e) To enter into leases, contracts, obligations, and other agreements for a term extending beyond the term of office of the Trustees and beyond the possible termination of the Trust or for a lesser term. (f) To borrow money and give negotiable or non-negotiable instruments therefor; to guarantee, indemnify or act as surety with respect to payment or performance of obligations of third parties; to enter into other obligations on behalf of the Trust; and to assign, convey, transfer, mortgage, subordinate, pledge, grant security interests in, encumber or hypothecate the Trust Estate to secure any of the foregoing. (g) To lend money, whether secured or unsecured. 15 (h) To create reserve funds for any purpose. (i) To incur and pay out of the Trust Estate any charges or expenses, and disburse any funds of the Trust, which charges, expenses or disbursements are, in the opinion of the Trustees, necessary or incidental to or desirable for the carrying out of any of the purposes of the Trust or conducting the business of the Trust, including without limitation taxes and other governmental levies, charges and assessments, of whatever kind, or nature, imposed upon or against the Trustees in connection with the Trust or the Trust Estate or upon or against the Trust Estate or any part thereof, and for any of the purposes herein. (j) To deposit funds of the Trust in banks, trust companies, savings and loan associations and other depositories, whether or not such deposits will draw interest, the same to be subject to withdrawal on such terms and in such manner and by such Person or Persons (including any one or more Trustees, of officers, agents or representatives) all the Trustees may determine. (k) To possess and exercise all the rights, powers and privileges appertaining to the ownership of ill or any Mortgages or Securities, issued or created by, or interests in, any Person, forming part of the Trust Estate, to the same extent that an individual might, and, without limiting the generality of the foregoing, to vote or give any consent, request or notice, or waive any notice, either in person or by proxy or power of attorney, with or without power of substitution, to one or more Persons, which proxies and powers of attorney may be for meetings or action generally or for any particular meeting or action, and may include the exercise of discretionary powers, (l) To cause to be organized or assist in organizing any Person under the laws of any jurisdiction to acquire the Trust Estate or any part or parts thereof or to carry on any business in which the Trust shall directly or indirectly have any interest, and to sell, rent, lease, hire, convey, negotiate, assign, exchange or transfer the Trust Estate or any part or parts thereof to or with any such Person in exchange for the Securities thereof or otherwise, and to lend money to, subscribe for the Securities of, and enter into any contracts with, any such Person in which the Trust holds or is about to acquire Securities or any other interest. (m) To enter into joint ventures, general or limited partnerships and any other lawful combinations or associations. (n) To elect, appoint, engage or employ officers for the Trust (including a President, Secretary, Treasurer and such Vice Presidents and other officers as the Trustees may determine), who may be removed or discharged at the discretion of the Trustees, such officers to have such powers and duties, and to serve such terms, as may be prescribed by the Trustees or by the Trustees' Regulations; to engage or employ any Persons (including, subject to the provisions of Sections 7.5 and 7.6, any Trustee or officer and any Person in which any Trustee or officer is directly or indirectly interested or with which he is directly or indirectly connected) as agents, representatives, employees, or independent contractors (including without limitation, real estate advisors, investment advisors, transfer agents, registrars, underwriters, accountants, attorneys at law, real estate agents, managers, appraisers, brokers, 16 architects, engineers, construction managers, general contractors or otherwise) in one or more capacities, and to pay compensation from the Trust for services in as many capacities as such Person may be so engaged or employed; and, except as prohibited by law, to delegate any of the powers and duties of the Trustees to any one or more Trustees, agents, representatives, officers, employees independent contractors or other Persons. The Trustees may elect one of the Trustees as Chairman, to preside at meetings of the Trustees and exercise such other powers and duties as the Trustees may from time to time assign to him; provided that the Chairman shall not be or act as an officer of the Trust. (o) To determine whether moneys, Securities or other assets received by the Trust shall be charged or credited to income or capital or allocated between income and capital, including the power to amortize or fail to amortize any part or all of any premium or discount, to treat any part of all of the profit resulting from the maturity or sale of any asset whether purchased at a premium or at a discount, as income or capital, or apportion the same between income and capital, to apportion the sales price of any asset between income and capital, and to determine in what manner any expenses or disbursements are to be borne as between income and capital, whether or not in the absence of the power and authority conferred by this subsection such moneys, Securities or other assets would be regarded as income or as capital or such expense or disbursement would be charged to income or to capital; to treat any dividend or other distribution on any investment as income or capital or apportion the same between income and capital; to provide or fail to provide reserves for depreciation, amortization or obsolescence in respect of all or any part of the Trust Estate subject to depreciation, amortization or obsolescence in such amounts and by such methods as they shall determine; and to determine the method or form in which the accounts and records of the Trust shall be kept and to change from time to time such method or form. (p) To determine from time to time, the value of all or any part of the Trust Estate and of any services, Securities, property or other consideration to be furnished to or acquired by the Trust, and from time to time to revalue all or any part of the Trust Estate in accordance with such appraisals or other information as are, in the Trustees' sole judgment, necessary and/or satisfactory. (q) To collect, sue for, and receive all sums of money coming due to the Trust, and to engage in, intervene in, prosecute, join, defend, compound, compromise, abandon or adjust, by arbitration or otherwise, any actions, suits, proceeding, disputes, claims, controversies demands or other litigation relating to the Trust, the Trust Estate or the Trust's affairs, to enter into agreements therefor, whether or not any suit is commenced or claim accrued or asserted and, in advance of any controversy, to enter into agreements regarding arbitration, adjudication or settlement thereof. (r) To renew, modify, release, compromise, extend, consolidate, or cancel, in whole or in part, any obligation to or of the Trust. (s) To purchase and pay for out of the Trust Estate insurance contracts and policies insuring the Trust Estate against any and all risks and insuring the Trust and/or any or all of 17 the Trustees, the Shareholders or officers against any and all claims and liabilities of every nature asserted by any Person arising by reason of any action alleged to have been taken or omitted by the Trust or by the Trustees, Shareholders, or officers. (t) To cause legal title to any of the Trust Estate to be held by and/or in the name of the Trustees, or except as prohibited by law, by and/or in the name of the Trust or one or more of the Trustees or any other Person, on such terms, in such manner, with such powers in such Person as the Trustees may determine, and with or without disclosure that the Trust or Trustees are interested therein. (u) To adopt a fiscal year for the Trust, and from time to time to change such fiscal year. (v) To adopt and use a seal (but the use of a seal shall not be required for the execution of instruments or obligations of the Trust). (w) To make, perform, and carry out, or cancel and rescind, contracts of every kind for any lawful purpose without limit as to amount, with any person, firm, trust, association, corporation, municipality, county, parish, state, territory, government or other municipal or governmental subdivision. These contracts shall be for such duration and upon such terms as the Trustees in their sole discretion shall determine. (x) To do all other such acts and things as are incident to the foregoing, and to exercise all powers which are necessary or useful to carry on the business of the Trust, to promote any of the purposes for which the Trust is formed, and to carry out the provisions of this Declaration. 3.3 Trustees Regulations. The Trustees may make, adopt, amend or repeal regulations (the "Trustees' Regulations") containing provisions relating to the business of the Trust, the conduct of its affairs, its rights or powers and the rights or powers of its Shareholders, Trustees or officers not inconsistent with law or with this Declaration. 3.4 Additional Powers. The Trustees shall additionally have and exercise all the powers conferred by the laws of the State of Maryland upon real estate investment trusts formed under such laws, insofar as such laws are not in conflict with the provisions of this Declaration. 3.5 Incorporation. With the approval of the holders of a majority of the shares, the Trustees may cause to be organized or assist in organizing a corporation or corporations under the laws of any jurisdiction or any other trust, partnership, association, or other organization to take over the Trust property or any part or parts thereof or to carry on any business in which the Trust shall directly or indirectly have any interest, and to sell, convey and transfer the Trust property or any part or parts thereof to any such corporation, trust, association, or organization in exchange for the shares or securities thereof or otherwise, and to lend money to, subscribe for the shares or securities of, and enter into any contracts with any such corporation, trust, association, or organization, or any corporation, trust, partnership, 18 association, or organization in which the Trust holds or is about to acquire shares or any other interest. The Trustees may also cause a merger or consolidation between the Trust or any successor thereto and any such corporation if and to the extent permitted by law, provided that under the law then in effect, the federal income tax benefits available to Real Estate Investment Trusts, or substantially similar benefits, are also available to such corporation, trust, association or organization. ARTICLE IV. Advisor; Limitation on Operating Expenses 4.1 Employment of Advisor. The Trustees are responsible for the general policies of the Trust and for such general supervision of the business of the Trust conducted by all officers, agents, employees, advisors, managers or independent contractors of the Trust as may be necessary to insure that such business conforms to the provisions of this Declaration. However, the Trustees shall not be required personally to conduct the business of the Trust, and consistent with their ultimate responsibility as stated above, the Trustees shall have the power to appoint, employ or contract with such Person or Persons (including one or more of themselves or any corporation, partnership, or trust in which one or more of them may be directors, officers, stockholders, partners or trustees) as the Trustees may deem necessary or proper for the transaction of the business of the Trust. The Trustees may therefor employ or contract with such Person (herein referred to as the "Advisor") as an investment adviser and administrator of the affairs of the Trust and may grant or delegate such authority to the Advisor as the Trustees may in their sole discretion deem necessary or desirable without regard to whether such authority is normally granted or delegated by Trustees. The Trustees shall have the power to determine the terms and compensation of the Advisor or any other Person whom they may employ or with whom they may contract; provided, however, that any determination to employ or contract with any Trustee or any Person in which a Trustee may be a director, Officer, stockholder, partner, employee or trustee, shall be valid only if made, approved or ratified by a majority of the other Trustees. The Trustees may exercise broad discretion in allowing the Advisor to administer and regulate the operations of the Trust, to act as agent for the Trust, to execute documents on behalf of the Trustees, and to make executive decisions which conform to general policies and general principles previously established by the Trustees. 4.2 Term. The Trustees shall not enter into any contract with the Advisor unless such contract has an initial term expiring at the end of the Trust's fiscal year commencing in 1971 and provides for annual renewal or extension thereafter. The Trustees shall not enter into such a contract with any Person unless such contract provides for renewal or extension thereof only by the affirmative vote of a majority of the other Trustees. Any such contract shall provide that it may be terminated (a) by the Trust upon sixty (60) days' written notice by unanimous vote of the Trustees who are not affiliated with the Advisor, (b) by the Advisor upon one hundred twenty (120) days' written notice by unanimous vote of the directors of the Advisor who are not Trustees or (c) by the holders of more than a majority of the shares of the Trust. 19 4.3 Restrictions on Advisor. The Advisor may administer the Trust as its sole and exclusive function or engage in other activities including the rendering of advice to other investors and the management of other investments. The Advisor shall not, however, without prior written consent of a majority of the Trustees, render advice or service to any other Real Estate Investment Trust, except that the Advisor may with respect to any loan or other investment in which the Trust may participate or allot a participation, render advice and service, with or without remuneration, to each and every participant in such loan or other investment. 4.4 Limitation on Operating Expenses. Each contract made with the Advisor shall provide that, within 120 days after the end of any Fiscal Year which begins on a date following the effective date of the Trust's first Registration Statement filed under the Securities Act of 1933, the Advisor will refund to the Trust (or, at the election of the Trustees, reduce its compensation payable by) (A) the amount, if any, by which the Operating Expenses of the Trust during such Fiscal Year exceed the lesser of (a) 1.2% of the Average Value of Invested Assets for such Fiscal Year or (b) the greater of (i) 1.2% of the Month-end Average Net Assets of the Trust for such Fiscal Year or (ii) 25% of the Net Income of the Trust for such Fiscal Year and (B) the amount, if any, by which the aggregate of fees and expenses (including travel expenses and other out-of-pocket expenses) paid to Trustees who are not affiliates of the Advisor and expenses of the type referred to in clause (m) of the definition of operating Expenses contained in this Section 4.4 during such Fiscal Year exceeded 0.3% of the Average Value of Invested Assets for such Fiscal Year. For purposes of this Section 4.4 the following terms shall have the meanings set forth below: (a) "Average Value" for any period shall mean the arithmetic average of the aggregate Value of the assets reflected in the computation at the close of the last business day of each month during the period to which such computation relates. (b) "Average Value of Invested Assets" shall mean the Average Value of the Trust's total assets (without deduction of any liabilities) plus the undisbursed commitments of the Trust in respect of closed loans or other closed investments, but excluding good will and other intangible assets, cash, cash items and obligations of municipal, state and the federal governments and governmental agencies (other than obligations secured by a lien on real property owned, or to be acquired, by such governments or governmental agencies and securities of the Federal Housing Administration, the Federal National Mortgage Administration, and other governmental agencies issuing securities backed by a pool of mortgages). (c) "Value" of an asset or assets shall mean the value of such asset or assets on the books of the Trust, reduced by provision for amortization, depreciation or depletion but before deducting any indebtedness or other liability in respect thereof. Depreciable assets shall be valued at the lesser or fair market value (in the judgment of the Trustees) or cost less straight line depreciation. 20 (d) "Fiscal Year" shall mean any period for which an income tax return is submitted to the Internal Revenue Service and which is treated by the Internal Revenue Service as a reporting period. (e) "Net Income" for any period shall mean the net income of the Trust for such period computed on the basis of its results of operations for such period, after deduction of all expenses other than the regular, incentive and additional compensation payable to the Advisor or fees payable to any mortgage service, and excluding extraordinary items and gains and losses from the disposition of assets of the Trust. (f) "Month-End Average Net Assets" shall mean the Average Value of all the assets of the Trust minus all the liabilities of the Trust reflected in the computation at the close of each month during the period to which such computation relates. (g) "Operating Expenses" during any Fiscal Year shall mean the aggregate annual expenses of every character regarded as operating expenses in accordance with generally accepted accounting principles, as determined by the independent public or certified accountants who shall have reported on the financial statements of the Trust at the end of and for such Fiscal Year but excluding: (a) interest, discount and other costs of borrowed money; (b) taxes on income and taxes and assessments on real property and all other taxes (including license fees) applicable to the Trust; (c) legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing, engraving and other expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and stock exchange listing of the Trust's securities; (d) fees and expenses (including travel expenses and other out-of-pocket expenses) paid to Trustees (other than fees paid to Trustees who are affiliates of the Advisor), independent contractors, consultants, managers, closing i d disbursement agents, and other agents employed by or on behalf of the Trust (other than the Advisor); (e) expenses connected with the acquisition, disposition and ownership of real estate interests or mortgage loans or other property (including the costs of closing, foreclosure, insurance premiums, legal services, brokerage and sales commissions, maintenance, repair and improvement of property); (f) expenses of maintenance, up-keep and management of real estate equity interests and processing and servicing mortgage, construction and other loans; (g) insurance as required by the Trustees (including Trustees' liability insurance); 21 (h) the expenses of organizing, revising, amending, converting, modifying or terminating the Trust; (i) expenses connected with payments of dividends or interest or distributions in cash or any other form made or caused to be made by the Trustees to holders of securities of the Trust; (j) all expenses connected with communications to holders of securities of the Trust and the other bookkeeping and clerical work necessary in maintaining relations with holders of securities, including the cost of printing and mailing certificates for securities and proxy solicitation materials and reports to holders of the Trust's securities; (k) the cost of any accounting, statistical, or bookkeeping equipment necessary for the maintenance of the books and records of the Trust; (l) transfer agent's, registrars and indenture trustees fees and charges; (m) legal, accounting and auditing fees and expenses incurred in connection with the administration and operation of the business of the Trust in the ordinary course of its business and not included in clauses (a) through (1) of this definition; and (n) depletion, depreciation, amortization and losses on disposition of investments and reserves therefor. All calculations made in accordance with this Section 4.4 shall be based upon statements (which may be unaudited, except as provided herein) prepared on an accrual basis consistent with generally accepted accounting principles, regardless of whether the Trust may also prepare statements on a different basis. 4.5 Initial Advisor. Hotel Advisors, Inc. shall serve as the initial Advisor. 4.6 Sale of Shares of the Advisor. Any advisory agreement entered into by the Trustees with an Advisor shall contain, among other provisions, a provision permitting any transfer, directly or indirectly, of securities of the Advisor without the consent of the Trust or its shareholders and a waiver to the fullest extent permitted by law of any rights which the Trust or its shareholders might have to any income or profits realized on any such direct or indirect transfer by the transferor of such securities. By purchasing Shares of the Trust, each shareholder shall be deemed to have consented to any such transfer and to have expressly and irrevocably waived any interest in or rights to any such income or profits. Such waiver shall not be effective as to any transfer of a majority of the voting stock of the Advisor unless such transfer shall have been consented to by the holders of a majority of the Shares of the Trust. ARTICLE V. Investment Policy 22 5.1 General Statement of Policy. The Trust has been established to provide investors with the opportunity to invest in a portfolio of Real Property investments consisting primarily of Long-Term Mortgage Loans with Equity Participations and Equity Investments in Real Property made in transactions not relating to the Trust's lending activities. The Trust may also make Construction Loans primarily in connection with Long-Term Real Property Investments. It is the policy of the Trust to concentrate its Real Property Investments in the Accommodations Field; however, other types of income producing Real Property Investments may be made by the Trust if, in the opinion of the Trustees, such investments are more advantageous to the Trust than available Real Property Investments in the Accommodations Field. In addition to the foregoing the Trust is empowered to make any other investment or engage in any other activity which does not adversely affect the Trust's status as a real estate investment trust under the REIT Provisions of the Internal Revenue Code. In each case the Trustees may make the Trust's investments or engage in an activity alone or in participation with others, including the granting of Senior Participations to other lenders. 5.2 [Deleted.] 5.3 [Deleted.] 5.4 Obligor's Default. Notwithstanding any provision of this Declaration, when an obligor to the Trust is in default under the terms of any obligation to the Trust, the Trustees shall have the power to pursue any remedies permitted by law which in their sole judgment are in the interest of the Trust, and the Trustees shall have the power to enter into any necessary investment, commitment or obligation of the Trust which results from the pursuit of such remedies or which is necessary or desirable to dispose of property acquired in the pursuit of such remedies. 5.5 Changes Investment Policies and Restrictions. Notwithstanding the foregoing provisions of this Article 5, the investment policies and the restrictions thereon set forth in Sections 5.1 through 5.6 of this Declaration may be altered or modified by the Trustees, or additional or substitute policies or restrictions may be adopted by the Trustees if they shall determine, and so specify in a duly adopted resolution, that the alteration or modification of such policies or restrictions or the adoption of additional or substitute policies or restrictions are in the best interests of the Trust and its Shareholders and are not prohibited by the Real Estate Investment Trust provisions of the Internal Revenue Code and no consent or approval of, or other action by, Shareholders shall be required for any such alteration, modification or adoption. Any policy or restriction altered, modified, or adopted pursuant to this Section 5.8 shall be subject to subsequent alteration or modification only with the consent of Shareholders- holding a majority of the outstanding Shares entitled to vote on such alteration or modification if the Trustees shall so specify in the resolution adopted with respect to such policy or restriction. Any resolution adopted by the Trustees pursuant to this Section 5.8 shall be recorded within the State of Maryland in such public offices as this Declaration and any amendments hereto shall have been recorded in accordance with Section 9.8 of this Declaration. 5.6 [Deleted.] 23 ARTICLE VI. The Shares and Shareholders 6.1 Shares. The units into which the beneficial interests in the Trust will be divided shall be designated as Shares consisting of (a) 1,000,000,000 Trust Shares with a par value of $0.01 per share and having equal dividend, distribution, liquidation and other rights but without preference, pre-emptive, appraisal, conversion or exchange rights of any kind, (b) 200,000,000 Excess Trust Shares with a par value of $0.01 per share and having the rights provided in Article VI hereof, (c) 100 million Trust Preferred Shares with a par value of $0.01 per share and having the rights provided in Article VI hereof and (d) 50,000,000 Excess Preferred Shares with a par value of $0.01 per share and having the rights provided in Article VI hereof, provided, however, that the Trustees may, in their discretion, create and authorize the issuance of Shares of one or more additional classes, or one or more series within any such class, with or without par value, having such voting rights, such rights to dividends, distributions and in liquidation, such conversion, exchange and redemption rights, and such designations, preferences, participation, and other limitations or restrictions, as shall not be prohibited by this Declaration or the Real Estate Investment Trust provisions of the Internal Revenue Code or the laws of the State of Maryland and as shall be specified by the Board of Trustees in their discretion in a resolution or resolutions duly adopted by the Board of Trustees and filed and accepted for record with the State Department of Assessments and Taxation of Maryland. As used herein, the term "Shares" shall mean and include (i) the Trust Shares, Excess Trust Shares, Trust Preferred Shares and Excess Preferred Shares, and (ii) from and after the issuance of Shares of any other and additional classes of Shares so created and authorized by the Trustees, such Shares. The certificates evidencing the Shares shall be in such form and signed (manually or by facsimile) on behalf of the Trust in such manner as the Trustees may from time to time prescribe or as may be prescribed in the Trustees' Regulations. The certificates shall be negotiable and title thereto and to the Shares evidenced thereby shall be transferred by assignment and delivery thereof to the same extent and in all respects as a share certificate of a Maryland corporation. The Shares may be issued for such consideration as the Trustees shall determine or by way of share dividend or share split in the discretion of the Trustees. Shares reacquired by the Trust shall no longer be deemed outstanding and shall have no voting or other rights unless and until reissued. Shares reacquired by the Trust may be canceled and restored to the status of authorized and unissued Shares by action of the Trustees. All Shares shall be fully paid and non-assessable by or on behalf of the Trust upon receipt of full consideration for which they have been issued or without additional consideration if issued by way of share dividend or share split. The Board of Trustees may authorize the issuance from time to time of shares of beneficial interest of the Trust of any class or series, whether now or hereafter authorized, or securities or rights convertible into shares of beneficial interest of any class or series, whether now or hereafter authorized, for such consideration (whether in cash, property, past or future services, obligation for future payment or otherwise) as the Board of Trustees may deem advisable (or without consideration in the case of a share split, share dividend or contribution), subject to such restrictions or limitations, if any, as may be set forth in this Declaration or the Trustees' Regulations. 24 6.2 Legal Ownership of Trust Estate. The legal ownership of the Trust Estate and the right to conduct the business of the Trust are vested exclusively in the Trustees and the Shareholders shall have no interest therein other than beneficial interest in the Trust conferred by their Shares issued hereunder and they shall have no right to compel any partition, division, dividend or distribution of the Trust or any of the Trust Estate. 6.3 Shares Deemed Personal Property. The Shares shall be personal property and shall confer upon the holders thereof only the interest and rights specifically set forth in this Declaration. The death, insolvency or incapacity of a Shareholder shall not dissolve or terminate the Trust or affect its continuity nor give his legal representative any rights whatsoever, whether against or in respect of other Shareholders, the Trustees or the Trust Estate or otherwise except the sole right to demand and, subject to the provisions of this Declaration, the Trustees' Regulations and any requirements of law, to receive a new certificate for Shares registered in the name of such legal representative, in exchange for the certificate held by such Shareholder. 6.4 Share Record: Issuance and Transferability Shares. Records shall be kept by or on behalf of and under the direction of the Trustees, which shall contain the names and addresses of the Shareholders, the number of Shares held by them respectively, and the numbers of the certificates representing the Shares, and in which there shall be recorded all transfers of Shares. Certificates shall be issued, listed and transferred in accordance with the Trustees, Regulations. The Persons in whose names certificates are registered on the records of the Trust shall be deemed the absolute owners of the shares represented thereby for all purposes of this Trust; but nothing herein shall be deemed to preclude the Trustees or officers, or their agents or representatives, from inquiring as to the actual ownership of Shares. Prior to due presentment for registration of transfer, the Trustees shall not be affected by any notice of such transfer, either actual or constructive. The receipt by the person in whose name any Shares age registered on the records of the Trust or of the duly authorized agent of such Person, or if such Shares are so registered in the names of more than one Person, the receipt of any one of such Persons, or of the duly authorized agent of such Person, shall be a sufficient discharge for all dividends or distributions payable or deliverable in respect of such Shares and from all liability to see to the application thereof. Shares shall be transferable on the records of the Trust only by the record holder thereof or by his agent thereunto duly authorized in writing upon delivery to the Trustees or a transfer agent of the certificate or certificates therefor, properly endorsed or accompanied by duly executed instruments of transfer and accompanied by all necessary documentary stamps together with such evidence of the genuineness of each such endorsement, execution or authorization and of other matters as may reasonably be required by the Trustees or such transfer agent. Upon such delivery, the transfer shall be recorded in the records of the Trust and a new certificate for the Shares so transferred shall be issued to the transferee and in case of a transfer of only a part of the Shares represented by any certificate, a new certificate for the balance shall be issued to the transferor. Any Person becoming entitled to any Shares in consequence of the death of a Shareholder or otherwise by operation of law shall be recorded as the holder of such Shares and shall receive a new certificate therefor but only upon delivery to the Trustees or a transfer agent of instruments and other evidence required by the Trustees 25 or the transfer agent to demonstrate such entitlement, the existing certificate for such Shares and such necessary releases from applicable governmental authorities. In case of the loss, mutilation or destruction of any certificate for Shares, the Trustees may issue or cause to be issued a replacement certificate on such terms and subject to such rules and regulations as the Trustees may from time to time prescribe. Nothing in this Declaration shall impose upon the Trustees or a transfer agent a duty or limit their rights to inquire into adverse claims. 6.5 Dividends or Distributions to Shareholders. The Trustees may from time to time declare and pay to Shareholders such dividends or distributions in cash or other form, out of current or accumulated income, capital, capital gains, principal, surplus, proceeds from the increase or refinancing of Trust obligations, or from the sale of portions of the Trust Estate or from any other source as the Trustees in their discretion shall determine. Shareholders shall have no right to any dividend or distribution unless and until declared by the Trustees. The Trustees shall furnish the Shareholders at the time of each such distribution with a statement in writing advising as to the source of the funds so distributed or, if the source thereof has not then been determined, the communication shall so state and in such event the statement as to such source shall be sent to the Shareholders not later than sixty (60) days after she close of the fiscal year in which the distribution was made. 6.6 Transfer Agent, Dividend Distributing Agent and Registrar. The Trustees shall have power to employ one or more transfer agents, dividend disbursing agents and registrars and to authorize them on behalf of the Trust to keep records, to hold and disburse any dividends and distributions, and to have and perform in respect of all original issues and transfers of Shares, dividends and distributions and reports and communications to Shareholders, the powers and duties usually had and performed by transfer agents, dividend disbursing agents and registrars of a Maryland corporation. 6.7 Shareholders' Meeting. There shall be an Annual Meeting of the Shareholders which shall be held at the principal office of the Trust, or at such other convenient location as may be determined by the Trustees or by the written consent of all Shareholders entitled to vote thereat, at such time as the Trustees shall determine, at which the Trustees shall be elected and any other proper business may be conducted. The Annual Meeting shall be held after delivery to the Shareholders of the Annual Report. At least ten (10) days and not more than forty (40) days notice shall be given of the time and place of the Annual Meeting of the Shareholders, Special meetings of Shareholders may be called by the Trustees and shall be called upon the written request of Shareholders holding not less than twenty-five percent (25%) of the outstanding Shares of the Trust entitled to vote in the manner provided in the Trustees' Regulations. If there shall be no Trustees, the officers of the Trust shall promptly call a special meeting of the Shareholders for the election of successor Trustees. Notice of any special meeting shall state the purposes of the meeting. A majority of the outstanding Shares entitled to vote at any meeting represented in person or by proxy shall constitute a quorum at any such meeting. Whenever any action is to be taken by the Shareholders, such action shall, except as otherwise required by this Declaration or by law, be authorized by a majority of the votes cast at a meeting of Shareholders by holders of Shares entitled to vote thereon. 26 Notwithstanding anything in this Declaration to the contrary, the Trust shall not consummate a merger, the shareholder approval of which is required by the applicable laws unless such transaction is approved by the shareholders by the affirmative vote of a majority of all the votes entitled to be cast on the matter. The affirmative vote at a meeting of Shareholders of the holders of a majority of all outstanding Shares shall be required to approve the principal terms of the transaction and the nature and amount of the consideration involving any sale, lease, exchange or other disposition of more than 50% of the Trust Estate. Whenever Shareholders are required or permitted to take any action, such action may be taken without a meeting on written consent setting forth the action so taken, signed by the holders of a majority of all outstanding Shares entitled to vote thereon, or such larger proportion thereof as would be required for a vote of Shareholders at a meeting. The vote or consent of Shareholders shall not be required for the pledging, hypothecating, granting security interest in, mortgaging, or encumbering of all or any of the Trust Estate, or for the sale, lease, exchange or other disposition of less than 50% of the Trust Estate. 6.8 Proxies. Whenever the vote or consent of Shareholders is required or permitted under this Declaration, such vote or consent may be given either directly by the Shareholder or to a proxy in the form prescribed in the Trustees Regulations, The Trustees may solicit such proxies from the Shareholders or any of them in any manner requiring or permitting the Shareholders' vote or consent. 6.9 Reports to Shareholders. Not later than ninety (90) days after the close of each fiscal year of the Trust, the Trustees shall mail a report of the business and operation of the Trust during such fiscal year to the Shareholders, which report shall constitute the accounting of the Trustees for such fiscal year. The report (herein "Annual Report") shall be in such form and have such content as the Trustees deem proper, The Annual Report shall include a balance sheet and a statement of income and surplus of the Trust. Such financial statement shall be accompanied by a certificate of an independent certified public accountant thereon, based on a full examination of the books and records of the Trust and made in accordance with generally accepted auditing procedure, A manually signed copy of the accountant's certificate shall be filed with the Trustees, A signed copy of the Annual Report and accountant's certificate shall be filed with the Department of Assessments and Taxation of the State of Maryland within ninety (90) days after the close of each fiscal year. 6.10 Fixing Record Date. The Trustees' Regulations may provide for fixing or in the absence of such provision, the Trustees may fix, in advance, a date as the record date for determining the Shareholders entitled to notice of or to vote at any meeting of Shareholders or to express consent to any proposal without a meeting, or for the purpose of determining Shareholders entitled to receive payment of any dividend or distribution (whether before or after termination of the Trust) or any Annual Report or other communication from the Trustees, or for any other purpose. The record date so fixed shall be not less than five (5) days nor more than fifty (50) days prior to the date of the meeting or event for the purposes of which it is fixed. 27 6.11 Notice to Shareholders. Any notice of meeting o ocher notice, communication or report to any Shareholder shall be deemed duly delivered as such Shareholder when such notice, communication or report is deposited, with postage thereon prepaid, in the United States mail, addressed to such Shareholder at his address as it appears on the records of the Trust or is delivered in person to such Shareholder. 6.12 Restrictions on Transfer. (a) Definitions. The following terms shall have the following meanings: "Beneficial Ownership" shall mean ownership of Shares by a Person who would be treated as an owner of such Shares directly, indirectly-or constructively through the application of Section 318 (a) of the Code, as modified by Section 856(d) (5) of the Code, or Section 544 of the Code, as modified by Section 856(h) of the Code, The terms "Beneficial Owner", "Beneficially Owns* and *Beneficially Owned" shall have correlative meanings, "Charitable Beneficiary" shall mean the organization or organizations described in Section 170(c)(2) and 501(c)(3) of the Code selected by the Excess Share Trustee, "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Excess Shares" shall mean the Excess Trust Shares and the Excess Preferred Shares. "Excess Share Trust" shall mean the trust created pursuant to Section 6.13 hereof. "Excess Share Trust Beneficiary' shall mean a beneficiary of the Excess Share Trust as determined pursuant to Section 6.13 hereof, "Excess Share Trustee" shall mean Nina Matis or any successor appointed pursuant to Section 6.13 hereof. "Market Price" of any class of Shares on any date shall mean the average of the Closing Price for the five (5) consecutive trading days ending on such date, or if such date is not a trading date, the five consecutive trading days preceding such date. The "Closing Price" on any date shall mean (i) the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange, or (ii) if such class of Shares is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such class of Shares is listed or admitted to trading, or (iii) if such class of Shares is not listed or admitted to trading on any national securities exchange, 28 the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers! Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotations system that may then be in use, or (iv) if such class of Shares is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such class of Shares selected by the Trustees. "Ownership Limit" shall mean (i) in the case of a Person other than an Existing Holder (as defined below) Beneficial Ownership of more than eight percent (8.0%t), by value, vote or number, of the Shares and (ii) in the case of a Person who or which was the Beneficial Owner, as of February 1, 1995 (the "Amendment Date"), of more than 8.0% (by vote, value or number) of the Shares (any such Person being referred to as an "Existing Holder"), a percentage (by vote, value or number) equal to the lesser of (a) 9.9% and (b) the percentage of Shares Beneficially Owned by such Existing Holder as of the Amendment Date; provided that if, at any time and from time to time after the Amendment Date, the percentage of Shares Beneficially Owned by an Existing Holder shall decrease (whether by reason of a disposition b such Existing Holder, an increase in the number of outstanding Shares or otherwise), then from and after the time of such decrease the Ownership Limit in the case of such Existing Holder shall be a percentage (by vote, value or number) equal to the greater of (x) 8.O% and (y) the percentage of Shares Beneficially Owned by such Existing Holder after giving effect to such decrease. "Purported Beneficial Holder" shall mean, with respect to any event (other than a purported Transfer) which result in Excess Shares, the Person for whom the Purported Record Holder held Shares that were, pursuant to Section 6.12(c) hereof, automatically converted into Excess Shares upon the occurrence of such event. "Purported Beneficial Transferee" shall mean, with respect to any purported Transfer which results in Excess Shares, the purported beneficial transferee for whom the Purported Record Transferee would have acquired Shares if such Transfer had been valid under Section 6.12(b) hereof. "Purported Record Holder" Shall mean, with respect to any event (other than a purported Transfer) which results in Excess Shares, the record holder of the Shares that were, pursuant to Section 6.12(c) hereof, automatically converted into Excess Shares upon the occurrence of such event, "Purported Record Transferee" shall mean, with respect to any purported Transfer which results in Excess Shares, the record holder of the Shares if such Transfer had been valid under Section 6.12(b) hereof. "Restriction Termination Date" shall mean the first day of the taxable year for which the Trustees have determined to terminate the Trust's status as a REIT. 29 "Transfer" shall mean any sale, transfer, gift, hypothecation, pledge, assignment, devise or other disposition of Shares (including (i) the granting of any option or interest similar to an option (including an option to acquire an option or any series of such options) or entering into any agreement for the sale, transfer or other disposition of Shares or (ii) the sale, transfer, assignment or other disposition of any securities or rights convertible into or exchangeable for Shares), whether voluntary or involuntary, whether of record, constructively or beneficially and whether by operation of law or otherwise. For purposes of this definition, whether securities or rights are convertible or exchangeable for Shares shall be determined in accordance with Sections 318 and 544 of the Code. (b) Restrictions of Transfers and Other Events. On or after the Restriction Termination Date, the provisions of Sections 6.12 and 6.13 hereof shall be of no further force and effect. Prior to the Restriction Termination Date and except as provided in Section 6.12(i) hereof: (1) No Person shall Beneficially Own Shares in excess of the Ownership Limit; (2) Any Transfer that, if effective, would result in any Person Beneficially Owning Shares in excess of the ownership Limit shall be void ab initio as to the Transfer of that number of Shares which would be otherwise Beneficially Owned by such Person in excess of the ownership Limit and the intended transferee shall acquire no rights in such Shares in excess of the Ownership Limit; (3) Any Transfer that, if effective, would result in the Shares being Beneficially Owned by fewer than one hundred (100) Persons (determined without reference to any rules of attribution) shall be void ab initio and the intended transferee shall acquire no rights in such Shares; and (4) Any Transfer of Shares that, if effective, would result in the Trust being "closely held" within the meaning of Section 856(h) of the Code shall be void ab initio as to the Transfer of that number of Shares which would cause the Trust to be "closely held" within the meaning of Section 856(h) of the Code and the intended transferee shall acquire no rights in such Shares. (c) Conversion into Excess Shares. (1) If, notwithstanding the other Provisions contained in this Article VI, at any time prior to the Restriction Termination Date, there is a purported Transfer or other event such that any Person would Beneficially Own Shares in excess of the Ownership Limit, then, except as otherwise provided in Section 6.12(i) hereof, such Shares which would be in excess of the Ownership Limit (rounded up to the nearest whole share), shall automatically be converted into that number of shares of Excess Trust Shares or Excess Preferred Shares, as appropriate, equal to the number of Shares being converted, as further described in Section 6.12(c)(3) hereof. Such conversion 30 shall be effective as of the close of business on the business day prior to the date of the Transfer or other event. (2) If, notwithstanding the other provisions contained in this Article VI, at any time prior to the Restriction Termination Date, there is a purported Transfer or other event which, if effective, would cause the Trust to become "closely held" within the meaning of Section 856(h) of the Code, then the Shares being Transferred or which are otherwise affected by such event and which, in either case, would cause, when taken together with all other Shares, the Trust to be "closely held" within the meaning of Section 856(h) of the Code (rounded up to the nearest whole share) shall automatically be converted into that number of Excess Trust Shares or Excess Preferred Shares, as appropriate, equal to the number of Shares being converted, as further described in Section 6.12(c)(3) hereof. Such conversion shall be effective as of the close of business on the business day prior to the date of the Transfer or change in capital structure. (3) Upon conversion of Trust Shares or Preferred Shares into Excess Shares pursuant to this Section 6.12(c), Trust Shares shall be converted into Excess Trust Shares and Preferred Shares shall be converted in Excess Preferred Shares. (d) Remedies for Breach. If the Trustees or their designees shall at any time determine in good faith that a purported Transfer or other event has taken place in violation of Section 6.12(b) hereof or that a Person intends to acquire or has attempted to acquire Beneficial Ownership of any Shares in violation of Section 6-12(b) hereof, the Trustees or their designees may take such action as they deem advisable to refuse to give effect to or to prevent such Transfer or other event, including, but not limited to, refusing to give effect to such Transfer or other event on the books of the Trust or instituting proceedings to enjoin such Transfer or other event or transaction; provided, however, that any Transfers or attempted Transfers (or, in the case of events other than a Transfer, Beneficial Ownership) in violation of Section 6.12(b) hereof shall be void ab initio And automatically result in the conversion described in Section 6.12(c)(3) hereof, irrespective of any action (or non-action) by the Trustees or their designees, (e) Notice of Restricted Transfer. Any Person who acquires or attempts to acquire Shares in violation of Section 6.12(b) hereof, or any Person who is a purported transferee such that Excess Shares result under Section 6.12(c) hereof, shall immediately give written notice to the Trust of such Transfer, attempted Transfer or other event and shall provide to the Trust such other information as the Trust may request in order to determine the effect, if any, of such Transfer or attempted Transfer or other event on the Trust*s status as a REIT. (f) Owners Required to Provide Information. Prior to the Restriction Termination Date: (1) Every Beneficial Owner of five percent (5%) or more, by vote, value or number, or such lower percentages as required pursuant to regulations under the Code, of the outstanding Shares shall, before January 30 of each year, give written notice to 31 the Trust stating the name and address of such Beneficial Owner, the general ownership structure of such Beneficial Owner, the number of shares of each class of Shares Beneficially Owned, and a description of how such Shares are held. (2) Each Person who is a Beneficial Owner of Shares and each Person (including the shareholder of record) who is holding Shares for a Beneficial Owner shall provide on demand to the Trust such information as the Trust may request from time to time in order to determine the Trust's status as a REIT and to ensure compliance with the Ownership Limit and the REIT requirements of the Code and the regulations published thereunder. (g) Remedies Not Limited. Subject to Section 6.12(l) hereof, nothing contained in this Article VI shall limit the authority of the Trustees to take such ocher action as they-deem necessary or advisable to protect the Trust and the interests of its Shareholders by preservation of the Trust's status as a REIT and to ensure compliance with the ownership Limit. (h) Ambiguity. In the case of an ambiguity in the application of any of the provisions of this Section 6.12 or Section 6.13, including any definition contained in Section 6.12(a) hereof, the Trustees shall have the power to determine the application of the provisions of this Section 6.12 and Section 6.13 with respect to any situation based on the facts known to them. (i) Exception. The Trustees upon receipt of a ruling from the Internal Revenue Service or an opinion of tax counsel, satisfactory to them in their sole and absolute discretion, in each case to the effect that the Trust*s status as a REIT will not be jeopardized, may exempt a Person from the Ownership Limit if the Trustees obtain such representations and undertakings from such Person as are reasonably necessary to ascertain that such Person's Beneficial Ownership of Shares will not jeopardize the Trust's status as a REIT. (j) Legend. Until the Restriction Termination Date, each certificate for the respective class of Shares shall bear the following legend: The Shares represented by this certificate are subject to restrictions on transfer. Unless excepted by the Trustees, no Person may (1) Beneficially Own Shares in excess of 8.0% of the outstanding Shares, by value, vote or number, determined as provided in the Trust's Declaration of Trust, as the same may be amended from time to time (the "Declaration"), and computed which regard to all outstanding Shares and, to the extent provided by the Code, all Shares issuable under existing options and exchange rights that have not been exercised; or (2) Beneficially Own Shares which would result in the Trust being "closely held". Unless so excepted, any acquisition of Shares and continued holding of ownership constitutes a continuous representation of compliance with the above limitations, and any Person who attempts to Beneficially own Shares in excess of the above limitations has an affirmative obligation to notify the Trust immediately upon such attempt. If the restrictions on transfer are violated, the transfer will be void ab initio and the Shares represented hereby will be automatically converted into Excess Shares that will be held in trust. Excess Shares may not be transferred at a 32 profit and may be purchased by the Trust. In addition, certain Beneficial Owners must give written notice as to certain information on demand and an annual basis. All terms not defined in this legend have the meanings provided in the Declaration, The Trust will mail without charge to any requesting shareholder a copy of the Declaration, including the express terms of each class and series of the authorized Shares of the Trust, within five (5) days after receipt of a written request therefor. (k) Severability. If any provision of this Article VI or any application of any such provision is determined to be invalid by any Federal or state court having jurisdiction over the issues, the validity of the remaining provisions shall not be affected, and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court. (l) New York Stock Exchange Transactions. Nothing in this Article VI shall preclude the settlement of any transaction entered into through the facilities of the New York Stock Exchange. (m) Amendment of Sections 6.12 or 6.13 Notwithstanding any other provisions of this Declaration or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of Shares required by law or this Declaration, the affirmative vote of the holders of at least two-thirds (2/3) of the voting power of all the then outstanding Shares, voting together as a single class, shall be required to alter, amend or repeal this Section 6.12 or Section 6.13. 6.13 Excess Shares. (a) Ownership In Trust. Upon any purported Transfer or other event that results in Excess Shares pursuant to Section 6.12(c) hereof, such Excess Shares shall be deemed to have been transferred to Nina Matis (or any successor Excess Share Trustee), as Excess Share Trustee of the Excess Share Trust for the benefit of such Excess Share Trust Beneficiary or Beneficiaries and the Charitable Beneficiary effective as of the close of business on the business day prior to the date of the Transfer or other event. Excess Shares so held in trust shall be issued and outstanding shares of the Trust. The Purported Record Transferee or Purported Record Holder shall have no rights in such Excess Shares. The Purported Beneficial Transferee or Purported Beneficial Holder shall have no rights in such Excess Shares except as provided in Section 6.13(e). Nina Matis, or any successor Excess Share Trustee, may resign by appointing a person independent of the Trust, the Corporation (as defined in Section 6.14) or any Excess Share Trust Beneficiary as the Excess Share Trustee. The Excess Share Trustee shall, from time to time, designate one or more charitable organization or organizations as the Charitable Beneficiary. (b) Dividend Rights. Excess Shares shall be entitled to the same dividends determined as if no conversion into Excess Shares had occurred. Pay dividend or distribution paid prior to the discovery by the Trust that the Shares have been converted into Excess Shares 33 shall be repaid to the Excess Share Trust upon demand. Any dividend or distribution declared but unpaid shall be paid to the Excess Share Trust. All dividends received or other income earned by the Excess Share Trust shall be paid over to the Charitable Beneficiary. (c) Rights Upon Liquidation. Excess Shares shall not be entitled to receive any portion of the assets of the Trust on the liquidation or dissolution of the Trust. Upon conversion of Excess Shares into Shares pursuant to Section 6.13 (e) hereof, such shares shall be entitled to receive their pro rata share of the assets of the Trust as a result of the liquidation or dissolution of the Trust. (d) Voting Rights. The Excess Share Trustee shall vote the Excess Shares which shall have the same voting rights as the Shares into which they are to be converted pursuant to Section 6.13(e) hereof. Any vote cast by the Purported Beneficial Transferee or Purported Record Transferee will, at the election of the Excess Share Trustee, be void ab initio. (e) Restrictions On Transfer; Designation of Excess Share Trust Beneficiary. (1) Excess Shares shall not be transferrable. The Excess Share Trustee may freely designate an Excess Share Trust Beneficiary of all or any portion of the beneficial interest in the Excess Share Trust (representing the number of Excess Shares held by the Excess Share Trust attributable to a purported Transfer or other event that results in Excess Shares and designated as to number and class of shares pursuant to the notice provision of this Section 6.13(e)(1)), if the Excess Shares held in the Excess Share Trust would not be Excess Shares in the hands of such Excess Share Trust Beneficiary. If the Excess Shares resulted from a purported Transfer, the Purported Beneficial Transferee shall receive a payment from the Excess Share Trustee that reflects a price per share for such Excess Shares equal to the lesser of (A) the price per share received by the Excess Share Trustee and (B) (x) the price per share such Purported Beneficial Transferee paid for the Share of Beneficial interest in the purported Transfer that resulted in the Excess Shares, or (y) if the Purported Beneficial Transferee did not give value for such shares of Excess Shares (through a gift, devise or other transaction) a price per share of Excess Shares equal to the Market Price of the Shares on the date of the purported Transfer that resulted in the Excess Shares. If the Excess Shares resulted from an event other than a purported Transfer, the Purported Beneficial Holder shall receive a payment from the Excess Share Trustee that reflects a price per share of Excess Shares equal to the lesser of (A) the price per share received by the Excess Share Trustee and (B) the Market Price of the Shares on the date of the event that resulted in Excess Shares. Upon such transfer of an interest in the Excess Share Trust, the corresponding shares of Excess Shares in the Excess Share Trust shall be automatically converted into such number of Shares (of the same class as the shares that were converted into such Excess Shares) as is equal to the number of shares of Excess Shares, and such Shares shall be transferred of record to the Excess Share Trust Beneficiary of the interest in the Excess Share Trust designated by the Excess Share Trustee as described above if such Shares would not be Excess Shares in the hands of such Excess Share Trust Beneficiary. Prior to any transfer of any interest in the Excess Share Trust, the Trust must have waived in writing its purchase rights, if any, under 34 Section 6.13(f) hereof. Any funds received by the Excess Share Trustee in excess of the funds payable to the Purported Beneficial Holder or the Purported Beneficial Transferor shall be paid to the Charitable Beneficiary. The Trust shall pay the costs and expenses of the Excess Share Trustee. (2) Notwithstanding the foregoing, if a Purported Beneficial Transferee, Purported Beneficial Holder or Excess Share Trustee receives a price for designating an Excess Share Trust Beneficiary of an interest in the Excess Share Trust that exceeds the amounts allowable under Section 6.13(e) (1) hereof, such Purported Beneficial Transferee or Purported Beneficial Holder shall be personally liable to, and shall pay, or cause the Excess Share Trust Beneficiary of the interest in the Excess Share Trust to pay, such excess to the Excess Share Trustee who shall pay over such excess to the Charitable Beneficiary. (3) Notwithstanding the foregoing, if the provisions of this Section 6.13(e) are determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the Purported Beneficial Transferee or Purported Beneficial Holder of any shares of Excess Shares may be deemed, at the option of the Trust, to have acted as an agent on behalf of the Trust, in acquiring or holding such Excess Shares and to hold such Excess Shares on behalf of the Trust. (f) Purchase Right in Excess Shares. Excess Shares shall be deemed to have been offered for sale by the Excess Share Trustee to the Trust, or its designee, at a price per Excess Share equal to (i) in the case of Excess Shares resulting from a purported Transfer, the lesser of (A) the price per share of the Shares in the transaction that created such Excess Shares (or, in the case of devise or gift, the Market Price of the Shares at the time of such devise or gift), or (B) the lowest Market Price of the class of Shares which resulted in the Excess Shares at any time after the date such shares were converted into Excess Shares and prior to the date the Trust, or its designee, accepts such offer or (ii) in the case of Excess Shares resulting from an event other than a purported Transfer, the lesser of (A) the Market Price of the Shares on the date of such event or (B) the lowest Market Price for Shares which resulted in the Excess Shares at any time from the date of the event resulting in such Excess Shares and prior to the date the Trust, or its designee, accepts such offer. The Trust shall have the right to accept such offer for a period of ninety (90) days after the later of (i) the date of the Transfer which resulted in such Excess Shares and (ii) the date the Trustees determine in good faith that a Transfer or other event resulting in Excess Shares has occurred, if the Trust does not receive a notice of such Transfer or other event pursuant to Section 6.12(e) hereof, 6.14 Pairing. Beginning at the time that the payment of a distribution in kind to the Shareholders of the Trust of the shares of common stock of Starwood Lodging Corporation, a Maryland corporation ("Corporation"), shall have occurred ("effective time of the restriction*), and continuing thereafter until such time as the limitation on transfer provided for in the Pairing Agreement to be entered into by the Trust and the Corporation shall be terminated: 35 (a) The Trust Shares having a par value of $0.01 per share shall not be transferable, and shall not be transferred on the books of the Trust, unless (1) a simultaneous transfer is made by the same transferor to the same transferee, or (2) such transfer has previously arranged with the Corporation for the acquisition by the transferee, of a like number of shares of the Corporation and such shares and Trust Shares are paired with one another. (b) Each certificate evidencing ownership of Trust Shares issued and not canceled prior to the effective time of the restriction shall be deemed to evidence a like number of shares of common stock of the Corporation. (c) Any registered holder of a certificate evidencing ownership of Trust Shares issued prior to the effective time of the restriction may, upon request and presentation of said certificate to the Corporations transfer agent, obtain in substitution therefor a certificate or certificates registered in such holder's name evidencing the same number of shares of common stock of the Corporation and a like number of Trust Shares. (d) A legend shall be placed on the face of each certificate evidencing ownership of Trust Shares issued after the effective time of the restriction, referring to the restrictions on transfer set forth herein. 6.15 See Exhibit A 6.16 See Exhibit A 6.17 Redemption. In the event that the Corporation shall redeem any shares of its capital stock pursuant to Article FIFTEENTH of the Articles of Incorporation of the Corporation and such shares are subject to the limitation on transfer provided for in the Pairing Agreement, the Trust shall simultaneously redeem, upon the terms of such Article FIFTEENTH, any Shares that are paired with such shares of the Corporation's capital stock pursuant to the Pairing Agreement. ARTICLE VII. Liability of Trustees, Shareholders and Officers, and Other Matters 7.1 Exculpation of Trustee and Officers. No Trustee, officer or agent of the Trust shall be liable or held to any personal liability whatsoever for an obligation or contract of the Trust. The provisions of section 2-405,1 of the Corporations and Associations Article of the Annotated Code of Maryland (as amended and interpreted from time to time, and any successor statute thereto), which sets forth the standard of care required of directors of corporations organized under the laws of the State of Maryland, and all other statutory or decisional law (as amended or interpreted from time to time) which sets forth the standard of care required of officers, employees and agents for corporations organized under the laws of the State of Maryland, shall be fully applicable to the Trust, and to the Trustees, officers, employees and agents of the Trust, as if the Trust were a corporation organized under the laws 36 of the State of Maryland and its Trustees, officers, employees and agents were respectively, directors, officers, employees and agents of such corporation. Notwithstanding the foregoing, to the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted from time to time, no Trustee or officer of the Trust shall be liable to the Trust or its shareholders for money damages arising out of acts or omissions occurring on or after the date of this provision is approved by the shareholders of the Trust (which date was June 6, 1988) provided however, that this provision shall not restrict or limit the liability of the Trust's Trustees or officers to the Trust or its shareholders (i) to the extent that it is proved that such Person actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received, or (ii) to the extent that a judgment or final adjudication adverse to such Person is entered in a proceeding based on a finding in the proceeding that such Person's action, or failure to act, was the result of active and deliberate dishonesty which was material to the cause of action adjudicated in the proceeding. No amendment to this Section 7.1 or repeal of any of its provisions shall limit or eliminate the effect of this Section 7.1 with respect to any act or omission which occurs prior to such amendment or repeal. 7.2 Limitation of Liability of Shareholders, Trustees and Officers. The Trustees and officers in incurring any debts, liabilities or obligations, or in taking or omitting any other actions for or in connection with the Trust are, and shall be deemed to be, acting as Trustees or officers of the Trust and no in their own individual capacities. Except to the extent provided by applicable law, no Trustee, Shareholder, officer, employee or other agent shall be liable for any debt, claim, demand, judgment, decree, liability or obligation of any kind of, against or with respect to the Trust, arising out of any action taken or omitted for or on behalf of the Trust and the Trust shall be solely liable therefor and resort shall be had solely to the Trust Estate for the payment or performance thereof. Each Shareholder shall be entitled to pro rata indemnity from the Trust Estate if, contrary to the provisions hereof, such Shareholder shall be held to any personal liability. 7.3 Express Exculpatory Clauses and Instruments. In all agreements obligations, instruments, and actions in regard to the affairs of this Trust, this Trust and not the Shareholders, officers, or agents shall be the principal and entitled as such to enforce the same, collect damages, and take all other action. All such agreements, obligations, instruments, and actions shall be made, executed, incurred, or taken by or in the name and on behalf of this Trust or by the Trustees as Trustees hereunder, but not personally. All such agreements, obligations, and instruments shall acknowledge notice of this paragraph or shall refer to this Declaration and contain a statement to the effect that the name of this Trust refers to the Trustees as Trustees but not personally, and that no Trustee, Shareholder, officer, or agent shall be held to any personal liability thereunder; and neither the Trustees nor any officer or agent shall have any power or authority to make, execute, incur, or take any agreement, obligation, instrument or action unless the requirements of this paragraph are met; however, the omission of such provision from any such instrument shall not render the Shareholders or any Trustee or officer liable nor shall the Trustees or any officer of the Trust be liable to anyone for such omission. 37 7.4 Indemnification of Trustees, Officers, Employees and Other Agents. The provisions of Section 218 of the Corporations and Associations Article of the Annotated Code of Maryland (as amended and interpreted from time to time, and any successor statute thereto), which empowers a corporation organized under the laws of the State of Maryland to indemnify its directors, officers, employees and other agents against certain liabilities and obligations, and for the light of directors, officers, employees and other agents of such corporation to be so indemnified (as amended, interpreted and superseded, "Section 2-418"), shall be fully applicable to the Trust and to the Trustees, officers, employees and other agents of the Trust as if the Trust were a corporation organized under the laws of the State of Maryland and its Trustees, officers, employees and other agents were, respectively, directors, officers, employees and agents of such corporation. In each and every situation where the Trust may do so under said Section 2418 or other applicable law, the Trust hereby obligates itself to so indemnify its Trustees, officers, employees and other agents, and in each case where thy Trust must make certain investigations on a case-by-case basis prior to Indemnification, the Trust hereby obligates itself to pursue such investigations diligently, it being the specific intention of this Section 7.4 to obligate the Trust to indemnify each Person whom the Trust may indemnify to the fullest extent permitted by Section 2-148 or by other applicable law at any time and from time to time. The rights accruing to any Person under these provisions shall not exclude any other right to which he may be lawfully entitled, nor shall anything contained-herein restrict the right of the Trust to indemnify or reimburse such Person in any proper case even though not specifically provided for herein, nor shall anything contained herein restrict such right of a Trustee to contribution as may be available under applicable law. In addition, and without limiting the generality of the foregoing, the Trust shall have the power to purchase and maintain insurance on behalf of any Person entitled to indemnify hereunder against any liability asserted against him and incurred by him in a capacity mentioned above, or arising out of his status as such, whether or not the Trust would have the power to indemnify him against such liability under the provisions hereof. 7.5 Right of Trustees and officers to Own Shares or Other Property and to Engage in Other Business. Any Trustee or officer may acquire, own, hold and dispose of Shares in the Trust, for his individual account, and may exercise all rights of a Shareholder to the same extent and in the same manner as if he were not a Trustee or officer. Any Trustee or officer may have personal business interests and may engage in personal business activities, which interest and activities may include the acquisition, syndication, holding, management, operation or disposition, for his own account or for the account of others, or interests in Mortgages, interests in Real Property, or interests in Persons engaged in the real estate business, including serving as a trustee or officer of any other Real Estate Investment Trust. Subject to the provisions of Article IV any Trustee or officer may be interested as trustee, officer, director, stockholder, partner, member, advisor or employee, or otherwise have a direct or indirect interest in any Person who may be engaged to render advice or services to the Trust, and may receive compensation from such Person as well as compensation as Trustee, officer, or otherwise hereunder, None of these activities shall be deemed to conflict with his duties and powers as Trustee or officer. 7.6 Transactions Between the Trustees and the Trust. 38 (a) If subsection (b) of this Section 7.6 is complied with, a contract or other transaction between the Trust and any corporation, firm or other entity in which any of the Trustees is a director or has a material financial interest is not void or voidable solely because any one or more of the following: (i) the common directorship or interest; (ii) the presence of the Trustee at the meeting of the Board of Trustees or a committee of the Board of Trustees which authorizes, approves or ratifies the contract or transaction; or (iii) the counting of the vote of the Trustee for the authorization, approval or ratification of the contract or transaction. (b) Subsection (a) of this Section 7.6 applies if: (i) The fact of the common directorship or interest is disclosed or known to (a) the Board of Trustees or the committee, and the Board of Trustees or committee authorizes, approves or ratifies the contract or transaction by the affirmative vote of a majority of disinterested Trustees, even if the disinterested Trustees constitute less than a quorum; or (b) the shareholders entitled to vote, and the contract or transaction is authorized, approved or ratified by a majority of the votes cast by the shareholders entitled to vote other than the votes of shares owned of record or beneficially by the interested Trustee or corporation, firm or other entity; or (ii) The contract or transaction is fair and reasonable to the Trust. (c) Common or interested Trustees, or the Shares of Beneficial Interest owned by them or by an interested corporation, firm or other entity, may be counted in determining the presence of a quorum at a meeting of the Board of Trustees or a committee of the Board of Trustees or at a meeting of the shareholders, as the case may be, at which the contract or transaction is authorized, approved or ratified. (d) If a contract or transaction is not authorized, approved or ratified in one of the ways provided for in subsection (b)(i) of this Section 7.6. the person asserting the validity of the contract or transactions bears the burden of proving that the contract or transaction was fair and reasonable to the Trust at the time it was authorized, approved or ratified. This subsection (d) does not apply to the fixing by the Board of Trustees of reasonable compensation for a Trustee, whether as a Trustee or in any other capacity. (e) Any procedures authorized by Section 7.4 of this Declaration shall be deemed to satisfy subsection (b)(i) of this Section 7.6. Any provision of this Declaration, the Trustees' Regulations or any contract, or any transaction, requiring or permitting indemnification of Trustees, including advances of expenses, is fair and reasonable to the Trust. (f) Any Trustee or officer, employee or agent of the Trust may acquire, own, hold and dispose of Securities of the Trust, for his individual account, and may exercise all rights of a holder of such Securities to the same extent and in the same manner as if he were not such a Trustee or officer, employee or agent. The Trustees shall use their best efforts to obtain through an Advisor or other Persons a continuing and suitable investment program, consistent with the investment policies and objectives of the Trust, and the Trustees shall be responsible for reviewing and approving or rejecting investment opportunities presented by the Advisor or 39 such other Persons, So long as there is such Advisor or other Person, the Trustees shall have no responsibility for the origination of investment opportunities for the Trust. Any Trustee or officer, employee, or agent of the Trust may, in his personal capacity, or in a capacity of trustee, officer, director, stockholder, partner, member, advisor or employee of any Person, have business interests and engage in business activities in addition to those relating to the Trust, which interests and activities may include the acquisition, syndication, holding, management, operation or disposition, for his own account or for the account of such Person, of interests in Mortgages, interests in Real Property, or interests in Persons engaged in the real estate business, and each Trustee, officer, employee and agent of the Trust shall be free of any obligation to present to the Trust any investment opportunity which comes to him in any capacity other than solely as Trustee, officer, employee or agent of the Trust, even if such opportunity is of a character which, if presented to the Trust, could be taken by the Trust; provided, however, that the provisions of this sentence shall not extend to any of such Trustees or agents of the Trust who are affiliates of the Advisor, or to any officer or employee of the Trust or (at a time when there is no such Advisor or other Person providing an investment program for the Trust as aforesaid) to any Trustee of the Trust, in each case who is not acting as a trustee, officer, director, stockholder, partner, member, advisor or employee of any Person but is acting for his own personal account. Subject to the provisions of this Section 7.6, any Trustee or officer, employee or agent of the Trust may be interested as trustee, officer, director, stockholder, partner, member, advisor or employee of, or otherwise have a direct or indirect interest in, any Person who may be engaged to render advice or services to the Trust, and ray receive compensation from such Person as well as compensation as Trustee, officer, employee or agent of the Trust or otherwise hereunder, None of the activities in this paragraph shall be deemed to conflict with his duties and powers as Trustee, officer, employee or agent of the Trust. (g) Nothing contained in this Declaration shall prohibit or in any way limit any person described in Section 3.2(n) of this Declaration from contracting with others for the performing of services similar or identical to those undertaken by such Person pursuant to this Declaration or from conducting the usual and normal business operations of such Person. The Trustees are not restricted by this Section 7.6 from forming a corporation, partnership, trust or other business association owned by the Trustees or by their nominees for the purpose of holding title to property of the Trust or managing property of the Trust providing the Trustees' motive for :he formation of such business association is not their own enrichment. 7.7 Restriction of Duties and Liabilities. To the extent that the nature of this Trust (that is, a Maryland real estate investment trust) will permit, the duties and liabilities of Shareholders, Trustees and officers shall in no event be greater than the duties and liabilities of shareholders, directors and officers of a Maryland corporation. The Shareholders, Trustees and officers shall in no event have any greater duties or liabilities than those imposed by applicable law as shall be in effect from time to time. 7.8 Persons Dealing with Trustees or Officers. Any act of the Trustees or officers purporting to be done in their capacity as such, shall, as to any persons dealing with such Trustees or officers, be conclusively deemed to be within the purposes of this Trust and within the power of the Trustees and officers. No Person dealing with the Trustees or any of them, 40 or with the authorized officers, agents or representatives of the Trust, shall be bound to see to the application, of any funds or property passing into their hands of control. The receipt of the Trustees, or any of them, or of authorized officers, agents, or representatives of the Trust, for moneys or other consideration, shall be binding upon the Trust. 7.9 Reliance. The Trustees and officers may consult with counsel and the advice or opinion of such counsel shall be full and complete personal protection to all of the Trustees and officers in respect to any action taken or suffered by them in good faith and in reliance on and in accordance with such advice or opinion. In discharging their duties, Trustees and officers, when acting in good faith, may rely upon financial statements of the Trust represented to them to be correct by the President or the officer of the Trust having charge of its books of account, or stated in a written report by an independent certified public accountant fairly to present the financial position of the Trust. The Trustees may rely, and shall be personally protected in acting, upon any instrument or other document believed by them to be genuine. 7.10 Income Tax Status. Anything to the contrary herein notwithstanding and without limitation of any rights of indemnification or non-liability of the Trustees herein, said Trustees by this Declaration make no commitment or representation that the Trust will qualify for the dividends paid deduction permitted by the Internal Revenue Code, by Article 81, Section 3I3A of the Annotated Code of Maryland, or by any-Rules and Regulations hereunder pertaining to Real Estate Investment Trusts, in any given year, The failure of the Trust to qualify as a Real Estate Investment Trust under the Internal Revenue Code or under the Maryland Code shall not render the Trustees liable to the Shareholders or to any other person or in any manner operate to annul the Trust. ARTICLE VIII. Duration, Amendment, Termination and Qualification of Trust 8.1 Duration of Trust. The Trust shall continue without limitation of time, unless terminated as provided in Section 8.2. 8.2 Termination of Trust. (a) The Trust may be terminated by the affirmative vote of the holders of two-thirds (2/3) in interest of all outstanding Shares entitled to vote thereon, at any meeting of Shareholders. Upon termination of the Trust: (i) The Trust shall carry on no business except for the purpose of winding up its affairs. (ii) The Trustees shall proceed to wind up the affairs of the Trust and all of the powers of the Trustees under this Declaration shall continue until the affairs of the Trust shall have been wound up, including the power to fulfill or discharge the 41 contracts of the Trust, collect its assets, sell, convey, assign, exchange, transfer, or otherwise dispose of all or any part of the remaining Trust Estate to one or more persons at public or private sale for consideration which may consist in whole or in part of cash, securities or other property of any kind, discharge or pay its liabilities and do all other acts appropriate to liquidate its business; provided, that any sale, conveyance, assignment, exchange, transfer or other disposition of more than fifty percent (50%) of the Trust Estate shall require approval of the principal terms of the transaction and the nature and amount of the consideration by vote or consent of the holders of a majority of all the outstanding Shares entitled to vote thereon. (iii) After paying or adequately providing for the payment of all liabilities, and upon the receipt of such releases, indemnities, and refunding agreements as they deem necessary for their protection the Trustees may distribute the remaining Trust Estate, in case or in kind, or partly each, among the Shareholders, according to their respective rights, (b) After termination of the Trust and distribution to the shareholders as herein provided, the Trustees shall execute and lodge among the records of the Trust an instrument in writing, setting forth the fact of such termination, and the Trustees shall thereupon be discharged from all further liabilities and duties hereunder, and the rights and interests of all Shareholders shall thereupon cease. 8.3 Amendment Procedure. (a) This Declaration may be amended by the vote or written consent of Shareholders holding a majority of the outstanding Shares entitled to vote thereon. The Trustees may also amend this Declaration without the vote or consent of Shareholders as provided in Section 9.6. (b) A certification, in recordable form, signed by a majority of the Trustees, setting forth an amendment and reciting that it was duly adopted by the Shareholders or by the Trustees as aforesaid, or a copy of the Declaration, as amended, in recordable form, and executed by a majority of the Trustees, shall be conclusive evidence of such amendment when lodged among the records of the Trust. (c) Nothing contained in this Declaration shall permit the amendment of this Declaration to impair the exception from personal liability of the Shareholders, Trustees officers, and agents of this Trust, 8.4 Qualification Under the REIT Provisions of the Internal Revenue Code. It is intended that the Trust shall qualify as a "real estate investment trust" under the REIT Provisions of the Internal Revenue Code during such period as the Trustees shall deem it advisable so to qualify the Trust. ARTICLE IX. Miscellaneous 42 9.1 Applicable Law. This Declaration has been executed and acknowledged by the Trustees with reference to the statutes and laws-of the State of Maryland and the rights of all parties and the construction and effect of every provision hereof shall be subject to and construed according to statutes and laws of said State. 9.2 Index and Headings for Reference Only. The index and headings preceding the text, articles and sections hereof have been inserted for convenience and reference only and shall not be construed to affect the meaning, construction or effect of this Declaration. 9.3 Successors in Interest. This Declaration and the Trustees, Regulations shall be binding upon and inure to the benefit of the undersigned Trustees and their successors assigns, heirs, distributes and legal representatives, and every Shareholder and his successors, assigns, heirs, distributees and legal representatives. 9.4 Inspection of Records. Trust records shall be available for inspection by Shareholders at the same time and in the same manner and to the extent that comparable records of a Maryland corporation would be available for inspection by corporate shareholders under the laws of the State of Maryland. Except as specifically provided for in this Declaration, Shareholders shall have no greater right than shareholders of a Maryland corporation to require financial or other information from the Trust, Trustees or officers. Any Federal or state securities administration, the Department of Assessments and Taxation of the State of Maryland, or other similar authority shall have the right, at reasonable times during business hours and for proper purposes, to inspect the books and records of the Trust. 9.5 Counterparts. This instrument may be simultaneously executed in several counterparts, each of which when so executed shall be deemed to be an original and such counterparts together shall constitute one in the same instrument, which shall be sufficiently evidenced by any such original counterparts 9.6 Provisions of the Trust in Conflict with Law or Regulations. (a) The provisions of this Declaration are severable, and if the Trustees shall determine with the advice of counsel, that any one or more of such provisions (the "Conflicting Provisions") are in conflict with the REIT Provisions of the Internal Revenue Code, with other applicable federal laws and regulations, or with the REIT provisions of the Annotated Code of Maryland, the Conflicting Provisions shall be deemed never to have constituted a part of the Declaration; provided, however, that such determination by the Trustees shall not affect or impair any of the remaining provisions of this Declaration or render invalid or improper any action taken or omitted (including but not limited to the election of Trustees) prior to such determination. A certification in recordable form signed by a majority of the Trustees setting forth any such determination and reciting that it was duly adopted by the Trustees, or a copy of this Declaration, with the Conflicting Provisions removed pursuant to such determination, in recordable form, signed by a majority of the Trustees, shall be conclusive evidence of such determination when lodged in the records of the Trust, The Trustees shall not be liable for failure to make any determination under this Section 43 9.6(a), Nothing in this Section 9.6(a) shall in any way limit or affect the right of the Shareholders to amend this Declaration as provided in Section 8.3(a). (b) If any provisions of this Declaration shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other provision of this Declaration, and this Declaration shall be carried out as if any such invalid or unenforceable provision were not contained herein. 9.7 Certifications. The following certifications shall be final and conclusive as to any persons dealing with the Trust: (a) A certification of a vacancy among the Trustees by reason of resignation, removal, increase in the number of Trustees, incapacity, death or otherwise, when made in writing by majority of the remaining Trustees; (b) A certification as to the persons holding office as Trustees or officers at any particular time, when made in writing by the Secretary of the Trust or by any Trustee; (c) A certification that a copy of this Declaration or of the Trustees' Regulations is a true and correct copy thereof as then in force, when made in writing by the Secretary of the Trust or by any Trustee; (d) The certification referred to in Section 8.3(b) and 9.6(a) hereof; (e) A certification as to any action by Trustees, other than the above, when made in writing by the Secretary of the Trust, or by any Trustee. 9.8 Recording and Filing. A copy of this instrument and any other amendments to the Declaration shall be filed with the Department of Assessments and Taxation of Maryland, and in the office of the County Recorder or its equivalent in every county of Maryland where the Trust is or the Trustees are the record owner or owners of Real Property; provided, however, that provision is made in such county for such recording, and further provided that this Declaration is accepted for recording, This Declaration and any amendments may also be filed or recorded in such other places as the Trustees deem appropriate. 9.9 Resident Agent. The name and post office address of the resident agent of the Trust in the State of Maryland is Lawrence Wiser, 12702 Littleton Street, Silver Spring, Maryland 20906.(3) Said resident is a citizen of the State of Maryland actually residing therein. The resident agent may be removed a vacancy existing in such office for any reason may be filled by majority of the Trustees. (3) The resident agent of the Trust was changed to The Corporation Trust, 33 South Street, Baltimore, Maryland 21202, pursuant to documents recorded on-January 16, 1976 on Film No. 2246, Frame No. 684 and on May 3, 1984, on Film No. 2644, Frame No. 2123. 44 EXHIBIT A to ARTICLES OF MERGER ******************************************* Pursuant to the authority granted to the Board of Trustees of the Trust under Section 6.1 of the Amended and Restated Declaration of Trust of the Trust, as heretofore amended (the "Declaration"), the Board of Trustees of the Trust, by resolution adopted by the Board of Trustees of the Trust on September 8, 1997, classified and designated 30,000,000 shares of beneficial interest in the Trust as Class A Exchangeable Preferred Shares, par value $.01 per share, with the following preferences, exchange and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption, such classification and designation to become effective upon the effective time of the merger of Westin Hotels & Resorts Worldwide, Inc., a Delaware corporation, with and into the Trust: 6.15 Class A Exchangeable Preferred Shares Articles Supplementary 6.15.1. NUMBER OF SHARES AND DESIGNATION. The class of shares of beneficial interest in the Trust being created by these Articles Supplementary shall be designated as "Class A Exchangeable Preferred Shares", par value $.01 per share ("Class A EPS"), and 30,000,000 shall be the number of shares of Class A EPS constituting such class. 6.15.2. DEFINITIONS. For purposes of the Class A EPS, the following terms have the meanings indicated: "Affiliate" shall mean with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person. "Articles Supplementary" shall mean either this Article 6.15 or Article 6.16, as the case may be, of the Declaration of Trust. "Board of Trustees" shall mean the Board of Trustees of the Trust or any committee authorized by the Board of Trustees from time to time to exercise any of its powers or perform any of its responsibilities with respect to the Class A EPS. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York are not required to be open. 40 45 "Cash Equivalent" of Paired Shares or any other shares of beneficial interest or other securities of the Trust or any other issuer as of any date shall mean an amount of cash equal to (i) the average of the daily Current Market Prices per unit of such Paired Shares or other shares or securities during the five (5) consecutive Trading Days immediately preceding such date or (ii) if the Paired Shares or such other shares or securities are not publicly traded on such date, the fair market value of such Paired Shares or other securities as of such date as determined by the Board of Trustees in good faith (subject to the rights of the holders of the Class A EPS to request a valuation from a nationally recognized investment banking firm as provided in paragraph (g)(v) of Article 6.15.5 hereof). "Class A Articles Supplementary" shall mean this Article 6.15. "Class A Dividend Replacement Shares" shall have the meaning set forth in paragraph (d)(v) of Article 6.15.5 hereof. "Class A EPS" shall have the meaning set forth in Article 6.15.1 hereof. "Class A Exchange Notice" shall have the meaning set forth in paragraph (a)(i) of Article 6.15.5 hereof. "Class A Exchange Right" shall have the meaning set forth in paragraph (a)(i) of Article 6.15.5 hereof. "Class A Liquidation Preference" shall have the meaning set forth in paragraph (b) of Article 6.15.4 hereof. "Class A Liquidation Participation Right" shall have the meaning set forth in paragraph (a) of Article 6.15.4 hereof. "Class A Participation Dividend" shall have the meaning set forth in paragraph (a) of Article 6.15.3 hereof. "Class A Preferred Dividend" shall have the meaning set forth in paragraph (a) of Article 6.15.3 hereof. "Class A Underlying Corporation Shares" as of any time shall mean the Corporation Shares component of the Class A Underlying Paired Shares as of such time. "Class A Underlying Paired Shares" as of any time shall mean the Paired Shares (including, unless otherwise expressly provided herein, fractional units of Paired Shares) for which each share of Class A EPS is then exchangeable upon exercise of the Class A 41 46 Exchange Right but excluding (except for the purposes of an actual exercise of the Class A Exchange Right) any Class A Dividend Replacement Shares. "Class A Underlying Trust Shares" as of any time shall mean the Trust Shares component of the Class A Underlying Paired Shares as of such time. "Class B Articles Supplementary" shall mean Article 6.16 of the Declaration of Trust pursuant to which the Trust has classified and designated 15,000,000 shares of beneficial interest in the Trust as "Class B Exchangeable Preferred Shares". "Class B EPS" shall mean the Class B Exchangeable Preferred Shares, par value $0.01 per share, of the Trust created pursuant to the Class B Articles Supplementary. "Class B Liquidation Preference" shall have the meaning set forth in paragraph (b) of Articles 6.16.4 hereof. "Class B Liquidation Participation Right" shall have the meaning set forth in paragraph (a) of Article 6.16.4 hereof. "Class B Participation Dividend" shall have the meaning set forth in paragraph (a) of Article 6.16.3 hereof. "Class B Preferred Dividend" shall have the meaning set forth in paragraph (a) of Article 6.16.3 hereof. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Conditionally Declared Class A Dividend" shall have the meaning set forth in paragraph (b)(i) of Article 6.15.3 hereof. "Constituent Person" shall have the meaning set forth in paragraph (e)(ii) of Article 6.15.5 hereof. "Corporation" shall mean Starwood Lodging Corporation, a Maryland corporation, and any successor. "Corporation Common Adjustment Event" shall mean any of the following events that occurs after the Issue Date: (i) The payment by the Corporation of a dividend on the outstanding Corporation Shares that is payable in additional Corporation Shares; (ii) The subdivision of the outstanding Corporation Shares into a greater number of shares (whether by share split or otherwise); 42 47 (iii) The combination of the outstanding Corporation Shares into a smaller number of shares (whether by reverse share split or otherwise); or (iv) The issuance of any shares of stock of the Corporation by reclassification of the Corporation Shares. "Corporation Common Distribution" shall mean any dividend or distribution paid or made by the Corporation (including, without limitation, any distribution of assets on any liquidation, dissolution or winding up of the Corporation) in respect of the Corporation Shares, other than a dividend or distribution that constitutes a Corporation Common Adjustment Event. In addition, a distribution to the holders of Corporation Shares of rights to subscribe for or purchase additional Corporation Shares under a shareholders protective rights plan or agreement shall not be deemed to constitute a Corporation Common Distribution to the extent that the Corporation makes provision so that such rights, to the extent still outstanding with respect to the outstanding Corporation Shares, shall be issued to the holders of any Corporation Shares issued upon exercise of the Class A Exchange Right (and, to the extent applicable, shall attach to such Corporation Shares) in an amount and manner and to the extent provided in such shareholders protective rights plans or agreements with respect to already outstanding Corporation Shares. "Corporation Shares" shall mean the shares of common stock, par value $.01 per share, of the Corporation or any stock of the Corporation into which such common stock may hereafter be changed. "Current Market Price" of publicly traded Paired Shares or any other shares of beneficial interest or other securities of the Trust or any other issuer as of any Trading Day shall mean the last reported sales price, regular way, on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the NYSE or, if such shares or other securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such shares or other securities are listed or admitted for trading or, if not listed or admitted for trading on any national securities exchange, on the NASDAQ National Market or, if such shares or other securities are not quoted on such NASDAQ National Market, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such shares or other securities on such day shall not have been reported through NASDAQ, the average of the bid and asked prices on such day as furnished by any NYSE member firm regularly making a market in such shares or other securities selected for such purpose by the Chief Executive Officer or Chief Financial Officer of the Trust or the Board of Trustees. "Declaration" shall mean the Amended and Restated Declaration of Trust of the Trust, as amended from time to time. 43 48 "Delivered Shares" shall have the meaning set forth in paragraph (a)(ii) of Article 6.15.5 hereof. "Dividend Correspondence Ratio" shall have the meaning set forth in paragraph (b)(i) of Article 6.15.3 hereof. "Excess Shares" shall have the meaning set forth in paragraph (a)(ii) of Article 6.15.5 hereof. "Exchange Election Notice" shall have the meaning set forth in paragraph (a)(i) of Article 6.15.5 hereof. "Exchange Issuance Date" shall have the meaning set forth in paragraph (b) of Article 6.15.5 hereof. "Exchange Promissory Note" shall mean an unsecured promissory note of the Trust in such form as the Trust shall reasonably prescribe with a maturity date ninety (90) days after the date of issuance of such note. Such Exchange Promissory Note shall bear interest in a amount equal to the amount of any dividends paid during the period that such note remains outstanding on a number of Paired Shares equal to the number of Excess Shares for which such Exchange Promissory Note is being substituted pursuant to paragraph (a)(ii) of Article 6.15.5 hereof, which interest shall be payable on the dates of payment of the corresponding dividends. "Exchange Ratio" shall have the meaning set forth in paragraph (d)(i) of Article 6.15.5 hereof. "Issue Date" shall mean the first date on which any shares of Class A EPS are issued by the Trust. "Junior Dividend" means a dividend payable in respect of any class or series of shares of beneficial interest in the Trust over which the Class A Preferred Dividends have preference or priority as to the payment of dividends, including, without limitation, any Trust Common Dividend, any Class A Participation Dividend and any Class B Participation Dividend. "Junior Liquidating Distribution" shall mean any distribution of assets of the Trust in connection with a Liquidation Event to holders of any class or series of shares of beneficial interest in the Trust over which the Class A Liquidation Preference has preference or priority in the distribution of assets upon the occurrence of such Liquidation Event, including, without limitation, any such distribution of assets to holders of Trust Shares or in respect of the Class A Liquidation Participation Right or the Class B Liquidation Participation Right. "Junior Shares" shall mean the Trust Shares and any other class or series of shares of beneficial interest in the Trust now or hereafter issued and outstanding over which the Class A Preferred Dividends have full preference or priority in the payment of dividends or over 44 49 which the Class A Liquidation Preference has full preference or priority in the distribution of assets on the occurrence of any Liquidation Event, including, without limitation, the Trust Shares but excluding the Class B EPS. "Liquidation Date" shall have the meaning set forth in paragraph (a) of Article 6.15.4 hereof. "Liquidation Event" shall mean any liquidation, dissolution or winding up of the affairs of the Trust, whether voluntary or involuntary. For the purposes hereof, (i) a consolidation or merger of the Trust with one or more entities, (ii) a statutory share exchange and (iii) a sale or transfer of all or substantially all of the Trust's assets shall not be deemed to be a Liquidation Event. "Non-Electing Shares" shall have the meaning set forth in paragraph (e)(ii) of Article 6.15.5 hereof. "NYSE" shall mean the New York Stock Exchange. "Offered Shares" shall have the meaning set forth in paragraph (a)(ii) of Article 6.15.5 hereof. "Ownership Limit" shall have the meaning set forth in Section 6.12 of the Declaration. "Paired Shares" shall mean units consisting of one Trust Share paired with one Corporation Share (subject to adjustment as contemplated provided in paragraph (e) of Article 6.15.5 hereof) and represented by a single share certificate, as provided in the Pairing Agreement dated as of June 25, 1980, between the Trust and the Corporation, as amended from time to time. "Paired Shares Adjustment Event" shall have the meaning set forth in paragraph (d)(i) of Article 6.15.5 hereof. "Parity Liquidation Preference" shall mean the liquidation preference of any class or series of shares of beneficial interest in the Trust that ranks on a parity with the Class A Liquidation Preference. "Parity Preferred Dividend" shall mean any dividend payable in respect of any class or series of shares of beneficial interest in the Trust that ranks on a parity in right of payment with the Class A Preferred Dividends, whether or not the dividend rate, dividend payment dates, liquidation preference, redemption rights, conversion or exchange rights or other features of such class or series are different from those of the Class A EPS. 45 50 "Person" shall mean any individual, firm, partnership, corporation, limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. "Registered Sale Option" shall have the meaning set forth in paragraph (a)(ii) of Article 6.15.5 hereof. "REIT Rules" shall mean the requirements (i) for the Trust to qualify as a real estate investment trust under the Code as set forth in Sections 856(a)(5) and 856(a)(6) of the Code and (ii) for the Corporation or any affiliate of the Corporation which is a tenant of the Trust to not be treated as a related party pursuant to Section 856(d)(2)(B) of the Code. "Requested Shares" shall have the meaning set forth in paragraph (a)(ii) of Article 6.15.5 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended. "set apart for payment" shall be deemed to include, without any action other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Board of Trustees, the allocation of funds to be so paid on any series or class of shares of beneficial interest of the Trust; provided, however, that if any funds for any class or series of Junior Shares or any class or series of shares of beneficial interest of the Trust ranking on a parity with the Class A EPS as to the payment of dividends are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Class A EPS shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or similar agent. "Trading Day" with respect to publicly traded Paired Shares or any other shares of beneficial interest or other securities of the Trust or any other issuer shall mean any day on which the shares or other securities in question are traded on the NYSE, or if such shares or other securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such shares or other securities are listed or admitted, or if not listed or admitted for trading on any national securities exchange, on the NASDAQ National Market, or if such shares or other securities are not quoted on such NASDAQ National Market, in the applicable securities market in which such shares or other securities are traded. "Transaction" shall have the meaning set forth in paragraph (e)(ii) of Article 6.15.5 hereof. "Transfer Agent" shall mean ChaseMellon Shareholder Services, L.L.C. (or any successor thereof), or such other agent or agents of the Trust as may be designated by the Board of Trustees or their designee as the transfer agent for the Class A EPS and the Class B EPS. 46 51 "Trust" shall mean Starwood Lodging Trust, a Maryland real estate investment trust, and any successor. "Trust Common Adjustment Event" shall mean any of the following events that occurs after the Issue Date: (i) The payment by the Trust of a dividend on the outstanding Trust Shares that is payable in additional Trust Shares; (ii) The subdivision of the outstanding Trust Shares into a greater number of shares (whether by share split or otherwise); (iii) The combination of the outstanding Trust Shares into a smaller number of shares (whether by reverse share split or otherwise); or (iv) The issuance of any shares of beneficial interest in the Trust by reclassification of the Trust Shares. "Trust Common Dividend" shall mean any dividend or distribution paid or made by the Trust pro rata on the outstanding Trust Shares other than (i) a distribution of assets of the Trust upon the occurrence of a Trust Liquidation Event or (ii) on a dividend or distribution that constitutes a Trust Common Adjustment Event. In addition, a distribution to the holders of shares of beneficial interest in the Trust of rights to subscribe for or purchase additional Trust Shares under a shareholders protective rights plan or agreement or any similar plan or agreement shall not be deemed to constitute a Trust Common Dividend to the extent that the Trust makes provision so that such rights, to the extent still outstanding with respect to the outstanding Trust Shares, shall be issued to the holders of any Trust Shares issued upon exercise of the Class A Exchange Right (and, to the extent applicable, shall attach to such Trust Shares) in an amount and manner and to the extent provided in such plans or agreements with respect to already outstanding Trust Shares. "Trust Shares" shall mean the common shares of beneficial interest in the Trust, par value $.01 per share, or any shares of beneficial interest in the Trust into which such common shares may be changed. "Westin Transaction Agreement" shall mean the Transaction Agreement dated as of September 8, 1997 among WHWE L.L.C., Woodstar Investor Partnership, Nomura Asset Capital Corporation, Juergen Bartels, W&S Hotel L.L.C., 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., the Trust, SLT Realty Limited Partnership, the Corporation and SLC Operating Limited Partnership, as such agreement may be amended from time to time. "Westin Transaction Securities" shall mean, with respect to a holder of Class A EPS or an Affiliate thereof, any shares of Class A EPS, shares of Class B EPS, Starwood 47 52 Operating Partnership Units and Starwood Realty Partnership Units (as such terms are defined in the Westin Transaction Agreement) received by such holder or Affiliate pursuant to the Westin Transaction Agreement, together with any shares of Class B EPS, Class A EPS or Paired Shares (or other securities) issued upon exchange or conversion of any such Westin Transaction Securities. 6.15.3. DIVIDENDS. (a) In General. The holders of Class A EPS will be entitled (i) to receive a preferred dividend payable as described in paragraph (b) below (a "Class A Preferred Dividend"), when, as and if declared by the Board of Trustees out of assets of the Trust legally available for that purpose, based on the payment of any Corporation Common Distribution and (ii) to participate on the basis described in paragraph (c) below in any Trust Common Dividend, when, as and if declared by the Board of Trustees out of assets of the Trust available for that purpose (a "Class A Participation Dividend"). (b) Class A Preferred Dividend. (i) Upon the payment by the Corporation of any Corporation Common Distribution prior to the occurrence of a Liquidation Event, the right to receive a Class A Preferred Dividend will automatically accrue with respect to each share of Class A EPS as of the payment date for such Corporation Common Distribution in an amount equal to the value of the Corporation Common Distribution paid on each Corporation Share multiplied by the applicable Dividend Correspondence Ratio described below. To the extent that any Corporation Common Distribution consists of securities or other property (other than cash), the Trust will have the option of paying the corresponding Class A Preferred Dividend either (A) in the same form as such Corporation Common Distribution (i.e., by delivery of the same type of securities or other property as distributed in the Corporation Common Distribution), (B) in cash in an amount equal to the fair market value of such securities or other property as determined in good faith by the Board of Trustees (subject to the rights of the affected holders of Class A EPS to request a valuation from a nationally recognized investment banking firm as provided in paragraph (g)(v) of Article 6.15.5 hereof) or (C) a combination thereof. Each Class A Preferred Dividend will be cumulative from the payment date for the related Corporation Common Distribution and will be payable to holders of record of Class A EPS on such record date as shall be fixed by the Board of Trustees, which record date shall be the same as the record date for the corresponding Class B Preferred Dividend that will have accrued or will accrue based on such Corporation Common Distribution and not earlier than the record date for such Corporation Common Distribution. The Board of Trustees may, at any time between the declaration of a Corporation Common Distribution and the related payment date, declare a corresponding Class A Preferred Dividend conditioned on the actual payment of such Corporation Common Distribution (any such Class A Preferred Dvidend being sometimes referred to herein as a AConditionally Declared Class A Dividend@ until such time as the corresponding Corporation Common Distribution is paid, at which time it will no longer be a Conditionally Declared Class A Dividend but will instead be deemed to be an accrued Class A Preferred Dividend). The "Dividend Correspondence Ratio" for the purposes of determining the amount of any Class A Preferred Dividend shall mean the number of Class A Underlying Corporation Shares for which each share of Class A EPS is exchangeable as 48 53 of the record date for the related Corporation Common Distribution upon exercise of the Class A Exchange Right, as such number shall be proportionately adjusted to reflect any share dividend, share split, reverse share split or other combination or subdivision of the Class A EPS that becomes effective between (or, if the record date for such event is different from the effective date therefor, that has a record date that falls between) (A) the record date for the Corporation Common Distribution and (B) the date of payment of such Corporation Common Distribution or, if earlier, the record date for such Class A Preferred Dividend. (ii) So long as any shares of Class A EPS are outstanding: (A) no Junior Dividend may be declared or paid or set apart for payment unless all accrued Class A Preferred Dividends and Conditionally Declared Class A Dividends have been or are concurrently declared and paid, or declared and a sum sufficient for the payment thereof set apart for payment, (B) no Parity Preferred Dividend shall be declared or paid or set aside for payment unless a ratable portion of all accrued but unpaid Class A Preferred Dividends and Conditionally Declared Class A Dividends has been or is concurrently declared and paid, or declared and a sum sufficient for the payment thereof set apart for payment (with such ratable portion being based on the portion of the accrued but unpaid Parity Preferred Dividends being paid) and (C) no Junior Shares may be redeemed, purchased or otherwise acquired by the Trust (other than a redemption, purchase or other acquisition of Trust Shares made for purposes of and in compliance with requirements of an employee incentive or benefit plan of the Trust or any subsidiary or upon any exchange or redemption of other securities at the option of the holders thereof, or as required or permitted under Article VI of the Declaration) for consideration (or any moneys paid or made available for a sinking fund for the redemption of any Junior Shares), directly or indirectly (except for conversion into or exchange for Junior Shares) unless all accrued Class A Preferred Dividends and Conditionally Declared Class A Dividends have been or are concurrently declared and paid, or declared and a sum sufficient for the payment thereof set apart for payment. (c) Class A Participation Dividend. No Trust Common Dividend may be declared in respect of the Trust Shares unless the Board of Trustees concurrently declares a Class A Participation Dividend entitling each share of Class A EPS to receive an amount equal to the amount of the Trust Common Dividend declared on each Trust Share multiplied by the number of Class A Underlying Trust Shares for which each share of Class A EPS is then exchangeable upon exercise of the Class A Exchange Right as of the record date for such Trust Common Dividend. Such Class A Participation Dividend shall be payable on the same date on which the corresponding Trust Common Dividend is payable, shall be payable in the same form as the corresponding Trust Common Dividend and shall be paid to holders of record of the Class A EPS on the same record date as is fixed by the Board of Trustees for the payment of such Trust Common Dividend. 6.15.4. LIQUIDATION RIGHTS. (a) In General. Upon the occurrence of any Liquidation Event, the holders of Class A EPS will be entitled (i) to receive out of the assets of the Trust legally available for liquidating distributions to holders of shares of beneficial interests in the Trust, prior to the making of any Junior Liquidating Distribution, a liquidating distribution in an amount equal to the Class A Liquidation 49 54 Preference described in paragraph (b) below determined as of the effective date of such Liquidation Event or, if no effective date is provided, as of the record date of the first liquidating distribution relating to such Liquidation Event (in either such case, the "Liquidation Date") and (ii) to participate on the basis described in paragraph (c) below in any liquidating distribution to holders of Trust Shares (the "Class A Liquidation Participation Right"). In determining whether a distribution (other than upon the occurrence of a Liquidation Event), by dividend, redemption or other acquisition of shares of beneficial interest in the Trust or otherwise, is permitted under Maryland law, amounts that would be needed, if the Trust were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of the holders of Class A EPS whose preferential rights upon dissolution are senior to those receiving the distribution shall not be added to the Trust's total liabilities. (b) Class A Liquidation Preference. The "Class A Liquidation Preference" of a share of Class A EPS as of the applicable Liquidation Date shall mean the sum of (A) the fair market value (as determined in good faith by the Board of Trustees, subject to the right of the holders of Class A EPS to request a valuation from a nationally recognized investment banking firm pursuant to paragraph (g)(v) of Article 6.15.5 hereof) as of such date of the number of Class A Underlying Corporation Shares for which each Class A EPS is exchangeable as of such date upon exercise of the Class A Exchange Right plus (B) the amount of any accrued but unpaid Class A Preferred Dividends in respect of each share of Class A EPS as of such date (other than any such accrued but unpaid Class A Preferred Dividends that have been declared with a record date prior to such Liquidation Date, which the Trust shall separately be obligated to pay to the holders of record of the Class A EPS as of such record date). Until each holder of shares of Class A EPS has received distributions equal to the Class A Liquidation Preference, no Junior Liquidating Distributions may be paid to holders of any other class or series of shares of beneficial interest in the Trust. Subject to the rights of the holders of shares of beneficial interest in the Trust with liquidation preferences ranking prior to or on a parity with the Class A Liquidation Preference, after payment shall have been made in full of the Class A Liquidation Preference as provided in this paragraph (b), Junior Liquidating Distributions may be paid to the holders of any shares of beneficial interest entitled to receive such distributions and the holders of the Class A EPS shall not be entitled to share therein except as provided in paragraph (c) of this Article 6.15.4. In the event that the assets of the Trust available for liquidating distributions to holders of shares of beneficial interest in the Trust in connection with any Liquidation Event are insufficient to pay the Class A Liquidation Preference on all outstanding Class A PS and any Parity Liquidation Preferences in respect of any other classes or series of shares of beneficial interest in the Trust, then the holders of the Class A EPS and such other classes and series of shares of beneficial interest in the Trust shall share ratably in any such distribution of assets in proportion to the Class A Liquidation Preference and the Parity Liquidation Preferences to which they would otherwise be respectively entitled. (c) Class A Liquidation Participation Right. In addition to being entitled to receive the Class A Liquidation Preference, upon the occurrence of any Liquidation Event the holders of Class A EPS shall be entitled to participate, pursuant to the Class A Liquidation Participation Right, ratably with the holders of Trust Shares in any liquidating distributions to such holders. For such purpose, each share of Class A EPS shall be deemed to represent a number of Trust Shares equal to the number of Class A Underlying Trust Shares for which each share of Class A EPS could be 50 55 exchanged upon exercise of the Class A Exchange Right as of the record date for such distribution. 6.15.5. EXCHANGE RIGHT. (a) Class A Exchange Right. (i) A holder of shares of Class A EPS shall have the right to exchange such shares in whole or in part at any time for fully paid and non-assessable Paired Shares to the extent described below (the "Class A Exchange Right"). A holder of shares of Class A EPS desiring to exchange such shares for Paired Shares shall surrender the certificate or certificates evidencing such shares, duly endorsed or assigned to the Trust or in blank, to the Transfer Agent together with a duly completed and executed exchange notice (a "Class A Exchange Notice") in such form as the Trust shall prescribe from time to time and such related certifications as the Trust may reasonably prescribe from time to time. Unless any Paired Shares to be issued in exchange for such shares of Class A EPS are to be issued in the same name as the name in which such shares of Class A EPS are registered, each share certificate surrendered shall be accompanied by instruments of transfer, in form reasonably satisfactory to the Trust, duly executed by the holder or such holder=s duly authorized attorney and an amount sufficient to pay any applicable transfer or similar tax (or evidence reasonably satisfactory to the Trust demonstrating that such taxes have been paid). As promptly as practicable (and in any event within five (5) Business Days after receipt of a Class A Exchange Notice and such required certificates and documents, the Trust shall elect, pursuant to an election notice given to the exchanging holder (an "Exchange Election Notice"), to either: (i) deliver to such holder the number of Paired Shares corresponding to the number of shares of Class A EPS being exchanged based on the Exchange Ratio described in paragraph (d) of this Article 6.15.5 (including procuring the issuance by the Corporation of the Corporation Shares component of such Paired Shares) or (ii) pay to the holder the Cash Equivalent of such Paired Shares or (iii) a combination of (i) and (ii). (ii) If the delivery to such holder of the full number of Paired Shares requested to be delivered pursuant to the Class A Exchange Notice (the "Requested Shares") would result in a violation of either the Ownership Limit or the REIT Rules, the Trust may elect in the Exchange Election Notice to either (A) deliver to such holder the maximum number of Paired Shares that may be delivered without causing such a violation (the "Delivered Shares", with the number of Requested Shares in excess of the Delivered Shares being referred to herein as the "Excess Shares"), together with either the Cash Equivalent (determined as of the date of delivery of the applicable Class A Exchange Notice and the related certificates and other documents described above) of the Excess Shares or an Exchange Promissory Note in a principal amount equal to such Cash Equivalent or (B) deliver to such holder the Cash Equivalent (determined as of such notice delivery date) of the Requested Shares. Notwithstanding the foregoing, in the event that the delivery of the full number of Requested Shares pursuant to a Class A Exchange Notice would violate either the Ownership Limit or the REIT Rules because the exchanging Class A EPS holder, together with such holder's Affiliates (but without giving effect to any other applicable attribution rules under the Code), beneficially owns, as of the date the Exchange Election Notice is given, Paired Shares other than through the ownership of Westin Transaction Securities, the Trust will have the option (the "Registered Sale Option"), exercisable in the Exchange Election Notice, in lieu of delivering an Exchange Promissory Note in a principal amount equal to the Cash Equivalent of the Excess Shares, to procure the filing of a registration statement under the Securities Act, and to publicly offer and sell 51 56 pursuant to such registration statement in such manner as the Trust in good faith determines to be appropriate a number of Paired Shares equal to the number of such Excess Shares (the "Offered Shares"), the net roceeds of which sale (after deducting any applicable underwriting discounts or commissions and the expenses of such offering) shall be paid to such holder. (iii) In the event that the issuance of the full number of Requested Shares upon any exercise of the Class A Exchange Right would violate either the Ownership Limit or the REIT Rules and either (i) the Trust elects to deliver the Delivered Shares together with an Exchange Promissory Note in a principal amount equal to the Cash Equivalent of the Excess Shares or (ii) the Trust exercises the Registered Sale Option, the holder of the shares of Class A EPS being exchanged will have the right to withdraw his or her Class A Exchange Notice as to the Excess Shares, which withdrawal must be made by written notice to the Transfer Agent within ten (10) Business Days after receipt of the Trust's Exchange Election Notice. (b) Delivery of Securities and Cash. If the Exchange Election Notice relating to an exercise of the Class A Exchange Right does not give rise to a withdrawal right pursuant to paragraph (a)(iii) above, such Exchange Election Notice shall be accompanied by the delivery of the Paired Shares and/or cash required to be delivered pursuant to such Exchange Election Notice. If the Exchange Election Notice does give rise to such a withdrawal right, but such right is not exercised by the exchanging holder, the Trust shall deliver the Paired Shares, Exchange Promissory Note and/or cash required to be delivered pursuant to such Exchange Election Notice within five (5) Business Days after the expiration of such withdrawal right. If the Exchange Election Notice includes the exercise of the Registered Sale Option, the proceeds from the sale of the Offered Shares shall be paid over to the applicable holder promptly upon receipt. Any cash payable to an exchanging holder hereunder shall be payable at the election of the Trust by check or by wire transfer to an account designated in writing by the exchanging holder, if one has been so designated. With respect to any Paired Shares to be issued pursuant to an Exchange Election Notice, the Trust shall issue and deliver (and shall cause the Corporation to issue and deliver) at the office of the Transfer Agent to the exchanging holder, or on his or her written order, a certificate or certificates for the number of full Paired Shares deliverable in accordance with the provisions of this Article 6.15.5, and any fractional interest in respect of a unit of Paired Shares arising upon such exercise of the Class A Exchange Right shall be settled as provided in paragraph (c) of this Article 6.15.5 (the date of delivery of such certificate or certificates being sometimes referred to herein as the "Exchange Issuance Date"). Any such Paired Shares issued upon such exercise shall be deemed to have been issued immediately prior to the close of business on the Exchange Issuance Date, and the Person or Persons in whose name or nmes any certificate or certificates for Paired Shares shall be issuable pursuant to such Class A Exchange Notice shall be deemed to have become the holder or holders of record of the Paired Shares represented thereby at such time on such date unless the share transfer records for the Paired Shares shall be closed on such date, in which event such Person or Persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such share transfer books are open. If less than the full number of shares of Class A EPS represented by the certificate or certificates surrendered to the Trust in connection with an exercise of the Class A Exchange Right are being exchanged pursuant to such exercise, the Trust shall also deliver to the exchanging holder a new certificate or certificates evidencing the excess shares not being exchanged. 52 57 (c) Fractional Interests. No fractional Paired Share units or scrip evidencing fractions of Paired Shares shall be issued upon exercise of the Class A Exchange Right. Instead of any fractional interest in a unit of Paired Shares that would otherwise be deliverable upon such exercise, the Trust shall pay to the exchanging holder an amount in cash equal to the corresponding fraction of the Current Market Price of the Paired Shares on the Trading Day immediately preceding the Exchange Issuance Date. If more than one share of Class A EPS shall be surrendered for exchange at one time by the same holder, the number of full Paired Shares issuable upon exercise of the Class A Exchange Right shall be computed on the basis of the aggregate number of shares of Class A EPS so surrendered. (d) Exchange Ratio and Adjustments. (i) Initially, one unit of Paired Shares will be issuable upon exchange of each share of Class A EPS pursuant to the exercise of the Class A Exchange Right (the "Exchange Ratio"). If, at any time after the Issue Date, a Trust Common Adjustment Event shall occur in conjunction with the occurrence of a corresponding Corporation Common Adjustment Event as a result of which the number of outstanding Paired Shares is increased or decreased but neither the nature of the securities comprising the Paired Shares nor the ratio of outstanding Trust Shares to Common Shares is affected (a "Paired Shares Adjustment Event"), the Exchange Ratio in effect as of the close of business on the record date for such Paired Shares Adjustment Event or, if no such record date applies, the effective date of such Paired Shares Adjustment Event shall be adjusted so that a holder of shares of Class A EPS who thereafter exercises the Class A Exchange Right with respect to such shares will be entitled to receive upon such exercise the number of Paired Shares that such holder would have owned or have been entitled to receive after the happening of such Paired Shares Adjustment Event if such holder had exercised the Class A Exchange Right immediately prior to such record date or effective date. An adjustment pursuant to this subparagraph (i) shall become effective (subject to subparagraph (iv) below) immediately upon the opening of business on the Business Day next following the record date for the applicable Paired Shares Adjustment Event or, if no such record date applies, the Business Day next following the effective date of such Paired Shares Adjustment Event. (ii) No adjustment in the Exchange Ratio shall be required pursuant to subparagraph (i) above unless such adjustment would require a cumulative increase or decrease of at least one percent (1%) in such ratio; provided, however, that any adjustments that by reason of this subparagraph (ii) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made. All calculations of the Exchange Ratio under this paragraph (d) shall be made to the nearest one-tenth of a share (with .05 of a share being rounded upward). (iii) Notwithstanding any other provisions of this Article 6.15.5, the Trust shall not be required to make any adjustment to the Exchange Ratio based on any issuance of Paired Shares pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Trust (or the Corporation) and the investment of additional optional amounts in Paired Shares under such plan. 53 58 (iv) In any case in which this paragraph (d) provides that an adjustment to the Exchange Ratio shall become effective immediately following the record date for an event, the Trust may defer until the occurrence of such event (A) issuing to the holder of any shares of Class A EPS exchanged after such record date but before the occurrence of such event the additional Paired Shares (or the cash, Exchange Promissory Notes or other property to be delivered in lieu thereof pursuant to this Article 6.15.5) issuable pursuant to such exchange by reason of the adjustment required pursuant to this paragraph (d) in respect of such event and (B) paying to the exchanging holder any amount of cash in lieu of any fractional interest in Paired Shares pursuant to paragraph (c) of this Article 6.15.5. (v) If at the time of any exercise of the Class A Exchange Right there are any accrued but unpaid Class A Preferred Dividends or Class A Participation Dividends other than Class A Preferred Dividends or Class A Participation Dividends that have been declared with a record date prior to such exercise, the Exchange Ratio shall be adjusted so that the number of Paired Shares into which the shares of Class A EPS being exchanged are then exchangeable is increased by a number of Paired Shares (the "Class A Dividend Replacement Shares") equal to (A) the aggregate amount of such accrued but unpaid Class A Preferred Dividends and Class A Participation Dividends with respect to each share of Class A EPS being exchanged divided by (B) the Current Market Price of the Paired Shares during the five (5) Trading Days immediately preceding the date of delivery of the applicable Class A Exchange Notice and all related certificates and other documents. (e) Adjustments to Composition of Paired Shares Issuable Upon Exchange. (i) If, at any time after the Issue Date, a Trust Common Adjustment Event or a Corporation Common Adjustment Event shall occur other than as part of a Paired Shares Adjustment Event, each unit of Paired Shares issuable upon exercise of the Class A Exchange Right shall be adjusted (subject to subparagraph (iii) below) as of the close of business on the record date for such event or, if no such record date applies, the effective date of such event so as to consist of the number of Trust Shares, the number of Corporation Shares and the number of any other shares of beneficial interest in the Trust or shares of stock of the Corporation that a holder of one unit of Paired Shares would have held or have been entitled to receive after giving effect to such event. (ii) If, at any time after the Issue Date, the Trust or the Corporation shall become a party to any transaction, including, without limitation, a merger, consolidation, statutory share exchange, self tender offer for all or substantially all outstanding Trust Shares and/or Corporation Shares, sale of all or substantially all of the Trust=s or the Corporation=s assets or recapitalization of the Trust Shares and/or the Corporation Shares (but excluding any event constituting a Trust Common Adjustment Event or a Corporation Common Adjustment Event) (each of the foregoing being referred to herein as a "Transaction"), in each case as a result of which the outstanding Trust Shares and/or Corporation Shares shall be converted into or exchanged for the right to receive stock, securities or other property (including cash or any combination thereof), effective as of the effective date of such Transaction, each unit of Paired Shares issuable upon exercise of the Class A Exchange Right with respect to any shares of Class A EPS that are not converted into or exchanged for the right to receive stock, securities or other property in connection 54 59 with such Transaction shall thereafter be deemed to consist of the kind and amount of shares of beneficial interest in the Trust, shares of stock of the Corporation and other securities and property (including cash or any combination thereof) that would have been held or receivable upon the consummation of such Transaction by a holder of a number of Paired Shares equal to the number of Class A Underlying Paired Shares for which one share of Class A EPS would have been exchangeable immediately prior to such Transaction, assuming such holder of Paired Shares (A) is not a Person with which the Trust or the Corporation consolidated or into which the Trust or the Corporation was merged or which merged into the Trust or the Corporation or to which such sale or transfer was made, as the case may be (a "Constituent Person"), or an Affiliate of a Constituent Person and (B) failed to exercise his or her rights of election, if any, as to the kind or amount of stock, securities and other property (including cash) receivable upon such Transaction (provided that if the kind or amount of stock, securities and other property (including cash) receivable upon such Transaction is not the same for each unit of Paired Shares held immediately prior to such Transacion by other than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-Electing Shares"), then for the purposes of this subparagraph (ii) the kind and amount of stock, securities and other property (including cash) receivable upon such Transaction in respect of each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). The provisions of this paragraph (e) shall similarly apply to successive transactions. (iii) In any case in which this paragraph (e) provides that an adjustment to the composition of the units of Paired Shares issuable upon exercise of the Class A Exchange Right shall become effective immediately following the record date for an event, the Trust may defer until the occurrence of such event (A) issuing to the holder of any shares of Class A EPS exchanged after such record date but before the occurrence of such event the additional Paired Shares (or the cash, Exchange Promissory Notes or other property to be delivered in lieu thereof pursuant to this Article 6.15.5) issuable pursuant to such exchange before giving effect to such adjustment and (B) paying to the exchanging holder any amount of cash in lieu of any fractional interest in Paired Shares pursuant to paragraph (c) of this Article 6.15.5. (f) Notice of Adjustments. Whenever the Exchange Ratio or the composition of a unit of Paired Shares is adjusted as provided in paragraph (d) or (e) above, the Trust shall promptly file with the Transfer Agent an officer=s certificate setting forth the Exchange Ratio after such adjustment and, in the case of an adjustment pursuant to paragraph (e), describing the kind and amount of stock, securities and other property (including cash) then constituting a unit of Paired Shares. Such certificate shall also set forth a brief statement of the facts requiring such adjustment and shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after delivery of such certificate, the Trust shall prepare a notice of such adjustment setting forth the adjusted Exchange Ratio, the effective date of such adjustment and, in the case of an adjustment pursuant to paragraph (e), a description of the kind and amount of stock, securities and other property (including cash) then constituting a unit of Paired Shares, and shall mail such notice of such adjustment to the holder of each share of Class A EPS, and to the extent that any shares of Class B EPS are then outstanding to each holder of Class B EPS, at such holder=s last address as shown on the share records of the Trust. 55 60 (g) Miscellaneous Provisions. (i) There shall be no adjustment of the Exchange Ratio or the composition of the units of Paired Shares issuable upon exercise of the Class A Exchange Right in case of the issuance of any shares of beneficial interest in the Trust in a reorganization, acquisition or other similar transaction except as specifically set forth in this Article 6.15.5. (ii) If the Trust shall take any action affecting the Trust Shares or the Corporation shall take any action affecting the Corporation Shares, other than an action described in this Article 6.15.5, that in the opinion of the Board of Trustees would materially affect the exchange rights of the holders of the Class A EPS provided for in this Article 6.15.5, the Exchange Ratio and/or the composition of the units of Paired Shares may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board of Trustees, in its sole discretion, may determine to be equitable in the circumstances. (iii) The Trust covenants that any Paired Shares issued upon exercise of the Class A Exchange Right will be validly issued, fully paid and non-assessable. The Trust shall reserve and shall at all times have reserved out of its authorized but unissued Trust Shares, solely for issuance pursuant to exercise of the Class A Exchange Right and shall use its best efforts to cause the Corporation to reserve and at all times have, solely for issuance pursuant to exercise of the Class A Exchange Right, sufficient Corporation shares to permit the exercise of such Class A Exchange Right. The Trust shall use its best efforts to cause the Corporation not to close its transfer books so as to prevent the timely issuance of Corporation Shares upon the exercise of the Class A Exchange Right. The Trust shall not close its transfer books so as to prevent the timely issuance of Trust Shares upon the exercise of the Class A Exchange Right. The Trust shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Paired Shares or other securities or property upon exercise of the Class A Exchange Right; provided, however, that the Trust shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of any Paired Shares or other securities or property in a name other than that of the holder of the shares of Class A EPS being exchanged, and no such issue or delivery shall be made unless and until the Person requesting such issue or delivery has paid to the Trust the amount of any such tax or established, to the reasonable satisfaction of the Trust, that such tax has been paid. (iv) Except as provided in paragraph (g)(v) below, any determination required or permitted to be made by the Board of Trustees by these Articles Supplementary shall be final, conclusive and binding on the holders of Class A EPS. (v) In the event that: (A) the Trust elects to pay the Cash Equivalent of Paired Shares or other securities pursuant to an exercise of the Class A Exchange Right and in connection therewith the Board of Trustees makes a determination of the value of the Paired Shares or other securities at a time when the Paired Shares or such other securities are not publicly traded, (B) the Trust elects to pay in cash a Class A Preferred Dividend corresponding to a Corporation Common Distribution in the form of securities or other property and in connection therewith the Board of Trustees makes a determination of the fair market value of such securities or 56 61 other property or (C) the Board of Trustees makes a determination of the fair market value of Class A Underlying Corporation Shares for the purpose of determining the amount of the Class A Liquidation Preference in connection with a Liquidation Event, then the Trust shall deliver to each affected holder of Class A EPS a written notice (which, in the case of an exercise of the Class A Exchange Right may be set forth in the related Exchange Election Notice) setting forth the valuation determined by the Board of Trustees. At any time within ten (10) Business Days after receipt of such notice, any affected holder of Class A EPS may request in writing that the Trust obtain a written valuation of such Paired Shares, Class A Underlying Corporation Shares or other securities or property from an investment banking firm. Promptly after receipt of any such request, the Trust shall select a nationally recognized investment banking firm to perform such valuation and shall provide such investment banking firm with such relevant information as the Trust may have in relation thereto. Such investment banking firm shall be instructed to prepare a written valuation report within thirty (30) days after its appointment, and upon receipt of such valuation report, the Trust shall mail a copy to each affected holder of Class A EPS. If the valuation as determined by such investment banking firm is greater than the valuation as determined by the Board of Trustees, the Trust shall promptly pay the amount of such difference to each affected holder of Class A EPS. If, however, the valuation as determined by such investment banking firm is less than the valuation determined by the Board of Trustees, the Trust may at its option require each affected holder of Class A EPS to repay the amount of such difference to the Trust, which amount shall be so repaid by each such holder promptl after receipt of the Trust's request. The fees and expenses of such investment banking firm shall be paid by the Trust. 6.15.6. REACQUIRED SHARES TO BE RETIRED. All shares of Class A EPS which shall have been issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued shares of beneficial interest in the Trust without designation as to class. 6.15.7. VOTING. (a) General Voting Rights. The holders of shares of Class A EPS shall be entitled to vote upon all matters upon which holders of Trust Shares have the right to vote, and shall be entitled to the number of votes equal to the largest whole number of Class A Underlying Trust Shares for which such shares of Class A EPS could be exchanged pursuant to the provisions of Article 6.15.5 hereof as of the record date for determination of the shareholders entitled to vote on such matters, or, if no such record date is established, as of the date such vote is taken or any written consent of shareholders is solicited, such votes to be counted together with all other shares of beneficial interest in the Trust having general voting powers and not separately as a class. (b) Special Voting Rights. So long as any shares of Class A EPS are outstanding, in addition to any other vote or consent of holders of such shares required by the Declaration or these Articles Supplementary, the affirmative vote of at least a majority of the votes entitled to be cast by the holders of all outstanding shares of Class A EPS, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for that purpose, shall be necessary for 57 62 effecting or validating any amendment, alteration or repeal of any of the provisions of the Declaration or these Articles Supplementary that materially and adversely affects the voting powers, rights or preferences of the holders of the Class A EPS disproportionately (based on the number of Underlying Class A Trust Shares at the time) to the effect of such amendment, alteration or repeal on the holders of Trust Shares; provided, however, that (i) any amendment of the provisions of the Declaration so as to authorize or create, or to increase the authorized amount of, any class or series of shares of beneficial interest in the Trust, whether ranking prior to, on a parity with or junior to the Class A EPS shall not be deemed to materially and adversely affect the voting powers, rights or preferences of the holders of Class A EPS and (ii) no filing with the State Department of Assessments and Taxation of Maryland by the Trust in connection with a merger, consolidation or sale of all or substantially all of the assets of the Trust shall be deemed to be an amendment, alteration or repeal of any of the provisions of the Declaration or these Articles Supplementary unless such filing expressly purports to amend, alter or repeal one or more of such provisions. For the purposes of this paragraph (b), each share of Class A EPS will have one vote per share. 6.15.8. RECORD HOLDERS. The Trust and the Transfer Agent may deem and treat the record holder of any shares of Class A EPS as the true and lawful owner thereof for all purposes, and neither the Trust nor the Transfer Agent shall be affected by any notice to the contrary. 6.15.9. RESTRICTIONS ON OWNERSHIP AND TRANSFER. The Class A EPS constitute shares of beneficial interest in the Trust that are governed by and issued subject to all the limitations, terms and conditions of the Declaration applicable to shares of beneficial interest in the Trust generally, including, without limitation, the terms and conditions (including exceptions and exemptions) of Article VI of the Declaration applicable to shares of beneficial interest in the Trust. The foregoing sentence shall not be construed to limit the applicability to the Class A EPS of any other term or provision of the Declaration. No restrictions on the transferability of shares of Class A EPS shall be enforced by the Trust to the extent that such restrictions would otherwise cause the Trust to fail to meet the requirements of Section 856(a)(2) of the Code. ********************************** 58 63 Pursuant to the authority granted to the Board of Trustees of the Trust under Section 6.1 of the Amended and Restated Declaration of Trust of the Trust, as heretofore amended (the "Declaration"), the Board of Trustees of the Trust, by resolution adopted by the Board of Trustees of the Trust on September 8, 1997, classified and designated 15,000,000 shares of beneficial interest in the Trust as Class B Exchangeable Preferred Shares, par value $.01 per share, with the following preferences, exchange and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption, such classification and designation to become effective upon the effective time of the merger of Westin Hotels & Resorts Worldwide, Inc., a Delaware corporation, with and into the Trust: 6.16 Class B Exchangeable Preferred Shares Articles Supplementary 6.16.1. NUMBER OF SHARES AND DESIGNATION. There are hereby designated 15,000,000 "Class B Exchangeable Preferred Shares", par value $.01 per share ("Class B EPS"). 6.16.2. DEFINITIONS. For purposes of the Class B EPS, the following terms have the meanings indicated: "Affiliate" shall mean with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person. "Articles Supplementary" shall mean either Article 6.15 or Article 6.16, as the case may be, of the Declaration of Trust. "Base Preference Amount" per share of Class B EPS as of any date shall mean the Stated Value per share as of such date. "Board of Trustees" shall mean the Board of Trustees of the Trust or any committee authorized by the Board of Trustees from time to time to exercise any of its powers or perform any of its responsibilities with respect to the Class B EPS. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York are not required to be open. "Class A Articles Supplementary" shall mean Article 6.15 hereof pursuant to which the Trust has classified and designated 30,000,000 shares of beneficial interest in the Trust as "Class A Exchangeable Preferred Shares". 59 64 "Class A EPS" means the Class A Exchangeable Preferred Shares, par value $0.01 per share, created by the Class A Articles Supplementary. "Class A EPS Adjustment Event" shall mean any of the following events that occurs after the Issue Date: (i) The payment by the Trust of a dividend on the outstanding Class A EPS that is payable in additional shares of Class A EPS; (ii) The subdivision of the outstanding Class A EPS into a greater number of shares (whether by share split or otherwise); (iii) The combination of the outstanding Class A EPS into a smaller number of shares (whether by reverse share split or otherwise); or (iv) The issuance of any shares of beneficial interest in the Trust by reclassification of the Class A EPS. "Class A Exchange Right" shall have the meaning set forth in paragraph (a) of Article 6.15.5 hereof. "Class A Liquidation Preference" shall have the meaning set forth in paragraph (b) of Article 6.15.4 hereof. "Class A Liquidation Participation Right" shall have the meaning set forth in paragraph (a) of Article 6.15.4 hereof. "Class A Participation Dividend" shall have the meaning set forth in paragraph (a) of Article 6.15.3 hereof. "Class A Preferred Dividend" shall have the meaning set forth in paragraph (a) of Article 6.15.3 hereof. "Class B Articles Supplementary" shall mean this Article 6.16. "Class B Conversion Notice" shall have the meaning set forth in paragraph (b)(ii) of Article 6.16.5 hereof. "Class B Conversion/Redemption Election Right" shall have the meaning set forth in Article 6.16.7 hereof. "Class B Conversion/Redemption Notice" shall have the meaning set forth in Article 6.16.7 hereof. 60 65 "Class B Conversion Right" shall have the meaning set forth in paragraph (b)(i) of Article 6.16.5 hereof. 61 66 "Class B Dividend Replacement Shares" shall have the meaning set forth in paragraph (e)(v) of Article 6.16.5 hereof. "Class B EPS" shall have the meaning set forth in Article 6.16.1 hereof. "Class B Liquidation Preference" shall have the meaning set forth in paragraph (b) of Article 6.16.4 hereof. "Class B Liquidation Participation Right" shall have the meaning set forth in paragraph (a) of Article 6.16.4 hereof. "Class B Participation Dividend" shall have the meaning set forth in paragraph (a) of Article 6.16.3 hereof. "Class B Preferred Dividend" shall have the meaning set forth in paragraph (a) of Article 6.16.3 hereof. "Class B Redemption Date" shall have the meaning set forth in paragraph (c)(ii) of Article 6.16.6 hereof. "Class B Redemption Notice" shall have the meaning set forth in paragraph (c)(ii) of Article 6.16.6 hereof. "Class B Redemption Right" shall have the meaning set forth in paragraph (a) of Article 6.16.6 hereof. "Class B Underlying Class A EPS" with respect to any shares of Class B EPS as of a specified date shall mean the number of shares of Class A EPS issuable on such date upon exercise of the Class B Conversion Right with respect to such shares of Class B EPS (including fractional interests but without taking into account any Class B Dividend Replace ment Shares except for the purposes of an actual exercise of the Class B Conversion Right). "Class B Underlying Corporation Shares" as of any time shall mean the Corporation Shares component of the Class B Underlying Paired Shares as of such time. "Class B Underlying Paired Shares" as of any time shall mean the Paired Shares for which each share of Class B EPS is then indirectly exchangeable assuming both (i) the conversion at such time of such share of Class B EPS into the corresponding number of shares of Class B Underlying Class A EPS upon exercise of the Class B Conversion Right and (ii) the simultaneous exchange of such shares of Class A EPS for Paired Shares (including, unless otherwise expressly provided herein, fractional shares but excluding any Class A Dividend Replacement Shares, as defined in paragraph (d)(v) of Article 6.15.5 hereof) upon exercise of the Class A Exchange Right. 62 67 "Class B Underlying Trust Shares" as of any time shall mean the Trust Shares component of the Class B Underlying Paired Shares as of such time. "Code" shall mean the Internal Revenue Code of 1986, as amended. AConditionally Declared Class B Dividend@ shall have the meaning set forth in paragraph (b)(i) of Article 6.16.3 hereof. "Constituent Person" shall have the meaning set forth in paragraph (f) of Article 6.16.5 hereof. "Conversion Ratio" shall have the meaning set forth in paragraph (e)(i) of Article 6.16.5 hereof. "Corporation" shall mean Starwood Lodging Corporation, a Maryland corporation, and any successor. "Corporation Common Adjustment Event" shall mean any of the following events that occurs after the Issue Date: (i) The payment by the Corporation of a dividend on the outstanding Corporation Shares that is payable in additional Corporation Shares; (ii) The subdivision of the outstanding Corporation Shares into a greater number of shares (whether by stock split or otherwise); (iii) The combination of the outstanding Corporation Shares into a smaller number of shares (whether by reverse stock split or otherwise); or (iv) The issuance of any shares of stock of the Corporation by reclassification of the Corporation Shares. "Corporation Common Distribution" shall mean any dividend or distribution paid or made by the Corporation (including, without limitation, any distribution of assets on any liquidation, dissolution or winding up of the Corporation) in respect of the Corporation Shares, other than a dividend or distribution that constitutes a Corporation Common Adjustment Event. In addition, a distribution to the holders of Corporation Shares of rights to subscribe for or purchase additional Corporation Shares under a shareholders protective rights plan or agreement shall not be deemed to constitute a Corporation Common Distribution to the extent that the Corporation makes provision so that such rights, to the extent still outstanding with respect to the outstanding Corporation Shares, shall be issued to the holders of any Corporation Shares issued upon exercise of the Class A Exchange Right (and, to the extent applicable, shall attach to such Corporation Shares) in an amount and 63 68 manner and to the extent provided in such shareholders protective rights plans or agreements with respect to already outstanding Corporation Shares. "Corporation Shares" shall mean the shares of common stock, par value $.01 per share, of the Corporation or any stock of the Corporation into which such common stock may hereafter be changed. "Cross-Over Date" shall mean the fifth anniversary of the Issue Date, subject to extension as described in paragraph (a) of Article 6.16.9 hereof. "Current Market Price" of publicly traded Paired Shares or any other shares of beneficial interest or other securities of the Trust or any other issuer as of any Trading Day shall mean the last reported sales price, regular way, on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the NYSE or, if such shares or other securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such shares or other securities are listed or admitted for trading or, if not listed or admitted for trading on any national securities exchange, on the NASDAQ National Market or, if such shares or other securities are not quoted on such NASDAQ National Market, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such shares or other securities on such day shall not have been reported through NASDAQ, the average of the bid and asked prices on such day as furnished by any NYSE member firm regularly making a market in such security selected for such purpose by the Chief Executive Officer or Chief Financial Officer of the Trust or the Board of Trustees. "Declaration" shall mean the Amended and Restated Declaration of Trust of the Trust, as amended from time to time. "Default Rate Dividends" shall have the meaning set forth in paragraph (d) of Article 6.16.3 hereof. "Dividend Correspondence Ratio" shall have the meaning set forth in paragraph (b)(i) of Article 6.16.3 hereof. "Issue Date" shall mean the first date on which any Class B EPS are issued by the Trust. "Junior Dividend" means a dividend payable in respect of any class or series of shares of beneficial interest in the Trust over which the Class B Preferred Dividends have preference or priority as to the payment of dividends, including, without limitation, any Trust Common Dividend, any Class B Participation Dividend and any Class A Preferred Dividend and any Class A Participation Dividend. 64 69 "Junior Liquidating Distribution" shall mean any distribution of assets of the Trust in connection with a Liquidation Event to holders of any class or series of shares of beneficial interest in the Trust over which the Class B Liquidation Preference has preference or priority in the distribution of assets upon the occurrence of such Liquidation 65 70 Event, including, without limitation, any such distribution of assets to holders of Trust Shares or in respect of the Class B Liquidation Participation Right, the Class A Liquidation Preference or the Class A Liquidation Participation Right. "Junior Shares" shall mean the Trust Shares and any other class or series of shares of beneficial interest in the Trust now or hereafter issued and outstanding over which the Class B Preferred Dividends have full preference or priority in the payment of dividends or over which the Class B Liquidation Preference has full preference or priority in the distribution of assets on the occurrence of any Liquidation Event. Without limiting the generality of the foregoing, for the purposes hereof the Class A EPS and the Trust Shares constitute Junior Shares. "LIBOR" as of any date shall mean the rate of interest per annum for United States dollar deposits in the amount of $100,000,000 with a one-month maturity which appears on "Telerate Page 3750" (as defined below) as of 11:00 a.m. (London time) on such date; provided that if such rate is no longer published, an interest rate per annum equal to the arithmetic mean (rounded if necessary to the nearest one-hundredth of one percent (0.01%) of the interest rates per annum for United States dollar deposits in such amount and with such a maturity quoted on Reuters Screen Page "LIBO" (or if such page on such service ceases to display such information, such other page as may replace it on that service for the purpose of displaying such information) as of 11:00 a.m. on such date (the rate determined as aforesaid being the "LIBO Screen Rate"). For such purposes, the term "Telerate Page 3750" shall mean the display designated as "Page 3750" on the Associated Press-Dow Jones Telerate Service (or such other page as may replace Page 3750 on the Associated Press-Dow Jones Telerate Service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association interest rate settlement rates for United States dollar deposits). Any LIBOR rate determined on the basis of the rate displayed on Telerate Page 3750 or the LIBO Screen Rate determined in accordance with the foregoing provisions of this definition shall be subject to corrections, if any, made in such rate and displayed by the Associated Press-Dow Jones Telerate Service or Reuters, as applicable, within one hour of the time when such rate is first displayed by such service. For the purposes of paragraph (d) of Article 6.16.3, the LIBOR rate shall be determined in accordance with the foregoing as of the date on which an Uncured Default arises and on the nearest corresponding day of each subsequent calendar month and shall apply for the approximate one-month period between the date of such determination and the next succeeding date of determination. "Liquidation Date" shall have the meaning set forth in paragraph (a) of Article 6.16.4 hereof. "Liquidation Event" shall mean any liquidation, dissolution or winding up of the affairs of the Trust, whether voluntary or involuntary. For the purposes hereof, (i) a consolidation or merger of the Trust with one or more entities, (ii) a statutory share exchange and (iii) a sale 66 71 or transfer of all or substantially all of the Trust's assets shall not be deemed to be a Liquidation Event. "Non-Electing Shares" shall have the meaning set forth in paragraph (f) of Article 6.16.5 hereof. "NYSE" shall mean the New York Stock Exchange. "Ownership Limit" shall have the meaning set forth in Section 6.12 of the Declaration. "Paired Shares" shall mean units consisting of one Trust Share paired with one Corporation Share (subject to adjustment as contemplated in paragraph (e) of Article 6.15.5 hereof) and represented by a single share certificate, as provided in the Pairing Agreement dated as of June 25, 1980, between the Trust and the Corporation, as amended from time to time. "Parity Liquidation Preference" shall mean the liquidation preference of any class or series of shares of beneficial interest in the Trust that ranks on a parity with the Class B Liquidation Preference. For such purposes: (i) the Base Preference Amount portion of the Class B Liquidation Preference will rank on a parity with the liquidation preferences of any class or series of Preferred Shares issued by the Trust (other than the Class A EPS to which said portion of the Class B Liquidation Preference will rank senior in liquidation preference), unless the articles supplementary creating such class or series provide that such class or series will rank junior to such portion of the Class B Liquidation Preference in the distribution of assets upon the occurrence of a Liquidation Event, and (ii) the Supplemental Preference Amount portion of the Class B Liquidation Preference will rank junior to the liquidation preferences of any class or series of Preferred Shares issued by the Trust (other than the Class A EPS), unless the articles supplementary creating such class or series provide that such class or series will rank junior to or on a parity with such portion of the Class B Liquidation Preference in the distribution of assets upon the occurrence of a Liquidation Event. "Parity Preferred Dividend" shall mean any dividend payable in respect of any class or series of shares of beneficial interest in the Trust that ranks on a parity in right of payment with the Class B Preferred Dividends, whether or not the dividend rate, dividend payment dates, liquidation preference or redemption price are different from those of the Class B EPS. "Person" shall mean any individual, firm, partnership, corporation, limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. "Preferred Shares" shall mean any class or series of shares of beneficial interest in the Trust now or hereafter issued and outstanding that have preference or priority over Trust Shares in the payment of dividends or in the distribution of assets on the occurrence of any Liquidation Event. 67 72 "Redemption Price" shall have the meaning set forth in paragraph (b)(i) of Article 6.16.6 hereof. "Registration Rights Agreement" means the Registration Rights Agreement entered into by the Trust, the Corporation and the other parties thereto pursuant to the Westin Transaction Agreement. "REIT Rules" shall mean the requirements (i) for the Trust to qualify as a real estate investment trust under the Code as set forth in Sections 856(a)(5) and 856(a)(6) of the Code and (ii) for the Corporation or any affiliate of the Corporation which is a tenant of the Trust to not be treated as a related party pursuant to Section 856(d)(2)(B) of the Code. "Securities Act" shall mean the Securities Act of 1933, as amended. "set apart for payment" shall be deemed to include, without any action other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Board of Trustees, the allocation of funds to be so paid on any series or class of shares of beneficial interest in the Trust; provided, however, that if any funds for any class or series of Junior Shares or any class or series of shares of beneficial interest in the Trust ranking on a parity with the Class B EPS as to the payment of dividends are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Class B EPS shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or similar agent. "Stated Value" of each share of Class B EPS shall initially mean Thirty-Eight Dollars and Fifty Cents ($38.50) per share. Upon the occurrence of any share split, reverse share split or other subdivision or combination of the Class B EPS subsequent to the Issue Date, the Stated Amount shall be proportionately adjusted as determined in good faith by the Board of Trustees. "Supplemental Preference Amount" shall have the meaning set forth in paragraph (b) of Article 6.16.4 hereof. "Trading Day" with respect to publicly traded Paired Shares or any other shares of beneficial interest or other securities of the Trust or any other issuer shall mean any day on which the securities in question are traded on the NYSE, or if such securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national securities exchange, on the NASDAQ National Market, or if such securities are not quoted on such NASDAQ National Market, in the applicable securities market in which such securities are traded. 68 73 "Transaction" shall have the meaning set forth in paragraph (f) of Article 6.16.5 hereof. "Transfer Agent" shall mean ChaseMellon Shareholder Services, L.L.C. (or any successor thereof), or such other agent or agents of the Trust as may be designated by the Board of Trustees or their designee as the transfer agent for the Class B EPS and the Class A EPS. "Trust" shall mean Starwood Lodging Trust, a Maryland real estate investment trust, and any successor. "Trust Common Adjustment Event" shall mean any of the following events that occurs after the Issue Date: (i) The payment by the Trust of a dividend on the outstanding Trust Shares that is payable in additional Trust Shares; (ii) The subdivision of the outstanding Trust Shares into a greater number of shares (whether by share split or otherwise); (iii) The combination of the outstanding Trust Shares into a smaller number of shares (whether by reverse share split or otherwise); or (iv) The issuance of any shares of beneficial interest in the Trust by reclassification of the Trust Shares. "Trust Common Dividend" shall mean any dividend or distribution paid or made by the Trust pro rata on the outstanding Trust Shares other than (i) a distribution of assets of the Trust upon the occurrence of a Trust Liquidation Event or (ii) on a dividend or distribution that constitutes a Trust Common Adjustment Event. In addition, a distribution to the holders of shares of beneficial interest in the Trust of rights to subscribe for or purchase additional Trust Shares under a shareholders protective rights plan or agreement or any similar plan or agreement shall not be deemed to constitute a Trust Common Dividend to the extent that the Trust makes provision so that such rights, to the extent still outstanding with respect to the outstanding Trust Shares, shall be issued to the holders of any Trust Shares issued upon exercise of the Class A Exchange Right (and, to the extent applicable, shall attach to such Trust Shares) in an amount and manner and to the extent provided in such plans or agreements with respect to already outstanding Trust Shares. "Trust Conversion Notice" shall have the meaning set forth in paragraph (c)(ii) of Article 6.16.5 hereof. "Trust Conversion Right" shall have the meaning set forth in paragraph (c)(i) of Article 6.16.5 hereof. 69 74 "Trust Redemption Date" shall have the meaning set forth in paragraph (b)(ii) of Article 6.16.6 hereof. "Trust Redemption Notice" shall have the meaning set forth in paragraph (b)(ii) of Article 6.16.6 hereof. "Trust Redemption Right" shall have the meaning set forth in paragraph (a) of Article 6.16.6 hereof. "Trust Shares" shall mean the common shares of beneficial interest in the Trust, par value $.01 per share, or any shares of beneficial interest in the Trust into which such common shares may be changed. "Uncured Default" shall have the meaning set forth in paragraph (a) of Article 6.16.9 hereof. "Westin Transaction Agreement" shall mean the Transaction Agreement dated as of September 8, 1997 among WHWE L.L.C., Woodstar Investor Partnership, Nomura Asset Capital Corporation, Juergen Bartels, W&S Hotel L.L.C., 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., the Trust, SLT Realty Limited Partnership, the Corporation and SLC Operating Limited Partnership, as such agreement may be amended from time to time. 6.16.3. DIVIDENDS. (a) In General. The holders of Class B EPS will be entitled (i) to receive a preferred dividend payable as described in paragraph (b) below (a "Class B Preferred Dividend"), when, as and if declared by the Board of Trustees out of assets of the Trust legally available for that purpose, based on the payment of any Corporation Common Distribution and (ii) to participate on the basis described in paragraph (c) below in any Trust Common Dividend, when, as and if declared by the Board of Trustees out of assets of the Trust available for that purpose (a "Class B Participation Dividend"). In certain circumstances, the holders of Class B EPS will also be entitled to receive a Default Rate Dividend, as provided in paragraph (d) below. (b) Class B Preferred Dividend. (i) Upon the payment by the Corporation of any Corporation Common Distribution prior to the occurrence of a Liquidation Event, the right to receive a Class B Preferred Dividend will automatically accrue with respect to each share of Class B EPS as of the payment date for such Corporation Common Distribution in an amount equal to the value of the Corporation Common Distribution paid on each Corporation Share multiplied by the applicable Dividend Correspondence Ratio described below. To the extent that any Corporation Common Distribution consists of securities or other property (other than cash), the Trust will have the option of paying the 70 75 corresponding Class B Preferred Dividend either (A) in the same form as such Corporation Common Distribution (i.e., by delivery of the same type of securities or other property as distributed in the Corporation Common Distribution), (B) in cash in an amount equal to the fair market value of such securities or other property as determined in good faith by the Board of Trustees subject to the rights of the holders of the Class B EPS to request a valuation from a nationally recognized investment banking firm as provided in paragraph (h)(v) of Article 6.16.5 hereof or (C) a combination thereof. Each Class B Preferred Dividend will be cumulative from the payment date for the related Corporation Common Distribution and will be payable to holders of record of Class B EPS on such record date as shall be fixed by the Board of Trustees, which record date shall be the same as the record date for the corresponding Class A Preferred Dividend based on such Corporation Common Distribution and not earlier than the record date for such Corporation Common Distribution. The Board of Trustees may, at any time between the declaration of a Corporation Common Distribution and the related payment date, declare a corresponding Class B Preferred Dividend conditioned on the actual payment of such Corporation Common Distribution (any such Class B Preferred Dividend being sometimes referred to herein asa AConditionally Declared Class B Dividend@ until such time as the corresponding Corporation Common Distribution is paid, at which time it will no longer be deemed to be a Conditionally Declared Class B Dividend but will instead be deemed to be an accrued Class A Preferred Dividend). The "Dividend Correspondence Ratio" for the purposes of determining the amount of any Class B Preferred Dividend accrual shall mean the number of Class B Underlying Corporation Shares for which each share of Class B EPS is indirectly exchangeable as of the record date for the related Corporation Common Distribution upon exercise of the Class B Exchange Right, as such number shall be proportionately adjusted to reflect any share dividend, share split, reverse share split or other combination or subdivision of the Class B EPS or the Class A EPS that becomes effective between (or, if the record date for such event is different from the effective date therefor, that has a record date that falls between) (A) the record date for the Corporation Common Distribution and (B) the date of payment of such Corporation Common Distribution or, if earlier, the record date for such Class B Preferred Dividend. (ii) So long as any shares of Class B EPS are outstanding: (A) no Junior Dividend may be declared or paid or set apart for payment unless all accrued Class B Preferred Dividends and Conditionally Declared Class B Dividends have been or are concurrently declared and paid, or declared and a sum sufficient for the payment thereof set apart for payment, (B) no Parity Preferred Dividend shall be declared or paid or set aside for payment unless a ratable portion of all accrued but unpaid Class B Preferred Dividends and Conditionally Declared Class B Dividends has been or is concurrently declared and paid, or declared and a sum sufficient for the payment thereof set apart for payment (with such ratable portion being based on the portion of the accrued but unpaid Parity Preferred Dividends being paid) and (C) no Junior Shares may be redeemed, purchased or otherwise acquired by the Trust (other than a redemption, purchase or other acquisition of Trust Shares made for purposes of and in compliance with requirements of an employee incentive or benefit plan of the Trust or any subsidiary or upon any exchange or redemption of other securities at the option of the holders thereof, or as required or permitted under Article VI of the Declaration) for consideration (or any moneys paid or made available for a sinking fund for the redemption of any Junior Shares), directly or indirectly (except for conversion into or exchange for Junior Shares) unless all accrued Class B Preferred Dividends and Conditionally Declared Class B Dividends have been or 71 76 are concurrently declared and paid, or declared and a sum sufficient for the payment thereof set apart for payment. (c) Class B Participation Dividend. No Trust Common Dividend may be declared in respect of the Trust Shares unless the Board of Trustees concurrently declares a Class B Participation Dividend entitling each share of Class B EPS to receive an amount equal to the amount of the Trust Common Dividend declared on each Trust Share multiplied by the number of Class B Underlying Trust Shares for which each share of Class B EPS is indirectly exchangeable upon exercise of the Class B Conversion Right as of the record date for such Trust Common Dividend. Such Class B Participation Dividend shall be payable on the same date on which the corresponding Trust Common Dividend is payable, shall be payable in the same form as the corresponding Trust Common Dividend and shall be paid to holders of record of the Class B EPS on the same record date as is fixed by the Board of Trustees for the payment of such Trust Common Dividend. (d) Default Rate Dividends. Notwithstanding the foregoing provisions of this Article 6.16.3 but subject to paragraph (b) of Article 6.16.9, upon the occurrence and during the continuation of any Uncured Default, dividends ("Default Rate Dividends") shall accrue with respect to the outstanding shares of Class B EPS in an amount equal to the product of (i) the Stated Value of each such share multiplied by (ii) an interest rate per annum equal to LIBOR plus four percent (4%). Any such Default Rate Dividends shall be cumulative, shall be deemed to constitute Class B Preferred Dividends for the purposes hereof and shall be payable quarterly on March 1, June 1, September 1 and December 1 of each year, when, as and if declared by the Board of Trustees out of assets of the trust legally available for that purpose; provided that, if, at any time when there are accrued but unpaid Default Rate Dividends on the Class B EPS, a Class B Preferred Dividend or Class B Participation Dividend accrues pursuant to paragraph (b) or (c) of this Article 6.16.3 in an amount per share that exceeds the amount of such accrued but unpaid Default Rate Dividends per share, the holders of shares of Class B EPS shall be entitled to receive such Class B Preferred Dividend or Class B Participation Dividend in accordance with the provisions of such paragraphs (b) and (c) and the Default Rate Dividends accrued through the date of accrual of such Class B Preferred Dividend or Class B Participation Dividend shall be reduced to zero (although additional Default Rate Dividends shall again commence to accrue immediately following such date of accrual to the extent that the Uncured Default continues unremedied). 6.16.4. LIQUIDATION RIGHTS. (a) In General. Upon the occurrence of any Liquidation Event, the holders of Class B EPS will be entitled (i) to receive out of the assets of the Trust legally available for liquidating distributions to holders of shares of beneficial interests in the Trust, prior to the making of any Junior Liquidating Distribution, a liquidating distribution in an amount equal to the Class B Liquidation Preference described in paragraph (b) below determined as of the effective date of such Liquidation Event or, if no effective date is provided, as of the record date of the first liquidating distribution relating to such Liquidation Event (in either such case, the "Liquidation Date") and (ii) to participate on the basis described in paragraph (c) below in any liquidating distribution to holders of Trust Shares (the "Class B Liquidation Participation Right"). In determining whether a distribution (other than 72 77 upon the occurrence of a Liquidation Event), by dividend, redemption or other acquisition of shares of beneficial interest in the Trust or otherwise, is permitted under Maryland law, amounts that would be needed, if the Trust were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of the holders of Class A EPS whose preferential rights upon dissolution are senior to those receiving the distribution shall not be added to the Trust's total liabilities. (b) Class B Liquidation Preference. The "Class B Liquidation Preference" of a share of Class B EPS as of the applicable Liquidation Date shall mean the sum of (A) the Base Preference Amount as of such date and (B) the amount of any accrued but unpaid dividends in respect of each share of Class B EPS as of such date (other than any such accrued but unpaid Class B Preferred Dividends that have been declared with a record date prior to such Liquidation Date, which the Trust shall separately be obligated to pay to the holders of record of the Class B EPS as of such record date)(the "Supplemental Preference Amount"). Until each holder of shares of Class B EPS has received distributions equal to the Class B Liquidation Preference, no Junior Liquidating Distributions may be paid to holders of any other class or series of shares of beneficial interest in the Trust. Subject to the rights of the holders of shares of beneficial interest in the Trust with liquidation preferences ranking prior to or on a parity with the Class B Liquidation Preference, after payment shall have been made in full of the Class B Liquidation Preference as provided in this paragraph (b), Junior Liquidating Distributions may be paid to the holders of any shares of beneficial interest entitled to receive such distributions and the holders of the Class B EPS shall not be entitled to share therein except as provided in paragraph (c) of this Article 6.16.4. In the event that the assets of the Trust available for liquidating distributions to holders of shares of beneficial interest in the Trust in connection with any Liquidation Event are insufficient to pay the Class B Liquidation Preference on all outstanding Class B EPS and any Parity Liquidation Preferences in respect of any other classes or series of shares of beneficial interest in the Trust, then the holders of the Class B EPS and such other classes and series of shares of beneficial interest in the Trust shall share ratably in any such distribution of assets in proportion to the Class B Liquidation Preference and the Parity Liquidation Preferences to which they would otherwise be respectively entitled. (c) Class B Liquidation Participation Rights. In addition to being entitled to receive the Class B Liquidation Preference, upon the occurrence of any Liquidation Event the holders of Class B EPS shall be entitled to participate, pursuant to the Class B Liquidation Participation Right, ratably with the holders of Trust Shares in any liquidating distributions to such holders. For such purpose, each share of Class B EPS shall be deemed to represent a number of Trust Shares equal to the number of Class B Underlying Trust Shares for which each share of Class B EPS can be indirectly exchanged as of the record date for such distribution. 6.16.5. CONVERSION RIGHTS. (a) In General. Shares of Class B EPS shall be convertible into shares of Class A EPS (A) at the option of the holder upon exercise of the Class B Conversion Right at any time after the first anniversary of the Issue Date and on or prior to the first anniversary of the Cross-Over Date, to the extent provided in paragraph (b) of this Article 6.16.5, or (B) at the option of the Trust upon exercise of the Trust Conversion Right at any time after the Cross-Over Date, to the extent provided 73 78 in paragraph (c) of this Article 6.16.5. In addition, as more specifically provided in Article 6.16.7 hereof, upon receipt of a Class B Conversion/Redemption Notice from any holder of shares of Class B EPS at any time after the first anniversary of the Cross-Over Date, the Trust will be required to elect to either exercise the Trust Conversion Right or the Trust Redemption Right with respect to the shares specified in such Class B Conversion/Redemption Notice. (b) Class B Conversion Right. (i) A holder of shares of Class B EPS shall have the right, exercisable in the manner described in paragraph (b)(ii) below, at such holder's option at any time after the first anniversary of the Issue Date and on or prior to the first anniversary of the Cross-Over Date, to convert such shares in whole or in part into fully paid and non-assessable shares of Class A EPS based on the applicable Conversion Ratio described in paragraph (e) of this Article 6.16.5 (the "Class B Conversion Right"); provided, however, that the Class B Conversion Right may not be exercised (A) with respect to any shares of Class B EPS that are already subject to a Trust Conversion Notice, (B) with respect to any shares of Class B EPS that are already subject to a Class B Redemption Notice or a Class B Conversion/Redemption Notice or (C) after the applicable Redemption Date if the Trust has already given a Trust Redemption Notice with respect to the applicable shares of Class B EPS, unless, in the case of either (B) or (C), the Trust shall default in its obligations hereunder arising as a result of such notice and such default shall not have been cured within ten (10) days thereafter. (ii) A holder of shares of Class B EPS desiring to exercise the Class B Conversion Right with respect to such shares shall surrender the certificate or certificates evidencing such shares, duly endorsed or assigned to the Trust or in blank, to the Transfer Agent together with a duly completed and executed conversion notice (a "Class B Conversion Notice") in such form as the Trust shall prescribe from time to time and such related certifications as the Trust may reasonably prescribe from time to time. Such form of Class B Conversion Notice will also permit the holder of the Class B EPS being converted to concurrently elect to exercise the Class A Exchange Right with respect to the Class A EPS Shares to be issued pursuant to the exercise of the Class B Conversion Right. Unless any shares of Class A EPS to be issued upon conversion of such shares of Class B EPS are to be issued in the same name as the name in which such shares of Class B EPS are registered, each share certificate surrendered shall be accompanied by instruments of transfer, in form reasonably satisfactory to the Trust, duly executed by the holder or such holder=s duly authorized attorney and an amount sufficient to pay any applicable transfer or similar tax (or evidence reasonably satisfactory to the Trust demonstrating that such taxes have been paid). (iii) As promptly as practicable after receipt by the Transfer Agent of a Class B Conversion Notice and the certificates and other documents described above, the Trust shall issue and deliver at the office of the Transfer Agent to the holder of the shares of Class B EPS being converted, or on his or her written order, a certificate or certificates for the full number of shares of Class A EPS issuable upon such conversion in accordance with the provisions of this Article 6.16.5, and any fractional interest in respect of a share of Class A EPS resulting from such conversion shall be settled as provided in paragraph (d) of this Article 6.16.5; provided, however, that to the extent that the holder of shares of Class B EPS with respect to which the Class B Conversion Right has been 74 79 exercised has simultaneously exercised the Class A Exchange Right with respect to the shares of Class A EPS issuable upon such conversion, no such certificate or certificates shall be issued with respect to such shares of Class A EPS (and there shall be no settlement of any such fractional interests), but such Class A Exchange Right shall be deemed to have been exercised with respect to such shares of Class A EPS (including any such fractional interests) as of the date of receipt of the Class B Conversion Notice and the certificates and other documents described above, and the rights and obligations of the Trust and such holder arising therefrom shall be governed by Article 6.15.5 hereof. If less than the full number of shares of Class B EPS represented by the certificate or certificates surrendered to the Trust are to be converted pursuant to an exercise of the Class B Conversion Right, the Trust shall also deliver to the holder a new certificate or certificates evidencing the excess shares not being converted. (iv) The conversion resulting from any exercise of the Class B Conversion Right shall be deemed to have been effected immediately prior to the close of business on the date of receipt by the Transfer Agent of the Class B Conversion Notice and the certificates and other documents described above, and the Person or Persons in whose name or names any certificate or certificates for shares of Class A EPS shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares of Class A EPS represented thereby at such time on such date, unless the sharetransfer books of the Trust for the Class A EPS shall be closed on such date, in which event such Person or Persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such sharetransfer books are open. (c) Trust Conversion Right. (i) Shares of Class B EPS will also be convertible at any time after the first anniversary of the Cross-Over Date in whole or in part at the option of the Trust into fully paid and non-assessable shares of Class A EPS based on the applicable Conversion Ratio described below (the "Trust Conversion Right"); provided, however, that the Trust Conversion Right may not be exercised with respect to any shares of Class B EPS with respect to which (A) the holder has already given a Class B Redemption Notice or a Class B Conversion Notice or (B) the Trust has already given a Trust Redemption Notice. (ii) The Trust Conversion Right may be exercised by the Trust giving written notice of such exercise to the holders of the shares of the Class B EPS with respect to which the Trust desires to exercise such right (a "Trust Conversion Notice"). (iii) The shares of Class B EPS of a holder specified in such Trust Conversion Notice shall be deemed to have been converted as of the date of the applicable Trust Conversion Notice into the full number of shares of Class A EPS issuable upon such conversion in accordance with the provisions of this Article 6.16.5, and any fractional interest in respect of a share of Class A EPS resulting from such conversion shall be settled as provided in paragraph (d) of this Article 6.16.5. The conversion provided for in this paragraph (c) shall be automatic without the requirement of any action on the part of the affected holders of shares of Class B EPS and whether or not the certificates evidencing such shares of Class B EPS are surrendered to the Trust or the Transfer Agent; 75 80 provided that the Trust shall not be obligated to issue to any such holders certificates evidencing the shares of Class A EPS into which such Class B EPS shares have been converted until certificates evidencing the shares of Class B EPS held by such holder have been delivered to the Trust or the Transfer Agent. If less than the full number of shares of Class B EPS represented by the certificate or certificates surrendered to the Trust in connection with an exercise of the Trust Conversion Right have been converted pursuant to such exercise, the Trust shall also deliver to the holder a new certificate or certificates evidencing the excess shares not being converted. (d) Fractional Interests. No fractional shares or scrip evidencing fractions of shares of Class A EPS shall be issued upon exercise of the Class B Conversion Right or the Trust Conversion Right. Instead of any fractional interest in a share of Class A EPS that would otherwise be deliverable upon the conversion of shares of Class B EPS, the Trust shall pay to the holder of such shares of Class B EPS an amount in cash equal to the product of (A) such fraction, (B) the then current Exchange Ratio of Class A EPS for Paired Shares, as determined pursuant to the provisions of paragraph (d) of Article 6.15.5 hereof, and (C) the Current Market Price of the Paired Shares as of the Trading Day immediately preceding the date on which the applicable Class B Conversion Notice or Trust Conversion Notice (as applicable) and all related certificates and other documents were received by the Transfer Agent. (e) Conversion Ratio and Adjustments. (i) Initially, one share of Class A EPS will be issuable upon conversion of each share of Class B EPS pursuant to an exercise of the Class B Conversion Right or the Trust Conversion Right (the "Conversion Ratio"), which Conversion Ratio will be subject to adjustment from the Issue Date through the Cross-Over Date. After such date, the Conversion Ratio will be equal to the Class B Liquidation Preference (determined without taking into consideration any accrued but unpaid dividends other than Default Rate Dividends) as of the date of exercise of the Class B Conversion Right or the Trust Conversion Right, as applicable, divided by the product of (A) the number of Class A Underlying Paired Shares (including fractional interests) for which each share of Class A EPS is exchangeable as of such date pursuant to Article 6.15.5 hereof multiplied by (B) the Current Market Price of the Paired Shares as of such date. All calculations of the Conversion Ratio under this paragraph (e) shall be made to the nearest one-tenth of a share (with .05 of a share being rounded upward). (ii) If, at any time between the Issue Date and the Cross-Over Date, a Class A EPS Adjustment Event shall occur, the Conversion Ratio in effect as of the close of business on the record date for such Class A EPS Adjustment Event or, if no such record date applies, the effective date of such Class A EPS Adjustment Event shall be adjusted so that in connection with any exercise of the Class B Conversion Right or the Trust Conversion Right the shares of Class B EPS subject to such exercise will be converted into the number of shares of Class A EPS that such holder would have owned or been entitled to receive after the happening of such Class A EPS Adjustment Event if such Class B Conversion Right or Trust Conversion Right had been exercised immediately prior to such record date or effective date. An adjustment pursuant to this subparagraph (ii) shall become effective (subject to subparagraph (iv) below) immediately upon the opening of business on the Business Day 76 81 next following the record date for the applicable Class A EPS Adjustment Event or, if no such record date applies, the Business Day next following the effective date of such Class A EPS Adjustment Event. (iii) No adjustment in the Conversion Ratio shall be required pursuant to subparagraph (ii) above unless such adjustment would require a cumulative increase or decrease of at least one percent (1%) in such ratio; provided, however, that any adjustments that by reason of this subparagraph (iii) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made. (iv) In any case in which subparagraph (ii) above provides that an adjustment to the Conversion Ratio shall become effective immediately following the record date for a Class A EPS Adjustment Event, the Trust may defer until the occurrence of such event (A) issuing to the holder of any shares of Class B EPS converted after such record date but before the occurrence of such event the additional shares of Class A EPS issuable pursuant to such conversion by reason of the adjustment required pursuant to subparagraph (ii) in respect of such Class A EPS Adjustment Event and (B) paying to such holder any amount of cash in lieu of any fractional interest in shares of Class EPS pursuant to paragraph (d) of this Article 6.16.5. (v) If at the time of any exercise of the Class B Conversion Right on or prior to the Cross-Over Date there are any accrued but unpaid Default Rate Dividends with respect to the shares of Class B EPS being converted, the Conversion Ratio shall be adjusted so that the number of shares of Class A EPS issuable upon such exercise is increased by a number of shares (the "Class B Dividend Replacement Shares", which term shall also be deemed to refer to any shares of Class A EPS issued upon exercise of the Class B Conversion Right in respect of accrued but unpaid Default Rate Dividends pursuant to subparagraph (ii) above) equal to (A) the amount of the accrued but unpaid Default Rate Dividends with respect to the shares of Class B EPS being exchanged divided by (B) the product of (1) the number of Paired Shares for which each share of Class A EPS is then exchangeable upon exercise of the Class A Exchange Right multiplied by (2) the Current Market Price of the Paired Shares during the five (5) Trading Days immediately preceding the date of delivery of the applicable Class B Conversion Notice or Trust Conversion Notice and all related certificates and other documents. (f) Effect of Mergers and Certain Other Transactions. If, at any time after the Issue Date, the Trust shall become a party to any transaction, including, without limitation, a merger, consolidation, statutory share exchange, self tender offer for all or substantially all outstanding Trust Shares, sale of all or substantially all of the Trust=s assets or recapitalization of the Class A EPS (but excluding any event constituting a Class A EPS Adjustment Event)(each of the foregoing being referred to herein as a "Transaction"), in each case as a result of which the outstanding shares of Class A EPS shall be converted into or exchanged for the right to receive stock, securities or other property (including cash or any combination thereof), effective as of the effective date of such Transaction, each share of Class A EPS issuable upon exercise of the Class B Conversion Right or the Trust Conversion Right with respect to any shares of Class B EPS that are not converted into or exchanged for the right to receive stock, securities or other property in connection with such Transaction shall 77 82 thereafter be deemed to consist of the kind and amount of shares of stock and other securities and property (including cash or any combination thereof) that would have been held or receivable upon the consummation of such Transaction by a holder of a number of shares of Class A EPS equal to the number of Class B Underlying Class A EPS Shares into which each share of Class B EPS would have been convertible immediately prior to such Transaction, assuming such holder of shares of Class A EPS (A) is not a Person with which the Trust consolidated or into which the Trust was merged or which merged into the Trust or to which such sale or transfer was made, as the case may be (a "Constituent Person"), or an Affiliate of a Constituent Person and (B) failed to exercise his or her rights of election, if any, as to the kind or amount of stock, securities an other property (including cash) receivable upon such Transaction (provided that if the kind or amount of stock, securities and other property (including cash) receivable upon such Transaction is not the same for each share of Class A EPS held immediately prior to such Transaction by other than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-Electing Share"), then for the purposes of this subparagraph (ii) the kind and amount of stock, securities and other property (including cash) receivable upon such Transaction by each Non-Electing Shares shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). The provisions of this paragraph (f) shall similarly apply to successive Transactions. (g) Notice of Adjustment. Whenever the Conversion Ratio or the nature and amount of the securities and other property issuable upon exercise of the Class B Conversion Right or the Trust Conversion Right is adjusted as provided in paragraph (e) or (f) above, the Trust shall promptly file with the Transfer Agent an officer=s certificate setting forth the Conversion Ratio after such adjustment and, in the case of an adjustment pursuant to paragraph (f), describing the kind and amount of stock, securities and other property (including cash) thereafter issuable upon such exercise. Such certificate shall also set forth a brief statement of the facts requiring such adjustment and shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after delivery of such certificate, the Trust shall prepare a notice of such adjustment setting forth the adjusted Conversion Ratio, the effective date of such adjustment and, in the case of an adjustment pursuant to paragraph (f), a description of the kind and amount of stock, securities and other property (including cash) thereafter issuable upon exercise of the Class B Conversion Right or the Trust Conversion Right, and shall mail such notice of such adjustment to the holder of each share of Class B EPS at such holder=s last address as shown on the sharerecords of the Trust. (h) Miscellaneous Provisions. (i) There shall be no adjustment of the Conversion Ratio in case of the issuance of any shares of beneficial interest in the Trust in a reorganization, acquisition or other similar transaction except as specifically set forth in this Article 6.16.5. 78 83 (ii) If the Trust shall take any action affecting the Trust Shares or the Corporation shall take any action affecting the Corporation Shares, other than an action described in this Article 6.16.5, that in the opinion of the Board of Trustees would materially and adversely affect the conversion rights of the holders of the Class B EPS provided for in this Article 6.16.5, the Conversion Ratio may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board of Trustees, in its sole discretion, may determine to be equitable in the circumstances. (iii) The Trust covenants that any shares of Class A EPS issued upon exercise of the Class B Conversion Right or the Trust Conversion Right will be validly issued, fully paid and non-assessable. The Trust shall reserve and shall at all times have reserved out of its authorized but unissued Class A EPS sufficient Class A EPS to permit the exercise of the Class B Conversion Right. The Trust shall also comply with its obligations under paragraph (g)(iii) of Article 6.15.5 hereof as if such shares of Class A EPS issuable upon exercise of the Class B Conversion Right were issued and outstanding. The Trust shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Class A EPS or other securities or property upon exercise of the Class B Conversion Right or the Trust Conversion Right; provided, however, that the Trust shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of any shares of Class A EPS or other securities or property in a name other than that of the holder of the shares of Class B EPS being converted, and no such issue or delivery shall be made unless and until the Person requesting such issue or delivery has paid to the Trust the amount of any such tax or established, to the reasonable satisfaction of the Trust, that such tax has been paid. (iv) Except as provided in paragraph (g)(v) below, any determination required or permitted to be made by the Board of Trustees by these Articles Supplementary shall be final, conclusive and binding on the holders of Class B EPS. (v) In the event that the Trust elects to pay in cash a Class B Preferred Dividend corresponding to a Corporation Common Distribution in the form of securities or other property and in connection therewith the Board of Trustees makes a determination of the fair market value of such securities or other property, the Trust shall deliver to each affected holder of Class B EPS a written notice setting forth the valuation determined by the Board of Trustees. At any time within ten (10) Business Days after receipt of such notice, any affected holder of Class B EPS may request in writing that the Trust obtain a written valuation of such securities or other property from an investment banking firm. Promptly after receipt of any such request, the Trust shall select a nationally recognized investment banking firm to perform such valuation and shall provide such investment banking firm with such relevant information as the Trust may have in relation thereto. Such investment banking firm shall be instructed to prepare a written valuation report within thirty (30) days after its appointment, and upon receipt of such valuation report, the Trust shall mail a copy to each affected holder of Class B EPS. If the valuation as determined by such investment banking firm is greater than the valuation as determined by the 79 84 Board of Trustees, the Trust shall promptly pay the amount of such difference to each affected holder of Class B EPS. If, however, the valuation as determined by such investment banking firm is less than the valuation determined by the Board of Trustees, the Trust may at its option require each affected holder of Class B EPS to repay the amount of such difference to the Trust, which amount shall be so repaid by each such holder promptly after receipt of the Trust's request. The fees and expenses of such investment banking firm shall be paid by the Trust. 6.16.6. REDEMPTION RIGHTS. (a) In General. Shares of Class B EPS will be redeemable at the option of the Trust at any time after the Cross-Over Date in accordance with the provisions of paragraph (b) of this Article 6.16.6 (the "Trust Redemption Right") and will be redeemable at the option of the holders at any time during the period commencing on the Cross-Over Date and ending on the first anniversary of the Cross-Over Date in accordance with the provisions of paragraph (c) of this Article 6.16.6 (the "Class B Redemption Right"). Prior to the Cross-Over Date, shares of Class B EPS will not be redeemable at the option of either the Trust or the holder. In addition, as more specifically provided in Article 6.16.7 hereof, upon receipt of a Class B Conversion/Redemption Notice from any holder of shares of Class B EPS at any time after the first anniversary of the Cross-Over Date, the Trust will be required to elect to either exercise the Trust Conversion Right or the Trust Redemption Right with respect to the shares specified in such Class B Conversion/Redemption Notice. (b) Redemption at the Option of the Trust. (i) Pursuant to the Trust Redemption Right, shares of Class B EPS may be redeemed in cash in whole or in part at the option of the Trust at any time and from time to time (in the case of partial redemptions) after the Cross-Over Date at a redemption price (the "Redemption Price") equal to the Class B Liquidation Preference of such shares as of the applicable Trust Redemption Date; provided, however, that the Trust Redemption Right may not be exercised with respect to any shares of Class B EPS that are already subject to (A) a Trust Conversion Notice or (B) a Class B Conversion Notice or a Class B Redemption Notice. Such redemption shall be deemed to have been made as of the close of business on the applicable Trust Redemption Date, and after such Trust Redemption Date, provided that the Trust Redemption Price has been duly paid or set apart for payment, dividends shall cease to accrue on the shares of Class B EPS called for redemption, such shares shall no longer be deemed to be outstanding and all rights of the holders of such shares as shareholders of the Trust shall cease, except the right to receive the Redemption Price, without interest thereon, upon surrender of the certificates evidencing such shares. (ii) Notice of any exercise of the Trust Redemption Right (a "Trust Redemption Notice") shall be given to the holders of the shares of Class B EPS to be redeemed not less than ten (10) nor more than sixty (60) days prior to the date fixed for redemption (the "Trust Redemption Date"). Each Trust Redemption Notice shall be given by first class mail to each holder of shares to be redeemed at such holder's address as shown on the sharebooks of the Trust and shall specify (A) the Trust Redemption Date, (B) the number of shares of Class B EPS to be redeemed from such holder, (C) the Trust Redemption Price, (D) the place or places where certificates for the 80 85 shares of Class B EPS to be redeemed are to be surrendered for payment of the Trust Redemption Price, (E) that dividends will cease to accrue on the shares of Class B EPS to be redeemed on the Redemption Date and (F) that the ability of the holders to exercise the Class B Conversion Right with respect to the shares to be redeemed will terminate on the Trust Redemption Date. If less than all outstanding shares of Class B EPS are to be redeemed upon exercise of the Trust Redemption Right, the shares to be redeemed shall be selected in such manner as the Trust deems appropriate. (iii) Upon receipt of a Trust Redemption Notice, each holder of shares of Class B EPS being redeemed shall surrender to the Transfer Agent a certificate or certificates evidencing such shares. As soon as practicable, and in any event within five (5) Business Days, after such surrender, the Trust shall pay the applicable Redemption Price to such holder and, if less than the full number of shares represented by the certificate or certificates so surrendered are to be redeemed, the Trust shall deliver to such holder a certificate or certificates evidencing the excess shares not being redeemed. The Redemption Price shall be payable at the election of the Trust by check or by wire transfer to an account designated in writing by the holder at least two (2) Business Days prior to the applicable Trust Redemption Date, if one has been so designated. (c) Redemption at the Option of the Holders. (i) Under the Class B Redemption Right, to the extent permitted under applicable law, each holder of shares of Class B EPS shall have the right, at his or her option, to require the Trust at any time or from time to time (in the case of partial redemptions) after the CrossOver Date and on or prior to the first anniversary of the Cross-Over Date to redeem some or all of such shares in cash at the Redemption Price (determined as of the Class B Redemption Date); provided, however, that the Class B Redemption Right may not be exercised with respect to any shares of Class B EPS that are already subject to (A) a Trust Conversion Notice or a Trust Redemption Notice or (B) a Class B Conversion Notice. Such redemption shall be deemed to have been made as of the close of business on the applicable Class B Redemption Date, and after such Class B Redemption Date, provided that the Redemption Price has been duly paid or set apart for payment, dividends shall cease to accrue on the shares of Class B EPS surrendered for redemption, such shares shall no longer be deemed to be outstanding and all rights of the holders of such shares as shareholders of the Trust shall cease, except the right to receive the Redemption Price, without interest thereon. (ii) A holder of shares of Class B EPS may exercise the Class B Redemption Right with respect to some or all of such shares by surrendering a certificate or certificates evidencing the shares to be redeemed, duly endorsed or assigned to the Trust in blank, to the Transfer Agent accompanied by a written notice (a "Class B Redemption Notice") in such form as the Trust shall prescribe from time to time specifying the number of shares (which shall be a whole number) to be redeemed in accordance with the provisions of this paragraph (c). As soon as practicable, and in any event within five (5) Business Days, after receipt of a Class B Redemption Notice and the related certificates (the date of such receipt being sometimes referred to herein as the "Class B Redemption Date"), to the extent permitted under applicable law, the Trust shall pay the Redemption Price to the holder and, if less than the full number of shares of Class B EPS represented by the certificate or 81 86 certificates surrendered together with such Class B Redemption Notice are to be redeemed, the Trust shall deliver to such holder a certificate or certificates evidencing the excess shares not being redeemed. The Redemption Price shall be payable at the election of the Trust by check or by wire transfer to an account designated in writing by the holder at least two (2) Business Days prior to the applicable Class B Redemption Date, if one has been so designated. 6.16.7. CLASS B CONVERSION/REDEMPTION ELECTION RIGHT. In addition to the Class B Conversion Right and the Class B Redemption Right, at any time after the first anniversary of the Cross-Over Date, each holder of shares of Class B EPS will have the right (the "Class B Conversion/Redemption Election Right"), upon written notice to the Trust in such form as the Trust shall prescribe from time to time (a "Class B Conversion/Redemption Notice"), to require that the Trust elect either to exercise the Trust Conversion Right or the Trust Redemption Right described below with respect to the shares of Class B EPS held by such holder and designated in the Class B Conversion/Redemption Notice; provided, however, that the Class B Conversion Right may not be exercised with respect to any shares of Class B EPS (A) with respect to which the holder has already given a Class B Redemption Notice or (B) after the applicable Redemption Date if the Trust has already given a Trust Redemption Notice with respect to such shares unless, in either such case, the Trust shall default in the payment of the applicable Redemption Price required to be paid pursuant to Article 6.16.6 above. Within five (5) Business Days after receipt of any such Class B Conversion/Redemption Notice, the Trust shall either give the relevant holder a Trust Conversion Notice or a Trust Redemption Notice with respect to the shares of Class B EPS specified in such Class B Conversion/Redemption Notice. 6.16.8. REACQUIRED SHARES TO BE RETIRED. All shares of Class B EPS which shall have been issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued shares of beneficial interest in the Trust without designation as to class. 6.16.9. DEFAULT RIGHTS. (a) Consequences of Uncured Default. Subject to paragraph (b) of this Article 6.16.9, in the event that the Trust at any time defaults in its obligations with respect to any exercise of the Class B Redemption Right, the Class B Conversion Right or the Class B Conversion/Redemption Election Right, and such default shall continue for a period of thirty (30) days from the date that performance of such obligations was due (an "Uncured Default"), then: (i) the holders of the outstanding shares of Class B EPS will have the rights with respect to the election of two additional members of the Board of Trustees described in paragraph (c) of Article 6.16.10 hereof, (ii) the dividend rate on the Class B EPS will be increased as provided in paragraph (d) of Article 6.16.3 hereof, (iii) the Registration Rights Agreement will be amended to provide the holders of Class B EPS with registration rights thereunder and (iv) the Cross-Over Date (if not already past) will be extended by a number of days equal to the number of days that an Uncured Default continues unremedied. Any 82 87 Uncured Default may be waived at any time by the holders of shares of Class B EPS constituting a majority of all shares of Class B EPS then outstanding. 6.16.10. VOTING. (a) General Voting Rights. The holders of shares of Class B EPS shall be entitled to vote upon all matters upon which holders of Trust Shares have the right to vote, and shall be entitled to the number of votes equal to the largest whole number of Class B Underlying Trust Shares for which such shares of Class B EPS could be indirectly exchanged (assuming the exercise of the Class B Conversion Right and the concurrent exercise of the Class A Exchange Right with respect to the shares of Class A EPS issuable upon exercise of such Class B Conversion Right) as of the record date for determination of the shareholders entitled to vote on such matters, or, if no such record date is established, as of the date such vote is taken or any written consent of shareholders is solicited, such votes to be counted together with all other shares of beneficial interest in the Trust having general voting powers and not separately as a class. (b) Special Voting Rights. So long as any shares of Class B EPS are outstanding, in addition to any other vote or consent of holders of such shares required by the Declaration or these Articles Supplementary, the affirmative vote of at least a majority of the votes entitled to be cast by the holders of all outstanding shares of Class B EPS, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for that purpose, shall be necessary for effecting or validating any amendment, alteration or repeal of any of the provisions of the Declaration or these Articles Supplementary that materially and adversely affects the voting powers, rights or preferences of the holders of the Class B EPS disproportionately (based on the number of Underlying Class B Trust Shares at the time) to the effect of such amendment, alteration or repeal on the holders of the Trust Shares; provided, however, that (i) any amendment of the provisions of the Declaration so as to authorize or create, or to increase the authorized amount of, any class or series of shares of beneficial interest in the Trust, whether ranking prior to, on a parity with or junior to the Class B EPS shall not be deemed to materially and adversely affect the voting powers, rights or preferences of the holders of Class B EPS and (ii) no filing with the State Department of Assessments and Taxation of Maryland by the Trust in connection with a merger, consolidation or sale of all or substantially all of the assets of the Trust shall be deemed to be an amendment, alteration or repeal of any of the provisions of the Declaration or these Articles Supplementary unless such filing expressly purports to amend, alter or repeal one or more of such provisions. For the purposes of this paragraph (b), each share of Class B EPS will have one vote per share. (c) Default Voting Rights. (i) Upon the occurrence of any Uncured Default, the number of trustees then constituting the Board of Trustees shall be increased by two and the holders of the outstanding shares of Class B EPS shall be entitled to elect the two additional trustees to serve on the Board of Trustees at any annual meeting of shareholders, or at a special meeting of the holders of Class B EPS then outstanding called as provided in subparagraph (ii) below. If such Uncured Default shall at any time cease to be continuing or shall be waived, then the right of the holders of the Class B EPS to elect 83 88 such additional two trustees shall cease (but subject always to the same provision for the vesting of such voting rights upon the occurrence of any subsequent Uncured Default) and the terms of office of all persons elected as trustees by such holders shall forthwith terminate and the number of trustees constituting the Board of Trustees shall be reduced accordingly. For the purposes of this paragraph (c), each share of Class B EPS will have one vote per share. (ii) At any time after the voting power described in subparagraph (i) above shall have been vested in the holders of shares of Class B EPS, the Secretary of the Trust may, and upon the written request of any holder of Class B EPS (addressed to the Secretary at the principal office of the Trust) shall, call a special meeting of the holders of the Class B EPS for the election of the two trustees to be elected by them as herein provided, such call to be made by notice similar to that provided in the Trustees' Regulations of the Trust for a special meeting of the shareholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the Secretary within twenty (20) days after receipt of such request, then any holder of shares of Class B EPS may call such meeting, upon the notice above provided and for that purpose shall have access to the sharebooks of the Trust. The trustees elected at any such special meeting shall hold office until the next annual meeting of the shareholders or special meeting held in lieu thereof if such office shall not have previously terminated as above provided. If any vacancy shall occur among the trustees elected by the holders of the Class B EPS, a successor shall be elected by the Board of Trustees, upon the nomination of the then-remaining trustee elected by the holders of the Class B EPS or the successor of such remaining trustee, to serve until the next annual meeting of the shareholders if such office shall not have previously terminated as provided above. 6.16.11. RECORD HOLDERS. The Trust and the Transfer Agent may deem and treat the record holder of any Class B EPS as the true and lawful owner thereof for all purposes, and neither the Trust nor the Transfer Agent shall be affected by any notice to the contrary. 6.16.11. RESTRICTIONS ON OWNERSHIP AND TRANSFER. The Class B EPS constitute shares of beneficial interest in the Trust that are governed by and issued subject to all the limitations, terms and conditions of the Declaration applicable to shares of beneficial interest in the Trust generally, including, without limitation, the terms and conditions (including exceptions and exemptions) of Article VI of the Declaration applicable to shares of beneficial interest in the Trust. The foregoing sentence shall not be construed to limit the applicability to the Class B EPS of any other term or provision of the Declaration. No restrictions on the transferability of shares of Class A EPS shall be enforced by the Trust to the extent that such restrictions would otherwise cause the Trust to fail to meet the requirements of Section 856(a)(2) of the Code. 84 EX-3.2 3 EX-3.2 1 Exhibit 3.2 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. ARTICLES OF INCORPORATION (AMENDED AND RESTATED AS OF FEBRUARY 1, 1995, as amended through March 19, 1998) FIRST: The name of the corporation ("Corporation") is: Starwood Hotels & Resorts Worldwide, Inc. SECOND: The purposes for which the Corporation is formed are as follows: (a) To lease hotels, to acquire hotels, to manage hotels and other real property, either directly or by entering into management contracts, to perform services relating to real estate and to engage in other activities involving hotels and other real estate. (b) To engage in any lawful act or activity for which corporations may be organized under, and to have and exercise any and all powers or privileges now or hereafter conferred by, the Maryland General Corporation Law or any Act amendatory thereof or supplemental thereto or in substitution therefor. THIRD: The post office address of the principal office of the Corporation in Maryland is: The Corporation Trust Incorporated 32 South Street Baltimore, Maryland 21202 FOURTH: The name and post office address of the resident agent of the Corporation in Maryland is: The Corporation Trust Incorporated 32 South Street Baltimore, Maryland 21202 FIFTH: The total number of shares of stock which the Corporation has authority to issue is one billion three hundred and fifty million (1,350,000,000) shares, consisting of (a) one billion (1,000,000,000) shares of common stock with a par value of $0.01 per share, (b) two hundred million (200,000,000) shares of preferred stock with a par value of $0.01 per share, (c) fifty million (50,000,000) shares of excess common stock with a par value of $0.01 per share, and (d) one hundred million (100,000,000) shares of excess preferred stock with a par value of $0.01 per share. The preferred stock may be issued in such series and with such preferences, conversion and other 85 2 rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption, if any, as may be fixed by the Board of Directors. The excess common stock and the excess preferred stock shall have the rights provided in the NINTH Article hereof. The aggregate par value of all shares of stock which the Corporation has authority to issue is thirteen million five hundred thousand Dollars ($13,500,000). The Board of Directors may authorize the issuance from time to time of shares of stock of the Corporation of any class or series, whether now or hereafter authorized, or securities or rights convertible into shares of its stock of any class or series, whether now or hereafter authorized, for such consideration (whether in cash, property, past or future services, obligation for future payment or otherwise) as the Board of Directors may deem advisable (or without consideration in the case of a stock split or stock dividend), subject to such restrictions or limitations, if any, as may be set forth in the charter or the Bylaws. SIXTH: (a) The Corporation shall have three Directors, which number may be changed from time to time in such manner as the By-Laws of the Corporation shall provide. The Directors shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the 1995 annual meeting of stockholders, the term of office of the second class to expire at the 1996 annual meeting of stockholders and the term of office of the third class to expire at the 1997 annual meeting of stockholders, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, commencing with the 1995 annual meeting, (i) Directors elected to succeed the class of Directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director of the class to hold office until his or her successor shall have been duly elected and qualified, and (ii) except as otherwise required by law, if authorized by a resolution of the Board of Directors, Directors may be elected to fill any vacancy on the Board of Directors, regardless of how such vacancy shall have been created. (b) Except as otherwise required by law, unless the Board of Directors otherwise determines, newly created Directorships resulting from any increase in the authorized number of Directors or any vacancies on the Board of Directors resulting from any cause shall be filled only by a majority vote of the Directors then in office, though less than a quorum, and Directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such Director's successor shall have been duly elected and qualified. No decrease in the numbers of authorized Directors constituting the entire Board of Directors shall shorten the term of any incumbent Director. (c) The names of the Directors of the Corporation as of the amendment and restatement of the Charter herein set forth are as follows: Bruce M. Ford Graeme W. Henderson Earle F. Jones 86 3 SEVENTH: Notwithstanding the provisions of the SIXTH Article or any limitations on removal of Directors, the stockholders of the Corporation may remove any director, but only for cause, and only by the affirmative vote of two-thirds (2/3) of all the votes entitled to be cast for the election of Directors. EIGHTH: No holder of capital stock of the Corporation shall be entitled as a matter of right to subscribe for, purchase or receive any part of any new or additional issue of capital stock of any class or any options or warrants for such stock or any rights to subscribe to or purchase such stock or securities convertible into or exchangeable for such stock whether now or hereafter authorized or whether issued for money, for a consideration other than money, or for no consideration. NINTH: Restrictions on the transferability of stock of the Corporation are as follows: (a) Subject to paragraphs (b), (c) and (d) of this NINTH Article, upon surrender to the Corporation or to any transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Corporation, or its transfer agent, shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon the Corporation's books. (b) Beginning at the time that the payment of a distribution in kind of the shares of common stock of the Corporation shall have occurred ("effective time of the restriction"), and continuing thereafter until such time as the limitation on transfer provided for in the Pairing Agreement to be entered into by Starwood Lodging Trust, a Maryland real estate investment trust ("SLT"), and the Corporation shall be terminated: (i) The shares of common stock of the Corporation shall not be transferable, and shall not be transferred on the books of the Corporation unless (1) a simultaneous transfer of a like number of shares of SLT is made by the same transferor to the same transferee, or (2) such transferor has previously arranged with SLT for the acquisition by the transferee of a like number of shares of SLT, and in each case such shares are paired with one another. (ii) Each certificate evidencing ownership of shares of SLT issued and not canceled prior to the effective time of the restriction shall be deemed to evidence a like number of shares of common stock of the Corporation. (iii) Any registered holder of a certificate evidencing ownership of shares of SLT issued prior to the effective time of the restriction may, upon request and presentation of such certificate to the Corporation's transfer agent, obtain in substitution therefor a certificate or certificates registered in such holder's name evidencing the same number of shares of common stock of the Corporation and a like number of shares of SLT. 87 4 (iv) A legend shall be placed on the face of each certificate evidencing ownership of shares of common stock of the Corporation issued after the effective time of the restriction, referring to the restrictions on transfer set forth herein. (c) Restrictions on Transfer. (i) Definitions. The following terms shall have the following meanings: "Beneficial Ownership" shall mean ownership of shares of capital stock by a Person who would be treated as an owner of such shares of capital stock directly, indirectly or constructively through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, or Section 544 of the Code, as modified by Section 856(h) of the Code. The terms "Beneficial Owner", "Beneficially Owns" and "Beneficially Owned" shall have correlative meanings. "Charitable Beneficiary" shall mean the organization or organizations described in Sections 170(c)(2) and 501(c)(3) of the Code selected by the Excess Share Trustee. "Code" shall mean the Internal Revenue Code of 1986 as amended from time to time. "Excess Shares" shall mean the excess common stock and the excess preferred stock. "Excess Share Trust" shall mean the trust created pursuant to paragraph (d) of this NINTH Article. "Excess Share Trust Beneficiary" shall mean a beneficiary of the Excess Share Trust as determined pursuant to paragraph (d) of this NINTH Article. "Excess Share Trustee" shall mean Nina Matis or any successor appointed pursuant to paragraph (d) of this NINTH Article. "Market Price" of any class of shares of capital stock on any date shall mean the average of the Closing Price for the five (5) consecutive trading days ending on such date, or if such date is not a trading date, the five consecutive trading days preceding such date. The "Closing Price" on any date shall mean (1) the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange, or (2) if such class of shares of capital stock is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to 88 5 securities listed on the principal national securities exchange on which such class of shares of capital stock is listed or admitted to trading, or (3) if such class of shares of capital stock is not listed or admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotations system that may then be in use, or (4) if such class of shares of capital stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such class of shares of capital stock selected by the Board of Directors. "Ownership Limit" shall mean (i) in the case of a Person other than an Existing Holder (as defined below), Beneficial Ownership of more than eight percent (8.0%), by value, vote or number, of the shares of capital stock and (ii) in the case of a Person who or which was the Beneficial Owner, as of January ___, 1995 (the "Amendment Date"), of more than 8.0% (by vote, value or number) of the shares of capital stock (any such Person being referred to as an "Existing Holder"), a percentage (by vote, value or number) equal to the lesser of (a) 9.9% and (b) the percentage of shares of capital stock Beneficially Owned by such Existing Holder as of the Amendment Date; provided that if, at any time and from time to time after the Amendment Date, the percentage of shares of capital stock Beneficially Owned by an Existing Holder shall decrease (whether by reason of a disposition by such Existing Holder, an increase in the number of outstanding shares of capital stock or otherwise), then from and after the time of such decrease the Ownership Limit in the case of such Existing Holder shall be a percentage (by vote, value or number) equal to the greater of (x) 8.0% and (y) the percentage of shares of capital stock Beneficially Owned by such Existing Holder after giving effect to such decrease. "Person" shall mean any individual, corporation, partnership, joint stock company or association, joint venture, association, company, trust, bank, limited liability company, estate, foundation or other entity and any government, agency or political subdivision thereof. "Purported Beneficial Holder" shall mean, with respect to any event (other than a purported Transfer) which results in Excess Shares, the Person for whom the Purported Record Holder held shares of capital stock that were, pursuant to paragraph (c)(iii) of this NINTH Article, automatically converted into Excess Shares upon the occurrence of such event. "Purported Beneficial Transferee, shall mean, with respect to any purported Transfer which results in Excess Shares, the purported beneficial transferee for whom the Purported Record Transferee would have acquired shares of capital stock if such Transfer had been valid under paragraph (c)(ii) of this NINTH Article. 89 6 "Purported Record Holder" shall mean, with respect to any event (other than a purported Transfer) which results in Excess Shares, the record holder of the shares of capital stock that were, pursuant to paragraph (c)(iii) of this NINTH Article, automatically converted into Excess Shares upon the occurrence of such event. "Purported Record Transferee" shall mean, with respect to any purported Transfer which results in Excess Shares, the record holder of the shares of capital stock if such Transfer had been valid under paragraph (c)(ii) of this NINTH Article. "REIT" shall mean a real estate investment trust for federal income tax purposes. "Restriction Termination Date" shall mean the first day of the taxable year for which the Trustees of SLT have determined to terminate SLT's status as a REIT. "Transfer" shall mean any sale, transfer, gift, hypothecation, pledge, assignment, devise or other disposition of shares of capital stock (including (1) the granting of any option or interest similar to an option (including an option to acquire an option or any series of such options) or entering into any agreement for the sale, transfer or other disposition of shares of capital stock or (2) the sale, transfer, assignment or other disposition of any securities or rights convertible into or exchangeable for shares of capital stock), whether voluntary or involuntary, whether of record, constructively or beneficially and whether by operation of law or otherwise. For purposes of this definition, whether securities or rights are convertible or exchangeable for capital stock shall be determined in accordance with Sections 318 and 544 of the Code. (ii) Restrictions on Transfers and Other Events. On or after the Restriction Termination Date, the provisions of paragraphs (c) and (d) of this NINTH Article shall be of no further force and effect. Prior to the Restriction Termination Date and except as provided in subparagraph (ix) below: (1) No Person shall Beneficially Own shares of capital stock in excess of the Ownership Limit; (2) Any Transfer that, if effective, would result in any Person Beneficially Owning shares of capital stock in excess of the Ownership Limit shall be void ab initio as to the Transfer of that number of shares of capital stock which would be otherwise Beneficially Owned by such Person in excess of the Ownership Limit and the intended transferee shall acquire no rights in such shares of capital stock in excess of the Ownership Limit; (3) Any Transfer that, if effective, would result in the shares of capital stock being Beneficially Owned by fewer than one hundred (100) 90 7 Persons (determined without reference to any rules of attribution) shall be void ab initio and the intended transferee shall acquire no rights in such shares of capital stock; and (4) Any Transfer of shares of capital stock that, if effective, would result in the Corporation being "closely held" within the meaning of Section 856(h) of the Code (applied as if the Corporation was a REIT) shall be void ab initio as to the Transfer of that number of shares of capital stock which would cause SLT to be "closely held" within the meaning of Section 856(h) of the Code and the intended transferee shall acquire no rights in such shares of capital stock. (iii) Conversion into Excess Shares. (1) If, notwithstanding the other provisions contained in this NINTH Article, at any time prior to the Restriction Termination Date, there is a purported Transfer or other event such that any Person would Beneficially Own shares of capital stock in excess of the Ownership Limit, then, except as otherwise provided in subparagraph (ix) below, such shares of capital stock which would be in excess of the Ownership Limit (rounded up to the nearest whole share), shall automatically be converted into that number of shares of excess common stock or excess preferred stock, as appropriate, equal to the number of shares of capital stock being converted, as further described in clause (3) below. Such conversion shall be effective as of the close of business on the business day prior to the date of the Transfer or other event. (2) If, notwithstanding the other provisions contained in this NINTH Article, at any time prior to the Restriction Termination Date, there is a purported Transfer or other event which, if effective, would cause the Corporation to become "closely held" within the meaning of Section 856(h) of the Code (applied as if the Corporation was a REIT), then the shares of capital stock being Transferred or which are otherwise affected by such event and which, in either case, would cause, when taken together with all other shares of capital stock, the Corporation to be "closely held" within the meaning of Section 856(h) of the Code (rounded up to the nearest whole share) shall automatically be converted into that number of shares of excess common stock or excess preferred stock, as appropriate, equal to the number of shares of capital stock being converted, as further described in clause (3) below. Such conversion shall be effective as of the close of business on the business day prior to the date of the Transfer or change in capital structure. (3) Upon conversion of common stock or preferred stock into Excess Shares pursuant to subparagraph (iii), common stock shall be 91 8 converted into excess common stock and preferred stock shall be converted in excess preferred stock. (iv) Remedies for Breach. If the Board of Directors or its designees shall at any time determine in good faith that a purported Transfer or other event has taken place in violation of paragraph (c)(ii) of this NINTH Article or that a Person intends to acquire or has attempted to acquire Beneficial Ownership of any shares of capital stock in violation of paragraph (c)(ii) of this NINTH Article, the Board of Directors or its designees may take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or other event, including, but not limited to, refusing to give effect to such Transfer or other event on the books of the Corporation or instituting proceedings to enjoin such Transfer or other event or transaction; provided, however, that any Transfers or attempted Transfers (or, in the case of events other than a Transfer, Beneficial Ownership) in violation of paragraph (c)(ii) of this NINTH Article, shall be void ab initio and automatically result in the conversion described in paragraph (c)(iii), irrespective of any action (or non-action) by the Board of Directors or its designees. (v) Notice of Restricted Transfer. Any Person who acquires or attempts to acquire shares of capital stock in violation of paragraph (c)(ii) of this NINTH Article, or any Person who is a purported transferee such that Excess Shares result under paragraph (c)(iii), shall immediately give written notice to the Corporation of such Transfer, attempted Transfer or other event and shall provide to the Corporation such other information as the Corporation may request in order to determine the effect, if any, of such Transfer or attempted Transfer or other event on SLT's status as a REIT. (vi) Owners Required to Provide Information. Prior to the Restriction Termination Date: (1) Every Beneficial Owner of five percent (5% or more, by value, vote or number, or such lower percentages as required pursuant to regulations under the Code (applied as if the Corporation was a REIT), of the outstanding shares of capital stock shall, before January 30 of each year, give written notice to the Corporation stating the name and address of such Beneficial Owner, the general ownership structure of such Beneficial Owner, the number of shares of each class of capital stock Beneficially Owned, and a description of how such shares are held. (2) Each Person who is a Beneficial Owner of shares of capital stock and each Person (including the shareholder of record) who is holding shares of capital stock for a Beneficial owner shall provide on demand to the Corporation such information as the Corporation may request from time to time in order to ensure compliance with the ownership Limit and SLT's 92 9 compliance with the REIT requirements of the Code and the regulations published thereunder. (vii) Remedies Not Limited. Subject to paragraph (c)(xii) of this NINTH Article, nothing contained in this NINTH Article shall limit the authority of the Board of Directors to take such other action as it deems necessary or advisable to protect SLT and the interests of the Corporation's stockholders by preservation of SLT's status as a REIT and to ensure compliance with the Ownership Limit. (viii) Ambiguity. In the case of an ambiguity in the application of any of the provisions of this paragraph (c) or paragraph (d), including any definition contained in subparagraph (c)(i), the Board of Directors shall have the power to determine the application of the provisions of this paragraph (c) or paragraph (d) with respect to any situation based on the facts known to them. (ix) Exception. The Board of Directors upon receipt of a ruling from the Internal Revenue Service or an opinion of tax counsel, satisfactory to them in their sole and absolute discretion, in each case to the effect that SLT's status as a REIT will not be jeopardized, may exempt a Person from the Ownership Limit if the Board of Directors obtains such representations and undertakings from such Person as are reasonably necessary to ascertain that such Person's Beneficial Ownership of shares of capital stock will not jeopardize SLT's status as a REIT. (x) Legend. Until the Restriction Termination Date, each certificate for the respective class of shares of capital stock shall bear the following legend: The shares of capital stock represented by this certificate are subject to restrictions on transfer. Unless excepted by the Board of Directors, no Person may (1) Beneficially Own shares of capital stock in excess of 8.096 of the outstanding shares of capital stock, by value, vote or number, determined as provided in the Corporation's Articles of Incorporation, as the same may be amended from time to time (the "Articles"), and computed with regard to all outstanding shares of capital stock and, to the extent provided by the Code, all shares of capital stock issuable under existing options and exchange rights that have not been exercised; or (2) Beneficially Own shares of capital stock which would result in SLT being "closely held." Unless so excepted, any acquisition of shares of capital stock and continued holding of ownership constitutes a continuous representation of compliance with the above limitations, and any Person who attempts to Beneficially Own shares of capital stock in excess of the above limitations has an affirmative obligation to notify the Corporation immediately upon such attempt. If the restrictions on transfer are violated, the transfer will be void ab initio and the shares of capital 93 10 stock represented hereby will be automatically converted into Excess Shares that will be held in trust. Excess Shares may not be transferred at a profit and may be purchased by the Corporation. In addition, certain Beneficial Owners must give written notice as to certain information on demand and on an annual basis. All terms not defined in this legend have the meanings provided in the Articles. The Corporation will mail without charge to any requesting stockholder a copy of the Articles, including the express terms of each class and series of the authorized shares of capital stock of the Corporation, within five (5) days after receipt of a written request therefor. (xi) Severability. If any provision of this NINTH Article or any application of any such provision is determined to be invalid by any Federal or state court having jurisdiction over the issues, the validity of the remaining provisions shall not be affected, and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court. (xii) New York Stock Exchange Transactions. Nothing in this NINTH Article shall preclude the settlement of any transaction entered into through the facilities of the New York Stock Exchange. (d) Excess Shares. (i) Ownership In Trust. Upon any purported Transfer or other event that results in Excess Shares pursuant to paragraph (c)(iii) of this NINTH Article, such Excess Shares shall be deemed to have been transferred to Nina Matis (or any successor Excess Share Trustee), as Excess Share Trustee of the Excess Share Trust for the benefit of such Excess Share Trust Beneficiary or Beneficiaries and the Charitable Beneficiary effective as of the close of business on the business day prior to the date of the Transfer or other event. Excess Shares so held in trust shall be issued and outstanding shares of the Corporation. The Purported Record Transferee or Purported Record Holder shall have no rights in such Excess Shares. The Purported Beneficial Transferee or Purported Beneficial Holder shall have no rights in such Excess Shares except as provided in paragraph (d)(v). Nina Matis, or any successor Excess Share Trustee, may resign by appointing a person independent of SLT, the Corporation or any Excess Share Trust Beneficiary as the Excess Share Trustee. The Excess Share Trustee shall, from time to time, designate one or more charitable organization or organizations as the Charitable Beneficiary. (ii) Dividend Rights. Excess Shares shall be entitled to the same dividends determined as if no conversion into Excess Shares had occurred. Any dividend or distribution paid prior to the discovery by the Corporation that the shares of capital stock have been converted into Excess Shares shall be repaid to the Excess Share Trust upon demand. Any dividend or distribution declared but unpaid shall be paid 94 11 to the Excess Share Trust. All dividends received or other income earned by the Excess Share Trust shall be paid over to the Charitable Beneficiary. (iii) Rights Upon Liquidation. Excess Shares shall not be entitled to receive any portion of the assets of the Corporation on the liquidation or dissolution of the Corporation. Upon conversion of Excess Shares into shares of capital stock pursuant to paragraph (d)(v), such shares shall be entitled to receive their pro rata share of the assets of the Corporation as a result of the liquidation or dissolution of the Corporation. (iv) Voting Rights. The Excess Share Trustee shall vote the Excess Shares which shall have the same voting rights as the shares of capital stock into which they are to be converted pursuant to paragraph (d)(v). Any vote cast by the Purported Beneficial Transferee or Purported Record Transferee will, at the option of the Excess Share Trustee, be void ab initio. (v) Restrictions On Transfer; Designation of Excess Share Trust Beneficiary. (1) Excess Shares shall not be transferrable. The Excess Share Trustee may freely designate an Excess Share Trust Beneficiary of all or any portion of the beneficial interest in the Excess Share Trust (representing the number of Excess Shares held by the Excess Share Trust attributable to a purported Transfer or other event that results in Excess Shares and designated as to number and class of shares pursuant to the notice provision of this clause), if the Excess Shares held in the Excess Share Trust would not be Excess Shares in the hands of such Excess Share Trust Beneficiary. If the Excess Shares resulted from a purported Transfer, the Purported Beneficial Transferee shall receive a payment from the Excess Share Trustee that reflects a price per share for such Excess Shares equal to the lesser of (A) the price per share received by the Excess Share Trustee and (B) (x) the price per share such Purported Beneficial Transferee paid for the Share of Beneficial Interest in the purported Transfer that resulted in the Excess Shares, or (y) if the Purported Beneficial Transferee did not give value for such shares of Excess Shares (through a gift, devise or other transaction), a price per share of Excess Shares equal to the Market Price of the shares of capital stock on the date of the purported Transfer that resulted in the Excess Shares. If Excess Shares resulted from an event other than a purported Transfer, the Purported Beneficial Holder shall receive a payment from the Excess Share Trustee that reflects a price per share of Excess Shares equal to the lesser of (A) the price per share received by the Excess Share Trustee or (B) the Market Price of the shares of capital stock on the date of the event that resulted in Excess Shares. Upon such transfer of an interest in the Excess Share Trust, the corresponding shares of Excess Shares in the Excess Share Trust shall be automatically converted into such number of shares of common or preferred stock (of the same class as the shares that were converted into such Excess Shares) as is equal to the number of shares of Excess Shares, and such shares of common or preferred stock shall be transferred of record to the Excess Share Trust Beneficiary of the 95 12 interest in the Excess Share Trust designated by the Excess Share Trustee as described above if such shares of capital stock would not be Excess Shares in the hands of such Excess Share Trust Beneficiary. Prior to any transfer of any interest in the Excess Share Trust, the Corporation must have waived in writing its purchase rights, if any, under paragraph (d)(vi). Any funds received by the Excess Share Trustee in excess of the funds payable to the Purported Beneficial Holder or the Purported Beneficial Transferor shall be paid to the Charitable Beneficiary. The Corporation shall pay the costs and expenses of the Excess Share Trustee. (2) Notwithstanding the foregoing, if a Purported Beneficial Transferee, Purported Beneficial Holder or the Excess Share Trustee receives a price for an interest in the Excess Share Trust that exceeds the amounts allowable under paragraph (d)(v)(1) of this NINTH Article, such Purported Beneficial Transferee or Purported Beneficial Holder shall be personally liable to, and shall pay, or cause the Excess Share Trust Beneficiary of the interest in the Excess Share Trust to pay, such excess to the Excess Share Trustee who shall pay over such excess to the Charitable Beneficiary. (3) Notwithstanding the foregoing, if the provisions of this paragraph (d)(v) are determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the Purported Beneficial Transferee or Purported Beneficial Holder of any shares of Excess Shares may be deemed, at the option of the Corporation, to have acted as an agent on behalf of the Corporation, in acquiring or holding such Excess Shares and to hold such Excess Shares on behalf of the Corporation. (vi) Purchase Right in Excess Shares. Excess Shares shall be deemed to have been offered for sale by the Excess Share Trustee to the Corporation, or its designee, at a price per Excess Share equal to (I) in the case of Excess Shares resulting from a purported Transfer, the lesser of (A) the price per share of the shares of capital stock in the transaction that created such Excess Shares (or, in the case of devise or gift, the Market Price of the shares of capital stock at the time of such devise or gift), or (B) the lowest Market Price of the class of shares of capital stock which resulted in the Excess Shares at any time after the date such shares were converted into Excess Shares and prior to the date the Corporation, or its designee, accepts such offer or (II) in the case of Excess Shares resulting from an event other than a purported Transfer, the lesser of (A) the Market Price of the shares of capital stock on the date of such event or (B) the lowest Market Price for shares of capital stock which resulted in the Excess Shares at any time from the date of the event resulting in such Excess Shares and prior to the date the Corporation, or its designee, accepts such offer. The Corporation shall have the right to accept such offer for a period of ninety (90) days after the later of (i) the date of the Transfer which resulted in such Excess Shares and (ii) the date the Board of Directors determines in good faith that a Transfer or other event resulting in Excess Shares has occurred, if the 96 13 Corporation does not receive a notice of such Transfer or other event pursuant to paragraph (c)(v) of this NINTH Article. (e) Notwithstanding any other provision of these Articles of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of capital stock required by law or these Articles of Incorporation, the affirmative vote of the holders of at least two-thirds (2/3) of the voting power of all the then-outstanding shares of capital stock of the Corporation, voting together as a single class, shall be required to alter, amend or repeal this NINTH Article. TENTH: The Corporation shall indemnify (A) its directors and officers, whether serving the Corporation or at its request any other entity, to the full extent required or permitted by the General Laws of the State of Maryland now or hereafter in force, including the advance of expenses under the procedures and to the full extent permitted by law and (B) other employees and agents to such extent as shall be authorized by the Board of Directors or the Corporation's By-Laws and be permitted by law. The foregoing rights of indemnification shall not be exclusive of any other rights to which those seeking indemnification may be entitled. The Board of Directors may take such action as is necessary to carry out these indemnification provisions and is expressly empowered to adopt, approve and amend from time to time such by-laws, resolutions or contracts implementing such provisions or such further indemnification arrangements as may be permitted by law. No amendment of the charter of the Corporation or repeal of any of its provisions shall limit or eliminate the right to indemnification provided hereunder with respect to acts or omissions occurring prior to such amendment or repeal. ELEVENTH: The provisions for the regulation of the internal affairs of the Corporation are to be stated in the Bylaws of the Corporation, as the same may be amended from time to time. TWELFTH: Any amendments to these Articles of Incorporation shall be approved by the stockholders of the Corporation by the affirmative vote of a majority of all the votes entitled to be cast on the matter. THIRTEENTH: The Corporation shall not consummate a consolidation, merger, share exchange or sale, lease, exchange or other transfer of all or substantially all of its assets, the stockholder approval of which is required by applicable law, unless such transaction is approved by the stockholders of the Corporation by the affirmative vote of a majority of all the votes entitled to be cast on the matter. FOURTEENTH: To the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted from time to time, no director or officer of the Corporation shall be liable to the Corporation or its stockholders for money damages. No amendment to these Articles of Incorporation or repeal of any of its provisions shall limit or eliminate the effect of this 97 14 FOURTEENTH Article with respect to any act or omission which occurs prior to such amendment or repeal. FIFTEENTH: In order to enable the Corporation and any Subsidiary (as hereinafter defined) to secure and maintain in good standing all licenses, franchises and other regulatory approvals issued by Gaming Authorities (as hereinafter defined) which are necessary for the lawful operation of gaming and related businesses now or hereafter engaged in by the Corporation or any Subsidiary within or without the United States of America, which licenses, franchises or other regulatory approvals are conditioned upon some or all of the holders of the Corporation's stock possessing prescribed qualifications (the "Gaming Licenses"), and in order to insure that the business of the Corporation and its Subsidiaries will be carried on in compliance 98 15 with the laws and regulations governing the conduct of gaming and related businesses (the "Gaming Laws"), the following provisions are made and shall apply for so long as the Corporation is subject to Gaming Laws: (a) Securities (as hereinafter defined) of the Corporation shall be subject to redemption by the Corporation, pursuant to Section 78.196 of the Nevada Revised Statutes or any other applicable provision of law, to the extent necessary to prevent the loss or to secure the reinstatement of any Gaming License held by the Corporation or any Subsidiary. (b) Securities of the Corporation shall be held subject to the condition that if a holder thereof is found by a Gaming Authority to be disqualified or unsuitable pursuant to any Gaming Law (a "Disqualified Holder"), such holder shall dispose of all of the Corporation's Securities held by such holder within the 120 day period (the "Disposition Period") commencing on the date (the "Notice Date") upon which the Corporation shall have received notice from a Gaming Authority of such holder's disqualification or unsuitability (the "Disqualification Notice"). Promptly following its receipt of a Disqualification Notice, the Corporation shall cause such Disqualification Notice to be delivered to the Disqualified Holder named therein by personal delivery, by mailing it to the address shown on the Corporation's books and records or through the use of any other reasonable means. Failure of the Corporation to provide such Disqualification Notice to a Disqualified Holder after making reasonable efforts to do so shall not preclude the Corporation from exercising its rights. (c) If any Disqualified Holder fails to dispose of the Corporation's Securities within the Disposition Period, the Corporation may redeem such Securities at the lesser of (1) the lowest closing sale price of such Securities on any trading day during the Disposition Period or (2) such Disqualified Holder's original purchase price; provided, that if the Securities to be so redeemed are paired with securities of SLT (the Securities of the Corporation and the securities of SLT when so paired being herein referred to as "Paired Securities") pursuant to the Pairing Agreement, dated as of June 25, 1980, as amended, between SLT and the Corporation, the Corporation and SLT may redeem such Paired Securities for an aggregate amount equal to the lesser of (1) the lowest closing sale price of such Paired Securities on any trading day during the Disposition Period or (2) such Disqualified Holder's original purchase price for such Paired Securities. (d) Commencing on the Notice Date, it shall be unlawful for a Disqualified Holder to: (1) receive payments of dividends or interest upon any Securities of the Corporation held by such Disqualified Holder, (2) exercise, directly or indirectly, any right conferred by the Corporation's Securities upon the holders thereof, or 99 16 (3) receive any remuneration in any form, for services rendered or otherwise, from the Subsidiary of the Corporation that holds a Gaming License. (e) The Board of Directors shall have the power to determine, on the basis of information known to the Board after reasonable inquiry, all questions arising under this Article FIFTEENTH including, without limitation, (1) whether a person is a Disqualified Holder, (2) whether a Disqualified Holder has disposed of Securities pursuant to Paragraph (b) of this Article FIFTEENTH and (3) the amount of Securities held directly or indirectly by any person. Any such determination shall be binding and conclusive on all such persons. (f) The Corporation shall be entitled to injunctive relief in any court of competent jurisdiction to enforce the provisions of this Article FIFTEENTH, and each holder of Securities of the Corporation will be deemed to have acknowledged by acquiring or retaining Securities of the Corporation that failure to comply with this Article FIFTEENTH will expose the Corporation to irreparable injury for which there is not adequate remedy at law and that the Corporation is entitled to injunctive relief to enforce the provisions of this Article FIFTEENTH. (g) A Disqualified Holder shall indemnify the Corporation and its Subsidiaries for any and all direct or indirect costs (including attorney's fees) incurred by the Corporation as a result of such holder's continuing ownership of or failure to divest the Securities. (h) The following definitions shall apply with respect to this Article FIFTEENTH. (1) The term "Gaming Authorities" includes all governmental authorities within or without the United States of America which issue or grant any license, franchise or regulatory approval necessary or appropriate for the lawful operation of gaming and related businesses. With respect to the State of Nevada, the term "Gaming Authorities" shall include, without limitation, the Nevada Gaming Commission, the Nevada State Gaming Control Board or their respective successors; and with respect to Atlantic City, New Jersey, the term "Gaming Authorities" shall include, without limitation, the New Jersey Casino Control Commission, the Division of Gaming Enforcement or their respective successors. (2) The term "Securities" means any instrument evidencing a direct or indirect beneficial ownership or creditor interest in the Corporation, including but not limited to, Common Stock, Preferred Stock, bonds, mortgages, debentures, security agreements, notes, warrants, options and rights. (3) The term "Subsidiary" (A) in matters relating to Gaming Laws of the State of New Jersey, shall have the definition set forth in the New Jersey Statutes Annotated 5:12-47 or (B) in matters relating to Gaming Laws outside of the State of New Jersey, means (i) a corporation, more than 50% of the outstanding voting 100 17 securities of which the Corporation or a Subsidiary of the Corporation owns or has the power to vote or (ii) a firm, association, partnership, limited liability company, trust or other form of business organization, not a natural person, of which the Corporation or a Subsidiary of the Corporation owns or has the power to vote a majority interest. 101 EX-3.3 4 EX-3.3 1 Exhibit 3.3 AMENDED AND RESTATED TRUSTEES' REGULATIONS OF STARWOOD LODGING TRUST (AS AMENDED AND RESTATED THROUGH DECEMBER 18, 1997) ARTICLE I TRUSTEES SECTION 1. NUMBER. There shall be not less than three (3) nor more than fifteen (15) Trustees; within such limits, the number of Trustees may be fixed, increased or decreased from time to time by the Trustees. SECTION 2. QUALIFYING SHARES NOT REQUIRED. No Trustee need be a Shareholder. SECTION 3. QUORUM. A majority of the Trustees shall constitute a quorum. SECTION 4. ELECTION. The Trustees shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the 1995 Annual Meeting of Shareholders, the term of office of the second class to expire at the 1996 Annual Meeting of Shareholders and the term of office of the third class to expire at the 1997 Annual Meeting of Shareholders, with each Trustee to hold office until his or her successor shall have been duly elected and qualified. At each Annual Meeting of Shareholders, commencing with the 1995 Annual Meeting, (i) Trustees elected to succeed those Trustees whose terms then expire shall be elected for a term of office to expire at the third succeeding Annual Meeting of Shareholders after their election, with each Trustee to hold office until his or her successor shall have been duly elected and qualified, and (ii) if authorized by a resolution of the Board of Trustees, Trustees may be elected to fill any vacancy on the Board of Trustees, regardless of how such vacancy shall have been created. SECTION 5. VACANCIES. Vacancies occurring among the Trustees (including vacancies created by increases in number) may be filled by a majority of the remaining Trustees, though less than a quorum, or by a sole remaining Trustee, and the person so appointed shall hold office for a term expiring at the Annual Meeting of Shareholders at which the term of office of the class to which he or she has been appointed expires and until his or her successor is elected and qualified. 102 2 SECTION 6. PLACE OF MEETING. Each meeting of the Trustees shall be held at such place within or without the State of Maryland as is fixed from time to time by resolution of the Trustees (or, in the absence of such resolution, as specified in the notice of such meeting). SECTION 7. ANNUAL MEETINGS. Promptly following each Annual Meeting of Share holders, a meeting of the Trustees shall be held for the purpose of electing officers and transacting other business. Notice of such meetings need not be given. SECTION 8. REGULAR MEETINGS. Regular meetings of the Board of Trustees need not be held. SECTION 9. SPECIAL MEETINGS. Special meetings of the Trustees may be called at any time by the Chairman, and the Chairman shall call a special meeting at any time upon the written request of two (2) Trustees. Written notice of the time and place of a special meeting shall be given to each Trustee, either personally or by sending a copy thereof by mail or by telecopier to his or her address appearing on the books of the Trust or theretofore given by him to the Trust for the purpose of notice. In case of personal service or notice by telecopier, such notice shall be so delivered at least twenty-four (24) hours prior to the time fixed for the meeting. If such notice is mailed, it shall be deposited in the United States mail at least seventy-two (72) hours prior to the time fixed for the holding of the meeting. Notice of a meeting may be given by the Chairman, the Trustees requesting the meeting or the Secretary. SECTION 10. ADJOURNED MEETINGS. A quorum of the Trustees may adjourn any Trustees' meeting to meet again at a stated day and hour. In the absence of a quorum a majority of the Trustees present may adjourn from time to time to meet again at a stated day and hour prior to the time fixed for the next regular meeting of the Trustees. The motion for adjournment shall be lodged with the records of the Trust. Notice of the time and place of an adjourned meeting need not be given to any Trustee if the time and place is fixed at the meeting adjourned. SECTION 11. WAIVER OF NOTICE. The transactions of any meeting of the Trustees, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if either before or after the meeting each of the Trustees not present signs a written waiver of notice or a consent to the holding of such meeting or an approval of the minutes thereof. All such waivers, consents, or approvals shall be lodged with the Trust records or made a part of the minutes of the meeting. SECTION 12. ACTION WITHOUT MEETING. Any action required or permitted to be taken by the Trustees may be taken without a meeting, if a majority of the Trustees shall individually or collectively consent in writing to such action. Such written consent or consents shall be lodged with the records of the Trust. Such action by written consent shall have the same force and effect as a vote of the Trustees adopted at a meeting duly called and held. SECTION 13. POWERS AND DUTIES. The powers and duties of the Trustees, in addition to the powers and duties set forth in the Declaration, are: (a) Selection and Removal of Officers, Agents and Employees. To select all the other officers, agents and employees of the Trust, to remove them at pleasure, either with or without cause, to prescribe for them duties consistent with the Declaration and the Trustees' Regulations, and to fix their compensation. 103 3 (b) Authorization of Signatures. From time to time to designate the person or persons authorized to sign or endorse checks, drafts, or other orders for the payment of money, issued in the name of or payable to the Trust. (c) Fixing Principal Office and Place of Meetings. From time to time to change the location of the principal office of the Trust and from time to time to designate any place within or without the State of Maryland as the place at which meetings of Trustees or of the Shareholders shall be held. (d) General Powers. Generally to exercise such other powers as are usually vested in directors of corporations organized under the laws of the State of Maryland. SECTION 14. EXECUTIVE COMMITTEE. (a) The Board of Trustees may appoint two or more trustees to constitute an Executive Committee. One of such trustees shall be designated as Chairman of the Executive Committee. The Executive Committee shall have and may exercise all of the rights, powers and authority of the Board of Trustees, except as expressly limited by the Maryland General Corporation Law as amended from time to time. (b) The Executive Committee shall fix its own rules of procedure and shall meet at such times and at such place or places as it may determine. The Chairman of the Executive Committee or, in the absence of a Chairman, a member of the Executive Committee chosen by a majority of the members present, shall preside at meetings of the Executive Committee, and another member thereof chosen by the Executive Committee shall act as secretary. A majority of the Executive Committee shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of the members present at a meeting shall be required for any action of the Executive Committee. SECTION 15. OTHER COMMITTEES. The Board of Trustees may appoint such other commit tees as it shall deem advisable and with such authority as the Board of Trustees shall from time to time determine. SECTION 16. OTHER PROVISIONS REGARDING COMMITTEES. (a) The Board of Trustees shall have the power at any time to fill vacancies in, change the membership of, or discharge any committee. (b) Members of any committee shall be entitled to such compensation for their services as from time to time may be fixed by the Board of Trustees. No committee member who receives compensation as a member of any one or more committees shall be barred from serving the Trust in any other capacity or from receiving compensation and reimbursement of reasonable expenses for any or all such other services. (c) Unless prohibited by law, the provisions of Sections 11, 12 and 17 of this Article I shall apply to all committees. SECTION 17. MEETINGS BY TELEPHONE OR SIMILAR COMMUNICATIONS. The Board of Trustees may participate in meetings by means of conference telephone or similar communications equipment, whereby all trustees participating in the meeting can hear each other at the same time, and participation in any such meeting shall constitute presence in person at such meeting. A written record shall be made of all actions taken at any meeting conducted by a means of a conference telephone or similar communications equipment. SECTION 18. TRANSACTIONS WITH INTERESTED PERSONS. (a) Notwithstanding anything to the contrary contained in these Trustees' Regulations, in addition to any affirmative vote required either by law, 104 4 the Partnership Agreement, the Declaration of Trust of the Trust or these Trustees' Regulations, any Transaction involving the Trust or any of its subsidiaries or the Realty Partnership shall require the affirmative vote of a majority of the Trustees ("Disinterested Members") on the Board of Trustees of the Trust who are not employees, officers, directors, Affiliates or Associates of the Interested Person who or which is a party to the Transaction. (b) As used in these Trustee's Regulations: (i) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 18, 1997 (the "Exchange Act"); (ii) A Person shall "Beneficially Own" and be the "Beneficial Owner" of any Paired Shares or Units: (A) which such Person or any of its Affiliates or Associates beneficially owns, directly or indirectly, within the meaning of Rule 13d-3 under the Exchange Act; or (B) which such Person or any of its Affiliates or Associates has (I) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (II) the right to vote pursuant to any agreement, arrangement or understanding (but neither such Person nor any such Affiliate or Associate shall be deemed to be the Beneficial Owner of any Paired Shares or Units solely by reason of a revocable proxy granted for a particular meeting of shareholders, pursuant to a public solicitation of proxies for such meeting, and with respect to which Paired Shares or Units neither such Person nor any such Affiliate or Associate is otherwise deemed the Beneficial Owner); or (C) which are beneficially owned, directly or indirectly, within the meaning of the Rule 13d-3 under the Exchange Act, by any other Person with which such Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (other than solely by reason of a revocable proxy as described in subparagraph (B) above) or disposing of any Paired Shares or Units. (iii) "Corporation" shall mean Starwood Lodging Corporation, a Maryland corporation. (iv) "Interested Person" shall mean any Person who or which is the Beneficial Owner, directly or indirectly, of 5% or more of the outstanding Paired Shares or the outstanding Units or who or which is an Affiliate or Associate of the Trust, the Corporation or either of the Partnerships. For the purposes of determining whether a Person is an Interested Person, the number of Paired Shares or Units deemed to be outstanding shall include Paired Shares or Units deemed owned through application of paragraphs (A), (B) and (C) of paragraph (ii) above but shall not include any other unissued Paired Shares or Units 105 5 which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (v) "Paired Shares" shall mean the shares of common stock of the Corporation and the shares of beneficial interest of the Trust which are paired pursuant to the Pairing Agreement dated June 25, 1980 between the Trust and the Corporation, as it may be amended from time to time. (vi) "Partnership Agreement" shall mean the Limited Partnership Agreement of the Realty Partnership, as it may be amended from time to time. (vii) "Partnerships" shall mean the Realty Partnership and SLC Operating Limited Partnership, a Delaware limited partnership. (viii) "Person" shall mean any individual, limited partnership, general partnership, corporation, limited liability company or any other firm or entity. (ix) "Realty Partnership" shall mean SLT Realty Limited Partnership, a Delaware limited partnership. (x) "Shareholder" shall mean a Person that owns Paired Shares. (xi) "Transaction" shall mean any contract, sale, lease, exchange, mortgage, transfer or disposition to or with, or any other transaction with, any Interested Person, including, without limitation, any election with respect to the method of payment for an exchange of Units for Paired Shares, or any action to be taken by the Trust, the Corporation or the Partnership with respect to the senior debt of the Realty Partnership. (xii) "Units" shall have the meaning set forth in the Partnership Agreement. (c) A majority of the Disinterested Members shall have the power and duty to determine, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Section 14, including, without limitation, (i) whether a Person is an Interested Person, (ii) the number of Paired Shares or Units that any Person Beneficially Owns, and (iii) whether a Person is an Affiliate or Associate of another. A majority of the Disinterested Members shall have the right to demand that any Person who is reasonably believed to be an Interested Person (or who holds of record Paired Shares or Units that any Interested Person Beneficially Owns) supply the Trust with complete information as to (i) the record owner(s) of all Paired Shares or Units that such Person who is reasonably believed to be an Interested Person Beneficially Owns, (ii) the number of, and class or series of, Paired Shares or Units that such Person who is reasonably believed to be an Interested Person Beneficially Owns and the number(s) of the certificate(s), if any, evidencing such Paired Shares or Units, and (iii) any other factual matter relating to the applicability or effect of this Section 14, as may be reasonably requested of such Person, and such Person shall furnish such information within 10 days after receipt of such demand. (d) Nothing contained in this Section 14 shall be construed to relieve any Interested Person from any fiduciary obligation imposed by law. 106 6 (e) Notwithstanding anything to the contrary contained in these Trustees' Regulations this Section 14 may be amended or repealed only by a majority of Trustees on the Board of Trustees of the Trust who are not employees, officers, Affiliates or Associates of the Trust, the Corporation, the Partnerships or any Interested Person. SECTION 19. INDEPENDENT TRUSTEES. Notwithstanding anything to the contrary contained in these Trustees' Regulations, not less than a majority of the Board of Trustees of the Trust shall be composed of "Independent Trustees." For purposes of this Section 15, an "Independent Trustee" is a Trustee of the Trust who is not employed by or an affiliate (as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act), of the Trust, the Corporation or Starwood Capital Group, L.L.C. ARTICLE II OFFICERS SECTION 1. ENUMERATION. The officers of the Trust shall be a Chairman, a President, one or more Vice-Presidents, a Secretary, a Treasurer, and such other officers as are elected by the Trustees. Officers shall be elected by and shall hold office at the pleasure of the Trustees. Any two or more offices, except those of Chairman and President, President and Secretary, or President and Assistant Secretary, may be held by the same person. SECTION 2. POWERS AND DUTIES OF THE CHAIRMAN. The Chairman shall be the chief executive officer of the Trust and, subject to the control of the Trustees, shall have general supervision, direction and control of the business of the Trust and its employees and shall have such other powers and duties as are usually vested in the office of chief executive officer of a corporation. The Chairman shall, if present, preside at all meetings of the Trustees and of the Shareholders and exercise and perform such other powers and duties as may be from time to time assigned to him by the Trustees. The Chairman shall have the power and authority to execute all written instruments on behalf of the Trust of every nature whatsoever, and shall be, ex officio, a member of all standing committees. SECTION 3. POWERS AND DUTIES OF THE PRESIDENT. The President shall have such duties and responsibilities for the supervision, direction and control of the Trust as may be delegated to the President by the Board of Trustees or the Chairman. The President shall have the power and authority to execute all written instruments on behalf of the Trust of every nature whatsoever. In the absence of the Chairman, the President shall preside at all meetings of the Trustees and of the Shareholders, and shall be, ex officio, a member of all standing committees. SECTION 4. POWERS AND DUTIES OF THE VICE PRESIDENTS. In the absence or disability of the President, the Vice-Presidents in order of their rank as fixed by the Trustees or, if not ranked, the Vice- President designated by the Trustees, shall perform all of the duties of the President and when so acting shall have all the powers of and be subject to all of the restrictions upon the President. The Vice-Presidents shall have the power and authority to execute on behalf of the Trust all written instruments of every nature whatsoever. The Vice-Presidents shall have such other powers and perform such other duties as are prescribed for them from time to time by the Trustees. SECTION 5. DUTIES OF THE SECRETARY. The Secretary shall keep full and complete minutes of the meetings of the Trustees and of the meetings of the Shareholders and give notice, as required, of all such 107 7 meetings. The Secretary shall perform all other duties that pertain to such office and which are required by the Trustees. SECTION 6. DUTIES OF THE CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall (i) maintain custody of and keep the books of account of the Trust; (ii) receive, deposit and disburse funds belonging to the Trust, and (iii) perform all other duties that pertain to such office and which are required by the Trustees. ARTICLE III SHAREHOLDERS SECTION 1. QUORUM. The presence in person or by proxy of Persons entitled to vote a majority of the voting shares at any meeting of Shareholders shall constitute a quorum. The Shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment notwithstanding the withdrawal of enough Shareholders to leave less than a quorum. SECTION 2. PLACE OF MEETING. Meetings of the Shareholders shall be held at the principal office of the Trust or at another convenient location within or without the State of Maryland as is designated by the Trustees or by the written consent of all Shareholders entitled to vote thereat, given either before or after the meeting and filed with the Secretary of the Trust. SECTION 3. ANNUAL MEETING. A regular annual meeting of the Shareholders shall be held on such date and at such time as may be fixed by the Board of Trustees. SECTION 4. SPECIAL MEETINGS. Special meetings of the Shareholders may be held at any time for any purpose or purposes. Such special meetings may be called at any time by the Chairman or by the Trustees or by any two or more Trustees, or by one or more Shareholders holding not less than a majority of the outstanding Shares of the Trust. SECTION 5. NOMINATION OF TRUSTEES. Nominations of Persons for election as Trustees at an annual meeting of the Shareholders may be made at such meeting only by or at the direction of the Trustees, by any nominating committee or person(s) appointed by the Trustees, or by any Shareholder entitled to vote for the election of Trustees at the meeting who complies with the notice procedures set forth in this Section 5. Any Shareholder entitled to vote for the election of Trustees may nominate one or more Persons for election as Trustee at a meeting of Shareholders only if written notice of such Shareholder's intent to make such nomination or nominations has been delivered personally to the Secretary at, or been mailed to the Secretary and received at, the principal executive offices of the Trust not less than 50 days nor more than 75 days prior to the meeting; provided, however, that in the event that less than 60 days' notice or prior public disclosure of the date of meeting is given or made to Shareholders, notice by the Shareholder to be timely must be so delivered or received not later than the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such Shareholder's notice to the Secretary shall set forth: (i) the name and address of the Shareholder who intends to make the nominations(s) and of the Person or Persons to be nominated; (ii) the class and number of Shares that are held of record, beneficially owned and represented by proxy by such Shareholder as of the record date for the meeting (if such date then shall have been made publicly available) and as of the date of such notice; (iii) a 108 8 representation that such Shareholder intends to appear in person or by proxy at the meeting to nominate the Person or Persons specified in the notice; (iv) a description of any contract, arrangement or understanding between such Shareholder and each nominee and any other Person or Persons (naming such Person or Persons) pursuant to which the nomination or nominations are to be made by such Shareholder; (v) such other information regarding each nominee proposed by such Shareholder as would be required to be disclosed in a proxy statement used in a solicitation of proxies for the election of directors which solicitation was subject to the rules and regulations of the Securities and Exchange Commission (the "SEC") under Section 14 of the Exchange Act, as from time to time amended; and (vi) the consent of each nominee to serve as a Trustee if so elected. No Person shall be eligible for election as a Trustee unless as nominated in accordance with the procedures set forth herein. SECTION 6. ADJOURNED MEETINGS. Any meeting of Shareholders, whether or not a quorum is present, may be adjourned from day to day or from time to time by the vote of a majority of the Shares the holders of which are either present at the meeting or represented by proxy. The motion for adjournment shall be lodged with the records of the Trust. SECTION 7. NOTICE OF REGULAR OR SPECIAL MEETINGS. Written notice specifying the place, day and hour of any regular or special meeting, the general nature of the business to be transacted thereof, to the extent required by law, and all other matters required by law shall be given to each Shareholder of record entitled to vote, either personally or by sending a copy thereof by mail or telegraph to his or her address appearing on the books of the Trust or theretofore given by him to the Trust for the purpose of notice or, if no address appears or has been given, addressed to the place where the principal office of the Trust is situated. It shall be the duty of the Secretary to give notice of each Annual Meeting of the Shareholders at least ten (10) days and not more than ninety (90) days before the date on which it is to be held. If notice is not so given by the Secretary, it may be given by any other officer. Within twenty (20) days after the Trust receives a Shareholder request for the calling of a special meeting, the Trustees shall designate the date on which such meeting is to be held and the Secretary shall inform the Shareholders who make the request of the reasonably estimated costs of preparing and mailing a notice of the meeting, and on payment of those costs to the Trust, notify each Shareholder entitled to notice of the meeting. Any such special meeting shall be held on a date not earlier than the twentieth (20th) day, and not later than the ninetieth (90th) day, following the date on which such notice is given. If the date of such special meeting is not so fixed and notice thereof given within seven (7) days after the date such Shareholder request is received by the Trust, the date of such meeting may be fixed by the Person or Persons requesting the meeting, in which event notice of such meeting shall be given by such Person or Persons not less than seven (7), nor more than sixty (60), days before the date on which the meeting is to be held. Notwithstanding the foregoing, if as of the date a Shareholder request for a special meeting is received or within twenty (20) days thereafter, the Trustees have called or call a meeting of Shareholders (whether annual or special) for a purpose or purposes other than the purpose(s) stated in the Shareholder request, the Trustees need not call, and the Secretary need not give notice of, a separate and additional meeting of Shareholders for the purpose(s) stated in the Shareholder request if (i) the Trustees determine in good faith that calling such a separate and additional meeting would require the Trust to incur undue cost and expense, and (ii) the Secretary notifies both the requesting Shareholder(s) and all other Shareholders entitled to vote, within twenty (20) days after the Trust receives the Shareholder request, that the matter(s) proposed by the requesting Shareholder(s) to be considered at a special meeting may be proposed and considered at the meeting otherwise called by the Trustees. In addition, if not later than the thirtieth (30th) day prior to the date on which 109 9 any special meeting called by the Trustees pursuant to a Shareholder request is to be held, the Trustees determine in good faith to present for consideration by the Shareholders of the Trust one or more matters other than those proposed by the requesting Shareholder(s) to be considered, the Trustees may postpone the previously called special meeting for a period of up to sixty (60) days following the date of which notice of such postponement is given. Notice of such postponement and of the additional matter(s) to be considered at such meeting shall be given by the Secretary to all Shareholders entitled to vote at the meeting not later than the thirtieth (30th) day prior to the originally scheduled meeting date. For purposes of this Section 7, a Shareholder request shall be deemed received by the Trust when delivered to an officer of the Trust in person or on the date on which such request is mailed to the Trust, duly addressed to its principal office. SECTION 8. NOTICE OF ADJOURNED MEETINGS. It shall not be necessary to give any notice of the time and place of any adjourned meeting or of the business to be transacted thereat other than by announcement at the meeting at which such adjournment is taken. SECTION 9. PROXIES. The appointment of a proxy or proxies shall be made by an instrument in writing executed by the Shareholder or his or her duly authorized agent and filed with the Secretary of the Trust. No proxy shall be valid after the expiration of eleven (11) months from the date of its execution unless the Shareholder executing it specifies therein the length of time for which it is to continue in force, which is no case shall exceed seven (7) years from the date of its execution. At a meeting of Shareholders all questions concerning the qualification of voters, the validity of proxies, and the acceptance or rejection of votes, shall be decided by the secretary of the meeting unless inspectors of election are appointed pursuant to Section 13 of this Article III, in which event such inspectors shall pass upon all questions and shall have all other duties specified in said section. SECTION 10. CONSENT OF ABSENTEES. The transactions of any meeting of Shareholders, either annual, special, or adjourned, however called and noticed, shall be as valid as though had at a meeting duly held after the regular call and notice if a quorum is present and, if either before or after the meeting, each Shareholder entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be lodged with the Trust records or made a part of the minutes of the meeting. SECTION 11. VOTING RIGHTS. If no future date is fixed for the determination of the Shareholders entitled to vote at any meeting of Shareholders, only Persons in whose names Shares entitled to vote stand on the stock records of the Trust on the day of any meeting of Shareholders shall be entitled to vote at such meeting SECTION 12. NO CUMULATIVE VOTING. Shareholders shall not be entitled to cumulate votes in any elections of Trustees of the Trust. SECTION 13. CONDUCT OF MEETINGS; INSPECTORS OF ELECTION. The presiding officer at a meeting of the Shareholders shall have all power and authority vested in a presiding officer by law or practice, including, without limitation, the authority to determine whether the nomination of any person is made in compliance with applicable provisions of these Trustees' Regulations (and to refuse to acknowledge the nomination of any Person not made in such compliance); to determine whether any item of business proposed to be brought before the meeting has been properly brought (and to declare that any business not so brought shall be disregarded and not transacted); to establish rules pertaining to reasonable time limits and the amount of time that may be taken up in remarks by any Shareholder or group of Shareholders and otherwise pertaining 110 10 to the conduct of the meeting; and to otherwise decide all matters relating to the conduct of the meeting. The presiding officer may appoint a parliamentarian and one presiding officer may appoint a parliamentarian and one or more sergeants-at-arms. The parliamentarian may advise the presiding officer upon matters relating to the conduct of the meeting. The sergeant- or sergeants-at-arms shall have authority to take any and all actions that such Persons deem necessary or appropriate to assure that the meeting is conducted with decorum and in an orderly manner, including, without limitation, authority to expel or cause the explosion of any Person who the presiding officer determines is failing to comply with the rules concerning the conduct of, or is otherwise disrupting, the meeting. In advance of any meeting of the Shareholders, the Trustees may appoint any one or more Persons (other than nominees for office) to act as inspectors of election at the meeting or any adjournment thereof. If no inspector of election is so appointed, the presiding officer of the meeting may, and on the request of any Shareholder or any Shareholder's proxy shall, appoint one or more such inspectors of election. The number of inspectors shall be either one (1) or three (3), as determined by the presiding officer; provided, however, that if such inspector(s) is or are to be appointed at the meeting on the request of one or more Shareholders or proxies, the holders of a majority of Shares present (in person or by duly executed proxy) shall determine whether one (1) or three (3) inspectors are to be appointed. If the Person appointed as inspector or election fails to appear at the meeting or fails or refuses to act as inspector, the presiding officer of the meeting may, and upon the request of any Shareholder or any Shareholder's proxy shall, appoint a Person to fill that vacancy. The inspectors of election shall: (a) Determine the number of Shares outstanding and the voting power of each, the Shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; (b) Receive votes, ballots or consents; (c) Count and tabulate all vote or consents; (d) Determine and report to the Trust the results of the voting; and (e) Do any other acts that may be proper to conduct the election or vote with fairness to all Shareholders. On the request of the presiding officer of the meeting or of any Shareholder or such Shareholder's proxy, the inspector(s) of election shall make a report in writing of any question or other matter determined by him or them and execute a certificate of any facts found by him or them. If there are three (3) inspectors of election, the decision, act, report or certificate of a majority shall be effective in all respects as the decision, act, report or certificate of the inspectors." SECTION 14. BUSINESS. Except as may be otherwise provided by applicable law, the only business that shall be conducted at any meeting of the Shareholders (other than matters incident to the conduct of the meeting) shall be business brought before the meeting by or at the direction of the Trustees or by a Shareholder who complies with the procedures set forth in this Section 14. Except as otherwise provided by Section 5 of this Article III or by applicable law, the only business that shall be conducted at any meeting of the Shareholders shall (i) have been specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Trustees, (ii) otherwise be 111 11 brought before such meeting by or at the direction of the Trustees or the presiding officer of the meeting, or (iii) be otherwise properly brought before the meeting by or on behalf of a Shareholder who shall have been a Shareholder of record on the record date for such meeting, who shall continue to be entitled to vote thereat, and who shall have complied with the procedures set forth in the remainder of this Section 14. In addition to any and all other applicable requirements, for business to be properly brought before a meeting of the Shareholders by a Shareholder, the Shareholder must have given timely notice thereof in writing to the Secretary. To be timely, a Shareholder's notice must be delivered personally or mailed to and received at the principal executive offices of the Trust within ten days of the earlier of (i) the date that notice of the meeting was mailed in accordance with this Article III or prior public disclosure of the date of the meeting was made or, (ii) the date that a request for a special meeting was made by a Shareholder in accordance with Section 7 of this Article III. A Shareholder's notice to the Secretary shall set forth (i) a description of each item of business the Shareholder proposes to bring before the meeting and the wording of the proposal, if any, to be submitted for a vote of the Shareholders with respect thereto; (ii) the name and address of the Shareholder; (iii) the class and number of Shares held of record, owned beneficially and represented by proxy by such Shareholder as of the record date for the meeting (if such date shall then have been publicly disclosed) and as of the date of such notice; and (iv) all other information that would be required to be included in a proxy statement filed with the SEC if, with respect to any such item of business, such Shareholder were a participant in a solicitation subject to Section 14 of the Exchange Act. SECTION 15. INFORMAL ACTION BY SHAREHOLDERS. Any action required or permitted to be taken at a meeting of Shareholders may be taken without a meeting if there is filed with the records of Shareholders meetings a unanimous written consent which sets forth the action and is signed by each Shareholder entitled to vote on the matter and a written waiver of any right to dissent signed by each Shareholder entitled to notice of the meeting but not entitled to vote at it. ARTICLE IV MISCELLANEOUS SECTION 1. RECORD DATES AND CLOSING OF TRANSFER BOOKS. From time to time the Trustees may fix a future date as the record date for the purpose of making any proper determination with respect to Shareholders, including which Shareholders are entitled to notice of a meeting, to vote at a meeting, to receive a dividend or to be allocated other rights. Such record date may not be prior to the close of business on the day the record date is fixed. Except as may be otherwise set forth in the Section 2-511 of the Corporations and Associations Article, Annotated Code of Maryland, as in effect from time to time and as applicable to Maryland corporations, the record date for any determination shall not be more than 90 days before the date on which the action requiring the determination will be taken. If a record date is so fixed for a meeting, to receive a dividend or to be allocated other rights, only Shareholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting or to receive such dividend or allotment of rights, as the case may be, notwithstanding any transfer of Shares on the books of the Trust after the record date so fixed. SECTION 2. INSPECTION OF TRUST RECORDS. The share register or duplicate share register, the books of account, and the minutes of the proceedings of the Shareholders and Trustees shall be open to inspection upon the written demand of any Shareholder to the same extent as is permitted by the laws of Maryland for the inspection of corporate records by corporate shareholders. Such inspection may be made 112 12 in person or by an agent or attorney and shall include the right to make extracts. Demand of inspection shall be made in writing upon the President, Secretary or Assistant Secretary of the Trust. SECTION 3. INSPECTION OF TRUSTEES' REGULATIONS. The Trustees shall keep at the principal office for the transaction of business of the Trust the original or a copy of the Trustees' Regulations as amended or otherwise altered to date, certified by the Secretary, which shall be open to inspection by the Shareholders at all reasonable times during office hours. SECTION 4. REPRESENTATION OF SHARES OF CORPORATIONS. The Chairman, the President or any Vice-President and the Secretary or Assistant Secretary of the Trust, acting either in person or by a proxy or proxies designated in a written instrument duly executed by said officers, are authorized to vote, represent, and exercise on behalf of the Trust all rights incident to any shares of any corporation standing in the name of the Trust. SECTION 5. EXEMPTION FROM CONTROL SHARE ACQUISITION STATUTE. The provisions of Sections 3-701 to 3-709 of the Corporations and Associations Article of the Annotated Code of Maryland shall not apply to any shares of beneficial interest of the Trust now or hereafter held of record or beneficially held by any person whatsoever, it being the intent of this provision that the Trust opt out of the aforementioned sections in their entirety and that all persons and shares of beneficial interest held by such persons be exempted from such sections to the fullest extent permitted by Maryland law. ARTICLE V SEAL The Trust may have a seal containing the name of the Trust and the words "Maryland, 1969." ARTICLE VI AMENDMENTS These Trustees' Regulations may be amended or repealed or new or additional Trustees' Regulations may be adopted only by the vote or written consent of the Trustees, and the Shareholders shall not have any power to amend or repeal these Trustees' Regulations or to adopt new or additional Trustees' Regulations. ARTICLE VII DEFINITIONS All terms defined in the Amended and Restated Declaration of Trust of Starwood Lodging Trust dated as of August 15, 1969, as amended from time to time, shall have the same meaning when used in these Trustees' Regulations. 113 13 THIS IS TO CERTIFY: That I am the duly elected, qualified and acting Secretary of Starwood Lodging Trust and that the foregoing Amended and Restated Trustees' Regulations were adopted as the Trustees' Regulations of said trust on December 18, 1997. ------------------------------------ Sherwin L. Samuels, Secretary 114 EX-3.4 5 EX-3.4 1 Exhibit 3.4 AMENDED AND RESTATED BYLAWS OF STARWOOD LODGING CORPORATION (AS AMENDED THROUGH DECEMBER 18, 1997) ARTICLE I OFFICES In addition to the required principal office, the Corporation may have such offices at such places, both within and without the State of Maryland, as the Board of Directors from time to time determines or as the business of the Corporation from time to time requires. ARTICLE II MEETINGS OF THE STOCKHOLDERS SECTION 1. ANNUAL MEETINGS. Annual meetings of the stockholders shall be held on such date and at such time and at such place in the United States (within or without the State of Maryland) as is designated from time to time by the Board of Directors and stated in the notice of the meeting. At each annual meeting the stockholders shall elect Directors and shall transact such other business as may properly be brought before the meeting. SECTION 2. SPECIAL MEETINGS. Unless otherwise prescribed by law, the Articles of Incorporation or these Bylaws, special meetings of the stockholders for any purpose or purposes may be called by the Board of Directors, the Chairman of the Board or any two or more Directors, or by the Secretary upon the written request of stockholders owning not less than a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote at any such meeting. Special meetings shall be held at such place in the United States (within or without the State of Maryland) as is designated by the Board of Directors and stated in the notice of the meeting. Requests for special meetings shall state the purpose or purposes of the proposed meeting. Unless requested by stockholders entitled to cast a majority of all votes entitled to be cast at the meeting, a special meeting need not be called to consider any matter which is 115 2 substantially the same as a matter voted on at any special meeting of the stockholders held during the preceding twelve (12) months. Within twenty (20) days after the Corporation receives a stockholder request for the calling of a special meeting, the Board of Directors shall designate the date on which such meeting is to be held and the Secretary shall inform the stockholders who make the request of the reasonably estimated costs of preparing and mailing a notice of the meeting, and on payment of those costs to the Corporation, notify each stockholder entitled to notice of the meeting. Any such special meeting shall be held on a date not earlier than the twentieth (20th) day, and not later than the ninetieth (90th) day, following the date on which such notice is given. Notwithstanding the foregoing, if as of the date a stockholder request for a special meeting is received or within twenty (20) days thereafter, the Board of Directors has called or calls a meeting of stockholders (whether annual or special) for a purpose or purposes other than the purpose(s) stated in the stockholder request, the Board of Directors need not call, and the Secretary need not give notice of, a separate and additional meeting of stockholders if (i) the Board of Directors determines in good faith that calling such a separate and additional meeting would require the Corporation to incur undue cost and expense, and (ii) the Secretary notifies both the requesting stockholder(s) and all other stockholders entitled to vote, within twenty (20) days after the Corporation receives the stockholder request, that the matter(s) proposed by the requesting stockholder(s) to be considered at a special meeting may be proposed and considered at the meeting otherwise called by the Board of Directors. In addition, if not later than the thirtieth (30th) day prior to the date on which any special meeting called by the Board of Directors pursuant to a stockholder request is to be held, the Board of Directors determines in good faith to present for consideration by the stockholders of the Corporation one or more matters other than those proposed by the requesting stockholder(s) to be so considered, the Board of Directors may postpone the previously called special meeting for a period of up to sixty (60) days following the date on which notice of such postponement is given. Notice of such postponement and of the additional matter(s) to be considered at such meeting shall be given by the Secretary not later than the thirtieth (30th) day prior to the originally scheduled meeting date. SECTION 3. PRESIDING OFFICERS. Meetings of the stockholders shall be presided over by the Chairman of the Board or by the President (as determined by the Board of Directors) or, if the Chairman of the Board and the President are not present, by a Vice President, or, if a Vice President is not present, such person who is chosen by the Board of Directors, or, if none, by a person to be chosen at the meeting by stockholders present in person or by proxy who own a majority of the shares of capital stock of the Corporation entitled to vote and be represented at such meeting. The secretary of meetings shall be the Secretary of the Corporation, or, if the Secretary is not present, an Assistant Secretary, or, if an Assistant Secretary is not present, such person as may be chosen by the Board of Directors, or, if none, such person who is chosen by the chairman of the meeting. The presiding officer at a meeting of the stockholders shall have all power and authority vested in a presiding officer by law or practice, including, without limitation, the authority to determine whether the nomination of any person is made in compliance with applicable provisions of these Bylaws (and to refuse to acknowledge the nomination of any person not made in such compliance); to determine whether any item of business proposed to be brought before the meeting has been properly brought (and to declare that any business not so brought shall be disregarded and not transacted); to establish rules pertaining to reasonable time limits and the amount of time that may be taken up in remarks by any stockholder or group of stockholders and otherwise pertaining to the conduct of the meeting; and to otherwise decide all matters relating to the conduct of the meeting. The presiding officer may appoint a parliamentarian and one or more sergeants-at-arms. The parliamentarian may advise the presiding officer upon matters relating to the conduct of the stockholders' 116 3 meeting. The sergeant- or sergeants-at-arms shall have authority to take any and all actions that such persons deem necessary or appropriate to assure that the meeting is conducted with decorum and in an orderly manner, including, without limitation, authority to expel or cause the expulsion of any person who the presiding officer determines is failing to comply with the rules concerning the conduct of, or is otherwise disrupting, the meeting. SECTION 4. ADJOURNMENTS. Whether or not a quorum is present at any meeting of the stockholders, the stockholders entitled to vote thereat present in person or by proxy shall have the power to adjourn the meeting from time to time, without notice of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. Any business which might have been transacted at a meeting as originally called may be transacted at any meeting held after adjournment as provided in this Section 4, if a quorum is present in person or by proxy at such reconvened meeting. SECTION 5. PROXIES. Whenever the vote or consent of stockholders is required or permitted, such vote or consent may be given by a stockholder in person or by proxy. The appointment of a proxy or proxies shall be made by an instrument in writing executed by the stockholder or the stockholder's duly authorized agent and filed with the Secretary of the Corporation. No proxy shall be valid after the expiration of eleven (11) months from the date of its execution unless the stockholder executing it specifies therein the length of time for which it is to continue in force. At a meeting of stockholders all questions concerning the qualification of voters, the validity of proxies, and the acceptance or rejection of votes, shall be decided by the secretary of the meeting unless inspectors of election are appointed pursuant to Section 6 of this Article II, in which event such inspectors shall pass upon all questions and shall have all other duties specified in said section. SECTION 6. INSPECTORS OF ELECTION. In advance of any meeting of the stockholders, the Board of Directors may appoint any one or more persons (other than nominees for office) to act as inspectors of election at the meeting or any adjournment thereof. If no inspector of election is so appointed, the presiding officer of the meeting may, and on the request of any stockholder or any stockholder's proxy shall, appoint one or more such inspectors of election. The number of inspectors shall be either one (1) or three (3), as determined by the presiding officer; provided, however, that if such inspector(s) is or are to be appointed at the meeting on the request of one or more stockholders or proxies, the holders of a majority of the total number of shares represented at the meeting (in person or by duly executed proxy) shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector of election fails to appear at the meeting or fails or refuses to act as inspector, the presiding officer of the meeting may, and upon the request of any stockholder or any stockholder's proxy shall, appoint a person to fill that vacancy. The inspectors of election shall: (a) Determine the number of shares of capital stock outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; (b) Receive votes, ballots or consents; (c) Count and tabulate all votes or consents; (d) Determine and report to the Corporation the results of the voting; and (e) Do any other acts that may be proper to conduct the election or vote with fairness to all stockholders. 117 4 On request of the presiding officer of the meeting or of any stockholder or any stockholder's proxy, the inspector(s) of election shall make a report in writing of any question or other matter determined by him or them and execute a certificate of any facts found by him or them. If there are three (3) inspectors of election, the decision, act, report or certificate of a majority shall be effective in all respects as the decision, act, report or certificate of the inspectors. SECTION 7. BUSINESS. Except as may be otherwise provided by applicable law, the only business that shall be conducted at any meeting of the stockholders (other than matters incident to the conduct of the meeting) shall be business brought before the meeting by or at the direction of the Board of Directors or by a stockholder who complies with the procedures set forth in this Section 7. Except as otherwise provided by Section 2 of this Article III or by applicable law, the only business that shall be conducted at any meeting of the stockholders shall (i) have been specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise be brought before such meeting by or at the direction of the Board of Directors or the presiding officer of the meeting, or (iii) be otherwise properly brought before the meeting by or on behalf of a stockholder who shall have been a stockholder of record on the record date for such meeting, who shall continue to be entitled to vote thereat, and who shall have complied with the procedures set forth in the remainder of this Section 7. In addition to any and all other applicable requirements, for business to be properly brought before a meeting of the stockholders by a stockholder, the stockholder must have given timely notice thereat in writing to the Secretary. To be timely, a stockholder's notice must be delivered personally or mailed to and received at, the principal executive offices of the Corporation within ten days of the earlier of (i) the date that notice of the meeting was mailed in accordance with Article II hereof or prior public disclosure of the date of the meeting was made, or (ii) the date that a request for a special meeting was made by a stockholder in accordance with Section 2 of Article II hereof. A stockholder's notice to the Secretary shall set forth (i) a description of each item of business the stockholder proposes to bring before the meeting and the wording of the proposal, if any, to be submitted for a vote of the stockholders with respect thereto; (ii) the name and address of the stockholder; (iii) the class and number of shares of stock of the Corporation held of record, owned beneficially and represented by proxy by such stockholder as of the record date for the meeting (if such date shall then have been publicly disclosed) and as of the date of such notice; and (iv) all other information that would be required to be included in a proxy statement filed with the Securities and Exchange Commission (the "SEC") if, with respect to any such item of business, such stockholder were a participant in a solicitation subject to Section 14 of the Securities Exchange Act of 1934 as in effect on December 18, 1997 (the "Exchange Act"), as from time to time amended. SECTION 8. INFORMAL ACTION BY STOCKHOLDERS. Any action required or permitted to be taken at a meeting of stockholders may be taken without a meeting if there is filed with the records of stockholders meetings a unanimous written consent which sets forth the action and is signed by each stockholder entitled to vote on the matter and a written waiver of any right to dissent signed by each stockholder entitled to notice of the meeting but not entitled to vote at it. ARTICLE III DIRECTORS 118 5 SECTION 1. NUMBER; TENURE. The number of directors of the Corporation shall be not less than three (3) nor more than fifteen (15), and, within these limits, may be fixed, increased or decreased from time to time by a majority of the entire Board of Directors, but no such action may affect the tenure of office of any director. The directors shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the 1995 annual meeting of stockholders, the term of office of the second class to expire at the 1996 annual meeting of stockholders, and the term of office of the third class to expire at the 1997 annual meeting of stockholders, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, commencing with the 1995 annual meeting, (i) directors elected to succeed the class of directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director of the class to hold office until his or her successor shall have been duly elected and qualified and (ii) except as otherwise required by law, if authorized by a resolution of the Board of Directors, directors may be elected to fill any vacancy on the Board of Directors, regardless of how such vacancy shall have been created. SECTION 2. NOMINATION OF DIRECTORS. Nominations of persons for election to the Board of Directors at an annual meeting of the stockholders may be made at such meeting only by or at the direction of the Board of Directors, by any nominating committee or person(s) appointed by the Board of Directors, or by any stockholder entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 2. Any stockholder entitled to vote for the election of Directors may nominate one or more persons for election to the Board of Directors at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been delivered personally to the Secretary at, or been mailed to the Secretary and received at, the principal executive offices of the Corporation not less than 50 days nor more than 75 days prior to the meeting; provided, however, that in the event that less than 60 days' notice or prior public disclosure of the date of meeting is given or made to stockholders, notice by the stockholder to be timely must be so delivered or received not later than the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth: (i) the name and address of the stockholder who intends to make the nomination(s) and of the person or persons to be nominated; (ii) the class and number of shares of stock of the Corporation that are held of record, beneficially owned and represented by proxy by such stockholder as of the record date for the meeting (if such date then shall have been made publicly available) and as of the date of such notice; (iii) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iv) a description of any contract, arrangement or understanding between such stockholder and each nominee and any other person or persons (naming such person or person) pursuant to which the nomination or nominations are to be made by such stockholder; (v) such other information regarding each nominee proposed by such stockholder as would be required to be disclosed in a proxy statement used in a solicitation of proxies for the election of directors which solicitation was subject to the rules and regulations of the SEC under Section 14 of the Exchange Act; and (vi) the consent of each nominee to serve as a Director of the Corporation if so elected. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the procedures set forth herein. SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be chosen by the vote of a majority of the entire Board of Directors. The Chairman of the Board, if present, shall preside at all 119 6 meetings of the Board of Directors. The Chairman of the Board shall be, ex officio, a member of all standing committees, but shall not in the capacity as Chairman of the Board be deemed an officer of the Corporation. SECTION 4. VACANCIES. Except as otherwise required by law, unless the Board of Directors otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from any cause shall be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. No decrease in the numbers of authorized directors constituting the entire Board of Directors shall shorten the term of any incumbent director. SECTION 5. RESIGNATION. Any director may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board, the Present, or the Secretary of the Corporation. Unless otherwise specified in such written notice, a resignation shall take effect upon delivery thereof. A resignation need not be accepted in order for it to be effective. SECTION 6. PLACE OF MEETINGS. Each meeting of the Trustees shall be held at such place within or without the State of Maryland as is fixed from time to time by resolution of the Trustees (or, in the absence of such resolution, as specified in the notice of such meeting). SECTION 7. ANNUAL MEETING. Promptly following each Annual Meeting of Shareholders, a meeting of the Trustees shall be held for the purpose of electing officers and transacting other business. Notice of such meetings need not be given. SECTION 8. REGULAR MEETINGS. Regular meetings of the Board of Directors need not be held. SECTION 9. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, and the Chairman of the Board shall call a special meeting at any time upon the written request of two (2) directors. Written notice of the time and place of a special meeting shall be given to each director, either personally or by sending a copy thereof by mail or by telecopier to his or her address appearing on the books of the Corporation or theretofore given by him or her to the Corporation for the purpose of notice. In case of personal service or notice by telecopier, such notice shall be so delivered at least twenty-four (24) hours prior to the time fixed for the meeting. If such notice is mailed it shall be deposited in the United States mail at least seventy-two (72) hours prior to the time fixed for the holding of the meeting. Notice of a meeting may be given by the Chairman of the Board, the Directors requesting the meeting or the Secretary. SECTION 10. ADJOURNMENTS. A quorum of the directors may adjourn any meeting of the Board of Directors to meet again at a stated day and hour. In the absence of a quorum a majority of the directors present may adjourn from time to time to meet again at a stated day and hour prior to the time fixed for the next regular meeting of the Board of Directors. Notice of the time and place of an adjourned meeting need not be given to any director of the time and place is fixed at the meeting adjourned. SECTION 11. COMPENSATION. Directors shall be entitled to such compensation for their services as directors as from time to time may be fixed by the Board of Directors. No director who receives compensation as a director shall be barred from serving the Corporation in any other capacity or from receiving compensation and reimbursement of reasonable expenses for any or all such other services. 120 7 SECTION 12. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting and without prior notice if a written consent in lieu of such meeting which sets forth the action so taken is signed either before or after such action by all directors. All written consents shall be filed with the minutes of the Board's proceedings. SECTION 13. MEETINGS BY TELEPHONE OR SIMILAR COMMUNICATIONS. The Board of Directors may participate in meetings by means of conference telephone or similar communications equipment, whereby all directors participating in the meeting can hear each other at the same time, and participation in any such meeting shall constitute presence in person at such meeting. A written record shall be made of all actions taken at any meeting conducted by a means of a conference telephone or similar communications equipment. SECTION 14. TRANSACTIONS WITH INTERESTED PERSONS. (a) Notwithstanding anything to the contrary contained in these Bylaws, in addition to any affirmative vote required either by law, the Partnership Agreement, the Articles of Incorporation of the Corporation or these Bylaws, any Transaction involving the Corporation or any of its subsidiaries or the Operating Partnership shall require the affirmative vote of a majority of the directors ("Disinterested Members") on the Board of Directors of the Corporation who are not employees, officers, directors, Affiliates or Associates of the Interested Person who or which is a party to the Transaction. (b) As used in this Section 14: (i) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. (ii) A Person shall "Beneficially Own" and be the "Beneficial Owner" of any Paired Shares or Units: (A) which such Person or any of its Affiliates or Associates or Associates beneficially owns, directly or indirectly, within the meaning of Rule 13d-3 under the Exchange Act; or (B) which such Person or any of its Affiliates or Associates has (I) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (II) the right to vote pursuant to any agreement, arrangement or understanding (but neither such Person nor any such Affiliate or Associate shall be deemed to be the Beneficial Owner of any Paired Shares of Units solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, and with respect to which Paired Shares or Units neither such Person not any such Affiliate or Associate is otherwise deemed the Beneficial Owner); or (C) which are beneficially owned, directly or indirectly, within the meaning of the Rule 13d-3 under Exchange Act, by any other Person with which such Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (other than solely by reason of a revocable proxy as described in subparagraph (B) above) or disposing of any Paired Shares or Units. 121 8 (iii) "Interested Person" shall mean any Person who or which is the Beneficial Owner, directly or indirectly, of 5% or more the outstanding Paired Shares or the outstanding Units or who or which is an Affiliate or Associate of the Trust, the Corporation or either of the Partnerships. for the purposes of determining whether a Person is an Interested Person, the number of Paired Shares or Units deemed to be outstanding shall include Paired Shares or Units deemed owned through application of paragraphs (A), (B) and (C) of paragraph (ii) above but shall not include any other unissued Paired Shares or Units which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (iv) "Operating Partnership" shall mean SLC Operating Limited Partnership, a Delaware limited partnership. (v) "Paired Shares" shall mean the shares of common stock of the Corporation and the shares of beneficial interest of the Trust which are paired pursuant to the Pairing Agreement dated June 25, 1980 between the Trust and the Corporation, as it may be amended from time to time. (vi) "Partnership Agreement" shall mean the Limited Partnership Agreement of the Operating Partnership, as it may be amended from time to time. (vii) "Partnerships" shall mean the Operating Partnership and SLT Realty Limited Partnership, a Delaware limited partnership. (viii) "Person" shall mean any individual, limited partnership, general partnership, corporation, limited liability company or any other firm or entity. (ix) "Transaction" shall mean any contract, sale, lease, exchange, mortgage, transfer or disposition to or with, or any other transaction with, any Interested Person, including, without limitation, any election with respect to the method of payment for an exchange of Units for Paired Shares or any action to be taken by the Corporation, the Trust or the Partnerships with respect to the senior debt of SLT Realty Limited Partnership. (x) "Trust" shall mean Starwood Lodging Trust, a Maryland real estate investment trust. (xi) "Units" shall have the meaning set forth in the Partnership Agreement. (c) A majority of the Disinterested Members shall have the power and duty to determine, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Section 14, including, without limitation, (i) whether a Person is an Interested Person, (ii) the number of Paired Shares or Units that any Person Beneficially Owns, and (iii) whether a Person is an Affiliate or Associate of another. A majority of the Disinterested Members shall have the right to demand that any Person who is reasonably believed to be an Interested Person (or who holds of record Paired Shares or Units that any Interested Person Beneficially Owns) supply the Corporation with complete information as to (i) the record owner(s) of all Paired Shares or Units that such Person who is reasonably believed to be an Interested Person Beneficially Owns, (ii) the number of, and class or series of, Paired Shares or Units that such Person who is reasonably believed to be an Interested Person Beneficially Owns and the number(s) of the certificate(s), if any, evidencing such Paired Shares or Units and (iii) any other factual matter relating to the applicability or effect of this Section 14, as may be reasonably requested of such Person, and such Person shall furnish such information within 10 days after receipt of such demand. 122 9 (d) Nothing contained in this Section 14 shall be construed to relieve any Interested Person from any fiduciary obligation imposed by law. (e) Notwithstanding anything to the contrary contained in these Bylaws, this Section 14 may be amended or repealed only by a majority of directors on the Board of Directors of the Corporation who are not employees, officers, Affiliates or Associates of the Trust, the Corporation, the Partnerships or any Interested Person. SECTION 15. WAIVER OF NOTICE. The transactions of any meeting of the Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if either before or after the meeting each of the Directors not present signs a written waiver of notice or a consent to the holding of such meeting or an approval of the minutes thereof. All such waivers, consents, or approvals shall be lodged with the Corporation records or made a part of the minutes of the meeting. SECTION 16. INDEPENDENT DIRECTORS. Notwithstanding anything to the contrary contained in these Bylaws, not less than a majority of the Board of Directors of the Corporation shall be composed of "Independent Directors." For purposes of this Section 16, an "Independent Director" is a Director of the Corporation who is not employed by or an affiliate (as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act), of the Corporation, the Trust or Starwood Capital Group, L.L.C. ARTICLE IV COMMITTEES SECTION 1. EXECUTIVE COMMITTEE. (a) The Board of Directors may appoint two or more directors to constitute an Executive Committee. One of such directors shall be designated as Chairman of the Executive Committee. The Executive Committee shall have and may exercise all of the rights, powers and authority of the Board of Directors, except as expressly limited by the Maryland General Corporation Law as amended from time to time. (b) The Executive Committee shall fix its own rules of procedure and shall meet at such times and at such place or places as it may determine. The Chairman of the Executive Committee or, in the absence of a Chairman, a member of the Executive Committee chosen by a majority of the members present, shall preside at meetings of the Executive Committee, and another member thereof chosen by the Executive Committee shall act as secretary. A majority of the Executive Committee shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of the members present at a meeting shall be required for any action of the Executive Committee. SECTION 2. OTHER COMMITTEES. The Board of Directors may appoint such other committees as it shall deem advisable and with such authority as the Board of Directors shall from time to time determine. SECTION 3. OTHER PROVISIONS REGARDING COMMITTEES. (a) The Board of Directors shall have the power at any time to fill vacancies in, change the membership of, or discharge any committee. (b) Members of any committee shall be entitled to such compensation for their services as from time to time may be fixed by the Board of Directors. No committee member who receives compensation as a member of any one or more committees shall be barred from serving the Corporation in any other 123 10 capacity or from receiving compensation and reimbursement of reasonable expenses for any or all such other services. (c) Unless prohibited by law, the provisions of Section 12, 13 and 15 of Article III shall apply to all committees. ARTICLE V OFFICERS SECTION 1. POSITIONS. The officers of the Corporation shall be chosen by the Board of Directors and shall consist of a President, one or more Vice Presidents, a Secretary and a Treasurer. The Board of Directors also may choose one or more Assistant Secretaries and Assistant Treasurers and such other officers and agents at the Board from time to time deems necessary or appropriate. The Board of Directors may delegate to the President of the Corporation the authority to appoint any officer or agent of the Corporation and to fill a vacancy other than the President, Secretary or Treasurer. The election or appointment of any officer of the Corporation in itself shall not create contract rights for any such officer. All officers of the Corporation shall exercise such powers and perform such duties as from time to time shall be determined by the Board of Directors. Any two or more offices may be held by the same person except the offices of President and Vice President, President and Secretary, or President and Assistant Secretary. SECTION 2. TERM OF OFFICE; REMOVAL. Each officer of the Corporation shall hold office at the pleasure of the Board of Directors and any officer may be removed, with or without cause, at any time by the affirmative vote of a majority of the directors then in office, provided that any officer appointed by the President pursuant to authority delegated to the President by the Board of Directors may be removed, with or without cause, at any time whenever the President in his or her absolute discretion shall consider that the best interests of the Corporation shall be served by such removal. Vacancies (however caused) in any office may be filled for the unexpired portion of the term by the Board of Directors (or by the President in the case of a vacancy occurring in an office to which the President has been delegated the authority to make appointments). SECTION 3. COMPENSATION. The salaries of all officers of the Corporation shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving a salary by reason of the fact that such officer also receives from the Corporation compensation in any other capacity. SECTION 4. PRESIDENT. The President shall be the chief executive officer of the Corporation and, subject to the direction of the Board of Directors, shall have general charge of the business, affairs and property of the Corporation and general supervision over its other officers and agents. In general, the President shall perform all duties incident to the office of President of a stock corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have the power and authority to execute all written instruments, of every nature, on behalf of the Corporation, and shall be, ex officio, a member of all standing committees. In the absence of the Chairman of the Board, the President shall preside at all meetings of the Board of Directors and of the stockholders. SECTION 5. VICE PRESIDENTS. In the absence or disability of the President, the Vice President (or in the event there is more than one, the Vice Presidents in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice-President designated by the Board of Directors), shall perform the duties and exercise the powers of the President. The Vice Presidents shall have the power and authority to execute on behalf of the Corporation all written instruments of every nature. A Vice President also generally shall 124 11 assist the President and shall perform such other duties and have such other powers as from time to time may be prescribed by the Board of Directors. SECTION 6. SECRETARY. The Secretary shall perform such duties as from time to time may be prescribed by the Board of Directors, the Chairman of the Board or the President. The Secretary shall have custody of the seal of the Corporation, shall have authority (as shall any Assistant Secretary) to affix the same to any instrument requiring it, and to attest the seal by his or her signature. The Board of Directors may give general authority to officers other than the Secretary or any Assistant Secretary to affix the seal of the Corporation and to attest the affixing thereof by his or her signature. SECTION 7. ASSISTANT SECRETARY. The Assistant Secretary, if any (or in the event there is more than one, the Assistant Secretaries in the order designated or, in the absence of any designation, the order of their election or appointment), in the absence or disability of the Secretary, shall perform the duties and exercise the powers of the Secretary. An Assistant Secretary shall perform such other duties and have such other powers as from time to time may be prescribed by the Board of Directors. SECTION 8. TREASURER. The Treasurer shall have the custody of the corporate funds, securities, other similar valuable effects, and evidences of indebtedness, shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation. The Treasurer shall disburse the funds of the Corporation in such manner as may be ordered by the Board of Directors from time to time and shall render to the Chairman of the Board, the President and the Board of Directors, at regular meetings of the Board or whenever any of them may so require, an account of all transactions and of the financial condition of the Corporation. SECTION 9. ASSISTANT TREASURER. The Assistant Treasurer, if any (or in the event there is more than one, the Assistant Treasurers in the order designated or, in the absence of any designation, in the order of their election or appointment), in the absence or disability of the Treasurer, shall perform the duties and exercise the powers of the Treasurer. An Assistant Treasurer shall perform such other duties and have such other powers as form time to time may be prescribed by the Board of Directors. ARTICLE VI NOTICES Except as otherwise specifically provided in these Bylaws, any notice required or permitted to be given to any director, officer, stockholder or committee member shall be given in writing, either personally, by telecopier or by first-class mail with postage prepaid, in either case addressed to the recipient at his or her address as it appears in the records of the Corporation. Personally delivered or telecopied notices shall be deemed to be given at the time they are delivered at the address of the named recipient as it appears in the records of the Corporation, and mailed notices shall be deemed to be given at the time they are deposited in the United States mail. 125 12 ARTICLE VII GENERAL PROVISIONS SECTION 1. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The President or any Vice President and the Secretary or Assistant Secretary of the Corporation shall have full power and authority to attend, act and vote at any meeting of security holders of other corporations in which the Corporation may hold securities, and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities which the Corporation possesses and has the power to exercise. SECTION 2. DIVIDENDS. Subject to the Maryland General Corporation Law, dividends upon the outstanding capital stock of the Corporation or other distributions may be declared by the Board of Directors at any annual, regular or special meeting and may be paid in cash, in property or in shares of the Corporation's capital stock. Stockholders shall have no right to any dividend or distribution unless and until declared by the Board of Directors. SECTION 3. REGISTERED STOCKHOLDERS. Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person who is registered on its books as the owner of shares of its capital stock to receive dividends or other distributions (to the extent otherwise distributable or distributed) and to vote (in the case of voting stock) as such owner. The Corporation shall not be bound to recognize any equitable or legal claim to or interest in such shares on the part of any other person. The Corporation (or its transfer agent) shall not be required to send notices or dividends to a name or address other than the name or address of the stockholders appearing on the stock ledger maintained by the Corporation (or by the transfer agent or registrar, if any), unless any such stockholder shall have notified the Corporation (or the transfer agent or registrar, if any), in writing, of another name or address at least ten (10) days prior to the mailing of such notice or dividend. Nothing in these Bylaws shall be deemed to preclude the Corporation from inquiring as to the actual ownership of any shares of its capital stock, nor impose upon the Corporation or its transfer agent a duty, nor limit their rights to inquire into adverse claims. SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATE. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation which is claimed to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors, in its discretion, may require as a condition precedent to issuance that the owner of such lost, stolen or destroyed certificate, or his or her legal representative, advertise the same in such manner as the Board of Directors shall require and to deliver to the Corporation a bond in such sum, or other security in such form, as the Board of Directors may direct, as indemnity against any claim that may be made against the Corporation with respect to the certificate claimed to have been lost, stolen or destroyed. SECTION 5. RESERVES. The Board of Directors, in its sole discretion, may fix a sum which may be set aside or reserved over and above the paid-in capital of the Corporation as a reserve for any proper purpose, and from time to time may increase, diminish or vary such reserves. SECTION 6. FISCAL YEAR. The fiscal year of the Corporation shall be as determined from time to time by the Board of Directors. SECTION 7. SEAL. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "State of Maryland." 126 13 SECTION 8. EXEMPTION FROM CONTROL SHARE ACQUISITION STATUTE. The provisions of Sections 3-701 to 3-709 of the Corporations and Associations Article of the Annotated Code of Maryland shall not apply to any shares of common stock of the Corporation now or hereafter held of record or beneficially held by any person whatsoever, it being the intent of this provision that the Corporation opt out of the aforementioned sections in their entirety and that all persons and shares of beneficial interest held by such persons be exempted from such sections to the fullest extent permitted by Maryland law. ARTICLE VII AMENDMENTS These Bylaws may be amended or repealed or new or additional Bylaws may be adopted only by the vote or written consent of the Directors, and the stockholders shall not have any power to amend or repeal these Bylaws or to adopt new or additional Bylaws. THIS IS TO CERTIFY: That I am the duly elected, qualified and acting Secretary of Starwood Lodging Corporation and that the foregoing Amended and Restated Bylaws were adopted as the Bylaws of said corporation on December 18, 1997. ------------------------------------ Nir Margalit, Secretary 127 EX-4.3 6 EX-4.3 1 Exhibit 4.3 AMENDMENT NO. 2 TO PAIRING AGREEMENT Amendment dated as of January 2, 1998 (this "Amendment") to the Pairing Agreement dated as of June 25, 1980, as amended by Amendment No. 1 thereto dated as of February 1, 1995 (such Pairing Agreement, as so amended, being referred to as the "Pairing Agreement") between Starwood Hotels & Resorts Trust (formerly Starwood Lodging Trust), a Maryland real estate investment trust (the "Trust"), and Starwood Hotels & Resorts Worldwide, Inc. (formerly Starwood Lodging Corporation), a Maryland corporation (the "Company"). WHEREAS, on the date hereof, the Trust is issuing shares of two new classes of beneficial interest, par value $.01 per share, to be designated as "Class A Exchangeable Preferred Shares" ("Class A EPS") and "Class B Exchangeable Preferred Shares" ("Class B EPS"), respectively, pursuant to the Transaction Agreement dated as of September 8, 1997 (the "Transaction Agreement"), among WHWE L.L.C., Woodstar Investor Partnership, Nomura Asset Capital Corporation, Juergen Bartels, W&S Hotel L.L.C., 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., the Trust, SLT Realty Limited Partnership, the Company and SLC Operating Limited Partnership; WHEREAS, the Pairing Agreement currently provides that, among other things, the Trust may not issue or transfer shares of beneficial interest of the Trust unless provision is made for the issuance or transfer of the same number of shares of, stock of the Company; WHEREAS, pursuant to the Transaction Agreement, the Class A EPS and the Class B EPS will be issued only by the Trust and not by the Company; WHEREAS, in order to permit the issuance of the Class A EPS and the Class B EPS pursuant to the Transaction Agreement, the Board of Trustees of the Trust and the Board of Directors of the Company have adopted this Amendment and directed that this Amendment be submitted to the shareholders of the Trust at the 1997 Annual Meeting of Shareholders of the Trust (the "Trust Meeting") and the stockholders of the Company at the 1997 Annual Meeting of Stockholders of the Company (the "Company Meeting"); and WHEREAS, this Amendment was duly approved by the shareholders of the Trust at the Trust Meeting and the 2 stockholders of the Company at the Company Meeting; NOW, THEREFORE, in consideration of the premises and the mutual agreements and set forth herein and in the Pairing Agreement, the parties hereto agree as follows: SECTION 1. AMENDMENT OF PAIRING AGREEMENT. The Pairing Agreement is hereby amended by adding thereto a new Section 13, which new Section 13 shall read in its entirety as follows: 13. Notwithstanding anything to the contrary contained in this Agreement, no provision of this Agreement shall prohibit (a) the issuance by the Trust of Class A Exchangeable Preferred Shares or Class B Exchangeable Preferred Shares pursuant to the Transaction Agreement (collectively, the "Trust Preferred Shares") or (b) any transfer of shares of Trust Preferred Shares, including without limitation any such transfer in which the transferee does not acquire shares of common stock of the Company and in which effective provision is not made for the issuance or transfer of shares of common stock of the Company, or (c) the issuance of certificates representing shares of Trust Preferred Shares, including without limitation any such issuance without the issuance of a certificate or certificates of common stock of the Company. As used herein, "Transaction Agreement" means the Transaction Agreement dated as of September 8, 1997 among WHWE L.L.C., Woodstar Investor Partnership, Nomura Asset Capital Corporation, Juergen Bartels, W&S Hotel L.L.C., 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., the Trust, the Company, SLT Realty Limited Partnership and SLC Operating Limited Partnership, as such Agreement may be amended from time to time. SECTION 2. EFFECT OF AMENDMENT. Except as expressly set forth herein, this Amendment shall not by implication alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Pairing Agreement, all of which shall continue in full force and effect. SECTION 3. PARTIAL INVALIDITY. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Amendment, but this Amendment shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein. 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first above written. STARWOOD HOTELS & RESORTS TRUST By: /s/ Ronald C. Brown Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer STARWOOD HOTELS & RESORTS WORLDWIDE, INC. By: /s/ Alan M. Schnaid Name: Alan M. Schnaid Title: Vice President and Corporate Controller EX-10.1 7 EX-10.1 1 Exhibit 10.1 ------------------------------------------------------------------------ SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF SLT REALTY LIMITED PARTNERSHIP ------------------------------------------------------------------------ 2 TABLE OF CONTENTS ARTICLE 1 Definitions..........................................................................3 1.1 Definitions...................................................................3 ARTICLE 2 Continuation and Business of the Partnership........................................15 2.1 Continuation.................................................................15 2.2 Name.........................................................................15 2.3 Character of the Business....................................................15 2.4 Location of Principal Place of Business......................................16 2.5 Registered Agent and Registered Office.......................................16 2.6 Restatement of Agreement.....................................................16 ARTICLE 3 Term................................................................................16 3.1 Commencement.................................................................16 3.2 Dissolution..................................................................16 ARTICLE 4 Capital Contributions...............................................................17 4.1 Capital Contributions; Units.................................................17 4.2 Redemption of Units Held by Limited Partner. ...............................19 4.3 Percentage Interests.........................................................19 4.4 Purchase Rights..............................................................19 4.5 Redemption of Units Held by the General Partner..............................19 4.6 No Third Party Beneficiaries.................................................20 4.7 No Interest on or Return of Capital Contribution.............................20 ARTICLE 5 Indemnification.....................................................................20 5.1 Indemnification of the General Partner.......................................20 5.2 Indemnification of Limited Partners..........................................21 5.3 Notice of Claims.............................................................22 5.4 Third Party Claims...........................................................23 5.5 Indemnification Pursuant to Formation Agreement..............................24 ARTICLE 6 Allocations, Distributions and Other Tax and Accounting Matters.....................24 6.1 Allocations..................................................................24 6.2 Distributions................................................................28 6.3 Books of Account.............................................................28 6.4 Reports......................................................................29 6.5 Tax Elections and Returns....................................................29 6.6 Tax Matters Partner..........................................................29 6.7 Withholding Payments Required By Law.........................................29 ARTICLE 7 Rights, Duties and Restrictions of the General Partner..............................31 7.1 Powers and Duties of the General Partner.....................................31 7.2 Reimbursement of the General Partner.........................................34 7.3 Outside Activities of the General Partner....................................35
3 7.4 Contracts with Affiliates....................................................35 7.5 Title to Partnership Assets..................................................36 7.6 Reliance by Third Parties....................................................36 7.7 Liability of the General Partner.............................................36 7.8 Other Matters Concerning the General Partner.................................37 7.9 Operation of SLT in Accordance with REIT Requirements........................38 7.10 Replacement of General Partner...............................................38 ARTICLE 8 Dissolution, Liquidation and Winding-Up.............................................38 8.1 Accounting...................................................................38 8.2 Distribution on Dissolution..................................................38 8.3 Documentation of Liquidation.................................................39 ARTICLE 9 Transfer............................................................................40 9.1 General Partner..............................................................40 9.2 Transfers by Limited Partners................................................40 9.3 Certain Restrictions on Transfer.............................................42 9.4 Effective Dates of Transfers.................................................42 9.5 Transfer.....................................................................43 ARTICLE 10 Rights and Obligations of the Limited Partners......................................43 10.1 No Participation in Management...............................................43 10.2 Bankruptcy of a Limited Partner..............................................43 10.3 No Withdrawal................................................................44 10.4 Conflicts....................................................................44 10.5 Provision of Information.....................................................44 10.6 Power of Attorney............................................................45 10.7 Ownership of Paired Shares...................................................46 10.8 Waiver of Fiduciary Duty.....................................................47 ARTICLE 11 Amendment of Partnership Agreement, Meetings........................................47 11.1 Amendments...................................................................47 11.2 Meetings of the Partners; Notices to Partners................................49 ARTICLE 12 General Provisions..................................................................50 12.1 No Liability of Directors and Others.........................................50 12.2 Notices......................................................................50 12.3 Controlling Law..............................................................50 12.4 Execution of Counterparts....................................................50 12.5 Severability.................................................................50 12.6 Entire Agreement.............................................................51 12.7 Paragraph Headings...........................................................51 12.8 Gender, Etc..................................................................51 12.9 Number of Days...............................................................51 12.10 Partners Not Agents..........................................................51 12.11 Assurances...................................................................51 12.12 Waiver of Partition..........................................................51 12.13 Starwood Lodging Trust.......................................................51
4 LIST OF EXHIBITS Exhibit - ------- A List of Partners, Percentage Interests and Units B Notice Address of Partners 5 THE LIMITED PARTNERSHIP INTERESTS REFERRED TO IN THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. REFERENCE IS MADE TO ARTICLE 9 OF THIS AGREEMENT FOR PROVISIONS RELATING TO VARIOUS RESTRICTIONS ON THE SALE OR OTHER TRANSFER OF THESE INTERESTS. SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF SLT REALTY LIMITED PARTNERSHIP THIS SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT (this "Agreement") is made and entered into this 14th day of November, 1997, by and among Starwood Lodging Trust, a Maryland real estate investment trust ("SLT"), as General Partner, and the persons whose names are set forth on Exhibit A hereto, as such exhibit may be amended from time to time, as limited partners, pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act. RECITALS A. Starwood Lodging Trust, Berl Holdings, L.P., Starwood-Apollo Hotel Partners VIII, L.P., Starwood-Apollo Hotel Partners IX, L.P., Starwood-Nomura Hotel Investors, L.P., Starwood/Wichita Investors, L.P., Starwood-Huntington Partners, L.P., and Woodstar Partners I, L.P., were the parties to that certain Limited Partnership Agreement of SLT Realty Limited Partnership, dated as of December 15, 1994 (hereinafter, the "Original Agreement" and the "Partnership", respectively). B. Firebird Consolidated Partners, L.P., was admitted as a limited partner of the Partnership pursuant to that certain Admission of Limited Partner, Consent and Amendment dated March 24, 1995. C. The Original Agreement was restated by that certain Amended and Restated Limited Partnership Agreement of SLT Realty Limited Partnership by and between SLT, as General Partner, and the Limited Partners of the Partnership, as such group was then constituted, and dated as of June 29, 1995 (the "Original Restated Agreement"). D. The Original Restated Agreement was amended by that certain 6 Amendment by and between SLT, as General Partner, and the Limited Partners of the Partnership, as such group was then constituted, and dated as of May 14, 1996. E. Philadelphia HSR Limited Partnership ("HSR") was admitted as a limited partner of the Partnership pursuant to that certain Admission of Limited Partner, Consent and Amendment (Realty Partnership) dated as of June 3, 1996. F. Starwood/Wichita Investors, L.P., Berl Holdings, L.P., Starwood-Huntington, L.P., Woodstar Partners I, L.P., and Wichita Harvey Partners, Ltd., transferred their respective interests in the Partnership to SRL Holdings, Inc., Starwood Capital Group I, L.P., Starwood Opportunity Fund II, L.P., Moonwood Investment Partners, L.P., Woodstar II, L.P., Hospitality Partners, Bristol Hotel Management Corp., and Edward J. Rohling, and each such Person was admitted as a limited partner of the Partnership pursuant to that certain Admission of Limited Partners Agreement dated as of June 4, 1996. G. Philadelphia HIR Limited Partnership ("HIR") was admitted as a limited partner of the Partnership pursuant to that certain Admission of Limited Partner, Consent and Amendment (Realty Partnership) dated as of July 1, 1996. H. Starwood-Apollo Hotel Partners VIII, L.P., transferred its interest in the Partnership to SAHI, Inc., Starwood Hotel Investors, L.P., and AP-GP Midstar Hotels VIII, Inc.; Starwood-Apollo Hotel Partners IX, L.P., transferred its interest in the Partnership to SAHI, Inc., Starwood Hotel Investors, L.P., and AP-GP Midstar Hotels IX, Inc.; Starwood Hotel Investors, L.P., transferred its interest in the Partnership to Starwood Hotel Investors II, L.P., SAHI, Inc. and AP-GP Master Midstar, L.P.; and AP-GP Midstar Hotels VIII, Inc., AP-GP Midstar Hotels IX, Inc., and AP-GP Master Midstar, L.P., transferred their respective interests in the Partnership to Apollo Real Estate Investment Fund, L.P., and each of Starwood Hotel Investors II, L.P., SAHI, Inc. and Apollo Real Estate Investment Fund was admitted as a limited partner of the Partnership pursuant to that certain Admission of Limited Partners Agreement dated as of December 12, 1996; I. Starwood-Nomura Hotel Investors, L.P., SRL Holdings, Inc., Starwood Capital Group, L.P., Moonwood Investment Partners, L.P., Woodstar Partners II, L.P., Berl Holdings I, Inc., SAHI, Inc., and Harveywood Hotel Investors II, L.P., transferred their interests in the Partnership to Burden Direct Investment Fund I., L.P., Ziff Investors Partnership, L.P., II, Carly Simon, Lambster Partners Limited Partners, Montrose Corporation, Star Investors G.P., Meridian Investment Group, 1985 Trust f/b/o Clate Joseph Korsant, 1985 Trust f/b/o Justin Frederick Korsant, Jack Nash, the Nash Family Partnership, Brainard Holdings, Inc., Lowell D. Kraff, Max C. Chapman, Alan Schwartz, Geoffrey T. Boisi, Gregory Beer, Charles E. Mueller, James A. Kleeman, Steve Goldman, Mike Mueller, James R. Gates, John Z. Kukral, John F. Couture, Barry S. Sternlicht, the Barry S. Sternlicht Family Spray Trust I, the Barry S. Sternlicht Family Spray Trust II, the Barry S. Sternlicht Family Spray Trust III, James G. Babb, III, Madison F. Grose, the Madison F. Grose Irrevocable Insurance Trust, Merrick R. Kleeman, JDE Revocable Trust u/a dated December 31, 1996, Eugene A. Gorab, Jerome C. Silvey, Geoffrey Beer, Jay Sugarman, Jennifer Albero, Steven Fiore, James 7 Oldham, Jeff Dishner, Ellis F. Rinaldi, and J. Peter Paganelli and each such Person was admitted as a limited partner of the Partnership pursuant to forty-four (44) separate Admission of Limited Partner Agreements each dated as of December 31, 1996. J. The Prudential Insurance Company of America, on behalf of Prudential Property Investment Separate Account II, Eleanor Mendell, as Trustee of the Gary Mendell Family Trust, Gary Mendell, Ellen-Jo Mendell, Stephen Mendell, Judith K. Rushmore, Murray Dow II, Westport Hospitality, Inc., Zapco Interest Holdings, LP, Zapco Holdings, Inc., Zapco Holdings, Inc. Deferred Compensation Plan Trust, Orna L. Shulman, Arthur Green, Michael Hall, Mark Rosinsky, Randi Rosinsky, John Daily, Felix Cacciato, Thomas Clearwater, Harvey Moore, and Tracy Driscoll (collectively, the "HEI Contributors") were each admitted as a limited partner of the Partnership pursuant to that certain Admission of Limited Partners, Consent and Amendment (Realty Partnership) dated as of February 14, 1997. K. The Hermitage, L.P. was admitted as a limited partner of the Partnership pursuant to that certain Admission of Limited Partners, Consent and Amendment (Realty Partnership) dated as of March 11, 1997. L. The parties hereto have agreed to amend and restate the Original Restated Agreement, as previously amended, in its entirety to reflect the foregoing and to make other necessary or appropriate changes. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE 1 Definitions 1.1 Definitions. Except as otherwise herein expressly provided, the following terms and phrases shall have the meanings as set forth below: "Accountants" shall mean the national firm or firms of independent certified public accountants selected by the General Partner on behalf of the Partnership to audit the books and records of the Partnership and to prepare statements and reports in connection therewith. "Act" shall mean the Delaware Revised Uniform Limited Partnership Act, as the same may hereafter be amended from time to time. "Adjusted Capital Account Deficit" shall mean, with respect to any Partner or holder of Units other than the General Partner, the deficit balance, if any, in such holder's Capital Account as of the end of any relevant fiscal year and after giving effect to the following adjustments: (a) credit to such Capital Account any amounts which 8 such holder is obligated or treated as obligated to restore with respect to any deficit balance in such Capital Account pursuant to Section 1.704-1(b)(2)(ii)(c) of the Regulations, or is deemed to be obligated to restore with respect to any deficit balance pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and (b) debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations. The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the requirements of the alternate test for economic effect contained in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith. "Administrative Expenses" shall mean: (a) all administrative and operating costs and expenses of the Partnership; (b) those administrative costs and expenses of the General Partner, including, but not limited to, salaries and other remunerations paid to trustees, officers and employees of the General Partner and accounting and legal expenses undertaken by the General Partner on behalf or for the benefit of the Partnership; and (c) to the extent not included in clause (b) above, REIT Expenses. "Affected Gain" shall have the meaning set forth in Section 6.1(c)(ii) hereof. "Affiliate" shall mean, with respect to any Partner (or as to any other Person the Affiliates of whom are relevant for purposes of any of the provisions of this Agreement): (a) any member of the Immediate Family of such Partner or Person; (b) any trustee or beneficiary of a Partner which is a trust; (c) any trust for the benefit of any Person referred to in the preceding clauses (a) and (b); or (d) any Entity which directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, any Partner or Person referred to in the preceding clauses (a) through (c). "Agreement" shall mean this Limited Partnership Agreement, as amended, modified, supplemented or restated from time to time, as the context requires. "Audited Financial Statements" shall mean financial statements (balance sheet, statement of income, statement of partners equity and statement of cash flows) prepared in accordance with GAAP and accompanied by an independent auditor's report containing an opinion thereon. "Bankruptcy" shall mean, with respect to any Person: (a) the commencement by such Person of any petition, case or proceeding seeking relief under any provision or chapter of the federal Bankruptcy Code or any other federal or state law relating to insolvency, bankruptcy or reorganization; (b) an adjudication that such Person is insolvent or bankrupt; (c) the entry of an order for relief under the federal Bankruptcy Code with respect to such Person; (d) the filing of any such petition 9 or the commencement of any such case or proceeding against such Person, unless such petition and the case or proceeding initiated thereby are dismissed within ninety (90) days from the date of such filing; or (e) the filing of an answer by such Person admitting the allegations of any such petition. "Business Day" shall mean any day that is not a Saturday, Sunday or a day on which banking institutions in the State of California or the State of New York are authorized or obligated by law or executive order to close. "Capital Account" shall mean, as to any Partner or holder of Units, a book account maintained in accordance with the following provisions: (a) to each Partner's or holder of Unit's Capital Account there shall be credited the amount of cash contributed by the Partner or holder, the initial Gross Asset value of any other asset contributed by such Partner or holder to the capital of the Partnership (net of liabilities secured by contributed property that the Partnership assumes or takes subject to), such Partner's or holder's distributive share of Net Income and any other items of income or gain allocated to such Partner or holder, the amount of any Partnership liabilities assumed by the Partner or holder or secured by distributed assets that such Partner or holder takes subject to and any other items in the nature of income or gain that are allocated to such Partner or holder pursuant to Section 6.1 hereof; and (b) to each Partner's or holder of Unit's Capital Account there shall be debited the amount of cash distributed to the Partner or holder, the Gross Asset Value of any Partnership asset distributed to such Partner or holder pursuant to any provision of this Agreement, such Partner's or holder's distributive share of Net Losses and any other items in the nature of expenses or losses that are allocated to such Partner pursuant to Section 6.1 hereof. In the event that a Partner's Partnership Interest or a holder of Unit's Units or portion thereof is transferred within the meaning of Section 1.704-1(b)(2)(iv)(f) of the Regulations, the transferee shall succeed to the Capital Account of the transferor to the extent that it relates to the Partnership Interest, Units or portion thereof so transferred. In the event that the Gross Asset Values of Partnership assets are adjusted, as contemplated in paragraph (b) or (c) of the definition of "Gross Asset Value," the Capital Accounts of the Partners and holders of Units shall be adjusted to reflect the aggregate net adjustments as if the Partnership sold all of its properties for their fair market values and recognized gain or loss for federal income tax purposes equal to the amount of such aggregate net adjustment. This definition of Capital Accounts is intended to comply with the maintenance of capital account provisions of Section 1.704-1(b) of the Regulations and shall be interpreted and applied in a manner consistent therewith. "Capital Contribution" shall mean, with respect to any Partner, the amount of cash and the initial Gross Asset Value of any Contributed Property (net of liabilities to which such property is subject). "Certificate" shall mean the Certificate of Limited Partnership 10 establishing the Partnership, as filed with the office of the Delaware Secretary of State, as amended from time to time in accordance with the terms of this Agreement and the Act. "Code" shall mean the Internal Revenue Code of 1986, as amended and in effect from time to time, as interpreted by the applicable regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law. "Consent of the Limited Partners" shall mean the written consent of a Majority-In-Interest of the Limited Partners given in accordance with Section 11.2 hereof, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and may be given or withheld by a Majority-In-Interest of the Limited Partners, unless otherwise expressly provided herein, in their sole and absolute discretion. "Contributed Property" shall mean any property or other asset in such form as may be permitted by the Act, but excluding cash, contributed or deemed contributed to the Partnership with respect to the Partnership Interest held by each Partner. "Control" shall mean the ability, whether by the direct or indirect ownership of shares or other equity interests, by contract or otherwise, to elect a majority of the directors of a corporation, to select the managing partner of a partnership, or otherwise to select, or have the power to remove and then select, a majority of those persons exercising governing authority over an Entity. In the case of a limited partnership, the sole general partner, all of the general partners to the extent each has equal management control and authority, or the managing general partner or managing general partners thereof shall be deemed to have control of such partnership and, in the case of a trust, any trustee thereof or any Person having the right to select any such trustee shall be deemed to have control of such trust. "Declaration of Trust" shall mean the Declaration of Trust of the General Partner dated August 25, 1969, as amended and restated as of June 6, 1988, and as further amended as of February 1, 1995, as the same may be amended, modified, supplemented, restated or superseded from time to time. "Depreciation" shall mean, with respect to any asset of the Partnership for any fiscal year or other period, the depreciation or amortization, as the case may be, allowed or allowable for federal income tax purposes in respect of such asset for such fiscal year or other period, except that if the Gross Asset Value of an asset differs from its adjusted tax basis for federal income tax purposes at the beginning of such fiscal year or other period, Depreciation shall be an amount that bears the same ratio to such beginning book value as the federal income tax depreciation, amortization or other cost recovery deduction for such fiscal year or other period bears to such beginning adjusted tax basis and if such adjusted tax basis is zero, the Depreciation shall be based on the method of depreciation, amortization or other cost recovery deduction utilized in preparing the financial statements of the Partnership. 11 "Entity" shall mean any general partnership, limited partnership, limited liability company, corporation, joint venture, trust, business trust, real estate investment trust or association. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time and as interpreted by the applicable regulations thereunder (or any corresponding provisions of succeeding laws and regulations). "Exchange Rights Agreement" shall mean any Exchange Rights Agreement by and among SLT and/or SLC and one or more Limited Partners which is intended to provide for the rights of such Limited Partners to tender Units in exchange for either Paired Shares, other securities, cash or a combination of the foregoing. "Formation Agreement" shall mean that certain Formation Agreement by and among Starwood Lodging Trust, Starwood Lodging Corporation, Starwood Capital Group, L.P., Berl Holdings, L.P., Woodstar Partners I, L.P., Starwood-Apollo Hotel Partners VIII, L.P., Starwood-Apollo Hotel Partners IX, L.P., Starwood-Nomura Hotel Investors, L.P., Starwood/Wichita Investors, L.P., and Starwood-Huntington Partners, L.P., and dated as of November 11, 1994, and any amendments or modifications thereof or side letters thereto. "GAAP" shall mean generally accepted accounting principles in effect from time to time. "General Partner" shall mean Starwood Lodging Trust, a Maryland real estate investment trust, its duly admitted successors and assigns as general partner of the Partnership at the time of reference thereto. "Gross Asset Value" shall mean, with respect to any asset of the Partnership, such asset's adjusted basis for federal income tax purposes, except as follows: (a) the initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset at the time of its contribution as reasonably determined by the General Partner and the contributing Partner; (b) the Gross Asset values of all Partnership assets shall be adjusted to equal their respective gross fair market values, as reasonably determined by the General Partner, immediately prior to the following events: (i) a Capital Contribution (other than a de minimis Capital Contribution) to the Partnership by a new or existing Partner as consideration for a Partnership Interest; (ii) the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership property as consideration for the 12 redemption of a Partnership Interest; (iii) the liquidation of the Partnership within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations; and (iv) any other event as to which the General Partner reasonably determines that an adjustment is necessary or appropriate to reflect the relative economic interests of the Partners; (c) the Gross Asset Values of Partnership assets distributed to any Partner shall be the gross fair market values of such assets as reasonably determined by the General Partner as of the date of distribution; and (d) the Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Sections 734(b) or 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations; provided, however, that Gross Asset Values shall not be adjusted pursuant to this paragraph to the extent that the General Partner reasonably determines that an adjustment pursuant to paragraph (b) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph (d). At all times, Gross Asset Values shall be adjusted by any Depreciation taken into account with respect to the Partnership's assets for purposes of computing Net Income and Net Loss. Any adjustment to the Gross Asset Values of Partnership property shall require an adjustment to the Partner's Capital Accounts. "HEI Contribution Agreement" shall mean that certain Contribution Agreement dated January 15, 1997, by and among the HEI Property Companies, SLC, the Partnership, SLT Financing Partnership, a Delaware general partnership, SLT, the Operating Partnership, and certain other parties. "HEI Contributors" shall have that meaning provided in Recital J hereto. "HEI Property Companies" shall mean Westport Norfolk Associates Limited Partnership, a Delaware limited partnership, Pruwest Norfolk, L.L.C., a Delaware limited liability company, Westport BWI, L.L.C., a Delaware limited liability company, Pruwest Baltimore, L.L.C., a Delaware limited liability company, Westport Raritan, L.L.C., a Delaware limited liability company, Pruwest Edison, L.L.C., a Delaware limited liability company, Westport Novi, L.L.C., a Delaware limited liability company, Pruwest Novi, L.L.C., a Delaware limited liability company, Westport Park Ridge, L.P., a Delaware limited partnership, Westport Park Ridge, L.L.C., a Delaware limited liability company, Westport Long Beach, L.L.C., a Delaware limited liability company, Westport Charleston, L.L.C., a Delaware limited liability company, Westport Santa Rosa, L.L.C., a Delaware limited liability company, Westport Crystal City, L.L.C., a Delaware limited liability company, Prudential, Atlanta Hotel Associates, LP, a Connecticut limited partnership, Virginia Hotel Associates, L.P., a Delaware limited 13 partnership, BW Hotel Realty, L.P., a Maryland limited partnership, Edison Hotel Associates, L.P., a New Jersey limited partnership, Novi Hotel Associates, L.P., a Delaware limited partnership, Park Ridge Hotel Associates, L.P., a Delaware limited partnership, Long Beach Hotel Associates, L.L.C., a New Jersey limited liability company, Charleston Hotel Associates, L.L.C., a New Jersey limited liability company, Santa Rosa Hotel Associates, L.L.C., a New Jersey limited liability company, Crystal City Hotel Associates, L.L.C., a New Jersey limited liability company, and Prudential HEI Joint Venture, a joint venture. "HEI Property Company Interests" shall have the meaning set forth in the HEI Contribution Agreement. "HIR" shall have that meaning provided in Recital G hereto. "HSR" shall have that meaning provided in Recital E hereto. "Immediate Family" shall mean, with respect to any Person, such Person's spouse (then current or former), parents, parents-in-law, descendants, brothers and sisters (whether by whole or half-blood), first cousins, brothers-in-law and sisters-in-law (whether by whole or half-blood), ancestors and lineal descendants. "Indemnitee" shall mean any Person who is, or at any time on or after December 15, 1994 was, a (i) General Partner, (ii) employee, trustee, director, officer, stockholder or Liquidating Trustee of the Partnership or the General Partner. "Inns Bonds" means, collectively, the Philadelphia Authority for Industrial Development Commercial Development Revenue Bonds (Economy Inn Project), Series A and Series B, in the original aggregate principal amounts of $9,725,000 and $1,700,000, respectively, as amended and restated in that certain Inns Second Supplemental Indenture dated as of July 1, 1992, and as defined in that certain Bond Purchase Agreement by and between The First National Bank of Boston, HSR, HIR, the Operating Partnership and the Partnership and dated as of February 26, 1996. "Issuance Percentage" shall mean the relative values of SLT and SLC, each stated as a percentage of the sum of the values of SLT and SLC, and as most recently determined by SLT and SLC. "Lien" shall mean any liens, security interests, mortgages, deeds of trust, pledges, options, rights of first offer or first refusal and any other similar encumbrances of any nature whatsoever. "Limited Partners" shall mean those Persons listed under the heading "Limited Partners" on the signature page hereto in their respective capacities as limited partners of the Partnership, their permitted successors or assigns as limited partners hereof, and any Person who, at the time of reference thereto, is a limited partner of the Partnership. "Liquidating Trustee" shall mean such individual or Entity which is 14 selected as the Liquidating Trustee hereunder by the General Partner, which individual or Entity may include the General Partner or an Affiliate of the General Partner, provided that such Liquidating Trustee agrees in writing to be bound by the terms of this Agreement. The Liquidating Trustee shall be empowered to give and receive notices, reports and payments in connection with the dissolution, liquidation and/or winding up of the Partnership and shall hold and exercise such other rights and powers granted to the General Partner herein or under the Act as are necessary or required to conduct the winding-up and liquidation of the Partnership's affairs and to authorize all parties to deal with the Liquidating Trustee in connection with the dissolution, liquidation and/or winding-up of the Partnership. "Majority-In-Interest of the Limited Partners" shall mean Limited Partner(s) who hold in the aggregate more than fifty (50) percent of the Percentage Interests then allocable to and held by the Limited Partners, as a class (but excluding any Partnership Interests acquired by the General Partner, or any Person holding as a nominee of a General Partner or any Person controlled by a General Partner). "Minimum Gain Attributable to Partner Nonrecourse Debt" shall mean "partner nonrecourse debt minimum gain" as determined in accordance with Section 1.704-2(i)(2) of the Regulations. "Net Cash Flow" shall mean, with respect to any fiscal period of the Partnership, the excess, if any, of "Receipts" over "Expenditures." For purposes hereof, the term "Receipts" means the sum of all cash receipts of the Partnership from all sources for such period and any amounts held as reserves as of the last day of such period which the General Partner reasonably deems to be in excess of reserves as determined below. The term "Expenditures" means the sum of (a) all cash expenditures of the Partnership for any purpose, including operating expenses and capital expenditures for such period, (b) the amount of all payments of principal, premium, if any, and interest on account of any indebtedness of the Partnership, and (c) such additions to cash reserves as of the last day of such period as the General Partner deems necessary or appropriate for any capital, operating or other expenditure, including, without limitation, contingent liabilities; but the term "Expenditures" shall not include amounts paid from cash reserves previously established by the Partnership. "Net Income" or "Net Loss" shall mean, for each fiscal year or other applicable period, an amount equal to the Partnerships's net income or loss for such year or period as determined for federal income tax purposes by the Accountants, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a) of the Code shall be included in taxable income or loss), with the following adjustments: (a) by including as an item of gross income any tax-exempt income received by the Partnership; (b) by treating as a deductible expense any expenditure of the Partnership described in Section 705(a)(2)(B) of the Code (including amounts paid or incurred to organize the Partnership (unless an election is made pursuant to Section 709(b) of the Code) or to promote the sale of interests in the Partnership and by treating deductions for any losses incurred in connection with the sale or exchange of Partnership property disallowed pursuant to Section 267(a)(1) or Section 707(b) of the 15 Code as expenditures described in Section 705(a)(2)(B) of the Code); (c) in lieu of depreciation, depletion, amortization and other cost recovery deductions taken into account in computing total income or loss, there shall be taken into account Depreciation; (d) gain or loss resulting from any disposition of Partnership property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of such property rather than its adjusted tax basis; (e) in the event of an adjustment of the Gross Asset Value of any Partnership asset which requires that the Capital Accounts of the Partnership be adjusted pursuant to Sections 1.704-1(b)(2)(iv)(e), (f) and (m) of the Regulations, the amount of such adjustment is to be taken into account as additional Net Income or Net Loss pursuant to Section 6.1 hereof; and (f) excluding any items specially allocated pursuant to Section 6.1(b) hereof. "Nonrecourse Deductions" shall have the meaning set forth in Sections 1.704-2(b)(1) and (c) of the Regulations and shall be determined in accordance with Section 1.704-2(c) of the Regulations. "Nonrecourse Liabilities" shall have the meaning set forth in Section 1.704-2(b)(3) of the Regulations. "Operating Partnership" shall mean SLC Operating Limited Partnership, a Delaware limited partnership. "Original Agreement" shall have the meaning set forth in Recital A hereof. "Paired Share Closing Price" shall mean, with respect to a particular date, the last reported sales price regular way on such date or, in case no such reported sale takes place on such date, the average of the reported closing bid and asked prices regular way on such date, in either case on the New York Stock Exchange, or if the Paired Shares are not then listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Paired Shares are then listed or admitted to trading or, if not then listed or admitted to trading on any national securities exchange, the closing sale price on such date of the Paired Shares or, in case no reported sale takes place on such date then, the average of the closing bid and asked prices on such date, on NASDAQ or any comparable system. If the Paired Shares are not then quoted on NASDAQ or any comparable system, the Board of Trustees of SLT and the Board of Directors of SLC shall in good faith determine the Paired Share Closing Price. "Paired Shares" shall mean one Share and one common share of SLC that are subject to a pairing agreement between the General Partner and SLC. "Partner Nonrecourse Debt" shall have the meaning set forth in Section 1.704-2(b)(4) of the Regulations. "Partner Nonrecourse Deductions" shall have the meaning set forth in Section 1.704-2(i)(2) of the Regulations and the amount of Partner Nonrecourse 16 Deductions with respect to a Partner Nonrecourse Debt shall be determined in accordance with the rules of Section 1.704-2(i) of the Regulations. "Partners" shall mean the General Partner and the Limited Partners, their duly admitted successors or assigns or any Person who is a partner of the Partnership at the time of reference thereto. "Partnership" shall mean the limited partnership formed under the Act pursuant to the Original Agreement and as continued pursuant to this Agreement and any successor thereto. "Partnership Interest" shall mean the ownership interest of a Partner in the Partnership from time to time, including each Partner's Percentage Interest and such Partner's Units. "Partnership Minimum Gain" shall have the meaning set forth in Section 1.704-2(b)(2) of the Regulations and the amount of Partnership Minimum Gain (and any net increase or decrease thereof) for a fiscal year or other period shall be determined in accordance with the rules of Section 1.704-2(d) of the Regulations. "Partnership Record Date" means the record date established by the General Partner for distribution of Net Cash Flow pursuant to Section 6.2 hereof, which record date shall be the same as the record date established by the General Partner for distribution to its shareholders of some or all of its portion of such distribution. "Percentage Interest" shall mean, with respect to any Partner, the percentage ownership interest of such Partner in such items of the Partnership as to which the term "Percentage Interests" is applied in this Agreement, as provided in Section 4.3 hereof. "Person" shall mean any natural person or Entity. "Property" shall mean any property acquired by or contributed to the Partnership or any property owned by an Entity in which the Partnership has an ownership interest. "Purchase Rights" shall have the meaning set forth in Section 4.4 hereof. "Registration Rights Agreement" shall mean any Registration Rights Agreement by and among SLT and/or SLC and one or more Limited Partners, which is intended to set forth the rights of such Limited Partner or Limited Partners or other holders of Units, and the obligations of SLT and/or SLC, to cause the registration of certain securities pursuant to the Securities Act of 1933, as amended. "Regulations" shall mean the income tax regulations promulgated under the Code, as such regulations may be amended from time to time (including 17 corresponding provisions of succeeding regulations), and may, in the sole discretion of the General Partner, include temporary and/or proposed income tax regulations. "Regulatory Allocations" shall have the meaning set forth in Section 6.1(b)(viii) hereof. "REIT" shall mean a real estate investment trust as defined in Section 856 of the Code. "REIT Expenses" shall mean all expenses which the Partnership hereby assumes and agrees to pay as incurred for the benefit of the Partnership, including (a) costs and expenses relating to the formation and continuation of the Partnership and continuity of existence of the General Partner, including taxes (other than the General Partner's federal and state income and franchise taxes, if any), fees and assessments associated therewith, any and all costs, expenses or fees payable to any director or trustee of the General Partner, (b) to the extent funded by the General Partner for payment by the Partnership, costs and expenses relating to any offer or registration of securities by the General Partner the net proceeds of which are to be contributed or loaned to the Partnership and all statements, reports, fees and expenses incidental thereto, including underwriting discounts and selling commissions applicable to any such offer of securities, (c) costs and expenses associated with the preparation and filing of any periodic reports by the General Partner under federal, state or local laws or regulations, including filings with the SEC, (d) costs and expenses associated with compliance by the General Partner with laws, rules and regulations promulgated by any regulatory body, including the SEC and (e) all other costs of the General Partner incurred in the course of its business on behalf of the Partnership including, but not limited to, any indemnification obligations of the General Partner (other than indemnification obligations pursuant to Sections 9.1 and 9.2 of the Formation Agreement). "REIT Requirements" shall mean the requirements for the General Partner to: (a) qualify as a REIT under the Code and Regulations; (b) avoid any federal income or excise tax liability; (c) retain its status as grandfathered pursuant to Section 136(c)(3) of the Deficit Reduction Act of 1984; and (d) retain the benefits of that certain private letter ruling issued by the Internal Revenue Service to the General Partner dated as of January 4, 1980. "REIT Requirements" shall also include the ownership limitation provisions set forth in Article VI of the Declaration of Trust. "Restricted Entity" shall mean any "employee benefit plan" as defined in and subject to ERISA, any "plan" as defined in and subject to Section 4975 of the Code, or any entity any portion or all of the assets of which are deemed pursuant to United States Department of Labor Regulation Section 2510.3-101 or otherwise pursuant to ERISA or the Code to be, for any purpose of ERISA or Section 4975 of the Code, assets of any such "employee benefit plan" or "plan" which invests in such entity. "Rights" shall mean the rights of a Limited Partner as set forth in an Exchange Rights Agreement and/or a Registration Rights Agreement. No provision of this Agreement shall be interpreted as granting any Partner or holder of Units any 18 Rights or any rights or interest in or to the Exchange Rights Agreement or the Registration Rights Agreement. "SEC" shall mean the United States Securities and Exchange Commission. "Section 704(c) Tax Items" shall have the meaning set forth in Section 6.1(c)(iii) hereof. "Senior Debt" shall mean the indebtedness issued pursuant to that certain Credit Agreement among the General Partner and certain institutional lenders, dated as of January 28, 1993, which indebtedness has been assumed by the Partnership as such indebtedness may be amended, modified or refinanced from time to time. "Shares" shall mean the common shares of beneficial interest, par value $0.01 per share, of the General Partner. "SLC" shall mean Starwood Lodging Corporation, a Maryland corporation. "Suites Bonds" means the Philadelphia Authority for Industrial Development Commercial Development Revenue Bonds (Suite Hotel Project), Series A, in the original aggregate principal amount of $27,275,000, as amended and restated in that certain Supplemental Mortgage and Trust Indenture dated as of June 1, 1991, and as defined in that certain Bond Purchase Agreement by and between The First National Bank of Boston, HSR, HIR, the Operating Partnership and the Partnership and dated as of February 26, 1996. "Tax Items" shall have the meaning set forth in Section 6.1(c)(i) hereof. "Tax Payment Loan" shall have the meaning set forth in Section 6.7(a) hereof. "Units" shall have the meaning set forth in Section 4.1(c) hereof. "Withholding Tax Act" shall have the meaning set forth in Section 6.7(a) hereof. ARTICLE 2 Continuation and Business of the Partnership 2.1 Continuation. The parties hereto do hereby continue the limited partnership formed pursuant to the Original Agreement and pursuant to the provisions of the Act and upon the terms and conditions set forth herein. The parties hereto agree 19 that the rights and liabilities of the Partners shall be as provided herein. The parties hereto shall immediately execute and deliver all certificates and other documents and do all filings, recording and publishing and other acts as in the judgment of the General Partner may be appropriate to comply with all of the requirements for the continuation of the Partnership as a limited partnership under the Act and the qualification of the Partnership in any jurisdiction in which the Partnership owns property or conducts business. 2.2 Name. The name of the Partnership shall be SLT Realty Limited Partnership, or such other name as shall be chosen from time to time by the General Partner in its sole and absolute discretion; provided, however, that the General Partner may not choose the name (or any derivative thereof) of any Limited Partner without the prior written consent of such Limited Partner. 2.3 Character of the Business. The purpose of the Partnership shall be to acquire, hold, own, develop, redevelop, construct, improve, maintain, operate, manage, sell, lease, rent, transfer, encumber, mortgage, convey, exchange and otherwise dispose of or deal with the Properties and any other real and personal property of all kinds; to undertake such other activities as may be necessary, desirable or appropriate to the business of the Partnership; to engage in such other activities as shall be necessary, desirable or appropriate to effectuate the foregoing purposes; and to otherwise engage in any enterprise or business in which a limited partnership may engage or conduct under the Act. The Partnership shall have all powers necessary, desirable or appropriate to accomplish the purposes enumerated. In connection with the foregoing, but subject to the terms and conditions of this Agreement, the Partnership shall have full power and authority to enter into, perform and carry out contracts of any kind, to borrow money and to issue evidences of indebtedness, whether or not secured by Liens, and, directly or indirectly, to acquire and construct additional Properties necessary or useful in connection with its business. 2.4 Location of Principal Place of Business. The location of the principal place of business of the Partnership shall be at 2231 East Camelback Road, Suite 410, Phoenix, Arizona 85016, or such other location as shall be selected from time to time by the General Partner in its sole and absolute discretion; provided, however, that the General Partner shall notify the Partners of any change in the location of the principal place of business of the Partnership within thirty (30) days thereafter. 2.5 Registered Agent and Registered Office. The registered agent of the Partnership shall be The Corporation Trust Company or such other Person as the General Partner may select in its sole and absolute discretion. The registered office of the Partnership in the State of Delaware shall be c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801 or such other location as the General Partner may from time to time select in its sole discretion; provided, however, that the General Partner shall notify the Limited Partners of any change in the registered office or registered agent of the Partnership within thirty (30) days thereafter. 2.6 Restatement of Agreement. This Agreement amended and 20 restates the Original Restated Agreement, including the amendments thereto, in its entirety effective as of the date first above written and, effective as of such date, the Original Restated Agreement and the amendment thereto shall be of no further force or effect. ARTICLE 3 Term 3.1 Commencement. The Partnership's term commenced upon the filing of the Certificate with the Secretary of State of Delaware on December 15, 1994. 3.2 Dissolution. The Partnership shall continue until dissolved and terminated upon the occurrence of the earliest of the following events: (a) the death, dissolution, termination, withdrawal, retirement, expulsion or Bankruptcy of the General Partner, unless the Partnership's business is continued as provided in Section 9.1 hereof; (b) the election to dissolve the Partnership made in writing by the General Partner; (c) the sale or other disposition of all or substantially all of the assets of the Partnership unless the General Partner elects to continue the Partnership business for the purpose of the receipt and the collection of indebtedness or the collection of any other consideration to be received in exchange for the assets of the Partnership (which activities shall be deemed to be part of the winding up of the affairs of the Partnership); (d) the entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Act, which decree is final and not subject to appeal; or (e) December 31, 2094. ARTICLE 4 Capital Contributions 4.1 Capital Contributions; Units. (a) As of the date first above written, the Partners have the Percentage Interests in the Partnership as set forth in Exhibit A which Percentage Interests shall be adjusted to the extent necessary to reflect properly exchanges, redemptions or conversions of Partnership Interests, Capital Contributions, the issuance of additional Partnership Interests or any other event having an effect on a Partner's Percentage Interest, in each case to the extent permitted by and in 21 accordance with this Agreement. Except to the extent specifically set forth in this Agreement with respect to the General Partner, the Partners shall have no obligation to make any additional Capital Contributions or loans to the Partnership, even if the failure to do so could result in the Bankruptcy or insolvency of the Partnership or any other adverse consequence to the Partnership. (b) The General Partner shall, from time to time, contribute cash or Property to the Partnership such that the Percentage Interest of the General Partner shall at all times be at least one (1) percent and the Capital Account balance of the General Partner shall be at least the lesser of $500,000 or one (1) percent of the total positive Capital Account balances for the Partnership. (c) The interest of a Partner (or an assignee of a Partner) in capital, allocations of Net Income, Net Loss and distributions shall be evidenced by the issuance to such Partner (or assignee) of one or more "Units." The aggregate total of all Units outstanding and the ownership of such Units by each Partner are as set forth on Exhibit A hereto, which Exhibit shall be updated by the General Partner to reflect changes in the holdings of Units by the Partners. (d) From time to time, the General Partner may cause the Partnership to issue additional Partnership Interests to existing or newly-admitted Partners in exchange for additional Capital Contributions (including Capital Contributions pursuant to Section 4.1(b)). If the General Partner contributes to the Partnership the net proceeds to the General Partner from any offering or sale of Paired Shares (including, without limitation, any issuance of Paired Shares pursuant to the exercise of options, warrants, convertible securities, or similar rights to acquire Paired Shares), the Partnership shall issue to the General Partner Units equal in number to the number of Paired Shares issued in such offering or sale. If the General Partner or SLT issues Paired Shares to any Person in exchange for services, the Partnership shall issue an equal number of Units to the General Partner effective no later than the date on which the value of the Paired Shares is includable in the gross income of such Person. (e) The General Partner is hereby authorized to cause the Partnership to issue Partnership Interests in one or more classes or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to the then-existing Partnership Interests and Units, as shall be determined by the General Partner in its sole and absolute discretion, including (i) the allocation of items of Partnership income, gain, loss, deduction and credit to each such class or series of Partnership Interests and (ii) the rights of each such class or series of Partnership Interests to share in Partnership distributions (including liquidating distributions); provided, however, that no such additional Partnership Interests shall be issued to the General Partner unless (x) the additional Partnership Interests are issued in connection with an issuance of shares of the General Partner, which shares have designations, preferences and other rights, all such that the economic interests of such shares are substantially similar to the designations, preferences and other rights of the additional Partnership Interests issued to the General Partner in accordance with this 22 Section 4.1(e) and (y) the General Partner contributes to the Partnership an amount equal to the net proceeds received by the General Partner in connection with the issuance of such shares. (f) In the event of any change in the outstanding number of Paired Shares by reason of any share dividend, split, reverse split, recapitalization, merger, consolidation or combination, the number of Units held by each Partner (or assignee) shall be proportionately adjusted such that, to the extent possible, one Unit remains the equivalent of one Share without dilution. It is the intent of the Partners that, to the extent possible, the number of Units held by the General Partner shall at all times equal the number of issued and outstanding Shares. (g) No fractional Units shall remain outstanding. In lieu of issuing a fractional Unit to a holder of Units, the number of Units to be held by such holder shall be rounded to the nearest whole Unit, or, at the option of the General Partner, the holder shall be paid cash equal to the fair market value of such fractional Unit. 4.2 Redemption of Units Held by Limited Partner. The General Partner is hereby authorized to cause the Partnership to redeem all or any portion of the Units held by any Limited Partner whenever the General Partner, in its sole discretion, believes such redemption to be reasonably necessary or appropriate in order to prevent the Partnership from being characterized as a "publicly traded partnership" pursuant to Section 7704 of the Code and the Regulations thereunder. Any redemption of Units pursuant to this Section 4.2 shall be made from the Limited Partners in reverse order of their respective ownership of Units, that is, first from the Limited Partner or Limited Partners with the fewest Units, and, second, if required, from the Limited Partner or Limited Partners with the next fewest Units, et cetera. Notwithstanding the previous sentence, the General Partner is hereby authorized to cause the Partnership to redeem all of the Units held by a particular Limited Partner who, because of the number of such Limited Partner's direct or indirect beneficial owners or its structure, in the judgment of the General Partner in its sole discretion, and whether or not in conjunction with any other Partner (whether redeemed pursuant to this Section 4.2 or not), may cause the Partnership to be characterized as a "publicly traded partnership" pursuant to Section 7704 of the Code and the Regulations thereunder. The redemption price of any Unit redeemed pursuant to this Section 4.2 shall be equal to the product of (a) 115% of the average of the Paired Share Closing Price for the ten (10) trading day period ending five (5) days prior to the date of such redemption, multiplied by (b) the then Issuance Percentage of SLT. Any redemption of a Limited Partner shall be effective upon the date specified in a Notice to such Limited Partner, or, if later, five (5) days after such Notice. No redemption pursuant to this Section 4.2 shall be made unless the Operating Partnership concurrently effects a comparable redemption. 4.3 Percentage Interests. The Percentage Interest of a Partner shall be equal to the percentage obtained by dividing (a) the number of Units held by such Partner (including Units held by assignees of such Partner who have not been admitted as Partners) by (b) the total number of issued and outstanding Units. 23 4.4 Purchase Rights. If the General Partner grants, issues or sells any options, convertible securities or rights to purchase shares, warrants, or other property pro rata to the record holders of Shares (collectively, "Purchase Rights"), then the Partners shall, to the extent practicable and consistent with the other provisions of this Agreement, be entitled to acquire from the Partnership interests in the Partnership that are substantially similar in amount, tone and tenor to the Purchase Rights to which such Partners would be entitled if such Partners had converted their Partnership Interests into Paired Shares immediately prior to the grant, issue or sale of the Purchase Rights. 4.5 Redemption of Units Held by the General Partner. If the General Partner shall redeem any of its outstanding Shares (including the issuance of cash in lieu of fractional Shares or in the event of the forfeiture or cancellation of Shares issued in exchange for services), the Partnership shall concurrently therewith redeem an equal number of Units held by the General Partner for the same price as paid by the General Partner for the redemption, forfeiture or cancellation of such Shares. Similar redemptions of interests of the General Partner in the Partnership shall occur if any other outstanding securities of the General Partner are redeemed or otherwise retired. 4.6 No Third Party Beneficiaries. No creditor or other third party shall have the right to enforce any right or obligation of any Partner to make Capital Contributions or loans or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and assigns. None of the rights or obligations of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or of any of the Partners. 4.7 No Interest on or Return of Capital Contribution. No Partner shall be entitled to interest on its Capital Contribution or Capital Account. Except as provided herein or by law, no Partner shall have any right to demand or receive the return of its Capital Contribution. ARTICLE 5 Indemnification 5.1 Indemnification of the General Partner. (a) To the fullest extent permitted by law, the Partnership shall and does hereby indemnify an Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including reasonable legal fees and expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits or proceedings (including arbitration and mediation proceedings), civil, criminal, administrative or investigative, that relate, directly or 24 indirectly, to the formation, business or operations of the Partnership in which any Indemnitee may be involved, or is threatened to be involved, as a party, witness or otherwise, by reason of the fact that such Person was an Indemnitee, whether or not the same shall proceed to judgment or be settled or otherwise be brought to a conclusion, except only if and to the extent that it is finally adjudicated that the act or omission of the Indemnitee was material to the matter giving rise to the proceeding and was committed with fraud, gross negligence or willful misconduct. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 5.1(a). Any indemnification pursuant to this Section 5.1 shall be made only out of the assets of the Partnership and no Partner shall have any personal liability therefor. The provisions of this Section 5.1 are for the benefit of the Indemnitees, their heirs, successors, assigns, personal representatives and administrators, and shall not be deemed to create any rights for the benefit of any other Persons. The foregoing notwithstanding, the General Partner shall not be entitled to indemnification from the Partnership with respect to matters provided for in Sections 9.1 and 9.2 of the Formation Agreement. (b) Reasonable expenses incurred by an Indemnitee who is a party or witness in a proceeding shall be paid or reimbursed by the Partnership in advance of the final disposition of the proceeding upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's good faith belief that the standard of conduct necessary for indemnification by the Partnership, as authorized in this Section 5.1, has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount paid or reimbursed if it shall ultimately be determined that such Indemnitee is not entitled to be indemnified hereunder. (c) The indemnification provided by this Section 5.1 shall be in addition to any other rights to which an Indemnitee may be entitled under any agreement, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity. The Partnership shall purchase and maintain insurance, on behalf of the Indemnitees, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership's activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement. An Indemnitee shall not be denied indemnification in whole or in part under this Section 5.1 solely because the Indemnitee had an interest in the transaction with respect to which the indemnification applies. (d) For purposes of this Section 5.1, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Partnership also imposes duties on, or otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute fines within the meaning of this Section 5.1; and actions taken or omitted by the Indemnitee with respect to an employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a 25 purpose which is not opposed to the best interests of the Partnership. 5.2 Indemnification of Limited Partners. (a) From and after the date hereof, the Partnership shall indemnify and hold harmless each Limited Partner, its Affiliates, employees, officers, directors and agents against and from all liability, demands, claims, actions or causes of action, assessments, losses, fines, penalties, costs, damages and expenses (including, without limitation, reasonable attorneys' and accountants' fees and expenses) sustained or incurred by such Limited Partner or Affiliate or any assignee or successor thereof (including, without limitation, any permitted assignee of a Limited Partner under Article 9 hereof) as a result of or arising out of any action, suit or proceeding (including mediation and arbitration proceedings) (i) arising out of or relating to the operation of the Partnership's business or the Limited Partner being a Partner in the Partnership (excluding, specifically, actions, suits or proceedings arising out of actual or alleged breaches of a Partner's representations, warranties or covenants hereunder or pursuant to the Formation Agreement or arising out of acts by a Limited Partner other than in its capacity as such) and (ii) naming a Limited Partner or any of its Affiliates as a party to such proceeding. Any indemnification pursuant to this Section 5.2(a) shall be made only out of the assets of the Partnership and no Partner shall have any personal liability therefor. The provisions of this Section 5.2(a) are for the benefit of the Limited Partners, their Affiliates, employees, officers, directors and agents, and shall not be deemed to create any rights for the benefit of any other Persons. (b) Notwithstanding the foregoing, the Partnership shall indemnify and hold harmless the HEI Contributors of and from liabilities of the HEI Property Companies whose HEI Property Company Interests have been acquired by the Partnership except for any undisclosed material liability of such Property Company as of February 14, 1997 (collectively, the "Excluded Liabilities"); provided, however, that the Excluded Liabilities shall not include: (i) any liability incurred in the ordinary course of operating the applicable Hotel prior to February 14, 1997; (ii) any liability disclosed by the Transaction Documents, the Schedules or Exhibits thereto, any supplement to such schedules or exhibits delivered to the Starwood Parties prior to February 14, 1997, the agreements, reports or other documents referred to in any of the foregoing, the Financial Statements, the financial statements prepared in connection with the Net Working Capital adjustment provided for in Article IV of the Contribution Agreement; (iii) any Liability of which the Starwood Parties otherwise had Knowledge prior to February 14, 1997; or (iv) any Liability incurred on or after February 14, 1997; and the Partnership shall be obligated to hold the HEI Contributors harmless from all 26 such enumerated liabilities. The provisions of this Section 5.2(b) shall be in addition to and not in limitation of the indemnifications provided to Limited Partners pursuant to Section 5.2(a). Any capitalized term in this Section 5.2(b) not otherwise defined in this Agreement shall have the meaning set forth in the HEI Contribution Agreement. 5.3 Notice of Claims. If any Person believes that it is entitled to indemnification under this Article 5, such Person shall so notify the Partnership promptly in writing describing such claim for indemnification, the amount thereof, if known, and the method of computation, all with reasonable particularity and containing a reference to the provisions of this Agreement in respect of which such claim shall have occurred; provided, however, that the omission by such indemnified party to give notice as provided herein shall not relieve the Partnership of its indemnification obligation under this Article 5 except to the extent that the Partnership is materially damaged as a result of such failure to give notice. If any action at law or suit in equity is instituted by or against a third party with respect to which any of the Persons entitled to indemnification under this Article 5 intends to make a claim for indemnification under this Article 5, any such Person shall promptly notify the Partnership of such action or suit. Any Person entitled to indemnification hereunder shall use reasonable efforts to minimize the amount of any claim for indemnification hereunder. 5.4 Third Party Claims. In the event of any claim for indemnification hereunder resulting from or in connection with any claim or legal proceeding by a third party, the indemnified Person shall give such notice thereof to the Partnership not later than twenty (20) Business Days prior to the time any response to the asserted claim is required, if possible, and in any event within fifteen (15) Business Days following the date such indemnified Person has actual knowledge thereof; provided, however, that the omission by such indemnified Person to give notice as provided herein shall not relieve the Partnership of its indemnification obligation under this Article 5 except to the extent that the Partnership is materially damaged as a result of such failure to give notice. In the event of any such claim for indemnification resulting from or in connection with a claim or legal proceeding by a third party, the Partnership may, at its sole cost and expense, assume the defense thereof; provided, however, that counsel for the Partnership, who shall conduct the defense of such claim or legal proceeding, shall be reasonably satisfactory to the indemnified Person; and provided, further, that if the defendants in any such actions include both the indemnified Persons and the Partnership and the indemnified Persons shall have reasonably concluded that there may be legal defenses or rights available to them which have not been waived and are in actual or potential conflict with those available to the Partnership, the indemnified Persons shall have the right to select one law firm reasonably acceptable to the Partnership to act as separate counsel, on behalf of such indemnified Persons, at the expense of the Partnership. Unless the indemnified Persons are represented by separate counsel pursuant to the second proviso of the immediately preceding sentence, if the Partnership assumes the defense of any such claim or legal proceeding, it shall not consent to entry of any judgment, or enter into any settlement, that (a) is not subject to indemnification in accordance with the provisions in this Article 5, (b) provides for injunctive or other non-monetary relief affecting the indemnified Persons or (c) does not include as an unconditional term thereof the giving by each claimant or plaintiff to such indemnified Persons of a release from all liability with 27 respect to such claim or legal proceeding, without the prior written consent of the indemnified Persons (which consent, in the case of clauses (b) and (c), shall not be unreasonably withheld or delayed); and provided, further, that, unless the indemnified Persons are represented by separate counsel pursuant to the second proviso of the immediately preceding sentence, the indemnified Persons may, at their own expense, participate in any such proceeding with the counsel of their choice without any right of control thereof. So long as the Partnership is in good faith defending such claim or proceeding, the indemnified Persons shall not compromise or settle such claim or proceeding without the prior written consent of the Partnership, which consent shall not be unreasonably withheld or delayed. If the Partnership does not assume the defense of any such claim or litigation in accordance with the terms hereof, the indemnified Persons may defend against such claim or litigation in such manner as they may deem appropriate, including, without limitation, settling such claim or litigation (after giving prior written notice of the same to the Partnership and obtaining the prior written consent of the Partnership, which consent shall not be unreasonably withheld or delayed) on such terms as the indemnified Persons may deem appropriate, and the Partnership will promptly indemnify the indemnified Persons in accordance with the provisions of this Article 5. 5.5 Indemnification Pursuant to Formation Agreement. If any obligation pursuant to the indemnification provisions of Article IX of the Formation Agreement would otherwise require the indemnifying Person to make a cash payment to the indemnified Person then, subject to Article 9 hereof, in lieu of making all or any portion of such cash payment, the indemnifying Person may transfer Units of equivalent value to the indemnified Person. For purposes of the preceding sentence, the value of a Unit shall be treated as equal to ninety-five (95) percent of the average closing price of a Paired Share for the ten (10) trading day period commencing fifteen (15) trading days prior to the date the indemnifying Person would otherwise be required to pay cash to the indemnified Person. Indemnification through the transfer of Units pursuant to this Section 5.5 may only made if (a) indemnification through the transfer of an equal number of units of the Operating Partnership is being made pursuant to Section 5.5 of the Second Amended and Restated Limited Partnership Agreement of SLC Operating Limited Partnership or (b) the indemnifying Person otherwise makes arrangements for the transfer to the indemnified Person (or its designee) of an equal number of units of the Operating Partnership. ARTICLE 6 Allocations, Distributions and Other Tax and Accounting Matters 6.1 Allocations. The Net Income, Net Loss and other Partnership items shall be allocated pursuant to the provisions of this Section 6.1 hereto. (a) Allocation of Net Income and Net Loss. (i) Net Income. Except as otherwise provided herein, Net Income for any fiscal year or other applicable period shall be allocated in the 28 following order and priority: (A) first, to the General Partner, until the cumulative Net Income allocated pursuant to this clause (i)(A) for the current and all prior periods equals the cumulative Net Loss allocated pursuant to the last sentence of clause (ii) hereof for all prior periods; and (B) thereafter, the balance of Net Income, if any, shall be allocated to the holders of Units in accordance with their respective holdings of Units. (ii) Net Loss. Except as otherwise provided herein, Net Loss of the Partnership for each fiscal year or other applicable period shall be allocated to the holders of Units in accordance with their respective holdings of Units. The preceding sentence notwithstanding, to the extent any Net Loss allocated to a holder would cause such a holder to have an Adjusted Capital Account Deficit as of the end of the fiscal year to which such Net Loss relates, such Net Loss shall not be allocated to such holder and instead shall be allocated to the General Partner. (b) Special Allocations. Notwithstanding any provisions of Section 6.1(a) hereof, the following special allocations shall be made in the following order: (i) Minimum Gain Chargeback. Notwithstanding any other provision of this Article 6, if there is a net decrease in Partnership Minimum Gain for any Partnership fiscal year (except as a result of conversion or refinancing of Partnership indebtedness, certain capital contributions or revaluation of the Partnership property as further outlined in Section 1.704-2(f) of the Regulations), each holder of Units shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to that holder's share of the net decrease in Partnership Minimum Gain as determined under Section 1.704-2(g) of the Regulations. The items to be so allocated shall be determined in accordance with Section 1.704-2(f) of the Regulations. This clause (i) is intended to comply with the minimum gain chargeback requirement in said section of the Regulations and shall be interpreted consistently therewith. Allocations pursuant to this clause (i) shall be made in proportion to the respective amounts required to be allocated to each holder of Units pursuant hereto. (ii) Minimum Gain Chargeback Attributable to Partner Nonrecourse Debt. Notwithstanding any other provision of this Article 6, if there is a net decrease in Minimum Gain Attributable to Partner Nonrecourse Debt during any fiscal year (other than due to the conversion, refinancing or other change in the debt instrument causing it to become partially or wholly nonrecourse, certain capital contributions, or certain revaluations of Partnership property (as further outlined in Section 1.704-2(i)(4) of the Regulations), each holder of Units shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to the holder's share of the net decrease in the Minimum Gain Attributable to Partner Nonrecourse Debt as determined under Section 29 1.704-2(i) of the Regulations. The items to be so allocated shall be determined in accordance with Sections 1.704-2(i)(4) and (j)(2) of the Regulations. This clause (ii) is intended to comply with the minimum gain chargeback requirement with respect to Partner Nonrecourse Debt contained in said section of the Regulations and shall be interpreted consistently therewith. Allocations pursuant to this clause (ii) shall be made in proportion to the respective amounts required to be allocated to each holder of Units. (iii) Qualified Income Offset. In the event a holder of Units unexpectedly receives any adjustments, allocations or distributions described in Section 1.704-1(b)(2)(ii) (d)(4), (5), or (6) of the Regulations, and such holder has an Adjusted Capital Account Deficit, items of Partnership income and gain shall be specially allocated to such holder in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit as quickly as possible, provided that an allocation pursuant to this Section 6.1(b)(iii) shall be made only if and to the extent that such holder would have Adjusted Capital Account Deficit after all other allocations provided for in this Article VI have been tentatively made as if this Section 6.1(b)(iii) were not in the Agreement. This clause (iii) is intended to constitute a "qualified income offset" under Section 1.704-1(b)(2)(ii) (d) of the Regulations and shall be interpreted consistently therewith. (iv) Gross Income Allocation. In the event any holder of Units has a deficit Capital Account at the end of any fiscal year which is in excess of the sum of (x) the amount such holder is obligated to restore pursuant to any provision of this Agreement, and (y) the amount such holder is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such holder shall be specially allocated items of Partnership income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 6.1(b)(iv) shall be made only if and to the extent that such holder would have a Capital Account Deficit in excess of such sum after all other allocations provided for in this Article 6 have been made as if Section 6.1(b)(iii) hereof and this Section 6.1(b)(iv) were not in the Agreement. (v) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year or other applicable period shall be allocated to the holders of Units in accordance with their respective holdings of Units. For purposes of Section 1.752-3(a) (3) of the Regulations, "excess nonrecourse liabilities" shall be allocated among the holders of Units in proportion to their respective holdings of Units. (vi) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions for any fiscal year or other applicable period shall be specially allocated to the holder of Units that bears the economic risk of loss with respect to the Partner Nonrecourse Debt in respect of which such Partner Nonrecourse Deductions are attributable (as determined under Sections 1.704-2(b) (4) and (i) (1) of the Regulations). (vii) Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or Section 743(b) of the Code is required, pursuant to Section 1.704-1(b)(2)(iv)(m)(2) or Section 1.704- 30 1(b)(2)(iv)(m)(4) of the Regulations, to be taken into account in determining Capital Accounts, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to holders of Units in accordance with their interests in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such sections of the Regulations. (viii) Curative Allocations. The Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss, and deduction among the holders of Units so that, to the extent possible, the cumulative net amount of allocations of Partnership items under Sections 6.1(a) and (b) hereof shall be equal to the net amount that would have been allocated to each holder of Units if the Regulatory Allocations had not occurred. This subparagraph (viii) is intended to minimize to the extent possible and to the extent necessary any economic distortions which may result from application of the Regulatory Allocations and shall be interpreted in a manner consistent therewith. For purposes hereof, "Regulatory Allocations" shall mean the allocations provided under this Section 6.1(b) (other than this subparagraph) and allocations pursuant to the last sentence of Section 6.1(a)(ii) hereof. (ix) Varying Interests. In the event the number of Units outstanding during a fiscal year changes, the allocations pursuant to this Article 6 shall be made by the General Partner to take such varying interests into account in any reasonable manner permitted under the Code and the Regulations. (c) Tax Allocations. (i) Generally. Subject to clauses (ii) and (iii) hereof, items of income, gain, loss, deduction and credit to be allocated for income tax purposes (collectively, "Tax Items") shall be allocated among the holders of Units on the same basis as their respective book items. (ii) Sections 1245/1250 Recapture. If any portion of gain from the sale of property is treated as gain which is ordinary income by virtue of the application of Sections 1245 or 1250 of the Code ("Affected Gain"), then (A) such Affected Gain shall be allocated among the holders of Units in the same proportion that the depreciation and amortization deductions giving rise to the Affected Gain were allocated and (B) other Tax Items of gain of the same character that would have been recognized, but for the application of Sections 1245 and/or 1250 of the Code, shall be allocated away from those holders of Units who are allocated Affected Gain pursuant to clause (A) so that, to the extent possible, the other holders of Units are allocated the same amount, and type, of capital gain that would have been allocated to them had Sections 1245 and/or 1250 of the Code not applied. For purposes hereof, in order to determine the proportionate allocations of depreciation and amortization deductions for each fiscal year or other applicable period, such deductions shall be deemed allocated on the same basis as Net Income or Net Loss for such respective period. (iii) Allocations Respecting Section 704(c) of the Code 31 and Revaluations. Property contributed to the Partnership shall be subject to Section 704(c) of the Code and the Regulations thereunder so that, notwithstanding paragraph (b) hereof, taxable gain from disposition, taxable loss from disposition and tax depreciation with respect to Partnership property that is subject to Section 704(c) of the Code and/or Section 1.704-1(b) (2) (iv) (f) of the Regulations (collectively "Section 704(c) Tax Items") shall be allocated on a property by property basis in accordance with said Code Section and/or the Regulations thereunder, as the case may be. The allocation of Section 704(c) Tax Items shall be made pursuant to any reasonable method selected by the General Partner in its discretion authorized under Section 1.704-3 of the Regulations. Allocations pursuant to this Section 6.1(c)(iii) are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, the Capital Account or share of Net Income, Net Loss, other items, or distributions of any holder of Units pursuant to any provision of this Agreement. (iv) Tax Credits and Other Items. Tax credits and other items shall be allocated in accordance with the holdings of Units to the extent permitted under Section 1.704-1(b)(4)(ii) of the Regulations or other applicable provision of the Code and Regulations and otherwise in accordance with such provisions. (v) Senior Debt. Any income (including income from discharge of indebtedness), gain, correlative adjustments, loss, deduction or retirement or other premium relating to the assumption of the Senior Debt by the Partnership, the repayment of or refinancing of the Senior Debt, the contribution of any portion of the Senior Debt to the Partnership or the defeasance of any portion of the Senior Debt as a result of the application of Section 108(e)(4) of the Code and the Regulations thereunder shall be specially allocated to the General Partner. (vi) Bonds. Income, gain, loss or correlative adjustments, if any, relating to the Suites Bonds or the disposition thereof shall be specially allocated to HSR (or its assignees or successors-in-interest). Income, gain, loss or correlative adjustments, if any, relating to the Inns Bonds or the disposition thereof shall be specially allocated to HSR (or its assignees or successors-in-interest). 6.2 Distributions. The General Partner shall cause the Partnership to distribute all, or such portion as the General Partner may in its reasonable discretion determine, of Net Cash Flow to the holders of Units who are holders on the Partnership Record Date with respect to such distribution. All such distributions shall be made pro rata in accordance with the holder's ownership of Units. Notwithstanding the foregoing, the General Partner is authorized to cause the Partnership to distribute sufficient amounts, pro rata by ownership of Units, to enable the General Partner to pay shareholder dividends that will satisfy the REIT Requirements. 6.3 Books of Account. At all times during the continuance of the Partnership, the General Partner shall maintain or cause to be maintained full, true, complete and correct books of account in accordance with GAAP, using the calendar year as the fiscal and taxable year of the Partnership. In addition, the Partnership shall keep all records required to be kept pursuant to the Act. 32 6.4 Reports. The General Partner shall cause to be sent to the Partners promptly after receipt of the same from the Accountants and in no event later than 105 days after the close of each fiscal year of the Partnership, copies of Audited Financial Statements for the Partnership, or of the General Partner if such statements are prepared solely on a consolidated basis with the General Partner, for the immediately preceding fiscal year of the Partnership. The Partnership shall also cause to be prepared such reports and/or information as are necessary for the General Partner to determine its qualification as a REIT and its compliance with REIT Requirements. 6.5 Tax Elections and Returns. All elections required or permitted to be made by the Partnership under any applicable tax law shall be made by the General Partner in its sole and absolute discretion, except that the General Partner shall, if requested by a Limited Partner, file an election on behalf of the Partnership pursuant to Section 754 of the Code to adjust the basis of the Partnership property in the case of a transfer of a Partnership Interest or distribution from the Partnership, including transfers made in connection with the exercise of the Rights, made in accordance with the provisions of the Agreement. The General Partner shall be responsible for preparing and filing all federal and state tax returns for the Partnership and furnishing copies thereof to the Partners, together with required Partnership schedules showing allocations of tax items, copies of all within the period of time prescribed by law. The General Partner shall use reasonable efforts to make available to the holders of Units final K-1's not later than September 15 of each year. 6.6 Tax Matters Partner. The General Partner is hereby designated as the Tax Matters Partner within the meaning of Section 6231(a)(7) of the Code (and any corresponding provisions of state and local law) for the Partnership; provided, however, that (a) in exercising its authority as Tax Matters Partner, the General Partner shall be limited by the provisions of this Agreement affecting tax aspects of the Partnership; and (b) the General Partner shall give prompt notice to any notice partners under Section 6231 of the Code of the receipt of any written notice that the Internal Revenue Service intends to examine or audit Partnership income tax returns for any year, receipt of written notice of the beginning of an administrative proceeding at the Partnership level relating to the Partnership under Section 6223 of the Code, receipt of written notice of the final Partnership administrative adjustment relating to the Partnership pursuant to Section 6223 of the Code, and receipt of any request from the Internal Revenue Service for waiver of any applicable statute of limitations with respect to the filing of any tax return by the Partnership. 6.7 Withholding Payments Required By Law. (a) Unless treated as a Tax Payment Loan (as hereinafter defined), any amount paid by the Partnership for or with respect to any holder of Units on account of any withholding tax or other tax payable with respect to the income, profits or distributions of the Partnership pursuant to the Code, the Regulations, or any state or local statute, regulation, notice, ruling or ordinance requiring such payment (a "Withholding Tax Act") shall be treated as a distribution to such holder for all purposes 33 of this Agreement, consistent with the character or source of the income, profits or cash which gave rise to the payment or withholding obligation. To the extent that the amount required to be remitted by the Partnership under the Withholding Tax Act exceeds the amount then otherwise distributable to such holder, unless and to the extent that funds shall have been provided by such holder pursuant to the last sentence of this Section 6.7(a), the excess shall constitute a loan from the Partnership to such holder (a "Tax Payment Loan") which shall be payable upon demand and shall bear interest, from the date that the Partnership makes the payment to the relevant taxing authority, at the rate announced from time to time by Citibank, N.A. (or any successor thereto) as its "prime rate", plus four (4) percent per annum, compounded monthly (but in no event higher than the highest interest rate permitted by applicable law). So long as any Tax Payment Loan to any holder of Units or the interest thereon remains unpaid, the Partnership shall make future distributions due to such holder under this Agreement by applying the amount of any such distributions first to the payment of any unpaid interest on such Tax Payment Loan and then to the repayment of the principal thereof, and no such future distributions shall be paid to such holder until all of such principal and interest has been paid in full. If the amount required to be remitted by the Partnership under the Withholding Tax Act exceeds the amount then otherwise distributable to a holder of Units, the Partnership shall notify such holder at least five (5) Business Days in advance of the date upon which the Partnership would be required to make a Tax Payment Loan under this Section 6.7(a) (the "Tax Payment Loan Date") and provide such holder the opportunity to pay to the Partnership, on or before the Tax Payment Loan Date, all or a portion of such deficit. (b) The General Partner shall have the authority to take all actions necessary to enable the Partnership to comply with the provisions of any Withholding Tax Act applicable to the Partnership and to carry out the provisions of this Section 6.7. Nothing in this Section 6.7 shall create any obligation on the General Partner to advance funds to the Partnership or to borrow funds from third parties in order to make any payments on account of any liability of the Partnership under a Withholding Tax Act. (c) In the event that a Tax Payment Loan is not paid by a holder of Units within thirty (30) days after written demand therefor is made by the General Partner, the General Partner may cause all distributions that would otherwise be made to such holder to be retained by the Partnership, or sell such holder's Units for sale proceeds, in each case up to the amount necessary to repay such Tax Payment Loan, including all accrued and unpaid interest therein, and such retained distributions or sale proceeds shall be applied against, first, the accrued interest on and, second, the principal of, such Tax Payment Loan. ARTICLE 7 Rights, Duties and Restrictions of the General Partner 7.1 Powers and Duties of the General Partner. 34 (a) The General Partner shall be responsible for the management of the Partnership's business and affairs. Except as otherwise herein expressly provided, the General Partner shall have, and is hereby granted, full and complete power, authority and discretion to take such action for and on behalf of the Partnership and in its name as the General Partner shall, in its sole and absolute discretion, deem necessary or appropriate to carry out the Partnership's business and the purposes for which the Partnership was organized. Except as otherwise expressly provided herein, the General Partner shall, on behalf of, and at the expense of, the Partnership, have the right, power and authority: (i) to manage, control, invest, reinvest, acquire by purchase, lease or otherwise, sell, contract to purchase or sell, grant, obtain, or exercise options to purchase, options to sell or conversion rights, assign, transfer, convey, deliver, endorse, exchange, pledge, mortgage, abandon, improve, repair, maintain, insure, lease for any term and otherwise deal with any and all property of whatsoever kind and nature, and wheresoever situated, in furtherance of the business or purposes of the Partnership; (ii) to acquire, directly or indirectly, interests in real estate of any kind and of any type, and any and all kinds of interests therein (including, without limitation, Entities investing therein), and to determine the manner in which title thereto is to be held; to manage (directly or through property managers), insure against loss, protect and subdivide any of the real estate, interests therein or parts thereof; to improve, develop or redevelop any such real estate; to participate in the ownership and development of any property; to dedicate for public use, to vacate any subdivisions or parts thereof, to resubdivide, to contract to sell, to grant options to purchase or lease, to sell on any terms; to convey, mortgage, pledge or otherwise encumber said property, or any part thereof; to lease said property or any part thereof from time to time, upon any terms and for any period of time, and to renew or extend leases, to amend, change or modify the terms and provisions of any leases and to grant options to lease and options to renew leases and options to purchase; to partition or to exchange said real property, or any part thereof, for other real or personal property; to grant easements or charges of any kind; to release, convey or assign any right, title or interest in or about or easement appurtenant to said property or any part thereof; to construct and reconstruct, remodel, alter, repair, add to or take from buildings on any property in which the Partnership owns an interest; to insure any Person having an interest in or responsibility for the care, management or repair of such property; to direct the trustee of any land trust to mortgage, lease, convey or contract to convey the real estate held in such land trust or to execute and deliver deeds, mortgages, notes and any and all documents pertaining to the property subject to such land trust or in any matter regarding such trust; and to execute assignments of all or any part of the beneficial interest in such land trust; (iii) to employ, engage, indemnify or contract with or dismiss from employment or engagement Persons to the extent deemed necessary or appropriate by the General Partner for the operation and management of the Partnership business, including but not limited to contractors, subcontractors, engineers, architects, surveyors, mechanics, consultants, accountants, attorneys, 35 insurance brokers, real estate brokers and others; (iv) to enter into contracts on behalf of the Partnership, and to cause all Administrative Expenses to be paid; (v) to borrow or loan money, obtain or make loans and advances from and to any Person for Partnership purposes and to apply for and secure from or accept and grant to any Person credit or accommodations; to contract liabilities and obligations (including interest rate swaps, caps and hedges) of every kind and nature with or without security; and to repay, collect, discharge, settle, adjust, compromise or liquidate any such loan, advance, obligation or liability; (vi) to grant security interests, mortgage, assign, deposit, deliver, enter into sale and leaseback arrangements or otherwise give as security or as additional or substitute security or for sale or other disposition any and all Partnership property, tangible or intangible, including, but not limited to, personal property and real estate and interests in land trusts, and to make substitutions thereof, and to receive any proceeds thereof upon the release or surrender thereof; to sign, execute and deliver any and all assignments, deeds, bills of sale and contracts and instruments in writing; to authorize, give, make, procure, accept and receive moneys, payments, property notices, demands, protests and authorize and execute waivers of every kind and nature; to enter into, make, execute, deliver and receive agreements, undertakings and instruments of every kind and nature; and generally to do any and all other acts and things incidental to any of the foregoing or with reference to any dealings or transactions which the General Partner may deem necessary, proper or advisable to effect or accomplish any of the foregoing or to carry out the business and purposes of the Partnership; (vii) to acquire and enter into any contract of insurance (including, without limitation, general partner liability and partnership reimbursement insurance policies) which the General Partner may deem necessary or appropriate; (viii) to conduct any and all banking transactions on behalf of the Partnership; to adjust and settle checking, savings and other accounts with such institutions as the General Partner shall deem appropriate; to draw, sign, execute, accept, endorse, guarantee, deliver, receive and pay any checks, drafts, bills of exchange, acceptances, notes, obligations, undertakings and other instruments for or relating to the payment of money in, into or from any account in the Partnership's name; to make deposits into and withdrawals from the Partnership's bank accounts and to negotiate or discount commercial paper, acceptances, negotiable instruments, bills of exchange and dollar drafts; (ix) to demand, sue for, receive and otherwise take steps to collect or recover all debts, rents, proceeds, interests, dividends, goods, chattels, income from property, damages and all other property, to which the Partnership may be entitled or which are or may become due the Partnership from any Person; to commence, prosecute or enforce, or to defend, answer or oppose, contest and abandon all legal proceedings in which the Partnership is or may hereafter be 36 interested; and to settle, compromise or submit to arbitration any accounts, debts, claims, disputes and matters which may arise between the Partnership and any other Person and to grant an extension of time for the payment or satisfaction thereof on any terms, with or without security; (x) to acquire interests in and contribute money or property to any limited or general partnerships, joint ventures, subsidiaries or other entities as the General Partner deems desirable; (xi) to maintain or cause to be maintained the Partnership's books and records; (xii) to prepare and deliver, or cause to be prepared and delivered, all financial and other reports with respect to the operations of the Partnership, and preparation and filing of all tax returns and reports; (xiii) to do all things which are necessary or advisable for the protection and preservation of the Partnership's business and assets, and to execute and deliver such further instruments and undertake such further acts as may be necessary or desirable to carry out the intent and purposes of this Agreement and as are not inconsistent with the terms hereof; (xiv) subject to Section 7.4 hereof, to lease any or all of the Properties to SLC, the Operating Partnership or the Affiliates of either or to any other Person on such terms and conditions as the General Partner may from time to time agree; and (xv) in general, to exercise all of the general rights, privileges and powers permitted to be had and exercised under the Act. To the extent the duties of the General Partner require expenditures of funds to be paid to third parties, the General Partner shall not have any obligations hereunder except to the extent that Partnership funds are reasonably available to it for the performance of such duties, and nothing herein contained shall be deemed to require the General Partner, in its capacity as such, to expend its individual funds for payment to third parties or to undertake any specific liability or litigation on behalf of the Partnership. (b) Notwithstanding the provisions of Section 7.1(a) hereof, the Partnership shall not take any action which (or fail to take any action, the omission of which) the General Partner believes, in its sole and absolute discretion, (i) could adversely affect the ability of the General Partner to qualify or continue to qualify as a REIT, (ii) could subject SLT to any additional taxes under Section 857 or Section 4981 of the Code or other potentially adverse consequences under the Code, (iii) could otherwise cause the General Partner to violate the REIT Requirements or (iv) could violate any law or regulation of any governmental body or agency having jurisdiction over the General Partner or its securities, unless such action (or inaction) shall have been specifically consented to by the General Partner in writing. 37 (c) Notwithstanding the provisions of Section 7.1(a) hereof, the Partnership shall not commingle its funds with those of any Affiliate or other entity; funds and other assets of the Partnership shall be separately identified and segregated; all of the Partnership's assets shall at all times be held by or on behalf of the Partnership, and, if held on behalf of the Partnership by another entity, shall at all times be kept identifiable (in accordance with customary usages) as assets owned by the Partnership; and the Partnership shall maintain its own separate bank accounts, payroll and books of account. (d) Without the consent of the Limited Partners, the General Partner shall have no power to do any act in contravention of this Agreement or possess any Partnership property for other than a partnership purpose. 7.2 Reimbursement of the General Partner. (a) Except as provided in this Section 7.2 and elsewhere in this Agreement (including the provisions of Articles 5, 6 and 8 hereof regarding distributions, payments and allocations to which it may be entitled), the General Partner shall not receive payments from or be compensated for its services as general partner of the Partnership. (b) The General Partner shall be reimbursed on a monthly basis, or such other basis as the General Partner may determine in its sole and absolute discretion, for all expenses it incurs relating to the ownership and operation of, or for the benefit of, the Partnership, including, without limitation, the Administrative Expenses. Such reimbursements shall be in addition to any reimbursement to the General Partner as a result of indemnification pursuant to Section 5.1 hereof. (c) To the extent that any amount paid or credited to the General Partner or its officers, directors, employees or agents pursuant to Section 5.1 or Section 7.2(b) would constitute gross income to the General Partner for purposes of Sections 856(c)(2) or 856(c)(3) of the Code (a "General Partner Payment") then, notwithstanding any other provision of this Agreement, the amount of such General Partner Payments for any fiscal year shall not exceed the lesser of: (i) an amount equal to the excess, if any, of (a) 4.95% of the General Partner's total gross income (but not including the amount of any General Partner Payments) for the fiscal year which is described in subsections (A) through (H) of Section 856(c)(2) of the Code over (b) the amount of gross income (within the meaning of Section 856(c)(2) of the Code) derived by a General Partner from sources other than those described in subsections (A) through (H) of Section 856(c)(2) of the Code (but not including the amount of any General Partner Payments): or (ii) an amount equal to the excess, if any, of (a) 24.95% of the General Partner's total gross income (but not including the amount of any General Partner Payments) for the fiscal year which is described in 38 subsections (A) through (I) of Section 856(c)(3) of the Code over (b) the amount of gross income (within the meaning of Section 856(c)(3) of the Code) derived by the General Partner from sources other than those described in subsections (A) through (I) of Section 856(c)(3) of the Code (but not including the amount of any General Partner Payments); provided, however, that General Partner Payments in excess of the amounts set forth in subparagraphs (i) and (ii) above may be made if the General Partner, as a condition precedent, obtains an opinion of tax counsel that the receipt of such excess amounts would not adversely affect the General Partner's ability to quality as a REIT. To the extent General Partner Payments may not be made in a fiscal year due to the foregoing limitations, such General Partner Payments shall carry over and be treated as arising in the following year, provided, however, that such amounts shall not carry over for more than five years, and if not paid within such five year period, shall expire; provided further, that (i) as General Partner Payments are made, such payments shall be applied first to carry over amounts outstanding, if any, and (ii) with respect to carry over amounts for more than one fiscal year, such payments shall be applied to the earliest fiscal year first. 7.3 Outside Activities of the General Partner. The General Partner shall not directly or indirectly enter into or conduct any business other than (a) the ownership, acquisition and disposition of Partnership Interests as the General Partner or Limited Partner and the management of the business of the Partnership, and (b) such activities as are incidental thereto, including the General Partner's ownership directly or through a wholly-owned subsidiary of an interest in a partnership or limited liability company in which the Partnership is a partner or member. All future acquisitions of real estate by the General Partner shall be made through and for the benefit of the Partnership. The General Partner agrees that the net proceeds of all offerings of securities by the General Partner shall be contributed to the Partnership (in the case of equity offerings) or loaned to the Partnership (in the case of debt offerings). The foregoing notwithstanding, this Section 7.3 shall not restrict the activities or investments of the General Partner if the General Partner makes such arrangements as are reasonably necessary to avoid such activities or investments having a material adverse impact on the Limited Partners and to assure that the Limited Partners share in the economic benefits of such activities or investments in a fair and equitable manner. 7.4 Contracts with Affiliates. The Partnership may engage in transactions, enter into contracts with Affiliates, and lend money to or borrow money from Affiliates which are on terms fair and reasonable to the Partnership and no less favorable to the Partnership than would be obtained from unaffiliated third parties. The Partners hereby agree that the Partnership's leases and loans with the Operating Partnership, SLC and its Affiliates, as in effect on the date first above written, are on terms fair and reasonable to the Partnership and such terms are no less favorable to the Partnership than would be obtained from unaffiliated third parties. 7.5 Title to Partnership Assets. Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be 39 owned by the Partnership as an entity, and no Partner, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more nominees, as the General Partner may determine, including Affiliates of the General Partner. The General Partner hereby acknowledges and confirms that any Partnership assets for which legal title is held in the name of the General Partner or any nominee or Affiliate of the General Partner shall be held by the General Partner for the use and benefit of the Partnership in accordance with the provisions of this Agreement; provided, however, that the General Partner shall use its best efforts to cause beneficial and record title to such assets to be vested in the Partnership as soon as reasonably practicable. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal title to such Partnership assets is held. 7.6 Reliance by Third Parties. Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner has full power and authority to encumber, sell or otherwise use in any manner any and all assets of the Partnership and to enter into any contracts on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner as if it were the Partnership's sole party in interest, both legally and beneficially. In no event shall any Person dealing with the General Partner or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expedience of any act or action of the General Partner or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership. 7.7 Liability of the General Partner. (a) Notwithstanding anything to the contrary set forth in this Agreement, the General Partner shall not be liable for monetary or other damages to the Partnership, any of the Partners or any assignee of any interest of any Partner for losses sustained or liabilities incurred as a result of errors in judgment or of any act or omission if the General Partner acted without fraud, gross negligence or willful misconduct. (b) The Limited Partners expressly acknowledge (i) that the General Partner is acting on behalf of the Partnership and the General Partner's shareholders collectively, (ii) that, subject to the terms and conditions of this Agreement, the General Partner may, but is under no obligation to, consider the separate interests of the Limited Partners (including, without limitation, the tax consequences to Limited Partners or any assignees thereof except as provided in this 40 Agreement) in deciding whether to cause the Partnership to take (or decline to take) any actions, and (iii) that the General Partner shall not be liable for monetary damages for losses sustained, liabilities incurred, or benefits not derived by Limited Partners in connection with such decisions, provided that the General Partner acted without fraud, gross negligence or willful misconduct. (c) Subject to its obligations and duties as General Partner set forth in Section 7.1 hereof, the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through agents. The General Partner shall not be responsible for any fraud, willful misconduct or gross negligence on the part of any such agent appointed by it without fraud, gross negligence or willful misconduct. (d) Any amendment, modification or repeal of this Section 7.7 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the General Partner's liability to the Partnership and the Limited Partners under this Section 7.7 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may be asserted. 7.8 Other Matters Concerning the General Partner. (a) The General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, or other document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties. (b) The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the advice or opinion of such Persons as to matters which the General Partner reasonably believes to be within such Person's professional or expert competence and in accordance with such advice or opinion shall be prima facie evidence that such actions have been done or omitted in good faith. (c) The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers and any attorney or attorneys-in-fact duly appointed by the General Partner. Each such attorney shall, to the extent provided by the General Partner in the power of attorney, have full power and authority to do and perform all and every act and duty which is permitted or required to be done by the General Partner hereunder. 7.9 Operation of SLT in Accordance with REIT Requirements. (a) The Partners acknowledge and agree the General Partner has the authority to cause the Partnership to be operated in a manner that will enable the General Partner to (i) satisfy the REIT Requirements and (ii) avoid the imposition of 41 any federal income or excise tax liability on the General Partner. The General Partner has the authority to cause the Partnership to avoid taking any action which would result in the General Partner ceasing to satisfy the REIT Requirements or would result in the imposition of any federal income or excise tax liability on the General Partner. (b) Without the prior consent of the General Partner, no Limited Partner or holder of Units or any Affiliate shall take any action, including acquiring, directly or indirectly, an interest in any tenant of a Property (including, but not limited to, the Operating Partnership, SLC or the Affiliates of either), which would have, through the actual or constructive ownership of any tenant of any Property, the effect of causing the percentage of the gross income of SLT that fails to be treated as "rents from real property" within the meaning of Section 856(d)(2) of the Code to exceed such percentage on the date hereof. Each Limited Partner and holder of Units shall use its best efforts to notify the General Partner on a timely basis of any direct or indirect acquisition or potential direct or indirect acquisition of Paired Shares by such Limited Partner or holder or any Affiliate or direct or indirect owner of an interest in such Limited Partner or holder that could reasonably be expected to have such effect. 7.10 Replacement of General Partner. In the event the General Partner is no longer a Partner (whether in accordance with the provisions of this Agreement or otherwise), a successor General Partner shall be appointed by a vote of a Majority-in-Interest of the Limited Partners. ARTICLE 8 Dissolution, Liquidation and Winding-Up 8.1 Accounting. In the event of the dissolution, liquidation and winding-up of the Partnership, a proper accounting shall be made of the Capital Account of each holder of Units and of the Net Income or Net Loss of the Partnership from the date of the last previous accounting to the date of dissolution. 8.2 Distribution on Dissolution. (a) In the event of the dissolution and liquidation of the Partnership for any reason, the assets of the Partnership shall be liquidated for distribution in the following rank and order: (i) payment of creditors of the Partnership, including creditors who are Partners or former Partners; (ii) establishment of reserves as provided by the Liquidating Trustee to provide for contingent liabilities, if any; (iii) to the holders of Units in accordance with the positive balances in their Capital Accounts after giving effect to all contributions, distributions 42 and allocations for all periods. Whenever the Liquidating Trustee reasonably determines that any reserves established pursuant to paragraph (ii) above are in excess of the reasonable requirements of the Partnership, the amount determined to be excess shall be distributed to the Partners in accordance with the provisions of this Section 8.2(a). No Partner or holder of Units shall be liable to any other Partner or holder of Units for a deficit balance in its Capital Account. (b) Notwithstanding the provisions of Section 8.2(a) hereof which require liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Partnership the Liquidating Trustee determines that an immediate sale of part or all of the Partnership's assets would be impractical or would cause undue loss to the Partners, the Liquidating Trustee may, in its sole and absolute discretion, defer for a reasonable time liquidation of any assets except those necessary to satisfy liabilities of the Partnership (including to those Partners which are creditors of the Partnership) and/or, with the Consent of the Limited Partners, distribute to the Partners, in lieu of cash, as tenants in common and in accordance with the provisions of Section 8.2(a) hereof, undivided interests in such Partnership assets as the Liquidating Trustee deems not suitable for liquidation. Any such distributions in kind shall be made only if, in the good faith judgment of the Liquidating Trustee, such distributions in kind are in the best interest of the Partners, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidating Trustee deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidating Trustee shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt. 8.3 Documentation of Liquidation. Upon the completion of the dissolution and liquidation of the Partnership, the Partnership shall terminate and the Liquidating Trustee shall have the authority to execute and record any and all documents or instruments required to effect the dissolution, liquidation and termination of the Partnership. ARTICLE 9 Transfer 9.1 General Partner. Except to the extent permitted pursuant to Section 4.5, the General Partner shall not withdraw from the Partnership and shall not sell, assign, pledge, encumber or otherwise dispose of all or any portion of its Partnership Interest or Units without the Consent of the Limited Partners, which consent may be given or withheld in each Limited Partner's sole and absolute discretion. Upon any transfer of a Partnership Interest in accordance with the provisions of this Section 9.1, the transferee General Partner shall become vested with the powers and rights of the transferor General Partner, and shall be liable for all obligations and responsible for all duties of the General Partner under this Agreement, once such transferee has 43 executed such instruments as may be necessary to effectuate such admission and to confirm the agreement of such transferee to be bound by all the terms and provisions of this Agreement with respect to the Partnership interest so acquired. It shall be a condition to any transfer permitted hereunder that the transferee assumes by express agreement (or pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the General Partner are assumed by a successor trust or corporation by operation of law) all of the obligations of the transferor General Partner under this Agreement with respect to such transferred Partnership Interest and no such transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor General Partner are assumed by a successor trust or corporation by operation of law) shall relieve the transferor General Partner of its obligations under this Agreement without the Consent of the Limited Partners. In connection with any such permitted transfer, the successor General Partner shall be deemed admitted as such immediately prior to the effective time of the transfer from the transferor General Partner and shall continue the business of the Partnership without dissolution. If the General Partner withdraws or retires from the Partnership, in violation of this Agreement or otherwise, or dissolves, terminates or upon the Bankruptcy of the General Partner, within 90 days thereafter, at least a Majority-in-Interest of the Limited Partners may elect to continue the Partnership business by selecting a substitute General Partner, which substitute General Partner accepts such election and agrees to serve as General Partner. Such successor General Partner shall thereupon succeed to the rights and obligations of the General Partner as provided in this Section 9.1. 9.2 Transfers by Limited Partners. (a) No Limited Partner shall have the right, directly or indirectly, to transfer all or any part of his Partnership Interest or Units to any Person without the prior written consent of the General Partner, which consent may be given or withheld by the General Partner in its sole and absolute discretion. The foregoing notwithstanding, the General Partner hereby grants the consents described in this Section 9.2 to transfers of Partnership Interests pursuant to an exercise of Rights, provided that any such transfer otherwise complies with all of the other provisions of this Article 9 (including, but not limited to, any additional consents required hereunder); (b) It shall be a condition to any transfer by a Limited Partner (other than a pledge, encumbrance, hypothecation or mortgage) otherwise permitted hereunder that the transferee assume by operation of law or express agreement all of the obligations of the transferor under this Agreement (including, without limitation, under Article 9 hereof) with respect to such transferred Partnership Interest or Units and no such transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor are assumed by a successor corporation by operation of law) shall relieve the transferor of its obligations under this Agreement without the approval of the General Partner, in its reasonable discretion (it being understood that a transferor shall be deemed relieved from such obligations, without the necessity of any such approval, in respect of Partnership Interests transferred to the General Partner or the Partnership pursuant to an Exchange Rights Agreement). Upon such transfer, the transferee of a Partnership Interest shall be admitted as a Limited Partner and shall succeed to all of the rights of the transferor Limited Partner under this 44 Agreement in the place and stead of such transferor Limited Partner (which succession, in the event of a pledge, may be entered into and become effective at the time of foreclosure or other realization of such pledge). The foregoing notwithstanding, a transferee of a Unit shall not be admitted as a substituted Limited Partner unless the General Partner consents, which consent may be given or withheld by the General Partner in its sole and absolute discretion. Any transferee, whether or not admitted as a substituted Limited Partner, shall succeed to the obligations of the transferor hereunder (unless such transfer is a pledge, encumbrance, hypothecation or mortgage or except as otherwise provided herein). (c) In addition to any other restrictions on transfer provided herein, no Partnership Interest or Units shall be transferable unless the transferor gives written notice of the proposed transfer which notice shall state, to the best of its knowledge, that such transfer will not violate any of the restrictions set forth in Section 9.3 hereof. (d) Any permitted transferee under Section 9.2 who is not admitted as a Limited Partner in accordance with this Article 9 or a transferee who only holds Units shall be considered an assignee for purposes of this Agreement. An assignee shall be deemed to have had assigned to it, and shall be entitled to receive, distributions from the Partnership and the share of Net Income, Net Loss, and any other items of income, gain, loss, deduction and credit of the Partnership and rights attributable to the Partnership Interests assigned to such transferee, but shall not be deemed to be a holder of Partnership Interests for any other purpose under this Agreement, and shall not be entitled to vote such Partnership Interests in any matter presented to the Limited Partners for a vote. In the event any such transferee desires to make a further assignment of any such Partnership Interests, such transferee shall be subject to all the provisions of this Article 9 to the same extent and in the same manner as any Limited Partner desiring to make an assignment of Partnership Interests. (e) The Limited Partners acknowledge that neither the Partnership Interests nor the Units have been registered under any federal or state securities laws and, as a result thereof, they may not be sold or otherwise transferred, except in compliance with such laws. Notwithstanding anything to the contrary contained in this Agreement, no Partnership Interest or Units may be sold or otherwise transferred unless such transfer is exempt from registration under any applicable securities laws or such transfer is registered under such laws, it being acknowledged that the Partnership has no obligation to take any action which would cause any such Partnership Interests or Units to be registered. 9.3 Certain Restrictions on Transfer. In addition to any other restrictions on transfer herein contained, except with the consent of the General Partner, in no event may any transfer of a Partnership Interest or Units by any Person be made (a) to any person or Entity that lacks the legal right, power or capacity to own a Partnership Interest or Units; (b) in the event such transfer would cause the General Partner to cease to comply with the REIT Requirements; (c) if such transfer would cause a termination of the Partnership for federal income tax purposes; (d) if such 45 transfer would, in the opinion of counsel to the Partnership, cause the Partnership to cease to be classified as a Partnership for federal income tax purposes; (e) if such transfer would result in the Partnership being treated as a "publicly traded partnership" or is effectuated through an "established securities market" or a "secondary market (or the substantial equivalent thereof)" within the meaning of Section 7704 of the Code and the Regulations thereunder; (f) in violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976; (g) if the General Partner reasonably believes that such transfer may (i) cause any portion or all of the assets of the Partnership to be deemed pursuant to United States Department of Labor Regulation Section 2510.3-101 or otherwise pursuant to ERISA or the Code to be for any purpose of ERISA or Section 4975 of the Code assets of any Restricted Entity, or (ii) cause a "prohibited transaction" (as defined in Section 4975(c) of the Code or within the meaning of Section 406 of ERISA) to occur, or (iii) cause the Partnership to become with respect to any Restricted Entity a "party in interest" (as defined in Section 3(14) of ERISA) or a "disqualified person" (as defined in Section 4975(e) of the Code) or (iv) cause the Partnership to be jointly and severally liable for any obligation arising under ERISA or the Code with respect to any "employee benefit plan" as defined in and subject to ERISA or any "plan" as defined in Section 4975 of the Code; or (h) if the intended transferee is a Restricted Entity. Any purported transfer described in this Section 9.3 shall be void ab initio. 9.4 Effective Dates of Transfers. (a) Transfers pursuant to this Article 9 may be made on any day, but for purposes of this Agreement, the effective date of any such transfer shall be (i) the first day of the month in which such transfer occurred if such transfer occurred on or prior to the fifteenth calendar day of a month, or (ii) the first day of the month immediately following the month in which such transfer occurred, if such transfer occurred after the fifteenth calendar day of a month, or such other date determined by the General Partner pursuant to such convention as may be administratively feasible and consistent with applicable law. (b) If any Partnership Interest or Unit is transferred or assigned in compliance with the provisions of this Article 9, on any day other than the first day of a calendar year, then Net Income, Net Loss, each item thereof and all other items attributable to such Partnership Interest or Unit for such year shall be allocated to the transferor, and, in the case of a transfer or assignment other than a redemption, to the transferee, by taking into account their varying interests during such year in accordance with Section 706(d) of the Code, using any method permitted thereunder. All distributions pursuant to Section 6.2 hereof attributable to such transferred Partnership Interests or Units (A) with respect to which the Partnership Record Date is before the effective date of such transfer (other than a pledge, encumbrance, hypothecation or mortgage) shall be made to the transferor, (B) with respect to the first Partnership Record Date after the effective date of such transfer (other than a pledge, encumbrance, hypothecation or mortgage) shall be paid to the transferor and to the transferee, ratably in accordance with their respective periods of ownership of the Partnership Interest or Units transferred during the period with respect to which such distribution is made, and (C) all distributions after those described in (A) and (B) shall be made to the transferee. 46 9.5 Transfer. (a) The term "transfer," when used in this Article 9 with respect to a Partnership Interest, shall be deemed to refer to a transaction by which a Person purports to assign its Partnership Interest or any portion thereof (including Units) to another Person, and includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or otherwise. (b) No Partnership Interest or Unit shall be transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article 9. Any transfer or purported transfer of a Partnership Interest not made in accordance with this Article 9 shall be null and void. ARTICLE 10 Rights and Obligations of the Limited Partners 10.1 No Participation in Management. No Limited Partner, in its capacity as such, shall take part in the management of the Partnership's business, transact any business in the Partnership's name or have the power to sign documents for or otherwise bind the Partnership. Any rights expressly granted to the Limited Partners in this Agreement shall not be deemed to be rights relating to the management of the Partnership's business. 10.2 Bankruptcy of a Limited Partner. The Bankruptcy of any Limited Partner shall not cause a dissolution of the Partnership, but the rights of such Limited Partner to share in the Net Profits or Net Losses of the Partnership and to receive distributions of Partnership funds shall, on the happening of such event, devolve on its successors or assigns, subject to the terms and conditions of this Agreement, and the Partnership shall continue as a limited partnership. In no event, however, shall such assignee(s) become a substituted Limited Partner except in accordance with Article 9 hereof. 10.3 No Withdrawal. No Limited Partner may withdraw from the Partnership without the prior written consent of the General Partner, other than as provided in Article 9 hereof. 10.4 Conflicts. The Partners recognize that the Limited Partners and their Affiliates have or may have other business interests, activities and investments, some of which may be in conflict or competition with the business of the Partnership, and that such Persons are entitled to carry on such other business interests, activities and investments. In deciding whether to take any actions in such capacity, such Limited Partners and their Affiliates may, but shall be under no obligation to, consider the separate interests of the Partnership and shall have no fiduciary obligations to the Partnership and shall not be liable for monetary damages for losses sustained, liabilities incurred or benefits not derived by the other Partners in connection with such actions 47 except for damages for losses sustained or liabilities incurred which result from a Limited Partner breaching a representation, warranty or covenant hereunder or to the extent provided in the Formation Agreement; nor shall the Partnership or the General Partner be under any obligation to consider the separate interests of the Limited Partners and their Affiliates in such capacity or have any fiduciary obligations to the Limited Partners and their Affiliates in such capacity or be liable for monetary damages for losses sustained, liabilities incurred or benefits not derived by the Limited Partners and their Affiliates in such capacity arising from actions or omissions taken by the Partnership. The Limited Partners and their Affiliates may engage in or possess an interest in any other business or venture of any kind, independently or with others, on their own behalf or on behalf of other entities with which they are affiliated or associated, and such persons may engage in any activities, whether or not competitive with the Partnership, without any obligation to offer any interest in such activities to the Partnership or to any Partner. Neither the Partnership nor any Partner shall have any right, by virtue of this Agreement, in or to such activities, or the income or profits derived therefrom, and the pursuit of such activities, even if competitive with the business of the Partnership, shall not be deemed wrongful or improper. Notwithstanding the foregoing, the provisions of this Section 10.4 shall not negate or impair any other written agreement between one or more of the Limited Partners and the General Partner or the Partnership (including Section 6.6 of the Formation Agreement) or any duties which a Limited Partner may have in such Limited Partner's capacity as an officer or director of the General Partner. 10.5 Provision of Information. (a) With respect to any information required to be provided to the Limited Partners pursuant to Section 17-305 (or any successor thereto) of the Act: (i) the cost of preparing or providing any such information (including, without limitation, fees paid to any person or entity in connection therewith) shall be paid by the requesting Partner and in no event shall such information be required to be given to the requesting Partner until such payment has been made to the Partnership; (ii) in no event shall any financial statements of the Partnership be required to be provided except for such statements as have already been prepared or are otherwise required to be provided to the Limited Partners under this Agreement and in no event shall any statements which have been prepared be required to be audited, reviewed or otherwise examined by a certified public accountant, if the statements are not otherwise required to be so audited, reviewed or examined pursuant to the provisions of this Agreement; and (iii) in no event shall such information be required to be furnished until forty-five (45) days after such request and unless the information is already in the possession of the Partnership. (b) In addition to other rights provided by this Agreement or by the Act, each Limited Partner shall have the right, for a purpose reasonably related to such Limited Partner's interest as a limited partner in the Partnership, upon written demand with a statement of the purpose of such demand and at such Limited Partner's own expense (excluding copying and administrative expenses of the General Partner): (i) to obtain a copy of the most recent annual and 48 quarterly reports and current reports on Form 8-K filed with the SEC by the General Partner pursuant to the Securities Exchange Act of 1934; (ii) to obtain a copy of the Partnership's federal, state and local income tax returns for each fiscal year of the Partnership; (iii) to obtain a current list of the name and last known business, residence or mailing address of each Partner; and (iv) to obtain a copy of this Agreement and the Certificate, together with executed copies of all powers of attorney pursuant to which this Agreement and the Certificate have been executed. (c) Notwithstanding any other provision of this Section 10.5, the General Partner may keep confidential from the Limited Partners, for such period of time as the General Partner determines in its sole and absolute discretion to be reasonable, any information that is not material to the Limited Partners and that (i) the General Partner reasonably believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or could damage the Partnership or its business or (ii) the Partnership is required by law or by agreements with an unaffiliated third party to keep confidential. 10.6 Power of Attorney. (a) Each Limited Partner constitutes and appoints the General Partner, any Liquidating Trustee and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to: execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (i) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments or restatements thereof) that the General Partner or the Liquidating Trustee deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) in the State of Delaware and in all other jurisdictions in which the Partnership may conduct business or own property; (ii) all instruments that the General Partner deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (iii) all conveyances and other instruments or documents that the General Partner deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation; and (iv) all instruments relating to the admission, withdrawal, removal or substitution of any Partner pursuant to the provisions of this Agreement or the Capital Contribution of any Partner. (b) The foregoing power of attorney is irrevocable and a power coupled with an interest, in recognition of the fact that each of the Partners will be 49 relying upon the power of the General Partner to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall survive the death or incompetency of a Limited Partner to the effect and extent permitted by law, subsequent incapacity of any Limited Partner and the transfer of all or any portion of such Limited Partner's Partnership Interests and shall extend to such Limited Partner's heirs, successors, assigns and personal representatives. (c) Nothing contained in this Section 10.6 shall be construed as authorizing the General Partner to amend this Agreement except in accordance with Article 11 hereof. 10.7 Ownership of Paired Shares. (a) Each Limited Partner and holder of Units hereby agrees to provide the General Partner within fifteen (15) days of any written request therefor, a statement, to the best of its knowledge, describing the number of Paired Shares actually or constructively owned by such Limited Partner or holder of Units and all direct and indirect owners of such Limited Partner or holder for purposes of the REIT Requirements as determined under Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, or Section 544 of the Code, as modified by Section 856(h) of the Code. (b) Each Limited Partner and holder of Units (i) hereby covenants that, without the prior written consent of the General Partner (which consent shall not be unreasonably withheld or delayed) it will not acquire and it will use all reasonable efforts to cause its direct or indirect owners not to acquire any Paired Shares or any rights to acquire Paired Shares and (ii) except to the extent that the General Partner provides prior written consent, hereby represents, warrants and covenants that (I) it is not and will not become a Restricted Entity, (II) no "prohibited transaction" (as defined in Section 4975(c) of the Code or within the meaning of Section 406 of ERISA) has occurred or will occur that would not have occurred or occur if the Limited Partner or holder of Units and its Affiliates were not Limited Partners and were not holders of Units, (III) the Partnership has not become and will not become with respect to any Restricted Entity a "party in interest" (as defined in Section 3(14) of ERISA) or a "disqualified person" (as defined in Section 4975(e) of the Code) which the Partnership would not have become or be if the Limited Partner or holder of Units and its Affiliates were not Limited Partners and were not holders of Units, and (IV) the Partnership has not and will not become jointly and severally liable for any obligations arising under ERISA or the Code with respect to any "employee benefit plan" as defined in and subject to ERISA or any "plan" as defined in the Code for which the Partnership has not become or would not be liable if the Limited Partner or holder of Units and its Affiliate were not Limited Partners and were not holders of Units. 10.8 Waiver of Fiduciary Duty. Each Limited Partner and holder of Units hereby waives, to the maximum extent permitted under law, any and all fiduciary duties of the General Partner to each, all or any combination of them and hereby agrees that the General Partner may, but is under no obligation to, take their interests into account in performing or refraining from performing any act permitted under this Agreement. 50 ARTICLE 11 Amendment of Partnership Agreement, Meetings 11.1 Amendments. (a) This Agreement may not be amended unless such amendment is approved by the General Partner with the Consent of the Limited Partners, except as provided below in this Section 11.1. (b) Notwithstanding Section 11.1(a), the General Partner shall have the power, without the Consent of the Limited Partners but after five (5) Business Days notice to the Limited Partners, to amend this Agreement as may be required to facilitate or implement any of the following purposes: (1) to add to the obligations of the General Partner for the benefit of the Limited Partners; (2) to reflect the admission, substitution, termination or withdrawal of Partners after the date hereof in accordance with Section 4.1(d) or Article 9 of this Agreement, provided that the General Partner shall not be required to give the notice referred to in the first paragraph of this subsection (b) in respect of the transaction described in this Paragraph (2); (3) to set forth the rights, powers, duties, and preferences of the holders of any additional Partnership Interests issued pursuant to Article 4 hereof; (4) to reflect a change that is of an inconsequential nature and does not materially adversely affect the Limited Partners, or to cure any ambiguity, correct or supplement any provision of this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement; (5) to satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law; (6) to prevent all or any portion of the assets of the Partnership from being deemed pursuant to United States Department of Labor Regulation Section 2510.3- 101 or otherwise pursuant to ERISA or the Code to be, for any purpose of ERISA or Section 4975 of the Code, assets of any Restricted Entity; (7) to prevent the Partnership from being characterized as a "publicly traded partnership" pursuant to Section 7704 of the Code and Regulations; 51 (8) to enable the General Partner to satisfy the REIT Requirements; and (9) to maintain the Partnership's characterization as a partnership for tax purposes. (c) Notwithstanding Sections 11.1(a) and (b) hereof, this Agreement shall not be amended without the prior written consent of each Partner adversely affected if such amendment would (i) convert a Limited Partner's interest in the Partnership into a general partner's interest, (ii) modify the limited liability of a Limited Partner, (iii) alter rights of the Partners to receive allocations and distributions pursuant to Article 6 or Section 8.2 hereof (except as permitted pursuant to Article 4 and Sections 11.1(b)(3) and 11.1(d) hereof), (iv) alter or modify the Rights set forth in an Exchange Rights Agreement or a Registration Rights Agreement except in compliance therewith, (v) except in furtherance of Sections 11.1(b)(7), (8) or (9) hereof, alter such Partner's rights to transfer its Partnership Interest; (vi) amend Section 7.7, 7.8 or 10.7 hereof or (vii) amend Section 11.1(c) or 11.1(d) hereof. (d) Notwithstanding Section 11.1(c) hereof and subject to (but not in limitation of) the rights granted to the General Partner pursuant to Article 4 and this Article 11, this Agreement may be amended to (i) alter the rights of any or all of the Partners to receive allocations and distributions pursuant to Article 6 or Section 8.2 hereof or (ii) alter the rights of any or all of the Partners to transfer their Partnership Interests if such amendment is approved by the prior written consent of a majority of each class or group of Partnership Interests that is treated in a uniform or pro rata basis by such amendment. 11.2 Meetings of the Partners; Notices to Partners. (a) Meetings of Partners may be called by the General Partner or by Limited Partners holding at least 1% of the Partnership Interests to act on any matter specified herein or in the Act to be voted on or consented to by the Partners. The call shall state the nature of the business to be transacted. Notice of any such meeting shall be given to all Partners not less than seven (7) Business Days prior to the date of such meeting. Partners may vote in person or by proxy at such meeting. Whenever the vote or Consent of the Limited Partners is permitted or required under this Agreement, such vote or consent may be given at a meeting of Partners or may be given in accordance with the procedure prescribed in Section 11.2(b) hereof. (b) Any action required or permitted to be taken at a meeting of the Partners may be taken without a meeting if a written consent setting forth the action so taken is signed by the General Partner and such percentage or number of the Limited Partners as is expressly required by this Agreement. Such consent may be in one instrument or in several instruments, and shall have the same force and effect as a vote of the Partners. Such consent shall be filed with the General Partner and copies thereof delivered to all Partners. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified. 52 (c) Each Limited Partner may authorize any Person or Persons to act for him by proxy on all matters in which a Limited Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Limited Partner or his attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Limited Partner executing it. No such proxy and no such revocation shall be effective unless a copy thereof has been delivered to the General Partner. (d) Whenever the Consent of the Limited Partners is required hereunder, the General Partner shall provide a notice to each Partner who is a Limited Partner on the date the notice is given setting forth the matter(s) as to which it proposes to seek such consent at least five (5) Business Days in advance of the date upon which such consent is sought. ARTICLE 12 General Provisions 12.1 No Liability of Directors and Others. Notwithstanding anything to the contrary contained herein, no recourse shall be had by the Partnership or any Partner against any trustee, director, shareholder, officer, employee, agent or attorney of the General Partner for any act or omission of the General Partner or any obligation or liability of the General Partner under this Agreement, and none of the foregoing shall have any personal liability for or with respect to any of the foregoing; provided that the foregoing shall not relieve any trustee, officer or director of the General Partner of any liability in his capacity as such. 12.2 Notices. All notices, offers or other communications required or permitted to be given pursuant to this Agreement shall be in writing and may be personally served, sent by United States mail, or sent via facsimile. A notice shall be deemed to have been given when delivered in person or, if sent by United States mail, three business days after deposit in United States mail, registered or certified, postage prepaid, and properly addressed, by or to the appropriate party, or, if sent via facsimile, upon receipt by the sending party of verification of transmission. For purposes of this Section 12.2, the addresses of the parties hereto shall be as set forth on Exhibit B hereto. The address of any party hereto may be changed by a notice in writing given in accordance with the provisions hereof. 12.3 Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement (including, without limitation, provisions concerning limitations of actions), shall be governed by and construed in accordance with the laws of the State of Delaware, notwithstanding any conflict-of-laws doctrines of such state or other jurisdiction to the contrary. Each of the parties hereto irrevocably submits and consents to the jurisdiction of the United States District Court for the Southern District of New York and the United States District Court for the District 53 of Arizona in connection with any action or proceeding arising out of or relating to this Agreement and irrevocably waives any immunity from jurisdiction thereof and any claim of proper venue, forum non conveniens or any similar basis to which it might otherwise be entitled in any such action or proceeding. 12.4 Execution of Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. 12.5 Severability. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. 12.6 Entire Agreement. This Agreement (together with the Exhibits hereto) and the Formation Agreement contain the entire understanding among the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. The parties hereto intend that this Agreement be treated as a separate and distinct agreement and as not being part of any other agreement (other than the Formation Agreement), arrangement, partnership or joint venture. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 12.7 Paragraph Headings. The paragraph headings in this Agreement are for convenience and they form no part of this Agreement and shall not affect its interpretation. 12.8 Gender, Etc. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. The term "including" shall mean "including, but not limited to." 12.9 Number of Days. In computing the number of days (other than Business Days and Trading Days) for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays and holidays; provided, however, that if the final day of any time period falls on a Saturday, Sunday or holiday on which national banks are or may elect to be closed, then the final day shall be deemed to be the next day which is not a Saturday, Sunday or such holiday. 12.10 Partners Not Agents. Nothing contained herein shall be construed to constitute any Partner the agent of another Partner, except as specifically provided herein, or in any manner to limit the Limited Partners in the carrying on of their own 54 respective businesses or activities. 12.11 Assurances. Each of the Partners shall hereafter execute and deliver such further instruments and do such further acts and things as may be reasonably required or useful to carry out the intent and purpose of this Agreement and as are not inconsistent with the terms hereof. 12.12 Waiver of Partition. Each Partner hereby waives any right such Partner may have to partition its interest in the Partnership or any property of the Partnership. 12.13 Starwood Lodging Trust. The name "Starwood Lodging Trust" is a designation of Starwood Lodging Trust and its Trustees (as Trustees but not personally) under the Declaration of Trust, and all persons dealing with Starwood Lodging Trust shall look solely to Starwood Lodging Trust's assets for the enforcement of any claims against Starwood Lodging Trust, as the Trustees, officers, agents and security holders of Starwood Lodging Trust assume no personal liability for obligations entered into on behalf of Starwood Lodging Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 55 IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed on their behalf as of the date first above written. GENERAL PARTNER: STARWOOD LODGING TRUST, a Maryland real estate investment trust By: ---------------------------------- Name: Title: LIMITED PARTNERS: STARWOOD HOTEL INVESTORS II, L.P. By: STARWOOD CAPITAL GROUP I, L.P. By: BSS CAPITAL PARTNERS, L.P., General Partner By: STERNLICHT HOLDINGS II, Inc. General Partner By: ---------------------------------- Name: Title: FIREBIRD CONSOLIDATED PARTNERS, L.P. By: ---------------------------------- Name: Title: General Partner APPOLLO REAL ESTATE INVESTMENT FUND, L.P. By: APPOLLO REAL ESTATE ADVISORS, L.P. By: APPOLLO REAL ESTATE MANAGEMENT, INC. By: ---------------------------------- Name: 56 Title: PHILADELPHIA HSR LIMITED PARTNERSHIP By: ----------------------------- Name: Title: General Partner STARWOOD OPPORTUNITY FUND II, L.P. By: STARWOOD CAPITAL GROUP I, L.P. General Partner By: BSS CAPITAL PARTNERS, L.P., General Partner By: STERNLICHT HOLDINGS II, Inc. General Partner By: ----------------------------- Name: Title: ----------------------------- EDWARD J. ROHLING ZIFF INVESTORS PARTNERSHIP, L.P. II By: ----------------------------- Name: Title: General Partner MONTROSE CORPORATION By: ----------------------------- Name: Title: HARVEYWOOD HOTEL INVESTORS, L.P. By: ----------------------------- Name: Title: General Partner 57 STAR INVESTORS, G.P. By: --------------------------- Name: Title: MERIDIAN INVESTMENT GROUP By: --------------------------- Name: Title: THE HERMITAGE, L.P. By: HERMITAGE OF NASHVILLE, INC. General Partner By: --------------------------- Name: Title: BURDEN DIRECT INVESTMENT FUND I, L.P. By: --------------------------- Name: Title: General Partner BRAINARD HOLDINGS, INC. By: --------------------------- Name: Title: KJJ REVOCABLE TRUST By: --------------------------- Name: Title: Trustee ------------------------------ BARRY S. STERNLICHT 58 THE BARRY S. STERNLICHT FAMILY SPRAY TRUST I By: --------------------------- Name: Title: Trustee THE BARRY S. STERNLICHT FAMILY SPRAY TRUST II By: --------------------------- Name: Title: Trustee THE BARRY S. STERNLICHT FAMILY SPRAY TRUST III By: --------------------------- Name: Title: Trustee --------------------------- JACK NASH THE NASH FAMILY PARTNERSHIP By: --------------------------- Name: Title: General Partner ------------------------------- MADISON F. GROSE THE MADISON F. GROSE IRREVOCABLE INSURANCE TRUST By: --------------------------- Name: Title: Trustee 59 ----------------------------- MAX C. CHAPMAN ----------------------------- MERRICK R. KLEEMAN ----------------------------- EUGENE A. GORAB ----------------------------- JAMIE R. GATES ----------------------------- CARLY SIMON ----------------------------- STEVEN R. GOLDMAN ----------------------------- ALAN SCHWARTZ ----------------------------- JAY SUGARMAN ----------------------------- JOHN Z. KUKRAL ----------------------------- JEROME C. SILVEY ----------------------------- GEOFFREY T. BOISI ----------------------------- MICHAEL MUELLER ----------------------------- 60 CLATE JOSEPH KORSANT ----------------------------- JUSTIN FREDERICK KORSANT ----------------------------- JAMES G. BABB, III LAMBSTER PARTNERS LIMITED PARTNERSHIP By: --------------------------- Name: Title: General Partner ----------------------------- JEFF DISHNER ----------------------------- GEOFFREY BEER ----------------------------- CHARLES E. MUELLER, M.D. ----------------------------- LOWELL D. KRAFF ----------------------------- STEPHEN FIORE ----------------------------- JENNIFER ALBERO ----------------------------- JAMES A. KLEEMAN, M.D., PC ----------------------------- ELLIS F. RINALDI 61 ----------------------------- J. PETER PAGANELLI ----------------------------- JOHN F. COUTURE ----------------------------- JAMES OLDHAM THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of Prudential Property Investment Separate Account II By: ----------------------------- Name: Title: ELEANOR MENDELL, AS TRUSTEE OF THE GARY MENDELL FAMILY TRUST By: ----------------------------- Name: Eleanor Mendell Title: Trustee ---------------------------- GARY MENDELL ---------------------------- ELLEN-JO MENDELL ---------------------------- STEPHEN MENDELL ---------------------------- JUDITH K. RUSHMORE ---------------------------- MURRAY DOW II 62 WESTPORT HOSPITALITY, INC. By: ------------------------ Name: Title: ZAPCO HOLDINGS, INC. By: ------------------------ Name: Title: ZAPCO HOLDINGS, INC. DEFERRED COMPENSATION PLAN TRUST By: ------------------------ Name: Title: Trustee -------------------------- ORNA L. SHULMAN -------------------------- ARTHUR GREEN -------------------------- MICHAEL HALL -------------------------- MARK ROSINSKY -------------------------- RANDI ROSINSKY -------------------------- JOHN DAILY -------------------------- FELIX CACCIATO 63 -------------------------- THOMAS CLEARWATER -------------------------- HARVEY MOORE -------------------------- TRACY DRISCOLL 64 EXHIBIT A LIST OF PARTNERS, PERCENTAGE INTERESTS AND UNITS Date: As of __________, 1997
Name of Partner Percentage Interest Units --------------- ------------------- ----- Starwood Lodging Trust 72.4510% 40,078,698 Ziff Investors Partnership, LP II 4.0850% 2,259,732 Firebird Consolidated Partners, LP 2.2069% 1,220,820 Starwood Opportunity Fund II, LP 1.7047% 943,000 Montrose Corporation 1.3435% 743,226 Harveywood Hotel Investors, LP 1.1756% 650,338 Star Investors, G.P. 1.0748% 594,582 Barry S. Sternlicht 0.6275% 347,104 Apollo Real Estate Investment Fund, LP 0.5334% 295,078 Starwood Hotel Investors II, LP 0.5212% 288,334 Meridian Investment Group 0.4798% 265,422 Burden Direct Investment Fund I, LP 0.3915% 216,564 Jack Nash 0.2150% 118,916 Brainard Holdings, Inc. 0.1578% 87,310 JDE Revocable Trust 0.1511% 83,596 Max C. Chapman 0.1382% 76,430 Rick Kleeman 0.0997% 55,170 Philadelphia HSR, LP 0.0985% 54,461 The Barry S. Sternlicht Family Spray Trust I 0.0970% 53,672 The Barry S. Sternlicht Family Spray Trust II 0.0970% 53,672 The Barry S. Sternlicht Family Spray Trust III 0.0970% 53,672 Eugene A. Gorab 0.0899% 49,746
65 Madison F. Grose 0.0777% 43,004 Jamie R. Gates 0.0729% 40,328 Carly Simon 0.0568% 31,434 Hospitality Partners 0.0550% 30,414 The Nash Family Partnership 0.0537% 29,730 The Madison F. Grose Irrevocable Insurance Trust 0.0501% 27,726 Steven R. Goldman 0.0409% 22,616 Alan Schwartz 0.0403% 22,298 Jay Sugarman 0.0383% 21,212 Philadelphia HIR, LP 0.0328% 18,140 John Z. Kukral 0.0317% 17,550 Jerome C. Silvey 0.0299% 16,516 Geoffrey T. Boisi 0.0274% 15,150 Michael Mueller 0.0270% 14,932 Clate Korsant 0.0269% 14,866 Justin Korsant 0.0269% 14,866 James G. Babb, III 0.0262% 14,508 Edward J. Rohling 0.0199% 11,011 Lambster Partners Limited Partnership 0.0153% 8,486 Gregory Beer 0.0134% 7,434 Jeff Dishner 0.0064% 3,542 Geoff Beer 0.0042% 2,306 Charles E. Mueller, MD 0.0025% 1,394 Lowell D. Kraff 0.0022% 1,190 Stephen Fiore 0.0016% 900 Jennifer Albero 0.0016% 882 James A. Kleeman, MD, PC 0.0014% 774
66 Ellis F. Rinaldi 0.0011% 634 J. Peter Paganelli 0.0009% 494 John F. Couture 0.0007% 378 James Oldham 0.0004% 224 The Prudential Insurance Company of America, on behalf of Prudential Property Investment Separate Account II 8.1872% 4,529,007 Eleanor Mendell, as Trustee of the Gary Mendell Family Trust 0.9143% 505,778 Gary Mendell 0.0652% 36,078 Ellen-Jo Mendell 0.9429% 521,617 Stephen Mendell 0.0366% 20,239 Judith K. Rushmore 0.4637% 256,511 Murray Dow II 0.0550% 30,415 Wesport Hospitality, Inc. 0.0193% 10,656 Zapco Holdings, Inc. 0.5989% 331,291 Zapco Holdings, Inc. Deferred Compensation Plan Trust 0.0328% 18,126 Orna L. Shulman 0.0379% 20,962 Arthur Green 0.0045% 2,505 Michael Hall 0.0024% 1,321 Mark Rosinsky 0.0023% 1,253 Randi Rosinsky 0.0023% 1,252 John Daily 0.0039% 2,161 Felix Cacciato 0.0068% 3,767 Thomas Clearwater 0.0009% 497 Harvey Moore 0.0004% 224 Tracy Driscoll 0.0004% 224 --------- --- TOTAL 100.0000% 55,318,336
67 EXHIBIT B Notice Address of Partners
Name of Partner Notice Address - --------------- -------------- Starwood Lodging Trust 2231 East Camelback Road Suite 410 Phoenix, Arizona 85016 Attn: General Counsel Ziff Investors Partnership, LP II 153 East 53rd Street New York, NY 10022 Attn. Mr. Dan Stern Firebird Consolidated Partners, LP c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, Connecticut 06830 Attention: Madison F. Grose, Esq. Starwood Opportunity Fund II, LP c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, Connecticut 06830 Attention: Madison F. Grose, Esq. Montrose Corporation c/o The Walt Disney Corporation 500 S. Buena Vista Team Disney 301J Burbank, CA 91521 Attn: Mr. Mark Rozells Harveywood Hotel Investors, LP c/o Starwood Capital Group, General Partner Three Pickwick Plaza, Suite 250 Greenwich, Connecticut 06830 Attention: Jerome C. Silvey Star Investors, G.P. c/o Penguin Group, L.P. 200 West Madison Avenue, 38th Floor Chicago, IL 60606 Attn: Mr, Kevin Poorman Barry S. Sternlicht c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Apollo Real Estate Investment Fund. LP c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830
68 Attn: Madison F. Grose Starwood Hotel Investors II, LP c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Attn: Madison F. Grose, Esq. Meridian Investment Group c/o Penguin Group, L.P. 200 West Madison Avenue Chicago, IL 60606 Attn: Mr, Kevin Poorman Burden Direct Investment Fund I, LP 10 East 53rd Street New York, NY 10022 Attn: Mr. Jeff Weber Jack Nash c/o Odyssey Partners, L.P. 31 West 52nd Street New York, NY 10019 Brainard Holdings, Inc. c/o Lake Asset Management, Inc. 499 Park Avenue, 24th Floor New York, NY 10022 Attn: Mr. Nicholas Berggruen JDE Revocable Trust c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Attn: Madison F. Grose Max C. Chapman c/o Nomura Securities 2 World Financial Center, 22nd Floor New York, NY 10281-1198 Rick Kleeman c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Philadelphia HSR, LP c/o The Beacon Companies 50 Rowes Wharf Boston, MA 02110 Attn: Edward N. Sidman The Barry S. Sternlicht Family Spray Trust I c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 The Barry S. Sternlicht Family Spray Trust II c/o Starwood Capital Group Three Pickwick Plaza, Suite 250
69 Greenwich, CT 06830 The Barry S. Sternlicht Family Spray Trust III c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Eugene A. Gorab c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Madison F. Grose c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Jamie R. Gates c/o Texas Pacific Group 600 California Street San Francisco, CA 94108 Carly Simon c/o Ms. Arlene Graff Star & Co. 350 Park Avenue New York, NY 10022 Hospitality Partners 7101 Wisconsin Avenue Bethesda, MD 20814 The Nash Family Partnership c/o Odyssey Partners, L.P. 31 West 52nd Street New York, NY 10019 Attn: Mr. Joshua Nash The Madison F. Grose Irrevocable Insurance Trust c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Steven R. Goldman c/o Starwood Lodging Trust 2231 East Camelback Road Phoenix, AZ 85016 Alan Schwartz c/o Bear Sterns 245 Park Avenue New York, NY 10167 Jay Sugarman c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Philadelphia HIR, LP c/o The Beacon Companies
70 50 Rowes Wharf Boston, MA 02110 Attn: Edward N. Sidman John Z. Kukral c/o The Blackstone Group 345 Park Avenue New York, NY 10154 Jerome C. Silvey c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Geoffrey T. Boisi c/o Beacon Group 375 Park Avenue New York, NY 10152 Michael Mueller c/o Starwood Lodging Trust 2231 East Camelback Road Phoenix, AZ 85016 Clate Korsant c/o Amelia Holdings 289 Greenwich Avenue Greenwich, CT 06830 Attn: Ms. Dot Parker Justin Korsant c/o Amelia Holdings 289 Greenwich Avenue Greenwich, CT 06830 Attn: Ms. Dott Parker James G Babb, III c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Edward J. Rohling c/o Bristol Hotel Management Operations 1428 Midway Road Dallas, TX 75244 Attn: Jeff Mayer Lambster Partners Limited Partnership c/o Walton Street Capital, L.L.C. 900 N. Michigan Avenue, 19th Floor Chicago, IL 60611 Mr. Neil Bluhm Gregory Beer c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830
71 Jeff Dishner c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Geoff Beer c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Charles E. Mueller, MD 11306 Roosevelt Road Saginaw, MI 48603 Lowell D. Kraff c/o Lexer Capital, Ltd. 333 West Wacker Drive, Suite 2070 Chicago, IL 60606 Stephen Fiore c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Jennifer Albero c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 James A. Kleeman, MD, PC c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Attn: Madison F. Grose Ellis F. Rinaldi c/o Rinaldi & Associates Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 J. Peter Paganelli c/o Starwood Asset Management Three Pickwick Plaza, 3rd Floor Greenwich, CT 06830 John F. Couture c/o La Salle Partners 220 East 42nd Street, 27th Floor New York, NY 10017 James Oldman c/o Starwood Asset Management Three Pickwick Plaza, 3rd Floor Greenwich, CT 06830 The Prudential Insurance Company of America, c/o Prudential Real Estate Investors on behalf of Prudential Property Investment 8 Campus Drive Separate Account II Parsippany, NJ 07054
72 Attn: Mr. Roger S. Pratt Eleanor Mendell, as Trustee of the Gary Mendell c/o Eleanor Mendell, Trustee Family Trust 4 The Circle Easton, CT 06612 Gary Mendell 20 Morning Glory Drive Easton, CT 06612 Ellen-Jo Mendell 25 Kent Lane Trumbull, CT 06611 Stephen Mendell 25 Kent Lane Trumbull, CT 06611 Judith K. Rushmore 22 Sheperd Lane Roslyn Heights, NY 11577 Murray L. Dow II 49 Ridge Lane Shelton, CT 06484 Westport Hospitality, Inc. 55 Greens Farms Road Westport, CT 06880 Zapco Holdings, Inc. Deferred Compensation c/o Orna Shulman Plan Trust Intertech Corporation 1301 Pennsylvania Avenue, N.W. Suite 700 Washington, DC 20004 Orna L. Shulman 800 5th Avenue New York, NY 10021 Arthur C. Green 57 Wilton Crest Wilton, CT 06484 Michael D. Hall 326 Roycroft Street Long Beach, CA 90814 Mark J. Rosinsky 34 Shadow Lane Great Neck, NY 11021 Randi L. Rosinsky 34 Shadow Lane Great Neck, NY 11021 John Daily 10 Cahill Road Monroe, CT 06468
73 Felix J. Caccioto, Jr. 53 Mimosa Court Ridgefield, CT 06877 Thomas Clearwater 39 Southwood Drive New Canaan, CT 06840 Harvey Moore 615 Stockley Garden Norfolk, VA 23507 Tracy Driscoll 23 Todd Hill Road Poughkeepsie, NY 12603
74 FIRST AMENDMENT TO SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF SLT REALTY LIMITED PARTNERSHIP THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF SLT REALTY LIMITED PARTNERSHIP ("Amendment") is made and entered into effective as of January 1, 1998, by and among Starwood Lodging Trust, a Maryland real estate investment trust, as the General Partner, and the Limited Partners of SLT Realty Limited Partnership, a Delaware limited partnership ("Realty Partnership"), which was formed pursuant to the provisions of that certain Limited Partnership Agreement of the Realty Partnership dated as of December 15, 1994, and amended and restated as of June 29, 1995 and again as of November 14, 1997 ("Realty Partnership Agreement"). All capitalized terms not defined herein shall have the same meaning set forth in the Realty Partnership Agreement. R E C I T A L S WHEREAS, as of September 8, 1997, that certain Transaction Agreement ("Transaction Agreement") was entered into among the General Partner, the Realty Partnership, SLC, the Operating Partnership, Westin Hotels & Resorts Worldwide, Inc. ("Westin Worldwide"), a Delaware corporation, and others; WHEREAS, pursuant to the Transaction Agreement, it is contemplated that, among other things, Westin Worldwide will be merged into the General Partner and, thereafter, that the General Partner will directly hold certain of the assets previously held by Westin Worldwide, which include, among other things, the stock of certain affiliates; WHEREAS, the General Partner believes that it may enter into transactions in the future that may also result in it owning material assets or entering into or conducting a business ("Non-Realty Partnership Business") other than the ownership, acquisition and disposition of Partnership Interests as the General Partner or Limited Partner and the management of the business of the Partnership; WHEREAS, Section 7.3 of the Realty Partnership Agreement provides that if the General Partner directly or indirectly enters into or conducts Non-Realty Partnership Businesses, the General Partner shall make arrangements that are reasonably necessary to prevent such Non-Realty Partnership Businesses from having a material adverse impact on the Limited Partners and that assure that the Limited Partners share in the economic benefits of such Non-Realty Partnership Businesses in a fair and equitable manner; WHEREAS, the General Partner desires to amend the Realty Partnership Agreement 75 as set forth in this Amendment to ensure that any and all Non-Realty Partnership Businesses it conducts will not have a material adverse impact on the Limited Partners and that any economic benefits related to such Non-Realty Partnership Businesses will be shared with Limited Partners in a fair and equitable manner; and WHEREAS, the Limited Partners have been informed and do hereby unconditionally consent to such amendments; NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: SECTION 1. Effective as of the date first above written, Section 6.1(a) is hereby amended and restated in its entirety as follows: 6.1 Allocations. The Net Income, Net Loss and other Partnership items shall be allocated pursuant to the provisions of this Section 6.1 hereto. (a) Allocation of Net Income and Net Loss. (i) Net Income. Except as otherwise provided herein, Net Income for any fiscal year or other applicable period shall be allocated in the following order and priority: (A) first, to the General Partner, to the extent of Net Loss previously allocated to the General Partner pursuant to Section 6.1(a)(ii)(C) for all prior periods; (B) second, to the Partners, to the extent of, in proportion to Net Loss previously allocated to the Partners pursuant to Section 6.1(a)(ii)(B), until the cumulative Net Income allocated pursuant to this Section 6.1(a)(i)(B) for the current and all prior periods equals the cumulative Net Loss allocated pursuant to Section 6.1(a)(ii)(B) for all prior periods; (C) third, to the extent the Partnership has made distributions pursuant to Section 6.2(b), to the holders of Units in accordance with and in proportion to distributions made under Section 6.2(b); and (D) thereafter, to the holders of Units in accordance with and in proportion to their respective holdings of Units. (ii) Net Loss. Except as otherwise provided herein, Net Loss of the Partnership for each fiscal year or other applicable period shall be - 2 - 76 allocated in the following order and priority: (A) first, to the Partners, to the extent of, in proportion to, and in the reverse order of, Net Income previously allocated to the Partners pursuant to Section 6.1(a)(i)(C), until the cumulative Net Loss allocated pursuant to this Section 6.1(a)(ii)(A) for the current and all prior periods equals the cumulative Net Income allocated pursuant to Section 6.1(a)(i)(C) for all prior periods; (B) second, to the holders of Units in accordance with their respective holdings of Units, provided that Net Losses shall not be allocated pursuant to this Section 6.1(a)(ii)(B) to the extent such allocations would cause any Limited Partner to have an Adjusted Capital Account Deficit as of the end of the fiscal year to which such Net Loss relates; and (C) the balance, if any, to the General Partner. SECTION 2. Effective as of the date first above written, Section 6.2 is hereby amended and restated in its entirety as follows: 6.2 Distributions. (a) Except as otherwise provided in Sections 6.2(b), the General Partner shall cause the Partnership to distribute all, or such portion as the General Partner may in its reasonable discretion determine, of Net Cash Flow to the holders of Units who are holders on the Partnership Record Date with respect to such distribution. All such distributions shall be made pro rata in accordance with the holder's ownership of Units. Notwithstanding the foregoing, the General Partner is authorized to cause the Partnership to distribute sufficient amounts, pro rata by ownership of Units, to enable the General Partner to pay shareholder dividends that will satisfy the REIT Requirements. (b) When the General Partner declares a distribution to holders of Shares and the amount otherwise determined to be distributable to each holder of a Unit under Section 6.2(a) results in an amount that is less than the amount distributable to each holder of a Share (on a per Share to per Unit basis), the General Partner shall cause the Partnership to distribute sufficient amounts to holders of Units as of the Partnership Record Date so that such holders of Units will receive an amount per Unit equal to the related distributions to holders of Shares (on a per Share to per Unit basis). The General Partner shall accomplish this by reducing the amounts otherwise distributable to it under Section 6.2(a) and increasing the amount otherwise distributable to holders of Units under Section 6.2(a) and, to the extent necessary, by contributing additional capital to the Partnership. - 3 - 77 IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed on their behalf as of the date first above written. GENERAL PARTNER: STARWOOD LODGING TRUST, a Maryland real estate investment trust By: /s/ Steven R. Goldman -------------------------------------- Name: Steven R. Goldman Title: Senior Vice President LIMITED PARTNERS: STARWOOD HOTEL INVESTORS II, L.P. By: STARWOOD CAPITAL GROUP I, L.P. By: BSS CAPITAL PARTNERS, L.P., General Partner By: STERNLICHT HOLDINGS II, Inc. General Partner By: /s/ Madison F. Grose -------------------------------------- Name: Madison F. Grose Title: EVP FIREBIRD CONSOLIDATED PARTNERS, L.P. By: /s/ Madison F. Grose -------------------------------------- Name: Madison F. Grose Title: Authorized Signatory for General Partner APPOLLO REAL ESTATE INVESTMENT FUND, L.P. By: APPOLLO REAL ESTATE ADVISORS, L.P. - 4 - 78 By: APPOLLO REAL ESTATE MANAGEMENT, INC. By: ----------------------------------- Name: Title: PHILADELPHIA HSR LIMITED PARTNERSHIP By: ----------------------------------- Name: Title: General Partner STARWOOD OPPORTUNITY FUND II, L.P. By: STARWOOD CAPITAL GROUP I, L.P. General Partner By: BSS CAPITAL PARTNERS, L.P., General Partner By: STERNLICHT HOLDINGS II, Inc. General Partner By: /s/ Madison F. Grose ----------------------------------- Name: Madison F. Grose Title: EVP /s/ Edward J. Rohling ----------------------------------- EDWARD J. ROHLING ZIFF INVESTORS PARTNERSHIP, L.P. II By: /s/ Philip B. Korsant ----------------------------------- Name: PBK Holdings, Inc. Title: General Partner By: Philip B. Korsant--President MONTROSE CORPORATION - 5 - 79 By: --------------------------------------- Name: Title: HARVEYWOOD HOTEL INVESTORS, L.P. By: /s/ Madison F. Grose --------------------------------------- Name: Madison F. Grose Title: Authorized Signatory for General Partner STAR INVESTORS, G.P. By: --------------------------------------- Name: Title: MERIDIAN INVESTMENT GROUP By: --------------------------------------- Name: Title: THE HERMITAGE, L.P. By: HERMITAGE OF NASHVILLE, INC. General Partner By: --------------------------------------- Name: Title: BURDEN DIRECT INVESTMENT FUND I, By: /s/ Jeffrey A. Weber --------------------------------------- Name: Jeffrey A. Weber Title: President & CEO Burden Brothers, Inc. General Partner William A.M. Burden & Co., L.P., General Partner BRAINARD HOLDINGS, INC. - 6 - 80 By: --------------------------------------- Name: Title: KJJ REVOCABLE TRUST By: /s/ Hekmatollah Eilian --------------------------------------- Name: Hekmatollah Eilian Title: Trustee -------------------------------------------- BARRY S. STERNLICHT THE BARRY S. STERNLICHT FAMILY SPRAY TRUST I By: --------------------------------------- Name: Title: Trustee THE BARRY S. STERNLICHT FAMILY SPRAY TRUST II By: --------------------------------------- Name: Title: Trustee THE BARRY S. STERNLICHT FAMILY SPRAY TRUST III By: --------------------------------------- Name: Title: Trustee /s/ Jack Nash --------------------------------------- JACK NASH - 7 - 81 THE NASH FAMILY PARTNERSHIP By: /s/ Joshua Nash --------------------------------------- Name: Joshua Nash Title: General Partner /s/ Madison F. Grose ------------------------------------------- MADISON F. GROSE THE MADISON F. GROSE IRREVOCABLE INSURANCE TRUST By: /s/ Ellis F. Rinaldi --------------------------------------- Name: Ellis F. Rinaldi Title: Trustee --------------------------------------- MAX C. CHAPMAN /s/ Merrick R. Kleeman --------------------------------------- MERRICK R. KLEEMAN --------------------------------------- EUGENE A. GORAB - 8 - 82 /s/ Jamie R. Gates --------------------------------------- JAMIE R. GATES /s/ Carly Simon --------------------------------------- CARLY SIMON --------------------------------------- STEVEN R. GOLDMAN /s/ Alan Schwartz --------------------------------------- ALAN SCHWARTZ /s/ Jay Sugarman --------------------------------------- JAY SUGARMAN /s/ John Z. Kukral --------------------------------------- JOHN Z. KUKRAL /s/ Jerome C. Silvey --------------------------------------- JEROME C. SILVEY /s/ Geoffrey T. Boisi --------------------------------------- GEOFFREY T. BOISI --------------------------------------- MICHAEL MUELLER /s/ Donna Mitchell --------------------------------------- CLATE JOSEPH KORSANT TRUST By: /s/ Donna Mitchell ----------------------------------- Name: Donna Mitchell Title: Trustee By: /s/ Dirk Ziff ----------------------------------- Name: Dirk Ziff Title: Trustee - 9 - 83 /s/ Donna Mitchell --------------------------------------- JUSTIN FREDERICK KORSANT TRUST By: /s/ Donna Mitchell ----------------------------------- Name: Donna Mitchell Title: Trustee By: /s/ Dirk Ziff ----------------------------------- Name: Dirk Ziff Title: Trustee /s/ James G. Babb, III --------------------------------------- JAMES G. BABB, III LAMBSTER PARTNERS LIMITED PARTNERSHIP By: ----------------------------------- Name: Title: General Partner /s/ Jeff Dishner --------------------------------------- JEFF DISHNER --------------------------------------- GEOFFREY BEER --------------------------------------- CHARLES E. MUELLER, M.D. --------------------------------------- LOWELL D. KRAFF /s/ Stephen Fiore --------------------------------------- STEPHEN FIORE /s/ Jennifer Albero --------------------------------------- JENNIFER ALBERO --------------------------------------- JAMES A. KLEEMAN, M.D., PC - 10 - 84 /s/ Ellis F. Rinaldi --------------------------------------- ELLIS F. RINALDI /s/ J. Peter Paganelli --------------------------------------- J. PETER PAGANELLI --------------------------------------- JOHN F. COUTURE /s/ James Oldham --------------------------------------- JAMES OLDHAM THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of Prudential Property Investment Separate Account II By: /s/ Roger S. Pratt ------------------------------------ Name: Roger S. Pratt Title: Vice President/Managing Director ELEANOR MENDELL, AS TRUSTEE OF THE GARY MENDELL FAMILY TRUST By: /s/ Eleanor Mendell ------------------------------------ Name: Eleanor Mendell Title: Trustee /s/ Gary Mendell --------------------------------------- GARY MENDELL /s/ Ellen-Jo Mendell --------------------------------------- ELLEN-JO MENDELL /s/ Stephen Mendell --------------------------------------- STEPHEN MENDELL - 11 - 85 --------------------------------------- JUDITH K. RUSHMORE /s/ Murray Dow II --------------------------------------- MURRAY DOW II WESTPORT HOSPITALITY, INC. By: /s/ Gary Mendell --------------------------------------- Name: Gary Mendell Title: President ZAPCO HOLDINGS, INC. By: /s/ Orna L. Shulman --------------------------------------- Name: Orna L. Shulman Title: Executive Vice President ZAPCO HOLDINGS, INC. DEFERRED COMPENSATION PLAN TRUST By: /s/ Nancy Heinrich --------------------------------------- Name: Nancy Heinrich Title: Trustee /s/ Orna L. Shulman --------------------------------------- ORNA L. SHULMAN --------------------------------------- ARTHUR GREEN --------------------------------------- MICHAEL HALL - 12 - 86 --------------------------------------- MARK ROSINSKY - 13 - 87 --------------------------------------- RANDI ROSINSKY /s/ John Daily --------------------------------------- JOHN DAILY --------------------------------------- FELIX CACCIATO /s/ Thomas Clearwater --------------------------------------- THOMAS CLEARWATER --------------------------------------- HARVEY MOORE --------------------------------------- TRACY DRISCOLL - 14 - 88 CERTIFICATE OF ADMISSION OF SLT REALTY LIMITED PARTNERSHIP THIS CERTIFICATE OF ADMISSION OF SLT REALTY LIMITED PARTNERSHIP ("Certificate of Admission") is made effective January 2, 1998, by Starwood Lodging Trust, a Maryland real estate investment trust, as the General Partner of SLT Realty Limited Partnership, a Delaware limited partnership ("Partnership"), which was formed pursuant to the provisions of that certain Limited Partnership Agreement of the Partnership dated as of December 15, 1994 and amended and restated as of June 29, 1995 and again as of November 14, 1997 and subsequently amended as of January 1, 1998 (as such agreement may be hereafter amended from time to time, "Partnership Agreement"). All capitalized terms not defined herein shall have the same meaning set forth in the Partnership Agreement. R E C I T A L S WHEREAS, as of September 8, 1997, that certain Transaction Agreement ("Transaction Agreement") was entered into among the General Partner, the Partnership, SLC, the Operating Partnership, Westin Hotels & Resorts Worldwide, Inc. ("Westin Worldwide"), a Delaware corporation, W&S Seattle Corp. ("Seattle"), a Delaware corporation, W&S Lauderdale Corp. ("Lauderdale"), a Delaware corporation, W&S Denver Corp. ("Denver"), a Delaware corporation, and the other parties thereto; WHEREAS, pursuant to the Transaction Agreement, it is contemplated that, among other things, the Persons whose names appear below the General Partner's name on the signature pages of this Certificate of Admission (each a "Contributing Party" and, collectively, the "Contributing Parties") will contribute to the Partnership certain of the outstanding shares of capital stock of Seattle, Lauderdale and Denver in exchange for Class A Units described below; WHEREAS, pursuant to Section 4.1(e) of the Partnership Agreement, the General Partner is authorized to cause the Partnership to issue additional Partnership Interests in one or more classes or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to the then-existing Partnership Interests and Units, as shall be determined by the General Partner in its sole and absolute discretion; and WHEREAS, pursuant to Section 11.1(b)(3) and (4) of the Partnership Agreement, the General Partner is authorized to amend the Partnership Agreement without the Consent of the Limited Partners, and in accordance with Section 11.1(b) of the Partnership Agreement, the Limited Partners have received five Business Days' notice of this Certificate of Admission. NOW THEREFORE, the undersigned certifies that all appropriate actions have been - 1 - 89 taken to admit the Contributing Parties to the Partnership upon the terms and conditions set forth below: SECTION 1. Each Contributing Party is hereby admitted as a Limited Partner of the Partnership and shall receive, inter alia, its share of a maximum total of 597,844 Class A Units(1) to be issued pursuant to the Transaction Agreement. The number of Class A Units received by each Contributing Party is set forth next to each such Contributing Party's signature block below. The General Partner hereby consents to each such admission. If the number of Class A Units to be received by any Contributing Party shall be adjusted after the date hereof in accordance with the terms of or in connection with the Transaction Agreement, the General Partner shall amend this Certificate of Admission to reflect such adjustment. SECTION 2. Each Contributing Party has agreed to comply with and to be bound by the terms and conditions of the Partnership Agreement. Each Contributing Party has represented that, to the best of its knowledge, its admission as a Limited Partner does not violate any of the restrictions set forth in Section 9.3 of the Partnership Agreement. SECTION 3. The Partnership Agreement is hereby amended such that each and every reference to the "Limited Partners" or to a "Limited Partner" includes each Contributing Party. SECTION 4. Exhibit A to the Partnership Agreement is hereby amended to reflect this Certificate of Admission. SECTION 5. Exhibit B to the Partnership Agreement is hereby amended to reflect this Certificate of Admission. The notice address of each Contributing Party is set forth on Exhibit A to this Certificate of Admission. SECTION 6. Section 1.1 of the Partnership Agreement is hereby amended by the addition of the following defined terms: "Class A Certificate of Admission" shall mean the Certificate of Admission of SLT Realty Limited Partnership, dated as of January 2, 1998, that authorizes the issuance of the Class A Units. "Class A Limited Partners" shall mean those Persons admitted to the Partnership pursuant to the Class A Certificate of Admission, and any Person who, at the time of reference thereto, is a Class A Limited Partner of the Partnership. "Class A Liquidation Preference Distribution" shall mean, with respect to a Class A Unit, an amount equal to the "fair market value" of one OP Ordinary Unit, - -------- (1) The exact number of Class A Units to be issued to each Contributing Party will be determined on or about December 29, 1997 in a manner consistent with the Transaction Agreement. - 2 - 90 which shall be payable only in the event of the dissolution and liquidation of the Partnership not preceded or accompanied by a liquidation and dissolution of the Operating Partnership. Such fair market value shall be determined in good faith by the General Partner as of the effective date of such liquidation and dissolution or, if no such effective date applies, as of the date of the first liquidating distribution pursuant to Section 8.2. In the event of any change in (i) the nature or amount of securities constituting a unit of Paired Shares under the pairing agreement between the General Partner and SLC, (ii) the correspondence of the number of non-preferred Units in the Partnership to the number of Paired Shares outstanding or (iii) the correspondence of the number of OP Ordinary Units to the number of Paired Shares outstanding, the amount of the Class A Liquidation Preference that shall accrue with respect to each Class A Unit as a function of the fair market of each OP Ordinary Unit shall be equitably adjusted. "Class A RP Special Distribution" shall mean, with respect to a Class A Unit, an amount equal to the sum, in cash, of the fair market value of all operating and liquidating distributions by the Operating Partnership with respect to OP Ordinary Units on or after January 2, 1998 (whether pursuant to Section 6.2 or 8.2 of the Operating Partnership Agreement) in an amount per Class A Unit equal to the amount so distributed in respect of each OP Ordinary Unit. In the event of any change in (i) the nature or amount of securities constituting a unit of Paired Shares under the pairing agreement between the General Partner and SLC, (ii) the correspondence of the number of non- preferred Units in the Partnership to the number of Paired Shares outstanding or (iii) the correspondence of the number of OP Ordinary Units to the number of Paired Shares outstanding, the amount of the Class A Special Distribution that shall accrue with respect to each Class A Unit as a function of the amount of the corresponding distribution on the OP Ordinary Units shall be equitably adjusted. Class A RP Special Distributions may only be made with respect to Class A Units and shall be due at the same time as such operating or liquidating distributions are made by the Realty Partnership. "Class A Units" shall mean, collectively, the interests of Class A Limited Partners in capital, allocations of Net Income, Net Loss and distributions, including Class A RP Special Distributions and Class A Liquidation Preference Distributions, if any. The number of Class A Units owned by each Class A Limited Partner is set forth on Exhibit A hereto. "OP Ordinary Units" shall mean units of the Operating Partnership other than units entitled to receive priority distributions under the Operating Partnership Agreement such as the Class A Units and Class B Units (as those terms are defined in the Operating Partnership Agreement). "Operating Partnership Agreement" shall mean that certain Limited Partnership Agreement of the Operating Partnership dated as of December 15, 1994 and amended and restated as of June 29, 1995 and again as of November 14, 1997 and - 3 - 91 subsequently amended as of January 1, 1998 pursuant to the First Amendment to Second Amended and Restated Limited Partnership Agreement of SLC Operating Limited Partnership Agreement and as of January 2, 1998 pursuant to the Certificate of Admission of SLC Operating Limited Partnership, and as may hereafter be further amended, supplemented or restated from time to time. "Units" shall have the meaning set forth in Section 4.1(c) hereof, and such term shall include Class A Units except where the context otherwise requires. SECTION 7. Section 6.1(a) of the Partnership Agreement is hereby amended and restated in its entirety as follows: (a) Allocation of Net Income and Net Loss. (i) Net Income. Except as otherwise provided herein, Net Income for any fiscal year or other applicable period shall be allocated in the following order and priority: (A) first, to the General Partner, until the cumulative Net Income allocated pursuant to this Section 6.1(a)(i)(A) for the current and all prior periods equals the cumulative Net Loss allocated pursuant to Section 6.1(a)(ii)(D) for all prior periods; (B) second, to the holders of Units, including Class A Units, to the extent of, in proportion to and in reverse order of their prior allocations of Net Loss pursuant to Section 6.1(a)(ii)(C) until the cumulative Net Income allocated pursuant to this Section 6.1(a)(i)(B) for the current and all prior periods equals the cumulative Net Loss allocated to such holders pursuant to Section 6.1(a)(ii)(C) for all prior periods; (C) third, to the holders of Class A Units until each holder of Class A Units has been allocated Net Income pursuant to this Section 6.1(a)(i)(C) in an amount equal to its accrued Class A Special Distributions, if any; (D) fourth, to the holders of Class A Units until each holder of Class A Units has been allocated Net Income pursuant to this Section 6.1(a)(i)(D) in an amount equal to the excess of its accrued Class A Liquidation Preference Distributions, if any, over the portion of such holder's initial Capital Account balance allocable to the Class A Liquidation Preference; (E) fifth, to the extent the Partnership has made distributions pursuant to Section 6.2(c) to the holders of Units, including Class A Units, in accordance with and in proportion to distributions made under Section 6.2(c); and - 4 - 92 (F) thereafter, to the holders of Units, including Class A Units, in accordance with and in proportion to their respective holdings of Units. (ii) Net Loss. Except as otherwise provided herein, Net Loss of the Partnership for each fiscal year or other applicable period shall be allocated in the following order and priority; (A) first, to the holders of Units, including Class A Units, to the extent of, in proportion to, and in the reverse order of, Net Income previously allocated to the Partners pursuant to Section 6.1(a)(i)(F), until the cumulative Net Loss allocated pursuant to this Section 6.1(a)(ii)(A) for the current and all prior periods equals the cumulative Net Income allocated pursuant to Section 6.1(a)(i)(F) for all prior periods; (B) second, to the holders of Class A Units to the extent of and in proportion to their prior allocations of Net Income pursuant to Section 6.1(a)(i)(C) and (D) until the cumulative Net Loss allocated pursuant to this Section 6.1(a)(ii)(B) for the current and all prior periods equals the cumulative Net Income allocated to such holders pursuant to Section 6.1(a)(i)(C) and (D) for all prior periods; (C) third, to the holders of Units, including Class A Units, in accordance with their respective holdings of Units, provided that Net Losses shall not be allocated pursuant to this Section 6.1(a)(ii)(C) to the extent such allocations would cause any Limited Partner to have an Adjusted Capital Account Deficit as of the end of the fiscal year to which such Net Loss relates; and (D) the balance, if any, to the General Partner. SECTION 8. Section 6.2 of the Partnership Agreement is hereby amended and restated in its entirety as follows: 6.2 Distributions. The General Partner shall cause the Partnership to distribute all, or such portion as the General Partner may in its reasonable discretion determine, of Net Cash Flow in accordance with the distribution rules described below to the holders of applicable Units who are holders on the Record Date with respect to such distribution; provided that the General Partner shall be at all times authorized to cause the Partnership to distribute to the holders of Units pro rata in accordance with the holders' ownership of Units, sufficient amounts to enable the General Partner to pay shareholder dividends that will satisfy the REIT Requirements. For such purposes, Net Cash Flow shall be distributed: - 5 - 93 (a) first, to the holders of Class A Units, pro rata in accordance with the holders' ownership of Class A Units, in an amount equal to the excess, if any, of (i) the total of all Class A RP Special Distributions that have accrued as of the date of payment of such distribution, less (ii) the total of all previous distributions to the holders of Class A Units in respect of such Class A RP Special Distributions pursuant to Section 8.2(a)(iv), if any, and this Section 6.2(a); (b) except as otherwise provided in Sections 6.2(c), to the holders of Units, including Class A Units, who are holders on the Partnership Record Date with respect to such distribution pro rata in accordance with the holders' ownership of Units, including Class A Units; and (c) when the General Partner declares a distribution to holders of Shares and the amount otherwise determined to be distributable to each holder of a Unit, including Class A Units, under Section 6.2(b) results in an amount that is less than the amount distributable to each holder of a Share (on a per Share to per Unit basis), the General Partner shall cause the Partnership to distribute sufficient amounts to holders of Units, including Class A Units, as of the Partnership Record Date so that such holders of Units, including Class A Units, will receive an amount per Unit equal to the related distributions to holders of Shares (on a per Share to per Unit basis). The General Partner shall accomplish this by reducing the amounts otherwise distributable to it under Section 6.2(b) and increasing the amount otherwise distributable to holders of Units, including Class A Units, under Section 6.2(b) and, to the extent necessary, by contributing additional capital to the Partnership. SECTION 9. Section 8.2(a) of the Partnership Agreement is hereby amended and restated in its entirety as follows: 8.2 Distributions on Dissolution. (a) In the event of the dissolution and liquidation of the Partnership for any reason, the assets of the Partnership shall be liquidated for distribution in the following rank and order: (i) payment of creditors of the Partnership, including creditors who are Partners or former Partners; (ii) establishment of reserves as provided by the Liquidating Trustee to provide for contingent liabilities, if any; (iii) to the holders of Class A Units, pro rata in accordance with the holders' ownership of Class A Units, in an amount equal to the excess, if any, of (x) the Class A Liquidation Preference Distribution, over (y) the sum of all prior distributions to - 6 - 94 holders of Class A Units pursuant to this Section 8.2(a)(iii); (iv) to the holders of Class A Units, pro rata in accordance with the holders' ownership of Class A Units, in an amount equal to the excess, if any, of (x) the total of all Class A RP Special Distributions that have accrued as of the date of payment of such liquidating distribution, less (y) the total of all previous distributions to the holders of Class A Units in respect of such Class A RP Special Distributions pursuant to Section 6.2(a) and this Section 8.2(a)(iv); and (v) to the holders of Units, including Class A Units, in accordance with the positive balances in their Capital Accounts after giving effect to all contributions, distributions and allocations for all periods. Whenever the Liquidating Trustee reasonably determines that any reserves established pursuant to paragraph (ii) above are in excess of the reasonable requirements of the Partnership, the amount determined to be excess shall be distributed to the Partners in accordance with the provisions of this Section 8.2(a). No Partner or holder of Units shall be liable to any other Partner or holder of Units for a deficit balance in its Capital Account. SECTION 10. Notwithstanding Section 6.16(d) of the Transaction Agreement, no restrictions on the transfer of the shares of Denver, Seattle or Lauderdale shall be enforced if and only to the extent that such restriction would cause Denver, Seattle or Lauderdale to fail to meet the requirements of Section 856(a)(2) of the Code. SECTION 11. As provided for in this Certificate of Admission and as otherwise necessary or appropriate to reflect the admission of the Contributing Parties to the Partnership, the Partnership Agreement is hereby amended effective as of the date first written above. Except as otherwise provided in this Certificate of Admission, each and every provision of the Partnership Agreement remains in full force and effect. IN WITNESS WHEREOF, the party hereto has executed this Certificate of Admission or caused this Certificate of Admission to be executed on its behalf as of the date first above written. STARWOOD LODGING TRUST, a Maryland real estate investment trust By: /s/ Ronald C. Brown __________________________________ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer - 7 - 95 IN WITNESS WHEREOF, the Contributing Parties hereby agree to and acknowledge the terms of this Certificate of Admission. 117,036 Units WHWE L.L.C. By: Whitehall Street Real Estate Limited Partnership V, Member and Manager By: By: By: /s/ Jonathan Langer ___________________________ Name: Jonathan Langer Title: Attorney-in-fact for Whitehall Street Real Estate Limited Partnership V 221,081 Units Woodstar Investor Partnership By: Marswood Investors, L.P., General Partner By: Starwood Capital Group, L.P., General Partner By: BSS Capital Partners, L.P., General Partner By: Sternlicht Holdings II, Inc., General Partner By: /s/ Ronald C. Brown _________________________ Name: Ronald C. Brown Title: Attorney-in-fact - 8 - 96 132,192 Units Nomura Asset Capital Corporation By: /s/ Daniel S. Abrams _________________________ Name: Daniel S. Abrams Title: Managing Director - 9 - 97 EXHIBIT A 1) If to WHWE L.L.C., to: 85 Broad Street New York, New York 10004 Attention: Stuart M. Rothenberg Telecopier: (212) 357-5505 2) If to Woodstar Investor Partnership, to: Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Attention: Barry S. Sternlicht Telecopier: (203) 861-2101 3) If to Nomura Asset Capital Corporation, to: Two World Financial Center, Building B New York, NY 10281 Attention: Daniel S. Abrams Telecopier: (212) 667-1666 - 10 - EX-10.2 8 EX-10.2 1 Exhibit 10.2 ---------------------------------------------------------------------- SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF SLC OPERATING LIMITED PARTNERSHIP ---------------------------------------------------------------------- 2 TABLE OF CONTENTS ARTICLE 1 Definitions..........................................................4 1.1 Definitions.................................................4 ARTICLE 2 Continuation and Business of the Partnership........................16 2.1 Continuation...............................................16 2.2 Name.......................................................17 2.3 Character of the Business..................................17 2.4 Location of Principal Place of Business....................17 2.5 Registered Agent and Registered Office.....................17 2.6 Restatement of Agreement...................................18 ARTICLE 3 Term................................................................18 3.1 Commencement...............................................18 3.2 Dissolution................................................18 ARTICLE 4 Capital Contributions...............................................18 4.1 Capital Contributions; Units...............................18 4.2 Redemption of Units Held by Limited Partner................20 4.3 Percentage Interests.......................................21 4.4 Purchase Rights............................................21 4.5 Redemption of Units Held by the General Partner............21 4.6 No Third Party Beneficiaries...............................21 4.7 No Interest on or Return of Capital Contribution...........22 ARTICLE 5 Indemnification.....................................................22 5.1 Indemnification of the General Partner.....................22 5.2 Indemnification of Limited Partners........................23 5.3 Notice of Claims...........................................25 5.4 Third Party Claims.........................................25 5.5 Indemnification Pursuant to Formation Agreement............26 3 ARTICLE 6 Allocations, Distributions and Other Tax and Accounting Matters.....26 6.1 Allocations................................................26 6.2 Distributions..............................................31 6.3 Books of Account...........................................32 6.4 Reports....................................................32 6.5 Tax Elections and Returns..................................32 6.6 Tax Matters Partner........................................32 6.7 Withholding Payments Required By Law.......................33 ARTICLE 7 Rights, Duties and Restrictions of the General Partner..............34 7.1 Powers and Duties of the General Partner...................34 7.2 Reimbursement of the General Partner.......................37 7.3 Outside Activities of the General Partner..................38 7.4 Contracts with Affiliates..................................38 7.5 Title to Partnership Assets................................38 7.6 Reliance by Third Parties..................................39 7.7 Liability of the General Partner...........................39 7.8 Other Matters Concerning the General Partner...............40 7.9 Operation of SLT in Accordance with REIT Requirements......40 7.10 Replacement of General Partner.............................41 ARTICLE 8 Dissolution, Liquidation and Winding-Up.............................41 8.1 Accounting.................................................41 8.2 Distribution on Dissolution................................41 8.3 Documentation of Liquidation...............................42 ARTICLE 9 Transfer............................................................43 9.1 General Partner............................................43 9.2 Transfers by Limited Partners..............................43 9.3 Certain Restrictions on Transfer...........................45 9.4 Effective Dates of Transfers...............................45 9.5 Transfer...................................................46 9.6 Nevada Gaming Control Act..................................46 ARTICLE 10 Rights and Obligations of the Limited Partners......................47 10.1 No Participation in Management.............................47 10.2 Bankruptcy of a Limited Partner............................47 10.3 No Withdrawal..............................................47 10.4 Conflicts..................................................47 10.5 Provision of Information...................................48 4 10.6 Power of Attorney..........................................49 10.7 Ownership of Paired Shares.................................50 10.8 Waiver of Fiduciary Duty...................................51 ARTICLE 11 Amendment of Partnership Agreement, Meetings........................51 11.1 Amendments.................................................51 11.2 Meetings of the Partners; Notices to Partners..............52 ARTICLE 12 General Provisions..................................................53 12.1 No Liability of Directors and Others.......................53 12.2 Notices....................................................53 12.3 Controlling Law............................................54 12.4 Execution of Counterparts..................................54 12.5 Severability...............................................54 12.6 Entire Agreement...........................................54 12.7 Paragraph Headings.........................................54 12.8 Gender, Etc................................................54 12.9 Number of Days.............................................55 12.10 Partners Not Agents........................................55 12.11 Assurances.................................................55 12.12 Waiver of Partition........................................55 5 LIST OF EXHIBITS Exhibit A List of Partners, Percentage Interests and Units A-1 List of Class A Partners, Percentage Interests and Units B Notice Address of Partners 6 THE LIMITED PARTNERSHIP INTERESTS REFERRED TO IN THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. REFERENCE IS MADE TO ARTICLE 9 OF THIS AGREEMENT FOR PROVISIONS RELATING TO VARIOUS RESTRICTIONS ON THE SALE OR OTHER TRANSFER OF THESE INTERESTS. SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF SLC OPERATING LIMITED PARTNERSHIP THIS SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT (this "Agreement") is made and entered into this 14th day of November, 1997, by and among Starwood Lodging Corporation, a Maryland corporation ("SLC"), as General Partner, and the persons whose names are set forth on Exhibit A hereto and Exhibit A-1 hereto, as each such exhibit may be amended from time to time, as limited partners, pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act. RECITALS A. Starwood Lodging Corporation, Columbus Operators, Inc., Hotel Investors of Arizona, Inc., Hotel Investors of Michigan, Inc., Hotel Investors of Virginia, Inc., Western Host, Inc., Hotel Investors Corporation of Nevada, Inc., Hotel Investors of Nebraska, Inc., Berl Holdings, L.P., Starwood-Apollo Hotel Partners VIII, L.P., Starwood-Apollo Hotel Partners IX, L.P., Starwood-Nomura Hotel Investors, L.P., Starwood/Wichita Investors, L.P., Starwood-Huntington Partners, L.P., and Woodstar Partners I, L.P., were the parties to that certain Limited Partnership Agreement of SLC Operating Limited Partnership, dated as of December 15, 1994 (hereinafter, the "Original Agreement" and the "Partnership", respectively). B. Firebird Consolidated Partners, L.P., was admitted as a limited partner of the Partnership pursuant to that certain Admission of Limited Partner, Consent and Amendment dated March 24, 1995. C. The Original Agreement was restated by that certain Amended and Restated Limited Partnership Agreement of SLC Operating Limited Partnership by and between SLC, 7 as General Partner, and the General Partners and the Limited Partners of the Partnership, as such groups were then constituted, and dated as of June 29, 1995 (the "Original Restated Agreement"). D. The Original Restated Agreement was amended by that certain Amendment by and between SLC, as General Partner, and the General Partners and the Limited Partners of the Partnership, as such groups were then constituted, and dated as of May 14, 1996. E. Philadelphia HSR Limited Partnership ("HSR") was admitted as a limited partner of the Partnership pursuant to that certain Admission of Limited Partner, Consent and Amendment (Operating Partnership) dated as of June 3, 1996. F. Starwood/Wichita Investors, L.P., Berl Holdings, L.P., Starwood-Huntington, L.P., Woodstar Partners I, L.P., and Wichita Harvey Partners, Ltd., transferred their respective interests in the Partnership to SRL Holdings, Inc., Starwood Capital Group I, L.P., Starwood Opportunity Fund II, L.P., Moonwood Investment Partners, L.P., Woodstar II, L.P., Hospitality Partners, Bristol Hotel Management Corp., and Edward J. Rohling, and each such Person was admitted as a limited partner of the Partnership pursuant to that certain Admission of Limited Partners Agreement dated as of June 4, 1996. G. Philadelphia HIR Limited Partnership ("HIR") was admitted as a limited partner of the Partnership pursuant to that certain Admission of Limited Partner, Consent and Amendment (Operating Partnership) dated as of July 1, 1996. H. Starwood-Apollo Hotel Partners VIII, L.P., transferred its interest in the Partnership to SAHI, Inc., Starwood Hotel Investors, L.P., and AP-GP Midstar Hotels VIII, Inc.; Starwood-Apollo Hotel Partners IX, L.P., transferred its interest in the Partnership to SAHI, Inc., Starwood Hotel Investors, L.P., and AP-GP Midstar Hotels IX, Inc.; Starwood Hotel Investors, L.P., transferred its interest in the Partnership to Starwood Hotel Investors II, L.P., SAHI, Inc. and AP-GP Master Midstar, L.P.; and AP-GP Midstar Hotels VIII, Inc., AP-GP Midstar Hotels IX, Inc., and AP-GP Master Midstar, L.P., transferred their respective interests in the Partnership to Apollo Real Estate Investment Fund, L.P., and each of Starwood Hotel Investors II, L.P., SAHI, Inc. and Apollo Real Estate Investment Fund was admitted as a limited partner of the Partnership pursuant to that certain Admission of Limited Partners Agreement dated as of December 12, 1996; I. Starwood-Nomura Hotel Investors, L.P., SRL Holdings, Inc., Starwood Capital Group, L.P., Moonwood Investment Partners, L.P., Woodstar Partners II, L.P., Berl Holdings I, Inc., SAHI, Inc., and Harveywood Hotel Investors II, L.P., transferred their interests in the Partnership to Burden Direct Investment Fund I., L.P., Ziff Investors Partnership, L.P., II, Carly Simon, Lambster Partners Limited Partners, Montrose Corporation, Star Investors G.P., Meridian Investment Group, 1985 Trust f/b/o Clate Joseph Korsant, 1985 Trust f/b/o Justin Frederick Korsant, Jack Nash, the Nash Family Partnership, Brainard Holdings, Inc., Lowell D. Kraff, Max C. Chapman, Alan Schwartz, Geoffrey T. Boisi, Gregory Beer, Charles E. Mueller, James A. Kleeman, Steve Goldman, Mike Mueller, James R. Gates, John Z. Kukral, John F. Couture, Barry S. Sternlicht, the Barry S. Sternlicht 8 Family Spray Trust I, the Barry S. Sternlicht Family Spray Trust II, the Barry S. Sternlicht Family Spray Trust III, James G. Babb, III, Madison F. Grose, the Madison F. Grose Irrevocable Insurance Trust, Merrick R. Kleeman, JDE Revocable Trust u/a dated December 31, 1996, Eugene A. Gorab, Jerome C. Silvey, Geoffrey Beer, Jay Sugarman, Jennifer Albero, Steven Fiore, James Oldham, Jeff Dishner, Ellis F. Rinaldi, and J. Peter Paganelli and each such Person was admitted as a limited partner of the Partnership pursuant to forty-four (44) separate Admission of Limited Partner Agreements each dated as of December 31, 1996. J. The Prudential Insurance Company of America, on behalf of Prudential Property Investment Separate Account II, Eleanor Mendell, as Trustee of the Gary Mendell Family Trust, Gary Mendell, Ellen-Jo Mendell, Stephen Mendell, Judith K. Rushmore, Murray Dow II, Westport Hospitality, Inc., Zapco Interest Holdings, LP, Zapco Holdings, Inc., Zapco Holdings, Inc. Deferred Compensation Plan Trust, Orna L. Shulman, Arthur Green, Michael Hall, Mark Rosinsky, Randi Rosinsky, John Daily, Felix Cacciato, Thomas Clearwater, Harvey Moore, and Tracy Driscoll (collectively, the "HEI Contributors") were each admitted as a limited partner of the Partnership pursuant to that certain Admission of Limited Partners, Consent and Amendment (Operating Partnership) dated as of February 14, 1997. K. Gary Mendell, Stephen Mendell, Judith K. Rushmore, Murray Dow II, and Westport Hospitality, Inc. (collectively with the HEI Contributors, the "HEI Parties"), were each admitted as a Class A Limited Partner pursuant to that certain Admission of Class A Limited Partners, Consent and Amendment (Operating Partnership) dated as of February 14, 1997. L. The Hermitage, L.P. was admitted as a limited partner of the Partnership pursuant to that certain Admission of Limited Partners, Consent and Amendment (Operating Partnership) dated as of March 11, 1997. M. Effective as of the date first written above, each of Columbus Operators, Inc., Hotel Investors of Arizona, Inc., Hotel Investors of Michigan, Inc., Hotel Investors of Virginia, Inc., Western Host, Inc., Hotel Investors Corporation of Nevada, Inc., Hotel Investors of Nebraska, Inc. has transferred its respective interest in the Partnership to SLC and has thereby withdrawn as a General Partner of the Partnership, and by its signature below, each of the Limited Partners has consented thereto. N. The parties hereto have agreed to amend and restate the Original Restated Agreement, as previously amended, in its entirety to reflect the foregoing and to make other necessary or appropriate changes. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: 9 ARTICLE 1 Definitions 1.1 Definitions. Except as otherwise herein expressly provided, the following terms and phrases shall have the meanings as set forth below: "Accountants" shall mean the national firm or firms of independent certified public accountants selected by the General Partner on behalf of the Partnership to audit the books and records of the Partnership and to prepare statements and reports in connection therewith. "Act" shall mean the Delaware Revised Uniform Limited Partnership Act, as the same may hereafter be amended from time to time. "Adjusted Capital Account Deficit" shall mean, with respect to any Partner or holder of Units other than the General Partner, the deficit balance, if any, in such holder's Capital Account as of the end of any relevant fiscal year and after giving effect to the following adjustments: (a) credit to such Capital Account any amounts which such holder is obligated or treated as obligated to restore with respect to any deficit balance in such Capital Account pursuant to Section 1.704-1(b)(2)(ii)(c) of the Regulations, or is deemed to be obligated to restore with respect to any deficit balance pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and (b) debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations. The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the requirements of the alternate test for economic effect contained in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith. "Administrative Expenses" shall mean: (a) all administrative and operating costs and expenses of the Partnership; (b) those administrative costs and expenses of the General Partner, including, but not limited to, salaries and other remunerations paid to trustees, officers and employees of the General Partner and accounting and legal expenses undertaken by the General Partner on behalf or for the benefit of the Partnership; and (c) all expenses which the Partnership hereby assumes and agrees to pay as incurred for the benefit of the Partnership, including (i) costs and expenses relating to the formation and continuation of the Partnership and continuity of existence of the General Partner, including taxes (other than the General Partner's federal and state income and franchise taxes, if any), fees and assessments associated therewith, any and all costs, expenses or fees payable to any director or trustee of the General Partner, (ii) to the extent funded by the General Partner for payment by the Partnership, costs and expenses relating to any offer or registration of securities by the General Partner the net proceeds of which are to be contributed or loaned to the Partnership and all statements, reports, fees and expenses incidental thereto, including underwriting 10 discounts and selling commissions applicable to any such offer of securities, (iii) costs and expenses associated with the preparation and filing of any periodic reports by the General Partner under federal, state or local laws or regulations, including filings with the SEC, (iv) costs and expenses associated with compliance by the General Partner with laws, rules and regulations promulgated by any regulatory body, including the SEC, and (v) all other costs of the General Partner incurred in the course of its business on behalf of the Partnership including, but not limited to, any indemnification obligations of the General Partner (other than indemnification pursuant to Section 9.1 and 9.2 of the Formation Agreement). "Affected Gain" shall have the meaning set forth in Section 6.1(c)(ii) hereof. "Affiliate" shall mean, with respect to any Partner (or as to any other Person the Affiliates of whom are relevant for purposes of any of the provisions of this Agreement): (a) any member of the Immediate Family of such Partner or Person; (b) any trustee or beneficiary of a Partner which is a trust; (c) any trust for the benefit of any Person referred to in the preceding clauses (a) and (b); or (d) any Entity which directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, any Partner or Person referred to in the preceding clauses (a) through (c). "Agreement" shall mean this Limited Partnership Agreement, as amended, modified, supplemented or restated from time to time, as the context requires. "Articles of Incorporation" shall mean the Amended and Restated Articles of Incorporation of the General Partner, as the same may be amended, modified, supplemented, restated or superseded from time to time. "Audited Financial Statements" shall mean financial statements (balance sheet, statement of income, statement of partners equity and statement of cash flows) prepared in accordance with GAAP and accompanied by an independent auditor's report containing an opinion thereon. "Bankruptcy" shall mean, with respect to any Person: (a) the commencement by such Person of any petition, case or proceeding seeking relief under any provision or chapter of the federal Bankruptcy Code or any other federal or state law relating to insolvency, bankruptcy or reorganization; (b) an adjudication that such Person is insolvent or bankrupt; (c) the entry of an order for relief under the federal Bankruptcy Code with respect to such Person; (d) the filing of any such petition or the commencement of any such case or proceeding against such Person, unless such petition and the case or proceeding initiated thereby are dismissed within ninety (90) days from the date of such filing; or (e) the filing of an answer by such Person admitting the allegations of any such petition. "Business Day" shall mean any day that is not a Saturday, Sunday or a day on which banking institutions in the State of California or the State of New York are authorized or obligated by law or executive order to close. 11 "Capital Account" shall mean, as to any Partner or holder of Units, a book account maintained in accordance with the following provisions: (a) to each Partner's or holder of Unit's Capital Account there shall be credited the amount of cash contributed by the Partner or holder, the initial Gross Asset value of any other asset contributed by such Partner or holder to the capital of the Partnership (net of liabilities secured by contributed property that the Partnership assumes or takes subject to), such Partner's or holder's distributive share of Net Income and any other items of income or gain allocated to such Partner or holder, the amount of any Partnership liabilities assumed by the Partner or holder or secured by distributed assets that such Partner or holder takes subject to and any other items in the nature of income or gain that are allocated to such Partner or holder pursuant to Section 6.1 hereof; and (b) to each Partner's or holder of Unit's Capital Account there shall be debited the amount of cash distributed to the Partner or holder, the Gross Asset Value of any Partnership asset distributed to such Partner or holder pursuant to any provision of this Agreement, such Partner's or holder's distributive share of Net Losses and any other items in the nature of expenses or losses that are allocated to such Partner pursuant to Section 6.1 hereof. In the event that a Partner's Partnership Interest or a holder of Unit's Units or portion thereof is transferred within the meaning of Section 1.704-1(b)(2)(iv)(f) of the Regulations, the transferee shall succeed to the Capital Account of the transferor to the extent that it relates to the Partnership Interest, Units or portion thereof so transferred. In the event that the Gross Asset Values of Partnership assets are adjusted, as contemplated in paragraph (b) or (c) of the definition of "Gross Asset Value," the Capital Accounts of the Partners and holders of Units shall be adjusted to reflect the aggregate net adjustments as if the Partnership sold all of its properties for their fair market values and recognized gain or loss for federal income tax purposes equal to the amount of such aggregate net adjustment. This definition of Capital Accounts is intended to comply with the maintenance of capital account provisions of Section 1.704-1(b) of the Regulations and shall be interpreted and applied in a manner consistent therewith. "Capital Contribution" shall mean, with respect to any Partner, the amount of cash and the initial Gross Asset Value of any Contributed Property (net of liabilities to which such property is subject). "Certificate" shall mean the Certificate of Limited Partnership establishing the Partnership, as filed with the office of the Delaware Secretary of State, as amended from time to time in accordance with the terms of this Agreement and the Act. "Class A Limited Partners" shall mean those Persons listed under the heading "Class A Limited Partners" on Exhibit A-1 hereto in their respective capacities as Class A Limited Partners hereof, and any Person who, at the time of reference thereto, is a Class A Limited Partner of the Partnership. 12 "Class A Preferred Return" shall mean, with respect to any Special Class A Distribution that is not paid within five (5) Business Days of when due, an amount calculated as interest equal to the rate of interest most recently announced by Citibank, N.A. (or any successor to substantially all of its assets and business), as its prime rate, plus eight (8) percent, compounded annually. "Class A Units" shall have the meaning set forth in Section 4.1(c) hereof. "Code" shall mean the Internal Revenue Code of 1986, as amended and in effect from time to time, as interpreted by the applicable regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law. "Commission" shall mean the Nevada Gaming Commission. "Consent of the Class A Limited Partners" shall mean the written consent of a Majority-In-Interest of the Class A Limited Partners given in accordance with Section 11.2 hereof, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and which shall not be unreasonably withheld or delayed provided all distributions to the Class A Limited Partners under Section 6.2 hereof are then current. "Consent of the Limited Partners" shall mean the written consent of a Majority-In-Interest of the Limited Partners given in accordance with Section 11.2 hereof, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and may be given or withheld by a Majority-In-Interest of the Limited Partners, unless otherwise expressly provided herein, in their sole and absolute discretion. "Contributed Property" shall mean any property or other asset in such form as may be permitted by the Act, but excluding cash, contributed or deemed contributed to the Partnership with respect to the Partnership Interest held by each Partner. "Control" shall mean the ability, whether by the direct or indirect ownership of shares or other equity interests, by contract or otherwise, to elect a majority of the directors of a corporation, to select the managing partner of a partnership, or otherwise to select, or have the power to remove and then select, a majority of those persons exercising governing authority over an Entity. In the case of a limited partnership, the sole general partner, all of the general partners to the extent each has equal management control and authority, or the managing general partner or managing general partners thereof shall be deemed to have control of such partnership and, in the case of a trust, any trustee thereof or any Person having the right to select any such trustee shall be deemed to have control of such trust. "Depreciation" shall mean, with respect to any asset of the Partnership for any fiscal year or other period, the depreciation or amortization, as the case may be, 13 allowed or allowable for federal income tax purposes in respect of such asset for such fiscal year or other period, except that if the Gross Asset Value of an asset differs from its adjusted tax basis for federal income tax purposes at the beginning of such fiscal year or other period, Depreciation shall be an amount that bears the same ratio to such beginning book value as the federal income tax depreciation, amortization or other cost recovery deduction for such fiscal year or other period bears to such beginning adjusted tax basis and if such adjusted tax basis is zero, the Depreciation shall be based on the method of depreciation, amortization or other cost recovery deduction utilized in preparing the financial statements of the Partnership. "Entity" shall mean any general partnership, limited partnership, limited liability company, corporation, joint venture, trust, business trust, real estate investment trust or association. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time and as interpreted by the applicable regulations thereunder (or any corresponding provisions of succeeding laws and regulations). "Exchange Rights Agreement" shall mean any Exchange Rights Agreement by and among SLT and/or SLC and one or more Limited Partners which is intended to provide for the rights of such Limited Partners to tender Units in exchange for either Paired Shares, other securities, cash or a combination of the foregoing. "Formation Agreement" shall mean that certain Formation Agreement by and among Starwood Lodging Trust, Starwood Lodging Corporation, Starwood Capital Group, L.P., Berl Holdings, L.P., Woodstar Partners I, L.P., Starwood-Apollo Hotel Partners VIII, L.P., Starwood-Apollo Hotel Partners IX, L.P., Starwood-Nomura Hotel Investors, L.P., Starwood/Wichita Investors, L.P., and Starwood-Huntington Partners, L.P., and dated as of November 11, 1994, and any amendments or modifications thereof or side letters thereto. "GAAP" shall mean generally accepted accounting principles in effect from time to time. "General Partner" shall mean Starwood Lodging Corporation, a Maryland corporation, its duly admitted successors and assigns as general partner of the Partnership at the time of reference thereto. "Gross Asset Value" shall mean, with respect to any asset of the Partnership, such asset's adjusted basis for federal income tax purposes, except as follows: (a) the initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset at the time of its contribution as reasonably determined by the General Partner and the contributing Partner; (b) the Gross Asset values of all Partnership assets shall be adjusted to equal their respective gross fair market values, as reasonably determined by the General Partner, immediately prior to the following events: 14 (i) a Capital Contribution (other than a de minimis Capital Contribution) to the Partnership by a new or existing Partner as consideration for a Partnership Interest; (ii) the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership property as consideration for the redemption of a Partnership Interest; (iii) the liquidation of the Partnership within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations; and (iv) any other event as to which the General Partner reasonably determines that an adjustment is necessary or appropriate to reflect the relative economic interests of the Partners; (c) the Gross Asset Values of Partnership assets distributed to any Partner shall be the gross fair market values of such assets as reasonably determined by the General Partner as of the date of distribution; and (d) the Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Sections 734(b) or 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations; provided, however, that Gross Asset Values shall not be adjusted pursuant to this paragraph to the extent that the General Partner reasonably determines that an adjustment pursuant to paragraph (b) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph (d). At all times, Gross Asset Values shall be adjusted by any Depreciation taken into account with respect to the Partnership's assets for purposes of computing Net Income and Net Loss. Any adjustment to the Gross Asset Values of Partnership property shall require an adjustment to the Partner's Capital Accounts. "HEI Contribution Agreement" shall mean that certain Contribution Agreement dated January 15, 1997, by and among the HEI Property Companies, SLC, the Partnership, SLT Financing Partnership, a Delaware general partnership, SLT, the Realty Partnership, and certain other parties. "HEI Contributors" shall have that meaning provided in Recital J hereto. "HEI Parties" shall have that meaning provided in Recital K hereto. "HEI Property Companies" shall mean Westport Norfolk Associates Limited Partnership, a Delaware limited partnership, Pruwest Norfolk, L.L.C., a Delaware limited liability company, Westport BWI, L.L.C., a Delaware limited liability company, 15 Pruwest Baltimore, L.L.C., a Delaware limited liability company, Westport Raritan, L.L.C., a Delaware limited liability company, Pruwest Edison, L.L.C., a Delaware limited liability company, Westport Novi, L.L.C., a Delaware limited liability company, Pruwest Novi, L.L.C., a Delaware limited liability company, Westport Park Ridge, L.P., a Delaware limited partnership, Westport Park Ridge, L.L.C., a Delaware limited liability company, Westport Long Beach, L.L.C., a Delaware limited liability company, Westport Charleston, L.L.C., a Delaware limited liability company, Westport Santa Rosa, L.L.C., a Delaware limited liability company, Westport Crystal City, L.L.C., a Delaware limited liability company, Prudential, Atlanta Hotel Associates, LP, a Connecticut limited partnership, Virginia Hotel Associates, L.P., a Delaware limited partnership, BW Hotel Realty, L.P., a Maryland limited partnership, Edison Hotel Associates, L.P., a New Jersey limited partnership, Novi Hotel Associates, L.P., a Delaware limited partnership, Park Ridge Hotel Associates, L.P., a Delaware limited partnership, Long Beach Hotel Associates, L.L.C., a New Jersey limited liability company, Charleston Hotel Associates, L.L.C., a New Jersey limited liability company, Santa Rosa Hotel Associates, L.L.C., a New Jersey limited liability company, Crystal City Hotel Associates, L.L.C., a New Jersey limited liability company, and Prudential HEI Joint Venture, a joint venture. "HEI Property Company Interests" shall have the meaning set forth in the HEI Contribution Agreement. "HICN" shall mean Hotel Investors Corporation of Nevada, a Nevada corporation. "HICN Partnership" shall have the meaning provided in Section 4.1(f) hereof. "HIR" shall have that meaning provided in Recital G hereto. "HSR" shall have that meaning provided in Recital E hereto. "Immediate Family" shall mean, with respect to any Person, such Person's spouse (then current or former), parents, parents-in-law, descendants, brothers and sisters (whether by whole or half-blood), first cousins, brothers-in-law and sisters-in-law (whether by whole or half-blood), ancestors and lineal descendants. "Indemnitee" shall mean any Person who is, or at any time on or after December 15, 1994 was, a (i) General Partner, (ii) employee, trustee, director, officer, stockholder or Liquidating Trustee of the Partnership or the General Partner or (iii) member of the Management Committee. "Inns Ancillary Notes" shall have the meaning provided in Paragraph 2(f) of that certain Bond Purchase Agreement by and among The First National Bank of Boston, HSR, HIR, the Realty Partnership and the Partnership and dated February 26, 1996. "Issuance Percentage" shall mean the relative values of SLT and SLC, 16 each stated as a percentage of the sum of the values of SLT and SLC, and as most recently determined by SLT and SLC. "Lien" shall mean any liens, security interests, mortgages, deeds of trust, pledges, options, rights of first offer or first refusal and any other similar encumbrances of any nature whatsoever. "Limited Partners" shall mean those Persons listed under the heading "Limited Partners" on the signature page hereto in their respective capacities as limited partners of the Partnership, their permitted successors or assigns as limited partners hereof, and any Person who, at the time of reference thereto, is a limited partner of the Partnership. Such terms shall include Class A Limited Partners except where the context otherwise requires. "Liquidating Trustee" shall mean such individual or Entity which is selected as the Liquidating Trustee hereunder by the General Partner, which individual or Entity may include the General Partner or an Affiliate of the General Partner, provided that such Liquidating Trustee agrees in writing to be bound by the terms of this Agreement. The Liquidating Trustee shall be empowered to give and receive notices, reports and payments in connection with the dissolution, liquidation and/or winding up of the Partnership and shall hold and exercise such other rights and powers granted to the General Partner herein or under the Act as are necessary or required to conduct the winding-up and liquidation of the Partnership's affairs and to authorize all parties to deal with the Liquidating Trustee in connection with the dissolution, liquidation and/or winding-up of the Partnership. "Majority-In-Interest of the Class A Limited Partners" shall mean Class A Limited Partner(s) who hold in the aggregate more than fifty (50) percent of the Percentage Interests then allocable to and held by the Class A Limited Partners, as a class (but excluding any Partnership Interest acquired by the General Partner, or any Person holding as a nominee of a General Partner or any Person controlled by a General Partner). "Majority-In-Interest of the Limited Partners" shall mean Limited Partner(s) who hold in the aggregate more than fifty (50) percent of the Percentage Interests then allocable to and held by the Limited Partners, as a class (but excluding any Partnership Interests acquired by the General Partner, or any Person holding as a nominee of a General Partner or any Person controlled by a General Partner). "Minimum Gain Attributable to Partner Nonrecourse Debt" shall mean "partner nonrecourse debt minimum gain" as determined in accordance with Section 1.704-2(i)(2) of the Regulations. "Net Cash Flow" shall mean, with respect to any fiscal period of the Partnership, the excess, if any, of "Receipts" over "Expenditures." For purposes hereof, the term "Receipts" means the sum of all cash receipts of the Partnership from all sources for such period and any amounts held as reserves as of the last day of such period which the General Partner reasonably deems to be in excess of reserves as determined below. The term 17 "Expenditures" means the sum of (a) all cash expenditures of the Partnership for any purpose, including operating expenses and capital expenditures for such period, (b) the amount of all payments of principal, premium, if any, and interest on account of any indebtedness of the Partnership, and (c) such additions to cash reserves as of the last day of such period as the General Partner deems necessary or appropriate for any capital, operating or other expenditure, including, without limitation, contingent liabilities; but the term "Expenditures" shall not include amounts paid from cash reserves previously established by the Partnership. "Net Income" or "Net Loss" shall mean, for each fiscal year or other applicable period, an amount equal to the Partnerships' net income or loss for such year or period as determined for federal income tax purposes by the Accountants, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a) of the Code shall be included in taxable income or loss), with the following adjustments: (a) by including as an item of gross income any tax-exempt income received by the Partnership; (b) by treating as a deductible expense any expenditure of the Partnership described in Section 705(a)(2)(B) of the Code (including amounts paid or incurred to organize the Partnership (unless an election is made pursuant to Section 709(b) of the Code) or to promote the sale of interests in the Partnership and by treating deductions for any losses incurred in connection with the sale or exchange of Partnership property disallowed pursuant to Section 267(a)(1) or Section 707(b) of the Code as expenditures described in Section 705(a)(2)(B) of the Code); (c) in lieu of depreciation, depletion, amortization and other cost recovery deductions taken into account in computing total income or loss, there shall be taken into account Depreciation; (d) gain or loss resulting from any disposition of Partnership property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of such property rather than its adjusted tax basis; (e) in the event of an adjustment of the Gross Asset Value of any Partnership asset which requires that the Capital Accounts of the Partnership be adjusted pursuant to Sections 1.704-1(b)(2)(iv)(e), (f) and (m) of the Regulations, the amount of such adjustment is to be taken into account as additional Net Income or Net Loss pursuant to Section 6.1 hereof; and (f) excluding any items specially allocated pursuant to Section 6.1(b) hereof. "Nonrecourse Deductions" shall have the meaning set forth in Sections 1.704-2(b)(1) and (c) of the Regulations and shall be determined in accordance with Section 1.704-2(c) of the Regulations. "Nonrecourse Liabilities" shall have the meaning set forth in Section 1.704-2(b)(3) of the Regulations. "Original Agreement" shall have the meaning set forth in Recital A hereof. "Paired Share Closing Price" shall mean, with respect to a particular date, the last reported sales price regular way on such date or, in case no such reported sale takes place on such date, the average of the reported closing bid and asked prices regular way on such date, in either case on the New York Stock Exchange, or if the Paired Shares are not 18 then listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Paired Shares are then listed or admitted to trading or, if not then listed or admitted to trading on any national securities exchange, the closing sale price on such date of the Paired Shares or, in case no reported sale takes place on such date then, the average of the closing bid and asked prices on such date, on NASDAQ or any comparable system. If the Paired Shares are not then quoted on NASDAQ or any comparable system, the Board of Trustees of SLT and the Board of Directors of SLC shall in good faith determine the Paired Share Closing Price. "Paired Shares" shall mean one Share and one common share of beneficial interest of SLT that are subject to a pairing agreement between the General Partner and SLT. "Partner Nonrecourse Debt" shall have the meaning set forth in Section 1.704-2(b)(4) of the Regulations. "Partner Nonrecourse Deductions" shall have the meaning set forth in Section 1.704-2(i)(2) of the Regulations and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt shall be determined in accordance with the rules of Section 1.704-2(i) of the Regulations. "Partners" shall mean the General Partner and the Limited Partners, their duly admitted successors or assigns or any Person who is a partner of the Partnership at the time of reference thereto. "Partnership" shall mean the limited partnership formed under the Act pursuant to the Original Agreement and as continued pursuant to this Agreement and any successor thereto. "Partnership Interest" shall mean the ownership interest of a Partner in the Partnership from time to time, including each Partner's Percentage Interest and such Partner's Units. "Partnership Minimum Gain" shall have the meaning set forth in Section 1.704-2(b)(2) of the Regulations and the amount of Partnership Minimum Gain (and any net increase or decrease thereof) for a fiscal year or other period shall be determined in accordance with the rules of Section 1.704-2(d) of the Regulations. "Partnership Record Date" means the record date established by the General Partner for distribution of Net Cash Flow pursuant to Section 6.2 hereof, which record date shall be the same as the record date established by the General Partner for distribution to its shareholders of some or all of its portion of such distribution. "Percentage Interest" shall mean, with respect to any Partner, the percentage ownership interest of such Partner in such items of the Partnership as to which the term "Percentage Interests" is applied in this Agreement, as provided in Section 4.3 hereof. 19 "Person" shall mean any natural person or Entity. "Property" shall mean any property acquired by or contributed to the Partnership or any property owned by an Entity in which the Partnership has an ownership interest. "Purchase Rights" shall have the meaning set forth in Section 4.4 hereof. "Realty Agreement" shall mean the Second Amended and Restated Limited Partnership Agreement of the Realty Partnership, as the same may be amended from time to time. "Realty Partnership" shall mean SLT Realty Limited Partnership, a Delaware limited partnership. "Registration Rights Agreement" shall mean any Registration Rights Agreement by and among SLT and/or SLC and one or more Limited Partners, which is intended to set forth the rights of such Limited Partner or Limited Partners or other holders of Units, and the obligations of SLT and/or SLC, to cause the registration of certain securities pursuant to the Securities Act of 1933, as amended. "Regulations" shall mean the income tax regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations), and may, in the sole discretion of the General Partner, include temporary and/or proposed income tax regulations. "Regulatory Allocations" shall have the meaning set forth in Section 6.1(b)(viii) hereof. "REIT" shall mean a real estate investment trust as defined in Section 856 of the Code. "REIT Requirements" shall mean the requirements for SLT to: (a) qualify as a REIT under the Code and Regulations; (b) avoid any federal income or excise tax liability; (c) retain its status as grandfathered pursuant to Section 136(c)(3) of the Deficit Reduction Act of 1984; and (d) retain the benefits of that certain private letter ruling issued by the Internal Revenue Service to SLT dated as of January 4, 1980. "REIT Requirements" shall also include the ownership limitation provisions set forth in Article VI of the Declaration of Trust of SLT, dated August 25, 1969, as amended and restated as of June 6, 1988, and as the same may be further amended, modified, supplemented, restated or superseded from time to time, and in TENTH Article of the Articles of Incorporation. "Restricted Entity" shall mean any "employee benefit plan" as defined in and subject to ERISA, any "plan" as defined in and subject to Section 4975 of the Code, or any entity any portion or all of the assets of which are deemed pursuant to United States Department of Labor Regulation Section 2510.3-101 or otherwise pursuant to ERISA or the 20 Code to be, for any purpose of ERISA or Section 4975 of the Code, assets of any such "employee benefit plan" or "plan" which invests in such entity. "Rights" shall mean the rights of a Limited Partner as set forth in an Exchange Rights Agreement and/or a Registration Rights Agreement. No provision of this Agreement shall be interpreted as granting any Partner or holder of Units any Rights or any rights or interest in or to the Exchange Rights Agreement or the Registration Rights Agreement. "SEC" shall mean the United States Securities and Exchange Commission. "Section 704(c) Tax Items" shall have the meaning set forth in Section 6.1(c)(iii) hereof. "Shares" shall mean the common stock, par value $0.01 per share, of the General Partner. "SLT" shall mean Starwood Lodging Trust, a Maryland real estate investment trust. "Special Class A Distribution" shall mean, with respect to a Class A Unit, the fair market value, in cash, of any operating or liquidating distribution in cash or other property made by the Realty Partnership with respect to a Unit of the Realty Partnership. Special Class A Distributions may only be made with respect to Class A Units and shall be due at the same time as such operating or liquidating distributions are made by the Realty Partnership. "Suites Ancillary Notes" shall have the meaning provided in Paragraph 2(f) of that certain Bond Purchase Agreement by and among the First National Bank of Boston, HSR, HIR, the Realty Partnership and the Partnership and dated February 26, 1996. "Tax Items" shall have the meaning set forth in Section 6.1(c)(i) hereof. "Tax Payment Loan" shall have the meaning set forth in Section 6.7(a) hereof. "Units" shall have the meaning set forth in Section 4.1(c) hereof, and such term shall include Class A Units except where the context otherwise requires. "Withholding Tax Act" shall have the meaning set forth in Section 6.7(a) hereof. ARTICLE 2 21 Continuation and Business of the Partnership 2.1 Continuation. The parties hereto do hereby continue the limited partnership formed pursuant to the Original Agreement and pursuant to the provisions of the Act and upon the terms and conditions set forth herein. The parties hereto agree that the rights and liabilities of the Partners shall be as provided herein. The parties hereto shall immediately execute and deliver all certificates and other documents and do all filings, recording and publishing and other acts as in the judgment of the General Partner may be appropriate to comply with all of the requirements for the continuation of the Partnership as a limited partnership under the Act and the qualification of the Partnership in any jurisdiction in which the Partnership owns property or conducts business. 2.2 Name. The name of the Partnership shall be SLC Operating Limited Partnership, or such other name as shall be chosen from time to time by the General Partner in its sole and absolute discretion; provided, however, that the General Partner may not choose the name (or any derivative thereof) of any Limited Partner without the prior written consent of such Limited Partner. 2.3 Character of the Business. The purpose of the Partnership shall be to acquire, hold, own, develop, redevelop, construct, improve, maintain, operate, manage, sell, lease, rent, transfer, encumber, mortgage, convey, exchange and otherwise dispose of or deal with the Properties and any other real and personal property of all kinds; to undertake such other activities as may be necessary, desirable or appropriate to the business of the Partnership; to engage in such other activities as shall be necessary, desirable or appropriate to effectuate the foregoing purposes; and to otherwise engage in any enterprise or business in which a limited partnership may engage or conduct under the Act. The Partnership shall have all powers necessary, desirable or appropriate to accomplish the purposes enumerated. In connection with the foregoing, but subject to the terms and conditions of this Agreement, the Partnership shall have full power and authority to enter into, perform and carry out contracts of any kind, to borrow money and to issue evidences of indebtedness, whether or not secured by Liens, and, directly or indirectly, to acquire and construct additional Properties necessary or useful in connection with its business. 2.4 Location of Principal Place of Business. The location of the principal place of business of the Partnership shall be at 2231 East Camelback Road, Suite 400, Phoenix, Arizona 85016, or such other location as shall be selected from time to time by the General Partner in its sole and absolute discretion; provided, however, that the General Partner shall notify the Partners of any change in the location of the principal place of business of the Partnership within thirty (30) days thereafter. 2.5 Registered Agent and Registered Office. The registered agent of the Partnership shall be The Corporation Trust Company or such other Person as the General Partner may select in its sole and absolute discretion. The registered office of the Partnership in the State of Delaware shall be c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801 or such other location as the General Partner may from time to time select in its sole discretion; provided, 22 however, that the General Partner shall notify the Limited Partners of any change in the registered office or registered agent of the Partnership within thirty (30) days thereafter. 2.6 Restatement of Agreement. This Agreement amended and restates the Original Restated Agreement, including the amendments thereto, in its entirety effective as of the date first above written and, effective as of such date, the Original Restated Agreement and the amendment thereto shall be of no further force or effect. ARTICLE 3 Term 3.1 Commencement. The Partnership's term commenced upon the filing of the Certificate with the Secretary of State of Delaware on December 15, 1994. 3.2 Dissolution. The Partnership shall continue until dissolved and terminated upon the occurrence of the earliest of the following events: (a) the death, dissolution, termination, withdrawal, retirement, expulsion or Bankruptcy of the General Partner, unless the Partnership's business is continued as provided in Section 9.1 hereof; (b) the election to dissolve the Partnership made in writing by the General Partner; (c) the sale or other disposition of all or substantially all of the assets of the Partnership unless the General Partner elects to continue the Partnership business for the purpose of the receipt and the collection of indebtedness or the collection of any other consideration to be received in exchange for the assets of the Partnership (which activities shall be deemed to be part of the winding up of the affairs of the Partnership); (d) the entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Act, which decree is final and not subject to appeal; or (e) December 31, 2094. ARTICLE 4 Capital Contributions 4.1 Capital Contributions; Units. (a) As of the date first above written, the Partners have the Percentage Interests in the Partnership as set forth in Exhibit A which Percentage Interests 23 shall be adjusted to the extent necessary to reflect properly exchanges, redemptions or conversions of Partnership Interests, Capital Contributions, the issuance of additional Partnership Interests or any other event having an effect on a Partner's Percentage Interest, in each case to the extent permitted by and in accordance with this Agreement. Except to the extent specifically set forth in this Agreement with respect to the General Partner, the Partners shall have no obligation to make any additional Capital Contributions or loans to the Partnership, even if the failure to do so could result in the Bankruptcy or insolvency of the Partnership or any other adverse consequence to the Partnership. (b) The General Partner shall, from time to time, contribute cash or Property to the Partnership such that the Percentage Interest of the General Partner shall at all times be at least one (1) percent and the Capital Account balance of the General Partner shall be at least the lesser of $500,000 or one (1) percent of the total positive Capital Account balances for the Partnership. (c) The interest of a Partner (or an assignee of a Partner) in capital, allocations of Net Income, Net Loss and distributions shall be evidenced by the issuance to such Partner (or assignee) of one or more "Units." Notwithstanding the foregoing, the interest of a Class A Limited Partner (or an assignee of a Class A Limited Partner) in capital, allocations of Net Income, Net Loss and distributions, including Special Class A Distributions, and Class A Preferred Return, if any, shall be evidenced by the issuance to such Class A Limited Partner (or assignee) of one or more "Class A Units." The aggregate total of all Units and Class A Units outstanding and the ownership of such Units and Class A Units by each Partner and Class A Limited Partner are as set forth on Exhibit A and Exhibit A-1 hereto, respectively, which Exhibits shall be updated by the General Partner to reflect changes in the holdings of Units and Class A Units by the Partners. (d) From time to time, the General Partner may cause the Partnership to issue additional Partnership Interests to existing or newly-admitted Partners in exchange for additional Capital Contributions (including Capital Contributions pursuant to Section 4.1(b)). If the General Partner contributes to the Partnership the net proceeds to the General Partner from any offering or sale of Paired Shares (including, without limitation, any issuance of Paired Shares pursuant to the exercise of options, warrants, convertible securities, or similar rights to acquire Paired Shares), the Partnership shall issue to the General Partner Units equal in number to the number of Paired Shares issued in such offering or sale. If the General Partner or SLT issues Paired Shares to any Person in exchange for services, the Partnership shall issue an equal number of Units to the General Partner effective no later than the date on which the value of the Paired Shares is includable in the gross income of such Person. (e) The General Partner is hereby authorized to cause the Partnership to issue Partnership Interests in one or more classes or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to the then-existing Partnership Interests and Units, as shall be determined by the General Partner in its sole and absolute discretion, including (i) the allocation of items of Partnership income, gain, loss, deduction and credit to each such class or series of Partnership Interests and (ii) the 24 rights of each such class or series of Partnership Interests to share in Partnership distributions (including liquidating distributions); provided, however, that no such additional Partnership Interests shall be issued to the General Partner unless (x) the additional Partnership Interests are issued in connection with an issuance of shares of the General Partner, which shares have designations, preferences and other rights, all such that the economic interests of such shares are substantially similar to the designations, preferences and other rights of the additional Partnership Interests issued to the General Partner in accordance with this Section 4.1(e) and (y) the General Partner contributes to the Partnership an amount equal to the net proceeds received by the General Partner in connection with the issuance of such shares. (f) As of the date first above written, HICN shall be issued the number of Units set forth on Exhibit A hereto. On or before December 31, 1998, HICN or the General Partner, as appropriate, shall make contributions to the Partnership described in Section 6.3 of the Formation Agreement. (g) In the event of any change in the outstanding number of Paired Shares by reason of any share dividend, split, reverse split, recapitalization, merger, consolidation or combination, the number of Units held by each Partner (or assignee) shall be proportionately adjusted such that, to the extent possible, one Unit remains the equivalent of one Share without dilution. It is the intent of the Partners that, to the extent possible, the number of Units held by the General Partner shall at all times equal the number of issued and outstanding Paired Shares. (h) No fractional Units shall remain outstanding. In lieu of issuing a fractional Unit to a holder of Units, the number of Units to be held by such holder shall be rounded to the nearest whole Unit, or, at the option of the General Partner, the holder shall be paid cash equal to the fair market value of such fractional Unit. 4.2 Redemption of Units Held by Limited Partner. The General Partner is hereby authorized to cause the Partnership to redeem all or any portion of the Units held by any Limited Partner whenever the General Partner, in its sole discretion, believes such redemption to be reasonably necessary or appropriate in order to prevent the Partnership from being characterized as a "publicly traded partnership" pursuant to Section 7704 of the Code and the Regulations thereunder. Any redemption of Units pursuant to this Section 4.2 shall be made from the Limited Partners in reverse order of their respective ownership of Units, that is, first from the Limited Partner or Limited Partners with the fewest Units, and, second, if required, from the Limited Partner or Limited Partners with the next fewest Units, et cetera. Notwithstanding the previous sentence, the General Partner is hereby authorized to cause the Partnership to redeem all of the Units held by a particular Limited Partner, including a Class A Limited Partner, who, because of the number of such Limited Partner's direct or indirect beneficial owners or its structure, in the judgment of the General Partner in its sole discretion, and whether or not in conjunction with any other Partner (whether redeemed pursuant to this Section 4.2 or not), may cause the Partnership to be characterized as a "publicly traded partnership" pursuant to Section 7704 of the Code and the Regulations thereunder. The redemption price of any Unit redeemed pursuant to this Section 4.2 shall be equal to the product of (a) 115% of the average of the Paired Share Closing Price for the ten (10) trading 25 day period ending five (5) days prior to the date of such redemption, multiplied by (b) the then Issuance Percentage of SLC. Any redemption of a Limited Partner shall be effective upon the date specified in a Notice to such Limited Partner, or, if later, five (5) days after such Notice. No redemption pursuant to this Section 4.2 shall be made unless the Realty Partnership concurrently effects a comparable redemption. 4.3 Percentage Interests. The Percentage Interest of a Partner shall be equal to the percentage obtained by dividing (a) the number of Units held by such Partner (including Units held by assignees of such Partner who have not been admitted as Partners) by (b) the total number of issued and outstanding Units. 4.4 Purchase Rights. If the General Partner grants, issues or sells any options, convertible securities or rights to purchase shares, warrants, or other property pro rata to the record holders of Shares (collectively, "Purchase Rights"), then the Partners shall, to the extent practicable and consistent with the other provisions of this Agreement, be entitled to acquire from the Partnership interests in the Partnership that are substantially similar in amount, tone and tenor to the Purchase Rights to which such Partners would be entitled if such Partners had converted their Partnership Interests into Paired Shares immediately prior to the grant, issue or sale of the Purchase Rights. 4.5 Redemption of Units Held by the General Partner. If the General Partner shall redeem any of its outstanding Shares (including the issuance of cash in lieu of fractional Shares or in the event of the forfeiture or cancellation of Shares issued in exchange for services), the Partnership shall concurrently therewith redeem an equal number of Units held by the General Partner for the same price as paid by the General Partner for the redemption, forfeiture or cancellation of such Shares. Similar redemptions of interests of the General Partner in the Partnership shall occur if any other outstanding securities of the General Partner are redeemed or otherwise retired. 4.6 No Third Party Beneficiaries. No creditor or other third party shall have the right to enforce any right or obligation of any Partner to make Capital Contributions or loans or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and assigns. None of the rights or obligations of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or of any of the Partners. 4.7 No Interest on or Return of Capital Contribution. No Partner shall be entitled to interest on its Capital Contribution or Capital Account. Except as provided herein or by law, no Partner shall have any right to demand or receive the return of its Capital Contribution. 26 ARTICLE 5 Indemnification 5.1 Indemnification of the General Partner. (a) To the fullest extent permitted by law, the Partnership shall and does hereby indemnify an Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including reasonable legal fees and expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits or proceedings (including arbitration and mediation proceedings), civil, criminal, administrative or investigative, that relate, directly or indirectly, to the formation, business or operations of the Partnership in which any Indemnitee may be involved, or is threatened to be involved, as a party, witness or otherwise, by reason of the fact that such Person was an Indemnitee, whether or not the same shall proceed to judgment or be settled or otherwise be brought to a conclusion, except only if and to the extent that it is finally adjudicated that the act or omission of the Indemnitee was material to the matter giving rise to the proceeding and was committed with fraud, gross negligence or willful misconduct. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 5.1(a). Any indemnification pursuant to this Section 5.1 shall be made only out of the assets of the Partnership and no Partner shall have any personal liability therefor. The provisions of this Section 5.1 are for the benefit of the Indemnitees, their heirs, successors, assigns, personal representatives and administrators, and shall not be deemed to create any rights for the benefit of any other Persons. The foregoing notwithstanding, the General Partner (or any former General Partner) shall not be entitled to indemnification from the Partnership with respect to matters provided for in Sections 9.1 and 9.2 of the Formation Agreement. (b) Reasonable expenses incurred by an Indemnitee who is a party or witness in a proceeding shall be paid or reimbursed by the Partnership in advance of the final disposition of the proceeding upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's good faith belief that the standard of conduct necessary for indemnification by the Partnership, as authorized in this Section 5.1, has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount paid or reimbursed if it shall ultimately be determined that such Indemnitee is not entitled to be indemnified hereunder. (c) The indemnification provided by this Section 5.1 shall be in addition to any other rights to which an Indemnitee may be entitled under any agreement, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity. The Partnership shall purchase and maintain insurance, on behalf of the Indemnitees, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership's activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement. An Indemnitee shall not be denied indemnification in whole or in part under this Section 5.1 solely because the Indemnitee had an interest in the transaction with 27 respect to which the indemnification applies. (d) For purposes of this Section 5.1, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Partnership also imposes duties on, or otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute fines within the meaning of this Section 5.1; and actions taken or omitted by the Indemnitee with respect to an employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Partnership. 5.2 Indemnification of Limited Partners. (a) From and after the date hereof, the Partnership shall indemnify and hold harmless each Limited Partner, its Affiliates, employees, officers, directors and agents against and from all liability, demands, claims, actions or causes of action, assessments, losses, fines, penalties, costs, damages and expenses (including, without limitation, reasonable attorneys' and accountants' fees and expenses) sustained or incurred by such Limited Partner or Affiliate or any assignee or successor thereof (including, without limitation, any permitted assignee of a Limited Partner under Article 9 hereof) as a result of or arising out of any action, suit or proceeding (including mediation and arbitration proceedings) (i) arising out of or relating to the operation of the Partnership's business or the Limited Partner being a Partner in the Partnership (excluding, specifically, actions, suits or proceedings arising out of actual or alleged breaches of a Partner's representations, warranties or covenants hereunder or pursuant to the Formation Agreement or arising out of acts by a Limited Partner other than in its capacity as such) and (ii) naming a Limited Partner or any of its Affiliates as a party to such proceeding. Any indemnification pursuant to this Section 5.2(a) shall be made only out of the assets of the Partnership and no Partner shall have any personal liability therefor. The provisions of this Section 5.2(a) are for the benefit of the Limited Partners, their Affiliates, employees, officers, directors and agents, and shall not be deemed to create any rights for the benefit of any other Persons. (b) The foregoing notwithstanding, the Partnership shall indemnify the Class A Limited Partners in respect of all federal or state income tax consequences to them arising from the Special Class A Distributions and the distribution described in Section 8.2(a)(iii) hereof being subject to federal or state income tax in a manner that is less favorable than comparable distributions with respect to Units in the Realty Partnership. Any indemnification pursuant to the preceding sentence shall be computed on a cumulative basis from and after February 14, 1997, and shall be grossed up for any income tax consequences of such indemnification so as to put the Class A Limited Partners in the same after-tax position they would have been in had they been Partners in the Realty Partnership as to such distributions. All calculations of the indemnification payments shall be computed as if the Class A Limited Partners had no sources of income, loss or gain other than from the comparable distributions with respect to Units in the Realty Partnership and pay tax at the 28 highest applicable federal and state tax rates. The provisions of this Section 5.2(b) shall be in addition to and not in limitation of the indemnification provided to Limited Partners pursuant to Section 5.2(a) above. (c) Also notwithstanding the foregoing, the Partnership shall indemnify and hold harmless the HEI Parties of and from liabilities of the HEI Property Companies whose HEI Property Company Interests have been acquired by the Partnership except for any undisclosed material liability of such Property Company as of February 14, 1997 (collectively, the "Excluded Liabilities"); provided, however, that the Excluded Liabilities shall not include: (i) any liability incurred in the ordinary course of operating the applicable Hotel prior to February 14, 1997; (ii) any liability disclosed by the Transaction Documents, the Schedules or Exhibits thereto, any supplement to such schedules or exhibits delivered to the Starwood Parties prior to February 14, 1997, the agreements, reports or other documents referred to in any of the foregoing, the Financial Statements, the financial statements prepared in connection with the Net Working Capital adjustment provided for in Article IV of the Contribution Agreement; (iii) any Liability of which the Starwood Parties otherwise had Knowledge prior to February 14, 1997; or (iv) any Liability incurred on or after February 14, 1997; and the Partnership shall be obligated to hold the HEI Parties harmless from all such enumerated liabilities. The provisions of this Section 5.2(c) shall be in addition to and not in limitation of the indemnifications provided to Limited Partners pursuant to Section 5.2(a) and 5.2(b) above. Any capitalized term in this Section 5.2(c) not otherwise defined in this Agreement shall have the meaning set forth in the HEI Contribution Agreement. 5.3 Notice of Claims. If any Person believes that it is entitled to indemnification under this Article 5, such Person shall so notify the Partnership promptly in writing describing such claim for indemnification, the amount thereof, if known, and the method of computation, all with reasonable particularity and containing a reference to the provisions of this Agreement in respect of which such claim shall have occurred; provided, however, that the omission by such indemnified party to give notice as provided herein shall not relieve the Partnership of its indemnification obligation under this Article 5 except to the extent that the Partnership is materially damaged as a result of such failure to give notice. If any action at law or suit in equity is instituted by or against a third party with respect to which any of the Persons entitled to indemnification under this Article 5 intends to make a claim for indemnification under this Article 5, any such Person shall promptly notify the Partnership of such action or suit. Any Person entitled to indemnification hereunder shall use reasonable efforts to minimize the amount of any claim for indemnification hereunder. 29 5.4 Third Party Claims. In the event of any claim for indemnification hereunder resulting from or in connection with any claim or legal proceeding by a third party, the indemnified Person shall give such notice thereof to the Partnership not later than twenty (20) Business Days prior to the time any response to the asserted claim is required, if possible, and in any event within fifteen (15) Business Days following the date such indemnified Person has actual knowledge thereof; provided, however, that the omission by such indemnified Person to give notice as provided herein shall not relieve the Partnership of its indemnification obligation under this Article 5 except to the extent that the Partnership is materially damaged as a result of such failure to give notice. In the event of any such claim for indemnification resulting from or in connection with a claim or legal proceeding by a third party, the Partnership may, at its sole cost and expense, assume the defense thereof; provided, however, that counsel for the Partnership, who shall conduct the defense of such claim or legal proceeding, shall be reasonably satisfactory to the indemnified Person; and provided, further, that if the defendants in any such actions include both the indemnified Persons and the Partnership and the indemnified Persons shall have reasonably concluded that there may be legal defenses or rights available to them which have not been waived and are in actual or potential conflict with those available to the Partnership, the indemnified Persons shall have the right to select one law firm reasonably acceptable to the Partnership to act as separate counsel, on behalf of such indemnified Persons, at the expense of the Partnership. Unless the indemnified Persons are represented by separate counsel pursuant to the second proviso of the immediately preceding sentence, if the Partnership assumes the defense of any such claim or legal proceeding, it shall not consent to entry of any judgment, or enter into any settlement, that (a) is not subject to indemnification in accordance with the provisions in this Article 5, (b) provides for injunctive or other non-monetary relief affecting the indemnified Persons or (c) does not include as an unconditional term thereof the giving by each claimant or plaintiff to such indemnified Persons of a release from all liability with respect to such claim or legal proceeding, without the prior written consent of the indemnified Persons (which consent, in the case of clauses (b) and (c), shall not be unreasonably withheld or delayed); and provided, further, that, unless the indemnified Persons are represented by separate counsel pursuant to the second proviso of the immediately preceding sentence, the indemnified Persons may, at their own expense, participate in any such proceeding with the counsel of their choice without any right of control thereof. So long as the Partnership is in good faith defending such claim or proceeding, the indemnified Persons shall not compromise or settle such claim or proceeding without the prior written consent of the Partnership, which consent shall not be unreasonably withheld or delayed. If the Partnership does not assume the defense of any such claim or litigation in accordance with the terms hereof, the indemnified Persons may defend against such claim or litigation in such manner as they may deem appropriate, including, without limitation, settling such claim or litigation (after giving prior written notice of the same to the Partnership and obtaining the prior written consent of the Partnership, which consent shall not be unreasonably withheld or delayed) on such terms as the indemnified Persons may deem appropriate, and the Partnership will promptly indemnify the indemnified Persons in accordance with the provisions of this Article 5. 5.5 Indemnification Pursuant to Formation Agreement. If any obligation pursuant to the indemnification provisions of Article IX of the Formation Agreement would otherwise require the indemnifying Person to make a cash payment to the indemnified Person 30 then, subject to Article 9 hereof, in lieu of making all or any portion of such cash payment, the indemnifying Person may transfer Units of equivalent value to the indemnified Person. For purposes of the preceding sentence, the value of a Unit shall be treated as equal to five (5) percent of the average closing price of a Paired Share for the ten (10) trading day period commencing fifteen (15) trading days prior to the date the indemnifying Person would otherwise be required to pay cash to the indemnified Person. Indemnification through the transfer of Units pursuant to this Section 5.5 may only made if (a) indemnification through the transfer of an equal number of units of the Realty Partnership is being made pursuant to Section 5.5 of the Second Amended and Restated Limited Partnership Agreement of SLT Realty Limited Partnership or (b) the indemnifying Person otherwise makes arrangements for the transfer to the indemnified Person (or its designee) of an equal number of units of the Realty Partnership. ARTICLE 6 Allocations, Distributions and Other Tax and Accounting Matters 6.1 Allocations. The Net Income, Net Loss and other Partnership items shall be allocated pursuant to the provisions of this Section 6.1 hereto. (a) Allocation of Net Income and Net Loss. (i) Net Income. Except as otherwise provided herein, Net Income for any fiscal year or other applicable period shall be allocated in the following order and priority: (A) first, to the General Partner, until the cumulative Net Income allocated pursuant to this clause (i)(A) for the current and all prior periods equals the cumulative Net Loss allocated pursuant to the last sentence of clause (ii) hereof for all prior periods; and (B) second, to the holders of Units, including Class A Units, in proportion to and in reverse order of their prior allocations of Net Loss (other than pursuant to the last sentence of clause (ii) hereof) until the cumulative Net Income allocated pursuant to this clause (i)(B) for the current and all prior periods equals the cumulative Net Loss allocated to such holders (other than pursuant to the last sentence of clause (ii) hereof) for all prior periods; (C) third, to the holders of Class A Units until each holder of Class A Units has been allocated Net Income pursuant to this clause (i)(C) in an amount equal to its Class A Preferred Return for the current and all prior periods; (D) fourth, to the holders of Class A Units until each holder of Class A Units has been allocated Net Income pursuant to this clause (i)(D) in an amount equal to the Net Income (as defined in Article I of the Realty Agreement) allocated to a 31 Unit of the Realty Partnership for all prior periods (or portions thereof) from and after February 14, 1997 pursuant to Section 6.1(a)(i)(B) of the Realty Agreement, multiplied by the number of Class A Units held by such holder; and (E) thereafter, the balance of Net Income, if any, shall be allocated to the holders of Units, including Class A Units, in accordance with their respective holdings of Units. (ii) Net Loss. Except as otherwise provided herein, Net Loss of the Partnership for each fiscal year or other applicable period shall be allocated in the following order and priority; (A) first, to the holders of Units, including Class A Units, in proportion to their prior allocations of Net Income pursuant to clause (i)(E) until the cumulative Net Loss allocated pursuant to this clause (ii)(A) for the current and all prior periods equals the cumulative Net Income allocated to such holders pursuant to clause (i)(E) for all prior periods; (B) second, to the holders of Class A Units in proportion to their prior allocations of Net Income pursuant to clause (i)(D) until the cumulative Net Loss allocated pursuant to this clause (ii)(B) for the current and all prior periods equals the cumulative Net Income allocated to such holders pursuant to clause (i)(D) for all prior periods; and (C) thereafter, to the holders of Units, including Class A Units, in accordance with their respective holdings of Units. Clause (ii)(C) notwithstanding, to the extent any Net Loss allocated to a holder would cause such a holder to have an Adjusted Capital Account Deficit as of the end of the fiscal year to which such Net Loss relates, such Net Loss shall not be allocated to such holder and instead shall be allocated to the General Partner. (b) Special Allocations. Notwithstanding any provisions of Section 6.1(a) hereof, the following special allocations shall be made in the following order: (i) Minimum Gain Chargeback. Notwithstanding any other provision of this Article 6, if there is a net decrease in Partnership Minimum Gain for any Partnership fiscal year (except as a result of conversion or refinancing of Partnership indebtedness, certain capital contributions or revaluation of the Partnership property as further outlined in Section 1.704-2(f) of the Regulations), each holder of Units shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to that holder's share of the net decrease in Partnership Minimum Gain as determined under Section 1.704-2(g) of the Regulations. The items to be so allocated shall be determined in accordance with Section 1.704-2(f) of the Regulations. This clause (i) is intended to comply with the minimum gain chargeback requirement in said section of the Regulations and shall be interpreted consistently therewith. Allocations pursuant to this clause 32 (i) shall be made in proportion to the respective amounts required to be allocated to each holder of Units pursuant hereto. (ii) Minimum Gain Chargeback Attributable to Partner Nonrecourse Debt. Notwithstanding any other provision of this Article 6, if there is a net decrease in Minimum Gain Attributable to Partner Nonrecourse Debt during any fiscal year (other than due to the conversion, refinancing or other change in the debt instrument causing it to become partially or wholly nonrecourse, certain capital contributions, or certain revaluations of Partnership property (as further outlined in Section 1.704-2(i)(4) of the Regulations), each holder of Units shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to the holder's share of the net decrease in the Minimum Gain Attributable to Partner Nonrecourse Debt as determined under Section 1.704-2(i) of the Regulations. The items to be so allocated shall be determined in accordance with Sections 1.704-2(i)(4) and (j)(2) of the Regulations. This clause (ii) is intended to comply with the minimum gain chargeback requirement with respect to Partner Nonrecourse Debt contained in said section of the Regulations and shall be interpreted consistently therewith. Allocations pursuant to this clause (ii) shall be made in proportion to the respective amounts required to be allocated to each holder of Units. (iii) Qualified Income Offset. In the event a holder of Units unexpectedly receives any adjustments, allocations or distributions described in Section 1.704-1(b)(2)(ii) (d)(4), (5), or (6) of the Regulations, and such holder has an Adjusted Capital Account Deficit, items of Partnership income and gain shall be specially allocated to such holder in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit as quickly as possible, provided that an allocation pursuant to this Section 6.1(b)(iii) shall be made only if and to the extent that such holder would have Adjusted Capital Account Deficit after all other allocations provided for in this Article VI have been tentatively made as if this Section 6.1(b)(iii) were not in the Agreement. This clause (iii) is intended to constitute a "qualified income offset" under Section 1.704-1(b)(2)(ii) (d) of the Regulations and shall be interpreted consistently therewith. (iv) Gross Income Allocation. In the event any holder of Units has a deficit Capital Account at the end of any fiscal year which is in excess of the sum of (x) the amount such holder is obligated to restore pursuant to any provision of this Agreement, and (y) the amount such holder is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such holder shall be specially allocated items of Partnership income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 6.1(b)(iv) shall be made only if and to the extent that such holder would have a Capital Account Deficit in excess of such sum after all other allocations provided for in this Article 6 have been made as if Section 6.1(b)(iii) hereof and this Section 6.1(b)(iv) were not in the Agreement. (v) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year or other applicable period shall be allocated to the holders of Units in accordance with their respective holdings of Units. For purposes of Section 1.752-3(a) (3) of the Regulations, "excess nonrecourse liabilities" shall be allocated among the holders of Units 33 in proportion to their respective holdings of Units. (vi) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions for any fiscal year or other applicable period shall be specially allocated to the holder of Units that bears the economic risk of loss with respect to the Partner Nonrecourse Debt in respect of which such Partner Nonrecourse Deductions are attributable (as determined under Sections 1.704-2(b)(4) and (i) (1) of the Regulations). (vii) Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or Section 743(b) of the Code is required, pursuant to Section 1.704-1(b)(2)(iv)(m)(2) or Section 1.704-1(b)(2)(iv)(m)(4) of the Regulations, to be taken into account in determining Capital Accounts, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to holders of Units in accordance with their interests in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such sections of the Regulations. (viii) Curative Allocations. The Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss, and deduction among the holders of Units so that, to the extent possible, the cumulative net amount of allocations of Partnership items under Sections 6.1(a) and (b) hereof shall be equal to the net amount that would have been allocated to each holder of Units if the Regulatory Allocations had not occurred. This subparagraph (viii) is intended to minimize to the extent possible and to the extent necessary any economic distortions which may result from application of the Regulatory Allocations and shall be interpreted in a manner consistent therewith. For purposes hereof, "Regulatory Allocations" shall mean the allocations provided under this Section 6.1(b) (other than this subparagraph) and allocations pursuant to the last sentence of Section 6.1(a)(ii) hereof. (ix) Varying Interests. In the event the number of Units outstanding during a fiscal year changes, the allocations pursuant to this Article 6 shall be made by the General Partner to take such varying interests into account in any reasonable manner permitted under the Code and the Regulations. (c) Tax Allocations. (i) Generally. Subject to clauses (ii) and (iii) hereof, items of income, gain, loss, deduction and credit to be allocated for income tax purposes (collectively, "Tax Items") shall be allocated among the holders of Units on the same basis as their respective book items. (ii) Sections 1245/1250 Recapture. If any portion of gain from the sale of property is treated as gain which is ordinary income by virtue of the application of Sections 1245 or 1250 of the Code ("Affected Gain"), then (A) such Affected Gain shall be allocated among the holders of Units in the same proportion that the depreciation 34 and amortization deductions giving rise to the Affected Gain were allocated and (B) other Tax Items of gain of the same character that would have been recognized, but for the application of Sections 1245 and/or 1250 of the Code, shall be allocated away from those holders of Units who are allocated Affected Gain pursuant to clause (A) so that, to the extent possible, the other holders of Units are allocated the same amount, and type, of capital gain that would have been allocated to them had Sections 1245 and/or 1250 of the Code not applied. For purposes hereof, in order to determine the proportionate allocations of depreciation and amortization deductions for each fiscal year or other applicable period, such deductions shall be deemed allocated on the same basis as Net Income or Net Loss for such respective period. (iii) Allocations Respecting Section 704(c) of the Code and Revaluations. Property contributed to the Partnership shall be subject to Section 704(c) of the Code and the Regulations thereunder so that, notwithstanding paragraph (b) hereof, taxable gain from disposition, taxable loss from disposition and tax depreciation with respect to Partnership property that is subject to Section 704(c) of the Code and/or Section 1.704-1(b)(2)(iv)(f) of the Regulations (collectively "Section 704(c) Tax Items") shall be allocated on a property by property basis in accordance with said Code Section and/or the Regulations thereunder, as the case may be. The allocation of Section 704(c) Tax Items shall be made pursuant to any reasonable method selected by the General Partner in its discretion authorized under Section 1.704-3 of the Regulations. Allocations pursuant to this Section 6.1(c)(iii) are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, the Capital Account or share of Net Income, Net Loss, other items, or distributions of any holder of Units pursuant to any provision of this Agreement. (iv) Tax Credits and Other Items. Tax credits and other items shall be allocated in accordance with the holdings of Units to the extent permitted under Section 1.704-1(b)(4)(ii) of the Regulations or other applicable provision of the Code and Regulations and otherwise in accordance with such provisions. (v) Ancillary Notes. Income, gain, loss or correlative adjustments, if any, relating to the Suites Ancillary Notes or the disposition thereof shall be specially allocated to HSR (or its assignees or successors-in-interest). Income, gain, loss or correlative adjustments, if any, relating to the Inns Ancillary Notes or the disposition thereof shall be specially allocated to HSR (or its assignees or successors-in-interest). (vi) Allocations on Liquidation. If the distributions to holders of Units pursuant to Section 8.2(a) hereof would otherwise not be in accordance with the positive balances in their Capital Accounts (after taking into account all adjustments to such Capital Accounts for all periods), then items of gross income and gross deduction for the fiscal year with respect to which such distributions are being made (and, if necessary, for prior fiscal years for which amended tax returns can and shall be filed) shall be reallocated among the holders of Units such that the distributions to holders of Units pursuant to Section 8.2(a) hereof are in accordance with the positive balances in their Capital Accounts (after taking into account all adjustments to such Capital Accounts for all periods). 6.2 Distributions. The General Partner shall cause the Partnership to 35 distribute all, or such portion as the General Partner may in its reasonable discretion determine, of Net Cash Flow to the holders of Units, including Class A Units, who are holders on the Partnership Record Date with respect to such distribution. Distributions of Net Cash Flow shall be made in the following priority: (a) first, to the holders of Class A Units, pro rata in an amount equal to the excess, if any, of (i)(x) the cumulative Class A Preferred Return from February 14, 1997 to the end of such fiscal year or other applicable period ending on the Partnership Record Date, over (y) the sum of all prior distributions to the holders of Class A Units pursuant to this Section 6.2(a)(i), and then (ii)(x) the cumulative Special Class A Distributions from February 14, 1997 to the end of such fiscal year or other applicable period ending on the Partnership Record Date, over (y) the sum of all prior distributions to the holders of Class A Units pursuant to this Section 6.2(a)(ii), treating the distributed amounts as paying the oldest amounts due first; and (b) thereafter, to the holders of Units, including Class A Units, pro rata in accordance with the holders' ownership of Units, including Class A Units. 6.3 Books of Account. At all times during the continuance of the Partnership, the General Partner shall maintain or cause to be maintained full, true, complete and correct books of account in accordance with GAAP, using the calendar year as the fiscal and taxable year of the Partnership. In addition, the Partnership shall keep all records required to be kept pursuant to the Act. 6.4 Reports. The General Partner shall cause to be sent to the Partners promptly after receipt of the same from the Accountants and in no event later than 105 days after the close of each fiscal year of the Partnership, copies of Audited Financial Statements for the Partnership, or of the General Partner if such statements are prepared solely on a consolidated basis with the General Partner, for the immediately preceding fiscal year of the Partnership. The Partnership shall also cause to be prepared such reports and/or information as are necessary for SLT to determine its qualification as a REIT and its compliance with REIT Requirements. 6.5 Tax Elections and Returns. All elections required or permitted to be made by the Partnership under any applicable tax law shall be made by the General Partner in its sole and absolute discretion, except that the General Partner shall, if requested by a Limited Partner, file an election on behalf of the Partnership pursuant to Section 754 of the Code to adjust the basis of the Partnership property in the case of a transfer of a Partnership Interest or distribution from the Partnership, including transfers made in connection with the exercise of the Rights, made in accordance with the provisions of the Agreement. The General Partner shall be responsible for preparing and filing all federal and state tax returns for the Partnership and furnishing copies thereof to the Partners, together with required Partnership schedules showing allocations of tax items, copies of all within the period of time prescribed by law. The General Partner shall use reasonable efforts to make available to the holders of Units final K-1's not later than September 15 of each year. 6.6 Tax Matters Partner. The General Partner is hereby designated as the 36 Tax Matters Partner within the meaning of Section 6231(a)(7) of the Code (and any corresponding provisions of state and local law) for the Partnership; provided, however, that (a) in exercising its authority as Tax Matters Partner, the General Partner shall be limited by the provisions of this Agreement affecting tax aspects of the Partnership; and (b) the General Partner shall give prompt notice to any notice partners under Section 6231 of the Code of the receipt of any written notice that the Internal Revenue Service intends to examine or audit Partnership income tax returns for any year, receipt of written notice of the beginning of an administrative proceeding at the Partnership level relating to the Partnership under Section 6223 of the Code, receipt of written notice of the final Partnership administrative adjustment relating to the Partnership pursuant to Section 6223 of the Code, and receipt of any request from the Internal Revenue Service for waiver of any applicable statute of limitations with respect to the filing of any tax return by the Partnership. 6.7 Withholding Payments Required By Law. (a) Unless treated as a Tax Payment Loan (as hereinafter defined), any amount paid by the Partnership for or with respect to any holder of Units on account of any withholding tax or other tax payable with respect to the income, profits or distributions of the Partnership pursuant to the Code, the Regulations, or any state or local statute, regulation, notice, ruling or ordinance requiring such payment (a "Withholding Tax Act") shall be treated as a distribution to such holder for all purposes of this Agreement, consistent with the character or source of the income, profits or cash which gave rise to the payment or withholding obligation. To the extent that the amount required to be remitted by the Partnership under the Withholding Tax Act exceeds the amount then otherwise distributable to such holder, unless and to the extent that funds shall have been provided by such holder pursuant to the last sentence of this Section 6.7(a), the excess shall constitute a loan from the Partnership to such holder (a "Tax Payment Loan") which shall be payable upon demand and shall bear interest, from the date that the Partnership makes the payment to the relevant taxing authority, at the rate announced from time to time by Citibank, N.A. (or any successor thereto) as its "prime rate", plus four (4) percent per annum, compounded monthly (but in no event higher than the highest interest rate permitted by applicable law). So long as any Tax Payment Loan to any holder of Units or the interest thereon remains unpaid, the Partnership shall make future distributions due to such holder under this Agreement by applying the amount of any such distributions first to the payment of any unpaid interest on such Tax Payment Loan and then to the repayment of the principal thereof, and no such future distributions shall be paid to such holder until all of such principal and interest has been paid in full. If the amount required to be remitted by the Partnership under the Withholding Tax Act exceeds the amount then otherwise distributable to a holder of Units, the Partnership shall notify such holder at least five (5) Business Days in advance of the date upon which the Partnership would be required to make a Tax Payment Loan under this Section 6.7(a) (the "Tax Payment Loan Date") and provide such holder the opportunity to pay to the Partnership, on or before the Tax Payment Loan Date, all or a portion of such deficit. (b) The General Partner shall have the authority to take all actions necessary to enable the Partnership to comply with the provisions of any Withholding Tax Act applicable to the Partnership and to carry out the provisions of this Section 6.7. Nothing in this Section 6.7 shall create any obligation on the General Partner to advance funds to the 37 Partnership or to borrow funds from third parties in order to make any payments on account of any liability of the Partnership under a Withholding Tax Act. (c) In the event that a Tax Payment Loan is not paid by a holder of Units within thirty (30) days after written demand therefor is made by the General Partner, the General Partner may cause all distributions that would otherwise be made to such holder to be retained by the Partnership, or sell such holder's Units for sale proceeds, in each case up to the amount necessary to repay such Tax Payment Loan, including all accrued and unpaid interest therein, and such retained distributions or sale proceeds shall be applied against, first, the accrued interest on and, second, the principal of, such Tax Payment Loan. ARTICLE 7 Rights, Duties and Restrictions of the General Partner 7.1 Powers and Duties of the General Partner. (a) Subject to Section 7.11 hereof, the General Partner shall be responsible for the management of the Partnership's business and affairs. Except as otherwise herein expressly provided, the General Partner shall have, and is hereby granted, full and complete power, authority and discretion to take such action for and on behalf of the Partnership and in its name as the General Partner shall, in its sole and absolute discretion, deem necessary or appropriate to carry out the Partnership's business and the purposes for which the Partnership was organized. Except as otherwise expressly provided herein, the General Partner shall, on behalf of, and at the expense of, the Partnership, have the right, power and authority: (i) to manage, control, invest, reinvest, acquire by purchase, lease or otherwise, sell, contract to purchase or sell, grant, obtain, or exercise options to purchase, options to sell or conversion rights, assign, transfer, convey, deliver, endorse, exchange, pledge, mortgage, abandon, improve, repair, maintain, insure, lease for any term and otherwise deal with any and all property of whatsoever kind and nature, and wheresoever situated, in furtherance of the business or purposes of the Partnership; (ii) to acquire, directly or indirectly, interests in real estate of any kind and of any type, and any and all kinds of interests therein (including, without limitation, Entities investing therein), and to determine the manner in which title thereto is to be held; to manage (directly or through property managers), insure against loss, protect and subdivide any of the real estate, interests therein or parts thereof; to improve, develop or redevelop any such real estate; to participate in the ownership and development of any property; to dedicate for public use, to vacate any subdivisions or parts thereof, to resubdivide, to contract to sell, to grant options to purchase or lease, to sell on any terms; to convey, mortgage, pledge or otherwise encumber said property, or any part thereof; to lease said property or any part thereof from time to time, upon any terms and for any period of time, and to renew or extend leases, to amend, change or modify the terms and provisions of any leases and to grant options to lease and options to renew leases and options to purchase; to partition 38 or to exchange said real property, or any part thereof, for other real or personal property; to grant easements or charges of any kind; to release, convey or assign any right, title or interest in or about or easement appurtenant to said property or any part thereof; to construct and reconstruct, remodel, alter, repair, add to or take from buildings on any property in which the Partnership owns an interest; to insure any Person having an interest in or responsibility for the care, management or repair of such property; to direct the trustee of any land trust to mortgage, lease, convey or contract to convey the real estate held in such land trust or to execute and deliver deeds, mortgages, notes and any and all documents pertaining to the property subject to such land trust or in any matter regarding such trust; and to execute assignments of all or any part of the beneficial interest in such land trust; (iii) to employ, engage, indemnify or contract with or dismiss from employment or engagement Persons to the extent deemed necessary or appropriate by the General Partner for the operation and management of the Partnership business, including but not limited to contractors, subcontractors, engineers, architects, surveyors, mechanics, consultants, accountants, attorneys, insurance brokers, real estate brokers and others; (iv) to enter into contracts on behalf of the Partnership, and to cause all Administrative Expenses to be paid; (v) to borrow or loan money, obtain or make loans and advances from and to any Person for Partnership purposes and to apply for and secure from or accept and grant to any Person credit or accommodations; to contract liabilities and obligations (including interest rate swaps, caps and hedges) of every kind and nature with or without security; and to repay, collect, discharge, settle, adjust, compromise or liquidate any such loan, advance, obligation or liability; provided, however, without the Consent of a Majority-In-Interest of the Class A Limited Partners, the Partnership shall not borrow from the Realty Partnership or SLT such that neither the Realty Partnership nor SLT has lending capacity under Section 856(c)(5)(B) of the Code to lend an amount to the Partnership to allow the Partnership to discharge its and the General Partner's obligations to the Class A Limited Partners under this Agreement and under that certain Class A Exchange Rights Agreement dated February 14, 1997, by and among SLC, the Partnership, and the Class A Limited Partners; (vi) to grant security interests, mortgage, assign, deposit, deliver, enter into sale and leaseback arrangements or otherwise give as security or as additional or substitute security or for sale or other disposition any and all Partnership property, tangible or intangible, including, but not limited to, personal property and real estate and interests in land trusts, and to make substitutions thereof, and to receive any proceeds thereof upon the release or surrender thereof; to sign, execute and deliver any and all assignments, deeds, bills of sale and contracts and instruments in writing; to authorize, give, make, procure, accept and receive moneys, payments, property notices, demands, protests and authorize and execute waivers of every kind and nature; to enter into, make, execute, deliver and receive agreements, undertakings and instruments of every kind and nature; and generally to do any and all other acts and things incidental to any of the foregoing or with reference to any dealings or transactions which the General Partner may deem necessary, proper or 39 advisable to effect or accomplish any of the foregoing or to carry out the business and purposes of the Partnership; (vii) to acquire and enter into any contract of insurance (including, without limitation, general partner liability and partnership reimbursement insurance policies) which the General Partner may deem necessary or appropriate; (viii) to conduct any and all banking transactions on behalf of the Partnership; to adjust and settle checking, savings and other accounts with such institutions as the General Partner shall deem appropriate; to draw, sign, execute, accept, endorse, guarantee, deliver, receive and pay any checks, drafts, bills of exchange, acceptances, notes, obligations, undertakings and other instruments for or relating to the payment of money in, into or from any account in the Partnership's name; to make deposits into and withdrawals from the Partnership's bank accounts and to negotiate or discount commercial paper, acceptances, negotiable instruments, bills of exchange and dollar drafts; (ix) to demand, sue for, receive and otherwise take steps to collect or recover all debts, rents, proceeds, interests, dividends, goods, chattels, income from property, damages and all other property, to which the Partnership may be entitled or which are or may become due the Partnership from any Person; to commence, prosecute or enforce, or to defend, answer or oppose, contest and abandon all legal proceedings in which the Partnership is or may hereafter be interested; and to settle, compromise or submit to arbitration any accounts, debts, claims, disputes and matters which may arise between the Partnership and any other Person and to grant an extension of time for the payment or satisfaction thereof on any terms, with or without security; (x) to acquire interests in and contribute money or property to any limited or general partnerships, joint ventures, subsidiaries or other entities as the General Partner deems desirable; (xi) to maintain or cause to be maintained the Partnership's books and records; (xii) to prepare and deliver, or cause to be prepared and delivered, all financial and other reports with respect to the operations of the Partnership, and preparation and filing of all tax returns and reports; (xiii) to do all things which are necessary or advisable for the protection and preservation of the Partnership's business and assets, and to execute and deliver such further instruments and undertake such further acts as may be necessary or desirable to carry out the intent and purposes of this Agreement and as are not inconsistent with the terms hereof; (xiv) subject to Section 7.4 hereof, to lease real or personal property from the Realty Partnership or its Affiliates or to any other Person on such terms and conditions as the General Partner may from time to time determine; and 40 (xv) in general, to exercise all of the general rights, privileges and powers permitted to be had and exercised under the Act. To the extent the duties of the General Partner require expenditures of funds to be paid to third parties, the General Partner shall not have any obligations hereunder except to the extent that Partnership funds are reasonably available to it for the performance of such duties, and nothing herein contained shall be deemed to require the General Partner, in its capacity as such, to expend its individual funds for payment to third parties or to undertake any specific liability or litigation on behalf of the Partnership. (b) Notwithstanding the provisions of Section 7.1(a) hereof, the Partnership shall not take any action which (or fail to take any action, the omission of which) the General Partner believes, in its sole and absolute discretion, (i) could adversely affect the ability of SLT to qualify or continue to qualify as a REIT, (ii) could subject SLT to any additional taxes under Section 857 or Section 4981 of the Code or other potentially adverse consequences under the Code, (iii) could otherwise cause SLT to violate the REIT Requirements or (iv) could violate any law or regulation of any governmental body or agency having jurisdiction over the General Partner or its securities, unless such action (or inaction) shall have been specifically consented to by the General Partner in writing. (c) Notwithstanding the provisions of Section 7.1(a) hereof, the Partnership shall not commingle its funds with those of any Affiliate or other entity; funds and other assets of the Partnership shall be separately identified and segregated; all of the Partnership's assets shall at all times be held by or on behalf of the Partnership, and, if held on behalf of the Partnership by another entity, shall at all times be kept identifiable (in accordance with customary usages) as assets owned by the Partnership; and the Partnership shall maintain its own separate bank accounts, payroll and books of account. (d) Without the consent of the Limited Partners, the General Partner shall have no power to do any act in contravention of this Agreement or possess any Partnership property for other than a partnership purpose. 7.2 Reimbursement of the General Partner. (a) Except as provided in this Section 7.2 and elsewhere in this Agreement (including the provisions of Articles 5, 6 and 8 hereof regarding distributions, payments and allocations to which it may be entitled), the General Partner shall not receive payments from or be compensated for its services as general partner of the Partnership. (b) The General Partner shall be reimbursed on a monthly basis, or such other basis as the General Partner may determine in its sole and absolute discretion, for all expenses it incurs relating to the ownership and operation of, or for the benefit of, the Partnership, including, without limitation, the Administrative Expenses. Such reimbursements shall be in addition to any reimbursement to the General Partner as a result of indemnification pursuant to Section 5.1 hereof. 41 (c) The General Partner shall also be reimbursed for all expenses incurred relating to the organization and formation of the Partnership, the General Partner's share of public offerings of Paired Shares by the General Partner and SLT to the extent included in Administrative Expenses, and any other issuance of additional Partnership Interests. 7.3 Outside Activities of the General Partner. The General Partner shall not directly or indirectly enter into or conduct any business other than (a) the ownership, acquisition and disposition of Partnership Interests as the General Partner or Limited Partner and the management of the business of the Partnership, and (b) such activities as are incidental thereto, including the General Partner's ownership directly or through a wholly-owned subsidiary of an interest in a partnership or limited liability company in which the Partnership is a partner or member. All future acquisitions of real estate or of leasehold interests in hotels or management of hotels by the General Partner shall be made through and for the benefit of the Partnership. The General Partner agrees that the net proceeds of all offerings of securities by the General Partner shall be contributed to the Partnership (in the case of equity offerings) or loaned to the Partnership (in the case of debt offerings). This Section 7.3 shall not apply to HICN or the General Partner's activities with respect to HICN prior to the earlier of the date it contributes its assets to the Partnership or January 1, 1999. The foregoing notwithstanding, this Section 7.3 shall not restrict the activities or investments of the General Partner if the General Partner makes such arrangements as are reasonably necessary to avoid such activities or investments having a material adverse impact on the Limited Partners and to assure that the Limited Partners share in the economic benefits of such activities or investments in a fair and equitable manner. 7.4 Contracts with Affiliates. The Partnership may engage in transactions, enter into contracts with Affiliates, and lend money to or borrow money from Affiliates which are on terms fair and reasonable to the Partnership and no less favorable to the Partnership than would be obtained from unaffiliated third parties. The Partners hereby agree that the Partnership's leases and loans with the Realty Partnership, as in effect on the date first above written, are on terms fair and reasonable to the Partnership and such terms are no less favorable to the Partnership than would be obtained from unaffiliated third parties. 7.5 Title to Partnership Assets. Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more nominees, as the General Partner may determine, including Affiliates of the General Partner. The General Partner hereby acknowledges and confirms that any Partnership assets for which legal title is held in the name of the General Partner or any nominee or Affiliate of the General Partner shall be held by the General Partner for the use and benefit of the Partnership in accordance with the provisions of this Agreement; provided, however, that the General Partner shall use its best efforts to cause beneficial and record title to such assets to be vested in the Partnership as soon as reasonably practicable. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal 42 title to such Partnership assets is held. 7.6 Reliance by Third Parties. Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner has full power and authority to encumber, sell or otherwise use in any manner any and all assets of the Partnership and to enter into any contracts on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner as if it were the Partnership's sole party in interest, both legally and beneficially. In no event shall any Person dealing with the General Partner or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expedience of any act or action of the General Partner or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership. 7.7 Liability of the General Partner. (a) Notwithstanding anything to the contrary set forth in this Agreement, the General Partner shall not be liable for monetary or other damages to the Partnership, any of the Partners or any assignee of any interest of any Partner for losses sustained or liabilities incurred as a result of errors in judgment or of any act or omission if the General Partner acted without fraud, gross negligence or willful misconduct. (b) The Limited Partners expressly acknowledge (i) that the General Partner is acting on behalf of the Partnership and the General Partner's shareholders collectively, (ii) that, subject to the terms and conditions of this Agreement, the General Partner may, but is under no obligation to, consider the separate interests of the Limited Partners (including, without limitation, the tax consequences to Limited Partners or any assignees thereof except as provided in this Agreement) in deciding whether to cause the Partnership to take (or decline to take) any actions, and (iii) that the General Partner shall not be liable for monetary damages for losses sustained, liabilities incurred, or benefits not derived by Limited Partners in connection with such decisions, provided that the General Partner acted without fraud, gross negligence or willful misconduct. (c) Subject to its obligations and duties as General Partner set forth in Section 7.1 hereof, the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through agents. The General Partner shall not be responsible for any fraud, willful misconduct or gross negligence on the part of any such agent appointed by it without fraud, gross negligence or willful misconduct. 43 (d) Any amendment, modification or repeal of this Section 7.7 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the General Partner's liability to the Partnership and the Partners under this Section 7.7 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may be asserted. 7.8 Other Matters Concerning the General Partner. (a) The General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, or other document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties. (b) The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the advice or opinion of such Persons as to matters which the General Partner reasonably believes to be within such Person's professional or expert competence and in accordance with such advice or opinion shall be prima facie evidence that such actions have been done or omitted in good faith. (c) The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers and any attorney or attorneys-in-fact duly appointed by the General Partner. Each such attorney shall, to the extent provided by the General Partner in the power of attorney, have full power and authority to do and perform all and every act and duty which is permitted or required to be done by the General Partner hereunder. 7.9 Operation of SLT in Accordance with REIT Requirements. (a) The Partners acknowledge and agree that the ability of SLT to satisfy the REIT Requirements is a material inducement for the Realty Partnership to lease its real and personal property to the Partnership and that the failure of SLT to satisfy the REIT Requirements is likely to have a material adverse effect on the Partnership. The Partners therefore acknowledge and agree that, in addition to the other provisions of this Agreement, so long as SLT desires to elect to be taxed as a REIT, the Partnership shall be operated in a manner that will enable SLT to (i) satisfy the REIT Requirements and (ii) avoid the imposition of any federal income or excise tax liability on SLT. So long as SLT desires to elect to be taxed as a REIT, the Partnership shall avoid taking any action which would result in SLT ceasing to satisfy the REIT Requirements or would result in the imposition of any federal income or excise tax liability on SLT. (b) Without the prior consent of the General Partner, no Limited Partner or holder of Units or any Affiliate shall take any action, including acquiring, directly or indirectly, an interest in any tenant of a property owned by the Realty Partnership or by an Entity owned by the Realty Partnership (including, but not limited to, the Operating 44 Partnership, SLC or the Affiliates of either), which would have, through the actual or constructive ownership of any tenant of any property, the effect of causing the percentage of the gross income of SLT that fails to be treated as "rents from real property" within the meaning of Section 856(d)(2) of the Code to exceed such percentage on the date hereof. Each Limited Partner and holder of Units shall use its best efforts to notify the General Partner on a timely basis of any direct or indirect acquisition or potential direct or indirect acquisition of Paired Shares by such Limited Partner or holder or any Affiliate or direct or indirect owner of an interest in such Limited Partner or holder that could reasonably be expected to have such effect. 7.10 Replacement of General Partner. In the event the General Partner is no longer a Partner (whether in accordance with the provisions of this Agreement or otherwise), a successor General Partner shall be appointed by a vote of a Majority-in-Interest of the Limited Partners. ARTICLE 8 Dissolution, Liquidation and Winding-Up 8.1 Accounting. In the event of the dissolution, liquidation and winding-up of the Partnership, a proper accounting shall be made of the Capital Account of each holder of Units and of the Net Income or Net Loss of the Partnership from the date of the last previous accounting to the date of dissolution. 8.2 Distribution on Dissolution. (a) In the event of the dissolution and liquidation of the Partnership for any reason, the assets of the Partnership shall be liquidated for distribution in the following rank and order: (i) payment of creditors of the Partnership, including creditors who are Partners or former Partners; (ii) establishment of reserves as provided by the Liquidating Trustee to provide for contingent liabilities, if any; (iii) to the holders of Class A Units in an amount equal to the excess, if any, of (x) the cumulative distributions under Section 8.2(a) of the Realty Agreement for an equivalent number of Units in the Realty Partnership from February 14, 1997 to the date on which a distribution under this Section 8.2(a) is made, over (y) the sum of all prior distributions to the holders of Class A Units pursuant to this Section 8.2(a)(iii); and (iv) to the holders of Units, including Class A Units, in accordance with their respective holdings of Units. 45 Whenever the Liquidating Trustee reasonably determines that any reserves established pursuant to paragraph (ii) above are in excess of the reasonable requirements of the Partnership, the amount determined to be excess shall be distributed to the Partners in accordance with the provisions of this Section 8.2(a). No Partner or holder of Units shall be liable to any other Partner or holder of Units for a deficit balance in its Capital Account. (b) Notwithstanding the provisions of Section 8.2(a) hereof which require liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Partnership the Liquidating Trustee determines that an immediate sale of part or all of the Partnership's assets would be impractical or would cause undue loss to the Partners, the Liquidating Trustee may, in its sole and absolute discretion, defer for a reasonable time liquidation of any assets except those necessary to satisfy liabilities of the Partnership (including to those Partners which are creditors of the Partnership) and/or, with the Consent of the Limited Partners, distribute to the Partners, in lieu of cash, as tenants in common and in accordance with the provisions of Section 8.2(a) hereof, undivided interests in such Partnership assets as the Liquidating Trustee deems not suitable for liquidation. Any such distributions in kind shall be made only if, in the good faith judgment of the Liquidating Trustee, such distributions in kind are in the best interest of the Partners, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidating Trustee deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidating Trustee shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt. 8.3 Documentation of Liquidation. Upon the completion of the dissolution and liquidation of the Partnership, the Partnership shall terminate and the Liquidating Trustee shall have the authority to execute and record any and all documents or instruments required to effect the dissolution, liquidation and termination of the Partnership. ARTICLE 9 Transfer 9.1 General Partner. Except to the extent permitted pursuant to Section 4.5, the General Partner shall not withdraw from the Partnership and shall not sell, assign, pledge, encumber or otherwise dispose of all or any portion of its Partnership Interest or Units without the Consent of the Limited Partners, which consent may be given or withheld in each Limited Partner's sole and absolute discretion. Upon any transfer of a Partnership Interest in accordance with the provisions of this Section 9.1, the transferee General Partner shall become vested with the powers and rights of the transferor General Partner, and shall be liable for all obligations and responsible for all duties of the General Partner under this Agreement, once such transferee has executed such instruments as may be necessary to effectuate such admission and to confirm the agreement of such transferee to be bound by all the terms and provisions of this Agreement with respect to the Partnership interest so acquired. It shall be a condition to any transfer permitted hereunder that the transferee assumes by express agreement (or pursuant 46 to a statutory merger or consolidation wherein all obligations and liabilities of the General Partner are assumed by a successor trust or corporation by operation of law) all of the obligations of the transferor General Partner under this Agreement with respect to such transferred Partnership Interest and no such transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor General Partner are assumed by a successor trust or corporation by operation of law) shall relieve the transferor General Partner of its obligations under this Agreement without the Consent of the Limited Partners. In connection with any such permitted transfer, the successor General Partner shall be deemed admitted as such immediately prior to the effective time of the transfer from the transferor General Partner and shall continue the business of the Partnership without dissolution. If the General Partner withdraws or retires from the Partnership, in violation of this Agreement or otherwise, or dissolves, terminates or upon the Bankruptcy of the General Partner, within 90 days thereafter, at least a Majority-in-Interest of the Limited Partners may elect to continue the Partnership business by selecting a substitute General Partner, which substitute General Partner accepts such election and agrees to serve as General Partner. Such successor General Partner shall thereupon succeed to the rights and obligations of the General Partner as provided in this Section 9.1. 9.2 Transfers by Limited Partners. (a) No Limited Partner shall have the right, directly or indirectly, to transfer all or any part of his Partnership Interest or Units to any Person without the prior written consent of the General Partner, which consent may be given or withheld by the General Partner in its sole and absolute discretion. The foregoing notwithstanding, the General Partner hereby grants the consents described in this Section 9.2 to transfers of Partnership Interests pursuant to an exercise of Rights, provided that any such transfer otherwise complies with all of the other provisions of this Article 9 (including, but not limited to, any additional consents required hereunder). (b) It shall be a condition to any transfer by a Limited Partner (other than a pledge, encumbrance, hypothecation or mortgage) otherwise permitted hereunder that the transferee assume by operation of law or express agreement all of the obligations of the transferor under this Agreement (including, without limitation, under Article 9 hereof) with respect to such transferred Partnership Interest or Units and no such transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor are assumed by a successor corporation by operation of law) shall relieve the transferor of its obligations under this Agreement without the approval of the General Partner, in its reasonable discretion (it being understood that a transferor shall be deemed relieved from such obligations, without the necessity of any such approval, in respect of Partnership Interests transferred to the General Partner or the Partnership pursuant to an Exchange Rights Agreement). Upon such transfer, the transferee of a Partnership Interest shall be admitted as a Limited Partner and shall succeed to all of the rights of the transferor Limited Partner under this Agreement in the place and stead of such transferor Limited Partner (which succession, in the event of a pledge, may be entered into and become effective at the time of foreclosure or other realization of such pledge). The foregoing notwithstanding, a transferee of a Unit shall not be admitted as a substituted Limited Partner unless the General Partner consents, which consent may be given or withheld by the General Partner in its sole and absolute discretion. 47 Any transferee, whether or not admitted as a substituted Limited Partner, shall succeed to the obligations of the transferor hereunder (unless such transfer is a pledge, encumbrance, hypothecation or mortgage or except as otherwise provided herein). (c) In addition to any other restrictions on transfer provided herein, no Partnership Interest or Units shall be transferable by a Limited Partner unless the transferor gives written notice of the proposed transfer which notice shall state to the best of its knowledge that such transfer will not violate any of the restrictions set forth in Section 9.3 hereof. (d) Any permitted transferee under Section 9.2 who is not admitted as a Limited Partner in accordance with this Article 9 or a transferee who only holds Units shall be considered an assignee for purposes of this Agreement. An assignee shall be deemed to have had assigned to it, and shall be entitled to receive, distributions from the Partnership and the share of Net Income, Net Loss, and any other items of income, gain, loss, deduction and credit of the Partnership and rights attributable to the Partnership Interests assigned to such transferee, but shall not be deemed to be a holder of Partnership Interests for any other purpose under this Agreement, and shall not be entitled to vote such Partnership Interests in any matter presented to the Limited Partners for a vote. In the event any such transferee desires to make a further assignment of any such Partnership Interests, such transferee shall be subject to all the provisions of this Article 9 to the same extent and in the same manner as any Limited Partner desiring to make an assignment of Partnership Interests. (e) The Limited Partners acknowledge that neither the Partnership Interests nor the Units have been registered under any federal or state securities laws and, as a result thereof, they may not be sold or otherwise transferred, except in compliance with such laws. Notwithstanding anything to the contrary contained in this Agreement, no Partnership Interest or Units may be sold or otherwise transferred unless such transfer is exempt from registration under any applicable securities laws or such transfer is registered under such laws, it being acknowledged that the Partnership has no obligation to take any action which would cause any such Partnership Interests or Units to be registered. 9.3 Certain Restrictions on Transfer. In addition to any other restrictions on transfer herein contained, except with the consent of the General Partner, in no event may any transfer of a Partnership Interest or Units by any Person be made (a) to any person or Entity that lacks the legal right, power or capacity to own a Partnership Interest or Units; (b) in the event such transfer would cause SLT to cease to comply with the REIT Requirements; (c) if such transfer would cause a termination of the Partnership for federal income tax purposes; (d) if such transfer would, in the opinion of counsel to the Partnership, cause the Partnership to cease to be classified as a Partnership for federal income tax purposes; (e) if such transfer would result in the Partnership being treated as a "publicly traded partnership" or is effectuated through an "established securities market" or a "secondary market (or the substantial equivalent thereof)" within the meaning of Section 7704 of the Code and the Regulations thereunder; (f) in violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976; (g) if the General Partner reasonably believes that such transfer may (i) cause any portion or all of the assets of the Partnership to be deemed pursuant to United States Department of Labor 48 Regulation Section 2510.3-101 or otherwise pursuant to ERISA or the Code to be for any purpose of ERISA or Section 4975 of the Code assets of any Restricted Entity, or (ii) cause a "prohibited transaction" (as defined in Section 4975(c) of the Code or within the meaning of Section 406 of ERISA) to occur, or (iii) cause the Partnership to become with respect to any Restricted Entity a "party in interest" (as defined in Section 3(14) of ERISA) or a "disqualified person" (as defined in Section 4975(e) of the Code) or (iv) cause the Partnership to be jointly and severally liable for any obligation arising under ERISA or the Code with respect to any "employee benefit plan" as defined in and subject to ERISA or any "plan" as defined in Section 4975 of the Code; or (h) if the intended transferee is a Restricted Entity. Any purported transfer described in this Section 9.3 shall be void ab initio. 9.4 Effective Dates of Transfers. (a) Transfers pursuant to this Article 9 may be made on any day, but for purposes of this Agreement, the effective date of any such transfer shall be (i) the first day of the month in which such transfer occurred if such transfer occurred on or prior to the fifteenth calendar day of a month, or (ii) the first day of the month immediately following the month in which such transfer occurred, if such transfer occurred after the fifteenth calendar day of a month, or such other date determined by the General Partner pursuant to such convention as may be administratively feasible and consistent with applicable law. (b) If any Partnership Interest or Unit is transferred or assigned in compliance with the provisions of this Article 9, on any day other than the first day of a calendar year, then Net Income, Net Loss, each item thereof and all other items attributable to such Partnership Interest or Unit for such year shall be allocated to the transferor, and, in the case of a transfer or assignment other than a redemption, to the transferee, by taking into account their varying interests during such year in accordance with Section 706(d) of the Code, using any method permitted thereunder. All distributions pursuant to Section 6.2 hereof attributable to such transferred Partnership Interests or Units (A) with respect to which the Partnership Record Date is before the effective date of such transfer (other than a pledge, encumbrance, hypothecation or mortgage) shall be made to the transferor, (B) with respect to the first Partnership Record Date after the effective date of such transfer (other than a pledge, encumbrance, hypothecation or mortgage) shall be paid to the transferor and to the transferee, ratably in accordance with their respective periods of ownership of the Partnership Interest or Units transferred during the period with respect to which such distribution is made, and (C) all distributions after those described in (A) and (B) shall be made to the transferee. 9.5 Transfer. (a) The term "transfer," when used in this Article 9 with respect to a Partnership Interest, shall be deemed to refer to a transaction by which a Person purports to assign its Partnership Interest or any portion thereof (including Units) to another Person, and includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or otherwise. (b) No Partnership Interest or Unit shall be transferred, in whole or 49 in part, except in accordance with the terms and conditions set forth in this Article 9. Any transfer or purported transfer of a Partnership Interest not made in accordance with this Article 9 shall be null and void. 9.6 Nevada Gaming Control Act. (a) Notwithstanding anything to the contrary expressed or implied in this Agreement, the sale, assignment, transfer, pledge or other disposition of any interest in the Partnership is void unless approved in advance by the Commission. If at any time the commission finds that an individual owner of any interest in the Partnership is unsuitable to hold that interest, the Commission shall immediately notify the Partnership of that fact. The Partnership shall, within ten (10) days from the date that it receives the notice from the Commission, return to the unsuitable owner the amount of his capital account as reflected on the books of the Partnership. Beginning on the date when the Commission serves notice of a determination of unsuitability, pursuant to the preceding sentence, on the Partnership, it is unlawful for the unsuitable owner: (i) to receive any share of the profits or distributions of any cash or other property other than a return of capital as described above; (ii) to exercise, directly or through any trust or nominee, any voting right conferred by such interest; or (iii) to receive any remuneration in any form from the Partnership for services rendered or otherwise. (b) Any Limited Partner granted a delayed licensing by the Commission which Limited Partner is later found unsuitable by the Commission shall return all evidence of any ownership in the Partnership to the Partnership, at which time the Partnership shall refund to the unsuitable Limited Partner no more than the amount that such Limited Partner paid for his ownership interest in the Partnership, and the unsuitable Limited Partner shall no longer have any direct or indirect interest in the Partnership. (c) This Section 9.6 shall apply only if the Partnership applies for and obtains a Nevada state gaming license and only while such license is in effect. No such license shall be applied for or obtained by the Partnership without the Consent of the Limited Partners. ARTICLE 10 Rights and Obligations of the Limited Partners 10.1 No Participation in Management. No Limited Partner, in its capacity as such, shall take part in the management of the Partnership's business, transact any business in the Partnership's name or have the power to sign documents for or otherwise bind the Partnership. Any rights expressly granted to the Limited Partners in this Agreement shall not be deemed to be rights relating to the management of the Partnership's business. 10.2 Bankruptcy of a Limited Partner. The Bankruptcy of any Limited Partner shall not cause a dissolution of the Partnership, but the rights of such Limited Partner to share in the Net Profits or Net Losses of the Partnership and to receive distributions of 50 Partnership funds shall, on the happening of such event, devolve on its successors or assigns, subject to the terms and conditions of this Agreement, and the Partnership shall continue as a limited partnership. In no event, however, shall such assignee(s) become a substituted Limited Partner except in accordance with Article 9 hereof. 10.3 No Withdrawal. No Limited Partner may withdraw from the Partnership without the prior written consent of the General Partner, other than as provided in Article 9 hereof. 10.4 Conflicts. The Partners recognize that the Limited Partners and their Affiliates have or may have other business interests, activities and investments, some of which may be in conflict or competition with the business of the Partnership, and that such Persons are entitled to carry on such other business interests, activities and investments. In deciding whether to take any actions in such capacity, such Limited Partners and their Affiliates may, but shall be under no obligation to, consider the separate interests of the Partnership and shall have no fiduciary obligations to the Partnership and shall not be liable for monetary damages for losses sustained, liabilities incurred or benefits not derived by the other Partners in connection with such actions except for damages for losses sustained or liabilities incurred which result from a Limited Partner breaching a representation, warranty or covenant hereunder or to the extent provided in the Formation Agreement; nor shall the Partnership or the General Partner be under any obligation to consider the separate interests of the Limited Partners and their Affiliates in such capacity or have any fiduciary obligations to the Limited Partners and their Affiliates in such capacity or be liable for monetary damages for losses sustained, liabilities incurred or benefits not derived by the Limited Partners and their Affiliates in such capacity arising from actions or omissions taken by the Partnership. The Limited Partners and their Affiliates may engage in or possess an interest in any other business or venture of any kind, independently or with others, on their own behalf or on behalf of other entities with which they are affiliated or associated, and such persons may engage in any activities, whether or not competitive with the Partnership, without any obligation to offer any interest in such activities to the Partnership or to any Partner. Neither the Partnership nor any Partner shall have any right, by virtue of this Agreement, in or to such activities, or the income or profits derived therefrom, and the pursuit of such activities, even if competitive with the business of the Partnership, shall not be deemed wrongful or improper. Notwithstanding the foregoing, the provisions of this Section 10.4 shall not negate or impair any other written agreement between one or more of the Limited Partners and the General Partner or the Partnership (including Section 6.6 of the Formation Agreement) or any duties which a Limited Partner may have in such Limited Partner's capacity as an officer or director of the General Partner. 10.5 Provision of Information. (a) With respect to any information required to be provided to the Limited Partners pursuant to Section 17-305 (or any successor thereto) of the Act: (i) the cost of preparing or providing any such information (including, without limitation, fees paid to any person or entity in connection therewith) shall be paid by the requesting Partner and in no event shall such information be required to be given to the requesting Partner until such 51 payment has been made to the Partnership; (ii) in no event shall any financial statements of the Partnership be required to be provided except for such statements as have already been prepared or are otherwise required to be provided to the Limited Partners under this Agreement and in no event shall any statements which have been prepared be required to be audited, reviewed or otherwise examined by a certified public accountant, if the statements are not otherwise required to be so audited, reviewed or examined pursuant to the provisions of this Agreement; and (iii) in no event shall such information be required to be furnished until forty-five (45) days after such request and unless the information is already in the possession of the Partnership. (b) In addition to other rights provided by this Agreement or by the Act, each Limited Partner shall have the right, for a purpose reasonably related to such Limited Partner's interest as a limited partner in the Partnership, upon written demand with a statement of the purpose of such demand and at such Limited Partner's own expense (excluding copying and administrative expenses of the General Partner): (i) to obtain a copy of the most recent annual and quarterly reports and current reports on Form 8-K filed with the SEC by the General Partner pursuant to the Securities Exchange Act of 1934; (ii) to obtain a copy of the Partnership's federal, state and local income tax returns for each fiscal year of the Partnership; (iii) to obtain a current list of the name and last known business, residence or mailing address of each Partner; and (iv) to obtain a copy of this Agreement and the Certificate, together with executed copies of all powers of attorney pursuant to which this Agreement and the Certificate have been executed. (c) Notwithstanding any other provision of this Section 10.5, the General Partner may keep confidential from the Limited Partners, for such period of time as the General Partner determines in its sole and absolute discretion to be reasonable, any information that is not material to the Limited Partners and that (i) the General Partner reasonably believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or could damage the Partnership or its business or (ii) the Partnership is required by law or by agreements with an unaffiliated third party to keep confidential. 10.6 Power of Attorney. (a) Each Limited Partner constitutes and appoints the General Partner, any Liquidating Trustee and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to: execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (i) all 52 certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments or restatements thereof) that the General Partner or the Liquidating Trustee deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) in the State of Delaware and in all other jurisdictions in which the Partnership may conduct business or own property; (ii) all instruments that the General Partner deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (iii) all conveyances and other instruments or documents that the General Partner deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation; and (iv) all instruments relating to the admission, withdrawal, removal or substitution of any Partner pursuant to the provisions of this Agreement or the Capital Contribution of any Partner. (b) The foregoing power of attorney is irrevocable and a power coupled with an interest, in recognition of the fact that each of the Limited Partners will be relying upon the power of the General Partner to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall survive the death or incompetency of a Limited Partner to the effect and extent permitted by law, subsequent incapacity of any Limited Partner and the transfer of all or any portion of such Partner's Partnership Interests and shall extend to such Limited Partner's heirs, successors, assigns and personal representatives. (c) Nothing contained in this Section 10.6 shall be construed as authorizing the General Partner to amend this Agreement except in accordance with Article 11 hereof. 10.7 Ownership of Paired Shares. (a) Each Limited Partner and holder of Units hereby agrees to provide the General Partner within fifteen (15) days of any written request therefor, a statement, to the best of its knowledge, describing the number of Paired Shares actually or constructively owned by such Limited Partner or holder of Units and all direct and indirect owners of such Limited Partner or holder for purposes of the REIT Requirements as determined under Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, or Section 544 of the Code, as modified by Section 856(h) of the Code. (b) Each Limited Partner and holder of Units (i) hereby covenants that, without the prior written consent of the General Partner (which consent shall not be unreasonably withheld or delayed) it will not acquire and it will use all reasonable efforts to cause its direct or indirect owners not to acquire any Paired Shares or any rights to acquire Paired Shares and (ii) except to the extent that the General Partner provides prior written consent, hereby represents, warrants and covenants that (I) it is not and will not become a Restricted Entity, (II) no "prohibited transaction" (as defined in Section 4975(c) of the Code or within the meaning of Section 406 of ERISA) has occurred or will occur that would not have occurred or occur if the Limited Partner or holder of Units and its Affiliates were not Limited 53 Partners and were not holders of Units, (III) the Partnership has not become and will not become with respect to any Restricted Entity a "party in interest" (as defined in Section 3(14) of ERISA) or a "disqualified person" (as defined in Section 4975(e) of the Code) which the Partnership would not have become or be if the Limited Partner or holder of Units and its Affiliates were not Limited Partners and were not holders of Units, and (IV) the Partnership has not and will not become jointly and severally liable for any obligations arising under ERISA or the Code with respect to any "employee benefit plan" as defined in and subject to ERISA or any "plan" as defined in the Code for which the Partnership has not become or would not be liable if the Limited Partner or holder of Units and its Affiliate were not Limited Partners and were not holders of Units. 10.8 Waiver of Fiduciary Duty. Each Limited Partner and holder of Units hereby waives, to the maximum extent permitted under law, any and all fiduciary duties of the General Partner to each, all or any combination of them and hereby agrees that the General Partner may, but is under no obligation to, take their interests into account in performing or refraining from performing any act permitted under this Agreement. ARTICLE 11 Amendment of Partnership Agreement, Meetings 11.1 Amendments. (a) This Agreement may not be amended unless such amendment is approved by the General Partner with the Consent of the Limited Partners, except as provided below in this Section 11.1. (b) Notwithstanding Section 11.1(a), the General Partner shall have the power, without the Consent of the Limited Partners but after five (5) Business Days notice to the Limited Partners, to amend this Agreement as may be required to facilitate or implement any of the following purposes: (1) to add to the obligations of the General Partner for the benefit of the Limited Partners; (2) to reflect the admission, substitution, termination or withdrawal of Partners after the date hereof in accordance with Section 4.1(d) or Article 9 of this Agreement, provided that the General Partner shall not be required to give the notice referred to in the first paragraph of this subsection (b) in respect of the transactions described in this Paragraph (2); (3) to set forth the rights, powers, duties, and preferences of the holders of any additional Partnership Interests issued pursuant to Article 4 hereof; (4) to reflect a change that is of an inconsequential nature and 54 does not materially adversely affect the Limited Partners, or to cure any ambiguity, correct or supplement any provision of this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement; (5) to satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law; (6) to prevent all or any portion of the assets of the Partnership from being deemed pursuant to United States Department of Labor Regulation Section 2510.3-101 or otherwise pursuant to ERISA or the Code to be, for any purpose of ERISA or Section 4975 of the Code, assets of any Restricted Entity; (7) to prevent the Partnership from being characterized as a "publicly traded partnership" pursuant to Section 7704 of the Code and Regulations; (8) to enable SLT to satisfy the REIT Requirements; and (9) to maintain the Partnership's characterization as a partnership for tax purposes. (c) Notwithstanding Sections 11.1(a) and (b) hereof, this Agreement shall not be amended without the prior written consent of each Partner adversely affected if such amendment would (i) convert a Limited Partner's interest in the Partnership into a general partner's interest, (ii) modify the limited liability of a Limited Partner, (iii) alter rights of the Partners to receive allocations and distributions pursuant to Article 6 or Section 8.2 hereof (except as permitted pursuant to Article 4 and Sections 11.1(b)(3) and 11.1(d) hereof), (iv) alter or modify the Rights set forth in an Exchange Rights Agreement or a Registration Rights Agreement except in compliance therewith, (v) except in furtherance of Sections 11.1(b)(7), (8) or (9) hereof, alter such Partner's rights to transfer its Partnership Interest; (vi) amend Section 7.7, 7.8 or 10.7 hereof or (vii) amend Section 11.1(c) or 11.1(d) hereof. (d) Notwithstanding Section 11.1(c) hereof and subject to (but not in limitation of) the rights granted to the General Partner pursuant to Article 4 and this Article 11, this Agreement may be amended to (i) alter the rights of any or all of the Partners to receive allocations and distributions pursuant to Article 6 or Section 8.2 hereof or (ii) alter the rights of any or all of the Partners to transfer their Partnership Interests if such amendment is approved by the prior written consent of a majority of each class or group of Partnership Interests that is treated in a uniform or pro rata basis by such amendment. 11.2 Meetings of the Partners; Notices to Partners. (a) Meetings of Partners may be called by the General Partner or by Limited Partners holding at least 1% of the Percentage Interests to act on any matter specified herein or in the Act to be voted on or consented to by the Partners. The call shall state the 55 nature of the business to be transacted. Notice of any such meeting shall be given to all Partners not less than seven (7) Business Days prior to the date of such meeting. Partners may vote in person or by proxy at such meeting. Whenever the vote or Consent of the Limited Partners is permitted or required under this Agreement, such vote or consent may be given at a meeting of Limited Partners or may be given in accordance with the procedure prescribed in Section 11.2(b) hereof. (b) Any action required or permitted to be taken at a meeting of the Partners may be taken without a meeting if a written consent setting forth the action so taken is signed by the General Partner and such percentage or number of the Limited Partners as is expressly required by this Agreement. Such consent may be in one instrument or in several instruments, and shall have the same force and effect as a vote of the Partners. Such consent shall be filed with the General Partner and copies thereof delivered to all Partners. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified. (c) Each Limited Partner may authorize any Person or Persons to act for him by proxy on all matters in which a Limited Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Limited Partner or his attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Limited Partner executing it. No such proxy and no such revocation shall be effective unless a copy thereof has been delivered to the General Partner. (d) Whenever the Consent of the Limited Partners is required hereunder, the General Partner shall provide a notice to each Partner who is a Limited Partner on the date the notice is given setting forth the matter(s) as to which it proposes to seek such consent at least five (5) Business Days in advance of the date upon which such consent is sought. ARTICLE 12 General Provisions 12.1 No Liability of Directors and Others. Notwithstanding anything to the contrary contained herein, no recourse shall be had by the Partnership or any Partner against any trustee, director, shareholder, officer, employee, agent or attorney of the General Partner for any act or omission of the General Partner or any obligation or liability of the General Partner under this Agreement, and none of the foregoing shall have any personal liability for or with respect to any of the foregoing; provided that the foregoing shall not relieve any trustee, officer or director of the General Partner of any liability in his capacity as such. 12.2 Notices. All notices, offers or other communications required or permitted to be given pursuant to this Agreement shall be in writing and may be personally served, sent by United States mail, or sent via facsimile. A notice shall be deemed to have 56 been given when delivered in person or, if sent by United States mail, three business days after deposit in United States mail, registered or certified, postage prepaid, and properly addressed, by or to the appropriate party, or, if sent via facsimile, upon receipt by the sending party of verification of transmission. For purposes of this Section 12.2, the addresses of the parties hereto shall be as set forth on Exhibit B hereto. The address of any party hereto may be changed by a notice in writing given in accordance with the provisions hereof. 12.3 Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement (including, without limitation, provisions concerning limitations of actions), shall be governed by and construed in accordance with the laws of the State of Delaware, notwithstanding any conflict-of-laws doctrines of such state or other jurisdiction to the contrary. Each of the parties hereto irrevocably submits and consents to the jurisdiction of the United States District Court for the Southern District of New York and the United States District Court for the District of Arizona in connection with any action or proceeding arising out of or relating to this Agreement and irrevocably waives any immunity from jurisdiction thereof and any claim of proper venue, forum non conveniens or any similar basis to which it might otherwise be entitled in any such action or proceeding. 12.4 Execution of Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. 12.5 Severability. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. 12.6 Entire Agreement. This Agreement (together with the Exhibits hereto) and the Formation Agreement contain the entire understanding among the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. The parties hereto intend that this Agreement be treated as a separate and distinct agreement and as not being part of any other agreement (other than the Formation Agreement), arrangement, partnership or joint venture. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 12.7 Paragraph Headings. The paragraph headings in this Agreement are for convenience and they form no part of this Agreement and shall not affect its interpretation. 12.8 Gender, Etc. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or 57 plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. The term "including" shall mean "including, but not limited to." 12.9 Number of Days. In computing the number of days (other than Business Days and Trading Days) for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays and holidays; provided, however, that if the final day of any time period falls on a Saturday, Sunday or holiday on which national banks are or may elect to be closed, then the final day shall be deemed to be the next day which is not a Saturday, Sunday or such holiday. 12.10 Partners Not Agents. Nothing contained herein shall be construed to constitute any Partner the agent of another Partner, except as specifically provided herein, or in any manner to limit the Limited Partners in the carrying on of their own respective businesses or activities. 12.11 Assurances. Each of the Partners shall hereafter execute and deliver such further instruments and do such further acts and things as may be reasonably required or useful to carry out the intent and purpose of this Agreement and as are not inconsistent with the terms hereof. 12.12 Waiver of Partition. Each Partner hereby waives any right such Partner may have to partition its interest in the Partnership or any property of the Partnership. 58 IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed on their behalf as of the date first above written. GENERAL PARTNER: STARWOOD LODGING CORPORATION, a Maryland corporation By: ____________________________________ Name: Title: LIMITED PARTNERS: STARWOOD HOTEL INVESTORS II, L.P. By: STARWOOD CAPITAL GROUP I, L.P. By: BSS CAPITAL PARTNERS, L.P., General Partner By: STERNLICHT HOLDINGS II, Inc. General Partner By: ____________________________________ Name: Title: FIREBIRD CONSOLIDATED PARTNERS, L.P. By: ____________________________________ Name: Title: General Partner APPOLLO REAL ESTATE INVESTMENT FUND, L.P. By: APPOLLO REAL ESTATE ADVISORS, L.P. By: APPOLLO REAL ESTATE MANAGEMENT, INC. 59 By: ____________________________________ Name: Title: PHILADELPHIA HSR LIMITED PARTNERSHIP By: ____________________________________ Name: Title: General Partner STARWOOD OPPORTUNITY FUND II, L.P. By: STARWOOD CAPITAL GROUP I, L.P. General Partner By: BSS CAPITAL PARTNERS, L.P., General Partner By: STERNLICHT HOLDINGS II, Inc. General Partner By: ____________________________________ Name: Title: ________________________________________ EDWARD J. ROHLING ZIFF INVESTORS PARTNERSHIP, L.P. II By: ____________________________________ Name: Title: General Partner MONTROSE CORPORATION By: ____________________________________ Name: Title: 60 HARVEYWOOD HOTEL INVESTORS, L.P. By: ____________________________________ Name: Title: General Partner STAR INVESTORS, G.P. By: ____________________________________ Name: Title: MERIDIAN INVESTMENT GROUP By: ____________________________________ Name: Title: THE HERMITAGE, L.P. By: HERMITAGE OF NASHVILLE, INC. General Partner By: ____________________________________ Name: Title: BURDEN DIRECT INVESTMENT FUND I, L.P. By: ____________________________________ Name: Title: General Partner BRAINARD HOLDINGS, INC. By: ____________________________________ Name: Title: KJJ REVOCABLE TRUST 61 By: ____________________________________ Name: Title: Trustee ________________________________________ BARRY S. STERNLICHT THE BARRY S. STERNLICHT FAMILY SPRAY TRUST I By: ____________________________________ Name: Title: Trustee THE BARRY S. STERNLICHT FAMILY SPRAY TRUST II By: ____________________________________ Name: Title: Trustee THE BARRY S. STERNLICHT FAMILY SPRAY TRUST III By: ____________________________________ Name: Title: Trustee ________________________________________ JACK NASH THE NASH FAMILY PARTNERSHIP By: ____________________________________ Name: Title: General Partner ________________________________________ MADISON F. GROSE 62 THE MADISON F. GROSE IRREVOCABLE INSURANCE TRUST By: ____________________________________ Name: Title: Trustee ________________________________________ MAX C. CHAPMAN ________________________________________ MERRICK R. KLEEMAN ________________________________________ EUGENE A. GORAB ________________________________________ JAMIE R. GATES ________________________________________ CARLY SIMON ________________________________________ STEVEN R. GOLDMAN ________________________________________ ALAN SCHWARTZ ________________________________________ JAY SUGARMAN ________________________________________ JOHN Z. KUKRAL ________________________________________ JEROME C. SILVEY 63 ________________________________________ GEOFFREY T. BOISI ________________________________________ MICHAEL MUELLER ________________________________________ CLATE JOSEPH KORSANT ________________________________________ JUSTIN FREDERICK KORSANT ________________________________________ JAMES G. BABB, III LAMBSTER PARTNERS LIMITED PARTNERSHIP By: ____________________________________ Name: Title: General Partner ________________________________________ JEFF DISHNER ________________________________________ GEOFFREY BEER ________________________________________ CHARLES E. MUELLER, M.D. ________________________________________ LOWELL D. KRAFF ________________________________________ 64 STEPHEN FIORE ________________________________________ JENNIFER ALBERO ________________________________________ JAMES A. KLEEMAN, M.D., PC ________________________________________ ELLIS F. RINALDI ________________________________________ J. PETER PAGANELLI ________________________________________ JOHN F. COUTURE ________________________________________ JAMES OLDHAM THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of Prudential Property Investment Separate Account II By: ____________________________________ Name: Title: ELEANOR MENDELL, AS TRUSTEE OF THE GARY MENDELL FAMILY TRUST By: ____________________________________ Name: Eleanor Mendell Title: Trustee ________________________________________ GARY MENDELL 65 ________________________________________ ELLEN-JO MENDELL ________________________________________ STEPHEN MENDELL ________________________________________ JUDITH K. RUSHMORE ________________________________________ MURRAY DOW II WESTPORT HOSPITALITY, INC. By: ____________________________________ Name: Title: ZAPCO HOLDINGS, INC. By: ____________________________________ Name: Title: ZAPCO HOLDINGS, INC. DEFERRED COMPENSATION PLAN TRUST By: ____________________________________ Name: Title: Trustee ________________________________________ ORNA L. SHULMAN ________________________________________ ARTHUR GREEN 66 ________________________________________ MICHAEL HALL ________________________________________ MARK ROSINSKY ________________________________________ RANDI ROSINSKY ________________________________________ JOHN DAILY ________________________________________ FELIX CACCIATO ________________________________________ THOMAS CLEARWATER ________________________________________ HARVEY MOORE ________________________________________ TRACY DRISCOLL CLASS "A" PARTNERS Signature Blocks ________________________________________ GARY MENDELL ________________________________________ STEPHEN MENDELL ________________________________________ JUDITH K. RUSHMORE 67 ________________________________________ MURRAY DOW II WESTPORT HOSPITALITY, INC. By: ____________________________________ Name: Title: 68 EXHIBIT A LIST OF PARTNERS, PERCENTAGE INTERESTS AND UNITS Date: As of __________, 1997
Name of Partner Percentage Interest Units --------------- ------------------- ----- Starwood Lodging Corporation 72.4510% 40,078,698 Ziff Investors Partnership, LP II 4.0850% 2,259,732 Firebird Consolidated Partners, LP 2.2069% 1,220,820 Starwood Opportunity Fund II, LP 1.7047% 943,000 Montrose Corporation 1.3435% 743,226 Harveywood Hotel Investors, LP 1.1756% 650,338 Star Investors, G.P. 1.0748% 594,582 Barry S. Sternlicht 0.6275% 347,104 Apollo Real Estate Investment Fund, LP 0.5334% 295,078 Starwood Hotel Investors II, LP 0.5212% 288,334 Meridian Investment Group 0.4798% 265,422 Burden Direct Investment Fund I, LP 0.3915% 216,564 Jack Nash 0.2150% 118,916 Brainard Holdings, Inc. 0.1578% 87,310 JDE Revocable Trust 0.1511% 83,596 Max C. Chapman 0.1382% 76,430 Rick Kleeman 0.0997% 55,170 Philadelphia HSR, LP 0.0985% 54,461 The Barry S. Sternlicht Family Spray Trust I 0.0970% 53,672 The Barry S. Sternlicht Family Spray Trust II 0.0970% 53,672 The Barry S. Sternlicht Family Spray Trust III 0.0970% 53,672 Eugene A. Gorab 0.0899% 49,746
69 Madison F. Grose 0.0777% 43,004 Jamie R. Gates 0.0729% 40,328 Carly Simon 0.0568% 31,434 Hospitality Partners 0.0550% 30,414 The Nash Family Partnership 0.0537% 29,730 The Madison F. Grose Irrevocable Insurance Trust 0.0501% 27,726 Steven R. Goldman 0.0409% 22,616 Alan Schwartz 0.0403% 22,298 Jay Sugarman 0.0383% 21,212 Philadelphia HIR, LP 0.0328% 18,140 John Z. Kukral 0.0317% 17,550 Jerome C. Silvey 0.0299% 16,516 Geoffrey T. Boisi 0.0274% 15,150 Michael Mueller 0.0270% 14,932 Clate Korsant 0.0269% 14,866 Justin Korsant 0.0269% 14,866 James G. Babb, III 0.0262% 14,508 Edward J. Rohling 0.0199% 11,011 Lambster Partners Limited Partnership 0.0153% 8,486 Gregory Beer 0.0134% 7,434 Jeff Dishner 0.0064% 3,542 Geoff Beer 0.0042% 2,306 Charles E. Mueller, MD 0.0025% 1,394 Lowell D. Kraff 0.0022% 1,190 Stephen Fiore 0.0016% 900 Jennifer Albero 0.0016% 882 James A. Kleeman, MD, PC 0.0014% 774
70 Ellis F. Rinaldi 0.0011% 634 J. Peter Paganelli 0.0009% 494 John F. Couture 0.0007% 378 James Oldham 0.0004% 224 The Prudential Insurance Company of America, on behalf of Prudential Property Investment Separate Account II 8.1872% 4,529,007 Eleanor Mendell, as Trustee of the Gary Mendell Family Trust 0.9143% 505,778 Gary Mendell 0.0652% 36,078 Ellen-Jo Mendell 0.9429% 521,617 Stephen Mendell 0.0366% 20,239 Judith K. Rushmore 0.4637% 256,511 Murray Dow II 0.0550% 30,415 Wesport Hospitality, Inc. 0.0193% 10,656 Zapco Holdings, Inc. 0.5989% 331,291 Zapco Holdings, Inc. Deferred Compensation Plan Trust 0.0328% 18,126 Orna L. Shulman 0.0379% 20,962 Arthur Green 0.0045% 2,505 Michael Hall 0.0024% 1,321 Mark Rosinsky 0.0023% 1,253 Randi Rosinsky 0.0023% 1,252 John Daily 0.0039% 2,161 Felix Cacciato 0.0068% 3,767 Thomas Clearwater 0.0009% 497 Harvey Moore 0.0004% 224 Tracy Driscoll 0.0004% 224 --------- ---------- TOTAL 100.0000% 55,318,336
71 EXHIBIT A-1 LIST OF CLASS A LIMITED PARTNERS, PERCENTAGE INTEREST AND UNITS Date: As of __________, 1997
Name of Partner Percentage Interest Units --------------- ------------------- ----- Gary Mendell 36.8623% 93,756 Stephen Mendell 36.8623% 93,756 Judith K. Rushmore 16.5746% 42,156 Murray Dow II 1.3753% 3,498 Westport Hospitality, Inc. 8.3254% 21,175 -------- ------- TOTAL 100.0000% 254,341
72 EXHIBIT B Notice Address of Partners
Name of Partner Notice Address - --------------- -------------- Starwood Lodging Corporation 2231 East Camelback Road Suite 400 Phoenix, Arizona 85016 Attn: General Counsel Ziff Investors Partnership, LP II 153 East 53rd Street New York, NY 10022 Attn. Mr. Dan Stern Firebird Consolidated Partners, LP c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, Connecticut 06830 Attention: Madison F. Grose, Esq. Starwood Opportunity Fund II, LP c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, Connecticut 06830 Attention: Madison F. Grose, Esq. Montrose Corporation c/o The Walt Disney Corporation 500 S. Buena Vista Team Disney 301J Burbank, CA 91521 Attn: Mr. Mark Rozells Harveywood Hotel Investors, LP c/o Starwood Capital Group, General Partner Three Pickwick Plaza, Suite 250 Greenwich, Connecticut 06830 Attention: Jerome C. Silvey Star Investors, G.P. c/o Penguin Group, L.P. 200 West Madison Avenue, 38th Floor Chicago, IL 60606 Attn: Mr, Kevin Poorman Barry S. Sternlicht c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830
73 Apollo Real Estate Investment Fund. LP c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Attn: Madison F. Grose Starwood Hotel Investors II, LP c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Attn: Madison F. Grose, Esq. Meridian Investment Group c/o Penguin Group, L.P. 200 West Madison Avenue Chicago, IL 60606 Attn: Mr, Kevin Poorman Burden Direct Investment Fund I, LP 10 East 53rd Street New York, NY 10022 Attn: Mr. Jeff Weber Jack Nash c/o Odyssey Partners, L.P. 31 West 52nd Street New York, NY 10019 Brainard Holdings, Inc. c/o Lake Asset Management, Inc. 499 Park Avenue, 24th Floor New York, NY 10022 Attn: Mr. Nicholas Berggruen JDE Revocable Trust c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Attn: Madison F. Grose Max C. Chapman c/o Normura Securities 2 World Financial Center, 22nd Floor New York, NY 10281-1198 Rick Kleeman c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Philadelphia HSR, LP c/o The Beacon Companies 50 Rowes Wharf Boston, MA 02110 Attn: Edward N. Sidman
74 The Barry S. Sternlicht Family Spray Trust I c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 The Barry S. Sternlicht Family Spray Trust II c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 The Barry S. Sternlicht Family Spray Trust III c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Eugene A. Gorab c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Madison F. Grose c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Jamie R. Gates c/o Texas Pacific Group 600 California Street San Francisco, CA 94108 Carly Simon c/o Ms. Arlene Graff Star & Co. 350 Park Avenue New York, NY 10022 Hospitality Partners 7101 Wisconsin Avenue Bethesda, MD 20814 The Nash Family Partnership c/o Odyssey Partners, L.P. 31 West 52nd Street New York, NY 10019 Attn: Mr. Joshua Nash The Madison F. Grose Irrevocable Insurance Trust c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Steven R. Goldman c/o Starwood Lodging Trust 2231 East Camelback Road Phoenix, AZ 85016 Alan Schwartz c/o Bear Sterns 245 Park Avenue New York, NY 10167
75 Jay Sugarman c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Philadelphia HIR, LP c/o The Beacon Companies 50 Rowes Wharf Boston, MA 02110 Attn: Edward N. Sidman John Z. Kukral c/o The Blackstone Group 345 Park Avenue New York, NY 10154 Jerome C. Silvey c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Geoffrey T. Boisi c/o Beacon Group 375 Park Avenue New York, NY 10152 Michael Mueller c/o Starwood Lodging Trust 2231 East Camelback Road Phoenix, AZ 85016 Clate Korsant c/o Amelia Holdings 289 Greenwich Avenue Greenwich, CT 06830 Attn: Ms. Dot Parker Justin Korsant c/o Amelia Holdings 289 Greenwich Avenue Greenwich, CT 06830 Attn: Ms. Dott Parker James G Babb, III c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Edward J. Rohling c/o Bristol Hotel Management Operations 1428 Midway Road Dallas, TX 75244 Attn: Jeff Mayer
76 Lambster Partners Limited Partnership c/o Walton Street Capital, L.L.C. 900 N. Michigan Avenue, 19th Floor Chicago, IL 60611 Mr. Neil Bluhm Gregory Beer c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Jeff Dishner c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Geoff Beer c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Charles E. Mueller, MD 11306 Roosevelt Road Saginaw, MI 48603 Lowell D. Kraff c/o Lexer Capital, Ltd. 333 West Wacker Drive, Suite 2070 Chicago, IL 60606 Stephen Fiore c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Jennifer Albero c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 James A. Kleeman, MD, PC c/o Starwood Capital Group Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Attn: Madison F. Grose Ellis F. Rinaldi c/o Rinaldi & Associates Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 J. Peter Paganelli c/o Starwood Asset Management Three Pickwick Plaza, 3rd Floor Greenwich, CT 06830
77 John F. Couture c/o La Salle Partners 220 East 42nd Street, 27th Floor New York, NY 10017 James Oldman c/o Starwood Asset Management Three Pickwick Plaza, 3rd Floor Greenwich, CT 06830 The Prudential Insurance Company of America, c/o Prudential Real Estate Investors on behalf of Prudential Property Investment 8 Campus Drive Separate Account II Parsippany, NJ 07054 Attn: Mr. Roger S. Pratt Eleanor Mendell, as Trustee of the Gary Mendell c/o Eleanor Mendell, Trustee Family Trust 4 The Circle Easton, CT 06612 Gary Mendell 20 Morning Glory Drive Easton, CT 06612 Ellen-Jo Mendell 25 Kent Lane Trumbull, CT 06611 Stephen Mendell 25 Kent Lane Trumbull, CT 06611 Judith K. Rushmore 22 Sheperd Lane Roslyn Heights, NY 11577 Murray L. Dow II 49 Ridge Lane Shelton, CT 06484 Westport Hospitality, Inc. 55 Greens Farms Road Westport, CT 06880 Zapco Holdings, Inc. Deferred Compensation c/o Orna Shulman Plan Trust Intertech Corporation 1301 Pennsylvania Avenue, N.W. Suite 700 Washington, DC 20004 Orna L. Shulman 800 5th Avenue New York, NY 10021 Arthur C. Green 57 Wilton Crest Wilton, CT 06484
78 Michael D. Hall 326 Roycroft Street Long Beach, CA 90814 Mark J. Rosinsky 34 Shadow Lane Great Neck, NY 11021 Randi L. Rosinsky 34 Shadow Lane Great Neck, NY 11021 John Daily 10 Cahill Road Monroe, CT 06468 Felix J. Caccioto, Jr. 53 Mimosa Court Ridgefield, CT 06877 Thomas Clearwater 39 Southwood Drive New Canaan, CT 06840 Harvey Moore 615 Stockley Garden Norfolk, VA 23507 Tracy Driscoll 23 Todd Hill Road Poughkeepsie, NY 12603
79 EXHIBIT B Notice Addresses of Class A Partners Name of Partner Notice Address - --------------- -------------- Gary Mendell 20 Morning Glory Drive Easton, CT 06612 Stephen Mendell 25 Kent Lane Trumbull, CT 06611 Judith K. Rushmore 22 Sheperd Lane Roslyn Heights, NY 11577 Murray L. Dow II 49 Ridge Lane Shelton, CT 06484 Westport Hospitality, Inc. 55 Greens Farms Road Westport, CT 06880 80 CERTIFICATE OF ADMISSION OF SLC OPERATING LIMITED PARTNERSHIP THIS CERTIFICATE OF ADMISSION OF SLC OPERATING LIMITED PARTNERSHIP ("Certificate of Admission") is made effective January 2, 1998, by Starwood Lodging Corporation, a Maryland corporation, as the General Partner of SLC Operating Limited Partnership, a Delaware limited partnership ("Partnership"), which was formed pursuant to the provisions of that certain Limited Partnership Agreement of the Partnership dated as of December 15, 1994 and amended and restated as of June 29, 1995 and again as of November 14, 1997 and subsequently amended as of January 1, 1998 (as such agreement may hereafter be amended from time to time, "Partnership Agreement"). All capitalized terms not defined herein shall have the same meaning set forth in the Partnership Agreement. R E C I T A L S WHEREAS, as of September 8, 1997, that certain Transaction Agreement ("Transaction Agreement") was entered into among the General Partner, the Partnership, SLT, the Realty Partnership, Westin Hotels & Resorts Worldwide, Inc. ("Westin Worldwide"), a Delaware corporation, W&S Atlanta Corp. ("Atlanta"), a Delaware corporation, Westin St. John Hotel Company, Inc. ("St. John"), a U.S. Virgin Islands corporation, and the other parties thereto; WHEREAS, pursuant to the Transaction Agreement, it is contemplated that, among other things, the Persons whose names appear below the General Partner's name on the signature pages of this Certificate of Admission (each a "Contributing Party" and, collectively, the "Contributing Parties") will contribute to the Partnership certain of the outstanding shares of capital stock of Atlanta and St. John in exchange for Class B Units described below; WHEREAS, pursuant to Section 4.1(e) of the Partnership Agreement, the General Partner is authorized to cause the Partnership to issue additional Partnership Interests in one or more classes or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to the then-existing Partnership Interests and Units, as shall be determined by the General Partner in its sole and absolute discretion; and WHEREAS, pursuant to Section 11.1(b)(3) and (4) of the Partnership Agreement, the General Partner is authorized to amend the Partnership Agreement without the Consent of the Limited Partners, and in accordance with Section 11.1(b) of the Partnership Agreement, the Limited Partners have received five Business Days' notice of this Certificate of Admission. NOW THEREFORE, the undersigned certifies that all appropriate actions have been - 1 - 81 taken to admit the Contributing Parties to the Partnership upon the terms and conditions set forth below: SECTION 1. Each Contributing Party is hereby admitted as a Limited Partner of the Partnership and shall receive, inter alia, its share of a maximum total of 393,156 Class B Units(1) to be issued pursuant to the Transaction Agreement. The number of Class B Units received by each Contributing Party is set forth next to each such Contributing Party's signature block below. The General Partner hereby consents to each such admission. If the number of Class B Units to be received by any Contributing Party shall be adjusted after the date hereof in accordance with the terms of or in connection with the Transaction Agreement, the General Partner shall amend this Certificate of Admission to reflect such adjustment. SECTION 2. Each Contributing Party has agreed to comply with and to be bound by the terms and conditions of the Partnership Agreement. Each Contributing Party has represented that, to the best of its knowledge, its admission as a Limited Partner does not violate any of the restrictions set forth in Section 9.3 of the Partnership Agreement. SECTION 3. The Partnership Agreement is hereby amended such that each and every reference to the "Limited Partners" or to a "Limited Partner" includes each Contributing Party. SECTION 4. Exhibit A to the Partnership Agreement is hereby amended to reflect this Certificate of Admission. SECTION 5. Exhibit B to the Partnership Agreement is hereby amended to reflect this Certificate of Admission. The notice address of each Contributing Party is set forth on Exhibit A to this Certificate of Admission. SECTION 6. Section 1.1 of the Partnership Agreement is hereby amended by the addition of the following defined terms: "Class B Certificate of Admission" shall mean the Certificate of Admission of SLC Operating Limited Partnership dated as of January 2, 1998 that authorizes the issuance of Class B Units. "Class B Limited Partners" shall mean those Persons admitted to the Partnership pursuant to the Class B Certificate of Admission, and any Person who, at the time of reference thereto, is a Class B Limited Partner of the Partnership. "Class B Liquidation Preference Distribution" shall mean, with respect to a Class B Unit, an amount equal to the "fair market value" of one RP Ordinary Unit, - -------- (1) The exact number of Class B Units to be issued to each Contributing Party will be determined on or about December 29, 1997 in a manner consistent with the Transaction Agreement. - 2 - 82 which shall be payable only in the event of the dissolution and liquidation of the Partnership not preceded or accompanied by a liquidation and dissolution of the Realty Partnership. Such fair market value shall be determined in good faith by the General Partner as of the effective date of such liquidation and dissolution or, if no such effective date applies, as of the date of the first liquidating distribution pursuant to Section 8.2. In the event of any change in (i) the nature or amount of securities constituting a unit of Paired Shares under the pairing agreement between the General Partner and SLT, (ii) the correspondence of the number of non-preferred Units in the Partnership to the number of Paired Shares outstanding or (iii) the correspondence of the number of RP Ordinary Units to the number of Paired Shares outstanding, the amount of the Class B Liquidation Preference that shall accrue with respect to each Class B Unit as a function of the fair market of each RP Ordinary Unit shall be equitably adjusted. "Class B OP Special Distribution" shall mean, with respect to a Class B Unit, an amount equal to the sum, in cash, of the fair market value of all operating and liquidating distributions by the Realty Partnership with respect to RP Ordinary Units on or after January 2, 1998 (whether pursuant to Section 6.2 or 8.2 of the Realty Agreement) in an amount per Class B Unit equal to the amount so distributed in respect of each RP Ordinary Unit. In the event of any change in (i) the nature or amount of securities constituting a unit of Paired Shares under the pairing agreement between the General Partner and SLT, (ii) the correspondence of the number of non-preferred Units in the Partnership to the number of Paired Shares outstanding or (iii) the correspondence of the number of RP Ordinary Units to the number of Paired Shares outstanding, the amount of the Class B OP Special Distribution that shall accrue with respect to each Class B Unit as a function of the amount of the corresponding distribution on the RP Ordinary Units shall be equitably adjusted. Class B OP Special Distributions may only be made with respect to Class B Units and shall be due at the same time as such operating or liquidating distributions are made by the Realty Partnership. "Class B Units" shall mean, collectively, the interests of the Class B Limited Partners in capital, allocations of Net Income, Net Loss and distributions, including Class B OP Special Distributions and Class B Liquidation Preference Distributions, if any. The number of Class B Units owned by each Class B Limited Partner is set forth on Exhibit A hereto. "RP Ordinary Units" shall mean units of the Realty Partnership other than units entitled to receive priority distributions under the Realty Agreement such as the Class A Units (as such term is defined in the Realty Agreement). "Units" shall have the meaning set forth in Section 4.1(c) hereof, and such terms shall include Class A Units and Class B Units except where the context otherwise requires. - 3 - 83 SECTION 7. The definition of "Special Class A Distribution" in Section 1.1 of the Partnership Agreement is hereby amended and restated in its entirety as follows: "Special Class A Distribution" shall mean, with respect to a Class A Unit, the fair market value, in cash, of any operating or liquidating distribution in cash or other property made by the Realty Partnership with respect to an RP Ordinary Unit. Special Class A Distributions may only be made with respect to Class A Units and shall be due at the same time as such operating or liquidating distributions are made by the Realty Partnership. SECTION 8. Section 6.1(a) of the Partnership Agreement is hereby amended and restated in its entirety as follows: (a) Allocation of Net Income and Net Loss. (i) Net Income. Except as otherwise provided herein, Net Income for any fiscal year or other applicable period shall be allocated in the following order and priority: (A) first, to the General Partner, until the cumulative Net Income allocated pursuant to this Section 6.1(a)(i)(A) for the current and all prior periods equals the cumulative Net Loss allocated pursuant to Section 6.1(a)(ii)(E) for all prior periods; (B) second, to the holders of Units, including Class A Units and Class B Units, to the extent of, in proportion to and in reverse order of their prior allocations of Net Loss pursuant to Section 6.1(a)(ii)(D) until the cumulative Net Income allocated pursuant to this Section 6.1(a)(i)(B) for the current and all prior periods equals the cumulative Net Loss allocated to such holders pursuant to Section 6.1(a)(ii)(D) for all prior periods; (C) third, to the holders of Class A Units until each holder of Class A Units has been allocated Net Income pursuant to this Section 6.1(a)(i)(C) in an amount equal to its Class A Preferred Return for the current and all prior periods; (D) fourth, to the holders of Class A Units until each holder of Class A Units has been allocated Net Income pursuant to this Section 6.1(a)(i)(D) in an amount equal to the Net Income (as defined in Section 1.1 of the Realty Agreement) allocated to an RP Ordinary Unit for all prior periods (or portions thereof) from and after February 14, 1997 pursuant to Section 6.1(a)(i)(E) and (F) of the Realty Agreement, multiplied by the number of Class A Units held by such holder; - 4 - 84 (E) fifth, to the holders of Class B Units until each holder of Class B Units has been allocated Net Income pursuant to this Section 6.1(a)(i)(E) in an amount equal to its accrued Class B OP Special Distributions, if any; (F) sixth, to the holders of Class B Units until each holder of Class B Units has been allocated Net Income pursuant to this Section 6.1(a)(i)(F) in an amount equal to the excess of its accrued Class B Liquidation Preference Distribution, if any, over the portion of such holder's initial Capital Account balance allocable to the Class B Liquidation Preference; (G) seventh, to the extent the Partnership has made distributions pursuant to Section 6.2(d) to the holders of Units, including Class A Units and Class B Units, in accordance with and in proportion to distributions made under Section 6.2(d); and (H) thereafter, to the holders of Units, including Class A Units and Class B Units, in accordance with and in proportion to their respective holdings of Units. (ii) Net Loss. Except as otherwise provided herein, Net Loss of the Partnership for each fiscal year or other applicable period shall be allocated in the following order and priority; (A) first, to the holders of Units, including Class A Units and Class B Units, to the extent of, in proportion to, and in the reverse order of, Net Income previously allocated to the Partners pursuant to Section 6.1(a)(i)(H), until the cumulative Net Loss allocated pursuant to this Section 6.1(a)(ii)(A) for the current and all prior periods equals the cumulative Net Income allocated pursuant to Section 6.1(a)(i)(H) for all prior periods; (B) second, to the holders of Class B Units to the extent of and in proportion to their prior allocations of Net Income pursuant to Section 6.1(a)(i)(E) and (F) until the cumulative Net Loss allocated pursuant to this Section 6.1(a)(ii)(B) for the current and all prior periods equals the cumulative Net Income allocated to such holders pursuant to Section 6.1(a)(i)(E) and (F) for all prior periods; (C) third, to the holders of Class A Units to the extent of and in proportion to their prior allocations of Net Income pursuant to Section 6.1(a)(i)(C) and (D) until the cumulative Net Loss allocated pursuant to this Section 6.1(a)(ii)(C) for the current and all prior periods equals the cumulative Net Income allocated to such holders pursuant to Section 6.1(a)(i)(C) and (D) for all prior periods; - 5 - 85 (D) fourth, to the holders of Units, including Class A Units and Class B Units, in accordance with their respective holdings of Units, provided that Net Losses shall not be allocated pursuant to this Section 6.1(a)(ii)(C) to the extent such allocations would cause any Limited Partner to have an Adjusted Capital Account Deficit as of the end of the fiscal year to which such Net Loss relates; and (E) the balance, if any, to the General Partner. SECTION 9. Section 6.2 of the Partnership Agreement is hereby amended and restated in its entirety as follows: 6.2 Distributions. The General Partner shall cause the Partnership to distribute all, or such portion as the General Partner may in its reasonable discretion determine, of Net Cash Flow to the holders of applicable Units, including Class A Units and Class B Units, who are holders on the Record Date with respect to such distribution. Distributions of Net Cash Flow shall be made in the following priority: (a) first, to the holders of Class A Units, pro rata in accordance with holders' ownership of Class A Units, in an amount equal to the excess, if any, of (i)(x) the cumulative Class A Preferred Return from February 14, 1997 to the end of such fiscal year or other applicable period ending on the Partnership Record Date, over (y) the sum of all prior distributions to the holders of Class A Units pursuant to this Section 6.2(a)(i), and then (ii)(x) the cumulative Special Class A Distributions from February 14, 1997 to the end of such fiscal year or other applicable period ending on the Partnership Record Date, over (y) the sum of all prior distributions to the holders of Class A Units pursuant to this Section 6.2(a)(ii), treating the distributed amounts as paying the oldest amounts due first; (b) second, to the holders of Class B Units, pro rata in accordance with holders' ownership of Class B Units, in an amount equal to the excess, if any, of (i) the total of all Class B OP Special Distributions that have accrued as of the date of payment of such distribution, less (ii) the total of all previous distributions to the holders of Class B Units in respect of such Class B OP Special Distributions pursuant to Section 8.2(a)(v), if any, and this Section 6.2(b); (c) third, except as otherwise provided in Sections 6.2(d), to the holders of Units, including Class A Units and Class B Units, who are holders on the Partnership Record Date with respect to such distribution pro rata in accordance with the holders' ownership of Units, including Class A Units and Class B Units; and (d) when the General Partner declares a distribution to holders of Shares and the amount otherwise determined to be distributable to each holder of a Unit, including Class A Units and Class B Units, under Section 6.2(c) results in an - 6 - 86 amount that is less than the amount distributable to each holder of a Share (on a per Share to per Unit basis), the General Partner shall cause the Partnership to distribute sufficient amounts to holders of Units, including Class A Units and Class B Units, as of the Partnership Record Date so that such holders of Units, including Class A Units and Class B Units, will receive an amount per Unit equal to the related distributions to holders of Shares (on a per Share to per Unit basis). The General Partner shall accomplish this by reducing the amounts otherwise distributable to it under Section 6.2(c) and increasing the amount otherwise distributable to holders of Units, including Class A Units and Class B Units, under Section 6.2(c) and, to the extent necessary, by contributing additional capital to the Partnership. SECTION 10. Section 8.2(a) of the Partnership Agreement is hereby amended and restated in its entirety as follows: 8.2 Distributions on Dissolution. (a) In the event of the dissolution and liquidation of the Partnership for any reason, the assets of the Partnership shall be liquidated for distribution in the following rank and order: (i) payment of creditors of the Partnership, including creditors who are Partners or former Partners; (ii) establishment of reserves as provided by the Liquidating Trustee to provide for contingent liabilities, if any; (iii) to the holders of Class A Units, pro rata in accordance with the holders' ownership of Class A Units, in an amount equal to the excess, if any, of (x) the cumulative distributions under Section 8.2(a) of the Realty Agreement for an equivalent number of RP Ordinary Units in the Realty Partnership from February 14, 1997 to the date on which a distribution under this Section 8.2(a) is made, over (y) the sum of all prior distributions to the holders of Class A Units pursuant to this Section 8.2(a)(iii); (iv) to the holders of Class B Units, pro rata in accordance with the holders' ownership of Class B Units, in an amount equal to the excess, if any, of (x) the Class B Liquidation Preference Distribution, over (y) the sum of all prior distributions to holders of Class B Units pursuant to this Section 8.2(a)(iv); (v) to the holders of Class B Units, pro rata in accordance with the holders' ownership of Class B Units, in an amount equal to the excess, if any, of (x) the total of all Class B OP Special Distributions that have accrued as of the date of payment of such liquidating distribution, less (y) the total of all previous distributions to the holders of Class B Units in respect of such Class B OP Special Distributions pursuant to Section 6.2(a) and this Section 8.2(a)(iv); and - 7 - 87 (vi) to the holders of Units, including Class A Units and Class B Units, in accordance with their respective holdings of Units. Whenever the Liquidating Trustee reasonably determines that any reserves established pursuant to paragraph (ii) above are in excess of the reasonable requirements of the Partnership, the amount determined to be excess shall be distributed to the Partners in accordance with the provisions of this Section 8.2(a). No Partner or holder of Units shall be liable to any other Partner or holder of Units for a deficit balance in its Capital Account. SECTION 11. As provided for in this Certificate of Admission and as otherwise necessary or appropriate to reflect the admission of the Contributing Parties to the Partnership, the Partnership Agreement is hereby amended effective as of the date first written above. Except as otherwise provided in this Certificate of Admission, each and every provision of the Partnership Agreement remains in full force and effect. IN WITNESS WHEREOF, the party hereto has executed this Certificate of Admission or caused this Certificate of Admission to be executed on its behalf as of the date first above written. STARWOOD LODGING CORPORATION, a Maryland corporation By: /s/ Alan M. Schnaid --------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller IN WITNESS WHEREOF, the Contributing Parties hereby agree to and acknowledge the terms of this Certificate of Admission. 77,825 Units WHWE L.L.C. By: Whitehall Street Real Estate Limited Partnership V, Member and Manager By: - 8 - 88 By: By: /s/ Jonathan Langer --------------------------------- Name: Jonathan Langer Title: Attorney-in-fact 147,012 Units Woodstar Investor Partnership By: Marswood Investors, L.P., General Partner By: Starwood Capital Group, L.P., General Partner By: BSS Capital Partners, L.P., General Partner By: Sternlicht Holdings II, Inc., General Partner By: /s/ Ronald C. Brown ---------------------------------- Name: Ronald C. Brown Title: Attorney-in-fact 87,904 Units Nomura Asset Capital Corporation By: /s/ Daniel S. Abrams ---------------------------------- Name: Daniel S. Abrams Title: Managing Director - 9 - 89 - 10 - 90 EXHIBIT A 1) If to WHWE L.L.C., to: 85 Broad Street New York, New York 10004 Attention: Stuart M. Rothenberg Telecopier: (212) 357-5505 2) If to Woodstar Investor Partnership, to: Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Attention: Barry S. Sternlicht Telecopier: (203) 861-2101 3) If to Nomura Asset Capital Corporation, to: Two World Financial Center, Building B New York, NY 10281 Attention: Daniel S. Abrams Telecopier: (212) 667-1666 - 11 - 91 FIRST AMENDMENT TO SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF SLC OPERATING LIMITED PARTNERSHIP THIS FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF SLC OPERATING LIMITED PARTNERSHIP ("Amendment") is made and entered into effective as of January 1, 1998, by and among Starwood Lodging Corporation, a Maryland corporation, as the General Partner, and the Limited Partners of SLC Operating Limited Partnership, a Delaware limited partnership ("Operating Partnership"), which was formed pursuant to the provisions of that certain Limited Partnership Agreement of the Operating Partnership dated as of December 15, 1994, and amended and restated as of June 29, 1995 and again as of November 14, 1997 ("Operating Partnership Agreement"). All capitalized terms not defined herein shall have the same meaning set forth in the Operating Partnership Agreement. R E C I T A L S WHEREAS, as of September 8, 1997, that certain Transaction Agreement ("Transaction Agreement") was entered into by and among the General Partner, the Realty Partnership, SLT, the Operating Partnership, Westin Hotels & Resorts Worldwide, Inc. ("Westin Worldwide"), a Delaware corporation, and others; WHEREAS, as of November 12, 1997, the Amended and Restated Agreement and Plan of Merger ("Merger Agreement") was entered into by and among the General Partner, Chess Acquisition Corp., a Nevada corporation,, SLT and ITT Corporation ("ITT"), a Nevada corporation; WHEREAS, pursuant to the Transaction Agreement and Merger Agreement, it is contemplated that, among other things, the General Partner will directly hold certain assets previously held by Westin Worldwide and the stock of ITT; WHEREAS, the General Partner believes that it may enter into transactions in the future that may also result in it owning material assets or entering into or conducting a business ("Non-Operating Partnership Business") other than the ownership, acquisition and disposition of Partnership Interests as the General Partner or Limited Partner and the management of the business of the Partnership; WHEREAS, Section 7.3 of the Operating Partnership Agreement provides that if the General Partner directly or indirectly enters into or conducts Non-Operating Partnership Businesses, the General Partner shall make arrangements that are reasonably necessary to prevent such Non-Operating Partnership Businesses from having a material adverse impact on the Limited Partners and that assure that the Limited Partners share in the economic benefits of such Non- Operating Partnership Businesses in a fair and equitable manner; 92 WHEREAS, the General Partner desires to amend the Operating Partnership Agreement as set forth in this Amendment to ensure that any and all Non-Operating Partnership Businesses it conducts will not have a material adverse impact on the Limited Partners and that any economic benefits related to such Non-Operating Partnership Businesses will be shared with Limited Partners in a fair and equitable manner; and WHEREAS, the Limited Partners have been informed and do hereby unconditionally consent to such amendments; NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: SECTION 1. Effective as of the date first above written, Section 6.1(a) is hereby amended and restated in its entirety as follows: 6.1 Allocations. The Net Income, Net Loss and other Partnership items shall be allocated pursuant to the provisions of this Section 6.1 hereto. (a) Allocation of Net Income and Net Loss. (i) Net Income. Except as otherwise provided herein, Net Income for any fiscal year or other applicable period shall be allocated in the following order and priority: (A) first, to the General Partner, until the cumulative Net Income allocated pursuant to this Section 6.1(a)(i)(A) for the current and all prior periods equals the cumulative Net Loss allocated pursuant to Section 6.1(a)(ii)(D) for all prior periods; (B) second, to the holders of Units, including Class A Units, to the extent of, in proportion to and in reverse order of their prior allocations of Net Loss pursuant to Section 6.1(a)(ii)(C) until the cumulative Net Income allocated pursuant to this Section 6.1(a)(i)(B) for the current and all prior periods equals the cumulative Net Loss allocated to such holders pursuant to Section 6.1(a)(ii)(C) for all prior periods; (C) third, to the holders of Class A Units until each holder of Class A Units has been allocated Net Income pursuant to this Section 6.1(a)(i)(C) in an amount equal to its Class A Preferred Return for the current and all prior periods; - 2 - 93 (D) fourth, to the holders of Class A Units until each holder of Class A Units has been allocated Net Income pursuant to this Section 6.1(a)(i)(D) in an amount equal to the Net Income (as defined in Article I of the Realty Agreement) allocated to a Unit of the Realty Partnership for all prior periods (or portions thereof) from and after February 14, 1997 pursuant to Section 6.1(a)(i)(B) and (C) of the Realty Agreement, multiplied by the number of Class A Units held by such holder; (E) fifth, to the extent the Partnership has made distributions pursuant to Section 6.2(c), to the holders of Units, in accordance with and in proportion to distributions made under Section 6.2(c); and (F) thereafter, to the holders of Units, including Class A Units, in accordance with and in proportion to their respective holdings of Units. (ii) Net Loss. Except as otherwise provided herein, Net Loss of the Partnership for each fiscal year or other applicable period shall be allocated in the following order and priority; (A) first, to the holders of Units, including Class A Units, to the extent of, in proportion to, and in the reverse order of, Net Income previously allocated to the Partners pursuant to Section 6.1(a)(i)(F), until the cumulative Net Loss allocated pursuant to this Section 6.1(a)(ii)(A) for the current and all prior periods equals the cumulative Net Income allocated pursuant to Section 6.1(a)(i)(F) for all prior periods; (B) second, to the holders of Class A Units to the extent of and in proportion to their prior allocations of Net Income pursuant to Section 6.1(a)(i)(C) and (D) until the cumulative Net Loss allocated pursuant to this Section 6.1(a)(ii)(B) for the current and all prior periods equals the cumulative Net Income allocated to such holders pursuant to Section 6.1(a)(i)(C) and (D) for all prior periods; (C) third, to the holders of Units in accordance with their respective holdings of Units, including Class A Units, provided that Net Losses shall not be allocated pursuant to this Section 6.1(a)(ii)(C) to the extent such allocations would cause any Limited Partner to have an Adjusted Capital Account Deficit as of the end of the fiscal year to which such Net Loss relates; and (D) the balance, if any, to the General Partner. SECTION 2. Effective as of the date first above written, Section 6.2 is hereby amended and restated in its entirety as follows: - 3 - 94 6.2 Distributions. The General Partner shall cause the Partnership to distribute all, or such portion as the General Partner may in its reasonable discretion determine, of Net Cash Flow to the holders of Units, including Class A Units, who are holders on the Partnership Record Date with respect to such distribution in the following priority: (a) First, to the holders of Class A Units, pro rata in an amount equal to the excess, if any, of (i)(x) the cumulative Class A Preferred Return from February 14, 1997 to the end of such fiscal year or other applicable period ending on the Partnership Record Date, over (y) the sum of all prior distributions to the holders of Class A Units pursuant to this Section 6.2(a)(i), and then (ii)(x) the cumulative Special Class A Distributions from February 14, 1997 to the end of such fiscal year or other applicable period ending on the Partnership Record Date, over (y) the sum of all prior distributions to the holders of Class A Units pursuant to this Section 6.2(a)(ii), treating the distributed amounts as paying the oldest amounts due first; (b) Thereafter, except as otherwise provided in Section 6.2(c), to the holders of Units, including Class A Units, pro rata in accordance with the holders' ownership of Units, including Class A Units; and (c) When the General Partner declares a dividend to holders of Shares and the amount otherwise determined to be distributable to each holder of a Unit, including Class A Units, under Section 6.2(b) results in an amount that is less than the amount distributable to each holder of a Share (on a per Share to per Unit basis), the General Partner shall cause the Partnership to distribute sufficient amounts to holders of Units, including Class A Units, as of the Partnership Record Date so that such holders of Units, including Class A Units, will receive an amount per Unit equal to the related distributions to holders of Shares (on a per Share to per Unit basis). The General Partner shall accomplish this by reducing the amounts otherwise distributable to it under Section 6.2(b) and increasing the amount otherwise distributable to holders of Units, including Class A Units, under Section 6.2(b) and, to the extent necessary, by contributing additional capital to the Partnership. - 4 - 95 IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed on their behalf as of the date first above written. GENERAL PARTNER: STARWOOD LODGING CORPORATION, a Maryland corporation By: /s/ Nir E. Margalit ------------------------------------------ Name: Nir E. Margalit Title: Vice President and Secretary LIMITED PARTNERS: STARWOOD HOTEL INVESTORS II, L.P. By: STARWOOD CAPITAL GROUP I, L.P. By: BSS CAPITAL PARTNERS, L.P., General Partner By: STERNLICHT HOLDINGS II, Inc. General Partner By: /s/ Madison F. Grose ------------------------------------------ Name: Madison F. Grose Title: EVP FIREBIRD CONSOLIDATED PARTNERS, L.P. By: /s/ Madison F. Grose ------------------------------------------ Name: Madison F. Grose Title: Authorized Signatory for General Partner APPOLLO REAL ESTATE INVESTMENT FUND, L.P. By: APPOLLO REAL ESTATE ADVISORS, L.P. By: APPOLLO REAL ESTATE MANAGEMENT, - 5 - 96 INC. By: ---------------------------------------- Name: Title: PHILADELPHIA HSR LIMITED PARTNERSHIP By: ---------------------------------------- Name: Title: General Partner STARWOOD OPPORTUNITY FUND II, L.P. By: STARWOOD CAPITAL GROUP I, L.P. General Partner By: BSS CAPITAL PARTNERS, L.P., General Partner By: STERNLICHT HOLDINGS II, Inc. General Partner By: /s/ Madison F. Grose ---------------------------------------- Name: Madison F. Grose Title: EVP /s/ Edward J. Rohling -------------------------------------------- EDWARD J. ROHLING ZIFF INVESTORS PARTNERSHIP, L.P. II By: /s/ Philip B. Korsant ---------------------------------------- Name: PBK Holdings, Inc. Title: General Partner By: Philip B. Korsant--President MONTROSE CORPORATION By: ---------------------------------------- - 6 - 97 Name: Title: HARVEYWOOD HOTEL INVESTORS, L.P. By: /s/ Madison F. Grose ---------------------------------------- Name: Madison F. Grose Title: Authorized Signatory for General Partner STAR INVESTORS, G.P. By: ---------------------------------------- Name: Title: MERIDIAN INVESTMENT GROUP By: ---------------------------------------- Name: Title: THE HERMITAGE, L.P. By: HERMITAGE OF NASHVILLE, INC. General Partner By: ---------------------------------------- Name: Title: BURDEN DIRECT INVESTMENT FUND I By: /s/ Jeffrey A. Weber ---------------------------------------- Name: Jeffrey A. Weber Title: President & CEO, Burden Brothers Inc., General Partner, William A.M. Burden & Co., LP BRAINARD HOLDINGS, INC. - 7 - 98 By: ---------------------------------------- Name: Title: KJJ REVOCABLE TRUST By: /s/ Hekmatollah Eilian ---------------------------------------- Name: Hekmatollah Eilian Title: Trustee ---------------------------------------- BARRY S. STERNLICHT THE BARRY S. STERNLICHT FAMILY SPRAY TRUST I By: ---------------------------------------- Name: Title: Trustee THE BARRY S. STERNLICHT FAMILY SPRAY TRUST II By: ---------------------------------------- Name: Title: Trustee THE BARRY S. STERNLICHT FAMILY SPRAY TRUST III By: ---------------------------------------- Name: Title: Trustee /S/ Jack Nash ---------------------------------------- JACK NASH - 8 - 99 THE NASH FAMILY PARTNERSHIP By: /s/ Joshua Nash ---------------------------------------- Name: Joshua Nash Title: General Partner /s/ Madison F. Grose ---------------------------------------- MADISON F. GROSE THE MADISON F. GROSE IRREVOCABLE INSURANCE TRUST By: /s/ Ellis F. Rinaldi ---------------------------------------- Name: Ellis F. Rinaldi Title: Trustee ---------------------------------------- MAX C. CHAPMAN /s/ Merrick R. Kleeman ---------------------------------------- MERRICK R. KLEEMAN ---------------------------------------- EUGENE A. GORAB /s/ Jamie R. Gates ---------------------------------------- JAMIE R. GATES /s/ Carly Simon ---------------------------------------- CARLY SIMON ---------------------------------------- STEVEN R. GOLDMAN - 9 - 100 /s/ Alan Schwartz ---------------------------------------- ALAN SCHWARTZ /s/ Jay Sugarman ---------------------------------------- JAY SUGARMAN /s/ John Z. Kukral ---------------------------------------- JOHN Z. KUKRAL /s/ Jerome C. Silvey ---------------------------------------- JEROME C. SILVEY /s/ Geoffrey T. Boisi ---------------------------------------- GEOFFREY T. BOISI ---------------------------------------- MICHAEL MUELLER /s/ Donna Mitchell ---------------------------------------- CLATE JOSEPH KORSANT TRUST By: /s/ Donna Mitchell ------------------------------------ Name: Donna Mitchell Title: Trustee By: /s/ Dirk Ziff ------------------------------------ Name: Dirk Ziff Title: Trustee /s/ Donna Mitchell ---------------------------------------- JUSTIN FREDERICK KORSANT TRUST By: /s/ Donna Mitchell ------------------------------------ Name: Donna Mitchell Title: Trustee By: /s/ Dirk Ziff ------------------------------------ Name: Dirk Ziff Title: Trustee /s/ James G. Babb, III ---------------------------------------- JAMES G. BABB, III LAMBSTER PARTNERS LIMITED PARTNERSHIP By: ---------------------------------------- Name: Title: General Partner - 10 - 101 /s/ Jeff Dishner ---------------------------------------- JEFF DISHNER ---------------------------------------- GEOFFREY BEER ---------------------------------------- CHARLES E. MUELLER, M.D. ---------------------------------------- LOWELL D. KRAFF /s/ Stephen Fiore ---------------------------------------- STEPHEN FIORE /s/ Jennifer Albero ---------------------------------------- JENNIFER ALBERO ---------------------------------------- JAMES A. KLEEMAN, M.D., PC /s/ Ellis F. Rinaldi ---------------------------------------- ELLIS F. RINALDI /s/ J. Peter Paganelli ---------------------------------------- J. PETER PAGANELLI ---------------------------------------- JOHN F. COUTURE /s/ James Oldham ---------------------------------------- JAMES OLDHAM - 11 - 102 THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of Prudential Property Investment Separate Account II By: /s/ Roger S. Pratt ---------------------------------------- Name: Roger S. Pratt Title: Vice President/Managing Director ELEANOR MENDELL, AS TRUSTEE OF THE GARY MENDELL FAMILY TRUST By: /s/ Eleanor Mendell ---------------------------------------- Name: Eleanor Mendell Title: Trustee /s/ Gary Mendell ---------------------------------------- GARY MENDELL /s/ Ellen-Jo Mendell ---------------------------------------- ELLEN-JO MENDELL /s/ Stephen Mendell ---------------------------------------- STEPHEN MENDELL ---------------------------------------- JUDITH K. RUSHMORE /s/ Murray Dow II ---------------------------------------- MURRAY DOW II WESTPORT HOSPITALITY, INC. - 12 - 103 By: /s/ Gary Mendell ---------------------------------------- Name: Gary Mendell Title: President ZAPCO HOLDINGS, INC. By: /s/ Orna L. Shulman ---------------------------------------- Name: Orna L. Shulman Title: Executive Vice President ZAPCO HOLDINGS, INC. DEFERRED COMPENSATION PLAN TRUST By: /s/ Nancy Heinrich ---------------------------------------- Name: Nancy Heinrich Title: Trustee /s/ Orna L. Shulman ---------------------------------------- ORNA L. SHULMAN ---------------------------------------- ARTHUR GREEN ---------------------------------------- MICHAEL HALL ---------------------------------------- MARK ROSINSKY ---------------------------------------- RANDI ROSINSKY /s/ John Daily ---------------------------------------- JOHN DAILY - 13 - 104 ---------------------------------------- FELIX CACCIATO /s/ Thomas Clearwater ---------------------------------------- THOMAS CLEARWATER ---------------------------------------- HARVEY MOORE ---------------------------------------- TRACY DRISCOLL CLASS "A" PARTNERS Signature Blocks /s/ Gary Mendell ---------------------------------------- GARY MENDELL /s/ Stephen Mendell ---------------------------------------- STEPHEN MENDELL ---------------------------------------- JUDITH K. RUSHMORE /s/ Murray Dow II ---------------------------------------- MURRAY DOW II WESTPORT HOSPITALITY, INC. By: /s/ Gary Mendell ---------------------------------------- Name: Gary Mendell Title: President - 14 - 105 CERTIFICATE OF ADMISSION OF SLT REALTY LIMITED PARTNERSHIP THIS CERTIFICATE OF ADMISSION OF SLT REALTY LIMITED PARTNERSHIP ("Certificate of Admission") is made effective January 2, 1998, by Starwood Lodging Trust, a Maryland real estate investment trust, as the General Partner of SLT Realty Limited Partnership, a Delaware limited partnership ("Partnership"), which was formed pursuant to the provisions of that certain Limited Partnership Agreement of the Partnership dated as of December 15, 1994 and amended and restated as of June 29, 1995 and again as of November 14, 1997 and subsequently amended as of January 1, 1998 (as such agreement may be hereafter amended from time to time, "Partnership Agreement"). All capitalized terms not defined herein shall have the same meaning set forth in the Partnership Agreement. R E C I T A L S WHEREAS, as of September 8, 1997, that certain Transaction Agreement ("Transaction Agreement") was entered into among the General Partner, the Partnership, SLC, the Operating Partnership, Westin Hotels & Resorts Worldwide, Inc. ("Westin Worldwide"), a Delaware corporation, W&S Seattle Corp. ("Seattle"), a Delaware corporation, W&S Lauderdale Corp. ("Lauderdale"), a Delaware corporation, W&S Denver Corp. ("Denver"), a Delaware corporation, and the other parties thereto; WHEREAS, pursuant to the Transaction Agreement, it is contemplated that, among other things, the Persons whose names appear below the General Partner's name on the signature pages of this Certificate of Admission (each a "Contributing Party" and, collectively, the "Contributing Parties") will contribute to the Partnership certain of the outstanding shares of capital stock of Seattle, Lauderdale and Denver in exchange for Class A Units described below; WHEREAS, pursuant to Section 4.1(e) of the Partnership Agreement, the General Partner is authorized to cause the Partnership to issue additional Partnership Interests in one or more classes or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to the then-existing Partnership Interests and Units, as shall be determined by the General Partner in its sole and absolute discretion; and WHEREAS, pursuant to Section 11.1(b)(3) and (4) of the Partnership Agreement, the General Partner is authorized to amend the Partnership Agreement without the Consent of the Limited Partners, and in accordance with Section 11.1(b) of the Partnership Agreement, the Limited Partners have received five Business Days' notice of this Certificate of Admission. NOW THEREFORE, the undersigned certifies that all appropriate actions have been - 1 - 106 taken to admit the Contributing Parties to the Partnership upon the terms and conditions set forth below: SECTION 1. Each Contributing Party is hereby admitted as a Limited Partner of the Partnership and shall receive, inter alia, its share of a maximum total of 597,844 Class A Units(1) to be issued pursuant to the Transaction Agreement. The number of Class A Units received by each Contributing Party is set forth next to each such Contributing Party's signature block below. The General Partner hereby consents to each such admission. If the number of Class A Units to be received by any Contributing Party shall be adjusted after the date hereof in accordance with the terms of or in connection with the Transaction Agreement, the General Partner shall amend this Certificate of Admission to reflect such adjustment. SECTION 2. Each Contributing Party has agreed to comply with and to be bound by the terms and conditions of the Partnership Agreement. Each Contributing Party has represented that, to the best of its knowledge, its admission as a Limited Partner does not violate any of the restrictions set forth in Section 9.3 of the Partnership Agreement. SECTION 3. The Partnership Agreement is hereby amended such that each and every reference to the "Limited Partners" or to a "Limited Partner" includes each Contributing Party. SECTION 4. Exhibit A to the Partnership Agreement is hereby amended to reflect this Certificate of Admission. SECTION 5. Exhibit B to the Partnership Agreement is hereby amended to reflect this Certificate of Admission. The notice address of each Contributing Party is set forth on Exhibit A to this Certificate of Admission. SECTION 6. Section 1.1 of the Partnership Agreement is hereby amended by the addition of the following defined terms: "Class A Certificate of Admission" shall mean the Certificate of Admission of SLT Realty Limited Partnership, dated as of January 2, 1998, that authorizes the issuance of the Class A Units. "Class A Limited Partners" shall mean those Persons admitted to the Partnership pursuant to the Class A Certificate of Admission, and any Person who, at the time of reference thereto, is a Class A Limited Partner of the Partnership. "Class A Liquidation Preference Distribution" shall mean, with respect to a Class A Unit, an amount equal to the "fair market value" of one OP Ordinary Unit, - -------- (1) The exact number of Class A Units to be issued to each Contributing Party will be determined on or about December 29, 1997 in a manner consistent with the Transaction Agreement. - 2 - 107 which shall be payable only in the event of the dissolution and liquidation of the Partnership not preceded or accompanied by a liquidation and dissolution of the Operating Partnership. Such fair market value shall be determined in good faith by the General Partner as of the effective date of such liquidation and dissolution or, if no such effective date applies, as of the date of the first liquidating distribution pursuant to Section 8.2. In the event of any change in (i) the nature or amount of securities constituting a unit of Paired Shares under the pairing agreement between the General Partner and SLC, (ii) the correspondence of the number of non-preferred Units in the Partnership to the number of Paired Shares outstanding or (iii) the correspondence of the number of OP Ordinary Units to the number of Paired Shares outstanding, the amount of the Class A Liquidation Preference that shall accrue with respect to each Class A Unit as a function of the fair market of each OP Ordinary Unit shall be equitably adjusted. "Class A RP Special Distribution" shall mean, with respect to a Class A Unit, an amount equal to the sum, in cash, of the fair market value of all operating and liquidating distributions by the Operating Partnership with respect to OP Ordinary Units on or after January 2, 1998 (whether pursuant to Section 6.2 or 8.2 of the Operating Partnership Agreement) in an amount per Class A Unit equal to the amount so distributed in respect of each OP Ordinary Unit. In the event of any change in (i) the nature or amount of securities constituting a unit of Paired Shares under the pairing agreement between the General Partner and SLC, (ii) the correspondence of the number of non- preferred Units in the Partnership to the number of Paired Shares outstanding or (iii) the correspondence of the number of OP Ordinary Units to the number of Paired Shares outstanding, the amount of the Class A Special Distribution that shall accrue with respect to each Class A Unit as a function of the amount of the corresponding distribution on the OP Ordinary Units shall be equitably adjusted. Class A RP Special Distributions may only be made with respect to Class A Units and shall be due at the same time as such operating or liquidating distributions are made by the Realty Partnership. "Class A Units" shall mean, collectively, the interests of Class A Limited Partners in capital, allocations of Net Income, Net Loss and distributions, including Class A RP Special Distributions and Class A Liquidation Preference Distributions, if any. The number of Class A Units owned by each Class A Limited Partner is set forth on Exhibit A hereto. "OP Ordinary Units" shall mean units of the Operating Partnership other than units entitled to receive priority distributions under the Operating Partnership Agreement such as the Class A Units and Class B Units (as those terms are defined in the Operating Partnership Agreement). "Operating Partnership Agreement" shall mean that certain Limited Partnership Agreement of the Operating Partnership dated as of December 15, 1994 and amended and restated as of June 29, 1995 and again as of November 14, 1997 and - 3 - 108 subsequently amended as of January 1, 1998 pursuant to the First Amendment to Second Amended and Restated Limited Partnership Agreement of SLC Operating Limited Partnership Agreement and as of January 2, 1998 pursuant to the Certificate of Admission of SLC Operating Limited Partnership, and as may hereafter be further amended, supplemented or restated from time to time. "Units" shall have the meaning set forth in Section 4.1(c) hereof, and such term shall include Class A Units except where the context otherwise requires. SECTION 7. Section 6.1(a) of the Partnership Agreement is hereby amended and restated in its entirety as follows: (a) Allocation of Net Income and Net Loss. (i) Net Income. Except as otherwise provided herein, Net Income for any fiscal year or other applicable period shall be allocated in the following order and priority: (A) first, to the General Partner, until the cumulative Net Income allocated pursuant to this Section 6.1(a)(i)(A) for the current and all prior periods equals the cumulative Net Loss allocated pursuant to Section 6.1(a)(ii)(D) for all prior periods; (B) second, to the holders of Units, including Class A Units, to the extent of, in proportion to and in reverse order of their prior allocations of Net Loss pursuant to Section 6.1(a)(ii)(C) until the cumulative Net Income allocated pursuant to this Section 6.1(a)(i)(B) for the current and all prior periods equals the cumulative Net Loss allocated to such holders pursuant to Section 6.1(a)(ii)(C) for all prior periods; (C) third, to the holders of Class A Units until each holder of Class A Units has been allocated Net Income pursuant to this Section 6.1(a)(i)(C) in an amount equal to its accrued Class A Special Distributions, if any; (D) fourth, to the holders of Class A Units until each holder of Class A Units has been allocated Net Income pursuant to this Section 6.1(a)(i)(D) in an amount equal to the excess of its accrued Class A Liquidation Preference Distributions, if any, over the portion of such holder's initial Capital Account balance allocable to the Class A Liquidation Preference; (E) fifth, to the extent the Partnership has made distributions pursuant to Section 6.2(c) to the holders of Units, including Class A Units, in accordance with and in proportion to distributions made under Section 6.2(c); and - 4 - 109 (F) thereafter, to the holders of Units, including Class A Units, in accordance with and in proportion to their respective holdings of Units. (ii) Net Loss. Except as otherwise provided herein, Net Loss of the Partnership for each fiscal year or other applicable period shall be allocated in the following order and priority; (A) first, to the holders of Units, including Class A Units, to the extent of, in proportion to, and in the reverse order of, Net Income previously allocated to the Partners pursuant to Section 6.1(a)(i)(F), until the cumulative Net Loss allocated pursuant to this Section 6.1(a)(ii)(A) for the current and all prior periods equals the cumulative Net Income allocated pursuant to Section 6.1(a)(i)(F) for all prior periods; (B) second, to the holders of Class A Units to the extent of and in proportion to their prior allocations of Net Income pursuant to Section 6.1(a)(i)(C) and (D) until the cumulative Net Loss allocated pursuant to this Section 6.1(a)(ii)(B) for the current and all prior periods equals the cumulative Net Income allocated to such holders pursuant to Section 6.1(a)(i)(C) and (D) for all prior periods; (C) third, to the holders of Units, including Class A Units, in accordance with their respective holdings of Units, provided that Net Losses shall not be allocated pursuant to this Section 6.1(a)(ii)(C) to the extent such allocations would cause any Limited Partner to have an Adjusted Capital Account Deficit as of the end of the fiscal year to which such Net Loss relates; and (D) the balance, if any, to the General Partner. SECTION 8. Section 6.2 of the Partnership Agreement is hereby amended and restated in its entirety as follows: 6.2 Distributions. The General Partner shall cause the Partnership to distribute all, or such portion as the General Partner may in its reasonable discretion determine, of Net Cash Flow in accordance with the distribution rules described below to the holders of applicable Units who are holders on the Record Date with respect to such distribution; provided that the General Partner shall be at all times authorized to cause the Partnership to distribute to the holders of Units pro rata in accordance with the holders' ownership of Units, sufficient amounts to enable the General Partner to pay shareholder dividends that will satisfy the REIT Requirements. For such purposes, Net Cash Flow shall be distributed: - 5 - 110 (a) first, to the holders of Class A Units, pro rata in accordance with the holders' ownership of Class A Units, in an amount equal to the excess, if any, of (i) the total of all Class A RP Special Distributions that have accrued as of the date of payment of such distribution, less (ii) the total of all previous distributions to the holders of Class A Units in respect of such Class A RP Special Distributions pursuant to Section 8.2(a)(iv), if any, and this Section 6.2(a); (b) except as otherwise provided in Sections 6.2(c), to the holders of Units, including Class A Units, who are holders on the Partnership Record Date with respect to such distribution pro rata in accordance with the holders' ownership of Units, including Class A Units; and (c) when the General Partner declares a distribution to holders of Shares and the amount otherwise determined to be distributable to each holder of a Unit, including Class A Units, under Section 6.2(b) results in an amount that is less than the amount distributable to each holder of a Share (on a per Share to per Unit basis), the General Partner shall cause the Partnership to distribute sufficient amounts to holders of Units, including Class A Units, as of the Partnership Record Date so that such holders of Units, including Class A Units, will receive an amount per Unit equal to the related distributions to holders of Shares (on a per Share to per Unit basis). The General Partner shall accomplish this by reducing the amounts otherwise distributable to it under Section 6.2(b) and increasing the amount otherwise distributable to holders of Units, including Class A Units, under Section 6.2(b) and, to the extent necessary, by contributing additional capital to the Partnership. SECTION 9. Section 8.2(a) of the Partnership Agreement is hereby amended and restated in its entirety as follows: 8.2 Distributions on Dissolution. (a) In the event of the dissolution and liquidation of the Partnership for any reason, the assets of the Partnership shall be liquidated for distribution in the following rank and order: (i) payment of creditors of the Partnership, including creditors who are Partners or former Partners; (ii) establishment of reserves as provided by the Liquidating Trustee to provide for contingent liabilities, if any; (iii) to the holders of Class A Units, pro rata in accordance with the holders' ownership of Class A Units, in an amount equal to the excess, if any, of (x) the Class A Liquidation Preference Distribution, over (y) the sum of all prior distributions to - 6 - 111 holders of Class A Units pursuant to this Section 8.2(a)(iii); (iv) to the holders of Class A Units, pro rata in accordance with the holders' ownership of Class A Units, in an amount equal to the excess, if any, of (x) the total of all Class A RP Special Distributions that have accrued as of the date of payment of such liquidating distribution, less (y) the total of all previous distributions to the holders of Class A Units in respect of such Class A RP Special Distributions pursuant to Section 6.2(a) and this Section 8.2(a)(iv); and (v) to the holders of Units, including Class A Units, in accordance with the positive balances in their Capital Accounts after giving effect to all contributions, distributions and allocations for all periods. Whenever the Liquidating Trustee reasonably determines that any reserves established pursuant to paragraph (ii) above are in excess of the reasonable requirements of the Partnership, the amount determined to be excess shall be distributed to the Partners in accordance with the provisions of this Section 8.2(a). No Partner or holder of Units shall be liable to any other Partner or holder of Units for a deficit balance in its Capital Account. SECTION 10. Notwithstanding Section 6.16(d) of the Transaction Agreement, no restrictions on the transfer of the shares of Denver, Seattle or Lauderdale shall be enforced if and only to the extent that such restriction would cause Denver, Seattle or Lauderdale to fail to meet the requirements of Section 856(a)(2) of the Code. SECTION 11. As provided for in this Certificate of Admission and as otherwise necessary or appropriate to reflect the admission of the Contributing Parties to the Partnership, the Partnership Agreement is hereby amended effective as of the date first written above. Except as otherwise provided in this Certificate of Admission, each and every provision of the Partnership Agreement remains in full force and effect. IN WITNESS WHEREOF, the party hereto has executed this Certificate of Admission or caused this Certificate of Admission to be executed on its behalf as of the date first above written. STARWOOD LODGING TRUST, a Maryland real estate investment trust By: /s/ Ronald C. Brown __________________________________ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer - 7 - 112 IN WITNESS WHEREOF, the Contributing Parties hereby agree to and acknowledge the terms of this Certificate of Admission. 117,036 Units WHWE L.L.C. By: Whitehall Street Real Estate Limited Partnership V, Member and Manager By: By: By: /s/ Jonathan Langer ___________________________ Name: Jonathan Langer Title: Attorney-in-fact for Whitehall Street Real Estate Limited Partnership V 221,081 Units Woodstar Investor Partnership By: Marswood Investors, L.P., General Partner By: Starwood Capital Group, L.P., General Partner By: BSS Capital Partners, L.P., General Partner By: Sternlicht Holdings II, Inc., General Partner By: /s/ Ronald C. Brown _________________________ Name: Ronald C. Brown Title: Attorney-in-fact - 8 - 113 132,192 Units Nomura Asset Capital Corporation By: /s/ Daniel S. Abrams _________________________ Name: Daniel S. Abrams Title: Managing Director - 9 - EX-10.4 9 EX-10.4 1 Exhibit 10.4 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT (hereinafter called this "Agreement"), dated as of February __, 1998, between Starwood Hotels & Resorts Trust, a Maryland real estate investment trust (the "Trust"), and Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the "Corporation"). RECITALS WHEREAS an Amended and Restated Agreement and Plan of Merger (the "Merger Agreement") dated as of November 12, 1997 was entered into among ITT Corporation, a Nevada corporation ("ITT"), the Corporation, the Trust and Chess Acquisition Corp., a Nevada corporation owned by the Trust and the Corporation ("Chess"), pursuant to which Chess will be merged with and into ITT (the "Merger"), with the result that (i) ITT will be wholly owned by the Trust and the Corporation and (ii) each outstanding share of common stock, par value $.01 per share, of ITT ("ITT Common Shares"), other than shares held by ITT, the Corporation, the Trust or any of their respective wholly owned subsidiaries, will be converted into the right to receive, at the holder's election, $85 in cash or shares of common stock, par value $.01 per share, of the Corporation ("Corporation Shares") and shares of beneficial interest, par value $.01 per share, of the Trust ("Trust Shares" and, when paired with the Corporation Shares, the "Paired Shares") with a value of $85, subject to certain collar provisions; WHEREAS in connection with the Merger, Trust will contribute to Chess a number (the "Trust Number") of Trust Shares equal to the number of Trust Shares to be issued to stockholders of ITT in connection with the Merger in consideration for shares of common stock of Chess; and WHEREAS the Trust desires to sell to the Corporation and the Corporation desires to purchase from the Trust all of the shares of common stock of Chess that will be owned by the Trust after the Merger (the "Chess Shares"). NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: SECTION 1. Purchase and Sale SECTION 1.1. Purchase and Sale of the Chess Shares. Upon the terms and subject to the conditions of this Agreement, the Trust agrees to sell, transfer, assign, convey and deliver to the Corporation immediately after the Closing (as defined in the Merger Agreement), free and clear of liens, security interests, claims, encumbrances and restrictions of any kind whatsoever ("Encumbrances"), and the Corporation hereby agrees to purchase and accept from the Trust, all of the Chess Shares immediately after the Closing. 2 SECTION 1.2. Purchase Price and Delivery Thereof. The purchase price (the "Purchase Price") for the Chess Shares shall be equal to the product of (i) the Adjusted Trust Number (as defined below) and (ii) the quotient of (a) the lesser of (a) $85 and (ii) the closing price per an ITT Common Share as reported on the New York Stock Exchange Composite Transaction Tape on the business day immediately preceding the Closing Date divided by (b) 1.543. The Purchase Price shall be paid by the assumption by the Corporation of $2.1 billion of debt of SLT Realty Limited Partnership payable to W.D. Investments L.L.C. and the issuance by the Corporation to the Trust of a seven year mortgage note in an amount equal to the Purchase Price less $2.1 billion, which note will be secured by certain owned real estate of ITT and its subsidiaries and bear interest at an annual rate of 8.5% (the "Mortgage Note"). For purposes of this Agreement, "Issuance Percentage" means the percentage established from time to time by mutual agreement of the Board of Directors of the Corporation and the Board of Trustees of the Trust of the relative value of a Trust Share to the value of a Paired Share and "Adjusted Trust Number" means the product of the Trust Number and the Issuance Percentage. SECTION 2. Representations and Warranties of the Trust. The Trust hereby represents and warrants to the Corporation as follows: SECTION 2.1. Ownership of the Chess Shares. At the Closing, the Trust will own the Chess Shares free from all Encumbrances of any kind. SECTION 2.2. Power and Authority. The Trust has all requisite power and authority and has taken all action necessary in order to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. This Agreement is a valid and binding agreement of the Trust enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. SECTION 3. Representations and Warranties of the Corporation. The Corporation hereby represents and warrants to the Trust as follows: SECTION 3.1. Power and Authority. The Corporation has all requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby, and that this Agreement is a valid and binding agreement of the Corporation enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. SECTION 3.2. Mortgage Note. The Mortgage Note will, when delivered as contemplated by this Agreement, be duly authorized and a valid and enforceable obligation of the Corporation. 3 SECTION 4. Miscellaneous and General. SECTION 4.1. Further Assurances. From time to time following the date hereof, the Trust shall execute and deliver, or cause to be executed and delivered, to the Corporation such other bills of sale, deeds, endorsements, assignments and other documents or instruments of conveyance and transfer as the Corporation may reasonably request or as may be otherwise necessary to more effectively convey and transfer to, and vest in, the Corporation the Chess Shares, or in order to fully effectuate and to implement the purposes, terms and provisions of this Agreement. SECTION 4.2. Counterparts. This Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. SECTION 4.3. Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York. SECTION 4.4. Entire Agreement. This Agreement embodies the complete agreement of the parties hereto with respect to the subject matter hereof, and cannot be altered, amended, or modified except by their written agreement. SECTION 4.5. Interpretation; Certain Defined Terms. The headings herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. Where a reference in this Agreement is made to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." SECTION 4.6. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 4 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto as of the date first written above. STARWOOD HOTELS & RESORTS TRUST By: Name: Title: STARWOOD HOTELS & RESORTS WORLDWIDE, INC. By: Name: Title: EX-10.5 10 EX-10.5 1 Exhibit 10.5 [Execution Copy] AMENDED AND RESTATED EMPLOYMENT AGREEMENT between STARWOOD HOTELS & RESORTS TRUST and BARRY S. STERNLICHT Employment Agreement ("Agreement"), as amended and restated as of February 17, 1998, between Barry S. Sternlicht ("Executive") and Starwood Hotels & Resorts Trust, a Maryland real estate investment trust (the "Company"), with its principal office at 2231 East Camelback Road, Suite 410, Phoenix, Arizona 85016. WHEREAS, Executive has served as Chairman and Chief Executive Officer of the Company since December 1994 and currently serves as such; WHEREAS, the Company desires to continue the services of Executive as its Chairman and Chief Executive Officer and to enter into an agreement embodying the terms of such continuing relationship; and WHEREAS, Executive is willing to accept such continued employment upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the agreements and covenants contained herein, the Executive and the Company hereby agree as follows: ARTICLE I Employment and Term Section 1.01 Position; Responsibilities. (a) The Company hereby employs and continues the employment of Executive as its Chairman and Chief Executive Officer ("CEO") upon the terms and conditions hereinafter set forth. (b) As CEO, Executive shall at all times be the senior-most officer of the Company, with the duties, responsibilities and authority customarily associated with such position and consistent with such duties, responsibilities and authority as has heretofore been his as CEO. Such duties include authority and responsibility for acquisitions, divestitures, finance and investor relations, subject to policies adopted by the Board of Trustees of the Company (the "Board"). Executive shall perform such other additional duties and services of a senior executive nature, consistent with his position, as may be requested of him from time to time by the Board. Executive shall report directly and solely to the Board. Section 1.02 Performance of Duties; Other Commitments and Activities. 2 (a) Executive shall at all times endeavor to duly and faithfully perform all of his duties hereunder to the best of his abilities. (b) Executive shall devote such time and effort as may be necessary and appropriate from time to time in the circumstances for the proper discharge of his duties and obligations under this Agreement. The Company acknowledges that Executive is involved in other business endeavors, including with Starwood Capital Group L.L.C. ("SCG"), and as a consequence performs multiple executive roles. Subject to the Executive's duties and obligations to the Company as set forth in this Section 1.02(b), and subject to non-competition agreements between the Company and Executive and between the Company and SCG, the Company consents to the continuation of Executive's additional business endeavors and multiple executive roles. (c) Executive's base of operations under this Agreement shall continue to be Greenwich, CT, although Executive may, at his election, render his services from other locations. Executive shall not be required to relocate or render services, on other than a temporary basis, outside of such town. Section 1.03 Term. Executive's term of employment under this Agreement (the "Term") shall commence on the date hereof (the "Commencement Date") and shall expire on December 31, 1999, unless extended or sooner terminated as herein provided. Section 1.04 Representation and Warranty of Executive. Executive hereby represents and warrants to the Company that he is not aware of any presently existing fact, circumstance or event (including, but without limitation, any health condition or legal constraint) which would preclude or restrict him from providing to the Company the services contemplated by this Agreement, or which would give rise to any breach of any term or provision hereof, or which could otherwise result in the termination of his employment hereunder for Cause or Good Reason (as such terms are hereinafter defined). Section 1.05 Representation and Warranty of Company. The Company hereby represents and warrants to Executive that (i) it is not aware of any fact, circumstance or event which would give rise to any breach of any term or provision of this Agreement or any agreement covering any Existing Awards (as hereinafter defined), or which would form the basis for any claim or allegation that (A) Executive's employment hereunder could be terminated for Cause or Good Reason hereunder, or (B) the rights of Executive under any Existing Award should be in whole or any part limited, forfeited or otherwise restricted; and (ii) it has received all authorizations and has taken all actions, necessary or appropriate for the due execution, delivery and performance of this Agreement, all Existing Awards, and all Plan Agreements (as hereinafter defined), including all amendments thereto effected by this Agreement. -2- 3 ARTICLE II Compensation Section 2.01 General. The Company shall compensate Executive for all of his services under this Agreement, as set forth herein. Section 2.02 Basic Compensation. Executive's minimum annual salary ("Base Salary") shall be at the rate of $1,000,000 and shall be payable in bi-weekly or other installments in accordance with the Company's normal payment schedule for senior management (not less frequently than monthly). The Base Salary shall be subject to annual review commencing at the end of 1998 and at the end of each year thereafter during the Term, and may be increased (but not decreased) for subsequent years. Section 2.03 Incentive Compensation. In addition to the Base Salary, the Company shall pay to Executive as incentive compensation ("Incentive Compensation") in respect of each calendar year (or portion thereof) of the Company, an amount determined in accordance with any bonus or short term incentive compensation program (which may be based upon achieving certain specified performance criteria) which may be established by the Board either for the Executive or for senior management generally and which in any event shall be established by the Board for each calendar year not later than the earlier to occur of (x) March 31 of such year (or, in the case of 1998, 90 days after the date of this Agreement), and (y) the date on which the Company's audited financial statements for the prior calendar year are first available; provided, however, that (i) as Incentive Compensation for the full calendar year ending December 31, 1997, the Company has paid Executive $2,650,000, and (ii) subject to Article III hereof, Incentive Compensation for the full calendar year ending December 31, 1998 shall not be less than $1,325,000 (the "Guaranteed Portion"). All Incentive Compensation earned under this Section 2.03 shall be payable as soon as reasonably practicable, but in no event later than 120 days after end of the relevant calendar year (30 days after December 31, 1998 with respect to the Guaranteed Portion). Section 2.04 Equity Incentive and Other Benefit Programs. (a) On and prior to September 25, 1997, Executive was granted certain options, warrants, restricted stock and performance awards (collectively, the "Existing Awards"), summarized on the attached Exhibit A, under the Starwood Lodging Trust 1995 Long-Term Incentive Plan (as it has been amended and restated, from time to time as of and subsequent to August 12, 1996) (the "LTIP") (as well as certain options which were granted under the Starwood Lodging Trust 1995 Share Option Plan (the "Share Option Plan"), prior to the amendment and restatement thereof as of August 12, 1996) (the "Pre-Existing Awards"), all of which grants and awards are hereby confirmed as having been duly and validly authorized and issued, and being in full force and effect as of the date of execution of this Agreement. -3- 4 Except as specifically provided in this Agreement, nothing in this Agreement shall be deemed to modify or otherwise affect any of the terms or provisions (including, but without limitation, any contingencies) of any Pre-Existing Awards. (b) Notwithstanding any provision to the contrary contained in any agreement(s) (each, a "Plan Agreement") covering the relevant grant of Existing Awards or Pre-Existing Awards, as the case may be, the following terms shall apply with respect to such grants (the relevant provisions of this Agreement constituting an amendment to the relevant Plan Agreement(s) to the extent necessary to effectuate the same): (i) with respect to the Three Year Option and the Five Year Option noted on Exhibit A, together with the Performance Awards relating thereto, and the option granted on September 25, 1997 (collectively, the "Recent Options"), (A) termination for Cause and for Good Reason shall be as set forth in and subject to this Agreement and (B) in the event Executive's employment by the Company shall terminate for any reason other than (1) termination by the Company for Cause, or (2) termination by Executive without Good Reason (any such termination specified in this clause (B), a "Non-Cause Termination"), all unvested portions of the Recent Options shall thereupon immediately vest in full, free of restrictions (except that Executive may not exercise or sell with respect to such unvested portions for a period of one-year from the date of termination if the reason for such termination shall have been the failure of the Company and Executive to agree to an extension of Executive's employment by the Company by December 1, 1999), and the Recent Options shall remain exercisable until the third anniversary of the date of such termination; (ii) with respect to the remainder of the Existing Awards and all Pre-Existing Awards, in the event of any Non-Cause Termination, all unvested portions of such Awards shall thereupon immediately vest in full, free of restrictions (except that Employee may not exercise or sell with respect to such unvested portions for a period of one-year from the date of termination if the reason for such termination shall have been the failure of the Company and Executive to agree to an extension of Executive's employment by the Company by December 1, 1999), and shall remain exercisable for the period provided by the terms of such Awards but no less than a period ending three years from the date of termination of employment hereunder; and (iii) no unvested portion of any Existing Award shall be subject to forfeiture or restriction under any circumstance other than in the event of a termination for Cause, or, in the case of the Recent Options, by Executive without Good Reason. Executive shall be eligible for grants in the future of additional Paired Options, Paired Shares and Performance Awards under the LTIP (any such future grants, collectively, "Subsequent Awards"). All Paired Shares included in or underlying any Existing Awards or Pre-Existing Awards will be subject to applicable -4- 5 resale and other restrictions as set forth in the Plan Agreement(s). The Company shall use its best efforts to file and keep effective a registration statement on Form S-8 or other appropriate form with the Securities and Exchange Commission covering such Paired Shares. (c) Notwithstanding any provision to the contrary contained in this Agreement, the LTIP, the Share Option Plan or any other agreement, upon the Effective Time (as described in Section 1.2 of the Amended and Restated Agreement and Plan of Merger, dated as of November 12, 1997, among the Starwood Lodging Corporation (the "Corporation"), Chess Acquisition Corp., the Company and ITT Corporation (the "ITT Merger Agreement)), all Existing Awards and Pre-Existing Awards shall be 100% vested, except for such Existing Awards and Pre-Existing Awards that will not vest at the Effective Time, as set forth on Exhibit B hereto, which shall vest in accordance with their terms as modified by this Agreement. (d) Notwithstanding any provision to the contrary contained in the agreements (the "Restricted Stock Agreements"), dated August 12, 1996, covering the grant to Starwood Capital Group, L.L.C. of restricted stock awards of Paired Shares, the following terms shall apply with respect to such grant to the extent it was allocated to Executive, Madison Grose or Jonathan Eilian (such portion, the "Award"): (i) the Award became 100% vested upon the Closing (as defined in Section 1.6 of the Transaction Agreement (the "Westin Agreement"), dated as of September 8, 1997, among WHWE L.L.C., Woodstar Investor Partnership, Nomura Asset Capital Corporation, Juergen Bartels, W&S Hotel L.L.C., 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., Starwood Lodging Trust, SLT Realty Limited Partnership, Starwood Lodging Corporation and SLC Operating Limited Partnership, of the Merger (as defined in the Westin Agreement) (the "Westin Merger"); (ii) upon the execution of this Agreement, the Company shall pay to Executive an amount equal to 40% of the aggregate of the Fair Market Value (as defined in the LTIP) (determined at the time of vesting) of each Paired Share subject to the Award which vested prior to the Closing; provided, however, that no amount of Fair Market Value of a Paired Share in excess of $53 shall be taken into account; and (iii) no later than April 10, 1999, the Company shall pay to Executive an amount equal to 40% of the aggregate Fair Market Value (as defined in the LTIP) (determined on the date of the Closing) of each Paired Share subject to the Award which vested upon the Closing; provided, however, that no amount of Fair Market Value of a Paired Share in excess of $53 shall be taken into account. -5- 6 (e) During the Term, Executive shall be entitled to participate in the LTIP, any successor plan and all employee benefit plans, including retirement programs, if any, group health care plans, and all fringe benefit plans, of the Company. Such plans shall at all times be comparable to those made available to the senior-most management of the Corporation. In addition, the Company shall provide Executive with the following benefits during the Term: (i) use of an automobile, driver and car service for business purposes consistent with past practice prior to the execution of this Agreement; (ii) priority scheduling on Company aircraft, if any, for business purposes; (iii) first-class travel accommodations (air and lodging) for business-related travel (including the reasonable travel expenses incurred by Executive's spouse when accompanying Executive on business-related travel); and (iv) tax preparation and financial planning assistance up to a maximum cost of $25,000 per calendar year. (f) During the Term, the Company shall purchase and maintain a life insurance policy (the "Executive Insurance Policy") on Executive's life in the face amount of $10,000,000, the proceeds of which shall be payable to Executive's estate or such other person or persons as Executive shall designate. The Company shall not be required to maintain such insurance after termination of Executive's employment, but upon such termination the Company shall take all actions reasonably requested by Executive necessary to transfer title to such policy to Executive at no cost to Executive. (g) The Company shall reimburse Executive for all legal fees reasonably incurred by Executive in connection with the negotiation and execution of this Agreement. Section 2.05 Expense Reimbursements. The Company shall reimburse Executive for all proper expenses incurred by him in the performance of his duties hereunder in accordance with the policies and procedures of the Company as in effect from time to time. Section 2.06 Withholding. The Base Salary and all other payments to Executive for his services to the Company shall be subject to all withholding and deductions required by federal, state or other law (including those authorized by Executive but not otherwise required by law), including but not limited to state, federal and local income taxes, unemployment tax, Medicare and FICA, together with such -6- 7 deductions as Executive may from time to time specifically authorize under any employee benefit program which may be adopted by the Company for the benefit of its senior executives or Executive. ARTICLE III Termination of Employment Section 3.01 Termination. (a) Executive's employment hereunder shall be terminable by either party with or without Cause and with or without notice except as otherwise provided herein, but with the effect set forth herein. (b) Executive shall give the Company at least 30 days' advance written notice prior to any termination by Executive other than for Good Reason. The Company shall give Executive at least 30 days' advance written notice prior to any termination of Executive without Cause. (c) Executive may resign and terminate his employment hereunder for Good Reason (which shall also be deemed a termination by the Company other than for Cause), subject, however, to prior delivery to the Company of a Preliminary Notice of Good Reason and the failure of the Company to remedy the same within the cure period provided below. For purposes of this Agreement, "Good Reason" means (i) the failure to elect and continue Executive as CEO or Chairman of the Company or to nominate Executive for re-election as a member of the Board (unless a Cause Termination Notice (as hereinafter defined) shall theretofore have been given to Executive); (ii) the failure to assign Executive duties, authorities, responsibilities and reporting requirements consistent with his position and otherwise as set forth herein, or if the scope of any of Executive's material duties or responsibilities as CEO of the Company is reduced or expanded to a significant degree without Executive's prior consent, except for any reduction in duties and responsibilities due to Executive's illness or disability or temporary suspensions of duties and responsibilities pending results of any Board commissioned investigation as to potential Cause for termination of Executive's employment and except if a Cause Termination Notice shall theretofore have been given to Executive; (iii) a reduction in or a substantial delay in the payment of Executive's compensation or benefits from those required to be provided in accordance with the provisions of this Agreement, including under or in connection with any Existing Award or Pre-Existing Award; (iv) a requirement by the Company or the Board, without Executive's prior consent, that Executive be based outside of Greenwich, Connecticut, other than on travel reasonably required to carry out Executive's obligations under this Agreement; (v) the failure of the -7- 8 Company to indemnify Executive (including the prompt advancement of expenses), or to maintain directors' and officers' liability insurance coverage for Executive, in accordance with the provisions of Section 5.11 hereof; (vi) the Company's purported termination of Executive's employment for Cause other than in accordance with the requirements of this Agreement; (vii) a "Change of Control," as such term is defined and used in the LTIP, shall have occurred (unless a Cause Termination Notice shall theretofore have been given to Executive); it being understood that neither the Merger (as described in Article I of the ITT Merger Agreement) nor the Westin Merger shall constitute a "Change of Control" under the LTIP for purposes of this Section 3.01(c); (viii) the failure, by December 1, 1999, of the Company and Executive to agree to an extension of the Term beyond December 31, 1999, or (ix) any other breach by the Company of any provision of this Agreement; provided, that in the event Good Reason is based on clause (ii), (iii), (iv), (v) or (ix) above, (a) "Good Reason" shall not include acts which are cured by the Company within 30 days from receipt by the Company of a written notice from Executive (a "Preliminary Notice of Good Reason") identifying in reasonable detail the act or acts constituting Good Reason, (b) Good Reason shall not exist unless the Preliminary Notice of Good Reason shall have been given by Executive within 60 days after learning of the act, failure or event (or, in the case of a series of related acts, failures or events, within 120 days of the first such act, failure or event) which Executive alleges constitutes Good Reason hereunder, (c) if the Company has failed to cure as provided above, Good Reason shall not exist unless Executive shall have given notice of termination hereunder for Good Reason within 60 days from delivery of the Preliminary Notice of Good Reason (which termination shall be effective 30 days from the giving of such notice), and (d) if the Company has commenced an expedited arbitration in the manner prescribed below within 15 days after receipt of Executive's notice of termination called for under the immediately preceding clause (c), such termination shall not be effective as a termination of employment and shall not be deemed a termination by Executive for Good Reason unless and until the Arbitrator shall have determined otherwise. If the Company has timely commenced such an arbitration proceeding, in the manner prescribed below, no payments shall be due Executive under Section 3.02 (i) or (ii) hereof until the conclusion of the arbitration proceeding or further proceeding contemplated by Section 5.04 hereof and only if an award is rendered by the Arbitrator in favor of Executive. Notwithstanding the foregoing, if the Company fails to file a demand for arbitration with the American Arbitration Association ("AAA") and pay the requisite fees pursuant to Rule 4 of the AAA's National Rules for the Resolution of Employment Disputes effective June 1, 1996 (the "National Rules") within 30 days after receipt of notice of termination from -8- 9 Executive, and diligently pursue such proceeding in accordance with the procedures set forth in Section 5.04 hereof, Executive's termination of employment from the Company shall be conclusively presumed to have been for Good Reason. (d) The Company shall have the right to terminate Executive's employment hereunder for Cause. For purposes hereof, "Cause" shall be defined as Executive's having (a) been convicted of a criminal offense constituting a felony, (b) committed one or more acts or omissions constituting fraud or willful misconduct, or (c) failed, after written warning from the Board specifying in reasonable detail the breach(es) complained of, to substantially perform his duties under this Agreement (excluding, however, any failure to meet any performance targets), except where such failure results from Executive's incapacity due to physical or mental illness. For purposes of the foregoing, no act or failure to act on the part of Executive shall be considered "willful" unless it is done, or omitted to be done, by Executive without reasonable belief that Executive's action or omission was in the best interests of the Company. Any act or failure to act that is expressly authorized by the Board pursuant to a resolution duly adopted by the Board, or pursuant to the written advice of counsel for the Company, shall be conclusively presumed to be done, or omitted to be done, by Executive in the best interests of the Company. Notwithstanding the foregoing, termination by the Company for Cause shall not be effective until and unless each of the following provisions shall have been complied with: (i) notice of intention to terminate for Cause (a "Preliminary Cause Notice"), the giving of which shall have been authorized by a vote of not less than 50% of all disinterested Trustees then in office, which shall include a written statement of the particular acts or circumstances which are the basis for the termination for Cause and shall set forth a reasonable period (not less than 30 days) to cure (the "Cure Period"), shall have been given to Executive by the Board within sixty days after the Company first learns of the act, failure or event constituting Cause; and (ii) Executive shall not have cured the acts or circumstances complained of within the Cure Period; and (iii) the Board shall have called an in personam meeting of the Board, at which termination of Executive is an agenda item, and shall have provided Executive with not less than 20 days' notice thereof; and (iv) Executive shall have been afforded the opportunity, accompanied by counsel, to provide written materials to the Trustees in advance of such meeting and, if he so desires, to personally address the Trustees at such meeting; and (v) the Board shall have provided, within three business days after such meeting, a written notice of termination for Cause, stating that, based upon the evidence it has received and reviewed, -9- 10 and specifying in reasonable detail the acts and circumstances complained of, it has voted by a vote of at least a majority of all of the disinterested Trustees then in office to terminate Executive for Cause (such a notice, a "Cause Termination Notice"), which such notice shall be effective on the sixteenth day after receipt thereof by Executive, subject to the provisions hereof; provided that if Executive has commenced an expedited arbitration in the manner prescribed below within 15 days after his receipt of the Cause Termination Notice, disputing the Company's right under this Agreement to so terminate for Cause, Executive shall not be deemed to have been terminated for Cause unless and until the Arbitrator shall thereafter have determined that Executive was properly terminated for Cause in accordance with the provisions hereof; and provided, further that the Company may suspend Executive (a) with pay, at any time after any indictment of Executive for a criminal offense constituting a felony or after the giving of the Preliminary Cause Notice, and (b) without pay, at any time after the giving of the Cause Termination Notice, except that any payments not so made shall be made within three business days after the Arbitrator shall have made a determination that Executive was terminated other than in compliance with the foregoing provisions relating to termination for Cause. If Executive or his representative fails to file a demand for arbitration with the AAA and pay the requisite fees pursuant to Rule 4 of the National Rules within 30 days of his receipt of a Cause Termination Notice from the Board, and diligently pursue such proceeding in accordance with the procedures set forth in Section 5.04 hereof, such termination shall be conclusively presumed to have been for Cause, it being understood and agreed that any decision of the Arbitrator that Executive has been terminated hereunder for Cause, or any failure of Executive to contest the Company's allegations of Cause hereunder (by failing to file and/or prosecute a demand for arbitration or otherwise), is not intended to, and shall not, have any effect or bearing whatsoever on any Pre-Existing Award, and the parties specifically agree and undertake that, notwithstanding anything to the contrary, no finding of any Arbitrator pursuant hereto that Executive was properly terminated for Cause under this Agreement shall be binding upon or admissible in any court or other proceeding in which any Pre-Existing Awards are at issue. If the Arbitrator declines to rule that Executive was terminated for Cause, Executive shall be treated as having been terminated without Cause and Executive shall have the rights provided under Section 3.02 below and provided elsewhere in this Agreement with respect to a termination without Cause. For all purposes of this Agreement, "Good Reason" and "Cause" shall have the applicable defined meaning as set forth above in this Section 3.01. No termination of Executive's employment shall require that Executive resign any other position (including as Trustee or Chairman) he may then be holding with -10- 11 the Company; provided, however, that (i) if Executive's employment hereunder is terminated for Cause under the above provisions, Executive shall resign forthwith from all positions he may then be holding with the Company, if requested to do so by the Board, and (ii) if Executive terminates his employment hereunder other than for Good Reason, Executive shall resign forthwith from all such positions, if requested to do so by the Board, except for any position to which he has been elected by the shareholders of the Company (such as Trustee). Section 3.02 Severance Package. In the event Executive's employment under this Agreement is terminated by the Company other than for Cause (and a termination due to the Executive's death or permanent disability shall be treated for purposes of this Agreement as a termination by the Company other than for Cause) or is terminated by Executive for Good Reason, then, as and for a severance package ("Severance Package"), (i) Executive shall, subject only to the delays permitted by Section 3.01 for arbitration, receive (A) an amount, which shall be payable in one lump sum as soon as practicable, but in any event within 30 days of the date of determination that Executive's termination is (x) other than for Cause, or (y) for Good Reason as applicable, equal to 2 times the sum of (1) the annual Base Salary then in effect, plus (2) the average of the Incentive Compensation paid to Executive with respect to the 2 full calendar years ending immediately prior to the calendar year in which the termination of employment occurs; and (B) Company paid medical insurance benefits available to other senior executives of the Company during the 12-month period subsequent to termination of employment, all costs of which shall be paid by the Company (and thereafter all COBRA rights available to Executive shall be paid by Executive); and (ii) All Pre-Existing Awards and Existing Awards shall, notwithstanding any provision to the contrary contained in any Plan Agreement(s) covering the same (the relevant provisions of this Agreement constituting an amendment to the relevant Plan Agreement(s) to the extent necessary to effectuate the same), immediately vest in full (with all Performance Periods terminating on the effective date of Executive's termination of employment and all relevant Performance Measures being computed through such date), with preservation of all of Executive's rights relating to all such awards and under the relevant agreements granting or otherwise governing same for the full terms thereof, and, following timely exercise of any such awards, Executive shall receive title to the shares issued upon exercise or otherwise in respect thereof free and clear of any lien, claim or encumbrance by, through or under the Company. If a corporate transaction which would constitute a Change of Control event -11- 12 under the LTIP is agreed to during the pendency of an arbitration hereunder, the Company will include appropriate provisions which will enable Executive to participate in such Change of Control event as if the arbitration were resolved favorably to Executive, but subject to such a favorable resolution. The parties agree that the foregoing shall be Executive's sole and exclusive monetary remedy under this Agreement by reason of termination by Executive for Good Reason or by the Company other than for Cause, it being agreed that as his actual damages under this Agreement would be difficult to measure or quantify and would be impracticable to determine, such amount shall constitute liquidated damages under this Agreement for Executive by reason of such termination by Executive for Good Reason, or by reason of any termination by the Company other than for Cause hereunder. Such payments shall not be reduced or limited by amounts Executive might earn or be able to earn from other employment or ventures. The parties agree that the Company shall have no recourse whatsoever to any monetary remedy by reason of Executive's termination of employment, other than for reimbursement of actual out-of-pocket damages actually suffered and incurred by the Company as a direct result of Executive's termination for Cause hereunder (excluding the costs of identifying and/or hiring any replacement for Executive, or any attorney's fees or costs of investigation, which shall be borne solely by the Company), all of which are hereby waived; provided, however, that the foregoing limitation shall not apply to any claims the Company may have against Executive relating to tortious conduct by Executive which causes damage to the Company. Section 3.03 Rights on Termination for Cause or Without Good Reason. No Severance Package shall be due or owing to Executive in the event that the Company shall duly terminate Executive's employment for Cause or in the event that Executive shall terminate his employment with the Company for reasons other than Good Reason (it being understood and agreed that the provisions hereof relating to Existing or Pre-Existing Awards, including those set out in Section 2.04, shall not be affected thereby); provided, however, that Executive shall in all events be paid all accrued but unpaid Base Salary, earned but unpaid Incentive Compensation, and other benefits through the date of termination. In addition, in the event that the Company shall terminate Executive's employment for Cause or in the event that Executive shall terminate his employment with the Company for reasons other than Good Reason, then except as provided in Section 2.04 above or in the following two sentences, all unvested Recent Options, unvested Performance Awards and unvested restricted Paired Shares then held by Executive shall automatically be forfeited (subject, however, to any contrary -12- 13 provisions in the relevant Plan Agreements, as amended through the date of termination, relating to such Recent Options, Awards or Paired Shares, or any contrary determination of the Board in its sole discretion). No forfeiture of unvested Recent Options, Performance Awards or unvested restricted Paired Shares required hereby shall occur or be effective until 15 days after the later of (i) the conclusion of any arbitration proceeding or further proceeding contemplated by Section 3.01 hereof, (ii) if no arbitration proceeding is commenced, until the time for commencing such a proceeding has lapsed, or (iii) with respect to Pre-Existing Awards, the determination by a court of competent jurisdiction that "cause," as such term is defined and used in the relevant Plan Agreement(s) covering the grants of the Pre-Existing Awards, has occurred (the latest of such three dates being referred to herein as the "Forfeiture Date"), but, except as otherwise provided in Sections 2.04(a) and (b) above or in the relevant Plan Agreement(s) governing the terms thereof, no additional service-based or time-based vesting shall occur with respect to any such Recent Options, Performance Awards or Paired Shares following the date Executive's employment is deemed terminated under Section 3.01 hereof. It is expressly agreed that Executive may exercise vested options and other vested Existing and Pre-Existing Awards, and receive a settlement of vested Performance Awards, at any time prior to the Forfeiture Date. In all other respects, the terms of the grant of any such options or award of any such Paired Shares shall govern. ARTICLE IV Confidential Information; Inducing Company Employees Section 4.01 Confidential Information. Except in the course of his employment with the Company, or as he may be required pursuant to any law or court order or similar process, Executive shall not at any time either during or after his termination of employment hereunder, directly or indirectly disclose or use any secret, proprietary, confidential information or data of the Company or the Corporation, or any of their respective subsidiaries or affiliates; provided, however, that after the expiration of 18 months from such termination of employment, the Company's sole remedy shall be to seek and procure appropriate equitable remedies. In the event of any dispute between Executive and the Company or between Executive or the Company and others, Executive shall cooperate with the Company as to redaction or other protective measures with respect to any unnecessary public disclosure of any such confidential information or proprietary data. Section 4.02 Inducing of Company Employees. Except in the course of his employment with the Company, or with the prior written approval of the Board, Executive shall not at any time through the 12 month period after his termination of employment hereunder, in any way directly or indirectly hire, attempt to hire, or cause to -13- 14 be hired any person or persons who to Executive's best knowledge was employed at any time during the period commencing six months prior to such termination by the Company, the Corporation, or their respective subsidiaries or SLT Realty Limited Partnership or SLC Operating Limited Partnership. ARTICLE V Miscellaneous Section 5.01 Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to the Secretary of the Company at the Company's principal executive office, and if to Executive, to his address on the books of the Company (or to such other address as the Company or Executive may give to the other for purposes of notice hereunder). Copies of all notices given to Executive shall be sent to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Facsimile: (212) 310-8007 Attention: Dennis J. Block, Esq. Copies of all notices given to the Company shall be sent to: Sidley & Austin 555 West Fifth Street Los Angeles, California 90013-1010 Attention: Sherwin L. Samuels, Esq. Facsimile: (213) 896-6600 And Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, NY 10004-1980 Attention: Howard B. Adler, Esq. Facsimile: (212) 859-8588 All notices, requests or other communications required or permitted by this Agreement shall be made in writing either (a) by personal delivery to the party entitled -14- 15 thereto, (b) by mailing via certified mail, postage prepaid, return receipt requested, in the United States mails to the last known address of the party entitled thereto, (c) by reputable overnight courier service, or (d) by facsimile with confirmation of receipt. The notice, request or other communication shall be deemed to be received upon actual receipt by the party entitled thereto; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. Section 5.02 Assignment and Succession. The rights and obligations of the Company under this Agreement may not be assigned in whole or any part except in the case of a consolidation or merger with, or a transfer of all or substantially all of the assets of the Company to, another entity acceptable to Executive, which not later than 15 days prior to the consummation of such combination transaction expressly assumes in a writing satisfactory in form and substance to Executive all of the Company's obligations to Executive hereunder, under all Existing and Pre-Existing Awards and any Subsequent Awards and otherwise. No such assignment shall limit or restrict Executive's right to terminate this Agreement for Good Reason, which right shall remain absolute. Executive's rights and obligations hereunder are personal and may not be assigned; provided, however, that in the event of the termination of Executive's employment due to Executive's death or permanent disability, Executive's legal representative shall have the right to receive the Severance Package as more particularly set forth in Section 3.02 above. This Agreement shall inure to the benefit of and be enforceable by Executive's heirs, beneficiaries and/or legal representatives. Section 5.03 Headings. The Article, Section, paragraph and subparagraph headings are for convenience of reference only and shall not define or limit the provisions hereof. Section 5.04 Arbitration. In the event of any controversy, dispute or claim arising out of or related to this Agreement or Executive's employment by the Company, the parties shall negotiate in good faith in an attempt to reach a mutually acceptable settlement of such dispute. If negotiations in good faith do not result in a settlement of any such controversy, dispute or claim, it shall, except as otherwise provided for herein be finally settled by expedited arbitration conducted by a single arbitrator selected as hereinafter provided (the "Arbitrator") in accordance with the National Rules, subject to the following (the parties hereby agreeing that, notwithstanding the provisions of Rule 1 of the National Rules, in the event that there is a conflict between the provisions of the National Rules and the provisions of this Agreement, the provisions of this Agreement shall control): -15- 16 (a) The Arbitrator shall be determined from a list of names of five impartial arbitrators each of whom shall be an attorney experienced in arbitration matters concerning executive employment disputes, supplied by the AAA chosen by Executive and the Company each in turn striking a name from the list until one name remains (with the Company being the first to strike a name). (b) The expenses of the arbitration shall be borne equally by each party; and each party shall bear its own legal fees and expenses, except that the prevailing party shall be awarded his or its reasonable attorney's fees and expenses with respect to such dispute. (c) The Arbitrator shall determine whether and to what extent any party shall be entitled to damages under this Agreement; provided that no party shall be entitled to punitive or consequential damages (including, in the case of the Company, any claim for alleged lost profits or other damages that would have been avoided had Executive remained an employee), and each party waives all such rights, if any. (d) The Arbitrator shall not have the power to add to nor modify any of the terms or conditions of this Agreement. The Arbitrator's decision shall not go beyond what is necessary for the interpretation and application of the provision(s) of this Agreement in respect of the issue before the Arbitrator. The Arbitrator shall not substitute his or her judgment for that of the parties in the exercise of rights granted or retained by this Agreement. The Arbitrator's award or other permitted remedy, if any, and the decision shall be based upon the issue as drafted and submitted by the respective parties and the relevant and competent evidence adduced at the hearing. (e) The Arbitrator shall have the authority to award any remedy or relief (including provisional remedies and relief) that a court of competent jurisdiction could order or grant. The Arbitrator's written decision shall be rendered within sixty days of the closing of the hearing. The decision reached by the Arbitrator shall be final and binding upon the parties as to the matter in dispute. To the extent that the relief or remedy granted by the Arbitrator is relief or remedy on which a court could enter judgment, a judgment upon the award rendered by the Arbitrator shall be entered in any court having jurisdiction thereof (unless in the case of an award of damages, the full amount of the award is paid within 10 days of its determination by the Arbitrator). Otherwise, the award shall be binding on the parties in connection with their continuing performance of this Agreement and, except as otherwise provided herein with respect to Existing Grants, in any subsequent arbitral or judicial proceedings between the parties. -16- 17 (f) The arbitration shall take place in New York, New York or Chicago, Illinois, as elected by the party commencing arbitration. (g) The arbitration proceeding and all filing, testimony, documents and information relating to or presented during the arbitration proceeding shall be disclosed exclusively for the purpose of facilitating the arbitration process and in any court proceeding relating to the arbitration, and for no other purpose, and shall be deemed to be information subject to the confidentiality provisions of this Agreement. (h) The parties shall continue performing their respective obligations under this Agreement notwithstanding the existence of a dispute while the dispute is being resolved unless and until such obligations are terminated or expire in accordance with the provisions hereof. (i) The parties may obtain a pre-hearing exchange of information including depositions, interrogatories, production of documents, exchange of summaries of testimony or exchange of statements of position, and the Arbitrator shall limit such disclosure to avoid unnecessary burden to the parties and shall schedule promptly all discovery and other procedural steps and otherwise assume case management initiative and control to effect an efficient and expeditious resolution of the dispute. At any oral hearing of evidence in connection with an arbitration proceeding, each party and its counsel shall have the right to examine its witness and to cross-examine the witnesses of the other party. No testimony of any witness, or any evidence, shall be introduced by affidavit, except as the parties otherwise agree in writing. (j) Notwithstanding the dispute resolution procedures contained in this Section 5.04, either party may apply to any court sitting in the County, City and State of New York (i) to enforce this agreement to arbitrate, (ii) to seek provisional injunctive relief so as to maintain the status quo until the arbitration award is rendered or the dispute is otherwise resolved, (iii) to confirm any arbitration award, or (iv) to challenge or vacate any final judgment, award or decision of the Arbitrator that does not comport with the express provisions of this Section 5.04. (k) No later than 5 business days prior to the due date for payment of any excise tax imposed on Executive pursuant to Section 4999 of the Code due and owing as a result of the accelerated vesting at the Effective Time of any Existing Awards or Pre-Existing Awards (including any such awards which may vest (or are deemed to have vested) at the Effective Time notwithstanding the waiver of such vesting pursuant to Section 2.04(c) hereof), the Company shall pay to Executive an amount equal to such excise tax (the "Excise Tax Payment"). The Company shall not be required to pay to -17- 18 Executive any amount in respect of any income, excise or other taxes attributable to payment of the Excise Tax Payment. Section 5.05 Invalidity. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality or enforceability of the remaining provisions hereof shall not in any way be affected or impaired. Section 5.06 Waivers. No omission or delay by either party hereto in exercising any right, power or privilege hereunder shall impair such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof, or the exercise of any other right, power or privilege. Section 5.07 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Section 5.08 Entire Agreement. Except as otherwise provided or referred to herein, this Agreement contains the entire understanding of the parties and supersedes all prior agreements and understandings relating to the subject matter hereof. This Agreement may not be amended, except by a written instrument hereafter signed by each of the parties hereto. Section 5.09 Interpretation. The parties hereto acknowledge and agree that each party and its or his counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its drafting. Accordingly, (i) the rules of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement, and (ii) the terms and provisions of this Agreement shall be construed fairly as to all parties hereto and not in favor of or against any party regardless of which party was generally responsible for the preparation of this Agreement. Except where the context requires otherwise, all references herein to Sections, paragraphs and clauses shall be deemed to be reference to Sections, paragraphs and clauses of this Agreement. The words "include", "including" and "includes" shall be deemed in each case to be followed by the phrase "without limitation". The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Section 5.10 Governing Law. This Agreement and the performance hereof shall be construed and governed in accordance with the internal laws of the State of New -18- 19 York without reference to principles of conflict of laws. Section 5.11 Indemnification. In addition to any additional benefits provided under applicable state law, as a Trustee and officer of the Company, Executive shall be entitled to the benefits of: (a) those provisions of the Declaration of Trust of the Company, as amended, and of the Trustees Regulations of the Company, as amended, which provide for indemnification of officers and Trustees of the Company (and no such provision shall be amended in any way to limit or reduce the extent of indemnification available to Executive as a Trustee or officer of the Company), (b) the Indemnification Agreement between the Company and Executive dated as of June 8, 1995, as amended through the date hereof (the "Indemnification Agreement"). The rights of Executive under such indemnification obligations shall survive the termination of this Agreement and be applicable for so long as Executive may be subject to any claim, demand, liability, cost or expense, which the indemnification obligations referred to in this Section are intended to protect and indemnify him against. The Company shall, at no cost to Executive, use its best efforts to at all times include Executive, during the term of Executive's employment hereunder and for so long thereafter as Executive may be subject to any such claim, as an insured under any directors' and officers' liability insurance policy maintained by the Company, which policy shall provide such coverage in such amounts as the Board shall deem appropriate for coverage of all Trustees and officers of the Company. Section 5.12 Disclaimer. The name "Starwood Hotels & Resorts Trust" is the designation of a Maryland real estate investment trust and its Trustees (as Trustees but not personally) under a Declaration of Trust, dated August 25, 1969, as amended and restated, and all persons dealing with Starwood Hotels & Resorts Trust must look solely to Starwood Hotels & Resorts Trust's property for the enforcement of any claims against Starwood Hotels & Resorts Trust, as the Trustees, officers, agents and security holders of Starwood Hotels & Resorts Trust assume no personal obligations of Starwood Hotels & Resorts Trust, and their respective property shall not be subject to claims of any person relating to such obligation. Section 5.13 Effectiveness. This Agreement shall be of no force and effect, and shall be treated as having had no force and effect from the date hereof, if the Effective Time shall not have occurred by March 31, 1998. -19- 20 IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its duly authorized officer and the Executive has signed this Agreement as of the day and year first above written. STARWOOD HOTELS & RESORTS TRUST By: /s/ Ronald C. Brown ------------------------------------------ Name: Ronald C. Brown Its: Senior Vice President and Chief Financial Officer /s/ Barry S. Sternlicht ---------------------------------------------- BARRY S. STERNLICHT -20- 21 EXHIBIT A to AMENDED AND RESTATED EMPLOYMENT AGREEMENT between STARWOOD HOTELS & RESORTS TRUST and BARRY S. STERNLICHT DATED AS OF FEBRUARY 17, 1998 Existing Awards: Award as of February 21, 1996 of 45,000 Paired Shares in the form of warrants vesting over a one year period. Paired Option to purchase 975,000 Paired Shares vesting over the three year period August 12, 1996 to August 12, 1999. Paired Option to purchase 450,000 Paired Shares vesting over the five year period August 12, 1996 to August 12, 2001. Performance Awards relating to all Paired Shares underlying the above Paired Options granted to Barry S. Sternlicht. Paired Option, granted on September 25, 1997, to purchase 400,000 Paired Shares. Pre-Existing Awards: Paired Option to purchase 616,500 Paired Shares granted June 29, 1995. Paired Option to purchase 9,000 Paired Shares granted June 29, 1995. Paired Option to purchase 120,000 Paired Shares granted April 30, 1996. Paired Option to purchase 9,000 Paired Shares granted June 30, 1996. -21- 22 EXHIBIT B to AMENDED AND RESTATED EMPLOYMENT AGREEMENT between STARWOOD HOTELS & RESORTS TRUST and BARRY S. STERNLICHT DATED AS OF FEBRUARY 17, 1998 -22- 23 EXHIBIT B 1. The unvested portion (one-third (1/3rd)) of the 616,500 options granted in June, 1995. 2. The 1/3rd of the 120,000 options granted in April, 1996 that is scheduled to vest in April, 1998. 3. The 1/3rd of the 975,000 three-year options granted in August, 1996 that is scheduled to vest in August, 1998. 4. The 1/4th of the 450,000 five-year options granted in August, 1996 that is scheduled to vest in August, 1998. -23- 24 BARRY S. STERNLICHT C/O STARWOOD HOTELS AND RESORTS 2231 EAST CAMELBACK ROAD SUITE 410 PHOENIX, AZ 85016 March 11,1998 Starwood Hotels & Resorts Attention: Secretary 2231 East Camelback Road Suite 410 Phoenix, AZ 85016 RE: 1998 INCENTIVE COMPENSATION To whom it may concern: Pursuant to Sections 5.01 and 5.08 of the Amended and Restated Employment Agreement (the "Agreement"), dated as of February 17, 1998, between Starwood Hotels & Resorts (the "Company") and me, I hereby agree to amend Section 2.03 of the Agreement in order to provide that the Board of Directors of the Company shall have until May 17, 1998 to establish a bonus or short term incentive compensation program pursuant to which the Incentive Compensation (as defined in Section 2.03 of the Agreement) for the full calendar year ending December 31, 1998 shall be determined. In all other respects the Agreement shall remain in full force and effect. Please acknowledge the Company's agreement to the foregoing by having this letter signed by its duly authorized officer and having a copy returned to me at the address set forth above. /s/ Barry S. Sternlicht ----------------------------------- BARRY S. STERNLICHT 25 IN WITNESS WHEREOF, the Company has caused this letter to be signed by its duly authorized officer. STARWOOD HOTELS & RESORTS By: /s/ Steven R. Goldman Name: Steven R. Goldman Its: Executive Vice President cc: Sherwin L. Samuels, Esq. (Sidley & Austin) Howard B. Adler, Esq. (Fried, Frank, Harris, Shriver & Jacobson) Dennis J. Block, Esq. (Weil, Gotshal & Manges LLP) - 2 - EX-10.6 11 EX-10.6 1 Exhibit 10.6 [Execution Copy] STARWOOD HOTELS & RESORTS TRUST NON-QUALIFIED STOCK OPTION AGREEMENT DATED FEBRUARY 17, 1998 Starwood Hotels & Resorts Trust, a trust organized under the laws of Maryland (the "Company"), hereby grants to Barry S. Sternlicht (the "Optionee"), as of February 17, 1998 (the "Option Date"), pursuant to the provisions of the Starwood Lodging Trust 1995 Long-Term Incentive Plan (as amended and restated) (the "Plan"), a non-qualified option (the "Option") to purchase from the Company 2,500,000 Paired Shares (as defined in the Plan) at a price per Paired Share equal to the Fair Market Value (as defined in the Plan) of a Paired Share on the Option Date upon and subject to the terms and conditions set forth below. References to employment by the Company shall include employment by a subsidiary or affiliate of the Company. Capitalized terms not defined herein or in the Amended and Restated Employment Agreement, dated as of February 17, 1998, entered into between the Optionee and the Company (the "Employment Agreement") (for so long as the term of such agreement has not terminated) shall have the meanings specified in the Plan. 1. Option Subject to Acceptance of Agreement. The Option may not be exercised unless the Optionee shall accept this Agreement by executing it in the space provided below and returning such original execution copy to the Company. 2. Time and Manner of Exercise of Option. 2.1 Maximum Term of Option. In no event may the Option be exercised, in whole or in part, after ten years from the Option Date (the "Expiration Date"). If the Effective Time (as defined in Section 1.2 of the Amended and Restated Agreement and Plan of Merger among Starwood Lodging Corporation, Chess Acquisition Corp., the Company and ITT Corporation, dated as of November 12, 1997 (the "Merger Agreement")) shall not have occurred by March 31, 1998, the Option shall expire and be of no force and effect effective as of the Option Date. Notwithstanding the terms of the Plan, the transaction contemplated by the Merger Agreement shall not constitute a "Change of Control" under the Plan for purposes of this Agreement. 2.2 Exercise of Option. (a) The Option shall vest and become exercisable as to one-third of the number of Paired Shares subject to the Option on each anniversary of December 31, 1997, commencing with the first anniversary (occurring in 1998) through the third anniversary (occurring in 2000) and otherwise as provided 2 below in this Section 2.2. (b) If the Optionee's employment by the Company (i) is terminated by the Company for "Cause" or (ii) is terminated by the Optionee without "Good Reason," the portion of the Option which was not theretofore vested and exercisable on the date of termination shall terminate automatically on the date of termination. In the event of a termination of the Optionee's employment described in this Section 2.2(b), the Option, to the extent vested and exercisable on the date of termination, shall, subject to Section 2.2(d) hereof, remain exercisable until the earliest to occur of: (i) the date which is three months following the date of termination, and (ii) the Expiration Date, after which the Option shall expire. If the Optionee's employment by the Company is terminated by the Company for "Cause," the date of termination shall be the date on which the Company delivers a Preliminary Cause Notice. For purposes of this Agreement, and notwithstanding the terms of the Employment Agreement, "Good Reason" shall not include the failure, by December 1, 1999, of the Company and the Optionee to agree to an extension of the Term beyond December 31, 1999. (c) If the Optionee's employment by the Company is terminated (i) by the Company other than for "Cause," (ii) by the Optionee with "Good Reason," or (iii) due to the Optionee's death or Disability, 100% of the portion of the Option which was not theretofore vested and exercisable on the date of termination shall vest and become exercisable on the date of termination, and the Option, to the extent vested and exercisable as of the date of termination, after taking into account this Section 2.2(c), shall, subject to Section 2.2(d) hereof, remain exercisable by the Optionee or the Optionee's Legal Representative or Permitted Transferee, as the case may be, until the earliest to occur of: (i) the date which is three years following the date of termination (one year in the case of a termination of the Optionee's employment due to the Optionee's death or Disability), and (ii) the Expiration Date, after which the Option shall expire. (d) If the Optionee dies at any time following a termination of the Optionee's employment and prior to the expiration of the Option, the Option shall be exercisable, to the extent exercisable by the Optionee as of the date of death, by the Optionee's Legal Representative or Permitted Transferee, as the case may be, until the date which is one year following the date of the Optionee's death (but no later than the Expiration Date), after which the Option shall expire. 2.3 Method of Exercise. Subject to the limitations set forth in this Agreement, the Option may be exercised by the Optionee (1) by giving written notice to the Company specifying the number of whole Paired Shares to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) either (i) in cash, (ii) previously owned whole Paired Shares (which the Optionee has held for at least six months prior to the delivery of such Paired Shares or which the Optionee purchased on the open market and for which the Optionee -2- 3 has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (iii) in cash by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (iv) a combination of (i) and (ii), and (2) by executing such documents as the Company may reasonably request. The Committee shall have sole discretion to disapprove of an election pursuant to either clause (ii), (iii) or (iv). Any fraction of a Paired Share which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a Paired Share shall be delivered until the full purchase price therefor has been paid. 2.4 Termination of Option. (a) In no event may the Option be exercised after it terminates as set forth in this Agreement. (b) In the event that rights to purchase all or a portion of the Paired Shares subject to the Option expire or are exercised, canceled, forfeited or transferred pursuant to a Limited Transfer (as defined below), the Optionee shall promptly return this Agreement to the Company for full or partial cancellation, as the case may be. Such cancellation shall be effective regardless of whether the Optionee returns this Agreement. If the Optionee continues to have rights to purchase Paired Shares hereunder, the Company shall, within 10 days of the Optionee's delivery of this Agreement to the Company, either (i) mark this Agreement to indicate the extent to which the Option has expired or been exercised, canceled, forfeited or transferred or (ii) issue to the Optionee a substitute option agreement applicable to such rights, which agreement shall otherwise be identical to this Agreement in form and substance. 3. Additional Terms and Conditions of Option. 3.1 Transferability of Option. (a) For the period commencing on the Option Date and ending on June 30, 1998, the Optionee may transfer (a "Limited Transfer") to Madison Grose, Jonathan Eilian and/or any other officers of the Company or Starwood Capital Group, LLC, a Connecticut limited liability company, designated by the Optionee (each, a "Limited Transferee") the right to purchase from the Company an aggregate of 500,000 Paired Shares subject to the Option. A Limited Transfer shall be made only pursuant to a written agreement approved by the Company prior to the execution thereof. The aggregate number of Paired Shares subject to the Option shall be reduced by the number of Paired Shares subject to each Limited Transfer. (b) The Option may not be transferred by the Optionee other than as provided in Section 3.1(a) above, by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the foregoing sentence, during the Optionee's lifetime the Option is -3- 4 exercisable only by the Optionee or the Optionee's Legal Representative. Except as permitted by the foregoing, the Option may not be sold, transferred, assigned, pledged, hypothecated, voluntarily encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, voluntarily encumber or otherwise dispose of the Option, the Option and all rights hereunder shall, to the extent of any such attempt, immediately become null and void. 3.2 Investment Representation. The Optionee hereby represents and covenants that (a) any Paired Shares purchased upon exercise of the Option will be purchased for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such purchase has been registered under the Securities Act and any applicable state securities laws; (b) any subsequent sale of any such Paired Shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Optionee shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of purchase of any Paired Shares hereunder or (y) is true and correct as of the date of any sale of any such Paired Shares, as applicable. As a further condition precedent to any exercise of the Option, the Optionee shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance or delivery of the Paired Shares and, in connection therewith, shall execute any documents which the Board or the Committee shall in its sole discretion deem necessary or advisable. 3.3 Withholding Taxes. (a) As a condition precedent to the delivery of Paired Shares upon exercise of the Option, the Optionee shall, upon request by the Company, pay to the Company in addition to the purchase price of the Paired Shares, such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to such exercise of the Option. If the Optionee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Optionee. (b) The Optionee may elect to satisfy his or her obligation to pay the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 3.3(a), (2) delivery to the Company of previously owned whole Paired Shares (which the Optionee has held for at least six months prior to the delivery of such Paired Shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) -4- 5 having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Option (the "Tax Date"), equal to the Required Tax Payments, (3) a cash payment by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (4) any combination of (1) and (2). The Committee shall have sole discretion to disapprove of an election pursuant to any of clauses (2)-(4). Paired Shares to be delivered may not have a Fair Market Value in excess of the minimum amount of the Required Tax Payments. Any fraction of a Paired Share which would be required to satisfy any such obligation shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a Paired Share shall be delivered until the Required Tax Payments have been satisfied in full. (c) Unless the Committee otherwise determines, if the Optionee is subject to Section 16 of the Exchange Act, the Optionee may deliver to the Company previously owned whole Paired Shares in accordance with Section 3.3(b), but only if such delivery is in connection with the delivery of Paired Shares in payment of the exercise price of the Option. 3.4 Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Paired Shares other than a regular cash dividend, the number and class of securities subject to the Option and the purchase price per security shall be appropriately adjusted by the Committee without an increase in the aggregate purchase price. If any adjustment would result in a fractional security being subject to the Option, the Company shall pay the Optionee, in connection with the first exercise of the Option, in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the fair market value of a Paired Share on the exercise date over (B) the exercise price of the Option. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 3.5 Compliance with Applicable Law. The Option is subject to the condition that if the listing, registration or qualification of the Paired Shares subject to the Option upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the purchase or delivery of Paired Shares hereunder, the Option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any such listing, registration, qualification, consent or approval. 3.6 Delivery of Certificates. Upon the exercise of the Option, in whole -5- 6 or in part, the Company shall deliver or cause to be delivered one or more certificates representing the number of Paired Shares purchased against full payment therefor. The Company shall pay all original issue or transfer taxes and all fees and expenses incident to such delivery, except as otherwise provided in Section 3.3 hereof. 3.7 Option Confers No Rights as Stockholder. The Optionee shall not be entitled to any privileges of ownership with respect to Paired Shares subject to the Option unless and until purchased and delivered upon the exercise of the Option, in whole or in part, and the Optionee becomes a stockholder of record with respect to such delivered Paired Shares; and the Optionee shall not be considered a stockholder of the Company or the Corporation with respect to any such Paired Shares not so purchased and delivered. 3.8 Option Confers No Rights to Continued Employment. In no event shall the granting of the Option or its acceptance by the Optionee give or be deemed to give the Optionee any right to continued employment by the Company or any affiliate of the Company. 3.9 Decisions of Board or Committee. The Board or the Committee shall have the right to resolve all questions which may arise in connection with the Option or its exercise. Any interpretation, determination or other action made or taken by the Board or the Committee regarding the Plan or this Agreement shall be final, binding and conclusive (subject to the provisions for termination by the Company for Cause and termination by the Optionee for Good Reason as set forth in the Employment Agreement). 3.10 Company to Reserve Paired Shares. The Company shall at all times prior to the expiration or termination of the Option, reserve or cause to be reserved and keep or cause to be kept available, either in its treasury or out of its authorized but unissued Paired Shares, the full number of Paired Shares subject to the Option from time to time. 3.11 Agreement Subject to the Plan. Except to the extent otherwise expressly provided herein, this Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Optionee hereby acknowledges receipt of a copy of the Plan. 4. Miscellaneous Provisions. 4.1 Designation as Non-Qualified Stock Option. The Option is hereby designated as not constituting an "incentive stock option" within meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"); this Agreement shall be interpreted and treated consistently with such designation. -6- 7 4.2 Meaning of Certain Terms. (a) As used herein, the term "Legal Representative" shall include an executor, administrator, legal representative, beneficiary or similar person and the term "Permitted Transferee" shall include any transferee (i) pursuant to a transfer permitted under Section 4.4 of the Plan and Section 3.1 hereof or (ii) designated pursuant to beneficiary designation procedures which may be approved by the Company. 4.3 Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Optionee, acquire any rights hereunder in accordance with this Agreement or the Plan. 4.4 Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to the Secretary of the Company at the Company's principal executive office, and if to the Optionee, to his address on the books of the Company (or to such other address as the Company or Optionee may give to the other for purposes of notice hereunder). Copies of all notices given to the Company shall be sent to: Sidley & Austin 555 W. 5th St. Los Angeles, CA 90013-1010 Attention: Sherwin L. Samuels, Esq. Facsimile: (213) 896-6600 And Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, NY 10004-1980 Attention: Howard B. Adler, Esq. Facsimile: (212) 859-8588 All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of -7- 8 the Company. 4.5 Governing Law. The Option, this Agreement, and all determinations made and actions taken pursuant hereto and thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of New York and construed in accordance therewith without giving effect to principles of conflicts of laws. 4.6 Counterparts. This Agreement may be executed in two counterparts each of which shall be deemed an original and both of which together shall constitute one and the same instrument. 4.7 Disclaimer. The name "Starwood Hotels & Resorts Trust" is the designation of a Maryland real estate investment trust and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated, and all persons dealing with Starwood Hotels & Resorts Trust must look solely to Starwood Hotels & Resorts Trust's property for the enforcement of any claims against Starwood Hotels & Resorts Trust, as the Trustees, officers, agents and security holders of Starwood Hotels & Resorts Trust assume no personal obligations of Starwood Hotels & Resorts Trust, and their respective property shall not be subject to claims of any person relating to such obligation. STARWOOD HOTELS & RESORTS TRUST By: /s/ Ronald C. Brown Name: Ronald C. Brown Its: Senior Vice President and Chief Financial Officer Accepted /s/ Barry S. Sternlicht - ----------------------- Barry S. Sternlicht "Optionee" -8- EX-10.7 12 EX-10.7 1 Exhibit 10.7 PERSONAL AND CONFIDENTIAL March 2, 1998 Ms. Susan R. Bolger 7120 Caron Drive Paradise Valley, AZ 85253 Dear Susan, We are very pleased to extend this offer of Executive Vice President of Human Resources, Starwood Hotels and Resorts Worldwide, Inc. ("Starwood") to you. The following will outline the specifics of your offer of employment: POSITION: You shall be the Executive Vice President of Human Resources of the Company and shall perform such duties and services as may be assigned to you by the Chief Executive Officer and/or the Board of Directors. You shall devote your full time and attention to the affairs of the Company and to your duties as Executive Vice President of Human Resources. BASE SALARY: Your initial base salary, expressed in semi-monthly terms, will be $12,500.00 (on an annualized basis equivalent to $300,000.00), annualized from the date of acceptance, and will be subject to the appropriate withholdings for FICA, state and federal taxes, and Medicare. BONUS: You will be eligible to receive a performance bonus based upon achieving specified performance criteria which will be established and approved. The maximum bonus will be defined in accordance with the Company's new plan. However, for 1998 you will be guaranteed a minimum bonus equal to 50% of your base pay prorated for the calendar year. In addition, you will receive an additional bonus of $75,000 for calendar year 1997. 2 March 2, 1998 Page 2 RETENTION BONUS: In lieu of the base salary payment for change of control, you will be paid a retention bonus equal to one year's base salary, at your current base salary level, conditioned upon your staying with the Company at least one year after the ITT closing. If you voluntarily leave the employ of the Company within that one year period, you would be obligated to repay the Company the retention bonus and the tax on the restricted stock. EMPLOYEE BENEFITS: You shall be eligible to participate in all employee benefit programs as are generally available to other key executives of the Company. OPTIONS: The Company will recommend to the Options Committee a grant of options for 40,000 Paired Shares for you in accordance with the Long Term Incentive Plan (the "LTIP"), which would be exercisable at the then fair market value of the Paired Shares in accordance with the LTIP, and would vest over the normal three year period following the grant. TAXES ON RESTRICTED STOCK: You received a restricted stock Award under the Company's 1995 LTIP in August of 1996. The Company will pay you an amount to cover taxes on the Paired Shares included in that Award. The amount of the payment would be 40% of the market value of Paired Shares at the time of vesting (but not in excess of $53 per Paired Share) multiplied by the number of Paired Shares then vesting. RELOCATION EXPENSES: To help cover the cost of living differential between Phoenix and Fairfield/Westchester Counties, the company will pay the reasonable, out-of-pocket costs of relocating your household furnishings and your family; all relocation expenses will be grossed up. Other relocation costs to be covered as necessary include third party purchase of your Phoenix home to facilitate an expedient relocation and mortgage duplication expenses for a period not to exceed six months. Upon your move to the Fairfield/Westchester County area, the Company will make a second mortgage home loan available to you in the amount of $400,000 which would be due in five years or upon termination of employment for any reason. The loan would be non-interest bearing and will be secured by a second mortgage on your home in Fairfield/Westchester County. TERMINATION/SEVERANCE: The Company reserves the right to terminate your employment with or without cause at any time. In the event of an involuntary termination without cause, the reduction of your role or responsibilities, a change in control of the Company, or in the event of any breach by the Company of your employment agreement entitling you to terminate same (after expiration of applicable notice and cure periods for the benefit of the Company), you shall receive, as your sole right, exclusive remedy and liquidated damages, a one time termination payment equal to twelve (12) months base salary. In addition, the vesting of 3 March 2, 1998 Page 3 your options shall be accelerated at the date of such termination. The Company will also continue to provide medical benefits coverage during the 12 month period subsequent to the termination of your employment. No severance shall be due in the event that you are terminated for gross misconduct or in the event that you leave the full-time employ of the Company voluntarily. In the event of any employment-related disputes with respect to your employment by the Company, you and the Company agree that the same shall be resolved through binding arbitration in the jurisdiction of the Company's headquarters and in accordance with the rules and procedures from time to time of the American Arbitration Association. This letter represents the entirety of our agreement with respect to your employment and any prior discussions or negotiations are hereby merged herein. If this offer is acceptable to you, please sign this letter in the space provided below and send it to my attention. Very truly yours, STARWOOD HOTELS AND RESORTS WORLDWIDE, INC. /s/ Alan M. Schnaid - ------------------------------------------- Alan M. Schnaid Vice President, Corporate Controller ACCEPTED AND AGREED TO: /s/ Susan R. Bolger - ------------------------------------------ Susan R. Bolger cc: Personnel File EX-10.8 13 EX-10.8 1 Exhibit 10.8 March 25, 1998 Mr. Ronald C. Brown 6026 E. Cholla Lane Scottsdale, AZ 85253 Dear Ron, We are very pleased to extend to you this offer of employment as Executive Vice President and Chief Financial Officer, Starwood Hotels and Resorts Worldwide, Inc. ("Starwood" or the "Company"). The following will outline the specifics of this offer of employment: POSITION: You shall be the Executive Vice President and Chief Financial Officer of Starwood and shall perform such duties and services as will be assigned to you. You shall devote your full time and attention to the affairs of the Company and to your duties as Executive Vice President and Chief Financial Officer. BASE SALARY: Your initial base salary, expressed in semi-monthly terms, will be $13,541.67 (or on an annualized basis equivalent to $325,000) annualized from the date hereof and will be subject to the appropriate withholdings for FICA, state and federal unemployment tax and Medicare. BONUS: You will be eligible to receive a performance bonus based upon achieving specified performance criteria which will be established and approved. The maximum bonus will be defined in accordance with the Company's new plan which will be recommended and must be approved by the Board of Directors. RETENTION BONUS: In lieu of the base salary payment for change of control, you will be paid a retention bonus equal to one year's base salary, at your current base salary level, conditioned upon your staying with the Company at least one year after the ITT Merger. If you voluntarily leave the employ of the Company within that one year period, you would be obligated to repay the Company the retention bonus and the tax payment on the restricted stock. EMPLOYEE BENEFITS: You shall be eligible to participate in all employee benefit programs as are generally available to other key executives of the Company. 2 OPTIONS: The Company will recommend to the Options Committee an additional grant of options for 10,000 Paired Shares for you in accordance with the Long Term Incentive Plan (the "LTIP") at current market, which would be exercisable at the then fair market value of the Paired Shares in accordance with the LTIP and would vest over the normal three year period following the grant. TAXES ON RESTRICTED STOCK You received a restricted stock Award under the Company's 1995 LTIP in August of 1996. The Company will pay you an amount to cover taxes on the Paired Shares included in that Award. The amount of the payment would be 40% of the market value of Paired Shares at the time of vesting (but not in excess of $53 per Paired Share) multiplied by the number of Paired Shares then vesting. If you voluntarily leave the employ of the Company within that one year period, you would be obligated to repay the Company the tax payment on the restricted stock. TERMINATION/SEVERANCE: The Company reserves the right to terminate your employment with or without cause at any time. In the event of an involuntary termination without cause, or relocation of the Finance offices from Phoenix, a material change in control of the Company, or in the event of any breach by the Company of your employment agreement entitling you to terminate same (after expiration of applicable notice and cure periods for the benefit of the Company), you shall receive, as your sole right, exclusive remedy and liquidated damages, a one time termination payment equal to twelve (12) months base salary. In addition, the vesting of your options shall be accelerated at the date of such termination. The Company will also continue to provide medical benefits coverage during the twelve (12) month period subsequent to the termination of your employment. No severance shall be due in the event that you are terminated for gross misconduct or in the event that you leave the full-time employ of the Company voluntarily. In the event of any employment-related disputes with respect to your employment by the Company, you and the Company agree that the same shall be resolved through binding arbitration in the jurisdiction of the Company's headquarters and in accordance with the rules and procedures from time to time of the American Arbitration Association. This letter represents the entirety of our agreement with respect to your employment and any prior discussions or negotiations are hereby merged herein. If this offer is acceptable to you, then please sign this letter in the space provided below and send it to my attention. Very truly yours, STARWOOD HOTELS AND RESORTS WORLDWIDE, INC. /s/ Susan R. Bolger - ------------------------------------------- Susan R. Bolger Executive Vice President, Human Resources ACCEPTED AND AGREED TO: /s/ Ronald C. Brown - ------------------------------------------- Ronald C. Brown EX-10.9 14 EX-10.9 1 Exhibit 10.9 PRIVILEGED & CONFIDENTIAL March 25, 1998 Mr. Juergen Bartels The Highlands Seattle, WA 98177 Dear JB: We are very pleased to extend this offer of Chief Executive Officer, The Hotel Group for Starwood Hotels & Resorts Worldwide, Inc. ("Starwood"). The following will outline the specifics of your offer of employment: POSITION: You shall be the Chief Executive Officer of The Hotel Group and shall perform such duties and services as may be assigned to you by the Board of Directors. You shall devote your full time and attention to the affairs of the Company and to your duties as Chief Executive Officer of the Hotel Group. BASE SALARY: Your initial base salary, expressed in semi-monthly terms, will be $21,875.00 (on an annualized basis equivalent to $525,000.00), annualized from date of acceptance and will be subject to the appropriate withholdings for FICA, state and federal taxes, and Medicare. BONUS: You will be eligible to receive a performance bonus based upon achieving specified performance criteria which will be established and approved. The maximum bonus will be defined in accordance with the Company's new plan (see attached) which will be recommended and must be approved by the Board of Directors. 2 Mr. Juergen Bartels Page 2 OPTIONS: The Company will recommend to the Options Committee a grant of options for 250,000 Paired Shares for you in accordance with the Long Term Incentive Plan (the "LTIP"), at current market which would be exercisable at the then fair market value of the Paired Shares in accordance with the LTIP and would vest over the normal three year period following grant. The strike price of the options will be the current market price at the close of market on the day prior to the grant date. RELOCATION EXPENSES: The Company will pay the reasonable, out-of-pocket costs of relocating your household furnishings and your family; all relocation expenses will be grossed up. Other relocation costs to be covered as necessary include third party purchase of your Seattle home to facilitate an expedient relocation. TERMINATION/SEVERANCE: The Company reserves the right to terminate your employment with or without cause at any time. In the event of an involuntary termination without cause, the reduction of your role or responsibilities, a change in control of the Company, or in the event of any breach by the Company of your employment agreement entitling you to terminate same (after expiration of applicable notice and cure periods for the benefit of the Company), you shall receive, as your sole right, exclusive remedy and liquidated damages, a one time termination payment equal to twelve (12) months base salary. In addition, the vesting of your options shall be accelerated at the date of such termination. The Company will also continue to provide medical benefits coverage during the 12 month period subsequent to the termination of your employment. No severance shall be due in the event that you are terminated for gross misconduct or in the event that you leave the full-time employ of the Company voluntarily. In the event of any employment-related disputes with respect to your employment by the Company, you and the Company agree that the same shall be resolved through binding arbitration in the jurisdiction of the Company's headquarters and in accordance with the rules and procedures from time to time of the American Arbitration Association. NON-SOLICITATION/CONFIDENTIALITY: All benefits provided hereunder shall be contingent on your compliance with the non-solicitation/confidentiality covenants which will be set forth in a separate agreement. 3 Mr. Juergen Bartels Page 3 This letter represents the entirety of our agreement with respect to your employment and any prior discussions or negotiations are hereby merged herein. If this offer is acceptable to you, please sign this letter in the space provided below and send it to my attention. Very truly yours, STARWOOD HOTELS & RESORTS WORLDWIDE, INC. /s/ Susan R. Bolger - ----------------------------------------- Susan R. Bolger Executive Vice President, Human Resources ACCEPTED AND AGREED TO: /s/ Juergen Bartels - ----------------------------------------- Juergen Bartels cc: Personnel File EX-10.10 15 EX-10.10 1 Exhibit 10.10 PERSONAL & CONFIDENTIAL March 25, 1998 Mr. Ted Darnall 8235 N. 62nd Place Paradise Valley, AZ 85253 Dear Ted: We are very pleased to extend this offer of Executive Vice President, Hotel Operations for Starwood Hotels & Resorts Worldwide, Inc. ("Starwood"). The following will outline the specifics of your offer of employment: POSITION: You shall be the Executive Vice President of Hotel Operations and shall perform such duties and services as may be assigned to you by the President, The Americas. You shall devote your full time and attention to the affairs of the Company and to your duties as Executive Vice President of Hotel Operations. BASE SALARY: Your initial base salary, expressed in semi-monthly terms, will be $14,583.33 (on an annualized basis equivalent to $350,000.00), annualized from date of acceptance and will be subject to the appropriate withholdings for FICA, state and federal taxes, and Medicare. BONUS: You will be eligible to receive a performance bonus based upon achieving specified performance criteria which will be established and approved. The maximum bonus will be defined in accordance with the Company's new plan which will be recommended and must be approved by the Board of Directors. RETENTION BONUS: In lieu of the base salary payment for change of control, you will be paid a retention bonus equal to one year's base salary, at your current base salary level, conditioned upon your 2 Mr. Ted Darnall March 25, 1998 Page 2 staying with the Company at least one year after the ITT closing. If you voluntarily leave the employ of the Company within that one year period, you would be obliged to repay the Company the retention bonus and the tax payment on the restricted stock. OPTIONS: The Company will recommend to the Options Committee an additional grant of options for 125,000 Paired Shares for you in accordance with the Long Term Incentive Plan (the "LTIP") at current market, which would be exercisable at the then fair market value of the Paired Shares in accordance with the LTIP and would vest over the normal three year period following grant. The strike price of the options will be the current market price at the close of market on the day prior to the grant date. TAXES ON RESTRICTED STOCK: You received a restricted stock Award under the Company's 1995 LTIP in August of 1996. The Company will pay you an amount to cover taxes on the Paired Shares included in that Award. The amount of the payment would be 40% of the market value of Paired Shares at the time of vesting (but not in excess of $53 per Paired Share) multiplied by the number of Paired Shares then vesting. If you voluntarily leave the employ of the Company within that one year period, you would be obligated to repay the Company the tax payment on the restricted stock. RELOCATION EXPENSES: To help cover the cost of living differential between Phoenix and Fairfield/Westchester Counties, the Company will pay the reasonable, out-of-pocket costs of relocating your household furnishings and your family; all relocation expenses will be grossed up. Other relocation costs to be covered as necessary include third party purchase of your Phoenix home to facilitate an expedient relocation. Upon your move to the Fairfield/Westchester County area, the Company will make a second mortgage home loan available to you in the amount of $600,000 which would be due in five years or upon termination of employment for any reason. The loan will be non-interest bearing and will be secured by a second mortgage on your home in Fairfield/Westchester County. TERMINATION/SEVERANCE: The Company reserves the right to terminate your employment with or without cause at any time. In the event of an involuntary termination without cause, the reduction of your role or responsibilities, a chance in control of the Company, or in the event of any breach by the Company of your employment agreement entitling you to terminate same (after expiration of applicable notice and cure periods for the benefit of the Company), you shall receive, as your sole right, exclusive remedy and liquidated damages, a one time termination payment equal to twelve (12) months base salary. In addition, the vesting of your options shall be accelerated at the date of such termination. The Company will also 3 Mr. Ted Darnall March 25, 1998 Page 3 continue to provide medical benefits coverage during the 12 month period subsequent to the termination of your employment. No severance shall be due in the event that you are terminated for gross misconduct or in the event that you leave the full-time employ of the Company voluntarily. In the event of any employment-related disputes with respect to your employment by the Company, you and the Company agree that the same shall be resolved through binding arbitration in the jurisdiction of the Company's headquarters and in accordance with the rules and procedures from time to time of the American Arbitration Association. NON-SOLICITATION/CONFIDENTIALITY: All benefits provided hereunder shall be contingent on your compliance with the non-solicitation/confidentiality covenants which will be set forth in a separate agreement. This letter represent the entirety of our agreement with respect to your employment and any prior discussions or negotiations are hereby merged herein. If this offer is acceptable to you, please sign this letter in the space provided below and send it to my attention. Very truly yours, STARWOOD HOTELS AND RESORTS WORLDWIDE, INC. /s/ Susan R. Bolger - ------------------------------------------- Susan R. Bolger Executive Vice President, Human Resources ACCEPTED AND AGREED TO: /s/ Ted Darnall - ------------------------------------------- Ted Darnall cc: Personnel File EX-10.11 16 EX-10.11 1 Exhibit 10.11 PERSONAL & CONFIDENTIAL March 25, 1998 Mr. Steve Goldman 6900 East Berneil Drive Paradise Valley, AZ 85253 Dear Steve: We are very pleased to extend this offer of Executive Vice President, Acquisitions and Development for Starwood Hotels & Resorts ("Starwood"). The following will outline the specifics of your offer of employment: POSITION: You shall be the Executive Vice President of Acquisitions and Development with primary responsibility for worldwide acquisitions, development, and franchising of all Starwood hotels and shall perform such duties and services as may be assigned to you. You shall devote your full time and attention to the affairs of the Company and to your duties as Executive Vice President of Acquisitions and Development. BASE SALARY: Your initial base salary, expressed in semi-monthly terms, will be $13,541.67 (on an annualized basis equivalent to $325,000.00), annualized from date of acceptance and will be subject to the appropriate withholdings for FICA, state and federal taxes, and Medicare. BONUS: You will be eligible to receive a performance bonus based upon achieving specified performance criteria which will be established and approved. The maximum bonus will be defined in accordance with the Company's new plan which will be recommended and must be approved by the Board of Directors. 2 Mr. Steve Goldman Page 2 RETENTION BONUS: In lieu of the base salary payment for change of control, you will be paid a retention bonus equal to one year's base salary, at your current base salary level, conditioned upon your staying with the Company at least one year after the ITT closing. If you voluntarily leave the employ of the Company within that one year period, you would be obliged to repay the Company the retention bonus and the tax payment on the restricted stock. OPTIONS: The Company will recommend to the Options Committee a grant of options for Paired Shares for you in accordance with the Long Term Incentive Plan (the "LTIP"), which would be exercisable at the then fair market value of the Paired Shares in accordance with the LTIP, and would vest over the normal three year period following the grant. TAXES ON RESTRICTED STOCK: You received a restricted stock Award under the Company's 1995 LTIP in August of 1996. The Company will pay you an amount to cover taxes on the Paired Shares included in that Award. The amount of the payment would be 40% of the market value of Paired Shares at the time of vesting (but not in excess of $53 per Paired Share) multiplied by the number of Paired Shares then vesting. The amount of this payment will be $795,000.00. If you voluntarily leave the employ of the Company within that one year period, you would be obligated to repay the Company the tax payment on the restricted stock. RELOCATION EXPENSES: To help cover the cost of living differential between Phoenix and Fairfield/Westchester Counties, the Company will pay the reasonable, out-of-pocket costs of relocating your household furnishings and your family and acquiring a new home; all relocation expenses will be grossed up. Other relocation costs to be covered as necessary include third party purchase of your Phoenix home to facilitate an expedient relocation, and mortgage duplication expenses for a period not to exceed six months. Upon your move to the Fairfield/Westchester County area, the Company will make a second mortgage home loan available to you in the amount of $400,000 which would be due in five years or upon termination of employment for any reason. The loan would be non-interest bearing and will be secured by a second mortgage on your home in Fairfield/Westchester County. TERMINATION/SEVERANCE: The Company reserves the right to terminate your employment with or without cause at any time. In the event of an involuntary termination without cause, the reduction of your role or responsibilities, a change in control of the Company, or in the event of any breach by the Company of your employment agreement entitling you to terminate same (after expiration of applicable notice and cure periods for the benefit of the Company), you shall receive, as your sole right, exclusive remedy and liquidated damages, a one time termination payment equal to twelve (12) months base salary. In addition, the vesting of your options shall be accelerated at the date of such termination. The Company will also continue to provide medical benefits coverage during the 12 month period subsequent to the termination of your employment. No severance shall be due in the event that you are terminated for gross misconduct or in the event that you leave the full-time employ of the Company voluntarily. 3 Mr. Steve Goldman Page 3 In the event of any employment-related disputes with respect to your employment by the Company, you and the Company agree that the same shall be resolved through binding arbitration in the jurisdiction of the Company's headquarters and in accordance with the rules and procedures from time to time of the American Arbitration Association. NON-SOLICITATION/CONFIDENTIALITY: All benefits provided hereunder shall be contingent on your compliance with the non-solicitation/confidentiality covenants which will be set forth in a separate agreement. This letter represents the entirety of our agreement with respect to your employment and any prior discussions or negotiations are hereby merged herein. If this offer is acceptable to you, please sign this letter in the space provided below and send it to my attention. Very truly yours, STARWOOD HOTELS & RESORTS /s/ Barry S. Sternlicht - -------------------------------- Barry S. Sternlicht ACCEPTED AND AGREED TO: /s/ Steve R. Goldman - -------------------------------- Steve Goldman cc: Personnel File EX-10.22 17 EX-10.22 1 Exhibit 10.22 TRADEMARK LICENSE AGREEMENT This Trademark License Agreement, is made by and between Starwood Capital Group, L.L.C., a Connecticut Limited Liability Company, with a place of business at Three Pickwick Plaza, Suite 250, Greenwich, Connecticut 06830 ("SCG"), and Starwood Lodging Trust, a Maryland real estate investment trust, with a place of business at 2231 East Camelback Road, Suite 400, Phoenix, Arizona 85016 ("SLT"). WITNESSETH: WHEREAS, SCG is the owner, and has adopted and used in its business, in connection with real estate services, including real estate investment services, the trademark for which registration is being sought in the United States Patent and Trademark Office under the following application number (the "SCG Trademark"): Trademark Application No. Filing Date - --------- --------------- ----------- STARWOOD 75/229,277 1/22/97 WHEREAS, SLT was the owner, adopted and used in its business, in connection with real estate services, including the acquisition of hotels, the trademark for which registration is being sought in the United States Patent and Trademark Office under the following application number (the "STARWOOD LODGING TRUST Trademarks"): Trademark Application No. Filing Date - --------- --------------- ----------- STARWOOD LODGING TRUST 75/200,968 11/20/96 STARWOOD LODGING TRUST 75/352,062 9/5/97 and Design WHEREAS, SLT has adopted and used in its business, in connection with real estate services, including the acquisition of hotels, the trademark depicted on Exhibit 1 of Exhibit A attached hereto (the "Star Design Trademark") (the STARWOOD LODGING TRUST Trademarks and the Star Design Trademark are hereinafter collectively referred to as the "SLT Trademarks"); WHEREAS, as evidenced by the Trademark Assignment Nunc Pro Tunc attached hereto as Exhibit A, which has been executed concurrently with this Trademark License Agreement, effective August 15, 1969, SLT assigned and transferred to SCG, its entire right, title, and interest in, to and under the SLT Trademarks and the applications for the STARWOOD LODGING TRUST Trademarks, together with the goodwill of the business connected with the use of and symbolized by the SLT Trademarks (the SCG Trademark and the SLT Trademarks are hereinafter collectively referred to as the "STARWOOD Trademarks"); 2 121097 WHEREAS, SLT desires to continue to use the STARWOOD Trademarks in connection with the acquisition, ownership, leasing, management, merchandising, operation and disposition of hotels and hospitality services, and of properties, entities and activities related to the acquisition, ownership, leasing, management, operation and disposition of hotels and hospitality services ("the Permitted Uses"). WHEREAS, SCG is willing to grant to SLT the right to use the STARWOOD Trademarks subject to the terms and conditions of this Trademark License Agreement, and SLT is willing to use the STARWOOD Trademarks on all terms and conditions set forth below. NOW, THEREFORE, in exchange for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and in consideration of the mutual covenants set forth herein, the parties agree as follows: I. GRANT OF LICENSE A. SCG grants to SLT the royalty-free license and right to use the STARWOOD Trademarks in connection with the Permitted Uses, exclusive to SLT and its affiliates (except only for SCG and affiliates) in North America; provided, however, that SLT shall have the right to use "Starwood" in its corporate name worldwide. B. The right granted in Subparagraph I(A) above shall be nondivisible and shall not be transferred, assigned or sublicensed without SCG's prior written consent, which SCG may not unreasonably withhold or delay. C. In the event that SLT desires to use the STARWOOD Trademarks in connection with other than Permitted Uses, it shall request a license therefor from SCG, which license SCG agrees to offer on reasonable terms based on then current prevailing market terms. II. USE OF THE TRADEMARKS A. SLT acknowledges SCG's exclusive right, title and interest in and to the STARWOOD Trademarks. SLT will not at any time do or cause to be done any act, directly or indirectly contesting or in any way impairing SCG's right, title or interest in the STARWOOD Trademarks. In connection with its Permitted Use of the STARWOOD Trademarks, SLT shall not in any manner represent that it has any ownership interest in the STARWOOD Trademarks, and SLT specifically acknowledges that its Permitted Use of the STARWOOD Trademarks shall not create any right, title or interest in the STARWOOD Trademarks. Every Permitted Use of the STARWOOD Trademarks by SLT shall inure to the benefit of SCG. B. Without detracting from the generality of the foregoing, it is agreed and understood by SLT that SLT does not have permission to: (1) sublicense the STARWOOD Trademarks except as provided in Paragraph I(B) above; or (2) transfer or assign any right 3 granted by this Trademark License Agreement except as provided in paragraph I(B) above. C. In order to assure SCG the ability to protect the goodwill associated with the STARWOOD Trademarks and the validity and integrity of the STARWOOD Trademarks, and in order to prevent any deception to the public, SLT shall operate its business in accordance with the standards and requirements of quality which from time to time are reasonably prescribed by SCG, and shall use the STARWOOD Trademarks in a manner consistent with any format reasonably prescribed by SCG. D. In order to assure compliance with the quality, specifications and standards set forth by SCG, SLT shall make available to representatives of SCG, any information reasonably requested relating to such quality control or use of the STARWOOD Trademarks, and permit such representatives to inspect at reasonable times and or reasonable notice documents or things upon which the STARWOOD Trademarks are used as SCG reasonably considers necessary. III. TERMS AND TERMINATION A. This Trademark License Agreement shall be perpetual. B. Notwithstanding Subparagraph III(A) above, if SLT makes any assignment of assets or business for the benefit of creditors, if a trustee or receiver is appointed to administer or conduct SLT's business or affairs, or if SLT is adjudged in any legal proceeding to be either a voluntary or involuntary bankruptcy, SCG may terminate this Trademark License Agreement upon fifteen days prior written notice. C. Notwithstanding Subparagraph III(A) above, if SLT breaches any of the material terms and conditions of this Trademark License Agreement, and SCG provides written notice of any such breach, SCG may terminate this Trademark License Agreement, unless SLT cures any such breach within a reasonable period after receiving written notice. D. Upon the termination of this Trademark License Agreement, SLT agrees to immediately discontinue all use of the STARWOOD Trademarks and will at no time adopt or use, without SCG's prior written consent, any word, phrase, symbol, logo or mark which is similar to or likely to be confusing with the STARWOOD Trademarks. IV. INDEMNIFICATION SLT shall indemnify and hold harmless SCG, any parents, subsidiaries or affiliates of SCG and their respective officers, directors, shareholders, employees, agents, successors and assigns (collectively, the "SCG Indemnified Parties") from and against any and all costs, losses, damages, obligations, expenses, liability and/or attorneys' fees arising, directly or indirectly, by reason of any claim made or asserted against the SCG Indemnified Parties by third parties, during the term of this Trademark License Agreement or subsequent to its termination, arising out of SLT's use of the STARWOOD Trademarks or SLT's provision of services in connection with the STARWOOD Trademarks, unless such claim involves an act performed by an SCG 4 Indemnified Party, or arises out of SCG's breach of this Trademark License Agreement. SCG shall indemnify and hold harmless SLT, any parent, subsidiaries, affiliates or affiliates of SLT and their respective officers, directors, trustees, shareholders, employees, agents, successor and assigns (collectively the "SLT Indemnified Parties") from and against any and all costs, losses, damages, obligations, expenses, liability and/or attorneys' fees arising, directly or indirectly by reason of any claim made or asserted against the SLT Indemnified Parties by third parties, during the term of this License Agreement or subsequent to its termination, arising out of SCG's use of the STARWOOD Trademark or SCG's provision or services in connection with the Starwood trademarks, unless such claim involves an act performed by an SLT Indemnified Party or arises out of SLT's breach of this Trademark License Agreement. V. GOVERNING LAW This Trademark License Agreement shall be subject to and governed by the substantive law of the State of Connecticut, United States of America, without regard to principles of choice of law. VI. ENTIRE AGREEMENT This Trademark License Agreement including its attachments constitutes the entire agreement between the parties and contains all of the agreement between the parties with respect to the subject matter of this Trademark License Agreement. This Trademark License Agreement supersedes any and all other agreements, either oral or written, between the parties with respect to the subject matter of this Trademark License Agreement. No change or modification of this Trademark License Agreement shall be valid unless the same shall be in writing and signed by the parties. VII. SEVERABILITY If any provisions of this Trademark Settlement Agreement, or the application of any such provisions to the parties hereto, shall be held by a court of competent jurisdiction to be unlawful or unenforceable, the remaining provisions of this Trademark License Agreement shall nevertheless be valid, enforceable and shall remain in full force and effect, and shall not be affected, impaired or invalidated in any manner. VIII. CONSTRUCTION This Trademark License Agreement shall be construed without regard to the party or parties responsible for the preparation of the Trademark License Agreement and shall be deemed as prepared jointly by the parties. Any ambiguity or uncertainty existing herein shall not be interpreted or construed against any party. 5 IX. EFFECTIVE DATE This Trademark License Agreement shall be binding on the parties at the time the last of them executes it below, which shall be the effective date of this Trademark License Agreement. X. COUNTERPARTS This Trademark License Agreement may be executed in counterparts. XI. HEADINGS The headings in this Trademark License Agreement are inserted for convenience only and are not to be considered in the interpretation or construction of the provisions of this Trademark License Agreement. XII. NOTICES All notices called for in this Trademark License Agreement shall be deemed to be sufficiently given if sent by registered or certified mail return receipt requested to the other party at the above-referenced address or at such other address as the party may designate in writing. Any such notice shall be effective and deemed received when the return receipt is presented to the addressee for execution. XIII. AUTHORITY The signatories respectively represent and warrant that they have full authority to enter into this Trademark License Agreement on behalf of the entity for which they have signed. XIV. DISCLAIMER The name "Starwood Lodging Trust" is the designation of Starwood Lodging Trust and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1996 as amended and restated, and all Persons dealing with Starwood Lodging Trust must look solely to Starwood Lodging Trust's property for the enforcement of any claims against Starwood Lodging Trust, as the Trustees, officers, agents and security holders of Starwood Lodging Trust assume no personal obligations of Starwood Lodging Trust, and their respective properties shall not be subject to claims of any Person relating to such obligation. Dated:____________ STARWOOD CAPITAL GROUP, L.L.C. By: 6 Name: Title: Dated:____________ STARWOOD LODGING TRUST By: Name: Title: 7 TRADEMARK ASSIGNMENT NUNC PRO TUNC EXHIBIT A WHEREAS, Starwood Lodging Trust, a Maryland real estate investment trust, with a place of business at 2231 East Camelback Road, Suite 400, Phoenix, Arizona 85016 ("Assignor"), has adopted and used in its business, since as early as August 15, 1969, in connection with real estate services, including the acquisition, ownership, leasing, management, merchandising, promotion, operation and disposition of hotels and hospitality services, and of properties, entities and activities related to the acquisition, ownership, leasing, management, merchandising, promotion, operation and disposition of hotels and hospitality services ("the Permitted Uses"), the trademark for which registration is being sought in the United States Patent and Trademark Office under the following application number (the "STARWOOD LODGING TRUST Trademarks"): Trademark Application No. Filing Date - --------- --------------- ----------- STARWOOD LODGING TRUST 75/200,968 11/20/96 STARWOOD LODGING TRUST 75/352,062 9/5/97 and Design WHEREAS, SLT has adopted and used in its business, since at least as early as August 15, 1969, in connection with real estate services, including the acquisition of hotels, the trademark depicted on Exhibit 1 attached hereto (the "Star Design Trademark") (the "STARWOOD LODGING TRUST Trademarks and the Star Design Trademark are hereinafter collectively referred to as the "Trademarks"); WHEREAS, Starwood Capital Group, L.L.C., a Connecticut Limited Liability Company, with a place of business at Three Pickwick Plaza, Suite 250, Greenwich, Connecticut 06830 ("Assignee"), is desirous of acquiring the Trademarks; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of 8 which is hereby acknowledged, Assignor hereby sells, assigns and transfers to Assignee, effective August 15, 1969, the entire right, title, and interest in, to and under the Trademarks and the applications for the STARWOOD LODGING TRUST Trademarks, which are listed above, together with the goodwill of the business connected with the use of and symbolized by the Trademarks and the right to sue for past, present and future infringement thereof. The name "Starwood Lodging Trust" is the designation of Starwood Lodging Trust and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1996 as amended and restated, and all Persons dealing with Starwood Lodging Trust must look solely to Starwood Lodging Trust's property for the enforcement of any claims against Starwood Lodging Trust, as the Trustees, officers, agents and security holders of Starwood Lodging Trust assume no personal obligations of Starwood Lodging Trust, and their respective properties shall not be subject to claims of any Person relating to such obligation. STARWOOD LODGING TRUST By: Name: Title: Date: 9 EXHIBIT 1 10 STATE OF ______________) ) SS COUNTY OF ____________) On this ___ day of ___________, 1997, before me appeared _______________________, the person who signed this instrument, who acknowledged that (s)he signed it as a free act on behalf of the identified corporation with authority to do so. Notary Public EX-10.34 18 EX-10.34 1 Exhibit 10.34 UNITS EXCHANGE RIGHTS AGREEMENT This Units Exchange Rights Agreement (this "Agreement") is made as of February 14, 1997 among Starwood Lodging Trust, a real estate investment trust organized under the laws of the State of Maryland (the "Trust"), Starwood Lodging Corporation, a Maryland corporation (the "Corporation"), SLT Realty Limited Partnership, a Delaware limited partnership (the "Realty Partnership"), SLC Operating Limited Partnership, a Delaware limited partnership (the "Operating Partnership"), and each of the limited partners of the Realty Partnership and the Operating Partnership listed on the signature pages hereto (the "Starwood Partners"). Unless otherwise indicated, capitalized terms used herein are used herein as defined in Section 11. WHEREAS, pursuant to a Contribution Agreement dated as of January 15, 1997 (the "Contribution Agreement") among the Trust, the Corporation, Starwood Partners and other parties (i) on the date hereof the Starwood Partners are making capital contributions to the Realty Partnership in return for the issuance by the Realty Partnership to the Starwood Partners of Units (as defined in the Limited Partnership Agreement of the Realty Partnership (the "Realty Partnership Agreement")) of the Realty Partnership (such Units issued by the Realty Partnership to the Starwood Partners on the date hereof, together with any Units of the Realty Partnership issued to the Starwood Partners after the date hereof, being hereinafter called the "Realty Units") and (ii) on the date hereof the Starwood Partners are making capital contributions to the Operating Partnership in return for the issuance by the Operating Partnership to the Starwood Partners of Units (as defined in the Limited Partnership Agreement of the Operating Partnership (the "Operating Partnership Agreement")) of the Operating Partnership (such Units issued by the Operating Partnership to the Starwood Partners on the date hereof, together with any Units of the Operating Partnership issued to the Starwood Partners, being hereinafter called the "Operating Units"); and WHEREAS, pursuant to the Contribution Agreement the parties hereto are entering into this Agreement to provide for the rights of the Starwood Partners to tender Realty Units and Operating Units in exchange for either Paired Shares (as defined herein), cash or a combination of Paired Shares and cash, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, the parties hereto agree as follows: SECTION 1. RIGHT TO TENDER STARWOOD UNITS. (a) Upon 2 the terms and subject to the conditions of this Agreement, each holder of Starwood Units (as defined below) shall have the right to tender to the Trust outstanding Realty Units and the right to tender to the Corporation outstanding Operating Units. Notwithstanding anything to the contrary contained in this Agreement (i) no Realty Unit may be tendered to the Trust unless simultaneously therewith the tendering holder also tenders to the Corporation an Operating Unit and no Operating Unit may be tendered to the Corporation unless simultaneously therewith the tendering holder also tenders to the Trust a Realty Unit (a Realty Unit tendered for exchange and the Operating Unit simultaneously tendered for exchange being hereinafter collectively referred to as a "Starwood Unit") and (ii) any attempted tender of a Realty Unit or an Operating Unit which is not accompanied by a simultaneous tender of an Operating Unit or Realty Unit, respectively, shall be void and of no effect; it being understood that a simultaneous tender of unequal numbers of Realty Units and Operating Units shall be valid under this sentence to the extent of the lesser of the number of Realty Units or Operating Units, as the case may be, included in such tender. (b) Notwithstanding any other provision of this Agreement, no Paired Shares or cash shall be issued or paid in respect of any tender of Starwood Units (i) if, notwithstanding the provisions of Section 6 of this Agreement, the right to tender Starwood Units and receive Paired Shares or cash would result in the Trust not satisfying the REIT Requirements in any respect or would result in any person or entity Beneficially Owning Trust Shares exceeding the Ownership Limit, (ii) if, with respect to all Starwood Partners other than Prudential Property Investment Separate Account II, the tender pursuant to Section 1(a) is prior to the first anniversary of the date of this Agreement, (iii) prior to the expiration or termination of the waiting period applicable to such exchange and issuance, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as it may be amended from time to time, or (iv) prior to the receipt of all governmental and regulatory approvals which are required to be obtained prior to such tender and issuance or payment, including, without limitation, any required approvals of the gaming authorities of the State of Nevada and of Clark County, Nevada (the "Gaming Approvals"). Prior to the receipt of Gaming Approvals, such holder shall, as a condition to any tender of Starwood Units which would (if the Paired Share Option (as defined below) were to be elected in respect of such tender) cause such holder to beneficially own, in the aggregate, Paired Shares representing more than 4.9% of the then issued and outstanding Paired Shares, give not less than 90 days' written notice to the Trust and the Corporation (at the offices provided pursuant to Section 10) of its intent to tender Starwood Units; provided, however, that the ownership by Prudential Property Investment Separate Account II of Paired Shares as contemplated -2- 3 by the penultimate sentence of Section 8.02(j) of the Contribution Agreement shall not require any such written notice to the Trust and Corporation. In the event that the ability to receive Paired Shares or cash would result in the Trust not satisfying the REIT Requirements in any respect or would result in any person or entity Beneficially Owning Trust Shares exceeding the Ownership Limit, and as a result thereof no Paired Shares or cash may be issued or paid in respect of any tender of Starwood Units pursuant to Section 1(b)(i) above, the parties hereto shall use their respective best efforts to restructure the terms and provisions of this Agreement (and, if necessary, the Partnership Agreements and the Registration Rights Agreement (as defined in Section 6)), or to agree to terms and provisions in addition to such terms and provisions, so as to provide to each such party the same substantive rights (or substantive rights as close thereto as is reasonably practicable) as those provided by this Agreement, the Partnership Agreements and the Registration Rights Agreement. (c) The rights to exchange Starwood Units pursuant to this Agreement constitute a continuous offer and may not be withdrawn, amended or modified by the Trust or the Corporation without the prior written consent of each holder of outstanding Starwood Units adversely affected by such withdrawal, amendment or modification; provided that any withdrawal, amendment or modification that does not adversely affect any holder of outstanding Starwood Units may be effected without the consent of such holder. SECTION 2. ACCEPTANCE OF TENDER; ELECTION OF METHOD OF PAYMENT FOR TENDERED STARWOOD UNITS. (a) Upon the terms and subject to the conditions of this Agreement, the Trust and the Corporation shall accept Starwood Units validly tendered in proper form and meeting all of the requirements of this Agreement. In order for Starwood Units to be validly tendered pursuant to this Agreement, the registered holder thereof shall deliver to the Trust and the Corporation, at the address provided pursuant to Section 10, (i) a completed and duly executed Letter of Transmittal in the form attached hereto as Exhibit A (the "Letter of Transmittal") and any other documents required by the Letter of Transmittal and (ii) a calculation, to the best knowledge of such registered holder after due inquiry (together with such supporting documentation as the Trust may reasonably request), of the maximum number of Paired Shares that may be issued to such registered holder without causing either (x) the Trust to not satisfy the REIT Requirements in any respect or (y) any person or entity to Beneficially Own Trust Shares exceeding the Ownership Limit. The Trust and the Corporation shall make all determinations as to the validity and form of any tender of Starwood Units in accordance with the provisions of this Agreement and upon rejection of a tender shall give the tendering -3- 4 holder written notice of such rejection, which shall include the reasons therefor. (b) Unless otherwise determined by agreement of the Trust and the Corporation, tenders of Starwood Units pursuant to this Agreement shall be irrevocable and shall not be subject to withdrawal or modification; provided that if the Trust and the Corporation make the Paired Share Election with respect to a tender, then within 5 days after such Election the tendering holder may elect to revoke such tender so long as (i) no public disclosure of such tender has been made prior to such revocation and (ii) such tendering holder reimburses the Trust and the Corporation for all reasonable costs and expenses incurred in connection with such tender. (c) Within 15 days after the valid tender pursuant to this Agreement of Starwood Units, the Trust and the Corporation shall make an election to pay for such Starwood Units by delivering either (i) Paired Shares (the "Paired Share Election"), (ii) cash (the "Cash Election") or (iii) a combination of Paired Shares and cash (the "Combined Election"). Such election shall be made pursuant to an agreement as to such election between the Trust and the Corporation. If the Trust and the Corporation do not so agree within such 15-day period, they shall be deemed to have made the Cash Election. SECTION 3. PAIRED SHARE ELECTION. (a) If with respect to any tender of Starwood Units pursuant to this Agreement, the Trust and the Corporation make the Paired Share Election, then, except as provided in Section 2(b), within fifteen days after the expiration of the 5-day period referred to in Section 2(b), the Trust and the Corporation shall deliver to the tendering holder one Paired Share for each Starwood Unit validly tendered pursuant to the provisions of this Agreement. (b) No fractional Paired Shares or scrip representing fractional Paired Shares shall be issued upon exchange of Starwood Units pursuant to this Agreement. If more than one Letter of Transmittal shall be delivered at one time by the same holder, the number of full Paired Shares which shall be issuable upon exchange of the Starwood Units tendered thereby shall be computed on the basis of the aggregate number of Starwood Units so tendered. Instead of any fractional Paired Shares which would otherwise be issuable upon exchange of any Starwood Units, the Trust and the Corporation shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Paired Share Closing Price on the last Business Day preceding the date of exchange. (c) If a holder exchanges Starwood Units pursuant to this Agreement, the Trust and the Corporation shall pay any documentary, stamp or similar issue or transfer tax due on any -4- 5 issue of Paired Shares upon such exchange. Such holder, however, shall (i) pay to the Trust and the Corporation the amount of any additional documentary, stamp or similar issue or transfer tax which is due (or shall establish to the satisfaction of the Trust and the Corporation the payment thereof) as a result of Paired Shares being issued in a name other than the name of such holder and (ii) be responsible for all income or other taxes as a result of such exchange. SECTION 4. CASH ELECTION. (a) If with respect to any tender of Starwood Units pursuant to this Agreement, the Trust and the Corporation make or are deemed to have made the Cash Election, then within 20 days after such tender the Trust and the Corporation shall pay to the tendering holder an aggregate amount of cash (the "Aggregate Cash Payment") equal to the product of (i) the number of Paired Shares which would have been delivered to such holder if the Trust and the Corporation had made the Paired Share Election with respect to such tender and (ii) the average Paired Share Closing Price for the ten trading day period ending one day prior to the date of such tender. (b) In connection with any Aggregate Cash Payment pursuant to Section 4(a) or any cash payment pursuant to Section 5(a)(ii), the Trust shall pay 95% of such Aggregate Cash Payment or such cash payment and the Corporation shall pay 5% of such Aggregate Cash Payment or such cash payment (such percentages being herein called the "Issuance Percentages"); provided that the Trust and the Corporation may from time to time change the Issuance Percentages based on their determination of the relative fair values of the Trust Shares and the Corporation Shares. SECTION 5. COMBINED ELECTION. (a) If with respect to any tender of Units pursuant to this Agreement, the Trust and the Corporation shall make the Combined Election, then, except as provided in Section 2(b), within 15 days after the expiration of the 5-day period referred to in Section 2(b), the Trust and the Corporation shall (i) notify the tendering holder of the number of such tendered Units which will be exchanged for cash (the "Cash Units") and the number of such tendered Units which will be exchanged for Paired Shares (the "Paired Share Units"), (ii) pay to the tendering holder, in respect of each Cash Unit validly tendered pursuant to the provisions of this Agreement, an amount of cash (with each of the Trust and the Corporation paying its then respective Issuance Percentage of such amount of cash) equal to the average Paired Share Closing Price for the ten trading day period ending one day prior to the date of such tender and (iii) deliver to the tendering holder one Paired Share for each Paired Share Unit validly tendered pursuant to the provisions of this Agreement. (b) The provisions of Sections 3(b) and 3(c) of this -5- 6 Agreement shall apply to the issuance of Paired Shares pursuant to Section 5(a). SECTION 6. REGISTRATION RIGHTS. If at any time after six (6) months from the date of this Agreement, (a) a Starwood Partner validly tenders Starwood Units pursuant to the provisions of this Agreement, (b) the Trust and the Corporation make the Paired Share Election or the Combined Election with respect to such tender, (c) as a result of the Ownership Limit such Starwood Partner cannot receive the full number of Paired Shares otherwise issuable to such Starwood Partner pursuant to such tender and such Election (without giving effect to the Ownership Limit) (the event described in clauses (a), (b) and (c) being referred to as a "Paired Share Tender Reduction"; the number of such Paired Shares which such Starwood Partner cannot receive pursuant to such tender as a result of the Ownership Limit being referred to as the "Unissued Paired Shares"; and the Starwood Units tendered in respect of such Unissued Paired Shares being referred to as the "Delayed Payment Units"), then subject to the other terms and conditions of this Agreement, such Starwood Partner shall be entitled to receive the number of Paired Shares which it can receive pursuant to such tender, such Election and the Ownership Limit and then, pursuant to the terms of the Registration Rights Agreement, the Trust and the Corporation shall cause there to be filed with the Securities and Exchange Commission a registration statement and the Trust and the Corporation shall register and sell pursuant thereto a number of Paired Shares equal to the number of such Unissued Paired Shares requested by Starwood to be registered pursuant to Section 2.3 of the Registration Rights Agreement. Within two Business Days after the receipt by the Trust and the Corporation of the proceeds of any sale (after underwriting discounts and commissions) of such Paired Shares pursuant to such registration, the Trust and the Corporation shall pay such proceeds to the tendering holder of the Delayed Payment Units, in full payment for the tender of such Delayed Payment Units. SECTION 7. REPRESENTATIONS OF TENDERING HOLDER. Each tender of Starwood Units shall constitute a representation and warranty by the tendering holder of each of the representations and warranties set forth in the form of Letter of Transmittal. Without limiting the generality of the foregoing, unless, at the time of a tender for exchange of Starwood Units pursuant to this Agreement, a registration statement relating to any Paired Shares to be delivered upon such tender is effective under the Securities Act of 1933, as amended (the "Securities Act"), such tender shall constitute a representation and warranty by the tendering holder to the Trust and the Corporation that such tendering holder (i) is an "accredited investor" within the meaning of Rule 501 under the Securities Act, (ii) has sufficient knowledge and experience in financial and business matters and in -6- 7 investing in entities similar to the Partnerships, the Trust and the Corporation so as to be able to evaluate the risks and merits of its investment in the Partnerships, the Trust and the Corporation and it is able financially to bear the risks thereof, (iii) has had an opportunity to discuss the business, management and financial affairs of the Trust, the Corporation and the Partnerships with the management of the Trust, the Corporation and the Partnerships, and (iv) understands that the Paired Shares have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act and such Paired Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act and applicable state securities laws or is exempt from such registration. SECTION 8. STATUS OF TENDERING HOLDER. Until the holder of Starwood Units tendered pursuant to this Agreement becomes a holder of record of the Paired Shares issued in exchange therefor (in the case of a Paired Share Election or a Combined Election) or until such holder has received cash in exchange therefor (in the case of a Cash Election or a Combined Election), such holder shall continue to hold and own such Starwood Units for all purposes of the Realty Partnership Agreement and the Operating Partnership Agreement. In the case of a Paired Share Election or a Combined Election, no such holder shall have any rights as a shareholder of the Trust or a stockholder of the Corporation in respect of such Paired Shares until such holder becomes a holder of record of such Paired Shares. SECTION 9. RESERVATION OF SHARES; CLOSING OF TRANSFER BOOKS. (a) The Trust shall reserve and shall at all times have reserved out of its authorized but unissued Trust Shares, solely for the purpose of effecting the exchange of Realty Units pursuant to this Agreement and the Class A Units pursuant to the Class A Exchange Rights Agreement, enough Trust Shares to permit the exchange of the then outstanding Realty Units and, in the case of the Class A Exchange Rights Agreement, Class A Units. The Corporation shall reserve and shall at all times have reserved out of its authorized but unissued Corporation Shares, solely for the purpose of effecting the exchange of Operating Units pursuant to this Agreement, enough Corporation Shares to permit the exchange of the then outstanding Operating Units. All Paired Shares which may be issued upon exchange of Starwood Units shall be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof other than income taxes resulting from such exchange. (b) The Trust shall not close its transfer books so as -7- 8 to prevent the timely issuance of Trust Shares pursuant to this Agreement and the Class A Exchange Rights Agreement. The Corporation shall not close its transfer books so as to prevent the timely issuance of Corporation Shares pursuant to this Agreement. SECTION 10. NOTICES. All notices, documents and other communications under this Agreement shall be in writing and shall be deemed given when delivered personally or by overnight mail or when sent by facsimile transmission, or four days after being mailed (by registered mail, return receipt requested) to a party at the following address (or to such other address as such party may have specified by notice given to the other parties pursuant to this provision): (a) If to the Trust or the Realty Partnership, to: Starwood Lodging Trust 2231 E. Camelback Road, Suite 410 Phoenix, AZ 85016 Attention: Chief Financial Officer Telecopy No.: (602) 852-0984 Telephone No.: (602) 852-3900 with a copy to: Sidley & Austin 555 West 5th Street Los Angeles, California 90013 Attention: Sherwin L. Samuels Telecopy No.: (213) 896-6600 Telephone No.: (213) 896-6000 (b) If to the Corporation or the Operating Partnership, to: Starwood Lodging Corporation 2231 E. Camelback Road, Suite 400 Phoenix, AZ 85016 Attention: General Counsel Telecopy No.: (602) 852-0686 Telephone No.: (602) 852-3900 with a copy to: Sidley & Austin 555 West 5th Street Los Angeles, California 90013 Attention: Sherwin L. Samuels Telecopy No.: (213) 896-6600 -8- 9 Telephone No.: (213) 896-6000 (c) If to Prudential: Prudential Real Estate Investors 8 Campus Drive Parsippany, NJ 07054 Attention: Gary L. Kauffman Telecopy No.: (201) 683-1790 Telephone No.: (201) 683-1612 Attention: Joseph D. Margolis, Esq. James P. Walker, Esq. Telecopy No.: (201) 683-1788 Telephone No.: (201) 683-1694 or 1690 with a copy to: O'Melveny & Myers LLP 153 East 53rd Street New York, NY 10022 Attention: Robert S. Insolia, Esq. Telecopy No.: (212) 326-2061 Telephone No.: (212) 326-2000 (d) If to any other Holder, to the address specified on Schedule A hereto. with a copy to: Willkie Farr & Gallagher 153 East 53rd Street New York, NY 10022 Attention: Bruce M. Montgomerie, Esq. Telecopy No.: (212) 821-8111 Telephone No.: (212) 821-8000 SECTION 11. DEFINITIONS. For purposes of this Agreement: "Beneficially Owning" means owning Trust Shares directly, indirectly or constructively by a person or entity through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, or Section 544 of the Code, as modified by Section 856(h) of the Code. The term "Beneficially Own" shall have a correlative meaning. "Business Day" means any day other than Saturday, Sunday and any day on which banks are not open to do business in New York, New York. "Class A Exchange Rights Agreement" means the Exchange -9- 10 Rights Agreement dated the date hereof among the Corporation, the Operating Partnership and certain other parties. "Code" means the Internal Revenue Code of 1986, and the rules and regulations promulgated thereunder, as amended from time to time. "Corporation Shares" means the shares of common stock, par value $.01 per share, of the Corporation. "Declaration of Trust" means the Declaration of Trust of the Trust dated August 25, 1969, as amended and restated as of June 6, 1988, and as further amended on February 1, 1995 and as amended from time to time after the date of this Agreement. "Disinterested Members" when used with respect to the Trust has the meaning set forth in the Code of Regulations of the Trust and, when used with respect to the Corporation, has the meaning set forth in the By-Laws of the Corporation, in each case as amended from time to time. "Ownership Limit" when used with respect to Trust Shares, has the meaning set forth in the Declaration of Trust and, when used with respect to the Corporation Shares, has the meaning set forth in the Restated Articles, in each case as amended from time to time. "Paired Share" means a Corporation Share and a Trust Share which are paired pursuant to the Pairing Agreement. "Paired Share Closing Price" shall mean, with respect to a particular date, the last reported sales price regular way on such date or, in case no such reported sale takes place on such date, the average of the reported closing bid and asked prices regular way on such date, in either case on the New York Stock Exchange, or if the Paired Shares are not then listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Paired Shares are then listed or admitted to trading or, if not then listed or admitted to trading on any national securities exchange, the closing sale price on such date of the Paired Shares or, in case no reported sale takes place on such date then, the average of the closing bid and asked prices on such date, on NASDAQ or any comparable system. If the Paired Shares are not then quoted on NASDAQ or any comparable system, the Board of Trustees of the Trust and the Board of Directors of the Corporation shall in good faith determine the Paired Share Closing Price. "Pairing Agreement" means the Pairing Agreement dated June 25, 1980 between the Trust and the Corporation, as it -10- 11 may be amended from time to time. "Registration Rights Agreement" means the Registration Rights Agreement dated as of the date first written above between the Trust, the Corporation and certain other parties. "REIT Requirements" shall mean the requirements for the Trust to (i) qualify as a REIT under the Code and the rules and regulations promulgated thereunder, (ii) avoid any federal income or excise tax liability, (iii) retain its status as grandfathered pursuant to Section 132(c)(3) of the Deficit Reduction Act of 1984 and (iv) retain the benefits of that certain private letter ruling issued by the Internal Revenue Service to the Trust dated as of January 4, 1980. "Restated Articles" means the Restated Articles of Incorporation of the Corporation, as amended from time to time after the date of this Agreement. "Trust Shares" means the shares of beneficial interest, $.01 par value, of the Trust. SECTION 12. DETERMINATIONS AND INTERPRETATION. All agreements between the Trust and the Corporation provided for in this Agreement shall be made on behalf of the Trust and the Corporation by their respective Disinterested Members, including, without limitation, any agreement between the Trust and the Corporation as to the election of the Paired Share Election, the Cash Election or the Combined Election with respect to a tender of Starwood Units pursuant to Section 2(c), any agreement to permit the revocation, withdrawal or modification of a tender of Starwood Units pursuant to Section 1(c) and any adjustment of the Issuance Percentages pursuant to Section 4(b). All interpretations of the terms of this Agreement shall be resolved on behalf of the Trust and the Corporation by their respective Disinterested Members. SECTION 13. PARTIAL INVALIDITY. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein unless the deletion of such provision or provisions would result in such a material change as to cause completion of the transactions contemplated hereby to be unreasonable. SECTION 14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties -11- 12 hereto and their respective permitted successors or assigns. In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of the parties hereto other than the Corporation, the Trust, the Realty Partnership and the Operating Partnership, shall also be for the benefit of and enforceable by any subsequent holder of any Units. SECTION 15. EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be considered an original counterpart, and shall become a binding agreement when the Trust, the Corporation, the Realty Partnership, the Operating Partnership, and each of the Starwood Partners shall have each executed a counterpart of this Agreement. SECTION 16. TITLES AND HEADINGS. Titles and headings to Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. SECTION 17. EXHIBITS. The Exhibits referred to in this Agreement shall be construed with, and as an integral part of, this Agreement to the same extent as if the same had been set forth verbatim herein. SECTION 18. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, including the Exhibits, contains the entire understanding of the parties hereto with regard to the subject matter contained herein. In addition to amendments and modifications permitted by Section 1(c), the parties hereto, by mutual agreement in writing, may amend, modify and supplement this Agreement; provided that any such amendment, modification or supplement shall be approved by a majority of the Disinterested Members of each of the Trust and the Corporation. The failure of any party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of such party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. SECTION 19. GOVERNING LAW. Except to the extent that Maryland law is mandatorily applicable to the rights and obligations of the shareholders of the Trust and the stockholders of the Corporation, this Agreement, and the application or interpretation thereof, shall be governed exclusively by its terms and by the internal laws of the State of New York, without regard to principles of conflicts of laws as applied in the State of New York or any other jurisdiction which, if applied, would result in the application of any laws other than the internal -12- 13 laws of the State of New York. SECTION 20. STARWOOD LODGING TRUST. The parties hereto understand and agree that the name "Starwood Lodging Trust" is a designation of the Trust and its Trustees (as Trustees but not personally) under the Declaration of Trust, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. SECTION 21. SUBMISSION TO JURISDICTION. Each of the parties hereto irrevocably submits and consents to the jurisdiction of the United States District Court for the Southern District of New York in connection with any action or proceeding arising out of or relating to this Agreement, and irrevocably waives any immunity from jurisdiction thereof and any claim of improper venue, forum non conveniens or any similar basis to which it might otherwise be entitled in any such action or proceeding. SECTION 22. SPECIFIC PERFORMANCE. Each of the parties acknowledges and agrees that in the event of any breach of this Agreement, the non-breaching party or parties would be irreparably harmed and could not be made whole by monetary damages. The parties hereby agree that in addition to any other remedy to which they may be entitled at law or in equity, they shall be entitled to compel specific performance of this Agreement in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction for such action. -13- 14 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto or by their duly authorized officers, all as of the date first above written. STARWOOD LODGING TRUST, a Maryland real estate investment trust By: /s/ Steven R. Goldman ----------------------------- Name: Steven R. Goldman Title: Senior Vice President STARWOOD LODGING CORPORATION, a Maryland corporation By: /s/ Nir Margalit ----------------------------- Name: Nir Margalit Title: Secretary and General Counsel SLT REALTY LIMITED PARTNERSHIP, By: STARWOOD LODGING TRUST, general partner By: /s/ Steven R. Goldman ------------------------------- Name: Steven R. Goldman Title: Senior Vice President SLC OPERATING LIMITED PARTNERSHIP By: STARWOOD LODGING CORPORATION, general partner By: /s/ Nir Margalit ----------------------------- Name: Nir Margalit Title: Secretary and General Counsel -14- 15 THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of PRUDENTIAL PROPERTY INVESTMENT SEPARATE ACCOUNT II By: /s/ Gary L. Kauffman ------------------------------- Gary L. Kauffman Vice President THE GARY MENDELL FAMILY TRUST By: /s/ Eleanor Mendell ------------------------------- Eleanor Mendell Trustee /s/ Gary M. Mendell ------------------------------- Gary M. Mendell /s/ Steve Mendell ------------------------------- Steve Mendell /s/ Ellen-Jo Mendell ------------------------------- Ellen-Jo Mendell /s/ Felix J. Cacciato, Jr. ------------------------------- Felix J. Cacciato, Jr. /s/ Judith K. Rushmore ------------------------------- Judith K. Rushmore /s/ Murray L. Dow, II ------------------------------- Murray L. Dow, II -15- 16 /s/ Orna L. Shulman ___________________________________________ Orna L. Shulman /s/ Arthur C. Green ___________________________________________ Arthur C. Green /s/ Mark J. Rosinsky ___________________________________________ Mark J. Rosinsky /s/ Randi L. Rosinsky ___________________________________________ Randi L. Rosinsky /s/ John Daily ___________________________________________ John Daily /s/ Michael D. Hall ___________________________________________ Michael D. Hall /s/ Harvey Moore ___________________________________________ Harvey Moore /s/ Tracey Driscoll ___________________________________________ Tracey Driscoll /s/ Tom Clearwater ___________________________________________ Tom Clearwater ZAPCO HOLDINGS, INC. By: Orna L. Shulman ____________________________________________ Orna L. Shulman Vice President -16- 17 ZAPCO HOLDINGS, INC. DEFERRED COMPENSATION PLAN TRUST By: /s/ Nancy S. Heinrich, Trustee ___________________________________________ Nancy S. Heinrich Trustee -17- 18 SCHEDULE A TO UNITS EXCHANGE RIGHTS AGREEMENT NOTICE ADDRESS FOR HOLDERS [To be provided at Closing] 19 EXHIBIT A TO UNITS EXCHANGE RIGHTS AGREEMENT LETTER OF TRANSMITTAL To Tender Units Pursuant to the Units Exchange Rights Agreement Dated as of February ___, 1997 TO: Starwood Lodging Trust 2231 E. Camelback Road, Suite 410 Phoenix, AZ 85016 Starwood Lodging Corporation 2231 E. Camelback Road, Suite 400 Phoenix, AZ 85016 DESCRIPTION OF UNITS NAMES(S) AND ADDRESS(ES) UNITS TENDERED (ATTACH OF REGISTERED OWNERS ADDITIONAL LIST IF NECESSARY) Realty Units: Operating Units: -------------------------------------- Total 20 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Starwood Lodging Trust (the "Trust") the above-described Realty Units (as defined in the Units Exchange Rights Agreement dated as of February ___, 1997 (the "Units Exchange Rights Agreement")) and hereby tenders to Starwood Lodging Corporation (the "Corporation") the above-described Operating Units (as defined in the Units Exchange Rights Agreement) in accordance with the terms and conditions of the Units Exchange Rights Agreement and this Letter of Transmittal (which together constitute the "Offer"), receipt of which is hereby acknowledged. All terms used herein but not defined herein are used as defined in the Units Exchange Rights Agreement. Subject to, and effective upon the issuance of Paired Shares and/or the payment of cash, as the case may be, for the Starwood Units tendered hereby, the undersigned hereby assigns and transfers (i) to the Trust all right, title and interest in and to all the Realty Units that are being tendered hereby and irrevocably constitutes and appoints the Trust (the "Realty Unit Agent"), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) transfer such Realty Units on the books of the Realty Partnership and (b) receive all rights, privileges and benefits, and any and all obligations and liabilities appertaining thereto and otherwise exercise all rights of beneficial ownership of such Realty Units, all in accordance with the terms of the Offer and (ii) to the Corporation all right, title and interest in and to all the Operating Units that are being tendered hereby and irrevocably constitutes and appoints the Corporation (the "Operating Unit Agent" and, together with the Realty Unit Agent, the "Agents"), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) transfer such Operating Units on the books of the Operating Partnership and (b) receive all rights, privileges and benefits, and any and all obligations and liabilities appertaining thereto and otherwise exercise all rights of beneficial ownership of such Operating Units, all in accordance with the terms of the Offer. The undersigned hereby represents and warrants (i) to the Trust that the undersigned has full power and authority to tender, sell, assign and transfer the tendered Realty Units and that upon payment therefor, the Trust will acquire unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and the same will not be subject to any adverse claim, (ii) to the Corporation that the undersigned has full -20- 21 power and authority to tender, sell, assign and transfer the tendered Operating Units and that upon payment therefor, the Corporation will acquire unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and the same will not be subject to any adverse claim, (iii) to the Trust and the Corporation that the tender complies with each and every provision of Section 1 of the Units Exchange Rights Agreement, and (iv) attached hereto is a calculation, to the best knowledge of the undersigned after due inquiry (together with such supporting documentation as the Trust may reasonably request) of the maximum number of Paired Shares that may be issued to the undersigned without causing either (x) the Trust to not satisfy the REIT Requirements in any respect or (y) any person or entity to Beneficially Own Trust Shares exceeding the Ownership Limit. The undersigned will, upon request, execute any additional documents deemed by the Trust or the Corporation to be reasonably necessary or desirable to complete the sale, assignment and transfer of the tendered Starwood Units. Unless a registration statement relating to any Paired Shares to be delivered to the undersigned is effective under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned hereby represents and warrants to the Trust and the Corporation that the undersigned (A) is an "accredited investor" within the meaning of Rule 501 under the Securities Act, or (B) has sufficient knowledge and experience in financial and business matters and in investing in entities similar to the Partnerships, the Trust and the Corporation so as to be able to evaluate the risks and merits of its investment in the Partnerships, the Trust and the Corporation and it is able financially to bear the risks thereof, and in either case, (i) has had an opportunity to discuss the business, management and financial affairs of the Trust, the Corporation and the Partnerships with the management of the Trust, the Corporation and the Partnerships, and (ii) understands that any such Paired Shares have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act and any such Paired Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act and applicable state securities laws or is exempt from such registration. If not sold pursuant to an effective registration statement, any such Paired Shares will bear an appropriate legend indicating that such Paired Shares have not been registered under the Securities Act and resale of such Paired Shares is restricted under applicable securities laws. All authority conferred or agreed to be conferred in this Letter of Transmittal shall not be affected by, and shall survive, the death or incapacity of the undersigned, and any -21- 22 obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators and legal representatives of the undersigned. The undersigned understands that, except as provided in Section 2(b) of the Units Exchange Rights Agreement, a tender of Starwood Units pursuant to the Units Exchange Rights Agreement is irrevocable and constitutes a binding agreement between the undersigned and the Trust and the Corporation upon the terms and subject to the conditions of the Units Exchange Rights Agreement. Unless otherwise indicated under "Special Delivery Instructions", please mail any Paired Shares issuable upon exchange of the Starwood Units tendered hereby (or, if the Cash Election or the Combined Election is made, the cash payment payable pursuant thereto) to the address(es) of the registered holder(s) appearing under "Description of Units." In the event that the Special Delivery Instructions are completed, please issue the Paired Shares (or, if the Cash Election or the Combined Election is made, the cash payment payable pursuant thereto) in the name of the registered holder(s) and transmit the same to the person or persons so indicated. The Trust, the Corporation and the undersigned agree that they will cooperate with each other and will make, execute, acknowledge, deliver, record and file, or cause to be made, executed, acknowledged, delivered, recorded and filed, at such times and places as the other may reasonably deem necessary, all other and further documents and instruments, and will take all other and further actions, as the other may reasonably request from time to time in order to effectuate the purposes and provisions of the tender made pursuant to this Letter of Transmittal. -22- 23 SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4 AND 5) To be completed ONLY if Paired Shares or the cash payment are to be sent to someone other than the undersigned or to the undersigned at an address other than that above. Mail certificate(s) for Paired Shares or cash payment to: Name_____________________________________________________________ (please print) Address__________________________________________________________ _________________________________________________________________ (include Zip Code) _________________________________________________________________ _________________________________________________________________ (Tax Identification or Social Security Number) SIGN HERE Complete Substitute Form W-9 included _________________________________________________________________ _________________________________________________________________ (Signature(s) of holder of Units) (Must be signed by registered holder(s) as name(s) appear(s) on books and records of the Partnership. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please set forth full title and see instruction 4. Dated____________________________________________________________ Name(s)__________________________________________________________ (please print) Capacity (Full Title)_____________________________________________________ Address__________________________________________________________ (include Zip Code) -23- 24 Area Code and Tel. No.___________________________________________ Tax Identification or Social Security No.______________________________________________ (Complete Substitute Form W-9) Guarantee of Signature(s) (See Instruction 1) Authorized Signature________________________________________________________ Name of Firm_____________________________________________________________ Dated____________________________________________________________ INSTRUCTIONS Forming Part of the Terms and Conditions of the Units Exchange Rights Agreement 1. GUARANTEE OF SIGNATURE. No signature guarantee on this Letter of Transmittal is required unless the registered holder of the Starwood Units has completed the box entitled "Special Delivery Instructions". In such case all signatures on this Letter of Transmittal must be guaranteed by a member firm of any registered national securities exchange in the United States or of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company (not a savings bank or a savings and loan association) having an office, branch or agency in the United States. 2. DELIVERY OF LETTER OF TRANSMITTAL. This Letter of Transmittal is to be completed by the holder of Starwood Units. A properly completed and duly executed Letter of Transmittal and any other documents required by this Letter of Transmittal must be received by the Agents. No alternative, conditional or contingent tenders will be accepted, except as permitted pursuant to the Units Exchange Rights Agreement. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the Units tendered and/or other information required should be listed on a separate schedule attached hereto. 4. SIGNATURES ON LETTER OF TRANSMITTAL. The signature must correspond with the name as shown on the books and -24- 25 records of the Partnerships without any change whatsoever. If any of the Starwood Units tendered hereby are owned of record by two or more joint owners, all such owners must sign the Letter of Transmittal. If any tendered Starwood Units are registered in different names, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations. If this Letter of Transmittal is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, each person should so indicate when signing, and proper evidence satisfactory to the Agents of their authority so to act must be submitted. 5. SPECIAL DELIVERY INSTRUCTIONS. If a certificate for Paired Shares or the cash payment is to be sent to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. 6. WAIVER OF CONDITIONS. Each of the Trust and the Corporation reserves the right to waive in its sole discretion any of the specified conditions of the Offer in the case of the Starwood Units tendered; provided that any such waiver shall not adversely affect any holder of outstanding Starwood Units without the consent of such holder. 7. BACK-UP WITHHOLDING. Under the Federal income tax law, a person surrendering Starwood Units must provide the Agents with his correct taxpayer identification number ("TIN") on Substitute Form W-9 below unless an exemption applies. If the correct TIN is not provided, a $50 penalty may be imposed by the Internal Revenue Service and payments made in exchange for the surrendered Starwood Units may be subject to back-up withholding of that rate provided by the Federal income tax law (such rate being at the date of the Units Exchange Rights Agreement, 31%). The TIN that must be provided is that of the registered holder of the Starwood Units. The TIN for an individual is his social security number. 8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance or additional copies of the Units Exchange Rights Agreement and the Letter of Transmittal may be directed to the Agents at the address set forth above. -25- 26 IMPORTANT TAX INFORMATION Under Federal income tax laws, a holder whose tendered Starwood Units are accepted for payment is required by law to provide the Agents (as payers) with his correct taxpayer identification number on Substitute Form W-9 below. If such holder is an individual, the taxpayer identification number is his social security number. If the Agents are not provided with the correct taxpayer identification number, the holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such holder with respect to Starwood Units purchased pursuant to the Offer may be subject to back-up withholding. If back-up withholding applies, the Agents are required to withhold, at that rate provided by the Federal income tax law (such rate being at the date of the Units Exchange Rights Agreement 31%), of any such payments made to the holder of Starwood Units. Paired Shares otherwise deliverable hereunder may, at the expense (and with all risk of loss for the account) of the undersigned, be sold to pay such amounts. Back-up withholding is not an additional tax. Rather, the tax liability of persons subject to back-up withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. PURPOSE OF SUBSTITUTE FORM W-9 To prevent back-up withholding on payments that are made to a holder of Starwood Units purchased pursuant to the Offer, the holder is required to notify the Agents of his correct taxpayer identification number by completing the form below certifying that the taxpayer identification number provided on Substitute Form W-9 is correct. WHAT NUMBER TO GIVE THE AGENT The holder is required to give the Agents the social security number or employer identification number of the record owner of the Starwood Units. -26- 27 PAYER'S NAME: Starwood Lodging Trust Starwood Lodging Corporation Substitute Part 1 - Please provide your TIN in the box at Social Security Form W-9 right and certify by signing and dating below Number/Employer Identification Number Department of the Certification - Under the penalties of perjury, Treasury/Internal (i) I certify that the information provided on this Revenue Service form is true, correct and complete and (ii) I am not subject to backup withholding because: (a) I am exempt from backup Service withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Signature ________________________________________ Date ______________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACK-UP WITHHOLDING AT THAT RATE PROVIDED BY THE FEDERAL INCOME TAX LAW (SUCH RATE BEING AT THE DATE OF THE UNITS EXCHANGE RIGHTS AGREEMENT 31%) OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. -27- EX-10.35 19 EX-10.35 1 Exhibit 10.35 CLASS A EXCHANGE RIGHTS AGREEMENT This Class A Exchange Rights Agreement (this "Agreement") is made as of February 14, 1997 among Starwood Lodging Corporation, a Maryland corporation (the "Corporation"), SLC Operating Limited Partnership, a Delaware limited partnership (the "Operating Partnership"), and each of the limited partners of the Operating Partnership listed on the signature pages hereto (the "Starwood Partners"). Unless otherwise indicated, capitalized terms used herein are used herein as defined in Section 11. WHEREAS, pursuant to a Contribution Agreement dated as of January 15, 1997 (the "Contribution Agreement") among the Corporation, Operating Partnership, Starwood Partners and other parties on the date hereof the Starwood Partners are making capital contributions to the Operating Partnership in return for the issuance of Class A Units (as that term is defined in the Contribution Agreement); WHEREAS, pursuant to the Contribution Agreement the parties hereto are entering into this Agreement to provide for the rights of the Starwood Partners to tender Class A Units in exchange for either Paired Shares (as defined herein), cash or a combination of Paired Shares and cash, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, the parties hereto agree as follows: SECTION 1. RIGHT TO TENDER CLASS A UNITS. (a) Upon the terms and subject to the conditions of this Agreement, each holder of Class A Units shall have the right to tender to the Corporation outstanding Class A Units. (b) Notwithstanding any other provision of this Agreement, no Paired Shares or cash shall be issued or paid in respect of any tender of Class A Units (i) if, notwithstanding the provisions of Section 6 of this Agreement, the right to tender Class A Units and receive Paired Shares or cash would result in the Trust not satisfying the REIT Requirements in any respect or would result in any person or entity Beneficially Owning Trust Shares exceeding the Ownership Limit, (ii) if the tender pursuant to Section 1(a) is prior to the first anniversary of the date of this Agreement, (iii) prior to the expiration or termination of the waiting period applicable to such exchange and issuance, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as it may be amended from time to time, or (iv) prior to the receipt of all governmental and regulatory approvals which are required to be obtained prior to such tender and issuance or payment, including, without limitation, any required approvals of the gaming authorities of the State of 2 Nevada and of Clark County, Nevada (the "Gaming Approvals"). Prior to the receipt of Gaming Approvals, such holder shall, as a condition to any tender of Class A Units which would (if the Paired Share Option (as defined below) were to be elected in respect of such tender) cause such holder to beneficially own, in the aggregate, Paired Shares representing more than 4.9% of the then issued and outstanding Paired Shares, give not less than 90 days' written notice to the Corporation (at the offices provided pursuant to Section 10) of its intent to tender Class A Units. In the event that the ability to receive Paired Shares or cash would result in the Trust not satisfying the REIT Requirements in any respect or would result in any person or entity Beneficially Owning Trust Shares exceeding the Ownership Limit, and as a result thereof no Paired Shares or cash may be issued or paid in respect of any tender of Class A Units pursuant to Section 1(b)(i) above, the parties hereto shall use their respective best efforts to restructure the terms and provisions of this Agreement (and, if necessary, the Partnership Agreements and the Registration Rights Agreement (as defined in Section 6)), or to agree to terms and provisions in addition to such terms and provisions, so as to provide to each such party the same substantive rights (or substantive rights as close thereto as is reasonably practicable) as those provided by this Agreement, the Partnership Agreements and the Registration Rights Agreement. (c) The rights to exchange Class A Units pursuant to this Agreement constitute a continuous offer and may not be withdrawn, amended or modified by the Corporation without the prior written consent of each holder of outstanding Class A Units adversely affected by such withdrawal, amendment or modification; provided that any withdrawal, amendment or modification that does not adversely affect any holder of outstanding Class A Units may be effected without the consent of such holder. SECTION 2. ACCEPTANCE OF TENDER; ELECTION OF METHOD OF PAYMENT FOR TENDERED CLASS A UNITS. (a) Upon the terms and subject to the conditions of this Agreement, the Corporation shall accept Class A Units validly tendered in proper form and meeting all of the requirements of this Agreement. In order for Class A Units to be validly tendered pursuant to this Agreement, the registered holder thereof shall deliver to the Corporation, at the address provided pursuant to Section 10, (i) a completed and duly executed Letter of Transmittal in the form attached hereto as Exhibit A (the "Letter of Transmittal") and any other documents required by the Letter of Transmittal and (ii) a calculation, to the best knowledge of such registered holder after due inquiry (together with such supporting documentation as the Corporation may reasonably request), of the maximum number of Paired Shares that may be issued to such registered holder without causing either (x) the Trust to not satisfy the REIT Requirements in any respect or (y) any person or entity to -2- 3 Beneficially Own Trust Shares exceeding the Ownership Limit. The Corporation shall make all determinations as to the validity and form of any tender of Class A Units in accordance with the provisions of this Agreement and upon rejection of a tender shall give the tendering holder written notice of such rejection, which shall include the reasons therefor. (b) Unless otherwise determined by agreement of the Corporation, tenders of Class A Units pursuant to this Agreement shall be irrevocable and shall not be subject to withdrawal or modification; provided that if the Corporation makes the Paired Share Election with respect to a tender, then within 5 days after such Election the tendering holder may elect to revoke such tender so long as (i) no public disclosure of such tender has been made prior to such revocation and (ii) such tendering holder reimburses the Corporation for all reasonable costs and expenses incurred in connection with such tender. (c) Within 15 days after the valid tender pursuant to this Agreement of Class A Units, the Corporation shall make an election to pay for such Class A Units by delivering either (i) Paired Shares (the "Paired Share Election"), (ii) cash (the "Cash Election") or (iii) a combination of Paired Shares and cash (the "Combined Election"). Such election shall be made pursuant to a decision by the Corporation. If the Corporation does not so decide within such 15-day period, it shall be deemed to have made the Cash Election. SECTION 3. PAIRED SHARE ELECTION. (a) If with respect to any tender of Class A Units pursuant to this Agreement, the Corporation makes the Paired Share Election, then, except as provided in Section 2(b), within 15 days after the expiration of the 5-day period referred to in Section 2(b), the Corporation shall deliver to the tendering holder one Paired Share for each Class A Unit validly tendered pursuant to the provisions of this Agreement. (b) No fractional Paired Shares or scrip representing fractional Paired Shares shall be issued upon exchange of Class A Units pursuant to this Agreement. If more than one Letter of Transmittal shall be delivered at one time by the same holder, the number of full Paired Shares which shall be issuable upon exchange of the Class A Units tendered thereby shall be computed on the basis of the aggregate number of Class A Units so tendered. Instead of any fractional Paired Shares which would otherwise be issuable upon exchange of any Class A Units, the Corporation shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Paired Share Closing Price on the last Business Day preceding the date of exchange. -3- 4 (c) If a holder exchanges Class A Units pursuant to this Agreement, the Corporation shall pay any documentary, stamp or similar issue or transfer tax due on any issue of Paired Shares upon such exchange. Such holder, however, shall (i) pay to the Corporation the amount of any additional documentary, stamp or similar issue or transfer tax which is due (or shall establish to the satisfaction of the Corporation the payment thereof) as a result of Paired Shares being issued in a name other than the name of such holder and (ii) be responsible for all income or other taxes as a result of such exchange. SECTION 4. CASH ELECTION. (a) If with respect to any tender of Class A Units pursuant to this Agreement, the Corporation makes or is deemed to have made the Cash Election, then within 20 days after such tender the Corporation shall pay to the tendering holder an aggregate amount of cash (the "Aggregate Cash Payment") equal to the product of (i) the number of Paired Shares which would have been delivered to such holder if the Corporation had made the Paired Share Election with respect to such tender and (ii) the average Paired Share Closing Price for the ten trading day period ending one day prior to the date of such tender. (b) In connection with any Aggregate Cash Payment pursuant to Section 4(a) or any cash payment pursuant to Section 5(a)(ii), the Corporation shall pay such Aggregate Cash Payment. SECTION 5. COMBINED ELECTION. (a) If with respect to any tender of Class A Units pursuant to this Agreement, the Corporation shall make the Combined Election, then, except as provided in Section 2(b), within 15 days after the expiration of the 5-day period referred to in Section 2(b), the Corporation shall (i) notify the tendering holder of the number of such tendered Class A Units which will be exchanged for cash (the "Cash Units") and the number of such tendered Class A Units which will be exchanged for Paired Shares (the "Paired Share Units"), (ii) pay to the tendering holder, in respect of each Cash Unit validly tendered pursuant to the provisions of this Agreement, an amount of cash equal to the average Paired Share Closing Price for the ten trading day period ending one day prior to the date of such tender and (iii) deliver to the tendering holder one Paired Share for each Paired Share Unit validly tendered pursuant to the provisions of this Agreement. (b) The provisions of Sections 3(b) and 3(c) of this Agreement shall apply to the issuance of Paired Shares pursuant to Section 5(a). SECTION 6. REGISTRATION RIGHTS. If at any time after six (6) months from the date of this Agreement, (a) a Starwood Partner validly tenders Class A Units pursuant to the provisions of this Agreement, (b) the Corporation makes the Paired Share -4- 5 Election or the Combined Election with respect to such tender, (c) as a result of the Ownership Limit such Starwood Partner cannot receive the full number of Paired Shares otherwise issuable to such Starwood Partner pursuant to such tender and such Election (without giving effect to the Ownership Limit) (the event described in clauses (a), (b) and (c) being referred to as a "Paired Share Tender Reduction"; the number of such Paired Shares which such Starwood Partner cannot receive pursuant to such tender as a result of the Ownership Limit being referred to as the "Unissued Paired Shares"; and the Class A Units tendered in respect of such Unissued Paired Shares being referred to as the "Delayed Payment Units"), then subject to the other terms and conditions of this Agreement, such Starwood Partner shall be entitled to receive the number of Paired Shares which it can receive pursuant to such tender, such Election and the Ownership Limit and then, pursuant to the terms of the Registration Rights Agreement, the Corporation shall cause there to be filed with the Securities and Exchange Commission a registration statement and the Corporation shall register and sell pursuant thereto a number of Paired Shares equal to the number of such Unissued Paired Shares requested to be registered pursuant to Section 2.3 of the Registration Rights Agreement. Within two Business Days after the receipt by the Corporation of the proceeds of any sale (after underwriting discounts and commissions) of such Paired Shares pursuant to such registration, the Corporation shall pay such proceeds to the tendering holder of the Delayed Payment Units, in full payment for the tender of such Delayed Payment Units. SECTION 7. REPRESENTATIONS OF TENDERING HOLDER. Each tender of Class A Units shall constitute a representation and warranty by the tendering holder of each of the representations and warranties set forth in the form of Letter of Transmittal. Without limiting the generality of the foregoing, unless, at the time of a tender for exchange of Class A Units pursuant to this Agreement, a registration statement relating to any Paired Shares to be delivered upon such tender is effective under the Securities Act of 1933, as amended (the "Securities Act"), such tender shall constitute a representation and warranty by the tendering holder to the Corporation that such tendering holder (i) is an "accredited investor" within the meaning of Rule 501 under the Securities Act, (ii) has sufficient knowledge and experience in financial and business matters and in investing in entities similar to the Partnerships, the Trust and Corporation so as to be able to evaluate the risks and merits of its investment in the Partnerships, the Trust and the Corporation and it is able financially to bear the risks thereof, (iii) has had an opportunity to discuss the business, management and financial affairs of the Trust, the Corporation and the Partnerships with the management of the Trust, the Corporation and the Partnerships, and (iv) understands that the Paired Shares have not been registered under the Securities Act by reason of -5- 6 their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act and such Paired Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act and applicable state securities laws or is exempt from such registration. SECTION 8. STATUS OF TENDERING HOLDER. Until the holder of Class A Units tendered pursuant to this Agreement becomes a holder of record of the Paired Shares issued in exchange therefor (in the case of a Paired Share Election or a Combined Election) or until such holder has received cash in exchange therefor (in the case of a Cash Election or a Combined Election), such holder shall continue to hold and own such Class A Units for all purposes of the Operating Partnership Agreement. In the case of a Paired Share Election or a Combined Election, no such holder shall have any rights as a shareholder of the Trust or a stockholder of the Corporation in respect of such Paired Shares until such holder becomes a holder of record of such Paired Shares. SECTION 9. RESERVATION OF SHARES; CLOSING OF TRANSFER BOOKS. (a) The Corporation shall reserve and shall at all times have reserved out of its authorized but unissued Corporation Shares, solely for the purpose of effecting the exchange pursuant to this Agreement, enough Corporation Shares to permit the exchange of the then outstanding Class A Units and shall use its best efforts to cause the Trust to reserve and shall at all times have, solely for the purpose of effecting the exchange pursuant to this Agreement, enough Trust Shares to permit the exchange of the then outstanding Class A Units. All Paired Shares which may be issued upon exchange of Class A Units shall be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof other than income taxes resulting from such exchange. (b) The Corporation shall use its best efforts to cause the Trust not to close its transfer books so as to prevent the timely issuance of Trust Shares pursuant to this Agreement. The Corporation shall not close its transfer books so as to prevent the timely issuance of Corporation Shares pursuant to this Agreement. SECTION 10. NOTICES. All notices, documents and other communications under this Agreement shall be in writing and shall be deemed given when delivered personally or by overnight mail or when sent by facsimile transmission, or four days after being mailed (by registered mail, return receipt requested) to a party at the following address (or to such other address as such party may have specified by notice given to the other parties pursuant -6- 7 to this provision): (a) If to the Corporation or the Operating Partnership, to: Starwood Lodging Corporation 2231 E. Camelback Road, Suite 400 Phoenix, AZ 85016 Attention: General Counsel Telecopy No.: (602) 852-0686 Telephone No.: (602) 852-3900 with a copy to: Sidley & Austin 555 West 5th Street Los Angeles, California 90013 Attention: Sherwin L. Samuels Telecopy No.: (213) 896-6600 Telephone No.: (213) 896-6000 (b) If to Prudential: Prudential Real Estate Investors 8 Campus Drive Parsippany, NJ 07054 Attention: Gary L. Kauffman Telecopy No.: (201) 683-1790 Telephone No.: (201) 683-1612 Attention: Joseph D. Margolis, Esq. James P. Walker, Esq. Telecopy No.: (201) 683-1788 Telephone No.: (201) 683-1694 or 1690 with a copy to: O'Melveny & Myers LLP 153 East 53rd Street New York, NY 10022 Attention: Robert S. Insolia, Esq. Telecopy No.: (212) 326-2061 Telephone No.: (212) 326-2000 (c) If to any other Starwood Partner, to the address specified on Schedule A hereto. with a copy to: Willkie Farr & Gallagher 153 East 53rd Street -7- 8 New York, NY 10022 Attention: Bruce M. Montgomerie, Esq. Telecopy No.: (212) 821-8111 Telephone No.: (212) 821-8000 SECTION 11. DEFINITIONS. For purposes of this Agreement: "Beneficially Owning" means owning Trust Shares directly, indirectly or constructively by a person or entity through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, or Section 544 of the Code, as modified by Section 856(h) of the Code. The term "Beneficially Own" shall have a correlative meaning. "Business Day" means any day other than Saturday, Sunday and any day on which banks are not open to do business in New York, New York. "Code" means the Internal Revenue Code of 1986, and the rules and regulations promulgated thereunder, as amended from time to time. "Corporation Shares" means the shares of Common Stock, par value $.01 per share, of the Corporation. "Declaration of Trust" means the Declaration of Trust of the Trust dated August 25, 1969, as amended and restated as of June 6, 1988, and as further amended on February 1, 1995 and as amended from time to time after the date of this Agreement. "Disinterested Members" when used with respect to the Trust has the meaning set forth in the Code of Regulations of the Trust and, when used with respect to the Corporation, has the meaning set forth in the By-Laws of the Corporation, in each case as amended from time to time. "Ownership Limit" when used with respect to Trust Shares, has the meaning set forth in the Declaration of Trust and, when used with respect to the Corporation Shares, has the meaning set forth in the Restated Articles, in each case as amended from time to time. "Paired Share" means a Corporation Share and a Trust Share which are paired pursuant to the Pairing Agreement. "Paired Share Closing Price" shall mean, with respect to a particular date, the last reported sales price regular way on such date or, in case no such reported sale takes place on such date, the average of the reported closing bid -8- 9 and asked prices regular way on such date, in either case on the New York Stock Exchange, or if the Paired Shares are not then listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Paired Shares are then listed or admitted to trading or, if not then listed or admitted to trading on any national securities exchange, the closing sale price on such date of the Paired Shares or, in case no reported sale takes place on such date then, the average of the closing bid and asked prices on such date, on NASDAQ or any comparable system. If the Paired Shares are not then quoted on NASDAQ or any comparable system, the Board of Trustees of the Trust and the Board of Directors of the Corporation shall in good faith determine the Paired Share Closing Price. "Pairing Agreement" means the Pairing Agreement dated June 25, 1980 between the Corporation, as it may be amended from time to time. "Registration Rights Agreement" means the Registration Rights Agreement dated as of the date first written above between the Trust, the Corporation and certain other parties. "REIT Requirements" shall mean the requirements for the Trust to (i) qualify as a REIT under the Code and the rules and regulations promulgated thereunder, (ii) avoid any federal income or excise tax liability, (iii) retain its status as grandfathered pursuant to Section 132(c)(3) of the Deficit Reduction Act of 1984 and (iv) retain the benefits of that certain private letter ruling issued by the Internal Revenue Service to the Trust dated as of January 4, 1980. "Restated Articles" means the Restated Articles of Incorporation of the Corporation, as amended from time to time after the date of this Agreement. "Trust Shares" means the shares of Beneficial Interest, $.01 par value, of the Trust. SECTION 12. DETERMINATIONS AND INTERPRETATION. All agreements between the Trust and the Corporation provided for in (or required by or pursuant to) this Agreement shall be made on behalf of the Corporation by their respective Disinterested Members, including, without limitation, any agreement between the Corporation as to the election of the Paired Share Election, the Cash Election or the Combined Election with respect to a tender of Class A Units pursuant to Section 2(c), any agreement to permit the revocation, withdrawal or modification of a tender of Class A Units pursuant to Section 1(c). All interpretations of the terms of this Agreement shall be resolved on behalf of the -9- 10 Corporation by their respective Disinterested Members. SECTION 13. PARTIAL INVALIDITY. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein unless the deletion of such provision or provisions would result in such a material change as to cause completion of the transactions contemplated hereby to be unreasonable. SECTION 14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors or assigns. In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of the parties hereto other than the Corporation, the Trust, the Realty Partnership and the Operating Partnership, shall also be for the benefit of and enforceable by any subsequent holder of any Class Units. SECTION 15. EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be considered an original counterpart, and shall become a binding agreement when the Corporation, the Operating Partnership and each of the Starwood Partners shall have each executed a counterpart of this Agreement. SECTION 16. TITLES AND HEADINGS. Titles and headings to Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. SECTION 17. EXHIBITS. The Exhibits referred to in this Agreement shall be construed with, and as an integral part of, this Agreement to the same extent as if the same had been set forth verbatim herein. SECTION 18. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, including the Exhibits, contains the entire understanding of the parties hereto with regard to the subject matter contained herein. In addition to amendments and modifications permitted by Section 1(c), the parties hereto, by mutual agreement in writing, may amend, modify and supplement this Agreement; provided that any such amendment, modification or supplement shall be approved by a majority of the Disinterested Members of the Corporation. The failure of any party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to -10- 11 affect the validity of this Agreement or any part hereof or the right of such party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. SECTION 19. GOVERNING LAW. Except to the extent that Maryland law is mandatorily applicable to the rights and obligations of the shareholders of the Trust and the stockholders of the Corporation, this Agreement, and the application or interpretation thereof, shall be governed exclusively by its terms and by the internal laws of the State of New York, without regard to principles of conflicts of laws as applied in the State of New York or any other jurisdiction which, if applied, would result in the application of any laws other than the internal laws of the State of New York. SECTION 20. SUBMISSION TO JURISDICTION. Each of the parties hereto irrevocably submits and consents to the jurisdiction of the United States District Court for the Southern District of New York in connection with any action or proceeding arising out of or relating to this Agreement, and irrevocably waives any immunity from jurisdiction thereof and any claim of improper venue, forum non conveniens or any similar basis to which it might otherwise be entitled in any such action or proceeding. SECTION 21. SPECIFIC PERFORMANCE. Each of the parties acknowledges and agrees that in the event of any breach of this Agreement, the non-breaching party or parties would be irreparably harmed and could not be made whole by monetary damages. The parties hereby agree that in addition to any other remedy to which they may be entitled at law or in equity, they shall be entitled to compel specific performance of this Agreement in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction for such action. -11- 12 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto or by their duly authorized officers, all as of the date first above written. STARWOOD LODGING CORPORATION, a Maryland corporation By: /s/ Nir Margalit -------------------------- Name: Nir Margalit Title: Secretary and General Counsel SLC OPERATING LIMITED PARTNERSHIP By: STARWOOD LODGING CORPORATION, general partner By: /s/ Nir Margalit ----------------------------- Name: Nir Margalit Title: Secretary and General Counsel /s/ Gary M. Mendell ------------------------------ Gary M. Mendell /s/ Steven Mendell ------------------------------ Steve Mendell /s/ Judith K. Rushmore ------------------------------ Judith K. Rushmore /s/ Murray L. Dow, II ------------------------------ Murray L. Dow, II WESTPORT HOSPITALITY, INC. By: /s/ Gary Mendell -------------------------- Name: Gary Mendell Title: President -12- 13 SCHEDULE A TO UNITS EXCHANGE RIGHTS AGREEMENT NOTICE ADDRESS FOR HOLDERS [To be provided at Closing] 14 EXHIBIT A TO CLASS A EXCHANGE RIGHTS AGREEMENT LETTER OF TRANSMITTAL To Tender Units Pursuant to the Class A Exchange Rights Agreement Dated as of February ___, 1997 TO: Starwood Lodging Corporation 2231 E. Camelback Road, Suite 400 Phoenix, AZ 85016 DESCRIPTION OF UNITS NAMES(S) AND ADDRESS(ES) UNITS TENDERED (ATTACH OF REGISTERED OWNERS ADDITIONAL LIST IF NECESSARY) Class A Units: ----------------------- Total 15 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Starwood Lodging Trust Corporation (the "Corporation") the above-described Class A Units (as defined in the Class A Exchange Rights Agreement dated as of February ___, 1997 (the "Class A Exchange Rights Agreement")) in accordance with the terms and conditions of the Class A Exchange Rights Agreement and this Letter of Transmittal (which together constitute the "Offer"), receipt of which is hereby acknowledged. All terms used herein but not defined herein are used as defined in the Class A Exchange Rights Agreement. Subject to, and effective upon the issuance of Paired Shares and/or the payment of cash, as the case may be, for the Class A Units tendered hereby, the undersigned hereby assigns and transfers to the Corporation all right, title and interest in and to all the Class A Units that are being tendered hereby and irrevocably constitutes and appoints the Corporation (the "Class A Unit Agent"), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) transfer such Class A Units on the books of the Operating Partnership and (b) receive all rights, privileges and benefits, and any and all obligations and liabilities appertaining thereto and otherwise exercise all rights of beneficial ownership of such Class A Units, all in accordance with the terms of the Offer. The undersigned hereby represents and warrants (i) to the Corporation that the undersigned has full power and authority to tender, sell, assign and transfer the tendered Class A Units and that upon payment therefor, the Corporation will acquire unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and the same will not be subject to any adverse claim, (ii) to the Corporation that the tender complies with each and every provision of Section 1 of the Class A Exchange Rights Agreement, and (iii) attached hereto is a calculation, to the best knowledge of the undersigned after due inquiry (together with such supporting documentation as the Corporation may reasonably request) of the maximum number of Paired Shares that may be issued to the undersigned without causing either (x) the Trust to not satisfy the REIT Requirements in any respect or (y) any person or entity to Beneficially Own Trust Shares exceeding the Ownership Limit. The undersigned will, upon request, execute any additional documents deemed by the Trust or the Corporation to be reasonably necessary or desirable to complete the sale, assignment and transfer of the tendered Class A Units. -16- 16 Unless a registration statement relating to any Paired Shares to be delivered to the undersigned is effective under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned hereby represents and warrants to the Corporation that the undersigned (A) is an "accredited investor" within the meaning of Rule 501 under the Securities Act, or (B) has sufficient knowledge and experience in financial and business matters and in investing in entities similar to the Partnerships, the Corporation so as to be able to evaluate the risks and merits of its investment in the Partnerships, the Corporation and it is able financially to bear the risks thereof, and in either case (i) has had an opportunity to discuss the business, management and financial affairs of the Trust, the Corporation and the Partnerships with the management of the Trust, the Corporation and the Partnerships, and (ii) understands that any such Paired Shares have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act and any such Paired Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act and applicable state securities laws or is exempt from such registration. If not sold pursuant to an effective registration statement, any such Paired Shares will bear an appropriate legend indicating that such Paired Shares have not been registered under the Securities Act and resale of such Paired Shares is restricted under applicable securities laws. All authority conferred or agreed to be conferred in this Letter of Transmittal shall not be affected by, and shall survive, the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators and legal representatives of the undersigned. The undersigned understands that, except as provided in Section 2(b) of the Class A Exchange Rights Agreement, a tender of Class A Units pursuant to the Class A Exchange Rights Agreement is irrevocable and constitutes a binding agreement between the undersigned and the Corporation upon the terms and subject to the conditions of the Class A Exchange Rights Agreement. Unless otherwise indicated under "Special Delivery Instructions", please mail any Paired Shares issuable upon exchange of the Class A Units tendered hereby (or, if the Cash Election or the Combined Election is made, the cash payment payable pursuant thereto) to the address(es) of the registered holder(s) appearing under "Description of Units." In the event that the Special Delivery Instructions are completed, please -17- 17 issue the Paired Shares (or, if the Cash Election or the Combined Election is made, the cash payment payable pursuant thereto) in the name of the registered holder(s) and transmit the same to the person or persons so indicated. The Corporation and the undersigned agree that they will cooperate with each other and will make, execute, acknowledge, deliver, record and file, or cause to be made, executed, acknowledged, delivered, recorded and filed, at such times and places as the other may reasonably deem necessary, all other and further documents and instruments, and will take all other and further actions, as the other may reasonably request from time to time in order to effectuate the purposes and provisions of the tender made pursuant to this Letter of Transmittal. -18- 18 SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4 AND 5) To be completed ONLY if Paired Shares or the cash payment are to be sent to someone other than the undersigned or to the undersigned at an address other than that above. Mail certificate(s) for Paired Shares or cash payment to: Name ---------------------------------------------------------------------------- (please print) Address ------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (include Zip Code) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Tax Identification or Social Security Number) SIGN HERE Complete Substitute Form W-9 included - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Signature(s) of holder of Units) (Must be signed by registered holder(s) as name(s) appear(s) on books and records of the Partnership. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please set forth full title and see instruction 4. Dated --------------------------------------------------------------------------- Name(s) ------------------------------------------------------------------------- (please print) Capacity (Full Title) -------------------------------------------------------------------- Address ------------------------------------------------------------------------- (include Zip Code) -19- 19 Area Code and Tel. No.__________________________________________________________ Tax Identification or Social Security No._____________________________________________________________ (Complete Substitute Form W-9) Guarantee of Signature(s) (See Instruction 1) Authorized Signature_______________________________________________________________________ Name of Firm____________________________________________________________________________ Dated___________________________________________________________________________ INSTRUCTIONS Forming Part of the Terms and Conditions of the Class A Exchange Rights Agreement 1. GUARANTEE OF SIGNATURE. No signature guarantee on this Letter of Transmittal is required unless the registered holder of the Class A Units has completed the box entitled "Special Delivery Instructions". In such case all signatures on this Letter of Transmittal must be guaranteed by a member firm of any registered national securities exchange in the United States or of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company (not a savings bank or a savings and loan association) having an office, branch or agency in the United States. 2. DELIVERY OF LETTER OF TRANSMITTAL. This Letter of Transmittal is to be completed by the holder of Class A Units. A properly completed and duly executed Letter of Transmittal and any other documents required by this Letter of Transmittal must be received by the Class A Unit Agent. No alternative, conditional or contingent tenders will be accepted, except as permitted pursuant to the Class A Exchange Rights Agreement. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the Units tendered and/or other information required should be listed on a separate schedule attached hereto. 4. SIGNATURES ON LETTER OF TRANSMITTAL. The signature must correspond with the name as shown on the books and -20- 20 records of the Partnerships without any change whatsoever. If any of the Class A Units tendered hereby are owned of record by two or more joint owners, all such owners must sign the Letter of Transmittal. If any tendered Class A Units are registered in different names, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations. If this Letter of Transmittal is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, each person should so indicate when signing, and proper evidence satisfactory to the Class A Unit Agent of their authority so to act must be submitted. 5. SPECIAL DELIVERY INSTRUCTIONS. If a certificate for Paired Shares or the cash payment is to be sent to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. 6. WAIVER OF CONDITIONS. The Corporation reserves the right to waive in its sole discretion any of the specified conditions of the Offer in the case of the Class A Units tendered; provided that any such waiver shall not adversely affect any holder of outstanding Class A Units without the consent of such holder. 7. BACK-UP WITHHOLDING. Under the Federal income tax law, a person surrendering Class A Units must provide the Class A Unit Agent with his correct taxpayer identification number ("TIN") on Substitute Form W-9 below unless an exemption applies. If the correct TIN is not provided, a $50 penalty may be imposed by the Internal Revenue Service and payments made in exchange for the surrendered Class A Units may be subject to back-up withholding of that rate provided by the Federal income tax law (such rate being at the date of the Class A Exchange Rights Agreement, 31%). The TIN that must be provided is that of the registered holder of the Class A Units. The TIN for an individual is his social security number. 8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance or additional copies of the Class A Exchange Rights Agreement and the Letter of Transmittal may be directed to the Class A Unit Agent at the address set forth above. -21- 21 IMPORTANT TAX INFORMATION Under Federal income tax laws, a holder whose tendered Class A Units are accepted for payment is required by law to provide the Class A Unit Agent (as payer) with his correct taxpayer identification number on Substitute Form W-9 below. If such holder is an individual, the taxpayer identification number is his social security number. If the Class A Unit Agent is not provided with the correct taxpayer identification number, the holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such holder with respect to Class A Units purchased pursuant to the Offer may be subject to back-up withholding. If back-up withholding applies, the Class A Unit Agent is required to withhold, at that rate provided by the Federal income tax law (such rate being at the date of the Class A Exchange Rights Agreement 31%), of any such payments made to the holder of Class A Units. Paired Shares otherwise deliverable hereunder may, at the expense (and with all risk of loss for the account) of the undersigned, be sold to pay such amounts. Back-up withholding is not an additional tax. Rather, the tax liability of persons subject to back-up withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. PURPOSE OF SUBSTITUTE FORM W-9 To prevent back-up withholding on payments that are made to a holder of Class A Units purchased pursuant to the Offer, the holder is required to notify the Class A Unit Agent of his correct taxpayer identification number by completing the form below certifying that the taxpayer identification number provided on Substitute Form W-9 is correct. WHAT NUMBER TO GIVE THE AGENT The holder is required to give the Class A Unit Agent the social security number or employer identification number of the record owner of the Class A Units. -22- 22 PAYER'S NAME: Starwood Lodging Corporation
Substitute Part 1 - Please provide your TIN in the box at Social Security Form W-9 right and certify by signing and dating below Number/Employer Identification Number - ----------------- --------------------------------------------------- --------------- Department of the Certification - Under the penalties of perjury, Treasury/Internal (i) I certify that the information provided on this Revenue Service form is true, correct and complete and (ii) I am not subject to backup withholding because: (a) I am exempt from backup Service withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Signature ________________________________________ Date __________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACK-UP WITHHOLDING AT THAT RATE PROVIDED BY THE FEDERAL INCOME TAX LAW (SUCH RATE BEING AT THE DATE OF THE CLASS A EXCHANGE RIGHTS AGREEMENT 31%) OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. -23- EX-10.41 20 EX-10.41 1 Exhibit 10.41 EXCHANGE RIGHTS AGREEMENT This Exchange Rights Agreement (this "Agreement") is made as of March 11, 1997 among Starwood Lodging Trust, a real estate investment trust organized under the laws of the State of Maryland (the "Trust"), Starwood Lodging Corporation, a Maryland corporation (the "Corporation"), SLT Realty Limited Partnership, a Delaware limited partnership (the "Realty Partnership"), SLC Operating Limited Partnership, a Delaware limited partnership (the "Operating Partnership"), and The Hermitage, L.P., a Tennessee limited partnership (the "Hermitage Partner"). Unless otherwise indicated, capitalized terms used herein are used herein as defined in Section 10. WHEREAS, pursuant to an Agreement of Purchase and Sale dated as of January 16, 1997 (the "Purchase Agreement") among the Realty Partnership, Operating Partnership and Hermitage Partner, (i) the Realty Partnership and Operating Partnership are acquiring from the Hermitage Partner a hotel, and (ii) a portion of the consideration set forth in Section 2.02 of the Purchase Agreement may, at the election of the Hermitage Partner, be paid in Units of the Realty Partnership (as such Units are defined in the Limited Partnership Agreement of the Realty Partnership ("Realty Units")) and Units of the Operating Partnership (as such Units are defined in the Limited Partnership Agreement of the Operating Partnership ("Operating Units")); and WHEREAS, pursuant to the Purchase Agreement the parties hereto are entering into this Agreement to provide for the rights of the Hermitage Partner to tender Realty Units and Operating Units in exchange for either Paired Shares (as defined herein), cash or a combination of Paired Shares and cash, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, the parties hereto agree as follows: SECTION 1. RIGHT TO TENDER STARWOOD UNITS. (a) Upon the terms and subject to the conditions of this Agreement, each holder of Starwood Units (as defined below) shall have the right to tender to the Trust outstanding Realty Units and the right to tender to the Corporation outstanding Operating Units. Notwithstanding anything to the contrary contained in this Agreement (i) no Realty Unit may be tendered to the Trust unless simultaneously therewith the tendering holder also tenders to the Corporation an Operating Unit and no Operating Unit may be tendered to the Corporation unless simultaneously therewith the tendering holder also tenders to the Trust a Realty Unit (a Realty Unit tendered for exchange and the Operating Unit 2 simultaneously tendered for exchange being hereinafter collectively referred to as a "Starwood Unit") and (ii) any attempted tender of a Realty Unit or an Operating Unit which is not accompanied by a simultaneous tender of an Operating Unit or Realty Unit, respectively, shall be void and of no effect; it being understood that a simultaneous tender of unequal numbers of Realty Units and Operating Units shall be valid under this sentence to the extent of the lesser of the number of Realty Units or Operating Units, as the case may be, included in such tender. (b) Notwithstanding any other provision of this Agreement, no Paired Shares or cash shall be issued or paid in respect of any tender of Starwood Units (i) if the right to tender Starwood Units and receive Paired Shares or cash would result in the Trust not satisfying the REIT Requirements in any respect or would result in any person or entity Beneficially Owning Trust Shares exceeding the Ownership Limit, (ii) prior to the expiration or termination of the waiting period applicable to such exchange and issuance, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as it may be amended from time to time, or (iii) prior to the receipt of all governmental and regulatory approvals which are required to be obtained prior to such tender and issuance or payment, including, without limitation, any required approvals of the gaming authorities of the State of Nevada and of Clark County, Nevada (the "Gaming Approvals"). Prior to the receipt of Gaming Approvals, such holder shall, as a condition to any tender of Starwood Units which would (if the Paired Share Option (as defined below) were to be elected in respect of such tender) cause such holder to beneficially own, in the aggregate, Paired Shares representing more than 4.9% of the then issued and outstanding Paired Shares, give not less than 90 days' written notice to the Trust and the Corporation (at the offices provided pursuant to Section 9) of its intent to tender Starwood Units. In the event that the ability to receive Paired Shares or cash would result in the Trust not satisfying the REIT Requirements in any respect or would result in any person or entity Beneficially Owning Trust Shares exceeding the Ownership Limit, and as a result thereof no Paired Shares or cash may be issued or paid in respect of any tender of Starwood Units pursuant to Section 1(b)(i) above, the parties hereto shall use their respective best efforts to restructure the terms and provisions of this Agreement (and, if necessary, the Partnership Agreements), or to agree to terms and provisions in addition to such terms and provisions, so as to provide to each such party the same substantive rights (or substantive rights as close thereto as is reasonably practicable) as those provided by this Agreement, the Partnership Agreements and the Registration Rights Agreement. (c) The rights to exchange Starwood Units pursuant to -2- 3 this Agreement constitute a continuous offer and may not be withdrawn, amended or modified by the Trust or the Corporation without the prior written consent of each holder of outstanding Starwood Units adversely affected by such withdrawal, amendment or modification; provided that any withdrawal, amendment or modification that does not adversely affect any holder of outstanding Starwood Units may be effected without the consent of such holder. SECTION 2. ACCEPTANCE OF TENDER; ELECTION OF METHOD OF PAYMENT FOR TENDERED STARWOOD UNITS. (a) Upon the terms and subject to the conditions of this Agreement, the Trust and the Corporation shall accept Starwood Units validly tendered in proper form and meeting all of the requirements of this Agreement. In order for Starwood Units to be validly tendered pursuant to this Agreement, the registered holder thereof shall deliver to the Trust and the Corporation, at the address provided pursuant to Section 9, (i) a completed and duly executed Letter of Transmittal in the form attached hereto as Exhibit A (the "Letter of Transmittal") and any other documents required by the Letter of Transmittal and (ii) a calculation, to the best knowledge of such registered holder after due inquiry (together with such supporting documentation as the Trust may reasonably request), of the maximum number of Paired Shares that may be issued to such registered holder without causing either (x) the Trust to not satisfy the REIT Requirements in any respect or (y) any person or entity to Beneficially Own Trust Shares exceeding the Ownership Limit. The Trust and the Corporation shall make all determinations as to the validity and form of any tender of Starwood Units in accordance with the provisions of this Agreement and upon rejection of a tender shall give the tendering holder written notice of such rejection, which shall include the reasons therefor. (b) Unless otherwise determined by agreement of the Trust and the Corporation, tenders of Starwood Units pursuant to this Agreement shall be irrevocable and shall not be subject to withdrawal or modification; provided that if the Trust and the Corporation make the Paired Share Election, as defined below, with respect to a tender, then within 5 days after such Election the tendering holder may elect to revoke such tender so long as (i) no public disclosure of such tender has been made prior to such revocation and (ii) such tendering holder reimburses the Trust and the Corporation for all reasonable costs and expenses incurred in connection with such tender. (c) Within 15 days after the valid tender pursuant to this Agreement of Starwood Units, the Trust and the Corporation shall make an election to pay for such Starwood Units by delivering either (i) Paired Shares (the "Paired Share Election"), (ii) cash (the "Cash Election") or (iii) a -3- 4 combination of Paired Shares and cash (the "Combined Election"). Such election shall be made pursuant to an agreement as to such election between the Trust and the Corporation. If the Trust and the Corporation do not so agree within such 15-day period, they shall be deemed to have made the Cash Election. SECTION 3. PAIRED SHARE ELECTION. (a) If with respect to any tender of Starwood Units pursuant to this Agreement, the Trust and the Corporation make the Paired Share Election, then, except as provided in Section 2(b), within fifteen days after the expiration of the 5-day period referred to in Section 2(b), the Trust and the Corporation shall deliver to the tendering holder one Paired Share for each Starwood Unit validly tendered pursuant to the provisions of this Agreement. (b) No fractional Paired Shares or scrip representing fractional Paired Shares shall be issued upon exchange of Starwood Units pursuant to this Agreement. If more than one Letter of Transmittal shall be delivered at one time by the same holder, the number of full Paired Shares which shall be issuable upon exchange of the Starwood Units tendered thereby shall be computed on the basis of the aggregate number of Starwood Units so tendered. Instead of any fractional Paired Shares which would otherwise be issuable upon exchange of any Starwood Units, the Trust and the Corporation shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Paired Share Closing Price on the last Business Day preceding the date of exchange. (c) If a holder exchanges Starwood Units pursuant to this Agreement, the Trust and the Corporation shall pay any documentary, stamp or similar issue or transfer tax due on any issue of Paired Shares upon such exchange. Such holder, however, shall (i) pay to the Trust and the Corporation the amount of any additional documentary, stamp or similar issue or transfer tax which is due (or shall establish to the satisfaction of the Trust and the Corporation the payment thereof) as a result of Paired Shares being issued in a name other than the name of such holder and (ii) be responsible for all income or other taxes as a result of such exchange. SECTION 4. CASH ELECTION. (a) If with respect to any tender of Starwood Units pursuant to this Agreement, the Trust and the Corporation make or are deemed to have made the Cash Election, then within 20 days after such tender the Trust and the Corporation shall pay to the tendering holder an aggregate amount of cash (the "Aggregate Cash Payment") equal to the product of (i) the number of Paired Shares which would have been delivered to such holder if the Trust and the Corporation had made the Paired Share Election with respect to such tender and (ii) the average Paired Share Closing Price for the ten trading day period -4- 5 ending one day prior to the date of such tender. (b) In connection with any Aggregate Cash Payment pursuant to Section 4(a) or any cash payment pursuant to Section 5(a)(ii), the Trust shall pay 95% of such Aggregate Cash Payment or such cash payment and the Corporation shall pay 5% of such Aggregate Cash Payment or such cash payment (such percentages being herein called the "Issuance Percentages"); provided that the Trust and the Corporation may from time to time change the Issuance Percentages based on their determination of the relative fair values of the Trust Shares and the Corporation Shares. SECTION 5. COMBINED ELECTION. (a) If with respect to any tender of Units pursuant to this Agreement, the Trust and the Corporation shall make the Combined Election, then, except as provided in Section 2(b), within 15 days after the expiration of the 5-day period referred to in Section 2(b), the Trust and the Corporation shall (i) notify the tendering holder of the number of such tendered Units which will be exchanged for cash (the "Cash Units") and the number of such tendered Units which will be exchanged for Paired Shares (the "Paired Share Units"), (ii) pay to the tendering holder, in respect of each Cash Unit validly tendered pursuant to the provisions of this Agreement, an amount of cash (with each of the Trust and the Corporation paying its then respective Issuance Percentage of such amount of cash) equal to the average Paired Share Closing Price for the ten trading day period ending one day prior to the date of such tender and (iii) deliver to the tendering holder one Paired Share for each Paired Share Unit validly tendered pursuant to the provisions of this Agreement. (b) The provisions of Sections 3(b) and 3(c) of this Agreement shall apply to the issuance of Paired Shares pursuant to Section 5(a). SECTION 6. REPRESENTATIONS OF TENDERING HOLDER. Each tender of Starwood Units shall constitute a representation and warranty by the tendering holder of each of the representations and warranties set forth in the form of Letter of Transmittal. Without limiting the generality of the foregoing, unless, at the time of a tender for exchange of Starwood Units pursuant to this Agreement, a registration statement relating to the delivery of any Paired Shares upon such tender is effective under the Securities Act of 1933, as amended (the "Securities Act"), such tender shall constitute a representation and warranty by the tendering holder to the Trust and the Corporation that such tendering holder (i) is an "accredited investor" within the meaning of Rule 501 under the Securities Act, (ii) has sufficient knowledge and experience in financial and business matters and in investing in entities similar to the Partnerships, the Trust and the Corporation so as to be able to evaluate the risks and merits -5- 6 of its investment in the Partnerships, the Trust and the Corporation and it is able financially to bear the risks thereof, (iii) has had an opportunity to discuss the business, management and financial affairs of the Trust, the Corporation and the Partnerships with the management of the Trust, the Corporation and the Partnerships, and (iv) understands that the Paired Shares have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act and such Paired Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act and applicable state securities laws or is exempt from such registration. SECTION 7. STATUS OF TENDERING HOLDER. Until the holder of Starwood Units tendered pursuant to this Agreement becomes a holder of record of the Paired Shares issued in exchange therefor (in the case of a Paired Share Election or a Combined Election) or until such holder has received cash in exchange therefor (in the case of a Cash Election or a Combined Election), such holder shall continue to hold and own such Starwood Units for all purposes of the Realty Partnership Agreement and the Operating Partnership Agreement. In the case of a Paired Share Election or a Combined Election, no such holder shall have any rights as a shareholder of the Trust or a stockholder of the Corporation in respect of such Paired Shares until such holder becomes a holder of record of such Paired Shares. SECTION 8. RESERVATION OF SHARES; CLOSING OF TRANSFER BOOKS. (a) The Trust shall reserve and shall at all times have reserved out of its authorized but unissued Trust Shares, solely for the purpose of effecting the exchange of Realty Units pursuant to this Agreement, enough Trust Shares to permit the exchange of the then outstanding Realty Units. The Corporation shall reserve and shall at all times have reserved out of its authorized but unissued Corporation Shares, solely for the purpose of effecting the exchange of Operating Units pursuant to this Agreement, enough Corporation Shares to permit the exchange of the then outstanding Operating Units. All Paired Shares which may be issued upon exchange of Starwood Units shall be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof other than income taxes resulting from such exchange. (b) The Trust shall not close its transfer books so as to prevent the timely issuance of Trust Shares pursuant to this Agreement. The Corporation shall not close its transfer books so as to prevent the timely issuance of Corporation Shares pursuant to this Agreement. -6- 7 SECTION 9. NOTICES. All notices and requests given pursuant to this Agreement shall be in writing and shall be made by hand-delivery, first-class mail (registered or certified, return receipt requested), confirmed facsimile or overnight air courier guaranteeing next Business Day delivery to the relevant address specified below. Except as otherwise provided in this Agreement, the date of each such notice and request shall be deemed to be, and the date on which each such notice and request shall be deemed given shall be: at the time delivered, if personally delivered or mailed; when receipt is acknowledged, if sent by facsimile; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next Business Day delivery. All notices and requests shall be given at the following address (or to such other address as such party may have specified by notice given to the other parties pursuant to this provision): (a) If to the Trust or the Realty Partnership, to: Starwood Lodging Trust 2231 E. Camelback Road, Suite 410 Phoenix, AZ 85016 Attention: Chief Financial Officer Telecopy No.: (602) 852-0984 Telephone No.: (602) 852-3900 with a copy to: Sidley & Austin 555 West 5th Street Los Angeles, California 90013 Attention: Sherwin L. Samuels Telecopy No.: (213) 896-6600 Telephone No.:(213) 896-6000 (b) If to the Corporation or the Operating Partnership, to: Starwood Lodging Corporation 2231 E. Camelback Road, Suite 400 Phoenix, AZ 85016 Attention: General Counsel Telecopy No.: (602) 852-0686 Telephone No.: (602) 852-3900 with a copy to: Sidley & Austin 555 West 5th Street -7- 8 Los Angeles, California 90013 Attention: Sherwin L. Samuels Telecopy No.: (213) 896-6600 Telephone No.:(213) 896-6000 (c) If to Hermitage Partner: The Hermitage, L.P. c/o Hermitage of Nashville, Inc. 1407 Union Avenue, Suite 400 Memphis, TN 38014 Attention: Pace Cooper, President Telecopy No.: (901) 274-9169 Telephone No.: (901) 725-9631 with a copy to: Harkavy, Shainberg, Kosten & Kaplan 530 Oak Court Drive, Suite 350 Memphis, TN 38117 Attention: Raymond M. Shainberg Telecopy No.: (901) 763-3340 Telephone No.: (901) 761-1263 SECTION 10. DEFINITIONS. For purposes of this Agreement: "Beneficially Owning" means owning Trust Shares directly, indirectly or constructively by a person or entity through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, or Section 544 of the Code, as modified by Section 856(h) of the Code. The term "Beneficially Own" shall have a correlative meaning. "Business Day" means any day other than Saturday, Sunday and any day on which banks are not open to do business in Phoenix, Arizona. "Code" means the Internal Revenue Code of 1986, and the rules and regulations promulgated thereunder, as amended from time to time. "Corporation Shares" means the shares of common stock, par value $.01 per share, of the Corporation. "Declaration of Trust" means the Declaration of Trust of the Trust dated August 25, 1969, as amended and restated as of June 6, 1988, and as further amended on February 1, 1995 and as amended from time to time after the date of this Agreement. -8- 9 "Disinterested Members" when used with respect to the Trust has the meaning set forth in the Code of Regulations of the Trust and, when used with respect to the Corporation, has the meaning set forth in the By-Laws of the Corporation, in each case as amended from time to time. "Operating Partnership" means the Limited Partnership Agreement of the Operating Partnership. "Ownership Limit" when used with respect to Trust Shares, has the meaning set forth in the Declaration of Trust and, when used with respect to the Corporation Shares, has the meaning set forth in the Restated Articles, in each case as amended from time to time. "Paired Share" means a Corporation Share and a Trust Share which are paired pursuant to the Pairing Agreement. "Paired Share Closing Price" shall mean, with respect to a particular date, the last reported sales price regular way on such date or, in case no such reported sale takes place on such date, the average of the reported closing bid and asked prices regular way on such date, in either case on the New York Stock Exchange, or if the Paired Shares are not then listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Paired Shares are then listed or admitted to trading or, if not then listed or admitted to trading on any national securities exchange, the closing sale price on such date of the Paired Shares or, in case no reported sale takes place on such date then, the average of the closing bid and asked prices on such date, on NASDAQ or any comparable system. If the Paired Shares are not then quoted on NASDAQ or any comparable system, the Board of Trustees of the Trust and the Board of Directors of the Corporation shall in good faith determine the Paired Share Closing Price. "Pairing Agreement" means the Pairing Agreement dated June 25, 1980 between the Trust and the Corporation, as it may be amended from time to time. "Partnerships" mean the Realty Partnership Agreement and the Operating Partnership Agreement. "Realty Partnership" means the Limited Partnership Agreement of the Realty Partnership. "Registration Rights Agreement" means the Registration Rights Agreement dated as of the date first written above between the Trust, the Corporation and the Hermitage Partner. -9- 10 "REIT Requirements" shall mean the requirements for the Trust to (i) qualify as a REIT under the Code and the rules and regulations promulgated thereunder, (ii) avoid any federal income or excise tax liability, (iii) retain its status as grandfathered pursuant to Section 136(c)(3) of the Deficit Reduction Act of 1984 and (iv) retain the benefits of that certain private letter ruling issued by the Internal Revenue Service to the Trust dated as of January 4, 1980. "Restated Articles" means the Restated Articles of Incorporation of the Corporation, as amended from time to time after the date of this Agreement. "Trust Shares" means the shares of beneficial interest, $.01 par value, of the Trust. SECTION 11. DETERMINATIONS AND INTERPRETATION. All agreements between the Trust and the Corporation provided for in this Agreement shall be made on behalf of the Trust and the Corporation by their respective Disinterested Members, including, without limitation, any agreement between the Trust and the Corporation as to the election of the Paired Share Election, the Cash Election or the Combined Election with respect to a tender of Starwood Units pursuant to Section 2(c), any agreement to permit the revocation, withdrawal or modification of a tender of Starwood Units pursuant to Section 1(c) and any adjustment of the Issuance Percentages pursuant to Section 4(b). All interpretations of the terms of this Agreement shall be resolved on behalf of the Trust and the Corporation by their respective Disinterested Members. SECTION 12. PARTIAL INVALIDITY. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein unless the deletion of such provision or provisions would result in such a material change as to cause completion of the transactions contemplated hereby to be unreasonable. SECTION 13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors or assigns. In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of the parties hereto other than the Corporation, the Trust, the Realty Partnership and the Operating Partnership, shall also be for the benefit of and enforceable by any -10- 11 subsequent holder of any Units. SECTION 14. EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be considered an original counterpart, and shall become a binding agreement when the Trust, the Corporation, the Realty Partnership, the Operating Partnership and the Hermitage Partner shall have each executed a counterpart of this Agreement. SECTION 15. TITLES AND HEADINGS. Titles and headings to Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. SECTION 16. EXHIBITS. The Exhibits referred to in this Agreement shall be construed with, and as an integral part of, this Agreement to the same extent as if the same had been set forth verbatim herein. SECTION 17. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, including the Exhibits, contains the entire understanding of the parties hereto with regard to the subject matter contained herein. In addition to amendments and modifications permitted by Section 1(c), the parties hereto, by mutual agreement in writing, may amend, modify and supplement this Agreement; provided that any such amendment, modification or supplement shall be approved by a majority of the Disinterested Members of each of the Trust and the Corporation. The failure of any party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of such party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. SECTION 18. GOVERNING LAW. Except to the extent that Maryland law is mandatorily applicable to the rights and obligations of the shareholders of the Trust and the stockholders of the Corporation, this Agreement, and the application or interpretation thereof, shall be governed exclusively by its terms and by the internal laws of the State of Delaware, without regard to principles of conflicts of laws as applied in the State of Delaware or any other jurisdiction which, if applied, would result in the application of any laws other than the internal laws of the State of Delaware. SECTION 19. STARWOOD LODGING TRUST. The parties hereto understand and agree that the name "Starwood Lodging Trust" is a designation of the Trust and its Trustees (as Trustees but not personally) under the Declaration of Trust, and -11- 12 all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. SECTION 20. SUBMISSION TO JURISDICTION. Each of the parties hereto irrevocably submits and consents to the jurisdiction of the United States District Court for the Southern District of New York and the United States District Court for the District of Maryland in connection with any action or proceeding arising out of or relating to this Agreement, and irrevocably waives any immunity from jurisdiction thereof and any claim of improper venue, forum non conveniens or any similar basis to which it might otherwise be entitled in any such action or proceeding. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto or by their duly authorized officers, all as of the date first above written. STARWOOD LODGING TRUST, a Maryland real estate investment trust By: /s/ Steven R. Goldman ---------------------------- Name: Steven R. Goldman Title: Senior Vice President STARWOOD LODGING CORPORATION, a Maryland corporation By: /s/ Joseph Long ---------------------------- Name: Joseph Long Title: Vice President SLT REALTY LIMITED PARTNERSHIP, By: STARWOOD LODGING TRUST, general partner -12- 13 By: /s/ Steven R. Goldman -------------------------------- Name: Steven R. Goldman Title: Senior Vice President SLC OPERATING LIMITED PARTNERSHIP By: STARWOOD LODGING CORPORATION, general partner By: /s/ Joseph Long -------------------------------- Name: Joseph Long Title: Vice President THE HERMITAGE, L.P. By: Hermitage of Nashville, Inc., its General Partner By: /s/ Pace Cooper -------------------------------- Pace Cooper President -13- 14 EXHIBIT A TO Exchange Rights Agreement LETTER OF TRANSMITTAL To Tender Units Pursuant to the Exchange Rights Agreement Dated as of March , 1997 TO: Starwood Lodging Trust 2231 E. Camelback Road, Suite 410 Phoenix, AZ 85016 Starwood Lodging Corporation 2231 E. Camelback Road, Suite 400 Phoenix, AZ 85016 DESCRIPTION OF UNITS - -------------------------------------------------------------------------------- NAME(S) AND ADDRESS (ES) UNITS TENDERED (ATTACH OF REGISTERED OWNERS ADDITIONAL LIST IF NECESSARY) Realty Units: Operating Units: -------------------------------------- Total 15 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Starwood Lodging Trust (the "Trust") the above-described Realty Units (as defined in the Exchange Rights Agreement dated as of March , 1997 (the "Exchange Rights Agreement")) and hereby tenders to Starwood Lodging Corporation (the "Corporation") the above-described Operating Units (as defined in the Exchange Rights Agreement) in accordance with the terms and conditions of the Exchange Rights Agreement and this Letter of Transmittal (which together constitute the "Offer"), receipt of which is hereby acknowledged. All terms used herein but not defined herein are used as defined in the Exchange Rights Agreement. Subject to, and effective upon the issuance of Paired Shares and/or the payment of cash, as the case may be, for the Starwood Units tendered hereby, the undersigned hereby assigns and transfers (i) to the Trust all right, title and interest in and to all the Realty Units that are being tendered hereby and irrevocably constitutes and appoints the Trust (the "Realty Unit Agent"), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) transfer such Realty Units on the books of the Realty Partnership and (b) receive all rights, privileges and benefits, and any and all obligations and liabilities appertaining thereto and otherwise exercise all rights of beneficial ownership of such Realty Units, all in accordance with the terms of the Offer and (ii) to the Corporation all right, title and interest in and to all the Operating Units that are being tendered hereby and irrevocably constitutes and appoints the Corporation (the "Operating Unit Agent" and, together with the Realty Unit Agent, the "Agents"), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) transfer such Operating Units on the books of the Operating Partnership and (b) receive all rights, privileges and benefits, and any and all obligations and liabilities appertaining thereto and otherwise exercise all rights of beneficial ownership of such Operating Units, all in accordance with the terms of the Offer. The undersigned hereby represents and warrants (i) to the Trust that the undersigned has full power and authority to tender, sell, assign and transfer the tendered Realty Units and that upon payment therefor, the Trust will acquire unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and the same will not be subject to any adverse claim, (ii) to the Corporation that the undersigned has full power and authority to tender, sell, assign and transfer the -15- 16 tendered Operating Units and that upon payment therefor, the Corporation will acquire unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and the same will not be subject to any adverse claim, (iii) to the Trust and the Corporation that the tender complies with each and every provision of Section 1 of the Exchange Rights Agreement, and (iv) attached hereto is a calculation, to the best knowledge of the undersigned after due inquiry (together with such supporting documentation as the Trust may reasonably request) of the maximum number of Paired Shares that may be issued to the undersigned without causing either (x) the Trust to not satisfy the REIT Requirements in any respect or (y) any person or entity to Beneficially Own Trust Shares exceeding the Ownership Limit. The undersigned will, upon request, execute any additional documents deemed by the Trust or the Corporation to be reasonably necessary or desirable to complete the sale, assignment and transfer of the tendered Starwood Units. Unless a registration statement relating to any Paired Shares to be delivered to the undersigned is effective under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned hereby represents and warrants to the Trust and the Corporation that the undersigned (A) is an "accredited investor" within the meaning of Rule 501 under the Securities Act, or (B) has sufficient knowledge and experience in financial and business matters and in investing in entities similar to the Partnerships, the Trust and the Corporation so as to be able to evaluate the risks and merits of its investment in the Partnerships, the Trust and the Corporation and it is able financially to bear the risks thereof, and in either case, (i) has had an opportunity to discuss the business, management and financial affairs of the Trust, the Corporation and the Partnerships with the management of the Trust, the Corporation and the Partnerships, and (ii) understands that any such Paired Shares have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act and any such Paired Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act and applicable state securities laws or is exempt from such registration. If not sold pursuant to an effective registration statement, any such Paired Shares will bear an appropriate legend indicating that such Paired Shares have not been registered under the Securities Act and resale of such Paired Shares is restricted under applicable securities laws. All authority conferred or agreed to be conferred in this Letter of Transmittal shall not be affected by, and shall survive, the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the -16- 17 successors, assigns, heirs, executors, administrators and legal representatives of the undersigned. The undersigned understands that, except as provided in Section 2(b) of the Exchange Rights Agreement, a tender of Starwood Units pursuant to the Exchange Rights Agreement is irrevocable and constitutes a binding agreement between the undersigned and the Trust and the Corporation upon the terms and subject to the conditions of the Exchange Rights Agreement. Unless otherwise indicated under "Special Delivery Instructions", please mail any Paired Shares issuable upon exchange of the Starwood Units tendered hereby (or, if the Cash Election or the Combined Election is made, the cash payment payable pursuant thereto) to the address(es) of the registered holder(s) appearing under "Description of Units." In the event that the Special Delivery Instructions are completed, please issue the Paired Shares (or, if the Cash Election or the Combined Election is made, the cash payment payable pursuant thereto) in the name of the registered holder(s) and transmit the same to the person or persons so indicated. The Trust, the Corporation and the undersigned agree that they will cooperate with each other and will make, execute, acknowledge, deliver, record and file, or cause to be made, executed, acknowledged, delivered, recorded and filed, at such times and places as the other may reasonably deem necessary, all other and further documents and instruments, and will take all other and further actions, as the other may reasonably request from time to time in order to effectuate the purposes and provisions of the tender made pursuant to this Letter of Transmittal. -17- 18 SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4 AND 5) To be completed ONLY if Paired Shares or the cash payment are to be sent to someone other than the undersigned or to the undersigned at an address other than that above. Mail certificate(s) for Paired Shares or cash payment to: Name_____________________________________________________________ (please print) Address__________________________________________________________ _________________________________________________________________ (include Zip Code) _________________________________________________________________ _________________________________________________________________ (Tax Identification or Social Security Number) SIGN HERE Complete Substitute Form W-9 included _________________________________________________________________ _________________________________________________________________ (Signature(s) of holder of Units) (Must be signed by registered holder(s) as name(s) appear(s) on books and records of the Partnership. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please set forth full title and see instruction 4. Dated____________________________________________________________ Name(s)__________________________________________________________ (please print) Capacity (Full Title)_____________________________________________________ Address__________________________________________________________ (include Zip Code) -18- 19 Area Code and Tel. No.___________________________________________ Tax Identification or Social Security No.______________________________________________ (Complete Substitute Form W-9) Guarantee of Signature(s) (See Instruction 1) Authorized Signature________________________________________________________ Name of Firm_____________________________________________________________ Dated____________________________________________________________ INSTRUCTIONS Forming Part of the Terms and Conditions of the Exchange Rights Agreement 1. GUARANTEE OF SIGNATURE. No signature guarantee on this Letter of Transmittal is required unless the registered holder of the Starwood Units has completed the box entitled "Special Delivery Instructions". In such case all signatures on this Letter of Transmittal must be guaranteed by a member firm of any registered national securities exchange in the United States or of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company (not a savings bank or a savings and loan association) having an office, branch or agency in the United States. 2. DELIVERY OF LETTER OF TRANSMITTAL. This Letter of Transmittal is to be completed by the holder of Starwood Units. A properly completed and duly executed Letter of Transmittal and any other documents required by this Letter of Transmittal must be received by the Agents. No alternative, conditional or contingent tenders will be accepted, except as permitted pursuant to the Exchange Rights Agreement. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the Units tendered and/or other information required should be listed on a separate schedule attached hereto. 4. SIGNATURES ON LETTER OF TRANSMITTAL. The signature must correspond with the name as shown on the books and -19- 20 records of the Partnerships without any change whatsoever. If any of the Starwood Units tendered hereby are owned of record by two or more joint owners, all such owners must sign the Letter of Transmittal. If any tendered Starwood Units are registered in different names, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations. If this Letter of Transmittal is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, each person should so indicate when signing, and proper evidence satisfactory to the Agents of their authority so to act must be submitted. 5. SPECIAL DELIVERY INSTRUCTIONS. If a certificate for Paired Shares or the cash payment is to be sent to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. 6. WAIVER OF CONDITIONS. Each of the Trust and the Corporation reserves the right to waive in its sole discretion any of the specified conditions of the Offer in the case of the Starwood Units tendered; provided that any such waiver shall not adversely affect any holder of outstanding Starwood Units without the consent of such holder. 7. BACK-UP WITHHOLDING. Under the Federal income tax law, a person surrendering Starwood Units must provide the Agents with his correct taxpayer identification number ("TIN") on Substitute Form W-9 below unless an exemption applies. If the correct TIN is not provided, a $50 penalty may be imposed by the Internal Revenue Service and payments made in exchange for the surrendered Starwood Units may be subject to back-up withholding of that rate provided by the Federal income tax law (such rate being at the date of the Exchange Rights Agreement, 31%). The TIN that must be provided is that of the registered holder of the Starwood Units. The TIN for an individual is his social security number. 8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance or additional copies of the Exchange Rights Agreement and the Letter of Transmittal may be directed to the Agents at the address set forth above. -20- 21 IMPORTANT TAX INFORMATION Under Federal income tax laws, a holder whose tendered Starwood Units are accepted for payment is required by law to provide the Agents (as payers) with his correct taxpayer identification number on Substitute Form W-9 below. If such holder is an individual, the taxpayer identification number is his social security number. If the Agents are not provided with the correct taxpayer identification number, the holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such holder with respect to Starwood Units purchased pursuant to the Offer may be subject to back-up withholding. If back-up withholding applies, the Agents are required to withhold, at that rate provided by the Federal income tax law (such rate being at the date of the Exchange Rights Agreement 31%), of any such payments made to the holder of Starwood Units. Paired Shares otherwise deliverable hereunder may, at the expense (and with all risk of loss for the account) of the undersigned, be sold to pay such amounts. Back-up withholding is not an additional tax. Rather, the tax liability of persons subject to back-up withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. PURPOSE OF SUBSTITUTE FORM W-9 To prevent back-up withholding on payments that are made to a holder of Starwood Units purchased pursuant to the Offer, the holder is required to notify the Agents of his correct taxpayer identification number by completing the form below certifying that the taxpayer identification number provided on Substitute Form W-9 is correct. WHAT NUMBER TO GIVE THE AGENT The holder is required to give the Agents the social security number or employer identification number of the record owner of the Starwood Units. -21- 22 PAYER'S NAME: Starwood Lodging Trust Starwood Lodging Corporation - ------------------------------------------------------------------------------------------------- Substitute Part 1 - Please provide your TIN in the box at Social Security Form W-9 right and certify by signing and dating below Number/Employer Identification Number - ------------------------------------------------------------------------------------------------- Department of the Certification - Under the penalties of perjury, Treasury/Internal (i) I certify that the information provided on this Revenue Service form is true, correct and complete and (ii) I am not subject to backup withholding because: (a) I am exempt from backup Service withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. - ------------------------------------------------------------------------------------------------- Signature _______________________________________Date ______________ - -------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACK-UP WITHHOLDING AT THAT RATE PROVIDED BY THE FEDERAL INCOME TAX LAW (SUCH RATE BEING AT THE DATE OF THE EXCHANGE RIGHTS AGREEMENT 31%) OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. -22- EX-10.42 21 EX-10.42 1 Exhibit 10.42 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made as of March 11, 1997 among Starwood Lodging Trust, a real estate investment trust organized under the laws of the State of Maryland (the "Trust"), Starwood Lodging Corporation, a Maryland corporation (the "Corporation") and The Hermitage, L.P., a Tennessee limited partnership (the "Holder"). Unless otherwise indicated, capitalized terms used herein are used herein as defined in Section 1.1. RECITALS WHEREAS, pursuant to an Agreement of Purchase and Sale dated as of January 16, 1997 (the "Purchase Agreement") among SLT Realty Limited Partnership, a Delaware limited partnership (the "Realty Partnership"), SLC Operating Limited Partnership, a Delaware limited partnership (the "Operating Partnership") and Holder, (i) the Realty Partnership and Operating Partnership are acquiring from the Holder a hotel, and (ii) a portion of the consideration set forth in Section 2.02 of the Purchase Agreement may, at the election of the Holder, be paid in Units of the Realty Partnership (as such Units are defined in the Limited Partnership Agreement of the Realty Partnership ("Realty Units")) and Units of the Operating Partnership (as such Units are defined in the Limited Partnership Agreement of the Operating Partnership ("Operating Units")); and WHEREAS, pursuant to the Purchase Agreement, the parties hereto desire to set forth the rights of the Holder and the obligations of the Trust and the Corporation to cause the registration of the Registrable Securities pursuant to the Securities Act; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS AND USAGE. 1.1. DEFINITIONS. As used in this Agreement: Beneficially Owning. "Beneficially Owning" means owning Trust Shares directly, indirectly or constructively by a Person through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, or Section 544 of the Code, as modified by Section 856(h) of the Code. 2 Business Day. "Business Day" means any day other than Saturday, Sunday and any day on which commercial banks are not open to do business in Phoenix, Arizona. Code. "Code" shall mean the Internal Revenue Code of 1986, and the rules and regulations promulgated thereunder, as amended from time to time. Commission. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. Continuously Effective. "Continuously Effective", with respect to a specified registration statement, shall mean that such registration statement shall not cease to be effective and available for Transfers of Registrable Securities thereunder for longer than either (i) any ten (10) consecutive Business Days, or (ii) an aggregate of fifteen (15) Business Days during the period specified in the relevant provision of this Agreement. Corporation Shares. "Corporation Shares" shall mean the shares of common stock, par value $.01 per share, of the Corporation. Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of 1934 and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Exchange Rights Agreement. "Exchange Rights Agreement" shall mean the Exchange Rights Agreement dated the date hereof among the Trust, the Corporation, the Realty Partnership, the Operating Partnership and the Holder. Holder. "Holder" shall have the meaning set forth in the recitals. Issuance Percentages. "Issuance Percentage", when used with respect to the Trust, shall mean 95% and, when used with respect to the Corporation, shall mean 5%; provided that the Trust and the Corporation may from time to time change the Issuance Percentages based on their joint determination of the relative values of the Trust Shares and Corporation Shares. Operating Partnership. "Operating Partnership" shall have the meaning set forth in the recitals. Operating Units. "Operating Units" shall have the meaning set forth in the recitals. Ownership Limit. "Ownership Limit" when used with respect to Trust Shares, has the meaning set forth in the -2- 3 Declaration of Trust of the Trust and, when used with respect to the Corporation Shares, has the meaning set forth in the Restated Articles of Incorporation of the Corporation, in each case as amended from time to time. Paired Shares. "Paired Shares" shall mean the Trust Shares and shares of Corporation Stock which are "paired" pursuant to the Pairing Agreement dated June 25, 1980 between the Trust and the Corporation, as it may be amended from time to time. Person. "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or other agency or political subdivision thereof. Piggyback Registration. "Piggyback Registration" shall have the meaning set forth in Section 3. Realty Partnership. "Realty Partnership" shall have the meaning set forth in the recitals. Realty Units. "Realty Units" shall have the meaning set forth in the recitals. Register, Registered and Registration. "Register", "registered", and "registration" shall refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering by the Commission of effectiveness of such registration statement or document. Registrable Securities. "Registrable Securities" shall mean: (i) the Paired Shares issued upon exchange of Realty Units and Operating Units pursuant to the Exchange Rights Agreement, (ii) any Paired Shares or other securities issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange by the Trust and the Corporation generally for, or in replacement by the Trust and the Corporation generally of, such Paired Shares; and (iii) any securities issued in exchange for Paired Shares in any merger or reorganization of the Trust and the Corporation; provided, however, that Registrable Securities shall not include any securities which have theretofore been registered and sold pursuant to the Securities Act or which have been sold to the public pursuant to Rule 144 or any similar rule promulgated by the Commission pursuant to the Securities Act, and, provided further, the Trust and the Corporation shall have no obligation under Sections 2 and 3 to register any Registrable Securities if the Trust and the Corporation shall deliver to the Holder of such Registrable -3- 4 Securities an opinion of counsel to the effect that the proposed sale or disposition of all of the Registrable Securities for which registration was requested does not require registration under the Securities Act for a sale or disposition in a single public sale, and, upon written request by the Holder, the Trust and the Corporation shall remove any and all legends restricting transfer from the certificates evidencing such Registrable Securities. Registrable Securities then outstanding. "Registrable Securities then outstanding" shall mean, with respect to a specified determination date, the Registrable Securities owned by the Holder on such date and the Registrable Securities which are issuable upon exchange of Realty Units and Operating Units owned by the Holder on such date. Registration Expenses. "Registration Expenses" shall have the meaning set forth in Section 6.1. REIT Requirements. "REIT Requirements" shall mean the requirements for the Trust to (i) qualify as a Real Estate Investment Trust ("REIT") under the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder, (ii) avoid any federal income or excise tax liability, (iii) retain its status as grandfathered pursuant to Section 136(c)(3) of the Deficit Reduction Act of 1984 and (iv) retain the benefits of that certain private letter ruling issued by the Internal Revenue Service to the Trust dated as of January 4, 1980. Securities Act. "Securities Act" shall mean the Securities Act of 1933 and the rules and regulations of the Commission thereunder, all as the same may be in effect at the time. Shelf Registration. "Shelf Registration" shall have the meaning set forth in Section 2.1. Transfer. "Transfer" shall mean and include the act of selling, giving, transferring, creating a trust (voting or otherwise), assigning or otherwise disposing of (other than pledging, hypothecating or otherwise transferring as security) (and correlative words shall have correlative meanings); provided however, that any transfer or other disposition upon foreclosure or other exercise of remedies of a secured creditor after an event of default under or with respect to a pledge, hypothecation or other transfer as security shall constitute a "Transfer". Trust Shares. "Trust Shares" shall mean the shares of beneficial interest, $.01 par value, of the Trust. Underwriters' Representative. "Underwriters' -4- 5 Representative" shall mean the managing underwriter, or, in the case of a co-managed underwriting, the managing underwriter designated as the Underwriters' Representative by the co-managers. Units. "Units" shall mean Realty Units and Operating Units. Violation. "Violation" shall have the meaning set forth in Section 7.1. 1.2. USAGE. (i) References to a Person are also references to its assigns and successors in interest (by means of merger, consolidation or sale of all or substantially all the assets of such Person or otherwise, as the case may be). (ii) References to Registrable Securities "owned" by a Holder shall include Registrable Securities beneficially owned by such Person but which are held of record in the name of a nominee, trustee, custodian, or other agent, but shall exclude Paired Shares held by a Holder in a fiduciary capacity for customers of such Person. (iii) References to a document are to it as amended, waived and otherwise modified from time to time and references to a statute or other governmental rule are to it as amended and otherwise modified from time to time (and references to any provision thereof shall include references to any successor provision). (iv) References to Sections or to Schedules or Exhibits are to sections hereof or schedules or exhibits hereto, unless the context otherwise requires. (v) The definitions set forth herein are equally applicable both to the singular and plural forms and the feminine, masculine and neuter forms of the terms defined. (vi) The term "including" and correlative terms shall be deemed to be followed by "without limitation" whether or not followed by such words or words of like import. (vii) The term "hereof" and similar terms refer to this Agreement as a whole. (viii) The "date of" any notice or request given pursuant to this Agreement shall be determined in accordance with Section 11. -5- 6 SECTION 2. DEMAND SHELF REGISTRATIONS. 2.1. Subject to Sections 2.4 and 6.3, if the Holder shall make a written request to the Trust and the Corporation to effect a registration on a delayed or continuous basis pursuant to Rule 415 under the Securities Act (a "Shelf Registration") with respect to all or any portion of the Registrable Securities, then the Trust and the Corporation shall as soon as practicable cause there to be filed with the Commission such Shelf Registration. The Trust and the Corporation shall include therein all or any portion of the Registrable Securities requested by the Holder. Any request made pursuant to this Section 2.1 shall be addressed to the attention of the Secretary of each of the Trust and the Corporation, and shall specify the number of Registrable Securities to be registered, the possible intended methods of disposition thereof and that the request is for a Shelf Registration pursuant to this Section 2.1. 2.2. (i) The Trust and the Corporation shall be entitled to postpone for up to 90 days the filing of any registration statement otherwise required to be prepared and filed pursuant to this Section 2, if the Trust and the Corporation shall furnish to the Holder a certificate signed by the Secretary of each of the Trust and the Corporation stating that the Board of Trustees of the Trust and the Board of Directors of the Corporation have in good faith determined that such registration and the Transfer of Registrable Securities contemplated thereby would interfere with, or require premature disclosure of, any material financing, acquisition, disposition, reorganization or other transaction involving the Realty Partnership, the Operating Partnership, the Trust or the Corporation or any of their respective subsidiaries and the Trust or the Corporation, as the case may be, promptly gives the Holder notice of such determination. If a disclosure of such transactions occurs prior to the end of the 90-day period, such postponement shall terminate on such earlier day. The Holder hereby acknowledges that any notice given by the Trust or the Corporation pursuant to this Section 2.2(i) shall constitute material non-public information and that the United States securities laws prohibit any Person who has material non-public information about a company from purchasing or selling securities of such company or from communicating such information to any other Person under circumstances in which it is reasonably foreseeable that such Person is likely to purchase or sell such securities. (ii) The Trust and the Corporation shall not be obligated to file any registration statement pursuant to this Section 2 if, within thirty (30) days after their receipt of the written request of the Holder, the Trust and the Corporation notify the Holder that, prior to their receipt of such request, -6- 7 they had a plan or intention promptly to register equity securities under the Securities Act. The Trust and the Corporation shall not be obligated to file any registration statement pursuant to the preceding sentence, only if the Trust and the Corporation are actively employing in good faith all reasonable efforts to cause such registration statements to become effective. The Holder shall have rights to participate in any such registration on the terms provided in Section 3 hereof. 2.3. Following receipt of a request for a Shelf Registration, the Trust and the Corporation shall: (i) File the registration statement with the Commission as promptly as practicable, and shall use their respective reasonable efforts to have the registration declared effective under the Securities Act as soon as reasonably practicable, in each instance giving due regard to the need to prepare current financial statements, conduct due diligence and complete other actions that are reasonably necessary to effect a registered public offering. (ii) Use their respective reasonable efforts to keep the relevant registration statement Continuously Effective until such date as of which all the Registrable Securities under the Shelf Registration statement have been disposed of in a manner described in the registration statement. In no event will such registration statement be required to be Continuously Effective for more than 3 years. 2.4. Notwithstanding anything in this Agreement to the contrary, (a) in no event will the Trust or the Corporation be obligated to effect more than one Shelf Registration, and (b) no registration shall be effected under this Agreement and no Transfer of Registrable Securities may be effected if as a result thereof the Trust would not satisfy the REIT Requirements in any respect or if such registration or Transfer would result in any Person Beneficially Owning Paired Shares in excess of the Ownership Limit. For purposes of the preceding sentence, registration shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective, or (ii) if after such registration statement has become effective, the related offer, sale or distribution of Registrable Securities thereunder is prohibited by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason not attributable to the Holder and such prohibition is not thereafter eliminated. If the Trust and the Corporation shall have complied with their respective obligations under this Agreement, a right to demand a registration pursuant to this Section 2 shall be deemed to have been satisfied upon the effective date of such Shelf Registration, provided no stop order or similar order, or -7- 8 proceedings for such an order, is thereafter entered or initiated. 2.5. A registration pursuant to this Section 2 shall be on such appropriate registration form of the Commission as shall be selected by the Trust and the Corporation and shall permit the disposition of the Registrable Securities in accordance with the intended method or methods of disposition specified in the request pursuant to Section 2.1. SECTION 3. PIGGYBACK REGISTRATION. 3.1. If at any time the Trust and the Corporation (either for itself or pursuant to a registration rights agreement) propose to register securities under the Securities Act in connection with the public offering solely for cash on Form S-1, S-2, S-3, or S-11 (or any replacement or successor forms), the Trust and the Corporation shall promptly give the Holder written notice of such registration. Upon the written request of the Holder given as promptly as practicable but in any event within twenty (20) days following the date of such notice, the Trust and the Corporation shall cause to be included in such registration statement and use their respective reasonable efforts to be registered under the Securities Act all the Registrable Securities that the Holder shall have requested to be registered; provided, however, that such right of inclusion shall not apply to any registration statement covering an offering of debt securities or convertible debt securities (any such registration in which Holder participate pursuant to this Section 3.1 being referred to as a "Piggyback Registration"). The Trust and the Corporation shall have the absolute right to delay, withdraw or cease to prepare or file any registration statement for any offering referred to in this Section 3 without any obligation or liability to the Holder, it being understood that any Registrable Securities previously included in any such withdrawn Registration Statement shall not cease to be Registrable Securities by reason of such inclusion or withdrawal. If the Holder has requested inclusion of Registrable Securities in a Piggyback Registration, the Holder may withdraw therefrom by written notice to the Trust, the Corporation and the underwriter, provided such withdrawal is made prior to the effective date of the relevant registration statement. 3.2. If the Underwriters' Representative shall advise the Trust and the Corporation that, in its opinion, the amount or type of Registrable Securities requested to be included in a Piggyback Registration would adversely affect such offering, or the timing thereof, then the Trust and the Corporation will include in such registration, to the extent of the amount and class which the Trust and the Corporation are so advised can be sold without such adverse effect in such offering: first, all securities, if any, requested to be included in a registration -8- 9 statement pursuant to the exercise of demand registration rights granted by the Trust and the Corporation; second, all securities proposed to be sold by the Trust and the Corporation for their own accounts; and third, the Registrable Securities requested to be included in such registration by Holder pursuant to this Section 3 and all other securities requested to be included in such registration pursuant to registration rights agreements with other parties pro rata based on the estimated gross proceeds from the sale thereof. SECTION 4. REGISTRATION PROCEDURES. Whenever required under Section 2 or Section 3 to effect the registration of any Registrable Securities, the Trust and the Corporation shall, as expeditiously as practicable: 4.1. Prepare and file with the Commission a registration statement with respect to such Registrable Securities and use their respective reasonable efforts to cause such registration statement to become effective; provided, however, that before filing a registration statement or prospectus or any amendments or supplements thereto, the Trust and the Corporation shall furnish to one firm of counsel for the Holder, copies of all such documents in the form substantially as proposed to be filed with the Commission and provide reasonable opportunity to comment. 4.2. Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act and rules thereunder with respect to the disposition of all securities covered by such registration statement. If the registration is for an underwritten offering, the Trust and the Corporation shall amend the registration statement or supplement the prospectus whenever required by the terms of the underwriting agreement entered into pursuant to Section 4.5. If the registration statement is for a Shelf Registration, the Trust and the Corporation shall amend the registration statement or supplement the prospectus so that it will remain current and in compliance with the requirements of the Securities Act for the period specified in Section 2.3(ii), and if during such period any event or development occurs as a result of which the registration statement or prospectus contains a misstatement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, the Trust or the Corporation shall promptly notify the Holder, amend the registration statement or supplement the prospectus so that each will thereafter comply with the Securities Act and furnish to the Holder such amended or supplemented prospectus, which the Holder shall thereafter use in the Transfer of Registrable Securities covered by such -9- 10 registration statement. Pending any such amendment or supplement described in this Section 4.2, the Holder shall cease making offers or Transfers of Registrable Shares pursuant to the prior prospectus. In the event that any Registrable Securities included in a registration statement subject to, or required by, this Agreement remain unsold at the end of the period during which the Trust and the Corporation are obligated to use their respective reasonable efforts to maintain the effectiveness of such registration statement, the Trust and the Corporation may file a post-effective amendment to the registration statement for the purpose of removing such Registrable Securities from registered status. 4.3. Furnish to the Holder, without charge, such numbers of copies of the registration statement, any pre-effective or post-effective amendment thereto, the prospectus, including each preliminary prospectus and any amendments or supplements thereto, in each case in conformity with the requirements of the Securities Act and the rules thereunder, and such other related documents as the Holder may reasonably request in order to facilitate the disposition of Registrable Securities owned by the Holder. 4.4. Use their respective reasonable efforts (i) to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such states where an exemption from registration is not available and as shall be reasonably requested by the Underwriters' Representative and (ii) to obtain the withdrawal of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification (or exemption from qualification) of the offer and transfer of any of the Registrable Securities in any state, at the earliest possible moment; provided, however, that neither the Trust nor the Corporation shall be required in connection therewith or as a condition thereto to qualify to do business or to consent to general service of process in any state. 4.5. In the event of any underwritten offering, use their respective reasonable efforts to enter into and perform their respective obligations under an underwriting agreement (including indemnification and contribution obligations of underwriters), in usual and customary form, with the managing underwriter or underwriters of such offering. The Trust and the Corporation shall also cooperate with the Holder, and the Underwriters' Representative for such offering in the marketing of the Registerable Securities, including making available the officers, accountants, counsel, premises, books and records of the Trust and the Corporation for such purpose; provided, however, that neither the Trust nor the Corporation shall be required to incur any material out-of-pocket expense pursuant to -10- 11 this sentence and; provided, further, that the officers of the Trust and the Corporation will not be required to participate in more than one "roadshow" in any twelve month period. 4.6. Promptly notify the Holder of any stop order issued or threatened to be issued by the Commission in connection therewith and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. 4.7. Make available for inspection by the Holder, any underwriter participating in such offering and the representatives of the Holder and Underwriter (but not more than one firm of counsel to the Holder), all financial and other information as shall be reasonably requested by them, and provide the Holder, any underwriter participating in such offering and the representatives of the Holder and Underwriter the reasonable opportunity to discuss the business affairs of the Trust and the Corporation with their principal executives and independent public accountants who have certified the audited financial statements included in such registration statement, in each case all as necessary to enable them to exercise their due diligence responsibility under the Securities Act; provided, however, that information that the Trust or the Corporation determine to be confidential and which the Trust or the Corporation advise such Person in writing, is confidential shall not be disclosed unless such Person signs a confidentiality agreement reasonably satisfactory to the Trust and the Corporation or the Holder agrees to be responsible for such Person's breach of confidentiality on terms reasonably satisfactory to the Trust and the Corporation. 4.8. Use their respective reasonable efforts to obtain a so-called "comfort letter" from the independent public accountants of the Trust and the Corporation, and legal opinions of counsel to the Trust and the Corporation addressed to the Holder, in customary form and covering such matters of the type customarily covered by such letters, and in a form that shall be reasonably satisfactory to the Holder. Delivery of any such opinion or comfort letter shall be subject to the recipient furnishing such written representations or acknowledgments as are customarily provided by selling shareholders who receive such comfort letters or opinions. 4.9. Use their respective reasonable efforts to cause the Registrable Securities covered by such registration statement (i) if the Paired Shares are then listed on a securities exchange or included for quotation in a recognized trading market, to continue to be so listed or included for a reasonable period of time after the offering, and (ii) to be registered with or approved by such other United States or state governmental agencies or authorities as may be necessary by virtue of the -11- 12 business and operations of the Trust and the Corporation to enable the Holder to consummate the disposition of such Registrable Securities. 4.10. Take such other actions as are reasonably required in order to expedite or facilitate the disposition of Registrable Securities included in each such registration. SECTION 5. HOLDER OBLIGATIONS. It shall be a condition precedent to the obligations of the Trust and the Corporation to take any action pursuant to this Agreement with respect to the Registrable Securities of the Holder that the Holder shall: 5.1. Furnish to the Trust and the Corporation such information regarding the Holder, the number of the Registrable Securities owned by it, and the intended method of disposition of such securities as shall be required to effect the registration of the Holder's Registrable Securities, and to cooperate fully with the Trust and the Corporation in preparing such registration. 5.2. Except as set forth in Section 3.1, agree to sell its Registrable Securities to the underwriters at the same price and on substantially the same terms and conditions as the Trust and the Corporation or the other Persons on whose behalf the registration statement was being filed have agreed to sell its securities, and to execute the underwriting agreement agreed to by the Holder (in the case of a registration under Section 2) or the Trust and the Corporation and the Holder (in the case of a registration under Section 3). SECTION 6. EXPENSES OF REGISTRATION. Expenses in connection with registrations pursuant to this Agreement shall be allocated and paid as follows: 6.1. With respect to a Shelf Registration, except as otherwise provided herein, each of the Trust and the Corporation shall bear and pay all expenses incurred in connection with any registration, filing, or qualification of Registrable Securities with respect to such Registration for the Holder, including all registration, filing and National Association of Securities Dealers, Inc. fees, all fees and expenses of complying with securities or blue sky laws, all printing expenses, messenger and delivery expenses, the reasonable fees and disbursements of counsel for the Trust and the Corporation, and of the independent public accountants for the Trust and the Corporation, including the expenses of "cold comfort" letters required by or incident to such performance and compliance (the "Registration Expenses"), but excluding underwriting discounts and commissions relating to Registrable Securities (which shall be paid by the Holder) and -12- 13 all fees and expenses of counsel for the Holder; provided, however, that the Trust and the Corporation shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2 if the registration is subsequently withdrawn as a result of the failure of the Holder to satisfy its obligations under this Agreement (in which case the Holder shall bear such expenses), unless the Holder indicates that such withdrawn registration shall have constituted the Shelf Registration available to it under Section 2 hereof. Notwithstanding the preceding sentence, the Trust and the Corporation shall not be required to bear the first $25,000 of Registration Expenses; the Holder shall bear and pay the first $25,000 of Registration Expenses. With respect to such $25,000 of Registration Expenses, the Holder shall include a payment for this amount with the written request for a Shelf Registration. The Trust and the Corporation each agree between themselves that they shall bear and pay Registration Expenses in an amount equal to their respective Issuance Percentage of such Registration Expenses and that they shall reimburse each other to the extent necessary to cause each of them to so bear and pay such respective amounts. 6.2. The Holder shall not bear or pay any Registration Expenses incurred in connection with any Piggyback Registrations pursuant to Section 3, but excluding underwriting discounts and commissions relating to Registrable Securities (which shall be paid by the Holder) and all fees and expenses of counsel for the Holder. 6.3. Notwithstanding anything to the contrary in this Agreement, (i) no request for Shelf Registration pursuant to Section 2.1 may be made unless such request is accompanied by a payment of $25,000 and (ii) the Trust and the Corporation shall have no obligation to make a Shelf Registration pursuant to Section 2.1 effective until the Holder has satisfied its obligation under Section 6.1 to bear and pay Registration Expenses. The $25,000 referred to in the preceding sentence shall be considered an advance of the Holder's payment of Registration Expenses pursuant to Section 6.1 and if such Registration Expenses do not exceed $25,000, then any excess shall be refunded to the Holder. SECTION 7. INDEMNIFICATION; CONTRIBUTION. If any Registrable Securities are included in a registration statement under this Agreement: 7.1. To the extent permitted by applicable law, each of the Trust and the Corporation, severally and not jointly, shall indemnify and hold harmless the Holder, each Person, if any, who controls the Holder within the meaning of the Securities Act, and each officer, director, partner and employee of the -13- 14 Holder and such controlling Person, against any and all losses, claims, damages, liabilities and expenses (joint or several), including reasonable attorneys' fees and disbursements and reasonable expenses of investigation, incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may otherwise become subject under the Securities Act, the Exchange Act or other federal or state laws, insofar as such losses, claims, damages, liabilities and expenses arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) Any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein, or any amendments or supplements thereto; or (ii) The omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; provided, however, that the indemnification required by this Section 7.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement is effected without the consent of the Trust or the Corporation (which consent shall not be unreasonably withheld), nor shall the Trust or the Corporation be liable in any such case for any such loss, claim, damage, liability or expense to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with information furnished to the Trust or the Corporation by the indemnified party in writing expressly for use in connection with such registration; and provided, further, that the indemnity agreement contained in this Section 7 shall not apply to the extent that any such loss is based on or arises out of an untrue statement or alleged untrue statement of a material fact, or an omission or alleged omission to state a material fact, contained in or omitted from any preliminary prospectus if the final prospectus shall correct such untrue statement or alleged untrue statement, or such omission or alleged omission, and a copy of the final prospectus has not been sent or given to such person at or prior to the confirmation of sale to such person if an underwriter or Holder was under an obligation to deliver such final prospectus and failed to do so. 7.2. To the extent permitted by applicable law, the Holder shall indemnify and hold harmless the Trust, the Corporation, each of the Trustees of the Trust, each of the directors of the Corporation, each of the officers of the Trust or the Corporation who shall have signed the registration statement, each Person, if any, who controls the Trust or the Corporation within the meaning of the Securities Act, against any -14- 15 and all losses, claims, damages, liabilities and expenses (joint and several), including reasonable attorneys' fees and disbursements and reasonable expenses of investigation, incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may otherwise become subject under the Securities Act, the Exchange Act or other federal or state laws, but only insofar as such losses, claims, damages, liabilities and expenses arise out of or are based upon any Violation, in each case to the extent that such Violation arises out of or is based upon information furnished by the Holder in writing expressly for use in connection with such registration; provided, however, that (x) the indemnification required by this Section 7.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement is effected without the consent of the relevant Holder (which consent shall not be unreasonably withheld) and (y) in no event shall the amount of any indemnity under this Section 7.2 exceed the gross proceeds from the applicable offering received by the Holder. 7.3. Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, suit, proceeding, investigation or threat thereof made in writing for which such indemnified party may make a claim under this Section 7, such indemnified party shall deliver to the indemnifying party a written notice thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and disbursements and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time following the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 7 to the extent of such prejudice but shall not relieve the indemnifying party of any liability that it may have to any indemnified party otherwise than pursuant to this Section 7. Any fees and expenses incurred by the indemnified party (including any fees and expenses incurred in connection with investigating or preparing to defend such action or proceeding) shall be paid to the indemnified party, as incurred, within thirty (30) days of written notice thereof to the indemnifying party (regardless of whether it is ultimately determined that an indemnified party is not entitled -15- 16 to indemnification hereunder). Any such indemnified party shall have the right to employ separate counsel in any such action, claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be the expenses of such indemnified party unless (i) the indemnifying party has agreed to pay such fees and expenses or (ii) the indemnifying party shall have failed to promptly assume the defense of such action, claim or proceeding or (iii) the named parties to any such action, claim or proceeding (including any impleaded parties) include both such indemnified party and the indemnifying party, and such indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or in addition to those available to the indemnifying party and that the assertion of such defenses would create a conflict of interest such that counsel employed by the indemnifying party could not faithfully represent the indemnified party (in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action, claim or proceeding on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action, claim or proceeding or separate but substantially similar or related actions, claims or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all such indemnified parties, unless in the reasonable judgment of such indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such action, claim or proceeding, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels). 7.4. If the indemnification required by this Section 7 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to in this Section 7: (i) The indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, -16- 17 whether any Violation has been committed by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such Violation. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 7.1 and Section 7.2, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. (ii) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7.4 were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in Section 7.4(i). No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 7.5. If indemnification is available under this Section 7, the indemnifying parties shall indemnify each indemnified party to the full extent provided in this Section 7 without regard to the relative fault of such indemnifying party or indemnified party or any other equitable consideration referred to in Section 7.4. 7.6. The obligations of the Trust, the Corporation and the Holder under this Section 7 shall survive the completion of any offering of Registrable Securities pursuant to a registration statement under this Agreement, and otherwise. SECTION 8. HOLDBACK. The Holder, if so requested by the Underwriters' Representative in connection with an offering of any securities covered by a registration statement filed by Trust and the Corporation, whether or not Holder's securities are included therein, shall not effect any public sale or distribution of Paired Shares or any securities convertible into or exchangeable or exercisable for Paired Shares, including a sale pursuant to Rule 144 under the Securities Act (except as part of such underwritten registration), during the 15-day period prior to, and during the 90-day period beginning on, the date such registration statement is declared effective under the Securities Act by the Commission. In order to enforce the foregoing covenant, the Trust and the Corporation shall be entitled to impose stop-transfer instructions with respect to the Registrable Securities of the Holder until the end of such period. The Holder shall have the right to participate in any such registration on the terms provided in Section 3 hereof. -17- 18 SECTION 9. AMENDMENT, MODIFICATION AND WAIVERS; FURTHER ASSURANCES. (i) This Agreement may be amended with the consent of the Trust and the Corporation and the Trust and the Corporation may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Trust and the Corporation shall have obtained the written consent of the Holder to such amendment, action or omission to act. (ii) No waiver of any terms or conditions of this Agreement shall operate as a waiver of any other breach of such terms and conditions or any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof. No written waiver hereunder, unless it by its own terms explicitly provides to the contrary, shall be construed to effect a continuing waiver of the provisions being waived and no such waiver in any instance shall constitute a waiver in any other instance or for any other purpose or impair the right of the party against whom such waiver is claimed in all other instances or for all other purposes to require full compliance with such provision. (iii) Each of the parties hereto shall execute all such further instruments and documents and take all such further action as any other party hereto may reasonably require in order to effectuate the terms and purposes of this Agreement. SECTION 10. ASSIGNMENT; BENEFIT. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of the parties hereto other than the Corporation and the Trust, shall also be for the benefit of and enforceable by any subsequent holder of any Registrable Securities, subject to all the provisions herein, including those respecting the minimum numbers or percentages of shares of Registrable Securities required in order to be entitled to certain rights, or take certain actions, contained herein. SECTION 11. MISCELLANEOUS. 11.1. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving regard to the conflict of laws principles thereof. 11.2. NOTICES. All notices and requests given pursuant to this Agreement shall be in writing and shall be made by hand-delivery, first-class mail (registered or certified, return receipt requested), confirmed facsimile or overnight air -18- 19 courier guaranteeing next Business Day delivery to the relevant address specified in the Exchange Rights Agreement. Except as otherwise provided in this Agreement, the date of each such notice and request shall be deemed to be, and the date on which each such notice and request shall be deemed given shall be: at the time delivered, if personally delivered or mailed; when receipt is acknowledged, if sent by facsimile; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next Business Day delivery. 11.3. ENTIRE AGREEMENT; INTEGRATION. This Agreement supersedes all prior agreements between or among any of the parties hereto with respect to the subject matter contained herein and therein, and such agreements embody the entire understanding among the parties relating to such subject matter. 11.4. SECTION HEADINGS. Section headings are for convenience of reference only and shall not affect the meaning of any provision of this Agreement. 11.5. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which shall together constitute one and the same instrument. All signatures need not be on the same counterpart. 11.6. SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not affect the validity and enforceability of the remaining provisions of this Agreement, unless the result thereof would be unreasonable, in which case the parties hereto shall negotiate in good faith as to appropriate amendments hereto. 11.7. TERMINATION. This Agreement may be terminated at any time by a written instrument signed by the Trust, the Corporation and the Holder. Unless sooner terminated in accordance with the preceding sentence, this Agreement (other than Section 7 hereof) shall terminate in its entirety on such date as there shall be (a) no Registrable Securities outstanding, and (b) no securities outstanding which are convertible or exchangeable into Registrable Securities; provided that any Paired Shares previously subject to this Agreement shall not be Registrable Securities following the sale of any such shares in an offering registered pursuant to this Agreement. 11.8. STARWOOD LODGING TRUST. The parties hereto understand and agree that the name "Starwood Lodging Trust" is a designation of the Trust and its Trustees (as Trustees but not personally) under the Declaration of Trust, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the -19- 20 Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 11.9. SUBMISSION TO JURISDICTION. Each of the parties hereto and each of the Holder irrevocably submits and consents to the jurisdiction of the United States District Court for the Southern District of New York and the United States District Court for the District of Maryland in connection with any action or proceeding arising out of or relating to this Agreement, and irrevocably waives any immunity from jurisdiction thereof and any claim of improper venue, forum non conveniens or any similar basis to which it might otherwise be entitled in any such action or proceeding. 11.10. SPECIFIC PERFORMANCE. Each of the parties acknowledges and agrees that in the event of any breach of this Agreement, the non-breaching party or parties would be irreparably harmed and could not be made whole by monetary damages. The parties hereby agree that in addition to any other remedy to which they may be entitled at law or in equity, they shall be entitled to compel specific performance of this Agreement in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction for such action. -20- 21 IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date first written above. STARWOOD LODGING TRUST, a Maryland real estate investment trust By:________________________________ Name: Title: STARWOOD LODGING CORPORATION, a Maryland corporation By:________________________________ Name: Title: THE HERMITAGE, L.P. By: Hermitage of Nashville, Inc., its General Partner By:____________________________ Pace Cooper President -21- EX-10.43 22 EX-10.43 1 Exhibit 10.43 Page [Execution Copy] ************************************************************ SLT MEXICO, S. de R.L. de C.V. and SLT REALTY LIMITED PARTNERSHIP and STARWOOD LODGING TRUST ----------------------------- CREDIT AGREEMENT Dated as of August 18, 1997 ------------------------------ BANCOMER, S.A., Cayman Islands Branch, as Agent ************************************************************ 2 TABLE OF CONTENTS This Table of Contents is not part of the Agreement to which it is attached but is inserted for convenience of reference only. Page Section 1. Definitions and Accounting Matters...............................2 1.01 Certain Defined Terms............................................2 1.02 Accounting Terms and Determinations.............................22 Section 2. Commitments, Loans, Notes and Prepayments.......................22 2.01 Loans...........................................................22 2.02 Borrowings......................................................22 2.03 Lending Offices.................................................22 2.04 Several Obligations; Remedies Independent.......................22 2.05 Notes...........................................................23 2.06 Optional Prepayments............................................23 2.07 Mandatory Prepayments...........................................23 Section 3. Payments of Principal and Interest..............................23 3.01 Repayment of Loans..............................................23 3.02 Interest........................................................23 Section 4. Payments; Pro Rata Treatment; Computations; Etc.................24 4.01 Payments........................................................24 4.02 Pro Rata Treatment..............................................24 4.03 Computations....................................................25 4.04 Minimum Amounts.................................................25 4.05 Certain Notices.................................................25 4.06 Non-Receipt of Funds by the Agent...............................25 4.07 Sharing of Payments, Etc........................................26 Section 5. Yield Protection, Etc...........................................27 5.01 Additional Costs................................................27 5.02 Illegality......................................................28 5.03 Taxes...........................................................29 5.04 Compensation....................................................31 5.05 Replacement of Lenders. .......................................31 Section 6. Guarantee.......................................................32 (2) 3 Page 6.01 The Guarantee...................................................32 6.02 Obligations Unconditional.......................................32 6.03 Reinstatement...................................................34 6.04 Subrogation.....................................................34 6.05 Remedies........................................................35 6.06 Continuing Guarantee............................................35 6.07 Waiver of Civil Articles........................................35 Section 7. Conditions Precedent............................................35 Section 8. Representations and Warranties..................................39 8.01 Corporate Existence.............................................39 8.02 Financial Condition.............................................40 8.03 Litigation......................................................40 8.04 No Breach.......................................................41 8.05 Action..........................................................41 8.06 Approvals.......................................................41 8.07 Legal Form......................................................41 8.08 Ranking.........................................................42 8.09 Taxes...........................................................42 8.10 Commercial Activity; Absence of Immunity........................42 8.11 Material Agreements and Liens...................................42 8.12 Solvency........................................................42 8.13 Subsidiaries, Etc...............................................42 8.14 True and Complete Disclosure....................................43 8.15 ERISA...........................................................43 8.16 Licenses........................................................44 8.17 Assets of the Trust.............................................44 8.18 REIT Status.....................................................44 8.19 Stock...........................................................44 8.20 Operations......................................................44 8.21 Environmental Matters...........................................44 Section 9. Covenants of the Obligors. ....................................46 9.01 Financial Statements Etc........................................46 9.02 Litigation......................................................48 9.03 Existence, Etc..................................................48 9.04 Insurance.......................................................49 9.05 Prohibition of Fundamental Changes..............................52 9.06 Limitation on Liens.............................................52 9.07 Indebtedness....................................................53 9.08 Investments.....................................................53 (3) 4 Page 9.09 Payout Ratios...................................................54 9.10 Debt Service Coverage Ratio.....................................54 9.11 Combined Debt Service Coverage Ratio.............................55 9.12 Tangible Net Worth..............................................55 9.13 Capital Expenditures............................................55 9.15 Subordinated Indebtedness.......................................55 9.16 Lines of Business...............................................55 9.17 Transactions with Affiliates....................................55 9.18 Use of Proceeds.................................................56 9.19 Certain Obligations Respecting Subsidiaries.....................56 9.20 Compliance with ERISA...........................................56 9.21 Modifications of Certain Documents..............................57 Section 10. Events of Default..............................................57 Section 11. The Agent......................................................62 11.01 Appointment, Powers and Immunities.............................62 11.02 Reliance by Agent..............................................62 11.03 Defaults.......................................................63 11.04 Rights as a Lender.............................................63 11.05 Indemnification................................................63 11.06 Non-Reliance on Agent and Other Lenders........................64 11.07 Failure to Act.................................................64 11.08 Resignation of Agent...........................................64 11.09 Consents under Other Basic Documents...........................64 Section 12. Miscellaneous..................................................65 12.01 Waiver.........................................................65 12.02 Notices........................................................65 12.03 Expenses.......................................................65 12.04 Indemnification................................................66 12.05 Amendments, Etc................................................66 12.06 Successors and Assigns.........................................67 12.07 Assignments and Participations.................................67 12.08 Survival.......................................................68 12.09 Captions.......................................................68 12.10 Counterparts...................................................68 12.11 Judgment Currency..............................................68 12.12 Governing Law..................................................69 12.13 Jurisdiction; Service of Process; Venue........................69 12.15 Waiver of Jury Trial...........................................70 12.16 The Trustee of the Trust.......................................70 (4) 5 12.17 Use of English Language........................................71 SCHEDULES: Schedule 1.01 Schedule 8.11 Schedule 8.15 Schedule 8.17 Schedule 8.20 Schedule 8.21 EXHIBIT A - Form of Note EXHIBIT B-1 - Form of SLC Mexico Pledge Agreement EXHIBIT B-2 - Form of SLT Realty Pledge Agreement EXHIBIT B-3 - Form of Mortgage EXHIBIT C-1 - Form of Opinion of Mexican Counsel to the Obligors EXHIBIT C-2 - Form of Opinion of New York Counsel to the Obligors EXHIBIT D - Step Plan (5) 6 CREDIT AGREEMENT, dated as of August 18, 1997 (as amended, modified or amended and restated from time to time, this "Agreement") among: (a) SLT MEXICO, S. de R.L. de C.V., a corporation duly organized and validly existing under the laws of Mexico (the "Company"); (b) SLT REALTY LIMITED PARTNERSHIP, a limited partnership organized under the laws of Maryland ("SLT"); (c) STARWOOD LODGING TRUST, a real estate investment trust organized under the laws of Maryland, (the "Trust", and, together with SLT, the "Guarantors"; and the Guarantors collectively with the Company, the "Obligors"); (d) each of the lenders that is a signatory hereto identified under the caption "Lenders" on the signature pages hereto or that, pursuant to Section 12.07(b) hereof, shall become a "Lender" hereunder (individually, a "Lender" and, collectively, the "Lenders"); and (e) BANCOMER, S.A., Cayman Islands Branch, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "Agent"). WHEREAS, SLC Mexico, S.A. de C.V. ("SLC Mexico"), a Subsidiary of SLC (defined herein) will be acquiring certain hotel properties from Desarrollos Turisticos Regina, S. de R.L. de C.V. ("DTB") pursuant to the First Amended and Restated Stock Purchase Agreement (the "Stock Purchase Agreement"), dated as of June 25, 1997, by and between Bancomer S.A., Institucion de Banca Multiple, Grupo Financiero, DTB, Club Regina Resorts, Inc. and CR Hotel Acquisition Company LLC (the "Acquisition"); WHEREAS, in order to consummate the Acquisition (as well as certain other transactions), a Step Plan (the "Step Plan") (attached hereto as Exhibit D) has been devised by the parties hereto, as well as certain other parties, which Step Plan details the interim transactions required to occur prior to or concurrent with the Acquisition; WHEREAS, after giving effect to the interim transactions contemplated by the Step Plan, SLC Mexico will have formed the following three Wholly Owned Subsidiaries (each, a "Hotel Company"): (i) Promotora Turistica Nizuc, S.A. de C.V., which, upon the consummation of the Acquisition will be renamed "Starwood Cancun, S. de R.L. de C.V." ("Nizuc"), the principal asset of which is the Westin Regina Cancun; (ii) Promotora y Desarrolladora Pacifico, S.A. de C.V., which, upon the consummation of the Acquisition will be renamed "Starwood Puerto Vallarta, S. de R.L. de C.V." ("Prodepa"), the principal asset of which is the Westin Regina 7 Vallarta; and (iii) Desarrollos Turisticos Integrales Cabo San Lucas, S.A. de C.V., which, upon the consummation of the Acquisition will be renamed "Starwood Cabo San Lucas, S. de R.L. de C.V." ("DTI Los Cabos"), the principal asset of which is the Westin Regina Los Cabos; WHEREAS, after giving effect to the interim transactions contemplated by the Step Plan, Bancomer S.A., Institucion de Banca Multiple, Grupo Financiero will have sold 100% of the capital stock of DTB (the principal remaining asset of which will be 50% of the equity interest of Corporacion Habitacional Mexicana, S.A. de C.V. to DTB Acquisition Sub, S. de R.L. de C.V., which, upon the consummation of the Acquisition, will be renamed "Corporacion Habitacional Mexicana, S. de R.L. de C.V." ("CHM"); WHEREAS, upon the consummation of the Acquisition, each Hotel Company (Nizuc, Prodepa, DTI Los Cabos) will be a Wholly Owned Subsidiary of SLC Mexico, and CHM will be 50% owned by SLC Mexico; WHEREAS, the aggregate purchase price payable by the Hotel Companies and SLC Mexico upon the consummation of the Acquisition will be approximately U.S.$132,750,000; WHEREAS, in order to finance the Acquisition, the Obligors have requested that the Lenders make loans to the Company in an aggregate principal amount not exceeding U.S.$118,750,000, the proceeds of which shall in turn be loaned by the Company on terms satisfactory to the Lenders to the Hotel Companies (each such loan to each such Hotel Company is referred to as an "Acquisition Loan"); WHEREAS, approximately U.S.$14,000,000 will be contributed by a direct or indirect parent of SLC Mexico to the common equity of SLC Mexico in order to finance the balance of the aggregate purchase price not financed indirectly by the loans made hereunder (the "Capital Contribution"); WHEREAS, the Lenders are willing to make such loans on the terms and conditions of this Agreement and, accordingly, the parties hereto agree as follows: Section 1. Definitions and Accounting Matters. 1.01 Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1.01 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "Acquired Property" shall mean, with respect to each Hotel Company, all real -7- 8 estate held by such Hotel Company after giving effect to the Acquisition, including, but not limited to, the real property and improvements on which the Westin Regina Cancun, the Westin Regina Los Cabos and the Westin Regina Vallarta are located. "Acquisition" shall have the meaning set forth in the first recital. "Acquisition Loan" shall have the meaning set forth in the seventh recital. "Acquisition Documents" shall have the meaning set forth in Section 7(b) hereof. "Adjusted EBITDA" shall mean, for any period, with respect to any Person, the lesser of: (a) Operating Lease Payments received by such Person and such Person's Subsidiaries for all Hotel Assets for such period, less the aggregate FF&E Reserves, property taxes, insurance premiums, and other expenses paid or incurred by such Person or such Person's Subsidiaries for such period and (b) Adjusted NOI in respect of such Person's and such Person's Subsidiaries' Hotel Assets, calculated on a combined basis. "Adjusted NOI" shall mean, with respect to any Hotel Assets and, with respect to any Hotel managed by SLC and not owned by SLC or SLT or any of their Subsidiaries, for any period, the Net Operating Income for such Hotel Assets for such period, less the FF&E Reserve for such Hotel Assets for such period. "Affiliate" shall mean any Person that directly or indirectly controls, or is under common control with, or is controlled by, the Company and, if such Person is an individual, any member of the immediate family (including parents, spouse, children and siblings) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise). "Agent" shall have the meaning set forth in the preamble. "Agent's Account" shall mean account no. 400-001942 of Bancomer, S.A. maintained at The Chase Manhattan Bank (ABA No. 021000021), or such other account at such other bank in New York City as the Agent shall specify from time to time to the Company and the Lenders. -8- 9 "Available Cash Amount" shall mean, with respect to Available Cash Balances, as of the date of determination, the combined Dollar amount of such Available Cash Balances minus trade payables outstanding for more than 60 days. "Available Cash Balances" shall mean, with respect to any Person, unrestricted Cash and Cash Equivalents of such Person and such Person's Subsidiaries. "Base Rate" shall mean, for any day, a rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the Prime Rate for such day. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate. "Basic Documents" shall mean, collectively, this Agreement, the Notes and the Security Documents. "Business Day" shall mean (a) any day on which commercial banks are not authorized or required to close in New York City and Mexico and (b) if such day relates to a borrowing of, a payment or prepayment of principal of or interest on, or an Interest Period for, a Loan or a notice by the Company with respect to any such borrowing, payment, prepayment or Interest Period, any day on which dealings in Dollar deposits are carried out in the London interbank market. "Capital Expenditures" shall mean, with respect to any Person, expenditures (including, without limitation, the aggregate amount of Capital Lease Obligations) made by such Person and any of its Subsidiaries to acquire or construct fixed assets, plant and equipment (including renewals, improvements and replacements, but excluding repairs) during such period computed in accordance with GAAP or, as the case may be, generally accepted accounting principles applied by the Company. "Capital Contribution" shall have the meaning set forth in the eighth recital. "Capital Lease Obligations" shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "Cash" shall mean coin or currency of the government of the United States of America. "Cash and Cash Equivalents" shall mean any or a combination of (i) Cash and (ii) U.S. Government Obligations. -9- 10 "Change in Control" shall mean (i) the Trust shall fail to be the general partner of SLT, or (ii) the Corporation shall fail to be the general partner of SLC, or (iii) SLC shall fail to own and control, directly or indirectly, at least 66-2/3% of the issued and outstanding shares of capital stock of any Hotel Company (on a fully diluted basis), or (iv) the death, incapacitation, dismissal or departure of Barry Sternlicht and replacement management acceptable to the Majority Lenders not having been appointed by the SLT and the Trust within 180 days of the event referred to above. "Control" shall have the meaning set forth in the definition of "Affiliate". "CHM" shall have the meaning set forth in the fourth recital. "Closing Date" shall mean the date upon which the Loans hereunder are made. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any successor statute, together with all rules and regulations from time to time promulgated thereunder. "Combined Debt Service Coverage Ratio" shall mean, at the close of any Fiscal Quarter, the ratio, computed for the period consisting of such Fiscal Quarter and each of the three immediately preceding Fiscal Quarters of: (i) EBITDA of SLT and SLC for such period less the FF&E Reserve, over (ii) all Debt Service of SLT and SLC for such period (other than scheduled balloon maturity payments in respect of Indebtedness that are not past due); provided, that for the purposes of this calculation, (i) payments required to be made by SLT and the Trust in respect of Operating Leases and (ii) Indebtedness between (a) SLT and the Trust and their Subsidiaries, and (b) SLC and the Corporation and their Subsidiaries, shall be excluded. "Commitment" shall mean, for each Lender, the obligation of such Lender to make a single Tranche A Loan and a single Tranche B Loan in an aggregate amount up to but not exceeding the amount set opposite the name of such Lender on the signature pages hereof under the caption "Commitment". The original aggregate principal amount of the Commitments is U.S. $118,750,000. "Commitment Termination Date" shall mean August 19, 1997. "Company" shall have the meaning set forth in the preamble. "Contingent Obligation" as to any Person shall mean any obligation of such -10- 11 Person guaranteeing or intended to guarantee any Indebtedness, leases (including Capital Lease Obligations), dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (x) for the purchase or payment of any such primary obligation or (y) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth, solvency or other financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any accrued or accruable Contingent Obligation shall be determined in accordance with GAAP. "Corporation" shall mean Starwood Lodging Corporation, a corporation organized under the laws of the State of Maryland. "Debt Service" shall mean, with respect to any Person for any period, the sum (without duplication) of (a) Interest Expense of such Person for such period, plus (b) scheduled principal amortization of Indebtedness (other than the scheduled balloon maturity payments in respect of Indebtedness that are not past due) of such Person for such period (whether or not such payments are made), plus (c) preferred stock dividends required to be made during such period, plus (d) the amount of scheduled lease payments with respect to leasehold interests or obligations of the respective Person. "Debt Service Coverage Ratio" shall mean, at the close of any Fiscal Quarter, the ratio, computed for the period consisting of such Fiscal Quarter and each of the three immediately preceding Fiscal Quarters of: (i) EBITDA of SLT and the Trust for such period, over (ii) all Debt Service of SLT and the Trust for such period (other than scheduled balloon maturity payments in respect of Indebtedness that are not past due). "Default" shall mean an Event of Default or an event that with notice or lapse of time or both would become an Event of Default. "Distribution" shall mean any dividends (other than dividends payable solely in common stock), distributions, return of capital to any stockholders, general or limited -11- 12 partners or member, other payments, distributions or delivery of property or cash to stockholders, general or limited partners or members, or any redemption, retirement, purchase or other acquisition, directly or indirectly, of any shares of any class of capital stock now or hereafter outstanding (or any options or warrants issued with respect to capital stock), any general or limited partnership interest, or the setting aside of funds for any of the foregoing. "Dollars" and "U.S.$" shall mean lawful money of the United States of America. "DTB" shall have the meaning set forth in the first recital. "DTI Los Cabos" shall have the meaning set forth in the third recital. "EBITDA" shall mean, with respect to any Person, for any applicable period, the sum (without duplication) of (a) Net Income (Loss), plus (b) the amount deducted, in determining Net Income (Loss) , representing amortization, plus (c) the amount deducted, in determining Net Income (Loss), of all income taxes (whether paid or deferred) of such Person and its Subsidiaries, plus (d) the amount deducted, in determining Net Income (Loss), for Interest Expense, plus (e) the amount deducted, in determining Net Income (Loss), representing depreciation of assets. "Employee Benefit Plan" shall mean an employee benefit plan within the meaning of Section 3(3) of ERISA (i) that is maintained by any Obligor or (ii) with respect to which any such person has any obligation or liability, whether direct or indirect; provided, however, that "Employee Benefit Plan" shall not include any "multiemployer plan" as defined in Section 4001(a)(3) of ERISA. -12- 13 "Environmental Claim" shall mean, with respect to any Person, any written or oral notice, claim, demand or other communication (collectively, a "claim") by any other Person alleging or asserting such Person's liability for investigatory costs, cleanup costs, governmental response costs, damages to natural resources or other Property, personal injuries, fines or penalties arising out of, based on or resulting from (i) the presence, or Release into the environment, of any Hazardous Material at any location, whether or not owned by such Person, or (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. The term "Environmental Claim" shall include, without limitation, any claim by any governmental authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence of Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Laws" shall mean any and all present and future United States Federal, state, local and Mexican laws, rules or regulations, and any orders or decrees, in each case as now or hereafter in effect, relating to the regulation or protection of human health, safety or the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes into the indoor or outdoor environment, including, without limitation, ambient air, soil, surface water, ground water, wetlands, land or subsurface strata, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time and any successor statute, together with all rules and regulations promulgated thereunder. "ERISA Controlled Group" shall mean any corporation or entity or trade or business or person that is a member of any group described in Section 414(b), (c), (m) or (o) of the Code of which an Obligor is a member. "Equity Rights" shall mean, with respect to any Person, any subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, any stockholders' or voting trust agreements) for the issuance, sale, registration or voting of, or securities convertible into, any additional shares of capital stock of any class, or partnership or other ownership interests of any type in, such Person. "Eurodollar Rate" shall mean, with respect to any Loan for any Interest Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) reported, at approximately 11:00 a.m. London time (or as soon thereafter as practicable) on the date two Business Days prior to the first day of such Interest Period, on Telerate Access Service Page 3750 (British Bankers Association Settlement Rate) -13- 14 as the London interbank offered rate for Dollar deposits having a term comparable to the duration of such Interest Period and an in amount equal to or greater than U.S.$1,000,000. "Event of Default" shall have the meaning assigned to such term in Section 10 hereof. "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day and (b) if such rate is not so published for any Business Day, the Federal Funds Rate for such Business Day shall be the average rate charged on such Business Day on such transactions as determined by the Agent. "FF&E Reserve" shall mean, for any Person (or with respect to any Hotel) for any period, a reserve equal to four percent (4%) of Gross Revenues from any Hotel owned by such Person (or from such Hotel), for such Period, plus for any person, such Person's pro rata share of any FF&E Reserve for any Hotel owned by such Person's Unconsolidated Entities. "Fiscal Quarter" shall mean any quarter of a Fiscal Year. "Fiscal Year" shall mean any period of twelve consecutive calendar months ending on December 31st; references to a Fiscal Year with a number corresponding to any calendar year (e.g. the "1997 Fiscal Year") refer to the Fiscal Year ending on the December 31st occurring during such calendar year. "Funds From Operations" shall mean, with respect to any Person, consolidated Net Income (Loss) before extraordinary items, determined in accordance with GAAP for such Person, plus, to the extent deducted in determining Net Income (Loss) and without duplication, (i) gains (or losses) from debt restructuring and sales of property, (ii) non-recurring charges, (iii) provisions for losses, (iv) real estate related depreciation and amortization (which shall include -14- 15 amortization of financing costs on a basis consistent with the preparation of such Person's quarterly and annual financial statements), and (v) amortization of organizational expenses less, to the extent included in determining Net Income (Loss), (a) non-recurring income and (b) equity income (loss) from Unconsolidated Entities less the proportionate share of funds from operations of such Unconsolidated Entities, which adjustments shall be calculated on a consistent basis. "GAAP" shall mean generally accepted accounting principles in the United States as in effect on December 31, 1996. "Gross Revenues" shall mean, with respect to any Hotel Asset for any period, all income, rents, room rates, additional rents, revenues, issues and profits and other items, including without limitation, all revenues and credit card receipts collected from guest rooms, restaurants, meeting rooms, bars, mini-bars, banquet rooms, recreational facilities, vending machines and concessions derived from the customary operation of such Hotel Asset. "Guarantee" shall mean a guarantee, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any Person, or a guarantee of the payment of dividends or other distributions upon the stock or equity interests of any Person, or an agreement to purchase, sell or lease (as lessee or lessor) Property, products, materials, supplies or services primarily for the purpose of enabling a debtor to make payment of such debtor's obligations or an agreement to assure a creditor against loss, and including, without limitation, causing a bank or other financial institution to issue a letter of credit or other similar instrument for the benefit of another Person, but excluding endorsements for collection or deposit in the ordinary course of business. The terms "Guarantee" and "Guaranteed" used as a verb shall have a correlative meaning. "Guarantors" shall have the meaning set forth in the preamble. "Hazardous Material" shall mean, collectively, (a) any petroleum or petroleum products, flammable materials, explosives, radioactive materials, asbestos, urea formaldehyde foam insulation, and transformers or other equipment that contain polychlorinated biphenyls ("PCB's"), (b) any chemicals or other materials or substances that are now or hereafter become defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants", "contaminants", "pollutants" or words of similar import under any Environmental Law and (c) any other chemical or other material or substance, exposure to which is now or hereafter prohibited, limited or regulated under any Environmental Law. -15- 16 "Hospitality Business" shall mean the business of owning, operating, franchising, and/or managing, directly or indirectly, full or limited service hotel properties. "Hotel" shall mean any Real Estate or Lease comprising an operating facility offering hotel or other lodging services. "Hotel Assets" shall mean, with respect to (and without duplication): (1) SLT and its Subsidiaries, with respect to the following types of assets:(i) Hotels owned by SLT and its Subsidiaries and leased by SLT or its Subsidiaries to SLC or its Subsidiaries, and (ii) Investments in Hotels held by SLT and its Subsidiaries; and (2) SLC and its Subsidiaries, with respect to the following types of assets: (i) Hotels owned by SLC and its Subsidiaries, subject to a mortgage held by SLT or its Subsidiaries; and (ii) Investments in Hotels made by SLC and its Subsidiaries; and (3) with respect to any of the foregoing Persons, Management Contracts and franchise agreements, to the extent of such Person's interest therein. "Hotel Company" shall have the meaning set forth in the third recital. "Hotel Construction" shall mean, at any time, up to four full service Hotel projects (it being understood that one Hotel project may include multiple facilities) under construction, having an aggregate construction cost at any time of no more than $350,000,000, as certified to the Lenders by SLT in the compliance certificate required to be delivered pursuant to Section 9.01 hereof. "Indebtedness"of any Person shall mean, without duplication, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, (ii) all indebtedness of such Person evidenced by a note, bond, debenture or similar instrument, (iii) the outstanding amount drawn and unpaid under all letters of credit issued for the account of such Person and, without duplication, all unreimbursed amounts drawn thereunder, (iv) all indebtedness of any other Person secured by any Lien on any property owned by such Person, whether or not such indebtedness has been assumed, (v) all Contingent Obligations of such Person, (vi) all Unfunded Benefit Liabilities of such Person, (vii) all actual payment obligations of such Person under any Interest Rate Protection Agreement (including, without limitation, any interest rate swaps, caps, floors, collars and similar agreements) and currency swaps and similar agreements, (viii) all indebtedness and liabilities secured by any Lien or mortgage on any property of such Person, whether or not the same would be classified as a liability on a balance sheet, (ix) the liability of such Person in respect of banker's acceptances -16- 17 and the estimated liability under any participating mortgage, convertible mortgage or similar arrangement, (x) the aggregate amount of rentals or other consideration payable by such Person in accordance with GAAP over the remaining unexpired term of all Capital Lease Obligations, (xi) all final, non-appealable judgments or decrees by a court or courts of competent jurisdiction entered against such Person (except to the extent that the amounts payable in respect of such judgments are insured), (xii) all indebtedness, payment obligations, contingent obligations, etc. of any partnership in which such Person holds a general partnership interest, and (xiii) such Person's pro rata share of any indebtedness described above of an Unconsolidated Entity; (xiv) all obligations, liabilities, reserves and any other items which are listed as a liability on a balance sheet of such Person determined on a consolidated basis in accordance with GAAP, but excluding all general contingency reserves and reserves for deferred income taxes and investment credit. "Interest Expense" shall mean, with respect to any Person for any Fiscal Quarter, the aggregate consolidated cash interest expense of such Person and its Subsidiaries for such Fiscal Quarter, as determined in accordance with GAAP. "Interest Period" shall mean, with respect to any Loan, each period commencing on the date such Loan is made or the last day of the next preceding Interest Period for such Loan and ending on the numerically corresponding day in the first, second or third calendar month thereafter, as the Company may select as provided in Section 4.05 hereof, except that each Interest Period that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing, each Interest Period that would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day). "Interest Rate Protection Agreement" shall mean, for any Person, an interest rate swap, cap or collar agreement or similar arrangement between such Person and one or more financial institutions providing for the transfer or mitigation of interest risks either generally or under specific contingencies. "Investment" shall mean, for any Person: (a) the acquisition (whether for cash, Property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of any other Person or any agreement to make any such acquisition (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such sale); (b) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including the purchase of Property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person), but excluding any such advance, loan or extension of credit having a term not exceeding 90 days representing the purchase -17- 18 price of inventory or supplies sold by such Person in the ordinary course of business); or (c) the entering into of any Guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person. "Lease" shall mean, with respect to any Person or such Person's Subsidiaries, a leasehold estate in real property owned by such Person, such Person's Subsidiary as lessee. "Lenders" shall have the meaning set forth in the preamble. "Lending Office" shall mean, for each Lender, the "Lending Office" of such Lender (or of an affiliate of such Lender) designated on the signature pages hereof or such other office of such Lender (or of an affiliate of such Lender) as such Lender may from time to time specify to the Agent and the Company as the office at which its Loans are to be made and maintained. "Lien" shall mean, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property. For purposes of this Agreement and the other Basic Documents, a Person shall be deemed to own subject to a Lien any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement (other than an operating lease) relating to such Property. "Loans" shall mean, collectively, the Tranche A Loans and the Tranche B Loans. "Majority Lenders" shall mean Lenders holding at least 66-2/3% of the aggregate outstanding principal amount of the Loans or, if the Loans shall not have been made, at least 66-2/3% of the Commitments. "Management Contract" shall mean any management agreement between the owner of a Hotel and the entity hired to manage and operate such Hotel. "Margin" shall mean 1.69% per annum. "Market Capitalization" shall mean at any time (and without duplication), with respect to any Person and, with respect to each of the following types of assets of a Person and such Person's Subsidiaries, the aggregate value thereof to be calculated as follows: (a) For Hotel Assets owned or leased for four (4) Fiscal Quarters or more, Adjusted EBITDA on a consolidated basis from such Hotel Assets for the preceding twelve (12) months divided by ten percent (10%); (b) For Hotel Assets and Hotel Construction owned or leased for less than -18- 19 four (4) Fiscal Quarters, ninety-five percent (95%) of the Total Investment in such Hotel Assets or in such Hotel Construction; (c) For Mortgage Loans, eighty-five percent (85%) of the unpaid principal balances thereof; (d) For Available Cash Balances, the Available Cash Amount; (e) For Undeveloped Land and assets in businesses other than the Hospitality Business, eighty-five percent (85%) of the Total Investment, as approved by the Lenders, in such Undeveloped Land and such non-Hospitality Business assets; (f) For Stock Acquisitions, the lesser of (i) such Person's or such Person's Subsidiary's cost basis in such Stock or (ii) ninety-five percent (95%) of the market value of such Stock at the time of determination; and (g) For Hotels managed and not owned and for which such Person has a management contract having a remaining term of 12 months or more, two hundred and fifty percent (250%) of the net income of such Person derived during the most recent 12-month period from management contracts for such Hotels; provided, however, that (1) the value attributable to Hotels owned by Unconsolidated Entities shall be calculated by reference to such Person's ownership percentage of the applicable Unconsolidated Entity (and otherwise in accordance with the above criteria); and (2) in no event shall more than (i) twenty-five percent (25%) of SLT's Market Capitalization be attributable to Hotels owned by Unconsolidated Entities and (ii) ten percent (10%) of SLT's Market Capitalization be attributable to Available Cash Balances. "Material Adverse Effect" shall mean a material adverse effect on (a) the Property, business, operations, financial condition, liabilities or capitalization of the Trust, SLT and their Subsidiaries taken as a whole, (b) the ability of any Obligor to perform its obligations under any of the Basic Documents to which it is a party, (c) the validity or enforceability of any of the Basic Documents, (d) the rights and remedies of the Lenders and the Agent under any of the Basic Documents or (e) the timely payment of the principal of or interest on the Loans. "Maturity Date" shall mean: (i) with respect to Tranche A Loans, (a) the Business Day which is the nine-month anniversary of the Commitment Termination Date, or (b) such earlier date on which the Loans are due pursuant to Section 10 hereof, and -19- 20 (ii) with respect to Tranche B Loans, the Business Day which is the nine-month anniversary of the Commitment Termination Date, subject to possible extension, as provided in the Side Letter, or (b) such earlier date on which the Loans are due pursuant to Section 10 hereof. "Mexico" shall mean the United Mexican States. "Mexican Taxes" shall mean all present and future income, stamp, registration and other taxes and levies, imposts, deductions, charges, compulsory loans and withholdings whatsoever, and all interest, penalties or similar amounts with respect thereto, now or hereafter imposed, assessed, levied or collected by Mexico or any political subdivision or taxing authority thereof or therein, or by any federation or association of or with which Mexico may be a member or associated, on or in respect of this Agreement, the Loans, the Notes, the other Basic Documents, the recording, registration, notarization or other formalization of any thereof, the enforcement thereof or the introduction thereof in any judicial proceedings, or on or in respect of any payments of principal, interest, premiums, charges, fees or other amounts made on, under or in respect of any thereof. "Mortgage" shall mean each Mortgage executed by a Hotel Company in favor of the Company in connection with the Acquisition and delivered to the Agent, in each case substantially in the form of Exhibit B-3 hereto and covering the respective properties identified in Schedule 1.01 hereto. "Mortgage Loan" shall mean, with respect to any Person, each mortgage loan now or hereafter owned by such Person or its Subsidiaries the obligor of which is not in default under such Loan, which Loan is evidenced by a mortgage note and secured by Mortgage Note Security Documents. "Mortgage Note" shall mean, with respect to each Acquisition Loan, the note duly executed and delivered by the applicable Hotel Company in favor of the Company, which note is being delivered to the Agent and is secured by a Mortgage on the corresponding Acquired Property. "Mortgage Note Security Documents" shall mean, with respect to each mortgage note owned by any Person, all presently existing or hereafter acquired loan agreements, installment land sale contracts, mortgages, deeds of trust, assignments for security or absolute assignments of rents and leases, financing statements, fixture filings, security agreements, pledges, deposit account pledge agreements, collateral assignments (including any collateral assignments of any management contracts or franchise agreements), guaranties, letters of credit, credit supports, keep well agreements or other agreements or undertakings from any person to or in favor of such Person or its Subsidiaries and securing or supporting the repayment of indebtedness or performance of any other obligation under the applicable mortgage note or any -20- 21 Mortgage Note Security Documents and all amendments, modifications, supplements, substitutions and restatements of any of the foregoing. "Multiemployer Plan" shall mean a "pension plan" as defined in Section 3(2) of ERISA which is a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA. "Net Available Proceeds" shall mean, with respect to an equity offering, the aggregate amount of all cash received by the Company and its Subsidiaries in respect of such equity offering net of reasonable expenses incurred by the applicable Obligor in connection therewith. "Net Income (Loss)" shall mean, for any Person for any period, the aggregate of net income (or loss) of such Person and its Subsidiaries for such period, determined on a consolidated basis in conformity with GAAP. "Net Operating Income" shall mean, with respect to any Hotel Asset for any period, the sum of the following (without duplication) (a) the Gross Revenues derived from the customary operation of such Hotel Assets during such period, less Operating Expenses attributable to such Hotel Asset for such period, and shall include only the Gross Revenues and other such income actually received and earned, in accordance with GAAP, attributable to such Hotel Asset during the twelve (12) month period ending at the end of the calendar month for which the Net Operating Income is being calculated, as set forth on operating statements satisfactory to Lender. Net Operating Income shall be calculated in accordance with customary accounting principles applicable to real estate and in accordance with the Uniform System of Accounts; provided, that "Net Operating Income" shall exclude (i) any condemnation or insurance proceeds (excluding rent or business interruption insurance proceeds applied to such period), (ii) any proceeds resulting from the sale, exchange, transfer, financing or refinancing of all or any portion of the Hotel Asset for which it is to be determined, (iii) amounts received from tenants as security deposits, (iv) amounts received as advance reservation deposits unless earned in accordance with GAAP, and (v) any type of income otherwise included in Net Operating Income but paid directly by any tenant or guest to a person other than SLT, SLC and or any of their Subsidiaries, as applicable. "Nizuc" shall have the meaning set forth in the third recital. "No Liens Certificate" shall have the meaning set forth in Section 7(d) hereof. "Notes" shall mean the promissory notes provided for by Section 2.05 hereof and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "Obligors" shall have the meaning set forth in the preamble. "Operating Entity" shall mean, with respect to any Person, each corporation, -21- 22 partnership, limited liability company or other business entity ninety-nine percent (99%) or more of whose Stock, partnership or membership interests are owned, directly or indirectly, and which is controlled by such Person and which is the lessee of a Hotel under an Operating Lease. "Operating Expenses" shall mean, with respect to any Person's Hotel Assets, for any given period (and shall include the pro rata portion for such period of all such expenses attributable to, but not paid during, such period), all expenses paid, accrued, or payable, as determined in accordance with GAAP and the Uniform System of Accounts by such Person and its Subsidiaries during such period in connection with the operation of such Hotel Assets; provided, that "Operating Expenses" shall exclude (i) depreciation and amortization; (ii) interest, principal, fees, costs and expense reimbursements of the Lenders in administering the Loans (other than on account of their exercising any of their rights under this Agreement or the Basic Documents); (iii) any expenditure (other than leasing and financing costs, leasing commissions, tenant concessions and improvements, and replacement reserves) which is properly treatable as a capital item under GAAP; and (iv) Operating Lease Payments. "Operating Lease" shall mean, with respect to any Person, an operating lease between such Person or such Person's Subsidiary, as lessor, and an Operating Entity, as lessee, with respect to the operation of a single Hotel owned by such lessor and leased and operated by such lessee thereunder. "Operating Lease Payments" shall mean, with respect to any Person, with respect to any Hotel or Hotels, the rent due and payable to such Person or such Person's Subsidiaries under the related Operating Lease, including, without limitation, all Base Rent, Basic Rent and all Percentage Rent (as defined in the related Operating Lease) and other property related operating expenses paid or incurred by such Person or such Person's Subsidiaries (as each term is defined in the related Operating Lease) minus any payments pursuant to any contractual arrangement which provides for such Person or such Person's Subsidiaries to pay a portion of the proceeds or profits from such Operating Lease Payments to any other Person. "PBGC" shall mean the Pension Benefit Guaranty Corporation established under ERISA, or any successor thereto. "Permitted Investments" shall mean: (a) direct obligations of the United States of America, or of any agency thereof, or obligations guaranteed as to principal and interest by the United States of America, or of any agency thereof, in either case maturing not more than 90 days from the date of acquisition thereof; (b) certificates of deposit issued by any bank or trust company organized under the laws of the United States of America or any state thereof and having capital, surplus and undivided profits of at least U.S.$500,000,000, maturing not more than 90 days from the date of acquisition thereof; and (c) commercial paper rated A-1 or better or P-1 by Standard & Poor's Corporation or Moody's Investors Services, Inc., respectively, maturing not more than 90 days from -22- 23 the date of acquisition thereof. "Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof). "Plan" shall mean any employee benefit plan covered by Title IV of ERISA or subject to Section 412 of the Code or Section 302 of ERISA (i) that is maintained by any Obligor or (ii) with respect to which any such person has or may have any obligation or liability, whether direct or indirect; provided, however, that "Plan" shall not include any "multiemployer plan" as defined in Section 4001(a)(3) of ERISA. "Plan Asset Entity" shall mean any "employee benefit plan" as defined under ERISA, any "plan" as defined under Section 4975 of the Code, and any entity any portion or all of the assets of which are deemed pursuant to the United Sates Department of Labor Regulation Section 2510.3-101 or otherwise pursuant to ERISA or the Code to be, for any purpose of ERISA or Section 4975 of the Code, assets of any such "employee benefit plan" or "plan" which invests in such entity. "Post-Default Rate" shall mean, in respect of any principal of any Loan, interest thereon or any other amount owing hereunder that is not paid when due (whether at stated maturity, by acceleration, by optional or mandatory prepayment or otherwise), a rate per annum equal to the Base Rate plus 3%. "Prime Rate" shall mean the rate of interest from time to time publicly announced by The Chase Manhattan Bank as its prime commercial lending rate. "Process Agent" has the meaning given to that term in Section 12.13(b) hereof. "Prodepa" shall have the meaning set forth in the third recital. "Property" shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Real Estate" shall mean, with respect to any Person, all of those plots, pieces or parcels of land now owned or hereafter acquired by such Person or such Person's Subsidiaries (the "Land"), together with the right, title and interest of such Person or such Person's Subsidiaries, if any, in and to the streets, the land lying in the bed of any streets, roads or avenues, opened or proposed, in front of, adjoining or abutting the Land to the center line thereof, the air space and development rights pertaining to the Land and the right to use such air space and development rights, all rights of way, privileges, liberties, tenements, hereditaments and appurtenances belonging or in any way appertaining thereto, all fixtures, all easements now or hereafter benefitting the Land and all royalties and rights appertaining to the use and enjoyment of the Land, -23- 24 including, without limitation, all alley, vault, drainage, mineral, water, oil and gas rights, together with all improvements within such Hotels and other buildings and improvements now or hereafter erected on the Land, and any fixtures appurtenant thereto. "Recourse Indebtedness" shall mean, with respect to any Person, all Indebtedness of such Person for which the holder of such Indebtedness has recourse to the assets of such Person for the payment of such Indebtedness. "Regulations A, D, U and X" shall mean, respectively, Regulations A, D, U and X of the Board of Governors of the Federal Reserve System of the United States of America (or any successor), as the same may be modified and supplemented and in effect from time to time. "Regulatory Change" shall mean, with respect to any Lender, any change after the date of this Agreement in law or regulations (including, without limitation, Regulation D) or the adoption or making after such date of any interpretation, directive or request applying to a class of financial institutions including such Lender of or under any law or regulations (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Release" shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata. "Release Date" shall mean the date upon which the obligations of Bancomer, S.A., Institucion de Banca Multiple, Grupo Financiero (the "Seller") under Section 2(a) of that certain Post-Closing and Indemnify Agreement, dated as of August 18, 1997, given by Seller in favor of certain Benefitted Parties (defined therein) shall have been terminated or been satisfied. "Relevant Parties" shall have the meaning assigned to such term in Section 10(c) hereof. "Reportable Event" shall have the meaning set forth in Section 4043(c)(3), (5), (6) or (13) or ERISA (other than a Reportable Event as to which the provision of 30 days' notice to the PBGC is waived under applicable regulations). "Secured Indebtedness" shall mean, with respect to any Person, Indebtedness of such Person (which may be Recourse Indebtedness) (i) the repayment of which is collateralized by identified assets of such Person or (ii) with respect to which identified assets of such Person may not be encumbered or otherwise transferred prior to the -24- 25 repayment thereof. "Security Documents" shall mean, collectively, the SLC Mexico Pledge Agreement, the SLT Realty Pledge Agreement, each Mortgage, each Mortgage Note, and any assignments of any management contract and franchise agreement. "Side Letter" shall mean that certain letter agreement, dated August 18, 1997, between the Agent, the Lenders and the Obligors. "SLC" shall mean SLC Operating Limited Partnership. "SLC Mexico" shall have the meaning set forth in the first recital. "SLC Mexico Pledge Agreement" shall mean the SLC Mexico Pledge Agreement executed and delivered by SLC Mexico in favor of the Agent, substantially in the form of Exhibit B-1 hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "SLT" shall have the meaning set forth in the preamble. "SLT Realty Pledge Agreement" shall mean the SLT Realty Pledge Agreement executed and delivered by SLT in favor of the Agent, substantially in the form of Exhibit B-2 hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Solvent" shall mean, with respect to any Person, that (i) the sum of the assets of such Person, at a fair valuation based upon appraisals or comparable valuation, will exceed its liabilities, including contingent liabilities, (ii) such Person will have sufficient capital with which to conduct its business as presently conducted and as proposed to be conducted and (iii) such person has not incurred debt, and does not intend to incur debts, beyond its ability to pay such debts as they mature. For the purposes of this definition, "debt" means any liability on a claim, and "claim" means (x) a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, leal, equitable, secured or unsecured, or (y) a right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, leal, equitable, secured or unsecured (except to the extent such claims are insured) . With respect to any such contingent liabilities, such liabilities shall be computed in accordance with GAAP at the amount which, in light of the facts and circumstances existing at the time, represents the amount which can reasonably be expected to become an actual or matured liability. "Step Plan" shall have the meaning set forth in the second recital. -25- 26 "Stock" shall mean shares of capital stock, beneficial or partnership interests, participations or other equivalents (regardless of how designated) of or in a corporation or equivalent entity, whether voting or non-voting, and includes, without limitation, common stock and preferred stock. "Stock Acquisition" shall mean, with respect to any Person, the purchase by such Person or any of such Person's Subsidiaries of stock of an entity primarily engaged in the lodging or leisure related business. "Stock Purchase Agreement" shall have the meaning set forth in the first recital. "Stock Repurchase Plan" shall mean the Trust and the Corporation's stock repurchase plan pursuant to which the Trust and the Corporation may purchase 1,500,000, shares of its common stock. The number of shares which remain to be repurchased, as of the Closing Date, may not have a total acquisition value of more than $40,000,000. "Subordinated Indebtedness" shall mean, with respect to any Person collectively, Indebtedness of such Person that is subordinated to such Person's obligations hereunder (including, without limitation, in respect of its Guarantee under Section 6 hereof) on terms, and pursuant to documentation containing other terms (including interest, amortization, covenants and events of default), in form and substance satisfactory to the Majority Lenders. "Subsidiary" shall mean, with respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "Tangible Net Worth" shall mean, as at any date for any Person, the sum for such Person and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) the amount of capital stock; plus (b) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit); minus (c) the sum of the following: cost of treasury shares and the book value -26- 27 of all assets that should be classified as intangibles (without duplication of deductions in respect of items already deducted in arriving at surplus and retained earnings) but in any event including goodwill, minority interests, research and development costs, trademarks, trade names, copyrights, patents and franchises, unamortized debt discount and expense, all reserves and any write-up in the book value of assets resulting from a revaluation thereof. "Termination Event" shall mean (i) a Reportable Event, or (ii) the initiation of any action by any Guarantor or any member of the Guarantors' ERISA Controlled Group or any other person to terminate a Plan or the treatment of any amendment to a Plan as a termination under ERISA, in either case, which could result in liability to any Guarantor, (iii) the institution of proceedings by the PBGC under Section 4042 of ERISA to terminate a Plan or to appoint a trustee to administer any Plan, (iv) any partial or total withdrawal from a Multiemployer Plan which in either case, could result in liability to any Guarantor or (v) the taking of any action that would require Security to the Plan under Section 401(a)(29) of the Code. "Title Companies" shall have the meaning set forth in Section 7(d) hereof. "Total Investment" shall mean, with respect to any Person and with respect to any Hotel and Hotel Construction, such Person's or such Person's Subsidiary's investment in such Hotel or Hotel Construction (including all investments constituting, evidencing or secured by an interest in property, whether tangible or intangible and whether real, personal or mixed, that is used or intended for use in, or in any manner connected with or relating to, the ownership or leasing of such Hotel, specifically including, without limitation, investments in Subsidiaries and Unconsolidated Entities owning or leasing Hotels) at cost, on a consolidated basis, provided that in determining the cost of such investments, there shall be included (i) the amount of all cash paid and the value (as determined by the Board of Directors of the Trust for purposes of such investment and approved by such Person's and the Trust's independent public accountants of recognized national standing) of any other property transferred therefor by such Person or such Person's Subsidiary, (ii) the amount of all indebtedness and other obligations assumed or incurred by such Person or such Person's Subsidiary or to which such Person or such Person's Subsidiary takes subject, (iii) the value (as determined by the Board of Directors of the Trust for the purposes of such investment and approved by such Person's and the Trust's independent public accountants of recognized national standing) of all operating partnership units of which the issuer is an entity that is, or upon such investment will be, included within such Person or such Person's Subsidiary and which are issued (otherwise than for cash) to, or retained by, any person other than such Person or such Person's Subsidiary in connection with such investment and (iv) any other costs incurred in connection with such investment as reasonably acceptable to the Lenders. For purposes of this definition only "indebtedness" of a Person or such Person's Subsidiary shall mean the consolidated liabilities of such Person and such Person's Subsidiaries for borrowed money (including -27- 28 all notes payable and drafts accepted representing extensions of credit) and all obligations evidenced by bonds, debentures, notes or other similar instruments on which interest charges are customarily paid, including Capital Lease Obligations. "Tranche A Loans" shall mean the loans provided for in Section 2.01 hereof the proceeds of which shall be loaned by the Company to a Hotel Company to purchase Acquired Property other than the Westin Regina Cancun. "Tranche B Loans" shall mean the loans provided for in Section 2.01 hereof the proceeds of which shall be loaned by the Company to a Hotel Company to purchase the Westin Regina Cancun. "Trust" shall have the meaning set forth in the preamble. "Unconsolidated Entity" shall mean, with respect to any Person, at any date, any other Person in whom such Person holds an Investment (including an Investment held by such Person in a joint venture), which Investment is accounted for in the financial statements of such Person on an equity basis of accounting and whose financial results would not be consolidated financial statements of such Person, if such statements were prepared as of such date. "Undeveloped Land" means any non-income producing Real Estate. "Unfunded Benefit Liabilities" shall mean, with respect to any Plan at any particular time, the amount (if any) by which (i) the present value of all benefit liabilities under such Plan as defined in Section 4001(a)(16) of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan (on the basis of assumptions prescribed by the PBGC for the purpose of Section 4044 of ERISA). "Uniform System of Accounts" shall mean the Uniform System of Accounts for Hotels as approved by the American Hotel and Motel Association (as in effect from time to time) applied on a consistent basis. "Unsecured Indebtedness" shall mean, with respect to any Person, Indebtedness of such Person (which may be Recourse Indebtedness) the repayment of which is not collateralized by assets of such Person. "U.S. Government Obligations" shall mean certain obligations of, or obligations guaranteed as to principal and interest by, the United States government or any agency or instrumentally thereof, when such obligations have a maturity of less than 365 days and are backed by the full faith and credit of the United States and have a predetermined fixed dollar of principal due at maturity that cannot vary or change. Interest may either be fixed or variable. Interest must be tied to a single interest rate -28- 29 index plus a single fixed spread (if any), and move proportionately, but not inversely, with that index. "Wholly Owned Subsidiary" shall mean, with respect to any Person, any corporation, partnership or other entity of which all of the equity securities or other ownership interests are directly or indirectly owned or controlled by such Person or one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. 1.02 Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters with respect to the Trust and SLT required to be furnished to the Agent or the Lenders hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with that used in the audited consolidated financial statements of the Trust and SLT and their consolidated Subsidiaries referred to in Section 8.02 hereof (except for changes concurred with by their independent public accountants). Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters with respect to the Company required to be furnished to the Agent or the Lenders hereunder shall be prepared, in accordance with generally accepted accounting principles applied by the Company on the Closing Date, applied on a consistent basis. Section 2. Commitments, Loans, Notes and Prepayments. 2.01 Loans. Each Lender severally agrees, on the terms and conditions of this Agreement, and on the Closing Date to make a Tranche A Loan and a Tranche B Loan (each of which shall be a non-revolving term loan) to the Company in Dollars on or before the Commitment Termination Date in an aggregate principal amount up to but not exceeding the amount of the Commitment of such Lender with respect to each such Loan. 2.02 Borrowings. The Company shall give the Agent notice of the borrowing hereunder as provided in Section 4.05 hereof. Not later than 1:00 p.m., New York time, on the date specified for the borrowing hereunder, each Lender shall make available the amount of the Loan to be made by it on such date to the Agent, at the Agent's Account, in immediately available funds, for account of the Company. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Company by depositing the same, in immediately available funds, in an account of the Company maintained at a bank in New York City designated by the Company. 2.03 Lending Offices. The Loans made by each Lender shall be made and -29- 30 maintained at such Lender's Lending Office. 2.04 Several Obligations; Remedies Independent. The failure of any Lender to make any Loan to be made by it on the date specified therefor shall not relieve any other Lender of its obligation to make its Loan on such date, but neither any Lender nor the Agent shall be responsible for the failure of any other Lender to make a Loan to be made by such other Lender, and no Lender shall have any obligation to the Agent or any other Lender for the failure by such Lender to make any Loan required to be made by such Lender. The amounts payable by the Company at any time hereunder and under the Notes to each Lender shall be a separate and independent debt and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and the Notes, and it shall not be necessary for any other Lender or the Agent to consent to, or be joined as an additional party in, any proceedings for such purposes. 2.05 Notes. Each Tranche A Loan and the Tranche B Loan made by each Lender shall be evidenced by a promissory note of the Company substantially in the form of Exhibit A hereto, dated the date of such Loan, payable to such Lender in a principal amount equal to the amount of such Loan and otherwise duly completed. 2.06 Optional Prepayments. Subject to Section 4.04 hereof, the Company shall have the right to prepay Loans (in whole or in part) at any time or from time to time, provided that (i) the Company shall give the Agent notice of each such prepayment as provided in Section 4.05 hereof (and, upon the date specified in any such notice of prepayment, the amount to be prepaid shall become due and payable hereunder), and (ii) until the Release Date, Tranche B Loans may not be prepaid with prepayments of the Acquisition Loan made to either Prodepa or DTI Los Cabos. 2.07 Mandatory Prepayments. Upon any prepayment of any Acquisition Loan (whether mandatory or optional), the Company shall prepay the Loans in an aggregate amount equal to 100% of the principal prepayment thereof; provided, that until the Release Date, Tranche B Loans may not be prepaid with prepayments of the Acquisition Loan made to either Prodepa or DTI Los Cabos. Section 3. Payments of Principal and Interest. 3.01 Repayment of Loans. The Company hereby promises to pay to the Agent for account of each Lender the full amount of the principal of such Lender's Loan on the Maturity Date. Until the Release Date, the repayment of the Tranche B Loans is subject to the terms of the Side Letter. 3.02 Interest. The Company hereby promises to pay to the Agent for account of each Lender interest on the unpaid principal amount of each Loan made by such Lender for the period from and including the date of such Loan to but excluding the date such Loan shall be paid in full, at a rate per annum, for each Interest Period -30- 31 relating thereto, equal to the Eurodollar Rate for such Loan for such Interest Period plus the Margin. Notwithstanding the foregoing, the Company hereby promises to pay to the Agent for account of each Lender interest at the applicable Post-Default Rate on any principal of any Loan made by such Lender and on any other amount payable by the Company hereunder or under the Notes held by such Lender to or for account of such Lender, that shall not be paid in full when due (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise), for the period from and including the due date thereof to but excluding the date the same is paid in full. Accrued interest on each Loan shall be payable (i) on the last day of the Interest Period in effect at such time (and, if the Interest Period in effect at such time is longer than one month at one-month intervals following the first day of such Interest Period), and (ii) upon the payment or prepayment thereof (but only on the principal amount so paid or prepaid), except that interest payable at the Post-Default Rate shall be payable from time to time on demand. Promptly after the determination of any interest rate provided for herein or any change therein, the Agent shall give notice thereof to the Lenders to which such interest is payable and to the Company. Section 4. Payments; Pro Rata Treatment; Computations; Etc. 4.01 Payments. (a) Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by the Company under this Agreement and the Notes, and, except to the extent otherwise provided therein, all payments to be made by the Obligors under any other Basic Document, shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim (except as provided in the Side Letter with respect to the Tranche B Loans only), to the Agent at the Agent's Account, not later than 1:00 p.m., New York time, on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). (b) At the time of making each payment under this Agreement or any Note for account of any Lender, each such payment is to be applied first, to pay fees (if any) due at such time, second, to pay interest due at such time, and third, to the principal amount outstanding hereunder; provided, that if an Event of Default has occurred and is continuing at such time, the Agent may distribute such payment to the Lenders for application in such manner as it or the Majority Lenders, subject to Section 4.02 hereof, may determine to be appropriate. (c) Each payment received by the Agent under this Agreement or any Note for account of any Lender shall be paid by the Agent promptly to such Lender, in immediately available funds, for account of such Lender's Lending Office for the Loan or other obligation in respect of which such payment is made. -31- 32 (d) If the due date of any payment under this Agreement or any Note would otherwise fall on a day that is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable for any principal so extended for the period of such extension. 4.02 Pro Rata Treatment. Except to the extent otherwise provided herein: (a) each borrowing of Loans from the Lenders under Section 2.01 hereof shall be made from the Lenders pro rata according to the amounts of their respective Commitments; (b) each payment or prepayment of principal of Loans by the Company shall be made for account of the Lenders of the applicable tranche pro rata in accordance with the respective unpaid principal amounts of the Loans of such tranche held by them; and (c) each payment of interest on Loans by the Company shall be made for account of the Lenders of the applicable tranche pro rata in accordance with the amounts of interest on such Loans then due and payable to the respective Lenders of such tranche. 4.03 Computations. Interest on each Loan shall be computed on the basis of a year of 360 days and the actual number of days elapsed (including the first day but excluding the last day) occurring in the period for which payable. 4.04 Minimum Amounts. Except for mandatory prepayments made pursuant to Section 2.07 hereof, each partial prepayment of principal of Loans shall be in an aggregate amount at least equal to U.S.$500,000 or a larger multiple of U.S.$100,000 in excess thereof. 4.05 Certain Notices. Notices by the Company to the Agent of borrowings and optional prepayments of Loans and the duration of Interest Periods shall be irrevocable and shall be effective only if received by the Agent not later than 10:00 a.m., New York time, three Business Days prior to the date of the borrowing or prepayment or the first day of such Interest Period. Each such notice of borrowing or optional prepayment shall specify the amount (subject to Section 4.04 hereof) of each Loan to be borrowed or prepaid and the date of borrowing or optional prepayment (which shall be a Business Day). Each such notice of the duration of an Interest Period shall specify the Loans to which such Interest Period is to relate. The Agent shall promptly notify the Lenders of the contents of each such notice. In the event that the Company shall have failed to notify the Agent of the duration of any Interest Period, the Company shall be deemed to have selected an Interest Period having a duration of one month. In the event that the final Interest Period, if selected, would otherwise extend beyond the Maturity Date of the Loans, the Eurodollar Rate for the period from, and including, the last day of the last complete Interest Period to, but excluding the Maturity Date (such period, the "Stub Period"), shall be determined by the Agent based on the Eurodollar Rate for the Stub Period. 4.06 Non-Receipt of Funds by the Agent. Unless the Agent shall have been -32- 33 notified by a Lender or the Company (the "Payor") prior to the date on which the Payor is to make payment to the Agent of (in the case of a Lender) the proceeds of a Loan to be made by such Lender hereunder or (in the case of the Company) a payment to the Agent for account of one or more of the Lenders hereunder (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date; and, if the Payor has not in fact made the Required Payment to the Agent, the recipient(s) of such payment shall, on demand, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date (the "Advance Date") such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such day and, if such recipient(s) shall fail promptly to make such payment, the Agent shall be entitled to recover such amount, on demand, from the Payor, together with interest as aforesaid, provided that if neither the recipient(s) nor the Payor shall return the Required Payment to the Agent within three Business Days of the Advance Date, then, retroactively to the Advance Date, the Payor and the recipient(s) shall each be obligated to pay interest on the Required Payment as follows: (i) if the Required Payment shall represent a payment to be made by the Company to the Lenders, the recipient(s) shall be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the Post-Default Rate (and, in case the recipient(s) shall return the Required Payment to the Agent, without limiting the obligation of the Company under Section 3.02 hereof to pay interest to such recipient(s) at the Post-Default Rate in respect of the Required Payment) and (ii) if the Required Payment shall represent proceeds of a Loan to be made by the Lender to the Company, the Payor and the Company shall each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the rate of interest provided for such Required Payment pursuant to Section 3.02 hereof (and, in case the Company shall return the Required Payment to the Agent, without limiting any claim the Company may have against the Payor in respect of the Required Payment). 4.07 Sharing of Payments, Etc. (a) The Company agrees that, in addition to (and without limitation of) any right of set-off, banker's lien or counterclaim a Lender may otherwise have, each Lender shall be entitled, at its option, to offset balances held by it for account of the Company at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Lender's Loans or any other amount payable to such Lender hereunder, that is not paid when due (regardless of whether such balances are then due to the Company), in which case it shall promptly notify the Company and the Agent -33- 34 thereof, provided that such Lender's failure to give such notice shall not affect the validity thereof. (b) If any Lender shall obtain from any Obligor payment of any principal of or interest on any Loan owing to it or payment of any other amount under this Agreement or any other Basic Document through the exercise of any right of set-off, banker's lien or counterclaim or similar right or otherwise (other than from the Agent as provided herein), and, as a result of such payment, such Lender shall have received a greater percentage of the principal of or interest on the Loans or such other amounts then due hereunder or thereunder by such Obligor to such Lender than the percentage received by any other Lender, it shall promptly purchase from such other Lenders participations in (or, if and to the extent specified by such Lender, direct interests in) the Loans or such other amounts, respectively, owing to such other Lenders (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Lenders shall share the benefit of such excess payment (net of any expenses that may be incurred by such Lender in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal of and/or interest on the Loans or such other amounts, respectively, owing to each of the Lenders. To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) The Company agrees that any Lender so purchasing such a participation (or direct interest) may exercise all rights of set-off, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans or other amounts (as the case may be) owing to such Lender in the amount of such participation. (d) Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of any Obligor. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a set-off to which this Section 4.07 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lender entitled under this Section 4.07 to share in the benefits of any recovery on such secured claim. Section 5. Yield Protection, Etc. 5.01 Additional Costs. (a) The Company shall pay directly to the Agent on behalf of any Lender from time to time such amounts as any Lender may determine to be necessary to -34- 35 compensate such Lender for any costs that such Lender determines are attributable to its making or maintaining of any Loans or its obligation to make any Loans hereunder, or any reduction in any amount receivable by such Lender hereunder in respect of any Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change that: (i) shall subject any Lender (or its Lending Office) to any tax, duty or other charge in respect of such Loans or its Notes or changes the basis of taxation of any amounts payable to such Lender under this Agreement or its Notes in respect of Loans (excluding changes in the rate of tax on the overall net income of such Lender or of such Lending Office by the jurisdiction in which such Lender has its principal office or such Lending Office); or (ii) imposes or modifies any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender (including, without limitation, any of such Loans or any deposits referred to in the definition of "Eurodollar Rate" in Section 1.01 hereof), or any commitment of such Lender (including, without limitation, the Commitment of such Lender hereunder); or (iii) imposes any other condition affecting this Agreement or its Notes (or any of such extensions of credit or liabilities) or its Commitment. (b) Without limiting the effect of the foregoing provisions of this Section 5.01 (but without duplication), the Company shall pay to the Agent on behalf of any Lender from time to time on request such amounts as such Lender may determine to be necessary to compensate such Lender (or, without duplication, the bank holding company of which such Lender is a subsidiary) for any costs that it determines are attributable to the maintenance by such Lender (or any Lending Office or such bank holding company), pursuant to any law or regulation or any interpretation, directive or request (having the force of law and where the failure to comply therewith would be unlawful) of any court or governmental or monetary authority (i) following any Regulatory Change or (ii) implementing any risk-based capital guideline or other requirement (having the force of law and where the failure to comply therewith would be unlawful) heretofore or hereafter issued by any government or governmental or supervisory authority implementing at the national level the Basle Accord, of capital in respect of its Commitments or Loans (such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Lender (or any Lending Office or such bank holding company) to a level below that which such Lender (or any Lending Office or such bank holding company) could have achieved but for such law, regulation, interpretation, directive or request). For purposes of this Section 5.01(b), "Basle Accord" shall mean the proposals for risk-based capital framework described by the Basle Committee on Banking Regulations and Supervisory Practices in its paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988, as amended, modified and supplemented and in effect -35- 36 from time to time or any replacement thereof. (c) Each Lender shall notify the Agent (who shall in turn notify the Company) of any event occurring after the date of this Agreement entitling such Lender to compensation under paragraph (a) or (b) of this Section 5.01 as promptly as practicable, but in any event within 45 days, after such Lender obtains actual knowledge thereof; provided that (i) if any Lender fails to give such notice within 45 days after it obtains actual knowledge of such an event, such Lender shall, with respect to compensation payable pursuant to this Section 5.01 in respect of any costs resulting from such event, only be entitled to payment under this Section 5.01 for costs incurred from and after the date 45 days prior to the date that such Lender does give such notice and (ii) each Lender will designate a different Lending Office for the Loans of such Lender if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender, except that such Lender shall have no obligation to designate a Lending Office located in the United States of America. Each Lender will furnish to the Company a certificate setting forth the basis and amount of each request by such Lender for compensation under paragraph (a) or (b) of this Section 5.01. Determinations and allocations by any Lender for purposes of this Section 5.01 of the effect of any Regulatory Change pursuant to paragraph (a) or (b) of this Section 5.01, or of the effect of capital maintained pursuant to paragraph (b) of this Section 5.01, on its costs or rate of return of maintaining Loans or its obligation to make Loans, or on amounts receivable by it in respect of Loans, and of the amounts required to compensate such Lender under this Section 5.01, shall be conclusive, provided that such determinations and allocations are made on a reasonable basis. 5.02 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Lending Office to honor its obligation to make or maintain any of its Loans hereunder (and, in the reasonable opinion of such Lender, the designation of a different Lending Office would either not avoid such unlawfulness or would be disadvantageous to the Lender), then such Lender shall immediately notify the Agent, and such Lender's obligation to maintain or continue Loans bearing interest at the Eurodollar Rate shall be suspended (until such Lender shall notify the Agent that the circumstances causing such unlawfulness no longer exist), whereupon such Lender's Loans shall automatically convert into Loans bearing interest at the Base Rate and such Lender shall not be entitled to compensation from the Company of the type set forth in Section 5.04 hereof resulting therefrom. 5.03 Taxes. (a) All payments on account of the principal of and interest on the Loans, fees and all other amounts payable hereunder by the Company to or for the account of the Agent or any Lender, including, without limitation, amounts payable under clause (b) of -36- 37 this Section 5.03, shall be made free and clear of and without reduction or liability for Mexican Taxes. The Company will pay all Mexican Taxes for its account, prior to the date on which penalties attach thereto, except for any Mexican Taxes (other than Mexican Taxes imposed on or in respect of any amount payable hereunder, under the Notes or under any other Basic Document) the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained, so long as no claim for such Mexican Taxes is made on the Agent or any Lender. If, as a result of the making of any deduction or withholding of Mexican Taxes under this Section 5.03, and the Agent or a Lender obtains the benefit of a credit or relief against or repayment of any tax through an actual reduction in taxes paid or receipt of a refund (a "Tax Credit"), the Agent or Lender, as the case may be, shall reimburse to the Company an amount equal to the proportion of the Tax Credit as will leave the Agent or Lender after such reimbursement in no better or worse position (on an after tax basis) than it would have been in if such deduction or withholding had been made and such increased payment had not been required. Nothing in this clause shall obligate the Agent or Lender to utilize such Tax Credit in priority to any other credit or relief available to it for tax purposes, but the Agent or Lender shall otherwise take reasonable steps to obtain the benefit of such Tax Credit. If the benefit obtained by the Agent or Lender through use of the Tax Credit is reduced or eliminated after payment has been made to Company under this Section 5.03 (through adjustment to the Agent's or Lender's tax return or otherwise), the Company shall be obligated to repay to such Agent or Lender the amount by which the tax benefit to the Agent or Lender is reduced. Nothing in this clause shall obligate the Agent or Lender to disclose any information regarding its tax affairs or computations to the Company. (b) The Company shall indemnify the Agent and each Lender against, and reimburse the Agent and each Lender on demand for, any Mexican Taxes and any loss, liability, claim or expense, including interest, penalties and legal fees, which the Agent or such Lender (as the case may be) may incur at any time arising out of or in connection with any failure of the Company to make any payment of Mexican Taxes when due. (c) In the event that the Company is required by applicable law, decree or regulation to deduct or withhold Mexican Taxes from any amounts payable on, under or in respect of this Agreement or the Loans (including, without limitation, the Mexican income taxes referred to in clause (f) of this Section 5.03), the Company shall promptly pay the Person entitled to such amount such additional amounts as may be required, after the deduction or withholding of Mexican Taxes to enable such Person to receive from the Company, on the due date thereof, an amount equal to the full amount stated to be payable to such Person under this Agreement. (d) The Company shall not be obligated to pay the Agent or any Lender any additional amounts described in Section 5.03(c) in respect of Mexican Taxes to the extent that such Mexican Taxes or any portion thereof have been imposed as a result of: (A) the failure of any Lender (i) to provide to the Company, upon the written request -37- 38 of the Company and if and when required under applicable law, a letter specifying that such Lender is the effective beneficiary of interest hereunder and under the Note held by such Lender, as set forth in the Resolucion Miscelanea Fiscal para 1997 or any equivalent administrative regulations in effect thereafter while this Agreement shall remain in full force and effect, (ii) following a reasonable written request of the Company, to complete and to file with the appropriate governmental authority (at the Company's expense), or to provide to the Company, such forms, certificates, documents, information, applications, declarations or returns prescribed by any law, rule or regulation enacted or issued by Mexico or any political subdivision thereof or authority therein, or a double taxation treaty to which Mexico is a party and which is in effect, that are necessary to avoid or reduce such Mexican Taxes pursuant to provisions of any law, rule or regulation enacted or issued by Mexico or any political subdivision thereof or authority therein, or a double taxation treaty to which Mexico is a party and which in effect (provided that such Lender shall be under no obligation to provide to the Company or to file with any governmental authority any such forms, certificates, documents, information, applications, declarations or returns which contain any information that such Lender reasonably deems to be confidential or proprietary, and the provision or the filing of which would, in the reasonable judgment of such Lender, be materially adverse to such Lender, or (iii) to maintain its registration with the Ministry of Finance and Public Credits as a foreign financial institution for purposes of the Mexican Income Tax Law, the rules thereunder (or any successor statute or rules) and any administrative regulations (resoluciones miscelaneas) thereunder so long as such requirement remains applicable and such Lender remains legally entitled to maintain such registration or (B) the redesignation of the Lender's Lending Office to another jurisdiction (except if such redesignation results from an event of illegality described in 5.03 hereof). (e) Each Lender that is not organized under the laws of Mexico and that is a signatory hereto represents and warrants that, as of the date hereof, such Lender is (i) registered with the Ministry of Finance and Public Credit as a foreign financial institution for purposes of the Mexican Income Tax Law, the rules thereunder and any administrative regulations (resoluciones miscelaneas) thereunder and (ii) a resident for tax purposes of a jurisdiction with which Mexico has in effect a treaty for the avoidance of double taxation. (f) The Company represents and warrants to the Lenders and the Agent that, on and as of the date of this Agreement and assuming the accuracy of the representations made by each Lender in Section 5.03(e), none of this Agreement, any other Basic Document, or the execution or delivery by the Company of this Agreement or any other Basic Document, is subject to any Mexican Taxes, and no payment to be made by the Company under this Agreement is subject to any Mexican Taxes, except for Mexican income taxes at the rate of 4.9% on amounts payable by the Company hereunder (other than principal of the Loans) required to be withheld and paid by the Company. (g) The Company shall furnish to the Agent, upon the request of any Lender -38- 39 (through the Agent), original official tax receipts, or certified copies thereof, in respect of each payment of Mexican Taxes required under this Section 5.03, when it delivers the compliance certificate required to be delivered pursuant to Section 9.01 hereof, and the Company shall promptly furnish to the Agent at its request or at the request of any Lender (through the Agent) any other information, documents and receipts that the Agent or such Lender may reasonably require to establish to its satisfaction that full and timely payment has been made of all Mexican Taxes required to be paid under this Section 5.03. (h) If any Obligor is required to pay additional amounts to or for the account of any Lender pursuant to this Section 5.03 in excess of any additional amounts that may be payable on the Closing Date (and, in the case of a Lender that becomes a Lender hereunder after the Closing Date, in excess of any additional amounts that would have been payable had such Lender been a Lender on the Closing Date), then such Lender will designate a different Lending Office for the Loans of such Lender if such designation would eliminate or reduce any such excess additional amounts and would not, in the reasonable opinion of such Lender, be disadvantageous to such Lender. 5.04 Compensation. The Company shall pay to the Agent for account of each Lender, upon the request of such Lender through the Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any loss, cost or expense that such Lender determines is attributable to: (a) any payment or mandatory or optional prepayment of a Loan made by such Lender for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10 hereof) on a date other than the last day of an Interest Period for such Loan; or (b) any failure by the Company for any reason (including, without limitation, the failure of any of the conditions precedent specified in Section 7 hereof to be satisfied) to borrow a Loan from such Lender on the date for such borrowing specified in the relevant notice of borrowing given pursuant to Section 2.02 hereof. Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest that otherwise would have accrued on the principal amount so paid, prepaid, or not borrowed for the period from the date of such payment, prepayment, or failure to borrow to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan that would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Loan provided for herein over (ii) the amount of interest that otherwise would have accrued on such principal amount at a rate per annum equal to the interest component of the amount such Lender would have bid in the London interbank market for Dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such -39- 40 period (as reasonably determined by such Lender). 5.05 Replacement of Lenders. Each Lender agrees that if it makes any demand for payment under Sections 5.02 or 5.03 hereof, and such demand is made as a result of the failure by such Lender to maintain its registration with the Ministry of Finance and Public Credits as a foreign financial institution for purposes of the Mexican Income Tax Law and the rules thereunder (where such Lender remains legally entitled to maintain such registration), so long as no Event of Default has occurred and is continuing, at the request of the Company, such Lender shall assign its Loans (i) to one or more assignees agreeing to purchase such Loans and identified either by the Company or the Agent (who shall, upon request by the Company, use its reasonable efforts to identify an assignee) by written notice to such Lender or, which assignees (if identified by the Company) shall be reasonably acceptable to the Agent, and shall otherwise satisfy the requirements of Section 12.07 hereof, (ii) in an amount on the date of such assignment equal to the amount that would be payable to such Lender if such assignment were a prepayment in full of such Lender's Loans and (iii) pursuant to documentation reasonably satisfactory to such Lender. Section 6. Guarantee. 6.01 The Guarantee. The Guarantors hereby jointly and severally guarantee to each Lender and the Agent and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Loans made by the Lenders to, and the Notes held by each Lender of, the Company and all other amounts from time to time owing to the Lenders or the Agent by the Company under this Agreement and under the Notes and by the Company under any of the other Basic Documents (including amounts payable in accordance with Sections 5 and 12.04 hereof), in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the "Guaranteed Obligations"). The Guarantors hereby further jointly and severally agree that if the Company shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Guarantors will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. 6.02 Obligations Unconditional. The obligations of the Guarantors under Section 6.01 hereof are absolute and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Company under this Agreement, the Notes or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that -40- 41 might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 6.02 that the obligations of the Guarantors hereunder shall be absolute and unconditional, joint and several, under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Guarantors hereunder which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to the Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of this Agreement or the Notes or any other agreement or instrument referred to herein or therein shall be done or omitted; (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under this Agreement or the Notes or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; (iv) insolvency, bankruptcy, reorganization, arrangement, adjustment, composition, assignment for the benefit of creditors, liquidation, winding up or dissolution of the Company or any Guarantor; (v) any limitation, discharge, moratorium or cessation of the liability of the Company or any Guarantor due to any statute, regulation, decree, judgment, order, stay or rule of law, or any invalidity or unenforceability in whole or in part of any documents evidencing the obligations of the Company hereunder; (vi) any merger, acquisition, consolidation or change in structure of the Company, SLT or the Trust, or any sale, lease, transfer or other disposition of any or all of the assets or shares or ownership interests of the Company, SLT or the Trust; (vii) any assignment or other transfer, in whole or in part, of the interests in and rights under this Agreement, including the right of the Lender to receive payment of the Guaranteed Obligations and the other amounts payable hereunder or any assignment or other transfer, in whole or in part, of the interests of the Lender in and to any collateral securing the Guaranteed Obligations; -41- 42 (viii) any claim, counterclaim or setoff, other than that of prior payment in cash in full or performance, that the Company, SLT or the Trust may have or assert, including any defense of incapacity or lack of corporate, partnership or other authority to execute any Basic Documents or any related documents or any collateral securing the Guaranteed Obligations; (ix) the amendment, modification, renewal, extension, cancellation or surrender of any agreement, document or instrument relating to any Basic Document or any collateral securing the Guaranteed Obligations (other than any cancellation or surrender reflecting prior payment in cash in full or performance), or the exchange, release, or waiver of any collateral securing the Guaranteed Obligations; (x) the exercise or nonexercise by the Lender of any power, right or remedy with respect to any of the Guaranteed Obligations or any collateral securing any of the Guaranteed Obligations, including the compromise, release, settlement or waiver by the Lender with or of the Company, the Trust or SLT or any other Person; (xi) the vote, claim, distribution, election, acceptance, action or inaction by the Lender in any bankruptcy case related to any of the Guaranteed Obligations, or any collateral securing the Guaranteed Obligations; or (xii) any impairment or invalidity of any of the collateral securing any of the Guaranteed Obligations or any failure to perfect (including a failure to perfect after the occurrence of a Default hereunder) any of the Liens of the Lender thereon or therein. The Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or any Lender exhaust any right, power or remedy or proceed against the Company under this Agreement or the Notes or any other agreement or instrument referred to herein or therein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. Without notice to or further assent from any Guarantor the Lenders may discharge or release, in whole or in part, any Guarantor or any other Person liable for the payment and performance of all or any part of the Guaranteed Obligations, and may permit or consent to any such action or any result of such action, and shall not be obligated to demand or enforce payment or performance upon any of the Guaranteed Obligations or collateral securing any Guaranteed Obligations, nor shall the Lenders be liable to any Guarantor or any other Person for any failure to collect or enforce payment or performance of any of the Guaranteed Obligations or to realize on any of the collateral securing any Guaranteed Obligation. 6.03 Reinstatement. The obligations of the Guarantors under this Section 6 -42- 43 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Company in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise and the Guarantors jointly and severally agree that they will indemnify the Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, fees of counsel) incurred by the Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. 6.04 Subrogation. No payment or performance hereunder by any Guarantor shall entitle such Guarantor to (a) subrogation to (or any other interest in) the rights of the Lenders to any of the loans, or (b) to any payment or performance by the Company, except in each case after payment and performance in full of the Guaranteed Obligations. Upon such payment and performance in full, and subject to the other provisions of this Section 6, such Guarantor shall be entitled to exercise, by way of subrogation, remaining rights and remedies (if any) of the Company in respect of the Guaranteed Obligations. If any amount shall be paid to such Guarantor on account of the foregoing rights at any time prior to the time that the Guaranteed Obligations have been paid in full, such amount shall be held in trust for the benefit of the Lenders and shall forthwith be paid to the Lenders, to be credited and applied to the Guaranteed Obligations, whether matured or unmatured, in accordance with applicable terms of the Basic Documents. 6.05 Remedies. The Guarantors jointly and severally agree that, as between the Guarantors and the Lenders, the obligations of the Company under this Agreement and the Notes may be declared to be forthwith due and payable as provided in Section 10 hereof (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 10) for purposes of Section 6.01 hereof notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against the Company and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by the Company) shall forthwith become due and payable by the Guarantors for purposes of said Section 6.01. 6.06 Continuing Guarantee. The guarantee in this Section 6 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. 6.07 Waiver of Civil Articles. The Guarantors hereby waive the rights and benefits of order, excusion, and division, as well as all others contained in Articles 2812, 2813, 2814, 2816, 2817, 2818, 2819, 2820, 2822, 2823, 2824, 2826, 2827, 2842, 2844, 2845, 2846, 2847, 2848 and 2849 of the Civil Code for the Federal District of -43- 44 Mexico, and in the corresponding provisions in the Civil Codes for all of the states of Mexico, which provisions they represent to know and understand in their full scope. Section 7. Conditions Precedent. The obligation of any Lender to make its Loan hereunder is subject to the conditions precedent that (i) such Loan shall be made on or before August 19, 1997, (ii) both immediately prior to the making of such Loan and also after giving effect thereto and to the intended use thereof: (a) no Default shall have occurred and be continuing; and (b) the representations and warranties made by the Obligors in Section 8 hereof, and by each Obligor in each of the other Basic Documents to which it is a party, shall be true and complete on and as of the date of the making of such Loan with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date) (the notice of borrowing by the Company hereunder shall constitute a certification by the Company to the effect set forth in the preceding clauses (a) and (b)), both as of the date of such notice and, unless the Company otherwise notifies the Agent prior to the date of such borrowing, as of the date of such borrowing) and (iii) the Agent shall have received the following documents, each of which shall be satisfactory to the Agent in form and substance: (a) Corporate Documents; Pro Forma Financial Statements. The following documents: (i) (A) for the Company and SLC Mexico, a certificate of the secretary or assistant secretary of such Person, certifying: a true and correct copy of the estatutos sociales, as amended and in effect on the Closing Date, the names and true signatures of the incumbent officers of such Person authorized to sign the Basic Documents to which such Person will be a party, and the resolutions of the board of directors of such Person authorizing the execution, delivery and performance of the Basic Documents to which such Person will be a party, (B) for SLT, certified copies of the agreement of limited partnership of SLT and the certificate of limited partnership of SLT, in each case, as amended and in effect on the Closing Date, together with a good standing certificate from the secretary of state in the jurisdiction under which SLT is organized (dated a date reasonably close to the Closing Date), together with a certificate of an appropriate officer of SLT certifying the names and true signatures of the incumbent officers of SLT authorized to sign the Basic Documents to which SLT will be a party, and the resolutions of the partnership authorizing the execution, delivery and performance of the Basic Documents to which SLT will be a party, and (C) for the Trust, a certified copy of its declaration of trust, as amended and in effect on the Closing Date, together with a copy of a good standing certificate from the secretary in the jurisdiction under which the Trust is organized (dated a date reasonably close to the Closing Date), together with a certificate of -44- 45 an appropriate officer of the Trust certifying the names and true signatures of the incumbent officers of the Trust authorized to sign the Basic Documents to which the Trust will be a party, and the resolutions of the board of trustees of the Trust authorizing the execution, delivery and performance of the Basic Documents to which the Trust will be a party; (ii) for the Company and SLC Mexico, the powers of attorney granted by the Company authorizing the execution and delivery of such of the Basic Documents to which the Company or, as the case may be, SLC Mexico is or is intended to be a party by the individuals named in such powers of attorney; and (iii) a certificate of a senior financial officer of the Trust certifying that the Trust and SLT are in compliance, as at June 30, 1997, with Sections 9.07(b)-(g), Sections 9.09, 9.10, 9.11 and 9.12 hereof as of such date and as of the end of the such period (as the case may be), in each case, on a pro forma basis. (b) Acquisition Documents. A certified copy of the Stock Purchase Agreement, together with all schedules and exhibits thereto and all other documents and instruments delivered in connection with the consummation of the Acquisition that are required to be delivered pursuant to the terms of the Stock Purchase Agreement, including all certificates, filings, documents, consents, approvals, board of directors resolutions and opinions furnished pursuant to or in connection with each Acquisition and such items shall be satisfactory in all respects to the Agent (the "Acquisition Documents"). The Agent shall be satisfied with all material amendments, waivers or other modifications of, or other forbearance to exercise any rights with respect to, any of the terms or provisions of the Acquisition Documents (including the exhibits and schedules thereto). (c) Acquisition Loan Documents. A certified copy of the Acquisition Loan documents for each Hotel Company, together with all schedules and exhibits thereto and all other documents and instruments delivered in connection with each such Acquisition Loan, including all certificates, filings, documents, consents, approvals, board of directors resolutions and opinions furnished pursuant to or in connection with each such Acquisition Loan and such items shall be satisfactory in all respects to the Agent. (d) Mortgage and Title Insurance. The following documents each of which shall be executed and delivered (and, where appropriate, acknowledged) by Persons satisfactory to the Agent: (i) one or more Mortgages covering each of the Acquired -45- 46 Properties naming the Company as the secured party, duly executed and delivered by the applicable Hotel Company to the Company (whereupon the Company shall deliver to the Agent each such Mortgage), in each case, in recordable form (in such number of copies as the Agent shall have requested) (it being understood that the Mortgages shall not be recorded or registered unless it is required to do so pursuant to Section 10 hereof); (ii) one or more subordinated Mortgages covering each of the Acquired Properties naming the Agent as the secured party, duly executed and delivered by the applicable Hotel Company to the Agent, in each case, in recordable form (in such number of copies as the Agent shall have requested) (it being understood that the subordinated Mortgages shall not be recorded or registered unless it is required to do so pursuant to Section 10 hereof); (iii) to the extent delivered with the Acquisition Documents, one or more policies of title insurance, in favor of SLC, on forms of and issued by one or more title companies organized in the United States satisfactory to the Agent (the "Title Companies"), insuring the title to the Acquired Properties for and in amounts satisfactory to the Agent, subject only to such exceptions as are satisfactory to the Agent; (iv) to the extent delivered with the Acquisition Documents, as-built surveys of recent date of each of the facilities to be covered by the Mortgage(s), showing such matters as may be required by the Agent, which surveys shall be in form and content acceptable to the Agent; (v) to the extent delivered with the Acquisition Documents, certified copies of permanent and unconditional certificates of occupancy (or, if it is not the practice to issued certificates of occupancy in Mexico, then such other evidence reasonably satisfactory to the Agent) permitting the fully functioning operation and occupancy of each such facility and of such other permits necessary for the use and operation of each such facility issued by the respective governmental authorities having jurisdiction over such facility; (vi) the Operating Agreement for each Acquired Property on terms satisfactory to the Agent; and (vii) a certificate of the applicable public registry of property with respect to each Acquired Property, in form and substance satisfactory to the Agent, that such Acquired Property is and will be free and clear of all liens (except such liens to be granted in favor of, or otherwise consented to by, the Agent) and otherwise certifying that no person (other than the -46- 47 applicable Hotel Company and the owners of condominium interests in each Acquired Property under the Operating Agreement referred to in clause (vi)) has an interest in such Acquired Property (such certificate, a "No Liens Certificate"). In addition, SLC shall have paid to the Title Companies all expenses and premiums of the Title Companies in connection with the issuance of such policies. (e) Pledge Agreements and Management and Franchise Contracts. (i) The SLC Mexico Pledge Agreement, duly executed and delivered by SLC Mexico. (ii) The SLT Realty Pledge Agreement, duly executed and delivered by SLT. (iii) copies of each franchise contract being assigned to SLT Mexico under each Acquisition Loan document. (f) Evidence of Perfection of Pledged Equity Interests. (i) certificate of the secretary of SLC Mexico certifying (A) as to a true and correct copy of the resolutions of the members of SLC Mexico approving the pledge of the SLC Mexico's equity interest in each Hotel Company pursuant to the SLC Mexico Pledge Agreement and (B) that the transfer of the SLC Mexico's equity interest in each Hotel Company and CHM to the Agent pursuant to the SLC Mexico Pledge Agreement has been duly recorded on the share register for the applicable Hotel Company and, as the case may be, CHM. (ii) certificate of the secretary of SLT Mexico certifying that the transfer of the SLT's equity interest in SLT Mexico to the Agent pursuant to the SLT Realty Pledge Agreement has been duly recorded on the share register for SLT Mexico. (g) The Capital Contribution. Evidence that SLC Mexico has made a cash contribution in dollars to the common equity of each Hotel Company in the following amounts: (i) Prodepa: U.S.$2,380,500; (ii) Nizuc: U.S. $3,979,000; and (iii) DTI Los Cabos: U.S. $5,140,500, and that SLC Mexico has applied U.S.$2,500,000 of the total Capital Contribution to purchase 50% of the capital stock of CHM. -47- 48 (h) Management Arrangements. Receipt of existing management and franchise agreements with respect to the Acquired Properties and satisfaction with the terms of the management agreements to be entered into with Westin Corp. or SLC or any of its Subsidiaries with respect to the Acquired Properties concurrent with the Acquisition. (i) The Acquisition. Evidence that the Acquisition has been or will, concurrently with the Loan be, consummated. (j) Opinion of Mexican Counsel to the Obligors. An opinion, dated the Closing Date, of Creel, Garcia Cuellar y Muggenberg, counsel to the Obligors, substantially in the form of Exhibit C-1 hereto and covering such other matters as the Agent or any Lender may reasonably request (and each Obligor hereby instructs such counsel to deliver such opinion to the Lenders and the Agent). (k) Opinion of New York Counsel to the Obligors. An opinion, dated the Closing Date, of Sidley & Austin, New York counsel to the Obligors, substantially in the form of Exhibit C-2 hereto and covering such other matters as the Agent or any Lender may reasonably request (and each Obligor hereby instructs such counsel to delivery such opinion the Lenders and the Agent). (l) Notes. The Notes evidencing the Loans, duly completed and executed. (m) Process Agent. A written acceptance by the Process Agent of its appointment under Section 12.13(b) hereof. (n) Other Documents. Such other documents as the Agent or any Lender or special New York counsel to Bancomer, S.A. may reasonably request. The obligation of any Lender to make its Loan hereunder is also subject to the payment by the Company of such fees as the Company shall have agreed to pay to any Lender or the Agent in connection herewith, including, without limitation, the reasonable fees and expenses of Mayer, Brown & Platt, special New York counsel to Bancomer, S.A. in connection with the negotiation, preparation, execution and delivery of this Agreement and the Notes and the other Basic Documents and the making of the Loans hereunder (to the extent that statements for such fees and expenses have been delivered to the Company). Section 8. Representations and Warranties. Each of the Obligors represents and warrants to the Agent and the Lenders at all times during the term of this Agreement that: 8.01 Corporate Existence. Each of the Obligors (a) is a corporation, -48- 49 partnership or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) has all requisite corporate or other power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could (either individually or in the aggregate) have a Material Adverse Effect. 8.02 Financial Condition. The Obligors have heretofore furnished to each of the Lenders the following: (i) (a) audited and consolidated balance sheets of the Trust and SLT as at December 31, 1996 and the related consolidated statements of income, retained earnings and cash flow of the Trust and SLT for the fiscal year ended on said date, with the opinion thereon (in the case of said consolidated balance sheet and statements) of a nationally recognized public accounting firm, (b) the unaudited consolidated balance sheets of the Trust and SLT as at June 30, 1997 and the related consolidated statements of income, retained earnings and cash flow of the Trust and SLT for the six-month period ended on such date; and (ii) an opening balance sheet of each Hotel Company giving effect to the Loans contemplated hereby, the Acquisition (and the transactions contemplated thereby, including the Acquisition Loans), respectively. All such financial statements delivered pursuant to clause (a) are complete and correct in all material respects and fairly present the consolidated financial condition of the Trust and SLT, as at said dates and the consolidated results of their operations for the fiscal year and six-month period ended on said dates (subject, in the case of such financial statements as at June 30, 1997, to normal year-end audit adjustments), all in accordance with generally accepted accounting principles and practices applied on a consistent basis. None of the Obligors has on the date hereof any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in said balance sheets as at said dates. Since December 31, 1996, there has been no material adverse change in the consolidated financial condition, operations, business or prospects taken as a whole of the Trust and SLT from that set forth in said financial statements as at said date. 8.03 Litigation. There are no legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or (to the knowledge of any Obligor) threatened against any of the Obligors or any of their respective Subsidiaries that (x) contest the Acquisition or (y) if adversely determined -49- 50 could (in the aggregate), could reasonably be expected to have a material adverse effect on the financial condition, operations, assets, business or properties of the Obligors, taken as a whole. There are no legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or (to the knowledge of any Obligor) threatened against SLC Mexico or any of the Hotel Companies or any of their respective Subsidiaries that (x) contest the Acquisition or (y) if adversely determined could reasonably be expected to have a material adverse effect on the financial condition, operations, assets, business or properties of the SLC Mexico and the Hotel Companies, taken as a whole. 8.04 No Breach. None of the execution and delivery of this Agreement and the Notes and the other Basic Documents, the consummation of the transactions herein and therein contemplated or compliance with the terms and provisions hereof and thereof will conflict with or result in a breach of, or require any consent under, the estatutos sociales, partnership agreement, or, as the case may be, trust agreement of any Obligor, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which any of the Obligors or any of their Subsidiaries is a party or by which any of them or any of their Property is bound or to which any of them is subject, or constitute a default under any such agreement or instrument, or (except for the Liens created pursuant to the Security Documents) result in the creation or imposition of any Lien upon any Property of any of the Obligor or any of their respective Subsidiaries pursuant to the terms of any such agreement or instrument. 8.05 Action. Each Obligor has all necessary corporate or partnership power (as the case may be), authority and legal right to execute, deliver and perform its obligations under each of the Basic Documents to which it is a party; the execution, delivery and performance by each Obligor of each of the Basic Documents to which it is a party have been duly authorized by all necessary corporate or partnership action (as the case may be) on its part (including, without limitation, any required shareholder or partnership approvals); and this Agreement has been duly and validly executed and delivered by each Obligor and constitutes, and each of the Notes and the other Basic Documents to which it is a party when executed and delivered by such Obligor (in the case of the Notes, for value) will constitute, its legal, valid and binding obligation, enforceable against each Obligor in accordance with its terms. 8.06 Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency, or any securities exchange, are necessary for the consummation of the Acquisition or the execution, delivery or performance by any Obligor of the Basic Documents to which it is a party or the execution, delivery or performance by each Person party to any Acquisition Document, or for the legality, validity or enforceability thereof. 8.07 Legal Form. This Agreement and each other Basic Document is in proper -50- 51 legal form under the law of Mexico for the enforcement thereof against the Obligors and, as the case may be, SLC Mexico under such law, and if this Agreement and each other Basic Document were stated to be governed by such law, they would constitute legal, valid and binding obligations of each Obligor and, as the case may be, SLC Mexico under such law, enforceable in accordance with their respective terms. All formalities required in Mexico for the validity and enforceability of this Agreement and each other Basic Document (including, without limitation, any necessary registration, recording or filing with any court or other authority in Mexico (other than any such registration, recording or filing of the Mortgage, which, on the date hereof will not be accomplished)) have been accomplished, and no Mexican Taxes are required to be paid and no notarization is required, for the validity and enforceability thereof (other than, upon any registration, recording or filing of a Mortgage pursuant to the terms hereof, Mexican Taxes payable at such time). 8.08 Ranking. This Agreement and each other Basic Document and the obligations evidenced hereby and thereby are and will at all times be direct and unconditional general obligations of each Obligor and rank and will at all times rank in right of payment and otherwise at least pari passu with all other senior unsecured Indebtedness of each Obligor, whether now existing or hereafter outstanding. 8.09 Taxes. Each of the Obligor, SLC Mexico and their respective Subsidiaries have filed all material tax returns that are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by any of the Obligor, SLC Mexico or any of their respective Subsidiaries. The charges, accruals and reserves on the books of the Obligors, SLC Mexico and their respective Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Obligors, adequate. 8.10 Commercial Activity; Absence of Immunity. Each of the Company and SLC Mexico is subject to civil and commercial law with respect to its obligations under each of the Basic Documents to which it is a party. The execution, delivery and performance by the Company and SLC Mexico of each Basic Document to which it is a party constitute private and commercial acts rather than public or governmental acts. None of the Company, SLC Mexico, nor any of their respective Properties or revenues, is entitled to any right of immunity in any jurisdiction from suit, court jurisdiction, judgment, attachment (whether before or after judgment), set-off or execution of a judgment or from any other legal process or remedy relating to the obligations of such Person under any of the Basic Documents to which it is a party. 8.11 Material Agreements and Liens. Schedule 8.11 hereto is a complete and correct list, as of the date of this Agreement, of indebtedness under loans of each Obligor or any of their respective Subsidiaries, and the aggregate principal or face amount outstanding or that may become outstanding under each such arrangement is correctly described in said Schedule 8.11. -51- 52 8.12 Solvency. On the Closing Date and after giving effect to the Loans, the Company, the Trust and SLT will be Solvent. 8.13 Subsidiaries, Etc. Each Obligor and its Subsidiaries owns, free and clear of Liens, and has the unencumbered right to vote, all outstanding ownership interests in each Person owned by it, all of the issued and outstanding capital stock of each such Person organized as a corporation is validly issued, fully paid and nonassessable and there are no outstanding Equity Rights with respect to such Person, except as may be provided by the provisions of (i) that certain Membership Pledge and Security Agreement dated as of August 16, 1996, by and between SLT, as Debtor, and Goldman Sachs Mortgage Company, as Secured Party, and (ii) that certain Membership Pledge and Security Agreement dated as of August 16, 1996, by and between SLC, the Corporation and SLT Financing Partnership, as Debtors, and Goldman Sachs Mortgage Company, as Secured Party. Each of the Membership Pledge and Security Agreements described in items (i) and (ii) was executed in connection with that certain Loan Agreement dated as of August 16, 1996, between SLT and the Trust, as Borrowers, and Goldman Sachs Mortgage Company, Individually and as Agent for one or more co-lenders. 8.14 True and Complete Disclosure. The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of the Obligors to the Agent or any Lender in connection with the negotiation, preparation or delivery of this Agreement and the other Basic Documents or included herein or therein or delivered pursuant hereto or thereto, when taken as a whole do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. All written information furnished after the date hereof by the Obligors and their respective Subsidiaries to the Agent and the Lenders in connection with this Agreement and the other Basic Documents and the transactions contemplated hereby and thereby will be true, complete and accurate in every material respect, or (in the case of projections) based on reasonable estimates, on the date as of which such information is stated or certified. There is no fact known to any Obligor that could have a Material Adverse Effect that has not been disclosed herein, in the other Basic Documents or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to the Lenders for use in connection with the transactions contemplated hereby or thereby. 8.15 ERISA. As of the Closing Date, none of the Guarantors has any Plans other than those listed on Schedule 8.15. No accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of ERISA) still outstanding, or Reportable Event, which exceeds $5,000,000 or which has or could reasonably be expected to have a Material Adverse Effect has occurred with respect to any Plan and there is no lien outstanding under Section 412 of the Code or Section 302 of ERISA with respect to any Obligor's assets. As of the Closing Date, the Unfunded Benefit Liabilities do not in the aggregate exceed $1,000,000. The Guarantors have not failed to comply in all -52- 53 material respects with the requirements of ERISA and the Code and plan documents for any Employee Benefit Plan which has or could reasonably be expected to have a Material Adverse Effect and are not in default (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan which has or could reasonably be expected to have a Material Adverse Effect. None of the Guarantors, nor any member of their respective ERISA Controlled Groups (determined without reference to Section 414(m) or (o) of the Code, if liabilities of entities in the Guarantors' ERISA Controlled Group solely by reason of Section 414(m) or (o) could not result in liability to the Guarantors) is subject to any present or potential withdrawal liability pursuant to Section 4201 or 4204 of ERISA which, individually or in the aggregate is in excess of $5,000,000 or has or could reasonably be expected to have a Material Adverse Effect. To the best knowledge of the Guarantors, no Multiemployer Plan is or is likely to be disqualified for tax purposes, in reorganization (within the meaning of Section 4241 of ERISA or Section 418 of the Code) or is insolvent (as defined in Section 4245 of ERISA), which event would have a Material Adverse Effect. No liability to the PBGC (other than required premium payments), the Internal Revenue Service (with respect to an Employee Benefit Plan), any Plan or any trust established under Section 4049 of ERISA has been, or is expected by the Guarantors to be, incurred by the Guarantors (other than annual contributions) which is in excess of $5,000,000 or would have a Material Adverse Effect. Except as otherwise disclosed on Schedule 8.15 hereto, none of the Guarantors has any contingent liability with respect to any post-retirement benefits under any "welfare plan" (as defined in Section 3(1) of ERISA) or withdrawal liability or exist fee or charge with respect to any "welfare plan" (as defined in Section 3(1) of ERISA), other than liability for continuation coverage under Part 6 of Title I of ERISA or state laws which require similar continuation coverage for which the employee pays approximately the full cost of coverage, and other than such liability that is both not more than $5,000,000 and that would not have a Material Adverse Effect. No lien under Section 412(n) of the Code or 302(f) of ERISA or requirement to provide security under Section 401(a)(29) of the Code or Section 307 of ERISA has been or is reasonably expected by the Guarantors to be imposed on the assets of the Guarantors. Except as disclosed on Schedule 8.15 none of the Guarantors is a party to any collective bargaining agreement. None of the Guarantors has engaged in any transaction prohibited by Section 408 of ERISA or Section 4975 of the Code which has a Material Adverse Effect. As of the Closing Date and throughout the term of the Loan, none of the Guarantors is or will be an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, and none of the assets of the Guarantors will constitute "plan assets" of one or more such plans for purposes of Title I of ERISA. As of the Closing Date and throughout the term of the Loan, none of the Guarantors is or will be a "governmental plan" within the meaning of Section 3(3) of ERISA and none of the Guarantors will be subject to state statutes applicable to such Guarantors regulating investments. 8.16 Licenses. Each Obligor has obtained and holds in full force and effect, all material franchises, trademarks, trade names, copyrights, licenses, permits, certificates, -53- 54 authorizations, qualifications, accreditations, easements, rights of way and other rights, consents and approvals which are necessary for the operation of their respective businesses as presently conducted. 8.17 Assets of the Trust. The sole asset of the Trust is its general partnership interest in SLT and such other assets that may be incidental to or required in connection with the ownership of such general partnership interest, or as set forth in Schedule 8.17. 8.18 REIT Status. The Trust qualifies as a "real estate investment trust" as defined in Section 856 of the Code. 8.19 Stock. The Trust and the Corporation list all of their outstanding shares of stock on the New York Stock Exchange and such shares trade as "paired shares" subject to a pairing agreement between the Trust and the Corporation. 8.20 Operations. The Trust conducts its business only through SLT, except as set forth in Schedule 8.20. 8.21 Environmental Matters. Each of the Obligors and their respective Subsidiaries has obtained all environmental, health and safety permits, licenses and other authorizations required under all Environmental Laws to carry on its business as now being or as proposed to be conducted, except to the extent failure to have any such permit, license or authorization would not (either individually or in the aggregate) have a Material Adverse Effect. Each of such permits, licenses and authorizations is in full force and effect and each of the Obligors and their respective Subsidiaries is in compliance with the terms and conditions thereof, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent failure to comply therewith would not (either individually or in the aggregate) have a Material Adverse Effect. In addition, except as set forth in Schedule 8.21 hereto: (a) No notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or threatened by any governmental or other entity with respect to any alleged failure by any Obligor or any Subsidiary of any Obligor to have any environmental, health or safety permit, license or other authorization required under any Environmental Law in connection with the conduct of the business of such Obligor or any of its Subsidiaries or with respect to any generation, treatment, storage, recycling, transportation, discharge or disposal, or any Release of any Hazardous Materials -54- 55 generated by such Obligor or any of its Subsidiaries. (b) None of the Obligors nor any of their Subsidiaries owns, operates or leases a treatment, storage or disposal facility requiring a permit under the Resource Conservation and Recovery Act of 1976, as amended, or under any comparable state or local statute; and (i) no polychlorinated biphenyls (PCB's) is or has been present at any site or facility now or previously owned, operated or leased by the Obligors or their Subsidiaries; (ii) no asbestos or asbestos-containing materials is or has been present at any site or facility now or previously owned, operated or leased by the Obligors or their Subsidiaries; (iii) there are no underground storage tanks or surface impoundments for Hazardous Materials, active or abandoned, at any site or facility now or previously owned, operated or leased by the Obligors or their Subsidiaries; (iv) no Hazardous Materials have been Released at, on or under any site or facility now or previously owned, operated or leased by the Obligors or their Subsidiaries in a reportable quantity established by statute, ordinance, rule, regulation or order that would (either individually or in the aggregate) have a Material Adverse Effect; and (v) no Hazardous Materials have been otherwise Released at, on or under any site or facility now or previously owned, operated or leased by the Obligors or their Subsidiaries that would (either individually or in the aggregate) have a Material Adverse Effect. (c) No oral or written notification of a Release of a Hazardous Material has been filed by or on behalf of any Obligor or their Subsidiaries and no site or facility now or previously owned, operated or leased by any Obligor or any of their Subsidiaries is listed or proposed for listing on the NPL, CERCLIS or any similar state list of sites requiring investigation or clean-up. (d) No Liens have arisen under or pursuant to any Environmental Laws on any site or facility owned, operated or leased by any Obligor or any of their Subsidiaries, and no government action has been taken or is in process that could subject any such site or facility to such Liens and none of the Obligors nor any of their Subsidiaries would be required to place any notice or restriction relating to the presence of Hazardous Materials at any site or facility owned by it in any deed to the real property on which such site or facility is located. -55- 56 (e) All environmental investigations, studies, audits, tests, reviews or other analyses conducted by or that are in the possession of the Company or any of its Subsidiaries in relation to facts, circumstances or conditions at or affecting any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries and that could result in a Material Adverse Effect have been made available to the Lenders. Section 9. Covenants of the Obligors. Each of Company, the Trust and SLT covenants and agrees with the Lenders and the Agent that, so long as any Commitment or Loan is outstanding and until payment in full of all amounts payable by the Company hereunder: 9.01 Financial Statements Etc. The Obligors shall deliver to each of the Lenders: (a) as soon as available and in any event within 45 days after the end of each quarterly fiscal period of each fiscal year of the Trust and SLT, consolidated statements of income, retained earnings and cash flow of the Trust, SLT and their Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated balance sheets of the Trust, SLT and their Subsidiaries as at the end of such period, setting forth in each case in comparative form the corresponding consolidated figures for the corresponding periods in the preceding fiscal year, accompanied by a certificate of a senior financial officer of the Trust, which certificate shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Trust, SLT and their Subsidiaries in accordance with GAAP, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); and (b) as soon as available and in any event within 90 days after the end of each fiscal year of the Trust and SLT, consolidated statements of income, retained earnings and cash flow of the Trust, SLT and their Subsidiaries for such fiscal year and the related consolidated balance sheets of the Trust, SLT and their Subsidiaries as at the end of such fiscal year, setting forth in each case in comparative form the corresponding consolidated figures for the preceding fiscal year, and accompanied by an unqualified opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Trust, SLT and their Subsidiaries as at the end of, and for, such fiscal year in accordance with GAAP, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default; -56- 57 (c) together with the compliance certificate required to be delivered pursuant to this Section 9.01, copies of all registration statements and regular periodic reports, if any, that the Trust and the Corporation shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange; (d) promptly upon the mailing thereof to the holders of the "paired shares" of the Trust and the Corporation or to holders of Subordinated Indebtedness generally, copies of all financial statements, reports and proxy statements so mailed; (e) promptly after the Company, the Trust or SLT knows or has reason to believe that any Default has occurred, a notice of such Default describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Company or the Trust or SLT, as the case may be, has taken or proposes to take with respect thereto; (f) with respect to each Acquisition Loan and promptly following the completion of the Acquisition, a budget for each of the Acquired Properties for either the 12-month period following the Acquisition or for the 1997 or 1998 calendar year (whichever is available), containing the amount of good faith estimated capital expenditures that will be incurred during such period, together with financial projections of the applicable Hotel Company and such other matters requested by the Agent, in form and substance satisfactory to the Agent; (g) from time to time such other information regarding the financial condition, operations, business or prospects of the Trust, SLT or the Company as any Lender or the Agent may reasonably request; (h) within five New York Business Days of the Closing Date, (i) consolidated balance sheets of the Trust and SLT as at June 30, 1997 and the related consolidated statements of income, of the Trust and SLT for the six-month period ended on said date, giving effect, on a pro forma basis, to the Acquisition and the Loans contemplated hereby; and (ii) a certificate of a senior financial officer of the Trust setting forth in reasonable detail the computations necessary to determine whether the Trust and SLT are in compliance, as at June 30, 1997, with Sections 9.07(b)-(g), 9.09, 9.10, 9.11 and 9.12 hereof as of such date and as of the end of the such period (as the case may be), in each case, on a pro forma basis, in each case, in form and substance satisfactory to the Agent; and (i) all information received by the Company pursuant to Section 8.01 of each Acquisition Loan agreement. -57- 58 Each of the Obligors will furnish to each Lender, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate of a senior financial officer of the applicable Obligor (i) to the effect that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that the Obligors have taken or proposes to take with respect thereto) and (ii) setting forth in reasonable detail the computations necessary to determine whether the Obligors (as applicable) are in compliance with Sections 9.07(b)-(g), 9.08, 9.09, 9.10, 9.11 and 9.12 hereof as of the end of the respective quarterly fiscal period or fiscal year. 9.02 Litigation. The Obligors will promptly give to each Lender notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, and any material development in respect of such legal or other proceedings, affecting the Trust, SLT or any of their Subsidiaries (including, without limitation, the Company), except proceedings that, if adversely determined, would not (either individually or in the aggregate) have a Material Adverse Effect. Without limiting the generality of the foregoing, the Obligors will give to each Lender notice of the assertion of any Environmental Claim by any Person against, or with respect to the activities of, the Obligors or any of their Subsidiaries and notice of any alleged violation of or non-compliance with any Environmental Laws or any permits, licenses or authorizations, other than any Environmental Claim or alleged violation that, if adversely determined, would not (either individually or in the aggregate) have a Material Adverse Effect. 9.03 Existence, Etc. The Trust and SLT will cause the Company to: (a) preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises (provided that nothing in this Section 9.03 shall prohibit any transaction expressly permitted under Section 9.05 hereof); (b) comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements could (either individually or in the aggregate) have a Material Adverse Effect; (c) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; (d) maintain all of its Properties used or useful in its business in good working order and condition, ordinary wear and tear excepted; (e) keep adequate records and books of account, in which complete -58- 59 entries will be made in accordance with generally accepted accounting principles consistently applied; and (f) permit representatives of any Lender or the Agent, during normal business hours, to examine, copy and make extracts from its books and records, to inspect any of its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by such Lender or the Agent (as the case may be). 9.04 Insurance. (a) The Trust and SLT will, and will cause each of their Subsidiaries (including, without limitation, the Company) to, maintain insurance with financially sound and reputable insurance companies, and with respect to Property and risks of a character usually maintained by corporations engaged in the same or similar business similarly situated, against loss, damage and liability of the kinds and in the amounts customarily maintained by such corporations. (b) The Company shall require, with respect to each Acquisition Loan, the applicable Hotel Company to: (A) (i) maintain with financially sound and reputable insurance companies insurance on itself and its properties in commercially reasonable amounts, and (ii) furnish to the Agent from time to time, upon written request, certificates of insurance or certified copies or abstracts of all insurance policies required under the Acquisition Loan documents and such other information relating to such insurance as the Agent may reasonably request. (B) With respect to each Acquired Property, the Company shall require the applicable Hotel Company to obtain and maintain, or cause to be maintained, insurance providing at least the following coverages: (i) (1) comprehensive all risk insurance on the improvements and the personal property (A) in an amount equal to 100% of the "Full Replacement Cost," which for purposes of this Agreement shall mean actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) with a waiver of depreciation; (B) containing an agreed amount endorsement with respect to the improvements owned or leased by Hotel Company and personal property or a waiver of all co-insurance provisions; and (C) providing for no deductible in excess of $50,000, and (2) flood hazards insurance if any portion of the improvements is currently or at any time in the future located in a federally designated "special flood hazard area" and earthquake insurance in amounts and in form and substance reasonably satisfactory to the Agent and the Lenders in the event the Acquired Property is located in an area with a high degree of seismic activity, or otherwise as required -59- 60 by the Agent and the Lenders, provided that the insurance pursuant hereof shall be on terms consistent with the comprehensive all risk insurance policy required under this Section 9.04(b)(B), except that the deductible on such insurance and on wind insurance if the Acquired Property is located in a coast line area, shall not be in excess of five percent (5%) of the appraised value of the Acquired Property: (ii) commercial general liability insurance against claims for personal injury, bodily injury, death or property damage occurring upon, in or about the Acquired Property, including liquor liability coverage if alcoholic beverages are sold from or may be consumed at the Acquired Property, such insurance (A) to be on the so-called "occurrence" form with a combined single limit of not less than $1,000,000 or such greater amount or may be generally required by institutional lenders for hotels comparable to the Acquired Property; (B) to continue at not less than the aforesaid limit until required to be changed by the Lenders in writing by reason of changed economic conditions making such protection inadequate; and (C) to cover at least the following hazards: (1) premises and operations; (2) products and completed operations on an "if any" basis; (3) independent contractors; and (4) blanket contractual liability for all written and oral contracts; (iii) business income and rent loss insurance (A) covering all risks required to be covered by the insurance provided for in Section 9.04(b)(B)(i); (B) containing an extended period of indemnity endorsement which provides that from and after the physical loss to the improvements and personal property has been repaired, the continued loss of income will be insured until such income either returns to the same level it was at prior to the loss, or the expiration of twelve (12) months from the date of the loss, whichever first occurs, and notwithstanding that the policy may expire prior to the end of such period; and (C) in an amount equal to 100% of the projected gross income from the Acquired Property for a period of twelve (12) months, determined prior to the date hereof and at least once each year thereafter based on Company's reasonable estimate of the gross income from the Acquired Property, which estimate shall be reasonably satisfactory to the Agent and the Lenders. (iv) at all times during which structural construction, repairs or alterations are being made with respect to the improvements (A) owner's contingent or protective liability insurance covering claims not covered by or under the terms or provisions of the above mentioned commercial general liability insurance policy; and (B) the insurance provided for in Section 9.04(b)(B)(i) written in a so-called builder's risk completed value form (1) on a non-reporting basis, (2) against all risks insured against pursuant to Section 9.04(b)(B)(i), (3) including permission to occupy the Acquired Property, and (4) with an agreed amount endorsement or a waiver of coinsurance provisions; -60- 61 (v) workers' compensation, subject to the statutory limits of the state in which the Acquired Property is located, and employer's liability insurance (A) with a limit per accident and per disease per employee, and (B) in an amount for disease aggregate in respect of any work or operations on or about the Acquired Property, or in connection with the Acquired Property or its operation (if applicable), in each case reasonably required by the Agent and the Lenders; (vi) comprehensive boiler and machinery insurance, if applicable, in amounts as shall be reasonably required by Lender on terms consistent with the commercial general liability insurance policy required under Section 9.04(b)(B)(ii); (vii) umbrella liability insurance in an amount not less than $50,000,000.00 per occurrence or such greater amount as may be generally required by institutional lenders for hotels comparable to the Acquired Property on terms consistent with the commercial general liability insurance policy required under Section 9.04(b)(B)(ii); (viii) motor vehicle liability coverage for all owned and non-owned vehicles, including rented and leased vehicles containing minimum limits per occurrence of $5,000,000; (ix) a blanket fidelity bond and errors and omissions insurance coverage insuring against losses resulting from dishonest or fraudulent acts committed by (A) the Hotel Company's personnel; (B) any employees of outside firms that provide appraisal, legal, data processing or other services for the Hotel Company or (C) temporary contract employees or student interns; and (x) such other insurance and in such amounts as are required pursuant to any franchise agreements or as the Agent and the Lenders from time to time may reasonably request against such other insurable hazards which are generally required by institutional lenders for hotels comparable to the Asset or which are commonly insured against for property similar to the Acquired Property located in or around the region in which it is located. (c) All insurance provided for in this Section 9.04(b)(B) hereof shall be obtained under valid and enforceable policies (the "Policies" or in the singular, the "Policy"), and shall be subject to the approval of the Lenders as to insurance companies, amounts, forms, deductibles, and shall name the Agent the loss payee thereunder. The Policies shall be issued by financially sound and responsible insurance companies authorized to do business where the Acquired Property is located and approved by Lenders. Not less than thirty (30) days prior to the expiration dates of the Policies theretofore furnished to the Agent pursuant to Section 9.04(b)(B), certified copies of the Policies marked "premium paid" or accompanied by evidence reasonably satisfactory to -61- 62 the Agent of payment of the premiums due thereunder (the "Insurance Premiums"), shall be delivered by Company to the Agent; provided, however, that in the case of renewal Policies, the Company may furnish the Agent with binders therefor to be followed by the original Policies when issued. (d) All Policies of insurance provided for in Section 9.04(b)(B) shall contain clauses or endorsements to the effect that: (i) the Policy shall not be materially changed (other than to increase the coverage provided thereby) or cancelled without at least 30 days' written notice to the Agent and any other party named therein as an insured; and (ii) each Policy shall provide that the issuers thereof shall give written notice to the Agent if the Policy has not been renewed thirty (30) days prior to its expiration. (e) The Hotel Company shall furnish, on or before thirty (30) days after the close of such Hotel Company's Fiscal Year, a statement certified by the Hotel Company or a duly authorized officer of the Hotel Company of the amounts of insurance maintained in compliance herewith, of the risks covered by such insurance and of the insurance company or companies which carry such insurance, together with copies of the Policies, and, if requested by the Agent, verification of the adequacy of such insurance by an independent insurance broker or appraiser acceptable to the Agent. (f) If the Acquired Property shall be damaged or destroyed, in whole or in part, by fire or other casualty, or condemned or taken by eminent domain, the Hotel Company shall give prompt notice of such damage or taking to the Agent and (i) if at such time there is no Event of Default continuing, the Hotel Company shall be entitled to determine whether to repair or restore the Acquired Property, whereupon it shall promptly submit to the Agent for the Agent's approval a plan of restoration or repair of the Acquired Property and shall, upon the Agent's approval of such plan, promptly commence and diligently prosecute the completion of the repair and restoration of the Acquired Property as nearly as possible to the condition the Acquired Property was in immediately prior to such fire or other casualty or taking (the "Restoration"), or (ii) if at such time there is an Event of Default continuing, the Agent shall be entitled to determine whether the Hotel Company may repair or restore the Acquired Property. The Hotel Company shall pay all costs of such Restoration whether or not such costs are covered by insurance or any condemnation award. 9.05 Prohibition of Fundamental Changes. (a) The Trust and SLT will not, nor will it permit any of their Subsidiaries (including, without limitation, the Company) to, enter into any transaction of -62- 63 merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), and will not enter into any transaction following which the Trust or an entity wholly owned by the Trust is no longer the sole general partner of SLT. (b) The Trust and SLT will not, nor will it permit any of its Subsidiaries (including, without limitation, the Company) to, acquire any business or Property from, or capital stock of, or be a party to any acquisition of, any Person except for purchases of inventory and other Property to be sold or used in the ordinary course of business, Investments permitted under Section 9.08 hereof, and Capital Expenditures permitted under Section 9.13 hereof. (c) The Trust and SLT will not, nor will it permit any of its Subsidiaries (including, without limitation, the Company) to, convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or substantially all of its business or Property, whether now owned or hereafter acquired. (d) The Trust and SLT will not permit the Company, and the Company shall not, convey, sell, lease, transfer or otherwise dispose of any of its interests in: any of the Mortgages and any of the Mortgage Notes or any of the Acquisition Loans. 9.06 Limitation on Liens. The Company will not, and the Trust and SLT will not permit the Company to, create, incur, assume or suffer to exist any Lien upon any of the Company's Property, including, without limitation, all of the Mortgages and the Mortgage Notes, all of the Management Contracts and franchise agreements assigned to it, and all of the Acquisition Loans, whether now owned or hereafter acquired, except Liens created pursuant to the Security Documents. 9.07 Indebtedness. (a) The Company will not, and the Trust and SLT will not permit the Company to, create, incur or suffer to exist any Indebtedness except Indebtedness to the Lenders hereunder. (b) The Trust and SLT will not create, incur or suffer to exist Indebtedness in excess of 65% of Market Capitalization of the Trust and SLT (without duplication). (c) SLT and SLC will not create, incur or suffer to exist Indebtedness in excess of 65% of Market Capitalization of SLT and SLC (without duplication); provided, that for the purpose of determining "Indebtedness" of SLT and SLC for this computation only, "Indebtedness" between (a) SLT and the Trust and their Subsidiaries, and (b) SLC and the Corporation and their Subsidiaries, shall be -63- 64 excluded. (d) SLT and the Trust will not, and will not create, incur or suffer to exist any Unsecured Indebtedness and/or Recourse Indebtedness, in excess of 60% of SLT and the Trust's combined net book value (without duplication), calculated in accordance with GAAP. (e) SLT and SLC will not, and will not create, incur or suffer to exist any Unsecured Indebtedness and/or Recourse Indebtedness, in excess of 60% of SLT and SLC's combined net book value (without duplication), calculated in accordance with GAAP. (f) SLT and the Trust will not, and will not create, incur or suffer to exist any Secured Indebtedness in excess of 60% of SLT and the Trust's combined net book value (without duplication), calculated in accordance with GAAP. (g) SLT and SLC will not, and will not create, incur or suffer to exist any Secured Indebtedness in excess of 60% of SLT and SLC's combined net book value (without duplication), calculated in accordance with GAAP; provided, that for the purpose of determining "Indebtedness" of SLT and SLC for this computation only, "Indebtedness" between (a) SLT and the Trust and their Subsidiaries, and (b) SLC and the Corporation and their Subsidiaries, shall be excluded. 9.08 Investments. (a) The Company will not, and the Trust and SLT will not permit the Company to, make or permit to remain outstanding any Investments of the Company except the Acquisition Loans. (b) The Trust and SLT will not make or permit to remain outstanding any Investments except: (i) Investments outstanding on the date hereof; (ii) operating deposit accounts with banks; (iii) Permitted Investments; (iv) Investments in the Company; (v) Investments in the Hospitality Business and advances to Subsidiaries in the ordinary course of business; (vi) Investments in businesses which are non-Hospitality -64- 65 Businesses (without limiting clause (v) hereof) and which support the Hospitality Business (only for so long as the Trust is the general partner of SLT), not to exceed 20% of the Market Capitalization of SLT and the Trust (without duplication); and (vii) Investments in businesses other than in the Hospitality Business (only for so long as the Trust is the general partner of SLT), whether or not such businesses support the Hospitality Business, not to exceed 5% of the Market Capitalization of SLT and the Trust (without duplication) . 9.09 Payout Ratios. (a) The Trust will not pay or declare Distributions in excess of the greater of (i) 95% of Funds From Operations for the most recent four consecutive calendar quarters, (ii) the amount necessary for the Trust to maintain real estate investment trust status under Section 856 of the Code, and (iii) the amount necessary for the Trust to avoid the payment of federal income or excise tax, in each case, as adjusted to give effect to the Stock Repurchase Plan. (b) The Trust and the Corporation will not pay or declare Distributions in excess of the greater of (i) 95% of their combined Funds From Operations for the most recent four consecutive calendar quarters, (ii) the amount necessary for the Trust to maintain real estate investment trust status under Section 856 of the Code, and (iii) the amount necessary for the Trust and the Corporation to avoid the payment of federal income or excise tax, in each case, as adjusted to give effect to the Stock Repurchase Plan. 9.10 Debt Service Coverage Ratio. The Trust and SLT will not permit the Debt Service Coverage Ratio to be less than 1.75 to 1.00 at any time. 9.11 Combined Debt Service Coverage Ratio. SLT will not permit the Combined Debt Service Coverage Ratio to be less than 1.85 to 1.00 at any time. 9.12 Tangible Net Worth. SLT will not permit its Tangible Net Worth to be less than the greater of (a) $585,000,000 and (b) 75% of Tangible Net Worth at closing, plus 75% of Net Available Proceeds from equity offerings by the Trust, calculated on a cumulative GAAP basis, as adjusted to give effect to the Stock Repurchase Plan. 9.13 Capital Expenditures. The Company will not, and the Trust and SLT will not permit the Company to, make any Capital Expenditures. 9.14 Governmental Approvals. The Company and each Guarantor agrees that it will promptly obtain from time to time at its own expense all such governmental -65- 66 licenses, authorizations, consents, permits and approvals as may be required for the Company or such Guarantor, as the case may be, to (a) comply with its obligations, and preserve its rights under, each Basic Document and (b) maintain the existence, priority and perfection of the Liens purported to be created under the Security Documents. 9.15 Subordinated Indebtedness. Neither the Guarantors nor the Company will purchase, redeem, retire or otherwise acquire for value, or set apart any money for a sinking, defeasance or other analogous fund for the purchase, redemption, retirement or other acquisition of, or make any voluntary payment or prepayment of the principal of or interest on, or any other amount owing in respect of, any Subordinated Indebtedness, except for regularly scheduled payments of principal and interest in respect thereof required pursuant to the instruments evidencing such Subordinated Indebtedness. 9.16 Lines of Business. The Company will not engage in any activity except incurring Indebtedness pursuant to this Agreement and the other obligations under the other Basic Documents, making the Acquisition Loans and other activities incidental thereto. The Guarantors and their Subsidiaries will not engage to any substantial extent (subject to Section 9.08 hereof) in any line or lines of business activity other than the businesses engaged in on the date hereof. 9.17 Transactions with Affiliates. Except as expressly permitted by this Agreement, the Guarantors will not, nor will they permit any of their Subsidiaries (including, without limitation, the Company) to, directly or indirectly: (a) make any Investment in an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any Property to an Affiliate; (c) merge into or consolidate with or purchase or acquire Property from an Affiliate; or (d) enter into any other transaction directly or indirectly with or for the benefit of an Affiliate (including, without limitation, Guarantees and assumptions of obligations of an Affiliate); provided that (x) any Affiliate who is an individual may serve as a director, officer or employee of any Guarantor or any of its Subsidiaries and receive reasonable compensation for his or her services in such capacity and (y) the Guarantors may enter into transactions with Affiliates if the monetary or business consideration arising therefrom would be substantially as advantageous to the applicable Guarantor as the monetary or business consideration that would obtain in a comparable transaction with a Person not an Affiliate. 9.18 Use of Proceeds. The Company will use the proceeds of the Loans hereunder solely to make the Acquisition Loans (in compliance with all applicable legal and regulatory requirements); provided that neither the Agent nor any Lender shall have any responsibility as to the use of any of such proceeds. 9.19 Certain Obligations Respecting Subsidiaries. SLT and the Trust will take such action from time to time as shall be necessary to ensure that it owns the same percentage of the issued and outstanding voting stock of the Company as it does on the date hereof (on a fully diluted basis). SLT and the Trust will not permit any of its -66- 67 Subsidiaries to enter into, after the date of this Agreement, any indenture, agreement, instrument or other arrangement that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the incurrence or payment of Indebtedness, the granting of Liens, the declaration or payment of dividends, the making of loans, advances or Investments or the sale, assignment, transfer or other disposition of Property that would have a Material Adverse Effect on SLT, the Trust and their Subsidiaries, taken as a whole. 9.20 Compliance with ERISA. (a) The Guarantors shall maintain each Employee Benefit Plan in compliance with all material applicable requirements of ERISA and the Code and with all material applicable regulations promulgated thereunder so that no failure to so comply will cause liability to any Guarantor in excess of $5,000,000.00 or have a Material Adverse Effect. The Guarantors shall provide to the Agent, within ten (10) days of the Agent's request, any document, filing or correspondence relating to an Employee Benefit Plan which the Agent reasonably requests. The Guarantors shall also provide to the Agent, with in ten (10) days of filing or receipt, (i) any notice from the Department of Labor or Internal Revenue Services of assessment or investigation regarding a prohibited transaction under Section 4975 of the Code or Section 406 of ERISA, (ii) any notice from a Multiemployer Plan of withdrawal with respect to a Multiemployer Plan, (iii) notice from the Internal Revenue Service of imposition of excise tax with respect to an Employee Benefit Plan, (iv) any Form 5500 filed by any Guarantor with respect to an Employee Benefit Plan which includes a qualified accountant's opinion, or (v) notice regarding a proposed termination from the PBGC; provided, however, that items in (i)-(iii) need only be provided if the events could result in Material Adverse Effect. (b) None of the Guarantors shall engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by the Agent on behalf of the Lenders of any of its rights under this Agreement or the other Basic Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA or result in a violation of a state statute regulating governmental plans that would subject Lender to liability for a violation of ERISA or such a state statute. (c) SLT and the Trust further covenant and agree to deliver to the Agent such certifications or other evidence from time to time throughout the term of the Loan, as reasonably requested by the Agent in its sole discretion, that (i) none of the Guarantors is an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the meaning of Section 3(3) of ERISA; (ii) none of the Guarantors is subject to state statutes applicable to any Guarantor regulating investments and fiduciary obligations of any Guarantor with respect to government plans; and (iii) with respect to each Guarantor, at least one of the following circumstances is true: -67- 68 (1) Equity interests in such Guarantor are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (2) Less than 25 percent of each outstanding class of equity interests in such Guarantor are held by "benefit plan investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (3) Such Guarantor qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. Section 2510.3-101(c) or (e) or an investment company registered under The Investment Company Act of 1940. 9.21 Modifications of Certain Documents. None of the Obligors will consent to any modification, supplement or waiver of any of the provisions of any agreement, instrument or other document evidencing or relating to any Acquisition Loan, any Mortgage, any Mortgage Note or any Management Contracts or franchise agreements without the prior consent of the Agent (with the approval of the Majority Lenders), which consent and approval will not be unreasonably withheld). Section 10. Events of Default. If one or more of the following events (herein called "Events of Default") shall occur and be continuing: (a) The Company shall default in the payment of (i) any principal of any Loan when due (whether at stated maturity or at mandatory prepayment) or (ii) any interest on any Loan, any fee or any other amount payable by it hereunder or under any other Basic Document when due, and such default shall continue unremedied for five days; or any Hotel Company shall default in the payment of any principal of any Acquisition Loan when due (whether at stated maturity or at mandatory or optional prepayment) or default in the payment of any interest on any Acquisition Loan, any fee or any other amount payable by it hereunder or under any other the applicable Acquisition Loan documents when due, after giving effect to applicable grace period; (b) Any Hotel Company (as applicable) shall default in the performance of any of its obligations under Section 8 of the Acquisition Loan agreement to which it is a party or any other material obligation thereunder; or (c) The Obligors or any of their Subsidiaries (the Obligors and such Subsidiaries herein collectively called the "Relevant Parties") shall default in the payment when due of any principal of or interest on any of its (i) other Recourse Indebtedness aggregating U.S.$5,000,000 (or the equivalent in other currencies) or more, or (ii) non-Recourse Indebtedness aggregating U.S.$50,000,000 (or the equivalent in other currencies), or (iii) non-Recourse Indebtedness representing in excess of three financings; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness -68- 69 shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity; or (d) Any representation, warranty or certification made or deemed made herein or in any other Basic Document (or in any modification or supplement hereto or thereto) by any Relevant Party, or any certificate furnished to any Lender or the Agent pursuant to the provisions hereof or thereof, shall prove to have been false or misleading in any material respect; or (e) Any Obligor (as applicable) shall default in the performance of any of its obligations under any of Sections 9.01(e), 9.01(h), 9.05, 9.06, 9.07, 9.08, 9.09, 9.10, 9.11, 9.12, 9.13, 9.14, 9.15, 9.16, 9.18 or 9.21; or any Obligor shall default in the performance of any of its other obligations in this Agreement or any other Basic Document and such default shall continue unremedied for a period of 30 or more days after notice thereof to the Company by the Agent or any Lender (through the Agent); or (f) Any Obligor shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (g) The Company shall (i) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness to pay, debts as they become due; (ii) apply for, consent to, or acquiesce in, the appointment of a sindico, interventor, trustee, receiver, sequestrator or other custodian for itself or a substantial part of its property, or make a general assignment for the benefit of creditors; (iii) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a sindico, interventor, trustee, receiver, sequestrator or other custodian for itself or for a substantial part of its property, and such sindico, interventor, trustee, receiver, sequestrator or other custodian shall not be discharged within 60 days; or (iv) permit or suffer to exist the commencement of any bankruptcy, suspension of payments, reorganization, debt arrangement or other case or proceeding under the Ley de Quiebras y Suspension de Pagos of Mexico or any other bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of itself, and, if any such case or proceeding is not commenced by such Person, such case or proceeding shall be consented to or acquiesced in by such Person or shall result in the entry of an order for relief or shall remain for 60 days undismissed; or (h) A proceeding or case shall be commenced, without the application or consent of the Company, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, -69- 70 custodian, trustee, examiner, liquidator or the like of the Company or of all or any substantial part of its Property, or (iii) similar relief in respect of the Company under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or (i) A proceeding or case shall be commenced, without the application or consent of the affected Obligor, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of such Obligor or of all or any substantial part of its Property, or (iii) similar relief in respect of such Obligor under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against any Obligor shall be entered in an involuntary case under the Bankruptcy Code; or (j) Any Guarantor shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its Property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (k) A proceeding or case shall be commenced, without the application or consent of the affected Guarantor, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of such Guarantor or of all or any substantial part of its Property, or (iii) similar relief in respect of such Guarantor under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against any Guarantor shall be entered in an involuntary case under the Bankruptcy Code; or -70- 71 (l) A final judgment or judgments for the payment of money in excess of U.S.$5,000,000 (or the equivalent in other currencies) in the aggregate shall be rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against any Relevant Party and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and such Relevant Party shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (m) A Change in Control has occurred; or (n) The Trust fails to remain a publicly-traded real estate investment trust or the Trust and the Corporation fail to remain in good standing with the New York Stock Exchange and with the Securities and Exchange Commission or (ii) their shares fail to continue to trade as "paired shares"; or (o) (i) Any Termination Event shall occur, or (ii) any Plan shall incur an accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of ERISA) whether or not waived, or fail to make a required installment payment on or before the due date under Section 412 of the Code or Section 302 of ERISA, or (iii) any of the Guarantors or a member of their respective ERISA Controlled Group shall have engaged in a transaction which is prohibited under Section 4975 of the code or Section 406 of ERISA and an exemption shall not be applicable or have been obtained under Section 408 of ERISA or Section 4975 of the Code, or (iv) any of the Guarantors or any member of their respective ERISA Controlled Group shall fail to pay when due an amount which it shall have become liable to pay to the PBGC, any Plan, any Multiemployer Plan, or a trust established under Section 4049 of ERISA, or (v) any Guarantor shall have received a notice from the PBGC of its intention to terminate a Plan or to appoint a trustee to administer such Plan, or Multiemployer Plan which notice shall not have been withdrawn within fourteen (14) days after the date thereof, or (vi) a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that a Plan must be terminated or have a trustee appointed to administer any Plan, or (vii) any of the Guarantors or a member of their respective ERISA Controlled Group suffers a partial or complete withdrawal from a Multiemployer Plan or is in default (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan, or (viii) a proceeding shall be instituted against any of the Guarantors, which proceeding is reasonably likely to succeed, to enforce Section 515 of ERISA, or (ix) any other event or condition shall occur or exist with respect to any Employee Benefit Plan or Plan, any Multiemployer Plan, which could reasonably be expected to subject any of the Guarantors or any member of their respective ERISA Controlled Group to any tax, penalty or other liability -71- 72 (other than annual contributions or which is not an Event of Default otherwise under this clause) or the imposition of any lien or security interest on any of the of the Guarantors or any member of their respective ERISA Controlled Group, or (x) with respect to any Multiemployer Plan, the institution of a proceeding to enforce Section 515 of ERISA, which proceeding is reasonably likely to succeed, to terminate such Plan, the receipt of a notice of reorganization or insolvency under Sections 4241 or 4245 of ERISA, in any event; provided, however, that events or circumstances in subclauses (i) through (x) shall only be an Event of Default if it results in or is reasonably expected to result in liability to any Guarantor in excess of $5,000,000.00 or if it has or is likely to have a Material Adverse Effect; or (xi) the assets of any Guarantor become or are deemed to be assets of an Employee Benefit Plan. No Event of Default under this clause shall be deemed to have been or be waived or corrected because of any disclosure by any Guarantor. (p) The Liens created by the Security Documents shall at any time not constitute a valid and, with respect to the equity interests pledged to the Agent under the SLC Mexico Pledge Agreement or the SLT Realty Pledge Agreement, perfected Lien on the collateral intended to be covered thereby in favor of the Agent, free and clear of all other Liens (other than Liens under the respective Security Documents), or, except for expiration in accordance with its terms, any of the Security Documents shall for whatever reason be terminated or cease to be in full force and effect, or the enforceability thereof shall be contested by any Obligor; or (q) Any license, consent, authorization, registration or approval at any time necessary to enable the Company or any Guarantor to comply with any of its obligations under this Agreement or any other Basic Document shall be revoked, withdrawn or withheld for a period in excess of 30 days after the Company or any Guarantor was notified of such revocation or withdrawal, or shall be modified or amended in a manner prejudicial, in the opinion of the Majority Lenders, to the interests of the Lenders hereunder; or (r) Any governmental authority shall take any action to condemn, seize, nationalize or appropriate any substantial portion of the Property of the Company, SLC Mexico or any Hotel Company (either with or without payment of compensation); or the Company, SLC Mexico or any Hotel Company shall be prevented from exercising normal control over all or a substantial party of its Property (and the same shall continue for 15 or more days); or (s) Mexico or any competent authority thereof shall declare a moratorium on the payment of indebtedness by Mexico or any governmental agency or authority thereof or corporations therein and as a consequence the Company fails to pay the Loans in U.S. dollars; or -72- 73 (t) A reasonable basis shall exist for the assertion against any Obligor or any of their Subsidiaries, or any predecessor in interest of any Obligor or any of their Subsidiaries or Affiliates, of (or there shall have been asserted against any Obligor or any of their Subsidiaries) an Environmental Claim that, in the judgment of the Majority Lenders is reasonably likely to be determined adversely to the applicable Obligor or Subsidiary, and the amount thereof (either individually or in the aggregate) is reasonably likely to have a Material Adverse Effect (insofar as such amount is payable by such Obligor or Subsidiary but after deducting any portion thereof that is reasonably expected to be paid by other creditworthy Persons jointly and severally liable therefor); THEREUPON: (1) in the case of an Event of Default other than one referred to in clause (j) or (k) of this Section 10 the Agent may, and, if so requested by the Majority Lenders, shall, by notice to the Company, terminate the Commitments and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Obligors hereunder and under the Notes (including, without limitation, any amounts payable under Section 5.04 hereof) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by each Obligor; and (2) in the case of the occurrence of an Event of Default referred to in clause (j) or (k) of this Section 10 with respect to any Obligor, the Commitments shall automatically be terminated and the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Obligors hereunder and under the Notes (including, without limitation, any amounts payable under Section 5.04 hereof) shall automatically become immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by each Obligor; and (3) in the case of the occurrence of an Event of Default referred to in clauses (a), (b), (c), (d), (e) (f), (g), (h), (i), (j), (k), (m), (n), (p), (r) or (s), the Agent may, and if so requested by the Majority Lenders, shall, cause the Mortgages to be registered with the applicable public registry of property, at the expense of the Obligors, and the cost and expense associated with such registration shall be for the account of the Obligors and shall constitute a Guaranteed Obligation hereunder. Section 11. The Agent. 11.01 Appointment, Powers and Immunities. Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent hereunder and under the other Basic Documents with such powers as are specifically delegated to the Agent by the terms of this Agreement and of the other Basic Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 11.05 and the first sentence of Section 11.06 hereof shall include reference to its affiliates and its own and its affiliates' officers, directors, -73- 74 employees and agents): (a) shall have no duties or responsibilities except those expressly set forth in this Agreement and in the other Basic Documents, and shall not by reason of this Agreement or any other Basic Document be a trustee for any Lender; (b) shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement or in any other Basic Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Basic Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, any Note or any other Basic Document or any other document referred to or provided for herein or therein or for any failure by the Company or any other Person to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Basic Document; and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other Basic Document or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. The Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a notice of the assignment or transfer thereof shall have been filed with the Agent. 11.02 Reliance by Agent. The Agent shall be entitled to rely upon any certification, notice or other communication (including, without limitation, any thereof by telephone, facsimile, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. As to any matters not expressly provided for by this Agreement or any other Basic Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Majority Lenders or, if provided herein, in accordance with the instructions given by all of the Lenders and such instructions of such Lenders and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. 11.03 Defaults. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default unless the Agent has received notice from a Lender or the Company specifying such Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default, the Agent shall give prompt notice thereof to the Lenders. The Agent shall (subject to Section 11.07 hereof) take such action with respect to such Default as shall be directed by the Majority Lenders provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of the Lenders except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only with the consent or upon the authorization of the Majority Lenders or all of the Lenders. -74- 75 11.04 Rights as a Lender. With respect to its Commitment and the Loan made by it, (and any successor acting as Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though Bancomer, S.A. were not acting as the Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include Bancomer, S.A. in its individual capacity. Bancomer, S.A. (and any successor acting as Agent) and its affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make investments in and generally engage in any kind of banking or other business with the Obligors (and any of their Subsidiaries or Affiliates) as if it were not acting as the Agent, and Bancomer, S.A. and its affiliates may accept fees and other consideration from the Obligors for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 11.05 Indemnification. The Lenders agree to indemnify the Agent (to the extent not reimbursed under Section 12.03 hereof, but without limiting the obligations of the Company under said Section 12.03) ratably in accordance with the aggregate principal amount of the Loans held by the Lenders (or, if no Loans are at the time outstanding, ratably in accordance with their respective Commitments), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Agent (including by any Lender) arising out of or by reason of any investigation in or in any way relating to or arising out of this Agreement or any other Basic Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses that the Company is obligated to pay under Section 12.03 hereof but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents, provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. 11.06 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Parent and its Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or under any other Basic Document. The Agent shall not be required to keep itself informed as to the performance or observance by any Obligor of this Agreement or any of the other Basic Documents or any other document referred to or provided for herein or therein or to inspect the Properties or books of the Parent or any of its Subsidiaries. Except for notices, reports and other documents and information -75- 76 expressly required to be furnished to the Lenders by the Agent hereunder or under the Security Documents, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Parent or any of its Subsidiaries (or any of their affiliates) that may come into the possession of the Agent or any of its affiliates. 11.07 Failure to Act. Except for action expressly required of the Agent hereunder and under the other Basic Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from the Lenders of their indemnification obligations under Section 11.05 hereof against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. 11.08 Resignation of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Lenders and the Company. Upon any such resignation, the Majority Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, that shall be a financial institution that has an office in New York, New York. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 11 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. 11.09 Consents under Other Basic Documents. Except as otherwise provided in Section 12.05 hereof with respect to this Agreement, the Agent may, with the prior consent of the Majority Lenders (but not otherwise), consent to any modification, supplement or waiver under any of the Basic Documents, provided that, without the prior consent of each Lender, the Agent shall not (except as provided herein or in the Security Documents) release any collateral or otherwise terminate any Lien under any Basic Document providing for collateral security, or agree to additional obligations being secured by such collateral security, except that no such consent shall be required, and the Agent is hereby authorized, to release any Lien covering Property that is the subject of a disposition of Property permitted hereunder or to which the Majority Lenders have consented. Section 12. Miscellaneous. 12.01 Waiver. No failure on the part of the Agent or any Lender to exercise and -76- 77 no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement or any Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement or any Note preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 12.02 Notices. All notices, requests and other communications provided for herein and under the Security Documents (including, without limitation, any modifications of, or waivers, requests or consents under, this Agreement) shall be given or made in writing (including, without limitation, by facsimile) delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof (below the name of the Company, in the case of any Guarantor); or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by facsimile or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. 12.03 Expenses. The Company agrees to pay or reimburse each of the Lenders and the Agent for: (a) all reasonable out-of-pocket costs and expenses of the Agent (including, without limitation, the reasonable fees and expenses of Mayer, Brown & Platt, special New York counsel to Bancomer, S.A., and Borbolla y Asociados, special Mexican counsel to Bancomer, S.A.) in connection with (i) the negotiation, preparation, execution and delivery of this Agreement and the other Basic Documents and the making of the Loans hereunder and (ii) the negotiation or preparation of any modification, supplement or waiver of any of the terms of this Agreement or any of the other Basic Documents (whether or not consummated); (b) all reasonable out-of-pocket costs and expenses of the Lenders and the Agent (including, without limitation, the reasonable fees and expenses of legal counsel) in connection with (i) any Default and any enforcement or collection proceedings resulting therefrom, including, without limitation, all manner of participation in or other involvement with (x) bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation proceedings, (y) judicial or regulatory proceedings and (z) workout, restructuring or other negotiations or proceedings (whether or not the workout, restructuring or transaction contemplated thereby is consummated) and (ii) the enforcement of this Section 12.03; and (c) when required pursuant to Section 10 hereof, all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any -77- 78 governmental or revenue authority in respect of this Agreement or any of the other Basic Documents or any other document referred to herein or therein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by any Basic Document or any other document referred to therein. 12.04 Indemnification. Each Obligor hereby agrees to indemnify the Agent and each Lender and their respective directors, officers, employees, attorneys and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them arising out of or by reason of any investigation or litigation or other proceedings arising from the breach, violation or non-compliance with Environmental Laws (including any threatened investigation or litigation or other proceedings) relating to the Loans hereunder or any actual or proposed use by the Company of the proceeds of any of the Loans hereunder, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). 12.05 Amendments, Etc. Except as otherwise expressly provided in this Agreement, any provision of this Agreement may be modified or supplemented only by an instrument in writing signed by the Company, the Agent and the Majority Lenders, or by the Company and the Agent acting with the consent of the Majority Lenders, and any provision of this Agreement may be waived by the Majority Lenders or by the Agent acting with the consent of the Majority Lenders; provided that: (a) no modification, supplement or waiver shall, unless by an instrument signed by all of the affected Lenders or by the Agent acting with the consent of all of the affected Lenders: (i) increase, or extend the term of any of the Commitments, or extend the time or waive any requirement for the reduction or termination of any of the Commitments, (ii) extend the date fixed for the payment of principal of or interest on any Loan or any fee hereunder, (iii) reduce the amount of any such payment of principal, (iv) reduce the rate at which interest is payable thereon or any fee is payable hereunder, (v) alter the rights or obligations of the Company to prepay Loans, (vi) alter the terms of this Section 12.05, (vii) modify the definition of the term "Majority Lenders", or modify in any other manner the number or percentage of the Lenders required to make any determinations or waive any rights hereunder or to modify any provision hereof, (viii) waive any of the conditions precedent set forth in Section 7 hereof, or (ix) release any Guarantor from its obligations under Section 6 hereof; (b) any modification or supplement of Section 11 hereof shall require the consent of the Agent; and -78- 79 (c) any modification or supplement of Section 6 hereof shall require the consent of each Guarantor. 12.06 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12.07 Assignments and Participations. (a) No Obligor may assign any of its rights or obligations hereunder or under the Notes without the prior consent of all of the Lenders and the Agent. (b) Each Lender may assign any of its Loan and its Note with the consent of the Agent and the Company (which consent shall not be unreasonably withheld); provided that (i) any assignment by a Lender to another Lender shall not require the Agent's consent; (ii) any partial assignment shall be in an amount at least equal to U.S.$10,000,000; (iii) each such assignment by a Lender of its Loan and its Note shall be made in such manner so that the same portion of its Loans and the Note is assigned to the respective assignee; and (iv) no such assignment may be made except to a financial institution that is (a) registered with the Mexican Secretaria de Hacienda y Credito Publico for purposes of Article 154, Section I of the Mexican income tax law (Ley de Impuesto Sobre la Renta) and (b) a resident for tax purposes of a jurisdiction with which Mexico has in effect a treaty for the avoidance of double taxation. Upon execution and delivery by the assignee to the Company and the Agent of an instrument in writing pursuant to which such assignee agrees to become a "Lender" hereunder (if not already a Lender) having the Loan specified in such instrument, and upon notice thereof to the Company and the Agent, the assignee shall have, to the extent of such assignment, the obligations, rights and benefits of a Lender hereunder holding the Loan (or portions thereof) assigned to it (in addition to the Loan, if any, theretofore held by such assignee). Upon each such assignment the assigning Lender shall pay the Agent an assignment fee of $3,000. (c) A Lender may sell or agree to sell to one or more other Persons a participation in all or any part of any Loan held by it, in which event each purchaser of a participation (a "Participant") (which participation may not be made to a financial institution that is not (a) registered with the Mexican Secretaria de Hacienda y Credito Publico for purposes of Article 154, Section I of the Mexican income tax law (Ley de Impuesto Sobre la Renta) and (b) a resident for tax purposes of a jurisdiction with which Mexico has in effect a treaty for the avoidance of double taxation) shall be entitled to the rights and benefits of the provisions of Section 9.01(g) hereof with respect to its participation in such Loan as if (and the Company shall be directly obligated to such Participant under such provisions as if) such Participant were a "Lender" for purposes of said Section, but, except as otherwise provided in Section 4.07(c) hereof, shall not have any other rights or benefits under this Agreement or any Note or any other Basic -79- 80 Document (the Participant's rights against such Lender in respect of such participation to be those set forth in the agreements executed by such Lender in favor of the Participant). All amounts payable by the Company to any Lender under Section 5 hereof in respect of a Loan held by it, shall be determined as if such Lender had not sold or agreed to sell any participations in such Loan and as if such Lender were funding each of such Loan in the same way that it is funding the portion of such Loan in which no participations have been sold. In no event shall a Lender that sells a participation agree with the Participant to take or refrain from taking any action hereunder or under any other Basic Document except that such Lender may agree with the Participant that it will not, without the consent of the Participant, agree to (i)) extend the date fixed for the payment of principal of or interest on the Loan or any portion of any fee hereunder payable to the Participant, (ii) reduce the amount of any such payment of principal, (iii) reduce the rate at which interest is payable thereon, or any fee hereunder payable to the Participant, to a level below the rate at which the Participant is entitled to receive such interest or fee, (iv) alter the rights or obligations of the Company to prepay the Loans or (v) consent to any modification, supplement or waiver hereof or of any of the other Basic Documents to the extent that the same, under Section 11.09 or 12.05 hereof, requires the consent of each Lender. (d) In addition to the assignments and participations permitted under the foregoing provisions of this Section 12.07, any Lender may (without notice to the Company, the Agent or any other Lender and without payment of any fee) (i) assign and pledge all or any portion of its Loan and its Note to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank and (ii) assign all or any portion of its rights under this Agreement and its Loan and its Note to an affiliate. No such assignment shall release the assigning Lender from its obligations hereunder. (e) A Lender may furnish any information concerning the Obligors in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants). (f) Anything in this Section 12.07 to the contrary notwithstanding, no Lender may assign or participate any interest in any Loan held by it hereunder to the Guarantors, the Company or any of their Affiliates or Subsidiaries without the prior consent of each Lender. 12.08 Survival. The obligations of the Company under Sections 5.01, 5.03, 5.04,12.03 and 12.04 hereof, the obligations of each Guarantor under Section 6.03 hereof, and the obligations of the Lenders under Section 11.05 hereof shall survive the repayment of the Loans and the termination of the Commitments. In addition, each representation and warranty made, or deemed to be made by a notice of any Loan, herein or pursuant hereto shall survive the making of such representation and warranty, and no Lender shall be deemed to have waived, by reason of making any Loan, any Default that may arise by reason of such representation or warranty proving to have -80- 81 been false or misleading, notwithstanding that such Lender or the Agent may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such Loan was made. 12.09 Captions. The table of contents and captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 12.10 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 12.11 Judgment Currency. This is an international loan transaction in which the specification of Dollars and payment in New York City is of the essence, and the obligations of the Obligors under this Agreement to make payment to (or for the account of) a Lender in Dollars shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any other currency or in another place except to the extent that such tender or recovery results in the effective receipt by such Lender in New York City of the full amount of Dollars payable to such Lender under this Agreement. If for the purpose of obtaining judgment in any court it is necessary to convert a sum due hereunder in Dollars into another currency (in this Section 12.11 called the "judgment currency"), the rate of exchange that shall be applied shall be that at which in accordance with normal banking procedures the Agent could purchase such Dollars at its New York City office with the judgment currency on the Business Day next preceding the day on which such judgment is rendered. The obligation of the Obligors in respect of any such sum due from it to the Agent or any Lender hereunder or under any Basic Document (in this Section 12.11 called an "Entitled Person") shall, notwithstanding the rate of exchange actually applied in rendering such judgment, be discharged only to the extent that on the Business Day following receipt by such Entitled Person of any sum adjudged to be due hereunder in the judgment currency such Entitled Person may in accordance with normal banking procedures purchase and transfer Dollars to New York City with the amount of the judgment currency so adjudged to be due; and each of the Obligors hereby, as a separate obligation and notwithstanding any such judgment, agrees to indemnify such Entitled Person against, and to pay such Entitled Person on demand, in Dollars, the amount (if any) by which the sum originally due to such Entitled Person in Dollars hereunder exceeds the amount of the Dollars so purchased and transferred. 12.12 Governing Law. Each of the parties hereto agrees that, pursuant to New York State General Obligations Law Section 5-1401, this Agreement shall be governed by, and construed in accordance with, the law of the State of New York, United States of America. 12.13 Jurisdiction; Service of Process; Venue. -81- 82 (a) Each of the parties hereto agrees that any suit, action or proceeding with respect to this Agreement, any Note, any other Basic Document or any judgment entered by any court in respect of any thereof may be brought in the Supreme Court of the State of New York, County of New York or in the United States District Court for the Southern District of New York, as the party commencing such suit, action or proceeding may elect in its sole discretion; and each of the parties hereto hereby irrevocably submits to the jurisdiction of such courts for the purpose of any suit, action, proceeding or judgment. (b) Each Obligor hereby agrees that service of all writs, process and summonses in any such suit, action or proceeding brought in the State of New York may be made upon CT Corporation, presently located at 1633 Broadway, New York, New York 10019, U.S.A. (the "Process Agent"), and each Obligor hereby confirms and agrees that the Process Agent has been duly and irrevocably appointed as its agent and true and lawful attorney-in-fact in its name, place and stead to accept such service of any and all such writs, process and summonses, and agrees that the failure of the Process Agent to give any notice of any such service of process to such Obligor shall not impair or affect the validity of such service or of any judgment based thereon. Each Obligor hereby further irrevocably consents to the service of process in any suit, action or proceeding in said courts by the mailing thereof by the Agent or any Lender by registered or certified mail, postage prepaid, at its address set forth beneath its signature hereto. (c) Nothing herein shall in any way be deemed to limit the ability of the Agent or any Lender to serve any such writs, process or summonses in any other manner permitted by applicable law or to obtain jurisdiction over any Obligor in such other jurisdictions, and in such manner, as may be permitted by applicable law. (d) Each Obligor hereby irrevocably waives any objection that it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement, the Notes or any other Basic Document brought in the Supreme Court of the State of New York, County of New York or in the United States District Court for the Southern District of New York, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. (e) Each Obligor irrevocably waives, to the fullest extent permitted by applicable law, any claim that any action or proceeding commenced by the Agent or any Lender relating in any way to this Agreement should be dismissed or stayed by reason, or pending the resolution, of any action or proceeding commenced by any Obligor relating in any way to this Agreement whether or not commenced earlier. To the fullest extent permitted by applicable law, the Obligors shall take all measures necessary for any such action or proceeding commenced by the Agent or any Lender to proceed to judgment prior to the entry of judgment in any such action or proceeding commenced -82- 83 by any Obligor. 12.14 No Immunity. To the extent that any Obligor may be or become entitled, in any jurisdiction in which judicial proceedings may at any time be commenced with respect to this Agreement or any other Basic Document, to claim for itself or its Property any immunity from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment, execution of a judgment or from any other legal process or remedy relating to its obligations under this Agreement or any other Basic Document, and to the extent that in any such jurisdiction there may be attributed such an immunity (whether or not claimed), each of the Obligors hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity to the fullest extent permitted by the laws of such jurisdiction and agrees that the foregoing waiver shall have the fullest extent permitted under the Foreign Sovereign Immunities Act of 1976 of the United States of America and is intended to be irrevocable for purposes of such Act. 12.15 Waiver of Jury Trial. EACH OF THE OBLIGORS, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 12.16 The Trustee of the Trust. The Lenders each acknowledge and agree that the name "Starwood Lodging Trust" is a designation of the real estate investment trust and its trustees (as trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated as of June 6, 1988, as further amended on February 1, 1995 and as further amended on June 19, 1995 and as the same may be further amended from time to time, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, as the trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. The foregoing shall govern all direct and indirect obligations of the Trust under the Basic Documents. 12.17 Use of English Language. This Agreement has been negotiated and executed in the English language. All certificates, reports, notices and other documents and communications given or delivered pursuant to this Agreement shall be in the English language, or accompanied by a certified English translation thereof. Except in the case of laws of, or official communications of, Mexico, in the case of any document originally issued in a language other than English, the English language version of any such document shall for purposes of this Agreement, and absent manifest error, control the meaning of the matters set forth therein. -83- 84 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. COMPANY SLT MEXICO, S. de R.L. de C.V. By: Title: Address for Notices: Attention: Facsimile No.: Telephone No.: -84- 85 GUARANTORS STARWOOD LODGING TRUST By: Title: Address for Notices: Attention: Facsimile No.: Telephone No.: SLT REALTY LIMITED PARTNERSHIP By: Title: Address for Notices: Attention: Facsimile No.: Telephone No.: -85- 86 LENDERS Commitment: BANCOMER, S.A., Cayman Islands Branch U.S.$118,750,000 By: Title: Lending Office: Address for Notices: Attention: Facsimile No.: Telephone No.: -86- 87 BANCOMER, S.A., as Agent By: Title: Address for Notices to Bancomer, S.A. as Agent: Attention: Facsimile No.: Telephone No.: -87- EX-10.46 23 EX-10.46 1 Exhibit 10.46 PURCHASE AGREEMENT THIS PURCHASE AGREEMENT ("Agreement") is made as of the 10th day of October, 1997, by and among Starwood Lodging Trust, a Maryland real estate investment trust (the "Trust"), Starwood Lodging Corporation, a Maryland corporation (the "Corporation") (the Trust and the Corporation, being collectively referred to as the "Company"), and UBS Limited, an English corporation ("UBS Limited") and Union Bank of Switzerland, London Branch, acting through its agent UBS Securities LLC ("UBS-LB") (UBS Limited and UBS-LB being hereinafter collectively called the "UBS Parties" and sometimes individually, a "UBS Party"). References herein to the "Company" refer to the Trust and the Corporation, and those entities respectively owned or controlled by the Trust or the Corporation. IN CONSIDERATION of the mutual covenants contained in this Purchase Agreement, the Trust, the Corporation and the UBS Parties agree as follows: SECTION 1. Authorization of Sale of the Shares. Subject to the terms and conditions of this Agreement, the Trust has authorized the issuance to UBS Limited of up to an aggregate of 2,500,000 shares of beneficial interest, $.01 par value per share, of the Trust (the "Trust Shares") and the Corporation has authorized the issuance to UBS of up to an aggregate of 2,500,000 shares of Common Stock, par value $0.01 per share (the "Corporation Shares"), which Trust Shares and Corporation Shares are paired and traded as a unit consisting of one (1) Trust Share and one (1) Corporation Share (hereinafter each such paired unit is referred to as a "Paired Share" and the Paired Shares referred to in this sentence are herein called the "Purchase Shares"). In addition, the Trust and the Corporation may issue to UBS-LB additional Paired Shares in settlement of certain of its obligations under the Forward Stock Purchase Agreement, dated October 15, 1997 (the "Forward Stock Purchase Agreement"), among the Trust, the Corporation and UBS-LB (the "Additional Shares"). The Purchase Shares and the Additional Shares are hereinafter collectively called the "Shares". SECTION 2. Agreement to Sell and Purchase the Purchase Shares. Subject to the terms and conditions of this Agreement, on the Closing Date (as defined in Section 3 hereof), the Company will sell to UBS Limited the Purchase Shares, the number of which shall equal 2,185,000 shares for a per share purchase price of $57.25 per share. Pursuant to the direction of the Company, the purchase price per Paired Share shall be allocated 95% to the Trust and 5% to the Corporation. SECTION 3. Delivery of the Shares at the Closing. 3.1. Closing. The completion of the purchase and sale of the Purchase Shares (the "Closing") shall occur as soon as practicable, on such date to be agreed upon among the Trust, the Corporation and the UBS Parties, but in no event later than the earlier of (i) October 15, 1997 or (ii) three business days after the execution of this Agreement (hereinafter, the "Closing Date"). 3.2. Conditions. At Closing, the Trust and Corporation shall deliver or 2 cause to be delivered to the UBS Limited one or more stock certificates registered in the name of UBS Limited representing the number of Purchase Shares set forth in Section 2 above. The obligation of the Trust and the Corporation to complete the sale of the Purchase Shares and deliver such stock certificate(s) to UBS Limited at the Closing shall be subject to the following conditions, any one or more of which may be waived by both the Trust and the Corporation acting together: (i) receipt by the Company of Federal Funds (or other mutually agreed upon form of payment) in the full amount of the purchase price for the Purchase Shares being purchased hereunder, (ii) the accuracy in all material respects, as of the Closing Date, of the representations and warranties made by the UBS Parties herein and the fulfillment, in all material respects, as of the Closing Date, of those undertakings of the UBS Parties to be fulfilled prior to the Closing, (iii) the Forward Stock Purchase Agreement shall have been fully executed by the parties thereto and (iv) receipt by the Company of a cross-receipt with respect to the Purchase Shares executed by UBS Limited. UBS Limited's obligation to accept delivery of such stock certificate(s) and to pay for the Purchase Shares evidenced thereby shall be subject to the following conditions: (i) the accuracy in all material respects, as of the Closing Date, of the representations and warranties made by the Trust and the Corporation herein and the fulfillment in all material respects, as of the Closing Date, of those undertakings of the Company to be fulfilled prior to Closing; and (ii) the UBS Parties shall have received all opinions and certificates to be delivered pursuant to this Agreement. SECTION 4. Representations, Warranties and Covenants of the Trust. The Trust hereby represents and warrants to, and covenants with, the UBS Parties as follows: 4.1. Organization and Qualification. The Trust has been formed as a real estate investment trust under Maryland law pursuant to a Declaration of Trust filed as of August 15, 1969 in the office of the Maryland Secretary of State, as amended and restated as of June 6, 1988 and filed in the office of the Maryland Secretary of State on such date, and as further amended as of February 1, 1995. The Trust's existence has not been suspended or terminated nor have any dissolution, revocation or forfeiture proceedings regarding the Trust been commenced. The Trust has been duly qualified to do business in each jurisdiction (i) wherein it owns, leases or manages real property or (ii) where the failure so to qualify to do business would have a material adverse effect on the financial condition, business, operations or prospects of the Company taken as a whole (a "Material Adverse Effect"). 4.2. Authorized Capital Stock. The Trust has 125,000,000 authorized shares as of July 31, 1997, consisting of 100,000,000 Trust Shares, par value $0.01 per share, 20,000,000 Excess Trust Shares, par value $0.01 per share and 5,000,000 Excess Preferred Shares, par value $0.01 per share. As of July 31, 1997, there were 45,562,851 Paired Shares outstanding and an aggregate of 18,296,917 Paired Shares were reserved for issuance (i) upon exercise of all outstanding warrants, options and other rights to purchase Paired Shares, (ii) upon conversion of all outstanding debt securities and (iii) upon exercise all exchange and conversion rights with respect to the SLC Operating Limited Partnership and SLT Realty 2 3 Limited Partnership and all other entities the holders of equity interests in which have the right to exchange or convert such equity interests into Paired Shares. No preferred shares of the Trust are currently outstanding. The issued and outstanding Paired Shares of the Company have been duly authorized and validly issued, are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and conform to the description thereof included in the Company's SEC Filings (as defined below). Other than as described in the Company's SEC Filings, the Trust does not have outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. The description of the Trust's stock, stock bonus and other stock plans or arrangements and the options or other rights granted and exercised thereunder in the Company's SEC Fillings accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. 4.3. Issuance, Sale and Delivery of the Shares. The Purchase Shares to be sold by the Company have been duly authorized and, when issued, delivered and paid for in the manner set forth in this Agreement, will be duly authorized, validly issued, fully paid and nonassessable, and will conform to the description thereof included in the Company's SEC Filings or incorporated by reference in the Registration Statement, if available. The Additional Shares, if and when issued pursuant to the Forward Stock Purchase Agreement, will be duly authorized, validly issued, fully paid and nonassessable, and will conform to the description thereof included in the Company's SEC filings or incorporated by reference in the Registration Statement. None of the Purchase Shares when issued and delivered to the UBS Parties shall be subject to any lien, security interest, claim, charge or encumbrance of any nature. No further approval or authority of the shareholders or the Board of Trustees of the Trust will be required for the issuance and/or sale of the Purchase Shares to be sold by the Company as contemplated herein or in the Forward Stock Purchase Agreement, except such as shall have been obtained on or before the Closing Date. The issuance and/or sale of the Purchase Shares to the UBS Parties by the Company pursuant to this Agreement or the Forward Stock Purchase Agreement (as the case may be), the compliance by the Company with the other provisions of this Agreement or the Forward Stock Purchase Agreement and the consummation of the other transactions contemplated hereby or thereby do not require the consent, approval, authorization, registration or qualification of or with any governmental authority, except such as shall have been obtained on or before the Closing Date other than the registration of the resale of the Shares by the UBS Parties with the Securities and Exchange Commission (the "SEC") and any required Blue Sky filings with the States. The Company meets and will continue to meet the requirements for use of Form S-3 under the Securities Act and the rules and regulations promulgated thereunder (the "Rules and Regulations"). The Company has filed and will file all documents which it is required to file under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and all such documents (collectively, together with the Company's registration statements filed under the Securities Act which have been declared effective since January 1, 1997 and have not been withdrawn, the "Company's SEC Filings") comply in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, as applicable, and 3 4 none of such documents, when so filed, contained or will contain any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and any documents so filed and incorporated by reference subsequent to the effective date of the Registration Statement (as defined in Section 8 below) shall, when they are filed with the SEC, conform in all material respects with the requirements of the Securities Act and the Rules and Regulations and the Exchange Act and the rules and regulations thereunder, as applicable. No Registration Statement filed in respect of any of the Purchase Shares or Additional Shares, when so filed, will contain any untrue statement of a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 4.4. Due Execution, Delivery and Performance of the Agreement. The Trust has full legal right, power and authority to enter into the Purchase Agreement and the Forward Stock Purchase Agreement and perform the transactions contemplated hereby and thereby. The Purchase Agreement and the Forward Stock Purchase Agreement have been duly authorized, executed and delivered by the Trust. The making and performance of the Purchase Agreement and the Forward Stock Purchase Agreement by the Trust and the consummation of the transactions herein and therein contemplated will not violate any provision of the articles of incorporation, declaration of trust, or bylaws, or other organizational documents, of the Trust, and will not conflict with, result in the breach or violation of, or constitute, either by itself or upon notice or the passage of time or both, a default under any material agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument to which the Trust is a party or by which the Trust or its respective properties may be bound or affected, any statute or any authorization, judgment, decree, order, rule or regulation of any court or any regulatory body, administrative agency or other governmental body applicable to the Trust or any of its respective properties. No consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body is required by or on the part of the Trust for the execution and delivery of this Agreement, the Forward Stock Purchase Agreement or the consummation of the transactions contemplated hereby or thereby, except in connection with the filing of any Registration Statements pursuant to Section 8 below or for compliance with the Blue Sky laws applicable to the offering of the Shares. Upon the execution and delivery hereof, each of this Agreement and the Forward Stock Purchase Agreement will constitute the valid and binding obligation of the Trust, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as the enforceability of the indemnification agreements of the Trust in Section 8.5 hereof may be limited by public policy. 4.5. Accountants. The Company's independent certified public accountants, who have expressed their opinion with respect to the Most Recent Financial Statements (as defined below) are independent accountants as required by the Securities Act and the Rules and Regulations. The Company shall cause its independent certified public 4 5 accountants to deliver, on the effective date of Registration Statement, and thereafter upon the request of a UBS Entity (which shall be made no more frequently than once during any 30 day period), a letter stating that such accountants are independent public accountants within the meaning of the Securities Act and otherwise in customary form and covering such financial and accounting matters as are then customarily covered by letters of independent certified public accountants delivered in connection with secondary public offerings of equity securities pursuant to a shelf registration statement. 4.6. No Defaults. Except as to defaults, violations and breaches which individually or in the aggregate would not be material to the Company (taken as a whole), the Trust is not in violation or default of any provision of its declaration of trust or bylaws, or other organizational documents, and is not in breach of or default with respect to any provision of any agreement, judgment, decree, order, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument to which it is a party or by which it or any of its properties are bound; and there does not exist any state of fact which constitutes an event of default on the part of the Trust as defined in such documents or which, with notice or lapse of time or both, would constitute such an event of default except such defaults which individually or in the aggregate would not be material to the Company. 4.7. Contracts. Neither the Trust, nor to the best of the Trust's knowledge, any other party is in breach of or default under any contracts to which the Trust is a party except such breach or default which individually or in the aggregate would not have a Material Adverse Effect. 4.8. No Actions. There are no legal or governmental actions, suits or proceedings pending or, to the best of the Trust's knowledge, threatened to which the Trust is or may be a part or of which property owned or leased by the Trust is or may be the subject, or related to environmental or discrimination matters, which actions, suits or proceedings might, individually or in the aggregate, prevent or adversely affect the transactions contemplated by this Agreement or result in a material adverse change in the condition (financial or otherwise), of the properties, business, results of operations or prospects of the Company, and no labor disturbance by the employees of the Trust exists or is imminent which might be expected to affect adversely such condition, properties, business, results of operations or prospects. Except as may be described in the Company's SEC Filings, the Trust is not a party nor subject to the provisions of any material injunction, judgment, decree or order of any court, regulatory body administrative agency or other governmental body. 4.9. Properties. The Trust has good and marketable title to all the properties and assets reflected as owned by the Company in the financial statements included in the Most Recent Financial Statements, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if any, reflected in such financial statements or the Company's SEC Filings, or (ii) those which are not material in amount and do not adversely affect the use made and promised to be made of such property by the Trust. The Trust holds its leased properties under valid and binding leases, with such exceptions as are not materially significant in relation to the business of the Trust and the Corporation. The Trust owns or leases 5 6 all such properties as are necessary to its operations as now conducted. The Trust qualified as a real estate investment trust under the Internal Revenue Code of 1986, as amended, with respect to its taxable years ended December 31, 1995 and December 31, 1996, and is organized in conformity with the requirements for qualification as a real estate investment trust, and its manner of operation has enabled it to meet the requirements for qualification as a real estate investment trust as of the date hereof, and its proposed manner of operation will enable it to meet the requirements for qualification as a real estate investment trust in the future. 4.10. No Material Change. Since the date of the Most Recent Financial Statements, and except as otherwise disclosed in the Company's SEC Filings as of the Closing Date or in writing to the UBS Parties the Trust (i) has not incurred any liabilities or obligations, indirect, or contingent, which will have a Material Adverse Effect or entered into any material verbal or written agreement or other material transaction which is not in the ordinary course of business (it being agreed that for purposes of this sentence the Trust's ordinary course of business shall include the acquisition or disposition, directly indirectly, of real estate properties or businesses of a type that may be owned by a "real estate investment trust" (as defined under the Internal Revenue Code)) or which could reasonably be expected to result in a material reduction in the future earnings of the Company; (ii) the Trust has not sustained any loss or interference with its businesses or properties (taken as a whole) from fire, flood, windstorm, accident or other calamity, whether or not covered by insurance, which has had a material adverse effect on such business or properties; (iii) the Trust is not in default in the payment of principal or interest on any outstanding debt obligations; (iv) there has not been any change in the authorized capital of the Trust or material increase in the principal amount of outstanding indebtedness of the Trust (other than in the ordinary course of business); and (v) there has not been any material adverse change in the condition (financial or otherwise), business, properties, results of operations or prospects of the Company. 4.11. Intellectual Property. The Trust believes it has sufficient trademarks, trade names, patent rights, copyrights, licenses, approvals and governmental authorizations to conduct its businesses as now conducted; and the Trust does not have knowledge of any material infringement by it of trademark, trade name rights, patent rights, copyrights, licenses, trade secrets or other similar rights of others, and no claim has been made against the Trust regarding trademark, trade name, patent, copyright, license, trade secrecy or other infringement which could have a material adverse effect on the condition (financial or otherwise), business, results of operations or prospects of the Company. 4.12. Compliance. The Trust has not been advised, and has no reason to believe, that it is not conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, including, without limitation, all applicable local, state and federal environmental laws and regulations; except where failure to be so in compliance would not materially adversely affect the condition (financial or otherwise), business, results of operations or prospects of the Company. 4.13. Taxes. The Trust has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon (except 6 7 for those taxes which are being contested in good faith through appropriate proceedings, for which adequate reserves have been established and which are either reflected in the Most Recent Financial Statements or disclosed by the Company to UBS in writing), and the Trust has no knowledge of any tax deficiency which has been or might be asserted or threatened against the Trust which could materially adversely affect the business condition (financial or otherwise), results of operations or prospects of the Company. 4.14. Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income taxes) which are required to be paid in connection with the sale and transfer of the Purchase Shares to be sold to UBS Limited hereunder will be, or will have been, fully paid or provided for by the Company and all laws imposing such taxes will be or will have been fully complied with. 4.15. Investment Company. The Trust is not required to register as an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 4.16. Offering Materials. The Trust has not distributed nor will distribute prior to the Closing Date any offering material in connection with the offering and sale of the Purchase Shares other than the documents provided to the UBS Parties pursuant to Section 4.18. 4.17. Insurance. The Company maintains insurance (or insurance is maintained on its behalf) of the types and in the amounts generally deemed adequate under customary industry standards for its business, including, but not limited to, insurance covering all real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. 4.18. SEC Filings. The information contained in the following documents, which the Company has furnished to the UBS Parties, or will furnish prior to the Closing, is or will be true and correct in all material respects as of their respective filing dates: (a) Joint Annual Report on Form 10-K/A for the year ended December 31, 1996, which Joint Annual Report includes the Trust's and the Corporation's most recently available audited financial statements together with the report thereon of the independent certified public accountants (the "Most Recent Financial Statements"); (b) Joint Quarterly Report on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997; (c) the Company's joint proxy statements on Form 14A relating to (i) the most recent Annual Meeting of the Corporation's and the Trust's Shareholders and (ii) any Special Meetings of the Corporation's 7 8 Shareholders and the Trust's Shareholders which occurred during the 12-month period prior to the date hereof or for which a meeting date has been fixed and a proxy statement distributed; (d) Prospectus dated March 21, 1997 and Supplement thereto dated March 27, 1997 and Prospectus dated September 29, 1997 and Supplement thereto dated September 29, 1997; (e) all other documents, if any, filed by or with respect to the Trust and the Corporation with the SEC since January 1, 1997 pursuant to Sections 13, 15(d) or 16(a) of the Exchange Act; and (f) a covenant compliance certification stating that the Trust and the Corporation and their respective subsidiaries are not in default under any of its credit agreements or other financing arrangements. 4.19. Legal Opinion. Prior to the Closing, counsel to the Company will deliver their legal opinions to the UBS Parties in substantially the forms of Exhibits A-1 and A-2 hereto. 4.20. ERISA. The Company and its affiliates are in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended and the rules and regulations promulgated thereunder ("ERISA"). Neither a Reportable Event (as defined under ERISA) nor a Prohibited Transaction (as defined under ERISA) has occurred with respect to any Plan (as defined below) of the Company and/or its affiliates; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated within the past five years; no circumstance exists which constitutes grounds under Section 402 of ERISA entitling the Pension Benefit Guaranty Corporation ("PBGC") to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; the Company and its affiliates have not completely or partially withdrawn under Sections 4201 or 4202 of ERISA from any Multiemployer Plan (as defined therein); the Company and its affiliates have met the minimum funding requirements of Section 412 of the Internal Revenue Code of 1986, as amended (the "Code") and Section 302 of ERISA with respect to each Plan and there is no unfunded current liability (as defined below) with respect to any Plan; the Company and its affiliates have not incurred any liability to the PBGC under ERISA (other than for the payment of premiums under Section 4007 of ERISA); no part of the funds to be used by the Company in satisfaction of its obligations under this Purchase Agreement or the Forward Stock Purchase Agreement constitute "plan assets" of any "employee benefit plan" within the meaning of ERISA or of any "plan" within the meaning of Section 4975(e)(1) of the Code, as interpreted by the Internal Revenue Service and the U.S. Department of Labor in rules, regulations, releases and bulletins or as interpreted under applicable case law. As used below, "Plan" means an "employee benefit plan" or "plan" as described in Section 3(3) of ERISA; and "unfunded current liability" has the meaning provided in Section 302(d)(8)(A) of ERISA. 8 9 4.21. Certificate. A certificate of the Trust executed by the chief executive, financial or accounting officer of the Trust, to be dated the Closing Date in form and substance satisfactory to the UBS Parties to the effect that the representations and warranties of the Trust set forth in this Section 4 are true and correct as of the date of this Agreement and as of the Closing Date, and the Trust has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied on or prior to such Closing Date. 4.22. Environmental Protection. To the Trust's knowledge, except as disclosed in the Company's SEC Filings, none of the Trust's or its affiliates' properties contain any Hazardous Materials that, under any Environmental Law, (i) would impose liability on the Trust or any affiliate that is likely to have a material adverse effect on the condition (financial or other), business, results of operations, or prospects, of the Company or (ii) is likely to result in the imposition of a lien on any material asset owned, directly or indirectly, by the Company. To the Trust's knowledge, neither it nor any affiliate is subject to any existing, pending or threatened investigation or proceeding by any governmental agency or authority with respect or pursuant to any Environmental Law, except any which, if adversely determined, would not have a material adverse effect on the condition (financial or other), business, results of operations or prospects of the Company. As used herein, "Environmental Laws" mean all federal, state, local and foreign environmental, health and safety laws, codes and ordinances and all rules and regulations promulgated thereunder, including, without limitation laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, solid, toxic or hazardous substances or wastes; and "Hazardous Material" includes, without limitation, (i) all substances which are designated pursuant to Section 311(b)(2)(A) of the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C "1251 et seq.; (ii) any element, compound, mixture, solution, or substance which is designated pursuant to Section 102 of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. "9601 et seq.; (iii) any hazardous waste having the characteristics which are identified under or listed pursuant to Section 3001 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. "6901 et seq.; (iv) any toxic pollutant listed under Section 307(a) of the FWPCA; (v) any hazardous air pollutant which is listed under Section 112 of the Clean Air Act, 42 U.S.C. "7401 et seq.; (vi) any imminently hazardous chemical substance or mixture with respect to which action has been taken pursuant to Section 7 of the Toxic Substances Control Act, 15 U.S.C. "2601 et seq.; and (vii) petroleum, petroleum products, petroleum by-products, petroleum decomposition by-products, and waste oil. SECTION 5. Representations, Warranties and Covenants of the Corporation. The Corporation hereby represents and warrants to, and covenants with, the UBS Parties as follows: 5.1. Organization and Qualification. The Corporation has been duly organized, is validly existing and in good standing under the laws of Mary land. The 9 10 Corporation's corporate existence has not been suspended or terminated, nor have any dissolution, liquidation or forfeiture proceedings involving the Corporation been commenced. The Corporation has been duly qualified to do business in each jurisdiction (i) wherein such entity owns, leases or manages real property or (ii) where the failure so to qualify to do business would have a Material Adverse Effect. 5.2. Authorized Capital Stock. The Corporation has authorized capital stock as of July 31, 1997 of 135,000,000 shares, consisting of 100,000,000 shares of common stock, par value $0.01 per share, 10,000,000 shares of preferred stock, par value $0.01 per share, 20,000,000 shares of excess common stock, par value $0.01 per share and 5,000,000 shares of excess preferred stock, par value $0.01 per share. As of July 31, 1997, there were 45,562,851 Paired Shares outstanding and an aggregate of 18,296,917 Paired Shares were reserved for issuance (i) upon exercise of all outstanding warrants, options and other rights to purchase Paired Shares, (ii) upon conversion of all outstanding debt securities and (iii) upon exercise all exchange and conversion rights with respect to the SLC Operating Limited Partnership and SLT Realty Limited Partnership and all other entities the holders of equity interests in which have the right to exchange or convert such equity interests into Paired Shares. No preferred shares of the Corporation are currently outstanding. The issued and outstanding Paired Shares of the Company have been duly authorized and validly issued, are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and conform to the description thereof included in the Company's SEC Filings. Other than as described in the Company's SEC Filings, the Corporation does not have outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. The description of the Corporation's stock, stock bonus and other stock plans or arrangements and the options or other rights granted and exercised thereunder in the Company's SEC Fillings accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. 5.3. Issuance, Sale and Delivery of the Shares. The Purchase Shares to be sold by the Company have been duly authorized and, when issued, delivered and paid for in the manner set forth in this Agreement, will be duly authorized, validly issued, fully paid and nonassessable, and will conform to the description thereof included in the Company's SEC Filings or incorporated by reference in the Registration Statement, if available. The Additional Shares, if and when issued pursuant to the Forward Stock Purchase Agreement, will be duly authorized, validly issued, fully paid and nonassessable, and will conform to the description thereof included in the Company's SEC filings or incorporated by reference in the Registration Statement. None of the Purchase Shares when issued and delivered to the UBS Parties shall be subject to any lien, security interest, claim, charge or encumbrance of any nature. No further approval or authority of the shareholders or the Board of Directors of the Corporation will be required for the issuance and/or sale of the Purchase Shares to be sold by the Company as contemplated herein or in the Forward Stock Purchase Agreement, except such as shall have been obtained on or before the Closing Date. The issuance and/or sale of the Purchase Shares to 10 11 the UBS Parties by the Company pursuant to this Agreement or the Forward Stock Purchase Agreement (as the case may be), the compliance by the Company with the other provisions of this Agreement or the Forward Stock Purchase Agreement and the consummation of the other transactions contemplated hereby or thereby do not require the consent, approval, authorization, registration or qualification of or with any governmental authority, except such as shall have been obtained on or before the Closing Date other than the registration of the resale of the Shares by the UBS Parties with the Securities and Exchange Commission (the "SEC") and any required Blue Sky filings with the States. The Company meets and will continue to meet the requirements for use of Form S-3 under the Securities Act and the rules and regulations promulgated thereunder (the "Rules and Regulations"). The Company has filed and will file all documents which it is required to file under the Exchange Act and all such documents comply in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, as applicable, and none of such documents, when so filed, contained or will contain any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and any documents so filed and incorporated by reference subsequent to the effective date of the Registration Statement (as defined in Section 8 below) shall, when they are filed with the SEC, conform in all material respects with the requirements of the Securities Act and the Rules and Regulations and the Exchange Act and the rules and regulations thereunder, as applicable. No Registration Statement filed in respect of any of the Purchase Shares or Additional Shares, when so filed, will contain any untrue statement of a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 5.4. Due Execution, Delivery and Performance of the Agreement. The Corporation has full legal right, power and authority to enter into the Purchase Agreement and the Forward Stock Purchase Agreement and perform the transactions contemplated hereby and thereby. The Purchase Agreement and the Forward Stock Purchase Agreement have been duly authorized, executed and delivered by the Corporation. The making and performance of the Purchase Agreement and the Forward Stock Purchase Agreement by the Corporation and the consummation of the transactions herein and therein contemplated will not violate any provision of the articles of incorporation, or bylaws, or other organizational documents, of the Corporation, and will not conflict with, result in the breach or violation of, or constitute, either by itself or upon notice or the passage of time or both, a default under any material agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument to which the Corporation is a party or by which the Corporation or its respective properties may be bound or affected, any statute or any authorization, judgment, decree, order, rule or regulation of any court or any regulatory body, administrative agency or other governmental body applicable to the Corporation or any of its respective properties. No consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body is required by or on behalf of the Corporation for the execution and delivery of this Agreement, the Forward Stock Purchase Agreement or the consummation of the transactions contemplated hereby or thereby, except in connection with the filing of any Registration Statements pursuant to Section 8 below or for compliance with the Blue Sky laws applicable to the offering of the Shares. Upon the execution and delivery hereof, each of this Agreement and the Forward Stock 11 12 Purchase Agreement will constitute the valid and binding obligation of the Corporation, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as the enforceability of the indemnification agreements of the Corporation in Section 8.5 hereof may be limited by public policy. 5.5. Accountants. The Company's independent certified public accountants, who have expressed their opinion with respect to the Most Recent Financial Statements (as defined below) are independent accountants as required by the Securities Act and the Rules and Regulations. The Company shall cause its independent certified public accountants to deliver, on the effective date of Registration Statement, and thereafter upon the request of a UBS Entity (which shall be made no more frequently than once during any 30 day period), a letter stating that such accountants are independent public accountants within the meaning of the Securities Act and otherwise in customary form and covering such financial and accounting matters as are then customarily covered by letters of independent certified public accountants delivered in connection with secondary public offerings of equity securities pursuant to a shelf registration statement. 5.6. No Defaults. Except as to defaults, violations and breaches which individually or in the aggregate would not be material to the Company (taken as a whole), the Corporation is not in violation or default of any provision of its articles of incorporation, or bylaws, or other organizational documents, or is in breach of or default with respect to any provision of any agreement, judgment, decree, order, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument to which it is a party or by which it or any of its properties are bound; and there does not exist any state of fact which constitutes an event of default on the part of the Corporation as defined in such documents or which, with notice or lapse of time or both, would constitute such an event of default except such defaults which individually or in the aggregate would not be material to the Company. 5.7. Contracts. Neither the Corporation, nor to the best of the Corporation's knowledge, any other party is in breach of or default under any contracts to which the Corporation is a party except such breach or default which individually or in the aggregate would not have a Material Adverse Effect. 5.8. No Actions. There are no legal or governmental actions, suits or proceedings pending or, to the best of the Corporation's knowledge, threatened to which the Corporation is or may be a part or of which property owned or leased by the Corporation is or may be the subject, or related to environmental or discrimination matters, which actions, suits or proceedings might, individually or in the aggregate, prevent or adversely affect the transactions contemplated by this Agreement or result in a material adverse change in the condition (financial or otherwise), of the properties, business, results of operations or prospects of the Company, and no labor disturbance by the employees of the Corporation exists or is imminent which might be expected to affect adversely such condition, properties, business, results of 12 13 operations or prospects. Except as may be described in the Company's SEC Filings, the Corporation is not a party nor subject to the provisions of any material injunction, judgment, decree or order of any court, regulatory body administrative agency or other governmental body. 5.9. Properties. The Corporation has good and marketable title to all the properties and assets reflected as owned by the Corporation in the financial statements included in the Most Recent Financial Statements, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if any, reflected in such financial statements or the Company's SEC Filings, or (ii) those which are not material in amount and do not adversely affect the use made and promised to be made of such property by the Corporation. The Corporation holds its leased properties under valid and binding leases, with such exceptions as are not materially significant in relation to the business of the Corporation. The Corporation owns or leases all such properties as are necessary to its operations as now conducted. 5.10. No Material Change. Since the date of the Most Recent Financial Statements, and except as otherwise disclosed in the Company's SEC Filings as of the Closing Date or in writing to the UBS Parties the Corporation (i) has not incurred any liabilities or obligations, indirect, or contingent, which will have a Material Adverse Effect or entered into any material verbal or written agreement or other material transaction which is not in the ordinary course of business (it being agreed that for purposes of this sentence the Corporation's ordinary course of business shall include the acquisition or disposition, directly or indirectly of assets or business related to or engaged in the lodging industry) or which could reasonably be expected to result in a material reduction in the future earnings of the Company; (ii) the Corporation has not sustained any loss or interference with its businesses or properties (taken as a whole) from fire, flood, windstorm, accident or other calamity, whether or not covered by insurance, which has had a material adverse effect on such business or properties; (iii) the Corporation is not in default in the payment of principal or interest on any outstanding debt obligations; (iv) there has not been any change in the authorized capital of the Corporation or material increase in the principal amount of outstanding indebtedness of the Corporation (other than in the ordinary course of business); and (v) there has not been any material adverse change in the condition (financial or otherwise), business, properties, results of operations or prospects of the Company. 5.11. Intellectual Property. The Corporation believes it has sufficient trademarks, trade names, patent rights, copyrights, licenses, approvals and governmental authorizations to conduct its businesses as now conducted; and the Corporation does not have knowledge of any material infringement by it of trademark, trade name rights, patent rights, copyrights, licenses, trade secrets or other similar rights of others, and no claim has been made against the Corporation regarding trademark, trade name, patent, copyright, license, trade secrecy or other infringement which could have a material adverse effect on the condition (financial or otherwise), business, results of operations or prospects of the Company. 5.12. Compliance. The Corporation has not been advised, and has any reason to believe, that it is not conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, including, without 13 14 limitation, all applicable local, state and federal environmental laws and regulations; except where failure to be so in compliance would not materially adversely affect the condition (financial or otherwise), business, results of operations or prospects of the Company. 5.13. Taxes. The Corporation has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon (except for those taxes which are being contested in good faith through appropriate proceedings, for which adequate reserves have been established and which are either reflected in the Most Recent Financial Statements or disclosed by the Company to UBS in writing), and the Corporation has no knowledge of any tax deficiency which has been or might be asserted or threatened against the Corporation which could materially adversely affect the business condition (financial or otherwise), results of operations or prospects of the Company. 5.14. Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income taxes) which are required to be paid in connection with the sale and transfer of the Purchase Shares to be sold to UBS Limited hereunder will be, or will have been, fully paid or provided for by the Company and all laws imposing such taxes will be or will have been fully complied with. 5.15. Investment Company. The Corporation is not required to register as an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 5.16. Offering Materials. Neither the Trust nor the Corporation has distributed nor will distribute prior to the Closing Date any offering material in connection with the offering and sale of the Purchase Shares other than the documents provided to the UBS Parties pursuant to Section 5.18. 5.17. Insurance. The Company maintains insurance (or insurance is maintained on its behalf) of the types and in the amounts generally deemed adequate under customary industry standards for its business, including, but not limited to, insurance covering all real and personal property owned or leased by either the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. 5.18. SEC Filings. The information contained in the following documents, which the Company has furnished to the UBS Parties, or will furnish prior to the Closing, is or will be true and correct in all material respects as of their respective filing dates: (a) Joint Annual Report on Form 10-K/A for the year ended December 31, 1996, which Joint Annual Report includes the Trust's and the Corporation's most recently available audited financial statements together with the report thereon of the independent certified public accountants (the "Most Recent Financial Statements"); 14 15 (b) Joint Quarterly Report on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997; (c) the Company's joint proxy statements on Form 14A relating to (i) the most recent Annual Meeting of the Corporation's and the Trust's Shareholders and (ii) any Special Meetings of the Corporation's Shareholders and the Trust's Shareholders which occurred during the 12-month period prior to the date hereof or for which a meeting date has been fixed and a proxy statement distributed; (d) Prospectus dated March 21, 1997 and Supplement thereto dated March 27, 1997 and Prospectus dated September 29, 1997 and Supplement thereto dated September 29, 1997; (e) all other documents, if any, filed by or with respect to the Trust and the Corporation with the SEC since January 1, 1997 pursuant to Sections 13, 15(d) or 16(a) of the Exchange Act; and (f) a covenant compliance certification stating that the Trust and the Corporation and its subsidiaries are not in default under any of its credit agreements or other financing arrangements. 5.19. Legal Opinion. Prior to the Closing, counsel to the Company will deliver their legal opinions to the UBS Parties in substantially the forms of Exhibits A-1 and A-2 hereto. 5.20. ERISA. The Company and its affiliates are in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended and the rules and regulations promulgated thereunder ("ERISA"). Neither a Reportable Event (as defined under ERISA) nor a Prohibited Transaction (as defined under ERISA) has occurred with respect to any Plan (as defined below) of the Company and/or its affiliates; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated within the past five years; no circumstance exists which constitutes grounds under Section 402 of ERISA entitling the Pension Benefit Guaranty Corporation ("PBGC") to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; the Company and its affiliates have not completely or partially withdrawn under Sections 4201 or 4202 of ERISA from any Multiemployer Plan (as defined therein); the Company and its affiliates have met the minimum funding requirements of Section 412 of the Internal Revenue Code of 1986, as amended (the "Code") and Section 302 of ERISA with respect to each Plan and there is no unfunded current liability (as defined below) with respect to any Plan; the Company and its affiliates have not incurred any liability to the PBGC under ERISA (other than for the payment of premiums under Section 4007 of ERISA); no part of the funds to be used by the Company in satisfaction of its obligations under this Purchase Agreement or the Forward Stock Purchase Agreement constitute "plan assets" of any "employee benefit plan" within the meaning of ERISA or of any "plan" within the meaning of Section 15 16 4975(e)(1) of the Code, as interpreted by the Internal Revenue Service and the U.S. Department of Labor in rules, regulations, releases and bulletins or as interpreted under applicable case law. As used below, "Plan" means an "employee benefit plan" or "plan" as described in Section 3(3) of ERISA; and "unfunded current liability" has the meaning provided in Section 302(d)(8)(A) of ERISA. 5.21. Certificate. A certificate of the Corporation executed by the chief executive, financial or accounting officer of the Corporation, to be dated the Closing Date in form and substance satisfactory to the UBS Parties to the effect that the representations and warranties of the Corporation set forth in this Section 5 are true and correct as of the date of this Agreement and as of the Closing Date, and the Corporation has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied on or prior to such Closing Date. 5.22. Environmental Protection. To the Corporation's knowledge, except as disclosed in the Company's SEC Filings, none of the Corporation's or its affiliates' properties contain any Hazardous Materials that, under any Environmental Law, (i) would impose liability on either the Corporation or any affiliate that is likely to have a material adverse effect on the condition (financial or other), business, results of operations, or prospects, of the Company or (ii) is likely to result in the imposition of a lien on any assets owned, directly or indirectly, by either the Company. To the Corporation's knowledge, neither it nor any affiliate is subject to any existing, pending or threatened investigation or proceeding by any governmental agency or authority with respect or pursuant to any Environmental Law, except any which, if adversely determined, would not have a material adverse effect on the condition (financial or other), business, results of operations or prospects of the Company. As used herein, "Environmental Laws" mean all federal, state, local and foreign environmental, health and safety laws, codes and ordinances and all rules and regulations promulgated thereunder, including, without limitation laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, solid, toxic or hazardous substances or wastes; and "Hazardous Material" includes, without limitation, (i) all substances which are designated pursuant to Section 311(b)(2)(A) of the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C "1251 et seq.; (ii) any element, compound, mixture, solution, or substance which is designated pursuant to Section 102 of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. "9601 et seq.; (iii) any hazardous waste having the characteristics which are identified under or listed pursuant to Section 3001 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. "6901 et seq.; (iv) any toxic pollutant listed under Section 307(a) of the FWPCA; (v) any hazardous air pollutant which is listed under Section 112 of the Clean Air Act, 42 U.S.C. "7401 et seq.; (vi) any imminently hazardous chemical substance or mixture with respect to which action has been taken pursuant to Section 7 of the Toxic Substances Control Act, 15 U.S.C. "2601 et seq.; and (vii) petroleum, petroleum products, petroleum by-products, petroleum decomposition by-products, and waste oil. 16 17 SECTION 6. Representations, Warranties and Covenants of the UBS Parties. 6.1. Investment. UBS Limited and/or UBS-LB represents and warrants to, and covenants with, the Company that: (i) UBS Limited, taking into account the personnel and resources it can practically bring to bear on the purchase of the Purchase Shares contemplated hereby, is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in shares presenting an investment decision like that involved in the purchase of the Purchase Shares, including investments in securities issued by the Company, and has requested, received, reviewed and considered all information it deems relevant in making an informed decision to purchase the Purchase Shares; (ii) UBS Limited is acquiring the number of Purchase Shares set forth in Section 2 above in the ordinary course of its business and for its own account for investment (as defined for purposes of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the regulations thereunder) only and with no present intention of distributing any of such Purchase Shares or any arrangement or understanding with any other persons regarding the distribution of such Shares (this representation and warranty not limiting the rights of either UBS Party to sell pursuant to any Registration Statement); (iii) neither UBS Party will, directly or indirectly, sell or otherwise dispose of (or solicit any offers to purchase or otherwise acquire) any of the Shares except in compliance with the Securities Act, the Rules and Regulations and any applicable state securities or blue sky laws or pursuant to an available exemption or exclusion therefrom; (iv) each UBS Party has completed or caused to be completed the Registration Statement Questionnaire and the Stock Certificate Questionnaire, both attached hereto as Appendix I, for use in preparation of the Registration Statement and the answers thereto are true and correct to the best knowledge of the UBS Parties as of the date hereof and will be true and correct as of the effective date of the Registration Statement; (v) the UBS Parties have, in connection with their decision to purchase the number of Purchase Shares set forth in Section 2 above, relied solely upon the documents identified in Sections 4.18 and 5.18, the information referred to in Section 8.7 and the representations and warranties of the Company contained herein; (vi) each of the UBS Parties is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act and a "qualified institutional buyer" within the meaning of Rule 144A promulgated under the Securities Act; (vii) the UBS Parties do not directly or indirectly have an interest of five percent or more of the Common Shares outstanding as shown in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and (viii) the Purchaser understands that the Shares will contain a legend to the following effect: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY'S COUNSEL THAT REGISTRATION IS NOT 17 18 REQUIRED UNDER SAID ACT. 6.2. Resale. Each UBS Party acknowledges and agrees that the Shares are not transferable on the books of either the Trust or the Corporation unless the certificate submitted to the transfer agent evidencing the Shares is accompanied by a separate officer's certificate: (i) in the form of Appendix II hereto, (ii) executed by an officer of, or other authorized person designated by, the UBS Parties, and (iii) to the effect that (A) the Shares have been sold in accordance with the Registration Statement, the Securities Act and the Rules and Regulations and any applicable state securities or blue sky laws or pursuant to valid exemptions or exclusions therefrom and (B) the requirement under the Securities Act of delivering a current prospectus has been satisfied. Each UBS Party acknowledges that there may occasionally be times when the Company must suspend the right of the UBS Parties to effect sales of the Shares through use of the Prospectus forming a part of the Registration Statement until such time as an amendment to the Registration Statement has been filed by the Company and declared effective by the SEC, or until such time as the Company has filed an appropriate report with the SEC pursuant to the Exchange Act (each, a "Black-out Period"); provided that no Black-out Period shall exceed 90 consecutive days. Each UBS Party hereby covenants that it will not sell any Shares pursuant to said Prospectus during the period commencing at the time at which the Company gives the UBS Parties written notice of the suspension of the use of said Prospectus and ending at the time the Company gives the UBS Parties written notice that the UBS Parties may thereafter effect sales pursuant to said Prospectus. Each UBS Party further covenants to notify the Trust and the Corporation promptly of the sale of all of its Shares. 6.3. Due Execution, Delivery and Performance of this Agreement. The UBS Parties further represent and warrant to, and covenant with, the Company that (i) each UBS Party has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and (ii) upon the execution and delivery of this Agreement, this Agreement shall constitute a valid and binding obligation of the UBS Parties enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as the indemnification agreements of the UBS Parties in Section 8.5 hereof may be legally unenforceable. 6.4. Residence of UBS Limited. UBS Limited is organized under the laws of England and has its principal place of business in London. SECTION 7. Survival of Representations, Warranties and Agreements. Notwithstanding any investigation made by any party to this Purchase Agreement, all covenants, agreements, representations and warranties made by the Trust, the Corporation and the UBS Parties herein and in the certificates for the Shares delivered pursuant hereto shall survive the execution of this Purchase Agreement, the Forward Stock Purchase Agreement, the delivery to UBS Limited of the Purchase Shares being purchased and the payment therefor. 18 19 SECTION 8. Registration of the Shares; Compliance with the Securities Act. 8.1. Registration Procedures and Expenses. The Company shall: (a) within 90 days after the Closing, prepare and file with the SEC a Registration Statement (as defined below) covering the resale by the UBS Parties, from time to time, of the Shares (not to exceed a number of Shares equal to 130% of the number of Purchase Shares) through the facilities of the New York Stock Exchange, the automated quotation system of The Nasdaq Stock Market or the facilities of any other national securities exchange on which the Company's common stock is then traded or in privately negotiated transactions (the "Initial Registration Statement"). If the total number of Shares issued to the UBS Parties hereunder and under the Forward Stock Purchase Agreement exceeds the number of Shares covered by the Initial Registration Statement, then the Company shall prepare and file with the SEC such additional Registration Statement or Statements as shall be necessary to cover the resale by UBS-LB of such excess Shares in the same manner as contemplated by the Initial Registration Statement for the Shares covered thereby (each, an "Additional Registration Statement"); provided that prior to delivering certificates evidencing any such excess Shares to UBS-LB, the Company shall cause such Registration Statement to have become effective. The Company agrees that no other shareholder of the Company shall have any right (which has not been waived or expired) to require the Company to register the sale of any shares owned by such shareholder under the Initial or any Additional Registration Statement. For purposes of this Purchase Agreement, "Registration Statement" means a registration statement under the Securities Act on Form S-3 covering the resale by one or both UBS Parties of up to a specified number of Shares, filed and maintained effective by the Company pursuant to the provisions of this Section 8, including the Prospectus (as defined below) contained therein, any amendments and supplements to such registration statement, including all post-effective amendments thereto, and all exhibits and all material incorporated by reference into such registration statement; (b) use all reasonable best efforts to cause the SEC to notify the Company of the SEC's willingness to declare the Initial Registration Statement effective within 60 days after the Registration Statement is filed by the Company; provided that the Company will use its reasonable best efforts to cause such Initial Registration Statement to become effective no later than 90 days after the Closing Date; (c) prepare and file with the SEC such amendments and supplements to the 19 20 Registration Statement and the prospectus used in connection therewith (the "Prospectus") as may be necessary to keep the Registration Statement effective until the date on which the Shares may be resold by the UBS Parties without registration, by reason of Rule 144(k) under the Securities Act or any other rule of similar effect; (d) furnish to the UBS Parties with respect to the Shares registered under the Registration Statement (and to each underwriter, if any, of such Shares) such reasonable number of copies of Prospectuses, including any supplements and amendments thereto, promptly following the effectiveness of such Registration Statement an opinion from counsel to the Company covering the matters set forth on Exhibit B hereto and such other documents as the UBS Parties may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Shares by the UBS Parties; (e) use its reasonable best efforts to prevent the happening of any event that would cause such Registration Statement to contain a material misstatement or omission or to be not effective and usable for resale of the Shares during the period that such Registration Statement is required to be effective and usable; provided that this paragraph (e) shall in no way limit the Company's right to suspend the right of the UBS Parties to effect sales under the Registration Statement during any Black-out Period as specified at Section 6.2 above. (f) file documents required of the Company for normal blue sky clearance in states specified in writing by the UBS Parties, provided, however, that the Company shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; and (g) bear all reasonable out-of-pocket expenses in connection with the procedures in paragraphs (a) through (f) of this Section 8.1 and the registration of the Shares pursuant to the Registration Statement, the enforcement (in the case of breach by the Company) of this Agreement or the Forward Stock Purchase Agreement or the Master Agreement referred to in the Forward Stock Purchase Agreement, including the reasonable fees and expenses of counsel or other advisers to the UBS Parties, other than underwriting discounts, brokerage fees and commissions incurred by the UBS Parties, if any. 8.2. Covenants in Connection With Registration. (a) The Trust and the Corporation hereby covenant with the UBS Parties that (i) the Company shall not file any Registration Statement or Prospectus relating to the resale of the 20 21 Shares or any amendment or supplement thereto, unless a copy thereof shall have been first submitted to the UBS Parties and the UBS Parties did not object thereto in good faith (provided that if the UBS Parties do not object within two business days of receiving any such material, they shall be deemed to have no objection thereto); (ii) the Company shall immediately notify the UBS Parties of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or the initiation of any proceedings for such purpose; (iii) the Company shall make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of such Registration Statement at the earliest possible moment; (iv) the Company shall notify the UBS Parties of the receipt of any notification with respect to the suspension of the qualification of the Shares for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose; and (v) the Company shall as soon as practicable notify the UBS Parties in writing of the existence of any fact which results in any Registration Statement, any amendment or post-effective amendment thereto, the Prospectus, any prospectus supplement, or any document incorporated therein by reference containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading and shall (except during a Black-out Period) prepare a supplement or post-effective amendment to such Registration Statement or the Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Shares, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; provided that this clause (v) shall in no way limit the Company's right to suspend the right of the UBS Parties to effect sales under the Registration Statement during any Black-out Period as specified at Section 6.2 above. (b) The UBS Parties shall notify the Company at least two business days prior to the date on which it intends to commence effecting any resales of Shares under a Registration Statement and if the Company does not, within such two-day period, advise the UBS Parties of the existence of any facts of the type referred to in Section 8.2(a)(v) above, then the Company shall be deemed to have certified and represented to the UBS Parties that no such facts then exist and the UBS Parties may rely on such certificate and representation in making such sales. The preceding sentence shall in no way limit the Company's obligations under Section 8.2(a) above. 8.3. Extension of Required Effectiveness. In the event that the Company shall give any notice required by Section 8.2(a)(v) hereof, the period during which the Company is required to keep such Registration Statement effective and useable shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when the UBS Parties are advised in writing by the Company that the use of the Prospectus may be resumed. 8.4. Transfer of Shares After Registration. Each UBS Party agrees that it will not effect any disposition of the Shares or its right to purchase the Shares that would constitute a sale within the meaning of the Securities Act or pursuant to any applicable state securities or blue sky laws except as contemplated in each Registration Statement referred to in 21 22 Section 8.1 or except pursuant to any exemption from the registration requirements of the Securities Act (including, without limitation, Rule 144 promulgated thereunder and any successor thereto) and that it will promptly notify the Company of any changes in the information set forth in any such Registration Statement regarding the UBS Parties or its Plan of Distribution. 8.5. Indemnification. For the purpose of this Section 8.5, the term "Registration Statement" shall include any final prospectus, exhibit, supplement or amendment included in or relating to any Registration Statement referred to in Section 8.1. (a) Indemnification by Company. For purposes of this Section 8.5, the Trust and the Corporation, referred to as the "Company" agree to indemnify and hold harmless the UBS Parties and as more particularly described herein. The Company agrees to indemnify and hold harmless the UBS Parties and each person, if any, who controls either UBS Party within the meaning of the Securities Act, against any losses, claims, damages, liabilities or expenses, joint or several, to which the UBS Parties or such controlling person may become subject (including in settlement of any litigation, if such settlement is effected with the written consent of the Company), insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, including the Prospectus, financial statements and schedules, and all other documents filed as a part thereof, as amended at the time of effectiveness of such Registration Statement, including any information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rule 434, of the Rules and Regulations, or the Prospectus, in the form first filed with the SEC pursuant to Rule 424(b) of the Regulations, or filed as part of such Registration Statement at the time of effectiveness if no Rule 424(b) filing is required, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state in any of them a material fact required to be stated therein or necessary to make the statements in any of them not misleading, and will reimburse each UBS Party and each such controlling person for any legal and other expenses as such expenses are reasonably incurred by the UBS Parties or such controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. The Company will also indemnify selling brokers, dealers and similar securities industry professionals participating in the sale or resale of the Shares, their officers, directors and partners and each person who controls any such person within the meaning of the Securities Act, provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Statement, such Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company (i) by or on behalf of the UBS Parties expressly for use therein or (ii) any statement or omission in any Prospectus that is corrected in any subsequent Prospectus that was delivered to a UBS Party prior to the pertinent sale or sales by such UBS Party and not delivered by such UBS Party in connection with such sale or sales. 22 23 (b) Indemnification by UBS Parties. The UBS Parties will indemnify and hold harmless the Company, each of its directors, each of its officers who signed any Registration Statement and each person, if any, who controls the Company within the meaning of the Securities Act, against any losses, claims, damages, liabilities or expenses, joint and several, to which the Company, each of its directors, each of its officers who signed any Registration Statement or any controlling person may become subject (including in settlement of any litigation, if such settlement is effected with the written consent of the UBS Parties) insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in such Registration Statement, such Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such Registration Statement, such Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by or on behalf of the UBS Parties expressly for use therein, and will reimburse the Company, each of its directors, each of its officers who signed such Registration Statement and each controlling person for any legal and other expense reasonably incurred by the Company, each of its directors, each of its officers who signed such Registration Statement or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. (c) Proceedings. Promptly after receipt by an indemnified party under this Section 8.5 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 8.5 notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section 8.5 or to the extent it is not prejudiced as a proximate result of such failure. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with all other indemnifying parties similarly notified, to assume and control the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be a conflict between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 23 24 8.5 for any reasonable legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed such counsel in connection with the assumption of legal defenses in accordance with the proviso to the preceding sentence (it being understood, however, that the indemnifying party shall be not liable for the expenses of more than one separate counsel, approved by such indemnifying party in the case of paragraph (a), representing the indemnified parties who are parties to such action) or (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of action, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying party. Notwithstanding the foregoing, without the written consent of the indemnified party, the indemnifying party may not settle or agree to compromise of any such claim or action for which the indemnified party intends to seek reimbursement from the indemnifying party, and the indemnified party will permit the indemnifying party to settle or compromise any such action or suit at the indemnifying party's sole cost and expense if as a result thereof the indemnified party is provided a full and unconditional release of such claim or action. (d) Contribution. If the indemnification provided for in this Section 8.5 is required by its terms but is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party under paragraphs (a), (b) or (c) of this Section 8.5 in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any losses, claims, damages, liabilities or expenses referred to herein in such proportion as is appropriate to reflect the relative benefits received by the Company and the UBS Parties from the purchase and sale of the Shares and the relative fault of the Company and the UBS Parties in connection with the statements or omissions or inaccuracies in the representations and warranties in this Agreement which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The respective relative benefits received by the Company on the one hand and the UBS Parties on the other shall be deemed to be in the same proportion as the amount paid by the UBS Parties to the Company pursuant to this Agreement for the Shares purchased by the UBS Parties that were sold pursuant to any Registration Statement bears to the difference (the "Difference") between the amount the UBS Parties paid for the Shares that were sold pursuant to such Registration Statement and the amount received by the UBS Parties from such sale. The relative fault of the Company and the UBS Parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact or the inaccurate or the alleged inaccurate representation and/or warranty relates to information supplied by the Company or by the UBS Parties and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in paragraph (c) of this Section 8.5 any reasonable legal or other fees or expenses incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in paragraph (c) of this Section 8.5 with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this paragraph (d); 24 25 provided, however, that no additional notice shall be required with respect to any action for which notice has been given under paragraph (c) for purposes of indemnification. The Company and the UBS Parties agree that it would not be just and equitable if contribution pursuant to this Section 8.5 were determined solely by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph. Notwithstanding the provisions of this Section 8.5, the UBS Parties shall not be required to contribute any amount in excess of the amount by which the aggregate proceeds received by the UBS Parties from the transactions contemplated hereby exceeds the amount of any damages that the UBS Parties has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) Relationship Between the Trust and the Corporation. The obligations set forth in this Section 8.5 shall in no way limit the ability of the parties to allocate liability between themselves. 8.6. Termination of Conditions and Obligations. The conditions precedent imposed by Section 6 or this Section 8 upon the transferability of the Shares shall cease and terminate as to any particular number of the Shares when such Shares may be, and in fact are, sold under Rule 144(k) promulgated under the Securities Act. Further, as to any particular number of Shares, the conditions precedent imposed by Section 6 or this Section 8 on the transferability of such Shares shall cease and terminate at such earlier time as an opinion of counsel satisfactory to the Company and the UBS Parties shall have been rendered to the effect that such conditions are not necessary in order to comply with the Securities Act with respect to such Shares. In each such case, the Company's obligation to maintain an effective Registration Statement with respect to such Shares which are no longer be subject to the restrictions and limitations of Section 6 and this Section 8 shall cease. 8.7. Information Available. So long as any Registration Statement covering the resale of any Shares owned by either UBS Party is effective, the Trust and the Corporation will furnish to the UBS Parties: (a) as soon as practicable after available, one copy of (i) its Joint Annual Report to Shareholders, (ii) its Joint Annual Report on Form 10-K, (iii) its joint Quarterly Reports to Shareholders, (iv) its joint quarterly reports on Form 10-Q, (v) a full copy of the particular Registration Statement covering the Shares (the foregoing, in each case, excluding exhibits) and (vi) upon request, any or all other public filings under the Exchange Act by the Trust and the Corporation; and (b) upon the reasonable request of either UBS Party, a reasonable number of copies of the Prospectuses to supply to any other party requiring such Prospectuses; 25 26 and the Trust and the Corporation, upon the reasonable request of the UBS Parties, will meet with the UBS Parties or a representative thereof at the Trust's and the Corporation's headquarters to discuss all information relevant for disclosure in such Registration Statement covering the Shares, subject to appropriate confidentiality limitations. 8.8. Non-Exclusivity. The rights and remedies provided under Section 8.5 hereof shall not be in limitation or exclusion of any other rights or remedies available to a party, whether by agreement, at law, in equity or otherwise, with respect to the inaccuracy of any representation or warranty by, or the breach of any covenant of, the other party made herein or in the Forward Stock Purchase Agreement. 8.9. Notice Requirement. The Trust and the Corporation each covenant and agree that it will notify the UBS Parties at any time it becomes aware that as a result of a change in the Trust's and the Corporation's capital stock the UBS Parties beneficially hold more than 4.9% of the Trust's shares of beneficial interest or the Corporation's shares of common stock. 8.10. Transfer of Shares. The Trust and the Corporation covenant and agree to use their best efforts to cause the transfer agent to effect promptly any transfer of the Shares requested by the UBS Parties and to cause the transfer agent to remove promptly the restrictive legend from the Shares upon presentation to the transfer agent of all necessary documentation. SECTION 9. Registration Exemptions. For so long as the Trust and the Corporation are subject to the reporting requirements of Section 13 or 15 of the Exchange Act, the Trust and the Corporation covenant that they will file the reports required to be filed by it under the Securities Act and Section 13(a) and 15(d) of the Exchange Act and the rules and regulations adopted by the Commission thereunder. SECTION 10. Broker's Fee. Other than any fees payable under or in connection with the Forward Stock Purchase Agreement, each of the parties hereto hereby represents that, on the basis of any actions and agreements by it, there are no brokers or finders entitled to compensation in connection with the sale or issuance of the Shares to the UBS Parties. SECTION 11. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed by first-class registered or certified airmail, by telegram or telecopy or sent by nationally recognized overnight express courier postage prepaid, and shall be deemed given when so mailed or for telecopies, when transmitted and receipt confirmed, and shall be delivered as addressed as follows: (a) if to the Trust and the Corporation, to: Starwood Lodging Trust Starwood Lodging Corporation 26 27 2231 East Camelback Road, Suites 400 and 410 Phoenix, Arizona 85016 Attn: Ronald Brown/Alan Schneid Telecopier: 602-852-0115 with a copy so mailed to: Sidley & Austin 555 West 5th Street Suite 4000 Los Angeles, California 90013 Attn: Sherwin L. Samuels Telecopier: 213-896-6600 or to such other person at such other place as the Trust and the Corporation shall designate to the UBS Parties in writing; and (b) if to the UBS Parties, c/o UBS Securities, LLC, 299 Park Avenue, New York, New York 10171, Telecopier: 212-223-2815 or at such other address or addresses as may have been furnished to the Trust and the Corporation in writing. SECTION 12. Changes. This Agreement may not be modified or amended except pursuant to an instrument in writing signed by the Trust and the Corporation and the UBS Parties. SECTION 13. Headings. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. SECTION 14. Severability. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. SECTION 15. Governing Law; Jurisdiction. 15.1. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF) AND OF THE FEDERAL LAW OF THE UNITED STATES OF AMERICA. 15.2. EACH OF THE TRUST AND THE CORPORATION (I) HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF, AND AGREES THAT ANY SUIT SHALL BE BROUGHT IN, THE STATE AND FEDERAL COURTS LOCATED IN THE CITY AND COUNTY OF NEW YORK FOR THE PURPOSE OF ANY SUIT, 27 28 ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND (II) HEREBY WAIVES TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH PROCEEDING, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT ANY SUCH PROCEEDING BROUGHT IN ONE OF THE ABOVE-NAMED COURTS IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN ONE OF THE ABOVE-NAMED COURTS IS IMPROPER, OR THAT THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY MAY NOT BE ENFORCED IN OR BY SUCH COURT. SECTION 16. Transfer to Affiliate. Notwithstanding anything herein to the contrary, UBS Limited may transfer the Purchase Shares to any affiliate of UBS Limited, together with all of UBS Limited's rights hereunder; provided that (i) such affiliate shall assume and be subject to all of UBS Limited's obligations hereunder; (ii) such affiliate shall be an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act; and (iii) such transfer shall be consistent with the investment representations set forth at Section 6.1 hereto. In the event of such an assignment, such affiliate shall in all respects be substituted for UBS Limited as a party hereto. SECTION 17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. SECTION 18. Waiver of Trial by Jury. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO JURY TRIAL IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. 28 29 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. Starwood Lodging Trust By: /s/ Ronald Brown ---------------------------- Name: Ronald C. Brown Title: Senior Vice President & CFO Starwood Lodging Corporation By: /s/ Alan M. Schnaid ---------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller UBS Limited By: /s/ ---------------------------- Name: Title: By: /s/ Adam Matthews ---------------------------- Name: Adam Matthews Title: Director Union Bank of Switzerland London Branch By: /s/ C. Donegan ---------------------------- Name: C. Donegan Title: Vice President By: /s/ Adam Matthews ---------------------------- Name: A.J. Matthews Title: Vice President 29 30 Appendix I (one of two) STOCK CERTIFICATE QUESTIONNAIRE Pursuant to Section 3 of the Agreement, please provide us with the following information: 1. The exact name that your Shares are to be registered in (this is the name that will appear on your stock certificate(s)). You may use a nominee name if appropriate: ---------------------------- 2. All relationships between each UBS Party and the Registered Holder listed in response to Item 1 above: ---------------------------- ---------------------------- ---------------------------- 3. The mailing address of the Registered Holder listed in response to item 1 above: ---------------------------- ---------------------------- ---------------------------- ---------------------------- 4. The Social Security Number or Tax Identification Number of the Registered Holder listed in response to item 1 above: ---------------------------- C-31 31 Appendix I (two of two) REGISTRATION STATEMENT QUESTIONNAIRE In connection with the preparation of the Registration Statement, please provide us with the following information: 1. Pursuant to the "Selling Shareholders" section of the Registration Statement, please state your or your organization's name exactly as it should appear in the Registration Statement: 2. Please provide the number of shares that you or your organization will own immediately after Closing, including those Shares purchased by you or your organization pursuant to this Purchase Agreement and those shares purchased by you or your organization through other transactions: 3. Have you or your organization had any position, office or other material relationship within the past three years with the Trust, the Corporation or any of their affiliates? _____ Yes _____ No If yes, please indicate the nature of any such relationships below: ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 32 APPENDIX II Attention: PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE The undersigned, [an officer of, or other person duly authorized by] ___________________________________________________ hereby [fill in official name of individual or institution] certifies that he/she [said institution] is the Purchaser of the shares evidenced by the attached certificate, and as such, sold such shares on ________ [date] in accordance with Registration Statement number ______________________________ _______________________________________________________________________, [fill in the number of or otherwise identify Registration Statement] the Securities Act of 1933, as amended, and any applicable state securities or blue sky laws and the requirement of delivering a current prospectus by the Trust and the Corporation has been complied with in connection with such sale. Print or Type: Name of Purchaser (Individual or Institution): Name of Individual representing Purchaser (if an Institution) Title of Individual representing Purchaser (if an Institution): Signature by: Individual Purchaser or Individual repre- senting Purchaser: 33 EXHIBIT A-1 [Form of Closing Opinion of Counsel to the Trust and the Corporation] C-34 34 EXHIBIT A-2 [Form of Closing Opinion of Counsel to the Trust and the Corporation] C-35 35 EXHIBIT B Opinion Matters for Additional Registration Statements [opinion paragraphs to be delivered in connection with resale registration statements] The Corporation is duly organized, validly existing and in good standing under the laws of the State of Maryland, and the Corporation has the requisite corporate power and authority to own its properties and to conduct is business as presently conducted. The Trust is a real estate investment trust duly organized, validly existing and in good standing as a business trust under the laws of the State of Maryland, and the Trust has the requisite trust power and authority to own its properties and to conduct its business as is presently conducted. The [Additional] Shares have been duly authorized and are validly issued, nonassessable and fully paid, and are not subject to any preemptive or similar rights. The Registration Statement has been declared effective under the Securities Act; to our knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or threatened; and the Registration Statement, the Final Prospectus, and each amendment thereof or supplement thereto (except for the financial statements, schedules and the notes thereto and the other financial data included or incorporated by reference therein, as to which we express no opinion) comply as to form in all material respects with the requirements of the Securities Act and the Exchange Act and the respective rules of the Commission thereunder. While we have not verified, and are not passing upon and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or Final Prospectus, we have participated in reviews and discussions in connection with the preparation of the Registration Statement and Final Prospectus, and advise you that, in the curse of such reviews and discussions, nothing has come tot our attention which would lead us to believe (i) that the Registration Statement at the time it became effective (except for the financial statements and the notes thereto and the other financial data included or incorporated by reference therein, as to which we express no belief) contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein not misleading or (ii)that the Final Prospectus on the date thereof or on the date of this opinion (except for the financial statements and the notes thereto and the other financial data included or incorporated by reference therein, as to which we express no belief) contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. C-36 EX-10.47 24 EX-10.47 1 Exhibit 10.47 FORWARD STOCK CONTRACT To: Starwood Lodging Trust 2231 East Camelback Road Suite 410 Phoenix, AZ 85016 Attn: Mr. Ronald Brown To: Starwood Lodging Corporation 2231 East Camelback Road Suite 400 Phoenix, AZ 85016 Attn: Mr. Alan Schnaid From: Union Bank of Switzerland, London Branch c/o UBS Securities LLC, as agent 299 Park Avenue New York, NY 10171 Date: 13 October 1997 Ladies and Gentlemen, The purpose of this letter agreement (this "Confirmation") is to confirm the terms and conditions of the Transaction entered into between us on the Trade Date specified below (the "Transaction"). This Confirmation constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. References herein to the "Transaction" shall be deemed to be references to a "Swap Transaction" solely for the purposes of the 1991 ISDA Definitions. This Confirmation supplements, forms a part of, and is subject to, the ISDA Master Agreement dated as of 13 October 1997, as amended and supplemented from time to time (the "Agreement"), between you and us. All provisions contained in the Agreement govern this Confirmation except as expressly modified below. In the event of any inconsistency between the provisions of that agreement and this Confirmation, this Confirmation will prevail for the purposes of this Transaction. The Agreement and each Confirmation thereunder will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine. I. THE TRANSACTION Starwood Lodging Trust, a Maryland real estate investment trust (the "Trust"), Starwood Lodging Corporation, a Maryland corporation ("SLC") (the Trust and SLC being sometimes collectively referred to as the Company) and Union Bank of Switzerland, London Branch ("UBS") acting through UBS Securities LLC as its agent for each purchase or sale of Securities ("UBS LLC"), hereby agree to 1 2 FORWARD STOCK CONTRACT make the payments and deliveries provided for in Sections III, IV and V hereof, all on the terms more particularly specified herein (this "Confirmation"). II. DEFINITIONS For the purposes of this Confirmation, the following terms shall have the meanings set opposite: Adjustments: In the event of: (a) a subdivision, consolidation or reclassification of the Paired Shares, or a free distribution or dividend of any Paired Shares to all existing holders of Paired Shares by way of bonus, capitalization or similar issue; (b) a distribution or dividend to all existing holders of Paired Shares of (i) additional Paired Shares or (ii) other share capital or securities granting right to payment of dividends and/or the proceeds of liquidation of the Company equally or proportionally with such payments to holders of Paired Shares or (iii) any other type of securities, warrants or other assets, in any case for payment (cash or otherwise) at less than the prevailing market price; or (c) any other event that has a diluting or concentrative effect on the value of the Underlying Shares (other than (i) the issuance by the Company to its employees, officers and directors of options to purchase Paired Shares, restricted Paired Shares or limited partnership units of SLC Operating Limited Partnership and SLT Realty Limited Partnership or (ii) the issuance by the Company of Paired Shares for cash or in connection with any acquisition, merger, exchange offer or similar transaction, in each case approved by the Boards of Directors of SLC and the Trust). an adjustment shall thereupon be effected to the Forward Price and/or the Underlying Shares at the time of such event with the intent that following such adjustment, the value of this Transaction is economically equivalent to the value immediately prior to the occurrence of the event causing the adjustment. Calculation Agent: UBS, whose calculations and determinations shall be made in a commercially reasonable manner and shall be binding absent manifest error; provided that the Company my dispute any determination, adjustment or calculation by the Calculation Agent, or failure by the Calculation Agent to make any determination, adjustment or estimate required by this Confirmation, by notice to the Calculation Agent promptly following the day notice from the Calculation Agent to the Company of such determination, adjustment or calculation is effective or at any time the Company believes that the Calculation Agent has failed to make a determination, adjustment or calculation required by this Confirmation. If such dispute cannot be resolved within three Business Days following the day on which 2 3 FORWARD STOCK CONTRACT the Company's notice to the Calculation Agent is effective, then (i) the relevant party shall pay the amount, if any, that is not in dispute and (ii) the parties shall agree upon and appoint an independent third party to resolve the dispute, the determination of which shall be final and binding absent manifest error. Calculation Period: Means each period commencing on and including: (i) in the case of the first Calculation Period, the Effective Date and ending on but excluding the first Interim Settlement Date, and (ii) for each period thereafter, an Interim Settlement Date and ending on but excluding the earlier of the next following Interim Settlement Date or Day S. If there is a Partial Settlement, then (i) the Calculation Period for the Settlement Shares covered by such Partial Settlement Share shall end on Day S for such Partial Settlement and (ii) the Calculation Period for the remaining Underlying Shares shall be determined without regard to such Partial Settlement. Collateral Release Shares: Paired Shares delivered pursuant to Section V.C. Collateral Valuation Date: In the event that the Company chooses to post cash collateral pursuant to Section V. or VI. any day upon which the amount of collateral required is calculated. Compounding Period: Means each period commencing on and including: (i) in the case of the first Compounding Period, the Effective Date and ending on but excluding the first Reset Date, and (ii) for each period thereafter, a Reset Date and ending on (but excluding) the earlier of the next following Reset Date or Day S. If there is a Partial Settlement, then(i) the Compounding Period for the Settlement Shares covered by such Partial Settlement shall end on Day S for such Partial Settlement and (ii) the Compounding Period for the remaining Underlying Shares shall be determined without regard to such Partial Settlement. Customer Account: the account established in favor of the Company pursuant to the Customer Account Agreement dated the date hereof between the Company and UBS Securities LLC Daycount Actual/360 Day S: For Settlement pursuant to Section III. or VI. or Interim Net Stock Settlement pursuant to Section IV., the day upon which settlement activities shall begin. 3 4 FORWARD STOCK CONTRACT Dividend Amount: A) Means, on each Reset Date or Day S an amount in U.S. Dollars equal to: (i) the sum of all cash distributions paid on a single Common Share during the relevant Compounding Period; plus (ii) an amount representing interest that could have been earned on such distributions at the LIBOR rate plus Spread for a Designated Maturity of 1 month for the period from the date that such distributions would have been received by a holder of such Paired Shares until such Reset Date, or Day S, as the case may be. B) Separately, and not included in Dividend Amount, UBS will cause UBS LLC to pay to the Company on the Business Day after the relevant dividend payment date declared by the Company's Board of Directors, (i) all cash dividends on Paired Shares that have gone ex-dividend, but on which dividends have not been paid, prior to the end of the final Compounding Period for any settlement, based on a number of Paired Shares equal to the number of Settlement Shares for such settlement, (ii) all cash dividends received by UBS at any time, on Paired Shares delivered by the Company pursuant to Section III. E. that have gone ex-dividend after Day S but prior to the end of the Unwind Period for any settlement, and (iii) all cash dividends paid on Paired Shares held in the Customer Account. Effective Date: 15 October 1997 Exchange Trading Day: Each day on which the Relevant Exchange is open for trading. Forward Price: On each Reset Date or Day S, the Forward Price shall be determined for such day by: a) multiplying the Initial Price for the Compounding Period by the sum of 1 plus (i) LIBOR; determined as of the previous Reset Date for a Designated Maturity of 1 month, plus (ii) Spread; and b) subtracting the Dividend Amount at that date; provided however that if the Company delivers Interim Settlement Shares pursuant to Section IV. or Collateral Release Shares pursuant to Section V.C. during any Calculation Period, the Forward Price for purposes of determining the Initial Price for the first Compounding Period during such Calculation Period, shall be adjusted to a price equal to the closing price of the Paired Shares on the Exchange Trading Day immediately prior to the most recent Interim Settlement Date, adjusted up for any positive result or down for any negative result of the following formula: 4 5 (ii) the Interim Settlement Amount for the most recent Interim Settlement Date. minus, (i) (a) the number of Interim Settlement Shares or Collateral Release Shares, as the case may be, times (b) the average closing price of the Paired Shares on the five (5) Exchange Trading Days immediately following the receipt of the Interim Settlement Shares by UBS pursuant to Section IV.A. or the Collateral Release Shares pursuant to Section V.C. such result divided by, (iii) the number of Underlying Shares. Initial Price: Means, a) for the Compounding Period ending on the first Reset Date, an amount in U.S. Dollars equal to $57.25, and b) for each subsequent Reset Date, the Forward Price as calculated on or adjusted as of the prior Reset Date. Interim Settlement Dates: 15 January 1997, 15 April 1998, 15 July 1998, subject to adjustment in accordance with the Modified Following Business Day convention. Interim Settlement Amount: on any Interim Settlement Date, the product of (a) the number of Underlying Shares, and (b) the amount by which the Forward Price exceeds the closing price of the Paired Shares on the Exchange Trading Day immediately prior to such Interim Settlement Date. Interim Settlement Shares: (i) 110% times (ii) Interim Settlement Amount divided by (iii) the closing price of the Paired Shares on the Exchange Trading Day immediately prior to such Interim Settlement Date. LIBOR means USD-LIBOR-BBA as such term is defined in the Agreement. Mandatory Unwind Date: In the case of a Mandatory Unwind Event specified in clause (i) or the definition thereof, 1 Exchange Trading Day after such Mandatory Unwind Event occurs. In the case of a Mandatory Unwind Event specified in clause (ii) of such provision, the date specified in the notice delivered to the Company (which date shall be at least 5 Business Days after the date such notice becomes effective). Mandatory Unwind Mandatory Thresholds: Unwind Thresholds Unwind Share Limit $40.00 up to 25% of Underlying Shares 5 6 FORWARD STOCK CONTRACT $37.00 50% $35.50 75% $34.00 100% Maturity Date: One (1) year after the Effective Date, subject to extension upon the written approval of UBS in its sole discretion. Paired Shares: Shares of beneficial interest, $0.01 par value per share, of the Trust (the "Trust Shares") and shares of Common Stock, par value $0.01 per share, of SLC (the "SLC Shares"), which are paired and traded as a unit consisting of one (1) Trust Share and one (1) SLC Share. Partial Settlement: Any contemplated settlement, pursuant to sections III. or VI., in which the designated Settlement Shares are less than Underlying Shares. Preliminary Net Stock Settlement Shares: All Paired Shares delivered by the Company pursuant to Section III.E.2 and III.E.3(b) (other than Paired Shares delivered after the Unwind Period). Relevant Exchange: Means, with respect to any Exchange Trading Day, the principal Stock Exchange on which the Paired Shares are traded on that day. Reset Dates: 13 November 1997, 13 December 1997, 13 January 1998, 13 February 1998, 13 March 1998, 13 April 1998, 13 May 1998, 13 June 1998, 13 July 1998, 13 August 1998, 13 September 1998, 13 October 1998, subject to adjustment in accordance with the Modified Following Business Day convention. Settlement Amount: The product of the Settlement Price and the Settlement Shares. Settlement Disruption Event: Means an event beyond the control of the parties as a result of which The Depository Trust Company ("DTC") or any successor depository cannot effect a transfer of the Settlement Shares or the Paired Shares. If there is a Settlement Disruption Event on a Valuation Date, then the transfer of the Paired Shares that would otherwise be due to be made by UBS LLC for the account of UBS or the transfer of the Paired Shares that would otherwise be due to be made by the Company, as applicable, on that date shall take place on the first succeeding Exchange Trading Day on which settlement can take place through DTC, provided that if such a Settlement Disruption Event persists for five consecutive Business Days, then the Party obliged to deliver such Settlement Shares shall use its best efforts to cause such Shares to be delivered promptly thereafter to the other Party in any commercially reasonable manner. Settlement Price: If Day S is a Reset Date, the Forward Price. If Day S is not a Reset Date, the Forward Price adjusted for LIBOR breakage adjustments (either positive or negative) for the Settlement Shares for the period 6 7 FORWARD STOCK CONTRACT from Day S to the next following Reset Date. Any breakage adjustments shall be calculated by the Calculation Agent in accordance with normal industry standards. Settlement Shares: The number of shares up to the full number of Underlying Shares subject to settlement under Section III. or VI. Spread: 1.50% per annum. Stock Exchange: Means the New York Stock Exchange, the American Stock Exchange or NASDAQ. Stock Settlement Unwind Price: The daily average closing price of the Paired Shares for Exchange Trading Days during the Unwind Period. Trade Date: 13 October 1997 UBS LLC: UBS Securities LLC Unwind Period: In the event of Stock Settlement or Net Stock Settlement, such number of Exchange Trading Days (which shall not be more than 70; (subject to change based on mutual agreement) beginning on Day S; provided that UBS may extend such period (such extension not to exceed 10 Exchange Trading Days) or upon the occurrence of a Market Disruption Event. Underlying Shares: 2,185,000 Paired Shares of the Company (ticker "HOT"), subject to adjustment in the event of Partial Settlements. Valuation Date: In the case of determining any Cash Settlement value, Net Stock Settlement Shares or Stock Settlement Shares, Day S, the day preceding Day S and all Exchange Trading Days during the Unwind Period; in the case of determining any Preliminary Stock Settlement Shares or Preliminary Net Stock Settlement Shares, the Exchange Trading Day immediately preceding Day S; in the case of determining the Interim Settlement Amount and related calculation, the day prior to the Interim Settlement Date, and the 5 Exchange Trading Days following receipt of Interim Settlement Shares by UBS. Valuation Time: 4:00 pm EST, or in the event the Relevant Exchange closes early, such closing time. III. SETTLEMENT A. NOTICE AND PROCEDURES 1. The Company may on any Exchange Trading Day up to and including the Maturity Date, upon the giving of at least five (5) Business Days telephonic notice to UBS (the "Settlement 7 8 Notice"), settle all or part of this Transaction. The Settlement Notice shall specify: (i) the Settlement Shares, (ii) the settlement method (Cash, Stock or Net Stock Settlement, as such methods are described below); (iii) the number of Exchange Trading Days in the Unwind Period, and (iv) Day S, which must be an Exchange Trading Day; provided however, that if Cash or Net Stock Settlement is selected and in UBS' reasonable judgement the settlement of the Settlement Shares would potentially violate or contravene any legal or regulatory prohibition or requirement applicable to UBS or cause UBS to contravene any established UBS corporate policy or compliance policy which relates to any legal or regulatory prohibition or requirement applicable to UBS (other than any corporate policy limiting the amount of UBS's investment in another entity) then UBS shall at least three (3) Business Days prior to the proposed Day S, notify the Company telephonically (confirmed by writing) of any such impediment and its estimate of the period during which such impediment will preclude UBS' ability to settle all or part of this Transaction. The Settlement Notice shall be effective only if the notice requirements specified above are fulfilled; provided, that if no settlement method is specified, then the settlement method shall be deemed to be Cash Settlement and provided further that the Company may upon telephonic notice to UBS at least one (1) Exchange Trading Day prior to the proposed Day S withdraw any Settlement Notice. In the case of any Partial Settlement, following such settlement the number of Underlying Shares to which this Transaction shall relate shall be adjusted, as of Day S, by subtracting the number of Settlement Shares from the number of Underlying Share (as the same may have been adjusted prior to such Partial Settlement) immediately prior to such Day S. The Settlement Shares shall not be subject to forward accretion and shall be treated separately from the remaining Underlying Shares during any Unwind Period. 2. On Day S, the Settlement Price for the Settlement Shares and the Settlement Amount shall be determined for Day S. 3. The Settlement Amount shall be settled pursuant to the settlement method (B, C, or D of this section III.) selected by the Company in its sole discretion. 4. If settlement with respect to the Settlement Shares shall occur pursuant to Section III.A1 (but not as a result of a Mandatory Unwind Event) on or before the 180th day following the Effective Date, then the Settlement Price for purposes of such settlement shall be increased by any positive amount, calculated by UBS as follows: Spread x Forward Price x (180 - calendar days since Trade Date) ------------------------------------- 360 5. It shall be a condition precedent to any right of the Company to elect Stock Settlement (III. C. below) or Net Stock Settlement (III. D. below), that the Company must (i) notify UBS of such 8 9 election at least 5 Business Days prior to Day S and (ii) prior to Day S, cause to be filed with the Securities and Exchange Commission (the "Commission") and cause to become effective under the Securities Act of 1933, as amended (the "Securities Act") a registration statement that results in UBS being able to resell all Paired Shares to be delivered by the Company to UBS LLC for the account of UBS in effecting such Stock Settlement or Net Stock Settlement without further registration under the Securities Act of 1933, as amended, such registration statement to include one or more preliminary prospectuses, prospectuses, and any amendments and supplements thereto such that any preliminary prospectus or prospectus, as amended or supplemented, shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they are made. In addition, the Company shall not deliver any Paired Shares to UBS LLC for the account of UBS pursuant to Sections IV.A or IV.D. below unless at the time of such delivery a registration statement has become effective under the Securities Act that results in UBS being able to resell such Paired Shares without further registration under the Securities Act, such Registration Statement to include one or more preliminary prospectuses, prospectus and any amendments or supplements thereto such that any preliminary prospectus or prospectus, as amended or supplemented, shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they are made. The Company further agrees that it will cause any such Registration Statement referred to in this paragraph 5 of Section III.A. to remain in effect until the earliest of the date on which (i) all Paired Shares issued pursuant hereto and not required to be delivered to the Company hereunder have been sold by UBS LLC for the account of UBS and UBS agrees to notify the Company of such fact, within two (2) Business Days of its occurrence, (ii) UBS LLC for the account of UBS is able to sell the Paired Shares subject thereto under Rule 144(k), or (iii) UBS has advised the Company that it no longer requires that such registration statement be effective; provided, however, that in no event shall the Company be obligated to keep such Registration Statement effective for more than 10 Exchange Trading Days after the end of the applicable Unwind Period. B. CASH SETTLEMENT If the Company elects Cash Settlement, the Company shall settle by delivering cash in an amount equal to the Settlement Amount in exchange for the Settlement Shares ("Cash Settlement") on the Exchange Trading Day immediately succeeding Day S. UBS shall cause UBS LLC for the account of UBS to deliver the Settlement Shares to the Company on the Exchange Trading Day immediately succeeding Day S upon receipt of such Cash Settlement. C. STOCK SETTLEMENT If the Company elects to settle the Settlement Amount by delivering Paired Shares in exchange for the Settlement Shares ("Stock Settlement"), the number of Paired Shares to be delivered (the "Stock Settlement Shares") shall be equal to (a) the Settlement Amount divided by (b) the Stock Settlement Unwind Price. The mechanics for settlement are set forth in Section III. E. below and Article VI. D. NET STOCK SETTLEMENT If the Company elects to settle the Settlement Amount on a net stock basis ("Net Stock 9 10 Settlement"), the number of net stock settlement shares (the "Net Stock Settlement Shares") shall equal: i) the number of Settlement Shares, times ii) the Settlement Price minus the Stock Settlement Unwind Price, divided by iii) the Stock Settlement Unwind Price. If such calculation yields a negative number, this shall indicate the number of Paired Shares to be delivered from UBS LLC for the account of UBS to the Company. The mechanics for settlement are set forth in Section III. E. below and Article VI. (This section does not apply for purposes of Interim Net Stock Settlement.) E. STOCK AND NET STOCK SETTLEMENT MECHANICS 1. Preliminary Stock Settlement: If the Company has chosen Stock Settlement, the Company shall deliver to UBS LLC for the account of UBS, by 11:00 a.m. on Day S, that number of Paired Shares (the "Preliminary Stock Settlement Shares"), equal to the product of (i)(a) the Settlement Amount divided by (b) the closing price of the Paired Shares on the Exchange Trading Day immediately preceding Day S, times (ii) 110%. Upon receipt of the Preliminary Stock Settlement Shares, UBS will cause UBS LLC to deposit the Settlement Shares in the Company's Customer Account. 2. Preliminary Net Stock Settlement: If the Company has chosen Net Stock Settlement and if the Settlement Price exceeds the closing price of the Paired Shares on the Exchange Trading Day immediately preceding Day S, the Company shall deliver to UBS LLC for the account of UBS by 11:00 a.m. on Day S, that number of Paired Shares (the "Preliminary Net Stock Settlement Shares) equal to (i)(a) the number of Settlement Shares times (b) the difference between the Settlement Price and the closing price of the Paired Shares on the Exchange Trading Day immediately preceding Day S divided by (ii) the closing price of the Paired Shares on the Exchange Trading Day immediately preceding Day S times (iii) 125%. If the closing price of the Paired Shares on the Exchange Trading Day immediately preceding Day S exceeds the Settlement Price, the Company shall not be required to deliver any shares to UBS LLC for the account of UBS under this subsection III.E.2. 3. By 11:00 a.m. on every fifth (5th) Exchange Trading Day (other than the final Exchange Trading Day) during the Unwind Period and on the Business Day following the final Exchange Trading Day of the Unwind Period: A. For Stock Settlement: Stock Settlement Shares shall be calculated as if such Exchange Trading Day were Day S, except that (a) there shall be no recalculation of the Settlement Amount and (b) for purposes of calculating the Stock Settlement Unwind Price, the Unwind 10 11 Period shall be deemed to have ended on the Exchange Trading Day for which the calculation is made. (i) if (a) Stock Settlement Shares (calculated as set forth above) are greater than (b) the sum of (x) Preliminary Stock Settlement Shares plus (y) any shares previously delivered pursuant to this subparagraph (i), then the Company shall deliver that number of Paired Shares equal to the difference between (a) and (b) to UBS LLC for the account of UBS, and (ii) as of the final day of the Unwind Period, if (a) the sum of (x) Preliminary Stock Settlement Shares plus (y) any shares previously delivered pursuant to this settlement under subparagraph (i), above is greater than Stock Settlement Shares, then UBS LLC, for the account of UBS, shall deliver that number of Paired Shares equal to the difference between (a) and (b) above to the Company's Customer Account, B. For Net Stock Settlement: Net Stock Settlement Shares shall be calculated as if such Exchange Trading Day were Day S except that (a) there shall be no recalculation of the Settlement Amount and (b) for purposes of calculating the Stock Settlement Unwind Price, the Unwind Period shall be deemed to have ended on the Exchange Trading Day for which the calculation is made. (i) if (a) Net Stock Settlement Shares are greater than (b) the sum of (x) Preliminary Net Stock Settlement Shares plus (y) any shares previously delivered pursuant to this settlement under this subparagraph (i), then the Company shall deliver Paired Shares (which Paired Shares may be delivered from its Margin Account) equal in number to the difference between (a) and (b) to UBS LLC for the account of UBS, or (ii) as of the final day of the Unwind Period, if (a) the sum of (x) Preliminary Net Stock Settlement Shares plus (y) any shares previously delivered pursuant to this settlement under subparagraph (i), above is greater than (b) Net Stock Settlement Shares, then UBS LLC, for the account of UBS, shall deliver that number of Paired Shares equal to the difference between (a) and (b) above to the Company's Customer Account. 4. The Company shall cause all shares delivered by it to UBS LLC for the account of UBS to be fully and effectively registered under the Securities Act (as provided in Section III.A.5 above). 5. On the Exchange Trading Day following the final Exchange Trading Day of the Unwind Period, UBS LLC for the account of UBS shall release all claims to Paired Shares held in the Company's Customer Account, including any Settlement Shares delivered pursuant to Preliminary Stock Settlement (Section III. E. 1. above), and deliver all such Paired Shares to the Company with the dollar value of all fractional shares settled in cash. 6. In the event of Stock or Net Stock Settlement pursuant to Section III.C. or III.D., the Company shall pay an unwind accretion fee, in cash or stock, calculated in 11 12 FORWARD STOCK CONTRACT accordance with the following formula: Settlement Amount x (days in Unwind Period) x (1 month LIBOR + Spread) ---------------- ---------------------- 2 360 7. In the event of Stock or Net Stock Settlement pursuant to Section III.C. or III.D., the Company shall pay a placement fee to UBS LLC for the account of UBS calculated as: Settlement Amount x 0.50% IV. INTERIM NET STOCK SETTLEMENT On each Interim Settlement Date, if the Forward Price exceeds the closing price of the Paired Shares on such Interim Settlement Date, then on the Business Day following the Fifth Exchange Trading Day thereafter the Company shall deliver a number of Paired Shares to UBS LLC for the account of UBS equal to the Interim Settlement Shares; provided, however, that if the Company is restricted by law or regulation or self-regulatory requirements or related policies and procedures, whether or not such requirements, policies or procedures are imposed by law directly or have been voluntarily adopted by the Company to insure compliance with applicable laws, or in its reasonable judgement is otherwise unable or unwilling to deliver registered Paired Shares, the Company shall deliver Cash Collateral to UBS as described in Section V.B. below. V. COLLATERAL PROVISIONS A. If the Company fails to deliver an effective resale registration statement within 90 days of the Trade Date, then until an effective resale registration statement is provided and an Interim Net Stock Settlement can be effected, the Company shall deliver Cash Collateral in an amount equal to the Interim Settlement Amount to UBS. If Cash Collateral is delivered pursuant to this Section V.A., then until an Interim Net Settlement can be effected or the transaction is settled on a Cash Settlement basis or a registration statement becomes effective, the Interim Settlement Amount shall be recalculated and the amount of Cash Collateral shall be adjusted to equal such recalculated Interim Settlement Amount on a biweekly (every 2 weeks) basis. B. In the event that the Company does not deliver Paired Shares pursuant to Paragraph IV. for one or more of the reasons described in the provision at the end of such paragraph, then, unless Cash Collateral has been delivered pursuant to Section V.A. above, the Company shall deliver Cash Collateral in an amount equal to the Interim Settlement Amount to a Cash Collateral Account at UBS. C. If the Company has delivered Cash Collateral to UBS pursuant to paragraphs A. or B. above, at the Company's option, the Company may deliver freely saleable registered Paired Shares to UBS equal in saleable market value, based on closing market prices on the Exchange Trading Day prior to such delivery, to the value of the Cash Collateral held in the Cash Collateral Account at UBS. On the day after such Exchange Trading Day, UBS shall release all claims 12 13 to Cash Collateral held in the Cash Collateral Account and deliver such amounts to the Company. On any subsequent Interim Settlement Date, if Cash Collateral is held by UBS, UBS shall deliver to the Company within 5 Business Days after such Interim Settlement Date, the amount by which the amount of Cash Collateral exceeds the Interim Settlement Amount. D. SECURITY INTEREST The Company hereby pledges to UBS, as security for its obligations herein, a first priority continuing security interest in, lien on and right of set-off against all Cash Collateral Paid to UBS, or UBS Securities LLC, as its agent. Upon release to the Company by UBS of such Cash Collateral, the security interest and lien granted hereunder will be released immediately, and, to the extent possible, without any further action by either party. E. REPRESENTATIONS Each of the Trust and SLC represents to UBS (which representations will be deemed to be repeated as of each date that the Company Pays Cash Collateral to UBS) that: (i) it has the power to grant a security interest in and lien on any Cash Collateral it Pays to UBS and has taken all necessary actions to authorize the granting of that security interest and lien; (ii) it is the sole owner of or otherwise has the right to Pay all Cash Collateral to UBS hereunder, free and clear of any security interest, lien, encumbrance or other restrictions other than the security interest and lien created hereby; (iii) upon Payment of any Cash Collateral to UBS under the terms of this Confirmation, UBS will have a valid and perfected first priority security interest therein (assuming that any third-party financial intermediary or other entity not within its control involved in the transfer of the Cash Collateral gives the notices and takes the action required of it under applicable law for perfection of that interest), and (iv) the performance by it of its obligations under this Confirmation will not result in the creation of any security interest, lien or other encumbrance on any Cash Collateral other than the security interest and lien granted hereunder. F. OTHER COLLATERAL PROVISIONS Any Cash Collateral held by UBS during settlement of the Transaction pursuant to Sections III. or VI. shall be held until the end of the applicable Unwind Period and shall be released upon the final Settlement Date for that Unwind Period. G. DEFINITIONS RELATED TO COLLATERAL PROVISIONS "Cash Collateral" means the amount of cash denominated in USD, if any, Paid by the Company to or for the benefit of UBS, acting through UBS Securities LLC as its agent, pursuant to paragraphs IV. or V. of this Forward Stock Contract. "Local Business Day" means a day on which commercial banks in New York, New York are 13 14 open for business (including dealings in foreign exchange)." "Paid", "Pays" or "Payment" means payment in same day funds in the same manner provided for payments to be made to UBS, or UBS Securities LLC as its agent under this Forward Stock Contract. VI. CERTAIN COVENANTS AND OTHER PROVISIONS Ability to Settle in Stock: As of the date hereof, each of the Trust and SLC has not, and after the date hereof, each of the Trust and SLC will not, enter into any obligation that would contractually prohibit the Company from Stock Settlement of any shares under this Agreement. Mandatory Unwind Event: If at any time prior to the Maturity Date: (i) the average closing price on the Relevant Exchange of the Paired Shares on any two consecutive Exchange Trading Days, other than a day on which a Market Disruption Event has occurred, is equal to or less than any of the Mandatory Unwind Thresholds, then UBS shall have the right upon written notice to the Company, to require the parties to settle all or a portion of the Transaction (up to the cumulative Unwind Share Limit for the corresponding Mandatory Unwind Threshold) on the Mandatory Unwind Date pursuant to the settlement procedures set forth in Section III. above, Once a Mandatory Unwind Event has occurred, if the closing price of the Paired Shares is less than a lower Mandatory Unwind Threshold, UBS shall have the right upon written notice to the Company, to require the Parties to settle on the Mandatory Unwind Date pursuant to Section III above, all or a portion of the Transaction, up to a number of Paired Shares equal to the number of Underlying Shares multiplied by the corresponding cumulative Unwind Share Limit, on the mandatory Unwind Date pursuant to the settlement procedures set forth in Section III. above. or, ii) if any of the following events occur: (1) any Financial Covenant Default as more particularly described in Exhibit A attached hereto; (2) any Event of Default that has not been cured or waived by the respective lender(s) under the Trust's Revolving and Term Loan Credit Facility by and between the Trust as borrower and Bankers Trust Company as lead agent and dated as of September 1997. (3) any Event of Default that has not been cured or waived by the respective lender(s) under any other unsecured and/or recourse lending agreement involving the Company involving Specified 14 15 FORWARD STOCK CONTRACT Indebtedness in aggregate amount of no less than the Threshold Amount; (4) Bankruptcy or Insolvency(as such terms are defined in the Agreement); and/or (5) any failure of the Company to post cash collateral pursuant to IV.C. herein if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to such party. then, UBS LLC for the account of UBS may, on giving at least 5 Business Days prior written notice to the Company require all or part of the Transaction to be settled early on the Mandatory Unwind Date pursuant to the settlement procedures set forth in Section III. For purposes of the settlement procedures set forth in Section III, "Day S" shall be the Mandatory Unwind Date and the "Settlement Shares" shall be the number of Paired Shares to be settled pursuant to clause (i) or (ii) above. The Company may elect the method of settlement for such early settlement in accordance with the settlement provisions set forth herein; provided however, that if Stock Settlement or Net Stock Settlement is elected, and (1) no resale Registration Statement has been provided and declared effective prior to Day S or (2) any resale Registration Statement so provided and declared effective becomes, on Day S or during an Unwind Period, the subject of a stop order suspending its effectiveness or is the subject of any proceeding for that purpose or any such proceeding is threatened by the Commission, then the Company at its sole option may choose to (A) cash collateralize 125% of its obligation to UBS in a manner similar to that described in in Section V., (B) effect Cash Settlement as to all of the Settlement Shares in accordance with Section III.B. hereof on the Exchange Trading Day immediately succeeding the occurrence of one of the events specified in (1) or (2) above or (C) effect settlement with Paired Shares that are not subject to a resale Registration Statement to allow UBS to unwind the Transaction and liquidate any position it may hold in such unregistered Settlement Shares by means of negotiated private resales, to the extent and in the manner permitted by applicable federal and state securities laws. In recognition that such negotiated private resales, if any, are likely to be completed at prices reflective of a discount to the prevailing open market prices for any freely tradeable Paired Shares, the Company agrees to deliver such number of supplemental Paired Shares as UBS may reasonably request to which UBS shall assign a dollar price in order to approximate an aggregate amount equal to the aggregate discount accepted by UBS in connection with the resale of the Settlement Shares or the Company shall pay an amount to UBS equal to the aggregate discount accepted by UBS in connection with the resale of the Settlement Shares. 15 16 FORWARD STOCK CONTRACT Upon completion of all settlement activities, UBS LLC for the account of UBS, will promptly return all remaining shares in the Company's Customer Account to the Company. Market Disruption Event: The occurrence or existence on any Exchange Trading Day during the one-half hour period that ends at the Valuation Time of any suspension of or limitation imposed on trading on (i) any of the Relevant Exchanges or (ii) any of the exchange or boards of trade or futures contract market on which options or future contracts on the Paired Shares of the Company are traded if, in the reasonable determination of the Calculation Agent, such suspension or limitation is material. In the event that a Market Disruption Event occurs or is continuing on a Valuation Date, then any determination of the closing price of the Paired Shares shall be postponed to the first succeeding Exchange Trading Day on which there is no Market Disruption Event, provided that if there is a Market Disruption Event on each of the five Exchange Trading Days immediately following the original Valuation Date that but for the Market Disruption Event would have been a day on which the closing price of the Paired Shares would have been determined, such fifth Exchange Trading Day shall be deemed to be such Valuation Date notwithstanding the Market Disruption Event and the Calculation Agent shall, in consultation with the Company, determine the closing price for that Valuation Date based upon the last closing price prior to such Market Disruption Event. and if applicable, shall effect the settlement of the Underlying Shares by using such last closing price for the determination of the Stock Settlement Unwind Price. The Calculation Agent shall within one (1) Business Day notify the other party of the existence or occurrence of a Market Disruption Event on any day that but for the occurrence or existence of a Market Disruption Event would have been a Valuation Date. Regulatory Compliance: Each party agrees that if the delivery of shares upon settlement is subject to any restriction imposed by a regulatory authority, it shall not be an event of default, and the parties will negotiate in good faith a procedure to effect settlement of such shares in a manner which complies with any relevant rules of such regulatory authority and which is satisfactory in form and substance to their respective counsel. Securities Law Compliance: Each party agrees that it will comply, in connection with this T ransaction and all related or contemporaneous sales and purchases of the Company's Paired Shares, with the applicable provisions of the Securities Act, the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations thereunder. Settlement: All settlements shall occur through DTC or any other mutually acceptable depository. 16 17 Settlement Stock Delivery: Pursuant to the Stock Settlement and Net Stock Settlement provisions under Section III. above, UBS LLC for the account of UBS shall deliver all Settlement Shares to the Company's Customer Account. Such Paired Shares will serve as collateral until released by UBS LLC for the ac count of UBS in accordance with the settlement mechanics noted under III.E. above, or delivered to the Company pursuant to Section III.E.5. Paired S hares held in the Company's Customer Account shall not be voted. The Company covenants and agrees with UBS that Paired Shares delivered by the Company pursuant to settlement events in accordance herewith will be duly authorized, validly issued, fully paid and non-as sessable. The issuance of such Paired Shares will not require the con sent, approval, authorization, registration, or qualification of any government authority, except such as shall have been obtained on or before the delivery date to UBS LLC for the account of UBS in connection with any registration statement filed with respect to any share or otherwise. Solvency: Immediately following the execution of this agreement, the Company will be solvent and able to pay its debts as they mature, will have capital sufficient to carry on business and all businesses in which it engages, and will have assets which will have a present fair market valuation greater than the amount of all of its liabilities. Allocation between Trust and SLC: As between the Trust and SLC, (i) any delivery to or by the Company of the Trust Share portion of Paired Shares pursuant to this Confirmation shall be made by delivery to or by the Trust, (ii) any delivery to or by the Company of the SLC share portion of Paired Shares pursuant to this Confirmation shall be made by delivery to or by SLC, and (iii) any delivery to or by the Company of cash pursuant to this Confirmation shall be allocated between the Trust and SLC between and among themselves 95% to or from the Trust and 5% to or from SLC without effect on any obligation of the Company to UBS or on any obligation of UBS to the Company. Trading Authorization: The following individuals and /or any individual authorized in writing by the Treasurer of the Company are authorized by the Company to provide trading instructions to UBS LLC for the account of UBS with regard to this transaction. Starwood Lodging Trust: Ronald Brown Starwood Lodging Corporation: Alan Schnaid Nir Margalite 17 18 FORWARD STOCK CONTRACT VI. DELIVERY INSTRUCTIONS: Party A: Chase, NYC UBS Securities LLC ABA 021000021 A/C No. ###-##-#### Attn: GED Party B: Harris Bank Harris Bank Chicago, IL 60603 Chicago, IL 60603 ABA # 071000288 ABA #071000288 credit account: credit account: Starwood Lodging Trust Starwood Lodging Corporation # 416-255-8 # 416-258-2 ATTN: Charles McCain ATTN: Charles McCain Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Confirmation enclosed for that purpose and returning it to Ms. Gale Herzing, 29th. Floor. Yours faithfully, Union Bank of Switzerland, London Branch: By: /s/ MARK EVANS By: /s/ R. WEERASEKERA -------------------------------- ----------------------------------- Name: MARK EVANS Name: R. WEERASEKERA Title: Vice President Title: Vice President Date: Date: Starwood Lodging Trust: By: By: -------------------------------- ----------------------------------- Name: Name: Title: Title: Date: Date: Starwood Lodging Corporation By: By: -------------------------------- ----------------------------------- Name: Name: Title: Title: Date: Date: 17 19 FORWARD STOCK CONTRACT VI. DELIVERY INSTRUCTIONS: Party A: Chase, NYC UBS Securities LLC ABA 021000021 A/C No. ###-##-#### Attn: GED Party B: Harris Bank Harris Bank Chicago, IL 60603 Chicago, IL 60603 ABA # 071000288 ABA #071000288 credit account: credit account: Starwood Lodging Trust Starwood Lodging Corporation # 416-255-8 # 416-258-2 ATTN: Charles McCain ATTN: Charles McCain Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Confirmation enclosed for that purpose and returning it to Ms. Gale Herzing, 29th. Floor. Yours faithfully, Union Bank of Switzerland, London Branch: By: By: -------------------------------- ----------------------------------- Name: Name: Title: Title: Date: Date: Starwood Lodging Trust: By: /s/ RONALD C. BROWN By: -------------------------------- ----------------------------------- Name: RONALD C. BROWN Name: Title: SENIOR VICE PRESIDENT Title: & CFO Date: Date: Starwood Lodging Corporation By: /s/ ALAN M. SCHNAID By: -------------------------------- ----------------------------------- Name: ALAN M. SCHNAID Name: Title: VICE PRESIDENT AND Title: CORPORATE CONTROLLER Date: Date: 20 [UBS LOGO & LETTERHEAD] To: Starwood Lodging Trust 2231 East Camelback Road Suite 410 Phoenix, AZ 85016 Attn: Mr. Ronald Brown To: Starwood Lodging Corporation 2231 East Camelback Road Suite 400 Phoenix, AZ 85016 Attn: Mr. Alan Schnaid From: Union Bank of Switzerland, London Branch c/o UBS Securities LLC, as agent 299 Park Avenue New York, NY 10171 Date: 13 October 1997 Ladies and Gentlemen, The purpose of this letter agreement (this "Confirmation") is to confirm the terms and conditions of the Transaction entered into between us on the Trade Date specified below (the "Transaction"). This Confirmation constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. References herein to the "Transaction" shall be deemed to be references to a "Swap Transaction" solely for the purposes of the 1991 ISDA Definitions. This Confirmation supplements, forms a part of, and is subject to, the ISDA Master Agreement dated as of 13 October 1997, as amended and supplemented from time to time (the "Agreement"), between you and us. All provisions contained in the Agreement govern this Confirmation except as expressly modified below. In the event of any inconsistency between the provisions of that agreement and this Confirmation, this Confirmation will prevail for the purposes of this Transaction. The Agreement and each Confirmation thereunder will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine. I. THE TRANSACTION Starwood Lodging Trust, a Maryland real estate investment trust (the "Trust"), Starwood Lodging Corporation, a Maryland corporation ("SLC") (the Trust and SLC being sometimes collectively referred to as the Company) and Union Bank of Switzerland, London Branch ("UBS") acting through UBS Securities LLC as its agent for each purchase or sale of Securities ("UBS LLC"), hereby agree to 21 make the payments and deliveries provided for in Sections III, IV and V hereof, all on the terms more particularly specified herein (this "Confirmation"). II. DEFINITIONS For the purposes of this Confirmation, the following terms shall have the meanings set opposite: Adjustments: In the event of: (a) a subdivision, consolidation or reclassification of the Paired Shares, or a free distribution or dividend of any Paired Shares to all existing holders of Paired Shares by way of bonus, capitalization or similar issue; (b) a distribution or dividend to all existing holders of Paired Shares of (i) additional Paired Shares or (ii) other share capital or securities granting right to payment of dividends and/or the proceeds of liquidation of the Company equally or proportionally with such payments to holders of Paired Shares or (iii) any other type of securities, warrants or other assets, in any case for payment (cash or otherwise) at less than the prevailing market price; or (c) any other event that has a diluting or concentrative effect on the value of the Underlying Shares (other than (i) the issuance by the Company to its employees, officers and directors of options to purchase Paired Shares, restricted Paired Shares or limited partnership units of SLC Operating Limited Partnership and SLT Realty Limited Partnership or (ii) the issuance by the Company of Paired Shares for cash or in connection with any acquisition, merger, exchange offer or similar transaction, in each case approved by the Boards of Directors of SLC and the Trust). an adjustment shall thereupon be effected to the Forward Price and/or the Underlying Shares at the time of such event with the intent that following such adjustment, the value of this Transaction is economically equivalent to the value immediately prior to the occurrence of the event causing the adjustment. Calculation Agent: UBS, whose calculations and determinations shall be made in a commercially reasonable manner and shall be binding absent manifest error; provided that the Company my dispute any determination, adjustment or calculation by the Calculation Agent, or failure by the Calculation Agent to make any determination, adjustment or estimate required by this Confirmation, by notice to the Calculation Agent promptly following the day notice from the Calculation Agent to the Company of such determination, adjustment or calculation is effective or at any time the Company believes that the Calculation Agent has failed to make a determination, adjustment or calculation required by this Confirmation. If such dispute cannot be resolved within three Business Days following the day on which the Company's notice to the Calculation Agent is effective, then (i) the relevant party shall pay the amount, if any, that is not in dispute and (ii) the parties shall agree upon and appoint an independent third party to resolve the dispute, the determination of which shall be final and binding absent manifest error. Page 2 22 Calculation Period: Means each period commencing on and including: (i) in the case of the first Calculation Period, the Effective Date and ending on but excluding the first Interim Settlement Date, and (ii) for each period thereafter, an Interim Settlement Date and ending on but excluding the earlier of the next following Interim Settlement Date or Day S. If there is a Partial Settlement, then (i) the Calculation Period for the Settlement Shares covered by such Partial Settlement Share shall end on Day S for such Partial Settlement and (ii) the Calculation Period for the remaining Underlying Shares shall be determined without regard to such Partial Settlement. Collateral Release Shares: Paired Shares delivered pursuant to Section V.C. Collateral Valuation Date: In the event that the Company chooses to post cash collateral pursuant to Section V. or VI. any day upon which the amount of collateral required is calculated. Compounding Period: Means each period commencing on and including: (i) in the case of the first Compounding Period, the Effective Date and ending on but excluding the first Reset Date, and (ii) for each period thereafter, a Reset Date and ending on (but excluding) the earlier of the next following Reset Date or Day S. If there is a Partial Settlement, then(i) the Compounding Period for the Settlement Shares covered by such Partial Settlement shall end on Day S for such Partial Settlement and (ii) the Compounding Period for the remaining Underlying Shares shall be determined without regard to such Partial Settlement. Customer Account: the account established in favor of the Company pursuant to the Customer Account Agreement dated the date hereof between the Company and UBS Securities LLC Daycount Fraction: Actual/360 Day S: For Settlement pursuant to Section III. or VI. or Interim Net Stock Settlement pursuant to Section IV., the day upon which settlement activities shall begin. Dividend Amount: A) Means, on each Reset Date or Day S an amount in U.S. Dollars equal to: (i) the sum of all cash distributions paid on a single Common Share during the relevant Compounding Period; plus (ii) an amount representing interest that could have been earned on such distributions at the LIBOR rate plus Spread for a Designated Maturity of 1 month for the period from the date that such distributions would have been received by a holder of such Paired Shares until such Reset Date, or Day S, as the case may be. Page 3 23 B) Separately, and not included in Dividend Amount, UBS will cause UBS LLC to pay to the Company on the Business Day after the relevant dividend payment date declared by the Company's Board of Directors, (i) all cash dividends on Paired Shares that have gone ex-dividend, but on which dividends have not been paid, prior to the end of the final Compounding Period for any settlement, based on a number of Paired Shares equal to the number of Settlement Shares for such settlement, (ii) all cash dividends received by UBS at any time, on Paired Shares delivered by the Company pursuant to Section III. E. that have gone ex-dividend after Day S but prior to the end of the Unwind Period for any settlement, and (iii) all cash dividends paid on Paired Shares held in the Customer Account. Effective Date: 15 October 1997 Exchange Trading Day: Each day on which the Relevant Exchange is open for trading. Forward Price: On each Reset Date or Day S, the Forward Price shall be determined for such day by: a) multiplying the Initial Price for the Compounding Period by the sum of 1 plus the product of (i) the appropriate Daycount Fraction times the sum of (ii) LIBOR; determined as of the previous Reset Date for a Designated Maturity of 1 month, plus (ii) Spread; and b) subtracting the Dividend Amount at that date; provided however that if the Company delivers Interim Settlement Shares pursuant to Section IV. or Collateral Release Shares pursuant to Section V.C. during any Calculation Period, the Forward Price for purposes of determining the Initial Price for the first Compounding Period during such Calculation Period, shall be adjusted to a price equal to the closing price of the Paired Shares on the Exchange Trading Day immediately prior to the most recent Interim Settlement Date, adjusted up for any positive result or down for any negative result of the following formula: (ii) the Interim Settlement Amount for the most recent Interim Settlement Date. minus, (i) (a) the number of Interim Settlement Shares or Collateral Release Shares, as the case may be, times (b) the average closing price of the Paired Shares on the five (5) Exchange Trading Days immediately following the receipt of the Interim Settlement Shares by UBS pursuant to Section IV.A. or the Collateral Release Shares pursuant to Section V.C. such result divided by, (iii) the number of Underlying Shares. Initial Price: Means, Page 4 24 a) for the Compounding Period ending on the first Reset Date, an amount in U.S. Dollars equal to $57.25, and b) for each subsequent Reset Date, the Forward Price as calculated on or adjusted as of the prior Reset Date. Interim Settlement Dates: 15 January 1997, 15 April 1998, 15 July 1998, subject to adjustment in accordance with the Modified Following Business Day convention. Interim Settlement Amount: on any Interim Settlement Date, the product of (a) the number of Underlying Shares, and (b) the amount by which the Forward Price exceeds the closing price of the Paired Shares on the Exchange Trading Day immediately prior to such Interim Settlement Date. Interim Settlement Shares: (i) 110% times (ii) Interim Settlement Amount divided by (iii) the closing price of the Paired Shares on the Exchange Trading Day immediately prior to such Interim Settlement Date. LIBOR means USD-LIBOR-BBA as such term is defined in the Agreement. Mandatory Unwind Date: In the case of a Mandatory Unwind Event specified in clause (i) or the definition thereof, 1 Exchange Trading Day after such Mandatory Unwind Event occurs. In the case of a Mandatory Unwind Event specified in clause (ii) of such provision, the date specified in the notice delivered to the Company (which date shall be at least 5 Business Days after the date such notice becomes effective). Mandatory Unwind Thresholds: Mandatory Unwind Thresholds Unwind Share Limit ----------------- ------------------ $40.00 up to 25% of Underlying Shares $37.00 50% $35.50 75% $34.00 100% Maturity Date: One (1) year after the Effective Date, subject to extension upon the written approval of UBS in its sole discretion. Paired Shares: Shares of beneficial interest, $0.01 par value per share, of the Trust (the "Trust Shares") and shares of Common Stock, par value $0.01 per share, of SLC (the "SLC Shares"), which are paired and traded as a unit consisting of one (1) Trust Share and one (1) SLC Share. Partial Settlement: Any contemplated settlement, pursuant to sections III. or VI., in which the designated Settlement Shares are less than Underlying Shares. Preliminary Net Stock Settlement Shares: All Paired Shares delivered by the Company pursuant to Section III.E.2 and III.E.3(b) (other than Paired Shares delivered after the Unwind Period). Relevant Exchange: Means, with respect to any Exchange Trading Day, the principal Stock Exchange on which the Paired Shares are traded on that day. Reset Dates: 15 November 1997, 15 December 1997, 15 January 1998, 15 Page 5 25 February 1998, 15 March 1998, 15 April 1998, 15 May 1998, 15 June 1998, 15 July 1998, 15 August 1998, 15 September 1998, 15 October 1998, subject to adjustment in accordance with the Modified Following Business Day convention. Settlement Amount: The product of the Settlement Price and the Settlement Shares. Settlement Disruption Event: Means an event beyond the control of the parties as a result of which The Depository Trust Company ("DTC") or any successor depository cannot effect a transfer of the Settlement Shares or the Paired Shares. If there is a Settlement Disruption Event on a Valuation Date, then the transfer of the Paired Shares that would otherwise be due to be made by UBS LLC for the account of UBS or the transfer of the Paired Shares that would otherwise be due to be made by the Company, as applicable, on that date shall take place on the first succeeding Exchange Trading Day on which settlement can take place through DTC, provided that if such a Settlement Disruption Event persists for five consecutive Business Days, then the Party obliged to deliver such Settlement Shares shall use its best efforts to cause such Shares to be delivered promptly thereafter to the other Party in any commercially reasonable manner. Settlement Price: If Day S is a Reset Date, the Forward Price. If Day S is not a Reset Date, the Forward Price adjusted for LIBOR breakage adjustments (either positive or negative) for the Settlement Shares for the period from Day S to the next following Reset Date. Any breakage adjustments shall be calculated by the Calculation Agent in accordance with normal industry standards. Settlement Shares: The number of shares up to the full number of Underlying Shares subject to settlement under Section III. or VI. Spread: 1.50% per annum. Stock Exchange: Means the New York Stock Exchange, the American Stock Exchange or NASDAQ. Stock Settlement Unwind Price: The daily average closing price of the Paired Shares for Exchange Trading Days during the Unwind Period. Trade Date: 13 October 1997 UBS LLC: UBS Securities LLC Unwind Period: In the event of Stock Settlement or Net Stock Settlement, such number of Exchange Trading Days (which shall not be more than 70; (subject to change based on mutual agreement) beginning on Day S; provided that UBS may extend such period (such extension not to exceed 10 Exchange Trading Days) or upon the occurrence of a Market Disruption Event. Underlying Shares: 2,185,000 Paired Shares of the Company (ticker "HOT"), subject to adjustment in the event of Partial Settlements. Valuation Date: In the case of determining any Cash Settlement value, Net Stock Settlement Shares or Stock Settlement Shares, Day S, the day Page 6 26 preceding Day S and all Exchange Trading Days during the Unwind Period; in the case of determining any Preliminary Stock Settlement Shares or Preliminary Net Stock Settlement Shares, the Exchange Trading Day immediately preceding Day S; in the case of determining the Interim Settlement Amount and related calculation, the day prior to the Interim Settlement Date, and the 5 Exchange Trading Days following receipt of Interim Settlement Shares by UBS. Valuation Time: 4:00 pm EST, or in the event the Relevant Exchange closes early, such closing time. III. SETTLEMENT A. NOTICE AND PROCEDURES 1. The Company may on any Exchange Trading Day up to and including the Maturity Date, upon the giving of at least five (5) Business Days telephonic notice to UBS (the "Settlement Notice"), settle all or part of this Transaction. The Settlement Notice shall specify: (i) the Settlement Shares, (ii) the settlement method (Cash, Stock or Net Stock Settlement, as such methods are described below); (iii) the number of Exchange Trading Days in the Unwind Period, and (iv) Day S, which must be an Exchange Trading Day; provided however, that if Cash or Net Stock Settlement is selected and in UBS' reasonable judgement the settlement of the Settlement Shares would potentially violate or contravene any legal or regulatory prohibition or requirement applicable to UBS or cause UBS to contravene any established UBS corporate policy or compliance policy which relates to any legal or regulatory prohibition or requirement applicable to UBS (other than any corporate policy limiting the amount of UBS's investment in another entity) then UBS shall at least three (3) Business Days prior to the proposed Day S, notify the Company telephonically (confirmed by writing) of any such impediment and its estimate of the period during which such impediment will preclude UBS' ability to settle all or part of this Transaction. The Settlement Notice shall be effective only if the notice requirements specified above are fulfilled; provided, that if no settlement method is specified, then the settlement method shall be deemed to be Cash Settlement and provided further that the Company may upon telephonic notice to UBS at least one (1) Exchange Trading Day prior to the proposed Day S withdraw any Settlement Notice. In the case of any Partial Settlement, following such settlement the number of Underlying Shares to which this Transaction shall relate shall be adjusted, as of Day S, by subtracting the number of Settlement Shares from the number of Underlying Share (as the same may have been adjusted prior to such Partial Settlement) immediately prior to such Day S. The Settlement Shares shall not be subject to forward accretion and shall be treated separately from the remaining Underlying Shares during any Unwind Period. 2. On Day S, the Settlement Price for the Settlement Shares and the Settlement Amount shall be determined for Day S. 3. The Settlement Amount shall be settled pursuant to the settlement method (B, C, or D of this Page 7 27 section III.) selected by the Company in its sole discretion. 4. If settlement with respect to the Settlement Shares shall occur pursuant to Section III.A1 (but not as a result of a Mandatory Unwind Event) on or before the 180th day following the Effective Date, then the Settlement Price for purposes of such settlement shall be increased by any positive amount, calculated by UBS as follows: Spread x Forward Price x (180 - calendar days since Trade Date) -------------------------------------- 360 5. It shall be a condition precedent to any right of the Company to elect Stock Settlement (III. C. below) or Net Stock Settlement (III. D. below), that the Company must (i) notify UBS of such election at least 5 Business Days prior to Day S and (ii) prior to Day S, cause to be filed with the Securities and Exchange Commission (the "Commission") and cause to become effective under the Securities Act of 1933, as amended (the "Securities Act") a registration statement that results in UBS being able to resell all Paired Shares to be delivered by the Company to UBS LLC for the account of UBS in effecting such Stock Settlement or Net Stock Settlement without further registration under the Securities Act of 1933, as amended, such registration statement to include one or more preliminary prospectuses, prospectuses, and any amendments and supplements thereto such that any preliminary prospectus or prospectus, as amended or supplemented, shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they are made. In addition, the Company shall not deliver any Paired Shares to UBS LLC for the account of UBS pursuant to Sections IV.A or IV.D. below unless at the time of such delivery a registration statement has become effective under the Securities Act that results in UBS being able to resell such Paired Shares without further registration under the Securities Act, such Registration Statement to include one or more preliminary prospectuses, prospectus and any amendments or supplements thereto such that any preliminary prospectus or prospectus, as amended or supplemented, shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they are made. The Company further agrees that it will cause any such Registration Statement referred to in this paragraph 5 of Section III.A. to remain in effect until the earliest of the date on which (i) all Paired Shares issued pursuant hereto and not required to be delivered to the Company hereunder have been sold by UBS LLC for the account of UBS and UBS agrees to notify the Company of such fact, within two (2) Business Days of its occurrence, (ii) UBS LLC for the account of UBS is able to sell the Paired Shares subject thereto under Rule 144(k), or (iii) UBS has advised the Company that it no longer requires that such registration statement be effective; provided, however, that in no event shall the Company be obligated to keep such Registration Statement effective for more than 10 Exchange Trading Days after the end of the applicable Unwind Period. B. CASH SETTLEMENT If the Company elects Cash Settlement, the Company shall settle by delivering cash in an amount equal to the Settlement Amount in exchange for the Settlement Shares ("Cash Settlement") on the Exchange Trading Day immediately succeeding Day S. UBS shall cause UBS LLC for the account of UBS to deliver the Settlement Shares to the Company on the Exchange Trading Day immediately succeeding Day S upon receipt of such Cash Settlement. C. STOCK SETTLEMENT If the Company elects to settle the Settlement Amount by delivering Paired Shares in exchange for the Settlement Shares ("Stock Settlement"), the number of Paired Shares to be delivered (the "Stock Settlement Shares") shall be equal to (a) the Settlement Amount divided Page 8 28 by (b) the Stock Settlement Unwind Price. The mechanics for settlement are set forth in Section III. E. below and Article VI. D. NET STOCK SETTLEMENT If the Company elects to settle the Settlement Amount on a net stock basis ("Net Stock Settlement"), the number of net stock settlement shares (the "Net Stock Settlement Shares") shall equal: i) the number of Settlement Shares, times ii) the Settlement Price minus the Stock Settlement Unwind Price, divided by iii) the Stock Settlement Unwind Price. If such calculation yields a negative number, this shall indicate the number of Paired Shares to be delivered from UBS LLC for the account of UBS to the Company. The mechanics for settlement are set forth in Section III. E. below and Article VI. (This section does not apply for purposes of Interim Net Stock Settlement.) E. STOCK AND NET STOCK SETTLEMENT MECHANICS 1. Preliminary Stock Settlement: If the Company has chosen Stock Settlement, the Company shall deliver to UBS LLC for the account of UBS, by 11:00 a.m. on Day S, that number of Paired Shares (the "Preliminary Stock Settlement Shares"), equal to the product of (i)(a) the Settlement Amount divided by (b) the closing price of the Paired Shares on the Exchange Trading Day immediately preceding Day S, times (ii) 110%. Upon receipt of the Preliminary Stock Settlement Shares, UBS will cause UBS LLC to deposit the Settlement Shares in the Company's Customer Account. 2. Preliminary Net Stock Settlement: If the Company has chosen Net Stock Settlement and if the Settlement Price exceeds the closing price of the Paired Shares on the Exchange Trading Day immediately preceding Day S, the Company shall deliver to UBS LLC for the account of UBS by 11:00 a.m. on Day S, that number of Paired Shares (the "Preliminary Net Stock Settlement Shares) equal to (i)(a) the number of Settlement Shares times (b) the difference between the Settlement Price and the closing price of the Paired Shares on the Exchange Trading Day immediately preceding Day S divided by (ii) the closing price of the Paired Shares on the Exchange Trading Day immediately preceding Day S times (iii) 125%. If the closing price of the Paired Shares on the Exchange Trading Day immediately preceding Day S exceeds the Settlement Price, the Company shall not be required to deliver any shares to UBS LLC for the account of UBS under this subsection III.E.2. 3. By 11:00 a.m. on every fifth (5th) Exchange Trading Day (other than the final Exchange Trading Day) during the Unwind Period and on the Business Day following the final Exchange Trading Day of the Unwind Period: A. For Stock Settlement: Stock Settlement Shares shall be calculated as if such Exchange Trading Day were Day S, except that (a) there shall be no recalculation of the Settlement Amount and (b) for purposes of calculating the Stock Settlement Unwind Price, the Unwind Page 9 29 Period shall be deemed to have ended on the Exchange Trading Day for which the calculation is made. (i) if (a) Stock Settlement Shares (calculated as set forth above) are greater than (b) the sum of (x) Preliminary Stock Settlement Shares plus (y) any shares previously delivered pursuant to this subparagraph (i), then the Company shall deliver that number of Paired Shares equal to the difference between (a) and (b) to UBS LLC for the account of UBS, and (ii) as of the final day of the Unwind Period, if (a) the sum of (x) Preliminary Stock Settlement Shares plus (y) any shares previously delivered pursuant to this settlement under subparagraph (i), above is greater than Stock Settlement Shares, then UBS LLC, for the account of UBS, shall deliver that number of Paired Shares equal to the difference between (a) and (b) above to the Company's Customer Account, B. For Net Stock Settlement: Net Stock Settlement Shares shall be calculated as if such Exchange Trading Day were Day S except that (a) there shall be no recalculation of the Settlement Amount and (b) for purposes of calculating the Stock Settlement Unwind Price, the Unwind Period shall be deemed to have ended on the Exchange Trading Day for which the calculation is made. (i) if (a) Net Stock Settlement Shares are greater than (b) the sum of (x) Preliminary Net Stock Settlement Shares plus (y) any shares previously delivered pursuant to this settlement under this subparagraph (i), then the Company shall deliver Paired Shares (which Paired Shares may be delivered from its Margin Account) equal in number to the difference between (a) and (b) to UBS LLC for the account of UBS, or (ii) as of the final day of the Unwind Period, if (a) the sum of (x) Preliminary Net Stock Settlement Shares plus (y) any shares previously delivered pursuant to this settlement under subparagraph (i), above is greater than (b) Net Stock Settlement Shares, then UBS LLC, for the account of UBS, shall deliver that number of Paired Shares equal to the difference between (a) and (b) above to the Company's Customer Account. 4. The Company shall cause all shares delivered by it to UBS LLC for the account of UBS to be fully and effectively registered under the Securities Act (as provided in Section III.A.5 above). 5. On the Exchange Trading Day following the final Exchange Trading Day of the Unwind Period, UBS LLC for the account of UBS shall release all claims to Paired Shares held in the Company's Customer Account, including any Settlement Shares delivered pursuant to Preliminary Stock Settlement (Section III. E. 1. above), and deliver all such Paired Shares to the Company with the dollar value of all fractional shares settled in cash. 6. In the event of Stock or Net Stock Settlement pursuant to Section III.C. or III.D., the Company shall pay an unwind accretion fee, in cash or stock, calculated in accordance with the following formula: Settlement Amount x (days in Unwind Period) x (1 month LIBOR + ----------------- ----------------------- Spread) 2 360 7. In the event of Stock or Net Stock Settlement pursuant to Section III.C. or III.D., the Company shall pay a placement fee to UBS LLC for the account of UBS calculated Page 10 30 as: Settlement Amount x 0.50% IV. INTERIM NET STOCK SETTLEMENT On each Interim Settlement Date, if the Forward Price exceeds the closing price of the Paired Shares on such Interim Settlement Date, then on the Business Day following the Fifth Exchange Trading Day thereafter the Company shall deliver a number of Paired Shares to UBS LLC for the account of UBS equal to the Interim Settlement Shares; provided, however, that if the Company is restricted by law or regulation or self-regulatory requirements or related policies and procedures, whether or not such requirements, policies or procedures are imposed by law directly or have been voluntarily adopted by the Company to insure compliance with applicable laws, or in its reasonable judgement is otherwise unable or unwilling to deliver registered Paired Shares, the Company shall deliver Cash Collateral to UBS as described in Section V.B. below. V. COLLATERAL PROVISIONS A. If the Company fails to deliver an effective resale registration statement within 90 days of the Trade Date, then until an effective resale registration statement is provided and an Interim Net Stock Settlement can be effected, the Company shall deliver Cash Collateral in an amount equal to the Interim Settlement Amount to UBS. If Cash Collateral is delivered pursuant to this Section V.A., then until an Interim Net Settlement can be effected or the transaction is settled on a Cash Settlement basis or a registration statement becomes effective, the Interim Settlement Amount shall be recalculated and the amount of Cash Collateral shall be adjusted to equal such recalculated Interim Settlement Amount on a biweekly (every 2 weeks) basis. B. In the event that the Company does not deliver Paired Shares pursuant to Paragraph IV. for one or more of the reasons described in the provision at the end of such paragraph, then, unless Cash Collateral has been delivered pursuant to Section V.A. above, the Company shall deliver Cash Collateral in an amount equal to the Interim Settlement Amount to a Cash Collateral Account at UBS. C. If the Company has delivered Cash Collateral to UBS pursuant to paragraphs A. or B. above, at the Company's option, the Company may deliver freely saleable registered Paired Shares to UBS equal in saleable market value, based on closing market prices on the Exchange Trading Day prior to such delivery, to the value of the Cash Collateral held in the Cash Collateral Account at UBS. On the day after such Exchange Trading Day, UBS shall release all claims to Cash Collateral held in the Cash Collateral Account and deliver such amounts to the Company. On any subsequent Interim Settlement Date, if Cash Collateral is held by UBS, UBS shall deliver to the Company within 5 Business Days after such Interim Settlement Date, the amount by which the amount of Cash Collateral exceeds the Interim Settlement Amount. D. Security Interest The Company hereby pledges to UBS, as security for its obligations herein, a first priority continuing security interest in, lien on and right of set-off against all Cash Collateral Paid to UBS, or UBS Securities LLC, as its agent. Upon release to the Company by UBS of such Cash Collateral, the security interest and lien granted hereunder will be released immediately, and, to the extent possible, without any further action by either party. Page 11 31 E. Representations Each of the Trust and SLC represents to UBS (which representations will be deemed to be repeated as of each date that the Company Pays Cash Collateral to UBS) that: (i) it has the power to grant a security interest in and lien on any Cash Collateral it Pays to UBS and has taken all necessary actions to authorize the granting of that security interest and lien; (ii) it is the sole owner of or otherwise has the right to Pay all Cash Collateral to UBS hereunder, free and clear of any security interest, lien, encumbrance or other restrictions other than the security interest and lien created hereby; (iii) upon Payment of any Cash Collateral to UBS under the terms of this Confirmation, UBS will have a valid and perfected first priority security interest therein (assuming that any third-party financial intermediary or other entity not within its control involved in the transfer of the Cash Collateral gives the notices and takes the action required of it under applicable law for perfection of that interest), and (iv) the performance by it of its obligations under this Confirmation will not result in the creation of any security interest, lien or other encumbrance on any Cash Collateral other than the security interest and lien granted hereunder. F. Other Collateral Provisions Any Cash Collateral held by UBS during settlement of the Transaction pursuant to Sections III. or VI. shall be held until the end of the applicable Unwind Period and shall be released upon the final Settlement Date for that Unwind Period. G. Definitions related to Collateral Provisions "Cash Collateral" means the amount of cash denominated in USD, if any, Paid by the Company to or for the benefit of UBS, acting through UBS Securities LLC as its agent, pursuant to paragraphs IV. or V. of this Forward Stock Contract. "Local Business Day" means a day on which commercial banks in New York, New York are open for business (including dealings in foreign exchange)." "Paid", "Pays" or "Payment" means payment in same day funds in the same manner provided for payments to be made to UBS, or UBS Securities LLC as its agent under this Forward Stock Contract. VI. CERTAIN COVENANTS AND OTHER PROVISIONS Ability to Settle in Stock: As of the date hereof, each of the Trust and SLC has not, and after the date hereof, each of the Trust and SLC will not, enter into any obligation that would contractually prohibit the Company from Stock Settlement of any shares under this Agreement. Mandatory Unwind Event: If at any time prior to the Maturity Date: (i) the average closing price on the Relevant Exchange of the Paired Shares on any two consecutive Exchange Trading Days, other than a day on which a Market Disruption Event has occurred, is equal to or less than any of the Mandatory Unwind Thresholds, then UBS shall have the right upon written notice to the Company, to require the parties to settle all or a portion of the Transaction (up to the Page 12 32 cumulative Unwind Share Limit for the corresponding Mandatory Unwind Threshold) on the Mandatory Unwind Date pursuant to the settlement procedures set forth in Section III. above. Once a Mandatory Unwind Event has occurred, if the closing price of the Paired Shares is less than a lower Mandatory Unwind Threshold, UBS shall have the right upon written notice to the Company, to require the Parties to settle on the Mandatory Unwind Date pursuant to Section III above, all or a portion of the Transaction, up to a number of Paired Shares equal to the number of Underlying Shares multiplied by the corresponding cumulative Unwind Share Limit, on the mandatory Unwind Date pursuant to the settlement procedures set forth in Section III. above. or, ii) if any of the following events occur: (1) any Financial Covenant Default as more particularly described in Exhibit A attached hereto; (2) any Event of Default that has not been cured or waived by the respective lender(s) under the Trust's Revolving and Term Loan Credit Facility by and between the Trust as borrower and Bankers Trust Company as lead agent and dated as of September 1997. (3) any Event of Default that has not been cured or waived by the respective lender(s) under any other unsecured and/or recourse lending agreement involving the Company involving Specified Indebtedness in aggregate amount of no less than the Threshold Amount; (4) Bankruptcy or Insolvency(as such terms are defined in the Agreement); and/or (5) any failure of the Company to post cash collateral pursuant to IV.C. herein if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to such party. then, UBS LLC for the account of UBS may, on giving at least 5 Business Days prior written notice to the Company require all or part of the Transaction to be settled early on the Mandatory Unwind Date pursuant to the settlement procedures set forth in Section III. For purposes of the settlement procedures set forth in Section III, "Day S" shall be the Mandatory Unwind Date and the "Settlement Shares" shall be the number of Paired Shares to be settled pursuant to clause (i) or (ii) above. The Company may elect the method of settlement for such early settlement in accordance with the settlement provisions set forth herein; provided however, that if Stock Settlement or Net Stock Settlement is elected, and (1) no resale Registration Statement has been provided and declared effective prior to Day S or (2) any resale Registration Statement so provided and declared effective becomes, on Day S or during an Unwind Period, the subject of a stop order suspending its effectiveness or is the subject of any proceeding for that purpose or any such proceeding is threatened by the Commission, then the Company at its Page 13 33 sole option may choose to (A) cash collateralize 125% of its obligation to UBS in a manner similar to that described in in Section V., (B) effect Cash Settlement as to all of the Settlement Shares in accordance with Section III.B. hereof on the Exchange Trading Day immediately succeeding the occurrence of one of the events specified in (1) or (2) above or (C) effect settlement with Paired Shares that are not subject to a resale Registration Statement to allow UBS to unwind the Transaction and liquidate any position it may hold in such unregistered Settlement Shares by means of negotiated private resales, to the extent and in the manner permitted by applicable federal and state securities laws. In recognition that such negotiated private resales, if any, are likely to be completed at prices reflective of a discount to the prevailing open market prices for any freely tradeable Paired Shares, the Company agrees to deliver such number of supplemental Paired Shares as UBS may reasonably request to which UBS shall assign a dollar price in order to approximate an aggregate amount equal to the aggregate discount accepted by UBS in connection with the resale of the Settlement Shares or the Company shall pay an amount to UBS equal to the aggregate discount accepted by UBS in connection with the resale of the Settlement Shares. Upon completion of all settlement activities, UBS LLC for the account of UBS, will promptly return all remaining shares in the Company's Customer Account to the Company. Market Disruption Event: The occurrence or existence on any Exchange Trading Day during the one-half hour period that ends at the Valuation Time of any suspension of or limitation imposed on trading on (i) any of the Relevant Exchanges or (ii) any of the exchange or boards of trade or futures contract market on which options or future contracts on the Paired Shares of the Company are traded if, in the reasonable determination of the Calculation Agent, such suspension or limitation is material. In the event that a Market Disruption Event occurs or is continuing on a Valuation Date, then any determination of the closing price of the Paired Shares shall be postponed to the first succeeding Exchange Trading Day on which there is no Market Disruption Event, provided that if there is a Market Disruption Event on each of the five Exchange Trading Days immediately following the original Valuation Date that but for the Market Disruption Event would have been a day on which the closing price of the Paired Shares would have been determined, such fifth Exchange Trading Day shall be deemed to be such Valuation Date notwithstanding the Market Disruption Event and the Calculation Agent shall, in consultation with the Company, determine the closing price for that Valuation Date based upon the last closing price prior to such Market Disruption Event. and if applicable, shall effect the settlement of the Underlying Shares by using such last closing price for the determination of the Stock Settlement Unwind Price. The Calculation Agent shall within one (1) Business Day notify the other party of the existence or occurrence of a Market Disruption Event on any day that but for the occurrence or existence of a Market Disruption Event would have been a Valuation Date. Regulatory Compliance: Each party agrees that if the delivery of shares upon settlement is Page 14 34 subject to any restriction imposed by a regulatory authority, it shall not be an event of default, and the parties will negotiate in good faith a procedure to effect settlement of such shares in a manner which complies with any relevant rules of such regulatory authority and which is satisfactory in form and substance to their respective counsel. Securities Law Compliance: Each party agrees that it will comply, in connection with this T ransaction and all related or contemporaneous sales and purchases of the Company's Paired Shares, with the applicable provisions of the Securities Act, the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations thereunder. Settlement: All settlements shall occur through DTC or any other mutually acceptable depository. Settlement Stock Delivery: Pursuant to the Stock Settlement and Net Stock Settlement provisions under Section III. above, UBS LLC for the account of UBS shall deliver all Settlement Shares to the Company's Customer Account. Such Paired Shares will serve as collateral until released by UBS LLC for the ac count of UBS in accordance with the settlement mechanics noted under III.E. above, or delivered to the Company pursuant to Section III.E.5. Paired S hares held in the Company's Customer Account shall not be voted. The Company covenants and agrees with UBS that Paired Shares delivered by the Company pursuant to settlement events in accordance herewith will be duly authorized, validly issued, fully paid and non-as sessable. The issuance of such Paired Shares will not require the con sent, approval, authorization, registration, or qualification of any government authority, except such as shall have been obtained on or before the delivery date to UBS LLC for the account of UBS in connection with any registration statement filed with respect to any share or otherwise. Solvency: Immediately following the execution of this agreement, the Company will be solvent and able to pay its debts as they mature, will have capital sufficient to carry on business and all businesses in which it engages, and will have assets which will have a present fair market valuation greater than the amount of all of its liabilities. Allocation between Trust and SLC: As between the Trust and SLC, (i) any delivery to or by the Company of the Trust Share portion of Paired Shares pursuant to this Confirmation shall be made by delivery to or by the Trust, (ii) any delivery to or by the Company of the SLC share portion of Paired Shares pursuant to this Confirmation shall be made by delivery to or by SLC, and (iii) any delivery to or by the Company of cash pursuant to this Confirmation shall be allocated between the Trust and SLC between and among themselves 95% to or from the Trust and 5% to or from SLC without effect on any obligation of the Company to UBS or on any obligation of UBS to the Company. Trading Authorization: The following individuals and /or any individual authorized in writing by the Treasurer of the Company are authorized by the Company to provide trading instructions to UBS LLC for the account Page 15 35 of UBS with regard to this transaction. Starwood Lodging Trust: Ronald Brown Starwood Lodging Corporation: Alan Schnaid Nir Margalite Page 16 36 VI. DELIVERY INSTRUCTIONS: Party A: Chase, NYC UBS Securities LLC ABA 021000021 A/C No. ###-##-#### Attn: GED Party B: Harris Bank Harris Bank Chicago, IL 60603 Chicago, IL 60603 ABA # 071000288 ABA #071000288 credit account: credit account: Starwood Lodging Trust Starwood Lodging Corporation # 416-255-8 # 416-258-2 ATTN: Charles McCain ATTN: Charles McCain Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Confirmation enclosed for that purpose and returning it to Ms. Gale Herzing, 29th. Floor. Yours faithfully, Union Bank of Switzerland, London Branch: By: /s/ R. WEERASEKERA By: /s/ ADAM MATTHEWS -------------------------------- ----------------------------------- Name: R. WEERASEKERA Name: ADAM MATTHEWS Title: Vice President Title: VICE PRESIDENT Date: Date: Starwood Lodging Trust: By: By: -------------------------------- ----------------------------------- Name: Name: Title: Title: Date: Date: Starwood Lodging Corporation By: By: -------------------------------- ----------------------------------- Name: Name: Title: Title: Date: Date: Page 17 37 SCHEDULE TO THE MASTER AGREEMENT (THE "AGREEMENT") DATED AS OF OCTOBER 13, 1997 BETWEEN UNION BANK OF SWITZERLAND, LONDON BRANCH ("PARTY A") A BANK REGISTERED UNDER THE LAWS OF SWITZERLAND, AND STARWOOD LODGING TRUST, A MARYLAND REAL ESTATE INVESTMENT TRUST ("TRUST") AND STARWOOD LODGING CORPORATION ("SLC"), A MARYLAND CORPORATION, (TRUST AND SLC SOMETIMES HEREAFTER REFERRED TO AS "COUNTERPARTY" AND COLLECTIVELY AS "PARTY B") The parties intend that the only Transaction that shall be subject to this Agreement is the Transaction as provided for in the Forward Stock Contract dated October 13, 1997 Party A and Party B (the "Sole Transaction"), which Forward Stock Contract also constitutes a Confirmation hereunder. PART 1 TERMINATION PROVISIONS (a) "SPECIFIED ENTITY" means (i) in relation to Party A - none; and (ii) in relation to Party B: - none. (b) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14 of this Agreement. (c) The "CROSS DEFAULT" provisions of Section 5(a)(vi) of this Agreement, as modified by Part 5(d) herein, will apply to Party A and to Party B. Notwithstanding the provisions of Section 6 of the Agreement, any Cross Default with respect to Party B shall constitute a Mandatory Unwind Event in accordance with the Forward Stock Contract. During any Mandatory Unwind Period resulting from a Cross Default, Party A may not exercise it's "Right to Terminate Following an Event of Default" pursuant to Section 6 of the Agreement unless and until: (i) Party B fails to fulfill its obligations to deliver an effective resale Registration Statement as required under the Forward Stock Contract; or (ii) any effective resale Registration Statement provided by Party B as required under the Forward Stock Contract is subject to a stop order on Day S or during the Unwind Period; or (iii) any event of default under any other unsecured and /or recourse lending agreement involving Party B has occurred and the obligations under such lending agreement have been accelerated; provided that the foregoing shall in no way limit Party A's rights upon the occurrence of any other Event of Default by Party B "SPECIFIED INDEBTEDNESS" means (i) with respect to Party A, any obligation (whether present or future, contingent or otherwise as principal or surety or otherwise) for the payment or repayment of any money but shall not include obligations in respect of deposits received in the ordinary course of a party's banking business and (ii) with respect to Party B, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) for the payment or repayment of any money under any unsecured and/or recourse lending agreement and involving the Trust and/or SLC. "THRESHOLD AMOUNT" means USD10,000,000 (or the equivalent in any other currency or currencies). (d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv) of this Agreement will apply to Party A and Party B, as modified by Part 5(a) of this Agreement. 19 38 (e) The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a) of this Agreement will not apply to Party A or to Party B. (f) PAYMENTS ON EARLY TERMINATION for the purpose of Section 6(e) of this Agreement: (i) Loss shall apply; and (ii) the Second Method shall apply. (g) "TERMINATION CURRENCY" means one of the currencies in which payments are required to be made pursuant to a Confirmation in respect of a Terminated Transaction selected by the non-Defaulting Party or the non-Affected Party, as the case may be, or , in the circumstances where there are two Affected Parties, as agreed between the parties, or, failing such agreement as aforesaid, or if the currency so selected is not freely available, the Termination Currency shall be U.S. Dollars. (h) ADDITIONAL TERMINATION EVENT. Not applicable. PART 2 TAX REPRESENTATIONS (a) PAYER TAX REPRESENTATIONS. For the purpose of Section 3(e) of this Agreement, Party A and Party B each make the following representation: It is not required by any applicable law, as modified by the practice of any relevant governmental revenue authority, of any Relevant Jurisdiction to make any deduction or withholding for or on account of any Tax from any payment (other than interest under Section 2(e), 6(d)(ii) or 6(e) of this Agreement) to be made by it to the other party under this Agreement. In making this representation, it may rely on (i) the accuracy of any representations made by the other party pursuant to Section 3(f) of this Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the accuracy and effectiveness of any document provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of this Agreement and (iii) the satisfaction of the agreement of the other party contained in Section 4(d) of this Agreement, PROVIDED that it shall not be a breach of this representation where reliance is placed on sub-clause (ii) above and the other party does not deliver a form or document under Section 4(a)(iii) by reason of material prejudice to its legal or commercial position. (b) PAYEE TAX REPRESENTATIONS. For the purpose of Section 3(f) of this Agreement, Party A and Party B make the representations specified below, if any: (i) The following representation will apply to Party A (except when acting through an Office in the United States) and will apply to Party B: It is fully eligible for the benefits of the "Business Profits" or "Industrial and Commercial Profits" provision, as the case may be, the "Interest" provision or the "Other Income" provision (if any) of the Specified Treaty with respect to any payment described in such provisions and received or to be received by it in connection with this Agreement and no such payment is attributable to a trade or business carried on by it through a permanent establishment in the Specified Jurisdiction. "Specified Treaty" means: Income Tax Convention between the United States of America and Switzerland. "Specified Jurisdiction" means with respect to Party A: the United States of America. "Specified Jurisdiction" means with respect to Party B: Switzerland. (ii) The following representation will apply to Party A when acting through an Office in the United States and will apply to Party B: Each payment received or to be received by it in connection with this Agreement will be effectively connected with its conduct of trade or business in the Specified Jurisdiction. "Specified Jurisdiction" means: the United States of America. (iii) The following representation will apply to Party A when acting through an Office in the United Kingdom and will not apply to Party B: 20 39 (A) It is entering into each Transaction in the ordinary course of its trade as, and is, either (1) a recognized U.K. bank or (2) a recognized U.K. swaps dealer (in either case (1) or (2), for the purposes of the United Kingdom Inland Revenue extra statutory concession C17 on interest and currency swaps dated March 14, 1989), and (B) it will bring into account payments made and received in respect of each Transaction in computing its income for United Kingdom tax purposes. PART 3 AGREEMENT TO DELIVER DOCUMENTS For the purposes of Sections 3(d), 4(a)(i) and (ii) of this Agreement, each party agrees to supply the following documents: (a) Tax forms, documents or certificates to be delivered are: Each party agrees to complete, accurately and in a manner reasonably satisfactory to the other party (or any Specified Entity of the other party), and to execute, arrange for any required certification of, and deliver to the other party (or such Specified Entity) (or to such government or taxing authority as the other party (or such Specified Entity) reasonably directs), any form or document that may be required or reasonably requested in order to allow the other party (or such Specified Entity) to make a payment under this Agreement (or a Credit Support Document of the other party or a Specified Entity thereof) without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate, promptly upon the earlier of (i) reasonable demand by the other party (or such Specified Entity) and (ii) learning that the form or document is required. (b) Other documents to be delivered and covered by the Section 3(d) representation are: PARTY A: None; PARTY B: Opinion of Party B's legal counsel in a form satisfactory to Party A; and PARTY A AND PARTY B: Each party shall provide to the other party evidence of the authority and true signatures of each official or representative signing this Agreement. PART 4 MISCELLANEOUS (a) ADDRESS FOR NOTICES. For the purpose of Section 12(a) of this Agreement: ADDRESS FOR NOTICES OR COMMUNICATIONS TO PARTY A: To the office(s) specified in the relevant Confirmation with a copy of any notice or other communication under Section 5 or 6 to both the London and Zurich Branches of Party A as set out below: ZURICH BRANCH LONDON BRANCH Union Bank of Switzerland Union Bank of Switzerland Bahnhofstrasse 45 100 Liverpool Street 8021 Zurich London EC2M 2RH Attn: HADP - Derivative Operations Attn: Derivative Legal Group - DELG Telex: 814449 UB CH Telex: 923333 UBSPDW G 21 40 Address for notices or communications to Party B: Starwood Lodging Trust Starwood Lodging Corporation 2231 East Camelback Road 2231 East Camelback Road Suite 400 Suite 400 Phoenix, AZ 85016 Phoenix, AZ 85016 Attn: Mr. Ron Brown Attn: Mr. Alan Schnaid Telecopier: 602-852-0115 Telecopier: 602-852-0115 Phone: 602-852-3351 Phone: 602-852-3326 (b) PROCESS AGENT. For the purpose of Section 13(c) of this Agreement: Party A appoints as its Process Agent: UBS Securities LLC, 299 Park Avenue, New York, NY 10171, Attention: Legal Department. Party B makes no appointment of Process Agent. (c) OFFICES. The provisions of Section 10(a) to this Agreement will apply to this Agreement. (d) MULTIBRANCH PARTY. For the purpose of Section 10(c) of this Agreement: Neither Party A or Party B is a Multibranch Party. (e) CALCULATION AGENT. The Calculation Agent is Party A, unless otherwise specified in a Confirmation in relation to the relevant Transaction. (f) CREDIT SUPPORT DOCUMENT. Details of any Credit Support Document in relation to Party A: - not applicable, and in relation to Party B: - The Forward Stock Contract for the Sole Transaction. (g) CREDIT SUPPORT PROVIDER. Credit Support Provider means in relation to Party A and Party B: Not Applicable. (h) GOVERNING LAW. This Agreement will be governed by, and construed in accordance with, the laws of the State of New York (without reference to choice of law doctrine). (i) NETTING OF PAYMENTS. Subparagraph (ii) of Section 2(c) of this Agreement does not apply. (j) "AFFILIATE" will have the meaning set out in Section 14 of this Agreement. PART 5 OTHER PROVISIONS (a) MODIFICATIONS TO THE AGREEMENT. (i) MODIFICATIONS TO CERTAIN EVENTS OF DEFAULT AND TERMINATION EVENTS. For the Events of Default and Termination Events listed below, including any modifications in this Schedule, the "Right to Terminate Following an Event of Default", or "Right to Terminate Following Termination Event" shall be modified so that, in lieu of the remedies detailed in Section 6 for Early Termination, settlement shall instead, after any applicable grace period, be effected as if a Mandatory Unwind Event has occurred pursuant to Section VI of the Forward Stock Contract for the Sole Transaction: A. Events of Default: (1) Section 5(a)(ii), Breach of Agreement (2) Section 5(a)(iv), Misrepresentation (3) Section 5(a)(viii) - Merger Without Assumption B. Termination Events: (1) Section 5(b)(i), Illegality 22 41 (2) Section 5(b)(ii), Tax Event (3) Section 5(b)(iii), Tax Event Upon Merger (4) Section 5(b)(iv), Credit Event Upon Merger (ii) RELATIONSHIP BETWEEN THE PARTIES. This Agreement is hereby amended by the addition of a new Section 15 as follows: "15. RELATIONSHIP BETWEEN THE PARTIES. Each party will be deemed to represent to the other party on the date on which it enters into a Transaction (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction): (a) NON RELIANCE. It is acting for its own account, and it has made its own independent decisions to enter into that transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction; it being understood that information and explanations related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that Transaction. No communication (written or oral) received from the other party shall be deemed to be an assurance or guarantee as to the expected results of that Transaction. (b) ASSESSMENT AND UNDERSTANDING. It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction. (c) STATUS OF PARTIES. The other party is not acting as a fiduciary for or an adviser to it in respect of that Transaction." (iii) BASIC REPRESENTATIONS. Section 3(a) of this Agreement is hereby amended by the deletion of "and" at the end of Section 3(a)(iv); the substitution of a comma for the period at the end of Section 3(a)(v) and the addition of Sections 3(a)(vi) to (ix) as follows: "(vi) ELIGIBLE SWAP PARTICIPANT; LINE OF BUSINESS. It is an "eligible swap participant" as defined in Commodity Futures Trading Commission Rule 35.1(b)(2) (17 C.F.R. 35.1(b)(2)) and it has entered into this Agreement and the Transactions in connection with its business or a line of business (including financial intermediation); (vii) COMPLIANCE WITH INTERNAL INVESTMENT POLICIES. In the case of each Counterparty, each Transaction entered into under this Agreement will be entered into in accordance with, and will at all times comply with, applicable internal investment policies and guidelines from time to time adopted by such Counterparty; and (viii) PURPOSE. In the case of Party B, it has entered into this Agreement (and it will enter into each Transaction hereunder) in connection with exchange rate, interest rate or other price exposures arising in the conduct or financing of its business or in order to manage its assets or liabilities. (iv) AGREEMENTS. Section 4 of this Agreement is hereby amended by the addition of Sections 4(f) as follows: "(f) PHYSICAL DELIVERY. In respect of any physically settled Transactions, it will, at the time of delivery, be the legal and beneficial owner, free of liens and other encumbrances, of any securities or commodities it delivers to the other Party." (v) EVENTS OF DEFAULT: Section 5 of this Agreement is hereby amended as follows: 23 42 (1) FAILURE TO PAY OR DELIVER. Section 5(a)(i) of this Agreement is hereby amended by the substitution of the following therefor: "FAILURE TO PAY OR DELIVER. Failure by a party to make, when due, any payment under Section 2(a)(i) or 2(e) of this Agreement required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party. Failure by a party to make, when due, any delivery under Section 2(a)(i) of this Agreement required to be made by it if such failure is not remedied on or before the first day that the relevant settlement or clearance system is open for the acceptance and execution of settlement instructions after notice of such failure is given to the party." (2) BANKRUPTCY. Section 5(a)(vii) of this Agreement is hereby amended as follows: (A) Section 5(a)(vii)(4) of this Agreement is hereby amended by the insertion of a semi-colon after "liquidation" the first time it appears in such Section and by the deletion of the remainder of such Section; and (B) Section 5(a)(vii)(7) of this Agreement is hereby amended by the substitution of "10" for "30". (v) TAX EVENT. Section 5(b)(ii) of this Agreement is hereby amended by the deletion of "or there is a substantial likelihood that it will," from line four thereof. (b) SET-OFF. (i) In addition to any rights of set-off a party may have as a matter of law or otherwise, upon the occurrence of an Event of Default with respect to Party ("X") hereof (or a provision analogous thereto) or a Termination Event where X is the sole Affected Party, the other party ("Y") shall have the right (but shall not be obliged) without prior notice to X or any other person to set off any obligation of X owing to Y (whether or not arising under this Agreement, whether or not matured, whether or not contingent and regardless of the currency, place of payment or booking office of the obligation) against any obligations of Y owing to X (whether or not arising under this Agreement, whether or not matured, whether or not contingent and regardless of the currency, place of payment or booking office of the obligation). (ii) For the purpose of cross-currency set off, Y may convert any obligation to another currency at a market rate determined by Y. (iii) Nothing in this paragraph will have the effect of creating a charge or other security interest. This paragraph shall be without prejudice and in addition to any right of set-off, combination of accounts, lien or other right to which any party is at any time otherwise entitled (whether by operation of law, contract or otherwise). (c) CONSENT TO RECORDING. Each Party (i) consents to the recording of the telephone conversations of trading and marketing personnel of the Parties and their Affiliates in connection with this Agreement or any potential Transaction and (ii) agrees to obtain any necessary consent of, and give notice of such recording to, such personnel of it and its Affiliates. (d) MODIFICATION TO CROSS DEFAULT. Section 5(a)(vi) of this Agreement is hereby amended by the addition of the following subparagraph at the end thereof: Any event of default in accordance with the "Credit Agreement" or "Purchase Agreement", as defined below, shall constitute an Event of Default with respect to Party B. "Credit Agreement" means the 24 43 Revolving and Term Loan Credit Facility dated as of September, 1997 among the Trust, as borrower, the Lenders identified therein, and Bankers Trust N.A., as lead agent, as amended, supplemented or restated from time to time. "Purchase Agreement" shall mean the Purchase Agreement dated October 13, 1997 between Party B, Party A and UBS Securities (Portfolio) LLC; or Any FINANCIAL COVENANT DEFAULT as more particularly described in Exhibit A attached hereto and incorporated by reference herein. (e) ADDITIONAL AGREEMENTS. Party B further agrees that Party B will deliver to Party A at the address for notices to Party A provided in Part 4 of this Schedule each notice, document, certificate or other writing as Party B is obligated to furnish to any party in accordance with the terms of the Credit Agreement until all of both parties' obligations under this Agreement (whether absolute or contingent) are fully performed. IN WITNESS WHEREOF the parties have executed this Schedule on the respective dates specified below with effect from the date specified on the first page of this document. UNION BANK OF SWITZERLAND, STARWOOD LODGING TRUST LONDON BRANCH BY: BY: /s/ RONALD C. BROWN ----------------------------- ----------------------------- NAME: NAME: RONALD C. BROWN TITLE : TITLE: SENIOR VICE PRESIDENT & CFO DATE: DATE: STARWOOD LODGING CORPORATION BY: BY: /s/ ALAN M. SCHNAID ----------------------------- ----------------------------- NAME: NAME: ALAN M. SCHNAID TITLE : TITLE: VICE PRESIDENT AND CORPORATE CONTROLLER DATE: DATE: 25 44 Revolving and Term Loan Credit Facility dated as of September, 1997 among the Trust, as borrower, the Lenders identified therein, and Bankers Trust N.A., as lead agent, as amended, supplemented or restated from time to time. "Purchase Agreement" shall mean the Purchase Agreement dated October 13, 1997 between Party B, Party A and UBS Securities (Portfolio) LLC; or Any FINANCIAL COVENANT DEFAULT as more particularly described in Exhibit A attached hereto and incorporated by reference herein. (e) ADDITIONAL AGREEMENTS. Party B further agrees that Party B will deliver to Party A at the address for notices to Party A provided in Part 4 of this Schedule each notice, document, certificate or other writing as Party B is obligated to furnish to any party in accordance with the terms of the Credit Agreement until all of both parties' obligations under this Agreement (whether absolute or contingent) are fully performed. IN WITNESS WHEREOF the parties have executed this Schedule on the respective dates specified below with effect from the date specified on the first page of this document. UNION BANK OF SWITZERLAND, STARWOOD LODGING TRUST LONDON BRANCH BY: BY: ----------------------------- ---------------------------- NAME: NAME: TITLE: TITLE: DATE: DATE: STARWOOD LODGING CORPORATION BY: BY: ----------------------------- ----------------------------- NAME: NAME: TITLE: TITLE: DATE: DATE: 25 45 EXHIBIT A The Company's financial covenant compliance below is based on the Company's 12 months rolling financial data: FINANCIAL COVENANTS ($ MILLION WHERE APPROPRIATE) Threshold Total Outstanding Debt/Total Value(1) 9 Months after Closing < 60% - Thereafter < 50% - Secured Debt/Total Value(1) < 30% Secured Recourse Debt < 15% of Total Value, or < $300 mio. (greater of two)(3) - - Unsecured Debt < Facility plus (greater of 15% of Total Value or $300 mio.)(4) - Unencumbered Assets/Unsecured Debt 9 Months after Closing > 1.67x - Thereafter > 2.00x - Unencumbered Assets plus Secured Recourse Assets/ Unsecured Debt plus Secured Recourse Debt 9 Months after Closing > 1.63x - Thereafter > 2.00x - EBITDA/Interest Expense 9 Months after Closing > 2.00x - Thereafter > 2.50x - Unencumbered EBITDA/Unsecured Interest Expense 9 Months after Closing > 2.00x - Thereafter > 2.50x - EBITDA/Fixed Charges(2) 9 Months after Closing > 2.00x - Thereafter > 2.25x - Unencumbered EBITDA/Unsecured Fixed Charges(2) 9 Months after Closing > 2.00x - Thereafter > 2.25x - Minmum Equity Value > $591.5 mio. plus 75% of new equity - Dividends (both Preferred and < 85% of FFO or min. amount for REIT status(whichever greater) Common) re Starwood Lodging - Dividends (both Preferred < 85% of FFO or min. amount for REIT status (whichever greater) and Common) re the REIT -
26 46 FINANCIAL COVENANTS (CONTINUED) ($ MILLION WHERE APPROPRIATE) Threshold Investment Restrictions a) Mortgage Notes/Total Value < 10% - b) Unimproved Land/Total Value < 2.5% - c) Hotel Stock Acquistions/Total Value < 5% - d) Operation Costs of Hotels/Total Value < 15% - e) Non-Hotel Assets/Total Value < 2.5% - f) Lines a) through e)/Total Value < 20% - g) Joint Ventures/Total Value < 20% -
1) Total Value defined as the sum of (a) EBITDA capped at 10% for properties owned more than 4 qtrs; plus 95% of cost of subsequent acquisitions;(b) Mortgage Notes;(c) Available Cash; (d) Hotel Renovations; (e) Properties under Construction; (f) Unimproved Land; and (g) Eligible Management Assets. 2) Fixed Charges include Interest Expense, Amortization and Preferred Dividends. Any above capitalized term shall be defined pursuant to the Company's $ 1.2 billion unsecured credit line, evidenced by that certain Credit Agreement by and between the Company as borrower and Bankers Trust as lead agent and dated as of September 10, 1997. The Financial Covenants will be tested quarterly, only at the end of each fiscal quarter, during the term of the Transaction. 27 EX-10.48 25 EX-10.48 1 Exhibit 10.48 LOAN AGREEMENT among WOODSTAR INVESTOR PARTNERSHIP, VARIOUS LENDING INSTITUTIONS, BT ALEX. BROWN INCORPORATED and CHASE SECURITIES, INC., AS ARRANGING AGENTS, and BANKERS TRUST COMPANY AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENTS ----------------------------- Dated as of December 29, 1997 ----------------------------- $57,285,881.62 2 TABLE OF CONTENTS Page ---- SECTION 1. Amount and Terms of Credit........................................ 1 1.01 Loan......................................................... 1 1.02 Minimum Borrowing Amounts, etc............................... 1 1.03 Notice of Borrowing.......................................... 1 1.04 Disbursement of Funds........................................ 2 1.05 Notes........................................................ 2 1.06 Conversions.................................................. 3 1.07 Pro Rata Borrowings.......................................... 3 1.08 Interest..................................................... 3 1.09 Interest Periods............................................. 4 1.10 Increased Costs, Illegality, etc............................. 5 1.11 Compensation................................................. 7 1.12 Change of Lending Office..................................... 7 1.13 Replacement of Lenders....................................... 8 SECTION 2. Fees; Commitments................................................. 8 2.01 Fees......................................................... 8 2.02 Mandatory Adjustments of Commitments, etc.................... 9 SECTION 3. Payments.......................................................... 9 3.01 Voluntary Prepayments........................................ 9 3.02 Mandatory Prepayments........................................ 9 3.03 Method and Place of Payment..................................10 3.04 Net Payments.................................................11 SECTION 4. Conditions Precedent..............................................13 4.01 Conditions Precedent to Loans................................13 SECTION 5. Representations, Warranties and Agreements........................15 5.01 Status.......................................................16 5.02 Power and Authority..........................................16 5.03 No Violation.................................................16 5.04 Litigation...................................................16 5.05 Use of Proceeds; Margin Regulations..........................16 5.06 Governmental Approvals.......................................17 5.07 Investment Company Act.......................................17 5.08 Public Utility Holding Company Act...........................17 5.09 True and Complete Disclosure.................................17 3 Page ---- 5.10 Financial Condition; Financial Statements....................17 5.11 Security Interests...........................................18 5.12 Tax Liability................................................18 5.13 Compliance with ERISA........................................18 5.14 Subsidiaries.................................................18 5.15 Properties...................................................18 5.16 Compliance with Statutes, etc................................19 SECTION 6. Affirmative Covenants.............................................19 6.01 Information Covenants........................................19 6.02 Books, Records and Inspections...............................20 6.03 Insurance....................................................20 6.04 Payment of Taxes.............................................20 6.05 Franchises...................................................21 6.06 Compliance with Statutes, etc................................21 6.07 Proceeds.....................................................21 SECTION 7. Negative Covenants................................................21 7.01 Changes in Business..........................................21 7.02 Consolidation, Merger, Sale or Purchase of Assets, etc.......21 7.03 Liens........................................................22 7.04 Indebtedness.................................................22 7.05 Capital Expenditures.........................................22 7.06 Advances, Investments and Loans..............................22 7.07 Amendments, etc..............................................22 7.08 Dividends, Distributions, etc................................23 7.09 Transactions with Affiliates.................................23 7.10 Creation of Subsidiaries.....................................23 SECTION 8. Events of Default.................................................23 8.01 Payments.....................................................24 8.02 Representations, etc.........................................24 8.03 Covenants....................................................24 8.04 Default Under Other Agreements...............................24 8.05 Bankruptcy, etc..............................................24 8.06 Pledge Agreement.............................................25 8.07 Judgments....................................................25 8.08 Change of Control............................................25 8.09 Other Defaults...............................................25 SECTION 9. Definitions.......................................................26 SECTION 10. The Agents.......................................................38 10.01 Appointment.................................................38 10.02 Nature of Duties............................................39 4 10.03 Lack of Reliance on the Agents..............................39 10.04 Certain Rights of the Agents................................39 10.05 Reliance....................................................40 10.06 Indemnification.............................................40 10.07 The Agents in Their Individual Capacities...................40 10.08 Holders.....................................................40 10.09 Resignation by an Agent.....................................40 SECTION 11. Miscellaneous....................................................41 11.01 Payment of Expenses, etc....................................41 11.02 Right of Setoff.............................................42 11.03 Notices.....................................................42 11.04 Benefit of Agreement........................................42 11.05 No Waiver; Remedies Cumulative..............................44 11.06 Payments Pro Rata...........................................45 11.07 Calculations; Computations..................................45 11.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial.............................................45 11.09 Counterparts................................................46 11.10 Assumption Date.............................................46 11.11 Headings Descriptive........................................46 11.12 Amendment or Waiver.........................................46 11.13 Survival....................................................47 11.14 Domicile of Loans...........................................47 11.15 Confidentiality.............................................47 11.16 Lender Register.............................................48 11.17 No Liability for General Partners...........................48 ANNEX I -- Commitments ANNEX II -- Lenders and Agents Addresses ANNEX III -- Shares ANNEX IV -- Hines Ground Leases EXHIBIT A -- Form of Notice of Borrowing EXHIBIT B -- Form of Note EXHIBIT C -- Form of Section 3.04 Certificate EXHIBIT D-1 -- Form of Opinion of Sullivan & Cromwell EXHIBIT D-2 -- Form of Opinion of Rinaldi & Associates EXHIBIT D-3 -- Form of Opinion of White & Case EXHIBIT E -- Form of Officers' Certificate 5 EXHIBIT F -- Form of Pledge Agreement EXHIBIT G -- Form of Affiliate Indemnification EXHIBIT H -- Form of Assignment Agreement EXHIBIT I-1 -- Form of Assumption Agreement (Starwood Realty Partnership) EXHIBIT I-2 -- Form of Assumption Agreement (Starwood Operating Partnership) EXHIBIT J -- Form of Consent Letter 6 LOAN AGREEMENT, dated as of December 29, 1997, among WOODSTAR INVESTOR PARTNERSHIP, a Delaware general partnership, the lenders from time to time party hereto (each, a "Lender" and, collectively, the "Lenders"), BANKERS TRUST COMPANY AND THE CHASE MANHATTAN BANK, as Administrative Agents (each, an "Administrative Agent" and, collectively, the "Administrative Agents" and, together with the Payments Administrator, collectively, the "Agents"). Unless otherwise defined herein, all capitalized terms used herein and defined in Section 9 are used herein as so defined. W I T N E S S E T H : WHEREAS, subject to and upon the terms and conditions herein set forth, the Lenders are willing to make available to the Borrower the credit facility provided herein; NOW, THEREFORE, it is agreed: SECTION 1. Amount and Terms of Credit. 1.01 Loan. Subject to and upon the terms and conditions herein set forth, each Lender severally agrees to make a loan (each a "Loan" and, collectively, the "Loans") to the Borrower, which Loans (i) shall be made pursuant to a single drawing on the Closing Date, (ii) except as hereinafter provided, may, at the option of the Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that all Loans made as part of the same Borrowing shall, unless otherwise specifically provided herein, consist of Loans of the same Type and (iii) shall not exceed in aggregate principal amount for any Lender at the time of incurrence thereof the Commitment of such Lender as in effect on such date. Once repaid, Loans may not be reborrowed. 1.02 Minimum Borrowing Amounts, etc. The aggregate principal amount of each Borrowing shall not be less than the Minimum Borrowing Amount. More than one Borrowing may be incurred on any day, provided that at no time shall there be outstanding more than two Borrowings of Eurodollar Loans. 1.03 Notice of Borrowing. (a) The Borrower shall give the Payments Administrator at its Notice Office, prior to 12:00 Noon (New York time), at least two Business Days' (or, in the case where the Loans are to be incurred as Base Rate Loans, one Business Day's) prior written confirmation (or telephonic confirmation promptly confirmed in writing) in the form of Exhibit A of its desire to make Loans on the Closing Date (the "Notice of Borrowing"), which notice shall be irrevocable and shall specify (i) the aggregate principal amount of the Loans to be made on the Closing Date and (ii) whether the Loans shall consist of Base Rate Loans or Eurodollar Loans and, if Eurodollar Loans, the Interest Period to be 7 initially applicable thereto. The Payments Administrator shall promptly give each Lender written notice (or telephonic notice promptly confirmed in writing) of the proposed Loans, of such Lender's proportionate share thereof and of the other matters specified in the Notice of Borrowing. (b) Without in any way limiting the obligation of the Borrower to confirm in writing any telephonic notice permitted to be given hereunder, the Payments Administrator may prior to receipt of written confirmation act without liability upon the basis of such telephonic notice, believed by the Payments Administrator in good faith to be from an Authorized Officer of the Borrower. In each such case, the Borrower hereby waives the right to dispute the Payments Administrator's record of the terms of such telephonic notice. 1.04 Disbursement of Funds. (a) No later than 12:00 Noon (New York time) on the Closing Date, each Lender will make available its pro rata share of the Loans requested to be made on such date in the manner provided below. All such amounts shall be made available to the Payments Administrator in U.S. dollars and immediately available funds at the Payment Office and the Payments Administrator promptly will make available to the Borrower by depositing in the Specified Accounts (50-50 between them) the aggregate of the amounts so made available in the type of funds received. (b) Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its commitment hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender hereunder. 1.05 Notes. (a) To the extent any Lender requests same, the Borrower's obligation to pay the principal of, and interest on, the Loans made to it by each Lender shall be evidenced by a promissory note substantially in the form of Exhibit B, with blanks appropriately completed in conformity herewith (each, a "Note" and, collectively, the "Notes"). (b) The Note issued to each Lender shall (i) be executed by the Borrower, (ii) be payable to the order of such Lender and be dated the Closing Date, (iii) be payable in the aggregate principal amount of Loans evidenced thereby from time to time, (iv) mature on the Final Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in Section 3.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (c) Each Lender will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will, prior to any transfer of its Note, endorse on the reverse side thereof the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation shall not affect a Borrower's obligations in respect of such Loans. 8 1.06 Conversions. The Borrower shall have the option to convert on any Business Day all or a portion at least equal to the applicable Minimum Borrowing Amount of the outstanding principal amount of the Loans into a Borrowing or Borrowings of another Type of Loan, provided that (i) no conversion of Base Rate Loans into Eurodollar Loans may be made prior to the Syndication Date except for a conversion made on the first day of a PSD Interest Period, (ii) no partial conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding principal amount of the Eurodollar Loans made pursuant to such Borrowing to less than the Minimum Borrowing Amount applicable thereto, (iii) Base Rate Loans may only be converted into Eurodollar Loans if no Default under Section 8.01 or Event of Default is then in existence, or if such Default or Event of Default exists, the Required Lenders shall have determined in its or their sole discretion to permit such conversion and (iv) Borrowings of Eurodollar Loans resulting from this Section 1.06 shall be limited in number as provided in Section 1.02. Each such conversion shall be effected by the Borrower giving the Payments Administrator at its Notice Office, prior to 12:00 Noon (New York time), at least three Business Days' (or two Business Days', in the case of a conversion into Base Rate Loans) prior written notice (or telephonic notice promptly confirmed in writing) (each, a "Notice of Conversion") specifying the Loans to be so converted, the Type of Loans to be converted into and, if to be converted into a Borrowing of Eurodollar Loans, the Interest Period to be initially applicable thereto. The Payments Administrator shall give each Lender prompt notice of any such proposed conversion affecting any of its Loans. 1.07 Pro Rata Borrowings. All Loans under this Agreement shall be made by the Lenders pro rata on the basis of their Commitments. No Lender shall be responsible for any default by any other Lender in its obligation to make Loans hereunder and that each Lender shall be obligated to make the Loans provided to be made by it pursuant to its respective Commitments, regardless of the failure of any other Lender to fulfill its commitments hereunder. 1.08 Interest. (a) The unpaid principal amount of each Base Rate Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum which shall at all times be the Base Rate Margin plus the Base Rate in effect from time to time. (b) The unpaid principal amount of each Eurodollar Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum which shall at all times be the Eurodollar Margin plus the relevant Eurodollar Rate. (c) All overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan and any other overdue amount payable hereunder shall bear interest at a rate per annum equal to the Base Rate in effect from time to time plus the sum of (i) 2% and (ii) the Base Rate Margin, provided that each Eurodollar Loan shall bear interest after maturity (whether by 9 acceleration or otherwise) until the end of the Interest Period applicable to it at such maturity at a rate per annum equal to 2% in excess of the rate of interest applicable thereto at such maturity. (d) Interest shall accrue from and including the date of any Borrowing to but excluding the date of any repayment thereof and shall be payable (i) in respect of each Base Rate Loan, monthly in arrears on the first Business Day of each calendar month, (ii) in respect of each Eurodollar Loan, on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each date occurring at three month intervals after the first day of such Interest Period and (iii) in respect of each Loan, (A) on any prepayment or conversion (other than the prepayment or conversion of any Base Rate Loan) on the amount prepaid or converted, (B) at maturity (whether by acceleration or otherwise) and (C) after such maturity, on demand. (e) All computations of interest hereunder shall be made in accordance with Section 11.07(b). (f) The Payments Administrator, upon determining the interest rate for any Borrowing of Eurodollar Loans for any Interest Period, shall promptly notify the applicable Borrower and the Lenders thereof. 1.09 Interest Periods. (a) At the time the Borrower gives the Notice of Borrowing or a Notice of Conversion in respect of the making of, or conversion into, a Borrowing of Eurodollar Loans (in the case of the initial Interest Period applicable thereto) or prior to 12:00 Noon (New York time) on the third Business Day prior to the expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans, it shall have the right to elect by giving the Payments Administrator written notice (or telephonic notice promptly confirmed in writing) of the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of such Borrower, be (x) prior to the Interim Date, a seven day period and (y) thereafter (but subject to clause (iv) below), a one, two or three month period. Notwithstanding anything to the contrary contained above: (i) the initial Interest Period for any Borrowing of Eurodollar Loans shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of Base Rate Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires; (ii) if any Interest Period begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iii) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next 10 succeeding Business Day, provided that if any Interest Period would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iv) subject to the foregoing clauses (i) through (iii), inclusive, (x) only a seven day Interest Period shall be available to be selected prior to the Interim Date and (y) thereafter until the Syndication Date, only a one month Interest Period shall be available to be selected, with all Loans constituting Eurodollar Loans during each such period to be outstanding pursuant to a single Borrowing; (v) no Interest Period with respect to any Borrowing may be elected that would extend beyond the Final Maturity Date; and (vi) no Interest Period may be elected at any time when a Default under Section 8.01 or an Event of Default is then in existence if either Agent or the Required Lenders shall have determined in its or their sole discretion not to permit such election. (b) If upon the expiration of any Interest Period, the Borrower has failed to (or may not) elect a new Interest Period to be applicable to the respective Borrowing of Eurodollar Loans as provided above, the Borrower shall be deemed to have elected to convert such Borrowing into a Borrowing of Base Rate Loans effective as of the expiration date of such current Interest Period. 1.10 Increased Costs, Illegality, etc. (a) In the event that (x) in the case of clause (i) below, the Payments Administrator or (y) in the case of clauses (ii) and (iii) below, any Lender shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto): (i) on any date for determining the Eurodollar Rate for any Interest Period that, by reason of any changes arising after the date of this Agreement affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate; or (ii) at any time, that such Lender shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loans (other than any increased cost or reduction in the amount received or receivable resulting from the imposition of or a change in the rate of taxes or similar charges) because of (x) any change since the Closing Date in any applicable law, governmental rule, regulation, guideline or order (or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guideline or order) (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding reserves required under 11 Regulation D to the extent included in the computation of the Eurodollar Rate) and/or (y) other circumstances arising since the Closing Date affecting such Lender or the interbank Eurodollar market; or (iii) at any time, that the making or continuance of any Eurodollar Loan has become unlawful by compliance by such Lender in good faith with any law, governmental rule, regulation, guideline (or would conflict with any such governmental rule, regulation, guideline or order not having the force of law but with which such Lender customarily complies even though the failure to comply therewith would not be unlawful), or has become impracticable as a result of a contingency occurring after the Closing Date which materially and adversely affects the interbank Eurodollar market; then, and in any such event, such Lender (or the Payments Administrator in the case of clause (i) above) shall (x) on such date and (y) within ten Business Days of the date on which such event no longer exists give notice (by telephone confirmed in writing) to the Borrower and to the Payments Administrator of such determination (which notice the Payments Administrator shall promptly transmit to each of the other Lenders). Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Payments Administrator notifies the Borrower and the Lenders that the circumstances giving rise to such notice by the Payments Administrator no longer exist, and any Notice of Borrowing or Notice of Conversion given by the Borrower with respect to Eurodollar Loans which have not yet been incurred shall be deemed rescinded by the Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to such Lender, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as shall be required to compensate such Lender for such increased costs or reductions in amounts receivable hereunder (a written notice as to the additional amounts owed to such Lender, showing the basis for the calculation thereof, submitted to the Borrower by such Lender shall, absent manifest error, be final and conclusive and binding upon all parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take one of the actions specified in Section 1.10(b) as promptly as possible and, in any event, within the time period required by law. (b) At any time that any Eurodollar Loan is affected by the circumstances described in Section 1.10(a)(ii) or (iii), the applicable Borrower may (and in the case of a Eurodollar Loan affected pursuant to Section 1.10(a)(iii), the Borrower shall) either (i) if the affected Eurodollar Loan is then being made pursuant to a Borrowing, cancel said Borrowing by giving the Payments Administrator telephonic notice (confirmed promptly in writing) thereof on the same date that the Borrower was notified by a Lender pursuant to Section 1.10(a)(ii) or (iii), or (ii) if the affected Eurodollar Loan is then outstanding, upon at least three Business Days' notice to the Payments Administrator, require the affected Lender to convert each such Eurodollar Loan into a Base Rate Loan, provided that if more than one Lender is affected at any time, then all affected 12 Lenders must be treated the same pursuant to this Section 1.10(b). 1.11 Compensation. (a) The Borrower shall compensate each Lender, upon its written request (which request shall set forth the basis for requesting such compensation), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund its Eurodollar Loans but excluding in any event the loss of anticipated profits) which such Lender may sustain: (i) if for any reason (other than a default by such Lender or the Payments Administrator) a Borrowing of Eurodollar Loans does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion (whether or not withdrawn by the Borrower or deemed withdrawn pursuant to Section 1.10(a)); (ii) if any prepayment, repayment or conversion of any of its Eurodollar Loans occurs on a date which is not the last day of an Interest Period applicable thereto; (iii) if any prepayment of any of its Eurodollar Loans is not made on any date specified in a notice of prepayment given by the Borrower; or (iv) as a consequence of (x) any other default by the Borrower to repay its Eurodollar Loans when required by the terms of this Agreement or (y) an election made pursuant to Section 1.10(b). (b) Notwithstanding anything in this Agreement to the contrary, to the extent any notice required by Section 1.10 or 3.04 is given by any Lender more than 120 days after such Lender obtained, or reasonably should have obtained, knowledge of the occurrence of the event giving rise to the additional costs of the type described in such Section, such Lender shall not be entitled to compensation under Section 1.10 or 3.04 for any amounts incurred or accruing prior to the giving of such notice to the Borrower. 1.12 Change of Lending Office. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii) or 3.04 with respect to such Lender, it will, if requested by the applicable Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event, provided that such designation is made on such terms that such Lender and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of any such Section. Nothing in this Section 1.12 shall affect or postpone any of the obligations of any Borrower or the right of any Lender provided in Section 1.10 or 3.04. 1.13 Replacement of Lenders. (x) Upon the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii) or Section 3.04 with respect to any Lender which results in such Lender charging to the Borrower increased costs in excess of those being generally charged by the other Lenders and/or (y) in the case of a refusal by a Lender to consent to a proposed change, waiver, discharge or termination with respect to this Agreement which has been approved by the Required Lenders, the Borrower shall have the right, if no Default 13 or Event of Default then exists, to replace such Lender (the "Replaced Lender") with one or more other Eligible Transferee or Transferees (collectively, the "Replacement Lender") reasonably acceptable to the Administrative Agents, provided that (i) at the time of any replacement pursuant to this Section 1.13, the Replacement Lender shall enter into one or more Assignment Agreements pursuant to Section 11.04(b) (and with all fees payable pursuant to said Section 11.04(b) to be paid by the Replacement Lender) pursuant to which the Replacement Lender shall acquire all of the outstanding Loans of the Replaced Lender and, in connection therewith, shall pay to the Replaced Lender in respect thereof an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Replaced Lender and (ii) all obligations of the Borrower owing to the Replaced Lender (other than those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid) shall be paid in full to such Replaced Lender concurrently with such replacement. Upon the execution of the respective Assignment Agreements, the payment of amounts referred to above and, if so requested by the Replacement Lender, delivery to the Replacement Lender of the appropriate Note executed by the Borrower, the Replacement Lender shall become a Lender hereunder and the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions applicable to the Replaced Lender under this Agreement, which shall survive as to such Replaced Lender. SECTION 2. Fees; Commitments. 2.01 Fees. The Borrower shall pay to (x) each Agent on the Closing Date, for its own account and/or for distribution to the Lenders, such fees as heretofore agreed by the Borrower and the Agents and (y) the Payments Administrator, for its own account, such administrative fees as agreed to between the Borrower and the Payments Administrator, when and as due. 2.02 Mandatory Adjustments of Commitments, etc. (a) The Total Commitment shall terminate on January 15, 1998 if the Loans have not been made by such date. (b) The Total Commitment shall terminate in its entirety on the Closing Date (after giving effect to the making of Loans on such date). SECTION 3. Payments. 3.01 Voluntary Prepayments. The Borrower shall have the right to prepay Loans in whole or in part, without premium or penalty, from time to time on the following terms and conditions: (i) the Borrower shall give the Payments Administrator at the Payment Office written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay the Loans, the amount of such prepayment and (in the case of Eurodollar Loans) the specific Borrowing(s) 14 pursuant to which made, which notice shall be given by such Borrower at least one Business Day prior to the date of such prepayment with respect to Base Rate Loans and at least two Business Days prior to the date of such prepayment with respect to Eurodollar Loans, which notice shall promptly be transmitted by the Payments Administrator to each of the Lenders; (ii) each partial prepayment of any Borrowing shall be in an aggregate principal amount of at least $1,000,000, provided that no partial prepayment of Eurodollar Loans made pursuant to a Borrowing shall reduce the aggregate principal amount of the Loans outstanding pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount applicable thereto; and (iii) each prepayment in respect of any Loans made pursuant to a Borrowing shall be applied pro rata among such Loans. 3.02 Mandatory Prepayments. (A) Requirements: (a) If the Assumption Date has not then occurred, on the third Business Day following the date of receipt thereof by the Borrower of the Cash Proceeds from any Asset Sale or of any Distribution, an amount equal to 100% of the Net Cash Proceeds from such Asset Sale or of such Distribution shall be applied as a mandatory repayment of principal of the then outstanding Loans. (b) If the Assumption Date has not then occurred, on the third Business Day following the date of receipt thereof by the Borrower, an amount equal to 100% of the proceeds (net of underwriting discounts and commissions and other reasonable costs associated therewith) of the incurrence of Indebtedness by the Borrower (other than Indebtedness permitted by Section 7.04 as such Section is in effect on the Closing Date), shall be applied as a mandatory repayment of principal of the then outstanding Loans. (c) If the Assumption Date has not then occurred, on the third Business Day following the date of receipt thereof by the Borrower, an amount equal to 100% of the proceeds (net of underwriting discounts and commissions and other reasonable costs associated therewith) of any sale or issuance of its equity or of any equity contribution shall be applied as a mandatory repayment of principal of the then outstanding Loans. (d) All outstanding Loans shall be repaid in full on June 30, 1998 if the Assumption Date has not then occurred. (e) All outstanding Loans shall be repaid in full on the Final Maturity Date. (B) Application: (a) With respect to each prepayment of Loans required by Section 3.02, the Borrower may designate the Types of Loans which are to be prepaid and 15 the specific Borrowing(s) pursuant to which made, provided that (i) if any prepayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce the outstanding Loans made pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount for such Borrowing, such Borrowing shall be immediately converted into Base Rate Loans; and (ii) each prepayment of any Loans made pursuant to a Borrowing shall be applied pro rata among such Loans. In the absence of a designation by a Borrower as described in the preceding sentence, the Payments Administrator shall, subject to the above, make such designation in its sole discretion with a view, but no obligation, to minimize breakage costs owing under Section 1.11. 3.03 Method and Place of Payment. Except as otherwise specifically provided herein, all payments under this Agreement shall be made to the Payments Administrator for the ratable (based on its pro rata share) account of the Lenders entitled thereto, not later than 1:00 P.M. (New York time) on the date when due and shall be made in immediately available funds and in lawful money of the United States of America at the Payment Office, it being understood that written notice by the Borrower to the Payments Administrator to make a payment from the funds in the Borrower's account at the Payment Office shall constitute the making of such payment to the extent of such funds held in such account. Any payments under this Agreement which are made later than 1:00 P.M. (New York time) shall be deemed to have been made on the next succeeding Business Day. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable during such extension at the applicable rate in effect immediately prior to such extension. 3.04 Net Payments. (a) All payments made by the Borrower hereunder or under any Note will be made without setoff, counterclaim or other defense. Except as provided in Section 3.04(b) and except to the extent required by applicable law, all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction (or by any political subdivision or taxing authority thereof or therein) with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax imposed on or measured by the net income, net profits or franchise taxes measured by net income or net profits of a Lender (or any office or branch of such Lender, in each case) pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Lender is located (or any subdivision or taxing authority thereof or therein)) and all interest, penalties or similar liabilities with respect to such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every 16 payment of all amounts due under this Agreement or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. If any amounts are payable in respect of Taxes pursuant to the preceding sentence, the Borrower agrees to reimburse each Lender, upon the written request of such Lender, for taxes imposed on or measured by the net income or net profits of such Lender pursuant to the laws of the jurisdiction in which such Lender is organized or in which the principal office or applicable lending office of such Lender is located (or of any subdivision or taxing authority therein or thereof) and for any withholding of taxes as such Lender shall determine are payable by, or withheld from, such Lender in respect of such amounts so paid to or on behalf of such Lender pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Lender pursuant to this sentence. The Borrower will furnish to the Payments Administrator within 45 days after the date the payment of any Taxes is made pursuant to applicable law certified copies of tax receipts evidencing such payment by the Borrower. The Borrower agrees to indemnify and hold harmless each Lender, and reimburse such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lender. (b) Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes agrees to deliver to the Borrower and the Payments Administrator on or prior to the Closing Date, or in the case of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to Section 1.13 or 11.04 (unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Lender, (i) two accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001 (or successor forms) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note or (ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit C (any such certificate, a "Section 3.04 Certificate") and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8 (or successor form) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each such Lender agrees that, from time to time after the Closing Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrower and the Payments Administrator two new accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 (or successor forms) and a Section 3.04 Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note, or it shall immediately notify the Borrower and the 17 Payments Administrator of its inability to deliver any such Form or Certificate in which case such Lender shall not be required to deliver any such Form or Certificate pursuant to this Section 3.04(b). Notwithstanding anything to the contrary contained in Section 3.04(a), but subject to Section 11.04(b) and the immediately succeeding sentence, (x) the Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States from interest, fees or other amounts payable hereunder for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes to the extent that such Lender has not provided to the Borrower Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Borrower shall not be obligated pursuant to Section 3.04(a) hereof to gross-up payments to be made to any such Lender in respect of income or similar taxes imposed by the United States if (I) such Lender has not provided to the Borrower the Internal Revenue Service Forms required to be provided to the Borrower pursuant to this Section 3.04(b) or (II) in the case of a payment, other than interest, to a Lender described in clause (ii) of the last sentence of this Section 3.04(b) above, to the extent that such Forms do not establish a complete exemption from withholding of such taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 3.04 and except as set forth in Section 11.04(b), the Borrower agrees to pay additional amounts and to indemnify each Lender in the manner set forth in Section 3.04(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any Taxes deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Closing Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of such Taxes. (c) If the Borrower pays any additional amount under this Section 3.04 to a Lender and such Lender determines in its sole discretion that it has actually received or realized in connection therewith any refund or any reduction of, or credit against, its Tax liabilities in or with respect to the taxable year in which the additional amount is paid, such Lender shall pay to the Borrower an amount that the Lender shall, in its sole discretion, determine is equal to the net benefit, after tax, which was obtained by the Lender in such year as a consequence of such refund, reduction or credit. SECTION 4. Conditions Precedent. 4.01 Conditions Precedent to Loans. The obligation of each Lender to make its Loans on the Closing Date is subject, at the time of the making of such Loans, to the satisfaction of the following conditions: (a) Notice of Borrowing. The Payments Administrator shall have received a Notice of Borrowing meeting the requirements of Section 1.03. 18 (b) No Default; Representations and Warranties. At the time of the making of the Loans and also after giving effect thereto, (i) there shall exist no Default or Event of Default and (ii) all representations and warranties made by the Borrower contained herein or in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of the making of such Loans, except to the extent that such representations and warranties expressly relate to an earlier date. (c) Effectiveness; Notes. (i) The Borrower and each of the Lenders shall have signed a copy of this Agreement (whether the same or different copies) and shall have delivered the same to the Payments Administrator at its Notice Office or, in the case of the Lenders, shall have given to the Payments Administrator telephonic (confirmed in writing), written, telex or facsimile transmitted notice (actually received) at its Notice Office that the same has been signed and mailed to it and (ii) there shall have been delivered to the Payments Administrator for the account of each Lender a Note executed by the Borrower in the amount, maturity and as otherwise provided herein. (d) Opinions of Counsel. On the Closing Date, the Administrative Agents shall have received opinions, addressed to each Agent and each of the Lenders and dated the Closing Date, from (i) Sullivan & Cromwell, special New York counsel to the Borrower, which opinion shall cover the matters contained in Exhibit D-1 hereto, (ii) Rinaldi & Associates, special counsel to the Borrower, which opinion shall cover the matters contained in Exhibit D-2 hereto and (iii) White & Case, special counsel to the Agents, which opinion shall cover the matters contained in Exhibit D-3 hereto. (e) Partnership Proceedings. (I) On the Closing Date, the Administrative Agents shall have received from the Borrower a certificate, dated the Closing Date, signed by the President, any Vice-President or the Secretary (or any person holding an equivalent position) of the Borrower, in the form of Exhibit E with appropriate insertions and deletions, together with (x) copies of the organizational documents of the Borrower, (y) the resolutions or other administrative approval of the Borrower referred to in such certificate and (z) a statement that all of the applicable conditions set forth in Section 4.01(b) have been satisfied (or waived with the consent of the Required Lenders) as of such date, and all of the foregoing shall be reasonably satisfactory to the Agents. (II) On the Closing Date, all partnership and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Credit Documents shall be reasonably satisfactory in form and substance to the Agents, and the Administrative Agents shall have received all information and copies of all 19 certificates, documents and papers, including good standing certificates and any other records of company proceedings and governmental approvals, if any, which the Agents may have requested in connection therewith, such documents and papers, where appropriate, to be certified by proper company or governmental authorities. (f) Adverse Change, etc. Since November 1, 1997, nothing shall have occurred (and neither any Lender nor any Agent shall have become aware of any facts or conditions not previously known) which either Agent or the Required Lenders shall determine has had, or is reasonably likely to have, (i) a Material Adverse Effect or (ii) a material adverse effect on the rights or remedies of the Lenders or the Agents hereunder or under any other Credit Document, or on the ability of the Borrower to perform its obligations to the Lenders and the Agents. (g) Litigation. On the Closing Date, there shall be no actions, suits or proceedings pending or threatened (a) with respect to this Agreement or any other Credit Document or (b) which either Agent or the Required Lenders shall determine has had, or is reasonably likely to have (i) a Material Adverse Effect or (ii) a material adverse effect on the rights or remedies of the Lenders or the Agents hereunder or under any other Credit Document or on the ability of the Borrower to perform its obligations to the Lenders and the Agents. (h) Pledge Agreement. On the Closing Date, the Borrower shall have duly authorized, executed and delivered a Pledge Agreement in the form of Exhibit F (as modified, amended or supplemented from time to time in accordance with the terms thereof and hereof, the "Pledge Agreement") and shall have delivered to the Collateral Agent, as pledgee thereunder, all of the certificates representing the Pledged Securities endorsed in blank or accompanied by executed and undated stock powers, and the Pledge Agreement shall be in full force and effect. (i) Fees. On the Closing Date, the Borrower shall have paid to the Agents and the Lenders all Fees and expenses agreed upon by such parties to be paid on or prior to such date. (j) Starwood Acquisition. The Administrative Agents shall be satisfied that (x) all requisite shareholder consent has been obtained to consummate the Starwood Acquisition and (y) all other conditions to the Starwood Acquisition are reasonably likely to be satisfied on the date then scheduled for consummation of the Starwood Acquisition. In addition, there shall be in effect on the Closing Date no injunction, stay or similar order that would materially delay, impose materially burdensome conditions on or otherwise materially adversely affect the Starwood Acquisition. (k) Affiliate Indemnification. On the Closing Date, the 20 Administrative Agents shall have received a counterpart of the Affiliate Indemnification executed by the parties thereto. (l) Consent Letter. On the Closing Date, the Administrative Agent shall have received a letter from CT Corporation System substantially in the form of Exhibit J hereto with respect to service of process. The acceptance of the benefits of the Loans shall constitute a representation and warranty by the Borrower to the Agents and each of the Lenders that all of the applicable conditions specified in Section 4.01 have been satisfied (or waived with the consent of the Required Lenders) as of that time. All of the certificates, legal opinions and other documents and papers referred to in Section 4.01, unless otherwise specified, shall be delivered to the Payments Administrator at its Notice Office for the account of each of the Lenders and, except for the Notes, in sufficient counterparts for each of the Lenders and shall be reasonably satisfactory in form and substance to the Agents. SECTION 5. Representations, Warranties and Agreements. In order to induce the Lenders to enter into this Agreement and to make the Loans provided for herein, the Borrower makes the following representations and warranties to, and agreements with, the Lenders, all of which shall survive the execution and delivery of this Agreement and the making of the Loans: 5.01 Status. Each Credit Party (i) is a duly organized and validly existing corporation, limited liability company, limited partnership or general partnership, as the case may be, in good standing under the laws of the jurisdiction of its organization and has the power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (ii) has duly qualified and is authorized to do business and is in good standing in all jurisdictions where it is required to be so qualified and where the failure to be so qualified would have a Material Adverse Effect. On the Closing Date, the Borrower is engaged in no business other than the ownership of the Shares and the Other Shares, investments in Permitted Investments and activities incidental thereto as permitted by Section 7.01. 5.02 Power and Authority. Each Credit Party has the power and authority to execute, deliver and carry out the terms and provisions of the Credit Documents to which a party and has taken all necessary action to authorize the execution, delivery and performance of the Credit Documents to which a party. Each Credit Party has duly executed and delivered each Credit Document to which a party and each such Credit Document constitutes the legal, valid and binding obligation of such Person enforceable in accordance with its terms. 5.03 No Violation. Neither the execution, delivery and performance by any Credit Party of the Credit Documents to which a party nor compliance with the terms and provisions thereof, nor the consummation of the transactions contemplated therein (i) will contravene any applicable provision of any law, 21 statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict or be inconsistent with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or (other than pursuant to the Pledge Agreement) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of any Credit Party pursuant to the terms of any indenture, mortgage, deed of trust, agreement or other instrument to which any Credit Party is a party or by which it or any of its property or assets are bound or to which it may be subject or (iii) will violate any provision of the certificate of incorporation, certificate of formation, certificate of partnership, by-laws, limited liability company agreement or partnership agreement of any Credit Party. 5.04 Litigation. There are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened with respect to any Credit Party that are reasonably likely to have (i) a Material Adverse Effect or (ii) a material adverse effect on the rights or remedies of the Lenders or on the ability of any Credit Party to perform its respective obligations to them hereunder and under the other Credit Documents to which a party. 5.05 Use of Proceeds; Margin Regulations. (a) The proceeds of all Loans shall be utilized on and after the Assumption Date as the Borrower may elect, subject to Section 5.05(b) below, including to pay Dividends, provided that prior to the Assumption Date the Borrower will comply with the provisions of Section 6.07. (b) Neither the making of any Loan hereunder, nor the use of the proceeds thereof, will violate or be inconsistent with the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System and no part of the proceeds of any Loan will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock. 5.06 Governmental Approvals. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any foreign or domestic governmental or public body or authority, or any subdivision thereof, is required to authorize or is required in connection with (i) the execution, delivery and performance of any Credit Document or (ii) the legality, validity, binding effect or enforceability of any Credit Document. 5.07 Investment Company Act. No Credit Party is required to be registered as an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 5.08 Public Utility Holding Company Act. No Credit Party is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, 22 as amended. 5.09 True and Complete Disclosure. All factual information (taken as a whole) heretofore or contemporaneously furnished by or on behalf of the Borrower in writing to the Agents for purposes of or in connection with this Agreement or any transaction contemplated herein is true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information (taken as a whole) not misleading at such time in light of the circumstances under which such information was provided. There is no fact known to the Borrower which has had, or is reasonably likely to have, a Material Adverse Effect, which has not been disclosed herein or in such other documents, certificates and statements furnished to the Lenders (or to the Agents for distribution to the Lenders) for use in connection with the transactions contemplated hereby. 5.10 Financial Condition; Financial Statements. (a) On and as of the Closing Date, on a pro forma basis after giving effect to all Indebtedness incurred, and to be incurred (including, without limitation, the Loans), and Liens created, and to be created, by the Borrower in connection therewith, (x) the sum of the assets, at a fair valuation, of the Borrower will exceed its debts, (y) the Borrower will not have incurred or intended to, or believe that it will, incur debts beyond its ability to pay such debts as such debts mature and (z) the Borrower will not have unreasonably small capital with which to conduct its business. For purposes of this Section 5.10, "debt" means any liability on a claim, and "claim" means (i) right to payment whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. (b) The financial statements of the Borrower which have heretofore been furnished to each Lender present fairly, on the basis presented, the financial position of the Borrower at the dates of said statements. Nothing has occurred since December 31, 1996 that has had or is reasonably likely to have a Material Adverse Effect. (c) Except as reflected in the financial statements and the notes thereto described in Section 5.10(b), there were as of the Closing Date no liabilities or obligations with respect to the Borrower of a nature (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in aggregate, would be material to the Borrower, except as incurred in the ordinary course of business consistent with past practices subsequent to December 31, 1996 and as incurred hereunder on such date. 5.11 Security Interests. On and after the Closing Date, the Pledge Agreement creates, as security for the obligations purported to be secured 23 thereby, a valid and enforceable perfected security interest in and Lien on all of the Collateral subject thereto, superior to and prior to the rights of all third Persons and subject to no other Liens, in favor of the Collateral Agent for the benefit of the Lenders. No filings or recordings are required in order to perfect the security interests created under the Pledge Agreement. 5.12 Tax Liability. The Borrower has not been obligated to pay federal or state income taxes. 5.13 Compliance with ERISA. The Borrower has no obligation to contribute to any Plan. 5.14 Subsidiaries. The Borrower has no Subsidiaries. 5.15 Properties. The Borrower owns no property or asset other than the Shares, Other Shares and, after the Closing Date, the amounts on deposit in the Specified Accounts, and has good and marketable title thereto. Annex III sets forth a listing of the Shares by issuer and a listing of the shares of common stock of such issuer received by the Borrower upon the liquidation of LLC. 5.16 Compliance with Statutes, etc. Each Credit Party is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such non-compliance as is not likely to, individually or in the aggregate, have a Material Adverse Effect. SECTION 6. Affirmative Covenants. The Borrower hereby covenants and agrees that on the Closing Date and thereafter for so long as this Agreement is in effect and until the Commitments have terminated, no Notes are outstanding and the Loans, together with interest, Fees and all other Obligations incurred hereunder, are paid in full: 6.01 Information Covenants. The Borrower will furnish to each Lender: (a) Annual Financial Statements. Within 105 days after the close of each of its fiscal years, its balance sheet, as at the end of such fiscal year and the related statements of income, changes in financial position and cash flows for such fiscal year, in each case setting forth comparative figures for the preceding fiscal year, and examined by independent certified public accountants of recognized national standing whose opinion shall not be qualified as to the scope of audit and as to the status of the Borrower as a going concern, together with a certificate of such accounting firm stating that in the course of its regular audit of the business of the Borrower, which audit was conducted in accordance with generally accepted auditing 24 standards, such accounting firm has obtained no knowledge of any Default or Event of Default which has occurred and is continuing or, if in the opinion of such accounting firm such a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof. (b) Quarterly Financial Statements. As soon as available and in any event within 45 days after the close of each of the first three quarterly accounting periods in each of its fiscal years, its balance sheet, as at the end of such quarterly period and the related statements of income, changes in financial position and cash flows for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, and in each case setting forth comparative figures for the related periods in the prior fiscal year and certified by the chief financial officer of the Borrower, subject to changes resulting from audit and normal year-end audit adjustments. (c) Officer's Certificates. At the time of the delivery of the financial statements provided for in Sections 6.01(a) and (b), a certificate of the chief financial officer, controller or other Authorized Officer of the Borrower to the effect that no Default or Event of Default exists or, if any Default or Event of Default does exist, specifying the nature and extent thereof. (d) Notice of Default or Litigation. Promptly, and in any event within three Business Days after any officer of the Borrower obtains knowledge thereof, notice of (x) the occurrence of any event which constitutes a Default or Event of Default which notice shall specify the nature thereof, the period of existence thereof and what action the Borrower proposes to take with respect thereto and (y) the commencement of or any significant development in any litigation or governmental proceeding pending against the Borrower which is likely to have a Material Adverse Effect or is likely to have a material adverse effect on the ability of the Borrower to perform its obligations hereunder or under any other Credit Document. (e) Auditors' Reports. Promptly upon receipt thereof, a copy of each other final report or "management letter" submitted to the Borrower by its independent accountants in connection with any annual, interim or special audit made by it of the books of LLC or such Borrower. (f) Other Information. Promptly (i) upon transmission thereof, copies of any filings and registrations with, and reports to, the Securities and Exchange Commission or any successor thereto (the "SEC") by the Borrower, and (ii) with reasonable promptness, such other material information or documents (financial or otherwise) as either Agent on its own behalf or on behalf of the Required Lenders may reasonably request from time to time, subject in all cases, to any requirement, contractual, fiduciary or otherwise, applicable to the Borrower not to disclose such information. 6.02 Books, Records and Inspections. The Borrower will permit, 25 upon reasonable notice to the chief financial officer, controller or any other Authorized Officer of the Borrower, officers and designated representatives of either Agent or the Required Lenders to visit and inspect any of the properties or assets of the Borrower in whomsoever's possession, and to examine the books of account of the Borrower and discuss the affairs, finances and accounts of the Borrower with, and be advised as to the same by, its officers and independent accountants, all at such reasonable times and intervals and to such reasonable extent as the Agents or the Required Lenders may desire. 6.03 Insurance. The Borrower will at all times maintain in full force and effect insurance in such amounts, covering such risks and liabilities and with such deductibles or self-insured retentions as are in accordance with normal industry practice. 6.04 Payment of Taxes. The Borrower will pay and discharge all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a Lien or charge upon any properties of the Borrower, provided that the Borrower shall not be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it has maintained adequate reserves with respect thereto in accordance with GAAP. 6.05 Franchises. The Borrower will do, or cause to be done, all things necessary to preserve and keep in full force and effect its existence, material rights, franchises and authority, provided that any transaction permitted by Section 7.02 will not constitute a breach of this Section 6.05. 6.06 Compliance with Statutes, etc. The Borrower will comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property other than those the non-compliance with which would not have a Material Adverse Effect or would not have a material adverse effect on the ability of the Borrower to perform its obligations under any Credit Document. 6.07 Proceeds. The Borrower will deposit all proceeds of the Loans into the Specified Accounts (50-50 between them) and, prior to the Assumption Date, will not withdraw, or take any action to withdraw, any amounts from the Specified Accounts, it being agreed that all amounts in the Specified Accounts may be invested at the Borrower's direction in Permitted Investments acceptable to the Agents. Notwithstanding anything to the contrary contained in this Section 6, upon the Assumption Date (but only if the Existing Starwood Credit Agreement is then in effect), all of the foregoing provisions of this Section 6 shall be deleted and thereafter shall be of no further force or effect. 26 SECTION 7. Negative Covenants. The Borrower hereby covenants and agrees that on the Closing Date and thereafter for so long as this Agreement is in effect and until the Commitments have terminated, no Notes are outstanding and the Loans, together with interest, Fees and all other Obligations incurred hereunder, are paid in full: 7.01 Changes in Business. The Borrower will not alter the character of its business from that conducted by it on the Closing Date (i.e., the ownership of the Shares and Other Shares and investment in Permitted Investments), it being understood that the Borrower may engage in those activities that are incidental to (x) the maintenance of its corporate existence in compliance with applicable law, (y) legal, tax and accounting matters in connection with any of the foregoing activities and (z) the entering into, and performing its obligations under, this Agreement and the other Credit Documents. 7.02 Consolidation, Merger, Sale or Purchase of Assets, etc. The Borrower will not wind up, liquidate or dissolve its affairs, or enter into any transaction of merger or consolidation, or sell or otherwise dispose of all or any part of its property or assets (other than inventory or obsolete equipment or excess equipment in the ordinary course of business) or purchase, lease or otherwise acquire all or any part of the property or assets of any Person, except that a Permitted Transaction will be permitted. 7.03 Liens. The Borrower will not create, incur, assume or suffer to exist any Lien upon or with respect to any of its property or assets of any kind (real or personal, tangible or intangible) whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable or notes with recourse to the Borrower) or assign any right to receive income, or file or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any similar recording or notice statute, except: (a) Liens (other than Liens in excess of $100,000 in the aggregate arising pursuant to Section 412 of the Code or Title IV of ERISA) for taxes, assessments or governmental charges not yet due and payable and for which adequate reserves have been established in accordance with GAAP; and (b) Liens created by or pursuant to this Agreement, the other Credit Documents or the Westin Credit Documents. 7.04 Indebtedness. The Borrower will not contract, create, incur, assume or suffer to exist any Indebtedness, except Indebtedness incurred pursuant to this Agreement and the other Credit Documents. 7.05 Capital Expenditures. The Borrower will not incur any 27 Consolidated Capital Expenditures. 7.06 Advances, Investments and Loans. The Borrower will not lend money or credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to any Person, except: (a) investments in cash and Permitted Investments; (b) the Borrower may acquire and own investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; and (c) pursuant to a Permitted Transaction. 7.07 Amendments, etc. The Borrower will not: (a) amend, modify, or change in any manner adverse to the interests of the Lenders its partnership agreement or enter into any new agreement in any manner adverse to the interests of the Lenders with respect to its partnership interests; (b) amend or modify or agree to the amendment or modification of, any organization document of any Specified Subsidiary in any manner adverse to the interests of the Lenders; and (c) amend or modify, or agree to the amendment or modification of, the Starwood Acquisition Agreement in any manner adverse to the interests of the Lenders. 7.08 Dividends, Distributions, etc. The Borrower will not declare or pay any dividends (other than dividends payable solely in its partnership interests) or return any capital to, its partners or authorize or make any other distribution, payment or delivery of property or cash to its partners as such, or redeem, retire, purchase or otherwise acquire, directly or indirectly, for a consideration, any partnership interests now or hereafter outstanding (or any warrants for or options or stock appreciation rights in respect of any of such shares), or set aside any funds for any of the foregoing purposes (all of the foregoing "Dividends"), provided that the Borrower may pay Dividends with the proceeds of a dividend and/or distribution received from W&S Atlanta that is paid by W&S Atlanta with the proceeds of Indebtedness it has incurred as permitted by the Westin Credit Agreement. 7.09 Transactions with Affiliates. The Borrower will not enter into any transaction or series of transactions after the Closing Date whether or not in the ordinary course of business, with any Affiliate other than on terms and 28 conditions substantially as favorable to the Borrower as would be obtainable by the Borrower at the time in a comparable arm's-length transaction with a Person other than an Affiliate. 7.10 Creation of Subsidiaries. The Borrower will not create or acquire any Subsidiary. Notwithstanding anything to the contrary contained in this Section 7, upon the Assumption Date (but only if the Existing Starwood Credit Agreement is then in effect), all of the foregoing provisions of this Section 7 shall be deleted and thereafter shall be of no force or effect. SECTION 8. Events of Default. Upon the occurrence of any of the following specified events (each, an "Event of Default"): 8.01 Payments. The Borrower shall (i) default in the payment when due of any principal of the Loans or (ii) default, and such default shall continue for five or more days, in the payment when due of any interest on the Loans or any Fees or any other amounts owing hereunder or under any other Credit Document; or 8.02 Representations, etc. Any material representation, warranty or statement made by the Borrower herein or in any other Credit Document or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made provided that after the Assumption Date no Event of Default shall arise under this Section 8.02 as a result of any such representation, warranty or agreement made by Woodstar on the Closing Date proving untrue except to the extent such would have a material adverse effect on the Starwood Assumption and Guaranties; or 8.03 Covenants. The Borrower shall (a) default in the due performance or observance by it of any term, covenant or agreement contained in Section 6.07 or 7, or (b) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in Section 8.01, 8.02 or clause (a) of this Section 8.03) contained in this Agreement and such default under this clause (b) shall continue unremedied for a period of at least 30 days after notice to the defaulting party by either Agent or the Required Lenders; or 8.04 Default Under Other Agreements. (a) Prior to the Assumption Date, the Borrower or, after the Assumption Date, any Starwood Party (each, a "Designated Party") shall (i) default in any payment with respect to any Indebtedness (other than the Obligations) beyond the period of grace, if any, applicable thereto or (ii) default in the observance or performance of any agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or 29 condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause any such Indebtedness to become due prior to its stated maturity (other than the failure to obtain the required consents under the Securitized Debt and the Hines Ground Leases); or (b) any such Indebtedness of any Designated Party shall be declared to be due and payable (other than to the extent the Designated Party promptly denies in writing to the applicable creditor the validity of such declaration and is contesting same in good faith), or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof (including, without limitation, as a result of the failure to obtain the required consents under the Securitized Debt or the Hines Ground Leases), provided that after the Assumption Date it shall not constitute an Event of Default pursuant to this Section 8.04 unless the principal amount of Indebtedness referred to in clauses (a) and (b) above exceeds $5,000,000, individually or in the aggregate; or 8.05 Bankruptcy, etc. Any Designated Party shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against any Designated Party and the petition is not controverted within 20 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of any Designated Party; or any Designated Party commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to any Designated Party; or there is commenced against any Designated Party any such proceeding which is not controverted within 20 days or remains undismissed for a period of 60 days; or any Designated Party is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or any Designated Party suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or any Designated Party makes a general assignment for the benefit of creditors; or any corporate action is taken by any Designated Party for the purpose of effecting any of the foregoing; or 8.06 Pledge Agreement. Prior to the Assumption Date, (a) the Pledge Agreement shall cease to be in full force and effect, or shall cease to give the Collateral Agent the Liens, rights, powers and privileges purported to be created thereby in favor of the Collateral Agent, or (b) the Borrower shall default in the due performance or observance of any material term, covenant or agreement on its part to be performed or observed pursuant to the Pledge Agreement; or 8.07 Judgments. One or more judgments or decrees shall be entered against any Credit Party involving a liability of $10,000 ($5,000,000 on and after the Assumption Date) or more in the aggregate for all such judgments and decrees for the Credit Parties (not paid or to the extent not covered by insurance) and any such judgments or decrees shall not have been vacated, discharged or 30 stayed or bonded pending appeal within 60 days from the entry thereof; or 8.08 Change of Control. A Change of Control shall occur at any time prior to the Assumption Date; or 8.09 Other Defaults. On and after the Assumption Date, a Starwood Event of Default shall occur; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Payments Administrator shall, upon the written request of the Required Lenders, by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of any Administrative Agent or any Lender to enforce its claims against the Borrower and its other rights hereunder, except as otherwise specifically provided for in this Agreement (provided that, if an Event of Default specified in Section 8.05 shall occur with respect to any Borrower, the result which would occur upon the giving of written notice by the Payments Administrator as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice): (i) declare the Total Commitment terminated, whereupon the Commitment of each Lender shall forthwith terminate immediately; (ii) declare the principal of and any accrued interest in respect of all Loans and all obligations owing hereunder and thereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower; and (iii) enforce, as Collateral Agent (or direct the Collateral Agent to enforce), any or all of the Liens and security interests created pursuant to the Pledge Agreement. SECTION 9. Definitions. As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms in this Agreement shall include in the singular number the plural and in the plural the singular: "Administrative Agents" shall have the meaning provided in the first paragraph of this Agreement and shall include any successor to the Administrative Agents appointed pursuant to Section 10.09. "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power (i) to vote 10% or more of the securities having ordinary voting power for the election of directors of such corporation or (ii) to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "Affiliate Indemnification" shall mean an Indemnification Agreement 31 (which shall be in form and substance satisfactory to the Administrative Agents) executed by certain Affiliates of the Borrower acceptable to the Administrative Agents. "Agents" shall have the meaning provided in the first paragraph of this Agreement. "Agreement" shall mean this Loan Agreement, as the same may be from time to time further modified, amended and/or supplemented. "Asset Sale" shall mean and include the sale, transfer or other disposition by the Borrower to any other Person of any asset of the Borrower. "Assignment Agreement" shall mean the Assignment Agreement in the form of Exhibit H (appropriately completed). "Assumption Agreements" shall mean the Assumption Agreements in the form of Exhibit I-1 and I-2 hereto. "Assumption Date" shall mean the date on which the Starwood Assumptions and Guarantees become effective. "Authorized Officer" shall mean any senior officer of the Borrower designated as such in writing to the Payments Administrator by the Borrower, in each case to the extent acceptable to the Payments Administrator. "Bankruptcy Code" shall have the meaning provided in Section 8.05. "Base Rate" shall mean the higher of (i) the Prime Lending Rate and (ii) the Federal Funds Effective Rate plus 1/2 of 1%. "Base Rate Loan" shall mean each Loan bearing interest at the rates provided in Section 1.08(a). "Base Rate Margin" shall mean 0.625%, provided that if the Assumption Date has not occurred by March 31, 1998, the Base Rate Margin shall equal 3.625% on and after such date. "Borrower" shall mean Woodstar, provided that on the Assumption Date Woodstar shall be released as the Borrower and replaced by Starwood Realty Partnership as the Borrower with respect to 96.08355% of the principal of the Loans (and all accrued but unpaid interest thereon) and by Starwood Operating Partnership as Borrower with respect to the remaining principal of the Loans (and all accrued but unpaid interest thereon), with Starwood Realty Partnership and Starwood Operating Partnership to thereafter constitute the "Borrower" for purposes of this Agreement. Woodstar may, upon such release, execute and deliver to the Administrative Agents a guaranty of the Obligations pursuant to a Guaranty Agreement heretofore agreed upon among the parties 32 hereto. "Borrowing" shall mean the incurrence of one Type of Loan by the Borrower from all of the Lenders on a pro rata basis on a given date (or resulting from conversions on a given date), having in the case of Eurodollar Loans the same Interest Period; provided that Base Rate Loans incurred pursuant to Section 1.10(b) shall be considered part of any related Borrowing of Eurodollar Loans. "BTCo" shall mean Bankers Trust Company. "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which shall be in the City of New York a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in U.S. dollar deposits in the interbank Eurodollar market. "Capital Lease" as applied to any Person shall mean any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "Capitalized Lease Obligations" of any Person shall mean all obligations under Capital Leases of such Person in each case taken at the amount thereof accounted for as liabilities in accordance with GAAP. "Cash Proceeds" shall mean, with respect to any Asset Sale or Distribution (x) the aggregate cash payments (including any cash received by way of deferred payment pursuant to a note receivable issued in connection with such Asset Sale, other than the portion of such deferred payment constituting interest, but only as and when so received) received by the Borrower from any such Asset Sale or (y) all amounts received by the Borrower pursuant to a Distribution (including the cash fair market value of any Distribution made other than in cash). "Change of Control" shall mean at any time, and for any reason whatsoever, Marswood Investors L.P. ceases to own at least 80% of the partnership interests of the Borrower. "Chase" shall mean The Chase Manhattan Bank. "Closing Date" shall mean December 29, 1997 unless otherwise agreed by the Borrower and the Lenders. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time and the regulations promulgated and the rulings issued thereunder. Section references to the Code are to the Code, as in effect at the 33 Closing Date and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor. "Collateral" shall mean all of the Collateral as defined in the Pledge Agreement. "Collateral Agent" shall mean Bankers Trust Company acting as collateral agent for the Lenders. "Commitment" shall mean, with respect to each Lender, the amount, set forth opposite such Lender's name on Annex I hereto directly below the column entitled "Commitment" as the same may be terminated pursuant to Section 2.02. "Consolidated Capital Expenditures" shall mean, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities and including in all events all amounts expended or capitalized under Capital Leases but excluding any amount representing capitalized interest) by the Borrower during that period that, in conformity with GAAP, are or are required to be included in the property, plant or equipment reflected in the consolidated balance sheet of LLC and its consolidated Subsidiaries. "Contingent Obligations" shall mean as to any Person any obligation of such Person guaranteeing or intending to guarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof, provided that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "Credit Documents" shall mean this Agreement, the Notes and the Pledge Agreement. "Credit Parties" shall mean (x) prior to the Assumption Date, 34 Woodstar and (y) on and after the Assumption Date, the Starwood Parties. "Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Designated Party" shall have the meaning provided in Section 8.04. "Distribution" shall mean any dividend or other distribution received by the Borrower in respect of the Shares and Other Shares other than the dividend and/or distribution from W&S Atlanta referred to in Section 7.08. "Dividends" shall have the meaning provided in Section 7.08. "Eligible Transferee" shall mean and include a commercial bank, financial institution or other qualified institutional buyer (as defined under Rule 144A promulgated under the Securities Act of 1933, as amended) that is not a competitor in the hospitality business of the Credit Parties. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" shall mean each person (as defined in Section 3(9) of ERISA) which together with the Borrower would be deemed to be a "single employer" within the meaning of Sections 414(b), (c), (m) and (o) of the Code. "Eurodollar Loans" shall mean each Loan bearing interest at the rates provided in Section 1.08(b). "Eurodollar Margin" shall mean 1.625%, provided that if the Assumption Date has not occurred by March 31, 1998, the Eurodollar Margin shall equal 4.625% on and after such date. "Eurodollar Rate" shall mean with respect to each Interest Period for a Eurodollar Loan, (i) the offered quotation to first-class banks in the interbank Eurodollar market by the Payments Administrator for dollar deposits of amounts in same day funds comparable to the outstanding principal amount of the Eurodollar Loan of the Payments Administrator for which an interest rate is then being determined with maturities comparable to the Interest Period to be applicable to such Eurodollar Loan, determined as of 10:00 A.M. (New York time) on the date which is two Business Days prior to the commencement of such Interest Period divided (and rounded upward to the next whole multiple of 1/16 of 1%) by (ii) a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D). 35 "Event of Default" shall have the meaning provided in Section 8. "Existing Starwood Credit Agreement" shall mean the Credit Agreement, dated as of September 10, 1997, among Starwood Trust, Starwood Realty Partnership, Bankers Trust Company, Lehman Brothers Holdings Inc., BankBoston, N.A. and Bank of Montreal, as in effect on the Closing Date and as amended or replaced prior to the Assumption Date in a manner acceptable to the Administrative Agents and to Starwood Lodging to permit the Starwood Acquisition and the Starwood Assumptions and Guaranties, without giving effect to any other amendment, modification or other change thereto not consented to by the Required Lenders, and regardless of whether such agreement is terminated. "Federal Funds Effective Rate" shall mean for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Payments Administrator from three Federal Funds brokers of recognized standing selected by the Payments Administrator. "Final Maturity Date" shall mean January 31, 2000. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect on the date of this Agreement. "Hines Ground Leases" shall mean the two ground leases with respect to the Westin Hotel, Houston (Galleria) and the Westin Hotel, Houston (Oaks) as more particularly described on Annex IV hereto. "Indebtedness" of any Person shall mean, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to assets purchased by such Person, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued expenses arising in the ordinary course of business in accordance with customary trade terms), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed by such Person, (g) all Contingent Obligations of such Person, (h) all Capital Lease Obligations of such Person, (i) all obligations of such Person in respect of interest rate protection agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements, (j) all obligations of such Person 36 as an account party to reimburse any bank or any other person in respect of letters of credit and bankers' acceptances, whether or not drawn or accepted, (k) all obligations of such Person to pay a specified purchase price for goods or services whether or not delivered or accepted (i.e., take-or-pay and similar obligations) and (l) all obligations (including repurchase obligations) relating to Property Financing Lender Equity. The Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such person is a general partner or member, other than to the extent that the instrument or agreement evidencing such Indebtedness expressly limits the liability of such person in respect thereof pursuant to provisions and terms reasonably satisfactory to the Required Lenders. "Interest Period" with respect to any Loan shall mean the interest period applicable thereto, as determined pursuant to Section 1.09. "Interest Rate Agreement" shall mean any interest rate swap agreement, any interest rate cap agreement, any interest rate collar agreement or other similar agreement or arrangement designed to protect the Borrower against fluctuations in interest rates. "Interim Date" shall mean the date on which a Permitted Transaction is consummated. "Lender" shall have the meaning provided in the first paragraph of this Agreement. "Lender Register" shall have the meaning provided in Section 11.16. "Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof). "Loan" shall have the meaning provided in Section 1.01(a). "LLC" shall mean W&S Hotel L.L.C., formerly a Delaware limited liability company. "Margin Stock" shall have the meaning provided in Regulation U. "Material Adverse Effect" shall mean a material adverse effect on the business, property, assets, liabilities, operations, condition (financial or otherwise), prospects or business plans of the Borrower. "Minimum Borrowing Amount" shall mean (i) for Base Rate Loans, $2,000,000 and (ii) for Eurodollar Loans, $10,000,000. "Net Cash Proceeds" shall mean with respect to (x) any Asset Sale, 37 the Cash Proceeds resulting therefrom net of expenses of such sale and incremental taxes paid or payable as a result thereof and (y) any Distribution, the Cash Proceeds resulting therefrom. "Nomura" shall mean Nomura Asset Capital Corporation, a Delaware corporation. "Note" shall have the meaning provided in Section 1.05(a). "Notice of Borrowing" shall have the meaning provided in Section 1.03. "Notice of Conversion" shall have the meaning provided in Section 1.06. "Notice Office" shall mean the office of the Payments Administrator at 130 Liberty Street, New York, New York or such other office as the Payments Administrator may designate to the Borrower from time to time. "Obligations" shall mean all amounts, direct or indirect, contingent or absolute, of every type or description, and at any time existing, owing to the Payments Administrator, the Documentation Agent, the Collateral Agent or any Lender pursuant to the terms of this Agreement or any other Credit Document. "Other Shares" shall mean the shares of common stock of Worldwide and W&S Atlanta owned by the Borrower on the Closing Date. "Payment Office" shall mean the office of the Payments Administrator at 130 Liberty Street, New York, New York or such other office as the Payments Administrator may designate to the Borrowers from time to time. "Payments Administrator" shall mean BTCo. "Permitted Investments" shall mean (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (ii) U.S. dollar denominated time deposits, certificates of deposit and bankers' acceptances of (x) any Lender or (y) any bank (or the parent company of such bank) whose short- term commercial paper rating from Standard & Poor's Ratings Services, a division of McGraw-Hill, Inc. ("S&P") is at least A-1 or the equivalent thereof or from Moody's Investors Service, Inc. ("Moody's") is at least P-1 or the equivalent thereof (any such bank, an "Approved Bank"), in each case with maturities of not more than six months from the date of acquisition, (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by any Lender or Approved Bank or by the parent company of any 38 Lender or Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating of at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's (any such company, an "Approved Company"), or guaranteed by any industrial company with a long term unsecured debt rating of at least A or A2, or the equivalent of each thereof, from S&P or Moody's, as the case may be, and in each case maturing within six months after the date of acquisition and (v) investments in money market funds substantially all of whose assets are comprised of securities of the type described in clauses (i) through (iv) above but only to the extent such funds are acceptable to the Agents. "Permitted Liens" shall mean Liens described in clauses (a), (d) and (i) of Section 7.03. "Permitted Transaction" shall mean (i) Woodstar, WHWE, Nomura and Jurgen Bartels (the "LLC Successors") exchanging all shares of Worldwide they own for preferred stock of Starwood Trust and cash pursuant to the Starwood Acquisition Agreement, (ii) the LLC Successors contributing all shares of W&S Atlanta they own to Starwood Operating Partnership pursuant to the Starwood Acquisition Agreement, (iii) the LLC Successors contributing all shares of W&S Seattle, W&S Lauderdale and W&S Denver to Starwood Realty Partnership pursuant to the Starwood Acquisition Agreement and (iv) the LLC Successors contributing all shares they own of Westin St. John to Starwood Operating Partnership pursuant to the Starwood Acquisition Agreement if and only if Starwood Realty Partnership concurrently assumes the LLC Successors' obligations with respect to 96.08355% of the Loans made to the LLC Successors by the Agents on the Closing Date and Starwood Operating Partnership concurrently assumes the remaining 3.91645% of the Loans made to the LLC Successors by the Agents on the Closing Date (and all such assumptions to be guaranteed by the Starwood Guarantors), with such assumptions and guarantees with respect to the Loans to be reflected by the issuance of the Starwood Assumptions and Guaranties. "Person" shall mean any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" shall mean any pension plan as defined in Section 3(2) of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of) the Borrower or an ERISA Affiliate, and each such plan for the five-year period immediately following the latest date on which the Borrower or an ERISA Affiliate maintained, contributed to or had an obligation to contribute to such plan. "Pledge Agreement" shall have the meaning provided in Section 4.01(h). 39 "Pledged Securities" shall mean all the Shares. "Prime Lending Rate" shall mean the rate which BTCo announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. BTCo may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate. "PSD Interest Period" shall mean any Interest Period commenced prior to the Syndication Date, each of which Interest Periods must satisfy the requirements of Section 1.09(iv). "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "Regulation U" shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements. "Related Fund" shall mean, with respect to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Required Lenders" shall mean Lenders whose outstanding Loans constitute greater than 50% of the total outstanding principal of Loans. "SEC" shall have the meaning provided in Section 6.01(j). "Section 3.04 Certificate" shall have the meaning provided in Section 3.04(b)(ii). "Securitized Debt" shall mean, collectively, all Indebtedness under the loan documents evidencing (i) the $41,700,000 loan from Nomura to Westin Indianapolis, L.L.C., secured by a first mortgage loan on the Westin Indianapolis Hotel and (ii) the $75,000,000 loan from Nomura to The Peachtree Hotel Company and assumed by Westin Portman Peachtree II L.L.C., secured by a first deed to secure debt on the Westin Peachtree Plaza. "Shares" shall mean the shares of the common stock of each of the Specified Subsidiaries owned by the Borrower on the Closing Date. "Specified Accounts" shall mean Account No. 44102746 maintained at BTCo's office at 130 Liberty Street, New York, New York 10006 and Account No. 9102726438 maintained at Chase's office at 270 Park Avenue, New York, New York. 40 "Specified Subsidiaries" shall mean W&S Seattle, W&S Lauderdale, W&S Denver and Westin St. John. "Starwood Acquisition" shall mean and include (i) the merger of Worldwide with and into Starwood Trust in accordance with the terms of the Starwood Acquisition Agreement, (ii) the Subsidiary Contributions pursuant to, and as defined in, the Starwood Acquisition Agreement and (iii) the related transactions described in the Starwood Acquisition Agreement. "Starwood Acquisition Agreement" shall mean the Transaction Agreement, dated as of September 8, 1997, among WHWE, Nomura, Juergen Bartels, LLC, Worldwide, W&S Lauderdale, W&S Seattle, St. John Company, Westin St. John, W&S Denver, W&S Atlanta, Starwood Trust, Starwood Realty Partnership, Starwood Lodging Corporation and Starwood Operating Partnership, as in effect on September 8, 1997. "Starwood Assumptions" shall mean (x) the assumption as Borrower by Starwood Realty Partnership of 96.08355% of the Loans pursuant to an Assumption Agreement in the form of Exhibit I-1 hereto and (y) the assumption as Borrower by Starwood Operating Partnership of the remainder of the Loans pursuant to an Assumption Agreement in the form of Exhibit I-2 hereto. "Starwood Assumptions and Guaranties" shall mean the consummation of the Starwood Assumptions and the issuance of the Starwood Guaranty by the Starwood Guarantors. "Starwood Event of Default" shall mean (i) a default shall occur with respect to any covenant contained in the Existing Starwood Credit Agreement (as defined herein) and/or incorporated by reference in any Assumption Agreement and (in the case of any default of any covenant that would require notice to Starwood Lodging and Starwood Realty Trust by the Administrative Agent or a Lender under the Existing Starwood Credit Agreement before such default shall constitute an Event of Default thereunder) continuance of such default unremedied for 30 days after written notice thereof to Starwood Lodging by either Administrative Agent or any Lender hereunder and (ii) the failure to deliver to the Lenders all financial information when and as required under the Existing Starwood Credit Agreement to be delivered to the lenders party thereto and such failure shall continue unremedied for 30 days after notice to Starwood Lodging by the Administrative Agents or the Required Lenders. "Starwood Guarantors" shall mean Starwood Trust, Starwood Realty Partnership, Starwood Lodging Corporation, Starwood Operating Partnership and their respective Subsidiaries (except to the extent any such Subsidiary is not a guarantor under the Existing Starwood Credit Agreement) except to the extent any thereof is the Borrower under any of the Loans as a result of the Starwood Assumptions. 41 "Starwood Guaranty" shall mean the guaranty by the Starwood Guarantors of all Obligations hereunder, which guaranty shall be delivered on the Assumption Date and shall be substantially in the form of the Guaranty set forth in Section 12 of the Westin Credit Agreement (except that Section 12.07 of the Westin Credit Agreement will not be included in the Starwood Guaranty). "Starwood Lodging" shall mean and include Starwood Trust and Starwood Lodging Corporation. "Starwood Operating Partnership" shall mean SLC Operating Limited Partnership, a Delaware limited partnership. "Starwood Parties" shall mean Starwood Lodging, Starwood Operating Partnership and Starwood Realty Partnership and any other entity that is a Starwood Guarantor. "Starwood Realty Partnership" shall mean SLT Realty Limited Partnership, a Delaware limited partnership. "Starwood Trust" shall mean Starwood Lodging Trust, a Maryland real estate investment trust. "Subsidiary" of any Person shall mean and include (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (ii) any partnership, association, joint venture, limited liability company or other entity in which such Person directly or indirectly through Subsidiaries has more than a 50% equity interest at the time. "Syndication Date" shall mean the earlier of June 1, 1998 and the date specified in writing to the Borrower or Borrowers by the Administrative Agents as the date on which the primary syndication of the Loans and Commitments has been completed to the satisfaction of the Administrative Agents. "Taxes" shall have the meaning provided in Section 3.04(a). "Total Commitment" shall mean the sum of the Commitments of each of the Lenders. "Type" shall mean any type of Loan determined with respect to the interest option applicable thereto, i.e., a Base Rate Loan or Eurodollar Loan. "UCC" shall mean the Uniform Commercial Code. "W&S Atlanta" shall mean W&S Atlanta Corp., a Delaware 42 corporation. "W&S Denver" shall mean W&S Denver Corp., a Delaware corporation. "W&S Lauderdale" shall mean W&S Lauderdale Corp., a Delaware corporation. "W&S Seattle" shall mean W&S Seattle Corp., a Delaware corporation. "Westin Credit Agreement" shall mean the Amended and Restated Credit Agreement, dated as of December 2, 1997, among LLC, various of its Subsidiaries and the Agents as in effect on the Closing Date. "Westin Credit Documents" shall have the meaning provided in the Westin Credit Agreement. "Westin St. John" shall mean Westin St. John Hotel Company, Inc., a corporation organized under the laws of the U.S. Virgin Islands. "WHWE" shall mean WHWE L.L.C., a Delaware limited liability company. "Woodstar" shall mean Woodstar Investor Partnership, a Delaware general partnership. "Worldwide" shall mean Westin Hotels & Resorts Worldwide, Inc., a Delaware corporation, formerly known as W&S Arizona Corp. "Written" or "in writing" shall mean any form of written communication or a communication by means of telex, facsimile transmission, telegraph or cable. SECTION 10. The Agents. 10.01 Appointment. The Lenders hereby designate each of BTCo and Chase as Administrative Agent (for purposes of this Section 10, the term "Administrative Agent" shall include BTCo in its capacity as Collateral Agent pursuant to the Pledge Agreement and as Payments Administrator hereunder) to act as specified herein and in the other Credit Documents. Each Lender hereby irrevocably authorizes, and each holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, each Agent to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of such Agent by the terms hereof and 43 thereof and such other powers as are reasonably incidental thereto. The Agents may perform any of their duties hereunder by or through their respective officers, directors, agents, employees or affiliates. 10.02 Nature of Duties. No Agent shall have any duties or responsibilities except those expressly set forth in this Agreement and the Security Documents. No Agent or any of its respective officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by their gross negligence or willful misconduct. The duties of each Agent shall be mechanical and administrative in nature; no Agent shall have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Lender or the holder of any Note; and nothing in this Agreement or any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon either Agent any obligation in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein with respect to such Agent. 10.03 Lack of Reliance on the Agents. Independently and without reliance upon either Agent, each Lender and the holder of each Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of any Borrower or Starwood Party in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of any Borrower or Starwood Party and, except as expressly provided in this Agreement, no Agent shall have any duty or responsibility, either initially or on a continuing basis, to provide any Lender or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. No Agent shall be responsible to any Lender or the holder of any Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of any Borrower or Starwood Party or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the financial condition of any Borrower or Starwood Party or the existence or possible existence of any Default or Event of Default. 10.04 Certain Rights of the Agents. If an Agent shall request instructions from the Required Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Credit Document, such Agent shall be entitled to refrain from such act or taking such action unless and until such Agent shall have received instructions from the Required Lenders; and no Agent shall incur liability to any Person by reason of so refraining. Without limiting the foregoing, neither any Lender nor the holder of any Note shall have any right of action whatsoever against an Agent as a result of such Agent acting or 44 refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Lenders. 10.05 Reliance. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype, facsimile or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that such Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by such Agent. 10.06 Indemnification. To the extent an Agent is not reimbursed and indemnified by the Borrower, the Lenders will reimburse and indemnify such Agent, in proportion to their Loans, for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by such Agent in performing its respective duties hereunder or under any other Credit Document, in any way relating to or arising out of this Agreement or any other Credit Document provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of such Agent. 10.07 The Agents in Their Individual Capacities. With respect to its obligation to make Loans under this Agreement, each Agent shall have the rights and powers specified herein for a "Lender" and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "Lenders," "Required Lenders," "holders of Notes" or any similar terms shall, unless the context clearly otherwise indicates, include the Agents in their individual capacities. Each Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with any Credit Party or any Affiliate of any Credit Party as if they were not performing the duties specified herein, and may accept fees and other consideration from any Borrower or any Starwood Party for services in connection with this Agreement and otherwise without having to account for the same to the Lenders. 10.08 Holders. The Payments Administrator may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Payments Administrator. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor. 10.09 Resignation by an Agent. (a) Either Administrative Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving 15 Business Days' prior 45 written notice to the other Administrative Agent (if any), the Borrower and the Lenders. Upon such resignation, any remaining Administrative Agent shall perform all the duties of such resigning Administrative Agent hereunder, provided that if, at the time of such resignation, such Administrative Agent is the only Administrative Agent, such resignation shall take effect upon the appointment of a successor Administrative Agent pursuant to clauses (b) and (c) below or as otherwise provided below. (b) Upon any such notice of resignation, the Required Lenders shall appoint a successor Administrative Agent hereunder or thereunder who shall be a commercial bank or trust company reasonably acceptable to the Borrower. (c) If a successor Administrative Agent shall not have been so appointed within such 15 Business Day period, the resigning Administrative Agent, with the reasonable consent of the Borrower, shall then appoint a successor Administrative Agent who shall serve as Administrative Agent hereunder or thereunder until such time, if any, as the Lenders appoint a successor Administrative Agent as provided above. (d) If no successor Administrative Agent has been appointed pursuant to clause (b) or (c) above by the 20th Business Day after the date such notice of resignation was given by the resigning Administrative Agent, such Administrative Agent's resignation shall become effective and the Required Lenders shall thereafter perform all the duties of such Administrative Agent hereunder and/or under any other Credit Document until such time, if any, as the Lenders appoint a successor Administrative Agent as provided above. SECTION 11. Miscellaneous. 11.01 Payment of Expenses, etc. The Borrower agrees to: (i) whether or not the transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses of the Agents in connection with the negotiation, preparation, execution and delivery of the Credit Documents and the documents and instruments referred to therein and any amendment, waiver or consent relating thereto (including, without limitation, the reasonable fees and disbursements of White & Case, Simpson Thacher & Bartlett and of the Agents and each of the Lenders) in connection with the enforcement of the Credit Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees and disbursements of counsel for each Agent and for each of the Lenders); (ii) pay and hold each of the Agents and Lenders harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; and (iii) indemnify each Agent and each Lender, its officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses 46 incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, an investigation, litigation or other proceeding (whether or not an Agent or any Lender is a party thereto) related to the entering into and/or performance of any Document or the use of the proceeds of any Loans hereunder or the consummation of any transaction contemplated in any Credit Document, in each case including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding any such losses, liabilities, claims, damages to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). 11.02 Right of Setoff. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, if an Event of Default then exists, each Lender is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to any Credit Party or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by such Lender (including, without limitation, by branches and agencies of such Lender wherever located) to or for the credit or the account of any Credit Party against and on account of the Obligations and liabilities of any Credit Party owing to such Lender under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations purchased by such Lender pursuant to Section 11.06(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not such Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. 11.03 Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier, facsimile or cable communication) and mailed, telegraphed, telexed, telecopied, faxed, cabled or delivered, if to a Credit Party, at the address specified opposite its signature below or in the other relevant Credit Documents, as the case may be; if to any Lender or Agent, at its address specified for such Lender or Agent on Annex II hereto; or at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and shall be effective when received. 11.04 Benefit of Agreement. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that the Borrower (or after the Assumption Date no Borrower or any Starwood Guarantor) may assign or transfer any of its rights or obligations hereunder without the prior written consent of the Lenders. Each Lender may at any time grant participations in any of its rights hereunder or under any of the Notes to another financial institution, provided that 47 (x) in the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, except that the participant shall be entitled to the benefits of Sections 1.10 and 3.04 of this Agreement to the extent that such Lender would be entitled to such benefits if the participation had not been entered into or sold and (y) no Lender shall transfer, grant or assign any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the final scheduled maturity of any Loan or Note in which such participant is participating (it being understood that any waiver of the application of any prepayment or the method of any application of any prepayment to, the Loans shall not constitute an extension of the final maturity date), or reduce the rate or extend the time of payment of interest (except in connection with a waiver of the applicability of any post-default increase in interest rates), or reduce the principal amount thereof, or increase such participant's participating interest in any commitment over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitment, or a mandatory prepayment, shall not constitute a change in the terms of any commitment), (ii) release all or substantially all of the Collateral or (iii) consent to the assignment or transfer by any Credit Party of any of its rights and obligations under this Agreement or any other Credit Document. (b) Notwithstanding the foregoing, (x) any Lender may assign all or a portion of its outstanding Loans and its rights and obligations hereunder to another Lender (or an Affiliate or Related Fund of such assigning Lender), and (y) with the consent of the Administrative Agents and (if no Event of Default exists) the Borrower (which consents shall not be unreasonably withheld), any Lender may assign all or a portion of its outstanding Loans and its rights and obligations hereunder to one or more Eligible Transferees. No assignment pursuant to the immediately preceding sentence by a Lender (or by Lenders which are Affiliates and/or Related Funds of each other) shall, to the extent such assignment represents an assignment to an institution other than one or more Lenders hereunder (or to an Affiliate or a Related Fund of an assigning Lender), be in an aggregate amount less than $5,000,000 unless the entire Loans of the assigning Lender (or group of Lenders which are Affiliates and/or Related Funds) are so assigned. If any Lender so sells or assigns all or a part of its rights hereunder or under the Notes, any reference in this Agreement or the Notes to such assigning Lender shall thereafter refer to such Lender and to the respective assignee to the extent of their respective interests and the respective assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights and benefits as it would if it were such assigning Lender. Each assignment pursuant to this Section 11.04(b) shall be effected by the assigning Lender and the assignee Lender executing an Assignment Agreement (appropriately completed). At the time of any such assignment, (i) either the assigning or the assignee Lender 48 shall pay to the Payments Administrator a nonrefundable assignment fee of $500 (if such assignment is between Lenders already party to this Agreement (or Affiliates or Related Funds of such Lenders) or $2,000 (if otherwise), and (ii) if requested, the Borrower will issue new Notes to the respective assignee and to the assigning Lender in conformity with the requirements of Section 1.05. To the extent of any assignment pursuant to this Section 11.04(b) to a Person which is not already a Lender hereunder and which is not a United States Person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Lender shall provide to the Borrower and the Payments Administrator the appropriate Internal Revenue Service Forms (and, if applicable, a Section 3.04 Certificate) described in Section 3.04(b). To the extent that an assignment of all or any portion of a Lender's Loans and related Obligations pursuant to this Section 11.04(b) would, at the time of such assignment, result in increased costs under Section 1.10 or 3.04 from those being charged by the respective assigning bank prior to such assignment, then the Borrower shall not be obligated to pay such increased costs (although the Borrower shall be obligated to pay any other increased costs of the type described above resulting from the changes specified in said Section 1.10 or 3.04 after the date of the respective assignment). Each Lender and the Borrower agree to execute such documents (including, without limitation, amendments to this Agreement and the other Credit Documents) as shall be necessary to effect the foregoing. Nothing in this clause (b) shall prevent or prohibit any Lender from pledging its Notes or Loans to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank. (c) Notwithstanding any other provision of this Section 11.04, no transfer or assignment of the interests or obligations of any Lender hereunder or any grant of participation therein shall be permitted if such transfer, assignment or grant would require the Borrower to file a registration statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any State. (d) Each Lender initially party to this Agreement hereby represents, and each Person that became a Lender pursuant to an assignment permitted by this Section 11 will, upon its becoming party to this Agreement, represent that it is an Eligible Transferee which makes loans in the ordinary course of its business and that it will make or acquire Loans for its own account in the ordinary course of such business, provided that subject to the preceding clauses (a) and (b), the disposition of any promissory notes or other evidences of or interests in Indebtedness held by such Lender shall at all times be within its exclusive control. 11.05 No Waiver; Remedies Cumulative. No failure or delay on the part of any Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between any Credit Party and either Agent or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of 49 any rights or remedies which either Agent or any Lender would otherwise have. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Agents or the Lenders to any other or further action in any circumstances without notice or demand. 11.06 Payments Pro Rata. (a) The Payments Administrator agrees that promptly after its receipt of each payment from or on behalf of any Credit Party in respect of any Obligations, it shall distribute such payment to the Lenders (other than any Lender that has expressly waived its right to receive its pro rata share thereof) pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received. (b) Each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise) which is applicable to the payment of the principal of, or interest on, the Loans, of a sum which with respect to the related sum or sums received by other Lenders is in a greater proportion than the total of such Obligation then owed and due to such Lender bears to the total of such Obligation then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations of the respective Credit Party to such Lenders in such amount as shall result in a proportional participation by all of the Lenders in such amount, provided that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. 11.07 Calculations; Computations. (a) The financial statements to be furnished to the Lenders pursuant hereto shall be made and prepared in accordance with GAAP consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrower to the Lenders). (b) All computations of interest and Fees hereunder shall be made on the actual number of days elapsed over a year of 360 days. 11.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial. (a) This Agreement and the other Credit Documents and the rights and obligations of the parties hereunder and thereunder shall be construed in accordance with and be governed by the law of the state of New York. Any legal action or proceeding with respect to this Agreement or any other Credit Document may be brought in the courts of the State of New York or of the United States for the Southern District of New York in the Borough of Manhattan, and, by execution and delivery of this Agreement, the Borrower hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The Borrower further irrevocably consents to the service of 50 process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it, to the extent located outside New York City, or by hand, to the extent located within New York City, at its address for notices pursuant to Section 11.03, such service to become effective 30 days after such mailing. The Borrower hereby irrevocably designates, appoints and empowers CT Corporation System, with offices on the date hereof located at 1633 Broadway, New York, New York 10019, as its agent for service of process in respect of any such action or proceeding. Nothing herein shall affect the right of any Agent or any Lender to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against any Credit Party in any other jurisdiction. (b) The Borrower hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Credit Document brought in the courts referred to in clause (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (c) Each of the parties to this Agreement hereby irrevocably waives all right to a trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement, the other Credit Documents or the transactions contemplated hereby or thereby. 11.09 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Administrative Agents. 11.10 Assumption Date. The Payments Administrator shall give each Lender prompt written notice of the occurrence of the Assumption Date. 11.11 Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 11.12 Amendment or Waiver. Neither this Agreement nor any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing and signed by the Borrower and the Required Lenders, provided that no such change, waiver, discharge or termination shall, without the consent of each Lender directly affected thereby, (i) extend the Final Maturity Date (it being understood that any waiver of any prepayment of, or the method of application of any prepayment to, the Loans shall not constitute any such extension), or reduce the rate or extend the time of payment of interest (other than as a result of waiving 51 the applicability of any post-default increase in interest rates) thereon, or reduce the principal amount thereof, or increase the commitment of any Lender over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitment shall not constitute a change in the terms of any commitment of any Lender), (ii) amend, modify or waive any provision of this Section 11.12, (iii) reduce the percentage specified in, or (except to give effect to any additional facilities hereunder) otherwise modify, the definition of Required Lenders, (iv) consent to the assignment or transfer by any Credit Party of any of its rights and obligations under the Credit Documents or (v) release all or substantially all of the Collateral. No provision of Section 10 may be amended without the consent of the Agents. 11.13 Survival. All indemnities set forth herein including, without limitation, in Section 1.10, 1.11, 3.04, 10.06 or 11.01 shall survive the execution and delivery of this Agreement and the making and repayment of the Loans. 11.14 Domicile of Loans. Each Lender may transfer and carry its Loans at, to or for the account of any branch office, subsidiary or affiliate of such Lender, provided that the Borrower shall not be responsible for costs arising under Section 1.10, or 3.04 resulting from any such transfer (other than a transfer pursuant to Section 1.12 or 1.13) to the extent not otherwise applicable to such Lender prior to such transfer. 11.15 Confidentiality. Subject to Section 11.04, the Lenders shall hold all non-public information obtained pursuant to the requirements of this Agreement which has been identified as such by the Borrower in accordance with its customary procedure for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure to its Affiliates, employees, auditors, advisors or counsel or as reasonably required by any bona fide transferee or participant in connection with the contemplated transfer of any Loans or participation therein (so long as such transferee or participant agrees to be bound by the provisions of this Section 11.15) or as required or requested by any governmental agency or representative thereof or pursuant to legal process, provided that, unless specifically prohibited by applicable law or court order, each Lender shall notify the Borrower of any request by any governmental agency or representative thereof or any requested or required disclosure pursuant to legal process (other than any such request in connection with an examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non-public information reasonably promptly after receipt of such request (and prior to responding thereto) so as to give time to the Borrower to, if it so chooses, contest such request and/or to seek an appropriate protective order, and provided further that in no event shall any Lender be obligated or required to return any materials furnished by any Westin Entity. 11.16 Lender Register. The Borrower hereby designates the Payments Administrator to serve as its agent, solely for purposes of this Section 11.16, to maintain a register (the "Lender Register") on which it will record the 52 Loans made by each of the Lenders and each repayment in respect of the principal amount of the Loans of each Lender. Failure to make any such recordation, or any error in such recordation, shall not affect any Borrower's obligations in respect of such Loans. With respect to any Lender, the transfer of the rights to the principal of, and interest on any Loan made shall not be effective until such transfer is recorded on the Lender Register maintained by the Payments Administrator with respect to ownership of such Loans and prior to such recordation all amounts owing to the transferor with respect to such Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Loan shall be recorded by the Payments Administrator on the Lender Register only upon the acceptance by the Payments Administrator of a properly executed and delivered Assignment Agreement pursuant to Section 11.04(b). The Borrower agrees to indemnify the Payments Administrator from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Payments Administrator in performing its duties under this Section 11.16 other than those resulting from the Payments Administrator's willful misconduct or gross negligence. 11.17 No Liability for General Partners. No past, present or future general partner of the Borrower shall have any liability as a result of its being a general partner for any Obligations under this Agreement or any of the other Credit Documents or for any claim based on, in respect of, or by reason of such Obligations or their creation. Each Lender hereby waives and releases all such liability. * * * 53 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. Address: WOODSTAR INVESTOR PARTNERSHIP By: Marswood Investors, L.P., General Partner By: Starwood Capital Group, L.P., General Partner By: BSS Capital Partners, L.P., General Partner By: Sternlicht Holdings II, Inc., General Partner By --------------------------------------- Title: BANKERS TRUST COMPANY, Individually and as Administrative Agent By --------------------------------------- Title: THE CHASE MANHATTAN BANK, Individually and as Administrative Agent By --------------------------------------- Title: 54 ANNEX I COMMITMENTS Lender Commitment - ------ ---------- Bankers Trust Company $28,642,940.81 The Chase Manhattan Bank $28,642,940.81 Total $57,285,881.62 55 ANNEX II LENDERS AND AGENTS ADDRESSES Bankers Trust Company 130 Liberty Street New York, New York 10006 Attention: Laura Burwick Tel: (212) 250-2568 Fax: (212) 250-7200 The Chase Manhattan Bank 270 Park Avenue New York, New York 10017 Attention: James Rolison Tel: (212) 270-6000 Fax: (212) 56 ANNEX III SHARES [ON FILE WITH WHITE & CASE] EX-10.49 26 EX-10.49 1 Exhibit 10.49 LOAN AGREEMENT among WHWE L.L.C., VARIOUS LENDING INSTITUTIONS, BT ALEX. BROWN INCORPORATED and CHASE SECURITIES, INC., AS ARRANGING AGENTS, and BANKERS TRUST COMPANY AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENTS ------------------------------------ Dated as of December 29, 1997 ------------------------------------ $30,325,939.25 2 TABLE OF CONTENTS
Page ---- SECTION 1. Amount and Terms of Credit............................................................... 1 1.01 Loan................................................................................ 1 1.02 Minimum Borrowing Amounts, etc...................................................... 1 1.03 Notice of Borrowing................................................................. 1 1.04 Disbursement of Funds............................................................... 2 1.05 Notes............................................................................... 2 1.06 Conversions......................................................................... 3 1.07 Pro Rata Borrowings................................................................. 3 1.08 Interest............................................................................ 3 1.09 Interest Periods.................................................................... 4 1.10 Increased Costs, Illegality, etc.................................................... 5 1.11 Compensation........................................................................ 7 1.12 Change of Lending Office............................................................ 7 1.13 Replacement of Lenders.............................................................. 8 SECTION 2. Fees; Commitments........................................................................ 8 2.01 Fees................................................................................ 8 2.02 Mandatory Adjustments of Commitments, etc........................................... 9 SECTION 3. Payments................................................................................. 9 3.01 Voluntary Prepayments............................................................... 9 3.02 Mandatory Prepayments............................................................... 9 3.03 Method and Place of Payment......................................................... 10 3.04 Net Payments........................................................................ 11 SECTION 4. Conditions Precedent..................................................................... 13 4.01 Conditions Precedent to Loans....................................................... 13 SECTION 5. Representations, Warranties and Agreements............................................... 15 5.01 Status.............................................................................. 15 5.02 Power and Authority................................................................. 16 5.03 No Violation........................................................................ 16 5.04 Litigation.......................................................................... 16 5.05 Use of Proceeds; Margin Regulations................................................. 16 5.06 Governmental Approvals.............................................................. 17 5.07 Investment Company Act.............................................................. 17 5.08 Public Utility Holding Company Act.................................................. 17 5.09 True and Complete Disclosure........................................................ 17
(i) 3 5.10 Financial Condition; Financial Statements........................................... 17 5.11 Security Interests.................................................................. 18 5.12 Tax Liability....................................................................... 18 5.13 Compliance with ERISA............................................................... 18 5.14 Subsidiaries........................................................................ 18 5.15 Properties.......................................................................... 18 5.16 Compliance with Statutes, etc....................................................... 18 SECTION 6. Affirmative Covenants.................................................................... 19 6.01 Information Covenants............................................................... 19 6.02 Books, Records and Inspections...................................................... 20 6.03 Insurance........................................................................... 20 6.04 Payment of Taxes.................................................................... 20 6.05 Franchises.......................................................................... 20 6.06 Compliance with Statutes, etc....................................................... 21 6.07 Proceeds............................................................................ 21 SECTION 7. Negative Covenants....................................................................... 21 7.01 Changes in Business................................................................. 21 7.02 Consolidation, Merger, Sale or Purchase of Assets, etc.............................. 21 7.03 Liens............................................................................... 22 7.04 Indebtedness........................................................................ 22 7.05 Capital Expenditures................................................................ 22 7.06 Advances, Investments and Loans..................................................... 22 7.07 Amendments, etc..................................................................... 22 7.08 Dividends, Distributions, etc....................................................... 23 7.09 Transactions with Affiliates........................................................ 23 7.10 Creation of Subsidiaries............................................................ 23 SECTION 8. Events of Default........................................................................ 23 8.01 Payments............................................................................ 23 8.02 Representations, etc................................................................ 24 8.03 Covenants........................................................................... 24 8.04 Default Under Other Agreements...................................................... 24 8.05 Bankruptcy, etc..................................................................... 24 8.06 Pledge Agreement.................................................................... 25 8.07 Judgments........................................................................... 25 8.08 Change of Control................................................................... 25 8.09 Other Defaults...................................................................... 25 SECTION 9. Definitions.............................................................................. 26 SECTION 10. The Agents.............................................................................. 38 10.01 Appointment........................................................................ 38 10.02 Nature of Duties................................................................... 38
(ii) 4 10.03 Lack of Reliance on the Agents..................................................... 39 10.04 Certain Rights of the Agents....................................................... 39 10.05 Reliance........................................................................... 39 10.06 Indemnification.................................................................... 40 10.07 The Agents in Their Individual Capacities.......................................... 40 10.08 Holders............................................................................ 40 10.09 Resignation by an Agent............................................................ 40 SECTION 11. Miscellaneous........................................................................... 41 11.01 Payment of Expenses, etc........................................................... 41 11.02 Right of Setoff.................................................................... 42 11.03 Notices............................................................................ 42 11.04 Benefit of Agreement............................................................... 42 11.05 No Waiver; Remedies Cumulative..................................................... 44 11.06 Payments Pro Rata.................................................................. 45 11.07 Calculations; Computations......................................................... 45 11.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial.................................................................... 45 11.09 Counterparts....................................................................... 46 11.10 Assumption Date.................................................................... 46 11.11 Headings Descriptive............................................................... 46 11.12 Amendment or Waiver................................................................ 46 11.13 Survival........................................................................... 47 11.14 Domicile of Loans.................................................................. 47 11.15 Confidentiality.................................................................... 47 11.16 Lender Register.................................................................... 47 11.17 No Liability for General Partners.................................................. 48
ANNEX I -- Commitments ANNEX II -- Lenders and Agents Addresses ANNEX III -- Shares EXHIBIT A -- Form of Notice of Borrowing EXHIBIT B -- Form of Note EXHIBIT C -- Form of Section 3.04 Certificate EXHIBIT D-1 -- Form of Opinion of Borrower's Counsel EXHIBIT D-2 -- Form of Opinion of White & Case EXHIBIT E -- Form of Officers' Certificate EXHIBIT F -- Form of Pledge Agreement EXHIBIT G -- Form of Affiliate Indemnification (iii) 5 EXHIBIT H -- Form of Assignment Agreement EXHIBIT I-1 -- Form of Assumption Agreement (Starwood Realty Partnership) EXHIBIT I-2 -- Form of Assumption Agreement (Starwood Operating Partnership) (iv) 6 LOAN AGREEMENT, dated as of December 29, 1997, among WHWE L.L.C., a Delaware limited liability company, the lenders from time to time party hereto (each, a "Lender" and, collectively, the "Lenders"), BANKERS TRUST COMPANY AND THE CHASE MANHATTAN BANK, as Administrative Agents (each, an "Administrative Agent" and, collectively, the "Administrative Agents" and, together with the Payments Administrator, collectively, the "Agents"). Unless otherwise defined herein, all capitalized terms used herein and defined in Section 9 are used herein as so defined. W I T N E S S E T H : WHEREAS, subject to and upon the terms and conditions herein set forth, the Lenders are willing to make available to the Borrower the credit facility provided herein; NOW, THEREFORE, it is agreed: SECTION 1. Amount and Terms of Credit. 1.01 Loan. Subject to and upon the terms and conditions herein set forth, each Lender severally agrees to make a loan (each a "Loan" and, collectively, the "Loans") to the Borrower, which Loans (i) shall be made pursuant to a single drawing on the Closing Date, (ii) except as hereinafter provided, may, at the option of the Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that all Loans made as part of the same Borrowing shall, unless otherwise specifically provided herein, consist of Loans of the same Type and (iii) shall not exceed in aggregate principal amount for any Lender at the time of incurrence thereof the Commitment of such Lender as in effect on such date. Once repaid, Loans may not be reborrowed. 1.02 Minimum Borrowing Amounts, etc. The aggregate principal amount of each Borrowing shall not be less than the Minimum Borrowing Amount. More than one Borrowing may be incurred on any day, provided that at no time shall there be outstanding more than two Borrowings of Eurodollar Loans. 1.03 Notice of Borrowing. (a) The Borrower shall give the Payments Administrator at its Notice Office, prior to 12:00 Noon (New York time), at least two Business Days' (or, in the case where the Loans are to be incurred as Base Rate Loans, one Business Day's) prior written confirmation (or telephonic confirmation promptly confirmed in writing) in the form of Exhibit A of its desire to make Loans on the Closing Date (the "Notice of Borrowing"), which notice shall be irrevocable and shall specify (i) the aggregate principal amount of the Loans to be made on the Closing Date and (ii) whether the Loans shall consist of Base Rate Loans or Eurodollar Loans and, if Eurodollar Loans, the Interest Period to be -1- 7 initially applicable thereto. The Payments Administrator shall promptly give each Lender written notice (or telephonic notice promptly confirmed in writing) of the proposed Loans, of such Lender's proportionate share thereof and of the other matters specified in the Notice of Borrowing. (b) Without in any way limiting the obligation of the Borrower to confirm in writing any telephonic notice permitted to be given hereunder, the Payments Administrator may prior to receipt of written confirmation act without liability upon the basis of such telephonic notice, believed by the Payments Administrator in good faith to be from an Authorized Officer of the Borrower. In each such case, the Borrower hereby waives the right to dispute the Payments Administrator's record of the terms of such telephonic notice. 1.04 Disbursement of Funds. (a) No later than 12:00 Noon (New York time) on the Closing Date, each Lender will make available its pro rata share of the Loans requested to be made on such date in the manner provided below. All such amounts shall be made available to the Payments Administrator in U.S. dollars and immediately available funds at the Payment Office and the Payments Administrator promptly will make available to the Borrower by depositing in the Specified Accounts (50-50 between them) the aggregate of the amounts so made available in the type of funds received. (b) Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its commitment hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender hereunder. 1.05 Notes. (a) To the extent any Lender requests same, the Borrower's obligation to pay the principal of, and interest on, the Loans made to it by each Lender shall be evidenced by a promissory note substantially in the form of Exhibit B, with blanks appropriately completed in conformity herewith (each, a "Note" and, collectively, the "Notes"). (b) The Note issued to each Lender shall (i) be executed by the Borrower, (ii) be payable to the order of such Lender and be dated the Closing Date, (iii) be payable in the aggregate principal amount of Loans evidenced thereby from time to time, (iv) mature on the Final Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in Section 3.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (c) Each Lender will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will, prior to any transfer of its Note, endorse on the reverse side thereof the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation shall not affect a Borrower's obligations in respect of such Loans. -2- 8 1.06 Conversions. The Borrower shall have the option to convert on any Business Day all or a portion at least equal to the applicable Minimum Borrowing Amount of the outstanding principal amount of the Loans into a Borrowing or Borrowings of another Type of Loan, provided that (i) no conversion of Base Rate Loans into Eurodollar Loans may be made prior to the Syndication Date except for a conversion made on the first day of a PSD Interest Period, (ii) no partial conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding principal amount of the Eurodollar Loans made pursuant to such Borrowing to less than the Minimum Borrowing Amount applicable thereto, (iii) Base Rate Loans may only be converted into Eurodollar Loans if no Default under Section 8.01 or Event of Default is then in existence, or if such Default or Event of Default exists, the Required Lenders shall have determined in its or their sole discretion to permit such conversion and (iv) Borrowings of Eurodollar Loans resulting from this Section 1.06 shall be limited in number as provided in Section 1.02. Each such conversion shall be effected by the Borrower giving the Payments Administrator at its Notice Office, prior to 12:00 Noon (New York time), at least three Business Days' (or two Business Days', in the case of a conversion into Base Rate Loans) prior written notice (or telephonic notice promptly confirmed in writing) (each, a "Notice of Conversion") specifying the Loans to be so converted, the Type of Loans to be converted into and, if to be converted into a Borrowing of Eurodollar Loans, the Interest Period to be initially applicable thereto. The Payments Administrator shall give each Lender prompt notice of any such proposed conversion affecting any of its Loans. 1.07 Pro Rata Borrowings. All Loans under this Agreement shall be made by the Lenders pro rata on the basis of their Commitments. No Lender shall be responsible for any default by any other Lender in its obligation to make Loans hereunder and that each Lender shall be obligated to make the Loans provided to be made by it pursuant to its respective Commitments, regardless of the failure of any other Lender to fulfill its commitments hereunder. 1.08 Interest. (a) The unpaid principal amount of each Base Rate Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum which shall at all times be the Base Rate Margin plus the Base Rate in effect from time to time. (b) The unpaid principal amount of each Eurodollar Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum which shall at all times be the Eurodollar Margin plus the relevant Eurodollar Rate. (c) All overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan and any other overdue amount payable hereunder shall bear interest at a rate per annum equal to the Base Rate in effect from time to time plus the sum of (i) 2% and (ii) the Base Rate Margin, provided that each Eurodollar Loan shall bear interest after maturity (whether by -3- 9 acceleration or otherwise) until the end of the Interest Period applicable to it at such maturity at a rate per annum equal to 2% in excess of the rate of interest applicable thereto at such maturity. (d) Interest shall accrue from and including the date of any Borrowing to but excluding the date of any repayment thereof and shall be payable (i) in respect of each Base Rate Loan, monthly in arrears on the first Business Day of each calendar month, (ii) in respect of each Eurodollar Loan, on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each date occurring at three month intervals after the first day of such Interest Period and (iii) in respect of each Loan, (A) on any prepayment or conversion (other than the prepayment or conversion of any Base Rate Loan) on the amount prepaid or converted, (B) at maturity (whether by acceleration or otherwise) and (C) after such maturity, on demand. (e) All computations of interest hereunder shall be made in accordance with Section 11.07(b). (f) The Payments Administrator, upon determining the interest rate for any Borrowing of Eurodollar Loans for any Interest Period, shall promptly notify the applicable Borrower and the Lenders thereof. 1.09 Interest Periods. (a) At the time the Borrower gives the Notice of Borrowing or a Notice of Conversion in respect of the making of, or conversion into, a Borrowing of Eurodollar Loans (in the case of the initial Interest Period applicable thereto) or prior to 12:00 Noon (New York time) on the third Business Day prior to the expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans, it shall have the right to elect by giving the Payments Administrator written notice (or telephonic notice promptly confirmed in writing) of the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of such Borrower, be (x) prior to the Interim Date, a seven day period and (y) thereafter (but subject to clause (iv) below), a one, two or three month period. Notwithstanding anything to the contrary contained above: (i) the initial Interest Period for any Borrowing of Eurodollar Loans shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of Base Rate Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires; (ii) if any Interest Period begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iii) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next -4- 10 succeeding Business Day, provided that if any Interest Period would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iv) subject to the foregoing clauses (i) through (iii), inclusive, (x) only a seven day Interest Period shall be available to be selected prior to the Interim Date and (y) thereafter until the Syndication Date, only a one month Interest Period shall be available to be selected, with all Loans constituting Eurodollar Loans during each such period to be outstanding pursuant to a single Borrowing; (v) no Interest Period with respect to any Borrowing may be elected that would extend beyond the Final Maturity Date; and (vi) no Interest Period may be elected at any time when a Default under Section 8.01 or an Event of Default is then in existence if either Agent or the Required Lenders shall have determined in its or their sole discretion not to permit such election. (b) If upon the expiration of any Interest Period, the Borrower has failed to (or may not) elect a new Interest Period to be applicable to the respective Borrowing of Eurodollar Loans as provided above, the Borrower shall be deemed to have elected to convert such Borrowing into a Borrowing of Base Rate Loans effective as of the expiration date of such current Interest Period. 1.10 Increased Costs, Illegality, etc. (a) In the event that (x) in the case of clause (i) below, the Payments Administrator or (y) in the case of clauses (ii) and (iii) below, any Lender shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto): (i) on any date for determining the Eurodollar Rate for any Interest Period that, by reason of any changes arising after the date of this Agreement affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate; or (ii) at any time, that such Lender shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loans (other than any increased cost or reduction in the amount received or receivable resulting from the imposition of or a change in the rate of taxes or similar charges) because of (x) any change since the Closing Date in any applicable law, governmental rule, regulation, guideline or order (or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guideline or order) (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding reserves required under -5- 11 Regulation D to the extent included in the computation of the Eurodollar Rate) and/or (y) other circumstances arising since the Closing Date affecting such Lender or the interbank Eurodollar market; or (iii) at any time, that the making or continuance of any Eurodollar Loan has become unlawful by compliance by such Lender in good faith with any law, governmental rule, regulation, guideline (or would conflict with any such governmental rule, regulation, guideline or order not having the force of law but with which such Lender customarily complies even though the failure to comply therewith would not be unlawful), or has become impracticable as a result of a contingency occurring after the Closing Date which materially and adversely affects the interbank Eurodollar market; then, and in any such event, such Lender (or the Payments Administrator in the case of clause (i) above) shall (x) on such date and (y) within ten Business Days of the date on which such event no longer exists give notice (by telephone confirmed in writing) to the Borrower and to the Payments Administrator of such determination (which notice the Payments Administrator shall promptly transmit to each of the other Lenders). Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Payments Administrator notifies the Borrower and the Lenders that the circumstances giving rise to such notice by the Payments Administrator no longer exist, and any Notice of Borrowing or Notice of Conversion given by the Borrower with respect to Eurodollar Loans which have not yet been incurred shall be deemed rescinded by the Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to such Lender, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as shall be required to compensate such Lender for such increased costs or reductions in amounts receivable hereunder (a written notice as to the additional amounts owed to such Lender, showing the basis for the calculation thereof, submitted to the Borrower by such Lender shall, absent manifest error, be final and conclusive and binding upon all parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take one of the actions specified in Section 1.10(b) as promptly as possible and, in any event, within the time period required by law. (b) At any time that any Eurodollar Loan is affected by the circumstances described in Section 1.10(a)(ii) or (iii), the applicable Borrower may (and in the case of a Eurodollar Loan affected pursuant to Section 1.10(a)(iii), the Borrower shall) either (i) if the affected Eurodollar Loan is then being made pursuant to a Borrowing, cancel said Borrowing by giving the Payments Administrator telephonic notice (confirmed promptly in writing) thereof on the same date that the Borrower was notified by a Lender pursuant to Section 1.10(a)(ii) or (iii), or (ii) if the affected Eurodollar Loan is then outstanding, upon at least three Business Days' notice to the Payments Administrator, require the affected Lender to convert each such Eurodollar Loan into a Base Rate Loan, provided that if more than one Lender is affected at any time, then all affected -6- 12 Lenders must be treated the same pursuant to this Section 1.10(b). 1.11 Compensation. (a) The Borrower shall compensate each Lender, upon its written request (which request shall set forth the basis for requesting such compensation), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund its Eurodollar Loans but excluding in any event the loss of anticipated profits) which such Lender may sustain: (i) if for any reason (other than a default by such Lender or the Payments Administrator) a Borrowing of Eurodollar Loans does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion (whether or not withdrawn by the Borrower or deemed withdrawn pursuant to Section 1.10(a)); (ii) if any prepayment, repayment or conversion of any of its Eurodollar Loans occurs on a date which is not the last day of an Interest Period applicable thereto; (iii) if any prepayment of any of its Eurodollar Loans is not made on any date specified in a notice of prepayment given by the Borrower; or (iv) as a consequence of (x) any other default by the Borrower to repay its Eurodollar Loans when required by the terms of this Agreement or (y) an election made pursuant to Section 1.10(b). (b) Notwithstanding anything in this Agreement to the contrary, to the extent any notice required by Section 1.10 or 3.04 is given by any Lender more than 120 days after such Lender obtained, or reasonably should have obtained, knowledge of the occurrence of the event giving rise to the additional costs of the type described in such Section, such Lender shall not be entitled to compensation under Section 1.10 or 3.04 for any amounts incurred or accruing prior to the giving of such notice to the Borrower. 1.12 Change of Lending Office. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii) or 3.04 with respect to such Lender, it will, if requested by the applicable Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event, provided that such designation is made on such terms that such Lender and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of any such Section. Nothing in this Section 1.12 shall affect or postpone any of the obligations of any Borrower or the right of any Lender provided in Section 1.10 or 3.04. 1.13 Replacement of Lenders. (x) Upon the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii) or Section 3.04 with respect to any Lender which results in such Lender charging to the Borrower increased costs in excess of those being generally charged by the other Lenders and/or (y) in the case of a refusal by a Lender to consent to a proposed change, waiver, discharge or termination with respect to this Agreement which has been approved by the Required Lenders, the Borrower shall have the right, if no Default -7- 13 or Event of Default then exists, to replace such Lender (the "Replaced Lender") with one or more other Eligible Transferee or Transferees (collectively, the "Replacement Lender") reasonably acceptable to the Administrative Agents, provided that (i) at the time of any replacement pursuant to this Section 1.13, the Replacement Lender shall enter into one or more Assignment Agreements pursuant to Section 11.04(b) (and with all fees payable pursuant to said Section 11.04(b) to be paid by the Replacement Lender) pursuant to which the Replacement Lender shall acquire all of the outstanding Loans of the Replaced Lender and, in connection therewith, shall pay to the Replaced Lender in respect thereof an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Replaced Lender and (ii) all obligations of the Borrower owing to the Replaced Lender (other than those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid) shall be paid in full to such Replaced Lender concurrently with such replacement. Upon the execution of the respective Assignment Agreements, the payment of amounts referred to above and, if so requested by the Replacement Lender, delivery to the Replacement Lender of the appropriate Note executed by the Borrower, the Replacement Lender shall become a Lender hereunder and the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions applicable to the Replaced Lender under this Agreement, which shall survive as to such Replaced Lender. SECTION 2. Fees; Commitments. 2.01 Fees. The Borrower shall pay to (x) each Agent on the Closing Date, for its own account and/or for distribution to the Lenders, such fees as heretofore agreed by the Borrower and the Agents and (y) the Payments Administrator, for its own account, such administrative fees as agreed to between the Borrower and the Payments Administrator, when and as due. 2.02 Mandatory Adjustments of Commitments, etc. (a) The Total Commitment shall terminate on January 15, 1998 if the Loans have not been made by such date. (b) The Total Commitment shall terminate in its entirety on the Closing Date (after giving effect to the making of Loans on such date). SECTION 3. Payments. 3.01 Voluntary Prepayments. The Borrower shall have the right to prepay Loans in whole or in part, without premium or penalty, from time to time on the following terms and conditions: (i) the Borrower shall give the Payments Administrator at the Payment Office written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay the Loans, the amount of such prepayment and (in the case of Eurodollar Loans) the specific Borrowing(s) -8- 14 pursuant to which made, which notice shall be given by such Borrower at least one Business Day prior to the date of such prepayment with respect to Base Rate Loans and at least two Business Days prior to the date of such prepayment with respect to Eurodollar Loans, which notice shall promptly be transmitted by the Payments Administrator to each of the Lenders; (ii) each partial prepayment of any Borrowing shall be in an aggregate principal amount of at least $1,000,000, provided that no partial prepayment of Eurodollar Loans made pursuant to a Borrowing shall reduce the aggregate principal amount of the Loans outstanding pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount applicable thereto; and (iii) each prepayment in respect of any Loans made pursuant to a Borrowing shall be applied pro rata among such Loans. 3.02 Mandatory Prepayments. (A) Requirements: (a) If the Assumption Date has not then occurred, on the third Business Day following the date of receipt thereof by the Borrower of the Cash Proceeds from any Asset Sale or of any Distribution, an amount equal to 100% of the Net Cash Proceeds from such Asset Sale or of such Distribution shall be applied as a mandatory repayment of principal of the then outstanding Loans. (b) If the Assumption Date has not then occurred, on the third Business Day following the date of receipt thereof by the Borrower, an amount equal to 100% of the proceeds (net of underwriting discounts and commissions and other reasonable costs associated therewith) of the incurrence of Indebtedness by the Borrower (other than Indebtedness permitted by Section 7.04 as such Section is in effect on the Closing Date), shall be applied as a mandatory repayment of principal of the then outstanding Loans. (c) If the Assumption Date has not then occurred, on the third Business Day following the date of receipt thereof by the Borrower, an amount equal to 100% of the proceeds (net of underwriting discounts and commissions and other reasonable costs associated therewith) of any sale or issuance of its equity or of any equity contribution shall be applied as a mandatory repayment of principal of the then outstanding Loans. (d) All outstanding Loans shall be repaid in full on June 30, 1998 if the Assumption Date has not then occurred. (e) All outstanding Loans shall be repaid in full on the Final Maturity Date. (B) Application: (a) With respect to each prepayment of Loans required by Section 3.02, the Borrower may designate the Types of Loans which are to be prepaid and -9- 15 the specific Borrowing(s) pursuant to which made, provided that (i) if any prepayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce the outstanding Loans made pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount for such Borrowing, such Borrowing shall be immediately converted into Base Rate Loans; and (ii) each prepayment of any Loans made pursuant to a Borrowing shall be applied pro rata among such Loans. In the absence of a designation by a Borrower as described in the preceding sentence, the Payments Administrator shall, subject to the above, make such designation in its sole discretion with a view, but no obligation, to minimize breakage costs owing under Section 1.11. 3.03 Method and Place of Payment. Except as otherwise specifically provided herein, all payments under this Agreement shall be made to the Payments Administrator for the ratable (based on its pro rata share) account of the Lenders entitled thereto, not later than 1:00 P.M. (New York time) on the date when due and shall be made in immediately available funds and in lawful money of the United States of America at the Payment Office, it being understood that written notice by the Borrower to the Payments Administrator to make a payment from the funds in the Borrower's account at the Payment Office shall constitute the making of such payment to the extent of such funds held in such account. Any payments under this Agreement which are made later than 1:00 P.M. (New York time) shall be deemed to have been made on the next succeeding Business Day. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable during such extension at the applicable rate in effect immediately prior to such extension. 3.04 Net Payments. (a) All payments made by the Borrower hereunder or under any Note will be made without setoff, counterclaim or other defense. Except as provided in Section 3.04(b) and except to the extent required by applicable law, all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction (or by any political subdivision or taxing authority thereof or therein) with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax imposed on or measured by the net income, net profits or franchise taxes measured by net income or net profits of a Lender (or any office or branch of such Lender, in each case) pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Lender is located (or any subdivision or taxing authority thereof or therein)) and all interest, penalties or similar liabilities with respect to such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every -10- 16 payment of all amounts due under this Agreement or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. If any amounts are payable in respect of Taxes pursuant to the preceding sentence, the Borrower agrees to reimburse each Lender, upon the written request of such Lender, for taxes imposed on or measured by the net income or net profits of such Lender pursuant to the laws of the jurisdiction in which such Lender is organized or in which the principal office or applicable lending office of such Lender is located (or of any subdivision or taxing authority therein or thereof) and for any withholding of taxes as such Lender shall determine are payable by, or withheld from, such Lender in respect of such amounts so paid to or on behalf of such Lender pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Lender pursuant to this sentence. The Borrower will furnish to the Payments Administrator within 45 days after the date the payment of any Taxes is made pursuant to applicable law certified copies of tax receipts evidencing such payment by the Borrower. The Borrower agrees to indemnify and hold harmless each Lender, and reimburse such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lender. (b) Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes agrees to deliver to the Borrower and the Payments Administrator on or prior to the Closing Date, or in the case of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to Section 1.13 or 11.04 (unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Lender, (i) two accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001 (or successor forms) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note or (ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit C (any such certificate, a "Section 3.04 Certificate") and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8 (or successor form) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each such Lender agrees that, from time to time after the Closing Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrower and the Payments Administrator two new accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 (or successor forms) and a Section 3.04 Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note, or it shall immediately notify the Borrower and the -11- 17 Payments Administrator of its inability to deliver any such Form or Certificate in which case such Lender shall not be required to deliver any such Form or Certificate pursuant to this Section 3.04(b). Notwithstanding anything to the contrary contained in Section 3.04(a), but subject to Section 11.04(b) and the immediately succeeding sentence, (x) the Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States from interest, fees or other amounts payable hereunder for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes to the extent that such Lender has not provided to the Borrower Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Borrower shall not be obligated pursuant to Section 3.04(a) hereof to gross-up payments to be made to any such Lender in respect of income or similar taxes imposed by the United States if (I) such Lender has not provided to the Borrower the Internal Revenue Service Forms required to be provided to the Borrower pursuant to this Section 3.04(b) or (II) in the case of a payment, other than interest, to a Lender described in clause (ii) of the last sentence of this Section 3.04(b) above, to the extent that such Forms do not establish a complete exemption from withholding of such taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 3.04 and except as set forth in Section 11.04(b), the Borrower agrees to pay additional amounts and to indemnify each Lender in the manner set forth in Section 3.04(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any Taxes deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Closing Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of such Taxes. (c) If the Borrower pays any additional amount under this Section 3.04 to a Lender and such Lender determines in its sole discretion that it has actually received or realized in connection therewith any refund or any reduction of, or credit against, its Tax liabilities in or with respect to the taxable year in which the additional amount is paid, such Lender shall pay to the Borrower an amount that the Lender shall, in its sole discretion, determine is equal to the net benefit, after tax, which was obtained by the Lender in such year as a consequence of such refund, reduction or credit. SECTION 4. Conditions Precedent. 4.01 Conditions Precedent to Loans. The obligation of each Lender to make its Loans on the Closing Date is subject, at the time of the making of such Loans, to the satisfaction of the following conditions: (a) Notice of Borrowing. The Payments Administrator shall have received a Notice of Borrowing meeting the requirements of Section 1.03. -12- 18 (b) No Default; Representations and Warranties. At the time of the making of the Loans and also after giving effect thereto, (i) there shall exist no Default or Event of Default and (ii) all representations and warranties made by the Borrower contained herein or in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of the making of such Loans, except to the extent that such representations and warranties expressly relate to an earlier date. (c) Effectiveness; Notes. (i) The Borrower and each of the Lenders shall have signed a copy of this Agreement (whether the same or different copies) and shall have delivered the same to the Payments Administrator at its Notice Office or, in the case of the Lenders, shall have given to the Payments Administrator telephonic (confirmed in writing), written, telex or facsimile transmitted notice (actually received) at its Notice Office that the same has been signed and mailed to it and (ii) there shall have been delivered to the Payments Administrator for the account of each Lender a Note executed by the Borrower in the amount, maturity and as otherwise provided herein. (d) Opinions of Counsel. On the Closing Date, the Administrative Agents shall have received opinions, addressed to each Agent and each of the Lenders and dated the Closing Date, from (i) special counsel to the Borrower (who shall be satisfactory to the Agents), which opinion shall cover the matters contained in Exhibit D-1 hereto and (ii) White & Case, special counsel to the Agents, which opinion shall cover the matters contained in Exhibit D-2 hereto. (e) Company Proceedings. (I) On the Closing Date, the Administrative Agents shall have received from the Borrower a certificate, dated the Closing Date, signed by the President, any Vice-President or the Secretary (or any person holding an equivalent position) of the Borrower, in the form of Exhibit E with appropriate insertions and deletions, together with (x) copies of the organizational documents of the Borrower, (y) the resolutions or other administrative approval of the Borrower referred to in such certificate and (z) a statement that all of the applicable conditions set forth in Section 4.01(b) have been satisfied (or waived with the consent of the Required Lenders) as of such date, and all of the foregoing shall be reasonably satisfactory to the Agents. (II) On the Closing Date, all company and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Credit Documents shall be reasonably satisfactory in form and substance to the Agents, and the Administrative Agents shall have received all information and copies of all certificates, documents and papers, including good standing certificates -13- 19 and any other records of company proceedings and governmental approvals, if any, which the Agents may have requested in connection therewith, such documents and papers, where appropriate, to be certified by proper company or governmental authorities. (f) Adverse Change, etc. Since November 1, 1997, nothing shall have occurred (and neither any Lender nor any Agent shall have become aware of any facts or conditions not previously known) which either Agent or the Required Lenders shall determine has had, or is reasonably likely to have, (i) a Material Adverse Effect or (ii) a material adverse effect on the rights or remedies of the Lenders or the Agents hereunder or under any other Credit Document, or on the ability of the Borrower to perform its obligations to the Lenders and the Agents. (g) Litigation. On the Closing Date, there shall be no actions, suits or proceedings pending or threatened (a) with respect to this Agreement or any other Credit Document or (b) which either Agent or the Required Lenders shall determine has had, or is reasonably likely to have (i) a Material Adverse Effect or (ii) a material adverse effect on the rights or remedies of the Lenders or the Agents hereunder or under any other Credit Document or on the ability of the Borrower to perform its obligations to the Lenders and the Agents. (h) Pledge Agreement. On the Closing Date, the Borrower shall have duly authorized, executed and delivered a Pledge Agreement in the form of Exhibit F (as modified, amended or supplemented from time to time in accordance with the terms thereof and hereof, the "Pledge Agreement") and shall have delivered to the Collateral Agent, as pledgee thereunder, all of the certificates representing the Pledged Securities endorsed in blank or accompanied by executed and undated stock powers, and the Pledge Agreement shall be in full force and effect. (i) Fees. On the Closing Date, the Borrower shall have paid to the Agents and the Lenders all Fees and expenses agreed upon by such parties to be paid on or prior to such date. (j) Starwood Acquisition. The Administrative Agents shall be satisfied that (x) all requisite shareholder consent has been obtained to consummate the Starwood Acquisition and (y) all other conditions to the Starwood Acquisition are reasonably likely to be satisfied on the date then scheduled for consummation of the Starwood Acquisition. In addition, there shall be in effect on the Closing Date no injunction, stay or similar order that would materially delay, impose materially burdensome conditions on or otherwise materially adversely affect the Starwood Acquisition. (k) Affiliate Indemnification. On the Closing Date, the Administrative Agents shall have received a counterpart of the Affiliate -14- 20 Indemnification executed by the parties thereto. The acceptance of the benefits of the Loans shall constitute a representation and warranty by the Borrower to the Agents and each of the Lenders that all of the applicable conditions specified in Section 4.01 have been satisfied (or waived with the consent of the Required Lenders) as of that time. All of the certificates, legal opinions and other documents and papers referred to in Section 4.01, unless otherwise specified, shall be delivered to the Payments Administrator at its Notice Office for the account of each of the Lenders and, except for the Notes, in sufficient counterparts for each of the Lenders and shall be reasonably satisfactory in form and substance to the Agents. SECTION 5. Representations, Warranties and Agreements. In order to induce the Lenders to enter into this Agreement and to make the Loans provided for herein, the Borrower makes the following representations and warranties to, and agreements with, the Lenders, all of which shall survive the execution and delivery of this Agreement and the making of the Loans: 5.01 Status. Each Credit Party (i) is a duly organized and validly existing corporation, limited liability company, limited partnership or general partnership, as the case may be, in good standing under the laws of the jurisdiction of its organization and has the power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (ii) has duly qualified and is authorized to do business and is in good standing in all jurisdictions where it is required to be so qualified and where the failure to be so qualified would have a Material Adverse Effect. On the Closing Date, the Borrower is engaged in no business other than the ownership of the Shares and the Other Shares, investments in Permitted Investments and activities incidental thereto as permitted by Section 7.01. 5.02 Power and Authority. Each Credit Party has the power and authority to execute, deliver and carry out the terms and provisions of the Credit Documents to which a party and has taken all necessary action to authorize the execution, delivery and performance of the Credit Documents to which a party. Each Credit Party has duly executed and delivered each Credit Document to which a party and each such Credit Document constitutes the legal, valid and binding obligation of such Person enforceable in accordance with its terms. 5.03 No Violation. Neither the execution, delivery and performance by any Credit Party of the Credit Documents to which a party nor compliance with the terms and provisions thereof, nor the consummation of the transactions contemplated therein (i) will contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict or be inconsistent with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or (other than pursuant to the Pledge Agreement) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any -15- 21 of the property or assets of any Credit Party pursuant to the terms of any indenture, mortgage, deed of trust, agreement or other instrument to which any Credit Party is a party or by which it or any of its property or assets are bound or to which it may be subject or (iii) will violate any provision of the certificate of incorporation, certificate of formation, certificate of partnership, by-laws, limited liability company agreement or partnership agreement of any Credit Party. 5.04 Litigation. There are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened with respect to any Credit Party that are reasonably likely to have (i) a Material Adverse Effect or (ii) a material adverse effect on the rights or remedies of the Lenders or on the ability of any Credit Party to perform its respective obligations to them hereunder and under the other Credit Documents to which a party. 5.05 Use of Proceeds; Margin Regulations. (a) The proceeds of all Loans shall be utilized on and after the Assumption Date as the Borrower may elect, subject to Section 5.05(b) below, including to pay Dividends, provided that prior to the Assumption Date the Borrower will comply with the provisions of Section 6.07. (b) Neither the making of any Loan hereunder, nor the use of the proceeds thereof, will violate or be inconsistent with the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System and no part of the proceeds of any Loan will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock. 5.06 Governmental Approvals. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any foreign or domestic governmental or public body or authority, or any subdivision thereof, is required to authorize or is required in connection with (i) the execution, delivery and performance of any Credit Document or (ii) the legality, validity, binding effect or enforceability of any Credit Document. 5.07 Investment Company Act. No Credit Party is required to be registered as an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 5.08 Public Utility Holding Company Act. No Credit Party is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.09 True and Complete Disclosure. All factual information (taken as a whole) heretofore or contemporaneously furnished by or on behalf of the Borrower in writing to the Agents for purposes of or in connection with this -16- 22 Agreement or any transaction contemplated herein is true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information (taken as a whole) not misleading at such time in light of the circumstances under which such information was provided. There is no fact known to the Borrower which has had, or is reasonably likely to have, a Material Adverse Effect, which has not been disclosed herein or in such other documents, certificates and statements furnished to the Lenders (or to the Agents for distribution to the Lenders) for use in connection with the transactions contemplated hereby. 5.10 Financial Condition; Financial Statements. (a) On and as of the Closing Date, on a pro forma basis after giving effect to all Indebtedness incurred, and to be incurred (including, without limitation, the Loans), and Liens created, and to be created, by the Borrower in connection therewith, (x) the sum of the assets, at a fair valuation, of the Borrower will exceed its debts, (y) the Borrower will not have incurred or intended to, or believe that it will, incur debts beyond its ability to pay such debts as such debts mature and (z) the Borrower will not have unreasonably small capital with which to conduct its business. For purposes of this Section 5.10, "debt" means any liability on a claim, and "claim" means (i) right to payment whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. (b) The financial statements of the Borrower which have heretofore been furnished to each Lender present fairly, on the basis presented, the financial position of the Borrower at the dates of said statements. Nothing has occurred since December 31, 1996 that has had or is reasonably likely to have a Material Adverse Effect. (c) Except as reflected in the financial statements and the notes thereto described in Section 5.10(b), there were as of the Closing Date no liabilities or obligations with respect to the Borrower of a nature (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in aggregate, would be material to the Borrower, except as incurred in the ordinary course of business consistent with past practices subsequent to December 31, 1996 and as incurred hereunder on such date. 5.11 Security Interests. On and after the Closing Date, the Pledge Agreement creates, as security for the obligations purported to be secured thereby, a valid and enforceable perfected security interest in and Lien on all of the Collateral subject thereto, superior to and prior to the rights of all third Persons and subject to no other Liens, in favor of the Collateral Agent for the benefit of the Lenders. No filings or recordings are required in order to perfect the security interests created under the Pledge Agreement. -17- 23 5.12 Tax Liability. The Borrower has not been obligated to pay federal or state income taxes. 5.13 Compliance with ERISA. The Borrower has no obligation to contribute to any Plan. 5.14 Subsidiaries. The Borrower has no Subsidiaries. 5.15 Properties. The Borrower owns no property or asset other than the Shares, Other Shares and, after the Closing Date, the amounts on deposit in the Specified Accounts, and has good and marketable title thereto. Annex III sets forth a listing of the Shares by issuer and a listing of the shares of common stock of such issuer received by the Borrower upon the liquidation of LLC. 5.16 Compliance with Statutes, etc. Each Credit Party is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such non-compliance as is not likely to, individually or in the aggregate, have a Material Adverse Effect. SECTION 6. Affirmative Covenants. The Borrower hereby covenants and agrees that on the Closing Date and thereafter for so long as this Agreement is in effect and until the Commitments have terminated, no Notes are outstanding and the Loans, together with interest, Fees and all other Obligations incurred hereunder, are paid in full: 6.01 Information Covenants. The Borrower will furnish to each Lender: (a) Annual Financial Statements. Within 105 days after the close of each of its fiscal years, its balance sheet, as at the end of such fiscal year and the related statements of income, changes in financial position and cash flows for such fiscal year, in each case setting forth comparative figures for the preceding fiscal year, and examined by independent certified public accountants of recognized national standing whose opinion shall not be qualified as to the scope of audit and as to the status of the Borrower as a going concern, together with a certificate of such accounting firm stating that in the course of its regular audit of the business of the Borrower, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge of any Default or Event of Default which has occurred and is continuing or, if in the opinion of such accounting firm such a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof. -18- 24 (b) Quarterly Financial Statements. As soon as available and in any event within 45 days after the close of each of the first three quarterly accounting periods in each of its fiscal years, its balance sheet, as at the end of such quarterly period and the related statements of income, changes in financial position and cash flows for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, and in each case setting forth comparative figures for the related periods in the prior fiscal year and certified by the chief financial officer of the Borrower, subject to changes resulting from audit and normal year-end audit adjustments. (c) Officer's Certificates. At the time of the delivery of the financial statements provided for in Sections 6.01(a) and (b), a certificate of the chief financial officer, controller or other Authorized Officer of the Borrower to the effect that no Default or Event of Default exists or, if any Default or Event of Default does exist, specifying the nature and extent thereof. (d) Notice of Default or Litigation. Promptly, and in any event within three Business Days after any officer of the Borrower obtains knowledge thereof, notice of (x) the occurrence of any event which constitutes a Default or Event of Default which notice shall specify the nature thereof, the period of existence thereof and what action the Borrower proposes to take with respect thereto and (y) the commencement of or any significant development in any litigation or governmental proceeding pending against the Borrower which is likely to have a Material Adverse Effect or is likely to have a material adverse effect on the ability of the Borrower to perform its obligations hereunder or under any other Credit Document. (e) Auditors' Reports. Promptly upon receipt thereof, a copy of each other final report or "management letter" submitted to the Borrower by its independent accountants in connection with any annual, interim or special audit made by it of the books of LLC or such Borrower. (f) Other Information. Promptly (i) upon transmission thereof, copies of any filings and registrations with, and reports to, the Securities and Exchange Commission or any successor thereto (the "SEC") by the Borrower, and (ii) with reasonable promptness, such other material information or documents (financial or otherwise) as either Agent on its own behalf or on behalf of the Required Lenders may reasonably request from time to time, subject in all cases, to any requirement, contractual, fiduciary or otherwise, applicable to the Borrower not to disclose such information. 6.02 Books, Records and Inspections. The Borrower will permit, upon reasonable notice to the chief financial officer, controller or any other Authorized Officer of the Borrower, officers and designated representatives of either Agent or the Required Lenders to visit and inspect any of the properties or assets of the Borrower in whomsoever's possession, and to examine the books of account of the Borrower and discuss the affairs, finances and accounts of the -19- 25 Borrower with, and be advised as to the same by, its officers and independent accountants, all at such reasonable times and intervals and to such reasonable extent as the Agents or the Required Lenders may desire. 6.03 Insurance. The Borrower will at all times maintain in full force and effect insurance in such amounts, covering such risks and liabilities and with such deductibles or self-insured retentions as are in accordance with normal industry practice. 6.04 Payment of Taxes. The Borrower will pay and discharge all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a Lien or charge upon any properties of the Borrower, provided that the Borrower shall not be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it has maintained adequate reserves with respect thereto in accordance with GAAP. 6.05 Franchises. The Borrower will do, or cause to be done, all things necessary to preserve and keep in full force and effect its existence, material rights, franchises and authority, provided that any transaction permitted by Section 7.02 will not constitute a breach of this Section 6.05. 6.06 Compliance with Statutes, etc. The Borrower will comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property other than those the non-compliance with which would not have a Material Adverse Effect or would not have a material adverse effect on the ability of the Borrower to perform its obligations under any Credit Document. 6.07 Proceeds. The Borrower will deposit all proceeds of the Loans into the Specified Accounts (50-50 between them) and, prior to the Assumption Date, will not withdraw, or take any action to withdraw, any amounts from the Specified Accounts, it being agreed that all amounts in the Specified Accounts may be invested at the Borrower's direction in Permitted Investments acceptable to the Agents. Notwithstanding anything to the contrary contained in this Section 6, upon the Assumption Date (but only if the Existing Starwood Credit Agreement is then in effect), all of the foregoing provisions of this Section 6 shall be deleted and thereafter shall be of no further force or effect. SECTION 7. Negative Covenants. The Borrower hereby covenants and agrees that on the Closing Date and thereafter for so long as this Agreement is in effect and until the Commitments have terminated, no Notes are outstanding and the Loans, together with interest, Fees and all other Obligations incurred -20- 26 hereunder, are paid in full: 7.01 Changes in Business. The Borrower will not alter the character of its business from that conducted by it on the Closing Date (i.e., the ownership of the Shares and Other Shares and investment in Permitted Investments), it being understood that the Borrower may engage in those activities that are incidental to (x) the maintenance of its corporate existence in compliance with applicable law, (y) legal, tax and accounting matters in connection with any of the foregoing activities and (z) the entering into, and performing its obligations under, this Agreement and the other Credit Documents. 7.02 Consolidation, Merger, Sale or Purchase of Assets, etc. The Borrower will not wind up, liquidate or dissolve its affairs, or enter into any transaction of merger or consolidation, or sell or otherwise dispose of all or any part of its property or assets (other than inventory or obsolete equipment or excess equipment in the ordinary course of business) or purchase, lease or otherwise acquire all or any part of the property or assets of any Person, except that a Permitted Transaction will be permitted. 7.03 Liens. The Borrower will not create, incur, assume or suffer to exist any Lien upon or with respect to any of its property or assets of any kind (real or personal, tangible or intangible) whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable or notes with recourse to the Borrower) or assign any right to receive income, or file or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any similar recording or notice statute, except: (a) Liens (other than Liens in excess of $100,000 in the aggregate arising pursuant to Section 412 of the Code or Title IV of ERISA) for taxes, assessments or governmental charges not yet due and payable and for which adequate reserves have been established in accordance with GAAP; and (b) Liens created by or pursuant to this Agreement, the other Credit Documents or the Westin Credit Documents. 7.04 Indebtedness. The Borrower will not contract, create, incur, assume or suffer to exist any Indebtedness, except Indebtedness incurred pursuant to this Agreement and the other Credit Documents. 7.05 Capital Expenditures. The Borrower will not incur any Consolidated Capital Expenditures. 7.06 Advances, Investments and Loans. The Borrower will not lend money or credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital -21- 27 contribution to any Person, except: (a) investments in cash and Permitted Investments; (b) the Borrower may acquire and own investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; and (c) pursuant to a Permitted Transaction. 7.07 Amendments, etc. The Borrower will not: (a) amend, modify, or change in any manner adverse to the interests of the Lenders its partnership agreement or enter into any new agreement in any manner adverse to the interests of the Lenders with respect to its partnership interests; (b) amend or modify or agree to the amendment or modification of, any organization document of any Specified Subsidiary in any manner adverse to the interests of the Lenders; and (c) amend or modify, or agree to the amendment or modification of, the Starwood Acquisition Agreement in any manner adverse to the interests of the Lenders. 7.08 Dividends, Distributions, etc. The Borrower will not declare or pay any dividends (other than dividends payable solely in its partnership interests) or return any capital to, its partners or authorize or make any other distribution, payment or delivery of property or cash to its partners as such, or redeem, retire, purchase or otherwise acquire, directly or indirectly, for a consideration, any partnership interests now or hereafter outstanding (or any warrants for or options or stock appreciation rights in respect of any of such shares), or set aside any funds for any of the foregoing purposes (all of the foregoing "Dividends"), provided that the Borrower may pay Dividends with the proceeds of a dividend and/or distribution received from W&S Atlanta that is paid by W&S Atlanta with the proceeds of Indebtedness it has incurred as permitted by the Westin Credit Agreement. 7.09 Transactions with Affiliates. The Borrower will not enter into any transaction or series of transactions after the Closing Date whether or not in the ordinary course of business, with any Affiliate other than on terms and conditions substantially as favorable to the Borrower as would be obtainable by the Borrower at the time in a comparable arm's-length transaction with a Person other than an Affiliate. 7.10 Creation of Subsidiaries. The Borrower will not create or -22- 28 acquire any Subsidiary. Notwithstanding anything to the contrary contained in this Section 7, upon the Assumption Date (but only if the Existing Starwood Credit Agreement is then in effect), all of the foregoing provisions of this Section 7 shall be deleted and thereafter shall be of no force or effect. SECTION 8. Events of Default. Upon the occurrence of any of the following specified events (each, an "Event of Default"): 8.01 Payments. The Borrower shall (i) default in the payment when due of any principal of the Loans or (ii) default, and such default shall continue for five or more days, in the payment when due of any interest on the Loans or any Fees or any other amounts owing hereunder or under any other Credit Document; or 8.02 Representations, etc. Any material representation, warranty or statement made by the Borrower herein or in any other Credit Document or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made provided that after the Assumption Date no Event of Default shall arise under this Section 8.02 as a result of any such representation, warranty or agreement made by Woodstar on the Closing Date proving untrue except to the extent such would have a material adverse effect on the Starwood Assumption and Guaranties; or 8.03 Covenants. The Borrower shall (a) default in the due performance or observance by it of any term, covenant or agreement contained in Section 6.07 or 7, or (b) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in Section 8.01, 8.02 or clause (a) of this Section 8.03) contained in this Agreement and such default under this clause (b) shall continue unremedied for a period of at least 30 days after notice to the defaulting party by either Agent or the Required Lenders; or 8.04 Default Under Other Agreements. (a) Prior to the Assumption Date, the Borrower or, after the Assumption Date, any Starwood Party (each, a "Designated Party") shall (i) default in any payment with respect to any Indebtedness (other than the Obligations) beyond the period of grace, if any, applicable thereto or (ii) default in the observance or performance of any agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause any such Indebtedness to become due prior to its stated maturity; or (b) any such Indebtedness of any Designated Party shall be declared to be due and payable (other than to the extent the Designated Party promptly denies in writing to the -23- 29 applicable creditor the validity of such declaration and is contesting same in good faith), or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof, provided that after the Assumption Date it shall not constitute an Event of Default pursuant to this Section 8.04 unless the principal amount of Indebtedness referred to in clauses (a) and (b) above exceeds $5,000,000, individually or in the aggregate; or 8.05 Bankruptcy, etc. Any Designated Party shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against any Designated Party and the petition is not controverted within 20 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of any Designated Party; or any Designated Party commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to any Designated Party; or there is commenced against any Designated Party any such proceeding which is not controverted within 20 days or remains undismissed for a period of 60 days; or any Designated Party is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or any Designated Party suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or any Designated Party makes a general assignment for the benefit of creditors; or any corporate action is taken by any Designated Party for the purpose of effecting any of the foregoing; or 8.06 Pledge Agreement. Prior to the Assumption Date, (a) the Pledge Agreement shall cease to be in full force and effect, or shall cease to give the Collateral Agent the Liens, rights, powers and privileges purported to be created thereby in favor of the Collateral Agent, or (b) the Borrower shall default in the due performance or observance of any material term, covenant or agreement on its part to be performed or observed pursuant to the Pledge Agreement; or 8.07 Judgments. One or more judgments or decrees shall be entered against any Credit Party involving a liability of $10,000 ($5,000,000 on and after the Assumption Date) or more in the aggregate for all such judgments and decrees for the Credit Parties (not paid or to the extent not covered by insurance) and any such judgments or decrees shall not have been vacated, discharged or stayed or bonded pending appeal within 60 days from the entry thereof; or 8.08 Change of Control. A Change of Control shall occur at any time prior to the Assumption Date; or 8.09 Other Defaults. On and after the Assumption Date, a Starwood Event of Default shall occur; -24- 30 then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Payments Administrator shall, upon the written request of the Required Lenders, by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of any Administrative Agent or any Lender to enforce its claims against the Borrower and its other rights hereunder, except as otherwise specifically provided for in this Agreement (provided that, if an Event of Default specified in Section 8.05 shall occur with respect to any Borrower, the result which would occur upon the giving of written notice by the Payments Administrator as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice): (i) declare the Total Commitment terminated, whereupon the Commitment of each Lender shall forthwith terminate immediately; (ii) declare the principal of and any accrued interest in respect of all Loans and all obligations owing hereunder and thereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower; and (iii) enforce, as Collateral Agent (or direct the Collateral Agent to enforce), any or all of the Liens and security interests created pursuant to the Pledge Agreement. SECTION 9. Definitions. As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms in this Agreement shall include in the singular number the plural and in the plural the singular: "Administrative Agents" shall have the meaning provided in the first paragraph of this Agreement and shall include any successor to the Administrative Agents appointed pursuant to Section 10.09. "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power (i) to vote 10% or more of the securities having ordinary voting power for the election of directors of such corporation or (ii) to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "Affiliate Indemnification" shall mean an Indemnification Agreement (which shall be in form and substance satisfactory to the Administrative Agents) executed by certain Affiliates of the Borrower acceptable to the Administrative Agents. "Agents" shall have the meaning provided in the first paragraph of this Agreement. "Agreement" shall mean this Loan Agreement, as the same may be -25- 31 from time to time further modified, amended and/or supplemented. "Asset Sale" shall mean and include the sale, transfer or other disposition by the Borrower to any other Person of any asset of the Borrower. "Assignment Agreement" shall mean the Assignment Agreement in the form of Exhibit H (appropriately completed). "Assumption Agreements" shall mean the Assumption Agreements in the form of Exhibit I-1 and I-2 hereto. "Assumption Date" shall mean the date on which the Starwood Assumptions and Guarantees become effective. "Authorized Officer" shall mean any senior officer of the Borrower designated as such in writing to the Payments Administrator by the Borrower, in each case to the extent acceptable to the Payments Administrator. "Bankruptcy Code" shall have the meaning provided in Section 8.05. "Base Rate" shall mean the higher of (i) the Prime Lending Rate and (ii) the Federal Funds Effective Rate plus 1/2 of 1%. "Base Rate Loan" shall mean each Loan bearing interest at the rates provided in Section 1.08(a). "Base Rate Margin" shall mean 0.625%, provided that if the Assumption Date has not occurred by March 31, 1998, the Base Rate Margin shall equal 3.625% on and after such date. "Borrower" shall mean WHWE, provided that on the Assumption Date WHWE shall be released as the Borrower and replaced by Starwood Realty Partnership as the Borrower with respect to 96.08355% of the principal of the Loans (and all accrued but unpaid interest thereon) and by Starwood Operating Partnership as Borrower with respect to the remaining principal of the Loans (and all accrued but unpaid interest thereon), with Starwood Realty Partnership and Starwood Operating Partnership to thereafter constitute the "Borrower" for purposes of this Agreement. WHWE may, upon such release, execute and deliver to the Administrative Agents a guaranty of the Obligations pursuant to a Guaranty Agreement heretofore agreed upon among the parties hereto. "Borrowing" shall mean the incurrence of one Type of Loan by the Borrower from all of the Lenders on a pro rata basis on a given date (or resulting from conversions on a given date), having in the case of Eurodollar Loans the same Interest Period; provided that Base Rate Loans incurred pursuant to Section 1.10(b) shall be considered part of any related Borrowing of Eurodollar Loans. "BTCo" shall mean Bankers Trust Company. -26- 32 "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which shall be in the City of New York a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in U.S. dollar deposits in the interbank Eurodollar market. "Capital Lease" as applied to any Person shall mean any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "Capitalized Lease Obligations" of any Person shall mean all obligations under Capital Leases of such Person in each case taken at the amount thereof accounted for as liabilities in accordance with GAAP. "Cash Proceeds" shall mean, with respect to any Asset Sale or Distribution (x) the aggregate cash payments (including any cash received by way of deferred payment pursuant to a note receivable issued in connection with such Asset Sale, other than the portion of such deferred payment constituting interest, but only as and when so received) received by the Borrower from any such Asset Sale or (y) all amounts received by the Borrower pursuant to a Distribution (including the cash fair market value of any Distribution made other than in cash). "Change of Control" shall mean at any time, and for any reason whatsoever, Whitehall Street Real Estate Limited Partnership V and/or GS Capital Partners, L.P. shall cease to own collectively or individually at least 70% of the membership interests of the Borrower. "Chase" shall mean The Chase Manhattan Bank. "Closing Date" shall mean December 29, 1997 unless otherwise agreed by the Borrower and the Lenders. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time and the regulations promulgated and the rulings issued thereunder. Section references to the Code are to the Code, as in effect at the Closing Date and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor. "Collateral" shall mean all of the Collateral as defined in the Pledge Agreement. "Collateral Agent" shall mean Bankers Trust Company acting as collateral agent for the Lenders. -27- 33 "Commitment" shall mean, with respect to each Lender, the amount, set forth opposite such Lender's name on Annex I hereto directly below the column entitled "Commitment" as the same may be terminated pursuant to Section 2.02. "Consolidated Capital Expenditures" shall mean, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities and including in all events all amounts expended or capitalized under Capital Leases but excluding any amount representing capitalized interest) by the Borrower during that period that, in conformity with GAAP, are or are required to be included in the property, plant or equipment reflected in the consolidated balance sheet of LLC and its consolidated Subsidiaries. "Contingent Obligations" shall mean as to any Person any obligation of such Person guaranteeing or intending to guarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof, provided that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "Credit Documents" shall mean this Agreement, the Notes and the Pledge Agreement. "Credit Parties" shall mean (x) prior to the Assumption Date, Woodstar and (y) on and after the Assumption Date, the Starwood Parties. "Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Designated Party" shall have the meaning provided in Section 8.04. "Distribution" shall mean any dividend or other distribution received -28- 34 by the Borrower in respect of the Shares and Other Shares other than the dividend and/or distribution from W&S Atlanta referred to in Section 7.08. "Dividends" shall have the meaning provided in Section 7.08. "Eligible Transferee" shall mean and include a commercial bank, financial institution or other qualified institutional buyer (as defined under Rule 144A promulgated under the Securities Act of 1933, as amended) that is not a competitor in the hospitality business of the Credit Parties. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" shall mean each person (as defined in Section 3(9) of ERISA) which together with the Borrower would be deemed to be a "single employer" within the meaning of Sections 414(b), (c), (m) and (o) of the Code. "Eurodollar Loans" shall mean each Loan bearing interest at the rates provided in Section 1.08(b). "Eurodollar Margin" shall mean 1.625%, provided that if the Assumption Date has not occurred by March 31, 1998, the Eurodollar Margin shall equal 4.625% on and after such date. "Eurodollar Rate" shall mean with respect to each Interest Period for a Eurodollar Loan, (i) the offered quotation to first-class banks in the interbank Eurodollar market by the Payments Administrator for dollar deposits of amounts in same day funds comparable to the outstanding principal amount of the Eurodollar Loan of the Payments Administrator for which an interest rate is then being determined with maturities comparable to the Interest Period to be applicable to such Eurodollar Loan, determined as of 10:00 A.M. (New York time) on the date which is two Business Days prior to the commencement of such Interest Period divided (and rounded upward to the next whole multiple of 1/16 of 1%) by (ii) a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D). "Event of Default" shall have the meaning provided in Section 8. "Existing Starwood Credit Agreement" shall mean the Credit Agreement, dated as of September 10, 1997, among Starwood Trust, Starwood Realty Partnership, Bankers Trust Company, Lehman Brothers Holdings Inc., BankBoston, N.A. and Bank of Montreal, as in effect on the Closing Date and as amended or replaced prior to the Assumption Date in a manner acceptable to the Administrative Agents and to Starwood Lodging to permit the Starwood Acquisition -29- 35 and the Starwood Assumptions and Guaranties, without giving effect to any other amendment, modification or other change thereto not consented to by the Required Lenders, and regardless of whether such agreement is terminated. "Federal Funds Effective Rate" shall mean for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Payments Administrator from three Federal Funds brokers of recognized standing selected by the Payments Administrator. "Final Maturity Date" shall mean January 31, 2000. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect on the date of this Agreement. "Indebtedness" of any Person shall mean, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to assets purchased by such Person, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued expenses arising in the ordinary course of business in accordance with customary trade terms), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed by such Person, (g) all Contingent Obligations of such Person, (h) all Capital Lease Obligations of such Person, (i) all obligations of such Person in respect of interest rate protection agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements, (j) all obligations of such Person as an account party to reimburse any bank or any other person in respect of letters of credit and bankers' acceptances, whether or not drawn or accepted, (k) all obligations of such Person to pay a specified purchase price for goods or services whether or not delivered or accepted (i.e., take-or-pay and similar obligations) and (l) all obligations (including repurchase obligations) relating to Property Financing Lender Equity. The Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such person is a general partner or member, other than to the extent that the instrument or agreement evidencing such Indebtedness expressly limits the liability of such person in respect thereof pursuant to provisions and terms reasonably satisfactory to the Required Lenders. -30- 36 "Interest Period" with respect to any Loan shall mean the interest period applicable thereto, as determined pursuant to Section 1.09. "Interest Rate Agreement" shall mean any interest rate swap agreement, any interest rate cap agreement, any interest rate collar agreement or other similar agreement or arrangement designed to protect the Borrower against fluctuations in interest rates. "Interim Date" shall mean the date on which a Permitted Transaction is consummated. "Lender" shall have the meaning provided in the first paragraph of this Agreement. "Lender Register" shall have the meaning provided in Section 11.16. "Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof). "Loan" shall have the meaning provided in Section 1.01(a). "LLC" shall mean W&S Hotel L.L.C., formerly a Delaware limited liability company. "Margin Stock" shall have the meaning provided in Regulation U. "Material Adverse Effect" shall mean a material adverse effect on the business, property, assets, liabilities, operations, condition (financial or otherwise), prospects or business plans of the Borrower. "Minimum Borrowing Amount" shall mean (i) for Base Rate Loans, $2,000,000 and (ii) for Eurodollar Loans, $10,000,000. "Net Cash Proceeds" shall mean with respect to (x) any Asset Sale, the Cash Proceeds resulting therefrom net of expenses of such sale and incremental taxes paid or payable as a result thereof and (y) any Distribution, the Cash Proceeds resulting therefrom. "Nomura" shall mean Nomura Asset Capital Corporation, a Delaware corporation. "Note" shall have the meaning provided in Section 1.05(a). "Notice of Borrowing" shall have the meaning provided in Section 1.03. -31- 37 "Notice of Conversion" shall have the meaning provided in Section 1.06. "Notice Office" shall mean the office of the Payments Administrator at 130 Liberty Street, New York, New York or such other office as the Payments Administrator may designate to the Borrower from time to time. "Obligations" shall mean all amounts, direct or indirect, contingent or absolute, of every type or description, and at any time existing, owing to the Payments Administrator, the Documentation Agent, the Collateral Agent or any Lender pursuant to the terms of this Agreement or any other Credit Document. "Other Shares" shall mean the shares of common stock of Worldwide and W&S Atlanta owned by the Borrower on the Closing Date. "Payment Office" shall mean the office of the Payments Administrator at 130 Liberty Street, New York, New York or such other office as the Payments Administrator may designate to the Borrowers from time to time. "Payments Administrator" shall mean BTCo. "Permitted Investments" shall mean (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (ii) U.S. dollar denominated time deposits, certificates of deposit and bankers' acceptances of (x) any Lender or (y) any bank (or the parent company of such bank) whose short- term commercial paper rating from Standard & Poor's Ratings Services, a division of McGraw-Hill, Inc. ("S&P") is at least A-1 or the equivalent thereof or from Moody's Investors Service, Inc. ("Moody's") is at least P-1 or the equivalent thereof (any such bank, an "Approved Bank"), in each case with maturities of not more than six months from the date of acquisition, (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by any Lender or Approved Bank or by the parent company of any Lender or Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating of at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's (any such company, an "Approved Company"), or guaranteed by any industrial company with a long term unsecured debt rating of at least A or A2, or the equivalent of each thereof, from S&P or Moody's, as the case may be, and in each case maturing within six months after the date of acquisition and (v) investments in money market funds substantially all of whose assets are comprised of securities of the type described in clauses (i) through (iv) above but only to the extent such funds are acceptable to the Agents. "Permitted Liens" shall mean Liens described in clauses (a), (d) and -33- 38 (i) of Section 7.03. "Permitted Transaction" shall mean (i) Woodstar, WHWE, Nomura and Jurgen Bartels (the "LLC Successors") exchanging all shares of Worldwide they own for preferred stock of Starwood Trust and cash pursuant to the Starwood Acquisition Agreement, (ii) the LLC Successors contributing all shares of W&S Atlanta they own to Starwood Operating Partnership pursuant to the Starwood Acquisition Agreement, (iii) the LLC Successors contributing all shares of W&S Seattle, W&S Lauderdale and W&S Denver to Starwood Realty Partnership pursuant to the Starwood Acquisition Agreement and (iv) the LLC Successors contributing all shares they own of Westin St. John to Starwood Operating Partnership pursuant to the Starwood Acquisition Agreement if and only if Starwood Realty Partnership concurrently assumes the LLC Successors' obligations with respect to 96.08355% of the Loans made to the LLC Successors by the Agents on the Closing Date and Starwood Operating Partnership concurrently assumes the remaining 3.91645% of the Loans made to the LLC Successors by the Agents on the Closing Date (and all such assumptions to be guaranteed by the Starwood Guarantors), with such assumptions and guarantees with respect to the Loans to be reflected by the issuance of the Starwood Assumptions and Guaranties. "Person" shall mean any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" shall mean any pension plan as defined in Section 3(2) of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of) the Borrower or an ERISA Affiliate, and each such plan for the five-year period immediately following the latest date on which the Borrower or an ERISA Affiliate maintained, contributed to or had an obligation to contribute to such plan. "Pledge Agreement" shall have the meaning provided in Section 4.01(h). "Pledged Securities" shall mean all the Shares. "Prime Lending Rate" shall mean the rate which BTCo announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. BTCo may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate. "PSD Interest Period" shall mean any Interest Period commenced prior to the Syndication Date, each of which Interest Periods must satisfy the requirements of Section 1.09(iv). -32- 39 "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "Regulation U" shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements. "Related Fund" shall mean, with respect to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Required Lenders" shall mean Lenders whose outstanding Loans constitute greater than 50% of the total outstanding principal of Loans. "SEC" shall have the meaning provided in Section 6.01(j). "Section 3.04 Certificate" shall have the meaning provided in Section 3.04(b)(ii). "Shares" shall mean the shares of the common stock of each of the Specified Subsidiaries owned by the Borrower on the Closing Date. "Specified Accounts" shall mean Account No. 44102738 maintained at BTCo's office at 130 Liberty Street, New York, New York 10006 and Account No. 9102726438 maintained at Chase's office at 270 Park Avenue, New York, New York. "Specified Subsidiaries" shall mean W&S Seattle, W&S Lauderdale, W&S Denver and Westin St. John. "Starwood Acquisition" shall mean and include (i) the merger of Worldwide with and into Starwood Trust in accordance with the terms of the Starwood Acquisition Agreement, (ii) the Subsidiary Contributions pursuant to, and as defined in, the Starwood Acquisition Agreement and (iii) the related transactions described in the Starwood Acquisition Agreement. "Starwood Acquisition Agreement" shall mean the Transaction Agreement, dated as of September 8, 1997, among WHWE, Nomura, Juergen Bartels, LLC, Worldwide, W&S Lauderdale, W&S Seattle, St. John Company, Westin St. John, W&S Denver, W&S Atlanta, Starwood Trust, Starwood Realty Partnership, Starwood Lodging Corporation and Starwood Operating Partnership, as in effect on September 8, 1997. "Starwood Assumptions" shall mean (x) the assumption as Borrower by Starwood Realty Partnership of 96.08355% of the Loans pursuant to an -33- 40 Assumption Agreement in the form of Exhibit I-1 hereto and (y) the assumption as Borrower by Starwood Operating Partnership of the remainder of the Loans pursuant to an Assumption Agreement in the form of Exhibit I-2 hereto. "Starwood Assumptions and Guaranties" shall mean the consummation of the Starwood Assumptions and the issuance of the Starwood Guaranty by the Starwood Guarantors. "Starwood Event of Default" shall mean (i) a default shall occur with respect to any covenant contained in the Existing Starwood Credit Agreement (as defined herein) and/or incorporated by reference in any Assumption Agreement and (in the case of any default of any covenant that would require notice to Starwood Lodging and Starwood Realty Trust by the Administrative Agent or a Lender under the Existing Starwood Credit Agreement before such default shall constitute an Event of Default thereunder) continuance of such default unremedied for 30 days after written notice thereof to Starwood Lodging by either Administrative Agent or any Lender hereunder and (ii) the failure to deliver to the Lenders all financial information when and as required under the Existing Starwood Credit Agreement to be delivered to the lenders party thereto and such failure shall continue unremedied for 30 days after notice to Starwood Lodging by the Administrative Agents or the Required Lenders. "Starwood Guarantors" shall mean Starwood Trust, Starwood Realty Partnership, Starwood Lodging Corporation, Starwood Operating Partnership and their respective Subsidiaries (except to the extent any such Subsidiary is not a guarantor under the Existing Starwood Credit Agreement) except to the extent any thereof is the Borrower under any of the Loans as a result of the Starwood Assumptions. "Starwood Guaranty" shall mean the guaranty by the Starwood Guarantors of all Obligations hereunder, which guaranty shall be delivered on the Assumption Date and shall be substantially in the form of the Guaranty set forth in Section 12 of the Westin Credit Agreement (except that Section 12.07 of the Westin Credit Agreement will not be included in the Starwood Guaranty). "Starwood Lodging" shall mean and include Starwood Trust and Starwood Lodging Corporation. "Starwood Operating Partnership" shall mean SLC Operating Limited Partnership, a Delaware limited partnership. "Starwood Parties" shall mean Starwood Lodging, Starwood Operating Partnership and Starwood Realty Partnership and any other entity that is a Starwood Guarantor. "Starwood Realty Partnership" shall mean SLT Realty Limited Partnership, a Delaware limited partnership. -34- 41 "Starwood Trust" shall mean Starwood Lodging Trust, a Maryland real estate investment trust. "Subsidiary" of any Person shall mean and include (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (ii) any partnership, association, joint venture, limited liability company or other entity in which such Person directly or indirectly through Subsidiaries has more than a 50% equity interest at the time. "Syndication Date" shall mean the earlier of June 1, 1998 and the date specified in writing to the Borrower or Borrowers by the Administrative Agents as the date on which the primary syndication of the Loans and Commitments has been completed to the satisfaction of the Administrative Agents. "Taxes" shall have the meaning provided in Section 3.04(a). "Total Commitment" shall mean the sum of the Commitments of each of the Lenders. "Type" shall mean any type of Loan determined with respect to the interest option applicable thereto, i.e., a Base Rate Loan or Eurodollar Loan. "UCC" shall mean the Uniform Commercial Code. "W&S Atlanta" shall mean W&S Atlanta Corp., a Delaware corporation. "W&S Denver" shall mean W&S Denver Corp., a Delaware corporation. "W&S Lauderdale" shall mean W&S Lauderdale Corp., a Delaware corporation. "W&S Seattle" shall mean W&S Seattle Corp., a Delaware corporation. "Westin Credit Agreement" shall mean the Amended and Restated Credit Agreement, dated as of December 2, 1997, among LLC, various of its Subsidiaries and the Agents as in effect on the Closing Date. "Westin Credit Documents" shall have the meaning provided in the Westin Credit Agreement. "Westin St. John" shall mean Westin St. John Hotel Company, Inc., -35- 42 a corporation organized under the laws of the U.S. Virgin Islands. "WHWE" shall mean WHWE L.L.C., a Delaware limited liability company. "Woodstar" shall mean Woodstar Investor Partnership, a Delaware general partnership. "Worldwide" shall mean Westin Hotels & Resorts Worldwide, Inc., a Delaware corporation, formerly known as W&S Arizona Corp. "Written" or "in writing" shall mean any form of written communication or a communication by means of telex, facsimile transmission, telegraph or cable. SECTION 10. The Agents. 10.01 Appointment. The Lenders hereby designate each of BTCo and Chase as Administrative Agent (for purposes of this Section 10, the term "Administrative Agent" shall include BTCo in its capacity as Collateral Agent pursuant to the Pledge Agreement and as Payments Administrator hereunder) to act as specified herein and in the other Credit Documents. Each Lender hereby irrevocably authorizes, and each holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, each Agent to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of such Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agents may perform any of their duties hereunder by or through their respective officers, directors, agents, employees or affiliates. 10.02 Nature of Duties. No Agent shall have any duties or responsibilities except those expressly set forth in this Agreement and the Security Documents. No Agent or any of its respective officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by their gross negligence or willful misconduct. The duties of each Agent shall be mechanical and administrative in nature; no Agent shall have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Lender or the holder of any Note; and nothing in this Agreement or any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon either Agent any obligation in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein with respect to such Agent. 10.03 Lack of Reliance on the Agents. Independently and without -36- 43 reliance upon either Agent, each Lender and the holder of each Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of any Borrower or Starwood Party in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of any Borrower or Starwood Party and, except as expressly provided in this Agreement, no Agent shall have any duty or responsibility, either initially or on a continuing basis, to provide any Lender or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. No Agent shall be responsible to any Lender or the holder of any Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of any Borrower or Starwood Party or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the financial condition of any Borrower or Starwood Party or the existence or possible existence of any Default or Event of Default. 10.04 Certain Rights of the Agents. If an Agent shall request instructions from the Required Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Credit Document, such Agent shall be entitled to refrain from such act or taking such action unless and until such Agent shall have received instructions from the Required Lenders; and no Agent shall incur liability to any Person by reason of so refraining. Without limiting the foregoing, neither any Lender nor the holder of any Note shall have any right of action whatsoever against an Agent as a result of such Agent acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Lenders. 10.05 Reliance. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype, facsimile or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that such Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by such Agent. 10.06 Indemnification. To the extent an Agent is not reimbursed and indemnified by the Borrower, the Lenders will reimburse and indemnify such Agent, in proportion to their Loans, for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by such Agent in performing its respective duties hereunder or under any other Credit Document, in any way relating to or arising out of this Agreement or any other Credit Document provided that no Lender shall -37- 44 be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of such Agent. 10.07 The Agents in Their Individual Capacities. With respect to its obligation to make Loans under this Agreement, each Agent shall have the rights and powers specified herein for a "Lender" and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "Lenders," "Required Lenders," "holders of Notes" or any similar terms shall, unless the context clearly otherwise indicates, include the Agents in their individual capacities. Each Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with any Credit Party or any Affiliate of any Credit Party as if they were not performing the duties specified herein, and may accept fees and other consideration from any Borrower or any Starwood Party for services in connection with this Agreement and otherwise without having to account for the same to the Lenders. 10.08 Holders. The Payments Administrator may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Payments Administrator. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor. 10.09 Resignation by an Agent. (a) Either Administrative Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving 15 Business Days' prior written notice to the other Administrative Agent (if any), the Borrower and the Lenders. Upon such resignation, any remaining Administrative Agent shall perform all the duties of such resigning Administrative Agent hereunder, provided that if, at the time of such resignation, such Administrative Agent is the only Administrative Agent, such resignation shall take effect upon the appointment of a successor Administrative Agent pursuant to clauses (b) and (c) below or as otherwise provided below. (b) Upon any such notice of resignation, the Required Lenders shall appoint a successor Administrative Agent hereunder or thereunder who shall be a commercial bank or trust company reasonably acceptable to the Borrower. (c) If a successor Administrative Agent shall not have been so appointed within such 15 Business Day period, the resigning Administrative Agent, with the reasonable consent of the Borrower, shall then appoint a successor Administrative Agent who shall serve as Administrative Agent hereunder or thereunder until such time, if any, as the Lenders appoint a successor Administrative Agent as provided above. -38- 45 (d) If no successor Administrative Agent has been appointed pursuant to clause (b) or (c) above by the 20th Business Day after the date such notice of resignation was given by the resigning Administrative Agent, such Administrative Agent's resignation shall become effective and the Required Lenders shall thereafter perform all the duties of such Administrative Agent hereunder and/or under any other Credit Document until such time, if any, as the Lenders appoint a successor Administrative Agent as provided above. SECTION 11. Miscellaneous. 11.01 Payment of Expenses, etc. The Borrower agrees to: (i) whether or not the transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses of the Agents in connection with the negotiation, preparation, execution and delivery of the Credit Documents and the documents and instruments referred to therein and any amendment, waiver or consent relating thereto (including, without limitation, the reasonable fees and disbursements of White & Case, Simpson Thacher & Bartlett and of the Agents and each of the Lenders) in connection with the enforcement of the Credit Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees and disbursements of counsel for each Agent and for each of the Lenders); (ii) pay and hold each of the Agents and Lenders harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; and (iii) indemnify each Agent and each Lender, its officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, an investigation, litigation or other proceeding (whether or not an Agent or any Lender is a party thereto) related to the entering into and/or performance of any Document or the use of the proceeds of any Loans hereunder or the consummation of any transaction contemplated in any Credit Document, in each case including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). 11.02 Right of Setoff. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, if an Event of Default then exists, each Lender is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to any Credit Party or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by such Lender (including, without limitation, by branches and agencies of such Lender -39- 46 wherever located) to or for the credit or the account of any Credit Party against and on account of the Obligations and liabilities of any Credit Party owing to such Lender under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations purchased by such Lender pursuant to Section 11.06(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not such Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. 11.03 Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier, facsimile or cable communication) and mailed, telegraphed, telexed, telecopied, faxed, cabled or delivered, if to a Credit Party, at the address specified opposite its signature below or in the other relevant Credit Documents, as the case may be; if to any Lender or Agent, at its address specified for such Lender or Agent on Annex II hereto; or at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and shall be effective when received. 11.04 Benefit of Agreement. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that the Borrower (or after the Assumption Date no Borrower or any Starwood Guarantor) may assign or transfer any of its rights or obligations hereunder without the prior written consent of the Lenders. Each Lender may at any time grant participations in any of its rights hereunder or under any of the Notes to another financial institution, provided that (x) in the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, except that the participant shall be entitled to the benefits of Sections 1.10 and 3.04 of this Agreement to the extent that such Lender would be entitled to such benefits if the participation had not been entered into or sold and (y) no Lender shall transfer, grant or assign any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the final scheduled maturity of any Loan or Note in which such participant is participating (it being understood that any waiver of the application of any prepayment or the method of any application of any prepayment to, the Loans shall not constitute an extension of the final maturity date), or reduce the rate or extend the time of payment of interest (except in connection with a waiver of the applicability of any post-default increase in interest rates), or reduce the principal amount thereof, or increase such participant's participating interest in any commitment over the amount thereof then in effect (it -40- 47 being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitment, or a mandatory prepayment, shall not constitute a change in the terms of any commitment), (ii) release all or substantially all of the Collateral or (iii) consent to the assignment or transfer by any Credit Party of any of its rights and obligations under this Agreement or any other Credit Document. (b) Notwithstanding the foregoing, (x) any Lender may assign all or a portion of its outstanding Loans and its rights and obligations hereunder to another Lender (or an Affiliate or Related Fund of such assigning Lender), and (y) with the consent of the Administrative Agents and (if no Event of Default exists) the Borrower (which consents shall not be unreasonably withheld), any Lender may assign all or a portion of its outstanding Loans and its rights and obligations hereunder to one or more Eligible Transferees. No assignment pursuant to the immediately preceding sentence by a Lender (or by Lenders which are Affiliates and/or Related Funds of each other) shall, to the extent such assignment represents an assignment to an institution other than one or more Lenders hereunder (or to an Affiliate or a Related Fund of an assigning Lender), be in an aggregate amount less than $5,000,000 unless the entire Loans of the assigning Lender (or group of Lenders which are Affiliates and/or Related Funds) are so assigned. If any Lender so sells or assigns all or a part of its rights hereunder or under the Notes, any reference in this Agreement or the Notes to such assigning Lender shall thereafter refer to such Lender and to the respective assignee to the extent of their respective interests and the respective assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights and benefits as it would if it were such assigning Lender. Each assignment pursuant to this Section 11.04(b) shall be effected by the assigning Lender and the assignee Lender executing an Assignment Agreement (appropriately completed). At the time of any such assignment, (i) either the assigning or the assignee Lender shall pay to the Payments Administrator a nonrefundable assignment fee of $500 (if such assignment is between Lenders already party to this Agreement (or Affiliates or Related Funds of such Lenders) or $2,000 (if otherwise), and (ii) if requested, the Borrower will issue new Notes to the respective assignee and to the assigning Lender in conformity with the requirements of Section 1.05. To the extent of any assignment pursuant to this Section 11.04(b) to a Person which is not already a Lender hereunder and which is not a United States Person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Lender shall provide to the Borrower and the Payments Administrator the appropriate Internal Revenue Service Forms (and, if applicable, a Section 3.04 Certificate) described in Section 3.04(b). To the extent that an assignment of all or any portion of a Lender's Loans and related Obligations pursuant to this Section 11.04(b) would, at the time of such assignment, result in increased costs under Section 1.10 or 3.04 from those being charged by the respective assigning bank prior to such assignment, then the Borrower shall not be obligated to pay such increased costs (although the Borrower shall be obligated to pay any other increased costs of the type described above resulting from the changes specified in said Section 1.10 or 3.04 after the date of the respective assignment). Each Lender and the Borrower agree to -41- 48 execute such documents (including, without limitation, amendments to this Agreement and the other Credit Documents) as shall be necessary to effect the foregoing. Nothing in this clause (b) shall prevent or prohibit any Lender from pledging its Notes or Loans to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank. (c) Notwithstanding any other provision of this Section 11.04, no transfer or assignment of the interests or obligations of any Lender hereunder or any grant of participation therein shall be permitted if such transfer, assignment or grant would require the Borrower to file a registration statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any State. (d) Each Lender initially party to this Agreement hereby represents, and each Person that became a Lender pursuant to an assignment permitted by this Section 11 will, upon its becoming party to this Agreement, represent that it is an Eligible Transferee which makes loans in the ordinary course of its business and that it will make or acquire Loans for its own account in the ordinary course of such business, provided that subject to the preceding clauses (a) and (b), the disposition of any promissory notes or other evidences of or interests in Indebtedness held by such Lender shall at all times be within its exclusive control. 11.05 No Waiver; Remedies Cumulative. No failure or delay on the part of any Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between any Credit Party and either Agent or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which either Agent or any Lender would otherwise have. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Agents or the Lenders to any other or further action in any circumstances without notice or demand. 11.06 Payments Pro Rata. (a) The Payments Administrator agrees that promptly after its receipt of each payment from or on behalf of any Credit Party in respect of any Obligations, it shall distribute such payment to the Lenders (other than any Lender that has expressly waived its right to receive its pro rata share thereof) pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received. (b) Each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise) which is applicable to the payment of the principal of, or interest on, the Loans, of a sum which with respect to the related sum or sums received by other Lenders is in a -42- 49 greater proportion than the total of such Obligation then owed and due to such Lender bears to the total of such Obligation then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations of the respective Credit Party to such Lenders in such amount as shall result in a proportional participation by all of the Lenders in such amount, provided that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. 11.07 Calculations; Computations. (a) The financial statements to be furnished to the Lenders pursuant hereto shall be made and prepared in accordance with GAAP consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrower to the Lenders). (b) All computations of interest and Fees hereunder shall be made on the actual number of days elapsed over a year of 360 days. 11.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial. (a) This Agreement and the other Credit Documents and the rights and obligations of the parties hereunder and thereunder shall be construed in accordance with and be governed by the law of the state of New York. Any legal action or proceeding with respect to this Agreement or any other Credit Document may be brought in the courts of the State of New York or of the United States for the Southern District of New York in the Borough of Manhattan, and, by execution and delivery of this Agreement, the Borrower hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The Borrower further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it, to the extent located outside New York City, or by hand, to the extent located within New York City, at its address for notices pursuant to Section 11.03, such service to become effective 30 days after such mailing. The Borrower hereby irrevocably designates, appoints and empowers CT Corporation System, with offices on the date hereof located at 1633 Broadway, New York, New York 10019, as its agent for service of process in respect of any such action or proceeding. Nothing herein shall affect the right of any Agent or any Lender to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against any Credit Party in any other jurisdiction. (b) The Borrower hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Credit Document brought in the courts referred to in clause (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. -43- 50 (c) Each of the parties to this Agreement hereby irrevocably waives all right to a trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement, the other Credit Documents or the transactions contemplated hereby or thereby. 11.09 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Administrative Agents. 11.10 Assumption Date. The Payments Administrator shall give each Lender prompt written notice of the occurrence of the Assumption Date. 11.11 Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 11.12 Amendment or Waiver. Neither this Agreement nor any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing and signed by the Borrower and the Required Lenders, provided that no such change, waiver, discharge or termination shall, without the consent of each Lender directly affected thereby, (i) extend the Final Maturity Date (it being understood that any waiver of any prepayment of, or the method of application of any prepayment to, the Loans shall not constitute any such extension), or reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) thereon, or reduce the principal amount thereof, or increase the commitment of any Lender over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitment shall not constitute a change in the terms of any commitment of any Lender), (ii) amend, modify or waive any provision of this Section 11.12, (iii) reduce the percentage specified in, or (except to give effect to any additional facilities hereunder) otherwise modify, the definition of Required Lenders, (iv) consent to the assignment or transfer by any Credit Party of any of its rights and obligations under the Credit Documents or (v) release all or substantially all of the Collateral. No provision of Section 10 may be amended without the consent of the Agents. 11.13 Survival. All indemnities set forth herein including, without limitation, in Section 1.10, 1.11, 3.04, 10.06 or 11.01 shall survive the execution and delivery of this Agreement and the making and repayment of the Loans. 11.14 Domicile of Loans. Each Lender may transfer and carry its Loans at, to or for the account of any branch office, subsidiary or affiliate of such Lender, provided that the Borrower shall not be responsible for costs arising under -44- 51 Section 1.10, or 3.04 resulting from any such transfer (other than a transfer pursuant to Section 1.12 or 1.13) to the extent not otherwise applicable to such Lender prior to such transfer. 11.15 Confidentiality. Subject to Section 11.04, the Lenders shall hold all non-public information obtained pursuant to the requirements of this Agreement which has been identified as such by the Borrower in accordance with its customary procedure for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure to its Affiliates, employees, auditors, advisors or counsel or as reasonably required by any bona fide transferee or participant in connection with the contemplated transfer of any Loans or participation therein (so long as such transferee or participant agrees to be bound by the provisions of this Section 11.15) or as required or requested by any governmental agency or representative thereof or pursuant to legal process, provided that, unless specifically prohibited by applicable law or court order, each Lender shall notify the Borrower of any request by any governmental agency or representative thereof or any requested or required disclosure pursuant to legal process (other than any such request in connection with an examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non-public information reasonably promptly after receipt of such request (and prior to responding thereto) so as to give time to the Borrower to, if it so chooses, contest such request and/or to seek an appropriate protective order, and provided further that in no event shall any Lender be obligated or required to return any materials furnished by any Westin Entity. 11.16 Lender Register. The Borrower hereby designates the Payments Administrator to serve as its agent, solely for purposes of this Section 11.16, to maintain a register (the "Lender Register") on which it will record the Loans made by each of the Lenders and each repayment in respect of the principal amount of the Loans of each Lender. Failure to make any such recordation, or any error in such recordation, shall not affect any Borrower's obligations in respect of such Loans. With respect to any Lender, the transfer of the rights to the principal of, and interest on any Loan made shall not be effective until such transfer is recorded on the Lender Register maintained by the Payments Administrator with respect to ownership of such Loans and prior to such recordation all amounts owing to the transferor with respect to such Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Loan shall be recorded by the Payments Administrator on the Lender Register only upon the acceptance by the Payments Administrator of a properly executed and delivered Assignment Agreement pursuant to Section 11.04(b). The Borrower agrees to indemnify the Payments Administrator from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Payments Administrator in performing its duties under this Section 11.16 other than those resulting from the Payments Administrator's willful misconduct or gross negligence. 11.17 No Liability for General Partners. No past, present or future -45- 52 general partner of the Borrower shall have any liability as a result of its being a general partner for any Obligations under this Agreement or any of the other Credit Documents or for any claim based on, in respect of, or by reason of such Obligations or their creation. Each Lender hereby waives and releases all such liability. * * * -46- 53 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. Address: WHWE L.L.C. By: WHITEHALL STREET REAL ESTATE LIMITED PARTNERSHIP V Member and Manager By: -------------------------------- Title: By: GS CAPITAL PARTNERS, L.P. Member and Manager By: GS Advisors, L.P., General Partner By: GS Advisors, Inc., General Partner By: -------------------------------- Title: BANKERS TRUST COMPANY, Individually and as Administrative Agent By: -------------------------------- -47- 54 Title: THE CHASE MANHATTAN BANK, Individually and as Administrative Agent By: -------------------------------- Title: -48- 55 ANNEX I COMMITMENTS
Lender Commitment - ------ ---------- Bankers Trust Company $15,162,969.63 The Chase Manhattan Bank $15,162,969.62 Total $30,325,939.25
-49- 56 ANNEX II LENDERS AND AGENTS ADDRESSES Bankers Trust Company 130 Liberty Street New York, New York 10006 Attention: Laura Burwick Tel: (212) 250-2568 Fax: (212) 250-7200 The Chase Manhattan Bank 270 Park Avenue New York, New York 10017 Attention: James Rolison Tel: (212) 270-6000 Fax: (212) -50- 57 ANNEX III SHARES [ON FILE WITH WHITE & CASE] -51- EX-10.50 27 EX-10.50 1 Exhibit 10.50 EXCHANGE RIGHTS AGREEMENT (CLASS A REALTY PARTNERSHIP UNITS) THIS EXCHANGE RIGHTS AGREEMENT (this "Agreement") is made as of January 2, 1998 among STARWOOD LODGING TRUST, a Maryland real estate investment trust (the "Trust"), SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership (the "Realty Partnership"), and certain limited partners of the Realty Partnership listed on the signature pages hereto (the "Westin Limited Partners"). Unless otherwise indicated, capitalized terms used herein are used herein as defined in Section 1. WHEREAS, pursuant to a Transaction Agreement dated as of September 8, 1997 (the "Transaction Agreement") among WHWE L.L.C., Woodstar Investor Partnership, Nomura Asset Capital Corporation, Juergen Bartels, W&S Hotel L.L.C., 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., the Trust, SLT Realty Limited Partnership, Starwood Lodging Corporation and SLC Operating Limited Partnership, the Westin Limited Partners are making capital contributions to the Realty Partnership in return for the issuance of Class A Limited Partnership Units ("Class A RP Units"); WHEREAS, pursuant to the Transaction Agreement the parties hereto are entering into this Agreement to provide for: (a) certain rights of the Westin Limited Partners to tender Class A RP Units to the Trust on or prior to the Cross-Over Date (as defined herein) in exchange for shares of Class B EPS (as defined herein) and (b) certain rights of the Westin Limited Partners to tender Class A RP Units to the Trust at any time in exchange for Paired Shares (as defined herein), subject in either such case to certain rights of the Trust to substitute cash or other forms of consideration for such shares of Class B EPS or Paired Shares or to cause the Realty Partnership to redeem the Class A RP Units being tendered for cash, all on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, the parties hereto agree as follows: SECTION 1. DEFINITIONS. For purposes of this Agreement, the following terms have the meanings indicated: "Board of Trustees" shall mean the Board of Trustees of the Trust or any committee authorized by the Board of Trustees from time to time to exercise any of its powers or perform any of its responsibilities with respect to this Agreement. 2 "Business Day" shall mean any day other than a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York are not required to be open. "Cash Equivalent" of Paired Shares as of any date shall mean an amount of cash equal to (i) the average of the daily Current Market Prices per unit of such Paired Shares during the five (5) consecutive Trading Days immediately preceding such date or (ii) if the Paired Shares are not publicly traded on such date, the fair market value of such Paired Shares as of such date as determined by the Board of Trustees in good faith. "Certificate of Admission" shall mean the Certificate of Admission of SLT Realty Limited Partnership dated as of January 1, 1998 pursuant to which the Class A RP Units were authorized. "Class A Articles Supplementary" shall mean Article 6.15 of the Declaration pursuant to which the Trust has classified and designated 30,000,000 shares of beneficial interest in the Trust as "Class A Exchangeable Preferred Shares", as hereafter amended from time to time. "Class A EPS" means the Class A Exchangeable Preferred Shares, par value $0.01 per share, created by the Class A Articles Supplementary. "Class B Articles Supplementary" shall mean Article 6.16 of the Declaration pursuant to which the Trust has classified and designated 15,000,000 shares of beneficial interest in the Trust as "Class B Exchangeable Preferred Shares", as hereafter amended from time to time. "Class B EPS" shall mean the Class B Exchangeable Preferred Shares, par value $0.01 per share, of the Trust created pursuant to the Class B Articles Supplementary. "Class B EPS Cash Option" shall have the meaning set forth in paragraph (a)(ii) of Section 3 hereof. "Class B EPS Delivery Option" shall have the meaning set forth in paragraph (a)(ii) of Section 3 hereof. "Class B EPS Redemption Option" shall have the meaning set forth in paragraph (a)(ii) of Section 3 hereof. "Class B EPS Request" shall have the meaning set forth in paragraph (a) of Section 2 hereof. "Class B Liquidation Preference" shall have the meaning -2- 3 set forth in paragraph (b) of Article 6.16.4 of the Declaration. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Corporation" shall mean Starwood Lodging Corporation, a Maryland corporation, and any successor. "Corporation Shares" shall mean the shares of common stock, par value $.01 per share, of the Corporation or any stock of the Corporation into which such common stock may hereafter be changed. "Cross-Over Date" shall mean the fifth anniversary of the Issue Date; provided that in the event that the CrossOver Date referred to in the Declaration is extended pursuant to Article 6.16.9 thereof, the Cross-Over Date for the purposes of this Agreement shall be similarly extended. "Current Market Price" of publicly traded Paired Shares or any other shares of beneficial interest or other securities of the Trust or any other issuer as of any Trading Day shall mean the last reported sales price, regular way, on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the NYSE or, if such shares or other securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such shares or other securities are listed or admitted for trading or, if not listed or admitted for trading on any national securities exchange, on the NASDAQ National Market or, if such shares or other securities are not quoted on such NASDAQ National Market, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such shares or other securities on such day shall not have been reported through NASDAQ, the average of the bid and asked prices on such day as furnished by any NYSE member firm regularly making a market in such security selected for such purpose by the Chief Executive Officer or Chief Financial Officer of the Trust or the Board of Trustees. "Declaration" shall mean the Amended and Restated Declaration of Trust of the Trust, as amended from time to time. "Delivered Shares" shall have the meaning set forth in paragraph (e) of Section 3 hereof. "Disinterested Members" when used with respect to the -3- 4 Trust has the meaning set forth in the Code of Regulations of the Trust and, when used with respect to the Corporation, has the meaning set forth in the By-Laws of the Corporation, in each case as amended from time to time. "Election Notice" shall have the meaning set forth in paragraph (a) of Section 3 hereof. "Excess Shares" shall have the meaning set forth in paragraph (e) of Section 3 hereof. "Exchange Promissory Note" shall mean an unsecured promissory note of the Trust in such form as the Trust shall reasonably prescribe with a maturity date ninety (90) days after the date of issuance of such note. Such Exchange Promissory Note shall bear interest in a amount equal to (i) in the case of the substitution of an Exchange Promissory Note for Paired Shares constituting Excess Shares pursuant to Section 3(e) hereof, the amount of any dividends paid during the period that such note remains outstanding on a number of Paired Shares equal to the number of Paired Shares for which such Exchange Promissory Note is being substituted and (ii) in the case of the substitution of an Exchange Promissory Note for any shares of Class B EPS constituting Excess Shares pursuant to such Section, the amount of any dividends accrued (whether or not paid) during the period that such note remains outstanding on a number of shares of Class B EPS equal to the number of shares of Class B EPS for which such Exchange Promissory Note is being substituted, which interest shall be payable on the dates of payment of the corresponding dividends. "Exchange Ratio" shall have the meaning set forth in paragraph (b) of Section 3 hereof. "Issue Date" shall mean the first date on which shares of Class A EPS and Class B EPS are issued by the Trust pursuant to the Transaction Agreement. "Letter of Transmittal" shall have the meaning set forth in paragraph (a) of Section 2 hereof. "NYSE" shall mean the New York Stock Exchange. "Offered Shares" shall have the meaning set forth in paragraph (e) of Section 3 hereof. "Ownership Limit" shall have the meaning set forth in Section 6.12 of the Declaration. "Paired Shares" shall mean units consisting of one Trust Share paired with one Corporation Share and -4- 5 represented by a single share certificate, as provided in the Pairing Agreement dated as of June 25, 1980, between the Trust and the Corporation, as amended from time to time, subject to any changes in the securities constituting a unit of Paired Shares under such Pairing Agreement from time to time. "Paired Shares Delivery Option" shall have the meaning set forth in paragraph (a)(i) of Section 3 hereof. "Paired Shares Cash Option" shall have the meaning set forth in paragraph (a)(i) of Section 3 hereof. "Paired Shares Redemption Option" shall have the meaning set forth in paragraph (a)(i) of Section 3 hereof. "Paired Shares Request" shall have the meaning set forth in paragraph (a) of Section 2 hereof. "Person" shall mean any individual, firm, partnership, corporation, limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. "Registered Sale Option" shall have the meaning set forth in paragraph (e) of Section 3 hereof. "REIT Rules" shall mean the requirements (i) for the Trust to qualify as a real estate investment trust under the Code as set forth in Sections 856(a)(5) and 856(a)(6) of the Code and (ii) for the Corporation or any affiliate of the Corporation which is a tenant of the Trust to not be treated as a related party pursuant to Section 856(d)(2)(B) of the Code. "Requested Shares" shall have the meaning set forth in paragraph (e) of Section 3 hereof. "RP Special Distribution" shall have the meaning set forth in paragraph (f) of Section 3 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended. "Trading Day" with respect to publicly traded Paired Shares or any other shares of beneficial interest or other securities of the Trust or any other issuer shall mean any day on which the securities in question are traded on the NYSE, or if such securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national -5- 6 securities exchange, on the NASDAQ National Market, or if such securities are not quoted on such NASDAQ National Market, in the applicable securities market in which such securities are traded. "Transaction Agreement" shall have the meaning set forth in the Recitals. "Transfer Agent" shall mean ChaseMellon Shareholder Services, L.L.C. (or any successor thereof), or such other agent or agents of the Trust as may be designated by the Board of Trustees or their designee as the transfer agent for the Class B EPS and/or the Paired Shares. "Trust" shall mean Starwood Lodging Trust, a Maryland real estate investment trust, and any successor. "Trust Shares" shall mean the common shares of beneficial interest in the Trust, par value $.01 per share, or any shares of beneficial interest in the Trust into which such common shares may be changed. "Westin Transaction Securities" shall mean, with respect to a holder of Class A RP Units or an affiliate thereof, any shares of Class A EPS, shares of Class B EPS, Class A RP Units and Starwood Operating Partnership Units (as defined in the Transaction Agreement) received by such holder or affiliate pursuant to the Transaction Agreement, together with any shares of Class B EPS, Class A EPS or Paired Shares (or other securities) issued upon exchange or conversion of any such Westin Transaction Securities. SECTION 2. RIGHT TO TENDER CLASS A RP UNITS. (a) Upon the terms and subject to the conditions of this Agreement, each registered holder of Class A RP Units will have the right to tender outstanding Class A RP Units to the Trust. In order for Class A RP Units to be validly tendered pursuant to this Agreement, the registered holder thereof shall deliver to the Trust, at the address provided pursuant to Section 9 , (i) a completed and duly executed Letter of Transmittal in the form attached hereto as Exhibit A (the "Letter of Transmittal") and any other documents required by the Letter of Transmittal and (ii) a certificate (duly executed on behalf of such holder by an officer, partner, manager or other duly authorized representative of such holder, if such holder is not an individual) setting forth (A) the number of Trust Shares and Corporation Shares held directly by such holder, and in the case of WHWE L.L.C. ("WHWE"), held by Whitehall Real Estate Limited Partnership ("Whitehall"), GS Capital Partners, L.P. ("GSCP") or The Goldman Sachs Group, L.P. (other than shares held in "street name" for third parties or shares held in accounts for unaffiliated third parties) and -6- 7 (B) the number of partners in Whitehall or GSCP with a 25% or greater interest in the profits or capital of Whitehall or GSCP, respectively. In addition, in the event of a tender of Class A RP Units by WHWE, the Trust may deliver to WHWE a list of the Trust's ten largest shareholders, in which event, WHWE shall certify to the Trust the identity of any such shareholders that are directly partners of Whitehall or GSCP in a partnership in which WHWE or GSCP and such shareholder are both partners with a 25% or greater interest in the profits and capital of such partnership. In such Letter of Transmittal, the registered holder of the Class A RP Units being tendered shall specify which Class A RP Units such holder desires to exchange for Paired Shares (a "Paired Shares Request") and which Class A RP Units such holder desires to exchange for shares of Class B EPS (a "Class B EPS Request"); provided that no Class B EPS Request may be made unless the Letter of Transmittal is delivered to the Trust on or prior to the Cross-Over Date. The Trust shall make all determinations as to the validity and form of any tender of Class A RP Units in accordance with the provisions of this Agreement and upon rejection of a tender shall give the tendering holder written notice of such rejection, which shall include the reasons therefor. (b) Unless otherwise determined by agreement of the Trust, tenders of Class A RP Units pursuant to this Agreement shall be irrevocable and shall not be subject to withdrawal or modification; provided that in the event that the issuance of the full number of Requested Shares pursuant to any tender of Class A RP Units would violate either the Ownership Limit or the REIT Rules and either (i) the Trust elects pursuant to Section 3(e) below to deliver an Exchange Promissory Note in substitution for any Excess Shares or (ii) the Trust exercises the Registered Sale Option with respect to any such Excess Shares, the holder of the Class A RP Units tendered will have the right to withdraw his or her Letter of Transmittal as to the Excess Shares for which such Exchange Promissory Note is proposed to be substituted or with respect to which such Registered Sale Option is being exercised, which withdrawal must be made by written notice to the Trust within ten (10) Business Days after receipt of the applicable Election Notice. (c) The rights to exchange Class A RP Units pursuant to this Agreement constitute a continuous offer and may not be withdrawn, amended or modified by the Trust without the prior written consent of each registered holder of outstanding Class A RP Units adversely affected by such withdrawal, amendment or modification; provided that any withdrawal, amendment or modification that does not adversely affect any holder of outstanding Class A RP Units may be effected without the consent of such holder. -7- 8 SECTION 3. ACCEPTANCE OF TENDER; DELIVERY OF ELECTION NOTICE. (a) Subject to paragraph (c) below, as promptly as practicable (and in any event within ten (10) Business Days) after receipt of a Letter of Transmittal and all related documents and certifications, the Trust shall elect, pursuant to an election notice given to the registered holder who delivered such Letter of Transmittal to the Trust (an "Election Notice"), to take one or more of the following actions with respect to the Class A RP Units subject to such Letter of Transmittal: (i) with respect to any such Class A RP Units for which a Paired Shares Request has been made, the Trust shall elect either (A) to issue to the registered holder a number of Paired Shares equal to the number of such Class A RP Units (including procuring the issuance by the Corporation of the Corporation Shares component of such Paired Shares) (the "Paired Shares Delivery Option"), (B) to pay to such holder the Cash Equivalent of such Paired Shares determined as of the date of such Election Notice (the "Paired Shares Cash Option"), (C) to cause the Realty Partnership to redeem such Class A RP Units for a cash redemption price equal to such Cash Equivalent of such Paired Shares (the "Paired Shares Redemption Option") or (D) any combination of the actions described in the foregoing clauses (A), (B) and (C); and (ii) with respect to any Class A RP Units for which a valid Class B EPS Request has been made, the Trust shall elect either (A) to issue to the registered holder a number of shares of Class B EPS equal to the number of such Class A RP Units multiplied by the Exchange Ratio (as determined pursuant to paragraph (b) below) in effect as of the date of such Election Notice (the "Class B EPS Delivery Option"), (B) to pay to such registered holders an amount in cash equal to the Class B Liquidation Preference of such shares of Class B EPS at such time (the "Class B EPS Cash Option"), (C) to cause the Realty Partnership to redeem such Class A RP Units for a cash redemption price equal to such Class B Liquidation Preference of such shares of Class B EPS at such time (the "Class B EPS Redemption Option") or (D) any combination of the actions described in the foregoing clauses (A), (B) and (C). (b) The "Exchange Ratio" of shares of Class B EPS for each Class A RP Unit at any time shall be equal to one (1) divided by the number of Class B Underlying Paired Shares (as defined in the Class B Articles Supplementary) for which each share of Class B EPS is then indirectly exchangeable as of such date (determined without taking into consideration any Class A Dividend Replacement Shares or Class B Dividend Replacement Shares, as defined in the Class A Articles Supplementary and Class B Articles Supplementary, respectively). -8- 9 (c) (i) If, at any time after the Issue Date, the Trust or the Corporation shall become a party to any transaction, including, without limitation, a merger, consolidation, statutory share exchange, self tender offer for all or substantially all outstanding Trust Shares and/or Corporation Shares, sale of all or substantially all of the Trust's or the Corporation's assets or recapitalization of the Trust Shares and/or the Corporation Shares (but excluding any event constituting a Trust Common Adjustment Event or a Corporation Common Adjustment Event) (each of the foregoing being referred to herein as a "Paired Shares Transaction"), in each case as a result of which the outstanding Trust Shares and/or Corporation Shares shall be converted into or exchanged for the right to receive stock, securities or other property (including cash or any combination thereof), effective as of the effective date of such Paired Shares Transaction, each unit of Paired Shares issuable upon tender of Class A RP Units hereunder shall thereafter be deemed to consist of the kind and amount of shares of beneficial interest in the Trust, shares of stock of the Corporation and other securities and property (including cash or any combination thereof) that would have been held or receivable upon the consummation of such Paired Shares Transaction by a holder of a number of Paired Shares equal to the number of Class A RP Units so tendered assuming such holder of Paired Shares (A) is not a Person with which the Trust or the Corporation consolidated or into which the Trust or the Corporation was merged or which merged into the Trust or the Corporation or to which such sale or transfer was made, as the case may be (a "constituent person"), or an affiliate of a Constituent Person and (B) failed to exercise his or her rights of election, if any, as to the kind or amount of stock, securities and other property (including cash) receivable upon such Paired Shares Transaction (provided that if the kind or amount of stock, securities and other property (including cash) receivable upon such Paired Shares Transaction is not the same for each unit of Paired Shares held immediately prior to such Paired Shares Transaction by other than a constituent person or an affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-Electing Shares"), then for the purposes of this subparagraph (ii) the kind and amount of stock, securities and other property (including cash) receivable upon such Paired Shares Transaction in respect of each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). The provisions of this paragraph (i) shall similarly apply to successive Paired Shares Transactions. (ii) If, at any time after the Issue Date, the Trust shall become a party to any transaction, including, without limitation, a merger, consolidation, statutory share exchange, self tender offer for all or substantially all outstanding Trust Shares, sale of all or substantially all of the Trust's assets or -9- 10 recapitalization of the Class B EPS (each of the foregoing being referred to herein as a "Class B Transaction"), in each case as a result of which the outstanding shares of Class B EPS shall be converted into or exchanged for the right to receive stock, securities or other property (including cash or any combination thereof), effective as of the effective date of such Class B Transaction, each share of Class B EPS issuable upon tender of Class A RP Units shall thereafter be deemed to consist of the kind and amount of shares of stock and other securities and property (including cash or any combination thereof) that would have been held or receivable upon the consummation of such Class B Transaction by a holder of a number of shares of Class B EPS equal to the number of Class A RP Units being tendered, assuming such holder of shares of Class B EPS (A) is not a Person with which the Trust consolidated or into which the Trust was merged or which merged into the Trust or to which such sale or transfer was made, as the case may be, or an affiliate of such a constituent person and (B) failed to exercise his or her rights of election, if any, as to the kind or amount of stock, securities an other property (including cash) receivable upon such Class B Transaction (provided that if the kind or amount of stock, securities and other property (including cash) receivable upon such Class B Transaction is not the same for each share of Class B EPS held immediately prior to such Class B Transaction by other than a constituent person or an affiliate thereof and in respect of which such rights of election shall not have been exercised, then for the purposes of this subparagraph (ii) the kind and amount of stock, securities and other property (including cash) receivable upon such Class B Transaction by each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). The provisions of this paragraph (ii) shall similarly apply to successive Class B Transactions. (d) Notwithstanding any other provision of this Agreement, no Paired Shares or shares of Class B EPS shall be issued or paid in respect of any tender of Class A RP Units prior to the expiration or termination of the waiting period applicable to such issuance or payment, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as it may be amended from time to time. (e) If the delivery to a registered holder tendering Class A RP Units of the full number(s) of Paired Shares and/or shares of Class B EPS requested to be delivered pursuant to the Letter of Transmittal (the "Requested Shares") would result in a violation of either the Ownership Limit or the REIT Rules, the Trust may elect in the Election Notice, in lieu of the options described in paragraph (a) above (i) to deliver to such holder the maximum number(s) of Paired Shares and/or shares of Class B EPS, as applicable, (which maximum numbers, in the case of a Letter of Transmittal containing both a Paired Shares Request and -10- 11 a Class B EPS Request, shall represent the same percentage of the numbers of Paired Shares and shares of Class B EPS, respectively, comprising such Requested Shares) that may be delivered without causing such a violation (the "Delivered Shares", with the Requested Shares in excess of the Delivered Shares being referred to herein as the "Excess Shares") and (ii) (A) in respect of any Paired Shares included in such Excess Shares either (1) to pay such holder the Cash Equivalent of such Paired Shares determined as of the date of such Election Notice, (2) to deliver to such holder an Exchange Promissory Note in a principal amount equal to such Cash Equivalent or (3) to cause the Realty Partnership to redeem a corresponding number of Class A RP Units for a cash redemption price equal to such Cash Equivalent and (B) in respect of any shares of Class B EPS included in such Excess Shares, either (1) to make a cash payment to such holder equal to the Class B Liquidation Preference of such shares as of such date, (2) to deliver to such holder an Exchange Promissory Note in a principal amount equal to such Class B Liquidation Preference or (3) to cause the Realty Partnership to redeem a corresponding number of Class A RP Units for a cash redemption price equal to such Class B Liquidation Preference. Notwithstanding the foregoing, in the event that the delivery of the full number of Requested Shares pursuant to a Letter of Transmittal would violate either the Ownership Limit or the REIT Rules because the registered holder of Class A RP Units tendering Class A RP Units, together with such holder's affiliates (but without giving effect to any other applicable attribution rules under the Code), beneficially owns, at the date of the Election Notice, Paired Shares and/or shares of Class B EPS other than through the ownership of Westin Transaction Securities, the Trust will have the option (the "Registered Sale Option"), exercisable in the Election Notice, in lieu of delivering an Exchange Promissory Note in a principal amount equal to the Cash Equivalent of the any Paired Shares included in the Excess Shares or the Class B Liquidation Preference of any shares of Class B EPS included in the Paired Shares, to procure the filing of a registration statement under the Securities Act, and to publicly offer and sell pursuant to such registration statement in such manner as the Trust in good faith determines to be appropriate (x) a number of Paired Shares equal to the number of Paired Shares included in such Excess Shares or (y) a number of Paired Shares equal to the number of Class B Underlying Paired Shares (as defined in the Class B Articles Supplementary) for which the shares of Class B EPS included in such Excess Shares are then indirectly exchangeable as of such date (determined without taking into consideration any Class A Dividend Replacement Shares or Class B Dividend Replacement Shares, as defined in the Class A Articles Supplementary and Class B Articles Supplementary, respectively) (in either such case, the "Offered Shares"), the net proceeds of which sale (after deducting any applicable underwriting discounts or commissions and the expenses of such offering) shall be paid to such holder. -11- 12 (f) If, as of the date of the Election Notice given by the Trust with respect to any tender of Class A RP Units, there are any accrued but unpaid RP Special Distributions (as defined in the Certificate of Admission), then: (i) the number of shares of Class B EPS issuable in exchange for each Class A RP Unit with respect to which a Class B EPS Request has been made shall be increased by a number of shares equal to (A) the amount of such accrued but unpaid RP Special Distributions divided by (B) the product of (1) the number of Class B Underlying Paired Shares (as defined in the Class B Articles Supplementary) for which each share of Class B EPS is then indirectly exchangeable as of such date (determined without taking into consideration any Class A Dividend Replacement Shares or Class B Dividend Replacement Shares, as defined in the Class A Articles Supplementary and Class B Articles Supplementary, respectively) multiplied by (2) the Cash Equivalent of each Paired Share as of such date and (ii) the number of Paired Shares issuable in exchange for each Class A RP Unit with respect to which a Paired Shares Request has been made shall be increased by a number of shares equal to (A) the amount of such accrued but unpaid RP Special Distributions divided by (B) the Cash Equivalent of each Paired Share as of such date. SECTION 4. DELIVERY OF SECURITIES AND/OR CASH TO HOLDER. (a) If the Election Notice relating to any tender of Class A RP Units pursuant to this Agreement does not give rise to a withdrawal right pursuant to Section 2(b) above, such Election Notice shall be accompanied by the delivery of the Paired Shares, shares of Class B EPS and/or cash required to be delivered pursuant to such Election Notice. If the Election Notice does give rise to such a withdrawal right, but such right is not exercised by the holder that delivered the related Letter of Transmittal, the Trust shall deliver the Paired Shares, shares of Class B EPS, Exchange Promissory Note(s) and/or cash required to be delivered pursuant to such Election Notice within five (5) Business Days after the expiration of such withdrawal right. (b) If the Election Notice includes the exercise of the Registered Sale Option, the proceeds from the sale of the Offered Shares shall be paid over to the applicable registered holder promptly upon receipt. Any cash payable to such registered holder hereunder shall be payable at the election of the Trust by check or by wire transfer to an account designated in writing by such holder, if one has been so designated. (c) With respect to any Paired Shares to be issued pursuant to an Election Notice, the Trust shall issue and deliver (and shall cause the Corporation to issue and deliver) at the office of the Trust (or, at the option of the Trust, at the office of the Transfer Agent) to the applicable registered holder -12- 13 a certificate or certificates for the number of full Paired Shares deliverable in accordance with the provisions of Section 3 above, and any fractional interest in respect of a unit of Paired Shares otherwise deliverable pursuant to such provisions shall be settled as provided in paragraph (d) below. With respect to any shares of Class B EPS to be issued pursuant to an Election Notice, the Trust shall issue and deliver at the office of the Trust (or, at the option of the Trust, at the office of the Transfer Agent) to the applicable registered holder a certificate or certificates for the number of full shares of Class B EPS deliverable in accordance with the provisions of Section 3 above, and any fractional interest in respect of a share of Class B EPS otherwise deliverable pursuant to such provisions shall be settled as provided in paragraph (d) below. (d) No fractional units of Paired Shares or shares of Class B EPS or scrip evidencing fractions of units of Paired Shares or shares of Class B EPS shall be issued upon any tender of Class A RP Units pursuant to this Agreement. Instead of any fractional interest in a unit of Paired Shares that would otherwise be deliverable in connection with such tender, the Trust shall pay to the registered holder an amount in cash equal to the corresponding fraction of the Current Market Price of the Paired Shares on the Trading Day immediately preceding the date of the applicable Election Notice, and instead of any fractional interest in a share of Class B EPS that would otherwise be deliverable in connection with such tender, the Trust shall pay to the registered holder an amount in cash equal to the corresponding fraction of the product of (x) the Current Market Price of the Paired Shares on the Trading Day immediately preceding the date of the applicable Election Notice multiplied by (y) the number of Class B Underlying Paired Shares (as defined in the Class B Articles Supplementary) for which each share of Class B EPS is then indirectly exchangeable as of such date (determined without taking into consideration any Class A Dividend Replacement Shares or Class B Dividend Replacement Shares, as defined in the Class A Articles Supplementary and Class B Articles Supplementary, respectively). If more than one Letter of Transmittal shall be delivered at one time by the same registered holder, the numbers of full Paired Shares and full shares of Class B EPS which shall be issuable upon exchange of the Class A RP Units tendered thereby shall be computed on the basis of the aggregate number of Class A RP Units so tendered. (e) The Trust covenants that any Paired Shares and shares of Class B EPS issued pursuant to this Agreement will be validly issued, fully paid and non-assessable. If a registered holder exchanges Class A RP Units pursuant to this Agreement, the Trust shall pay any documentary, stamp or similar issue or transfer tax due on any issuance of Paired Shares and/or shares of Class B EPS upon such exchange. Such holder, however, shall (i) pay to the Trust the amount of any additional documentary, -13- 14 stamp or similar issue or transfer tax which is due (or shall establish to the satisfaction of the Trust the payment thereof) as a result of Paired Shares or shares of Class B EPS being issued in a name other than the name of such holder and (ii) be responsible for all income or other taxes as a result of such exchange. (f) The Trust shall have the right to affix to any certificates evidencing Paired Shares or shares of Class B EPS issued pursuant to this Agreement: (i) any restrictive legend required in order for such issuance to be in compliance with the Securities Act and any applicable state securities laws, (ii) if applicable, a legend referring to the transfer restrictions provided for in Section 6.16(f) of the Transaction Agreement and (iii) any other legend required in order to comply with any applicable law. SECTION 5. IMPLEMENTATION OF REDEMPTION OPTION. In the event that the Trust exercises the Paired Shares Redemption Option or the Class B EPS Redemption Option, the Trust shall cause the Realty Partnership to redeem the corresponding Class A RP Units as soon as practicable after the date of the Election Notice. The cash redemption price payable to the registered holder pursuant to such Paired Shares Redemption Option or Class B EPS Redemption Option shall be paid by the Realty Partnership at its election by check or by wire transfer to an account designated in writing by such holder, if one has been so designated. SECTION 6. REPRESENTATIONS OF TENDERING HOLDER. Each tender of Class A RP Units shall constitute a representation and warranty by the tendering holder of each of the representations and warranties set forth in the form of Letter of Transmittal. Without limiting the generality of the foregoing, unless, at the time of a tender for exchange of Class A RP Units pursuant to this Agreement, a registration statement relating to any Paired Shares and/or shares of Class B EPS to be delivered upon such tender is effective under the Securities Act, such tender shall constitute a representation and warranty by the tendering holder to the Trust that such tendering holder (i) is an "accredited investor" within the meaning of Rule 501 under the Securities Act, (ii) has sufficient knowledge and experience in financial and business matters and in investing in entities similar to the Realty Partnership, the Trust and the Corporation so as to be able to evaluate the risks and merits of its investment in the Trust and it is able financially to bear the risks thereof, (iii) has had an opportunity to discuss the business, management and financial affairs of the Realty Partnership, the Trust and the Corporation with the management of the Realty Partnership, the Trust and the Corporation, and (iv) understands the Paired Shares and shares of Class B EPS issuable pursuant to this Agreement -14- 15 have not and will not have been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act and such Paired Shares and shares of Class B EPS must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act and applicable state securities laws or is exempt from such registration. SECTION 7. STATUS OF TENDERING HOLDER. Until the holder of Class A RP Units tendered pursuant to this Agreement becomes a holder of record of the Paired Shares and/or shares of Class B EPS issued in exchange therefor (in the case of an exercise of the Paired Shares Delivery Option and/or the Class B EPS Delivery Option, as applicable) or until such holder has received cash in exchange therefor (in the case of an exercise of the Paired Shares Cash Option, the Paired Shares Redemption Option, the Class B EPS Cash Option and/or the Class B EPS Redemption Option, as applicable) and until the holder has received an Exchange Promissory Note in substitution for any Excess Shares or until the holder has received the proceeds from the sale of the corresponding Offered Shares (in the case of an exercise of the Registered Sale Option), such holder shall continue to hold and own the corresponding Class A RP Units for all purposes of the Realty Partnership Agreement. In the case of an exercise of the Paired Shares Delivery Option or Class B EPS Delivery Option, no such holder shall have any rights as a shareholder of the Trust or a stockholder of the Corporation in respect of such Paired Shares, or as a shareholder of the Trust in respect of such shares of Class B EPS, until such holder becomes a holder of record of such Paired Shares or shares of Class B EPS. SECTION 8. RESERVATION OF SHARES; CLOSING OF TRANSFER BOOKS. (a) The Trust shall reserve and shall at all times have reserved out of its authorized but unissued Trust Shares, solely for the purpose of effecting the exchange pursuant to this Agreement, enough Trust Shares to permit the exchange of the then outstanding Class A RP Units for Paired Shares pursuant to this Agreement and shall use its best efforts to cause the Corporation to reserve and shall at all times have, solely for the purpose of effecting such exchange, enough Corporation Shares to permit such exchange. In addition, until the Cross-Over Date, the Trust shall reserve and shall at all times have reserved out of its authorized but unissued shares of Class B EPS, solely for the purpose of effecting the exchange pursuant to this Agreement, enough shares of Class B EPS to permit the exchange of the then outstanding Class A RP Units for shares of Class B EPS pursuant to this Agreement. (b) The Trust shall use its best efforts to cause the -15- 16 Corporation not to close its transfer books so as to prevent the timely issuance of Corporation Shares pursuant to this Agreement. The Trust shall not close its transfer books so as to prevent the timely issuance of Trust Shares or shares of Class B EPS pursuant to this Agreement. SECTION 9. NOTICES. All notices, documents and other communications under this Agreement shall be in writing and shall be deemed given when delivered personally or by overnight mail or when sent by facsimile transmission, or four days after being mailed (by registered mail, return receipt requested) to a party at the following address (or to such other address as such party may have specified by notice given to the other parties pursuant to this provision): (a) If to the Trust or the Realty Partnership, to: Starwood Lodging Trust 2231 E. Camelback Road, Suite 410 Phoenix, AZ 85016 Attention: General Counsel Telecopy No.: (602) 852-0686 Telephone No.: (602) 852-3900 with a copy to: Sidley & Austin 555 West 5th Street Los Angeles, California 90013 Attention: Sherwin L. Samuels Telecopy No.: (213) 896-6600 Telephone No.: (213) 896-6000 (b) If to any Westin Limited Partner, to the address specified on Schedule I hereto. with a copy to: Sullivan & Cromwell 125 Broad Street New York, NY 10004 Attention: Joseph C. Shenker Telecopy No.: (212) 558-3588 Telephone No.: (212) 558-4000 SECTION 10. DETERMINATIONS AND INTERPRETATION. All agreements between the Trust, the Realty Partnership and the Westin Limited Partners provided for in (or required by or pursuant to) this Agreement shall be made on behalf of the Trust and the Realty Partnership by their respective Disinterested -16- 17 Members, including, without limitation, any agreement between the Trust, the Realty Partnership and the Westin Limited Partners as to the election by the Trust of the Paired Shares Delivery Option, the Paired Shares Cash Option, the Paired Shares Redemption Option, the Class B EPS Delivery Option, the Class B EPS Cash Option or the Class B EPS Redemption Option with respect to a tender of Class A RP Units pursuant to Section 2(a), any agreement to permit the revocation, withdrawal or modification of a tender of Class A RP Units pursuant to Section 2(b). All interpretations of the terms of this Agreement shall be resolved on behalf of the Trust by its Disinterested Members. SECTION 11. PARTIAL INVALIDITY. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein unless the deletion of such provision or provisions would result in such a material change as to cause completion of the transactions contemplated hereby to be unreasonable. SECTION 12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors or assigns. In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of the parties hereto other than the Trust, the Realty Partnership and the Westin Limited Partners, shall also be for the benefit of and enforceable by any subsequent holder of any Class Units. SECTION 13. EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be considered an original counterpart, and shall become a binding agreement when the Trust, the Realty Partnership and the Westin Limited Partners shall have each executed a counterpart of this Agreement. SECTION 14. TITLES AND HEADINGS. Titles and headings to Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. SECTION 15. EXHIBITS. The Exhibits referred to in this Agreement shall be construed with, and as an integral part of, this Agreement to the same extent as if the same had been set forth verbatim herein. -17- 18 SECTION 16. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, including the Exhibits, contains the entire understanding of the parties hereto with regard to the subject matter contained herein. In addition to amendments and modifications permitted by Section 2(c), the parties hereto, by mutual agreement in writing, may amend, modify and supplement this Agreement; provided that any such amendment, modification or supplement shall be approved by a majority of the Disinterested Members of the Trust. The failure of any party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of such party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. SECTION 17. GOVERNING LAW. Except to the extent that Maryland law is mandatorily applicable to the rights and obligations of the shareholders of the Trust and the stockholders of the Corporation, this Agreement, and the application or interpretation thereof, shall be governed exclusively by its terms and by the internal laws of the State of New York, without regard to principles of conflicts of laws as applied in the State of New York or any other jurisdiction which, if applied, would result in the application of any laws other than the internal laws of the State of New York. SECTION 18. SUBMISSION TO JURISDICTION. Each of the parties hereto irrevocably submits and consents to the jurisdiction of the United States District Court for the Southern District of New York in connection with any action or proceeding arising out of or relating to this Agreement, and irrevocably waives any immunity from jurisdiction thereof and any claim of improper venue, forum non conveniens or any similar basis to which it might otherwise be entitled in any such action or proceeding. SECTION 19. SPECIFIC PERFORMANCE. Each of the parties acknowledges and agrees that in the event of any breach of this Agreement, the non-breaching party or parties would be irreparably harmed and could not be made whole by monetary damages. The parties hereby agree that in addition to any other remedy to which they may be entitled at law or in equity, they shall be entitled to compel specific performance of this Agreement in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction for such action. -18- 19 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto or by their duly authorized officers, all as of the date first above written. STARWOOD LODGING TRUST, a Maryland Trust By:_________________________ Name: Title: SLT REALTY LIMITED PARTNERSHIP By: STARWOOD LODGING TRUST, general partner By:_________________________ Name: Title: WHWE L.L.C., a Delaware limited liability company By: Whitehall Street Real Estate Limited Partnership V, Member and Manager By: WH Advisors, L.P.V, General Partner By: WH Advisors, Inc. V, General Partner By:_________________________ Name: Title: WOODSTAR INVESTOR PARTNERSHIP, a Delaware General Partnership By: Marswood Investors, L.P., General Partner By: Starwood Capital Group, L.P., 20 General Partner By: BSS Capital Partners, L.P., General Partner By: Sternlicht Holdings II, Inc., General Partner By:_________________________ Name: Title: NOMURA ASSET CAPITAL CORPORATION, a Delaware Corporation By:_________________________ Name: Title: 21 SCHEDULE I TO EXCHANGE RIGHTS AGREEMENT NOTICE ADDRESS FOR HOLDERS 1) If to WHWE, L.L.C., to: 85 Broad Street New York, New York 10004 Attention: Stuart Rothenberg Telecopier: (212) 357-5505 2) If to Woodstar Investor Partnership, to: Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Attention: Barry S. Sternlicht Telecopier: (203) 861-2101 3) If to Nomura Asset Capital Corporation, to: Two World Financial Center, Building B New York, New York 10281 Attention: Daniel S. Abrams Telecopier: (212) 667-1666 22 EXHIBIT A TO EXCHANGE RIGHTS AGREEMENT LETTER OF TRANSMITTAL To Tender Units of Class A Realty Partnership Units Pursuant to the Exchange Rights Agreement Dated as of January 2, 1998 TO: Starwood Lodging Trust 2231 E. Camelback Road, Suite 410 Phoenix, AZ 85016 Attention: General Counsel
DESCRIPTION OF UNITS - ------------------------------------------------------------------------------------------------------------------- NAME(S) AND UNITS NUMBER OF NUMBER OF ADDRESS(ES) OF TENDERED UNITS UNITS REGISTERED OWNERS (ATTACH REQUESTED TO REQUESTED TO ADDITIONAL BE EXCHANGED BE EXCHANGED LIST IF FOR PAIRED FOR CLASS B NECESSARY) SHARES EPS(1) TOTAL - --------
(1) For a Class B EPS Request to be valid, this letter of Transmittal must be delivered to the Trust on or prior to the Cross-over Date. 23 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Starwood Lodging Trust (the "Trust") the above-described Class A RP Units (as defined in the Exchange Rights Agreement (Class A Realty Partnership Units) dated as of January 2, 1998 (the "Exchange Rights Agreement")) in accordance with the terms and conditions of the Exchange Rights Agreement and this Letter of Transmittal (which together constitute the "Offer"), receipt of which is hereby acknowledged. All terms used herein but not defined herein are used as defined in the Exchange Rights Agreement. Subject to, and effective upon the issuance of Paired Shares and/or shares of Class B EPS and/or the delivery of cash or other specified consideration, as the case may be, for the Class A RP Units tendered hereby, the undersigned hereby assigns and transfers to the Trust all right, title and interest in and to all the Class A RP Units that are being tendered hereby and irrevocably constitutes and appoints the Trust (the "Class A Unit Agent"), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) transfer such Class A RP Units on the books of the Realty Partnership and (b) receive all rights, privileges and benefits, and any and all obligations and liabilities appertaining thereto and otherwise exercise all rights of beneficial ownership of such Class A RP Units, all in accordance with the terms of the Offer. The undersigned hereby represents and warrants to the Trust that the undersigned has full power and authority to tender, sell, assign and transfer the tendered Class A RP Units and that upon payment therefor, the Trust will acquire unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and the same will not be subject to any adverse claim. The undersigned will, upon request, execute any additional documents deemed by the Trust to be reasonably necessary or desirable to complete the sale, assignment and transfer of the tendered Class A RP Units. Unless a registration statement relating to any Paired Shares and/or Class B EPS to be delivered to the undersigned is effective under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned hereby represents and warrants to the Trust that the undersigned (A) is an "accredited investor" within the meaning of Rule 501 under the Securities Act, or (B) has sufficient knowledge and experience in financial and business matters and in investing in entities similar to the -23- 24 Realty Partnership, the Corporation and the Trust so as to be able to evaluate the risks and merits of its investment in the Realty Partnership, the Corporation and the Trust and it is able financially to bear the risks thereof, and in either case (i) has had an opportunity to discuss the business, management and financial affairs of the Realty Partnership, the Corporation and the Trust with the management of the Realty Partnership, the Corporation and the Trust and (ii) understands that any such Paired Shares and/or Class B EPS have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act and any such Paired Shares and/or Class B EPS must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act and applicable state securities laws or is exempt from such registration. If not sold pursuant to an effective registration statement, any such Paired Shares and/or Class B EPS will bear an appropriate legend indicating that such Paired Shares and/or Class B EPS have not been registered under the Securities Act and resale of such Paired Shares and/or Class B EPS is restricted under applicable securities laws. All authority conferred or agreed to be conferred in this Letter of Transmittal shall not be affected by, and shall survive, the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators and legal representatives of the undersigned. The undersigned understands that, except as provided in Section 2(b) of the Exchange Rights Agreement, a tender of Class A RP Units pursuant to the Exchange Rights Agreement is irrevocable and constitutes a binding agreement between the undersigned and the Trust upon the terms and subject to the conditions of the Exchange Rights Agreement. Unless otherwise indicated under "Special Delivery Instructions", please mail any Paired Shares and/or shares of Class B EPS issuable upon exchange of the Class A RP Units tendered hereby and/or any cash payment or Exchange Promissory Note(s) deliverable pursuant to the terms of the Exchange Rights Agreement to the address(es) of the registered holder(s) appearing under "Description of Units." In the event that the Special Delivery Instructions are completed, please issue such Paired Shares and/or shares of Class B EPS and any such Exchange Promissory Note(s) and make any such cash payment in the name of the registered holder(s) and transmit the same to the person or persons so indicated. The Trust and the undersigned agree that they will cooperate with each other and will make, execute, acknowledge, -24- 25 deliver, record and file, or cause to be made, executed, acknowledged, delivered, recorded and filed, at such times and places as the other may reasonably deem necessary, all other and further documents and instruments, and will take all other and further actions, as the other may reasonably request from time to time in order to effectuate the purposes and provisions of the tender made pursuant to this Letter of Transmittal. -25- 26 SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4 AND 5) To be completed ONLY if Paired Shares and/or shares of Class B EPS and/or cash or Exchange Promissory Note(s) deliverable pursuant to the Exchange Rights Agreement are to be sent to someone other than the undersigned or to the undersigned at an address other than that above. Mail certificate(s) for Paired Shares and/or shares of Class B EPS and any Exchange Promissory Note(s) and cash payments to: Name_____________________________________________________________ (please print) Address__________________________________________________________ _________________________________________________________________ (include Zip Code) _________________________________________________________________ _________________________________________________________________ (Tax Identification or Social Security Number) SIGN HERE Complete Substitute Form W-9 included _________________________________________________________________ _________________________________________________________________ (Signature(s) of holder of Units) (Must be signed by registered holder(s) as name(s) appear(s) on books and records of the Partnership. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of Trusts or others acting in a fiduciary or representative capacity, please set forth full title and see instruction 4. Dated____________________________________________________________ Name(s)__________________________________________________________ (please print) Capacity (Full Title)_____________________________________________________ Address__________________________________________________________ -26- 27 (include Zip Code) -27- 28 Area Code and Tel. No.___________________________________________ Tax Identification or Social Security No.______________________________________________ (Complete Substitute Form W-9) Guarantee of Signature(s) (See Instruction 1) Authorized Signature________________________________________________________ Name of Firm_____________________________________________________________ Dated____________________________________________________________ INSTRUCTIONS Forming Part of the Terms and Conditions of the Exchange Rights Agreement 1. GUARANTEE OF SIGNATURE. No signature guarantee on this Letter of Transmittal is required unless the registered holder of the Class A RP Units has completed the box entitled "Special Delivery Instructions". In such case all signatures on this Letter of Transmittal must be guaranteed by a member firm of any registered national securities exchange in the United States or of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company (not a savings bank or a savings and loan association) having an office, branch or agency in the United States. 2. DELIVERY OF LETTER OF TRANSMITTAL. This Letter of Transmittal is to be completed by the holder of Class A RP Units. A properly completed and duly executed Letter of Transmittal and any other documents required by this Letter of Transmittal must be received by the Class A Unit Agent. No alternative, conditional or contingent tenders will be accepted, except as permitted pursuant to the Exchange Rights Agreement. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the Units tendered and/or other information required should be listed on a separate schedule attached hereto. 4. SIGNATURES ON LETTER OF TRANSMITTAL. The signature must correspond with the name as shown on the books and -28- 29 records of the Realty Partnership without any change whatsoever. If any of the Class A RP Units tendered hereby are owned of record by two or more joint owners, all such owners must sign the Letter of Transmittal. If any tendered Class A RP Units are registered in different names, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations. If this Letter of Transmittal is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of Trusts or others acting in a fiduciary or representative capacity, each person should so indicate when signing, and proper evidence satisfactory to the Class A Unit Agent of their authority so to act must be submitted. 5. SPECIAL DELIVERY INSTRUCTIONS. If a certificate for Paired Shares and/or shares of Class B EPS and any Exchange Promissory Note(s) and cash payment is to be sent to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. 6. WAIVER OF CONDITIONS. The Trust reserves the right to waive in its sole discretion any of the specified conditions of the Offer in the case of the Class A RP Units tendered; provided that any such waiver shall not adversely affect any holder of outstanding Class A RP Units without the consent of such holder. 7. BACK-UP WITHHOLDING. Under the Federal income tax law, a person surrendering Class A RP Units must provide the Class A Unit Agent with his correct taxpayer identification number ("TIN") on Substitute Form W-9 below unless an exemption applies. If the correct TIN is not provided, a $50 penalty may be imposed by the Internal Revenue Service and payments made in exchange for the surrendered Class A RP Units may be subject to back-up withholding of that rate provided by the Federal income tax law (such rate being at the date of the Exchange Rights Agreement, 31%). The TIN that must be provided is that of the registered holder of the Class A RP Units. The TIN for an individual is his social security number. 8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance or additional copies of the Exchange Rights Agreement and the Letter of Transmittal may be directed to the Class A Unit Agent at the address set forth -29- 30 above. IMPORTANT TAX INFORMATION Under Federal income tax laws, a holder whose tendered Class A RP Units are accepted for payment is required by law to provide the Class A Unit Agent (as payer) with his correct taxpayer identification number on Substitute Form W-9 below. If such holder is an individual, the taxpayer identification number is his social security number. If the Class A Unit Agent is not provided with the correct taxpayer identification number, the holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such holder with respect to Class A RP Units purchased pursuant to the Offer may be subject to back-up withholding. If back-up withholding applies, the Class A Unit Agent is required to withhold, at that rate provided by the Federal income tax law (such rate being at the date of the Exchange Rights Agreement 31%), of any such payments made to the holder of Class A RP Units. Paired Shares, shares of Class B EPS and any Exchange Promissory Note(s) otherwise deliverable hereunder may, at the expense (and with all risk of loss for the account) of the undersigned, be sold to pay such amounts. Back-up withholding is not an additional tax. Rather, the tax liability of persons subject to back-up withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. PURPOSE OF SUBSTITUTE FORM W-9 To prevent back-up withholding on payments that are made to a holder of Class A RP Units purchased pursuant to the Offer, the holder is required to notify the Class A Unit Agent of his correct taxpayer identification number by completing the form below certifying that the taxpayer identification number provided on Substitute Form W-9 is correct. WHAT NUMBER TO GIVE THE AGENT The holder is required to give the Class A Unit Agent the social security number or employer identification number of the record owner of the Class A RP Units. -30- 31 PAYER'S NAME: Starwood Lodging Trust Substitute Part 1 - Please provide your TIN in the box at Social Security Form W-9 right and certify by signing and dating below Number/Employer Identification Number Department of the Certification - Under the penalties of perjury, Treasury/Internal (i) I certify that the information provided on this Revenue Service form is true, correct and complete and (ii) I am not subject to backup withholding because: (a) I am exempt from backup Service withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Signature ________________________________________ Date ______________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACK-UP WITHHOLDING AT THAT RATE PROVIDED BY THE FEDERAL INCOME TAX LAW (SUCH RATE BEING AT THE DATE OF THE EXCHANGE RIGHTS AGREEMENT 31%) OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. -31- EX-10.51 28 EX-10.51 1 Exhibit 10.51 EXCHANGE RIGHTS AGREEMENT (CLASS B OPERATING PARTNERSHIP UNITS) THIS EXCHANGE RIGHTS AGREEMENT (this "Agreement") is made as of January 2, 1998 among STARWOOD LODGING CORPORATION, a Maryland Corporation (the "Corporation"), SLC OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership (the "Operating Partnership"), and certain limited partners of the Operating Partnership listed on the signature pages hereto (the "OP Limited Partners"). Unless otherwise indicated, capitalized terms used herein are used herein as defined in Section 1. WHEREAS, pursuant to a Transaction Agreement dated as of September 8, 1997 (the "Transaction Agreement") among WHWE L.L.C., Woodstar Investor Partnership, Nomura Asset Capital Corporation, Juergen Bartels, W&S Hotel L.L.C., 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., the Trust, SLT Realty Limited Partnership, Starwood Lodging Corporation and SLC Operating Limited Partnership, the OP Limited Partners are making capital contributions to the Operating Partnership in return for the issuance of Class B Operating Partnership Units ("Class B OP Units"); WHEREAS, pursuant to the Transaction Agreement the parties hereto are entering into this Agreement to provide for: (a) certain rights of OP Limited Partners to tender Class B OP Units to the Corporation on or prior to the Cross-Over Date (as defined herein) in exchange for shares of Class B EPS (as defined herein) and (b) certain rights of OP Limited Partners to tender Class B OP Units to the Corporation at any time in exchange for Paired Shares (as defined herein), subject in either such case to certain rights of the Corporation to substitute cash or other forms of consideration for such shares of Class B EPS or Paired Shares or to cause the Operating Partnership to redeem the Class B OP Units being tendered for cash, all on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, the parties hereto agree as follows: SECTION 1. DEFINITIONS. For purposes of this Agreement, the following terms have the meanings indicated: "Board of Directors" shall mean the Board of Directors of the Corporation or any committee authorized by the Board of Directors from time to time to exercise any of its powers or perform any of its responsibilities with respect to this Agreement. 2 "Business Day" shall mean any day other than a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York are not required to be open. "Cash Equivalent" of Paired Shares as of any date shall mean an amount of cash equal to (i) the average of the daily Current Market Prices per unit of such Paired Shares during the five (5) consecutive Trading Days immediately preceding such date or (ii) if the Paired Shares are not publicly traded on such date, the fair market value of such Paired Shares as of such date as determined by the Board of Directors in good faith. "Certificate of Admission" shall mean the Certificate of Admission of SLC Operating Limited Partnership dated as of January 1, 1998 pursuant to which the Class B OP Units were authorized. "Class A Articles Supplementary" shall mean Article 6.15 of the Declaration pursuant to which the Trust has classified and designated 30,000,000 shares of beneficial interest in the Trust as "Class A Exchangeable Preferred Shares", as hereafter amended from time to time. "Class A EPS" means the Class A Exchangeable Preferred Shares, par value $0.01 per share, created by the Class A Articles Supplementary. "Class B Articles Supplementary" shall mean Article 6.16 of the Declaration pursuant to which the Trust has classified and designated 15,000,000 shares of beneficial interest in the Trust as "Class B Exchangeable Preferred Shares", as hereafter amended from time to time. "Class B EPS" shall mean the Class B Exchangeable Preferred Shares, par value $0.01 per share, of the Trust created pursuant to the Class B Articles Supplementary. "Class B EPS Cash Option" shall have the meaning set forth in paragraph (a)(ii) of Section 3 hereof. "Class B EPS Delivery Option" shall have the meaning set forth in paragraph (a)(ii) of Section 3 hereof. "Class B EPS Redemption Option" shall have the meaning set forth in paragraph (a)(ii) of Section 3 hereof. "Class B EPS Request" shall have the meaning set forth in paragraph (a) of Section 2 hereof. "Class B Liquidation Preference" shall have the meaning -2- 3 set forth in paragraph (b) of Article 6.16.4 of the Declaration. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Corporation" shall mean Starwood Lodging Corporation, a Maryland corporation, and any successor. "Corporation Shares" shall mean the shares of common stock, par value $.01 per share, of the Corporation or any stock of the Corporation into which such common stock may hereafter be changed. "Cross-Over Date" shall mean the fifth anniversary of the Issue Date; provided that in the event that the CrossOver Date referred to in the Declaration is extended pursuant to Article 6.16.9 thereof, the Cross-Over Date for the purposes of this Agreement shall be similarly extended. "Current Market Price" of publicly traded Paired Shares or any other shares of beneficial interest or other securities of the Trust or any other issuer as of any Trading Day shall mean the last reported sales price, regular way, on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the NYSE or, if such shares or other securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such shares or other securities are listed or admitted for trading or, if not listed or admitted for trading on any national securities exchange, on the NASDAQ National Market or, if such shares or other securities are not quoted on such NASDAQ National Market, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such shares or other securities on such day shall not have been reported through NASDAQ, the average of the bid and asked prices on such day as furnished by any NYSE member firm regularly making a market in such security selected for such purpose by the Chief Executive Officer or Chief Financial Officer of the Trust or the Board of Directors. "Declaration" shall mean the Amended and Restated Declaration of Trust of the Trust, as amended from time to time. "Delivered Shares" shall have the meaning set forth in paragraph (e) of Section 3 hereof. "Disinterested Members" when used with respect to the -3- 4 Trust has the meaning set forth in the Code of Regulations of the Trust and, when used with respect to the Corporation, has the meaning set forth in the By-Laws of the Corporation, in each case as amended from time to time. "Election Notice" shall have the meaning set forth in paragraph (a) of Section 3 hereof. "Excess Shares" shall have the meaning set forth in paragraph (e) of Section 3 hereof. "Exchange Promissory Note" shall mean an unsecured promissory note of the Corporation in such form as the Corporation shall reasonably prescribe with a maturity date ninety (90) days after the date of issuance of such note. Such Exchange Promissory Note shall bear interest in a amount equal to (i) in the case of the substitution of an Exchange Promissory Note for Paired Shares constituting Excess Shares pursuant to Section 3(e) hereof, the amount of any dividends paid during the period that such note remains outstanding on a number of Paired Shares equal to the number of Paired Shares for which such Exchange Promissory Note is being substituted and (ii) in the case of the substitution of an Exchange Promissory Note for any shares of Class B EPS constituting Excess Shares pursuant to such Section, the amount of any dividends accrued (whether or not paid) during the period that such note remains outstanding on a number of shares of Class B EPS equal to the number of shares of Class B EPS for which such Exchange Promissory Note is being substituted, which interest shall be payable on the dates of payment of the corresponding dividends. "Exchange Ratio" shall have the meaning set forth in paragraph (b) of Section 3 hereof. "Issue Date" shall mean the first date on which shares of Class A EPS and Class B EPS are issued by the Trust pursuant to the Transaction Agreement. "Letter of Transmittal" shall have the meaning set forth in paragraph (a) of Section 2 hereof. "NYSE" shall mean the New York Stock Exchange. "Offered Shares" shall have the meaning set forth in paragraph (e) of Section 3 hereof. "OP Special Distribution" shall have the meaning set forth in paragraph (f) of Section 3 hereof. "Ownership Limit" shall have the meaning set forth in Section 6.12 of the Declaration. -4- 5 "Paired Shares" shall mean units consisting of one Trust Share paired with one Corporation Share and represented by a single share certificate, as provided in the Pairing Agreement dated as of June 25, 1980, between the Trust and the Corporation, as amended from time to time, subject to any changes in the securities constituting a unit of Paired Shares under such Pairing Agreement from time to time. "Paired Shares Delivery Option" shall have the meaning set forth in paragraph (a)(i) of Section 3 hereof. "Paired Shares Cash Option" shall have the meaning set forth in paragraph (a)(i) of Section 3 hereof. "Paired Shares Redemption Option" shall have the meaning set forth in paragraph (a)(i) of Section 3 hereof. "Paired Shares Request" shall have the meaning set forth in paragraph (a) of Section 2 hereof. "Person" shall mean any individual, firm, partnership, corporation, limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. "Registered Sale Option" shall have the meaning set forth in paragraph (e) of Section 3 hereof. "REIT Rules" shall mean the requirements (i) for the Trust to qualify as a real estate investment trust under the Code as set forth in Sections 856(a)(5) and 856(a)(6) of the Code and (ii) for the Corporation or any affiliate of the Corporation which is a tenant of the Trust to not be treated as a related party pursuant to Section 856(d)(2)(B) of the Code. "Requested Shares" shall have the meaning set forth in paragraph (d) of Section 3 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended. "SLC Limited Partnership Agreement" shall mean the second amended and restated limited partnership agreement of SLC operating limited partnership entered into on November 14, 1997 by and among Starwood Lodging Corporation, a Maryland corporation, as General Partner and the persons whose names are set forth in exhibits A and A-1 thereof, as limited partners, pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act. -5- 6 "Trading Day" with respect to publicly traded Paired Shares or any other shares of beneficial interest or other securities of the Trust or any other issuer shall mean any day on which the securities in question are traded on the NYSE, or if such securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national securities exchange, on the NASDAQ National Market, or if such securities are not quoted on such NASDAQ National Market, in the applicable securities market in which such securities are traded. "Transaction Agreement" shall have the meaning set forth in the Recitals. "Transfer Agent" shall mean ChaseMellon Shareholder Services, L.L.C. (or any successor thereof), or such other agent or agents of the Trust as may be designated by the Board of Trustees of the Trust or their designee as the transfer agent for the Class B EPS and/or the Paired Shares. "Trust" shall mean Starwood Lodging Trust, a Maryland real estate investment trust, and any successor. "Trust Shares" shall mean the common shares of beneficial interest in the Trust, par value $.01 per share, or any shares of beneficial interest in the Trust into which such common shares may be changed. "Westin Transaction Securities" shall mean, with respect to a holder of Class B OP Units or an affiliate thereof, any shares of Class A EPS, shares of Class B EPS, Class A RP Units and Starwood Operating Partnership Units (as defined in the Transaction Agreement) received by such holder or affiliate pursuant to the Transaction Agreement, together with any shares of Class B EPS, Class A EPS or Paired Shares (or other securities) issued upon exchange or conversion of any such Westin Transaction Securities. SECTION 2. RIGHT TO TENDER CLASS B OP UNITS. (a) Upon the terms and subject to the conditions of this Agreement, each registered holder of Class B OP Units will have the right to tender outstanding Class B OP Units to the Corporation. In order for Class B OP Units to be validly tendered pursuant to this Agreement, the registered holder thereof shall deliver to the Corporation, at the address provided pursuant to Section 9 , (i) a completed and duly executed Letter of Transmittal in the form attached hereto as Exhibit A (the "Letter of Transmittal") and any other documents required by the Letter of Transmittal and -6- 7 (ii) a certificate (duly executed on behalf of such holder by an officer, partner, manager or other duly authorized representative of such holder, if such registered holder is not an individual) setting forth (A) the number of Trust Shares and Corporation Shares held directly by such holder, and in the case of WHWE L.L.C. ("WHWE"), held by Whitehall Real Estate Limited Partnership ("Whitehall"), GS Capital Partners, L.P. ("GSCP") or The Goldman Sachs Group, L.P. (other than shares held in "street name" for third parties or shares held in accounts for unaffiliated third parties) and (B) the number of partners in Whitehall or GSCP with a 25% or greater interest in the profits or capital of Whitehall or GSCP, respectively. In addition, in the event of a tender of Class B OP Units by WHWE, the Corporation may deliver to WHWE a list of the Corporation's ten largest stockholders, in which event, WHWE shall certify to the Corporation the identity of any such stockholders that are directly partners of Whitehall or GSCP in a partnership in which WHWE or GSCP and such stockholder are both partners with a 25% or greater interest in the profits and capital of such partnership. In such Letter of Transmittal, the holder of the Class B OP Units being tendered shall specify which Class B OP Units such holder desires to exchange for Paired Shares (a "Paired Shares Request") and which Class B OP Units such holder desires to exchange for shares of Class B EPS (a "Class B EPS Request"); provided that no Class B EPS Request may be made unless the Letter of Transmittal is delivered to the Corporation on or prior to the Cross-Over Date. The Corporation shall make all determinations as to the validity and form of any tender of Class B OP Units in accordance with the provisions of this Agreement and upon rejection of a tender shall give the tendering holder written notice of such rejection, which shall include the reasons therefor. (b) Unless otherwise determined by agreement of the Corporation, tenders of Class B OP Units pursuant to this Agreement shall be irrevocable and shall not be subject to withdrawal or modification; provided that in the event that the issuance of the full number of Requested Shares pursuant to any tender of Class B OP Units would violate either the Ownership Limit or the REIT Rules and either (i) the Corporation elects pursuant to Section 3(d) below to deliver an Exchange Promissory Note in substitution for any Excess Shares or (ii) the Corporation exercises the Registered Sale Option with respect to any such Excess Shares, the holder of the Class B OP Units tendered will have the right to withdraw his or her Letter of Transmittal as to the Excess Shares for which such Exchange Promissory Note is proposed to be substituted or with respect to which such Registered Sale Option is being exercised, which withdrawal must be made by written notice to the Corporation within ten (10) Business Days after receipt of the applicable Election Notice. (c) The rights to exchange Class B OP Units pursuant -7- 8 to this Agreement constitute a continuous offer and may not be withdrawn, amended or modified by the Corporation without the prior written consent of each registered holder of outstanding Class B OP Units adversely affected by such withdrawal, amendment or modification; provided that any withdrawal, amendment or modification that does not adversely affect any holder of outstanding Class B OP Units may be effected without the consent of such holder. SECTION 3. ACCEPTANCE OF TENDER; DELIVERY OF ELECTION NOTICE. (a) Subject to paragraph (c) below, as promptly as practicable (and in any event within ten (10) Business Days) after receipt of a Letter of Transmittal and all related documents and certifications, the Corporation shall elect, pursuant to an election notice given to the registered holder who delivered such Letter of Transmittal to the Corporation (an "Election Notice"), to take one or more of the following actions with respect to the Class B OP Units subject to such Letter of Transmittal: (i) with respect to any such Class B OP Units for which a Paired Shares Request has been made, the Corporation shall elect either (A) to issue to the registered holder a number of Paired Shares equal to the number of such Class B OP Units (including procuring the issuance by the Trust of the Trust Shares component of such Paired Shares) (the "Paired Shares Delivery Option"), (B) to pay to such holder the Cash Equivalent of such Paired Shares determined as of the date of such Election Notice (the "Paired Shares Cash Option"), (C) to cause the Operating Partnership to redeem such Class B OP Units for a cash redemption price equal to such Cash Equivalent of such Paired Shares (the "Paired Shares Redemption Option") or (D) any combination of the actions described in the foregoing clauses (A), (B) and (C); and (ii) with respect to any Class B OP Units for which a Class B EPS Request has been made, the Corporation shall elect either (A) to procure the issuance by the Trust, to the registered holder a number of shares of Class B EPS equal to the number of such Class B OP Units multiplied by the Exchange Ratio (as determined pursuant to paragraph (b) below) in effect as of the date of such Election Notice (the "Class B EPS Delivery Option"), (B) to pay to such registered holders an amount in cash equal to the Class B Liquidation Preference of such shares of Class B EPS at such time (the "Class B EPS Cash Option"), (C) to cause the Operating Partnership to redeem such Class B OP Units for a cash redemption price equal to such Class B Liquidation Preference of such shares of Class B EPS at such time (the "Class B EPS Redemption Option") or (D) any combination of -8- 9 the actions described in the foregoing clauses (A), (B) and (C). (b) The "Exchange Ratio" of shares of Class B EPS for each Class B OP Unit at any time shall be equal to one (1) divided by the number of Class B Underlying Paired Shares (as defined in the Class B Articles Supplementary) for which each share of Class B EPS is then indirectly exchangeable as of such date (determined without taking into consideration any Class A Dividend Replacement Shares or Class B Dividend Replacement Shares, as defined in the Class A Articles Supplementary and Class B Articles Supplementary, respectively). (c) (i) If, at any time after the Issue Date, the Trust or the Corporation shall become a party to any transaction, including, without limitation, a merger, consolidation, statutory share exchange, self tender offer for all or substantially all outstanding Trust Shares and/or Corporation Shares, sale of all or substantially all of the Trust's or the Corporation's assets or recapitalization of the Trust Shares and/or the Corporation Shares (but excluding any event constituting a Trust Common Adjustment Event or a Corporation Common Adjustment Event) (each of the foregoing being referred to herein as a "Paired Shares Transaction"), in each case as a result of which the outstanding Trust Shares and/or Corporation Shares shall be converted into or exchanged for the right to receive stock, securities or other property (including cash or any combination thereof), effective as of the effective date of such Paired Shares Transaction, each unit of Paired Shares issuable upon tender of Class B OP Units hereunder shall thereafter be deemed to consist of the kind and amount of shares of beneficial interest in the Trust, shares of stock of the Corporation and other securities and property (including cash or any combination thereof) that would have been held or receivable upon the consummation of such Paired Shares Transaction by a holder of a number of Paired Shares equal to the number of Class B OP Units so tendered assuming such holder of Paired Shares (A) is not a Person with which the Trust or the Corporation consolidated or into which the Trust or the Corporation was merged or which merged into the Trust or the Corporation or to which such sale or transfer was made, as the case may be (a "constituent person"), or an affiliate of a Constituent Person and (B) failed to exercise his or her rights of election, if any, as to the kind or amount of stock, securities and other property (including cash) receivable upon such Paired Shares Transaction (provided that if the kind or amount of stock, securities and other property (including cash) receivable upon such Paired Shares Transaction is not the same for each unit of Paired Shares held immediately prior to such Paired Shares Transaction by other than a constituent person or an -9- 10 affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-Electing Shares"), then for the purposes of this subparagraph (ii) the kind and amount of stock, securities and other property (including cash) receivable upon such Paired Shares Transaction in respect of each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). The provisions of this paragraph (i) shall similarly apply to successive Paired Shares Transactions. (ii) If, at any time after the Issue Date, the Trust shall become a party to any transaction, including, without limitation, a merger, consolidation, statutory share exchange, self tender offer for all or substantially all outstanding Trust Shares, sale of all or substantially all of the Trust's assets or recapitalization of the Class B EPS (each of the foregoing being referred to herein as a "Class B Transaction"), in each case as a result of which the outstanding shares of Class B EPS shall be converted into or exchanged for the right to receive stock, securities or other property (including cash or any combination thereof), effective as of the effective date of such Class B Transaction, each share of Class B EPS issuable upon tender of Class B OP Units shall thereafter be deemed to consist of the kind and amount of shares of stock and other securities and property (including cash or any combination thereof) that would have been held or receivable upon the consummation of such Class B Transaction by a holder of a number of shares of Class B EPS equal to the number of Class B OP Units being tendered, assuming such holder of shares of Class B EPS (A) is not a Person with which the Trust consolidated or into which the Trust was merged or which merged into the Trust or to which such sale or transfer was made, as the case may be, or an affiliate of such a constituent person and (B) failed to exercise his or her rights of election, if any, as to the kind or amount of stock, securities an other property (including cash) receivable upon such Class B Transaction (provided that if the kind or amount of stock, securities and other property (including cash) receivable upon such Class B Transaction is not the same for each share of Class B EPS held immediately prior to such Class B Transaction by other than a constituent person or an affiliate thereof and in respect of which such rights of election shall not have been exercised, then for the purposes of this subparagraph (ii) the kind and amount of stock, securities and other property (including cash) receivable upon such Class B Transaction by each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). The provisions of this paragraph (ii) shall similarly apply to successive Class B Transactions. (d) Notwithstanding any other provision of this Agreement, no Paired Shares or shares of Class B EPS shall be -10- 11 issued or paid in respect of any tender of Class B OP Units (i) prior to the expiration or termination of the waiting period applicable to such issuance or payment, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as it may be amended from time to time, or (ii) prior to the receipt of all governmental and regulatory approvals which are required to be obtained prior to such issuance or payment, including, without limitation, any required approvals of the gaming authorities of the State of Nevada and of Clark County, Nevada (the "Gaming Approvals") subject to the limitations on transfer of any interest in the Operating Partnership as provided in Section 9.6 of the SLC Limited Partnership Agreement. (e) If the delivery to a registered holder tendering Class B OP Units of the full number(s) of Paired Shares and/or shares of Class B EPS requested to be delivered pursuant to the Letter of Transmittal (the "Requested Shares") would result in a violation of either the Ownership Limit or the REIT Rules, the Corporation may elect in the Election Notice, in lieu of the options described in paragraph (a) above (i) to deliver to such holder the maximum number(s) of Paired Shares and/or shares of Class B EPS, as applicable, (which maximum numbers, in the case of a Letter of Transmittal containing both a Paired Shares Request and a Class B EPS Request, shall represent the same percentage of the numbers of Paired Shares and shares of Class B EPS, respectively, comprising such Requested Shares) that may be delivered without causing such a violation (the "Delivered Shares", with the Requested Shares in excess of the Delivered Shares being referred to herein as the "Excess Shares") and (ii) (A) in respect of any Paired Shares included in such Excess Shares either (1) to pay such holder the Cash Equivalent of such Paired Shares determined as of the date of such Election Notice, (2) to deliver to such holder an Exchange Promissory Note in a principal amount equal to such Cash Equivalent or (3) to cause the Operating Partnership to redeem a corresponding number of Class B OP Units for a cash redemption price equal to such Cash Equivalent and (B) in respect of any shares of Class B EPS included in such Excess Shares, either (1) to make a cash payment to such holder equal to the Class B Liquidation Preference of such shares as of such date, (2) to deliver to such holder an Exchange Promissory Note in a principal amount equal to such Class B Liquidation Preference or (3) to cause the Operating Partnership to redeem a corresponding number of Class B OP Units for a cash redemption price equal to such Class B Liquidation Preference. Notwithstanding the foregoing, in the event that the delivery of the full number of Requested Shares pursuant to a Letter of Transmittal would violate either the Ownership Limit or the REIT Rules because the registered holder of Class B OP Units tendering Class B OP Units, together with such holder's affiliates (but without giving effect to any other applicable attribution rules under the Code), beneficially owns, at the date of the Election Notice, Paired Shares and/or shares of Class B -11- 12 EPS other than through the ownership of Westin Transaction Securities, the Corporation will have the option (the "Registered Sale Option"), exercisable in the Election Notice, in lieu of delivering an Exchange Promissory Note in a principal amount equal to the Cash Equivalent of the any Paired Shares included in the Excess Shares or the Class B Liquidation Preference of any shares of Class B EPS included in the Paired Shares, to procure the filing of a registration statement under the Securities Act, and to publicly offer and sell pursuant to such registration statement in such manner as the Corporation in good faith determines to be appropriate (x) a number of Paired Shares equal to the number of Paired Shares included in such Excess Shares or (y) a number of Paired Shares equal to the number of Class B Underlying Paired Shares (as defined in the Class B Articles Supplementary) for which the shares of Class B EPS included in such Excess Shares are then indirectly exchangeable as of such date (determined without taking into consideration any Class A Dividend Replacement Shares or Class B Dividend Replacement Shares, as defined in the Class A Articles Supplementary and Class B Articles Supplementary, respectively) (in either such case, the "Offered Shares"), the net proceeds of which sale (after deducting any applicable underwriting discounts or commissions and the expenses of such offering) shall be paid to such holder. (f) If, as of the date of the Election Notice given by the Corporation with respect to any tender of Class B OP Units, there are any accrued but unpaid OP Special Distributions (as defined in the Certificate of Admission), then: (i) the number of shares of Class B EPS issuable in exchange for each Class B OP Unit with respect to which a Class B EPS Request has been made shall be increased by a number of shares equal to (A) the amount of such accrued but unpaid OP Special Distributions divided by (B) the product of (1) the number of Class B Underlying Paired Shares (as defined in the Class B Articles Supplementary) for which each share of Class B EPS is then indirectly exchangeable as of such date (determined without taking into consideration any Class A Dividend Replacement Shares or Class B Dividend Replacement Shares, as defined in the Class A Articles Supplementary and Class B Articles Supplementary, respectively) multiplied by (2) the Cash Equivalent of each Paired Share as of such date, and (ii) the number of Paired Shares issuable in exchange for each Class B OP Unit with respect to which a Paired Shares Request has been made shall be increased by a number of shares equal to (A) the amount of such accrued but unpaid OP Special Distributions divided by (B) the Cash Equivalent of each Paired Share as of such date. SECTION 4. DELIVERY OF SECURITIES AND/OR CASH TO HOLDER. (a) If the Election Notice relating to any tender of Class B OP Units pursuant to this Agreement does not give rise to -12- 13 a withdrawal right pursuant to Section 2(b) above, such Election Notice shall be accompanied by the delivery of the Paired Shares, shares of Class B EPS and/or cash required to be delivered pursuant to such Election Notice. If the Election Notice does give rise to such a withdrawal right, but such right is not exercised by the holder that delivered the related Letter of Transmittal, the Corporation shall deliver the Paired Shares, shares of Class B EPS, Exchange Promissory Note(s) and/or cash required to be delivered pursuant to such Election Notice within five (5) Business Days after the expiration of such withdrawal right. (b) If the Election Notice includes the exercise of the Registered Sale Option, the proceeds from the sale of the Offered Shares shall be paid over to the applicable registered holder promptly upon receipt. Any cash payable to such registered holder hereunder shall be payable at the election of the Corporation by check or by wire transfer to an account designated in writing by such holder, if one has been so designated. (c) With respect to any Paired Shares to be issued pursuant to an Election Notice, the Corporation shall issue and deliver (and shall cause the Trust to issue and deliver) at the office of the Corporation (or, at the option of the Corporation, at the office of the Transfer Agent) to the applicable registered holder a certificate or certificates for the number of full Paired Shares deliverable in accordance with the provisions of Section 3 above, and any fractional interest in respect of a unit of Paired Shares otherwise deliverable pursuant to such provisions shall be settled as provided in paragraph (d) below. With respect to any shares of Class B EPS to be issued pursuant to an Election Notice, the Corporation shall procure from the Trust and deliver at the office of the Corporation (or, at the option of the Corporation, at the office of the Transfer Agent) to the applicable registered holder a certificate or certificates for the number of full shares of Class B EPS deliverable in accordance with the provisions of Section 3 above, and any fractional interest in respect of a share of Class B EPS otherwise deliverable pursuant to such provisions shall be settled as provided in paragraph (d) below. (d) No fractional units of Paired Shares or shares of Class B EPS or scrip evidencing fractions of units of Paired Shares or shares of Class B EPS shall be issued upon any tender of Class B OP Units pursuant to this Agreement. Instead of any fractional interest in a unit of Paired Shares that would otherwise be deliverable in connection with such tender, the Corporation shall pay to the registered holder an amount in cash equal to the corresponding fraction of the Current Market Price of the Paired Shares on the Trading Day immediately preceding the date of the applicable Election Notice, and instead of any -13- 14 fractional interest in a share of Class B EPS that would otherwise be deliverable in connection with such tender, the Corporation shall pay to the registered holder an amount in cash equal to the corresponding fraction of the product of (x) the Current Market Price of the Paired Shares on the Trading Day immediately preceding the date of the applicable Election Notice multiplied by (y) the number of Class B Underlying Paired Shares (as defined in the Class B Articles Supplementary) for which each share of Class B EPS is then indirectly exchangeable as of such date (determined without taking into consideration any Class A Dividend Replacement Shares or Class B Dividend Replacement Shares, as defined in the Class A Articles Supplementary and Class B Articles Supplementary, respectively). If more than one Letter of Transmittal shall be delivered at one time by the same registered holder, the numbers of full Paired Shares and full shares of Class B EPS which shall be issuable upon exchange of the Class B OP Units tendered thereby shall be computed on the basis of the aggregate number of Class B OP Units so tendered. (e) The Corporation covenants that any Paired Shares and shares of Class B EPS issued pursuant to this Agreement will be validly issued, fully paid and non-assessable. If a registered holder exchanges Class B OP Units pursuant to this Agreement, the Corporation shall pay any documentary, stamp or similar issue or transfer tax due on any issuance of Paired Shares and/or shares of Class B EPS upon such exchange. Such holder, however, shall (i) pay to the Corporation the amount of any additional documentary, stamp or similar issue or transfer tax which is due (or shall establish to the satisfaction of the Corporation the payment thereof) as a result of Paired Shares or shares of Class B EPS being issued in a name other than the name of such holder and (ii) be responsible for all income or other taxes as a result of such exchange. (f) The Corporation shall have the right to affix to any certificates evidencing Paired Shares or shares of Class B EPS issued pursuant to this Agreement: (i) any restrictive legend required in order for such issuance to be in compliance with the Securities Act and any applicable state securities laws, (ii) if applicable, a legend referring to the transfer restrictions provided for in Section 6.16(f) of the Transaction Agreement and (iii) any other legend required in order to comply with any applicable law. SECTION 5. IMPLEMENTATION OF REDEMPTION OPTION. In the event that the Corporation exercises the Paired Shares Redemption Option or the Class B EPS Redemption Option, the Corporation shall cause the Operating Partnership to redeem the corresponding Class B OP Units as soon as practicable after the date of the Election Notice. The cash redemption price payable to the registered holder pursuant to such Paired Shares -14- 15 Redemption Option or Class B EPS Redemption Option shall be paid by the Operating Partnership at its election by check or by wire transfer to an account designated in writing by such holder, if one has been so designated. SECTION 6. REPRESENTATIONS OF TENDERING HOLDER. Each tender of Class B OP Units shall constitute a representation and warranty by the tendering holder of each of the representations and warranties set forth in the form of Letter of Transmittal. Without limiting the generality of the foregoing, unless, at the time of a tender for exchange of Class B OP Units pursuant to this Agreement, a registration statement relating to any Paired Shares and/or shares of Class B EPS to be delivered upon such tender is effective under the Securities Act, such tender shall constitute a representation and warranty by the tendering holder to the Corporation that such tendering holder (i) is an "accredited investor" within the meaning of Rule 501 under the Securities Act, (ii) has sufficient knowledge and experience in financial and business matters and in investing in entities similar to the Operating Partnership, the Corporation and the Trust so as to be able to evaluate the risks and merits of its investment in the Operating Partnership and it is able financially to bear the risks thereof, (iii) has had an opportunity to discuss the business, management and financial affairs of the Operating Partnership, the Trust and the Corporation with the management of the Operating Partnership, the Trust and the Corporation, and (iv) understands the Paired Shares and shares of Class B EPS issuable pursuant to this Agreement have not and will not have been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act and such Paired Shares and shares of Class B EPS must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act and applicable state securities laws or is exempt from such registration. SECTION 7. STATUS OF TENDERING HOLDER. Until the holder of Class B OP Units tendered pursuant to this Agreement becomes a holder of record of the Paired Shares and/or shares of Class B EPS issued in exchange therefor (in the case of an exercise of the Paired Shares Delivery Option and/or the Class B EPS Delivery Option, as applicable) or until such holder has received cash in exchange therefor (in the case of an exercise of the Paired Shares Cash Option, the Paired Shares Redemption Option, the Class B EPS Cash Option and/or the Class B EPS Redemption Option, as applicable) and until the holder has received an Exchange Promissory Note in substitution for any Excess Shares or until the holder has received the proceeds from the sale of the corresponding Offered Shares (in the case of an exercise of the Registered Sale Option), such holder shall -15- 16 continue to hold and own the corresponding Class B OP Units for all purposes of the Realty Partnership Agreement. In the case of an exercise of the Paired Shares Delivery Option or Class B EPS Delivery Option, no such holder shall have any rights as a shareholder of the Trust or a stockholder of the Corporation in respect of such Paired Shares, or as a shareholder of the Trust in respect of such shares of Class B EPS, until such holder becomes a holder of record of such Paired Shares or shares of Class B EPS. SECTION 8. RESERVATION OF SHARES; CLOSING OF TRANSFER BOOKS. (a) The Corporation shall reserve and shall at all times have reserved out of its authorized but unissued Corporation Shares, solely for the purpose of effecting the exchange pursuant to this Agreement, enough Corporation Shares to permit the exchange of the then outstanding Class B OP Units for Paired Shares pursuant to this Agreement and shall use its best efforts to cause the Trust to reserve and shall at all times have, solely for the purpose of effecting such exchange, enough Trust Shares to permit such exchange. In addition, until the Cross-Over Date, the Corporation shall use its best efforts to cause the Trust to reserve and at all times have reserved out of its authorized but unissued shares of Class B EPS, solely for the purpose of effecting the exchange pursuant to this Agreement, enough shares of Class B EPS to permit the exchange of the then outstanding Class B OP Units for shares of Class B EPS pursuant to this Agreement. (b) The Corporation shall not close its transfer books so as to prevent the timely issuance of Corporation Shares pursuant to this Agreement. The Corporation shall use its best efforts to cause the Trust not to close its transfer books so as to prevent the timely issuance of Trust Shares or shares of Class B EPS pursuant to this Agreement. SECTION 9. NOTICES. All notices, documents and other communications under this Agreement shall be in writing and shall be deemed given when delivered personally or by overnight mail or when sent by facsimile transmission, or four days after being mailed (by registered mail, return receipt requested) to a party at the following address (or to such other address as such party may have specified by notice given to the other parties pursuant to this provision): (a) If to the Corporation or the Operating Partnership, to: Starwood Lodging Corporation 2231 E. Camelback Road, Suite 410 Phoenix, AZ 85016 Attention: General Counsel -16- 17 Telecopy No.: (602) 852-0686 Telephone No.: (602) 852-3900 with a copy to: Sidley & Austin 555 West 5th Street Los Angeles, California 90013 Attention: Sherwin L. Samuels Telecopy No.: (213) 896-6600 Telephone No.: (213) 896-6000 (b) If to any OP Limited Partner, to the address specified on Schedule I hereto. with a copy to: Sullivan & Cromwell 125 Broad Street New York, NY 10004 Attention: Joseph C. Shenker Telecopy No.: (212) 558-3588 Telephone No.: (212) 558-4000 SECTION 10. DETERMINATIONS AND INTERPRETATION. All agreements between the Corporation, the Operating Partnership and the OP Limited Partners provided for in (or required by or pursuant to) this Agreement shall be made on behalf of the Corporation and the Operating Partnership by their respective Disinterested Members, including, without limitation, any agreement between the Corporation, the Operating Partnership and the OP Limited Partners as to the election by the Corporation of the Paired Shares Delivery Option, the Paired Shares Cash Option, the Paired Shares Redemption Option, the Class B EPS Delivery Option, the Class B EPS Cash Option or the Class B EPS Redemption Option with respect to a tender of Class B OP Units pursuant to Section 2(a), any agreement to permit the revocation, withdrawal or modification of a tender of Class B OP Units pursuant to Section 2(b). All interpretations of the terms of this Agreement shall be resolved on behalf of the Corporation by its Disinterested Members. SECTION 11. PARTIAL INVALIDITY. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein unless the deletion of such provision or provisions would result in such a material change as to cause completion of the transactions contemplated -17- 18 hereby to be unreasonable. SECTION 12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors or assigns. In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of the parties hereto other than the Corporation, the Operating Partnership and the OP Limited Partners, shall also be for the benefit of and enforceable by any subsequent holder of any Class Units. SECTION 13. EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be considered an original counterpart, and shall become a binding agreement when the Corporation, the Operating Partnership and the OP Limited Partners shall have each executed a counterpart of this Agreement. SECTION 14. TITLES AND HEADINGS. Titles and headings to Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. SECTION 15. EXHIBITS. The Exhibits referred to in this Agreement shall be construed with, and as an integral part of, this Agreement to the same extent as if the same had been set forth verbatim herein. SECTION 16. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, including the Exhibits, contains the entire understanding of the parties hereto with regard to the subject matter contained herein. In addition to amendments and modifications permitted by Section 2(c), the parties hereto, by mutual agreement in writing, may amend, modify and supplement this Agreement; provided that any such amendment, modification or supplement shall be approved by a majority of the Disinterested Members of the Corporation. The failure of any party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of such party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. SECTION 17. GOVERNING LAW. Except to the extent that Maryland law is mandatorily applicable to the rights and obligations of the shareholders of the Trust and the stockholders of the Corporation, this Agreement, and the application or interpretation thereof, shall be governed exclusively by its -18- 19 terms and by the internal laws of the State of New York, without regard to principles of conflicts of laws as applied in the State of New York or any other jurisdiction which, if applied, would result in the application of any laws other than the internal laws of the State of New York. SECTION 18. SUBMISSION TO JURISDICTION. Each of the parties hereto irrevocably submits and consents to the jurisdiction of the United States District Court for the Southern District of New York in connection with any action or proceeding arising out of or relating to this Agreement, and irrevocably waives any immunity from jurisdiction thereof and any claim of improper venue, forum non conveniens or any similar basis to which it might otherwise be entitled in any such action or proceeding. SECTION 19. SPECIFIC PERFORMANCE. Each of the parties acknowledges and agrees that in the event of any breach of this Agreement, the non-breaching party or parties would be irreparably harmed and could not be made whole by monetary damages. The parties hereby agree that in addition to any other remedy to which they may be entitled at law or in equity, they shall be entitled to compel specific performance of this Agreement in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction for such action. -19- 20 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto or by their duly authorized officers, all as of the date first above written. STARWOOD LODGING CORPORATION, a Maryland Corporation By:_________________________ Name: Title: SLC OPERATING LIMITED PARTNERSHIP By: STARWOOD LODGING CORPORATION, general partner By:_________________________ Name: Title: WHWE L.L.C., a Delaware limited liability company By: Whitehall Street Real Estate Limited Partnership V, Member and Manager By: WH Advisors, L.P.V, General Partner By: WH Advisors, Inc. V, General Partner By:_________________________ Name: Title: WOODSTAR INVESTOR PARTNERSHIP, a Delaware General Partnership By: Marswood Investors, L.P., General Partner By: Starwood Capital Group, L.P., 21 General Partner By: BSS Capital Partners, L.P., General Partner By: Sternlicht Holdings II, Inc., General Partner By:_________________________ Name: Title: NOMURA ASSET CAPITAL CORPORATION, a Delaware Corporation By:_________________________ Name: Title: 22 SCHEDULE I TO EXCHANGE RIGHTS AGREEMENT NOTICE ADDRESS FOR HOLDERS 1) If to WHWE, L.L.C., to: 85 Broad Street New York, New York 10004 Attention: Stuart Rothenberg Telecopier: (212) 357-5505 2) If to Woodstar Investor Partnership, to: Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Attention: Barry S. Sternlicht Telecopier: (203) 861-2101 3) If to Nomura Asset Capital Corporation, to: Two World Financial Center, Building B New York, New York 10281 Attention: Daniel S. Abrams Telecopier: (212) 667-1666 23 EXHIBIT A TO EXCHANGE RIGHTS AGREEMENT LETTER OF TRANSMITTAL To Tender Units of Class B Operating Partnership Units Pursuant to the Exchange Rights Agreement Dated as of January 2, 1998 TO: Starwood Lodging Corporation 2231 E. Camelback Road, Suite 410 Phoenix, AZ 85016 Attention: General Counsel
DESCRIPTION OF UNITS - ------------------------------------------------------------------------------------------------------ NAME(S) AND UNITS NUMBER OF NUMBER OF ADDRESS(ES) OF TENDERED UNITS UNITS REGISTERED OWNERS (ATTACH REQUESTED TO REQUESTED ADDITIONAL BE EXCHANGED TO BE LIST IF FOR PAIRED EXCHANGED NECESSARY) SHARES FOR CLASS B EPS(1) TOTAL
- -------- (1) For a Class B EPS Request to be valid, this letter of Transmittal must be delivered to the Corporation on or prior to the Cross-over Date. 24 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Starwood Lodging Corporation (the "Corporation") the above-described Class B OP Units (as defined in the Exchange Rights Agreement (Class B Operating Partnership Units) dated as of January 2, 1998 (the "Exchange Rights Agreement")) in accordance with the terms and conditions of the Exchange Rights Agreement and this Letter of Transmittal (which together constitute the "Offer"), receipt of which is hereby acknowledged. All terms used herein but not defined herein are used as defined in the Exchange Rights Agreement. Subject to, and effective upon the issuance of Paired Shares and/or shares of Class B EPS and/or the delivery of cash or other specified consideration, as the case may be, for the Class B OP Units tendered hereby, the undersigned hereby assigns and transfers to the Corporation all right, title and interest in and to all the Class B OP Units that are being tendered hereby and irrevocably constitutes and appoints the Corporation (the "Class B Unit Agent"), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) transfer such Class B OP Units on the books of the Operating Partnership and (b) receive all rights, privileges and benefits, and any and all obligations and liabilities appertaining thereto and otherwise exercise all rights of beneficial ownership of such Class B OP Units, all in accordance with the terms of the Offer. The undersigned hereby represents and warrants to the Corporation that the undersigned has full power and authority to tender, sell, assign and transfer the tendered Class B OP Units and that upon payment therefor, the Corporation will acquire unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and the same will not be subject to any adverse claim. The undersigned will, upon request, execute any additional documents deemed by the Corporation to be reasonably necessary or desirable to complete the sale, assignment and transfer of the tendered Class B OP Units. Unless a registration statement relating to any Paired Shares and/or Class B EPS to be delivered to the undersigned is effective under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned hereby represents and warrants to the Corporation that the undersigned (A) is an "accredited investor" within the meaning of Rule 501 under the Securities -24- 25 Act, or (B) has sufficient knowledge and experience in financial and business matters and in investing in entities similar to the Operating Partnership, the Corporation and the Trust so as to be able to evaluate the risks and merits of its investment in the Operating Partnership, the Corporation and the Trust and it is able financially to bear the risks thereof, and in either case (i) has had an opportunity to discuss the business, management and financial affairs of the Operating Partnership, the Corporation and the Trust with the management of the Operating Partnership, the Corporation and the Trust and (ii) understands that any such Paired Shares and/or Class B EPS have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act and any such Paired Shares and/or Class B EPS must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act and applicable state securities laws or is exempt from such registration. If not sold pursuant to an effective registration statement, any such Paired Shares and/or Class B EPS will bear an appropriate legend indicating that such Paired Shares and/or Class B EPS have not been registered under the Securities Act and resale of such Paired Shares and/or Class B EPS is restricted under applicable securities laws. All authority conferred or agreed to be conferred in this Letter of Transmittal shall not be affected by, and shall survive, the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators and legal representatives of the undersigned. The undersigned understands that, except as provided in Section 2(b) of the Exchange Rights Agreement, a tender of Class B OP Units pursuant to the Exchange Rights Agreement is irrevocable and constitutes a binding agreement between the undersigned and the Corporation upon the terms and subject to the conditions of the Exchange Rights Agreement. Unless otherwise indicated under "Special Delivery Instructions", please mail any Paired Shares and/or shares of Class B EPS issuable upon exchange of the Class B OP Units tendered hereby and/or any cash payment or Exchange Promissory Note(s) deliverable pursuant to the terms of the Exchange Rights Agreement to the address(es) of the registered holder(s) appearing under "Description of Units." In the event that the Special Delivery Instructions are completed, please issue such Paired Shares and/or shares of Class B EPS and any such Exchange Promissory Note(s) and make any such cash payment in the name of the registered holder(s) and transmit the same to the person or persons so indicated. -25- 26 The Corporation and the undersigned agree that they will cooperate with each other and will make, execute, acknowledge, deliver, record and file, or cause to be made, executed, acknowledged, delivered, recorded and filed, at such times and places as the other may reasonably deem necessary, all other and further documents and instruments, and will take all other and further actions, as the other may reasonably request from time to time in order to effectuate the purposes and provisions of the tender made pursuant to this Letter of Transmittal. -26- 27 SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4 AND 5) To be completed ONLY if Paired Shares and/or shares of Class B EPS and/or cash or Exchange Promissory Note(s) deliverable pursuant to the Exchange Rights Agreement are to be sent to someone other than the undersigned or to the undersigned at an address other than that above. Mail certificate(s) for Paired Shares and/or shares of Class B EPS and any Exchange Promissory Note(s) and cash payments to: Name_____________________________________________________________ (please print) Address__________________________________________________________ _________________________________________________________________ (include Zip Code) _________________________________________________________________ _________________________________________________________________ (Tax Identification or Social Security Number) SIGN HERE Complete Substitute Form W-9 included _________________________________________________________________ _________________________________________________________________ (Signature(s) of holder of Units) (Must be signed by registered holder(s) as name(s) appear(s) on books and records of the Partnership. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of Trusts or others acting in a fiduciary or representative capacity, please set forth full title and see instruction 4. Dated____________________________________________________________ Name(s)__________________________________________________________ (please print) Capacity (Full Title)_____________________________________________________ Address__________________________________________________________ _27_ 28 (include Zip Code) -28- 29 Area Code and Tel. No.___________________________________________ Tax Identification or Social Security No.______________________________________________ (Complete Substitute Form W-9) Guarantee of Signature(s) (See Instruction 1) Authorized Signature________________________________________________________ Name of Firm_____________________________________________________________ Dated____________________________________________________________ INSTRUCTIONS Forming Part of the Terms and Conditions of the Exchange Rights Agreement 1. GUARANTEE OF SIGNATURE. No signature guarantee on this Letter of Transmittal is required unless the registered holder of the Class B OP Units has completed the box entitled "Special Delivery Instructions". In such case all signatures on this Letter of Transmittal must be guaranteed by a member firm of any registered national securities exchange in the United States or of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company (not a savings bank or a savings and loan association) having an office, branch or agency in the United States. 2. DELIVERY OF LETTER OF TRANSMITTAL. This Letter of Transmittal is to be completed by the holder of Class B OP Units. A properly completed and duly executed Letter of Transmittal and any other documents required by this Letter of Transmittal must be received by the Class B Unit Agent. No alternative, conditional or contingent tenders will be accepted, except as permitted pursuant to the Exchange Rights Agreement. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the Units tendered and/or other information required should be listed on a separate schedule attached hereto. 4. SIGNATURES ON LETTER OF TRANSMITTAL. The signature must correspond with the name as shown on the books and -29- 30 records of the Operating Partnership without any change whatsoever. If any of the Class B OP Units tendered hereby are owned of record by two or more joint owners, all such owners must sign the Letter of Transmittal. If any tendered Class B OP Units are registered in different names, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations. If this Letter of Transmittal is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of Trusts or others acting in a fiduciary or representative capacity, each person should so indicate when signing, and proper evidence satisfactory to the Class B Unit Agent of their authority so to act must be submitted. 5. SPECIAL DELIVERY INSTRUCTIONS. If a certificate for Paired Shares and/or shares of Class B EPS and any Exchange Promissory Note(s) and cash payment is to be sent to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. 6. WAIVER OF CONDITIONS. The Corporation reserves the right to waive in its sole discretion any of the specified conditions of the Offer in the case of the Class B OP Units tendered; provided that any such waiver shall not adversely affect any holder of outstanding Class B OP Units without the consent of such holder. 7. BACK-UP WITHHOLDING. Under the Federal income tax law, a person surrendering Class B OP Units must provide the Class B Unit Agent with his correct taxpayer identification number ("TIN") on Substitute Form W-9 below unless an exemption applies. If the correct TIN is not provided, a $50 penalty may be imposed by the Internal Revenue Service and payments made in exchange for the surrendered Class B OP Units may be subject to back-up withholding of that rate provided by the Federal income tax law (such rate being at the date of the Exchange Rights Agreement, 31%). The TIN that must be provided is that of the registered holder of the Class B OP Units. The TIN for an individual is his social security number. 8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance or additional copies of the Exchange Rights Agreement and the Letter of Transmittal may be directed to the Class B Unit Agent at the address set forth -30- 31 above. IMPORTANT TAX INFORMATION Under Federal income tax laws, a holder whose tendered Class B OP Units are accepted for payment is required by law to provide the Class B Unit Agent (as payer) with his correct taxpayer identification number on Substitute Form W-9 below. If such holder is an individual, the taxpayer identification number is his social security number. If the Class B Unit Agent is not provided with the correct taxpayer identification number, the holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such holder with respect to Class B OP Units purchased pursuant to the Offer may be subject to back-up withholding. If back-up withholding applies, the Class B Unit Agent is required to withhold, at that rate provided by the Federal income tax law (such rate being at the date of the Exchange Rights Agreement 31%), of any such payments made to the holder of Class B OP Units. Paired Shares, shares of Class B EPS and any Exchange Promissory Note(s) otherwise deliverable hereunder may, at the expense (and with all risk of loss for the account) of the undersigned, be sold to pay such amounts. Back-up withholding is not an additional tax. Rather, the tax liability of persons subject to back-up withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. PURPOSE OF SUBSTITUTE FORM W-9 To prevent back-up withholding on payments that are made to a holder of Class B OP Units purchased pursuant to the Offer, the holder is required to notify the Class B Unit Agent of his correct taxpayer identification number by completing the form below certifying that the taxpayer identification number provided on Substitute Form W-9 is correct. WHAT NUMBER TO GIVE THE AGENT The holder is required to give the Class B Unit Agent the social security number or employer identification number of the record owner of the Class B OP Units. -31- 32 PAYER'S NAME: Starwood Lodging Corporation Substitute Part 1 - Please provide your TIN in the box at Social Security Form W-9 right and certify by signing and dating below Number/Employer Identification Number Department of the Certification - Under the penalties of perjury, Treasury/Internal (i) I certify that the information provided on this Revenue Service form is true, correct and complete and (ii) I am not subject to backup withholding because: (a) I am exempt from backup Service withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Signature ________________________________________ Date ______________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACK-UP WITHHOLDING AT THAT RATE PROVIDED BY THE FEDERAL INCOME TAX LAW (SUCH RATE BEING AT THE DATE OF THE EXCHANGE RIGHTS AGREEMENT 31%) OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. -32- EX-10.52 29 EX-10.52 1 Exhibit 10.52 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made as of January 2, 1998 among Starwood Lodging Trust, a real estate investment trust organized under the laws of the State of Maryland (the "Trust"), Starwood Lodging Corporation, a Maryland corporation (the "Corporation"), and the persons and entities whose names appear under the heading "Holders" on the signature pages hereto (together with their permitted assigns, the "Holders"). Unless otherwise indicated, capitalized terms used herein are used herein as defined in Section 1.1. RECITALS WHEREAS, pursuant to a Transaction Agreement dated as of September 8, 1997 (the "Transaction Agreement") among the Trust, SLT Realty Limited Partnership, a Delaware limited partnership (the "Realty Partnership"), the Corporation, SLC Operating Limited Partnership, a Delaware limited partnership (the "Operating Partnership"), certain of the Holders and certain other parties, (i) shares of common stock of Westin Hotels & Resorts Worldwide, Inc., a Delaware corporation ("Worldwide"), are being converted into, among other things, shares of Class A Exchangeable Preferred Stock, par value $.01 per share, of the Trust and shares of Class B Exchangeable Preferred Stock, par value $.01 per share, of the Trust pursuant to the merger of Worldwide with and into the Trust provided for in the Transaction Agreement (such shares of Class A Preferred Stock and Class B Preferred Stock issued pursuant to such merger being hereinafter called the "Class A Preferred Stock" and "Class B Preferred Stock", respectively), (ii) on the date hereof certain of the Holders are making capital contributions to the Realty Partnership in return for the issuance by the Realty Partnership to such Holders of Class A Units (as defined in the Limited Partnership Agreement of the Realty Partnership) of the Realty Partnership (such Class A Units issued by the Realty Partnership to the Holders on the date hereof being hereinafter called the "Realty Units") and (iii) on the date hereof certain of the Holders are making capital contributions to the Operating Partnership in return for the issuance by the Operating Partnership to such Holders of Class A Units (as defined in the Limited Partnership Agreement of the Operating Partnership) of the Operating Partnership (such Class A Units issued by the Operating Partnership to the Holders on the date hereof being hereinafter called the "Operating Units"); WHEREAS, pursuant to the Transaction Agreement, the parties hereto desire to set forth the rights of the Holders and the obligations of the Trust and the Corporation to cause the registration of the Registrable Securities (as defined in Section 1.1) pursuant to the Securities Act; 2 NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS AND USAGE. 1.1. DEFINITIONS. As used in this Agreement: Beneficially Owning. "Beneficially Owning" means owning Trust Shares directly, indirectly or constructively by a Person through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, or Section 544 of the Code, as modified by Section 856(h) of the Code. Business Day. "Business Day" means any day other than Saturday, Sunday and any day on which commercial banks are not open to do business in New York, New York. Class A Preferred Stock. "Class A Preferred Stock" shall have the meaning set forth in the recitals. Class B Preferred Stock. "Class B Preferred Stock" shall have the meaning set forth in the recitals. Code. "Code" shall mean the Internal Revenue Code of 1986, and the rules and regulations promulgated thereunder, as amended from time to time. Commission. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. Continuously Effective. "Continuously Effective", with respect to a specified registration statement, shall mean that such registration statement shall not cease to be effective and available for Transfers of Registrable Securities thereunder for longer than either (i) any ten (10) consecutive Business Days, or (ii) an aggregate of fifteen (15) Business Days during the period specified in the relevant provision of this Agreement. Corporation Shares. "Corporation Shares" shall mean the shares of common stock, par value $.01 per share, of the Corporation. Effectiveness Period. "Effectiveness Period" shall have the meaning set forth in Section 2.2. Effective Time. "Effective Time" shall mean the date on which the Commission declares the Shelf Registration Statement effective or on which the Shelf Registration Statement otherwise -2- 3 becomes effective. Electing Holder. "Electing Holder" shall mean a Holder that elects to require the Trust and the Corporation to file a Shelf Registration Statement pursuant to Section 2 or to participate in a Piggyback Registration pursuant to Section 3. Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of 1934 and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Holders. "Holders" shall have the meaning set forth in the recitals. Operating Partnership. "Operating Partnership" shall have the meaning set forth in the recitals. Operating Units. "Operating Units" shall have the meaning set forth in the recitals. Original Securities "Original Securities" shall have the meaning set forth in the definition of "Registrable Securities". Ownership Limit. "Ownership Limit" when used with respect to Trust Shares, has the meaning set forth in the Declaration of Trust of the Trust and, when used with respect to the Corporation Shares, has the meaning set forth in the Restated Articles of Incorporation of the Corporation, in each case as amended from time to time. Paired Shares. "Paired Shares" shall mean the Trust Shares and the Corporation Shares which are "paired" pursuant to the Pairing Agreement dated June 25, 1980 between the Trust and the Corporation, as it may be amended from time to time. Person. "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or other agency or political subdivision thereof. Prospectus. "Prospectus" shall mean the prospectus (including, without limitation, any preliminary prospectus, any final prospectus and any prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Securities Act) included in the Shelf Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by the Shelf Registration -3- 4 Statement and by all other amendments and supplements to such prospectus, including all material incorporated by reference in such prospectus and all documents filed after the date of such prospectus by the Trust and the Corporation under the Exchange Act and incorporated by reference therein. Piggyback Registration. "Piggyback Registration" shall have the meaning set forth in Section 3. Realty Partnership. "Realty Partnership" shall have the meaning set forth in the recitals. Realty Units. "Realty Units" shall have the meaning set forth in the recitals. Register, Registered and Registration. "Register", "registered", and "registration" shall refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering by the Commission of effectiveness of such registration statement or document. Registrable Securities. "Registrable Securities" shall mean: (i) the Paired Shares issued or issuable upon exchange or conversion of any of the Class A Preferred Stock, Class B Preferred Stock, Realty Units or Operating Units issued in connection with the Transaction Agreement (the "Original Securities"), (ii) any Paired Shares or other securities issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange by the Trust and the Corporation generally for, or in replacement by the Trust and the Corporation generally of, such Paired Shares (or Original Securities that are convertible or exchangeable for Paired Shares); (iii) any securities issued in exchange for Paired Shares (or Original Securities that are convertible or exchangeable for Paired Shares) in any merger or reorganization of the Trust and the Corporation; provided, however, that Registrable Securities shall not include any securities which have theretofore been registered and sold pursuant to the Securities Act or which have been publicly sold pursuant to Rule 144 under the Securities Act or any similar rule promulgated by the Commission pursuant to the Securities Act and (iv) during the continuance of any default by Starwood Trust of its obligations under the terms of the Class B EPS, the shares of Class B EPS received in the transactions contemplated by the Transaction Agreement; provided further, that the Trust and the Corporation shall have no obligation under Sections 2 and 3 to register any Registrable Securities if nationally recognized counsel for the Trust and the Corporation, experienced in such matters and reasonably satisfactory to such Holders, delivers (after consultation with counsel for such Holders) to the Holders of -4- 5 such Registrable Securities an opinion of counsel to the effect that the proposed sale or disposition of all the Registrable Securities for which registration was requested does not require registration under the Securities Act for a sale or disposition in a single public sale, and the Trust and the Corporation offer to remove any and all legends restricting transfer from the certificates evidencing such Registrable Securities. Notwithstanding anything to the contrary set forth herein, Registrable Securities shall not include (x) any Realty Units, Operating Units, Class A EPS or, except as provided above, Class B EPS or (y) securities convertible or exchangeable for Paired Shares which are not being issued in connection with the Transaction Agreement or Paired Shares which are acquired other than in connection with the Transaction Agreement (which shall not be deemed to include Paired Shares which are acquired pursuant to the conversion or exchange of securities acquired pursuant to the Transaction Agreement). Registrable Securities then outstanding. "Registrable Securities then outstanding" shall mean, with respect to a specified determination date, the Registrable Securities owned by all Holders on such date and the Registrable Securities which are issuable upon conversion or exchange of Class A Preferred Stock, Class B Preferred Stock, Realty Units and Operating Units owned by all Holders on such date. Registration Expenses. "Registration Expenses" shall have the meaning set forth in Section 6.1. REIT Rules. "REIT Rules" shall mean the rules under the Code, governing ownership limits and rules under the Code applicable to related party rents. Required Holder or Required Holders. "Required Holder" shall have the meaning set forth in Section 2.1. Securities Act. "Securities Act" shall mean the Securities Act of 1933 and the rules and regulations of the Commission thereunder, all as the same may be in effect at the time. Selling Holder. "Selling Holder" shall mean, with respect to a specified offering pursuant to this Agreement, a Holder whose Registrable Securities are included in such registration. Shelf Registration Statement. "Shelf Registration Statement" shall mean a "shelf" registration statement filed under the Securities Act providing for the registration of, and the sale on a continuous or delayed basis by the Holders of, all or a portion of the Registrable Securities pursuant to Rule 415 under the Securities Act and/or any similar rule that may be -5- 6 adopted by the Commission, filed by the Trust and the Corporation pursuant to the provisions of Section 2 of this Agreement, including the Prospectus contained therein, any amendments and supplements to such registration statement, including post-effective amendments, and all exhibits and all material incorporated by reference in such registration statement. Transaction Agreement. "Transaction Agreement" shall have the meaning set forth in the recitals. Transfer. "Transfer" shall mean and include the act of selling, giving, transferring, creating a trust (voting or otherwise), assigning or otherwise disposing of (other than pledging, hypothecating or otherwise transferring as security) (and correlative words shall have correlative meanings); provided however, that any transfer or other disposition upon foreclosure or other exercise of remedies of a secured creditor after an event of default under or with respect to a pledge, hypothecation or other transfer as security shall constitute a "Transfer". Trust Shares. "Trust Shares" shall mean the shares of beneficial interest, $.01 par value, of the Trust. Underwriters' Representative. "Underwriters' Representative" shall mean the managing underwriter, or, in the case of a co-managed underwriting, the managing underwriter designated as the Underwriters' Representative by the co-managers. Units. "Units" shall mean Realty Units and Operating Units. Violation. "Violation" shall have the meaning set forth in Section 7.1. 1.2. USAGE. (i) References to a Person are also references to its assigns and successors in interest (by means of merger, consolidation or sale of all or substantially all the assets of such Person or otherwise, as the case may be). (ii) References to Registrable Securities "owned" by a Holder shall include Registrable Securities beneficially owned by such Person but which are held of record in the name of a nominee, trustee, custodian, or other agent, but shall exclude Paired Shares held by a Holder in a fiduciary capacity for customers of such Person. (iii) References to a document are to it as amended, waived and otherwise modified from time to time and references to a statute or other governmental rule are to it as amended and otherwise modified from time to time (and references to any -6- 7 provision thereof shall include references to any successor provision). (iv) References to Sections or to Schedules or Exhibits are to sections hereof or schedules or exhibits hereto, unless the context otherwise requires. (v) The definitions set forth herein are equally applicable both to the singular and plural forms and the feminine, masculine and neuter forms of the terms defined. (vi) The term "including" and correlative terms shall be deemed to be followed by "without limitation" whether or not followed by such words or words of like import. (vii) The term "hereof" and similar terms refer to this Agreement as a whole. (viii) The "date of" any notice or request given pursuant to this Agreement shall be determined in accordance with Section 11. SECTION 2. SHELF REGISTRATIONS. 2.1. Subject to Section 2.3 and 2.4, if one or more Holders (each, a "Required Holder") of at least 1,257,156 shares or Units (or any combination thereof) of Registrable Securities (subject to adjustment in the event the exchange ratios of the Original Securities are adjusted pursuant to their terms) shall make a written request to the Trust and the Corporation to file with the Commission a Shelf Registration Statement relating to the offer and sale of the Registrable Securities held by the Required Holder or Required Holders, the Trust and the Corporation shall, within 60 calendar days following the date on which such request is received, so file such Shelf Registration Statement and, thereafter, shall use all reasonable efforts to cause such Shelf Registration Statement to be declared effective under the Securities Act within 60 calendar days after the date of filing of such Shelf Registration Statement. Within seven calendar days after receiving the request from such Required Holder or Required Holders, the Trust and the Corporation will send written notice to the other Holders of such request. Such request shall specify the number of Registrable Securities to which it relates and the possible intended methods of disposition thereof and shall state that the Required Holder or Required Holders intends to distribute publicly all such Registrable Securities within two years after the filing of such Shelf Registration Statement. The Trust and the Corporation shall include in such Shelf Registration Statement all or any portion of the Registrable Securities requested by the Required Holders together with all or such portion of the Registrable Securities -7- 8 of any Holder or Holders joining in such request as are specified in a written request received by the Trust and the Corporation within ten Business Days after written notice from the Trust and the Corporation is given above. Prior to filing the Shelf Registration Statement, the Trust and the Corporation will furnish a draft thereof to the Holders and shall not file the Shelf Registration Statement (other than reports, proxy statement and other documents filed under the Exchange Act) with the Commission without the prior consent of the Holders, which consent shall not be unreasonably withheld or delayed. Notwithstanding anything to the contrary in this Agreement, the Trust and the Corporation shall have no obligation under this Section 2 or under Section 3 to any Holder of Registrable Securities to the extent such Holder is restricted under the Transaction Agreement or the Other Agreement (as defined in the Transaction Agreement) from selling or otherwise transferring such Registrable Securities; provided, however, that in the event of any transaction constituting a Change of Control (as defined in the Other Agreement) specified in clause (3) of such definition in which the Holders of Registrable Securities receive securities in exchange for the Registrable Securities, the Trust and, the Corporation agree that such transaction will be registered under the Securities Act; provided further that in the event of any Change of Control specified in clause (2) of the definition thereof (or any announced proxy solicitation intended to effect such a Change of Control) this sentence shall be deemed to be of no further force and effect. 2.2. The Trust and the Corporation shall use all reasonable efforts to keep the Shelf Registration Statement Continuously Effective in order to permit the Prospectus forming a part thereof to be usable by Holders for resales of Registrable Securities until the Registrable Securities registered thereunder have been distributed as contemplated thereby, but not later than the second anniversary of the Effective Date; provided that such two-year period will be extended for so long as such Holders reasonably request (based on advice of counsel that the proposed sale or disposition of all such Registrable Securities requires registration under the Securities Act) (such period being referred to herein as the "Effectiveness Period"). 2.3. The Trust and the Corporation shall be entitled to postpone for up to 90 calendar days (provided that if such a 90-day postponement has occurred previously in the prior 365 days up to 45 days but no more) the filing, effectiveness, supplementing or amending of the Shelf Registration Statement or any supplement to the Prospectus thereto otherwise required to be prepared and filed pursuant to this Section 2 and may suspend any sales pursuant to the Shelf Registration Statement, the Prospectus and any supplements to the Prospectus (each, a "Blackout Period"), if the Board of Trustees of the Trust and the -8- 9 Board of Directors of the Corporation determine in good faith and on the advice of counsel that the disclosure required in such registration and the Transfer of Registrable Securities contemplated thereby would materially adversely affect any material financing, acquisition, disposition, reorganization or other material transaction involving the Realty Partnership, the Operating Partnership, the Trust or the Corporation or any of their respective subsidiaries and the Trust or the Corporation, as the case may be, promptly gives the Required Holder or Required Holders notice of such determination. Each Blackout Period shall terminate upon the earlier to occur of (x) the completion or abandonment of the financing, acquisition, disposition, reorganization, or other transaction and (y) the public disclosure by either the Trust or the Corporation or public admission by either the Trust or the Corporation of such information. 2.4. Notwithstanding anything in this Agreement to the contrary, (a) in no event will the Trust or the Corporation be obligated to effect more than one Shelf Registration Statement upon the request, as a Required Holder, of each of WHWE, Marswood or Nomura (each as defined in the Transaction Agreement), it being understood and agreed that any Shelf Registration Statement withdrawn prior to effectiveness shall not count as WHWE's, Marswood's or Nomura's one Shelf Registration Statement, and (b) no registration shall be effected under this Agreement and no Transfer of Registrable Securities may be effected if as a result thereof the Trust would violate the REIT Rules in any respect or if such registration or Transfer would result in any Person Beneficially Owning Paired Shares in excess of the Ownership Limit. 2.5. The Shelf Registration Statement shall be on such appropriate registration form of the Commission as shall be selected by the Trust and the Corporation and shall permit the disposition of the Registrable Securities in accordance with the intended method or methods of disposition specified in the request pursuant to Section 2.1. 2.6. If any sale under the Shelf Registration Statement involves an underwritten offering (whether on a "firm commitment", "best efforts" or "all reasonable efforts" basis or otherwise), the Required Holder or Required Holders shall select the underwriter or underwriters and manager or managers to administer such underwritten offering. If WHWE and its Affiliates collectively hold (i) more than 50%, or (ii) more than 30% but not more than 50%, of the Registrable Securities to be offered in such underwritten offering, then Goldman, Sachs & Co. or an affiliate thereof ("Goldman Sachs") shall be (i) the underwriter or (ii) a co-manager, respectively; provided, however, that if any Holder or Holders in addition to WHWE is a -9- 10 Required Holder then such additional Holder or Holders may select a co-manager, in addition to Goldman Sachs. Each Person so selected shall be acceptable to the Trust and the Corporation; provided, however, that Goldman Sachs shall be deemed to be acceptable to the Trust and the Corporation. 2.7. In connection with an underwritten offering by one or more Selling Holders of Registrable Securities if the Underwriters' Representative advises the Selling Holders that, in its opinion, the amount of securities requested to be included in such offering exceeds the amount which can be sold in such offering within a price range acceptable to the Selling Holder or Holders, securities shall be included in such offering, to the extent of the amount which can be sold within such price range, pro-rata based on the estimated gross proceeds from the sale thereof. SECTION 3. PIGGYBACK REGISTRATION. 3.1. If, at any time, the Trust and the Corporation propose to register securities under the Securities Act in connection with a public offering (other than a registration statement on Form S-4 or S-8 (or any replacement or successor forms)), the Trust and the Corporation shall promptly give the Holders written notice of such registration. Upon the written request of each Holder given as promptly as practicable but in any event within twenty (20) days following the date of such notice, the Trust and the Corporation shall cause to be included in such registration statement and use their respective reasonable efforts to be registered under the Securities Act all the Registrable Securities that each such Holder shall have requested to be registered; provided, however, that such right of inclusion shall not apply to any registration statement covering an offering of debt securities or convertible debt securities that does not include an offering of equity securities (other than those underlying such convertible debt securities) (any such registration in which Holders participate pursuant to this Section 3.1 being referred to as a "Piggyback Registration"). The Trust and the Corporation shall have the absolute right to delay, withdraw or cease to prepare or file any registration statement for any offering referred to in this Section 3 without any obligation or liability to any Holder, it being understood that any Registrable Securities previously included in any such withdrawn Registration Statement shall not cease to be Registrable Securities by reason of such inclusion or withdrawal. 3.2. If the Underwriters' Representative shall advise the Trust and the Corporation that, in its opinion, the amount of Registrable Securities requested to be included in a Piggyback Registration would adversely affect such offering, or the timing -10- 11 thereof, then the Trust and the Corporation will include in such registration, to the extent of the amount and class which the Trust and the Corporation are so advised can be sold without such adverse effect in such offering: first, all securities proposed to be sold by the Trust and the Corporation for their own accounts; second, all securities, if any, requested to be included in a registration statement pursuant to the exercise of demand registration rights granted by the Trust and the Corporation; and third, the Registrable Securities requested to be included in such registration by Holders pursuant to this Section 3 and all other securities requested to be included in such registration pursuant to the exercise of piggyback rights granted to other entities, pro rata based on the estimated gross proceeds from the sale thereof. SECTION 4. REGISTRATION PROCEDURES. In connection with the Shelf Registration Statement the Trust and the Corporation shall, as soon as reasonably practicable (and, in any event, subject to the terms of this Agreement, at or before the time required by applicable laws and regulations), but only during the Effectiveness Period: 4.1. Promptly prepare and file with the Commission such amendments and supplements to the Shelf Registration Statement and the Prospectus as may be necessary to comply with the provisions of the Securities Act and rules thereunder with respect to the disposition of all securities covered by the Shelf Registration Statement; provided, however, no such amendment or supplement (other than reports, proxy statements and other documents filed under the Exchange Act) shall be filed until the Holders have had a reasonable opportunity to comment thereon and have provided their consent to such filing. If the offering is an underwritten offering, the Trust and the Corporation shall amend the Shelf Registration Statement or supplement the Prospectus whenever required by the terms of the underwriting agreement entered into pursuant to Section 4.4. The Trust and the Corporation shall amend the Shelf Registration Statement or supplement the Prospectus so that it will remain current and in compliance with the requirements of the Securities Act during the Effectiveness Period and if during such period any event or development occurs as a result of which the Shelf Registration Statement or Prospectus contains a misstatement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the Trust or the Corporation shall as promptly as practicable notify each Holder, amend the Shelf Registration Statement and supplement the Prospectus so that each will thereafter comply with the Securities Act and furnish to each Holder, underwriter and manager such amended or supplemented Prospectus, which each such Holder shall thereafter use and shall use all reasonable -11- 12 efforts to cause any manager or underwriter to use in the Transfer of Registrable Securities covered by the Shelf Registration Statement. Upon receipt of notice pursuant to this Section 4.1, each such Holder shall cease making offers or Transfers of Registrable Shares pursuant to the prior Prospectus. In the event that any Registrable Securities included in a registration statement subject to, or required by, this Agreement remain unsold at the end of the period during which the Trust and Corporation are obligated to use their respective reasonable efforts to maintain the effectiveness of such registration statement, the Trust and the Corporation may file a post-effective amendment to the registration statement for the purpose of removing such Registrable Securities from registered status. 4.2. Furnish to each Holder of Registrable Securities, without charge, such numbers of copies of the Shelf Registration Statement, any pre-effective or post-effective amendment thereto, the Prospectus, including each preliminary prospectus and any amendments or supplements thereto, in each case in conformity with the requirements of the Securities Act and the rules thereunder, documents incorporated by reference in the Shelf Registration Statement and such other related documents as any such Holder may reasonably request in order to facilitate the disposition of Registrable Securities owned by such Holder. 4.3. Use their respective reasonable best efforts (i) to register and qualify the securities covered by such registration statement under such other securities or "blue sky" laws of such states where an exemption from registration is not available and as shall be reasonably requested by the Underwriters' Representative or any Holder and (ii) to obtain the withdrawal of any order suspending the effectiveness of the Shelf Registration Statement, or the lifting of any suspension of the qualification (or exemption from qualification) of the offer and transfer of any of the Registrable Securities in any state, at the earliest possible moment; provided, however, that neither the Trust nor the Corporation shall be required in connection therewith to (A) qualify as a foreign corporation or other foreign entity or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for the requirements of this Section 4.3 or (B) consent to general service of process in any such jurisdiction, provided that the Trust and the Corporation shall execute consents to service of process in the forms customarily requested in connection with the Shelf Registration Statement or qualification of securities under any applicable state or securities or blue sky laws. 4.4. In the event of any underwritten offering, use their respective reasonable efforts to enter into and perform their respective obligations under an underwriting agreement (including indemnification and contribution obligations of -12- 13 underwriters), in usual and customary form, with the managing underwriter or underwriters of such offering and take such other actions as are reasonably necessary in connection therewith in order to expedite or facilitate the disposition of Registered Securities; and (A) make such representations and warranties with respect to the Shelf Registration Statement or any post-effective amendment or supplement thereto, Prospectus or any amendment or supplement thereto, and documents incorporated by reference, if any, to the Holders and the managers or underwriters of the Registered Securities in form, substance and scope as are customary in connection with transactions of such kind; (B) if requested by the managing underwriters or lead placement agent of the Registered Securities, obtain an opinion of outside counsel to the Corporation and the Trust in customary form and covering matters of the type customarily covered by such an opinion, addressed to such placement agent or underwriters named in the underwriting agreement and dated the date of the closing of the sale of the Registrable Securities relating thereto; (C) if requested by the managing underwriters or lead placement agent of the Registrable Securities, (I) obtain "comfort" letters (or, if a "comfort" letter or "comfort" letters may not be delivered under applicable accounting pronouncements or standards, a "procedures" letter) and an update thereof from each of the independent certified public accountants who have certified the most recent audited financial statements that are incorporated by reference in the Shelf Registration Statement, which letters shall be addressed to the sales or placement agent or any underwriter of the Registrable Securities and shall be dated the date of the Prospectus used in connection with an offering of Registrable Securities and/or the date of the closing of the sale of Registrable Securities, such letter or letters to be in customary form and covering such matters of the type customarily covered by "comfort" letters of such type, and (II) use their respective reasonable best efforts to have such letter addressed to the Selling Holders of Registrable Securities (provided, however, that such letters need not be addressed to any Holder to whom, in the reasonable opinion of the Issuers' independent certified public accountants, addressing such letter is not permissible under applicable accounting standards); and (D) deliver such documents and certificates as may be reasonably requested by the Selling Holder and the sales or placement agent or any underwriter of Securities to evidence compliance with any conditions contained in the underwriting agreement or other agreement entered into by the Trust and the Corporation. The Trust and the Corporation shall also cooperate with the Selling Holders, and the Underwriters' Representative for such offering in the marketing of the Registrable Securities, including making available the officers, making the officers available to participate in such "road show" presentations and conference calls as the Selling Holders may reasonably request, accountants, counsel, premises, books and records of the Trust and the Corporation for such purpose. -13- 14 4.5. Promptly notify each Selling Holder and the Underwriter's Representative of any stop order issued or threatened to be issued by the Commission in connection therewith and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. 4.6. Make available for inspection by any Selling Holder, any underwriter participating in such offering and the representatives of such Selling Holder and Underwriter (but not more than one firm of counsel to such Selling Holders), all financial and other information as shall be reasonably requested by them, and provide any Selling Holder, any underwriter participating in such offering and the representatives of such Selling Holder and Underwriter the reasonable opportunity to discuss the business affairs of the Trust and the Corporation with their officers and independent public accountants who have certified the audited financial statements included in such registration statement, in each case all as necessary to enable them to exercise their due diligence responsibility under the Securities Act; provided, however, that information that the Trust or the Corporation determine to be confidential and which the Trust or the Corporation advise such Person in writing, is confidential shall not be disclosed unless such Person signs a confidentiality agreement reasonably satisfactory to the Trust and the Corporation or the related Selling Holder of Registrable Securities agrees to be responsible for such Person's breach of confidentiality on terms reasonably satisfactory to the Trust and the Corporation. 4.7. Promptly notify each Holder, each sales or placement agent and each underwriter (A) when the Shelf Registration Statement or any related Prospectus or any amendment or supplement has been filed, and, with respect to the Shelf Registration Statement or any amendment thereto, when the same has become effective or (B) of any request by the Commission for amendments or supplements to the Shelf Registration Statement or the related Prospectus or for additional information. 4.8. Cooperate with each Holder and any sales or placement agent or underwriter of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to the Shelf Registration Statement, which certificates shall not bear any restrictive legends except as required by law or as customarily borne by securities held by DTC or any similar depository; and, in the case of an underwritten offering, enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriter or underwriters thereof may request in writing at least two business days prior to any sale of the Registrable Securities. -14- 15 4.9. Make available to their respective security Holders separate and combined earnings statements, as soon as reasonably practicable but in no event later than 45 days after the end of the period of twelve months commencing on the first day of any fiscal quarter next succeeding each sale by any Selling Holder, which earnings statements shall cover such twelve month period and shall satisfy the provisions of Section 11(a) of the Securities Act and may be prepared in accordance with Rule 158 under the Securities Act; provided, however, that the Trust's and the Corporation's obligations under this Section 4.9 may be satisfied by the timely filing of quarterly or annual reports under the Exchange Act containing the information specified by Rule 158. 4.10. In the event that any broker-dealer registered under the Exchange Act shall be an "affiliate" (as defined in Rule 2720(b)(1) of the NASD Rules (or any successor provision thereto)) of the Trust or the Corporation or has a "conflict of interest" (as defined in Rule 2720(b)(7) of the NASD Rules (or any successor provision thereto)) and such broker-dealer shall underwrite, participate as a member of an underwriting syndicate or selling group or assist in the distribution of any Registrable Securities covered by the Shelf Registration Statement, whether as a holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Trust and the Corporation shall assist such broker-dealer in complying with the requirements of the NASD Rules, including, without limitation, by (A) engaging a "qualified independent underwriter" (as defined in Rule 2720(b)(15) of the NASD Rules (or any successor provision thereto)) to participate in the preparation of the registration statement relating to such Registrable Securities, to exercise usual standards of due diligence in respect thereto and to recommend the public offering price of such Registrable Securities, (B) indemnifying such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 7 hereof, and (C) providing such information, known to the Trust or the Corporation to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the NASD Rules. 4.11. Use their respective reasonable efforts to cause the Registrable Securities covered by the Shelf Registration Statement (i) if the Paired Shares are then listed on a securities exchange or included for quotation in a recognized trading market, to continue to be so listed or included for a reasonable period of time after the offering, and (ii) to be registered with or approved by such other United States or state governmental agencies or authorities as may be necessary by virtue of the business and operations of the Trust and the -15- 16 Corporation to enable the Selling Holders of Registrable Securities to consummate the disposition of such Registrable Securities. 4.12. Take such other actions as are reasonably required in order to expedite or facilitate the disposition of Registrable Securities included in each such offering. SECTION 5. HOLDERS' OBLIGATIONS. It shall be a condition precedent to the obligations of the Trust and the Corporation to take any action pursuant to this Agreement with respect to the Registrable Securities of any Selling Holder of Registrable Securities that such Selling Holder shall: 5.1. Furnish to the Trust and the Corporation such information regarding such Selling Holder, the number of the Registrable Securities owned by it, and the intended method of disposition of such securities as shall be required to effect the offering of such Selling Holder's Registrable Securities, and to reasonably cooperate with the Trust and the Corporation in preparing the Shelf Registration Statement and the Prospectus (together with any amendments or supplements thereto). 5.2. Agree to sell their Registrable Securities to the underwriters at the same price and on substantially the same terms and conditions as the Trust and the Corporation or the other Persons on whose behalf the Piggyback Registration statement or supplement to the Prospectus was being filed have agreed to sell their securities, and, in the case of a registration under Section 3, to execute the underwriting agreement agreed to by the Trust and the Corporation and the Selling Holders. SECTION 6. EXPENSES OF REGISTRATION. Expenses in connection with registrations pursuant to this Agreement shall be allocated and paid as follows: 6.1. With respect to the Shelf Registration Statement and each offering pursuant thereto and pursuant to the Prospectus, each of the Trust and the Corporation shall bear and pay all expenses incurred in connection with any registration, filing, or qualification of Registrable Securities with respect to such Registration for each Selling Holder, including all registration, filing and National Association of Securities Dealers, Inc. fees, all fees and expenses of complying with securities or blue sky laws, all printing expenses, messenger and delivery expenses, the reasonable fees and disbursements of counsel for the Trust and the Corporation, and of the independent public accountants for the Trust and the Corporation, including the expenses of "cold comfort" letters required by or incident to such performance and compliance (the "Registration Expenses"), but excluding underwriting discounts and commissions relating to -16- 17 Registrable Securities (which shall be paid on a pro rata basis by the Selling Holders) and all fees and expenses of counsel for the Selling Holders; provided, however, that the Trust and the Corporation shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2 if the registration is subsequently withdrawn by the Required Holder (in which case the Selling Holders shall bear such expenses), unless, in the case of a Shelf Registration, the Required Holder agrees that such withdrawn registration shall have constituted the Shelf Registration available to it under Section 2 hereof. The Trust and the Corporation each agree between themselves that they shall bear and pay Registration Expenses in an amount equal to their respective Issuance Percentage of such Registration Expenses and that they shall reimburse each other to the extent necessary to cause each of them to so bear and pay such respective amounts. 6.2. The Trust and the Corporation shall bear and pay all Registration Expenses incurred in connection with any Piggyback Registrations pursuant to Section 3, but excluding underwriting discounts and commissions relating to Registrable Securities (which shall be paid on a pro rata basis by the Selling Holders) and all fees and expenses of counsel for the Selling Holders. SECTION 7. INDEMNIFICATION; CONTRIBUTION. If any Registrable Securities are included in a registration statement under this Agreement: 7.1. To the extent permitted by applicable law, each of the Trust and the Corporation, severally and not jointly, shall indemnify and hold harmless each Selling Holder, each Person, if any, who controls such Selling Holder within the meaning of the Securities Act, each Person who participates as a sales or placement agent or underwriter in any offering of the Registered Securities and each officer, director, partner and employee of such Selling Holder and such controlling Person, against any and all losses, claims, damages, liabilities and expenses (joint or several), including reasonable attorneys' fees and disbursements and reasonable expenses of investigation, incurred by such party or to which such party may become subject pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may otherwise become subject under the Securities Act, the Exchange Act or other federal or state laws, insofar as such losses, claims, damages, liabilities and expenses arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) Any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary Prospectus or final Prospectus -17- 18 contained therein, or any amendments or supplements thereto; or (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; provided, however, that the indemnification required by this Section 7.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement is effected by the indemnified person without the consent of the Trust or the Corporation (which consent shall not be unreasonably withheld), nor shall the Trust or the Corporation be liable in any such case for any such loss, claim, damage, liability or expense to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with information furnished to the Trust or the Corporation by the indemnified party expressly for use in connection with such registration; and provided further that the indemnity agreement contained in this Section 7 shall not apply to the extent that any such loss is based on or arises out of an untrue statement or alleged untrue statement of a material fact, contained in or omitted from any preliminary Prospectus if the final Prospectus shall correct such untrue statement or alleged untrue statement, or such omission or alleged omission, and a copy of the final Prospectus has not been sent or given to such person at or prior to the confirmation of sale to such person if an underwriter, placement agent or Selling Holder was under an obligation to deliver such final Prospectus and failed to do so. 7.2. To the extent permitted by applicable law, each Selling Holder shall indemnify and hold harmless the Trust, the Corporation, each of the Trustees of the Trust, each of the directors of the Corporation, each of the officers of the Trust or the Corporation who shall have signed the registration statement, each Person, if any, who controls the Trust or the Corporation within the meaning of the Securities Act, any other Selling Holder, any controlling Person of any such other Selling Holder and each officer, director, partner, and employee of such other Selling Holder and such controlling Person, against any and all losses, claims, damages, liabilities and expenses (joint and several), including reasonable attorneys' fees and disbursements and reasonable expenses of investigation, incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may otherwise become subject under the Securities Act, the Exchange Act or other federal or state laws, but only insofar as such losses, claims, damages, liabilities and expenses arise out of or are based upon any Violation, in each case to the extent that, but only to the extent that, such Violation arises out of or is based upon and was made in reliance upon information furnished by such Selling Holder expressly for use in connection with such registration; provided, however, that (x) the indemnification -18- 19 required by this Section 7.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement (A) is effected without the consent of the relevant Selling Holder (which consent shall not be unreasonably withheld), (B) does not include an unconditional release of the indemnified party from all liability arising out of such action or claim or (C) includes a statement as to, or an admission of, fault, culpability or a failure to act, by or on behalf of any indemnified party and (y) in no event shall the amount of any indemnity under this Section 7.2 exceed the net proceeds from the applicable offering received by such Selling Holder. 7.3. Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, suit, proceeding, investigation or threat thereof made in writing for which such indemnified party may make a claim under this Section 7, such indemnified party shall deliver to the indemnifying party a written notice thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with nationally recognized counsel experienced in such matters reasonably satisfactory to the indemnified party; provided, however, that an indemnified party shall have the right to retain its own counsel and to not have the indemnifying party assume its defense, with the fees, disbursements and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time following the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 7 to the extent of such prejudice but shall not relieve the indemnifying party of any liability that it may have to any indemnified party otherwise than pursuant to this Section 7. Any fees and expenses incurred by the indemnified party (including any fees and expenses incurred in connection with investigating or preparing to defend such action or proceeding) shall be paid to the indemnified party, as incurred, within thirty (30) days of written notice thereof to the indemnifying party (regardless of whether it is ultimately determined that an indemnified party is not entitled to indemnification hereunder). Any such indemnified party shall have the right to employ separate counsel in any such action, claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be the expenses of such indemnified party unless (i) the indemnifying party has agreed to pay such fees and expenses or (ii) the indemnifying -19- 20 party shall have failed to promptly assume the defense of such action, claim or proceeding or (iii) the named parties to any such action (including any impleaded parties) include both such indemnified party and the indemnifying party, and such indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or in addition to those available to the indemnifying party and that the assertion of such defenses would create a conflict of interest such that counsel employed by the indemnifying party could not faithfully represent the indemnified party (in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action, claim or proceeding on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action, claim or proceeding or separate but substantially similar or related actions, claims or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all such indemnified parties, unless in the reasonable judgment of such indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such action, claim or proceeding, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels). 7.4. If the indemnification required by this Section 7 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to in this Section 7: (i) The indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any Violation has been committed by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such Violation. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in -20- 21 Section 7.1 and Section 7.2, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. (ii) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7.4 were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in Section 7.4(i). No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 7.5. If indemnification is available under this Section 7, the indemnifying parties shall indemnify each indemnified party to the full extent provided in this Section 7 without regard to the relative fault of such indemnifying party or indemnified party or any other equitable consideration referred to in Section 7.4 except that no Selling Holder shall be liable for any amount in excess of the net proceeds it receives in the offering which is the subject of the indemnification proceeding. 7.6. The obligations of the Trust and the Corporation under this Section 7 shall be in addition to any liability which the Trust and the Corporation may otherwise have to the persons specified in Section 7.1 and the obligations of the Selling Holders under this Section 7 shall be in addition to any liability which such Persons may otherwise have to the Trust and the Corporation. The remedies provided in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to an indemnified party at law or in equity. 7.7. The obligations of the Trust, the Corporation and the Selling Holders of Registrable Securities under this Section 7 shall survive the completion of any offering of Registrable Securities pursuant to a registration statement under this Agreement, and otherwise. SECTION 8. HOLDBACK. (a) Each Holder, if so requested by the Underwriters' Representative in connection with an offering of any securities covered by a registration statement filed by Trust and the Corporation, whether or not such Holder's securities are included therein, shall not effect any public sale or distribution of Paired Shares or any securities convertible into or exchangeable or exercisable for Paired Shares, including a sale pursuant to Rule 144 under the Securities act (except as part of such underwritten registration), during the 90-day period (provided that if such a 90-day period has previously occurred -21- 22 under this Section 8 (a) in the prior 365 days, the 45-day period) beginning on the date such registration statement is declared effective under the Securities Act by the Commission. Notwithstanding the immediately preceding sentence or Section 2.3, the 90-day and 45-day periods referred to therein and herein shall not extend to more than 180 days in any consecutive 365 day period. In order to enforce the foregoing covenant, the Trust and the Corporation shall be entitled to impose stop-transfer instructions with respect to the Registrable Securities of each Holder until the end of such period. Holders of Registrable Securities shall have the right to participate in any such registration on the terms provided in Section 3 hereof. (b) Each of the Trust and the Corporation agrees not to effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable to or exercisable for such securities, during the 90-day (or 45-day) period beginning on the effective date of any underwritten demand registration (except pursuant to (i) registrations on Form S-4 or any successor form and (ii) registrations of securities in connection with a dividend reinvestment plan on form(s) applicable to such securities) unless the underwriters managing the registered public offering otherwise agree. SECTION 9. AMENDMENT, MODIFICATION AND WAIVERS; FURTHER ASSURANCES. (i) This Agreement may be amended with the consent of the Trust and the Corporation and the Holders and the Trust and the Corporation may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Trust and the Corporation shall have obtained the written consent of the Holders to such amendment, action or omission to act. (ii) No waiver of any terms or conditions of this Agreement shall operate as a waiver of any other breach of such terms and conditions or any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof. No written waiver hereunder, unless it by its own terms explicitly provides to the contrary, shall be construed to effect a continuing waiver of the provisions being waived and no such waiver in any instance shall constitute a waiver in any other instance or for any other purpose or impair the right of the party against whom such waiver is claimed in all other instances or for all other purposes to require full compliance with such provision. (iii) Each of the parties hereto shall execute all such further instruments and documents and take all such further action as any other party hereto may reasonably require in order -22- 23 to effectuate the terms and purposes of this Agreement. SECTION 10. ASSIGNMENT; BENEFIT. This Agreement and all of the provisions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, assigns, executors, administrators or successors; provided, however that neither this Agreement nor any of the rights, interests or obligations hereunder shall be directly or indirectly assigned (including the substitution of an issuer or issuers other than the Trust and the Corporation) or delegated by a Holder other than to a permitted transferee of the Registrable Securities that agrees to be bound hereby. SECTION 11. MISCELLANEOUS. 11.1. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF. 11.2. NOTICES. All notices and requests given pursuant to this Agreement shall be in writing and shall be made by hand-delivery, first-class mail (registered or certified, return receipt requested), confirmed facsimile or overnight air courier guaranteeing next Business Day delivery to the relevant address specified on Annex A hereto. Except as otherwise provided in this Agreement, the date of each such notice and request shall be deemed to be, and the date on which each such notice and request shall be deemed given shall be: at the time delivered, if personally delivered or mailed; when receipt is acknowledged, if sent by facsimile; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next Business Day delivery. 11.3. ENTIRE AGREEMENT; INTEGRATION. Except as expressly agreed in a separate writing signed by the parties hereto on or after the date of this Agreement, this Agreement, the Transaction Agreement, the Westin Disclosure Letter (as defined in the Transaction Agreement), the Starwood Disclosure Letter (as defined in the Transaction Agreement), the Confidentiality Agreement (as defined in the Transaction Agreement) and the Other Agreement (as defined in the Transaction Agreement) constitute the entire agreement, and supersede all other prior agreements, understandings, representations and warranties both written and oral, among the parties, with respect to the subject matter hereof. 11.4. SECTION HEADINGS. Section headings are for convenience of reference only and shall not affect the meaning of any provision of this Agreement. -23- 24 11.5. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which shall together constitute one and the same instrument. All signatures need not be on the same counterpart. 11.6. SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not affect the validity and enforceability of the remaining provisions of this Agreement, unless the result thereof would be unreasonable, in which case the parties hereto shall negotiate in good faith as to appropriate amendments hereto. 11.7. TERMINATION. This Agreement may be terminated at any time by a written instrument signed by the Trust, the Corporation and all of the Holders. Unless sooner terminated in accordance with the preceding sentence, this Agreement (other than Section 7 hereof) shall terminate in its entirety on such date as there shall be (a) no Registrable Securities outstanding, and (b) no securities outstanding which are convertible or exchangeable into Registrable Securities; provided that any Paired Shares previously subject to this Agreement shall not be Registrable Securities following the sale of any such shares in an offering registered pursuant to this Agreement and provided that the rights and obligations pursuant to Section 7 shall survive termination of this Agreement. 11.8. STARWOOD TRUST. The parties hereto understand and agree that the name "Starwood Lodging Trust" is a designation of the Trust and its Trustees (as Trustees but not personally) under the Declaration of Trust, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 11.9. SUBMISSION TO JURISDICTION. Each of the parties hereto and each of the Holders irrevocably submits and consents to the jurisdiction of the United States District Court for the Southern District of New York in connection with any action or proceeding arising out of or relating to this Agreement, and irrevocably waives any immunity from jurisdiction thereof and any claim of improper venue, forum non conveniens or any similar basis to which it might otherwise be entitled in any such action or proceeding. -24- 25 IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date first written above. STARWOOD LODGING TRUST, a Maryland real estate investment trust By: ________________________________ Name: Title: STARWOOD LODGING CORPORATION, a Maryland corporation By: ________________________________ Name: Title: HOLDERS: W&S Hotel L.L.C. By: ________________________________ Name: Title: WHWE L.L.C. By: Whitehall Street Real Estate Limited Partnership V, Member and Manager By: ________________________________ Name: Title: -25- 26 Woodstar Investor Partnership By: Marswood Investors, L.P. General Partner By: Starwood Capital Group, L.P. General Partner By: BSS Capital Partners, L.P. General Partner By: Sternlicht Holdings II, Inc. General Partner By: ________________________________ Name: Title: Juergen Bartels ____________________________________ Nomura Asset Capital Corporation By: ________________________________ Name: Title: GS CAPITAL PARTNERS, L.P. By: GS Advisors, L.P., General Partner By: GS Advisors, Inc., General Partner By: ________________________________ Name: Title: -26- 27 STONE STREET FUND 1994, L.P. By: Stone Street Funding Corp., General Partner By: ________________________________ Name: Title: STONE STREET WESTIN HOLDING, INC. By: ________________________________ Name: Title: STONE STREET FUND 1995, L.P. By: Stone Street Value Corp., General Partner By: ________________________________ Name: Title: STONE STREET 1995 WESTIN HOLDING INC. By: ________________________________ Name: Title: BRIDGE STREET FUND 1994, L.P. By: Stone Street Funding Corp., General Partner By: ________________________________ Name: Title: -27- 28 BRIDGE STREET FUND 1995, L.P. By: Stone Street Value Corp., General Partner By: ________________________________ Name: Title: GS CAPITAL PARTNERS WESTIN HOLDING, L.P. By: GS Capital Partners, L.P. General Partner By: GS Advisors, L.P. General Partner By: GS Advisors, Inc., General Partner By: ________________________________ Name: Title: Richard L. Mahoney ____________________________________ Frederick J. Kleisner ____________________________________ John van Hartesvelt ____________________________________ -28- EX-10.53 30 EX-10.53 1 Exhibit 10.53 HOUSTON EXECUTION PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS By And Between NEW REMINGTON PARTNERS, a Texas General Partnership, As Seller And STARWOOD LODGING TRUST, a Maryland Real Estate Investment Trust And STARWOOD LODGING CORPORATION, a Maryland Corporation, As Buyer. Dated As Of: December 30, 1997 Relating to the Houston Luxury Collection Hotel, Houston, Texas 2 PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS THIS PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this "Agreement") is entered into as of the 30th day of December, 1997, by and between NEW REMINGTON PARTNERS, a Texas general partnership ("Seller"), and STARWOOD LODGING TRUST, a Maryland Real Estate Investment Trust (the "Trust"), and STARWOOD LODGING CORPORATION, a Maryland corporation (the "Corporation"; the Trust and the Corporation being referred to herein collectively as, "Buyer"). A. Seller owns that certain parcel of land described in EXHIBIT A attached hereto and made a part hereof, which is improved with a hotel building and certain related improvements, all as more particularly set forth in this Agreement. B. Seller desires to sell, and Buyer desires to purchase, the above described land and hotel together with the related improvements upon the terms and subject to the conditions set forth in this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the foregoing and the mutual promises and agreements contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby mutually acknowledged, Buyer and Seller agree as follows: SECTION 1 DEFINITIONS 1.1 Defined Terms "Accounts Receivable" shall mean, collectively, all Cash Equivalent Receivables, all Invoiced Receivables and all Other Accounts Receivable. "Affiliate" shall have the meaning set forth in Rule 12b-2 of the regulations promulgated under the Exchange Act. "Approved Service Contracts" shall mean the Service Contracts identified on SCHEDULE 1.1.1 annexed hereto and made a part hereof and any other Service Contracts cancelable upon thirty (30) or fewer days notice without penalty, which Service Contracts Buyer shall assume as of the Closing pursuant to the General Assignment and Assumption Agreement. "Assignment and Assumption of Management Agreement" shall have the meaning set forth in SECTION 4.2.1.4. "Assignment and Assumption of Tenant Leases" shall have the meaning set forth in SECTION 4.2.1.2. "Assignment and Assumption of Liquor-Related Agreements" shall have the meaning set forth in SECTION 4.2.1.7. "Bill of Sale" shall have the meaning set forth in SECTION 4.2.1.5. "Business Day" shall mean any day other than Saturday or Sunday on which the New York Stock Exchange is open for business. "Booking" shall mean a contract or reservation for the use of guest rooms, banquet facilities, meeting rooms, and/or conference facilities at the Hotel. "Buyer's Counsel" shall mean the law firm of Greenberg Traurig Hoffman Lipoff Rosen & Quentel acting through Andrew E. Zobler, Esq. "Buyer Default" shall have the meaning set forth in SECTION 3.5.1. 3 "Cash Equivalent Receivables" shall mean all Guest Ledger Receivables which are in the form of drafts or checks written on any bank or other financial institution, certified checks, money orders, amounts owed to Seller from credit card, debit card, travel and entertainment card or traveler's check companies, and are in such other forms which are considered to be cash equivalents under generally acceptable accounting principles, whether or not such Guest Ledger Receivables have been presented or billed to any such bank, financial institution or other company as of the Closing Date. "Cash Purchase Price" shall mean (a) Twenty-One Million Dollars ($21,000,000.00) plus (b) the Overage Cash Payment, if any, as adjusted pursuant to SECTION 3.2.2. "Closing" or "Close of Escrow" shall have the meaning set forth in SECTION 4.7.2. "Closing Agent" shall have the meaning set forth in SECTION 4.8.10. "Closing Date" shall mean the day on which the Closing occurs hereunder. "Closing Payment" shall have the meaning set forth in SECTION 3.2.2. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. "Collective Bargaining Agreements" shall have the meaning set forth in SECTION 14.2. "Conveyance Documents" shall mean the Deed, the Assignment and Assumption of Management Agreement, the Assignment and Assumption of Tenant Leases, the Bill of Sale, the General Assignment and Assumption Agreement and the Assignment and Assumption of Liquor-Related Agreements. "Deed" shall have the meaning set forth in SECTION 4.2.1.1. "Deposit" shall mean an amount equal to $2,857,143.00, held in accordance with the provisions of SECTION 3 hereof together with all interest accrued thereon. "Employer Corporation" shall mean Luxury Holdings, Inc. (formerly known as TQM Inc.). "Employment Agreements" shall mean the Collective Bargaining Agreements and Employee Benefit Plans (as defined in Section 3(3) of ERISA), affecting Hotel Employees, including pension, profit sharing, employee benefit and similar plans, if any, and agreements with regard to any Hotel Employee each of which are identified on or expressly described in the materials identified on SCHEDULE 1.1.2 annexed hereto and made a part hereof. "Environmental Condition" shall mean any condition with respect to soil, surface waters, groundwater, land, stream sediments, surface or subsurface strata, ambient air and any environmental medium comprising or surrounding the Real Property, which results in any damage, loss, cost, expense, claim, demand, order or liability to or against Seller or Buyer by any third party (including, without limitation, any government entity) as a result of a violation of any applicable Environmental Laws. "Environmental Laws" shall mean all presently applicable statutes, regulations, rules, ordinances, codes, licenses, permits and orders of any and all governmental agencies, departments, commissions, boards, bureaus or instrumentalities of the United States, states and political subdivisions thereof, and all applicable judicial and administrative and regulatory decrees, judgments and orders relating to the protection of the environment, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9061 et seq.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C. 1801, et seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251, et seq.; and analogous state laws and regulations. 3 4 "Equipment Leases" shall mean all leases of equipment, vehicles, furniture or other personal property leased by, or on behalf of, Seller and located at, or used in the operation of the Real Property, together with any and all amendments thereto, which are identified on SCHEDULE 1.1.3 annexed hereto. "Equity Purchase Price" shall mean the number of Paired Shares with a value as determined pursuant to the Stock Agreement equal to $26,665,500.00 to be delivered in accordance with the applicable provisions of the Stock Agreement. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder. "Escrow" shall mean an escrow opened with the Escrow Holder for the purchase and sale of the Property in accordance with the provisions of this Agreement. "Escrow Holder" shall mean the Title Company unless otherwise agreed in writing by Buyer and Seller. "Escrow Instructions" shall have the meaning set forth in SECTION 4.1. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Excluded Property" shall mean all Seller's right, title and interest in and to: (a) those claims of Seller attributable to the period prior to the Closing Date and described on SCHEDULE 1.1.4 annexed hereto and made a part hereof, or which Seller is entitled to assert under the express provisions of SECTION 5; (b) all insurance proceeds under Seller's Insurance and workers' compensation policies, including return premiums and dividends thereon and all claims thereunder in each case to the extent attributable to acts or occurrences prior to the Closing Date; (c) all accounts owned or maintained by Seller, or Manager on Seller's behalf, in connection with the Hotel, including all operating and reserve accounts; and (d) any books, records, files or papers specifically described in SECTION 6.3.2 as excluded from the Property Information. "Excluded Parties" shall have the meaning set forth in SECTION 17.18 "Execution Date" shall mean the date hereof. "General Assignment and Assumption Agreement" shall have the meaning set forth in SECTION 4.2.1.3. "Guest Ledger Receivables" shall mean amounts, including, without limitation, room charges, accrued to the accounts of guests occupying rooms at the Hotel or group, conference or banquet customers of Seller at the Hotel. "Hart-Scott-Rodino Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and regulations promulgated thereunder, as the same has been amended from time to time. "Hotel" shall mean the hotel located on the Land and commonly known as Houston Luxury Collection Hotel. "Hotel Employees" shall mean all full-time, part-time or temporary employees of Seller and/or the Employer Corporation (but not employees of Manager or any of its affiliates) who are employed by Seller and/or the Employer Corporation exclusively at or in connection with the Hotel as of the Closing Date and who are listed on SCHEDULE 1.1.6 annexed hereto and made a part hereof. "Houston Adjacent Assets" shall have the meaning set forth in SECTION 4.2.1.11. "Houston Right of First Offer Agreement" shall have the meaning set forth in SECTION 4.2.1.12. "Improvements" shall mean Seller's right, title and interest in and to the hotel building and other 4 5 improvements now or hereafter located on the Land. "Insured Casualty Notice" shall have the meaning set forth in SECTION 12.1.1. "Intangible Property" shall mean all of Seller's right, title and interest in and to the following, in each case excluding any Excluded Property: (i) Licenses and Permits; (ii) trademark rights, and other intangible property, rights, titles, interests, privileges and appurtenances related to or used in connection with the Hotel or its operations; (iii) warranties and guaranties of architects, engineers, contractors, subcontractors, suppliers or materialmen involved in the repair, construction, maintenance, design, reconstruction or operation of the Hotel, or any equipment or systems constituting a part of the Hotel; (iv) Approved Service Contracts; (v) Equipment Leases; (vi) Bookings; and (vii) computer programs, software and documentation thereof (subject to the limitations of any applicable license agreements pertaining thereto), and including all electronic data processing systems, program specifications, source codes, logs, input data and report layouts and forms, record file layouts, diagrams, functional specifications and variable descriptions, flow charts and other related materials used in connection therewith; and (viii) any goodwill associated with the operation of the Hotel. "Interim Management Agreement" shall have the meaning set forth in SECTION 17.20 hereto. "Invoiced Receivables" shall mean all Guest Ledger Receivables other than Cash Equivalent Receivables whether or not such Guest Ledger Receivables have been invoiced by Seller as of the Closing Date. "Land" shall mean Seller's right, title and interest in and to the land described on EXHIBIT A annexed hereto and made a part hereof. "LIBOR rate" shall mean the average of interbank offered rates for three-month dollar deposits in the London market based on quotations at five (5) major banks, as published from time to time in The Wall Street Journal. If The Wall Street Journal ceases to be published, then Buyer shall propose a substitute method of determining the interest rate generally known as the three-month LIBOR rate, which method, absent manifest error, shall be binding on Buyer and Seller. "Licenses and Permits" shall mean all licenses, permits, registrations, certificates, authorizations and governmental approvals other than the Liquor License obtained in connection with the design, construction, rehabilitation, use and/or operation of the Hotel. "Liquor Agreements" shall have the meaning set forth in SECTION 6.3.14. "Liquor Lease" shall have the meaning set forth in SECTION 6.3.17. "Liquor License" shall mean all licenses, permits, registrations, certificates, authorizations and governmental approvals with respect to service of alcoholic beverages at the Hotel. "Lock Price" shall have the meaning set forth in the Stock Agreement. "Losses" shall mean any and all losses, liabilities, obligations, damages, claim or expense, including without limitation, reasonable attorneys' and accountants' fees and disbursements related thereto. "Manager" means Sheraton Operating Corporation, a wholly-owned subsidiary of ITT Sheraton Corporation. "Management Agreement" shall mean that certain Management Agreement entered into as of August 13, 1997 between Seller and Manager. "Market Price" shall have the meaning set forth in the Stock Agreement. "Master Lease" shall have the meaning set forth in SECTION 4.2.1.11. "Material" shall mean $5,000 for any single occurrence and $15,000 in the aggregate for any 5 6 group of occurrences whether or not related. "Material Casualty" shall mean a casualty or casualties that, in the aggregate: (i) causes in excess of $10,000,000.00 worth of damage to the Hotel; or (ii) will take twelve (12) months or longer from the date of the casualty to fully remediate. "Material Taking" shall mean an exercise by an applicable governmental authority of the power of condemnation or eminent domain that results in: (a) the taking of more than twenty percent (20%) of the Real Property; (b) a material reduction or restriction in access to the Property; or (c) the inability to operate the Hotel in substantially the same manner (without material additional expense) as it was operated prior to such taking. "Memorandum of Contract" shall mean a memorandum of this Agreement in the form attached as EXHIBIT B hereto. "Monetary Lien" shall mean any monetary lien affecting the Real Property of an ascertainable amount, other than any lien for taxes or assessments which are not yet due and payable. "Non-Foreign Person Certificate" shall have the meaning set forth in SECTION 4.2.1.13. "Other Accounts Receivable" shall mean any and all rents, additional rent, deposits, and other sums and charges owing to Seller that are in any way attributable to the operation of the business at the Hotel, including, without limitation, all rents and/or license fees due from Tenants under Tenant Leases, and including any such amounts which are past due, but excluding Guest Ledger Receivables. "Overage Cash Payment" shall mean the portion of the Equity Purchase Price which is payable in cash at Closing as provided in SECTION 3.2.2.1, if any. "Ownership Limitation" shall mean the limitations contained in the declaration of trust for the Trust and the Corporation's articles of incorporation prohibiting actual or constructive ownership by any one person or group of related persons of more than 8% of the issued and outstanding Paired Shares taking into account the attribution rules of Section 544(a) of the Code as modified by Section 856(h) of the Code or Section 318(a) of the Code as modified by Section 856(d)(5) of the Code. "Paired Shares" shall mean one share of beneficial interest, par value $.01 per share of the Trust, and one share of common stock, par value $.01 per share, of the Corporation that are subject to the Pairing Agreement, which shares shall be transferable as provided in the Stock Agreement and the Pairing Agreement. "Pairing Agreement" shall mean the Pairing Agreement dated as of June 25, 1980, as amended, between the Trust and the Corporation providing, in relevant part, for the pairing of all outstanding beneficial interests of the Trust and shares of the Corporation. "Permitted Encumbrances" shall have the meaning set forth in SECTION 7.3. "Person" shall mean any natural person, partnership, corporation, association, limited liability company, trust or any other legal entity. "Personal Property" shall mean collectively the Tangible Personal Property and the Intangible Property. "Preliminary Title Report" shall have the meaning set forth in SECTION 7.1. "Property" shall mean collectively the Real Property, the Personal Property, the Tenant Leases, and the Accounts Receivable, but shall exclude the Excluded Property. "Property Information" shall have the meaning set forth in SECTION 6.4.2. "Proration Time" shall mean 12:01 a.m. Mountain Time on the Closing Date. "Purchase Price" shall mean the sum of the Cash Purchase Price and the Equity Purchase Price. 6 7 "Real Property" shall mean the Land and the Improvements, together with Seller's right, title and interest in and to all rights of way, easements, water or littoral rights, rights to any minerals, oil, gas and other hydrocarbon substances, or any portion thereof, relating to the Land, and Seller's right, title and interest in and to all streets, alleys, strips and gores abutting the Land, if any. "Records and Plans" shall mean, all financial records showing the income and expenses of the Hotel for the prior three (3) calendar years and for the current year to date, certificates of occupancy, records of the Hotel's operations (including utility bills), building plans, specifications and drawings, lists of Personal Property, surveys, tax bills for the Real Property for the last three (3) years and for the current year to date, copies of the Service Contracts, Licenses and Permits and other documents related to the use, maintenance, repair, management, construction and/or operation of the Hotel, in each case, to the extent located on-site at the Hotel, or to Seller's Knowledge, otherwise under the control of Seller. "Related Agreement" shall have the meaning set forth in SECTION 9.1.3. "Schedule of Advance Bookings" means the Schedule of Advance Bookings delivered pursuant to SECTION 4.2.1.19. "Schedule of Tenant Leases" means the Schedule of Tenant Leases set forth in SCHEDULE 1.1.7 annexed hereto and made a part hereof. "Scheduled Closing Date" shall mean January 15, 1998, as such date may be extended in accordance with the provisions of SECTION 7.1 time being of the essence. "SEC" shall mean the United States Securities and Exchange Commission. "SEC Documents" shall have the meaning set forth in SECTION 6.1.4. "Securities Act" shall mean the Securities Act of 1933, as amended. "Seller Default" shall have the meaning set forth in SECTION 11.1. "Seller's Closing Certificate" shall have the meaning set forth in SECTION 4.2.1.18. "Seller's Counsel" shall mean Morrison & Foerster LLP acting through Thomas R. Fileti, Esq. "Seller's Due Diligence" shall mean the information gathering and review process described on SCHEDULE 1.1.8. "Seller's Insurance" shall have the meaning set forth in SECTION 6.3.12. "Seller's Knowledge" shall mean with respect to any representation or warranty so qualified, the knowledge of the person(s) identified on SCHEDULE 1.1.8 annexed hereto and made a part hereof, on the date on or as of which such representation or warranty is made, following the completion by such person(s) of Seller's Due Diligence, but without any other duty to investigate or inquire and without attribution to any such identified person(s) of facts and matters otherwise within the personal knowledge of any other officers, employees, or agents of Seller or any third parties (including, but not limited to, the Manager or any previous manager of the Hotel), but not within the actual current knowledge of such named person(s). It is understood that none of the individuals identified on SCHEDULE 1.1.8 shall have any personal liability for any of Seller's representations, warranties and other obligations under this Agreement. "Service Contracts" shall mean any and all service contracts, landscaping contracts, maintenance agreements, open purchase orders and other contracts for the provision of services, materials or supplies to or for the benefit of the Property, except for the Management Agreement, together with any and all amendments thereto. "Specific Disclosure Matters" shall mean certain disclosures and information provided or disclosed by Seller to Buyer described on SCHEDULE 1.1.9 annexed hereto and made a part 7 8 hereof. "Starwood Disclosure" shall mean collectively, the Form S-3 filed by the Corporation and the Trust with the SEC on November 12, 1997, and the Form S-4 filed by the Corporation and the Trust with the SEC on November 20, 1997, as the same may be amended by any filing with the SEC made by the Trust or the Corporation, as amended to date and from time to time thereafter. "Starwood Operating Partnership" shall mean SLC Operating Limited Partnership, a Delaware limited partnership. "Starwood Realty Partnership" shall mean SLT Realty Limited Partnership, a Delaware limited partnership. "State" shall mean the state in which the Hotel is located. "Stock Agreement" shall have the meaning set forth in SECTION 4.2.1.6. "Survey" shall mean an as-built ALTA survey of the Real Property certified to the Title Company meeting all State land survey requirements. "Tangible Personal Property" shall mean, in each case to the extent owned by Seller and excluding any and all of the Excluded Property: (i) all Records and Plans; (ii) all "Inventories", as such term is defined in the Uniform System of Accounts; (iii) all depreciable personal property; and (iv) all other tools, vehicles, supplies, artwork, furniture, furnishings, machinery, equipment, licensed software and personal computer based security systems, if any, specialized hotel equipment and other tangible personal property, used in connection with the ownership, operation or maintenance of the Property, including, without limitation, all china, glassware, silverware, linens, towels, curtains, uniforms, engineering, maintenance, and housekeeping supplies, draperies, materials and carpeting, used or intended for use, but not for sale, in connection with the operation of the Hotel, all equipment used in the operation of the kitchen, dining rooms, lounges, bars, laundry, dry cleaners, lobby, reservation desk and all merchandise, food and beverages held for sale in connection with the operation of the Hotel, which are on hand on the Closing Date; provided, however, that to the extent that any applicable law prohibits the transfer of alcoholic beverages from Seller to Buyer, such beverages shall not be considered a part of the Tangible Personal Property. "Tenant" shall mean a tenant, licensee or concessionaire occupying space at any portion of the Property pursuant to a Tenant Lease. "Tenant Lease" shall mean a lease, concession agreement or license agreement entered into by or on behalf of Seller with a third party for the use of any part of the Real Property, including those leases, concession agreements and license agreements shown on the Schedule of Tenant Leases, together with any amendments thereto but excluding Bookings. "Tenant Security Deposits" shall mean all security deposits or other security of Tenants under the Tenant Leases, plus accrued interest, if any, payable thereon. "Termination Charges" shall have the meaning set forth in SECTION 14.1. "Termination Notice" shall have the meaning set forth in SECTION 3.5.1. "Threshold Amount" shall mean One Million Dollars ($1,000,000). "Title Company" shall mean Chicago Title Insurance Company. "Title Policy" shall have the meaning set forth in SECTION 7.2. "Transfer Restriction Period" shall have the meaning set forth in SECTION 17.18. "Uninsured Casualty Notice" shall have the meaning set forth in SECTION 12.2.1. "Uninsured Estimate to Repair" shall have the meaning set forth in SECTION 12.2.1. "Uniform System of Accounts" shall mean the Uniform System of Accounts for Hotels, 8 9 prepared by The Hotel Association of New York City, Inc., in effect as of the date hereof. "Utility Deposits" shall mean Seller's right, title and interest in and to all deposits delivered by Seller to utilities, governmental agencies, suppliers or others pursuant to an Approved Service Contract or otherwise in connection with the Real Property. "Value Letter" shall have the meaning set forth in SECTION 4.3.1.4. "WARN Act" shall mean the Workers Adjustment and Retraining Notification Act and the Regulations promulgated thereunder, as the same has been amended. 1.2 Other Definitional Provisions. The terms "hereof," "hereto," "hereunder" and similar terms when used in this Agreement shall refer to this Agreement generally, rather than to the section in which such term is used, unless otherwise specifically provided. Unless the context otherwise requires, any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. SECTION 2 PURCHASE AND SALE OF PROPERTY On the terms and subject to the conditions of this Agreement, Seller agrees to sell the Property to Buyer, and Buyer agrees to purchase the Property from Seller all as hereinafter provided. Notwithstanding any other provision of this Agreement, there shall be excluded from the Property being conveyed hereunder the Excluded Property. SECTION 3 PURCHASE PRICE; PAYMENT; BUYER'S DEFAULT; LIQUIDATED DAMAGES 3.1 Purchase Price. The purchase price for the Property shall be the Purchase Price. 3.2 Payment. The Purchase Price shall be paid as follows: 3.2.1 Upon the execution hereof, Buyer shall deliver to Escrow Holder, in cash or other immediately available funds, the Deposit, to be held by Escrow Holder strictly in accordance with the provisions of this Agreement. If the Close of Escrow shall occur, Seller shall be entitled to receive the Deposit as a credit against the Purchase Price. 3.2.2 At least one (1) day prior to the Scheduled Closing Date (unless extended pursuant to SECTION 7.1), Buyer shall deliver to Escrow Holder an amount (the "Closing Payment") payable in the form specified in SECTIONS 3.2.2.1 and 3.2.2.2 below, equal to the Purchase Price less the amount of the Deposit. The Closing Payment shall be paid as follows: 3.2.2.1 The Equity Purchase Price shall be delivered in Paired Shares without adjustment for the pro-rations hereunder, which shares shall be delivered in accordance with and subject to and transferable in accordance with the provisions of the Stock Agreement and the Pairing Agreement. If any portion of the Equity Purchase Price cannot be paid in Paired Shares on account of the Ownership Limitation, a cash payment in an amount equal to the product of (a) the number of Paired Shares which are not delivered hereunder or under the Stock Agreement because of the Ownership Limitation and (b) the Lock Price (the "Overage Cash Payment") shall be paid in cash or other immediately available funds. 3.2.2.2 The balance of the Closing Payment shall be paid in cash or other immediately available funds adjusted for the pro-rations provided for expressly in this Agreement. 3.3 Investment of Escrowed Funds. Escrow Holder shall invest and reinvest any funds deposited by Buyer in the Escrow only in bonds, notes, Treasury bills or other securities having maturities of thirty (30) days or less and constituting direct obligations of, or fully guaranteed 9 10 by, the United States of America (and provided, further, that such direct obligations or guarantees, as the case may be, are entitled to the full faith and credit of the United States of America) or such other investments as Buyer may direct and Seller may approve, until Escrow Holder is required to deliver or use such funds or any interest earned thereon in accordance with the provisions of this Agreement. All interest accruing on the Deposit shall be paid to the party ultimately entitled to the Deposit. All risk of loss on funds held in Escrow shall be borne by Buyer or Escrow Holder. 3.4 Allocation of Purchase Price. The Purchase Price shall be allocated among the assets and property that comprise the Property as proposed by Seller prior to Closing subject to the reasonable approval of Buyer, and such allocation shall be used by Seller and Buyer in connection with the preparation of their respective income tax, sales tax, transfer tax, and any other applicable tax returns. Seller and Buyer shall not, nor shall they permit their respective Affiliates to, take a federal or state income tax position with any taxing or other public authorities in any jurisdiction which is materially inconsistent with the allocation so agreed upon by the parties. 3.5 Default by Buyer Prior to Closing; Liquidated Damages. 3.5.1 EXCEPT AS PROVIDED TO THE CONTRARY IN SECTION 7.1.1., IF BUYER BREACHES ITS OBLIGATION TO PURCHASE THE PROPERTY UNDER THIS AGREEMENT AND FAILS TO CURE SUCH BREACH ON OR BEFORE THE SCHEDULED CLOSING DATE (A "BUYER DEFAULT"), THEN UPON WRITTEN NOTICE OF TERMINATION (A "TERMINATION NOTICE") FROM SELLER TO BUYER AND ESCROW HOLDER, THE ESCROW AND THIS AGREEMENT SHALL TERMINATE AND ESCROW HOLDER SHALL DISBURSE FROM THE ESCROW THE DEPOSIT TO SELLER AS LIQUIDATED DAMAGES, WHICH SHALL BE SELLER'S SOLE REMEDY AT LAW OR IN EQUITY FOR THE BUYER DEFAULT, AND THEREAFTER NEITHER PURCHASER NOR SELLER SHALL HAVE ANY FURTHER LIABILITY HEREUNDER, EXCEPT THAT BUYER SHALL REMAIN OBLIGATED FOR PERFORMANCE OF ITS OBLIGATIONS UNDER SECTIONS 8, 10, 17.14, 17.19 AND ANY OTHER PROVISION HEREOF WHICH BY ITS EXPRESS TERMS SURVIVES THE TERMINATION OF THIS AGREEMENT. NOTHING CONTAINED HEREIN SHALL LIMIT SELLER'S RIGHT TO OBTAIN SPECIFIC PERFORMANCE OF BUYER'S OBLIGATION TO CLOSE PURSUANT TO SECTION 7.1.1. 3.5.2 THE PARTIES ACKNOWLEDGE AND AGREE BY INITIALING THIS SECTION 3.5.2 THAT IF A BUYER DEFAULT OCCURS ON OR PRIOR TO THE SCHEDULED CLOSING DATE AND IF, AS A RESULT OF SUCH BUYER DEFAULT, CLOSE OF ESCROW FAILS TO OCCUR, SELLER WILL INCUR CERTAIN COSTS AND OTHER DAMAGES IN AN AMOUNT THAT WOULD BE EXTREMELY DIFFICULT OR IMPRACTICAL TO ASCERTAIN; AND THE DEPOSIT BEARS A REASONABLE RELATIONSHIP TO THE DAMAGES WHICH THE PARTIES ESTIMATE MAY BE SUFFERED BY SELLER BY REASON OF SUCH FAILURE OF THE CLOSE OF ESCROW TO OCCUR AND THAT SELLER'S RETENTION OF THE DEPOSIT IS FAIR AND REASONABLE COMPENSATION TO SELLER BY REASON OF SUCH FAILURE OF THE CLOSE OF ESCROW TO OCCUR. INITIALS: /s/ MD /s/ MCM /s/ SRG __________________________ _________________________ Seller Buyer 10 11 SECTION 4 ESCROW; CLOSING; COSTS 4.1 Escrow. The purchase and sale of the Property shall be consummated through the Escrow. Immediately upon the execution of this Agreement, the parties shall deposit a copy of this Agreement with Escrow Holder. This Agreement, together with any general provisions agreed to in writing by Buyer and Seller for the benefit of Escrow Holder, shall constitute the escrow instructions for the transfer of the Property (the "Escrow Instructions"). In the event of any conflict between this Agreement and such general provisions, this Agreement shall control unless otherwise expressly agreed in writing by Buyer, Seller and Escrow Holder. If any requirements relating to the duties or obligations of Escrow Holder are not acceptable to Escrow Holder, or if Escrow Holder requires additional instructions, the parties shall make such deletions, substitutions and additions to the Escrow Instructions as Buyer's Counsel and Seller's Counsel shall mutually approve and which do not substantially alter this Agreement or its intent. Written instructions from Seller's Counsel, in the case of Seller, or from Buyer's Counsel, in the case of Buyer, shall be accepted by Escrow Holder and shall be binding upon the party whose counsel gave such instructions to Escrow Holder. 4.2 Seller's Deliveries to Escrow Holder. 4.2.1 Prior to the Scheduled Closing Date (subject to extension pursuant to SECTION 7.1), Seller shall deliver to Escrow Holder the following documents duly executed and, where applicable, acknowledged by Seller, each of which shall be undated and the delivery of each of which shall be a condition precedent to the obligation of Buyer to close hereunder. 4.2.1.1 Deed. A deed with respect to the Real Property in the form of EXHIBIT 4.2.1.1 annexed hereto and made a part hereof, sufficient to transfer all of Seller's right, title and interest in and to the Real Property, subject only to matters of record as of the Closing Date, from Seller to Buyer (the "Deed"); 4.2.1.2 Assignment and Assumption of Tenant Leases. An Assignment and Assumption of Tenant Leases in the form of EXHIBIT 4.2.1.2 annexed hereto and made a part hereof pursuant to which Seller shall assign the Tenant Leases to Buyer and Buyer shall assume all of Seller's obligations thereunder (the "Assignment and Assumption of Tenant Leases"); 4.2.1.3 General Assignment. A General Assignment and Assumption Agreement in the form of EXHIBIT 4.2.1.3 annexed hereto and made a part thereof pursuant to which Seller shall assign to Buyer all of Seller's right, title and interest in and to all of the Intangible Property and Buyer shall assume all obligations thereunder (the "General Assignment and Assumption Agreement"); 4.2.1.4 Assignment and Assumption of Management Agreement. An Assignment and Assumption of Management Agreement in the form of EXHIBIT 4.2.1.4 annexed hereto and made a part hereof pursuant to which Seller shall assign to Buyer the Management Agreement and Buyer shall assume the obligations of Seller thereunder, provided, however, the obligation to deliver the Assignment and Assumption of Management Agreement shall be irrevocably waived, if prior to the Close of Escrow, the Management Agreement shall have been terminated and the Interim Management Agreement shall have become effective in accordance with SECTION 17.20. 4.2.1.5 Bill of Sale. One or more Bills of Sale in the form of EXHIBIT 4.2.1.5A AND 4.2.1.5B annexed hereto and made a part hereof conveying to Buyer or designees of Buyer all of Seller's right, title and interest in and to the Tangible Personal Property (the "Bill of Sale"); 11 12 4.2.1.6 Stock Agreement. The Stock Agreement in the form of EXHIBIT 4.2.1.6 annexed hereto and made a part hereof (the "Stock Agreement"); 4.2.1.7 Assignment and Assumption of Liquor-Related Agreements. The Assignment and Assumption of Liquor-Related Agreements in the form of EXHIBIT 4.2.1.7 annexed hereto and made a part hereof (the "Assignment and Assumption of Liquor-Related Agreements"); 4.2.1.8 [Intentionally Omitted] 4.2.1.9 [Intentionally Omitted] 4.2.1.10 [Intentionally Omitted] 4.2.1.11 Houston Master Lease. The Master Lease in the form of EXHIBIT 4.2.1.11 annexed hereto and made a part hereof pursuant to which Seller shall lease to Buyer on a triple net basis the land (the "Houston Adjacent Assets") more particularly described on SCHEDULE 4.2.1.11 (the "Master Lease"); 4.2.1.12 Houston Right of First Offer Agreement. A Right of First Offer Agreement in the form of EXHIBIT 4.2.1.12 annexed hereto pursuant to which Seller shall grant Buyer a right of first offer with respect to the Houston Adjacent Assets (the "Houston Right of First Offer Agreement"); 4.2.1.13 Non-Foreign Person Certificate. A Non-Foreign Person Certificate in the form of EXHIBIT 4.2.1.13 annexed hereto and made a part hereof (the "Non-Foreign Person Certificate"); 4.2.1.14 Transfer Tax Forms. Any statements, such as a transfer or conveyance tax forms or returns required by applicable state or local law to be executed by Seller in order to effect the Closing; 4.2.1.15 Certified Rent Roll. A copy of the rent roll for the Property dated as of the Closing Date and certified by Seller to be (a) a true, correct and complete copy of the rent roll for the Property provided to Seller by the Manager; and (b) to Seller's Knowledge, to be true, correct and complete; 4.2.1.16 Certified Operating Statement. An operating statement for the Property dated as of a date no more than thirty (30) days prior to the Closing Date and certified by Seller to be (a) a true, correct and complete copy of the operating statement for the Property provided to Seller by Manager for the period of Manager's employment at the Property; and (b) to Seller's Knowledge, to be, true, correct and complete; 4.2.1.17 Guest Ledger. A copy of the guest ledger dated as of the Proration Time showing all Guest Ledger Receivables and certified by Seller (a) to be a true, correct and complete copy of the guest ledger provided to Seller by Manager; and (b) to Seller's Knowledge, to be true, correct and complete; 4.2.1.18 Closing Certificate. A certification by Seller to Seller's Knowledge that the representations and warranties set forth in SECTION 6.3 are true, correct and complete as of the Closing Date, except to the extent that any such representation or warranty is expressly made only as of the Execution Date subject to Seller's right to make revisions pursuant to SECTION 6.7 to such representations and warranties ("Seller's Closing Certificate"); 4.2.1.19 Schedule of Bookings. A schedule of all Bookings relating to periods after the Proration Time, certified by Seller (a) to be a true, correct and complete copy of the schedule of Bookings provided to Seller by Manager; and (b) to Seller's Knowledge, to be true, correct and complete; 4.2.1.20 Title Requirements. Any and all certificates, affidavits and other instruments and 12 13 documents which the Title Company shall reasonably require to permit it to issue the Title Policy in the condition required herein; provided, however, that, (a) Seller is given written notice by Title Company of the requirement of any such certificates, affidavits or other instruments and documents within a reasonably sufficient time in advance of the Scheduled Closing Date and (b) such incidental documents do not create any liability to Seller that is inconsistent with the liability retained by Seller under the terms of this Agreement; 4.2.1.21 Payoff Letters. A pay-off letter from the holder of any mortgage or deed of trust presently encumbering the Real Property indicating all sums required to satisfy the debt secured by and permit the discharge of record the lien of such mortgage or deed of trust; 4.2.1.22 Notices to Tenants. Notices to Tenants of the assignment to Buyer of the Tenant Leases in form and substance satisfactory to Seller and Buyer; 4.2.1.23 Opinion of Seller's Counsel. An opinion of Seller's Counsel in a form to be agreed upon by the parties; and 4.2.1.24 Other. Any other incidental documents, not otherwise expressly provided for herein, reasonably required by Escrow Holder to consummate the purchase and sale of the Property; provided, however, that (a) Seller is given written notice by Escrow Holder of the requirement of any such incidental documents within a reasonably sufficient time in advance of the Scheduled Closing Date (subject to extension in accordance with the provisions of SECTION 7.1); and (b) such incidental documents do not create any liability to Seller that is inconsistent with the liability retained by Seller under the terms of the this Agreement. 4.3 Buyer's Deliveries to Escrow Holder. 4.3.1 Prior to the Scheduled Closing Date (subject to extension in accordance with the provisions of SECTION 7.1), and subject further to the provisions of SECTION 4.3.1.4 in the case of the Value Letter, Buyer shall deliver to Escrow Holder the following items and documents, which documents shall be duly executed and, where applicable, acknowledged by Buyer or its designee, as applicable, and undated, and the delivery of each of which shall be a condition precedent to the obligation of Seller to close hereunder: 4.3.1.1 The Cash Purchase Price. The Cash Purchase Price; 4.3.1.2 Stock Certificates. Paired Shares in the amount required to be delivered at the Closing in accordance with the provisions of this Agreement and in accordance with and subject to the provisions of the Stock Agreement; 4.3.1.3 Assignment and Assumption of Management Agreement. A counterpart of the Assignment and Assumption of Management Agreement, provided, however, the obligation to deliver the Assignment and Assumption of Management Agreement shall be irrevocably waived, if prior to the Close of Escrow, the Management Agreement shall have been terminated and the Interim Management Agreement shall have become effective in accordance with SECTION 17.20.; 4.3.1.4 Value Letter. A letter (the "Value Letter") to be obtained by Buyer at Buyer's expense with respect to the reasonableness of the allocation of the purchase price among the transactions being entered into as of the date hereof between Buyer and Seller and/or Seller's Affiliates issued by Bear Stearns; 4.3.1.5 Opinion of Buyer's Counsel. An opinion of Buyer's counsel in a form to be agreed upon by the parties; 4.3.1.6 Stock Agreement. A counterpart of the Stock Agreement; 13 14 4.3.1.7 [Intentionally Omitted] 4.3.1.8 Assignment and Assumption of Liquor-Related Agreements. A counterpart of the Assignment and Assumption of Liquor-Related Agreements; 4.3.1.9 [Intentionally Omitted] 4.3.1.10 Houston Master Lease. A counterpart of the Master Lease; 4.3.1.11 Houston Right of First Offer. A counterpart of the Houston Right of First Offer Agreement; 4.3.1.12 Closing Certificate. A certification by Buyer that the representations and warranties set forth in SECTION 6.1 and SECTION 6.2 are true, correct and complete as of the Closing Date; 4.3.1.13 The Assignment and Assumption of Tenant Leases. A counterpart of the Assignment and Assumption of Tenant Leases; 4.3.1.14 The General Assignment and Assumption Agreement. A counterpart of the General Assignment and Assumption Agreement; 4.3.1.15 Transfer Tax Forms. Any statements, such as a transfer or conveyance tax forms or returns required by applicable state or local law to be executed by Buyer in order to effect the closing; and 4.3.1.16 Other. Any other incidental documents, not otherwise expressly provided for herein, required by Escrow Holder to consummate the purchase and sale of the Property; provided, however, that (a) Buyer is given written notice by Escrow Holder of the requirement of such incidental documents within a reasonably sufficient time in advance of the Scheduled Closing Date; and (b) Buyer shall not be required to incur any liability, in connection with the delivery of such incidental documents inconsistent with the provisions of this Agreement. 4.4 Seller's Deliveries to Buyer. At or prior to the Close of Escrow, Seller shall deliver to Buyer or cause to be available to Buyer on-site at the Hotel, the following documents, to the extent the same have not already been delivered and to the extent in the possession or control of Seller: 4.4.1 Tenant Leases/Tenant Deposits. The original Tenant Leases (or if not available, the best available copies), and the originals of Tenant Security Deposits which are evidenced by letters of credit or escrow agreements, if any, and if necessary to enable Buyer to realize or draw upon same, consents of the applicable Tenants and/or financial institutions or replacement letters of credit or escrow agreements in favor of Buyer; 4.4.2 Service Contracts. The originals, or, if not available, the best available copies, of the Approved Service Contracts; 4.4.3 Licenses and Permits. The originals, or, if not available, the best available copies of the Licenses and Permits; and 4.4.4 Records and Plans. The originals, or, if not available, the best available copies of the Records and Plans. 4.5 Possession. Seller shall deliver the keys and possession of the Property to Buyer at the Close of Escrow free and clear of all leases, tenancies and occupancies, except for the Management Agreement, the Bookings, the rights of guests in guest rooms, banquet facilities, conference rooms and meeting rooms, the rights of Tenants under the Tenant Leases (including their assignees, subtenants or licensees), and the other Permitted Encumbrances. 4.6 Evidence of Authorization. At the Close of Escrow, each party shall deliver to the other party evidence in form and content reasonably satisfactory to the other party and the Title 14 15 Company that (a) the party is duly organized and validly existing under the laws of the state of its organization and has the power and authority to enter into this Agreement, (b) this Agreement and all documents delivered pursuant hereto have been duly executed and delivered by the party, and (c) the performance by the party of its obligations under this Agreement have been duly authorized by all necessary corporate, partnership or other action. 4.7 Close of Escrow. 4.7.1 The Escrow shall close on or before the Scheduled Closing Date. 4.7.2 Provided that Escrow Holder has not received from either party written notice of the failure of any condition precedent specified in SECTION 9 to the obligations of such party (or any previous such notice has been withdrawn), then when the parties have each deposited into the Escrow the documents and funds required by this Agreement and the Title Company is unconditionally prepared to issue the Title Policy at the Close of Escrow, Escrow Holder shall perform the following actions (collectively, "Close of Escrow" or "Closing"): 4.7.2.1 Prepare a closing statement for the transaction for approval by Seller and Buyer prior to the Close of Escrow; 4.7.2.2 Insert the Closing Date as the date of any undated document to be delivered through Escrow; 4.7.2.3 Cause the Deed to be recorded in the land records of the state and county where the Real Property is located; 4.7.2.4 Deliver to Buyer the documents deposited into the Escrow for delivery to Buyer at the Close of Escrow; 4.7.2.5 Deliver to Seller (a) all funds and Paired Shares to be received by Seller from Buyer through the Escrow at the Close of Escrow less (i) all amounts to be paid by Seller for Escrow Holder's fees and expenses and (ii) all amounts paid by Escrow Holder in satisfaction of liens and encumbrances on the Real Property or other matters pursuant to the written instruction of Seller, and (b) the documents deposited into the Escrow for delivery to Seller at the Close of Escrow; and 4.7.2.6 Cause the Title Policy to be issued by the Title Company and delivered to Buyer. 4.8 Costs of Escrow. Costs of the Escrow shall be allocated as follows: 4.8.1 Buyer and Seller shall each pay one-half (1/2) of the fees of Escrow Holder; 4.8.2 Buyer and Seller shall each pay one-half (1/2) of the cost of providing the Survey required to be delivered in accordance with the provisions of SECTION 7.1; provided, however, Buyer shall be responsible for the full cost of the Survey in the event the Closing does not occur hereunder other than on account of default of Seller; 4.8.3 Buyer and Seller shall each pay one-half (1/2) of all transfer taxes and recording fees payable in connection with the conveyance of each portion of the Real Property and/or the recording of the Deed and any other documents or instruments recorded pursuant to this Agreement; 4.8.4 Buyer and Seller shall each pay one-half (1/2) of all sales or other personal property taxes, levies, fees and charges payable as a result of the transfer of the Personal Property to Buyer and the consummation of the transactions contemplated hereby. Buyer shall be the reporting person for such purposes and shall prepare the necessary sales tax reports based upon the allocations set forth in SECTION 3.4. The parties acknowledge that additional sales tax may be assessed as a result of the transfer of the Personal Property to Buyer and the consummation of the transactions contemplated hereby after the Closing and that Buyer and Seller shall 15 16 continue to each be responsible for one-half of any such additional taxes. The provisions of Section 4.8.3 and Section 4.8.4 shall survive the Closing; 4.8.5 Buyer and Seller shall each pay one-half (1/2) of the cost of obtaining the coverage under the Title Policy, except that the cost of any special endorsements shall be paid exclusively by Buyer; 4.8.6 At Closing or thereafter Buyer shall pay for the cost of the Value Letter; 4.8.7 [Intentionally Omitted] 4.8.8 If the Close of Escrow fails to occur other than as a result of a default hereunder by either party, including, without limitation, as a result of a failure of a condition precedent set forth in SECTION 9, the fees of the Escrow Holder and Title Company (including, without limitation, cancellation fees) shall be borne equally between Buyer and Seller; 4.8.9 If the Close of Escrow fails to occur as a result of a default hereunder by either party, the fees of the Escrow Holder and Title Company (including, without limitation, cancellation fees) shall be borne by the defaulting party; and 4.8.10 Pursuant to Section 6045 of the Internal Revenue and Taxation Code, the Title Company shall be designated the "Closing Agent" hereunder and shall be solely responsible for complying with the Tax Reform Act of 1986 with regard to the reporting of all settlement information to the Internal Revenue Service. 4.9 Other Costs. Except as set forth in SECTION 4.8.6, SECTION 11.1 and SECTION 15.1.6, each party shall pay all of its own legal, accounting and consulting fees and other costs and expenses incurred in connection with this Agreement. 4.10 Maintenance of Confidentiality by Escrow Holder. Escrow Holder shall maintain in strict confidence and not disclose to anyone the existence of the Escrow, the identity of the parties thereto, the amount of the Purchase Price, the existence or provisions of this Agreement or any other information concerning the Escrow or the transactions contemplated hereby, without the prior written consent of Buyer and Seller. SECTION 5 PRORATIONS AND ASSUMPTION OF OBLIGATIONS 5.1 General. All income, receivables, expenses (whether payable or prepaid) and payables of the Property shall be apportioned equitably between the parties as of the Proration Time in accordance with the provisions of this SECTION 5 (all prorations are to be based upon the number of days in a 365 day year). The obligation to make apportionments under SECTIONS 5.1 AND 5.2 shall, unless otherwise expressly provided in this SECTION 5, survive the Close of Escrow for a period of sixty (60) days at which time such apportionment shall be final unless disputed during such period. 5.2 General and Specific Prorations. Without limitation, the following items shall be apportioned: 5.2.1 At the Closing, Buyer shall assume all of the accounts payable relating to goods and services ordered or obtained in the ordinary course of operation of the business of the Hotel (including without limitation, payments under the Service Contracts and Equipment Leases) prior to the Proration Time. Seller shall be obligated to credit Buyer at the Close of Escrow with an amount mutually agreed upon by Buyer and Seller at the Closing, reflecting the parties' good faith estimate of such accounts payable as of the Proration Time (which estimate shall deduct any discounts then available in the ordinary course of business for the prompt payment of such accounts payable), plus a further credit for any late fees then payable with respect to any 16 17 identified accounts payable. Buyer shall be responsible for paying when due all accounts payable arising from the operation of the Property on or after the Proration Time, and Seller shall have no further liability for such payables or charges. As of the date which is sixty (60) days following the Closing Date, Buyer and Seller shall calculate the amount of all accounts payable relating to goods and services ordered or obtained in the ordinary course of operation of the business of the Hotel (including without limitation, payments under the Service Contracts and Equipment Leases) prior to the Proration Time. Seller shall reimburse Buyer for any payments made on account of any such accounts payable which were not reflected in the Parties' estimate of such amount credited to Buyer at Closing and which have been paid by Buyer or for which Buyer is obligated to pay in accordance with the provisions hereof, and if the amount of such credit exceeds the amounts so paid or for which Buyer is so obligated, Buyer shall pay such excess amount to Seller. 5.2.2 At the Closing, Seller shall assign to Buyer all of the Accounts Receivable, for which Seller shall receive a credit at the Close of Escrow in an amount equal to (a) the full, aggregate outstanding balance of the Cash Equivalent Receivables (without discount except for service charges due to charge card companies) plus (b) the full aggregate outstanding balance of the Invoiced Receivables and Other Accounts Receivable as of the Proration Time, provided, Buyer shall at its option accept or reject any Invoiced Receivables and Other Accounts Receivable over ninety (90) days and Seller shall not receive a credit for any Invoiced Receivables and Other Accounts Receivable over ninety (90) days rejected by Buyer; provided, that Buyer shall at its own expense use reasonable efforts to collect any such rejected Invoiced Receivables and Other Accounts Receivable on behalf of Seller for a period of sixty (60) days after the Closing Date and thereafter Seller shall have the right to collect same for its own account; provided, further, as of the date which is sixty (60) days following the Closing Date, Buyer and Seller shall make any adjustments required to reflect the collectibility of any Invoiced Receivables and Other Accounts Receivable (it being agreed that (a) any accounts receivable not listed on the schedule of accounts receivable of the Property as of the date which is sixty (60) days following the Closing Date shall be deemed paid as of such date and (b) except as provided in (a), any accounts receivable which are more than ninety (90) days past due as of the date which is sixty (60) days following the Closing Date shall be deemed uncollectable as of such date) and Seller and Buyer shall make a corresponding payment to the other as required to accurately reflect the collectibility of such Invoiced Receivables and Other Accounts Receivable and any accounts receivable deemed uncollectable as of such date in accordance with the terms hereof shall be the property of Seller and Seller shall be permitted (at its expense and for its own account) to collect the same; 5.2.3 In prorating the Accounts Receivable, Buyer and Seller shall each receive credit for one-half (1/2) of all Guest Ledger Receivables attributable to the room night during which the Proration Time occurs. Seller shall receive the income from all restaurant and bar facilities located at the Property through the Proration Time and Buyer shall receive such income thereafter; 5.2.4 [Intentionally Omitted] 5.2.5 All sales, use and occupancy taxes arising from the operation of the Property shall be prorated as of the Proration Time; 5.2.6 Fees for transferable annual permits, licenses, and/or inspection fees, if any, for periods during which the Proration Time occurs shall be prorated as of the Proration Time; 17 18 5.2.7 Utility charges with respect to the Property levied against Seller or the Property and the value of fuel stored on the Property shall be prorated at Seller's cost therefor as of the Proration Time. Seller shall notify all utilities, governmental agencies, suppliers and others providing services to the Property of the prospective change in ownership and operation of the Property, and Seller shall use its reasonable efforts to cause all utilities furnished to the Property, including, but not limited to, electricity, gas, water and sewer, along with any fuel storage tanks to be read the day prior to the Proration Time; 5.2.8 Permitted administrative charges, if any, on Tenant Security Deposits shall be prorated; 5.2.9 Buyer shall receive a credit for advance payments and/or deposits, if any, under Bookings to the extent the Bookings relate to a period after the Proration Time; 5.2.10 Vending machine monies will be removed by Seller as of the Proration Time for the benefit of Seller; 5.2.11 Buyer shall purchase and Seller shall sell to Buyer (or Seller shall receive a credit therefore) all petty cash funds and cash in the Property's house banks at 100% of face value at the Proration Time; 5.2.12 Wages, salaries and payroll taxes and other payroll deductions for all Hotel Employees shall be apportioned as of the Proration Time (i.e., the night shift shall be prorated 50/50 for the night preceding the Closing Date). Buyer shall assume all accrued vacation benefits and sick leave benefits due to such Hotel Employees which relate to any period prior to the Proration Time and shall receive a credit for the full amount of all such accrued benefits reasonably expected to be paid after the Closing Date; provided, that as of the date which is sixty (60) days following the Closing, Buyer and Seller shall adjust the amount of the credit if required to take into account the benefits actually required to be paid by Buyer or then reasonably expected to be paid following the Closing Date by Buyer. Buyer shall also assume all obligations of Seller and the Employer Corporation, under the Employment Agreements and/or the Management Agreement to pay all such wages, salaries, and compensation set forth above accruing subsequent to Proration Time; provided, however, that other than as set forth in SECTION 14.1 hereof, no provision contained in this Agreement shall be construed to prevent the Buyer from terminating or amending in any manner such Employment Agreements and Management Agreements subsequent to the Proration Time. The obligation to pay bonuses, if any, following the Closing shall be allocated as of the Proration Time and adjusted between Buyer and Seller. 5.2.13 Real and personal property taxes, assessments and special district levies shall be prorated for the tax fiscal year in which the Closing Date occurs on the basis of the then most current available tax bills, Seller being charged through the day prior to the Closing Date and Buyer with the Closing Date and thereafter; 5.3 Deposits. All rights to utility, assessment, and other cash deposits (including, without limitation, any Utility Deposits) held by others for Seller's account, and all certificates of deposit or other forms of cash collateral held by or otherwise pledged to others for Seller's account to secure obligations of Seller under Service Contracts, Equipment Leases or other obligations assumed by Buyer, shall be assigned or transferred to Buyer at the Close of Escrow; provided, that if any of such deposits are not transferable, Seller shall retain all rights with respect thereto and there shall be no debit made to Buyer on account thereof. 5.4 Tenant Leases. At the Close of Escrow, pursuant to the Assignment and Assumption of Tenant Leases, Buyer shall assume all of the obligations of Seller under the Tenant Leases as of the Proration Time, including, without limitation, tenant improvement obligations of landlord 18 19 thereunder and obligations with respect to Tenant Security Deposits (to the extent received by Buyer or credited to Buyer hereunder). 5.5 Service Contracts and Other Intangible Property. At the Close of Escrow, Seller shall assign to Buyer pursuant to the terms of the General Assignment and Assumption Agreement, all right, title and interest of Seller in and to the Approved Service Contracts and other Intangible Property, and Buyer shall assume all of the obligations of Seller under the Approved Service Contracts arising from and after the Close of Escrow. Buyer shall protect, hold harmless, indemnify and defend Seller and its directors, officers, agents, affiliates, principals, partners, shareholders, representatives and controlling persons from any Losses attributable to the period beginning on and after the Closing Date with respect to the Approved Service Contracts. Seller shall be responsible for all obligations thereunder attributable to the period prior to the Closing Date with respect to Approved Service Contracts (except to the extent that Buyer shall have received a credit hereunder with respect to any such obligations). The provisions of this SECTION 5.5 shall survive the Close of Escrow. 5.6 Tax Refunds and Proceedings. Buyer shall have the exclusive right to commence or continue any proceeding to determine the assessed value of the Property, the real or personal property taxes payable with respect to the Property or any action to contest water charges, sewer charges, sales tax or use tax for the relevant taxable period during which the Proration Time occurs and to settle or compromise any claim thereof, and any refunds or proceeds resulting from such proceedings along with the costs (including reasonable legal and accounting fees) incurred by Buyer in obtaining the same, shall be prorated as of the Proration Time. In prosecuting any such action, Buyer shall utilize the services of Marvin Poer & Co. and Gilbert Bernal. Seller shall retain the right to continue, commence, prosecute, settle or compromise any proceedings relating exclusively to any relevant taxable period or periods prior to the period during which the Proration Time shall occur. Buyer and Seller agree to cooperate with each other and to execute any and all documents reasonably requested in furtherance of the foregoing. The provisions of SECTION 5.6 shall survive the Closing. 5.7 Guest Baggage. As of the Close of Escrow, Buyer shall indemnify and hold harmless Seller against all Losses with respect to all baggage of departed guests or guests who are still registered at the Hotel on the Closing Date which has been checked with the Hotel. As of the Close of Escrow, Seller shall assign to Buyer all claims and causes of action against the Manager with respect to any Losses with respect to such baggage. Seller agrees to submit to Seller's Insurance any claims for Losses with respect to such baggage which arose from acts or omissions prior to the Closing Date to the extent coverage is available under said insurance and provide Buyer with the proceeds therefrom provided Buyer is not in default under this SECTION 5.7. The provisions of this SECTION 5.7 shall survive the Closing. 5.8 Safe Deposit Boxes. As of the Close of Escrow, Buyer shall indemnify and hold harmless Seller against all Losses with respect to the contents of any safety deposit boxes in use at the Hotel. As of the Close of Escrow, Seller shall assign to Buyer all claims and causes of action against the Manager with respect to any Losses relating to said safety deposit boxes. Seller agrees to submit to Seller's insurance any claims for Losses which arose from acts or omissions prior to the Closing Date to the extent coverage is available under said insurance and provide Buyer with the proceeds therefrom provided Buyer is not in default under this SECTION 5.8. The provisions of this SECTION 5.8 shall survive the Closing. 5.9 Advance Bookings. Buyer shall assume and honor for its account all Bookings relating 19 20 to dates after the Proration Time set forth on the Schedule of Advance Bookings delivered by Seller to Buyer at the Close of Escrow pursuant to SECTION 4.2.1.9. 5.10 Special Purchase Price Adjustment. In the event that the Closing Date is extended beyond January 30, 1998 for any reason other than on account of a default by Buyer hereunder, Buyer shall receive a credit at Closing against the Cash Purchase Price in an amount equal to interest on the Purchase Price calculated at the LIBOR Rate plus 2% per annum for the period from January 30, 1998 through the earlier of (a) the Closing Date and (b) sixty (60) days after January 30, 1998. Nothing in this SECTION 5.10 shall create a waiver of any other remedy of Buyer for a Seller default permitted under the provisions of this Agreement. SECTION 6 REPRESENTATIONS AND WARRANTIES; CONDITION OF PROPERTY 6.1 Of the Trust. As an inducement to Seller to enter into this Agreement, the Trust hereby represents, warrants and covenants to Seller as follows: 6.1.1 Power and Authority. The Trust is a real estate investment trust duly organized and validly existing under the laws of the State of Maryland. The Trust has the power and authority to carry on its present business, to enter into this Agreement and to consummate the transactions herein contemplated; neither the execution and delivery of this Agreement by the Trust, nor the performance by the Trust of the Trust's obligations hereunder will violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which the Trust is a party or by which the Trust is bound and/or violate any applicable law, rule or regulation the violation of which would have a Material effect upon the principal benefits intended to be provided by this Agreement. 6.1.2 Authorization; Valid Obligation. All proceedings required to be taken by or on behalf of the Trust to authorize the Trust to make, deliver and carry out the terms of this Agreement will be duly taken prior to the Closing Date. No consent to the execution, delivery and performance of this Agreement will be required from any partner, board of directors, shareholder, creditor, investor, judicial or administrative body, governmental authority or other person, other than any such consent which already has been (or prior to the Closing will have been unconditionally given. The individuals executing this Agreement and the documents referenced herein on behalf of the Trust have the legal power, right and actual authority to bind the Trust to the terms and conditions hereof. This Agreement is a valid and binding obligation of Trust, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. 6.1.3 Capital Structure. The authorized and outstanding capital stock and units of the Trust and its operating partnership are as set forth in the Starwood Disclosure. All Paired Shares to be issued as the Equity Purchase Price at the Closing in accordance with this Agreement will, when so issued, be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights and will be paired with each other in the same ratio as all other shares are paired with each other pursuant to the Pairing Agreement. 6.1.4 SEC Documents and Other Reports. The Trust has filed all required documents with the SEC since January 1, 1996 (such documents together with the Starwood Disclosure being referred to herein as the "SEC Documents"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of applicable law, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements (including, in each case, any notes 20 21 thereto) of the Trust included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as of their respective dates of filing, were prepared in accordance with generally accepted accounting principles (except, in the case of the unaudited statements, as permitted by Regulation S-X of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented the consolidated financial position of the Trust and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the SEC Documents or as required by generally accepted accounting principles, the Trust has not, since December 31, 1996, made any change in the accounting practices or policies applied in the preparation of their financial statements. Prior to the Closing Date, the Trust will file all required documents with the SEC, which documents will comply in all material respects with the requirements of the applicable law, and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 6.1.5 Absence of Certain Changes or Events. Except as disclosed in the SEC Documents filed prior to the date of this Agreement, since December 31, 1996, (a) there have not been any events, changes or developments that, individually or in the aggregate, have had or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole, or (b) there has not been any split, combination or reclassification of any of the capital stock or units of the Trust or its operating partnership or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of, or in substitution for shares of such capital stock. 6.1.6 Actions and Proceedings. Except as set forth in the SEC Documents filed prior to the date of this Agreement, there are no outstanding orders, judgments, injunctions, awards or decrees of any governmental entity against or involving the Trust or any of its subsidiaries, or against or involving any of the directors, officers or employees of the Trust or any of its subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole. Except as set forth in the SEC Documents, there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the knowledge of the Trust, threatened against or involving the Trust or any of its subsidiaries or any of their directors, officers or employees, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole. As of the date hereof, there are no actions, suits, labor disputes or other litigation, legal or administrative proceedings or governmental investigations pending or, to the knowledge of the Trust, threatened against or affecting the Trust or any of their subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement. 6.1.7 REIT Status. The Trust is currently a "real estate investment trust" ("REIT") for federal income tax purposes and, to its knowledge, the Trust is and at all times during the testing period described in Code Section 897(h)(4)(D) has been a "domestically controlled REIT" (as defined in Section 897(h)(4)(D) of the Code). From and after January 1, 1995, neither the 21 22 Internal Revenue Service nor any other taxing entity or authority has made any assertion that the Trust does not qualify as a REIT for income tax purposes, nor has there been any challenge to the REIT status of the Trust. From time to time upon request by the Seller or its assigns after the Closing Date, the Trust agrees to inform Seller or such assigns whether to its knowledge it complies with the representation and warranties set forth in this Section 6.1.7. 6.1.8 Partnership Status. Starwood Realty Partnership is classified and taxable as a partnership for U.S. federal income tax purposes. 6.1.9 Hart-Scott-Rodino Act. The provisions of the Hart-Scott-Rodino Act are not applicable to the transactions contemplated hereby and neither the Trust nor Seller is required to make any filings or submissions or obtain any approvals thereunder in connection herewith. 6.2 Of the Corporation. As an inducement to Seller to enter into this Agreement, the Corporation hereby represents, warrants and covenants to Seller as follows: 6.2.1 Power and Authority. The Corporation is a corporation duly organized and validly existing under the laws of the State of Maryland. The Corporation has the power and authority to carry on its present business, to enter into this Agreement and to consummate the transactions herein contemplated; neither the execution and delivery of this Agreement by the Corporation nor the performance by the Corporation of the Corporation's obligations hereunder will violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which the Corporation is a party or by which the Corporation is bound and/or violate any applicable law, rule or regulation the violation of which would have a Material effect upon the principal benefits intended to be provided by this Agreement. 6.2.2 Authorization; Valid Obligation. All proceedings required to be taken by, or on behalf of the Corporation, to authorize the Corporation to make, deliver and carry out the terms of this Agreement will be duly taken prior to the Closing Date. No consent to the execution, delivery and performance of this Agreement will be required from any partner, board of directors, shareholder, creditor, investor, judicial or administrative body, governmental authority or other person, other than any such consent which already has been (or prior to the Closing will have been) unconditionally given. The individuals executing this Agreement and the documents referenced herein on behalf of the Corporation have the legal power, right and actual authority to bind the Corporation to the terms and conditions hereof. This Agreement is a valid and binding obligation of Corporation, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. 6.2.3 Capital Structure. The authorized and outstanding capital stock and units of the Corporation and its operating partnership are as set forth in the Starwood Disclosure. All Paired Shares to be issued as the Equity Purchase Price at the Closing in accordance with this Agreement will, when so issued, be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights and will be paired with each other in the same ratio as all other shares are paired with each other pursuant to the Pairing Agreement. 6.2.4 SEC Documents and Other Reports. The Corporation has filed all required SEC Documents since January 1, 1996. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the applicable law, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements (including, in each case, any notes thereto) of the Corporation included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect 22 23 thereto as of their respective dates of filing, were prepared in accordance with generally accepted accounting principles (except, in the case of the unaudited statements, as permitted by Regulation S-X of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented the consolidated financial position of the Corporation and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the SEC Documents or as required by generally accepted accounting principles, the Corporation has not, since December 31, 1996, made any change in the accounting practices or policies applied in the preparation of their financial statements. Prior to the Closing Date, the Corporation will file all required documents with the SEC, which documents will comply in all material respects with the requirements of the applicable law, and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 6.2.5 Absence of Certain Changes or Events. Except as disclosed in the SEC Documents filed prior to the date of this Agreement, since December 31, 1996, (a) there have not been any events, changes or developments that, individually or in the aggregate, have had or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole, or (b) there has not been any split, combination or reclassification of any of the capital stock or units of the Corporation or its respective operating partnerships or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of such capital stock. 6.2.6 Actions and Proceedings. Except as set forth in the SEC Documents filed prior to the date of this Agreement, there are no outstanding orders, judgments, injunctions, awards or decrees of any governmental entity against or involving the Corporation or any of its subsidiaries, or against or involving any of the directors, officers or employees of the Corporation or any of its subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole. Except as set forth in the SEC Documents, there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the knowledge of the Corporation, threatened against or involving the Corporation or any of its subsidiaries or any of their directors, officers or employees, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole. As of the date hereof, there are no actions, suits, labor disputes or other litigation, legal or administrative proceedings or governmental investigations pending or, to the knowledge of the Corporation, threatened against or affecting the Corporation or any of their subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement. 6.2.7 Starwood Operating Partnership is classified and taxable as a partnership for U.S. Federal Income Tax purposes. 6.2.8 Hart-Scott-Rodino. The provisions of the Hart-Scott-Rodino Act are not applicable to the transactions contemplated hereby and neither the Corporation nor Seller is required to make any filings or submissions to obtain any approvals thereunder in connection herewith. 23 24 6.3 Of Seller. As an inducement to Buyer to enter into this Agreement, Seller, represents, warrants and covenants to Buyer as follows: 6.3.1 Regarding Seller's Authority. 6.3.1.1 Seller is a general partnership in dissolution under the laws of the State of Texas. Seller has the power and authority to enter into this Agreement and the Conveyance Documents and, to sell the Property on the terms set forth in this Agreement. The execution and delivery hereof and the performance by Seller of its obligations hereunder, will not violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which Seller is a party or by which Seller is bound and/or violate any applicable law, rule or regulation the violation of which would have a Material effect upon the principal benefits intended to be provided by this Agreement. 6.3.1.2 The individuals executing this Agreement and the documents referenced herein on behalf of Seller have the legal power, right and actual authority to bind Seller to the terms and conditions hereof. This Agreement is a valid and binding obligation of Seller, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. 6.3.2 Tenant Leases. There are no leases, licenses or concessions for space which will affect the Real Property or any portion thereof following the Close of Escrow other than as set forth on the Schedule of Tenant Leases. Seller has delivered to Buyer a true, correct and complete copy of each lease and agreement listed on the Schedule of Lease. Seller has not received written notice of any sublease and/or assignment of any Tenant Lease except as set forth on SCHEDULE 6.3.2. No outstanding written notice of any Material default has been delivered by Seller or received by Seller with respect to any Tenant Lease, except as disclosed on the SCHEDULE 6.3.2 annexed hereto and made a part hereof. To Seller's knowledge, all rent under the leases listed on the Schedule of Leases is being paid currently. All Material brokerage, leasing and other commissions due in connection with the Tenant Leases have been paid by Seller other than those payable with respect to the renewal or extension of such Tenant Leases or expansion of the leased premises thereunder after the Closing Date, each of which are payable under agreements described on SCHEDULE 6.3.2. 6.3.3 Service Contracts. There are no Service Contracts which will affect the Property after the Closing Date except for the Approved Service Contracts. No outstanding written notice of any Material default has been delivered by Seller or received by Seller with respect to any Approved Service Contract, except as disclosed on SCHEDULE 6.3.3 annexed hereto and made a part hereof. 6.3.4 Claims. There are no pending litigation or condemnation proceedings with respect to Seller or the Property which would result in an adverse effect on the ability of Buyer to operate the Property after the Closing, except as disclosed on SCHEDULE 6.3.4 annexed hereto and made a part hereof. There is no pending litigation or to Seller's knowledge, other claims of Seller with respect to the Property attributable to the period prior to the date hereof which may result in a material judgment in favor of Seller except as disclosed on SCHEDULE 6.3.4. 6.3.5 Employees. To Seller's Knowledge, SCHEDULE 1.1.6 sets forth a true and complete list of all Hotel Employees as of the Execution Date together with their positions, salaries or hourly wages, as applicable, and years of service. Except for or pursuant to the Employment Agreements, the Collective Bargaining Agreements, the Management Agreement and the agreements related to the Ritz-Carlton management of the Hotel described on SCHEDULE 6.3.5 hereto, neither Seller nor the Employer Corporation has relating to the Property (i) at any time maintained, contributed to or participated in, (ii) or had at any time obligation to maintain, contribute to, or participate in, or (iii) any liability or contingent liability, direct or indirect, with respect to: any 24 25 employment agreement, oral or written retirement or deferred compensation plan, incentive compensation plan, stock plan, unemployment compensation plan, vacation pay plan, severance plan, bonus plan, stock compensation plan or any other type or form of employee-related (or independent contractor-related) arrangement, program, policy, plan or agreement. Except as set forth on SCHEDULE 6.3.5, to Seller's knowledge there is no Material default under any of the Employment Agreements. 6.3.6 Compliance with Laws. During the past twelve (12) months, Seller has not received any written notice from any party, including, without limitation, from any municipal, state, federal or other governmental authority, of a Material violation of any zoning, building, fire, water, use, health, or other similar statute, ordinance, or code bearing on the construction, operation or use of the Property or any part thereof (other than as to matters previously cured), except as disclosed on SCHEDULE 6.3.6 annexed hereto and made a part hereof and except for violations of Environmental Laws, which are addressed in SECTION 6.3.7 below. 6.3.7 Hazardous Materials. Seller has not received any written notice from any municipal, state, federal or other governmental authority or from any other person during the last three (3) years of (a) any Material violation of applicable Environmental Laws or (b) any Environmental Condition requiring Material remediation under applicable Environmental Laws, in either case only to the extent relating to Environmental Conditions at or on the Real Property, except as disclosed on SCHEDULE 6.3.7 annexed hereto and made a part hereof; 6.3.8 Records and Plans. Seller will have delivered to Buyer on the Closing Date true and correct copies of the Records and Plans. 6.3.9 Licenses and Permits. Seller has delivered to Buyer true and correct copies of the Liquor License and all other Material Licenses and Permits and such Licenses and Permits are identified on SCHEDULE 6.3.9 annexed hereto and made a part hereof. 6.3.10 Management Agreements. There are no hotel management or property management agreements, which will be binding upon Buyer after the Closing Date, other than the Management Agreement, a true and complete copy of which will be delivered to Buyer on the Closing Date. Seller has not sent or received any notice of default or notice of termination under or with respect to the Management Agreement. 6.3.11 Personal Property. Seller owns the Tangible Personal Property (other than the Tangible Personal Property that is subject to the Equipment Leases) free and clear of any liens and/or encumbrances other than the Permitted Encumbrances. 6.3.12 Insurance. The Seller in respect of the Real Property is insured under those policies of casualty and general liability insurance ("Seller's Insurance") described on SCHEDULE 6.3.12 annexed hereto, each of which is in full force and effect as of the date hereof and will remain in full force and effect through the Closing Date. Seller has received no notices of any Material default or demands to cure from any applicable insurer in respect of Seller's Insurance. 6.3.13 Real Estate Taxes. Except as set forth on SCHEDULE 6.3.13 annexed hereto and made a part hereof, Seller has not commenced any proceedings which are pending for the reduction of the assessed valuation of the Real Property or any portion thereof, and other than the Permitted Encumbrances, to Seller's Knowledge, there are no special assessments affecting the Property. Nothing in this SECTION 6.3.13 or any other provision of this Agreement shall be construed to limit Seller's rights to initiate or prosecute after the Close of Escrow additional proceedings for property tax refunds for taxes relating to any relevant taxable period or periods prior to the taxable period during which the Proration Time occurs. 6.3.14 Liquor-Related Agreements. Except for that certain Notice dated December 1, 1977, from the Texas Comptroller of Public Accounts to Five Star Beverage, Inc., to Seller's Knowledge, Seller has not received written notice from the Texas Alcoholic Beverage Commission of any violation or 25 26 threatened violation of any applicable laws, rules or ordinance with respect to (i) the agreements identified on Schedule 1 to the Assignment and Assumption of Liquor-Related Agreements (collectively, the "Liquor Agreements"), (ii) Five-Star Beverages, Inc. (the party thereto which holds the Liquor Licenses), or (iii) the Liquor Licenses. To Seller's Knowledge, each of the Liquor Agreements is in full force and effect, and Seller has received no written notice of any default by Seller thereunder. The rent payable to Seller under the "Liquor Lease" identified on Schedule 1 to the Assignment and Assumption of Liquor-Related Agreements has not been modified from the amount stated therein. 6.4 Buyer's Review of Records and Plans. 6.4.1 Access to Records and Plans; Specific Disclosures. Buyer acknowledges that prior to the Closing Date, Buyer has been provided with such access to the Records and Plans and such other information relating to the Hotel as Buyer has deemed relevant. Buyer acknowledges that it (a) has been made aware of and given an opportunity to inquire into the Specific Disclosure Matters described herein; (b) has been given access to the Property and the opportunity to conduct such inquiries and analyses as Buyer has deemed necessary or appropriate in order to evaluate the physical condition of the Property and any and all other matters concerning the current and future use, feasibility, or value, or any other matter or circumstance relevant to Buyer concerning the Property or its marketability; and (c) the Records and Plans and the other books and records of Seller with respect to the Hotel may not be complete. 6.4.2 Limitation on Access to Records and Plans. Notwithstanding anything in this Agreement to the contrary, Buyer acknowledges and agrees that the Records and Plans or other information made available to or delivered to Buyer prior to, or at the Closing, shall not include any information which is privileged, confidential or proprietary to Seller or any of its constituent partners or affiliates, including without limitation, (i) Seller's internal financial analyses, any appraisals undertaken for Seller or other parties, income tax returns, financial statements, corporate or partnership governance records, investment advisory records, and other records concerning Seller's professional relationships, any Hotel Employee personnel files (prior to the Closing), or any other internal, proprietary, or confidential information, files, or records of Seller, (ii) the work papers, memoranda, analysis, correspondence, and similar materials prepared by or for Seller in connection with the negotiation and documentation of the transaction contemplated hereby or any other offer to purchase the Property received by Seller, and (iii) any documents or communications subject to the attorney/client privilege or attorney work product privilege. Buyer expressly agrees that its review of the Records and Plans, and any and all other information of any type or nature, whether oral or written, provided to Buyer by or on behalf of Seller and relating to the Property (collectively, the "PROPERTY INFORMATION") is for informational purposes only, and neither Seller nor any agent, advisor, officer, attorney, representative or other person acting or purporting to act on behalf of Seller has verified either the accuracy of the Property Information, or the adequacy of any method used to compile the Property Information or the qualifications of any person preparing the Property Information except that, in delivering or making available a copy of any document or papers to Buyer, Seller has delivered or made available copies of the originals of such documents or papers in Seller's possession or included in the Records and Files. Except as expressly set forth in this SECTION 6, neither Seller nor any agent, advisor, officer, attorney, representative or other person acting or purporting to act on behalf of Seller is making or giving any representation or warranty about, or assuming any responsibility for, the accuracy or completeness of the Property Information. Reliance by Buyer upon any Property Information shall not create or give rise to any liability of or against Seller or any agent, advisor, officer, attorney, representative or other person acting or purporting to act on behalf of 26 27 Seller. Subject to Seller's express representations and warranties set forth herein, the consummation of the Closing shall constitute Buyer's unconditional approval of all aspects of the Property and Buyer's unconditional acknowledgment that Buyer has had the opportunity to request from Seller and review such documents and materials relating of the Property as Buyer deems appropriate. All copies of such documents delivered to Buyer shall be returned to Seller if the Closing fails to occur for any reason. 6.5 PURCHASE AS IS. BUYER REPRESENTS, WARRANTS AND COVENANTS TO SELLER THAT BUYER HAS INDEPENDENTLY AND PERSONALLY INSPECTED THE PROPERTY AND THE PROPERTY INFORMATION AND THAT BUYER HAS ENTERED INTO THIS AGREEMENT BASED UPON SUCH PERSONAL EXAMINATION AND INSPECTION. BUYER ACCEPTS THE PROPERTY, IN ITS CONDITION ON THE CLOSE OF ESCROW AS-IS AND WITH ALL ITS FAULTS, INCLUDING WITHOUT LIMITATION, ANY FAULTS AND CONDITIONS SPECIFICALLY REFERENCED IN THIS AGREEMENT. NO PERSON ACTING ON BEHALF OF SELLER IS AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF, BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO: (A) THE VALUE OF THE PROPERTY; (B) THE INCOME TO BE DERIVED FROM THE PROPERTY; (C) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON; (D) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY; (E) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE PROPERTY; (F) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY; (G) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY; (H) THE MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY; (I) THE COMPLIANCE OF THE PROPERTY WITH ANY ENVIRONMENTAL LAWS OR THE AMERICANS WITH DISABILITIES ACT; (J) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON, UNDER, OR ADJACENT TO THE PROPERTY; (K) THE CONTENT, COMPLETENESS OR ACCURACY OF ANY OF THE RECORDS AND PLANS OR OTHER INFORMATION PROVIDED BY SELLER TO BUYER WITH RESPECT TO THE PROPERTY; (L) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR SPECIFICATIONS FOR THE PROPERTY, INCLUDING ANY PLANS AND SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYER; (M) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR FUTURE APPLICABLE ZONING OR BUILDING REQUIREMENTS; (N) DEFICIENCY OF ANY UNDER SHORING; (O) DEFICIENCY OF ANY DRAINAGE; (P) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE LOCATED ON OR NEAR AN EARTHQUAKE FAULT LINE; (Q) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING ENTITLEMENTS AFFECTING THE PROPERTY; (R) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE PROPERTY (INCLUDING, WITHOUT LIMITATION, THE TENANT LEASES, THE EQUIPMENT LEASES, ANY FIXTURES AND EQUIPMENT, THE LICENSES AND PERMITS, THE PERSONAL PROPERTY, THE SERVICE CONTRACTS, THE EMPLOYMENT CONTRACTS, ANY EMPLOYEE BENEFIT PLANS AND THE LIQUOR LICENSE) EXCEPT AS MAY BE OTHERWISE EXPRESSLY STATED HEREIN; (S) [INTENTIONALLY OMITTED] (T) ANY OF THE SPECIFIC DISCLOSURE MATTERS; OR (U) WITHOUT LIMITING THE OTHER DISCLAIMERS SET FORTH HEREIN BUT SUBJECT TO THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT, THE ASSIGNMENTS AND CONVEYANCES OF THE PERSONAL PROPERTY AND THE MANAGEMENT 27 28 AGREEMENT, ARE WITHOUT ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS OF ANY KIND WHATSOEVER, INCLUDING, WITHOUT LIMITATION, (1) WARRANTIES AS TO THE VALIDITY, ENFORCEABILITY OR ASSIGNABILITY OF THE MANAGEMENT AGREEMENT, (2) WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE, (3) WARRANTIES RELATING TO THE DESIGN, CONDITION, QUALITY, WORKMANSHIP OR CAPACITY OF THE TANGIBLE PERSONAL PROPERTY, (4) REPRESENTATIONS OR WARRANTIES THAT THE TANGIBLE PERSONAL PROPERTY IS IN COMPLIANCE WITH ALL LAWS, STATUTES, ORDINANCES RULES, REGULATIONS, SPECIFICATIONS OR CONTRACTS PERTAINING THERETO, (5) WARRANTIES AGAINST PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, AND (6) WARRANTIES AS TO THE VALIDITY, ENFORCEABILITY, OR COLLECTIBILITY OF ANY ITEM. 6.6 Limitation on Representations and Warranties of Seller. In no event shall Buyer be entitled to seek recovery against Seller for an alleged breach of any representation or warranty by Seller if the information, transaction, or occurrence alleged to give rise to such breach was disclosed to, made available to or discovered by Buyer, whether in the course of its review of the Records and Plans or otherwise, prior to the Close of Escrow (the sole adjustment with respect to same being as set forth in SECTION 6.7 below). Without limiting the foregoing, each of the representations and warranties by Seller set forth herein shall be deemed to be qualified in their entirety by the Specific Disclosure Matters in addition to any other qualifications of such representations and warranties. 6.7 Right to Supplement Disclosures. At any time prior to the Closing, Seller may add additional disclosures to the Specific Disclosure Matters and the Schedules referenced in this SECTION 6, and may make appropriate revisions thereto, provided, however, that any such revisions do not in the aggregate disclose any matter or matters which would reasonably be expected to have an impact upon the value of the Property in excess of the amount of the Deposit; and provided, further, that the receipt of any notice of termination under the Management Agreement shall not be deemed to create any diminution in value to the Property. In the event that Buyer or Seller discovers any matter or matters which would be expected to exceed the Threshold Amount, then, in such event, the provisions of SECTION 7.1.1 shall apply. 6.8 Basket. In no event will Seller be liable to Buyer for any breach of a representation or warranty hereunder unless and to the extent the Loss actually and directly incurred by Buyer as results of such breach together with the Loss actually and directly incurred by Buyer as results of any other breach(s) in the aggregate exceed the Threshold Amount, provided, that in no event shall Seller have any liability to Buyer for any consequential damages arising from a breach by Seller of any representation or warranty unless such breach results from the intentional concealment by Seller. 6.9 Survival. The Trust, the Corporation and Seller each hereby covenants and agrees with the other that the representations and warranties of the Trust, the Corporation and Seller (as the case may be) set forth in SECTIONS 6.1.1 through 6.1.3, inclusive, SECTION 6.2.1 through SECTION 6.2.3, inclusive and SECTION 6.3.1 and SECTION 6.3.2 shall survive the Close of Escrow without limitation as to duration. The remaining warranties and representations set forth in SECTION 6 shall survive the Close of Escrow until the date which is one (1) year following the Closing Date, at which time such representations and warranties shall expire unless prior to such time Buyer or Seller, as the case may be, have duly commenced an action in a court of competent jurisdiction, alleging a breach of such representation or warranty. Notwithstanding anything herein to the contrary, in no event shall either Buyer or Seller have any right to make a claim after the Closing with respect to any representation or warranty, the breach of which such party shall have discovered prior to the Closing, unless such party shall have notified the other party of such breach prior to the Close of Escrow. Nothing contained in this SECTION 6.9 shall limit the right of Seller to any remedy otherwise available under Federal or other applicable securities law. 28 29 SECTION 7 TITLE TO THE REAL PROPERTY: EXTENSION OF THE CLOSING 7.1 Buyer's Review of Title. Seller has caused to be delivered to Buyer and Buyer's Counsel a current preliminary title commitment for title insurance issued by the Title Company showing the condition of title to the Real Property (the "Preliminary Title Report") together with a copy of all documents evidencing or creating the exceptions to title referenced therein. 7.1.1 Failure to Satisfy Certain Closing Conditions; Monetary Liens. On or prior to the Close of Escrow, Seller shall be obligated (i) to cause to be insured over or removed of record all Monetary Liens affecting the Property as of the date hereof; and (ii) to remove or to bond over any Monetary Lien arising after the issuance of the Preliminary Title Report which (a) was created by or with the consent of Seller, or (b) is in an amount less than or equal to the Deposit. In the event that any Monetary Lien not reflected on the Preliminary Title Report exceeds the Deposit and was not created by or with the consent of Seller or any other title defect or other matters arise which requires Seller to supplement its disclosure pursuant to SECTION 6.7 and which in the aggregate may create a diminution in value to the Property in excess of the Deposit, (i) the Deposit shall be refunded by Escrow Holder to Buyer on February 28, 1998 if the Closing does not occur by such date in accordance with the provisions hereof; (ii) the Scheduled Closing Date shall be extended and Seller shall use all reasonable efforts, to remove or bond over or otherwise cause the Title Company to omit such Monetary Lien as an exception from coverage under the Title Policy and/or remove or cure as applicable such other defect or condition as applicable; and (iii) Buyer shall be permitted to record the Memorandum of Contract in the real property records of the state and county in which the Real Property is located. In the event that the Scheduled Closing Date is so extended and Seller is able to remove or cure such Monetary Lien, remove or cure as applicable the title defect or other condition the Close of Escrow shall occur as soon as practicable following such removal or cure with time being of the essence as to the performance of both Buyer's and Seller's obligations hereunder. THE PARTIES ACKNOWLEDGE AND AGREE THAT DAMAGES WILL NOT BE AN ADEQUATE REMEDY TO SELLER IF BUYER SHALL DEFAULT IN ITS OBLIGATION TO CLOSE IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 7.1.1 AND CONSEQUENTLY THAT BUYER'S OBLIGATIONS UNDER THIS SECTION 7.1.1 SHALL BE SPECIFICALLY ENFORCEABLE AGAINST THE TRUST. IN CONSIDERATION FOR THE REFUND TO BUYER OF THE DEPOSIT PROVIDED FOR UNDER THIS SECTION 7.1.1, THE RIGHT OF BUYER TO RECORD THE MEMORANDUM OF CONTRACT PURSUANT TO THIS SECTION 7.1.1, SELLER'S AGREEMENT TO ENTER INTO THE INTERIM MANAGEMENT AGREEMENT PURSUANT TO THE PROVISIONS OF THIS SECTION 7.1.1 (UNDER WHICH AGREEMENT THE VALUE OF THE HOTEL MAY BE AFFECTED BY THE PERFORMANCE BY THE MANAGER OF ITS RESPONSIBILITIES THEREUNDER) AND TO ENCUMBER THE PROPERTY WITH THIS AGREEMENT FOR A PERIOD OF UP TO FIVE (5) YEARS IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 17.20 AND IN LIGHT OF THE RISKS WHICH SELLER WILL BE ASSUMING AS A RESULT IN RELATION TO THE VALUE OF THE EQUITY PURCHASE PRICE TO BE DELIVERED IF AND WHEN THE CLOSING OCCURS HEREUNDER, THE PARTIES HAVE AGREED THAT THE PROVISIONS OF THIS SECTION 7.1.1 ARE SPECIFICALLY ENFORCEABLE AGAINST THE TRUST AS AND TO THE EXTENT PROVIDED IN THE PRECEDING SENTENCE. In the event that a Monetary Lien cannot be removed or cured or a title defect or other condition cannot be removed or cured as required hereunder to close within five (5) years of the date of this Agreement, this Agreement shall terminate and the parties hereto shall have no further obligations. 7.1.2 [Intentionally Omitted] 7.2. Title Insurance Policy. Buyer's title to the Real Property shall be insured at Closing by an ALTA extended coverage owner's policy or policies of title insurance in the amount of the Purchase Price (the "Title Policy") issued by the Title Company, insuring title to the Real Property vested in Buyer, subject only to the Permitted Encumbrances, together with such 29 30 customary endorsements or affirmative insurance as may be reasonably requested by Buyer and purchased at Buyer's sole cost and expense. 7.3 Title to Real Property. At the Close of Escrow, title to the Real Property will be conveyed to Buyer by Seller pursuant to the Deed, subject only to the matters of title respecting the Property shown on SCHEDULE 7.3 annexed hereto and, if the Closing is delayed pursuant to SECTION 7.1.1, any additional easements, covenants, conditions, restrictions or other matters entered into with the prior written consent of Buyer which consent shall not be unreasonably withheld, delayed or conditioned (collectively, the "Permitted Encumbrances"); Buyer agrees to rely exclusively on the Title Policy for protection against any title defects except as set forth in SECTION 7.1.2. Buyer shall have no claim following the Closing against Seller on account of the Permitted Encumbrances. Buyer's agreement under this SECTION 7.1 shall survive the execution, delivery, and recordation of the Deed. SECTION 8 INTERIM ACTIVITIES During the period from the Execution Date through the Close of Escrow, Seller shall (subject to the provisions of the Interim Management Agreement if entered into in accordance with the provisions of this Agreement) cause the Property to be continued to be operated in ordinary course as a hotel consistent with current operating practices during the period since Manager has been manager of the Hotel. Buyer shall have the right to enter onto and inspect the Property, from and after the date hereof, through the Closing Date to inspect the Property and otherwise perform its due diligence provided such inspections are performed upon prior notice to Seller and so as not to interfere with the operation of the Property or to disclose the pendency of the transaction contemplated hereby. All fees and expenses of any kind relating to the inspection of the Property by Buyer will be paid for by Buyer. Buyer agrees to keep the Property free from any liens arising out of or in connection with Buyer's or its agents entry or the Property. Buyer shall at its sole cost and expense, clean up and repair the Property as reasonably necessary after Buyer's or its agents entry thereon. Buyer shall hold harmless, indemnify and defend Seller from all Losses relating to any action by Buyer, its Affiliates and/or agents at or on the Property prior to Closing. Any of Buyer's agents shall be bound by the provisions of SECTION 17.19. SECTION 9 CONDITIONS PRECEDENT TO CLOSING 9.1 Conditions Precedent to Buyer's Obligations. The Close of Escrow and the obligation of Buyer to purchase the Property is subject to the satisfaction, not later than the Scheduled Closing Date, (subject to extensions as provided in Section 7.1) of the following conditions: 9.1.1 Seller's Deliveries. Seller shall have delivered the items described in SECTION 4.2 and shall be prepared to deliver the items described in SECTION 4.4; 9.1.2 Title Policy. The Title Company shall be unconditionally prepared (subject only to payment of all necessary title insurance premiums and other charges) to issue to Buyer the Title Policy insuring Buyer's title to the Real Property subject only to the Permitted Encumbrances; 9.1.3 Performance Under Related Agreement. All conditions precedent to the closing of the transactions contemplated by that certain Purchase and Sale Agreement and Joint Escrow Instructions (the "Related Agreement") dated as of the date hereof by and between Buyer and Savanah Limited Partnership, a District of Columbia limited Partnership, shall have been satisfied or waived and the Seller and Escrow Holder thereunder shall be ready, willing and able to perform thereunder, and there shall be no default of Seller under such agreement. 9.1.4 [Intentionally Omitted]. 9.1.5 Seller Performance. Seller shall have performed in all material respects all of the obligations of Seller under this Agreement, to the extent 30 31 required to be performed at or prior to the Close of Escrow. 9.1.6 Representations and Warranties of Seller. The Seller's representations and warranties set forth in SECTION 6.3 shall be true, correct and complete, as of the Close of Escrow subject to modification thereof to the extent permitted under SECTION 6.7 and subject further to the applicable provisions of SECTION 7.1.1. The conditions set forth in this SECTION 9.1 are solely for the benefit of Buyer and may be waived only by Buyer. Buyer shall at all times have the right to waive any such condition. Any such waiver or waivers shall be in writing and shall be delivered to Seller and Escrow Holder. 9.2 Conditions Precedent to Seller's Obligations. The Close of Escrow and Seller's obligation with respect to the transactions contemplated by this Agreement are subject to the satisfaction, not later than the Scheduled Closing Date, of the following conditions: 9.2.1 Funds and Documents. Buyer shall have delivered to Escrow Holder, prior to the Closing Date, for disbursement as directed by Seller, the Paired Shares and all cash or other immediately available funds due from Buyer in accordance with SECTION 4 of this Agreement and the documents described in SECTION 4.3; 9.2.2 Representations and Warranties of Buyer. The Trust's representations and warranties set forth in SECTION 6.1 and the Corporation's representations and warranties set forth in SECTION 6.2 shall be true, correct and complete, as of the Close of Escrow; 9.2.3 No Material Changes. There shall have been no casualty or condemnation for which Buyer has elected to terminate this Agreement pursuant to SECTION 12 or SECTION 13 of this Agreement; 9.2.4 [Intentionally Omitted] 9.2.5 Performance Under Related Agreement. All conditions precedent to the closing of the transactions contemplated by the Related Agreement shall have been satisfied or waived and the Buyer and Escrow Holder thereunder shall be ready, willing and able to perform thereunder and there shall be no default of Buyer under such agreement. The conditions set forth in this SECTION 9.2 are solely for the benefit of Seller and may be waived only by Seller. Seller shall at all times have the right to waive any such condition. Any such waiver or waivers shall be in writing and shall be delivered to Buyer and Escrow Holder. 9.3 Failure of Condition. Except as otherwise provided in this Agreement, if the Escrow fails to close on the Outside Closing Date for any reason whatsoever, including, without limitation, a failure of a condition precedent set forth in this SECTION 9, either Buyer or Seller, if not then in default under this Agreement, may terminate the Escrow and this Agreement upon notice to the other; and, thereupon: 9.3.1 This Agreement and the Escrow shall terminate; 9.3.2 The costs of the Escrow through the Scheduled Closing Date shall be governed by SECTION 4.8; 9.3.3 All monies paid into the Escrow and all documents deposited in the Escrow shall be returned to the party paying or depositing the same together with interest earned thereon; and 9.3.4 Each party shall be released from all obligations under this Agreement except for the obligations that are expressly stated to survive the termination of this Agreement. SECTION 10 BROKER Buyer and Seller each represent and warrant to the other that it has not dealt with any broker, finder or other middleman in connection with this Agreement, or the transactions contemplated hereby and that no broker, finder, middleman or other person has claimed, or has the right to claim a commission, finder's fee or other brokerage fee in connection with this Agreement or the transactions contemplated hereby. Each party shall indemnify, protect, defend and hold the other party harmless from and against any costs, claims or expenses (including actual attorneys' fees and 31 32 expenses), arising out of the breach by the indemnifying party of any of its representations, warranties or agreements contained in this SECTION 10. The representations and obligations under this SECTION 10 shall survive the Close of Escrow, or, if the Close of Escrow does not occur, the termination of this Agreement. SECTION 11 REMEDIES FOR SELLER'S DEFAULT 11.1 Buyer's Remedies in General. If Buyer shall discover prior to the Close of Escrow any default in any of Seller's obligations under this Agreement (a "Seller Default"), Buyer shall notify Seller thereof, and Seller shall have a reasonable period of time (not in excess of thirty (30) days) unless extended by Buyer in its sole discretion in which to cure such default, in which case the Scheduled Closing Date shall be extended during the continuation of such cure period. If there shall be any Seller Default discovered by Buyer prior to the Close of Escrow and not cured by the Scheduled Closing Date, then Buyer's sole right and remedy other than with respect to a breach of a representation and warranty which shall be subject to the provisions of SECTION 6.7, shall be to compel specific performance of this Agreement; provided, however, that Buyer shall only be entitled to compel specific performance of this Agreement if, as of the time of Seller's default, Buyer shall (a) not be in default hereunder, (b) shall be ready, willing and able to perform its obligations hereunder, and (c) shall have waived all contingencies to closing other than those relating to Seller's default. 11.2 MATERIAL INDUCEMENT. BUYER SPECIFICALLY ACKNOWLEDGES THAT THE LIMITATIONS ON DAMAGES AND SURVIVAL AND OTHER REMEDIES WHICH BUYER MAY RECOVER FROM AND ENFORCE AGAINST SELLER UNDER THIS AGREEMENT ARE A SPECIFIC AND MATERIAL INDUCEMENT TO SELLER TO ENTER INTO THIS TRANSACTION. SECTION 12 DAMAGE TO OR DESTRUCTION OF THE PROPERTY 12.1 Insured Casualty. 12.1.1 If, prior to the Close of Escrow, the Property is damaged or destroyed, whether by fire or other insured casualty, Seller shall promptly notify Buyer of such damage or destruction and of the good-faith estimate of a reputable licensed contractor selected by Seller and reasonably approved by Buyer of the cost to repair the damage and Seller's good-faith belief that such casualty is insured (the "Insured Casualty Notice"). If the Insured Casualty Notice indicates that such casualty is a Material Casualty, Buyer may elect to be released from its obligations hereunder (including its obligation to purchase the Property) by delivering to Seller written notice of Buyer's intent to do so within ten (10) days after the date Buyer receives the Insured Casualty Notice. In such event, the Deposit together with all interest accrued thereon shall be promptly returned to Buyer. 12.1.2 If the casualty is insured, and (i) it is not a Material Casualty, or (ii) it is a Material Casualty, but Buyer elects not to terminate this Agreement in accordance with this SECTION 12.1, then the Escrow and this Agreement shall remain in full force and effect, the Closing shall occur on or before the Outside Closing Date, and Seller shall assign to Buyer, as a condition precedent to the Close of Escrow, all of Seller's right, title and interest in and to any of the casualty insurance proceeds or claims therefor with respect to such damage or destruction, together with any and all rental loss or business interruption insurance of Seller, if any, payable with respect to the Property for any period after the Proration Time and any and all claims against other persons for such damage or destruction. Additionally, if the Escrow and this Agreement remain in full force and effect, Seller shall pay to Buyer, by way of a reduction in the Cash Portion of the Closing Payment, an amount equal to the deductible under the casualty insurance. Within twelve (12) months following the Close of Escrow, Buyer shall upon thirty (30) days written notice by Seller, present reasonably satisfactory evidence to Seller that Buyer applied the proceeds of such insurance to the Property. If Buyer fails to present such evidence or such evidence is not reasonably satisfactory to Seller, Buyer shall promptly, but 32 33 in any event within thirty (30) days of demand therefor from Seller, pay to Seller the proceeds of the casualty insurance assigned by Seller to Buyer as provided herein, together with an amount equal to the deductible under such insurance for which Buyer received a credit to the Purchase Price. 12.2 Uninsured Casualty. 12.2.1 If, prior to the Close of Escrow, all or any portion of the property is damaged or destroyed by an uninsured casualty (including, without limitation, a casualty as to which coverage has been disclaimed by Seller's insurers), Seller shall promptly notify Buyer of such damage or destruction and of the Seller's reasonable estimate of the cost to Seller to repair the same of a reputable licensed contractor selected by Seller and reasonably approved by Buyer (the "Uninsured Estimate to Repair") and Seller's reasonable belief that such casualty is uninsured (the "Uninsured Casualty Notice"). 12.2.2 If such Uninsured Estimate to Repair indicates the occurrence of a Material Casualty, either Seller or Buyer may elect to terminate this Agreement by giving to the other party written notice of its intent to do so within ten (10) days after the Seller delivers the Uninsured Casualty Notice to Buyer. If this Agreement is terminated pursuant to this SECTION 12.2.2, the Deposit together with interest accrued thereon shall be promptly returned to Buyer. 12.2.3 If the casualty is uninsured, and (i) it is not a Material Casualty, or (ii) it is a Material Casualty and Buyer and Seller have not elected to terminate this Agreement in accordance with SECTION 12.2.2, then the Escrow and this Agreement shall remain in full force and effect, the Closing shall occur on or before the Outside Closing Date, and Buyer shall be entitled to a reduction in the Purchase Price in an amount equal to the Uninsured Estimate to Repair. 12.2.4 If and to the extent that the Purchase Price is adjusted pursuant to this SECTION 12.2 as a result of a disclaimer of coverage by Seller's insurers, Buyer shall not be entitled to insurance proceeds due under Seller's policies, or to be assigned any claim under or with respect to Seller's policies, and Seller shall retain all rights thereunder or with respect thereto and to proceeds therefrom, it being the intent of this SECTION 12 that there be no double recovery by, or double compensation of, Buyer for the casualty. SECTION 13 CONDEMNATION If, prior to the Close of Escrow, a Material Taking has occurred or is pending, Seller shall immediately notify Buyer of such fact. In such event, Buyer may elect upon written notice to Seller given not later than fifteen (15) days after receipt of Seller's notice to terminate this Agreement. If Buyer does not exercise option which Buyer may have pursuant to this SECTION 13 to terminate this Agreement, or if any such taking is not a Material Taking, then neither party shall have the right to terminate this Agreement, but Seller shall assign and turn over, and Buyer shall be entitled to receive and keep, all awards for the taking of any of the Real Property by eminent domain which accrue to Seller (other than those relating to loss of use prior to the Closing), and the parties shall proceed to the Close of Escrow pursuant to the terms hereof, without modification of the terms of this Agreement and without any reduction in the Purchase Price. SECTION 14 EMPLOYEES 14.1 Hiring of Hotel Employees; WARN Act Compliance. Buyer agrees to make an offer of employment to all existing Hotel Employees as of the Close of Escrow, on terms and conditions generally comparable to their existing terms and conditions of employment (to the extent such terms and conditions have been disclosed by Seller and/or its agents to Buyer) and to make all reasonable efforts to retain such employees for a reasonable period of time. Without limiting the foregoing, Buyer shall offer to maintain without loss of employment (as defined in the WARN Act) the employment at the Property (other 33 34 than upon good cause for termination) of such number of Hotel Employees and on such terms and conditions as shall not result in, and only to the extent necessary to prevent, a plant closing or mass layoff as defined in the WARN Act. Buyer (i) shall also cause each of the health and medical benefit plans maintained for Hotel Employees to waive any preexisting condition in connection with employment at the Property that was not excluded under the applicable program as of the Closing Date, (ii) shall also cause each of such benefit plans to take into account any deductibles or coinsurance amounts incurred by each Hotel Employee for the year in which the Closing Date occurs, and (iii) shall also cause each of the health and medical benefit plans to deem each Hotel Employee to be eligible for participation in such plan as of the Close of Escrow. In the event that Buyer fails to comply with any of the foregoing covenants, Buyer agrees that Buyer shall be solely responsible for the payment of any and all costs, charges, penalties, compensation, severance pay, benefits and liabilities, arising under the WARN Act, and any other applicable law, rule or regulation on account thereof, and Buyer agrees to indemnify, defend and hold Seller and the Employer Corporation and their directors, officers, agents, affiliates, principals, partners, shareholders representatives and controlling persons harmless from and against any and all claims, causes of action, judgments, damages, penalties and liabilities asserted under the WARN Act or any other applicable law, rule or regulation, whether against Buyer or Seller, the Employer Corporation or any other such indemnified party and whether based on employment of any of the Hotel Employees prior to or following the Closing, arising from Buyer's failure to comply with the foregoing covenants (collectively, "Termination Charges"). Following the Closing, if Buyer desires to terminate the employment of any Hotel Employees other than for cause, Buyer shall be solely responsible for complying with all applicable provisions of the WARN Act and all other applicable laws, rules and regulations with respect to such termination, including without limitation, the payment of all costs and termination payments owing under the WARN Act and all other applicable laws, rules and regulations to any of such employees. Buyer shall assume all obligations under the Employment Agreement for the Director of Finance attributable to the period from and after the Closing Date (it being agreed that the Director of Finance may resign thereunder at any time without penalty). 14.2 Collective Bargaining Agreements. Without limiting the provisions of SECTION 14.1, immediately upon the Close of Escrow, without the necessity of further action by Buyer, Buyer shall assume each collective bargaining agreement or other labor union contracts identified on SCHEDULE 14.2 (the "Collective Bargaining Agreements"). Buyer further agrees to indemnify Seller and the Employer Corporation and their directors, officers, employees, agents, affiliates, principals, partners, shareholders, representatives and controlling persons for any and all liability to the bargaining agents or Hotel Employees, resulting from the failure of Buyer to comply with the terms and conditions of any of the Collective Bargaining Agreements with respect to periods beginning after the Close of Escrow. 14.3 Continuation of Benefits. 14.3.1 Except as provided in SECTION 14.3.2, on and after the Closing Date, Seller (or any insurer at Seller's cost) shall continue to process and pay (or cause applicable insurers and third party administrators, including ITT Sheraton, to process and pay) in an expeditious manner and with respect to all covered Hotel Employees (and, to the extent applicable, their covered spouses, dependents and beneficiaries) all claims under the Employment Agreements that provide health and medical, or other welfare, benefits submitted for covered expenses with respect to occurrences commencing on or prior to the Closing Date, including, but not limited to: (A) covered hospital benefits for any confinements; (B) covered life and survivor income benefits, if any, for deaths which occur on or prior to the Closing Date; (C) workers' compensation benefits for disabilities resulting from a work-related accident which occurred on or prior to the Closing Date; (D) all covered 34 35 benefits that are being, or that may be, paid to, or with respect to, any of such individuals who are on short or long term disability, or medical, personal or other leaves of absence as of the Closing Date; (E) covered benefits under any "spending account," or similar arrangement, under any "cafeteria plan" (as defined under Section 125 of the Internal Code) with respect to salary reduction elections made prior to the Closing Date; and (F) covered benefits under all other such Employment Agreements which accrue on or before the Closing Date; but, only in each instance, to the extent that Buyer shall not have received a credit against the Purchase Price on account of such item. 14.3.2 Buyer (or any plan maintained by Buyer) will provide continued health and medical coverage as required under Section 4980B of the Code, Part 6 of Title I of ERISA or any other applicable federal, state or local law or ordinance to all current and former Hotel Employees (and their spouses, dependents and beneficiaries) with respect to whom a "qualifying event" (as such term is defined under Sections 4980B(f)(3) of the Code or 603 of ERISA) or other triggering event described under the applicable federal, state or local laws or ordinances occurred on or before the Closing Date. 14.3.3 Buyer shall maintain supplies of claims forms necessary for Hotel Employees to make claims under Employment Agreements that provide health, medical or other welfare benefits with respect to occurrences commencing on or prior to the Closing Date, and shall furnish such forms to the Hotel Employees when needed and otherwise assist the Hotel Employees in presenting such claims. 14.4 Buyer and Seller intend by this Agreement to comply with Section 4204 of ERISA, so as to prevent Seller from incurring at the Closing Date a complete or partial withdrawal in respect of any employee benefit plans, if any, in which the Hotel Employees currently participate that are "multiemployer plans," as defined in Section 4001(a)(3) of ERISA (and which have been disclosed to Buyer on the Schedule of Employment Agreements), determined as if Buyer is the "buyer" referred to in such Section 4204. Accordingly, with respect to such multiemployer plans, Buyer agrees as follows: (A) For the first plan year of each such multiemployer plan commencing after the Close of Escrow, and for each of the succeeding four plan years for each such plan, Buyer shall assume the obligation to contribute to each such plan with respect to operations conducted with business assets acquired from Seller for substantially the same number of contribution base units (as defined in Section 4001(a)(11) of ERISA) for which Seller had an obligation to contribute to such plan. (B) Prior to each such multiemployer plan's first plan year beginning after the Close of Escrow, Buyer, shall apply to such plan for a variance from the requirement of Section 4204(a)(1)(b) of ERISA, that a bond be obtained or an amount be held in escrow as provided in said Section. In the event any such plan determines that the request does not qualify for a variance on it, Buyer shall obtain any required bond or establish any required escrow within thirty (30) days after the date on which it receives notice of the plan's decision, and shall maintain such bond or escrow until the earliest of: (i) the date a variance is obtained from the plan; (ii) the date a variance or exemption is obtained from the Pension Benefit Guaranty Corporation; or (iii) the last day of the fifth (5th) plan year commencing after the Close of Escrow; which bond or escrow shall be paid to such plan if Buyer withdraws therefrom or fails to make a contribution to such plan when due, at any time during the first (1st) five (5) plan years of such plan beginning after the Closing Date. In order to comply with subsection (a)(1)(C) of such Section 4204, if Buyer withdraws in a complete withdrawal or a partial withdrawal from any multiemployer plan with respect to which Buyer has assumed an obligation to contribute pursuant to this Agreement and such withdrawal or partial withdrawal occurs during the five (5) plan years commencing with the first (1st) plan year beginning after the date of the Close of Escrow, Seller shall be secondarily liable for any withdrawal liability it would have had to such multiemployer plan on the date of the Close of Escrow under Title IV of ERISA. Buyer agrees to provide 35 36 Seller with reasonable advance notice of its anticipated failure to pay any withdrawal liability and to furnish Seller promptly with a copy of any notice of withdrawal liability it may receive with respect to such plans. 14.5 Indemnification. Buyer and Seller (as applicable, the "Indemnitor") agrees to indemnify, defend, protect and hold the other and, the Employer Corporation in the case of Seller, and their directors, officers, agents, affiliates, principals, partners, shareholders, representatives and controlling persons (as applicable, the "Indemnitee") harmless from and against any and all claims, damages, liabilities, losses, and expenses, (including attorneys' fees and costs) paid, suffered or incurred by the Indemnitee, arising out of or related to Indemnitor's failure to comply with any of the covenants, obligations, or duties contained in SECTION 14. 14.6 Survival. The provisions of this SECTION 14 shall survive the Close of Escrow. SECTION 15 COOPERATION 15.1 Seller has advised Buyer that it may be necessary after the Close of Escrow for Seller (or its representatives) to audit the Records and Plans with respect to the period prior to the Closing Date. In addition, Seller may require access to the such Books and Records in connection with any litigation by or against Seller and its Affiliates with respect to the Property, any tax audit, examination or challenge or similar proceeding, or any calculation of sums payable under SECTION 5. Accordingly, Buyer hereby: (i) agrees to retain the Records and Plans with respect to the period prior to the Closing Date at the Property for a period of seven (7) years after the Close of Escrow or such additional period as may reasonably be requested by Seller; (ii) grants Seller, its Affiliates and their respective representatives access to the such Records and Plans and the Property after the Close of Escrow, at reasonable times and upon reasonable prior notice, for such purposes; (iii) subject to the rights of guests in guest rooms, tenants under tenant leases, grants Seller, its Affiliates, and their respective representatives access to the Property after the Close of Escrow for the purpose of conducting such inspections and/or testing (including destructive testing) of the Property as may be necessary or advisable in connection with any litigation and other proceedings to which Seller is a party (provided that Seller shall give Buyer prior notice of the scope of such inspections and testing) which shall be scheduled for such periods as shall be reasonably agreeable to the parties; 15.1.1 All inspections fees, appraisal fees, engineering fees and other expenses of any kind relating to the inspection of the Property by Seller or Seller's Affiliate will paid for by Seller and/or Seller's Affiliate. 15.1.2 Prior to Seller or Seller's Affiliate's entry on the Property for the purpose of conducting inspections and/or tests, Seller or Seller's Affiliate shall provide Buyer with certificates of insurance from Seller's agents from an insurance carrier and for such risks and policy limits as Seller shall reasonably approve. 15.1.3 Seller agrees to keep the Property free from any liens arising out of or in connection with such testing and inspection. 15.1.4 Seller, shall, at its sole cost and expense, clean up and repair the Property as reasonably necessary, after Seller's or Seller's agents, entry thereon. 15.1.5 Seller shall hold harmless, indemnify and defend Buyer for all losses relating to any action by Seller, its Affiliates and/or agents at or on the Property after the Closing. 15.1.6 Buyer agrees to cooperate with Seller, its Affiliates and their respective representatives in connection with any such litigation or proceedings with respect to the Property, any such tax audit, examination or challenge or similar proceeding, or any such calculation of sums payable under SECTION 5, said cooperation to be at no material cost or expense to Buyer. 15.2 Seller shall cooperate with Buyer in connection with the assignment of 36 37 all transferable Licenses and Permits to Buyer and the application for and procurement of replacements of any non-transferable Licenses and Permits. SECTION 16 NOTICES 16.1 Addresses. Whenever any notice, demand or request is required or permitted hereunder, such notice, demand or request shall be made in writing and shall be (a) sent via a nationally recognized overnight courier service fully prepaid, (b) deposited in the United States by mail, registered or certified, return receipt requested, postage prepaid, or (c) sent via telefacsimile, provided that the original of such notice, demand or request shall also be sent via one of the methods described in (a) and (b) above, in each case to the addressees (and individuals) set forth below: As to Seller: New Remington Partners c/o Al Anwa USA Incorporated 1925 Century Park East Suite 1900 Los Angeles, CA 90067 Attn: General Counsel Telefacsimile: (310) 229-2939 With a copy to Seller's Additional Addressees: Gordon Eng, Esq. 19191 S. Vermont Avenue Suite 420 Torrance, CA 90502 Telefacsimile: (310) 207-1006 Morrison & Foerster LLP 555 West Fifth Street, Suite 3500 Los Angeles, CA 90013-1024 Attn: Thomas R. Fileti, Esq. Telefacsimile: (213) 892-5454 As to Buyer: Starwood Lodging Corporation Starwood Lodging Trust 2231 E. Camelback Road Suite 400 Phoenix, AZ 85016 Attn: Steven R. Goldman Telefacsimile: (602) 852-0115 With a copy to Buyer's Additional Addressee: Greenberg Traurig Hoffman Lipoff Rosen & Quentel 153 East 53rd Street New York, NY 10022 Attn: Andrew E. Zobler, Esq. Telefacsimile: (212) 223-7161 As to Escrow Holder: Chicago Title Insurance Company 700 South Flower Street, Suite 900 Los Angeles, CA 90017 Attn: Maggie Watson Telefacsimile: (213) 488-4388 16.2 Receipt of Notices. Any notice, demand or request that shall be delivered to Buyer and its Additional Addressee in the manner aforesaid shall be deemed sufficiently given to and received by Buyer for all purposes hereunder, and any notice, demand or request that shall be delivered to 37 38 Seller and its Additional Addresses in the manner aforesaid shall be deemed sufficiently given to and received by Seller for all purposes hereunder (i) the next business day following the day such notice, demand or request is delivered by a nationally recognized overnight courier service fully prepaid, to such party and its Additional Addressee, (ii) if sent via registered or certified mail, at the time of receipt by such party and its Additional Addressee, or (iii) if sent via telefacsimile, as of the date and time stated upon confirmation reports generated by the sending party's telefacsimile machine confirming the delivery of such notice, demand or request to such party and its Additional Addressee. 16.3 Refusal of Delivery. The inability to deliver any notice, demand or request because the individual to whom it is properly addressed in accordance with this SECTION 16 refused delivery thereof or no longer can be located at that address shall constitute delivery thereof to such individual. 16.4 Change of Address. Each party shall have the right from time to time to designate by written notice to the other parties hereto such other person or persons and such other place or places as said party may desire written notices to be delivered or sent in accordance herewith. SECTION 17 GENERAL PROVISIONS 17.1 Amendment. Except as provided in SECTION 4.1, no provision of this Agreement or of any documents or instrument entered into, given or made pursuant to this Agreement may be amended, changed, waived, discharged or terminated except by an instrument in writing, signed by the party against whom enforcement of the amendment, change, waiver, discharge or termination is sought. 17.2 Time of Essence. All times provided for in this Agreement for the performance of any act will be strictly construed, time being of the essence. 17.3 Entire Agreement. This Agreement and other documents delivered at Closing, set forth the entire agreement and understanding of the parties in respect of the transactions contemplated by this Agreement, and supersede all prior agreements, arrangements and understandings relating to the subject matter hereof and thereof. No representation, promise, inducement or statement of intention has been made by Seller or Buyer which is not embodied in this Agreement, or in the attached Exhibits or the written certificates, schedules or instruments of assignment or conveyance delivered pursuant to this Agreement, and neither Buyer nor Seller shall be bound by or liable for any alleged representations, promise, inducement or statement of intention not therein so set forth. 17.4 No Waiver. No failure of any party to exercise any power given such party hereunder or to insist upon strict compliance by the other party with its obligations hereunder shall constitute a waiver of any party's right to demand strict compliance with the terms of this Agreement. 17.5 Counterparts. This Agreement, any document or instrument entered into, given or made pursuant to this Agreement or authorized hereby, and any amendment or supplement thereto may be executed in two or more counterparts, and, when so executed, will have the same force and effect as though all signatures appeared on a single document. Any signature page of this Agreement or of such an amendment, supplement, document or instrument may be detached from any counterpart without impairing the legal effect of any signatures thereon, and may be attached to another counterpart identical in form thereto but having attached to it one or more additional signature pages. 17.6 Costs and Attorneys' Fees. If any legal action or any arbitration or other proceeding is brought for the enforcement of this Agreement or any document or instrument entered into, given or made pursuant to this Agreement or authorized hereby or thereby (including, without limitation, the enforcement of any obligation to indemnify, defend or hold harmless provided for herein or therein), or because of an alleged dispute, default, or misrepresentation in connection with any of the provisions of this Agreement or of such document or instrument, or if Escrow Holder commences any action 38 39 with respect to the Escrow(s), the successful or prevailing party shall be entitled to recover actual attorneys' fees, charges and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled. 17.7 Payments; Interests. Except as otherwise provided herein, payment of all amounts required by the terms of this Agreement shall be made in the United States and in immediately available funds of the United States of America which, at the time of payment, is accepted for the payment of all public and private obligations and debts. Unless the parties otherwise agree, payments shall be made through the Escrow Holder. If any payment due under this Agreement is not paid when due, it shall thereafter bear interest at a variable rate equal to the rate announced from time to time by Citibank, N.A. as its prime or reference rate, plus five percent (5%) per annum, but in no event more than the maximum rate, if any, allowed by law to be charged by the party receiving the interest on such type of indebtedness. 17.8 Transfer By Buyer. Buyer shall not have the right to assign this Agreement, but shall be permitted to designate an Affiliate or Affiliates to take title to the Property. In the event that Buyer elects to so designate any Affiliate or Affiliates to take title to the Property hereunder, (i) Buyer shall upon close of Escrow be released of all obligations hereunder other than pursuant to SECTION 6, SECTION 7.1, SECTION 10, SECTION 17.18, SECTION 17.19 and SECTION 17.20 or arising prior to the Close of Escrow, (ii) such Affiliate or Affiliates shall assume all of Buyer's obligations hereunder; and (iii) such Affiliate of Affiliates shall represent and warrant to Seller that such entities are duly organized and validly existing and otherwise as to the matters covered in SECTION 6.1.1 and SECTION 6.1.2 as applicable. 17.9 Parties in Interest. Subject to SECTION 17.8, the rights and obligations of the parties hereto shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs and the legal representatives of their respective estates. Nothing in this Agreement is intended to confer any right or remedy under this Agreement on any person other than the parties to this Agreement and their respective successors and permitted assigns, or to relieve or discharge the obligation or liability of any person to any party to this Agreement or to give any person any right of subrogation or action over or against any party to this Agreement. 17.10 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the state in which the Real Property is located without giving effect to the conflict-of-law rules and principles of that state. 17.11 Incorporation of Recitals and Exhibits. The Recitals and Exhibits attached to this Agreement are incorporated into and made a part of this Agreement. 17.12 Construction of Agreement. The language in all parts of this Agreement shall be in all cases construed simply according to its fair meaning and not strictly for or against any of the parties hereto. Headings at the beginning of sections of this Agreement are solely for the convenience of the parties and are not a part of this Agreement. When required by the context, whenever the singular number is used in this Agreement, the same shall include the plural, and the plural shall include the singular, the masculine gender shall include the feminine and neuter genders, and vice versa. As used in this Agreement, the term "Seller" shall include the respective permitted successors and assigns of Seller, and the term "Buyer" shall include the permitted successors and assigns of Buyer, if any. 17.13 Severability. If any term or provision of this Agreement is determined to be illegal, unconscionable or unenforceable, all of the other terms, provisions and sections hereof will nevertheless remain effective and be in force to the fullest extent permitted by law. 17.14 Announcements. Seller and Buyer shall consult with each other and provide each other one (1) Business Day prior notice with regard to all press 39 40 releases and other announcements issued at or prior to the Close of Escrow and during the one year period thereafter concerning the existence of this Agreement or the sale of the Property and, except as permitted under SECTION 17.19, neither Seller nor Buyer shall issue any such press release or other such publicity prior to the Close of Escrow without the prior written consent of the other party, which consent may be withheld in such other party's sole and absolute discretion. Buyer will not issue any public announcement with respect to Seller (other than to describe the transaction contemplated hereby to the extent permitted hereunder) without the prior written consent of Seller which may be withheld in its sole and absolute discretion. The agreements of the parties in this SECTION 17.14 shall survive the Close of Escrow or any termination of this Agreement. 17.15 Submission of Agreement. The submission of this Agreement to Buyer or its broker, agent or attorney for review or signature does not constitute an offer to sell the Property to Buyer or the granting of an option or other rights with respect to the Property to Buyer. No agreement with respect to the purchase and sale of the Property shall exist, and this writing shall have no binding force or effect, until this Agreement shall have been executed and delivered by Buyer and by Seller and Buyer shall have deposited the Deposit with Escrow Holder. 17.16 Further Assurances. Buyer and Seller agree to execute such instructions to the Escrow Holder and such other instruments and take such further actions either before or after the Close of Escrow as may be reasonably necessary to carry out the provisions of this Agreement provided that no material additional cost or liability shall be created thereby. 17.17 Cooperation. Buyer and Seller shall cooperate with the other to carry out the purpose of this Agreement (provided, such cooperation shall not require either party to expend any sum not otherwise required pursuant to the other provisions of this Agreement). This SECTION 17.17 shall survive the Close of Escrow. 17.18 Moratorium on Re-Sale. In the event Buyer does not consummate the proposed acquisition of ITT Corporation, substantially as such transaction is described in the Starwood Disclosure, the Buyer covenants and agrees that it will not sell the Property to any third-party for a period (the "Transfer Restriction Period") commencing upon the Close of Escrow and expiring upon the later of (a) five (5) years following the Close of Escrow, and (b) settlement of or the final non-appealable judgment is issued in connection with the existing litigation between Seller and the Ritz Carlton Hotel Company, LLC and their respective affiliates, provided, however, the foregoing prohibition shall not apply to a sale of all or substantially all of the assets of Buyer, the merger of Buyer into another entity or the transfer of the Property to a subsidiary and/or Affiliate of Buyer but shall be binding upon the party succeeding to all or substantially all of the assets of Buyer, the surviving entity in such merger, or such subsidiary or Affiliate. In the event Buyer does consummate the proposed acquisition of ITT Corporation described above, Buyer covenants and agrees that it will not sell the Property to Marriott International, Inc., Host Marriott, the Ritz Carlton Hotel Company, L.L.C. or any of their respective affiliates, successors and assigns, or any other party that Buyer reasonably believes will sell, and/or operate the Property pursuant to a franchise or operating agreement with any of the above-described entities, (collectively, "Excluded Parties") during the Transfer Restriction Period and shall cause any permitted purchaser of the Property during the Transfer Restriction Period to covenant and agree not to sell the Property to any Excluded Party for the balance of the Transfer Restriction Period. The provisions of this SECTION 17.18 shall be specifically enforceable. Buyer hereby waives any requirement for Seller to post a bond in order to seek or obtain any temporary restraining order or other injunctive relief pursuant to this SECTION 17.18. The parties acknowledge and agree that the provisions of this Section 17.18 form a material part of the consideration to Seller for entering into this Agreement. The parties agree that these provisions are reasonable in light 40 41 of Seller's ongoing litigation with Ritz Carlton Hotel Company and its affiliates. 17.19 Confidentiality. Buyer shall hold as confidential all information concerning the transaction contemplated by this Agreement, Seller and the Property disclosed in connection with this transaction and Buyer shall not, prior to the Close of Escrow, release any such information relating to the transaction, Seller or the Property to any governmental agencies or third parties without Seller's prior written consent except as may be required by law and in such case subject to the provisions of SECTION 17.14. Seller hereby gives its consent to Buyer's disclosure of information relating to the transaction contemplated hereby to Buyer's Counsel and other consultants, in each instance to the extent reasonably necessary to verify information given to Buyer by Seller or otherwise to carry out the purposes of this Agreement and provided in each instance, such consultants agree in writing to be bound by the confidentiality provisions of this SECTION 17.19. If the Close of Escrow shall fail to occur for any reason, neither party shall issue any press release, publicity or other public announcement of the subject matter of this Agreement, or to make any other disclosure concerning the subject matter of this Agreement (except as may be required by law and in such case subject to the provisions of SECTION 17.14.), without the prior written consent of the other party, which consent may be withheld in such other party's sole and absolute discretion. The agreements of the parties in this SECTION 17.19 shall survive any termination of this Agreement. 17.20 Interim Management Agreement. Seller shall provide Manager with a notice of termination of the Management Agreement on January 2, 1998 or as soon thereafter as Seller shall have obtained any required lender consent thereto. Seller shall on or prior to January 2, 1998 seek any required lender consent and use all reasonable commercial efforts to obtain same as promptly as possible. Buyer and Seller shall enter into a management agreement with respect to the Property in the form attached as EXHIBIT 17.20 hereto (the "Interim Management Agreement") which shall be effective (and the Interim Management Agreement shall be dated as of such effective date) on the earlier of (a) thirty days from the date of delivery to Manager of such termination notice and (b) the effective date of a written waiver of Manager of the notice of termination required under the Management Agreement. Buyer shall advance any fee payable to Manager under the Management Agreement on account of the termination thereof up to $80,620.00. Buyer shall be deemed to have waived delivery of all items under SECTIONS 4.2.1.15, 4.2.1.16, 4.2.1.17 and 4.2.1.19 in the event the Management Agreement is terminated in accordance with the provisions of this SECTION 17.20 prior to the Closing Date. 17.21 Starwood Lodging Trust. The parties hereto understand and agree that the name "Starwood Lodging Trust" is a designation of the Trust and its trustees (as trustees but not personally) under the Trust's Declaration of Trust, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] 41 42 IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be executed as of the day and year first above written. "Seller" NEW REMINGTON PARTNERS, a Texas general partnership By: REMINGTON VENTURERS, INC., a Texas corporation, a General Partner By: /s/ Mansor Dalaan ---------------------------------- Name: Mansor Dalaan Title: President By: REMINGTON VENTURERS II, INC., a Texas corporation, a General Partner By: /s/ Mansor Dalaan ---------------------------------- Name: Mansor Dalaan Title: President "Buyer" STARWOOD LODGING TRUST, a Maryland real estate investment trust By: /s/ Steven R. Goldman ---------------------------------- Name: Steven R. Goldman Title: Senior Vice President STARWOOD LODGING CORPORATION, a Maryland corporation By: /s/ Michael C. Mueller ---------------------------------- Name: Michael C. Mueller Title: Vice President "Escrow Agent" CHICAGO TITLE INSURANCE COMPANY, a Missouri corporation By: /s/ Maggie G. Watson* ---------------------------------- Name: Maggie G. Watson Title: Authorized Signatory *Subject to receiving mutual instructions in the event paragraph #3.5 becomes operative 42 43 TABLE OF CONTENTS SECTION 1 - DEFINITIONS 1 1.1 Defined Terms 1 1.2 Other Definitional Provisions 10 SECTION 2 - PURCHASE AND SALE OF PROPERTY 11 SECTION 3 - PURCHASE PRICE; PAYMENT; BUYER'S DEFAULT; LIQUIDATED DAMAGES 11 3.1 Purchase Price 11 3.2 Payment 11 3.3 Investment of Escrowed Funds 11 3.4 Allocation of Purchase Price 12 3.5 Default by Buyer Prior to Closing; Liquidated Damages 12 SECTION 4 - ESCROW; CLOSING; COSTS 13 4.1 Escrow 13 4.2 Seller's Deliveries to Escrow Holder 13 4.2.1.1 Deed 13 4.2.1.2 Assignment and Assumption of Tenant Leases 13 4.2.1.3 General Assignment 14 4.2.1.4 Assignment and Assumption of Management Agreement 14 4.2.1.5 Bill of Sale 14 4.2.1.6 Stock Agreement 14 4.2.1.7 Liquor Licenses Management Agreement 14 4.2.1.8 [Intentionally Omitted] 14 4.2.1.9 [Intentionally Omitted] 14 4.2.1.10 [Intentionally Omitted] 14 4.2.1.8 Houston Master Lease 14 4.2.1.12 Houston Right of First Offer Agreement 14 4.2.1.13 Non-Foreign Person Certificate 15 4.2.1.14 Transfer Tax Forms 15 4.2.1.15 Certified Rent Roll 15 4.2.1.16 Certified Operating Statement 15 4.2.1.17 Guest Ledger 15 4.2.1.18 Closing Certificate 15 4.2.1.19 Schedule of Bookings 15 4.2.1.20 Title Requirements 15 4.2.1.21 Payoff Letters 15 4.2.1.22 Notices to Tenants 16 4.2.1.23 Opinion of Seller's Counsel 16 4.2.1.24 Other 16 4.3 Buyer's Deliveries to Escrow Holder 16 4.3.1.1 The Cash Purchase Price 16 4.3.1.2 Stock Certificates 16 4.3.1.3 Assignment and Assumption of Management Agreement 16 4.3.1.4 Value Letter 16 4.3.1.5 Opinion of Buyer's Counsel 17 4.3.1.6 Stock Agreement 17 4.3.1.7 [Intentionally Omitted] 17 4.3.1.8 Assignment and Assumption of Liquor-Related Agreements 17 4.3.1.9 [Intentionally Omitted] 17 4.3.1.10 Houston Master Lease 17 4.3.1.11 Houston Right of First Offer 17 4.3.1.12 Closing Certificate 17 4.3.1.13 The Assignment and Assumption of Tenant Leases 17 4.3.1.14 The General Assignment and Assumption Agreement 17 4.3.1.15 Transfer Tax Forms 17 4.3.1.16 Other 17 4.4 Seller's Deliveries to Buyer 17 4.4.1 Tenant Leases/Tenant Deposits 17 4.4.2 Service Contracts 18 4.4.3 Licenses and Permits 18 4.4.4 Records and Plans 18 4.5 Possession 18 4.6 Evidence of Authorization 18 4.7 Close of Escrow 18 43 44 4.8 Costs of Escrow 19 4.9 Other Costs 20 4.10 Maintenance of Confidentiality by Escrow Holder 20 SECTION 5 - PRORATIONS AND ASSUMPTION OF OBLIGATIONS 20 5.1 General 20 5.2 General and Specific Prorations 20 5.3 Deposits 23 5.4 Tenant Leases 23 5.5 Service Contracts and Other Intangible Property 23 5.6 Tax Refunds and Proceedings 23 5.7 Guest Baggage 24 5.8 Safe Deposit Boxes 24 5.9 Advance Bookings 24 Special Purchase Price Adjustment 24 SECTION 6 - REPRESENTATIONS AND WARRANTIES; CONDITION OF PROPERTY 24 6.1 Of the Trust 24 6.1.1 Power and Authority 24 6.1.2 Authorization; Valid Obligation 25 6.1.3 Capital Structure 25 6.1.4 SEC Documents and Other Reports 25 6.1.5 Absence of Certain Changes or Events 25 6.1.6 Actions and Proceedings 25 6.1.7 REIT Status 25 6.1.8 Partnership Status 25 6.1.9 Hart-Scott-Rodino Act 25 6.2 Of the Corporation 25 6.2.1 Power and Authority 25 6.2.2 Authorization; Valid Obligation 25 6.2.3 Capital Structure 25 6.2.4 SEC Documents and Other Reports 25 6.2.5 Absence of Certain Changes or Events 25 6.2.6 Actions and Proceedings 25 6.2.8 Hart-Scott-Rodino 25 6.3 Of Seller 25 6.3.1 Regarding Seller's Authority 25 6.3.2 Tenant Leases 25 6.3.3 Service Contracts 25 6.3.4 Claims 25 6.3.5 Employees 25 6.3.6 Compliance with Laws 25 6.3.7 Hazardous Materials 25 6.3.8 Records and Plans 25 6.3.9 Licenses and Permits 25 6.3.10 Management Agreements 25 6.3.11 Personal Property 25 6.3.12 Insurance 25 6.3.13 Real Estate Taxes 25 6.3.14 Liquor Related Agreements 25 6.4 Buyer's Review of Records and Plans 25 6.4.1 Access to Records and Plans; Specific Disclosures 25 6.4.2 Limitation on Access to Records and Plans 25 6.5 PURCHASE AS IS 25 6.6 Limitation on Representations and Warranties of Seller 25 6.7 Right to Supplement Disclosures 25 6.8 Basket 25 6.9 Survival 25 SECTION 7 - TITLE TO THE REAL PROPERTY: EXTENSION OF THE CLOSING 25 7.1 Buyer's Review of Title 25 7.1.1 Failure to Satisfy Certain Closing Conditions; Monetary Liens 25 7.1.2 [Intentionally Omitted] 25 7.2 Title Insurance Policy 25 7.3 Title to Real Property 25 44 45 SECTION 8 - INTERIM ACTIVITIES 25 SECTION 9 - CONDITIONS PRECEDENT TO CLOSING 25 9.1 Conditions Precedent to Buyer's Obligations 25 9.1.1 Seller's Deliveries 25 9.1.2 Title Policy 25 9.1.3 Performance Under Related Agreement 25 9.1.4 [Intentionally Omitted] 25 9.1.5 Seller Performance 25 9.1.6 Representations and Warranties of Seller 25 9.2 Conditions Precedent to Seller's Obligations 25 9.2.1 Funds and Documents 25 9.2.2 Representations and Warranties of Buyer 25 9.2.3 No Material Changes 25 9.2.4 [Intentionally Omitted] 25 9.2.5 Performance Under Related Agreement 25 9.3 Failure of Condition 25 SECTION 10 - BROKER 25 SECTION 11 - REMEDIES FOR SELLER'S DEFAULT 25 11.1 Buyer's Remedies in General 25 11.2 MATERIAL INDUCEMENT 25 SECTION 12 - DAMAGE TO OR DESTRUCTION OF THE PROPERTY 25 12.1 Insured Casualty 25 12.2 Uninsured Casualty 25 SECTION 13 - CONDEMNATION 25 SECTION 14 -EMPLOYEES 25 14.1 Hiring of Hotel Employees; WARN Act Compliance 25 14.2 Collective Bargaining Agreements 25 14.3 Continuation of Benefits 25 14.5 Indemnification 25 14.6 Survival 25 SECTION 15 - COOPERATION 25 SECTION 16 - NOTICES 25 16.1 Addresses 25 16.2 Receipt of Notices 25 16.3 Refusal of Delivery 25 16.4 Change of Address 25 SECTION 17 - GENERAL PROVISIONS 25 17.1 Amendment 25 17.2 Time of Essence 25 17.3 Entire Agreement 25 17.4 No Waiver 25 17.5 Counterparts 25 17.6 Costs and Attorneys' Fees 25 17.7 Payments; Interests 25 17.8 Transfer By Buyer 25 17.9 Parties in Interest 25 17.10 Applicable Law 25 17.11 Incorporation of Recitals and Exhibits 25 17.12 Construction of Agreement 25 17.13 Severability 25 17.14 Announcements 25 17.15 Submission of Agreement 25 17.16 Further Assurances 25 17.17 Cooperation 25 17.18 Moratorium on Re-Sale 25 17.19 Confidentiality 25 17.20 Interim Management Agreement 25 45 46 EXHIBITS Exhibit A Legal Description Exhibit B Memorandum of Contract Exhibit 4.2.1.1 Deed Exhibit 4.2.1.2 Assignment and Assumption of Tenant Leases Exhibit 4.2.1.3 General Assignment and Assumption Agreement Exhibit 4.2.1.4 Assignment and Assumption of Management Agreement Exhibit 4.2.1.5A Bill of Sale for Capitalized Tangible Property Exhibit 4.2.1.5B Bill of Sale for Expensed Tangible Property Exhibit 4.2.1.6 Stock Agreement Exhibit 4.2.1.7 Assignment and Assumption of Liquor-Related Agreements Exhibit 4.2.1.11 Master Lease Exhibit 4.2.1.12 Right of First Offer Agreement Exhibit 4.2.1.13 Non-Foreign Person Certificate Exhibit 17.20 Interim Management Agreement SCHEDULES Schedule 1.1.1 Approved Service Contracts Schedule 1.1.2 Employment Agreements Schedule 1.1.3 Equipment Leases Schedule 1.1.4 Excluded Property Schedule 1.1.5 [Intentionally Omitted] Schedule 1.1.6 Hotel Employees Schedule 1.1.7 Schedule of Tenant Leases Schedule 1.1.8 Seller's Due Diligence and Seller's Knowledge Schedule 1.1.9 Specific Disclosure Matters Schedule 3.4 Allocation of Purchase Price Schedule 4.2.1.11 Houston Adjacent Assets Schedule 6.3.2 Material Defaults Under Tenant Lease Schedule 6.3.3 Material Defaults Under Approved Service Contracts Schedule 6.3.4 Material Claims Schedule 6.3.5 Material Defaults Under Employment Agreements Schedule 6.3.6 Material Violations Schedule 6.3.7 Material Environmental Conditions Schedule 6.3.9 Licenses and Permits Schedule 6.3.12 Seller's Insurance Schedule 6.3.13 Pending Tax Protests Schedule 7.3 Permitted Encumbrances Schedule 14.2 Collective Bargaining Agreements 46 EX-10.54 31 EX-10.54 1 Exhibit 10.54 STOCK AGREEMENT by and among NEW REMINGTON PARTNERS a Texas general partnership as Stock Purchaser and STARWOOD HOTELS & RESORTS TRUST, a Maryland Real Estate Investment Trust and STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland Corporation, Dated as of January 15, 1998 2 STOCK AGREEMENT THIS STOCK AGREEMENT (this "Agreement") is entered into as of January 15, 1998 (the "Closing Date") by and between NEW REMINGTON PARTNERS, a Texas general partnership, ("Stock Purchaser"), STARWOOD HOTELS & RESORTS TRUST, a Maryland real estate investment trust (the "Trust"), and STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Corporation", and, with the Trust, "Starwood Lodging"). R E C I T A L S A. Stock Purchaser has agreed to acquire from Starwood Lodging, and Starwood Lodging has agreed to issue and deliver to Stock Purchaser, Paired Shares in partial consideration for certain assets owned by Stock Purchaser. B. The parties desire to enter into this Agreement in order to set forth certain terms and conditions under which the Paired Shares are to be issued to and held by Stock Purchaser. A G R E E M E N T NOW, THEREFORE, in consideration of the foregoing and the mutual promises and agreements contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby mutually acknowledged, Starwood Lodging and Stock Purchaser agree as follows: SECTION 1 DEFINITIONS 1.1 Defined Terms. "Accredited Investor" shall have the meaning ascribed to that term in Rule 501 promulgated by the SEC under the Securities Act. "Affiliate" shall mean, with respect to any Person, any other Person that controls, is controlled by or is under common control with such first Person. "Applicable Percentage" shall mean: (a) if Starwood Lodging delivers Registered Shares to Stock Purchaser pursuant to Section 2.1 hereof, 100% and (b) if Starwood Lodging delivers Unregistered Shares pursuant to Section 2.1 hereof, 91.95%. "Business Day" shall mean any day on which the New York Stock Exchange is open for business. "Closing Date" shall mean the date hereof. "Equity Value" shall mean Twenty-Six Million Six Hundred Sixty-Five Thousand Five Hundred Dollars ($26,665,500), divided by the Applicable Percentage, rounded to the nearest whole number. "ITT Closing" shall have the meaning set forth in the Registration Rights Agreement. "Joinder Agreement" means an agreement to be bound by this Agreement in the form of Attachment A hereto. "LIBOR" means the average of the interbank offered rates for three-month dollar 3 deposits in the London market based on quotations at five (5) major banks, as published from time to time in The Wall Street Journal. If The Wall Street Journal ceases to publish such a compilation of interbank offered rates, or if The Wall Street Journal ceases to be published, then Starwood Lodging shall propose a substitute method of determining the interest rate generally known as the three-month LIBOR rate, which method, absent manifest error, shall be binding on all holders of the Subject Shares and Starwood Lodging. "Lock Price" shall mean $53.75 per Paired Share if the Closing Date occurs on or before the 60th day after seven Business Days after January 15, 1998 (or thereafter because of a default by the Trust or the Corporation), and the Market Price as of the Closing Date if the Closing Date occurs thereafter for any reason other than a default by the Trust or the Corporation, provided, however, that in the event that, at any time during the period between December 30, 1997 and the Settlement Date, the Corporation or the Trust effects any reclassification, stock split or stock dividend with respect to their stock, any change or conversion of stock into other securities, or any other dividend or distribution with respect to the Paired Shares, other than (i) dividends contemplated by the Starwood Lodging Disclosure in effect as of December 30, 1997, or (ii) dividends in the aggregate not to exceed the greater of (a) the current rate (as of December 30, 1997) of their dividends (together with any increases in such rate in the ordinary course) and (b) the Trust's "real estate investment taxable income" (as such term is defined for purposes of the Internal Revenue Code) without regard to any net capital gains or the deduction for dividends paid, appropriate and proportionate adjustments shall be made to the Lock Price. "Market Price" shall mean, as of any date, the average closing prices of the Paired Shares on the New York Stock Exchange during the ten consecutive Business Days immediately preceding such date. "Open Market Sale" means one or more sales of Stock Agreements Shares (including "short sales" initiated with the intention of delivering Stock Agreements Shares) made or proposed to be made by placing one or more sale orders or offers to sell with one or more securities brokers or dealers with a view toward the consummation of one or more sale transactions that are required to be, or that actually are, reported to the New York Stock Exchange or the National Association of Securities Dealers. "Orderly Market Disposition" means the sale of Stock Agreements Shares by placing one or more sell orders with one or more securities brokers or dealers with a view toward the disposition in the market of such Stock Agreements Shares. "Other Stock Agreements" shall mean, collectively, (i) that certain Stock Agreement, dated as of January 15, 1998, among Savanah Limited Partnership, as stock purchaser, and Starwood Lodging, (ii) that certain Stock Agreement, dated as of January 15, 1998, among N.Y. Overnight Partners, L.P., as stock purchaser, and Starwood Lodging and (iii) that certain Stock Agreement, dated as of January 15, 1998, among D.C. Overnight Partners, L.P., as stock purchaser, and Starwood Lodging. "Paired Shares" shall mean one share of beneficial interest, par value $.01 per share, of the Trust, and one share of common stock, par value $.01 per share, of the Corporation that are subject to the Pairing Agreement. For purposes of calculating the number of Paired Shares to be delivered hereunder, each pair of the shares of the stock of the Trust and the Corporation shall be considered one share. "Pairing Agreement" shall mean the Pairing Agreement dated as of June 25, 1980, as amended, between the Trust and the Corporation providing, in relevant part, for the pairing of all outstanding shares of the Corporation and the Trust. "Payment Rights" shall have the meaning set forth in Section 5 hereof. 4 "Person" shall have the meaning set forth in the Registration Rights Agreement. "Proposed Disposition Shares" shall have the meaning set forth in Section 3 hereof. "Put Price" and "Put Right" shall have the meaning set forth in Section 2.4 hereof. "Registered Shares" means Subject Shares the issuance of which to Stock Purchaser has been registered under the Securities Act. "Registration Rights Agreement" means the Registration Rights Agreement by and among Stock Purchaser, the Trust and the Corporation in the form of Attachment B hereto. "Registration Statement" shall have the meaning set forth in the Registration Rights Agreement. "Required Effectiveness Date" shall have the meaning set forth in the Registration Rights Agreement. "Response Date" shall have the meaning set forth in Section 3 hereof. "Restricted Group" shall mean two (2) or more Restricted Holders acting in concert or under common direction. "Restricted Holder" shall mean Stock Purchaser and any other Person who shall have acquired any Stock Agreements Shares in a Transfer not constituting an Open Market Sale. A Restricted Holder shall not include any Person who shall have acquired any Stock Agreements Shares in a Transfer not constituting an Open Market Sale if such Transfer occurs after the first Open Market Sale of such Stock Agreements Shares. "Sale Notice" shall have the meaning set forth in Section 3 hereof. "SEC" shall mean the United States Securities and Exchange Commission. "SEC Documents" means all documents required to have been filed by the Trust or the Corporation with the SEC since January 1, 1996 and through the date hereof. "Securities Act" shall mean the Securities Act of 1933, as amended. "Settlement Date" shall mean, if Starwood Lodging shall deliver Unregistered Shares pursuant to Section 2.1 hereof, the date on which Starwood Lodging or its counsel shall notify Stock Purchaser that (i) the Registration Statement has been declared effective by the SEC, (ii) that the Subject Shares have been registered, on the terms and subject to the provisions of the Registration Rights Agreement, for Transfer by the selling shareholders named therein in Open Market Sales and in such other manner as is provided in the Registration Statement, and (iii) that Starwood Lodging has completed all deliveries and other actions required to enable trading of the Subject Shares on the New York Stock Exchange; provided, however, that if such notice is given later than 1:00 PM Eastern Time, the Settlement Date shall be deemed for all purposes to occur on the Business Day following the date of such notice. "Starwood Lodging Disclosure" shall mean, collectively, the Form S-3 filed by the Corporation and the Trust with the SEC on November 12, 1997, and the Form S-4 filed by the Corporation and the Trust with the SEC on November 20, 1997, as the same has been or may hereafter be amended by any filing with the SEC made by the Trust or the Corporation. 5 "Stock Agreements Shares" shall mean the aggregate of the Subject Shares and the other Paired Shares delivered pursuant to the Other Stock Agreements. "Stock Purchaser Affiliates" shall have the meaning set forth in Section 6.1 hereof. "Subject Shares" means the 539,535 Paired Shares delivered by Starwood Lodging pursuant to Section 2.1 hereof. "Transfer" shall have the meaning set forth in the Registration Rights Agreement. "Transfer Agent" shall mean the transfer agent for the Paired Shares. "Unregistered Shares" means Subject Shares the issuance of which to Stock Purchaser has not been registered under the Securities Act. 1.2 Other Definitional Provisions. The terms "hereof," "hereto," "hereunder" and similar terms when used in this Agreement shall refer to this Agreement generally, rather than to the section in which such term is used, unless otherwise specifically provided. Unless the context otherwise requires, any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. SECTION 2 CALCULATION OF SUBJECT SHARES 2.1 Calculation of Subject Shares. Starwood Lodging shall deliver to Stock Purchaser on the Closing Date Paired Shares in an amount equal to the Equity Value divided by the Lock Price. Starwood Lodging shall have the option to deliver Registered Shares or Unregistered Shares on the Closing Date. 2.2 Delivery Requirements for Paired Shares. The Paired Shares to be delivered hereunder shall be properly endorsed and certificated Paired Shares in the amount required to be delivered in accordance with the provisions of this Agreement. If Registered Shares are delivered, such shares shall be unlegended and fully and freely transferable without any consent of, registration with or notice to any Person (except as provided for in Sections 3 and 4 hereof and in the Pairing Agreement). If Unregistered Shares are issued, each certificate evidencing Subject Shares shall be stamped or otherwise imprinted with a legend in substantially the following form (and no other restrictive legends): THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. THE SALE, PLEDGE OR OTHER TRANSFER OF THIS CERTIFICATE OR THE SHARES EVIDENCED HEREBY IS SUBJECT TO THE TERMS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF JANUARY 15, 1998 BETWEEN THE ISSUER AND THE HOLDER HEREOF. There shall be no legend on the Paired Shares reflecting the restrictions in Sections 3 or 4 6 hereof. 2.3 Other Deliveries. Concurrently with the delivery of the Paired Shares, Starwood Lodging shall deliver to Stock Purchaser any statements, such as a transfer or conveyance tax forms or returns required by applicable federal or New York law to be executed by Starwood Lodging, as may reasonably be requested by Stock Purchaser in order to effect the delivery of the Subject Shares to Stock Purchaser. 2.4 Registration Rights and Requirements. (a) If Starwood Lodging delivers Unregistered Shares pursuant to Section 2.1 hereof, Stock Purchaser and Starwood Lodging shall on the Closing Date execute and deliver to each other the Registration Rights Agreement and the parties thereto shall perform their respective obligations thereunder. If Starwood Lodging delivers Registered Shares pursuant to Section 2.1 hereof, the Registration Rights Agreement shall not be executed or delivered and none of the parties shall have any obligations thereunder. (b) If Starwood Lodging delivers Unregistered Shares pursuant to Section 2.1 hereof, and if the Settlement Date shall not have occurred on or before the seventh Business Day after the Required Effectiveness Date, Starwood Lodging shall pay to each Restricted Holder, on the Settlement Date, an amount equal to the "Interest Factor." For each Restricted Holder, the "Interest Factor" shall be an amount equal to the product of (i) LIBOR plus 2% per annum for each day after the seventh Business Day after the Required Effectiveness Date to and including the earlier of the Settlement Date or the date that is 60 days after the Required Effectiveness Date, multiplied by (ii) the Market Price multiplied by the number of Subject Shares held by such Restricted Holder on the date of such payment. (c) In the event that the Settlement Date shall not have occurred by the date that is 60 days after the Required Effectiveness Date, each Person who is a Restricted Holder as of such date shall have the non-transferrable right (its "Put Right"), exercisable at any one time for each such Restricted Holder after such 60th day and through the earlier to occur of (i) the Settlement Date, and (ii) the day immediately prior to the first anniversary of the Closing, to "put" some or all of the Subject Shares held by such Restricted Holder to Starwood Lodging for an amount per share equal to the Put Price; provided, however, that the Put Right shall not be exercisable by any Restricted Holder for a number of Subject Shares that is less than the lesser of (i) 100,000, or (ii) the number of Subject Shares then held by such Restricted Holder. Such right shall be exercised by such Restricted Holder giving Starwood Lodging notice of its election to exercise its Put Right and the number of Subject Shares to be purchased by Starwood Lodging, whereupon Starwood Lodging shall purchase such shares at 9:00 a.m. (Eastern Time) on the second Business Day following its receipt of such notice, with payment to be delivered (against delivery to Starwood Lodging of such shares free of all rights of other Persons) on the third Business Day thereafter in cash or immediately available funds to such account as such Restricted Holder may designate in such notice. The Put Price shall be the Market Price determined as of the date such notice is given. Starwood Lodging shall have the right to satisfy its obligations under the Put Rights by designating another Person as the purchaser of such shares, and such obligations shall be deemed satisfied upon such other Person's purchase of such shares for the Put Price and at the time and in the manner set forth herein. Such designation shall not affect Starwood Lodging's obligation to pay the Interest Factor as provided herein. (d) The Interest Factor and the right of each Restricted Holder to receive the Put Price in the event it elects to exercise its Put Right shall be each Restricted Holder's sole and exclusive monetary remedies arising from Starwood Lodging's failure to cause the 7 Settlement Date to occur on or before the seventh Business Day after the Required Effectiveness Date and shall be deemed liquidated damages in respect of such failure; and each Restricted Holder shall be deemed to have waived its other monetary remedies. However, from and after the seventh Business Day after the Required Effectiveness Date, each Holder shall at all times have such equitable remedies as may be available under applicable law. SECTION 3 NOTICE PROCEDURES REGARDING OPEN MARKET SALE OF STOCK AGREEMENTS SHARES 3.1 If, at any time any Restricted Holder or Restricted Group elects to Transfer, in an Open Market Sale, more than 100,000 Stock Agreements Shares on any single Business Day (300,000 Stock Agreements Shares from and after the first Business Day after the ITT Closing), prior to executing such Transfer the designated representative of such Restricted Holder or Restricted Group shall provide Starwood Lodging's representative, the Chief Financial Officer of the Trust (or any successor representative identified by a notice given hereunder), with telephonic notice at (602) 852-3900 along with a confirmation of such notice by telefacsimile to Starwood Lodging and Starwood Lodging's additional addressees as provided in Section 7.1 hereof. Such notice (the "Sale Notice") shall indicate the number of Stock Agreements Shares which such Restricted Holder or Restricted Group has determined to Transfer in an Open Market Sale (the "Proposed Disposition Shares") on such day or days and shall comply with Section 3.5 hereof (if applicable). Such notice shall be deemed given on the Business Day the telephonic notice described above is given so long as such notice is given by 5:00 P.M., Eastern time, on such day; if given after that time, it shall be deemed given on the next Business Day. In the event that, at any time while this Section 3.1 is in effect, the Corporation or the Trust effects any reclassification, stock split or stock dividend with respect to their stock, any change or conversion of stock into other securities, or any other dividend or distribution with respect to the Paired Shares, other than (i) dividends contemplated by the Starwood Lodging Disclosure as in effect on December 30, 1997, or (ii) dividends in the aggregate not to exceed the greater of (a) the current rate (as of December 30, 1997) of their dividends (together with any increases in such rate in the ordinary course) and (b) the Trust's "real estate investment taxable income" (as such term is defined for purposes of the Internal Revenue Code) without regard to any net capital gains or the deduction for dividends paid, appropriate and proportionate adjustments shall be made to the numbers of Stock Agreements Shares set forth in the first sentence of this Section 3.1. 3.2 No later than noon, Eastern time, on the second Business Day after the Sale Notice is given as described above, Starwood Lodging may provide the representative(s) of such Restricted Holder or Restricted Group with telephonic notice, along with a confirmation of such notice to such representatives by telefacsimile, that Starwood Lodging is irrevocably offering to purchase or place all of the Proposed Disposition Shares at a price per share equal to the average of the closing prices on the New York Stock Exchange on the first and second Business Days following the giving of the Sale Notice. Such notice shall be given as provided in Section 3.5 hereof. It shall be a condition to such notice and the consummation of such transaction that such transaction not constitute a violation of Regulation M promulgated by the SEC. If Starwood Lodging fails to make such an offer within such period, it shall have no further rights under this Section 3 with respect to any Orderly Market Disposition by such Restricted Holder or Restricted Group of Stock Agreements Shares up to the amount of the Proposed Disposition Shares that is commenced not later than the seventh Business Day after the Sale Notice is given. 3.3 If Starwood Lodging duly makes such an offer, such Restricted Holder or 8 Restricted Group shall elect by telephonic notice to Starwood Lodging's representative delivered and confirmed as described above, given by 8:30 a.m. (Eastern Time) on the Business Day following receipt of Starwood Lodging's offer (such day is referred to herein as the "Response Date"), in their sole and absolute discretion, to either (i) proceed with such proposed disposition, in which instance Starwood Lodging shall purchase or place the Proposed Disposition Shares at 9:00 a.m. (Eastern Time), on the Response Date, with payment to be delivered (against delivery to Starwood Lodging of the Proposed Disposition Shares free of all rights of other Persons) on the third Business Day after the Response Date in cash or immediately available funds to such account as such Restricted Holder may designate by notice to Starwood Lodging, or (ii) not to proceed with such proposed disposition, in which instance the Sale Notice shall be withdrawn and such Restricted Holder shall continue to hold the Proposed Disposition Shares subject to the terms of this Section 3 (to the extent applicable). If such Restricted Holder shall fail to so elect by 8:30 a.m. (Eastern Time) on the Response Date, it shall irrevocably be deemed to have elected not to proceed with such proposed disposition. 3.4 On the first anniversary of the Settlement Date, the provisions of this Section 3 shall automatically lapse and be of no further force or effect with respect to each Restricted Holder that holds less than 500,000 Stock Agreements Shares (except (i) to the extent that such Restricted Holder acts on or after such date as a member of a Restricted Group that holds in the aggregate 500,000 or more Stock Agreements Shares, and (ii) to the extent such Restricted Holder, either alone or as a member of a Restricted Group, has given or was required to have given Starwood Lodging a Sale Notice prior to such date and as to which the procedures in this Section 3 have not been fully performed). 3.5 Any notice given by Starwood Lodging pursuant to Section 3.2 hereof to Stock Purchaser shall be given telephonically to Mansor Dalaan at (310) 229-2929 and by telefacsimile to (310) 229-2927, or to such other telephone and telefacsimile numbers as may be set forth for such purpose in the Sale Notice. Any notice given by Starwood Lodging pursuant to Section 3.2 hereof to any other Restricted Holder or Restricted Group shall be given to the telephone and telefacsimile numbers as may be set forth for such purpose in the Sale Notice, and no Sale Notice from a Restricted Holder other than Stock Purchaser or from any Restricted Group shall be deemed properly given in accordance with Section 3.1 unless such numbers are set forth in such Sale Notice. 3.6 Time is of the essence in the performance by the parties of their obligations under this Section 3. SECTION 4 TRANSFERS NOT CONSTITUTING AN OPEN MARKET SALE; SHORT SALES 4.1 Each Restricted Holder covenants and agrees that, as a condition to any Transfer by a such Restricted Hol er of Subject Shares in a transaction that does not constitute an Open Market Sale, such Restricted Holder will obtain and deliver to Starwood Lodging a Joinder Agreement duly executed by the transferee or the intended transferee; and any purported Transfer of Subject Shares made in breach of this provision shall be null and void ab initio. 4.2 Each Restricted Holder covenants and agrees that, prior to the effectiveness of the Registration Statement, it will not "sell short" (as such term is commonly understood in the brokerage industry) any Paired Shares, whether "against the box" or otherwise. 9 SECTION 5 PAYMENT RIGHTS On the Settlement Date, Starwood Lodging shall pay to Stock Purchaser in cash or other immediately available funds an amount equal to the amount, if any, by which the Lock Price exceeds the Market Price as of the Settlement Date, multiplied by the number of Paired Shares delivered by Starwood Lodging to Stock Purchaser hereunder. Stock Purchaser's right to receive the payments from Starwood Lodging described in this section are referred to herein as the "Payment Rights." Pursuant to a written instrument a copy of which is delivered to Starwood Lodging promptly following its execution by Stock Purchaser, Stock Purchaser may distribute to its partners or their shareholders or assign to any other Person all or any portion of the Payment Rights either together with or separately from the Paired Shares delivered hereunder. SECTION 6 REPRESENTATIONS AND WARRANTIES 6.1 Stock Purchaser represents and warrants to Starwood Lodging as follows: (a) Stock Purchaser has the power and authority to enter into this Agreement and the Registration Rights Agreement and to perform its obligations hereunder and thereunder. The execution and delivery hereof and thereof and the performance by Stock Purchaser of its obligations hereunder and thereunder will not violate or constitute an event of default under any material term or material provision of any agreement, document, instrument, judgment, order or decree to which Stock Purchaser is a party or by which it is bound, or violate any law, rule or regulation the violation of which would have a material adverse effect upon the principal benefits intended to be provided under this Agreement or the Registration Rights Agreement. (b) The individuals executing this Agreement and the Registration Rights Agreement on behalf of Stock Purchaser have the legal power, right and actual authority to bind Stock Purchaser to the terms and conditions hereof and thereof. Each of this Agreement and the Registration Rights Agreement is a valid and binding obligation of Stock Purchaser, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. (c) Stock Purchaser is acquiring the Subject Shares to be issued to it for investment, solely for the account of itself, on behalf of its partners and Persons who are stockholders of such partners, or on behalf of certain Persons each of whom is both an Affiliate of a partner of Stock Purchaser and a creditor of Stock Purchaser (collectively, such partners and other Persons the "Stock Purchaser Affiliates"). Neither Stock Purchaser nor any of the Affiliates of Stock Purchaser is acquiring Subject Shares with a view to or for sale in connection with any distribution of such Subject Shares in violation of applicable securities laws. (d) Stock Purchaser and each of the Stock Purchaser Affiliates is an Accredited Investor. (e) Stock Purchaser has obtained and reviewed the Starwood Lodging Disclosure and the SEC Documents that have been filed with the SEC through the date hereof. 6.2 10 By its execution of its Joinder Agreement, each Restricted Holder other than Stock Purchaser shall be deemed to have represented and warranted to Starwood Lodging, as of the date of its delivery of such Joinder Agreement, as follows: (a) Such Restricted Holder has the power and authority to enter into this Agreement, the Registration Rights Agreement and its Joinder Agreement and to perform its obligations hereunder and thereunder. The execution and delivery hereof and thereof and the performance by such Restricted Holder of its obligations hereunder and thereunder will not violate or constitute an event of default under any material term or material provision of any agreement, document, instrument, judgment, order or decree to which such Restricted Holder is a party or by which it is bound, or violate any law, rule or regulation the violation of which would have a material adverse effect upon the principal benefits intended to be provided under this Agreement or the Registration Rights Agreement. (b) The individuals executing this Agreement, the Registration Rights Agreement and its Joinder Agreement on behalf of such Restricted Holder have the legal power, right and actual authority to bind such Restricted Holder to the terms and conditions hereof and thereof. Each of this Agreement, the Registration Rights Agreement and its Joinder Agreement is a valid and binding obligation of such Restricted Holder, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. (c) Such Restricted Holder is acquiring the Subject Shares Transferred or to be Transferred to it for investment, solely for the account of itself and not with a view to or for sale in connection with any distribution of such Subject Shares in violation of applicable securities laws; provided, however, that if such Restricted Holder is Stock Purchaser Affiliate, such Restricted Holder may acquire the Subject Shares on behalf of Persons who are stockholders of such Restricted Holder if each of such Persons is an Accredited Investor. (d) Such Restricted Holder is an Accredited Investor. (e) Such Restricted Holder has had the opportunity, prior to making the determination to acquire any Subject Shares, to obtain and review the Starwood Lodging Disclosure and the SEC Documents that have been filed with the SEC through the date of the execution of such Restricted Holder's Joinder Agreement. 6.3 The Trust hereby represents and warrants to Stock Purchaser as follows: (a) The Trust has the power and authority to enter into this Agreement and the Registration Rights Agreement and to consummate the transactions herein contemplated; neither the execution and delivery of this Agreement or the Registration Rights Agreement by the Trust, nor the performance by the Trust of the Trust's obligations hereunder or thereunder will violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which the Trust is a party or by which the Trust is bound, or violate any law, rule or regulation the violation of which would have a material adverse effect upon the principal benefits intended to be provided under this Agreement or the Registration Rights Agreement. (b) The individuals executing this Agreement and the Registration Rights Agreement and the documents referenced herein on behalf of the Trust have the legal power, right and actual authority to bind the Trust to the terms and conditions hereof. This Agreement 11 and the Registration Rights Agreement is a valid and binding obligation of Trust, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. (c) All Paired Shares to be delivered in accordance with Section 2.1 hereof will, when so issued, be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights and will be paired with each other in the same ratio as all other shares are paired with each other pursuant to the Pairing Agreement. (d) The Trust has filed all of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of applicable law, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements (including, in each case, any notes thereto) of the Trust included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as of their respective dates of filing, were prepared in accordance with generally accepted accounting principles (except, in the case of the unaudited statements, as permitted by Regulation S-X of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented the consolidated financial position of the Trust and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the SEC Documents or as required by generally accepted accounting principles, the Trust has not, since December 31, 1996, made any change in the accounting practices or policies applied in the preparation of their financial statements. (e) Except as disclosed in the SEC Documents or the Starwood Lodging Disclosure, since December 31, 1996 and through the date hereof, (i) there have not been any events, changes or developments that, individually or in the aggregate, have had or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole, or (ii) there has not been any split, combination or reclassification of any of the capital stock or units of the Trust or its operating partnership or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of, or in substitution for shares of such capital stock. (f) Except as set forth in the SEC Documents or the Starwood Lodging Disclosure or in a separate writing provided to Stock Purchaser on or before the date hereof, as of the date hereof: there are no outstanding orders, judgments, injunctions, awards or decrees of any governmental entity against or involving the Trust or any of its subsidiaries, or against or involving any of the directors, officers or employees of the Trust or any of its subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole; and there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the knowledge of the Trust, threatened against or involving the Trust or any of its subsidiaries or any of their directors, officers or employees, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material 12 adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole. As of the date hereof, there are no actions, suits or other litigation, legal or administrative proceedings or governmental investigations pending or, to the knowledge of the Trust, threatened against or affecting the Trust or any of its subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement and the Registration Rights Agreement. 6.4 The Corporation hereby represents and warrants to Stock Purchaser as follows: (a) The Corporation has the power and authority to enter into this Agreement and the Registration Rights Agreement and to consummate the transactions herein contemplated; neither the execution and delivery of this Agreement or the Registration Rights Agreement by the Corporation, nor the performance by the Corporation of the Corporation's obligations hereunder or thereunder will violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which the Corporation is a party or by which the Corporation is bound, or violate any law, rule or regulation the violation of which would have a material adverse effect upon the principal benefits intended to be provided under this Agreement or the Registration Rights Agreement. (b) The individuals executing this Agreement and the Registration Rights Agreement and the documents referenced herein on behalf of the Corporation have the legal power, right and actual authority to bind the Corporation to the terms and conditions hereof. This Agreement and the Registration Rights Agreement is a valid and binding obligation of Corporation, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. (c) All Paired Shares to be delivered in accordance with Section 2.1 hereof will, when so issued, be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights and will be paired with each other in the same ratio as all other shares are paired with each other pursuant to the Pairing Agreement. (d) The Corporation has filed all of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of applicable law, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements (including, in each case, any notes thereto) of the Corporation included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as of their respective dates of filing, were prepared in accordance with generally accepted accounting principles (except, in the case of the unaudited statements, as permitted by Regulation S-X of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented the consolidated financial position of the Corporation and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the SEC Documents or as required by generally accepted accounting principles, the Corporation has not, since December 31, 1996, made any change in the accounting practices or policies applied in the preparation of their financial statements. 13 (e) Except as disclosed in the SEC Documents or the Starwood Lodging Disclosure, since December 31, 1996 and through the date hereof, (i) there have not been any events, changes or developments that, individually or in the aggregate, have had or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole, or (ii) there has not been any split, combination or reclassification of any of the capital stock or units of the Corporation or its operating partnership or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of, or in substitution for shares of such capital stock. (f) Except as set forth in the SEC Documents or the Starwood Lodging Disclosure or in a separate writing provided to Stock Purchaser on or before the date hereof, as of the date hereof: there are no outstanding orders, judgments, injunctions, awards or decrees of any governmental entity against or involving the Corporation or any of its subsidiaries, or against or involving any of the directors, officers or employees of the Corporation or any of its subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole; and there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the knowledge of the Corporation, threatened against or involving the Corporation or any of its subsidiaries or any of their directors, officers or employees, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole. As of the date hereof, there are no actions, suits or other litigation, legal or administrative proceedings or governmental investigations pending or, to the knowledge of the Corporation, threatened against or affecting the Corporation or any of its subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement and the Registration Rights Agreement (other than those arising in connection with the Registration Statement or the performance by the Corporation of its obligations under the Registration Rights Agreement). SECTION 7 NOTICES 7.1 Addresses. Except for the notices given pursuant to Section 3, whenever any notice, demand or request is required or permitted hereunder, such notice, demand or request shall be made in writing and shall be (a) sent via a nationally recognized overnight courier service fully prepaid, (b) deposited in the United States by mail, registered or certified, return receipt requested, postage prepaid, or (c) sent via telefacsimile, provided that the original of such notice, demand or request shall also be sent via one of the methods described in (a) and (b) above, in each case to the addressees (and individuals) set forth below: As to Stock Purchaser: c/o Al Anwa USA, Inc. 1925 Century Park East, Suite 1900 Los Angeles, CA 90067 Attn: Tarek Ayoubi Telefacsimile: (310) 229-2939 14 With a copy to Stock Purchaser's additional addressees: Morrison & Foerster LLP 555 West Fifth Street, Suite 3500 Los Angeles, CA 90013-1024 Attn: Thomas R. Fileti, Esq. Telefacsimile: (213) 892-5454 Gordon K. Eng, Esq. 19191 South Vermont Avenue, Suite 420 Torrance, California 90502 Telefacsimile: (310) 207-1066 As to Starwood Lodging: Starwood Hotels & Resorts Trust 2231 E. Camelback Rd., Suite 410 Phoenix, AZ 85016 Attn: Ronald C. Brown or Chief Financial Officer Telefacsimile: (602) 852-0115 Starwood Hotels & Resorts Worldwide, Inc. 2231 E. Camelback Rd., Suite 400 Phoenix, AZ 85016 Attn: Alan M. Schnaid or Vice President Telefacsimile: (602) 852-0115 With a copy to Starwood Lodging's additional addressees: Greenberg Traurig Hoffman Lipoff Rosen & Quentel 153 East 53rd Street New York, NY 10022 Attn: Andrew E. Zobler, Esq. Telefacsimile: (212) 223-7161 Sidley & Austin 555 West Fifth Street, Suite 4000 Los Angeles, CA 90013 Attn: Sherwin L. Samuels, Esq. and Kenneth H. Levin, Esq. Telefacsimile: (213) 896-6600 If to any Restricted Holder other than Stock Purchaser: to the address and telefacsimile number set forth in such Restricted Holder's Joinder Agreement (or to any other address or telefacsimile number provided to Starwood Lodging in writing pursuant to a notice given by such Restricted Holder pursuant to this Section 7.1). 7.2 Receipt of Notices. Any notice, demand or request that shall be delivered to Starwood Lodging and its Additional Addressee in the manner aforesaid shall be deemed sufficiently given to and received by Starwood Lodging for all purposes hereunder, and any notice, demand or request that shall be delivered to Stock Purchaser and its Additional Addressee in the manner aforesaid shall be deemed sufficiently given to and received by Stock 15 Purchaser for all purposes hereunder (i) the next business day following the day such notice, demand or request is delivered by a nationally recognized overnight courier service fully prepaid, to such party and its Additional Addressee, (ii) if sent via registered or certified mail, at the time of receipt by such party and its Additional Addressee, or (iii) if sent via telefacsimile, as of the date and time stated upon confirmation reports generated by the sending party's telefacsimile machine confirming the delivery of such notice, demand or request to such party and its Additional Addressee. 7.3 Refusal of Delivery. The inability to deliver any notice, demand or request because the individual to whom it is properly addressed in accordance with this Section 7 refused delivery thereof or no longer can be located at that address shall constitute delivery thereof to such individual. 7.4 Change of Address. Each party shall have the right from time to time to designate by written notice to the other parties hereto such other Person or Persons and such other place or places as said party may desire written notices to be delivered or sent in accordance herewith. SECTION 8 GENERAL PROVISIONS 8.1 Amendment. No provision of this Agreement or of any documents or instrument entered into, given or made pursuant to this Agreement may be amended, changed, waived, discharged or terminated except by an instrument in writing, signed by the party against whom enforcement of the amendment, change, waiver, discharge or termination is sought. 8.2 Time of Essence. All times provided for in this Agreement for the performance of any act will be strictly construed, time being of the essence. 8.3 Entire Agreement. This Agreement and other documents delivered pursuant to this Agreement set forth the entire agreement and understanding of the parties in respect of the transactions contemplated by this Agreement, and supersede all prior agreements, arrangements and understandings relating to the subject matter hereof and thereof. No representation, promise, inducement or statement of intention with respect to the subject matter hereof has been made by Stock Purchaser or Starwood Lodging which is not embodied in this Agreement, and neither Starwood Lodging nor Stock Purchaser shall be bound by or liable for any alleged representations, promise, inducement or statement of intention not therein so set forth. 8.4 No Waiver. No failure of any party to exercise any power given such party hereunder or to insist upon strict compliance by the other party with its obligations hereunder shall constitute a waiver of any party's right to demand strict compliance with the terms of this Agreement. 8.5 Counterparts. This Agreement, any document or instrument entered into, given or made pursuant to this Agreement or authorized hereby, and any amendment or supplement thereto may be executed in two or more counterparts, and, when so executed, will have the same force and effect as though all signatures appeared on a single document. Any signature page of this Agreement or of such an amendment, supplement, document or instrument may be detached from any counterpart without impairing the legal effect of any signatures thereon, and may be attached to another counterpart identical in form thereto but having attached to it one or more additional signature pages. 16 8.6 Costs and Attorneys' Fees. If any legal action or any arbitration or other proceeding is brought for the enforcement of this Agreement or because of an alleged dispute, default, or misrepresentation in connection with any of the provisions of this Agreement the successful or prevailing party shall be entitled to recover reasonable attorneys' fees, charges and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled. 8.7 Payments; Interests. Except as otherwise provided herein, payment of all amounts required by the terms of this Agreement shall be made in the United States and in immediately available funds of the United States of America which, at the time of payment, is accepted for the payment of all public and private obligations and debts. If any payment due under this Agreement is not paid when due, it shall thereafter bear interest at a variable rate equal to the rate announced from time to time by Citibank, N.A. as its prime or reference rate, plus five percent (5%) per annum, but in no event more than the maximum rate, if any, allowed by law to be charged by the party receiving the interest on such type of indebtedness. 8.8 Parties in Interest. The rights and obligations of the parties hereto shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, heirs and the legal representatives of their respective estates. However, none of Stock Purchaser's rights under this Agreement shall be assignable except (i) in the case of the Payment Rights, as provided in Section 5 hereof, and (ii) in the case of all other rights of Stock Purchaser or another Restricted Holder, to a transferee of Subject Shares in a transaction not constituting an Open Market Sale if such transferee delivers a Joinder Agreement in compliance with Section 4 hereof. Nothing in this Agreement is intended to confer any right or remedy under this Agreement on any Person other than the parties to this Agreement and their respective successors and assigns, or to relieve or discharge the obligation or liability of any Person to any party to this Agreement or to give any Person any right of subrogation or action over or against any party to this Agreement. 8.9 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the conflict-of-law rules and principles of that state. 8.10 Incorporation of Recitals. The recitals of this Agreement are incorporated into and made a part of this Agreement. 8.11 Construction of Agreement. The language in all parts of this Agreement shall be in all cases construed simply according to its fair meaning and not strictly for or against any of the parties hereto. Headings at the beginning of sections of this Agreement are solely for the convenience of the parties and are not a part of this Agreement. When required by the context, whenever the singular number is used in this Agreement, the same shall include the plural, and the plural shall include the singular, the masculine gender shall include the feminine and neuter genders, and vice versa. As used in this Agreement, the term "Stock Purchaser" shall include the respective permitted successors and assigns of Stock Purchaser, and the term "Starwood Lodging" shall include the permitted successors and assigns of Starwood Lodging, if any. 8.12 Severability. If any term or provision of this Agreement is determined to be illegal, unconscionable or unenforceable, all of the other terms, provisions and sections hereof will nevertheless remain effective and be in force to the fullest extent permitted by law. 8.13 Further Assurances. Starwood Lodging and Stock Purchaser agree to execute upon the request of the other party such instruments and take such actions as may be reasonably necessary to carry out the provisions of this Agreement provided that no material 17 additional cost or liability shall incurred thereby by the party of whom such request is made. 8.14 Starwood Lodging Trust. The parties hereto understand and agree that the name "Starwood Lodging Trust" is a designation of the Trust and its trustees (as trustees but not personally) under the Trust's Declaration of Trust, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 18 IN WITNESS WHEREOF, Starwood Lodging and Stock Purchaser have caused this Agreement to be executed as of the day and year first above written. "Stock Purchaser" NEW REMINGTON PARTNERS, a Texas general partnership By: REMINGTON VENTURERS, INC., a Texas corporation, a General Partner By: /s/ Mansor Dalaan ----------------------------- Mansor Dalaan President By: REMINGTON VENTURERS II, INC., a Texas corporation, a General Partner By: /s/ Mansor Dalaan ----------------------------- Mansor Dalaan President "Starwood Lodging" STARWOOD HOTELS & RESORTS TRUST, a Maryland Real Estate Investment Trust By: /s/ Steven R. Goldman ------------------------------ Steven R. Goldman Senior Vice President STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland Corporation By: /s/ Nir E. Margalit ------------------------------ Nir E. Margalit Secretary 19 ATTACHMENT A to Stock Agreement AGREEMENT TO BE BOUND BY THE STOCK AGREEMENT (JOINDER AGREEMENT) The undersigned, being the transferee or the intended transferee of _____________ Paired Shares (the "Subject Shares") of Starwood Lodging Trust, a Maryland real estate investment trust, and Starwood Lodging Corporation, a Maryland corporation (together, the "Company"), as a condition to the transfer to and acquisition by the undersigned of such Subject Shares, acknowledges that certain sales or other transfers of such Subject Shares are governed by the Stock Agreement (the "Stock Agreement"), dated as of January 15, 1998 initially among the Company and New Remington Partners, a Texas general partnership, and the undersigned hereby (1) acknowledges receipt of a copy of the Stock Agreement, and (2) agrees to be bound as a "Restricted Holder" by the terms of the Stock Agreement, as the same has been or may be amended from time to time (including without limitation the representations and warranties of the undersigned set forth therein that will be deemed made by virtue hereof). The undersigned is hereby advised that the Subject Shares have not been registered under the Securities Act of 1933 and in such event cannot be resold unless they are registered under said act or unless an exemption from registration under said act is available. The following is the undersigned's representative and such representative's address, telephone number and fax number for all purposes under the Stock Agreement: _________________________________ _________________________________ _________________________________ Agreed to this ____ day of __________, ____. _________________________________ By: __________________________ Its: __________________________ 20 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of January 15, 1998 among STARWOOD HOTELS & RESORTS TRUST, a Maryland real estate investment trust (the "Trust"), STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Corporation" and, together with the Trust, the "Company"), and NEW REMINGTON PARTNERS, a Texas general partnership ("Shareholder"). RECITALS WHEREAS, pursuant to a Stock Agreement of even date herewith and by and among the parties hereto (the "Stock Agreement"), the Company is issuing and delivering to Shareholder certain Paired Shares; and WHEREAS, the Stock Agreement provides that if such Paired Shares are Unregistered Shares, the Company shall effect the registration of such Paired Shares under the Securities Act; and WHEREAS, the parties desire to set forth their rights and obligations with respect to such registration and certain other matters; NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. Each capitalized term used in this Agreement but not defined herein shall have the meaning ascribed to such term in the Stock Agreement; and as used in this Agreement the following terms shall have the following meanings: "Commission" means the Securities and Exchange Commission. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holder Information" means, with respect to a Selling Holder, (i) such information regarding such Selling Holder as is required by Section 507 of Regulation S-K promulgated by the Commission under the Securities Act, (ii) information as to whether (and if so, in what manner) the intended method of disposition of such Holder's Registrable Shares differs from the Plan of Distribution, and (iii) any such additional information as may be required to be included in the Registration Statement by a Selling Holder; in each case as shall be required to effect the registration of such Registrable Shares pursuant to the Registration Statement, the disclosures required in the Prospectus with respect thereto and the offer and Transfer of such Registrable Shares pursuant to the Prospectus. "Holders" means (i) Shareholder, and (ii) any other Person who acquires any of the Registrable Shares from Shareholder or another Holder if (a) the Transferor and such Person shall have delivered to the Company a written notice of such Transfer setting forth the name of such Person, and (b) such Person shall have executed and delivered to the Company a properly completed Joinder Agreement; in each case at such times as such Persons shall own Registrable Shares. "ITT Closing" means the consummation of the acquisition of ITT Corporation by the Company. 21 "ITT Termination" means the issuance by the Company of a press release stating that the Company will not consummate the acquisition of ITT Corporation. "Joinder Agreement" means an agreement to be bound by this Agreement in the form of Annex A hereto. "Paired Shares" means (i) "paired shares" (as such term is defined in the Purchase and Sale Agreement), and (ii) shares of capital stock of the Trust or the Corporation issued by the Trust or the Corporation in respect of or in exchange for paired shares in connection with any stock dividend or distribution, stock split-up, recapitalization, recombination or exchange by the Trust or the Corporation generally of such paired shares. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or other entity, or government or other agency or political subdivision thereof. "Proposed Plan of Distribution" means a draft of the portion of the Registration Statement that describes the intended methods of disposition of the Registrable Shares by the Selling Holders. "Prospectus" means, with respect to the Registration Statement and each amendment thereto, the form of prospectus included therein. "Registrable Shares" means, as of any date of determination, (i) the Paired Shares that are Unregistered Shares and that constitute the Subject Shares; (ii) any shares or other securities issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange by the Trust or the Corporation generally for, or in replacement by the Trust or the Corporation generally of, such Paired Shares; and (iii) any securities issued in exchange for such Paired Shares in any merger or reorganization of the Company; in each case that continue to be owned by a Holder on such date of determination. "Registration Statement" means a registration statement on Form S-3, as amended from time to time, registering the offer and sale by the Selling Holders of such Selling Holders' Registrable Shares included therein for offer and Transfer on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. "Required Effectiveness Date" means the later of (i) the 30th day after the Closing Date, or (ii) the earliest of: (a) The 30th day after the date of the ITT Closing; (b) The 30th day after the date of the ITT Termination; and (c) If neither the ITT Closing nor the ITT Termination has occurred prior to April 1, 1998, the 30th day after a demand for registration is made by notice given by Shareholder to the Company on or after April 1, 1998; provided, however, that in the event that, following the initial filing of the Registration Statement, the Company is advised by the Commission that the Registration Statement will be reviewed, each of the time periods set forth above shall be extended for 20 days. "Securities Act" shall mean the Securities Act of 1933, as amended. 22 "Selling Holders" means (a) each Holder (i) who complies with Sections 3.1.1 hereof, (ii) who holds not less than 100,000 Subject Shares at the both at the time such notice is given and the date the Registration Statement is declared effective (or such lesser number as the Company, in its sole and absolute discretion, shall determine for such Holder), and (iii) whose Registrable Shares are included in the Registration Statement; and (b) each Transferee of such a Holder who (x) provides such Transferee's Holder Information promptly after its acquisition of Subject Shares and prior to the Company's request for acceleration of the Registration Statement, and (y) satisfies the conditions set forth in clauses (ii) and (iii) above. "Transfer" means the act of selling, giving, transferring, creating a trust (voting or otherwise), assigning or otherwise disposing of (other than pledging, hypothecating or otherwise transferring as security) (and correlative words shall have correlative meanings). "Transferee" means a Person to whom Registerable Shares are Transferred. "Violation" shall have the meaning set forth in Section 5.1 hereof. 2. Registration Obligations of the Company. The Company shall: 2.1 File the Registration Statement with the Commission not later than 15 days prior to the Required Effectiveness Date (determined without reference to the proviso included in the definition of such term) and thereafter use its best efforts to cause the Registration Statement to be declared effective on the Required Effectiveness Date. 2.2 Furnish to the Shareholder a copy of the Registration Statement for its review and comment not later than concurrently with the filing of the Registration Statement with the Commission. 2.3 The Company shall give notice to the Shareholder of the expected effectiveness of the Registration Statement no later than the date acceleration of such effectiveness is requested of the Commission; provided, however, that in no event shall the Company have any liability for any failure to give such notice. 2.4 Include in the Registration Statement the number of each Holder's Registrable Shares for each Holder as shall be specified for such Holder pursuant to Section 3.1 hereof. 2.5 Use its best efforts to keep the Registration Statement effective until the earlier of (i) one year after the Closing Date, or (ii) such date as of which all the Selling Holders have completed the distribution or other disposition of the Registrable Shares registered under the Registration Statement. If the Registration Statement is terminated pursuant to clause (i) above, the Company shall timely file with the Commission all reports and other information required to enable all holders of Registrable Shares to Transfer such shares pursuant to Rule 144 promulgated by the Commission under the Exchange Act, as amended. 2.6 During the effectiveness of the Registration Statement, upon notice to the Company by a Selling Holder of a Transfer of Registrable Shares pursuant to the Registration 23 Statement and receipt (i) by the Company of a certificate from such Selling Holder in the form of Annex B attached hereto, and (ii) by counsel for the Company of a certificate from such Selling Holder in the form of Annex C attached hereto, in each case representing that such Registrable Shares were offered and have been Transferred by such Selling Holder in a manner consistent with the description set under the caption "Plan of Distribution" in the Prospectus, the Company shall use its best efforts to cause such Registrable Shares to be reissued as soon as practicable (and not later than three Business Days following receipt by the Company and such counsel of such certificates) in the name of the transferee free of any restrictive legend under the Securities Act and to take all such actions as may be reasonably required to cause its transfer agent to comply with the undertakings set forth in this section. 2.7 Use its best efforts to amend the Registration Statement or supplement the Prospectus so that they will remain current and in compliance with the requirements of the Securities Act for the period specified in Section 2.4 hereof, and use its best efforts to give the Selling Holders notice of the happening of any event or development as a result of which the Registration Statement or Prospectus may contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein not misleading. In the event that any Registrable Shares included in the Registration Statement remain unsold at the end of the period during which the Company is obligated to use its best efforts to maintain the effectiveness of the Registration Statement, the Company may file a post-effective amendment to the Registration Statement for the purpose of de-registering such unsold Registrable Shares. 2.8 Furnish to each Selling Holder, without charge, such numbers of copies of the Registration Statement, any pre-effective or post-effective amendment thereto, the final Prospectus, and any amendments or supplements thereto, in each case in conformity with the requirements of the Securities Act, and such other related documents, as each Selling Holder may reasonably request in order to facilitate the Transfer of the Registrable Shares owned by such Selling Holder. 2.9 Use its best efforts to register and qualify the Registrable Shares covered by the Registration Statement under such securities laws of such states or jurisdictions as shall be reasonably requested by the Selling Holders; provided, however, that neither the Trust nor the Corporation shall be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 2.10 Promptly notify each Selling Holder of any stop order issued or threatened to be issued by the Commission or any of the jurisdictions referred to in Section 2.9 hereof in connection with the Registration Statement (and use its best efforts to prevent the entry of such stop order or to remove it if entered as promptly as practicable). 2.11 Use its best efforts to cause the Registrable Shares covered by the Registration Statement, if the Paired Shares are then listed on a securities exchange or included for quotation in a recognized trading market, to continue to be so listed or included. 3. The Holders' Obligations. 3.1 The obligations of the Company under Section 2 with respect to each Holder are subject to the satisfaction of each of the following conditions: 3.1.1 Not later than 10 days after the later of (i) the date hereof, or (ii) the date on which the Company delivers the Proposed Plan of Distribution to the Shareholder 24 (or such later date as the Company, in its sole and absolute discretion, shall determine), such Holder shall furnish all of its Holder Information to the Company, if such Holder Information discloses that such Holder holds not less than 100,000 Subject Shares (or such lesser number as the Company, in its sole and absolute discretion, shall determine for such Holder). 3.1.2 Prior to the effectiveness of the Registration Statement, such Holder shall furnish to the Company by a notice such amendments and supplements to its Holder Information provided pursuant to Section 3.1.1 hereof as may be necessary in order to assure that the Holder Information included in the Registration Statement for each Selling Holder does not include a misstatement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 3.1.3 Such Holder shall cooperate with the Company in the preparation of the Registration Statement in the manner and to the extent reasonably requested by the Company, including accurately and fully completing, executing and delivering to the Company such documents as the Company may reasonably request in order to permit the Company to obtain the Holder Information or to otherwise comply with all applicable laws or to obtain acceleration of the effectiveness of the Registration Statement. 3.1.4 Such Holder shall not have breached any of its obligations to the Company set forth in this Section 3.1 or in Sections 3 or 4 of the Stock Agreement; provided, however, that if such breach is one that is capable of being cured and is actually cured by such Holder in all material respects, the obligations of the Company to such Holder that arises, or which the Company is obligated to perform in whole or in part, after such cure shall be reinstated on the terms and subject to the conditions set forth herein. A Transferee of Subject Shares who is otherwise entitled to have such shares included in the Registration Statement shall be deemed not have breached its obligation to provide its Holder Information to the Company if it provides such information promptly after its acquisition of such shares and prior to the Company's request for acceleration of the Registration Statement 3.1.5 Such Holder shall not have made any material misrepresentation pursuant to Section 6 of the Stock Agreement. 3.2 No action taken or omitted to be taken by or on behalf of any Holder shall adversely affect the rights of any other Holder hereunder. 3.3 After the effectiveness of the Registration Statement, each Selling Holder (and each transferee thereof) shall furnish to the Company by a notice such amendments and supplements to its Holder Information provided pursuant to Section 3.1 hereof as may be necessary in order to assure that the Holder Information included in the Registration Statement for such Holder does not include a misstatement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 4. Expenses of Registration. The Company shall pay all expenses incurred in connection with the registration, filing and qualification of the Registrable Shares, including all registration, filing and NASD or securities exchange fees; all fees and expenses of complying with securities or blue sky laws; all word processing, duplicating and printing expenses; and the fees and disbursements of counsel and accountants for the Company; but excluding all discounts, commissions or fees of selling brokers or similar securities industry professionals and all fees and expenses of counsel and accountants for the Selling Holders. 25 5. Indemnification; Contribution. 5.1 To the extent permitted by applicable law, the Company shall indemnify and hold harmless each Selling Holder; each Person, if any, who controls such Selling Holder within the meaning of the Securities Act; and each officer, director, partner and employee of such Selling Holder and such controlling Person; against any and all losses, claims, damages, liabilities and expenses incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may become subject under the Securities Act, to the extent such losses, claims, damages, liabilities and expenses arise out of or are based upon any of the following (collectively a "Violation"): 5.1.1 Any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including any final Prospectus, or any amendments or supplements thereto; 5.1.2 The omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or 5.1.3 Any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any applicable state securities law; provided, however, that the indemnification required by this Section 5.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or expense incurred by a Selling Holder (or any Person, if any, who controls such Selling Holder within the meaning of the Securities Act, or any officer, director, partner and employee of such Selling Holder and such controlling Person) to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with the Holder Information or other information furnished to the Company by or on behalf of such Selling Holder expressly for use in connection with the Registration Statement. 5.2 To the extent permitted by applicable law, each Selling Holder shall indemnify and hold harmless the Company; each of its directors, each of its officers who shall have signed the Registration Statement; each Person, if any, who controls the Company within the meaning of the Securities Act; any other Selling Holder, any controlling Person of any such other Selling Holder and each officer, director, partner, and employee of such other Selling Holder and such controlling Person; against any and all losses, claims, damages, liabilities and expenses, incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may otherwise become subject under the Securities Act, to the extent such losses, claims, damages, liabilities and expenses arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with the Holder Information or other information furnished to the Company by or on behalf of that Selling Holder expressly for use in connection with the Registration Statement. 5.3 Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action, suit, proceeding, investigation or threat thereof made in writing for which such indemnified party may make a claim under this Section 5, such indemnified party shall deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so 26 desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties. The failure of an Indemnified Party to deliver written notice to the indemnifying party within a reasonable time following the commencement of any such action shall not relieve such indemnifying party of any liability to the indemnified party under this Section 5 unless such failure is prejudicial to such indemnifying party's ability to defend such action. Any fees and expenses incurred by the indemnified party (including any fees and expenses incurred in connection with investigating or preparing to defend such action or proceeding) shall be paid to the indemnified party, as incurred, within 30 days of written notice thereof to the indemnifying party (regardless of whether it is ultimately determined that an indemnified party is not entitled to indemnification hereunder). Any such indemnified party shall have the right to employ separate counsel in any such action, claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be the expenses of such indemnified party unless (i) the indemnifying party has agreed to pay such fees and expenses, or (ii) the indemnifying party shall have failed to promptly assume the defense of such action, claim or proceeding, or (iii) the named parties to any such action, claim or proceeding (including any impleaded parties) include both such indemnified party and the indemnifying party, and such indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or in addition to those available to the indemnifying party and that the assertion of such defenses would create a conflict of interest such that counsel employed by the indemnifying party could not faithfully represent the indemnified party (in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action, claim or proceeding on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action, claim or proceeding or separate but substantially similar or related actions, claims or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all such indemnified parties, unless in the reasonable judgment of such indemnified party a conflict of interest would exist between such indemnified party and any other of such indemnified parties with respect to such action, claim or proceeding, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels). No indemnifying party shall be liable to an indemnified party for any settlement of any action, proceeding or claim without the written consent of the indemnifying party, which consent shall not be unreasonably withheld or delayed. 5.4 If the indemnification required by this Section 5 from the indemnifying party is determined by a court of competent jurisdiction to be unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to in this Section 5: 5.4.1 The indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any Violation has been committed by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such Violation. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 5.1 and 5.2, any legal or other fees or expenses reasonably incurred by such party 27 in connection with any investigation or proceeding. 5.4.2 The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5.4 were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in Section 5.4.1. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of a fraudulent misrepresentation. 5.5 If indemnification is available under this Section 5, the indemnifying parties shall indemnify each indemnified party to the full extent provided in this Section 5 without regard to the relative fault of such indemnifying party or indemnified party or any other equitable consideration referred to in Section 5.4. 5.6 The obligations of the Company and the Selling Holders under this Section 5 shall survive the completion of any offering of Registrable Shares pursuant to the Registration Statement and any termination of this Agreement. 6. Amendment, Modification and Waivers; Further Assurances. 6.1 This Agreement may be amended with the consent of the Company and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it; in each case only if the Company shall have obtained the written consent of Holders holding more than 50% of the Registrable Shares. Such amendment, action or omission shall not require the consent of any other Holder. In addition, the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, that affects the rights hereunder of a specific Holder with the written consent of such Holder. 6.2 No waiver of any terms or conditions of this Agreement shall operate as a waiver of any other breach of such terms and conditions or any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof. No written waiver hereunder, unless it by its own terms explicitly provides to the contrary, shall be construed to effect a continuing waiver of the provisions being waived and no such waiver in any instance shall constitute a waiver in any other instance or for any other purpose or impair the right of the party against whom such waiver is claimed in all other instances or for all other purposes to require full compliance with such provision. 6.3 Each of the parties hereto shall execute all such further instruments and documents and take all such further action as any other party hereto may reasonably require in order to effectuate the terms and purposes of this Agreement. 7. Miscellaneous. 7.1 Business Day. Whenever this Agreement requires that an action be taken or a notice be given on a date that would otherwise not be a Business Day, the time period for taking such action or giving such notice shall be extended to the first day thereafter that is a Business Day. 7.2 Governing Law. This agreement shall be governed by and construed in accordance with the laws of the state of New York, without giving regard to the conflict of laws principles thereof. 7.3 Notices. All notices, requests, demands, consents, approvals, designations 28 and other deliveries and communications called for or contemplated by this Agreement shall be in writing and shall be given (i) in the case of Shareholder or the Company, to the address and in the manner set forth in Section 7 of the Stock Agreement, and (ii) in the case of any Holder other than Shareholder, in the manner set forth in Section 7 of the Stock Agreement and to the address provided to the Company in such Holder's Joinder Agreement. 7.4 Entire Agreement; Integration. This Agreement, together with the Stock Agreement, supersedes all prior agreements between or among any of the parties hereto with respect to the subject matter contained herein and therein, and such agreements embody the entire understanding among the parties relating to such subject matter. 7.5 Section Headings. Section headings are for convenience of reference only and shall not affect the meaning of any provision of this Agreement. 7.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which shall together constitute one and the same instrument. All signatures need not be on the same counterpart. 7.7 Severability. If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not affect the validity and enforceability of the remaining provisions of this Agreement, unless the result thereof would be unreasonable, in which case the parties hereto shall negotiate in good faith as to appropriate amendments hereto. 7.8 Termination. This Agreement may be terminated at any time by a written instrument signed by the parties hereto. Unless sooner terminated in accordance with the preceding sentence, this Agreement (other than Section 5 hereof) shall terminate in its entirety on such date as there shall be no Registrable Shares. 7.9 Attorneys' Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees (including any fees incurred in any appeal) in addition to its costs and expenses and any other available remedy. 7.10 No Third Party Beneficiaries or Assignees. Nothing herein expressed or implied is intended to confer upon any person, other than the parties hereto or the Holders (to the extent expressly provided herein) any rights, remedies, obligations or liabilities under or by reason of this Agreement. Neither this Agreement not the rights or obligations hereunder may be assigned or otherwise transferred by any Holder except as permitted herein with respect to a Transfer of Registrable Shares. 7.11 Starwood Lodging Trust. The parties hereto understand and agree that the name "Starwood Lodging Trust" is a designation of the Trust and its trustees (as trustees but not personally) under the Trust's Declaration of Trust, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 29 IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date first written above. "Shareholder" NEW REMINGTON PARTNERS, a Texas general partnership By: REMINGTON VENTURERS, INC., a Texas corporation, a General Partner By: /s/ Mansor Dalaan -------------------- Mansor Dalaan President By: REMINGTON VENTURERS II, INC., a Texas corporation, a General Partner By: /s/ Mansor Dalaan -------------------- Mansor Dalaan President STARWOOD HOTELS & RESORTS TRUST a Maryland real estate investment trust By: /s/ Steven R. Goldman ------------------------------ Steven R. Goldman Senior Vice President STARWOOD HOTELS & RESORTS WORLDWIDE, INC. a Maryland corporation By: /s/ Nir E. Margalit ---------------------------- Nir E. Margalit Secretary 30 ANNEX A to Registration Rights Agreement AGREEMENT TO BE BOUND BY THE REGISTRATION RIGHTS AGREEMENT The undersigned, being the transferee or the intended transferee of _________ Paired Shares (the "Registrable Shares") of Starwood Hotels & Resorts Trust, a Maryland real estate investment trust, and Starwood Lodging Corporation, a Maryland corporation (together, the "Company"), as a condition to the transfer to and acquisition by the undersigned of such Registrable Shares, acknowledges that matters pertaining to the sale and registration of such Registrable Shares are governed by the Registration Rights Agreement (the "Registration Rights Agreement"), dated as of January 15, 1998, initially among the Company and New Remington Partners, a Texas general partnership, and the undersigned hereby (1) acknowledges receipt of a copy of such agreement, and (2) agrees to be bound as a "Holder" by the terms of the Registration Rights Agreement, as the same has been or may be amended from time to time. Agreed to this ____ day of __________, ____. ___________________________________ By: __________________________ Its: __________________________ Address, telephone number and telecopy number for notices: _________________________________ _________________________________ _________________________________ _________________________________ 31 ANNEX B to Registration Rights Agreement [Letterhead of Selling Holder] ____________, 199__ BY TELECOPIER Starwood Hotels & Resorts Trust 2231 E. Camelback Road, Suite 410 Phoenix, Arizona 85016 Attention: Ronald C. Brown or Chief Financial Officer Starwood Hotels & Resorts Worldwide, Inc. 2231 E. Camelback Road, Suite 400 Phoenix, Arizona 85016 Attention: Alan M. Schnaid or Vice President Re: Starwood Hotels & Resorts Ladies and Gentlemen: Reference is made to the prospectus (the "Prospectus") included in the Registration Statement on Form S-3 (Registration No. ___________) filed by Starwood Hotels & Resorts Trust (the "Trust") and Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation" and, together with the Trust, the "Company") with the Securities and Exchange Commission on _________, 1998, under the Securities Act of 1933, as amended (the "Securities Act"), relating to the registration for resale by the shareholders named therein of certain shares of beneficial interest, par value $.01 per share, of the Trust, and shares of common stock, par value $.01 per share, of the Corporation (the "Paired Shares"), including _______ Paired Shares held by the undersigned. ___________ of the Paired Shares held by the undersigned were offered for sale and have been sold by the undersigned in a manner consistent with the description set under the caption "Plan of Distribution" in the Prospectus. Thus, the undersigned requests that new certificates evidencing such Paired Shares be issued in the name of _________________________, the transferee, free of any restrictive legend under the Securities Act. Very truly yours, [Name and signature of Selling Holder] 32 ANNEX C to Registration Rights Agreement [Letterhead of Selling Holder] ____________, 199__ BY TELECOPIER Sidley & Austin 555 West Fifth Street Los Angeles, California 90013 Attention: Sherwin L. Samuels, Esq., Kenneth H. Levin, Esq. and James V. Robertson, Esq. Re: Starwood Hotels & Resorts Ladies and Gentlemen: Reference is made to the prospectus (the "Prospectus") included in the Registration Statement on Form S-3 (Registration No. ___________) filed by Starwood Hotels & Resorts Trust (the "Trust") and Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation" and, together with the Trust, the "Company") with the Securities and Exchange Commission on _________, 1998, under the Securities Act of 1933, as amended (the "Securities Act"), relating to the registration for resale by the shareholders named therein of certain shares of beneficial interest, par value $.01 per share, of the Trust, and shares of common stock, par value $.01 per share, of the Corporation (the "Paired Shares"), including _______ Paired Shares held by the undersigned. The undersigned understands that you have been requested by the Company to deliver an opinion to the Company's transfer agent that, upon the sale by the undersigned of the Paired Shares, certificates evidencing such shares may be issued to the transferee(s) without any restrictive legend under the Securities Act. For the purpose of facilitating the delivery by you of such opinion, the undersigned, hereby represents that _______ of the Paired Shares held by the undersigned were offered for sale and have been sold in a manner consistent with the description set under the caption "Plan of Distribution" in the Prospectus. The undersigned understands that you will be relying on the foregoing representations in rendering your opinion, and the undersigned consents to such reliance. Very truly yours, [Name and signature of Selling Holder] EX-10.55 32 EX-10.55 1 Exhibit 10.55 ASPEN EXECUTION PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS By And Between SAVANAH LIMITED PARTNERSHIP, a District of Columbia Limited Partnership, As Seller And STARWOOD LODGING TRUST, a Maryland Real Estate Investment Trust And STARWOOD LODGING CORPORATION, a Maryland Corporation, As Buyer. Dated As Of: December 30, 1997 Relating to the Aspen Luxury Collection Hotel Aspen, Colorado 2 PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS THIS PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this "Agreement") is entered into as of the 30th day of December, 1997, by and between SAVANAH LIMITED PARTNERSHIP, a District of Columbia limited partnership ("Seller"), and STARWOOD LODGING TRUST, a Maryland Real Estate Investment Trust (the "Trust"), and STARWOOD LODGING CORPORATION, a Maryland corporation (the "Corporation"; the Trust and the Corporation being referred to herein collectively as, "Buyer"). A. Seller owns that certain parcel of land described in EXHIBIT A attached hereto and made a part hereof, which is improved with a hotel building and certain related improvements, all as more particularly set forth in this Agreement. B. Seller desires to sell, and Buyer desires to purchase, the above described land and hotel together with the related improvements upon the terms and subject to the conditions set forth in this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the foregoing and the mutual promises and agreements contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby mutually acknowledged, Buyer and Seller agree as follows: SECTION 1 DEFINITIONS 1.1 Defined Terms "Accounts Receivable" shall mean, collectively, all Cash Equivalent Receivables, all Invoiced Receivables and all Other Accounts Receivable. "Affiliate" shall have the meaning set forth in Rule 12b-2 of the regulations promulgated under the Exchange Act. "Anthem" shall have the meaning set forth in SECTION 14.3.1(ii). "Approved Service Contracts" shall mean the Service Contracts identified on SCHEDULE 1.1.1 annexed hereto and made a part hereof and any other Service Contracts cancelable upon thirty (30) or fewer days notice without penalty, which Service Contracts Buyer shall assume as of the Closing pursuant to the General Assignment and Assumption Agreement. "Aspen Subdivision" shall mean the land subject to that certain First Amended Plat of Aspen Mountain Subdivision and Planned Unit Development Agreement between the City of Aspen, Colorado and John M. Roberts, Jr., recorded October 3, 1988, in Book 574 at Page 792 of the Real Property records of Pitkin County, Colorado. "Assignment and Assumption of Management Agreement" shall have the meaning set forth in SECTION 4.2.1.4. "Assignment and Assumption of Tenant Leases" shall have the meaning set forth in SECTION 4.2.1.2. "Bill of Sale" shall have the meaning set forth in SECTION 4.2.1.5. "Business Day" shall mean any day other than Saturday or Sunday on which the New York Stock Exchange is open for business. "Booking" shall mean a contract or reservation for the use of guest rooms, banquet facilities, meeting rooms, and/or conference facilities at the Hotel. 3 "Buyer's Counsel" shall mean the law firm of Greenberg Traurig Hoffman Lipoff Rosen & Quentel acting through Andrew E. Zobler, Esq. "Buyer Default" shall have the meaning set forth in SECTION 3.5.1. "Cash Equivalent Receivables" shall mean all Guest Ledger Receivables which are in the form of drafts or checks written on any bank or other financial institution, certified checks, money orders, amounts owed to Seller from credit card, debit card, travel and entertainment card or traveler's check companies, and are in such other forms which are considered to be cash equivalents under generally acceptable accounting principles, whether or not such Guest Ledger Receivables have been presented or billed to any such bank, financial institution or other company as of the Closing Date. "Cash Purchase Price" shall mean (a) Nine Million Dollars ($9,000,000.00) plus (b) the Overage Cash Payment, if any, as adjusted pursuant to SECTION 3.2.2. "Closing" or "Close of Escrow" shall have the meaning set forth in SECTION 4.7.2. "Closing Agent" shall have the meaning set forth in SECTION 4.8.10. "Closing Date" shall mean the day on which the Closing occurs hereunder. "Closing Payment" shall have the meaning set forth in SECTION 3.2.2. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. "Collective Bargaining Agreements" shall have the meaning set forth in SECTION 14.2. "Conveyance Documents" shall mean the Deed, the Assignment and Assumption of Management Agreement, the Assignment and Assumption of Tenant Leases, the Bill of Sale and the General Assignment and Assumption Agreement. "Deed" shall have the meaning set forth in SECTION 4.2.1.1. "Deposit" shall mean an amount equal to $10,000,000.00 held in accordance with the provisions of SECTION 3 hereof together with all interest accrued thereon. "Employer Corporation" shall mean Luxury Holdings, Inc. (formerly known as TQM Inc.). "Employment Agreements" shall mean the Collective Bargaining Agreements and Employee Benefit Plans (as defined in Section 3(3) of ERISA), affecting Hotel Employees, including pension, profit sharing, employee benefit and similar plans, if any, and agreements with regard to any Hotel Employee each of which are identified on or expressly described in the materials identified on SCHEDULE 1.1.2 annexed hereto and made a part hereof. "Environmental Condition" shall mean any condition with respect to soil, surface waters, groundwater, land, stream sediments, surface or subsurface strata, ambient air and any environmental medium comprising or surrounding the Real Property, which results in any damage, loss, cost, expense, claim, demand, order or liability to or against Seller or Buyer by any third party (including, without limitation, any government entity) as a result of a violation of any applicable Environmental Laws. "Environmental Laws" shall mean all presently applicable statutes, regulations, rules, ordinances, codes, licenses, permits and orders of any and all governmental agencies, departments, commissions, boards, bureaus or instrumentalities of the United States, states and political subdivisions thereof, and all applicable judicial and administrative and regulatory decrees, judgments and orders relating to the protection of the environment, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 3 4 1980, as amended, 42 U.S.C. 9061 et seq.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C. 1801, et seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251, et seq.; and analogous state laws and regulations. "Equipment Leases" shall mean all leases of equipment, vehicles, furniture or other personal property leased by, or on behalf of, Seller and located at, or used in the operation of the Real Property, together with any and all amendments thereto, which are identified on SCHEDULE 1.1.3 annexed hereto. "Equity Purchase Price" shall mean the number of Paired Shares with a value as determined pursuant to the Stock Agreement equal to $152,637,000.00 to be delivered in accordance with the applicable provisions of the Stock Agreement. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder. "Escrow" shall mean an escrow opened with the Escrow Holder for the purchase and sale of the Property in accordance with the provisions of this Agreement. "Escrow Holder" shall mean the Title Company unless otherwise agreed in writing by Buyer and Seller. "Escrow Instructions" shall have the meaning set forth in SECTION 4.1. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Excluded Property" shall mean all Seller's right, title and interest in and to: (a) those claims of Seller attributable to the period prior to the Closing Date and described on SCHEDULE 1.1.4 annexed hereto and made a part hereof, or which Seller is entitled to assert under the express provisions of SECTION 5; (b) all insurance proceeds under Seller's Insurance and workers' compensation policies, including return premiums and dividends thereon and all claims thereunder in each case to the extent attributable to acts or occurrences prior to the Closing Date; (c) all accounts owned or maintained by Seller, or Manager on Seller's behalf, in connection with the Hotel, including all operating and reserve accounts; (d) any books, records, files or papers specifically described in SECTION 6.3.2 as excluded from the Property Information; and (e) up to five (5) of the items of art work selected by Seller subject to Buyer's reasonable approval, provided, however, Seller shall replace each such item of art work prior to the Closing Date with a similar item of art work subject to Buyer's reasonable agreement that such art work is consistent with the quality, character and decor of the Hotel. "Excluded Parties" shall have the meaning set forth in SECTION 17.18 "Execution Date" shall mean the date hereof. "General Assignment and Assumption Agreement" shall have the meaning set forth in SECTION 4.2.1.3. "Guest Ledger Receivables" shall mean amounts, including, without limitation, room charges, accrued to the accounts of guests occupying rooms at the Hotel or group, conference or banquet customers of Seller at the Hotel. "Hart-Scott-Rodino Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and regulations promulgated thereunder, as the same has been amended from time to time. "Hotel" shall mean the hotel located on the Land and commonly known as the Aspen Luxury Collection Hotel. "Hotel Employees" shall mean all full-time, part-time or temporary employees of 4 5 Seller and/or the Employer Corporation (but not employees of Manager or any of its affiliates) who are employed by Seller and/or the Employer Corporation exclusively at or in connection with the Hotel as of the Closing Date and who are listed on SCHEDULE 1.1.6 annexed hereto and made a part hereof. "Improvements" shall mean Seller's right, title and interest in and to the hotel building and other improvements now or hereafter located on the Land. "Insured Casualty Notice" shall have the meaning set forth in SECTION 12.1.1. "Intangible Property" shall mean all of Seller's right, title and interest in and to the following, in each case excluding any Excluded Property: (i) Licenses and Permits; (ii) trademark rights, and other intangible property, rights, titles, interests, privileges and appurtenances related to or used in connection with the Hotel or its operations; (iii) warranties and guaranties of architects, engineers, contractors, subcontractors, suppliers or materialmen involved in the repair, construction, maintenance, design, reconstruction or operation of the Hotel, or any equipment or systems constituting a part of the Hotel; (iv) Approved Service Contracts; (v) Equipment Leases; (vi) Bookings; and (vii) computer programs, software and documentation thereof (subject to the limitations of any applicable license agreements pertaining thereto), and including all electronic data processing systems, program specifications, source codes, logs, input data and report layouts and forms, record file layouts, diagrams, functional specifications and variable descriptions, flow charts and other related materials used in connection therewith; and (viii) any goodwill associated with the operation of the Hotel. "Interim Management Agreement" shall have the meaning set forth in SECTION 17.20 hereto. "Invoiced Receivables" shall mean all Guest Ledger Receivables other than Cash Equivalent Receivables whether or not such Guest Ledger Receivables have been invoiced by Seller as of the Closing Date. "Land" shall mean Seller's right, title and interest in and to the land described on EXHIBIT A annexed hereto and made a part hereof. "Licenses and Permits" shall mean all licenses, permits, registrations, certificates, authorizations and governmental approvals other than the Liquor License obtained in connection with the design, construction, rehabilitation, use and/or operation of the Hotel. "LIBOR Rate" shall mean the average of interbank offered rates for three-month dollar deposits in the London market based on quotations at five (5) major banks, as published from time to time in The Wall Street Journal. If The Wall Street Journal ceases to publish such a compilation of interbank offered rates, or if The Wall Street Journal ceases to be published, then Buyer shall propose a substitute method of determining the interest rate generally known as the three-month LIBOR rate, which method, absent manifest error, shall be binding on Seller and Buyer. "Liquor License" shall mean all licenses, permits, registrations, certificates, authorizations and governmental approvals with respect to service of alcoholic beverages at the Hotel. "Liquor License Management Agreement" shall have the meaning set forth in SECTION 4.2.1.8. "Lock Price" shall have the meaning set forth in the Stock Agreement. "Losses" shall mean any and all losses, liabilities, obligations, damages, claim or expense, including without limitation, reasonable attorneys' and accountants' fees and 5 6 disbursements related thereto. "Manager" means Sheraton Operating Corporation, a wholly-owned subsidiary of ITT Sheraton Corporation. "Management Agreement" shall mean that certain Management Agreement entered into as of August 13, 1997 between Seller and Manager. "Market Price" shall have the meaning set forth in the Stock Agreement. "Material" shall mean $5,000 for any single occurrence and $15,000 in the aggregate for any group of occurrences whether or not related. "Material Casualty" shall mean a casualty or casualties that, in the aggregate: (i) causes in excess of $10,000,000.00 worth of damage to the Hotel; or (ii) will take twelve (12) months or longer from the date of the casualty to fully remediate. "Material Taking" shall mean an exercise by an applicable governmental authority of the power of condemnation or eminent domain that results in: (a) the taking of more than twenty percent (20%) of the Real Property; (b) a material reduction or restriction in access to the Property; or (c) the inability to operate the Hotel in substantially the same manner (without material additional expense) as it was operated prior to such taking. "Memorandum of Contract" shall mean a memorandum of this Agreement in the form attached as EXHIBIT B hereto. "Monetary Lien" shall mean any monetary lien affecting the Real Property of an ascertainable amount, other than any lien for taxes or assessments which are not yet due and payable. "Non-Foreign Person Certificate" shall have the meaning set forth in SECTION 4.2.1.13. "Other Accounts Receivable" shall mean any and all rents, additional rent, deposits, and other sums and charges owing to Seller that are in any way attributable to the operation of the business at the Hotel, including, without limitation, all rents and/or license fees due from Tenants under Tenant Leases, and including any such amounts which are past due, but excluding Guest Ledger Receivables. "Overage Cash Payment" shall mean the portion of the Equity Purchase Price which is payable in cash at Closing as provided in SECTION 3.2.2.1, if any. "Ownership Limitation" shall mean the limitations contained in the declaration of trust for the Trust and the Corporation's articles of incorporation prohibiting actual or constructive ownership by any one person or group of related persons of more than 8% of the issued and outstanding Paired Shares taking into account the attribution rules of Section 544(a) of the Code as modified by Section 856(h) of the Code or Section 318(a) of the Code as modified by Section 856(d)(5) of the Code. "Paired Shares" shall mean one share of beneficial interest, par value $.01 per share of the Trust, and one share of common stock, par value $.01 per share, of the Corporation that are subject to the Pairing Agreement, which shares shall be transferable as provided in the Stock Agreement and the Pairing Agreement. "Pairing Agreement" shall mean the Pairing Agreement dated as of June 25, 1980, as amended, between the Trust and the Corporation providing, in relevant part, for the pairing of all outstanding beneficial interests of the Trust and shares of the Corporation. "PCL Litigation" shall have the meaning set forth in SECTION 5.10. "Permitted Encumbrances" shall have the meaning set forth in SECTION 7.3. 6 7 "Person" shall mean any natural person, partnership, corporation, association, limited liability company, trust or any other legal entity. "Personal Property" shall mean collectively the Tangible Personal Property and the Intangible Property. "Preliminary Title Report" shall have the meaning set forth in SECTION 7.1. "Property" shall mean collectively the Real Property, the Personal Property, the Tenant Leases, and the Accounts Receivable, but shall exclude the Excluded Property. "Property Information" shall have the meaning set forth in SECTION 6.4.2. "Proration Time" shall mean 12:01 a.m. Mountain Time on the Closing Date. "PUD Cooperation Agreement" shall have the meaning set forth in SECTION 4.2.1.10. "Purchase Price" shall mean the sum of the Cash Purchase Price and the Equity Purchase Price. "Real Property" shall mean the Land and the Improvements, together with Seller's right, title and interest in and to all rights of way, easements, water or littoral rights, rights to any minerals, oil, gas and other hydrocarbon substances, or any portion thereof, relating to the Land, and Seller's right, title and interest in and to all streets, alleys, strips and gores abutting the Land, if any. "Records and Plans" shall mean, all financial records showing the income and expenses of the Hotel for the prior three (3) calendar years and for the current year to date, certificates of occupancy, records of the Hotel's operations (including utility bills), building plans, specifications and drawings, lists of Personal Property, surveys, tax bills for the Real Property for the last three (3) years and for the current year to date, copies of the Service Contracts, Licenses and Permits and other documents related to the use, maintenance, repair, management, construction and/or operation of the Hotel, in each case, to the extent located on-site at the Hotel, or to Seller's Knowledge, otherwise under the control of Seller. "Related Agreement" shall have the meaning set forth in SECTION 9.1.3. "Schedule of Advance Bookings" means the Schedule of Advance Bookings delivered pursuant to SECTION 4.2.1.19. "Schedule of Tenant Leases" means the Schedule of Tenant Leases set forth in SCHEDULE 1.1.7 annexed hereto and made a part hereof. "Scheduled Closing Date" shall mean January 15, 1998, as such date may be extended in accordance with the provisions of SECTION 7.1 - time being of the essence. "SEC" shall mean the United States Securities and Exchange Commission. "SEC Documents" shall have the meaning set forth in SECTION 6.1.4. "Securities Act" shall mean the Securities Act of 1933, as amended. "Seller Default" shall have the meaning set forth in SECTION 11.1. "Seller's Closing Certificate" shall have the meaning set forth in SECTION 4.2.1.18. "Seller's Counsel" shall mean Morrison & Foerster LLP acting through Thomas R. Fileti, Esq. "Seller's Due Diligence" shall mean the information gathering and review process described on SCHEDULE 1.1.8. "Seller's Insurance" shall have the meaning set forth in SECTION 6.3.12. "Seller's Knowledge" shall mean with respect to any representation or warranty 7 8 so qualified, the knowledge of the person(s) identified on SCHEDULE 1.1.8 annexed hereto and made a part hereof, on the date on or as of which such representation or warranty is made, following the completion by such person(s) of Seller's Due Diligence, but without any other duty to investigate or inquire and without attribution to any such identified person(s) of facts and matters otherwise within the personal knowledge of any other officers, employees, or agents of Seller or any third parties (including, but not limited to, the Manager or any previous manager of the Hotel), but not within the actual current knowledge of such named person(s). It is understood that none of the individuals identified on SCHEDULE 1.1.8 shall have any personal liability for any of Seller's representations, warranties and other obligations under this Agreement. "Service Contracts" shall mean any and all service contracts, landscaping contracts, maintenance agreements, open purchase orders and other contracts for the provision of services, materials or supplies to or for the benefit of the Property, except for the Management Agreement, together with any and all amendments thereto. "Specific Disclosure Matters" shall mean certain disclosures and information provided or disclosed by Seller to Buyer described on SCHEDULE 1.1.9 annexed hereto and made a part hereof. "Starwood Disclosure" shall mean collectively, the Form S-3 filed by the Corporation and the Trust with the SEC on November 12, 1997, and the Form S-4 filed by the Corporation and the Trust with the SEC on November 20, 1997, as the same may be amended by any filing with the SEC made by the Trust or the Corporation as amended to date and from time to time thereafter. "Starwood Operating Partnership" shall mean SLC Operating Limited Partnership, a Delaware limited partnership. "Starwood Realty Partnership" shall mean SLT Realty Limited Partnership, a Delaware limited partnership. "State" shall mean the state in which the Hotel is located. "Stock Agreement" shall have the meaning set forth in SECTION 4.2.1.6. "Survey" shall mean an as-built ALTA survey of the Real Property certified to the Title Company meeting all State land survey requirements. "Tangible Personal Property" shall mean, in each case to the extent owned by Seller and excluding any and all of the Excluded Property: (i) all Records and Plans; (ii) all "Inventories", as such term is defined in the Uniform System of Accounts; (iii) all depreciable personal property; and (iv) all other tools, vehicles, supplies, artwork, furniture, furnishings, machinery, equipment, licensed software and personal computer based security systems, if any, specialized hotel equipment and other tangible personal property, used in connection with the ownership, operation or maintenance of the Property, including, without limitation, all china, glassware, silverware, linens, towels, curtains, uniforms, engineering, maintenance, and housekeeping supplies, draperies, materials and carpeting, used or intended for use, but not for sale, in connection with the operation of the Hotel, all equipment used in the operation of the kitchen, dining rooms, lounges, bars, laundry, dry cleaners, lobby, reservation desk and all merchandise, food and beverages held for sale in connection with the operation of the Hotel, which are on hand on the Closing Date; provided, however, that to the extent that any applicable law prohibits the transfer of alcoholic beverages from Seller to Buyer, such beverages shall not be considered a part of the Tangible Personal Property. 8 9 "Tenant" shall mean a tenant, licensee or concessionaire occupying space at any portion of the Property pursuant to a Tenant Lease. "Tenant Lease" shall mean a lease, concession agreement or license agreement entered into by or on behalf of Seller with a third party for the use of any part of the Real Property, including those leases, concession agreements and license agreements shown on the Schedule of Tenant Leases, together with any amendments thereto but excluding Bookings. "Tenant Security Deposits" shall mean all security deposits or other security of Tenants under the Tenant Leases, plus accrued interest, if any, payable thereon. "Termination Charges" shall have the meaning set forth in SECTION 14.1. "Termination Notice" shall have the meaning set forth in SECTION 3.5.1. "Threshold Amount" shall mean One Million Dollars ($1,000,000). "Title Company" shall mean Chicago Title Insurance Company. "Title Policy" shall have the meaning set forth in SECTION 7.2. "Transfer Restriction Period" shall have the meaning set forth in SECTION 17.18. "Uninsured Casualty Notice" shall have the meaning set forth in SECTION 12.2.1. "Uninsured Estimate to Repair" shall have the meaning set forth in SECTION 12.2.1. "Uniform System of Accounts" shall mean the Uniform System of Accounts for Hotels, prepared by The Hotel Association of New York City, Inc., in effect as of the date hereof. "Utility Deposits" shall mean Seller's right, title and interest in and to all deposits delivered by Seller to utilities, governmental agencies, suppliers or others pursuant to an Approved Service Contract or otherwise in connection with the Real Property. "Value Letter" shall have the meaning set forth in SECTION 4.3.1.4. "WARN Act" shall mean the Workers Adjustment and Retraining Notification Act and the Regulations promulgated thereunder, as the same has been amended. 1.2 Other Definitional Provisions. The terms "hereof," "hereto," "hereunder" and similar terms when used in this Agreement shall refer to this Agreement generally, rather than to the section in which such term is used, unless otherwise specifically provided. Unless the context otherwise requires, any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. SECTION 2 PURCHASE AND SALE OF PROPERTY On the terms and subject to the conditions of this Agreement, Seller agrees to sell the Property to Buyer, and Buyer agrees to purchase the Property from Seller all as hereinafter provided. Notwithstanding any other provision of this Agreement, there shall be excluded from the Property being conveyed hereunder the Excluded Property. SECTION 3 PURCHASE PRICE; PAYMENT; BUYER'S DEFAULT; LIQUIDATED DAMAGES 3.1 Purchase Price. The purchase price for the Property shall be the Purchase Price. 3.2 Payment. The Purchase Price shall be paid as follows: 3.2.1 Upon the execution hereof, Buyer shall deliver to Escrow Holder, in cash or other immediately available funds, the Deposit, to be held by Escrow Holder strictly in 9 10 accordance with the provisions of this Agreement. If the Close of Escrow shall occur, Seller shall be entitled to receive the Deposit as a credit against the Purchase Price. 3.2.2 At least one (1) day prior to the Scheduled Closing Date (unless extended pursuant to SECTION 7.1), Buyer shall deliver to Escrow Holder an amount (the "Closing Payment") payable in the form specified in SECTIONS 3.2.2.1 and 3.2.2.2 below, equal to the Purchase Price less the amount of the Deposit. The Closing Payment shall be paid as follows: 3.2.2.1 The Equity Purchase Price shall be delivered in Paired Shares without adjustment for the pro-rations hereunder, which shares shall be delivered in accordance with and subject to and transferable in accordance with the provisions of the Stock Agreement and the Pairing Agreement. If any portion of the Equity Purchase Price cannot be paid in Paired Shares on account of the Ownership Limitation, a cash payment in an amount equal to the product of (a) the number of Paired Shares which are not delivered hereunder or under the Stock Agreement because of the Ownership Limitation and (b) the Lock Price (the "Overage Cash Payment") shall be paid in cash or other immediately available funds. 3.2.2.2 The balance of the Closing Payment shall be paid in cash or other immediately available funds adjusted for the pro-rations provided for expressly in this Agreement. 3.3 Investment of Escrowed Funds. Escrow Holder shall invest and reinvest any funds deposited by Buyer in the Escrow only in bonds, notes, Treasury bills or other securities having maturities of thirty (30) days or less and constituting direct obligations of, or fully guaranteed by, the United States of America (and provided, further, that such direct obligations or guarantees, as the case may be, are entitled to the full faith and credit of the United States of America) or such other investments as Buyer may direct and Seller may approve, until Escrow Holder is required to deliver or use such funds or any interest earned thereon in accordance with the provisions of this Agreement. All interest accruing on the Deposit shall be paid to the party ultimately entitled to the Deposit. All risk of loss on funds held in Escrow shall be borne by Buyer or Escrow Holder. 3.4 Allocation of Purchase Price. The Purchase Price shall be allocated among the assets and property that comprise the Property as proposed by Seller prior to Closing subject to the reasonable approval of Buyer, and such allocation shall be used by Seller and Buyer in connection with the preparation of their respective income tax, sales tax, transfer tax, and any other applicable tax returns. Seller and Buyer shall not, nor shall they permit their respective Affiliates to, take a federal or state income tax position with any taxing or other public authorities in any jurisdiction which is materially inconsistent with the allocation so agreed upon by the parties. 3.5 Default by Buyer Prior to Closing; Liquidated Damages. 3.5.1 EXCEPT AS PROVIDED TO THE CONTRARY IN SECTION 7.1.1., IF BUYER BREACHES ITS OBLIGATION TO PURCHASE THE PROPERTY UNDER THIS AGREEMENT AND FAILS TO CURE SUCH BREACH ON OR BEFORE THE SCHEDULED CLOSING DATE (A "BUYER DEFAULT"), THEN UPON WRITTEN NOTICE OF TERMINATION (A "TERMINATION NOTICE") FROM SELLER TO BUYER AND ESCROW HOLDER, THE ESCROW AND THIS AGREEMENT SHALL TERMINATE AND ESCROW HOLDER SHALL DISBURSE FROM THE ESCROW THE DEPOSIT TO SELLER AS LIQUIDATED DAMAGES, WHICH SHALL BE SELLER'S SOLE REMEDY AT LAW OR IN EQUITY FOR THE BUYER DEFAULT, AND THEREAFTER NEITHER 10 11 PURCHASER NOR SELLER SHALL HAVE ANY FURTHER LIABILITY HEREUNDER, EXCEPT THAT BUYER SHALL REMAIN OBLIGATED FOR PERFORMANCE OF ITS OBLIGATIONS UNDER SECTIONS 8, 10, 17.14, 17.19 AND ANY OTHER PROVISION HEREOF WHICH BY ITS EXPRESS TERMS SURVIVES THE TERMINATION OF THIS AGREEMENT. NOTHING CONTAINED HEREIN SHALL LIMIT SELLER'S RIGHT TO OBTAIN SPECIFIC PERFORMANCE OF BUYER'S OBLIGATION TO CLOSE PURSUANT TO SECTION 7.1.1. 3.5.2 THE PARTIES ACKNOWLEDGE AND AGREE BY INITIALING THIS SECTION 3.5.2 THAT IF A BUYER DEFAULT OCCURS ON OR PRIOR TO THE SCHEDULED CLOSING DATE AND IF, AS A RESULT OF SUCH BUYER DEFAULT, CLOSE OF ESCROW FAILS TO OCCUR, SELLER WILL INCUR CERTAIN COSTS AND OTHER DAMAGES IN AN AMOUNT THAT WOULD BE EXTREMELY DIFFICULT OR IMPRACTICAL TO ASCERTAIN; AND THE DEPOSIT BEARS A REASONABLE RELATIONSHIP TO THE DAMAGES WHICH THE PARTIES ESTIMATE MAY BE SUFFERED BY SELLER BY REASON OF SUCH FAILURE OF THE CLOSE OF ESCROW TO OCCUR AND THAT SELLER'S RETENTION OF THE DEPOSIT IS FAIR AND REASONABLE COMPENSATION TO SELLER BY REASON OF SUCH FAILURE OF THE CLOSE OF ESCROW TO OCCUR. INITIALS: /s/ MD /s/ SRG /s/ MCM __________________________ _________________________ Seller Buyer SECTION 4 ESCROW; CLOSING; COSTS 4.1 Escrow. The purchase and sale of the Property shall be consummated through the Escrow. Immediately upon the execution of this Agreement, the parties shall deposit a copy of this Agreement with Escrow Holder. This Agreement, together with any general provisions agreed to in writing by Buyer and Seller for the benefit of Escrow Holder, shall constitute the escrow instructions for the transfer of the Property (the "Escrow Instructions"). In the event of any conflict between this Agreement and such general provisions, this Agreement shall control unless otherwise expressly agreed in writing by Buyer, Seller and Escrow Holder. If any requirements relating to the duties or obligations of Escrow Holder are not acceptable to Escrow Holder, or if Escrow Holder requires additional instructions, the parties shall make such deletions, substitutions and additions to the Escrow Instructions as Buyer's Counsel and Seller's Counsel shall mutually approve and which do not substantially alter this Agreement or its intent. Written instructions from Seller's Counsel, in the case of Seller, or from Buyer's Counsel, in the case of Buyer, shall be accepted by Escrow Holder and shall be binding upon the party whose counsel gave such instructions to Escrow Holder. 4.2 Seller's Deliveries to Escrow Holder. 4.2.1 Prior to the Scheduled Closing Date (subject to extension pursuant to SECTION 7.1), Seller shall deliver to Escrow Holder the following documents duly executed and, where applicable, acknowledged by Seller, each of which shall be undated and the delivery of each of which shall be a condition precedent to the obligation of Buyer to close hereunder. 4.2.1.1 Deed. A deed with respect to the Real Property in the form of EXHIBIT 4.2.1.1 annexed hereto and made a part hereof, sufficient to transfer all of Seller's right, title and interest in and to the Real Property, subject only to the matters of record as of the Closing Date, from Seller to Buyer (the "Deed"); 11 12 4.2.1.2 Assignment and Assumption of Tenant Leases. An Assignment and Assumption of Tenant Leases in the form of EXHIBIT 4.2.1.2 annexed hereto and made a part hereof pursuant to which Seller shall assign the Tenant Leases to Buyer and Buyer shall assume all of Seller's obligations thereunder (the "Assignment and Assumption of Tenant Leases"); 4.2.1.3 General Assignment. A General Assignment and Assumption Agreement in the form of EXHIBIT 4.2.1.3 annexed hereto and made a part thereof pursuant to which Seller shall assign to Buyer all of Seller's right, title and interest in and to all of the Intangible Property and Buyer shall assume all obligations thereunder (the "General Assignment and Assumption Agreement"); 4.2.1.4 Assignment and Assumption of Management Agreement. An Assignment and Assumption of Management Agreement in the form of EXHIBIT 4.2.1.4 annexed hereto and made a part hereof pursuant to which Seller shall assign to Buyer the Management Agreement and Buyer shall assume the obligations of Seller thereunder, provided, however, the obligation to deliver the Assignment and Assumption of Management Agreement shall be irrevocably waived, if prior to the Close of Escrow, the Management Agreement shall have been terminated and the Interim Management Agreement shall have become effective in accordance with SECTION 17.20; 4.2.1.5 Bill of Sale. One or more Bills of Sale in the form of EXHIBIT 4.2.1.5A AND B annexed hereto and made a part hereof conveying to Buyer or designees of Buyer all of Seller's right, title and interest in and to the Tangible Personal Property (the "Bill of Sale"); 4.2.1.6 Stock Agreement. The Stock Agreement in the form of EXHIBIT 4.2.1.6 annexed hereto and made a part hereof (the "Stock Agreement"); 4.2.1.7 Liquor License Management Agreement. The Liquor License Management Agreement in the form of EXHIBIT 4.2.1.7 annexed hereto and made a part hereof (the "Liquor License Management Agreement"). 4.2.1.8 [Intentionally Omitted] 4.2.1.9 [Intentionally Omitted] 4.2.1.10 PUD Cooperation Agreement. A PUD Cooperation Agreement in the form of EXHIBIT 4.2.1.10 annexed hereto and made a part hereof pursuant to which Buyer and Seller shall further allocate the respective rights and obligations of the owners of Lot 1, 3, 5 and 6, including without limitation the obligation to maintain the Ice Rink on Lot 6 in the Aspen Subdivision (the "PUD Cooperation Agreement"); 4.2.1.11 [Intentionally Omitted] 4.2.1.12 [Intentionally Omitted] 4.2.1.13 Non-Foreign Person Certificate. A Non-Foreign Person Certificate in the form of EXHIBIT 4.2.1.13 annexed hereto and made a part hereof (the "Non-Foreign Person Certificate"); 4.2.1.14 Transfer Tax Forms. Any statements, such as a transfer or conveyance tax forms or returns required by applicable state or local law to be executed by Seller in order to effect the Closing; 4.2.1.15 Certified Rent Roll. A copy of the rent roll for the Property dated as of the Closing Date and certified by Seller to be (a) a true, correct and complete copy of the rent roll for the Property provided to Seller by the Manager; and (b) to Seller's Knowledge, to be 12 13 true, correct and complete; 4.2.1.16 Certified Operating Statement. An operating statement for the Property dated as of a date no more than thirty (30) days prior to the Closing Date and certified by Seller to be (a) a true, correct and complete copy of the operating statement for the Property provided to Seller by Manager for the period of Manager's employment at the Property; and (b) to Seller's Knowledge, to be, true, correct and complete; 4.2.1.17 Guest Ledger. A copy of the guest ledger dated as of the Proration Time showing all Guest Ledger Receivables and certified by Seller (a) to be a true, correct and complete copy of the guest ledger provided to Seller by Manager; and (b) to Seller's Knowledge, to be true, correct and complete; 4.2.1.18 Closing Certificate. A certification by Seller to Seller's Knowledge that the representations and warranties set forth in SECTION 6.3 are true, correct and complete as of the Closing Date, except to the extent that any such representation or warranty is expressly made only as of the Execution Date subject to Seller's right to make revisions pursuant to SECTION 6.7 to such representations and warranties ("Seller's Closing Certificate"); 4.2.1.19 Schedule of Bookings. A schedule of all Bookings relating to periods after the Proration Time, certified by Seller (a) to be a true, correct and complete copy of the schedule of Bookings provided to Seller by Manager; and (b) to Seller's Knowledge, to be true, correct and complete; 4.2.1.20 Title Requirements. Any and all certificates, affidavits and other instruments and documents which the Title Company shall reasonably require to permit it to issue the Title Policy in the condition required herein; provided, however, that (a) Seller is given written notice by Title Company of the requirement of any such certificates, affidavits or other instruments and documents within a reasonably sufficient time in advance of the Scheduled Closing Date and (b) such incidental documents do not create any liability to Seller that is inconsistent with the liability retained by Seller under the terms of this Agreement; 4.2.1.21 Payoff Letters. A pay-off letter from the holder of any mortgage or deed of trust presently encumbering the Real Property indicating all sums required to satisfy the debt secured by and permit the discharge of record the lien of such mortgage or deed of trust; 4.2.1.22 Notices to Tenants. Notices to Tenants of the assignment to Buyer of the Tenant Leases in form and substance satisfactory to Seller and Buyer; 4.2.1.23 Opinion of Seller's Counsel. An opinion of Seller's Counsel in a form to be agreed upon by the parties; and 4.2.1.24 Other. Any other incidental documents, not otherwise expressly provided for herein, reasonably required by Escrow Holder to consummate the purchase and sale of the Property; provided, however, that (a) Seller is given written notice by Escrow Holder of the requirement of any such incidental documents within a reasonably sufficient time in advance of the Scheduled Closing Date (subject to extension in accordance with the provisions of SECTION 7.1); and (b) such incidental documents do not create any liability to Seller that is inconsistent with the liability retained by Seller under the terms of the this Agreement. 4.3 Buyer's Deliveries to Escrow Holder. 4.3.1 Prior to the Scheduled Closing Date (subject to extension in accordance with the provisions of SECTION 7.1), and subject further to the provisions of SECTION 4.3.1.4 in the case of the Value Letter, Buyer shall deliver to Escrow Holder the following items and 13 14 documents, which documents shall be duly executed and, where applicable, acknowledged by Buyer or its designee, as applicable, and undated, and the delivery of each of which shall be a condition precedent to the obligation of Seller to close hereunder: 4.3.1.1 The Cash Purchase Price. The Cash Purchase Price; 4.3.1.2 Stock Certificates. Paired Shares in the amount required to be delivered at the Closing in accordance with the provisions of this Agreement and in accordance with and subject to the provisions of the Stock Agreement; 4.3.1.3 Assignment and Assumption of Management Agreement. A counterpart of the Assignment and Assumption of Management Agreement, provided, however, the obligation to deliver the Assignment and Assumption of Management Agreement shall be irrevocably waived, if prior to the Close of Escrow, the Management Agreement shall have been terminated and the Interim Management Agreement shall have become effective in accordance with SECTION 17.20; 4.3.1.4 Value Letter. A letter (the "Value Letter") to be obtained by Buyer at Buyer's expense with respect to the reasonableness of the allocation of the purchase price among the transactions being entered into as of the date hereof between Buyer and Seller and/or Seller's Affiliates issued by Bear Stearns; 4.3.1.5 Opinion of Buyer's Counsel. An opinion of Buyer's counsel in a form to be agreed upon by the parties; 4.3.1.6 Stock Agreement. A counterpart of the Stock Agreement; 4.3.1.7 [Intentionally Omitted] 4.3.1.8 Liquor License Management Agreement. A counterpart of the Liquor License Management Agreement; 4.3.1.9 PUD Cooperation Agreement. A counterpart of the PUD Cooperation Agreement; 4.3.1.10 [Intentionally Omitted]. 4.3.1.11 [Intentionally Omitted] 4.3.1.12 Closing Certificate. A certification by Buyer that the representations and warranties set forth in SECTION 6.1 and SECTION 6.2 are true, correct and complete as of the Closing Date; 4.3.1.13 The Assignment and Assumption of Tenant Leases. A counterpart of the Assignment and Assumption of Tenant Leases; 4.3.1.14 The General Assignment and Assumption Agreement. A counterpart of the General Assignment and Assumption Agreement; 4.3.1.15 Transfer Tax Forms. Any statements, such as a transfer or conveyance tax forms or returns required by applicable state or local law to be executed by Buyer in order to effect the closing; and 4.3.1.16 Other. Any other incidental documents, not otherwise expressly provided for herein, required by Escrow Holder to consummate the purchase and sale of the Property; provided, however, that (a) Buyer is given written notice by Escrow Holder of the requirement of such incidental documents within a reasonably sufficient time in advance of the Scheduled Closing Date; and (b) Buyer shall not be required to incur any liability, in connection with the delivery of such incidental documents inconsistent with the provisions of this Agreement. 4.4 Seller's Deliveries to Buyer. At or prior to the Close of Escrow, Seller shall 14 15 deliver to Buyer or cause to be available to Buyer on-site at the Hotel, the following documents, to the extent the same have not already been delivered and to the extent in the possession or control of Seller: 4.4.1 Tenant Leases/Tenant Deposits. The original Tenant Leases (or if not available, the best available copies), and the originals of Tenant Security Deposits which are evidenced by letters of credit or escrow agreements, if any, and if necessary to enable Buyer to realize or draw upon same, consents of the applicable Tenants and/or financial institutions or replacement letters of credit or escrow agreements in favor of Buyer; 4.4.2 Service Contracts. The originals, or, if not available, the best available copies, of the Approved Service Contracts; 4.4.3 Licenses and Permits. The originals, or, if not available, the best available copies of the Licenses and Permits; and 4.4.4 Records and Plans. The originals, or, if not available, the best available copies of the Records and Plans. 4.5 Possession. Seller shall deliver the keys and possession of the Property to Buyer at the Close of Escrow free and clear of all leases, tenancies and occupancies, except for the Management Agreement, the Bookings, the rights of guests in guest rooms, banquet facilities, conference rooms and meeting rooms, the rights of Tenants under the Tenant Leases (including their assignees, subtenants or licensees), and the other Permitted Encumbrances. 4.6 Evidence of Authorization. At the Close of Escrow, each party shall deliver to the other party evidence in form and content reasonably satisfactory to the other party and the Title Company that (a) the party is duly organized and validly existing under the laws of the state of its organization and has the power and authority to enter into this Agreement, (b) this Agreement and all documents delivered pursuant hereto have been duly executed and delivered by the party, and (c) the performance by the party of its obligations under this Agreement have been duly authorized by all necessary corporate, partnership or other action. 4.7 Close of Escrow. 4.7.1 The Escrow shall close on or before the Scheduled Closing Date. 4.7.2 Provided that Escrow Holder has not received from either party written notice of the failure of any condition precedent specified in SECTION 9 to the obligations of such party (or any previous such notice has been withdrawn), then when the parties have each deposited into the Escrow the documents and funds required by this Agreement and the Title Company is unconditionally prepared to issue the Title Policy at the Close of Escrow, Escrow Holder shall perform the following actions (collectively, "Close of Escrow" or "Closing"): 4.7.2.1 Prepare a closing statement for the transaction for approval by Seller and Buyer prior to the Close of Escrow; 4.7.2.2 Insert the Closing Date as the date of any undated document to be delivered through Escrow; 4.7.2.3 Cause the Deed and the PUD Cooperation Agreement to be recorded in the land records of the state and county where the Real Property is located; 4.7.2.4 Deliver to Buyer the documents deposited into the Escrow for delivery to Buyer at the Close of Escrow; 4.7.2.5 Deliver to Seller (a) all funds and Paired Shares to be received by Seller from Buyer through the Escrow at the Close of Escrow less (i) all amounts to be paid by Seller for Escrow Holder's fees and expenses and (ii) all amounts paid by Escrow 15 16 Holder in satisfaction of liens and encumbrances on the Real Property or other matters pursuant to the written instruction of Seller, and (b) the documents deposited into the Escrow for delivery to Seller at the Close of Escrow; and 4.7.2.6 Cause the Title Policy to be issued by the Title Company and delivered to Buyer. 4.8 Costs of Escrow. Costs of the Escrow shall be allocated as follows: 4.8.1 Buyer and Seller shall each pay one-half (1/2) of the fees of Escrow Holder; 4.8.2 Buyer and Seller shall each pay one-half (1/2) of the cost of providing the Survey required to be delivered in accordance with the provisions of SECTION 7.1; provided, however, Buyer shall be responsible for the full cost of the Survey in the event the Closing does not occur hereunder other than on account of default of Seller; 4.8.3 Buyer and Seller shall each pay one-half (1/2) of all transfer taxes and recording fees payable in connection with the conveyance of each portion of the Real Property and/or the recording of the Deed and any other documents or instruments recorded pursuant to this Agreement; 4.8.4 Buyer and Seller shall each pay one-half (1/2) of all sales or other personal property taxes, levies, fees and charges payable as a result of the transfer of the Personal Property to Buyer and the consummation of the transactions contemplated hereby. Buyer shall be the reporting person for such purposes and shall prepare the necessary sales tax reports based upon the allocations set forth in SECTION 3.4. The parties acknowledge that additional sales tax may be assessed as a result of the transfer of the Personal Property to Buyer and the consummation of the transactions contemplated hereby after the Closing and that Buyer and Seller shall continue to each be responsible for one-half of any such additional taxes. The provisions of Section 4.8.3 and Section 4.8.4 shall survive the Closing; 4.8.5 Buyer and Seller shall each pay one-half (1/2) of the cost of obtaining the coverage under the Title Policy, except that the cost of any special endorsements shall be paid exclusively by Buyer; 4.8.6 At Closing or thereafter Buyer shall pay for the cost of the Value Letter; 4.8.7 [Intentionally Omitted] 4.8.8 If the Close of Escrow fails to occur other than as a result of a default hereunder by either party, including, without limitation, as a result of a failure of a condition precedent set forth in SECTION 9, the fees of the Escrow Holder and Title Company (including, without limitation, cancellation fees) shall be borne equally between Buyer and Seller; and 4.8.9 If the Close of Escrow fails to occur as a result of a default hereunder by either party, the fees of the Escrow Holder and Title Company (including, without limitation, cancellation fees) shall be borne by the defaulting party. 4.8.10 Pursuant to Section 6045 of the Internal Revenue and Taxation Code, the Title Company shall be designated the "Closing Agent" hereunder and shall be solely responsible for complying with the Tax Reform Act of 1986 with regard to the reporting of all settlement information to the Internal Revenue Service. 4.9 Other Costs. Except as set forth in SECTION 4.8.6, SECTION 11.1 and SECTION 15.1.6, each party shall pay all of its own legal, accounting and consulting fees and other costs and expenses incurred in connection with this Agreement. 4.10 Maintenance of Confidentiality by Escrow Holder. Escrow Holder shall maintain 16 17 in strict confidence and not disclose to anyone the existence of the Escrow, the identity of the parties thereto, the amount of the Purchase Price, the existence or provisions of this Agreement or any other information concerning the Escrow or the transactions contemplated hereby, without the prior written consent of Buyer and Seller. SECTION 5 PRORATIONS AND ASSUMPTION OF OBLIGATIONS 5.1 General. All income, receivables, expenses (whether payable or prepaid) and payables of the Property shall be apportioned equitably between the parties as of the Proration Time in accordance with the provisions of this SECTION 5 (all prorations are to be based upon the number of days in a 365 day year). The obligation to make apportionments under SECTIONS 5.1 AND 5.2 shall, unless otherwise expressly provided in this SECTION 5, survive the Close of Escrow for a period of sixty (60) days at which time such apportionment shall be final unless disputed during such period. 5.2 General and Specific Prorations. Without limitation, the following items shall be apportioned: 5.2.1 At the Closing, Buyer shall assume all of the accounts payable relating to goods and services ordered or obtained in the ordinary course of operation of the business of the Hotel (including without limitation, payments under the Service Contracts and Equipment Leases) prior to the Proration Time. Seller shall be obligated to credit Buyer at the Close of Escrow with an amount mutually agreed upon by Buyer and Seller at the Closing, reflecting the parties' good faith estimate of such accounts payable as of the Proration Time (which estimate shall deduct any discounts then available in the ordinary course of business for the prompt payment of such accounts payable), plus a further credit for any late fees then payable with respect to any identified accounts payable. Buyer shall be responsible for paying when due all accounts payable arising from the operation of the Property on or after the Proration Time, and Seller shall have no further liability for such payables or charges. As of the date which is sixty (60) days following the Closing Date, Buyer and Seller shall calculate the amount of all accounts payable relating to goods and services ordered or obtained in the ordinary course of operation of the business of the Hotel (including without limitation, payments under the Service Contracts and Equipment Leases) prior to the Proration Time. Seller shall reimburse Buyer for any payments made on account of any such accounts payable which were not reflected in the Parties' estimate of such amount credited to Buyer at Closing and which have been paid by Buyer or for which Buyer is obligated to pay in accordance with the provisions hereof, and if the amount of such credit exceeds the amounts so paid or for which Buyer is so obligated, Buyer shall pay such excess amount to Seller; 5.2.2 At the Closing, Seller shall assign to Buyer all of the Accounts Receivable, for which Seller shall receive a credit at the Close of Escrow in an amount equal to (a) the full, aggregate outstanding balance of the Cash Equivalent Receivables (without discount except for service charges due to charge card companies) plus (b) the full aggregate outstanding balance of the Invoiced Receivables and Other Accounts Receivable as of the Proration Time, provided, Buyer shall at its option accept or reject any Invoiced Receivables and Other Accounts Receivable over ninety (90) days and Seller shall not receive a credit for any Invoiced Receivables and Other Accounts Receivable over ninety (90) days rejected by Buyer; provided, that Buyer shall at its own expense use reasonable efforts to collect any such rejected Invoiced Receivables and Other Accounts Receivable on behalf of Seller for a period of sixty (60) days 17 18 after the Closing Date and thereafter Seller shall have the right to collect same for its own account; provided, further, as of the date which is sixty (60) days following the Closing Date, Buyer and Seller shall make any adjustments required to reflect the collectibility of any Invoiced Receivables and Other Accounts Receivable (it being agreed that (a) any accounts receivable not listed on the schedule of accounts receivable of the Property as of the date which is sixty (60) days following the Closing Date shall be deemed paid as of such date and (b) except as provided in (a), any accounts receivable which are more than ninety (90) days past due as of the date which is sixty (60) days following the Closing Date shall be deemed uncollectable as of such date) and Seller and Buyer shall make a corresponding payment to the other as required to accurately reflect the collectibility of such Invoiced Receivables and Other Accounts Receivable and any accounts receivable deemed uncollectable as of such date in accordance with the terms hereof shall be the property of Seller and Seller shall be permitted (at its expense and for its own account) to collect the same; 5.2.3 In prorating the Accounts Receivable, Buyer and Seller shall each receive credit for one-half (1/2) of all Guest Ledger Receivables attributable to the room night during which the Proration Time occurs. Seller shall receive the income from all restaurant and bar facilities located at the Property through the Proration Time and Buyer shall receive such income thereafter; 5.2.4 At the Closing, Seller shall deliver to Buyer all of the merchandise owned by Seller and held for retail sale at the Hotel, for which Seller shall receive a credit at the Close of Escrow in an amount equal to Seller's cost for such merchandise; 5.2.5 All sales, use and occupancy taxes arising from the operation of the Property shall be prorated as of the Proration Time; 5.2.6 Fees for transferable annual permits, licenses, and/or inspection fees, if any, for periods during which the Proration Time occurs shall be prorated as of the Proration Time; 5.2.7 Utility charges with respect to the Property levied against Seller or the Property and the value of fuel stored on the Property shall be prorated at Seller's cost therefor as of the Proration Time. Seller shall notify all utilities, governmental agencies, suppliers and others providing services to the Property of the prospective change in ownership and operation of the Property, and Seller shall use its reasonable efforts to cause all utilities furnished to the Property, including, but not limited to, electricity, gas, water and sewer, along with any fuel storage tanks to be read the day prior to the Proration Time; 5.2.8 Permitted administrative charges, if any, on Tenant Security Deposits shall be prorated; 5.2.9 Buyer shall receive a credit for advance payments and/or deposits, if any, under Bookings to the extent the Bookings relate to a period after the Proration Time; 5.2.10 Vending machine monies will be removed by Seller as of the Proration Time for the benefit of Seller; 5.2.11 Buyer shall purchase and Seller shall sell to Buyer (or Seller shall receive a credit therefore) all petty cash funds and cash in the Property's house banks at 100% of face value at the Proration Time; 5.2.12 Wages, salaries and payroll taxes and other payroll deductions for all Hotel Employees shall be apportioned as of the Proration Time (i.e., the night shift shall be prorated 50/50 for the night preceding the Closing Date). Buyer shall assume all accrued 18 19 vacation benefits and sick leave benefits due to such Hotel Employees which relate to any period prior to the Proration Time and shall receive a credit for the full amount of all such accrued benefits reasonably expected to be paid after the Closing Date; provided, that as of the date which is sixty (60) days following the Closing, Buyer and Seller shall adjust the amount of the credit if required to take into account the benefits actually required to be paid by Buyer or then reasonably expected to be paid following the Closing Date by Buyer. Buyer shall also assume all obligations of Seller and the Employer Corporation, under the Employment Agreements and/or the Management Agreement to pay all such wages, salaries, and compensation set forth above accruing subsequent to Proration Time; provided, however, that other than as set forth in SECTION 14.1 hereof, no provision contained in this Agreement shall be construed to prevent the Buyer from terminating or amending in any manner such Employment Agreements and Management Agreements subsequent to the Proration Time. The obligation to pay bonuses, if any, following the Closing shall be allocated as of the Proration Time and adjusted between Buyer and Seller; and 5.2.13 Real and personal property taxes, assessments and special district levies shall be prorated for the tax fiscal year in which the Closing Date occurs on the basis of the then most current available tax bills, Seller being charged through the day prior to the Closing Date and Buyer with the Closing Date and thereafter. 5.3 Deposits. All rights to utility, assessment, and other cash deposits (including, without limitation, any Utility Deposits) held by others for Seller's account, and all certificates of deposit or other forms of cash collateral held by or otherwise pledged to others for Seller's account to secure obligations of Seller under Service Contracts, Equipment Leases or other obligations assumed by Buyer, shall be assigned or transferred to Buyer at the Close of Escrow; provided, that if any of such deposits are not transferable, Seller shall retain all rights with respect thereto and there shall be no debit made to Buyer on account thereof. 5.4 Tenant Leases. At the Close of Escrow, pursuant to the Assignment and Assumption of Tenant Leases, Buyer shall assume all of the obligations of Seller under the Tenant Leases as of the Proration Time, including, without limitation, tenant improvement obligations of landlord thereunder and obligations with respect to Tenant Security Deposits (to the extent received by Buyer or credited to Buyer hereunder). 5.5 Service Contracts and Other Intangible Property. At the Close of Escrow, Seller shall assign to Buyer pursuant to the terms of the General Assignment and Assumption Agreement, all right, title and interest of Seller in and to the Approved Service Contracts and other Intangible Property, and Buyer shall assume all of the obligations of Seller under the Approved Service Contracts arising from and after the Close of Escrow. Buyer shall protect, hold harmless, indemnify and defend Seller and its directors, officers, agents, affiliates, principals, partners, shareholders, representatives and controlling persons from any Losses attributable to the period beginning on and after the Closing Date with respect to the Approved Service Contracts. Seller shall be responsible for all obligations thereunder attributable to the period prior to the Closing Date with respect to Approved Service Contracts (except to the extent that Buyer shall have received a credit hereunder with respect to any such obligations). The provisions of this SECTION 5.5 shall survive the Close of Escrow. 5.6 Tax Refunds and Proceedings. Buyer shall have the exclusive right to commence or continue any proceeding to determine the assessed value of the Property, the real or personal property taxes payable with respect to the Property or any action to contest water 19 20 charges, sewer charges, sales tax or use tax for the relevant taxable period during which the Proration Time occurs and to settle or compromise any claim thereof, and any refunds or proceeds resulting from such proceedings along with the costs (including reasonable legal and accounting fees) incurred by Buyer in obtaining the same, shall be prorated as of the Proration Time. In prosecuting any such action, Buyer shall utilize the services of Marvin Poer & Co. Seller shall retain the right to continue, commence, prosecute, settle or compromise any proceedings relating exclusively to any relevant taxable period or periods prior to the period during which the Proration Time shall occur. Buyer and Seller agree to cooperate with each other and to execute any and all documents reasonably requested in furtherance of the foregoing. The provisions of SECTION 5.6 shall survive the Closing. 5.7 Guest Baggage. As of the Close of Escrow, Buyer shall indemnify and hold harmless Seller against all Losses with respect to all baggage of departed guests or guests who are still registered at the Hotel on the Closing Date which has been checked with the Hotel. As of the Close of Escrow, Seller shall assign to Buyer all claims and causes of action against the Manager with respect to any Losses with respect to such baggage. Seller agrees to submit to Seller's Insurance any claims for Losses with respect to such baggage which arose from acts or omissions prior to the Closing Date to the extent coverage is available under said insurance and provide Buyer with the proceeds therefrom provided Buyer is not in default under this SECTION 5.7. The provisions of this SECTION 5.7 shall survive the Closing. 5.8 Safe Deposit Boxes. As of the Close of Escrow, Buyer shall indemnify and hold harmless Seller against all Losses with respect to the contents of any safety deposit boxes in use at the Hotel. As of the Close of Escrow, Seller shall assign to Buyer all claims and causes of action against the Manager with respect to any Losses relating to said safety deposit boxes. Seller agrees to submit to Seller's insurance any claims for Losses which arose from acts or omissions prior to the Closing Date to the extent coverage is available under said insurance and provide Buyer with the proceeds therefrom provided Buyer is not in default under this SECTION 5.8. The provisions of this SECTION 5.8 shall survive the Closing. 5.9 Advance Bookings. Buyer shall assume and honor for its account all Bookings relating to dates after the Proration Time set forth on the Schedule of Advance Bookings delivered by Seller to Buyer at the Close of Escrow pursuant to SECTION 4.2.1.9. 5.10 Special Purchase Price Adjustment. In the event that the Closing Date is extended beyond January 30, 1998 for any reason other than on account of a default by Buyer hereunder, Buyer shall receive a credit at Closing against the Cash Purchase Price in an amount equal to interest on the Purchase Price calculated at the LIBOR Rate plus 2% per annum for the period from January 30, 1998 through the earlier of (a) the Closing Date and (b) sixty (60) days after January 30, 1998. Nothing in this SECTION 5.10 shall create a waiver of any other remedy of Buyer for a Seller default permitted under the provisions of this Agreement. 5.11 The PCL Litigation. Seller or its designee shall prosecute, in its own name and at its expense, diligently, and without delay, the lawsuit brought by it against PCL Construction Services, Inc. et al, in the District Court of, and for Pitkin County, Colorado as Index #96 CV/6982 (the "PCL Litigation"). Buyer shall have the right to participate, at its sole cost and expense, in the prosecution and defense of the PCL Litigation. Seller shall have the right to settle the PCL Litigation provided in Seller's good faith judgment such settlement is fair and reasonable under the circumstances and Buyer is provided notice of such settlement prior to the entry into same. Seller shall keep Buyer informed on a regular basis with respect to the PCL 20 21 Litigation and shall promptly provide Buyer with a copy of all papers filed or received by Seller in connection therewith, together with a copy of all correspondence related to the PCL Litigation and/or the proposed settlement thereof other than any attorney-client privileged documents unless such privilege has been waived. Any proceeds resulting from a settlement or a judgment in the PCL Litigation and the return of the escrow account at Citibank Private Bank #558415, if released to Seller pursuant to such judgment or settlement, as the case may be, shall be applied as follows: (a) up to $2,200,000.00 shall be paid to Buyer; and (b) any proceeds in excess of $2,200,000.00 shall be split equally between Buyer and Seller. Seller shall be solely liable for any adverse judgment in the PCL Litigation. Any such judgment may be paid from the PCL escrow account referred to above to the extent of funds available therein. Buyer shall have no rights with respect to the conduct or disposition of the PCL Litigation or the claims asserted by Seller therein or any right to control the disposition of the PCL escrow account, except as specifically set forth in this Agreement. Subject to the express provisions of this Agreement, Seller shall retain all rights and responsibilities with respect to the conduct of the PCL Litigation and the pursuit of all claims against PCL. Seller may elect in its sole and absolute discretion to seek arbitration or other dispute resolution with respect to the PCL Litigation. Buyer hereby agrees and acknowledges that Buyer is purchasing the Hotel with full knowledge of the claims alleged in the PCL Litigation and after conducting such investigation thereof as Buyer deems necessary and sufficient. Buyer further agrees and acknowledges the sums, if any, payable to Buyer in accordance with this Section 5.10 are the sole amounts payable by Seller to Buyer on account of or in connection with the claims alleged in the PCL Litigation. Without limiting Seller's rights under SECTION 15, Buyer agrees to provide such cooperation to Seller, its Affiliates and their representatives as Seller may reasonably request in connection with the PCL Litigation, including, without limitation, Seller's efforts to settle the same, and in connection with any discovery related thereto, provided such cooperation shall be at no material cost or expense to Buyer. SECTION 6 REPRESENTATIONS AND WARRANTIES; CONDITION OF PROPERTY 6.1 Of the Trust. As an inducement to Seller to enter into this Agreement, the Trust hereby represents, warrants and covenants to Seller as follows: 6.1.1 Power and Authority. The Trust is a real estate investment trust duly organized and validly existing under the laws of the State of Maryland. The Trust has the power and authority to carry on its present business, to enter into this Agreement and to consummate the transactions herein contemplated; neither the execution and delivery of this Agreement by the Trust, nor the performance by the Trust of the Trust's obligations hereunder will violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which the Trust is a party or by which the Trust is bound and/or violate any applicable law, rule or regulation, the violation of which would have a Material effect upon the principal benefits intended to be provided by this Agreement. 6.1.2 Authorization; Valid Obligation. All proceedings required to be taken by or on behalf of the Trust to authorize the Trust to make, deliver and carry out the terms of this Agreement will be duly taken prior to the Closing Date. No consent to the execution, delivery and performance of this Agreement will be required from any partner, board of directors, 21 22 shareholder, creditor, investor, judicial or administrative body, governmental authority or other person, other than any such consent which already has been (or prior to the Closing will have been unconditionally given. The individuals executing this Agreement and the documents referenced herein on behalf of the Trust have the legal power, right and actual authority to bind the Trust to the terms and conditions hereof. This Agreement is a valid and binding obligation of Trust, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. 6.1.3 Capital Structure. The authorized and outstanding capital stock and units of the Trust and its operating partnership are as set forth in the Starwood Disclosure. All Paired Shares to be issued as the Equity Purchase Price at the Closing in accordance with this Agreement will, when so issued, be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights and will be paired with each other in the same ratio as all other shares are paired with each other pursuant to the Pairing Agreement. 6.1.4 SEC Documents and Other Reports. The Trust has filed all required documents with the SEC since January 1, 1996 (such documents together with the Starwood Disclosure being referred to herein as the "SEC Documents"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of applicable law, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements (including, in each case, any notes thereto) of the Trust included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as of their respective dates of filing, were prepared in accordance with generally accepted accounting principles (except, in the case of the unaudited statements, as permitted by Regulation S-X of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented the consolidated financial position of the Trust and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the SEC Documents or as required by generally accepted accounting principles, the Trust has not, since December 31, 1996, made any change in the accounting practices or policies applied in the preparation of their financial statements. Prior to the Closing Date, the Trust will file all required documents with the SEC, which documents will comply in all material respects with the requirements of the applicable law, and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 6.1.5 Absence of Certain Changes or Events. Except as disclosed in the SEC Documents filed prior to the date of this Agreement, since December 31, 1996, (a) there have not been any events, changes or developments that, individually or in the aggregate, have had or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole, or (b) there has not been any split, combination or reclassification 22 23 of any of the capital stock or units of the Trust or its operating partnership or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of, or in substitution for shares of such capital stock. 6.1.6 Actions and Proceedings. Except as set forth in the SEC Documents filed prior to the date of this Agreement, there are no outstanding orders, judgments, injunctions, awards or decrees of any governmental entity against or involving the Trust or any of its subsidiaries, or against or involving any of the directors, officers or employees of the Trust or any of its subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole. Except as set forth in the SEC Documents, there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the knowledge of the Trust, threatened against or involving the Trust or any of its subsidiaries or any of their directors, officers or employees, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole. As of the date hereof, there are no actions, suits, labor disputes or other litigation, legal or administrative proceedings or governmental investigations pending or, to the knowledge of the Trust, threatened against or affecting the Trust or any of their subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement. 6.1.7 REIT Status. The Trust is currently a "real estate investment trust" ("REIT") for federal income tax purposes and, to its knowledge, the Trust is and at all times during the testing period described in Code Section 897(h)(4)(D) has been a "domestically controlled REIT" (as defined in Section 897(h)(4)(D) of the Code). From and after January 1, 1995, neither the Internal Revenue Service nor any other taxing entity or authority has made any assertion that the Trust does not qualify as a REIT for income tax purposes, nor has there been any challenge to the REIT status of the Trust. From time to time upon request by the Seller or its assigns after the Closing Date, the Trust agrees to inform Seller or such assigns whether to its knowledge it complies with the representation and warranties set forth in this Section 6.1.7. 6.1.8 Partnership Status. Starwood Realty Partnership is classified and taxable as a partnership for U.S. federal income tax purposes. 6.1.9 Hart-Scott-Rodino Act. The provisions of the Hart-Scott-Rodino Act are not applicable to the transactions contemplated hereby and neither the Trust nor Seller is required to make any filings or submissions or obtain any approvals thereunder in connection herewith. 6.2 Of the Corporation. As an inducement to Seller to enter into this Agreement, the Corporation hereby represents, warrants and covenants to Seller as follows: 6.2.1 Power and Authority. The Corporation is a corporation duly organized and validly existing under the laws of the State of Maryland. The Corporation has the power and authority to carry on its present business, to enter into this Agreement and to consummate the transactions herein contemplated; neither the execution and delivery of this Agreement by the Corporation nor the performance by the Corporation of the Corporation's obligations hereunder will violate or constitute an event of default under any material terms or material 23 24 provisions of any agreement, document, instrument, judgment, order or decree to which the Corporation is a party or by which the Corporation is bound and/or violate any applicable law, rule or regulation, the violation of which would have a Material effect upon the principal benefits intended to be provided by this Agreement. 6.2.2 Authorization; Valid Obligation. All proceedings required to be taken by, or on behalf of the Corporation, to authorize the Corporation to make, deliver and carry out the terms of this Agreement will be duly taken prior to the Closing Date. No consent to the execution, delivery and performance of this Agreement will be required from any partner, board of directors, shareholder, creditor, investor, judicial or administrative body, governmental authority or other person, other than any such consent which already has been (or prior to the Closing will have been) unconditionally given. The individuals executing this Agreement and the documents referenced herein on behalf of the Corporation have the legal power, right and actual authority to bind the Corporation to the terms and conditions hereof. This Agreement is a valid and binding obligation of Corporation, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. 6.2.3 Capital Structure. The authorized and outstanding capital stock and units of the Corporation and its operating partnership are as set forth in the Starwood Disclosure. All Paired Shares to be issued as the Equity Purchase Price at the Closing in accordance with this Agreement will, when so issued, be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights and will be paired with each other in the same ratio as all other shares are paired with each other pursuant to the Pairing Agreement. 6.2.4 SEC Documents and Other Reports. The Corporation has filed all required SEC Documents since January 1, 1996. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the applicable law, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements (including, in each case, any notes thereto) of the Corporation included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as of their respective dates of filing, were prepared in accordance with generally accepted accounting principles (except, in the case of the unaudited statements, as permitted by Regulation S-X of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented the consolidated financial position of the Corporation and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the SEC Documents or as required by generally accepted accounting principles, the Corporation has not, since December 31, 1996, made any change in the accounting practices or policies applied in the preparation of their financial statements. Prior to the Closing Date, the Corporation will file all required documents with the SEC, which documents will comply in all material respects with the requirements of the applicable law, and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or 24 25 necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 6.2.5 Absence of Certain Changes or Events. Except as disclosed in the SEC Documents filed prior to the date of this Agreement, since December 31, 1996, (a) there have not been any events, changes or developments that, individually or in the aggregate, have had or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole, or (b) there has not been any split, combination or reclassification of any of the capital stock or units of the Corporation or its respective operating partnerships or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of such capital stock. 6.2.6 Actions and Proceedings. Except as set forth in the SEC Documents filed prior to the date of this Agreement, there are no outstanding orders, judgments, injunctions, awards or decrees of any governmental entity against or involving the Corporation or any of its subsidiaries, or against or involving any of the directors, officers or employees of the Corporation or any of its subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole. Except as set forth in the SEC Documents, there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the knowledge of the Corporation, threatened against or involving the Corporation or any of its subsidiaries or any of their directors, officers or employees, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole. As of the date hereof, there are no actions, suits, labor disputes or other litigation, legal or administrative proceedings or governmental investigations pending or, to the knowledge of the Corporation, threatened against or affecting the Corporation or any of their subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement. 6.2.7 Starwood Operating Partnership is classified and taxable as a partnership for U.S. Federal Income Tax purposes. 6.2.8 Hart-Scott-Rodino. The provisions of the Hart-Scott-Rodino Act are not applicable to the transactions contemplated hereby and neither the Corporation nor Seller is required to make any filings or submissions to obtain any approvals thereunder in connection herewith. 6.3 Of Seller. As an inducement to Buyer to enter into this Agreement, Seller, represents, warrants and covenants to Buyer as follows: 6.3.1 Regarding Seller's Authority. 6.3.1.1 Seller is a limited partnership in dissolution under the laws of the District of Columbia. Seller has the power and authority to enter into this Agreement and the Conveyance Documents and, to sell the Property on the terms set forth in this Agreement. The execution and delivery hereof and the performance by Seller of its obligations hereunder, will not violate or constitute an event of default under any material terms or material provisions 25 26 of any agreement, document, instrument, judgment, order or decree to which Seller is a party or by which Seller is bound and/or violate any applicable law, rule or regulation, the violation of which would have a Material effect upon the principal benefits intended to be provided by this Agreement. 6.3.1.2 The individuals executing this Agreement and the documents referenced herein on behalf of Seller have the legal power, right and actual authority to bind Seller to the terms and conditions hereof. This Agreement is a valid and binding obligation of Seller, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. 6.3.2 Tenant Leases. There are no leases, licenses or concessions for space which will affect the Real Property or any portion thereof following the Close of Escrow other than as set forth on the Schedule of Tenant Leases. Seller has delivered to Buyer a true, correct and complete copy of each lease and agreement listed on the Schedule of Lease. Seller has not received written notice of any sublease and/or assignment of any Tenant Lease except as set forth on SCHEDULE 6.3.2. No outstanding written notice of any Material default has been delivered by Seller or received by Seller with respect to any Tenant Lease, except as disclosed on the SCHEDULE 6.3.2 annexed hereto and made a part hereof. To Seller's knowledge, all rent under the leases listed on the Schedule of Leases is being paid currently. All Material brokerage, leasing and other commissions due in connection with the Tenant Leases have been paid by Seller other than those payable with respect to the renewal or extension of such Tenant Leases or expansion of the leased premises thereunder after the Closing Date, each of which are payable under agreements described on SCHEDULE 6.3.2. 6.3.3 Service Contracts. There are no Service Contracts which will affect the Property after the Closing Date except for the Approved Service Contracts. No outstanding written notice of any Material default has been delivered by Seller or received by Seller with respect to any Approved Service Contract, except as disclosed on SCHEDULE 6.3.3 annexed hereto and made a part hereof. 6.3.4 Claims. There are no pending litigation or condemnation proceedings with respect to Seller or the Property which would result in an adverse effect on the ability of Buyer to operate the Property after the Closing, except as disclosed on SCHEDULE 6.3.4 annexed hereto and made a part hereof. There is no pending litigation or to Seller's knowledge, other claims of Seller with respect to the Property attributable to the period prior to the date hereof which may result in a material judgment in favor of Seller except as disclosed on SCHEDULE 6.3.4. 6.3.5 Employees. To Seller's Knowledge, SCHEDULE 1.1.6 sets forth a true and complete list of all Hotel Employees as of the Execution Date together with their positions, salaries or hourly wages, as applicable, and years of service. Except for or pursuant to the Employment Agreements, the Collective Bargaining Agreements, the Management Agreement and the agreements related to the Ritz-Carlton management of the Hotel described on SCHEDULE 6.3.5 hereto, neither Seller nor the Employer Corporation has relating to the Property (i) at any time maintained, contributed to or participated in, (ii) or had at any time obligation to maintain, contribute to, or participate in, or (iii) any liability or contingent liability, direct or indirect, with respect to: any employment agreement, oral or written retirement or deferred compensation plan, incentive compensation plan, stock plan, unemployment compensation plan, vacation pay 26 27 plan, severance plan, bonus plan, stock compensation plan or any other type or form of employee-related (or independent contractor-related) arrangement, program, policy, plan or agreement. Except as set forth on SCHEDULE 6.3.5, to Seller's knowledge there is no Material default under any of the Employment Agreements. 6.3.6 Compliance with Laws. During the past twelve (12) months, Seller has not received any written notice from any party, including, without limitation, from any municipal, state, federal or other governmental authority, of a Material violation of any zoning, building, fire, water, use, health, or other similar statute, ordinance, or code bearing on the construction, operation or use of the Property or any part thereof (other than as to matters previously cured), except as disclosed on SCHEDULE 6.3.6 annexed hereto and made a part hereof and except for violations of Environmental Laws, which are addressed in SECTION 6.3.7 below. 6.3.7 Hazardous Materials. Seller has not received any written notice from any municipal, state, federal or other governmental authority or from any other person during the last three (3) years of (a) any Material violation of applicable Environmental Laws or (b) any Environmental Condition requiring Material remediation under applicable Environmental Laws, in either case only to the extent relating to Environmental Conditions at or on the Real Property, except as disclosed on SCHEDULE 6.3.7 annexed hereto and made a part hereof; 6.3.8 Records and Plans. Seller will have delivered to Buyer on the Closing Date true and correct copies of the Records and Plans. 6.3.9 Licenses and Permits. Seller has delivered to Buyer true and correct copies of the Liquor License and all other Material Licenses and Permits and such Licenses and Permits are identified on SCHEDULE 6.3.9 annexed hereto and made a part hereof. 6.3.10 Management Agreements. There are no hotel management or property management agreements, which will be binding upon Buyer after the Closing Date, other than the Management Agreement, a true and complete copy of which will be delivered to Buyer on the Closing Date. Seller has not sent or received any notice of default or notice of termination under or with respect to the Management Agreement. 6.3.11 Personal Property. Seller owns the Tangible Personal Property (other than the Tangible Personal Property that is subject to the Equipment Leases) free and clear of any liens and/or encumbrances other than the Permitted Encumbrances. 6.3.12 Insurance. The Seller in respect of the Real Property is insured under those policies of casualty and general liability insurance ("Seller's Insurance") described on SCHEDULE 6.3.12 annexed hereto, each of which is in full force and effect as of the date hereof and will remain in full force and effect through the Closing Date. Seller has received no notices of any Material default or demands to cure from any applicable insurer in respect of Seller's Insurance. 6.3.13 Real Estate Taxes. Except as set forth on SCHEDULE 6.3.13 annexed hereto and made a part hereof, Seller has not commenced any proceedings which are pending for the reduction of the assessed valuation of the Real Property or any portion thereof, and other than the Permitted Encumbrances, to Seller's Knowledge, there are no special assessments affecting the Property. Nothing in this SECTION 6.3.13 or any other provision of this Agreement shall be construed to limit Seller's rights to initiate or prosecute after the Close of Escrow additional proceedings for property tax refunds for taxes relating to any relevant taxable period or periods prior to the taxable period during which the Proration Time occurs. 6.3.14 [Intentionally Omitted] 27 28 6.3.15 [Intentionally Omitted] 6.3.16 [Intentionally Omitted] 6.4 Buyer's Review of Records and Plans. 6.4.1 Access to Records and Plans; Specific Disclosures. Buyer acknowledges that prior to the Closing Date, Buyer has been provided with such access to the Records and Plans and such other information relating to the Hotel as Buyer has deemed relevant. Buyer acknowledges that it (a) has been made aware of and given an opportunity to inquire into the Specific Disclosure Matters described herein; (b) has been given access to the Property and the opportunity to conduct such inquiries and analyses as Buyer has deemed necessary or appropriate in order to evaluate the physical condition of the Property and any and all other matters concerning the current and future use, feasibility, or value, or any other matter or circumstance relevant to Buyer concerning the Property or its marketability; and (c) the Records and Plans and the other books and records of Seller with respect to the Hotel may not be complete. 6.4.2 Limitation on Access to Records and Plans. Notwithstanding anything in this Agreement to the contrary, Buyer acknowledges and agrees that the Records and Plans or other information made available to or delivered to Buyer prior to, or at the Closing, shall not include any information which is privileged, confidential or proprietary to Seller or any of its constituent partners or affiliates, including without limitation, (i) Seller's internal financial analyses, any appraisals undertaken for Seller or other parties, income tax returns, financial statements, corporate or partnership governance records, investment advisory records, and other records concerning Seller's professional relationships, any Hotel Employee personnel files (prior to the Closing), or any other internal, proprietary, or confidential information, files, or records of Seller, (ii) the work papers, memoranda, analysis, correspondence, and similar materials prepared by or for Seller in connection with the negotiation and documentation of the transaction contemplated hereby or any other offer to purchase the Property received by Seller, and (iii) any documents or communications subject to the attorney/client privilege or attorney work product privilege. Buyer expressly agrees that its review of the Records and Plans, and any and all other information of any type or nature, whether oral or written, provided to Buyer by or on behalf of Seller and relating to the Property (collectively, the "PROPERTY INFORMATION") is for informational purposes only, and neither Seller nor any agent, advisor, officer, attorney, representative or other person acting or purporting to act on behalf of Seller has verified either the accuracy of the Property Information, or the adequacy of any method used to compile the Property Information or the qualifications of any person preparing the Property Information except that, in delivering or making available a copy of any document or papers to Buyer, Seller has delivered or made available copies of the originals of such documents or papers in Seller's possession or included in the Records and Plans. Except as expressly set forth in this SECTION 6, neither Seller nor any agent, advisor, officer, attorney, representative or other person acting or purporting to act on behalf of Seller is making or giving any representation or warranty about, or assuming any responsibility for, the accuracy or completeness of the Property Information. Reliance by Buyer upon any Property Information shall not create or give rise to any liability of or against Seller or any agent, advisor, officer, attorney, representative or other person acting or purporting to act on behalf of Seller. Subject to Seller's express representations and warranties set forth herein, the consummation of the Closing shall constitute Buyer's unconditional approval of all aspects of the Property and 28 29 Buyer's unconditional acknowledgment that Buyer has had the opportunity to request from Seller and review such documents and materials relating of the Property as Buyer deems appropriate. All copies of such documents delivered to Buyer shall be returned to Seller if the Closing fails to occur for any reason. 6.5 PURCHASE AS IS. BUYER REPRESENTS, WARRANTS AND COVENANTS TO SELLER THAT BUYER HAS INDEPENDENTLY AND PERSONALLY INSPECTED THE PROPERTY AND THE PROPERTY INFORMATION AND THAT BUYER HAS ENTERED INTO THIS AGREEMENT BASED UPON SUCH PERSONAL EXAMINATION AND INSPECTION. BUYER ACCEPTS THE PROPERTY, IN ITS CONDITION ON THE CLOSE OF ESCROW AS-IS AND WITH ALL ITS FAULTS, INCLUDING WITHOUT LIMITATION, ANY FAULTS AND CONDITIONS SPECIFICALLY REFERENCED IN THIS AGREEMENT. NO PERSON ACTING ON BEHALF OF SELLER IS AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF, BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO: (A) THE VALUE OF THE PROPERTY; (B) THE INCOME TO BE DERIVED FROM THE PROPERTY; (C) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON; (D) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY; (E) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE PROPERTY; (F) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY; (G) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY; (H) THE MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY; (I) THE COMPLIANCE OF THE PROPERTY WITH ANY ENVIRONMENTAL LAWS OR THE AMERICANS WITH DISABILITIES ACT; (J) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON, UNDER, OR ADJACENT TO THE PROPERTY; (K) THE CONTENT, COMPLETENESS OR ACCURACY OF ANY OF THE RECORDS AND PLANS OR OTHER INFORMATION PROVIDED BY SELLER TO BUYER WITH RESPECT TO THE PROPERTY; (L) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR SPECIFICATIONS FOR THE PROPERTY, INCLUDING ANY PLANS AND SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYER; 29 30 (M) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR FUTURE APPLICABLE ZONING OR BUILDING REQUIREMENTS; (N) DEFICIENCY OF ANY UNDER SHORING; (O) DEFICIENCY OF ANY DRAINAGE; (P) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE LOCATED ON OR NEAR AN EARTHQUAKE FAULT LINE; (Q) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING ENTITLEMENTS AFFECTING THE PROPERTY; (R) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE PROPERTY (INCLUDING, WITHOUT LIMITATION, THE TENANT LEASES, THE EQUIPMENT LEASES, ANY FIXTURES AND EQUIPMENT, THE LICENSES AND PERMITS, THE PERSONAL PROPERTY, THE SERVICE CONTRACTS, THE EMPLOYMENT CONTRACTS, ANY EMPLOYEE BENEFIT PLANS AND THE LIQUOR LICENSE) EXCEPT AS MAY BE OTHERWISE EXPRESSLY STATED HEREIN; (S) [Intentionally Omitted] (T) ANY OF THE SPECIFIC DISCLOSURE MATTERS; OR (U) WITHOUT LIMITING THE OTHER DISCLAIMERS SET FORTH HEREIN BUT SUBJECT TO THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT, THE ASSIGNMENTS AND CONVEYANCES OF THE PERSONAL PROPERTY AND THE MANAGEMENT AGREEMENT ARE WITHOUT ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS OF ANY KIND WHATSOEVER, INCLUDING, WITHOUT LIMITATION, (1) WARRANTIES AS TO THE VALIDITY, ENFORCEABILITY OR ASSIGNABILITY OF THE MANAGEMENT AGREEMENT, (2) WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE, (3) WARRANTIES RELATING TO THE DESIGN, CONDITION, QUALITY, WORKMANSHIP OR CAPACITY OF THE TANGIBLE PERSONAL PROPERTY, (4) REPRESENTATIONS OR WARRANTIES THAT THE TANGIBLE PERSONAL PROPERTY IS IN COMPLIANCE WITH ALL LAWS, STATUTES, ORDINANCES RULES, REGULATIONS, SPECIFICATIONS OR CONTRACTS PERTAINING THERETO, (5) WARRANTIES AGAINST PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, AND (F) WARRANTIES AS TO THE VALIDITY, ENFORCEABILITY, OR COLLECTIBILITY OF ANY ITEM. 6.6 Limitation on Representations and Warranties of Seller. In no event shall Buyer be entitled to seek recovery against Seller for an alleged breach of any representation or warranty by Seller if the information, transaction, or occurrence alleged to give rise to such breach was disclosed to, made available to or discovered by Buyer, whether in the course of its review of the Records and Plans or otherwise, prior to the Close of Escrow (the sole adjustment with respect to same being as set forth in SECTION 6.7 below). Without limiting the foregoing, each of the representations and warranties by Seller set forth herein shall be deemed to be qualified in their entirety by the Specific Disclosure Matters in addition to any other qualifications of such representations and warranties. 6.7 Right to Supplement Disclosures. At any time prior to the Closing, Seller may add additional disclosures to the Specific Disclosure Matters and the Schedules referenced in this SECTION 6, and may make appropriate revisions thereto, provided, however, that any such revisions do not in the aggregate disclose any matter or matters which would reasonably be 30 31 expected to have an impact upon the value of the Property in excess of the amount of the Deposit; and provided, further, that the receipt of any notice of termination under the Management Agreement shall not be deemed to create any diminution in value to the Property. In the event that Buyer or Seller discovers any matter or matters which would be expected to exceed the Threshold Amount, then, in such event, the provisions of SECTION 7.1.1 shall apply. 6.8 Basket. In no event will Seller be liable to Buyer for any breach of a representation or warranty hereunder unless and to the extent the Loss actually and directly incurred by Buyer as results of such breach together with the Loss actually and directly incurred by Buyer as results of any other breach(s) in the aggregate exceed the Threshold Amount, provided, that in no event shall Seller have any liability to Buyer for any consequential damages arising from a breach by Seller of any representation or warranty unless such breach results from the intentional concealment by Seller. 6.9 Survival. The Trust, the Corporation and Seller each hereby covenants and agrees with the other that the representations and warranties of the Trust, the Corporation and Seller (as the case may be) set forth in SECTIONS 6.1.1 through 6.1.3, inclusive, SECTION 6.2.1 through SECTION 6.2.3, inclusive and SECTION 6.3.1 and SECTION 6.3.2 shall survive the Close of Escrow without limitation as to duration. The remaining warranties and representations set forth in SECTION 6 shall survive the Close of Escrow until the date which is one (1) year following the Closing Date, at which time such representations and warranties shall expire unless prior to such time Buyer or Seller, as the case may be, have duly commenced an action in a court of competent jurisdiction, alleging a breach of such representation or warranty. Notwithstanding anything herein to the contrary, in no event shall either Buyer or Seller have any right to make a claim after the Closing with respect to any representation or warranty, the breach of which such party shall have discovered prior to the Closing, unless such party shall have notified the other party of such breach prior to the Close of Escrow. Nothing contained in this SECTION 6.9 shall limit the right of Seller to any remedy otherwise available under Federal or other applicable securities law. 6.10 [Intentionally Omitted] SECTION 7 TITLE TO THE REAL PROPERTY: EXTENSION OF THE CLOSING 7.1 Buyer's Review of Title. Seller has caused to be delivered to Buyer and Buyer's Counsel a current preliminary title commitment for title insurance issued by the Title Company showing the condition of title to the Real Property (the "Preliminary Title Report") together with a copy of all documents evidencing or creating the exceptions to title referenced therein. 7.1.1 Failure to Satisfy Certain Closing Conditions; Monetary Liens. On or prior to the Close of Escrow, Seller shall be obligated (i) to cause to be insured over or removed as matters of record all Monetary Liens affecting the Property as of the date hereof; and (ii) to remove or to bond over any Monetary Lien arising after the issuance of the Preliminary Title Report which (a) was created by or with the consent of Seller, or (b) is in an amount less than or equal to the Deposit. In the event that any Monetary Lien not reflected on the Preliminary Title Report exceeds the Deposit and was not created by or with the consent of Seller or any other title defect or other matters arise which requires Seller to supplement its disclosure pursuant to SECTION 6.7 and which in the aggregate may create a diminution in value to the Property in excess of the Deposit: (i) the Deposit shall be refunded by Escrow Holder to Buyer on February 31 32 28, 1998 if the Closing does not occur by such date in accordance with the provisions hereof; (ii) the Scheduled Closing Date shall be extended and Seller shall use all reasonable efforts, to remove or bond over or otherwise cause the Title Company to omit such Monetary Lien as an exception from coverage under the Title Policy and/or remove or cure as applicable such other defect or condition; and (iii) Buyer shall be permitted to record the Memorandum of Contract in the real property records of the state and county in which the Real Property is located. In the event that the Scheduled Closing Date is so extended and Seller is able to remove or cure such Monetary Lien, remove or cure as applicable the title defect or other condition, the Close of Escrow shall occur as soon as practicable following such removal or cure with time being of the essence as to the performance of both Buyer's and Seller's obligations hereunder. THE PARTIES ACKNOWLEDGE AND AGREE THAT DAMAGES WILL NOT BE AN ADEQUATE REMEDY TO SELLER IF BUYER SHALL DEFAULT IN ITS OBLIGATION TO CLOSE IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 7.1.1 AND CONSEQUENTLY THAT BUYER'S OBLIGATIONS UNDER THIS SECTION 7.1.1 SHALL BE SPECIFICALLY ENFORCEABLE AGAINST THE TRUST. IN CONSIDERATION FOR THE REFUND TO BUYER OF THE DEPOSIT PROVIDED FOR UNDER THIS SECTION 7.1.1, THE RIGHT OF BUYER TO RECORD THE MEMORANDUM OF CONTRACT PURSUANT TO THIS SECTION 7.1.1, SELLER'S AGREEMENT TO ENTER INTO THE INTERIM MANAGEMENT AGREEMENT PURSUANT TO THE PROVISIONS OF THIS SECTION 17.20 (UNDER WHICH AGREEMENT THE VALUE OF THE HOTEL MAY BE AFFECTED BY THE PERFORMANCE BY THE MANAGER OF ITS RESPONSIBILITIES THEREUNDER) AND TO ENCUMBER THE PROPERTY WITH THIS AGREEMENT FOR A PERIOD OF UP TO FIVE (5) YEARS IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 7.1.1 AND IN LIGHT OF THE RISKS WHICH SELLER WILL BE ASSUMING AS A RESULT IN RELATION TO THE VALUE OF THE EQUITY PURCHASE PRICE TO BE DELIVERED IF AND WHEN THE CLOSING OCCURS HEREUNDER, THE PARTIES HAVE AGREED THAT THE PROVISIONS OF THIS SECTION 7.1.1 ARE SPECIFICALLY ENFORCEABLE AGAINST THE TRUST AS AND TO THE EXTENT PROVIDED IN THE PRECEDING SENTENCE. In the event that a Monetary Lien cannot be removed or cured or a title defect or other condition cannot be removed or cured as required hereunder to close within five (5) years of the date of this Agreement, this Agreement shall terminate and the parties hereto shall have no further obligations. 7.1.2 [Intentionally Omitted]. 7.2. Title Insurance Policy. Buyer's title to the Real Property shall be insured at Closing by an ALTA extended coverage owner's policy or policies of title insurance in the amount of the Purchase Price (the "Title Policy") issued by the Title Company, insuring title to the Real Property vested in Buyer, subject only to the Permitted Encumbrances, together with such customary endorsements or affirmative insurance as may be reasonably requested by Buyer and purchased at Buyer's sole cost and expense. 7.3 Title to Real Property. At the Close of Escrow, title to the Real Property will be conveyed to Buyer by Seller pursuant to the Deed, subject only to the matters of title respecting the Property shown on SCHEDULE 7.3 annexed hereto and, if the Closing is delayed pursuant to SECTION 7.1.1, any additional easements, covenants, conditions, restrictions or other matters entered into with the prior written consent of Buyer which consent shall not be unreasonably 32 33 withheld, delayed or conditioned (collectively, the "Permitted Encumbrances"); Buyer agrees to rely exclusively on the Title Policy for protection against any title defects except as set forth in SECTION 7.1.2. Buyer shall have no claim following the Closing against Seller on account of the Permitted Encumbrances. Buyer's agreement under this SECTION 7.1 shall survive the execution, delivery, and recordation of the Deed. SECTION 8 INTERIM ACTIVITIES During the period from the Execution Date through the Close of Escrow, Seller shall (subject to the provisions of the Interim Management Agreement if entered into in accordance with the provisions of this Agreement) cause the Property to be continued to be operated in ordinary course as a hotel consistent with current operating practices during the period since Manager has been manager of the Hotel. Buyer shall have the right to enter onto and inspect the Property, from and after the date hereof, through the Closing Date to inspect the Property and otherwise perform its due diligence provided such inspections are performed upon prior notice to Seller and so as not to interfere with the operation of the Property or to disclose the pendency of the transaction contemplated hereby. All fees and expenses of any kind relating to the inspection of the Property by Buyer will be paid for by Buyer. Buyer agrees to keep the Property free from any liens arising out of or in connection with Buyer's or its agents entry or the Property. Buyer shall at its sole cost and expense, clean up and repair the Property as reasonably necessary after Buyer's or its agents entry thereon. Buyer shall hold harmless, indemnify and defend Seller from all Losses relating to any action by Buyer, its Affiliates and/or agents at or on the Property prior to Closing. Any of Buyer's agents shall be bound by the provisions of SECTION 17.19. SECTION 9 CONDITIONS PRECEDENT TO CLOSING 9.1 Conditions Precedent to Buyer's Obligations. The Close of Escrow and the obligation of Buyer to purchase the Property is subject to the satisfaction, not later than the Scheduled Closing Date, (subject to extensions as provided in Section 7.1) of the following conditions: 9.1.1 Seller's Deliveries. Seller shall have delivered the items described in SECTION 4.2 and shall be prepared to deliver the items described in SECTION 4.4; 9.1.2 Title Policy. The Title Company shall be unconditionally prepared (subject only to payment of all necessary title insurance premiums and other charges) to issue to Buyer the Title Policy insuring Buyer's title to the Real Property subject only to the Permitted Encumbrances; 9.1.3 Performance Under Related Agreement. All conditions precedent to the closing of the transactions contemplated by that certain Purchase and Sale Agreement and Joint Escrow Instructions (the "Related Agreement") dated as of the date hereof by and between Buyer and New Remington Partners shall have been satisfied or waived and the Seller and Escrow Holder thereunder shall be ready, willing and able to perform thereunder, and there shall be no default of Seller under such agreement. 9.1.4 [Intentionally Omitted] 9.1.5 Seller Performance. Seller shall have performed in all material respects all of the obligations of Seller under this Agreement, to the extent required to be performed at or prior to the Close of Escrow. 33 34 9.1.6 Representations and Warranties of Seller. The Seller's representations and warranties set forth in SECTION 6.3 shall be true, correct and complete, as of the Close of Escrow subject to modification thereof to the extent permitted under SECTION 6.7 and subject further to the applicable provisions of SECTION 7.1.1. The conditions set forth in this SECTION 9.1 are solely for the benefit of Buyer and may be waived only by Buyer. Buyer shall at all times have the right to waive any such condition. Any such waiver or waivers shall be in writing and shall be delivered to Seller and Escrow Holder. 9.2 Conditions Precedent to Seller's Obligations. The Close of Escrow and Seller's obligation with respect to the transactions contemplated by this Agreement are subject to the satisfaction, not later than the Scheduled Closing Date, of the following conditions: 9.2.1 Funds and Documents. Buyer shall have delivered to Escrow Holder, prior to the Closing Date, for disbursement as directed by Seller, the Paired Shares and all cash or other immediately available funds due from Buyer in accordance with SECTION 4 of this Agreement and the documents described in SECTION 4.3; 9.2.2 Representations and Warranties of Buyer. The Trust's representations and warranties set forth in SECTION 6.1 and the Corporation's representations and warranties set forth in SECTION 6.2 shall be true, correct and complete, as of the Close of Escrow; 9.2.3 No Material Changes. There shall have been no casualty or condemnation for which Buyer has elected to terminate this Agreement pursuant to SECTION 12 or SECTION 13 of this Agreement; 9.2.4 [Intentionally Omitted] 9.2.5 Performance Under Related Agreement. All conditions precedent to the closing of the transactions contemplated by the Related Agreement shall have been satisfied or waived and the Buyer and Escrow Holder thereunder shall be ready willing and able to perform thereunder and there shall be no default of Buyer under such agreement. The conditions set forth in this SECTION 9.2 are solely for the benefit of Seller and may be waived only by Seller. Seller shall at all times have the right to waive any such condition. Any such waiver or waivers shall be in writing and shall be delivered to Buyer and Escrow Holder. 9.3 Failure of Condition. Except as otherwise provided in this Agreement, if the Escrow fails to close on the Outside Closing Date for any reason whatsoever, including, without limitation, a failure of a condition precedent set forth in this SECTION 9, either Buyer or Seller, if not then in default under this Agreement, may terminate the Escrow and this Agreement upon notice to the other; and, thereupon: 9.3.1 This Agreement and the Escrow shall terminate; 9.3.2 The costs of the Escrow through the Scheduled Closing Date shall be governed by SECTION 4.8. 9.3.3 All monies paid into the Escrow and all documents deposited in the Escrow shall be returned to the party paying or depositing the same together with interest earned thereon; and 9.3.4 Each party shall be released from all obligations under this Agreement except for the obligations that are expressly stated to survive the termination of this Agreement. SECTION 10 BROKER 34 35 Buyer and Seller each represent and warrant to the other that it has not dealt with any broker, finder or other middleman in connection with this Agreement, or the transactions contemplated hereby and that no broker, finder, middleman or other person has claimed, or has the right to claim a commission, finder's fee or other brokerage fee in connection with this Agreement or the transactions contemplated hereby. Each party shall indemnify, protect, defend and hold the other party harmless from and against any costs, claims or expenses (including actual attorneys' fees and expenses), arising out of the breach by the indemnifying party of any of its representations, warranties or agreements contained in this SECTION 10. The representations and obligations under this SECTION 10 shall survive the Close of Escrow, or, if the Close of Escrow does not occur, the termination of this Agreement. SECTION 11 REMEDIES FOR SELLER'S DEFAULT 11.1 Buyer's Remedies in General. If Buyer shall discover prior to the Close of Escrow any default in any of Seller's obligations under this Agreement (a "Seller Default"), Buyer shall notify Seller thereof, and Seller shall have a reasonable period of time (not in excess of thirty (30) days) unless extended by Buyer in its sole discretion in which to cure such default, in which case the Scheduled Closing Date shall be extended during the continuation of such cure period. If there shall be any Seller Default discovered by Buyer prior to the Close of Escrow and not cured by the Scheduled Closing Date, then Buyer's sole right and remedy other than with respect to a breach of a representation and warranty which shall be subject to the provisions of SECTION 6.7, shall be to compel specific performance of this Agreement; provided, however, that Buyer shall only be entitled to compel specific performance of this Agreement if, as of the time of Seller's default, Buyer shall (a) not be in default hereunder, (b) shall be ready, willing and able to perform its obligations hereunder, and (c) shall have waived all contingencies to closing other than those relating to Seller's default. 11.2 MATERIAL INDUCEMENT. BUYER SPECIFICALLY ACKNOWLEDGES THAT THE LIMITATIONS ON DAMAGES AND SURVIVAL AND OTHER REMEDIES WHICH BUYER MAY RECOVER FROM AND ENFORCE AGAINST SELLER UNDER THIS AGREEMENT ARE A SPECIFIC AND MATERIAL INDUCEMENT TO SELLER TO ENTER INTO THIS TRANSACTION. SECTION 12 DAMAGE TO OR DESTRUCTION OF THE PROPERTY 12.1 Insured Casualty. 12.1.1 If, prior to the Close of Escrow, the Property is damaged or destroyed, whether by fire or other insured casualty, Seller shall promptly notify Buyer of such damage or destruction and of the good-faith estimate of a reputable licensed contractor selected by Seller and reasonably approved by Buyer of the cost to repair the damage and Seller's good-faith belief that such casualty is insured (the "Insured Casualty Notice"). If the Insured Casualty Notice indicates that such casualty is a Material Casualty, Buyer may elect to be released from its obligations hereunder (including its obligation to purchase the Property) by delivering to Seller written notice of Buyer's intent to do so within ten (10) days after the date Buyer receives the Insured Casualty Notice. In such event, the Deposit together with all interest accrued thereon shall be promptly returned to Buyer. 12.1.2 If the casualty is insured, and (i) it is not a Material Casualty, or (ii) it is a Material Casualty, but Buyer elects not to terminate this Agreement in accordance with this 35 36 SECTION 12.1, then the Escrow and this Agreement shall remain in full force and effect, the Closing shall occur on or before the Outside Closing Date, and Seller shall assign to Buyer, as a condition precedent to the Close of Escrow, all of Seller's right, title and interest in and to any of the casualty insurance proceeds or claims therefor with respect to such damage or destruction, together with any and all rental loss or business interruption insurance of Seller, if any, payable with respect to the Property for any period after the Proration Time and any and all claims against other persons for such damage or destruction. Additionally, if the Escrow and this Agreement remain in full force and effect, Seller shall pay to Buyer, by way of a reduction in the Cash Portion of the Closing Payment, an amount equal to the deductible under the casualty insurance. Within twelve (12) months following the Close of Escrow, Buyer shall upon thirty (30) days written notice by Seller, present reasonably satisfactory evidence to Seller that Buyer applied the proceeds of such insurance to the Property. If Buyer fails to present such evidence or such evidence is not reasonably satisfactory to Seller, Buyer shall promptly, but in any event within thirty (30) days of demand therefor from Seller, pay to Seller the proceeds of the casualty insurance assigned by Seller to Buyer as provided herein, together with an amount equal to the deductible under such insurance for which Buyer received a credit to the Purchase Price. 12.2 Uninsured Casualty. 12.2.1 If, prior to the Close of Escrow, all or any portion of the property is damaged or destroyed by an uninsured casualty (including, without limitation, a casualty as to which coverage has been disclaimed by Seller's insurers), Seller shall promptly notify Buyer of such damage or destruction and of the Seller's reasonable estimate of the cost to Seller to repair the same of a reputable licensed contractor selected by Seller and reasonably approved by Buyer (the "Uninsured Estimate to Repair") and Seller's reasonable belief that such casualty is uninsured (the "Uninsured Casualty Notice"). 12.2.2 If such Uninsured Estimate to Repair indicates the occurrence of a Material Casualty, either Seller or Buyer may elect to terminate this Agreement by giving to the other party written notice of its intent to do so within ten (10) days after the Seller delivers the Uninsured Casualty Notice to Buyer. If this Agreement is terminated pursuant to this SECTION 12.2.2, the Deposit together with interest accrued thereon shall be promptly returned to Buyer. 12.2.3 If the casualty is uninsured, and (i) it is not a Material Casualty, or (ii) it is a Material Casualty and Buyer and Seller have not elected to terminate this Agreement in accordance with SECTION 12.2.2, then the Escrow and this Agreement shall remain in full force and effect, the Closing shall occur on or before the Outside Closing Date, and Buyer shall be entitled to a reduction in the Purchase Price in an amount equal to the Uninsured Estimate to Repair. 12.2.4 If and to the extent that the Purchase Price is adjusted pursuant to this SECTION 12.2 as a result of a disclaimer of coverage by Seller's insurers, Buyer shall not be entitled to insurance proceeds due under Seller's policies, or to be assigned any claim under or with respect to Seller's policies, and Seller shall retain all rights thereunder or with respect thereto and to proceeds therefrom, it being the intent of this SECTION 12 that there be no double recovery by, or double compensation of, Buyer for the casualty. SECTION 13 CONDEMNATION If, prior to the Close of Escrow, a Material Taking has occurred or is pending, Seller shall immediately notify Buyer of such fact. In such event, Buyer may elect upon written notice 36 37 to Seller given not later than fifteen (15) days after receipt of Seller's notice to terminate this Agreement. If Buyer does not exercise option which Buyer may have pursuant to this SECTION 13 to terminate this Agreement, or if any such taking is not a Material Taking, then neither party shall have the right to terminate this Agreement, but Seller shall assign and turn over, and Buyer shall be entitled to receive and keep, all awards for the taking of any of the Real Property by eminent domain which accrue to Seller (other than those relating to loss of use prior to the Closing), and the parties shall proceed to the Close of Escrow pursuant to the terms hereof, without modification of the terms of this Agreement and without any reduction in the Purchase Price. SECTION 14 EMPLOYEES 14.1 Hiring of Hotel Employees; WARN Act Compliance. Buyer agrees to make an offer of employment to all existing Hotel Employees as of the Close of Escrow, on terms and conditions generally comparable to their existing terms and conditions of employment (to the extent such terms and conditions have been disclosed by Seller and/or its agents to Buyer) and to make all reasonable efforts to retain such employees for a reasonable period of time. Without limiting the foregoing, Buyer shall offer to maintain without loss of employment (as defined in the WARN Act) the employment at the Property (other than upon good cause for termination) of such number of Hotel Employees and on such terms and conditions as shall not result in, and only to the extent necessary to prevent, a plant closing or mass layoff as defined in the WARN Act. Buyer (i) shall also cause each of the health and medical benefit plans maintained for Hotel Employees to waive any preexisting condition in connection with employment at the Property that was not excluded under the applicable program as of the Closing Date, (ii) shall also cause each of such benefit plans to take into account any deductibles or coinsurance amounts incurred by each Hotel Employee for the year in which the Closing Date occurs, and (iii) shall also cause each of the health and medical benefit plans to deem each Hotel Employee to be eligible for participation in such plan as of the Close of Escrow. In the event that Buyer fails to comply with any of the foregoing covenants, Buyer agrees that Buyer shall be solely responsible for the payment of any and all costs, charges, penalties, compensation, severance pay, benefits and liabilities, arising under the WARN Act, and any other applicable law, rule or regulation on account thereof, and Buyer agrees to indemnify, defend and hold Seller and the Employer Corporation and their directors, officers, agents, affiliates, principals, partners, shareholders representatives and controlling persons harmless from and against any and all claims, causes of action, judgments, damages, penalties and liabilities asserted under the WARN Act or any other applicable law, rule or regulation, whether against Buyer or Seller, the Employer Corporation or any other such indemnified party and whether based on employment of any of the Hotel Employees prior to or following the Closing, arising from Buyer's failure to comply with the foregoing covenants (collectively, "Termination Charges"). Following the Closing, if Buyer desires to terminate the employment of any Hotel Employees other than for cause, Buyer shall be solely responsible for complying with all applicable provisions of the WARN Act and all other applicable laws, rules and regulations with respect to such termination, including without limitation, the payment of all costs and termination payments owing under the WARN Act and all other applicable laws, rules and regulations to any of such employees. Buyer shall assume all obligations under the Employment Agreement for the Director of Finance attributable to the period from and after the Closing Date (it being agreed that the 37 38 Directors of Finance may resign thereunder at any time without penalty). 14.2 Collective Bargaining Agreements. Without limiting the provisions of SECTION 14.1, immediately upon the Close of Escrow, without the necessity of further action by Buyer, Buyer shall assume each collective bargaining agreement or other labor union contracts identified on SCHEDULE 14.2 (the "Collective Bargaining Agreements"). Buyer further agrees to indemnify Seller and the Employer Corporation and their directors, officers, employees, agents, affiliates, principals, partners, shareholders, representatives and controlling persons for any and all liability to the bargaining agents or Hotel Employees, resulting from the failure of Buyer to comply with the terms and conditions of any of the Collective Bargaining Agreements with respect to periods beginning after the Close of Escrow. 14.3 Continuation of Benefits. 14.3.1 (i) Except as provided in SECTION 14.3.2 , on and after the Closing Date, Seller (or any insurer at Seller's cost) shall continue to process and pay (or cause applicable insurers and third party administrators, including ITT Sheraton, to process and pay) in an expeditious manner and with respect to all covered Hotel Employees (and, to the extent applicable, their covered spouses, dependents and beneficiaries) all claims under the Employment Agreements that provide health and medical, or other welfare, benefits submitted for covered expenses with respect to occurrences commencing on or prior to the Closing Date, including, but not limited to: (A) covered hospital benefits for any confinements; (B) covered life and survivor income benefits, if any, for deaths which occur on or prior to the Closing Date; (C) workers' compensation benefits for disabilities resulting from a work-related accident which occurred on or prior to the Closing Date; (D) all covered benefits that are being, or that may be, paid to, or with respect to, any of such individuals who are on short or long term disability, or medical, personal or other leaves of absence as of the Closing Date; (E) covered benefits under any "spending account," or similar arrangement, under any "cafeteria plan" (as defined under Section 125 of the Internal Code) with respect to salary reduction elections made prior to the Closing Date; and (F) covered benefits under all other such Employment Agreements which accrue on or before the Closing Date; but, only in each instance, to the extent that Buyer shall not have received a credit against the Purchase Price on account of such item. (ii) In order to effectuate the provisions of SECTION 14.3.1(I), hereof, Seller shall cause to be deposited with Anthem Health and Life Insurance Company ("Anthem") the full amount required by Anthem to cover the payment of benefits accrued but unpaid as of the Closing Date with respect to employees located at the Aspen facility and their dependents. Seller shall cause to be paid all premiums due to be paid under such Employment Agreements for all periods ending on or prior to the Closing Date. 14.3.2 Buyer (or any plan maintained by Buyer) will provide continued health and medical coverage as required under Section 4980B of the Code, Part 6 of Title I of ERISA or any other applicable federal, state or local law or ordinance to all current and former Hotel Employees (and their spouses, dependents and beneficiaries) with respect to whom a "qualifying event" (as such term is defined under Sections 4980B(f)(3) of the Code or 603 of ERISA) or other triggering event described under the applicable federal, state or local laws or ordinances occurred on or before the Closing Date. 14.3.3 Buyer shall maintain supplies of claims forms necessary for Hotel Employees to make claims under Employment Agreements that provide health, medical or other welfare benefits with respect to occurrences commencing on or prior to the Closing Date, and 38 39 shall furnish such forms to the Hotel Employees when needed and otherwise assist the Hotel Employees in presenting such claims. 14.4 Buyer and Seller intend by this Agreement to comply with Section 4204 of ERISA, so as to prevent Seller from incurring at the Closing Date a complete or partial withdrawal in respect of any employee benefit plans, if any, in which the Hotel Employees currently participate that are "multiemployer plans," as defined in Section 4001(a)(3) of ERISA (and which have been disclosed to Buyer on the Schedule of Employment Agreements), determined as if Buyer is the "buyer" referred to in such Section 4204. Accordingly, with respect to such multiemployer plans, Buyer agrees as follows: (A) For the first plan year of each such multiemployer plan commencing after the Close of Escrow, and for each of the succeeding four plan years for each such plan, Buyer shall assume the obligation to contribute to each such plan with respect to operations conducted with business assets acquired from Seller for substantially the same number of contribution base units (as defined in Section 4001(a)(11) of ERISA) for which Seller had an obligation to contribute to such plan. (B) Prior to each such multiemployer plan's first plan year beginning after the Close of Escrow, Buyer shall apply to such plan for a variance from the requirement of Section 4204(a)(1)(b) of ERISA, that a bond be obtained or an amount be held in escrow as provided in said Section. In the event any such plan determines that the request does not qualify for a variance on it, Buyer shall obtain any required bond or establish any required escrow within thirty (30) days after the date on which it receives notice of the plan's decision, and shall maintain such bond or escrow until the earliest of: (i) the date a variance is obtained from the plan; (ii) the date a variance or exemption is obtained from the Pension Benefit Guaranty Corporation; or (iii) the last day of the fifth (5th) plan year commencing after the Close of Escrow; which bond or escrow shall be paid to such plan if Buyer withdraws therefrom or fails to make a contribution to such plan when due, at any time during the first (1st) five (5) plan years of such plan beginning after the Closing Date. In order to comply with subsection (a)(1)(C) of such Section 4204, if Buyer withdraws in a complete withdrawal or a partial withdrawal from any multiemployer plan with respect to which Buyer has assumed an obligation to contribute pursuant to this Agreement and such withdrawal or partial withdrawal occurs during the five (5) plan years commencing with the first (1st) plan year beginning after the date of the Close of Escrow, Seller shall be secondarily liable for any withdrawal liability it would have had to such multiemployer plan on the date of the Close of Escrow under Title IV of ERISA. Buyer agrees to provide Seller with reasonable advance notice of its anticipated failure to pay any withdrawal liability and to furnish Seller promptly with a copy of any notice of withdrawal liability it may receive with respect to such plans. 14.5 Indemnification. Buyer and Seller (as applicable, the "Indemnitor") agrees to indemnify, defend, protect and hold the other and, the Employer Corporation in the case of Seller, and their directors, officers, agents, affiliates, principals, partners, shareholders, representatives and controlling persons (as applicable, the "Indemnitee") harmless from and against any and all claims, damages, liabilities, losses, and expenses, (including attorneys' fees and costs) paid, suffered or incurred by the Indemnitee, arising out of or related to Indemnitor's failure to comply with any of the covenants, obligations, or duties contained in SECTION 14. 14.6 Survival. The provisions of this SECTION 14 shall survive the Close of Escrow. 39 40 SECTION 15 COOPERATION 15.1 Seller has advised Buyer that it may be necessary after the Close of Escrow for Seller (or its representatives) to audit the Records and Plans with respect to the period prior to the Closing Date. In addition, Seller may require access to the such Books and Records in connection with any litigation by or against Seller and its Affiliates with respect to the Property, any tax audit, examination or challenge or similar proceeding, or any calculation of sums payable under SECTION 5. Accordingly, Buyer hereby: (i) agrees to retain the Records and Plans with respect to the period prior to the Closing Date at the Property for a period of seven (7) years after the Close of Escrow or such additional period as may reasonably be requested by Seller; (ii) grants Seller, its Affiliates and their respective representatives access to the such Records and Plans and the Property after the Close of Escrow, at reasonable times and upon reasonable prior notice, for such purposes; (iii) subject to the rights of guests in guest rooms, tenants under tenant leases, grants Seller, its Affiliates, and their respective representatives access to the Property after the Close of Escrow for the purpose of conducting such inspections and/or testing (including destructive testing) of the Property as may be necessary or advisable in connection with any litigation and other proceedings to which Seller is a party (provided that Seller shall give Buyer prior notice of the scope of such inspections and testing) which shall be scheduled for such periods as shall be reasonably agreeable to the parties; 15.1.1 All inspections fees, appraisal fees, engineering fees and other expenses of any kind relating to the inspection of the Property by Seller or Seller's Affiliate will paid for by Seller and/or Seller's Affiliate. 15.1.2 Prior to Seller or Seller's Affiliate's entry on the Property for the purpose of conducting inspections and/or tests, Seller or Seller's Affiliate shall provide Buyer with certificates of insurance from Seller's agents from an insurance carrier and for such risks and policy limits as Seller shall reasonably approve. 15.1.3 Seller agrees to keep the Property free from any liens arising out of or in connection with such testing and inspection. 15.1.4 Seller, shall, at its sole cost and expense, clean up and repair the Property as reasonably necessary, after Seller's or Seller's agents, entry thereon. 15.1.5 Seller shall hold harmless, indemnify and defend Buyer for all losses relating to any action by Seller, its Affiliates and/or agents at or on the Property after the Closing; [and] 15.1.6 Buyer agrees to cooperate with Seller, its Affiliates and their respective representatives in connection with any such litigation or proceedings with respect to the Property, any such tax audit, examination or challenge or similar proceeding, or any such calculation of sums payable under SECTION 5, said cooperation to be at no material cost or expense to Buyer; and 15.2 Seller shall cooperate with Buyer in connection with the assignment of all transferable Licenses and Permits to Buyer and the application for and procurement of replacements of any non-transferable Licenses and Permits. SECTION 16 NOTICES 16.1 Addresses. Whenever any notice, demand or request is required or permitted hereunder, such notice, demand or request shall be made in writing and shall be (a) sent via a nationally recognized overnight courier service fully prepaid, (b) deposited in the United States 40 41 by mail, registered or certified, return receipt requested, postage prepaid, or (c) sent via telefacsimile, provided that the original of such notice, demand or request shall also be sent via one of the methods described in (a) and (b) above, in each case to the addressees (and individuals) set forth below: As to Seller: Savanah Limited Partnership c/o Al Anwa USA Incorporated 1925 Century Park East Suite 1900 Los Angeles, CA 90067 Attn: General Counsel Telefacsimile: (310) 229-2939 With a copy to Seller's Additional Addressees: Gordon Eng, Esq. 19191 S. Vermont Avenue Suite 420 Torrance, CA 90502 Telefacsimile: (310) 207-1006 Morrison & Foerster LLP 555 West Fifth Street, Suite 3500 Los Angeles, CA 90013-1024 Attn: Thomas R. Fileti, Esq. Telefacsimile: (213) 892-5454 As to Buyer: Starwood Lodging Corporation Starwood Lodging Trust 2231 E. Camelback Road Suite 400 Phoenix, AZ 85016 Attn: Steven R. Goldman Telefacsimile: (602) 852-0115 With a copy to Buyer's Additional Addressee: Greenberg Traurig Hoffman Lipoff Rosen & Quentel 153 East 53rd Street New York, NY 10022 Attn: Andrew E. Zobler, Esq. Telefacsimile: (212) 223-7161 As to Escrow Holder: Chicago Title Insurance Company 700 South Flower Street, Suite 900 41 42 Los Angeles, CA 90017 Attn: Maggie Watson Telefacsimile: (213) 488-4388 16.2 Receipt of Notices. Any notice, demand or request that shall be delivered to Buyer and its Additional Addressee in the manner aforesaid shall be deemed sufficiently given to and received by Buyer for all purposes hereunder, and any notice, demand or request that shall be delivered to Seller and its Additional Addresses in the manner aforesaid shall be deemed sufficiently given to and received by Seller for all purposes hereunder (i) the next business day following the day such notice, demand or request is delivered by a nationally recognized overnight courier service fully prepaid, to such party and its Additional Addressee, (ii) if sent via registered or certified mail, at the time of receipt by such party and its Additional Addressee, or (iii) if sent via telefacsimile, as of the date and time stated upon confirmation reports generated by the sending party's telefacsimile machine confirming the delivery of such notice, demand or request to such party and its Additional Addressee. 16.3 Refusal of Delivery. The inability to deliver any notice, demand or request because the individual to whom it is properly addressed in accordance with this SECTION 16 refused delivery thereof or no longer can be located at that address shall constitute delivery thereof to such individual. 16.4 Change of Address. Each party shall have the right from time to time to designate by written notice to the other parties hereto such other person or persons and such other place or places as said party may desire written notices to be delivered or sent in accordance herewith. SECTION 17 GENERAL PROVISIONS 17.1 Amendment. Except as provided in SECTION 4.1, no provision of this Agreement or of any documents or instrument entered into, given or made pursuant to this Agreement may be amended, changed, waived, discharged or terminated except by an instrument in writing, signed by the party against whom enforcement of the amendment, change, waiver, discharge or termination is sought. 17.2 Time of Essence. All times provided for in this Agreement for the performance of any act will be strictly construed, time being of the essence. 17.3 Entire Agreement. This Agreement and other documents delivered at Closing, set forth the entire agreement and understanding of the parties in respect of the transactions contemplated by this Agreement, and supersede all prior agreements, arrangements and understandings relating to the subject matter hereof and thereof. No representation, promise, inducement or statement of intention has been made by Seller or Buyer which is not embodied in this Agreement, or in the attached Exhibits or the written certificates, schedules or instruments of assignment or conveyance delivered pursuant to this Agreement, and neither Buyer nor Seller shall be bound by or liable for any alleged representations, promise, inducement or statement of intention not therein so set forth. 17.4 No Waiver. No failure of any party to exercise any power given such party hereunder or to insist upon strict compliance by the other party with its obligations hereunder shall constitute a waiver of any party's right to demand strict compliance with the terms of this Agreement. 42 43 17.5 Counterparts. This Agreement, any document or instrument entered into, given or made pursuant to this Agreement or authorized hereby, and any amendment or supplement thereto may be executed in two or more counterparts, and, when so executed, will have the same force and effect as though all signatures appeared on a single document. Any signature page of this Agreement or of such an amendment, supplement, document or instrument may be detached from any counterpart without impairing the legal effect of any signatures thereon, and may be attached to another counterpart identical in form thereto but having attached to it one or more additional signature pages. 17.6 Costs and Attorneys' Fees. If any legal action or any arbitration or other proceeding is brought for the enforcement of this Agreement or any document or instrument entered into, given or made pursuant to this Agreement or authorized hereby or thereby (including, without limitation, the enforcement of any obligation to indemnify, defend or hold harmless provided for herein or therein), or because of an alleged dispute, default, or misrepresentation in connection with any of the provisions of this Agreement or of such document or instrument, or if Escrow Holder commences any action with respect to the Escrow(s), the successful or prevailing party shall be entitled to recover actual attorneys' fees, charges and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled. 17.7 Payments; Interests. Except as otherwise provided herein, payment of all amounts required by the terms of this Agreement shall be made in the United States and in immediately available funds of the United States of America which, at the time of payment, is accepted for the payment of all public and private obligations and debts. Unless the parties otherwise agree, payments shall be made through the Escrow Holder. If any payment due under this Agreement is not paid when due, it shall thereafter bear interest at a variable rate equal to the rate announced from time to time by Citibank, N.A. as its prime or reference rate, plus five percent (5%) per annum, but in no event more than the maximum rate, if any, allowed by law to be charged by the party receiving the interest on such type of indebtedness. 17.8 Transfer By Buyer. Buyer shall not have the right to assign this Agreement, but shall be permitted to designate an Affiliate or Affiliates to take title to the Property. In the event that Buyer elects to so designate any Affiliate or Affiliates to take title to the Property hereunder, (i) Buyer shall upon close of Escrow be released of all obligations hereunder other than pursuant to SECTION 6, SECTION 7.1, SECTION 10, SECTION 17.18, SECTION 17.19 and SECTION 17.20 or arising prior to the Close of Escrow, (ii) such Affiliate or Affiliates shall assume all of Buyer's obligations hereunder; and (iii) such Affiliate of Affiliates shall represent and warrant to Seller that such entities are duly organized and validly existing and otherwise as to the matters covered in SECTION 6.1.1 and SECTION 6.1.2 as applicable. 17.9 Parties in Interest. Subject to SECTION 17.8, the rights and obligations of the parties hereto shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs and the legal representatives of their respective estates. Nothing in this Agreement is intended to confer any right or remedy under this Agreement on any person other than the parties to this Agreement and their respective successors and permitted assigns, or to relieve or discharge the obligation or liability of any person to any party to this Agreement or to give any person any right of subrogation or action over or against any party to this Agreement. 17.10 Applicable Law. This Agreement shall be governed by and construed and 43 44 enforced in accordance with the laws of the state in which the Real Property is located without giving effect to the conflict-of-law rules and principles of that state. 17.11 Incorporation of Recitals and Exhibits. The Recitals and Exhibits attached to this Agreement are incorporated into and made a part of this Agreement. 17.12 Construction of Agreement. The language in all parts of this Agreement shall be in all cases construed simply according to its fair meaning and not strictly for or against any of the parties hereto. Headings at the beginning of sections of this Agreement are solely for the convenience of the parties and are not a part of this Agreement. When required by the context, whenever the singular number is used in this Agreement, the same shall include the plural, and the plural shall include the singular, the masculine gender shall include the feminine and neuter genders, and vice versa. As used in this Agreement, the term "Seller" shall include the respective permitted successors and assigns of Seller, and the term "Buyer" shall include the permitted successors and assigns of Buyer, if any. 17.13 Severability. If any term or provision of this Agreement is determined to be illegal, unconscionable or unenforceable, all of the other terms, provisions and sections hereof will nevertheless remain effective and be in force to the fullest extent permitted by law. 17.14 Announcements. Seller and Buyer shall consult with each other and provide each other one (1) Business Day prior notice with regard to all press releases and other announcements issued at or prior to the Close of Escrow and during the one year period thereafter concerning the existence of this Agreement or the sale of the Property and, except as permitted under SECTION 17.19, neither Seller nor Buyer shall issue any such press release or other such publicity prior to the Close of Escrow without the prior written consent of the other party, which consent may be withheld in such other party's sole and absolute discretion. Buyer will not issue any public announcement with respect to Seller (other than to describe the transaction contemplated hereby to the extent permitted hereunder) without the prior written consent of Seller which may be withheld in its sole and absolute discretion. The agreements of the parties in this SECTION 17.14 shall survive the Close of Escrow or any termination of this Agreement. 17.15 Submission of Agreement. The submission of this Agreement to Buyer or its broker, agent or attorney for review or signature does not constitute an offer to sell the Property to Buyer or the granting of an option or other rights with respect to the Property to Buyer. No agreement with respect to the purchase and sale of the Property shall exist, and this writing shall have no binding force or effect, until this Agreement shall have been executed and delivered by Buyer and by Seller and Buyer shall have deposited the Deposit with Escrow Holder. 17.16 Further Assurances. Buyer and Seller agree to execute such instructions to the Escrow Holder and such other instruments and take such further actions either before or after the Close of Escrow as may be reasonably necessary to carry out the provisions of this Agreement provided that no material additional cost or liability shall be created thereby. 17.17 Cooperation. Buyer and Seller shall cooperate with the other to carry out the purpose of this Agreement (provided, such cooperation shall not require either party to expend any sum not otherwise required pursuant to the other provisions of this Agreement). This SECTION 17.17 shall survive the Close of Escrow. 17.18 Moratorium on Re-Sale. Buyer covenants and agrees that it will not sell the Property to any third-party for a period (the "Transfer Restriction Period") commencing upon the Closing of Escrow and expiring upon the later of (a) five (5) years following the Close of 44 45 Escrow and (b) settlement of or the final non-appealable judgment is issued in connection with the existing litigation between Seller and the Ritz Carlton Hotel Company, LLC and their respective affiliates, provided, however, the foregoing prohibition shall not apply to a sale of all or substantially all of the assets of Buyer, the merger of Buyer into another entity or the transfer of the Property to a subsidiary and/or Affiliate of Buyer but shall be binding upon the party succeeding to all or substantially all of the assets of Buyer, the surviving entity in such merger, or such subsidiary or Affiliate. The provisions of this SECTION 17.18 shall be specifically enforceable. Buyer hereby waives any requirement for Seller to post a bond in order to seek or obtain any temporary restraining order or other injunctive relief pursuant to this SECTION 17.18. The parties acknowledge and agree that the provisions of this Section 17.18 form a material part of the consideration to Seller for entering into this Agreement. The parties agree that these provisions are reasonable in light of Seller's ongoing litigation with Ritz Carlton Hotel Company and its affiliates. 17.19 Confidentiality. Buyer shall hold as confidential all information concerning the transaction contemplated by this Agreement, Seller and the Property disclosed in connection with this transaction and Buyer shall not, prior to the Close of Escrow, release any such information relating to the transaction, Seller or the Property to any governmental agencies or third parties without Seller's prior written consent except as may be required by law and in such case subject to the provisions of SECTION 17.14. Seller hereby gives its consent to Buyer's disclosure of information relating to the transaction contemplated hereby to Buyer's Counsel and other consultants, in each instance to the extent reasonably necessary to verify information given to Buyer by Seller or otherwise to carry out the purposes of this Agreement and provided in each instance, such consultants agree in writing to be bound by the confidentiality provisions of this SECTION 17.19. If the Close of Escrow shall fail to occur for any reason, neither party shall issue any press release, publicity or other public announcement of the subject matter of this Agreement, or to make any other disclosure concerning the subject matter of this Agreement (except as may be required by law and in such case subject to the provisions of SECTION 17.14.), without the prior written consent of the other party, which consent may be withheld in such other party's sole and absolute discretion. The agreements of the parties in this SECTION 17.19 shall survive any termination of this Agreement. 17.20 Interim Management Agreement. Seller shall provide Manager with a notice of termination of the Management Agreement on January 2, 1998 or as soon thereafter as Seller shall have obtained any required lender consent thereto. Seller shall, on or prior to January 2, 1998, seek any required lender consent and use all reasonable commercial efforts to obtain same as promptly as possible. Buyer and Seller shall enter into a management agreement with respect to the Property in the form attached as EXHIBIT 17.20 hereto (the "Interim Management Agreement") which shall be effective (and the Interim Management Agreement shall be dated as of such effective date) on the earlier of (a) thirty days from the date of the delivery to Manager of such termination notice and (b) the effective date of a written waiver of Manager of the notice of termination required under the Management Agreement. Buyer shall advance any fee payable to Manager under the Management Agreement on account of the termination thereof up to $122,481.00. Buyer shall be deemed to have waived delivery of all items under Sections 4.2.1.15, 4.2.1.16, 4.2.1.17 and 4.2.1.19 in the event the Management Agreement is terminated in accordance with the provisions of this Section 17.20 prior to the Closing Date. 17.21 Starwood Lodging Trust. The parties hereto understand and agree that the name 45 46 "Starwood Lodging Trust" is a designation of the Trust and its trustees (as trustees but not personally) under the Trust's Declaration of Trust, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] 46 47 IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be executed as of the day and year first above written. "Seller" SAVANAH LIMITED PARTNERSHIP, a District of Columbia limited partnership By: ASPEN ENTERPRISES INTERNATIONAL, INC., a Colorado corporation, its General Partner By: /s/ Mansor Dalaan ------------------------------ Name: Mansor Dalaan Title: President "Buyer" STARWOOD LODGING TRUST, a Maryland real estate investment trust By: /s/ Steven R. Goldman ----------------------------------- Name: Steven R. Goldman Title: Senior Vice President STARWOOD LODGING CORPORATION, a Maryland corporation By: /s/ Michael C. Mueller ----------------------------------- Name: Michael C. Mueller Title: Vice President "Escrow Agent" CHICAGO TITLE INSURANCE COMPANY, a Missouri corporation By: /s/ Maggie G. Watson* ----------------------------------- Name: Maggie G. Watson Title: Authorized Signatory *Subject to receiving mutual instructions in the event paragraph #3.5 becomes operative. 47 48 TABLE OF CONTENTS SECTION 1 - DEFINITIONS 1 1.1 Defined Terms 1 1.2 Other Definitional Provisions 11 SECTION 2 - PURCHASE AND SALE OF PROPERTY 11 SECTION 3 - PURCHASE PRICE; PAYMENT; BUYER'S DEFAULT; LIQUIDATED DAMAGES 11 3.1 Purchase Price 11 3.2 Payment 11 3.3 Investment of Escrowed Funds 12 3.4 Allocation of Purchase Price 12 3.5 Default by Buyer Prior to Closing; Liquidated Damages 12 SECTION 4 - ESCROW; CLOSING; COSTS 13 4.1 Escrow 13 4.2 Seller's Deliveries to Escrow Holder 13 4.2.1.1 Deed 14 4.2.1.2 Assignment and Assumption of Tenant Leases 14 4.2.1.3 General Assignment 14 4.2.1.4 Assignment and Assumption of Management Agreement 14 4.2.1.5 Bill of Sale 14 4.2.1.6 Stock Agreement 14 4.2.1.7 Liquor Licenses Management Agreement 14 4.2.1.8 [Intentionally Omitted] 14 4.2.1.9 [Intentionally Omitted] 14 4.2.1.10 PUD Cooperation Agreement 14 4.2.1.11 [Intentionally Omitted] 15 4.2.1.12 [Intentionally Omitted] 15 4.2.1.13 Non-Foreign Person Certificate 15 4.2.1.14 Transfer Tax Forms 15 4.2.1.15 Certified Rent Roll 15 4.2.1.16 Certified Operating Statement 15 4.2.1.17 Guest Ledger 15 4.2.1.18 Closing Certificate 15 4.2.1.19 Schedule of Bookings 15 4.2.1.20 Title Requirements 15 4.2.1.21 Payoff Letters 16 4.2.1.22 Notices to Tenants 16 4.2.1.23 Opinion of Seller's Counsel 16 4.2.1.24 Other 16 4.3 Buyer's Deliveries to Escrow Holder 16 4.3.1.1 The Cash Purchase Price 16 4.3.1.2 Stock Certificates 16 4.3.1.3 Assignment and Assumption of Management Agreement 16 4.3.1.4 Value Letter 17 4.3.1.5 Opinion of Buyer's Counsel 17 4.3.1.6 Stock Agreement 17 49 4.3.1.7 [Intentionally Omitted] 17 4.3.1.8 Liquor License Management Agreement 17 4.3.1.9 PUD Cooperation Agreement 17 4.3.1.10 [Intentionally Omitted] 17 4.3.1.11 [Intentionally Omitted] 17 4.3.1.12 Closing Certificate 17 4.3.1.13 The Assignment and Assumption of Tenant Leases 17 4.3.1.14 The General Assignment and Assumption Agreement 17 4.3.1.15 Transfer Tax Forms 17 4.3.1.16 Other 17 4.4 Seller's Deliveries to Buyer 17 4.4.1 Tenant Leases/Tenant Deposits 18 4.4.2 Service Contracts 18 4.4.3 Licenses and Permits 18 4.4.4 Records and Plans 18 4.5 Possession 18 4.6 Evidence of Authorization 18 4.7 Close of Escrow 18 4.8 Costs of Escrow 19 4.8.7 [Intentionally Omitted] 20 4.9 Other Costs 20 4.10 Maintenance of Confidentiality by Escrow Holder 20 SECTION 5 - PRORATIONS AND ASSUMPTION OF OBLIGATIONS 20 5.1 General 20 5.2 General and Specific Prorations 21 5.3 Deposits 23 5.4 Tenant Leases 23 5.5 Service Contracts and Other Intangible Property 23 5.6 Tax Refunds and Proceedings 24 5.7 Guest Baggage 24 5.8 Safe Deposit Boxes 24 5.9 Advance Bookings 24 5.10 Special Purchase Price Adjustment 24 5.11 The PCL Litigation 25 SECTION 6 - REPRESENTATIONS AND WARRANTIES; CONDITION OF PROPERTY 25 6.1 Of the Trust 25 6.1.1 Power and Authority 25 6.1.2 Authorization; Valid Obligation 25 6.1.3 Capital Structure 25 6.1.4 SEC Documents and Other Reports 25 6.1.5 Absence of Certain Changes or Events 25 6.1.6 Actions and Proceedings 25 6.1.7 REIT Status 25 6.1.8 Partnership Status 25 49 50 6.1.9 Hart-Scott-Rodino Act 25 6.2 Of the Corporation 25 6.2.1 Power and Authority 25 6.2.2 Authorization; Valid Obligation 25 6.2.3 Capital Structure 25 6.2.4 SEC Documents and Other Reports 25 6.2.5 Absence of Certain Changes or Events 25 6.2.6 Actions and Proceedings 25 6.2.8 Hart-Scott-Rodino 25 6.3 Of Seller 25 6.3.1 Regarding Seller's Authority 25 6.3.2 Tenant Leases 25 6.3.3 Service Contracts 25 6.3.4 Claims 25 6.3.5 Employees 25 6.3.6 Compliance with Laws 25 6.3.7 Hazardous Materials 25 6.3.8 Records and Plans 25 6.3.9 Licenses and Permits 25 6.3.10 Management Agreements 25 6.3.11 Personal Property 25 6.3.12 Insurance 25 6.3.13 Real Estate Taxes 25 6.3.14 [Intentionally Omitted] 25 6.3.15 [Intentionally Omitted] 25 6.3.16 [Intentionally Omitted] 25 6.4 Buyer's Review of Records and Plans 25 6.4.1 Access to Records and Plans; Specific Disclosures 25 6.4.2 Limitation on Access to Records and Plans 25 6.5 PURCHASE AS IS 25 6.6 Limitation on Representations and Warranties of Seller 25 6.7 Right to Supplement Disclosures 25 6.8 Basket 25 6.9 Survival 25 6.10 [Intentionally Omitted] 25 SECTION 7 - TITLE TO THE REAL PROPERTY: EXTENSION OF THE CLOSING 25 7.1 Buyer's Review of Title 25 7.1.1 Failure to Satisfy Certain Closing Conditions; Monetary Liens 25 7.1.2 [Intentionally Omitted] 25 7.2 Title Insurance Policy 25 7.3 Title to Real Property 25 SECTION 8 - INTERIM ACTIVITIES 25 SECTION 9 - CONDITIONS PRECEDENT TO CLOSING 25 50 51 9.1 Conditions Precedent to Buyer's Obligations 25 9.1.1 Seller's Deliveries 25 9.1.2 Title Policy 25 9.1.3 Preference Under Related Agreement 25 9.1.4 [Intentionally Omitted] 25 9.1.5 Seller Performance 25 9.1.6 Representations and Warranties of Seller 25 9.2 Conditions Precedent to Seller's Obligations 25 9.2.1 Funds and Documents 25 9.2.2 Representations and Warranties of Buyer 25 9.2.3 No Material Changes 25 9.2.4 [Intentionally Omitted] 25 9.2.5 Performance Under Related Agreement 25 9.3 Failure of Condition 25 SECTION 10 - BROKER 25 SECTION 11 - REMEDIES FOR SELLER'S DEFAULT 25 11.1 Buyer's Remedies in General 25 11.2 MATERIAL INDUCEMENT 25 SECTION 12 - DAMAGE TO OR DESTRUCTION OF THE PROPERTY 25 12.1 Insured Casualty 25 12.2 Uninsured Casualty 25 SECTION 13 - CONDEMNATION 25 SECTION 14 -EMPLOYEES 25 14.1 Hiring of Hotel Employees; WARN Act Compliance 25 14.2 Collective Bargaining Agreements 25 14.3 Continuation of Benefits 25 14.5 Indemnification 25 14.6 Survival 25 SECTION 15 - COOPERATION 25 SECTION 16 - NOTICES 25 16.1 Addresses 25 16.2 Receipt of Notices 25 16.3 Refusal of Delivery 25 16.4 Change of Address 25 SECTION 17 - GENERAL PROVISIONS 25 17.1 Amendment 25 17.2 Time of Essence 25 17.3 Entire Agreement 25 17.4 No Waiver 25 17.5 Counterparts 25 17.6 Costs and Attorneys' Fees 25 17.7 Payments; Interests 25 17.8 Transfer By Buyer 25 17.9 Parties in Interest 25 17.10 Applicable Law 25 51 52 17.11 Incorporation of Recitals and Exhibits 25 17.12 Construction of Agreement 25 17.13 Severability 25 17.14 Announcements 25 17.15 Submission of Agreement 25 17.16 Further Assurances 25 17.17 Cooperation 25 17.18 Moratorium on Re-Sale 25 17.19 Confidentiality 25 17.20 Interim Management Agreement 25 17.21 Starwood Lodging Trust 25 52 53 EXHIBITS Exhibit A Legal Description Exhibit B Memorandum of Contract Exhibit 4.2.1.1 Deed Exhibit 4.2.1.2 Assignment and Assumption of Tenant Leases Exhibit 4.2.1.3 General Assignment and Assumption Agreement Exhibit 4.2.1.4 Assignment and Assumption of Management Agreement Exhibit 4.2.1.5A Bill of Sale for Capitalized Tangible Property Exhibit 4.2.1.5B Bill of Sale for Expensed Tangible Property Exhibit 4.2.1.6 Stock Agreement Exhibit 4.2.1.7 Liquor License Management Agreement Exhibit 4.2.1.10 PUD Cooperation Agreement Exhibit 4.2.1.13 Non-Foreign Person Certificate Exhibit 17.20 Interim Management Agreement SCHEDULES Schedule 1.1.1 Approved Service Contracts Schedule 1.1.2 Employment Agreements Schedule 1.1.3 Equipment Leases Schedule 1.1.4 Excluded Property Schedule 1.1.5 [Intentionally Omitted] Schedule 1.1.6 Hotel Employees Schedule 1.1.7 Schedule of Tenant Leases Schedule 1.1.8 Seller's Due Diligence and Seller's Knowledge Schedule 1.1.9 Specific Disclosure Matters Schedule 6.3.2 Material Defaults Under Tenant Lease Schedule 6.3.3 Material Defaults Under Approved Service Contracts Schedule 6.3.4 Material Claims Schedule 6.3.5 Material Defaults Under Employment Agreements Schedule 6.3.6 Material Violations Schedule 6.3.7 Material Environmental Conditions Schedule 6.3.9 Licenses and Permits Schedule 6.3.12 Seller's Insurance Schedule 6.3.13 Pending Tax Protests Schedule 7.3 Permitted Encumbrances Schedule 14.2 Collective Bargaining Agreements 53 EX-10.56 33 EX-10.56 1 Exhibit 10.56 STOCK AGREEMENT by and among SAVANAH LIMITED PARTNERSHIP a District of Columbia Limited Partnership as Stock Purchaser and STARWOOD HOTELS & RESORTS TRUST, a Maryland real estate investment trust and STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation, Dated as of January 15, 1998 2 STOCK AGREEMENT THIS STOCK AGREEMENT (this "Agreement") is entered into as of January 15, 1998 (the "Closing Date") by and between SAVANAH LIMITED PARTNERSHIP, a District of Columbia limited partnership, ("Stock Purchaser"), STARWOOD HOTELS & RESORTS TRUST, a Maryland real estate investment trust (the "Trust"), and STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Corporation", and, with the Trust, "Starwood Lodging"). R E C I T A L S A. Stock Purchaser has agreed to acquire from Starwood Lodging, and Starwood Lodging has agreed to issue and deliver to Stock Purchaser, Paired Shares in partial consideration for certain assets owned by Stock Purchaser. B. The parties desire to enter into this Agreement in order to set forth certain terms and conditions under which the Paired Shares are to be issued to and held by Stock Purchaser. A G R E E M E N T NOW, THEREFORE, in consideration of the foregoing and the mutual promises and agreements contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby mutually acknowledged, Starwood Lodging and Stock Purchaser agree as follows: SECTION 1 DEFINITIONS 1.1 Defined Terms. "Accredited Investor" shall have the meaning ascribed to that term in Rule 501 promulgated by the SEC under the Securities Act. "Affiliate" shall mean, with respect to any Person, any other Person that controls, is controlled by or is under common control with such first Person. "Applicable Percentage" shall mean: (a) if Starwood Lodging delivers Registered Shares to Stock Purchaser pursuant to Section 2.1 hereof, 100% and (b) if Starwood Lodging delivers Unregistered Shares pursuant to Section 2.1 hereof, 91.95%. "Business Day" shall mean any day on which the New York Stock Exchange is open for business. "Closing Date" shall mean the date hereof. "Equity Value" shall mean One Hundred Fifty-Two Million Six Hundred Thirty-Seven Thousand Dollars ($152,637,000), divided by the Applicable Percentage, rounded to the nearest whole number. "ITT Closing" shall have the meaning set forth in the Registration Rights Agreement. "Joinder Agreement" means an agreement to be bound by this Agreement in the form of Attachment A hereto. "LIBOR" means the average of the interbank offered rates for three-month dollar 1 3 deposits in the London market based on quotations at five (5) major banks, as published from time to time in The Wall Street Journal. If The Wall Street Journal ceases to publish such a compilation of interbank offered rates, or if The Wall Street Journal ceases to be published, then Starwood Lodging shall propose a substitute method of determining the interest rate generally known as the three-month LIBOR rate, which method, absent manifest error, shall be binding on all holders of the Subject Shares and Starwood. "Lock Price" shall mean $53.75 per Paired Share if the Closing Date occurs on or before the 60th day after seven Business Days after January 15, 1998 (or thereafter because of a default by the Trust or the Corporation), and the Market Price as of the Closing Date if the Closing Date occurs thereafter for any reason other than a default by the Trust or the Corporation provided, however, that in the event that, at any time during the period between December 30, 1997 and the Settlement Date, the Corporation or the Trust effects any reclassification, stock split or stock dividend with respect to their stock, any change or conversion of stock into other securities, or any other dividend or distribution with respect to the Paired Shares, other than (i) dividends contemplated by the Starwood Lodging Disclosure in effect as of December 30, 1997, or (ii) dividends in the aggregate not to exceed the greater of (a) the current rate (as of December 30, 1997) of their dividends (together with any increases in such rate in the ordinary course) and (b) the Trust's "real estate investment taxable income" (as such term is defined for purposes of the Internal Revenue Code) without regard to any net capital gains or the deduction for dividends paid, appropriate and proportionate adjustments shall be made to the Lock Price. "Market Price" shall mean, as of any date, the average closing prices of the Paired Shares on the New York Stock Exchange during the ten consecutive Business Days immediately preceding such date. "Open Market Sale" means one or more sales of Stock Agreements Shares (including "short sales" initiated with the intention of delivering Stock Agreements Shares) made or proposed to be made by placing one or more sale orders or offers to sell with one or more securities brokers or dealers with a view toward the consummation of one or more sale transactions that are required to be, or that actually are, reported to the New York Stock Exchange or the National Association of Securities Dealers. "Orderly Market Disposition" means the sale of Stock Agreements Shares by placing one or more sell orders with one or more securities brokers or dealers with a view toward the disposition in the market of such Stock Agreements Shares. "Other Stock Agreements" shall mean, collectively, (i) that certain Stock Agreement, dated as of January 15, 1998, among New Remington Partners, as stock purchaser, and Starwood Lodging, (ii) that certain Stock Agreement, dated as of January 15, 1998, among N.Y. Overnight Partners, L.P., as stock purchaser, and Starwood Lodging, and (iii) that certain Stock Agreement, dated as of January 15, 1998, among D.C. Overnight Partners, L.P., as stock purchaser, and Starwood Lodging. "Paired Shares" shall mean one share of beneficial interest, par value $.01 per share, of the Trust, and one share of common stock, par value $.01 per share, of the Corporation that are subject to the Pairing Agreement. For purposes of calculating the number of Paired Shares to be delivered hereunder, each pair of the shares of the stock of the Trust and the Corporation shall be considered one share. "Pairing Agreement" shall mean the Pairing Agreement dated as of June 25, 1980, as amended, between the Trust and the Corporation providing, in relevant part, for the pairing of all outstanding shares of the Corporation and the Trust. "Payment Rights" shall have the meaning set forth in Section 5 hereof. "Person" shall have the meaning set forth in the Registration Rights Agreement. 2 4 "Proposed Disposition Shares" shall have the meaning set forth in Section 3 hereof. "Put Price" and "Put Right" shall have the meaning set forth in Section 2.4 hereof. "Registered Shares" means Subject Shares the issuance of which to Stock Purchaser has been registered under the Securities Act. "Registration Rights Agreement" means the Registration Rights Agreement by and among Stock Purchaser, the Trust and the Corporation in the form of Attachment B hereto. "Registration Statement" shall have the meaning set forth in the Registration Rights Agreement. "Required Effectiveness Date" shall have the meaning set forth in the Registration Rights Agreement. "Response Date" shall have the meaning set forth in Section 3 hereof. "Restricted Group" shall mean two (2) or more Restricted Holders acting in concert or under common direction. "Restricted Holder" shall mean Stock Purchaser and any other Person who shall have acquired any Stock Agreements Shares in a Transfer not constituting an Open Market Sale. A Restricted Holder shall not include any Person who shall have acquired any Stock Agreements Shares in a Transfer not constituting an Open Market Sale if such Transfer occurs after the first Open Market Sale of such Stock Agreements Shares. "Sale Notice" shall have the meaning set forth in Section 3 hereof. "SEC" shall mean the United States Securities and Exchange Commission. "SEC Documents" means all documents required to have been filed by the Trust or the Corporation with the SEC since January 1, 1996 and through the date hereof. "Securities Act" shall mean the Securities Act of 1933, as amended. "Settlement Date" shall mean, if Starwood Lodging shall deliver Unregistered Shares pursuant to Section 2.1 hereof, the date on which Starwood Lodging or its counsel shall notify Stock Purchaser that (i) the Registration Statement has been declared effective by the SEC, (ii) that the Subject Shares have been registered, on the terms and subject to the provisions of the Registration Rights Agreement, for Transfer by the selling shareholders named therein in Open Market Sales and in such other manner as is provided in the Registration Statement, and (iii) that Starwood Lodging has completed all deliveries and other actions required to enable trading of the Subject Shares on the New York Stock Exchange; provided, however, that if such notice is given later than 1:00 PM Eastern Time, the Settlement Date shall be deemed for all purposes to occur on the Business Day following the date of such notice. "Starwood Lodging Disclosure" shall mean, collectively, the Form S-3 filed by the Corporation and the Trust with the SEC on November 12, 1997, and the Form S-4 filed by the Corporation and the Trust with the SEC on November 20, 1997, as the same has been or may hereafter be amended by any filing with the SEC made by the Trust or the Corporation. 3 5 "Stock Agreements Shares" shall mean the aggregate of the Subject Shares and the other Paired Shares delivered pursuant to the Other Stock Agreements. "Stock Purchaser Affiliates" shall have the meaning set forth in Section 6.1 hereof. "Subject Shares" means the 3,088,372 Paired Shares delivered by Starwood Lodging pursuant to Section 2.1 hereof. "Transfer" shall have the meaning set forth in the Registration Rights Agreement. "Transfer Agent" shall mean the transfer agent for the Paired Shares. "Unregistered Shares" means Subject Shares the issuance of which to Stock Purchaser has not been registered under the Securities Act. 1.2 Other Definitional Provisions. The terms "hereof," "hereto," "hereunder" and similar terms when used in this Agreement shall refer to this Agreement generally, rather than to the section in which such term is used, unless otherwise specifically provided. Unless the context otherwise requires, any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. SECTION 2 CALCULATION OF SUBJECT SHARES 2.1 Calculation of Subject Shares. Starwood Lodging shall deliver to Stock Purchaser on the Closing Date Paired Shares in an amount equal to the Equity Value divided by the Lock Price. Starwood Lodging shall have the option to deliver Registered Shares or Unregistered Shares on the Closing Date. 2.2 Delivery Requirements for Paired Shares. The Paired Shares to be delivered hereunder shall be properly endorsed and certificated Paired Shares in the amount required to be delivered in accordance with the provisions of this Agreement. If Registered Shares are delivered, such shares shall be unlegended and fully and freely transferable without any consent of, registration with or notice to any Person (except as provided for in Sections 3 and 4 hereof and in the Pairing Agreement). If Unregistered Shares are issued, each certificate evidencing Subject Shares shall be stamped or otherwise imprinted with a legend in substantially the following form (and no other restrictive legends): THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. THE SALE, PLEDGE OR OTHER TRANSFER OF THIS CERTIFICATE OR THE SHARES EVIDENCED HEREBY IS SUBJECT TO THE TERMS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF JANUARY 15, 1998 BETWEEN THE ISSUER AND THE HOLDER HEREOF. There shall be no legend on the Paired Shares reflecting the restrictions in Sections 3 or 4 hereof. 4 6 2.3 Other Deliveries. Concurrently with the delivery of the Paired Shares, Starwood Lodging shall deliver to Stock Purchaser any statements, such as a transfer or conveyance tax forms or returns required by applicable federal or New York law to be executed by Starwood Lodging, as may reasonably be requested by Stock Purchaser in order to effect the delivery of the Subject Shares to Stock Purchaser. 2.4 Registration Rights and Requirements. (a) If Starwood Lodging delivers Unregistered Shares pursuant to Section 2.1 hereof, Stock Purchaser and Starwood Lodging shall on the Closing Date execute and deliver to each other the Registration Rights Agreement and the parties thereto shall perform their respective obligations thereunder. If Starwood Lodging delivers Registered Shares pursuant to Section 2.1 hereof, the Registration Rights Agreement shall not be executed or delivered and none of the parties shall have any obligations thereunder. (b) If Starwood Lodging delivers Unregistered Shares pursuant to Section 2.1 hereof, and if the Settlement Date shall not have occurred on or before the seventh Business Day after the Required Effectiveness Date, Starwood Lodging shall pay to each Restricted Holder, on the Settlement Date, an amount equal to the "Interest Factor." For each Restricted Holder, the "Interest Factor" shall be an amount equal to the product of (i) LIBOR plus 2% per annum for each day after the seventh Business Day after the Required Effectiveness Date to and including the earlier of the Settlement Date or the date that is 60 days after the Required Effectiveness Date, multiplied by (ii) the Market Price multiplied by the number of Subject Shares held by such Restricted Holder on the date of such payment. (c) In the event that the Settlement Date shall not have occurred by the date that is 60 days after the Required Effectiveness Date, each Person who is a Restricted Holder as of such date shall have the non-transferrable right (its "Put Right"), exercisable at any one time for each such Restricted Holder after such 60th day and through the earlier to occur of (i) the Settlement Date, and (ii) the day immediately prior to the first anniversary of the Closing, to "put" some or all of the Subject Shares held by such Restricted Holder to Starwood Lodging for an amount per share equal to the Put Price; provided, however, that the Put Right shall not be exercisable by any Restricted Holder for a number of Subject Shares that is less than the lesser of (i) 100,000, or (ii) the number of Subject Shares then held by such Restricted Holder. Such right shall be exercised by such Restricted Holder giving Starwood Lodging notice of its election to exercise its Put Right and the number of Subject Shares to be purchased by Starwood, whereupon Starwood Lodging shall purchase such shares at 9:00 a.m. (Eastern Time) on the second Business Day following its receipt of such notice, with payment to be delivered (against delivery to Starwood Lodging of such shares free of all rights of other Persons) on the third Business Day thereafter in cash or immediately available funds to such account as such Restricted Holder may designate in such notice. The Put Price shall be the Market Price determined as of the date such notice is given. Starwood Lodging shall have the right to satisfy its obligations under the Put Rights by designating another Person as the purchaser of such shares, and such obligations shall be deemed satisfied upon such other Person's purchase of such shares for the Put Price and at the time and in the manner set forth herein. Such designation shall not affect Starwood's obligation to pay the Interest Factor as provided herein. (d) The Interest Factor and the right of each Restricted Holder to receive the Put Price in the event it elects to exercise its Put Right shall be each Restricted Holder's sole and exclusive monetary remedies arising from Starwood's failure to cause the Settlement Date to occur on or before the seventh Business Day after the Required Effectiveness Date and shall be deemed liquidated damages in respect of such failure; and each Restricted Holder shall be 5 7 deemed to have waived its other monetary remedies. However, from and after the seventh Business Day after the Required Effectiveness Date, each Holder shall at all times have such equitable remedies as may be available under applicable law. SECTION 3 NOTICE PROCEDURES REGARDING OPEN MARKET SALE OF STOCK AGREEMENTS SHARES 3.1 If, at any time any Restricted Holder or Restricted Group elects to Transfer, in an Open Market Sale, more than 100,000 Stock Agreements Shares on any single Business Day (300,000 Stock Agreements Shares from and after the first Business Day after the ITT Closing), prior to executing such Transfer the designated representative of such Restricted Holder or Restricted Group shall provide Starwood's representative, the Chief Financial Officer of the Trust (or any successor representative identified by a notice given hereunder), with telephonic notice at (602) 852-3900 along with a confirmation of such notice by telefacsimile to Starwood Lodging and Starwood's additional addressees as provided in Section 7.1 hereof. Such notice (the "Sale Notice") shall indicate the number of Stock Agreements Shares which such Restricted Holder or Restricted Group has determined to Transfer in an Open Market Sale (the "Proposed Disposition Shares") on such day or days and shall comply with Section 3.5 hereof (if applicable). Such notice shall be deemed given on the Business Day the telephonic notice described above is given so long as such notice is given by 5:00 P.M., Eastern time, on such day; if given after that time, it shall be deemed given on the next Business Day. In the event that, at any time while this Section 3.1 is in effect, the Corporation or the Trust effects any reclassification, stock split or stock dividend with respect to their stock, any change or conversion of stock into other securities, or any other dividend or distribution with respect to the Paired Shares, other than (i) dividends contemplated by the Starwood Lodging Disclosure as in effect on December 30, 1997, or (ii) dividends in the aggregate not to exceed the greater of (a) the current rate (as of December 30, 1997) of their dividends (together with any increases in such rate in the ordinary course) and (b) the Trust's "real estate investment taxable income" (as such term is defined for purposes of the Internal Revenue Code) without regard to any net capital gains or the deduction for dividends paid, appropriate and proportionate adjustments shall be made to the numbers of Stock Agreements Shares set forth in the first sentence of this Section 3.1. 3.2 No later than noon, Eastern time, on the second Business Day after the Sale Notice is given as described above, Starwood Lodging may provide the representative(s) of such Restricted Holder or Restricted Group with telephonic notice, along with a confirmation of such notice to such representatives by telefacsimile, that Starwood Lodging is irrevocably offering to purchase or place all of the Proposed Disposition Shares at a price per share equal to the average of the closing prices on the New York Stock Exchange on the first and second Business Days following the giving of the Sale Notice. Such notice shall be given as provided in Section 3.5 hereof. It shall be a condition to such notice and the consummation of such transaction that such transaction not constitute a violation of Regulation M promulgated by the SEC. If Starwood Lodging fails to make such an offer within such period, it shall have no further rights under this Section 3 with respect to any Orderly Market Disposition by such Restricted Holder or Restricted Group of Stock Agreements Shares up to the amount of the Proposed Disposition Shares that is commenced not later than the seventh Business Day after the Sale Notice is given. 3.3 If Starwood Lodging duly makes such an offer, such Restricted Holder or Restricted Group shall elect by telephonic notice to Starwood's representative delivered and confirmed as described above, given by 8:30 a.m. (Eastern Time) on the Business Day following 6 8 receipt of Starwood's offer (such day is referred to herein as the "Response Date"), in their sole and absolute discretion, to either (i) proceed with such proposed disposition, in which instance Starwood Lodging shall purchase or place the Proposed Disposition Shares at 9:00 a.m. (Eastern Time), on the Response Date, with payment to be delivered (against delivery to Starwood Lodging of the Proposed Disposition Shares free of all rights of other Persons) on the third Business Day after the Response Date in cash or immediately available funds to such account as such Restricted Holder may designate by notice to Starwood, or (ii) not to proceed with such proposed disposition, in which instance the Sale Notice shall be withdrawn and such Restricted Holder shall continue to hold the Proposed Disposition Shares subject to the terms of this Section 3 (to the extent applicable). If such Restricted Holder shall fail to so elect by 8:30 a.m. (Eastern Time) on the Response Date, it shall irrevocably be deemed to have elected not to proceed with such proposed disposition. 3.4 On the first anniversary of the Settlement Date, the provisions of this Section 3 shall automatically lapse and be of no further force or effect with respect to each Restricted Holder that holds less than 500,000 Stock Agreements Shares (except (i) to the extent that such Restricted Holder acts on or after such date as a member of a Restricted Group that holds in the aggregate 500,000 or more Stock Agreements Shares, and (ii) to the extent such Restricted Holder, either alone or as a member of a Restricted Group, has given or was required to have given Starwood Lodging a Sale Notice prior to such date and as to which the procedures in this Section 3 have not been fully performed). 3.5 Any notice given by Starwood Lodging pursuant to Section 3.2 hereof to Stock Purchaser shall be given telephonically to Mansor Dalaan at (310) 229-2929 and by telefacsimile to (310) 229-2927, or to such other telephone and telefacsimile numbers as may be set forth for such purpose in the Sale Notice. Any notice given by Starwood Lodging pursuant to Section 3.2 hereof to any other Restricted Holder or Restricted Group shall be given to the telephone and telefacsimile numbers as may be set forth for such purpose in the Sale Notice, and no Sale Notice from a Restricted Holder other than Stock Purchaser or from any Restricted Group shall be deemed properly given in accordance with Section 3.1 unless such numbers are set forth in such Sale Notice. 3.6 Time is of the essence in the performance by the parties of their obligations under this Section 3. SECTION 4 TRANSFERS NOT CONSTITUTING AN OPEN MARKET SALE; SHORT SALES 4.1 Each Restricted Holder covenants and agrees that, as a condition to any Transfer by a such Restricted Holder of Subject Shares in a transaction that does not constitute an Open Market Sale, such Restricted Holder will obtain and deliver to Starwood Lodging a Joinder Agreement duly executed by the transferee or the intended transferee; and any purported Transfer of Subject Shares made in breach of this provision shall be null and void ab initio. 4.2 Each Restricted Holder covenants and agrees that, prior to the effectiveness of the Registration Statement, it will not "sell short" (as such term is commonly understood in the brokerage industry) any Paired Shares, whether "against the box" or otherwise. SECTION 5 7 9 PAYMENT RIGHTS On the Settlement Date, Starwood Lodging shall pay to Stock Purchaser in cash or other immediately available funds an amount equal to the amount, if any, by which the Lock Price exceeds the Market Price as of the Settlement Date, multiplied by the number of Paired Shares delivered by Starwood Lodging to Stock Purchaser hereunder. Stock Purchaser's right to receive the payments from Starwood Lodging described in this section are referred to herein as the "Payment Rights." Pursuant to a written instrument a copy of which is delivered to Starwood Lodging promptly following its execution by Stock Purchaser, Stock Purchaser may distribute to its partners or their shareholders or assign to any other Person all or any portion of the Payment Rights either together with or separately from the Paired Shares delivered hereunder. SECTION 6 REPRESENTATIONS AND WARRANTIES 6.1 Stock Purchaser represents and warrants to Starwood Lodging as follows: (a) Stock Purchaser has the power and authority to enter into this Agreement and the Registration Rights Agreement and to perform its obligations hereunder and thereunder. The execution and delivery hereof and thereof and the performance by Stock Purchaser of its obligations hereunder and thereunder will not violate or constitute an event of default under any material term or material provision of any agreement, document, instrument, judgment, order or decree to which Stock Purchaser is a party or by which it is bound, or violate any law, rule or regulation the violation of which would have a material adverse effect upon the principal benefits intended to be provided under this Agreement or the Registration Rights Agreement. (b) The individuals executing this Agreement and the Registration Rights Agreement on behalf of Stock Purchaser have the legal power, right and actual authority to bind Stock Purchaser to the terms and conditions hereof and thereof. Each of this Agreement and the Registration Rights Agreement is a valid and binding obligation of Stock Purchaser, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. (c) Stock Purchaser is acquiring the Subject Shares to be issued to it for investment, solely for the account of itself, on behalf of its partners and Persons who are stockholders of such partners, or on behalf of certain Persons each of whom is both an Affiliate of a partner of Stock Purchaser and a creditor of Stock Purchaser (collectively, such partners and other Persons the "Stock Purchaser Affiliates"). Neither Stock Purchaser nor any of the Affiliates of Stock Purchaser is acquiring Subject Shares with a view to or for sale in connection with any distribution of such Subject Shares in violation of applicable securities laws. (d) Stock Purchaser and each of the Stock Purchaser Affiliates is an Accredited Investor. (e) Stock Purchaser has obtained and reviewed the Starwood Lodging Disclosure and the SEC Documents that have been filed with the SEC through the date hereof. 6.2 By its execution of its Joinder Agreement, each Restricted Holder other than Stock Purchaser shall be deemed to have represented and warranted to Starwood, as of 8 10 the date of its delivery of such Joinder Agreement, as follows: (a) Such Restricted Holder has the power and authority to enter into this Agreement, the Registration Rights Agreement and its Joinder Agreement and to perform its obligations hereunder and thereunder. The execution and delivery hereof and thereof and the performance by such Restricted Holder of its obligations hereunder and thereunder will not violate or constitute an event of default under any material term or material provision of any agreement, document, instrument, judgment, order or decree to which such Restricted Holder is a party or by which it is bound, or violate any law, rule or regulation the violation of which would have a material adverse effect upon the principal benefits intended to be provided under this Agreement or the Registration Rights Agreement. (b) The individuals executing this Agreement, the Registration Rights Agreement and its Joinder Agreement on behalf of such Restricted Holder have the legal power, right and actual authority to bind such Restricted Holder to the terms and conditions hereof and thereof. Each of this Agreement, the Registration Rights Agreement and its Joinder Agreement is a valid and binding obligation of such Restricted Holder, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. (c) Such Restricted Holder is acquiring the Subject Shares Transferred or to be Transferred to it for investment, solely for the account of itself and not with a view to or for sale in connection with any distribution of such Subject Shares in violation of applicable securities laws; provided, however, that if such Restricted Holder is Stock Purchaser Affiliate, such Restricted Holder may acquire the Subject Shares on behalf of Persons who are stockholders of such Restricted Holder if each of such Persons is an Accredited Investor. (d) Such Restricted Holder is an Accredited Investor. (e) Such Restricted Holder has had the opportunity, prior to making the determination to acquire any Subject Shares, to obtain and review the Starwood Lodging Disclosure and the SEC Documents that have been filed with the SEC through the date of the execution of such Restricted Holder's Joinder Agreement. 6.3 The Trust hereby represents and warrants to Stock Purchaser as follows: (a) The Trust has the power and authority to enter into this Agreement and the Registration Rights Agreement and to consummate the transactions herein contemplated; neither the execution and delivery of this Agreement or the Registration Rights Agreement by the Trust, nor the performance by the Trust of the Trust's obligations hereunder or thereunder will violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which the Trust is a party or by which the Trust is bound, or violate any law, rule or regulation the violation of which would have a material adverse effect upon the principal benefits intended to be provided under this Agreement or the Registration Rights Agreement. (b) The individuals executing this Agreement and the Registration Rights Agreement and the documents referenced herein on behalf of the Trust have the legal power, right and actual authority to bind the Trust to the terms and conditions hereof. This Agreement and the Registration Rights Agreement is a valid and binding obligation of Trust, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, 9 11 moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. (c) All Paired Shares to be delivered in accordance with Section 2.1 hereof will, when so issued, be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights and will be paired with each other in the same ratio as all other shares are paired with each other pursuant to the Pairing Agreement. (d) The Trust has filed all of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of applicable law, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements (including, in each case, any notes thereto) of the Trust included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as of their respective dates of filing, were prepared in accordance with generally accepted accounting principles (except, in the case of the unaudited statements, as permitted by Regulation S-X of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented the consolidated financial position of the Trust and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the SEC Documents or as required by generally accepted accounting principles, the Trust has not, since December 31, 1996, made any change in the accounting practices or policies applied in the preparation of their financial statements. (e) Except as disclosed in the SEC Documents or the Starwood Lodging Disclosure, since December 31, 1996 and through the date hereof, (i) there have not been any events, changes or developments that, individually or in the aggregate, have had or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole, or (ii) there has not been any split, combination or reclassification of any of the capital stock or units of the Trust or its operating partnership or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of, or in substitution for shares of such capital stock. (f) Except as set forth in the SEC Documents or the Starwood Lodging Disclosure or in a separate writing provided to Stock Purchaser on or before the date hereof, as of the date hereof: there are no outstanding orders, judgments, injunctions, awards or decrees of any governmental entity against or involving the Trust or any of its subsidiaries, or against or involving any of the directors, officers or employees of the Trust or any of its subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole; and there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the knowledge of the Trust, threatened against or involving the Trust or any of its subsidiaries or any of their directors, officers or employees, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole. As of the date hereof, there are 10 12 no actions, suits or other litigation, legal or administrative proceedings or governmental investigations pending or, to the knowledge of the Trust, threatened against or affecting the Trust or any of its subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement and the Registration Rights Agreement. 6.4 The Corporation hereby represents and warrants to Stock Purchaser as follows: (a) The Corporation has the power and authority to enter into this Agreement and the Registration Rights Agreement and to consummate the transactions herein contemplated; neither the execution and delivery of this Agreement or the Registration Rights Agreement by the Corporation, nor the performance by the Corporation of the Corporation's obligations hereunder or thereunder will violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which the Corporation is a party or by which the Corporation is bound, or violate any law, rule or regulation the violation of which would have a material adverse effect upon the principal benefits intended to be provided under this Agreement or the Registration Rights Agreement. (b) The individuals executing this Agreement and the Registration Rights Agreement and the documents referenced herein on behalf of the Corporation have the legal power, right and actual authority to bind the Corporation to the terms and conditions hereof. This Agreement and the Registration Rights Agreement is a valid and binding obligation of Corporation, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. (c) All Paired Shares to be delivered in accordance with Section 2.1 hereof will, when so issued, be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights and will be paired with each other in the same ratio as all other shares are paired with each other pursuant to the Pairing Agreement. (d) The Corporation has filed all of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of applicable law, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements (including, in each case, any notes thereto) of the Corporation included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as of their respective dates of filing, were prepared in accordance with generally accepted accounting principles (except, in the case of the unaudited statements, as permitted by Regulation S-X of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented the consolidated financial position of the Corporation and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the SEC Documents or as required by generally accepted accounting principles, the Corporation has not, since December 31, 1996, made any change in the accounting practices or policies applied in the preparation of their financial statements. (e) Except as disclosed in the SEC Documents or the Starwood Lodging 11 13 Disclosure, since December 31, 1996 and through the date hereof, (i) there have not been any events, changes or developments that, individually or in the aggregate, have had or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole, or (ii) there has not been any split, combination or reclassification of any of the capital stock or units of the Corporation or its operating partnership or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of, or in substitution for shares of such capital stock. (f) Except as set forth in the SEC Documents or the Starwood Lodging Disclosure or in a separate writing provided to Stock Purchaser on or before the date hereof, as of the date hereof: there are no outstanding orders, judgments, injunctions, awards or decrees of any governmental entity against or involving the Corporation or any of its subsidiaries, or against or involving any of the directors, officers or employees of the Corporation or any of its subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole; and there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the knowledge of the Corporation, threatened against or involving the Corporation or any of its subsidiaries or any of their directors, officers or employees, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole. As of the date hereof, there are no actions, suits or other litigation, legal or administrative proceedings or governmental investigations pending or, to the knowledge of the Corporation, threatened against or affecting the Corporation or any of its subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement and the Registration Rights Agreement (other than those arising in connection with the Registration Statement or the performance by the Corporation of its obligations under the Registration Rights Agreement). SECTION 7 NOTICES 7.1 Addresses. Except for the notices given pursuant to Section 3, whenever any notice, demand or request is required or permitted hereunder, such notice, demand or request shall be made in writing and shall be (a) sent via a nationally recognized overnight courier service fully prepaid, (b) deposited in the United States by mail, registered or certified, return receipt requested, postage prepaid, or (c) sent via telefacsimile, provided that the original of such notice, demand or request shall also be sent via one of the methods described in (a) and (b) above, in each case to the addressees (and individuals) set forth below: As to Stock Purchaser: c/o Al Anwa USA, Inc. 1925 Century Park East, Suite 1900 Los Angeles, CA 90067 Attn: Mansor Dalaan Telefacsimile: (310) 229-2927 With a copy to Stock Purchaser's additional addressees: 12 14 Morrison & Foerster LLP 555 West Fifth Street, Suite 3500 Los Angeles, CA 90013-1024 Attn: Thomas R. Fileti, Esq. Telefacsimile: (213) 892-5454 Gordon K. Eng, Esq. 19191 South Vermont Avenue, Suite 420 Torrance, California 90502 Telefacsimile: (310) 207-1066 As to Starwood Lodging: Starwood Hotels & Resorts Trust 2231 E. Camelback Rd., Suite 410 Phoenix, AZ 85016 Attn: Ronald C. Brown or Chief Financial Officer Telefacsimile: (602) 852-0115 Starwood Hotels & Resorts Worldwide, Inc. 2231 E. Camelback Rd., Suite 400 Phoenix, AZ 85016 Attn: Alan M. Schnaid or Vice President Telefacsimile: (602) 852-0115 With a copy to Starwood Lodging's additional addressees: Greenberg Traurig Hoffman Lipoff Rosen & Quentel 153 East 53rd Street New York, NY 10022 Attn: Andrew E. Zobler, Esq. Telefacsimile: (212) 223-7161 Sidley & Austin 555 West Fifth Street, Suite 4000 Los Angeles, CA 90013 Attn: Sherwin L. Samuels, Esq. and Kenneth H. Levin, Esq. Telefacsimile: (213) 896-6600 If to any Restricted Holder other than Stock Purchaser: to the address and telefacsimile number set forth in such Restricted Holder's Joinder Agreement (or to any other address or telefacsimile number provided to Starwood Lodging in writing pursuant to a notice given by such Restricted Holder pursuant to this Section 7.1). 7.2 Receipt of Notices. Any notice, demand or request that shall be delivered to Starwood Lodging and its Additional Addressee in the manner aforesaid shall be deemed sufficiently given to and received by Starwood Lodging for all purposes hereunder, and any notice, demand or request that shall be delivered to Stock Purchaser and its Additional Addressee in the manner aforesaid shall be deemed sufficiently given to and received by Stock Purchaser for all purposes hereunder (i) the next business day following the day such notice, demand or request is delivered by a nationally recognized overnight courier service fully 13 15 prepaid, to such party and its Additional Addressee, (ii) if sent via registered or certified mail, at the time of receipt by such party and its Additional Addressee, or (iii) if sent via telefacsimile, as of the date and time stated upon confirmation reports generated by the sending party's telefacsimile machine confirming the delivery of such notice, demand or request to such party and its Additional Addressee. 7.3 Refusal of Delivery. The inability to deliver any notice, demand or request because the individual to whom it is properly addressed in accordance with this Section 7 refused delivery thereof or no longer can be located at that address shall constitute delivery thereof to such individual. 7.4 Change of Address. Each party shall have the right from time to time to designate by written notice to the other parties hereto such other Person or Persons and such other place or places as said party may desire written notices to be delivered or sent in accordance herewith. SECTION 8 GENERAL PROVISIONS 8.1 Amendment. No provision of this Agreement or of any documents or instrument entered into, given or made pursuant to this Agreement may be amended, changed, waived, discharged or terminated except by an instrument in writing, signed by the party against whom enforcement of the amendment, change, waiver, discharge or termination is sought. 8.2 Time of Essence. All times provided for in this Agreement for the performance of any act will be strictly construed, time being of the essence. 8.3 Entire Agreement. This Agreement and other documents delivered pursuant to this Agreement set forth the entire agreement and understanding of the parties in respect of the transactions contemplated by this Agreement, and supersede all prior agreements, arrangements and understandings relating to the subject matter hereof and thereof. No representation, promise, inducement or statement of intention with respect to the subject matter hereof has been made by Stock Purchaser or Starwood Lodging which is not embodied in this Agreement, and neither Starwood Lodging nor Stock Purchaser shall be bound by or liable for any alleged representations, promise, inducement or statement of intention not therein so set forth. 8.4 No Waiver. No failure of any party to exercise any power given such party hereunder or to insist upon strict compliance by the other party with its obligations hereunder shall constitute a waiver of any party's right to demand strict compliance with the terms of this Agreement. 8.5 Counterparts. This Agreement, any document or instrument entered into, given or made pursuant to this Agreement or authorized hereby, and any amendment or supplement thereto may be executed in two or more counterparts, and, when so executed, will have the same force and effect as though all signatures appeared on a single document. Any signature page of this Agreement or of such an amendment, supplement, document or instrument may be detached from any counterpart without impairing the legal effect of any signatures thereon, and may be attached to another counterpart identical in form thereto but having attached to it one or more additional signature pages. 8.6 Costs and Attorneys' Fees. If any legal action or any arbitration or other 14 16 proceeding is brought for the enforcement of this Agreement or because of an alleged dispute, default, or misrepresentation in connection with any of the provisions of this Agreement the successful or prevailing party shall be entitled to recover reasonable attorneys' fees, charges and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled. 8.7 Payments; Interests. Except as otherwise provided herein, payment of all amounts required by the terms of this Agreement shall be made in the United States and in immediately available funds of the United States of America which, at the time of payment, is accepted for the payment of all public and private obligations and debts. If any payment due under this Agreement is not paid when due, it shall thereafter bear interest at a variable rate equal to the rate announced from time to time by Citibank, N.A. as its prime or reference rate, plus five percent (5%) per annum, but in no event more than the maximum rate, if any, allowed by law to be charged by the party receiving the interest on such type of indebtedness. 8.8 Parties in Interest. The rights and obligations of the parties hereto shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, heirs and the legal representatives of their respective estates. However, none of Stock Purchaser's rights under this Agreement shall be assignable except (i) in the case of the Payment Rights, as provided in Section 5 hereof, and (ii) in the case of all other rights of Stock Purchaser or another Restricted Holder, to a transferee of Subject Shares in a transaction not constituting an Open Market Sale if such transferee delivers a Joinder Agreement in compliance with Section 4 hereof. Nothing in this Agreement is intended to confer any right or remedy under this Agreement on any Person other than the parties to this Agreement and their respective successors and assigns, or to relieve or discharge the obligation or liability of any Person to any party to this Agreement or to give any Person any right of subrogation or action over or against any party to this Agreement. 8.9 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the conflict-of-law rules and principles of that state. 8.10 Incorporation of Recitals. The recitals of this Agreement are incorporated into and made a part of this Agreement. 8.11 Construction of Agreement. The language in all parts of this Agreement shall be in all cases construed simply according to its fair meaning and not strictly for or against any of the parties hereto. Headings at the beginning of sections of this Agreement are solely for the convenience of the parties and are not a part of this Agreement. When required by the context, whenever the singular number is used in this Agreement, the same shall include the plural, and the plural shall include the singular, the masculine gender shall include the feminine and neuter genders, and vice versa. As used in this Agreement, the term "Stock Purchaser" shall include the respective permitted successors and assigns of Stock Purchaser, and the term "Starwood Lodging" shall include the permitted successors and assigns of Starwood Lodging, if any. 8.12 Severability. If any term or provision of this Agreement is determined to be illegal, unconscionable or unenforceable, all of the other terms, provisions and sections hereof will nevertheless remain effective and be in force to the fullest extent permitted by law. 8.13 Further Assurances. Starwood Lodging and Stock Purchaser agree to execute upon the request of the other party such instruments and take such actions as may be reasonably necessary to carry out the provisions of this Agreement provided that no material additional cost or liability shall incurred thereby by the party of whom such request is made. 15 17 8.14 Starwood Hotels & Resorts Trust. The parties hereto understand and agree that the name "Starwood Hotels & Resorts Trust" is a designation of the Trust and its trustees (as trustees but not personally) under the Trust's Declaration of Trust, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 16 18 IN WITNESS WHEREOF, Starwood Lodging and Stock Purchaser have caused this Agreement to be executed as of the day and year first above written. "Stock Purchaser" SAVANAH LIMITED PARTNERSHIP, a District of Columbia limited partnership By: ASPEN ENTERPRISES INTERNATIONAL, INC., a Colorado corporation, its General Partner By: /s/ Mansor Dalaan ----------------------------- Mansor Dalaan President "Starwood Lodging" STARWOOD HOTELS & RESORTS TRUST, a Maryland real estate investment trust By: /s/ Steven R. Goldman ---------------------------------------- Steven R. Goldman Senior Vice President STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation By: /s/ Nir E. Margalit ---------------------------------------- Nir E. Margalit Secretary 17 19 ATTACHMENT A to Stock Agreement AGREEMENT TO BE BOUND BY THE STOCK AGREEMENT (JOINDER AGREEMENT) The undersigned, being the transferee or the intended transferee of ______________ Paired Shares (the "Subject Shares") of Starwood Hotels & Resorts Trust, a Maryland real estate investment trust, and Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (together, the "Company"), as a condition to the transfer to and acquisition by the undersigned of such Subject Shares, acknowledges that certain sales or other transfers of such Subject Shares are governed by the Stock Agreement (the "Stock Agreement"), dated as of January 15, 1998, initially among the Company and Savanah Limited Partnership, a District of Columbia limited partnership , and the undersigned hereby (1) acknowledges receipt of a copy of the Stock Agreement, and (2) agrees to be bound as a "Restricted Holder" by the terms of the Stock Agreement, as the same has been or may be amended from time to time (including without limitation the representations and warranties of the undersigned set forth therein that will be deemed made by virtue hereof). The undersigned is hereby advised that the Subject Shares have not been registered under the Securities Act of 1933 and in such event cannot be resold unless they are registered under said act or unless an exemption from registration under said act is available. The following is the undersigned's representative and such representative's address, telephone number and fax number for all purposes under the Stock Agreement: --------------------------------- --------------------------------- --------------------------------- Agreed to this ____ day of __________, ______. --------------------------------- By: ------------------------- Its: ------------------------- 18 20 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of January 15, 1998 among STARWOOD HOTELS & RESORTS TRUST, a Maryland real estate investment trust (the "Trust"), STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Corporation" and, together with the Trust, the "Company"), and SAVANAH LIMITED PARTNERSHIP, a District of Columbia limited partnership ("Shareholder"). RECITALS WHEREAS, pursuant to a Stock Agreement of even date herewith and by and among the parties hereto (the "Stock Agreement"), the Company is issuing and delivering to Shareholder certain Paired Shares; and WHEREAS, the Stock Agreement provides that if such Paired Shares are Unregistered Shares, the Company shall effect the registration of such Paired Shares under the Securities Act; and WHEREAS, the parties desire to set forth their rights and obligations with respect to such registration and certain other matters; NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. Each capitalized term used in this Agreement but not defined herein shall have the meaning ascribed to such term in the Stock Agreement; and as used in this Agreement the following terms shall have the following meanings: "Commission" means the Securities and Exchange Commission. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holder Information" means, with respect to a Selling Holder, (i) such information regarding such Selling Holder as is required by Section 507 of Regulation S-K promulgated by the Commission under the Securities Act, (ii) information as to whether (and if so, in what manner) the intended method of disposition of such Holder's Registrable Shares differs from the Plan of Distribution, and (iii) any such additional information as may be required to be included in the Registration Statement by a Selling Holder; in each case as shall be required to effect the registration of such Registrable Shares pursuant to the Registration Statement, the disclosures required in the Prospectus with respect thereto and the offer and Transfer of such Registrable Shares pursuant to the Prospectus. "Holders" means (i) Shareholder, and (ii) any other Person who acquires any of the Registrable Shares from Shareholder or another Holder if (a) the Transferor and such Person shall have delivered to the Company a written notice of such Transfer setting forth the name of such Person, and (b) such Person shall have executed and delivered to the Company a properly completed Joinder Agreement; in each case at such times as such Persons shall own Registrable Shares. "ITT Closing" means the consummation of the acquisition of ITT Corporation by the Company. 21 "ITT Termination" means the issuance by the Company of a press release stating that the Company will not consummate the acquisition of ITT Corporation. "Joinder Agreement" means an agreement to be bound by this Agreement in the form of Annex A hereto. "Paired Shares" means (i) "paired shares" (as such term is defined in the Purchase and Sale Agreement), and (ii) shares of capital stock of the Trust or the Corporation issued by the Trust or the Corporation in respect of or in exchange for paired shares in connection with any stock dividend or distribution, stock split-up, recapitalization, recombination or exchange by the Trust or the Corporation generally of such paired shares. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or other entity, or government or other agency or political subdivision thereof. "Proposed Plan of Distribution" means a draft of the portion of the Registration Statement that describes the intended methods of disposition of the Registrable Shares by the Selling Holders. "Prospectus" means, with respect to the Registration Statement and each amendment thereto, the form of prospectus included therein. "Registrable Shares" means, as of any date of determination, (i) the Paired Shares that are Unregistered Shares and that constitute the Subject Shares; (ii) any shares or other securities issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange by the Trust or the Corporation generally for, or in replacement by the Trust or the Corporation generally of, such Paired Shares; and (iii) any securities issued in exchange for such Paired Shares in any merger or reorganization of the Company; in each case that continue to be owned by a Holder on such date of determination. "Registration Statement" means a registration statement on Form S-3, as amended from time to time, registering the offer and sale by the Selling Holders of such Selling Holders' Registrable Shares included therein for offer and Transfer on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. "Required Effectiveness Date" means the later of (i) the 30th day after the Closing Date, or (ii) the earliest of: (a) The 30th day after the date of the ITT Closing; (b) The 30th day after the date of the ITT Termination; and (c) If neither the ITT Closing nor the ITT Termination has occurred prior to April 1, 1998, the 30th day after a demand for registration is made by notice given by Shareholder to the Company on or after April 1, 1998; provided, however, that in the event that, following the initial filing of the Registration Statement, the Company is advised by the Commission that the Registration Statement will be reviewed, each of the time periods set forth above shall be extended for 20 days. "Securities Act" shall mean the Securities Act of 1933, as amended. 22 "Selling Holders" means (a) each Holder (i) who complies with Sections 3.1.1 hereof, (ii) who holds not less than 100,000 Subject Shares at the both at the time such notice is given and the date the Registration Statement is declared effective (or such lesser number as the Company, in its sole and absolute discretion, shall determine for such Holder), and (iii) whose Registrable Shares are included in the Registration Statement; and (b) each Transferee of such a Holder who (x) provides such Transferee's Holder Information promptly after its acquisition of Subject Shares and prior to the Company's request for acceleration of the Registration Statement, and (y) satisfies the conditions set forth in clauses (ii) and (iii) above. "Transfer" means the act of selling, giving, transferring, creating a trust (voting or otherwise), assigning or otherwise disposing of (other than pledging, hypothecating or otherwise transferring as security) (and correlative words shall have correlative meanings). "Transferee" means a Person to whom Registerable Shares are Transferred. "Violation" shall have the meaning set forth in Section 5.1 hereof. 2. Registration Obligations of the Company. The Company shall: 2.1 File the Registration Statement with the Commission not later than 15 days prior to the Required Effectiveness Date (determined without reference to the proviso included in the definition of such term) and thereafter use its best efforts to cause the Registration Statement to be declared effective on the Required Effectiveness Date. 2.2 Furnish to the Shareholder a copy of the Registration Statement for its review and comment not later than concurrently with the filing of the Registration Statement with the Commission. 2.3 The Company shall give notice to the Shareholder of the expected effectiveness of the Registration Statement no later than the date acceleration of such effectiveness is requested of the Commission; provided, however, that in no event shall the Company have any liability for any failure to give such notice. 2.4 Include in the Registration Statement the number of each Holder's Registrable Shares for each Holder as shall be specified for such Holder pursuant to Section 3.1 hereof. 2.5 Use its best efforts to keep the Registration Statement effective until the earlier of (i) one year after the Closing Date, or (ii) such date as of which all the Selling Holders have completed the distribution or other disposition of the Registrable Shares registered under the Registration Statement. If the Registration Statement is terminated pursuant to clause (i) above, the Company shall timely file with the Commission all reports and other information required to enable all holders of Registrable Shares to Transfer such shares pursuant to Rule 144 promulgated by the Commission under the Exchange Act, as amended. 2.6 During the effectiveness of the Registration Statement, upon notice to the Company by a Selling Holder of a Transfer of Registrable Shares pursuant to the Registration 23 Statement and receipt (i) by the Company of a certificate from such Selling Holder in the form of Annex B attached hereto, and (ii) by counsel for the Company of a certificate from such Selling Holder in the form of Annex C attached hereto, in each case representing that such Registrable Shares were offered and have been Transferred by such Selling Holder in a manner consistent with the description set under the caption "Plan of Distribution" in the Prospectus, the Company shall use its best efforts to cause such Registrable Shares to be reissued as soon as practicable (and not later than three Business Days following receipt by the Company and such counsel of such certificates) in the name of the transferee free of any restrictive legend under the Securities Act and to take all such actions as may be reasonably required to cause its transfer agent to comply with the undertakings set forth in this section. 2.7 Use its best efforts to amend the Registration Statement or supplement the Prospectus so that they will remain current and in compliance with the requirements of the Securities Act for the period specified in Section 2.4 hereof, and use its best efforts to give the Selling Holders notice of the happening of any event or development as a result of which the Registration Statement or Prospectus may contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein not misleading. In the event that any Registrable Shares included in the Registration Statement remain unsold at the end of the period during which the Company is obligated to use its best efforts to maintain the effectiveness of the Registration Statement, the Company may file a post-effective amendment to the Registration Statement for the purpose of de-registering such unsold Registrable Shares. 2.8 Furnish to each Selling Holder, without charge, such numbers of copies of the Registration Statement, any pre-effective or post-effective amendment thereto, the final Prospectus, and any amendments or supplements thereto, in each case in conformity with the requirements of the Securities Act, and such other related documents, as each Selling Holder may reasonably request in order to facilitate the Transfer of the Registrable Shares owned by such Selling Holder. 2.9 Use its best efforts to register and qualify the Registrable Shares covered by the Registration Statement under such securities laws of such states or jurisdictions as shall be reasonably requested by the Selling Holders; provided, however, that neither the Trust nor the Corporation shall be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 2.10 Promptly notify each Selling Holder of any stop order issued or threatened to be issued by the Commission or any of the jurisdictions referred to in Section 2.9 hereof in connection with the Registration Statement (and use its best efforts to prevent the entry of such stop order or to remove it if entered as promptly as practicable). 2.11 Use its best efforts to cause the Registrable Shares covered by the Registration Statement, if the Paired Shares are then listed on a securities exchange or included for quotation in a recognized trading market, to continue to be so listed or included. 3. The Holders' Obligations. 3.1 The obligations of the Company under Section 2 with respect to each Holder are subject to the satisfaction of each of the following conditions: 3.1.1 Not later than 10 days after the later of (i) the date hereof, or (ii) the date on which the Company delivers the Proposed Plan of Distribution to the Shareholder 24 (or such later date as the Company, in its sole and absolute discretion, shall determine), such Holder shall furnish all of its Holder Information to the Company, if such Holder Information discloses that such Holder holds not less than 100,000 Subject Shares (or such lesser number as the Company, in its sole and absolute discretion, shall determine for such Holder). 3.1.2 Prior to the effectiveness of the Registration Statement, such Holder shall furnish to the Company by a notice such amendments and supplements to its Holder Information provided pursuant to Section 3.1.1 hereof as may be necessary in order to assure that the Holder Information included in the Registration Statement for each Selling Holder does not include a misstatement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 3.1.3 Such Holder shall cooperate with the Company in the preparation of the Registration Statement in the manner and to the extent reasonably requested by the Company, including accurately and fully completing, executing and delivering to the Company such documents as the Company may reasonably request in order to permit the Company to obtain the Holder Information or to otherwise comply with all applicable laws or to obtain acceleration of the effectiveness of the Registration Statement. 3.1.4 Such Holder shall not have breached any of its obligations to the Company set forth in this Section 3.1 or in Sections 3 or 4 of the Stock Agreement; provided, however, that if such breach is one that is capable of being cured and is actually cured by such Holder in all material respects, the obligations of the Company to such Holder that arises, or which the Company is obligated to perform in whole or in part, after such cure shall be reinstated on the terms and subject to the conditions set forth herein. A Transferee of Subject Shares who is otherwise entitled to have such shares included in the Registration Statement shall be deemed not have breached its obligation to provide its Holder Information to the Company if it provides such information promptly after its acquisition of such shares and prior to the Company's request for acceleration of the Registration Statement 3.1.5 Such Holder shall not have made any material misrepresentation pursuant to Section 6 of the Stock Agreement. 3.2 No action taken or omitted to be taken by or on behalf of any Holder shall adversely affect the rights of any other Holder hereunder. 3.3 After the effectiveness of the Registration Statement, each Selling Holder (and each transferee thereof) shall furnish to the Company by a notice such amendments and supplements to its Holder Information provided pursuant to Section 3.1 hereof as may be necessary in order to assure that the Holder Information included in the Registration Statement for such Holder does not include a misstatement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 4. Expenses of Registration. The Company shall pay all expenses incurred in connection with the registration, filing and qualification of the Registrable Shares, including all registration, filing and NASD or securities exchange fees; all fees and expenses of complying with securities or blue sky laws; all word processing, duplicating and printing expenses; and the fees and disbursements of counsel and accountants for the Company; but excluding all discounts, commissions or fees of selling brokers or similar securities industry professionals and all fees and expenses of counsel and accountants for the Selling Holders. 25 5. Indemnification; Contribution. 5.1 To the extent permitted by applicable law, the Company shall indemnify and hold harmless each Selling Holder; each Person, if any, who controls such Selling Holder within the meaning of the Securities Act; and each officer, director, partner and employee of such Selling Holder and such controlling Person; against any and all losses, claims, damages, liabilities and expenses incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may become subject under the Securities Act, to the extent such losses, claims, damages, liabilities and expenses arise out of or are based upon any of the following (collectively a "Violation"): 5.1.1 Any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including any final Prospectus, or any amendments or supplements thereto; 5.1.2 The omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or 5.1.3 Any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any applicable state securities law; provided, however, that the indemnification required by this Section 5.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or expense incurred by a Selling Holder (or any Person, if any, who controls such Selling Holder within the meaning of the Securities Act, or any officer, director, partner and employee of such Selling Holder and such controlling Person) to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with the Holder Information or other information furnished to the Company by or on behalf of such Selling Holder expressly for use in connection with the Registration Statement. 5.2 To the extent permitted by applicable law, each Selling Holder shall indemnify and hold harmless the Company; each of its directors, each of its officers who shall have signed the Registration Statement; each Person, if any, who controls the Company within the meaning of the Securities Act; any other Selling Holder, any controlling Person of any such other Selling Holder and each officer, director, partner, and employee of such other Selling Holder and such controlling Person; against any and all losses, claims, damages, liabilities and expenses, incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may otherwise become subject under the Securities Act, to the extent such losses, claims, damages, liabilities and expenses arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with the Holder Information or other information furnished to the Company by or on behalf of that Selling Holder expressly for use in connection with the Registration Statement. 5.3 Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action, suit, proceeding, investigation or threat thereof made in writing for which such indemnified party may make a claim under this Section 5, such indemnified party shall deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof 26 with counsel mutually satisfactory to the parties. The failure of an Indemnified Party to deliver written notice to the indemnifying party within a reasonable time following the commencement of any such action shall not relieve such indemnifying party of any liability to the indemnified party under this Section 5 unless such failure is prejudicial to such indemnifying party's ability to defend such action. Any fees and expenses incurred by the indemnified party (including any fees and expenses incurred in connection with investigating or preparing to defend such action or proceeding) shall be paid to the indemnified party, as incurred, within 30 days of written notice thereof to the indemnifying party (regardless of whether it is ultimately determined that an indemnified party is not entitled to indemnification hereunder). Any such indemnified party shall have the right to employ separate counsel in any such action, claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be the expenses of such indemnified party unless (i) the indemnifying party has agreed to pay such fees and expenses, or (ii) the indemnifying party shall have failed to promptly assume the defense of such action, claim or proceeding, or (iii) the named parties to any such action, claim or proceeding (including any impleaded parties) include both such indemnified party and the indemnifying party, and such indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or in addition to those available to the indemnifying party and that the assertion of such defenses would create a conflict of interest such that counsel employed by the indemnifying party could not faithfully represent the indemnified party (in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action, claim or proceeding on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action, claim or proceeding or separate but substantially similar or related actions, claims or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all such indemnified parties, unless in the reasonable judgment of such indemnified party a conflict of interest would exist between such indemnified party and any other of such indemnified parties with respect to such action, claim or proceeding, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels). No indemnifying party shall be liable to an indemnified party for any settlement of any action, proceeding or claim without the written consent of the indemnifying party, which consent shall not be unreasonably withheld or delayed. 5.4 If the indemnification required by this Section 5 from the indemnifying party is determined by a court of competent jurisdiction to be unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to in this Section 5: 5.4.1 The indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, l abilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any Violation has been committed by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such Violation. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 5.1 and 5.2, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. 27 5.4.2 The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5.4 were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in Section 5.4.1. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of a fraudulent misrepresentation. 5.5 If indemnification is available under this Section 5, the indemnifying parties shall indemnify each indemnified party to the full extent provided in this Section 5 without regard to the relative fault of such indemnifying party or indemnified party or any other equitable consideration referred to in Section 5.4. 5.6 The obligations of the Company and the Selling Holders under this Section 5 shall survive the completion of any offering of Registrable Shares pursuant to the Registration Statement and any termination of this Agreement. 6. Amendment, Modification and Waivers; Further Assurances. 6.1 This Agreement may be amended with the consent of the Company and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it; in each case only if the Company shall have obtained the written consent of Holders holding more than 50% of the Registrable Shares. Such amendment, action or omission shall not require the consent of any other Holder. In addition, the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, that affects the rights hereunder of a specific Holder with the written consent of such Holder. 6.2 No waiver of any terms or conditions of this Agreement shall operate as a waiver of any other breach of such terms and conditions or any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof. No written waiver hereunder, unless it by its own terms explicitly provides to the contrary, shall be construed to effect a continuing waiver of the provisions being waived and no such waiver in any instance shall constitute a waiver in any other instance or for any other purpose or impair the right of the party against whom such waiver is claimed in all other instances or for all other purposes to require full compliance with such provision. 6.3 Each of the parties hereto shall execute all such further instruments and documents and take all such further action as any other party hereto may reasonably require in order to effectuate the terms and purposes of this Agreement. 7. Miscellaneous. 7.1 Business Day. Whenever this Agreement requires that an action be taken or a notice be given on a date that would otherwise not be a Business Day, the time period for taking such action or giving such notice shall be extended to the first day thereafter that is a Business Day. 7.2 Governing Law. This agreement shall be governed by and construed in accordance with the laws of the state of New York, without giving regard to the conflict of laws principles thereof. 7.3 Notices. All notices, requests, demands, consents, approvals, designations and other deliveries and communications called for or contemplated by this Agreement shall be in 28 writing and shall be given (i) in the case of Shareholder or the Company, to the address and in the manner set forth in Section 7 of the Stock Agreement, and (ii) in the case of any Holder other than Shareholder, in the manner set forth in Section 7 of the Stock Agreement and to the address provided to the Company in such Holder's Joinder Agreement. 7.4 Entire Agreement; Integration. This Agreement, together with the Stock Agreement, supersedes all prior agreements between or among any of the parties hereto with respect to the subject matter contained herein and therein, and such agreements embody the entire understanding among the parties relating to such subject matter. 7.5 Section Headings. Section headings are for convenience of reference only and shall not affect the meaning of any provision of this Agreement. 7.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which shall together constitute one and the same instrument. All signatures need not be on the same counterpart. 7.7 Severability. If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not affect the validity and enforceability of the remaining provisions of this Agreement, unless the result thereof would be unreasonable, in which case the parties hereto shall negotiate in good faith as to appropriate amendments hereto. 7.8 Termination. This Agreement may be terminated at any time by a written instrument signed by the parties hereto. Unless sooner terminated in accordance with the preceding sentence, this Agreement (other than Section 5 hereof) shall terminate in its entirety on such date as there shall be no Registrable Shares. 7.9 Attorneys' Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees (including any fees incurred in any appeal) in addition to its costs and expenses and any other available remedy. 7.10 No Third Party Beneficiaries or Assignees. Nothing herein expressed or implied is intended to confer upon any person, other than the parties hereto or the Holders (to the extent expressly provided herein) any rights, remedies, obligations or liabilities under or by reason of this Agreement. Neither this Agreement not the rights or obligations hereunder may be assigned or otherwise transferred by any Holder except as permitted herein with respect to a Transfer of Registrable Shares. 7.11 Starwood Lodging Trust. The parties hereto understand and agree that the name "Starwood Lodging Trust" is a designation of the Trust and its trustees (as trustees but not personally) under the Trust's Declaration of Trust, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 29 IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date first written above. "Shareholder" SAVANAH LIMITED PARTNERSHIP, a District of Columbia limited partnership By: ASPEN ENTERPRISES INTERNATIONAL, INC., a Colorado corporation, its General Partner By: /s/ Mansor Dalaan ____________________________ Mansor Dalaan President STARWOOD HOTELS & RESORTS TRUST a Maryland real estate investment trust By: /s/ Steven R. Goldman _____________________________ Steven R. Goldman Senior Vice President STARWOOD HOTELS & RESORTS WORLDWIDE, INC. a Maryland corporation By: /s/ Nir E. Margalit _____________________________ Nir E. Margalit Secretary 30 ANNEX A to Registration Rights Agreement AGREEMENT TO BE BOUND BY THE REGISTRATION RIGHTS AGREEMENT The undersigned, being the transferee or the intended transferee of _________ Paired Shares (the "Registrable Shares") of Starwood Hotels & Resorts Trust, a Maryland real estate investment trust, and Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (together, the "Company"), as a condition to the transfer to and acquisition by the undersigned of such Registrable Shares, acknowledges that matters pertaining to the sale and registration of such Registrable Shares are governed by the Registration Rights Agreement (the "Registration Rights Agreement"), dated as of January 15, 1998, initially among the Company and Savanah Limited Partnership, a District of Columbia limited partnership, and the undersigned hereby (1) acknowledges receipt of a copy of such agreement, and (2) agrees to be bound as a "Holder" by the terms of the Registration Rights Agreement, as the same has been or may be amended from time to time. Agreed to this ____ day of __________, ____. ___________________________________ By: __________________________ Its: __________________________ Address, telephone number and telecopy number for notices: ___________________________________ ___________________________________ ___________________________________ ___________________________________ 31 ANNEX B to Registration Rights Agreement [Letterhead of Selling Holder] ____________, 199__ BY TELECOPIER Starwood Hotels & Resorts Trust 2231 E. Camelback Road, Suite 410 Phoenix, Arizona 85016 Attention: Ronald C. Brown or Chief Financial Officer Starwood Hotels & Resorts Worldwide, Inc. 2231 E. Camelback Road, Suite 400 Phoenix, Arizona 85016 Attention: Alan M. Schnaid or Vice President Re: Starwood Hotels & Resorts Ladies and Gentlemen: Reference is made to the prospectus (the "Prospectus") included in the Registration Statement on Form S-3 (Registration No. ___________) filed by Starwood Hotels & Resorts Trust (the "Trust") and Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation" and, together with the Trust, the "Company") with the Securities and Exchange Commission on _________, 1998, under the Securities Act of 1933, as amended (the "Securities Act"), relating to the registration for resale by the shareholders named therein of certain shares of beneficial interest, par value $.01 per share, of the Trust, and shares of common stock, par value $.01 per share, of the Corporation (the "Paired Shares"), including _______ Paired Shares held by the undersigned. ___________ of the Paired Shares held by the undersigned were offered for sale and have been sold by the undersigned in a manner consistent with the description set under the caption "Plan of Distribution" in the Prospectus. Thus, the undersigned requests that new certificates evidencing such Paired Shares be issued in the name of _________________________, the transferee, free of any restrictive legend under the Securities Act. Very truly yours, [Name and signature of Selling Holder] 32 ANNEX C to Registration Rights Agreement [Letterhead of Selling Holder] ____________, 199__ BY TELECOPIER Sidley & Austin 555 West Fifth Street Los Angeles, California 90013 Attention: Sherwin L. Samuels, Esq., Kenneth H. Levin, Esq. and James V. Robertson, Esq. Re: Starwood Hotels & Resorts Ladies and Gentlemen: Reference is made to the prospectus (the "Prospectus") included in the Registration Statement on Form S-3 (Registration No. ___________) filed by Starwood Hotels & Resorts Trust (the "Trust") and Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation" and, together with the Trust, the "Company") with the Securities and Exchange Commission on _________, 1998, under the Securities Act of 1933, as amended (the "Securities Act"), relating to the registration for resale by the shareholders named therein of certain shares of beneficial interest, par value $.01 per share, of the Trust, and shares of common stock, par value $.01 per share, of the Corporation (the "Paired Shares"), including _______ Paired Shares held by the undersigned. The undersigned understands that you have been requested by the Company to deliver an opinion to the Company's transfer agent that, upon the sale by the undersigned of the Paired Shares, certificates evidencing such shares may be issued to the transferee(s) without any restrictive legend under the Securities Act. For the purpose of facilitating the delivery by you of such opinion, the undersigned, hereby represents that _______ of the Paired Shares held by the undersigned were offered for sale and have been sold in a manner consistent with the description set under the caption "Plan of Distribution" in the Prospectus. The undersigned understands that you will be relying on the foregoing representations in rendering your opinion, and the undersigned consents to such reliance. Very truly yours, [Name and signature of Selling Holder] EX-10.57 34 EX-10.57 1 Exhibit 10.57 NY EXECUTION PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS By And Between N.Y. OVERNIGHT PARTNERS, L.P., a New York Limited Partnership As Seller And STARWOOD LODGING TRUST, a Maryland Real Estate Investment Trust And STARWOOD LODGING CORPORATION, a Maryland Corporation, As Buyer. Dated As Of: December 30, 1997 Relating to the New York Luxury Collection Hotel, New York New York 2 PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS THIS PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this "Agreement") is entered into as of the 30th day of December, 1997, by and between N.Y. OVERNIGHT PARTNERS, L.P., a New York limited partnership ("Seller"), and STARWOOD LODGING TRUST, a Maryland Real Estate Investment Trust (the "Trust"), and STARWOOD LODGING CORPORATION, a Maryland corporation (the "Corporation"; the Trust and the Corporation being referred to herein collectively as, "Buyer"). A. Seller owns that certain parcel of land described in EXHIBIT A attached hereto and made a part hereof, which is improved with a hotel building and certain related improvements, all as more particularly set forth in this Agreement. B. Seller desires to sell, and Buyer desires to purchase, the above described land and hotel together with the related improvements upon the terms and subject to the conditions set forth in this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the foregoing and the mutual promises and agreements contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby mutually acknowledged, Buyer and Seller agree as follows: SECTION 1 DEFINITIONS 1.1 Defined Terms "Accounts Receivable" shall mean, collectively, all Cash Equivalent Receivables, all Invoiced Receivables and all Other Accounts Receivable. "Affiliate" shall have the meaning set forth in Rule 12b-2 of the regulations promulgated under the Exchange Act. "Approved Service Contracts" shall mean the Service Contracts identified on SCHEDULE 1.1.1 annexed hereto and made a part hereof and any other Service Contracts cancelable upon thirty (30) or fewer days notice without penalty, which Service Contracts Buyer shall assume as of the Closing pursuant to the General Assignment and Assumption Agreement. "Assignment and Assumption of Ground Lease" shall have the meaning set forth in SECTION 4.2.1.8. "Assignment and Assumption of Management Agreement" shall have the meaning set forth in SECTION 4.2.1.4. "Assignment and Assumption of Tenant Leases" shall have the meaning set forth in SECTION 4.2.1.2. "Assignment of Mortgage" shall have the meaning set forth in SECTION 4.2.1.9. 3 "Bill of Sale" shall have the meaning set forth in SECTION 4.2.1.5. "Business Day" shall mean any day other than Saturday or Sunday on which the New York Stock Exchange is open for business. "Booking" shall mean a contract or reservation for the use of guest rooms, banquet facilities, meeting rooms, and/or conference facilities at the Hotel. "Buyer's Counsel" shall mean the law firm of Greenberg Traurig Hoffman Lipoff Rosen & Quentel acting through Andrew E. Zobler, Esq. "Buyer Default" shall have the meaning set forth in SECTION 3.5.1. "Cash Equivalent Receivables" shall mean all Guest Ledger Receivables which are in the form of drafts or checks written on any bank or other financial institution, certified checks, money orders, amounts owed to Seller from credit card, debit card, travel and entertainment card or traveler's check companies, and are in such other forms which are considered to be cash equivalents under generally acceptable accounting principles, whether or not such Guest Ledger Receivables have been presented or billed to any such bank, financial institution or other company as of the Closing Date. "Cash Purchase Price" shall mean (a) Seventy-Six Million Eight Hundred Thousand Dollars ($76,800,000.00) plus (b) an additional Three Million Two Hundred Thousand Dollars ($3,200,000.00) if the Scheduled Closing Date does not occur prior to July 15, 1998 plus (c) the Overage Cash Payment, if any, as adjusted pursuant to SECTION 3.2.2. "Closing" or "Close of Escrow" shall have the meaning set forth in SECTION 4.7.2. "Closing Agent" shall have the meaning set forth in SECTION 4.8.10. "Closing Date" shall mean the day on which the Closing occurs hereunder. "Closing Payment" shall have the meaning set forth in SECTION 3.2.2. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. "Collective Bargaining Agreements" shall have the meaning set forth in SECTION 14.2. "Conveyance Documents" shall mean the Deed, the Assignment and Assumption of Ground Lease, the Assignment and Assumption of Management Agreement, the Assignment and Assumption of Tenant Leases, the Bill of Sale and the General Assignment and Assumption Agreement. "Deed" shall have the meaning set forth in SECTION 4.2.1.1. "Deposit" shall mean an amount equal to $4,571,428.00 held in accordance with the provisions of SECTION 3 hereof together with all interest accrued thereon. "Employer Corporation" shall mean Luxury Holdings, Inc. (formerly known as TQM Inc.). "Employment Agreements" shall mean the Collective Bargaining Agreements and Employee Benefit Plans (as defined in Section 3(3) of ERISA), affecting Hotel Employees, including pension, profit sharing, employee benefit and similar plans, if any, and agreements with regard to any Hotel Employee each of which are identified on or expressly described in the materials identified on SCHEDULE 1.1.2 annexed hereto and made a part hereof. "Environmental Condition" shall mean any condition with respect to soil, surface waters, groundwater, land, stream sediments, surface or subsurface strata, ambient air and any environmental medium comprising or surrounding the Real Property, which results in any damage, loss, cost, expense, claim, demand, order or liability to or against Seller or Buyer by any third party (including, without limitation, any government entity) as a result of a violation of any applicable Environmental Laws. 4 "Environmental Laws" shall mean all presently applicable statutes, regulations, rules, ordinances, codes, licenses, permits and orders of any and all governmental agencies, departments, commissions, boards, bureaus or instrumentalities of the United States, states and political subdivisions thereof, and all applicable judicial and administrative and regulatory decrees, judgments and orders relating to the protection of the environment, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9061 et seq.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C. 1801, et seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251, et seq.; and analogous state laws and regulations. "Equipment Leases" shall mean all leases of equipment, vehicles, furniture or other personal property leased by, or on behalf of, Seller and located at, or used in the operation of the Real Property, together with any and all amendments thereto, which are identified on SCHEDULE 1.1.3 annexed hereto. "Equity Purchase Price" shall mean the number of Paired Shares with a value as determined pursuant to the Stock Agreement equal to Two Million Nine Hundred Forty Two Thousand Four Hundred Dollars ($2,942,400.00) (provided, however, the Equity Purchase Price shall be reduced to Zero Dollars ($0.00) if the Scheduled Closing Date does not occur prior to July 15, 1998) to be delivered in accordance with the applicable provisions of the Stock Agreement. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder. "Escrow" shall mean an escrow opened with the Escrow Holder for the purchase and sale of the Property in accordance with the provisions of this Agreement. "Escrow Holder" shall mean the Title Company unless otherwise agreed in writing by Buyer and Seller. "Escrow Instructions" shall have the meaning set forth in SECTION 4.1. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Excluded Property" shall mean all Seller's right, title and interest in and to: (a) those claims of Seller attributable to the period prior to the Closing Date and described on SCHEDULE 1.1.4 annexed hereto and made a part hereof, or which Seller is entitled to assert under the express provisions of SECTION 5; (b) all insurance proceeds under Seller's Insurance and workers' compensation policies, including return premiums and dividends thereon and all claims thereunder in each case to the extent attributable to acts or occurrences prior to the Closing Date; (c) all accounts owned or maintained by Seller, or Manager on Seller's behalf, in connection with the Hotel, including all operating and reserve accounts; and (d) any books, records, files or papers specifically described in SECTION 6.3.2 as excluded from the Property Information. "Excluded Parties" shall have the meaning set forth in SECTION 17.18 "Execution Date" shall mean the date hereof. "General Assignment and Assumption Agreement" shall have the meaning set forth in SECTION 4.2.1.3. "Ground Lease" shall mean the Ground Lease entered into as of December 30, 1963 by and between the Massachusetts Mutual Life Insurance Company and Louis Berry & F.B.M. Manufacturing Company, Inc., as amended to date and described more fully on SCHEDULE 1.1.5 hereto. "Ground Lease Estoppel" shall have the meaning set forth in SECTION 9.1.4. 5 "Ground Lease Transfer Requirement" shall have the meaning set forth in SECTION 7.1.1 "Guest Ledger Receivables" shall mean amounts, including, without limitation, room charges, accrued to the accounts of guests occupying rooms at the Hotel or group, conference or banquet customers of Seller at the Hotel. "Hart-Scott-Rodino Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and regulations promulgated thereunder, as the same has been amended from time to time. "Hotel" shall mean the hotel located on the Land and commonly known as the New York Luxury Collection Hotel. "Hotel Employees" shall mean all full-time, part-time or temporary employees of Seller and/or the Employer Corporation (but not employees of Manager or any of its affiliates) who are employed by Seller and/or the Employer Corporation exclusively at or in connection with the Hotel as of the Closing Date and who are listed on SCHEDULE 1.1.6 annexed hereto and made a part hereof. "Improvements" shall mean Seller's right, title and interest in and to the hotel building and other improvements now or hereafter located on the Land. "Insured Casualty Notice" shall have the meaning set forth in SECTION 12.1.1. "Intangible Property" shall mean all of Seller's right, title and interest in and to the following, in each case excluding any Excluded Property: (i) Licenses and Permits; (ii) trademark rights, and other intangible property, rights, titles, interests, privileges and appurtenances related to or used in connection with the Hotel or its operations; (iii) warranties and guaranties of architects, engineers, contractors, subcontractors, suppliers or materialmen involved in the repair, construction, maintenance, design, reconstruction or operation of the Hotel, or any equipment or systems constituting a part of the Hotel; (iv) Approved Service Contracts; (v) Equipment Leases; (vi) Bookings; and (vii) computer programs, software and documentation thereof (subject to the limitations of any applicable license agreements pertaining thereto), and including all electronic data processing systems, program specifications, source codes, logs, input data and report layouts and forms, record file layouts, diagrams, functional specifications and variable descriptions, flow charts and other related materials used in connection therewith; and (viii) any goodwill associated with the operation of the Hotel. "Interim Management Agreement" shall have the meaning set forth in SECTION 17.20 hereto. "Invoiced Receivables" shall mean all Guest Ledger Receivables other than Cash Equivalent Receivables whether or not such Guest Ledger Receivables have been invoiced by Seller as of the Closing Date. "Land" shall mean Seller's right, title and interest in and to the land described on EXHIBIT A annexed hereto and made a part hereof. "Licenses and Permits" shall mean all licenses, permits, registrations, certificates, authorizations and governmental approvals other than the Liquor License obtained in connection with the design, construction, rehabilitation, use and/or operation of the Hotel. "Liquor License" shall mean all licenses, permits, registrations, certificates, authorizations and governmental approvals with respect to service of alcoholic beverages at the Hotel. "Liquor License Management Agreement" shall have the meaning set forth in SECTION 4.2.1.8. "Lock Price" shall have the meaning set forth in the Stock Agreement. 6 "Losses" shall mean any and all losses, liabilities, obligations, damages, claim or expense, including without limitation, reasonable attorneys' and accountants' fees and disbursements related thereto. "Manager" means Sheraton Operating Corporation, a wholly-owned subsidiary of ITT Sheraton Corporation. "Management Agreement" shall mean that certain Management Agreement entered into as of August 13, 1997 between Seller and Manager. "Market Price" shall have the meaning set forth in the Stock Agreement. "Material" shall mean $5,000 for any single occurrence and $15,000 in the aggregate for any group of occurrences whether or not related. "Material Casualty" shall mean a casualty or casualties that, in the aggregate: (i) causes in excess of $10,000,000.00 worth of damage to the Hotel; or (ii) will take twelve (12) months or longer from the date of the casualty to fully remediate. "Material Taking" shall mean an exercise by an applicable governmental authority of the power of condemnation or eminent domain that results in: (a) the taking of more than twenty percent (20%) of the Real Property; (b) a material reduction or restriction in access to the Property; or (c) the inability to operate the Hotel in substantially the same manner (without material additional expense) as it was operated prior to such taking. "Memorandum of Contract" shall mean a memorandum of this Agreement in the form attached as EXHIBIT B hereto. "Monetary Lien" shall mean any monetary lien affecting the Seller's interest in the Real Property of an ascertainable amount, other than any lien for taxes or assessments which are not yet due and payable. "Non-Foreign Person Certificate" shall have the meaning set forth in SECTION 4.2.1.13. "Other Accounts Receivable" shall mean any and all rents, additional rent, deposits, and other sums and charges owing to Seller that are in any way attributable to the operation of the business at the Hotel, including, without limitation, all rents and/or license fees due from Tenants under Tenant Leases, and including any such amounts which are past due, but excluding Guest Ledger Receivables. "Overage Cash Payment" shall mean the portion of the Equity Purchase Price which is payable in cash at Closing as provided in SECTION 3.2.2.1, if any. "Ownership Limitation" shall mean the limitations contained in the declaration of trust for the Trust and the Corporation's articles of incorporation prohibiting actual or constructive ownership by any one person or group of related persons of more than 8% of the issued and outstanding Paired Shares taking into account the attribution rules of Section 544(a) of the Code as modified by Section 856(h) of the Code or Section 318(a) of the Code as modified by Section 856(d)(5) of the Code. "Paired Shares" shall mean one share of beneficial interest, par value $.01 per share of the Trust, and one share of common stock, par value $.01 per share, of the Corporation that are subject to the Pairing Agreement, which shares shall be transferable as provided in the Stock Agreement and the Pairing Agreement. "Pairing Agreement" shall mean the Pairing Agreement dated as of June 25, 1980, as amended, between the Trust and the Corporation providing, in relevant part, for the pairing of all outstanding beneficial interests of the Trust and shares of the Corporation. "Permitted Encumbrances" shall have the meaning set forth in SECTION 7.3. "Person" shall mean any natural person, partnership, corporation, association, 7 limited liability company, trust or any other legal entity. "Personal Property" shall mean collectively the Tangible Personal Property and the Intangible Property. "Preliminary Title Report" shall have the meaning set forth in SECTION 7.1. "Property" shall mean collectively the Real Property, the Personal Property, the Tenant Leases, and the Accounts Receivable, but shall exclude the Excluded Property. "Property Information" shall have the meaning set forth in SECTION 6.4.2. "Proration Time" shall mean 12:01 a.m. Eastern Time on the Closing Date. "Purchase Price" shall mean the sum of the Cash Purchase Price and the Equity Purchase Price. "Real Property" shall mean the Land and the Improvements, together with Seller's right, title and interest in and to all rights of way, easements, water or littoral rights, rights to any minerals, oil, gas and other hydrocarbon substances, or any portion thereof, relating to the Land, and Seller's right, title and interest in and to all streets, alleys, strips and gores abutting the Land, if any. "Records and Plans" shall mean, all financial records showing the income and expenses of the Hotel for the prior three (3) calendar years and for the current year to date, certificates of occupancy, records of the Hotel's operations (including utility bills), building plans, specifications and drawings, lists of Personal Property, surveys, tax bills for the Real Property for the last three (3) years and for the current year to date, copies of the Service Contracts, Licenses and Permits and other documents related to the use, maintenance, repair, management, construction and/or operation of the Hotel, in each case, to the extent located on-site at the Hotel, or to Seller's Knowledge, otherwise under the control of Seller. "Related Agreement" shall have the meaning set forth in SECTION 9.1.3. "Schedule of Advance Bookings" means the Schedule of Advance Bookings delivered pursuant to SECTION 4.2.1.19. "Schedule of Tenant Leases" means the Schedule of Tenant Leases set forth in SCHEDULE 1.1.7 annexed hereto and made a part hereof. "Scheduled Closing Date" shall mean January 15, 1998, as such date may be extended in accordance with the provisions of SECTION 7.1 time being of the essence. "SEC" shall mean the United States Securities and Exchange Commission. "SEC Documents" shall have the meaning set forth in SECTION 6.1.4. "Securities Act" shall mean the Securities Act of 1933, as amended. "Seller Default" shall have the meaning set forth in SECTION 11.1. "Seller's Closing Certificate" shall have the meaning set forth in SECTION 4.2.1.18. "Seller's Counsel" shall mean Morrison & Foerster LLP acting through Thomas R. Fileti, Esq. "Seller's Due Diligence" shall mean the information gathering and review process described on SCHEDULE 1.1.8. "Seller's Insurance" shall have the meaning set forth in SECTION 6.3.12. "Seller's Knowledge" shall mean with respect to any representation or warranty so qualified, the knowledge of the person(s) identified on SCHEDULE 1.1.8 annexed hereto and made a part hereof, on the date on or as of which such representation or warranty is made, following the completion by such person(s) of Seller's Due Diligence, but without any other duty to investigate or inquire and without attribution to any such identified person(s) of facts and matters otherwise within the personal knowledge of any other officers, employees, or agents 8 of Seller or any third parties (including, but not limited to, the Manager or any previous manager of the Hotel), but not within the actual current knowledge of such named person(s). It is understood that none of the individuals identified on SCHEDULE 1.1.8 shall have any personal liability for any of Seller's representations, warranties and other obligations under this Agreement. "Service Contracts" shall mean any and all service contracts, landscaping contracts, maintenance agreements, open purchase orders and other contracts for the provision of services, materials or supplies to or for the benefit of the Property, except for the Management Agreement, together with any and all amendments thereto. "Specific Disclosure Matters" shall mean certain disclosures and information provided or disclosed by Seller to Buyer described on SCHEDULE 1.1.9 annexed hereto and made a part hereof. "Starwood Disclosure" shall mean collectively, the Form S-3 filed by the Corporation and the Trust with the SEC on November 12, 1997, and the Form S-4 filed by the Corporation and the Trust with the SEC on November 20, 1997, as the same may be amended by any filing with the SEC made by the Trust or the Corporation as amended to date and from time to time thereafter. "Starwood Operating Partnership" shall mean SLC Operating Limited Partnership, a Delaware limited partnership. "Starwood Realty Partnership" shall mean SLT Realty Limited Partnership, a Delaware limited partnership. "State" shall mean the state in which the Hotel is located. "Stock Agreement" shall have the meaning set forth in SECTION 4.2.1.6. "Survey" shall mean an as-built customary survey of the Real Property certified to the Title Company meeting all State land survey requirements. "Tangible Personal Property" shall mean, in each case to the extent owned by Seller and excluding any and all of the Excluded Property: (i) all Records and Plans; (ii) all "Inventories", as such term is defined in the Uniform System of Accounts; (iii) all depreciable personal property; and (iv) all other tools, vehicles, supplies, artwork, furniture, furnishings, machinery, equipment, licensed software and personal computer based security systems, if any, specialized hotel equipment and other tangible personal property, used in connection with the ownership, operation or maintenance of the Property, including, without limitation, all china, glassware, silverware, linens, towels, curtains, uniforms, engineering, maintenance, and housekeeping supplies, draperies, materials and carpeting, used or intended for use, but not for sale, in connection with the operation of the Hotel, all equipment used in the operation of the kitchen, dining rooms, lounges, bars, laundry, dry cleaners, lobby, reservation desk and all merchandise, food and beverages held for sale in connection with the operation of the Hotel, which are on hand on the Closing Date; provided, however, that to the extent that any applicable law prohibits the transfer of alcoholic beverages from Seller to Buyer, such beverages shall not be considered a part of the Tangible Personal Property. "Tenant" shall mean a tenant, licensee or concessionaire occupying space at any portion of the Property pursuant to a Tenant Lease. "Tenant Lease" shall mean a lease, concession agreement or license agreement entered into by or on behalf of Seller with a third party for the use of any part of the Real Property, including those leases, concession agreements and license agreements shown on the Schedule of Tenant Leases, together with any amendments thereto but excluding Bookings. "Tenant Security Deposits" shall mean all security deposits or other security of 9 Tenants under the Tenant Leases, plus accrued interest, if any, payable thereon. "Termination Charges" shall have the meaning set forth in SECTION 14.1. "Termination Notice" shall have the meaning set forth in SECTION 3.5.1. "Threshold Amount" shall mean One Million Dollars ($1,000,000). "Title Company" shall mean Chicago Title Insurance Company. "Title Policy" shall have the meaning set forth in SECTION 7.2. "Transfer Restriction Period" shall have the meaning set forth in SECTION 17.18. "Uninsured Casualty Notice" shall have the meaning set forth in SECTION 12.2.1. "Uninsured Estimate to Repair" shall have the meaning set forth in SECTION 12.2.1. "Uniform System of Accounts" shall mean the Uniform System of Accounts for Hotels, prepared by The Hotel Association of New York City, Inc., in effect as of the date hereof. "Utility Deposits" shall mean Seller's right, title and interest in and to all deposits delivered by Seller to utilities, governmental agencies, suppliers or others pursuant to an Approved Service Contract or otherwise in connection with the Real Property. "Value Letter" shall have the meaning set forth in SECTION 4.3.1.4. "WARN Act" shall mean the Workers Adjustment and Retraining Notification Act and the Regulations promulgated thereunder, as the same has been amended. 1.2 Other Definitional Provisions. The terms "hereof," "hereto," "hereunder" and similar terms when used in this Agreement shall refer to this Agreement generally, rather than to the section in which such term is used, unless otherwise specifically provided. Unless the context otherwise requires, any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. SECTION 2 PURCHASE AND SALE OF PROPERTY On the terms and subject to the conditions of this Agreement, Seller agrees to sell the Property to Buyer, and Buyer agrees to purchase the Property from Seller all as hereinafter provided. Notwithstanding any other provision of this Agreement, there shall be excluded from the Property being conveyed hereunder the Excluded Property. SECTION 3 PURCHASE PRICE; PAYMENT; BUYER'S DEFAULT; LIQUIDATED DAMAGES 3.1 Purchase Price. The purchase price for the Property shall be the Purchase Price. 3.2 Payment. The Purchase Price shall be paid as follows: 3.2.1 Upon the execution hereof, Buyer shall deliver to Escrow Holder, in cash or other immediately available funds, the Deposit, to be held by Escrow Holder strictly in accordance with the provisions of this Agreement. If the Close of Escrow shall occur, Seller shall be entitled to receive the Deposit as a credit against the Purchase Price. 3.2.2 At least one (1) day prior to the Scheduled Closing Date (unless extended pursuant to SECTION 7.1), Buyer shall deliver to Escrow Holder an amount (the "Closing Payment") payable in the form specified in SECTIONS 3.2.2.1 and 3.2.2.2 below, equal to the Purchase Price less the amount of the Deposit. The Closing Payment shall be paid as follows: 3.2.2.1 The Equity Purchase Price, if any, shall be delivered in Paired Shares without adjustment for the pro-rations hereunder, which shares shall be delivered in accordance with and subject to and transferable in accordance with the provisions of the 10 Stock Agreement and the Pairing Agreement. If any portion of the Equity Purchase Price cannot be paid in Paired Shares on account of the Ownership Limitation, a cash payment in an amount equal to the product of (a) the number of Paired Shares which are not delivered hereunder or under the Stock Agreement because of the Ownership Limitation and (b) the Market Price on the Closing Date (the "Overage Cash Payment") shall be paid in cash or other immediately available funds. 3.2.2.2 The balance of the Closing Payment shall be paid in cash or other immediately available funds adjusted for the pro-rations provided for expressly in this Agreement. 3.3 Investment of Escrowed Funds. Escrow Holder shall invest and reinvest any funds deposited by Buyer in the Escrow only in bonds, notes, Treasury bills or other securities having maturities of thirty (30) days or less and constituting direct obligations of, or fully guaranteed by, the United States of America (and provided, further, that such direct obligations or guarantees, as the case may be, are entitled to the full faith and credit of the United States of America) or such other investments as Buyer may direct and Seller may approve, until Escrow Holder is required to deliver or use such funds or any interest earned thereon in accordance with the provisions of this Agreement. All interest accruing on the Deposit shall be paid to the party ultimately entitled to the Deposit. All risk of loss on funds held in Escrow shall be borne by Buyer or Escrow Holder. 3.4 Allocation of Purchase Price. The Purchase Price shall be allocated among the assets and property that comprise the Property as proposed by Seller prior to Closing subject to the reasonable approval of Buyer, and such allocation shall be used by Seller and Buyer in connection with the preparation of their respective income tax, sales tax, transfer tax, and any other applicable tax returns. Seller and Buyer shall not, nor shall they permit their respective Affiliates to, take a federal or state income tax position with any taxing or other public authorities in any jurisdiction which is materially inconsistent with the allocation so agreed upon by the parties. 3.5 Default by Buyer Prior to Closing; Liquidated Damages. 3.5.1 EXCEPT AS PROVIDED TO THE CONTRARY IN SECTION 7.1.1., IF BUYER BREACHES ITS OBLIGATION TO PURCHASE THE PROPERTY UNDER THIS AGREEMENT AND FAILS TO CURE SUCH BREACH ON OR BEFORE THE SCHEDULED CLOSING DATE (A "BUYER DEFAULT"), THEN UPON WRITTEN NOTICE OF TERMINATION (A "TERMINATION NOTICE") FROM SELLER TO BUYER AND ESCROW HOLDER, THE ESCROW AND THIS AGREEMENT SHALL TERMINATE AND ESCROW HOLDER SHALL DISBURSE FROM THE ESCROW THE DEPOSIT TO SELLER AS LIQUIDATED DAMAGES, WHICH SHALL BE SELLER'S SOLE REMEDY AT LAW OR IN EQUITY FOR THE BUYER DEFAULT, AND THEREAFTER NEITHER PURCHASER NOR SELLER SHALL HAVE ANY FURTHER LIABILITY HEREUNDER, EXCEPT THAT BUYER SHALL REMAIN OBLIGATED FOR PERFORMANCE OF ITS OBLIGATIONS UNDER SECTIONS 8, 10, 17.14, 17.19 AND ANY OTHER PROVISION HEREOF WHICH BY ITS EXPRESS TERMS SURVIVES THE TERMINATION OF THIS AGREEMENT. NOTHING CONTAINED HEREIN SHALL LIMIT SELLER'S RIGHT TO OBTAIN SPECIFIC PERFORMANCE OF BUYER'S OBLIGATION TO CLOSE PURSUANT TO SECTION 7.1.1. 3.5.2 THE PARTIES ACKNOWLEDGE AND AGREE BY INITIALING THIS SECTION 3.5.2 THAT IF A BUYER DEFAULT OCCURS ON OR PRIOR TO THE SCHEDULED CLOSING DATE AND IF, AS A RESULT OF SUCH BUYER DEFAULT, 11 CLOSE OF ESCROW FAILS TO OCCUR, SELLER WILL INCUR CERTAIN COSTS AND OTHER DAMAGES IN AN AMOUNT THAT WOULD BE EXTREMELY DIFFICULT OR IMPRACTICAL TO ASCERTAIN; AND THE DEPOSIT BEARS A REASONABLE RELATIONSHIP TO THE DAMAGES WHICH THE PARTIES ESTIMATE MAY BE SUFFERED BY SELLER BY REASON OF SUCH FAILURE OF THE CLOSE OF ESCROW TO OCCUR AND THAT SELLER'S RETENTION OF THE DEPOSIT IS FAIR AND REASONABLE COMPENSATION TO SELLER BY REASON OF SUCH FAILURE OF THE CLOSE OF ESCROW TO OCCUR. INITIALS: /s/ T. Ayoubi /s/ SRG /s/ MCM __________________________ _________________________ Seller Buyer SECTION 4 ESCROW; CLOSING; COSTS 4.1 Escrow. The purchase and sale of the Property shall be consummated through the Escrow. Immediately upon the execution of this Agreement, the parties shall deposit a copy of this Agreement with Escrow Holder. This Agreement, together with any general provisions agreed to in writing by Buyer and Seller for the benefit of Escrow Holder, shall constitute the escrow instructions for the transfer of the Property (the "Escrow Instructions"). In the event of any conflict between this Agreement and such general provisions, this Agreement shall control unless otherwise expressly agreed in writing by Buyer, Seller and Escrow Holder. If any requirements relating to the duties or obligations of Escrow Holder are not acceptable to Escrow Holder, or if Escrow Holder requires additional instructions, the parties shall make such deletions, substitutions and additions to the Escrow Instructions as Buyer's Counsel and Seller's Counsel shall mutually approve and which do not substantially alter this Agreement or its intent. Written instructions from Seller's Counsel, in the case of Seller, or from Buyer's Counsel, in the case of Buyer, shall be accepted by Escrow Holder and shall be binding upon the party whose counsel gave such instructions to Escrow Holder. 4.2 Seller's Deliveries to Escrow Holder. 4.2.1 Prior to the Scheduled Closing Date (subject to extension pursuant to SECTION 7.1), Seller shall deliver to Escrow Holder the following documents duly executed and, where applicable, acknowledged by Seller, each of which shall be undated and the delivery of each of which shall be a condition precedent to the obligation of Buyer to close hereunder. 4.2.1.1 Deed. A deed with respect to the Improvements in the form of EXHIBIT 4.2.1.1 annexed hereto and made a part hereof, sufficient to transfer all of Seller's right, title and interest in and to the Improvements, subject only to matters of record as of the Closing Date, from Seller to Buyer (the "Deed"); 4.2.1.2 Assignment and Assumption of Tenant Leases. An Assignment and Assumption of Tenant Leases in the form of EXHIBIT 4.2.1.2 annexed hereto and made a part hereof pursuant to which Seller shall assign the Tenant Leases to Buyer and Buyer shall assume all of Seller's obligations thereunder (the "Assignment and Assumption of Tenant Leases"); 4.2.1.3 General Assignment. A General Assignment and Assumption Agreement in the form of EXHIBIT 4.2.1.3 annexed hereto and made a part thereof pursuant to which Seller shall assign to Buyer all of Seller's right, title and interest in and to all of the Intangible Property and Buyer shall assume all obligations thereunder (the "General Assignment and Assumption Agreement"); 4.2.1.4 Assignment and Assumption of Management Agreement. An Assignment and Assumption of Management Agreement in the form of EXHIBIT 4.2.1.4 12 annexed hereto and made a part hereof pursuant to which Seller shall assign to Buyer the Management Agreement and Buyer shall assume the obligations of Seller thereunder, provided, however, the obligation to deliver the Assignment and Assumption of Management Agreement shall be irrevocably waived, if prior to the Close of Escrow, the Management Agreement shall have been terminated and the Interim Management Agreement shall have become effective in accordance with SECTION 17.20; 4.2.1.5 Bill of Sale. One or more Bills of Sale in the form of EXHIBITS 4.2.1.5A AND 4.2.1.5B annexed hereto and made a part hereof conveying to Buyer or designees of Buyer all of Seller's right, title and interest in and to the Tangible Personal Property (the "Bill of Sale"); 4.2.1.6 Stock Agreement. The Stock Agreement in the form of EXHIBIT 4.2.1.6 annexed hereto and made a part hereof (the "Stock Agreement"); 4.2.1.7 Liquor License Management Agreement. The Liquor License Management Agreement in the form of EXHIBIT 4.2.1.7 annexed hereto and made a part hereof (the "Liquor License Management Agreement"); 4.2.1.8 Assignment and Assumption of Ground Lease. An Assignment and Assumption of Ground Lease in the form of EXHIBIT 4.2.1.8 annexed hereto and made a part hereof pursuant to which Seller shall assign the Ground Lease to Buyer and Buyer shall assume all of Seller's obligations thereunder (the "Assignment and Assumption of Ground Lease"); 4.2.1.9 Assignment of Mortgage. Seller shall use reasonable efforts to obtain an assignment with covenant of the mortgages presently encumbering Seller's interest in the Ground Lease and Improvements (the "Assignment of Mortgage") fully executed and acknowledged by the holders of such mortgages pursuant to which the holders of such mortgage shall assign the same to a lender identified by Buyer and a release from the holders of such mortgages, pursuant to which Seller shall be released from any and all liability under said mortgages and under any related loan documents; it being understood that Seller has no obligation to deliver an affidavit pursuant to Section 275 of the Real Property Law of the State of New York; 4.2.1.10 [Intentionally Omitted] 4.2.1.11 [Intentionally Omitted] 4.2.1.12 [Intentionally Omitted] 4.2.1.13 Non-Foreign Person Certificate. A Non-Foreign Person Certificate in the form of EXHIBIT 4.2.1.13 annexed hereto and made a part hereof (the "Non-Foreign Person Certificate"); 4.2.1.14 Transfer Tax Forms. Any statements, such as a transfer or conveyance tax forms or returns required by applicable state or local law to be executed by Seller in order to effect the Closing; 4.2.1.15 Certified Rent Roll. A copy of the rent roll for the Property dated as of the Closing Date and certified by Seller to be (a) a true, correct and complete copy of the rent roll for the Property provided to Seller by the Manager; and (b) to Seller's Knowledge, to be true, correct and complete; 4.2.1.16 Certified Operating Statement. An operating statement for the Property dated as of a date no more than thirty (30) days prior to the Closing Date and certified by Seller to be (a) a true, correct and complete copy of the operating statement for the Property provided to Seller by Manager for the period of Manager's employment at the Property; and (b) to Seller's Knowledge, to be, true, correct and complete; 13 4.2.1.17 Guest Ledger. A copy of the guest ledger dated as of the Proration Time showing all Guest Ledger Receivables and certified by Seller (a) to be a true, correct and complete copy of the guest ledger provided to Seller by Manager; and (b) to Seller's Knowledge, to be true, correct and complete; 4.2.1.18 Closing Certificate. A certification by Seller to Seller's Knowledge that the representations and warranties set forth in SECTION 6.3 are true, correct and complete as of the Closing Date, except to the extent that any such representation or warranty is expressly made only as of the Execution Date subject to Seller's right to make revisions pursuant to SECTION 6.7 to such representations and warranties ("Seller's Closing Certificate"); 4.2.1.19 Schedule of Bookings. A schedule of all Bookings relating to periods after the Proration Time, certified by Seller (a) to be a true, correct and complete copy of the schedule of Bookings provided to Seller by Manager; and (b) to Seller's Knowledge, to be true, correct and complete; 4.2.1.20 Title Requirements. Any and all certificates, affidavits and other instruments and documents which the Title Company shall reasonably require to permit it to issue the Title Policy in the condition required herein; provided, however, that (a) Seller is given written notice by Title Company of the requirement of any such certificates, affidavits or other instruments and documents within a reasonably sufficient time in advance of the Scheduled Closing Date and (b) such incidental documents do not create any liability to Seller that is inconsistent with the liability retained by Seller under the terms of this Agreement; 4.2.1.21 Payoff Letters. A pay-off letter from the holder of any mortgage or deed of trust presently encumbering the Real Property indicating all sums required to satisfy the debt secured by and permit the discharge of record the lien of such mortgage or deed of trust; 4.2.1.22 Notices to Tenants. Notices to Tenants of the assignment to Buyer of the Tenant Leases in form and substance satisfactory to Seller and Buyer; 4.2.1.23 Opinion of Seller's Counsel. An opinion of Seller's Counsel in a form to be agreed upon by the parties; and 4.2.1.24 Other. Any other incidental documents, not otherwise expressly provided for herein, reasonably required by Escrow Holder to consummate the purchase and sale of the Property; provided, however, that (a) Seller is given written notice by Escrow Holder of the requirement of any such incidental documents within a reasonably sufficient time in advance of the Scheduled Closing Date (subject to extension in accordance with the provisions of SECTION 7.1); and (b) such incidental documents do not create any liability to Seller that is inconsistent with the liability retained by Seller under the terms of the this Agreement. 4.3 Buyer's Deliveries to Escrow Holder. 4.3.1 Prior to the Scheduled Closing Date (subject to extension in accordance with the provisions of SECTION 7.1), and subject further to the provisions of SECTION 4.3.1.4 in the case of the Value Letter, Buyer shall deliver to Escrow Holder the following items and documents, which documents shall be duly executed and, where applicable, acknowledged by Buyer or its designee, as applicable, and undated, and the delivery of each of which shall be a condition precedent to the obligation of Seller to close hereunder: 4.3.1.1 The Cash Purchase Price. The Cash Purchase Price; 4.3.1.2 Stock Certificates. Paired Shares in the amount required to be delivered at the Closing in accordance with the provisions of this Agreement and in accordance with and subject to the provisions of the Stock Agreement; 14 4.3.1.3 Assignment and Assumption of Management Agreement. A counterpart of the Assignment and Assumption of Management Agreement, provided, however, the obligation to deliver the Assignment and Assumption of Management Agreement shall be irrevocably waived, if prior to the Close of Escrow, the Management Agreement shall have been terminated and the Interim Management Agreement shall have become effective in accordance with SECTION 17.20; 4.3.1.4 Value Letter. A letter (the "Value Letter") to be obtained by Buyer at Buyer's expense with respect to the reasonableness of the allocation of the purchase price among the transactions being entered into as of the date hereof between Buyer and Seller and/or Seller's Affiliates issued by Bear Stearns; 4.3.1.5 Opinion of Buyer's Counsel. An opinion of Buyer's counsel in a form to be agreed upon by the parties; 4.3.1.6 Stock Agreement. A counterpart of the Stock Agreement; 4.3.1.7 Assignment and Assumption of Ground Lease. A counterpart of the Assignment and Assumption of Ground Lease; 4.3.1.8 Liquor License Management Agreement. A counterpart of the Liquor License Management Agreement; 4.3.1.9 [Intentionally Omitted] 4.3.1.10 [Intentionally Omitted] 4.3.1.11 [Intentionally Omitted] 4.3.1.12 Closing Certificate. A certification by Buyer that the representations and warranties set forth in SECTION 6.1 and SECTION 6.2 are true, correct and complete as of the Closing Date; 4.3.1.13 The Assignment and Assumption of Tenant Leases. A counterpart of the Assignment and Assumption of Tenant Leases; 4.3.1.14 The General Assignment and Assumption Agreement. A counterpart of the General Assignment and Assumption Agreement; 4.3.1.15 Transfer Tax Forms. Any statements, such as a transfer or conveyance tax forms or returns required by applicable state or local law to be executed by Buyer in order to effect the closing; and 4.3.1.16 Other. Any other incidental documents, not otherwise expressly provided for herein, required by Escrow Holder to consummate the purchase and sale of the Property; provided, however, that (a) Buyer is given written notice by Escrow Holder of the requirement of such incidental documents within a reasonably sufficient time in advance of the Scheduled Closing Date; and (b) Buyer shall not be required to incur any liability, in connection with the delivery of such incidental documents inconsistent with the provisions of this Agreement. 4.4 Seller's Deliveries to Buyer. At or prior to the Close of Escrow, Seller shall deliver to Buyer or cause to be available to Buyer on-site at the Hotel, the following documents, to the extent the same have not already been delivered and to the extent in the possession or control of Seller: 4.4.1 Tenant Leases/Tenant Deposits. The original Tenant Leases (or if not available, the best available copies), and the originals of Tenant Security Deposits which are evidenced by letters of credit or escrow agreements, if any, and if necessary to enable Buyer to realize or draw upon same, consents of the applicable Tenants and/or financial institutions or replacement letters of credit or escrow agreements in favor of Buyer; 4.4.2 Service Contracts. The originals, or, if not available, the best available 15 copies, of the Approved Service Contracts; 4.4.3 Licenses and Permits. The originals, or, if not available, the best available copies of the Licenses and Permits; and 4.4.4 Records and Plans. The originals, or, if not available, the best available copies of the Records and Plans. 4.5 Possession. Seller shall deliver the keys and possession of the Property to Buyer at the Close of Escrow free and clear of all leases, tenancies and occupancies, except for the Management Agreement, the Bookings, the rights of guests in guest rooms, banquet facilities, conference rooms and meeting rooms, the rights of Tenants under the Tenant Leases (including their assignees, subtenants or licensees), and the other Permitted Encumbrances. 4.6 Evidence of Authorization. At the Close of Escrow, each party shall deliver to the other party evidence in form and content reasonably satisfactory to the other party and the Title Company that (a) the party is duly organized and validly existing under the laws of the state of its organization and has the power and authority to enter into this Agreement, (b) this Agreement and all documents delivered pursuant hereto have been duly executed and delivered by the party, and (c) the performance by the party of its obligations under this Agreement have been duly authorized by all necessary corporate, partnership or other action. 4.7 Close of Escrow. 4.7.1 The Escrow shall close on or before the Scheduled Closing Date. 4.7.2 Provided that Escrow Holder has not received from either party written notice of the failure of any condition precedent specified in SECTION 9 to the obligations of such party (or any previous such notice has been withdrawn), then when the parties have each deposited into the Escrow the documents and funds required by this Agreement and the Title Company is unconditionally prepared to issue the Title Policy at the Close of Escrow, Escrow Holder shall perform the following actions (collectively, "Close of Escrow" or "Closing"): 4.7.2.1 Prepare a closing statement for the transaction for approval by Seller and Buyer prior to the Close of Escrow; 4.7.2.2 Insert the Closing Date as the date of any undated document to be delivered through Escrow; 4.7.2.3 Cause the Deed, the Assignment and Assumption of Ground Lease, and the Assignment of Mortgage to be recorded in the land records of the state and county where the Real Property is located; 4.7.2.4 Deliver to Buyer the documents deposited into the Escrow for delivery to Buyer at the Close of Escrow; 4.7.2.5 Deliver to Seller (a) all funds and Paired Shares to be received by Seller from Buyer through the Escrow at the Close of Escrow less (i) all amounts to be paid by Seller for Escrow Holder's fees and expenses and (ii) all amounts paid by Escrow Holder in satisfaction of liens and encumbrances on the Real Property or other matters pursuant to the written instruction of Seller, and (b) the documents deposited into the Escrow for delivery to Seller at the Close of Escrow; and 4.7.2.6 Cause the Title Policy to be issued by the Title Company and delivered to Buyer. 4.8 Costs of Escrow. Costs of the Escrow shall be allocated as follows: 4.8.1 Buyer and Seller shall each pay one-half (1/2) of the fees of Escrow Holder; 4.8.2 Buyer and Seller shall each pay one-half (1/2) of the cost of providing the Survey required to be delivered in accordance with the provisions of SECTION 7.1; provided, 16 however, Buyer shall be responsible for the full cost of the Survey in the event the Closing does not occur hereunder other than on account of default of Seller; 4.8.3 Buyer and Seller shall each pay one-half (1/2) of all transfer taxes and recording fees payable in connection with the conveyance of each portion of the Real Property and/or the recording of the Deed and any other documents or instruments recorded pursuant to this Agreement (other than the Assignment of Mortgage); 4.8.4 Buyer and Seller shall each pay one-half (1/2) of all sales or other personal property taxes, levies, fees and charges payable as a result of the transfer of the Personal Property to Buyer and the consummation of the transactions contemplated hereby. Buyer shall be the reporting person for such purposes and shall prepare the necessary sales tax reports based upon the allocations set forth in SECTION 3.4. The parties acknowledge that additional sales tax may be assessed as a result of the transfer of the Personal Property to Buyer and the consummation of the transactions contemplated hereby after the Closing and that Buyer and Seller shall continue to each be responsible for one-half of any such additional taxes. The provisions of Section 4.8.3 and Section 4.8.4 shall survive the Closing; 4.8.5 Buyer and Seller shall each pay one-half (1/2) of the cost of obtaining the coverage under the Title Policy, except that the cost of any special endorsements shall be paid exclusively by Buyer; 4.8.6 At Closing or thereafter Buyer shall pay for the cost of the Value Letter; 4.8.7 Buyer shall pay any legal and other fees to obtain, and any mortgage recording taxes payable in connection therewith, if any, in connection with the Assignment of Mortgage; 4.8.8 If the Close of Escrow fails to occur other than as a result of a default hereunder by either party, including, without limitation, as a result of a failure of a condition precedent set forth in SECTION 9, the fees of the Escrow Holder and Title Company (including, without limitation, cancellation fees) shall be borne equally between Buyer and Seller; 4.8.9 If the Close of Escrow fails to occur as a result of a default hereunder by either party, the fees of the Escrow Holder and Title Company (including, without limitation, cancellation fees) shall be borne by the defaulting party; and 4.8.10 Pursuant to Section 6045 of the Internal Revenue and Taxation Code, the Title Company shall be designated the "Closing Agent" hereunder and shall be solely responsible for complying with the Tax Reform Act of 1986 with regard to the reporting of all settlement information to the Internal Revenue Service. 4.9 Other Costs. Except as set forth in SECTION 4.8.6, SECTION 11.1 and SECTION 15.1.6, each party shall pay all of its own legal, accounting and consulting fees and other costs and expenses incurred in connection with this Agreement. 4.10 Maintenance of Confidentiality by Escrow Holder. Escrow Holder shall maintain in strict confidence and not disclose to anyone the existence of the Escrow, the identity of the parties thereto, the amount of the Purchase Price, the existence or provisions of this Agreement or any other information concerning the Escrow or the transactions contemplated hereby, without the prior written consent of Buyer and Seller. SECTION 5 PRORATIONS AND ASSUMPTION OF OBLIGATIONS 5.1 General. All income, receivables, expenses (whether payable or prepaid) and payables of the Property shall be apportioned equitably between the parties as of the Proration Time in accordance with the provisions of this SECTION 5 (all prorations are to be based upon the number of days in a 365 day year). The obligation to make apportionments under SECTIONS 5.1 17 AND 5.2 shall, unless otherwise expressly provided in this SECTION 5, survive the Close of Escrow for a period of sixty (60) days at which time such apportionment shall be final unless disputed during such period. 5.2 General and Specific Prorations. Without limitation, the following items shall be apportioned: 5.2.1 At the Closing, Buyer shall assume all of the accounts payable relating to goods and services ordered or obtained in the ordinary course of operation of the business of the Hotel (including without limitation, payments under the Service Contracts and Equipment Leases) prior to the Proration Time. Seller shall be obligated to credit Buyer at the Close of Escrow with an amount mutually agreed upon by Buyer and Seller at the Closing, reflecting the parties' good faith estimate of such accounts payable as of the Proration Time (which estimate shall deduct any discounts then available in the ordinary course of business for the prompt payment of such accounts payable), plus a further credit for any late fees then payable with respect to any identified accounts payable. Buyer shall be responsible for paying when due all accounts payable arising from the operation of the Property on or after the Proration Time, and Seller shall have no further liability for such payables or charges. As of the date which is sixty (60) days following the Closing Date, Buyer and Seller shall calculate the amount of all accounts payable relating to goods and services ordered or obtained in the ordinary course of operation of the business of the Hotel (including without limitation, payments under the Service Contracts and Equipment Leases) prior to the Proration Time. Seller shall reimburse Buyer for any payments made on account of any such accounts payable which were not reflected in the Parties' estimate of such amount credited to Buyer at Closing and which have been paid by Buyer or for which Buyer is obligated to pay in accordance with the provisions hereof, and if the amount of such credit exceeds the amounts so paid or for which Buyer is so obligated, Buyer shall pay such excess amount to Seller; 5.2.2 At the Closing, Seller shall assign to Buyer all of the Accounts Receivable, for which Seller shall receive a credit at the Close of Escrow in an amount equal to (a) the full, aggregate outstanding balance of the Cash Equivalent Receivables (without discount except for service charges due to charge card companies) plus (b) the full aggregate outstanding balance of the Invoiced Receivables and Other Accounts Receivable as of the Proration Time, provided, Buyer shall at its option accept or reject any Invoiced Receivables and Other Accounts Receivable over ninety (90) days and Seller shall not receive a credit for any Invoiced Receivables and Other Accounts Receivable over ninety (90) days rejected by Buyer; provided, that Buyer shall at its own expense use reasonable efforts to collect any such rejected Invoiced Receivables and Other Accounts Receivable on behalf of Seller for a period of sixty (60) days after the Closing Date and thereafter Seller shall have the right to collect same for its own account; provided, further, as of the date which is sixty (60) days following the Closing Date, Buyer and Seller shall make any adjustments required to reflect the collectibility of any Invoiced Receivables and Other Accounts Receivable (it being agreed that (a) any accounts receivable not listed on the schedule of accounts receivable of the Property as of the date which is sixty (60) days following the Closing Date shall be deemed paid as of such date and (b) except as provided in (a), any accounts receivable which are more than ninety (90) days past due as of the date which is sixty (60) days following the Closing Date shall be deemed uncollectable as of such date) and Seller and Buyer shall make a corresponding payment to the other as required to accurately reflect the collectibility of such Invoiced Receivables and Other Accounts Receivable and any accounts receivable deemed uncollectable as of such date in accordance with the terms hereof shall be the property of Seller and Seller shall be permitted at 18 its expense and for its own account to collect the same; 5.2.3 In prorating the Accounts Receivable, Buyer and Seller shall each receive credit for one-half (1/2) of all Guest Ledger Receivables attributable to the room night during which the Proration Time occurs. Seller shall receive the income from all restaurant and bar facilities located at the Property through the Proration Time and Buyer shall receive such income thereafter; 5.2.4 [Intentionally Omitted] 5.2.5 All sales, use and occupancy taxes arising from the operation of the Property shall be prorated as of the Proration Time; 5.2.6 Fees for transferable annual permits, licenses, and/or inspection fees, if any, for periods during which the Proration Time occurs shall be prorated as of the Proration Time; 5.2.7 Utility charges with respect to the Property levied against Seller or the Property and the value of fuel stored on the Property shall be prorated at Seller's cost therefor as of the Proration Time. Seller shall notify all utilities, governmental agencies, suppliers and others providing services to the Property of the prospective change in ownership and operation of the Property, and Seller shall use its reasonable efforts to cause all utilities furnished to the Property, including, but not limited to, electricity, gas, water and sewer, along with any fuel storage tanks to be read the day prior to the Proration Time; 5.2.8 Permitted administrative charges, if any, on Tenant Security Deposits shall be prorated; 5.2.9 Buyer shall receive a credit for advance payments and/or deposits, if any, under Bookings to the extent the Bookings relate to a period after the Proration Time; 5.2.10 Vending machine monies will be removed by Seller as of the Proration Time for the benefit of Seller; 5.2.11 Buyer shall purchase and Seller shall sell to Buyer (or Seller shall receive a credit therefore) all petty cash funds and cash in the Property's house banks at 100% of face value at the Proration Time; 5.2.12 Wages, salaries and payroll taxes and other payroll deductions for all Hotel Employees shall be apportioned as of the Proration Time (i.e., the night shift shall be prorated 50/50 for the night preceding the Closing Date). Buyer shall assume all accrued vacation benefits and sick leave benefits due to such Hotel Employees which relate to any period prior to the Proration Time and shall receive a credit for the full amount of all such accrued benefits reasonably expected to be paid after the Closing Date; provided, that as of the date which is sixty (60) days following the Closing, Buyer and Seller shall adjust the amount of the credit if required to take into account the benefits actually required to be paid by Buyer or then reasonably expected to be paid following the Closing Date by Buyer. Buyer shall also assume all obligations of Seller and the Employer Corporation, under the Employment Agreements and/or the Management Agreement to pay all such wages, salaries, and compensation set forth above accruing subsequent to Proration Time; provided, however, that other than as set forth in SECTION 14.1 hereof, no provision contained in this Agreement shall be construed to prevent the Buyer from terminating or amending in any manner such Employment Agreements and Management Agreements subsequent to the Proration Time. The obligation to pay bonuses, if any, following the Closing shall be allocated as of the Proration Time and adjusted between Buyer and Seller; and 5.2.13 Real and personal property taxes, assessments and special district levies shall be prorated for the tax fiscal year in which the Closing Date occurs on the basis of the then 19 most current available tax bills, Seller being charged through the day prior to the Closing Date and Buyer with the Closing Date and thereafter. 5.3 Deposits. All rights to utility, assessment, and other cash deposits (including, without limitation, any Utility Deposits) held by others for Seller's account, and all certificates of deposit or other forms of cash collateral held by or otherwise pledged to others for Seller's account to secure obligations of Seller under Service Contracts, Equipment Leases or other obligations assumed by Buyer, shall be assigned or transferred to Buyer at the Close of Escrow; provided, that if any of such deposits are not transferable, Seller shall retain all rights with respect thereto and there shall be no debit made to Buyer on account thereof. 5.4 Tenant Leases. At the Close of Escrow, pursuant to the Assignment and Assumption of Tenant Leases, Buyer shall assume all of the obligations of Seller under the Tenant Leases as of the Proration Time, including, without limitation, tenant improvement obligations of landlord thereunder and obligations with respect to Tenant Security Deposits (to the extent received by Buyer or credited to Buyer hereunder). 5.5 Service Contracts and Other Intangible Property. At the Close of Escrow, Seller shall assign to Buyer pursuant to the terms of the General Assignment and Assumption Agreement, all right, title and interest of Seller in and to the Approved Service Contracts and other Intangible Property, and Buyer shall assume all of the obligations of Seller under the Approved Service Contracts arising from and after the Close of Escrow. Buyer shall protect, hold harmless, indemnify and defend Seller and its directors, officers, agents, affiliates, principals, partners, shareholders, representatives and controlling persons from any Losses attributable to the period beginning on and after the Closing Date with respect to the Approved Service Contracts. Seller shall be responsible for all obligations thereunder attributable to the period prior to the Closing Date with respect to Approved Service Contracts (except to the extent that Buyer shall have received a credit hereunder with respect to any such obligations). The provisions of this SECTION 5.5 shall survive the Close of Escrow. 5.6 Tax Refunds and Proceedings. Buyer shall have the exclusive right to commence or continue any proceeding to determine the assessed value of the Property, the real or personal property taxes payable with respect to the Property or any action to contest water charges, sewer charges, sales tax or use tax for the relevant taxable period during which the Proration Time occurs and to settle or compromise any claim thereof, and any refunds or proceeds resulting from such proceedings along with the costs (including reasonable legal and accounting fees) incurred by Buyer in obtaining the same, shall be prorated as of the Proration Time. In prosecuting any such action, Buyer shall utilize the services of Marvin Poer & Co. Seller shall retain the right to continue, commence, prosecute, settle or compromise any proceedings relating exclusively to any relevant taxable period or periods prior to the period during which the Proration Time shall occur. Buyer and Seller agree to cooperate with each other and to execute any and all documents reasonably requested in furtherance of the foregoing. The provisions of SECTION 5.6 shall survive the Closing. 5.7 Guest Baggage. As of the Close of Escrow, Buyer shall indemnify and hold harmless Seller against all Losses with respect to all baggage of departed guests or guests who are still registered at the Hotel on the Closing Date which has been checked with the Hotel. As of the Close of Escrow, Seller shall assign to Buyer all claims and causes of action against the Manager with respect to any Losses with respect to such baggage. Seller agrees to submit to Seller's Insurance any claims for Losses with respect to such baggage which arose from acts or omissions prior to the Closing Date to the extent coverage is available under said insurance and provide Buyer with the proceeds therefrom provided Buyer is not in default under this SECTION 20 5.7. The provisions of this SECTION 5.7 shall survive the Closing. 5.8 Safe Deposit Boxes. As of the Close of Escrow, Buyer shall indemnify and hold harmless Seller against all Losses with respect to the contents of any safety deposit boxes in use at the Hotel. As of the Close of Escrow, Seller shall assign to Buyer all claims and causes of action against the Manager with respect to any Losses relating to said safety deposit boxes. Seller agrees to submit to Seller's insurance any claims for Losses which arose from acts or omissions prior to the Closing Date to the extent coverage is available under said insurance and provide Buyer with the proceeds therefrom provided Buyer is not in default under this SECTION 5.8. The provisions of this SECTION 5.8 shall survive the Closing. 5.9 Advance Bookings. Buyer shall assume and honor for its account all Bookings relating to dates after the Proration Time set forth on the Schedule of Advance Bookings delivered by Seller to Buyer at the Close of Escrow pursuant to SECTION 4.2.1.9. SECTION 6 REPRESENTATIONS AND WARRANTIES; CONDITION OF PROPERTY 6.1 Of the Trust. As an inducement to Seller to enter into this Agreement, the Trust hereby represents, warrants and covenants to Seller as follows: 6.1.1 Power and Authority. The Trust is a real estate investment trust duly organized and validly existing under the laws of the State of Maryland. The Trust has the power and authority to carry on its present business, to enter into this Agreement and to consummate the transactions herein contemplated; neither the execution and delivery of this Agreement by the Trust, nor the performance by the Trust of the Trust's obligations hereunder will violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which the Trust is a party or by which the Trust is bound and/or violate any applicable law, rule or regulation, the violation of which would have a Material effect upon the principal benefits intended to be provided by this Agreement. 6.1.2 Authorization; Valid Obligation. All proceedings required to be taken by or on behalf of the Trust to authorize the Trust to make, deliver and carry out the terms of this Agreement will be duly taken prior to the Closing Date. No consent to the execution, delivery and performance of this Agreement will be required from any partner, board of directors, shareholder, creditor, investor, judicial or administrative body, governmental authority or other person, other than any such consent which already has been (or prior to the Closing will have been unconditionally given. The individuals executing this Agreement and the documents referenced herein on behalf of the Trust have the legal power, right and actual authority to bind the Trust to the terms and conditions hereof. This Agreement is a valid and binding obligation of Trust, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. 6.1.3 Capital Structure. The authorized and outstanding capital stock and units of the Trust and its operating partnership are as set forth in the Starwood Disclosure. All Paired Shares to be issued as the Equity Purchase Price at the Closing in accordance with this Agreement will, when so issued, be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights and will be paired with each other in the same ratio as all other shares are paired with each other pursuant to the Pairing Agreement. 6.1.4 SEC Documents and Other Reports. The Trust has filed all required documents with the SEC since January 1, 1996 (such documents together with the Starwood 21 Disclosure being referred to herein as the "SEC Documents"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of applicable law, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements (including, in each case, any notes thereto) of the Trust included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as of their respective dates of filing, were prepared in accordance with generally accepted accounting principles (except, in the case of the unaudited statements, as permitted by Regulation S-X of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented the consolidated financial position of the Trust and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the SEC Documents or as required by generally accepted accounting principles, the Trust has not, since December 31, 1996, made any change in the accounting practices or policies applied in the preparation of their financial statements. Prior to the Closing Date, the Trust will file all required documents with the SEC, which documents will comply in all material respects with the requirements of the applicable law, and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 6.1.5 Absence of Certain Changes or Events. Except as disclosed in the SEC Documents filed prior to the date of this Agreement, since December 31, 1996, (a) there have not been any events, changes or developments that, individually or in the aggregate, have had or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole, or (b) there has not been any split, combination or reclassification of any of the capital stock or units of the Trust or its operating partnership or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of, or in substitution for shares of such capital stock. 6.1.6 Actions and Proceedings. Except as set forth in the SEC Documents filed prior to the date of this Agreement, there are no outstanding orders, judgments, injunctions, awards or decrees of any governmental entity against or involving the Trust or any of its subsidiaries, or against or involving any of the directors, officers or employees of the Trust or any of its subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole. Except as set forth in the SEC Documents, there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the knowledge of the Trust, threatened against or involving the Trust or any of its subsidiaries or any of their directors, officers or employees, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole. As of the date hereof, there are no actions, suits, labor disputes or 22 other litigation, legal or administrative proceedings or governmental investigations pending or, to the knowledge of the Trust, threatened against or affecting the Trust or any of their subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement. 6.1.7 REIT Status. The Trust is currently a "real estate investment trust" ("REIT") for federal income tax purposes and, to its knowledge, the Trust is and at all times during the testing period described in Code Section 897(h)(4)(D) has been a "domestically controlled REIT" (as defined in Section 897(h)(4)(D) of the Code). From and after January 1, 1995, neither the Internal Revenue Service nor any other taxing entity or authority has made any assertion that the Trust does not qualify as a REIT for income tax purposes, nor has there been any challenge to the REIT status of the Trust. From time to time upon request by the Seller or its assigns after the Closing Date, the Trust agrees to inform Seller or such assigns whether to its knowledge it complies with the representation and warranties set forth in this Section 6.1.7. 6.1.8 Partnership Status. Starwood Realty Partnership is classified and taxable as a partnership for U.S. federal income tax purposes. 6.1.9 Hart-Scott-Rodino Act. The provisions of the Hart-Scott-Rodino Act are not applicable to the transactions contemplated hereby and neither the Trust nor Seller is required to make any filings or submissions or obtain any approvals thereunder in connection herewith. 6.2 Of the Corporation. As an inducement to Seller to enter into this Agreement, the Corporation hereby represents, warrants and covenants to Seller as follows: 6.2.1 Power and Authority. The Corporation is a corporation duly organized and validly existing under the laws of the State of Maryland. The Corporation has the power and authority to carry on its present business, to enter into this Agreement and to consummate the transactions herein contemplated; neither the execution and delivery of this Agreement by the Corporation nor the performance by the Corporation of the Corporation's obligations hereunder will violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which the Corporation is a party or by which the Corporation is bound and/or violate any applicable law, rule or regulation, the violation of which would have a Material effect upon the principal benefits intended to be provided by this Agreement. 6.2.2 Authorization; Valid Obligation. All proceedings required to be taken by, or on behalf of the Corporation, to authorize the Corporation to make, deliver and carry out the terms of this Agreement will be duly taken prior to the Closing Date. No consent to the execution, delivery and performance of this Agreement will be required from any partner, board of directors, shareholder, creditor, investor, judicial or administrative body, governmental authority or other person, other than any such consent which already has been (or prior to the Closing will have been) unconditionally given. The individuals executing this Agreement and the documents referenced herein on behalf of the Corporation have the legal power, right and actual authority to bind the Corporation to the terms and conditions hereof. This Agreement is a valid and binding obligation of Corporation, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. 6.2.3 Capital Structure. The authorized and outstanding capital stock and units of the Corporation and its operating partnership are as set forth in the Starwood Disclosure. All Paired Shares to be issued as the Equity Purchase Price at the Closing in accordance with this Agreement will, when so issued, be duly authorized, validly issued, fully paid and 23 nonassessable and free of preemptive rights and will be paired with each other in the same ratio as all other shares are paired with each other pursuant to the Pairing Agreement. 6.2.4 SEC Documents and Other Reports. The Corporation has filed all required SEC Documents since January 1, 1996. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the applicable law, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements (including, in each case, any notes thereto) of the Corporation included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as of their respective dates of filing, were prepared in accordance with generally accepted accounting principles (except, in the case of the unaudited statements, as permitted by Regulation S-X of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented the consolidated financial position of the Corporation and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the SEC Documents or as required by generally accepted accounting principles, the Corporation has not, since December 31, 1996, made any change in the accounting practices or policies applied in the preparation of their financial statements. Prior to the Closing Date, the Corporation will file all required documents with the SEC, which documents will comply in all material respects with the requirements of the applicable law, and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 6.2.5 Absence of Certain Changes or Events. Except as disclosed in the SEC Documents filed prior to the date of this Agreement, since December 31, 1996, (a) there have not been any events, changes or developments that, individually or in the aggregate, have had or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole, or (b) there has not been any split, combination or reclassification of any of the capital stock or units of the Corporation or its respective operating partnerships or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of such capital stock. 6.2.6 Actions and Proceedings. Except as set forth in the SEC Documents filed prior to the date of this Agreement, there are no outstanding orders, judgments, injunctions, awards or decrees of any governmental entity against or involving the Corporation or any of its subsidiaries, or against or involving any of the directors, officers or employees of the Corporation or any of its subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole. Except as set forth in the SEC Documents, there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the knowledge of the Corporation, threatened against or involving the Corporation or any of its subsidiaries or any of their 24 directors, officers or employees, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole. As of the date hereof, there are no actions, suits, labor disputes or other litigation, legal or administrative proceedings or governmental investigations pending or, to the knowledge of the Corporation, threatened against or affecting the Corporation or any of their subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement. 6.2.7 Starwood Operating Partnership is classified and taxable as a partnership for U.S. Federal Income Tax purposes. 6.2.8 Hart-Scott-Rodino. The provisions of the Hart-Scott-Rodino Act are not applicable to the transactions contemplated hereby and neither the Corporation nor Seller is required to make any filings or submissions to obtain any approvals thereunder in connection herewith. 6.3 Of Seller. As an inducement to Buyer to enter into this Agreement, Seller, represents, warrants and covenants to Buyer as follows: 6.3.1 Regarding Seller's Authority. 6.3.1.1 Seller is a limited partnership in dissolution under the laws of the State of New York. Seller has the power and authority to enter into this Agreement and the Conveyance Documents and, to sell the Property on the terms set forth in this Agreement. The execution and delivery hereof and the performance by Seller of its obligations hereunder, will not violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which Seller is a party or by which Seller is bound and/or violate any applicable law, rule or regulation, the violation of which would have a Material effect upon the principal benefits intended to be provided by this Agreement. 6.3.1.2 The individuals executing this Agreement and the documents referenced herein on behalf of Seller have the legal power, right and actual authority to bind Seller to the terms and conditions hereof. This Agreement is a valid and binding obligation of Seller, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. 6.3.2 Tenant Leases. There are no leases, licenses or concessions for space which will affect the Real Property or any portion thereof following the Close of Escrow other than as set forth on the Schedule of Tenant Leases. Seller has delivered to Buyer a true, correct and complete copy of each lease and agreement listed on the Schedule of Lease. Seller has not received written notice of any sublease and/or assignment of any Tenant Lease except as set forth on SCHEDULE 6.3.2. No outstanding written notice of any Material default has been delivered by Seller or received by Seller with respect to any Tenant Lease, except as disclosed on the SCHEDULE 6.3.2 annexed hereto and made a part hereof. To Seller's knowledge, all rent under the leases listed on the Schedule of Leases is being paid currently. All Material brokerage, leasing and other commissions due in connection with the Tenant Leases have been paid by Seller other than those payable with respect to the renewal or extension of such Tenant Leases or expansion of the leased premises thereunder after the Closing Date, each of which are payable under agreements described on SCHEDULE 6.3.2. 6.3.3 Service Contracts. There are no Service Contracts which will affect the 25 Property after the Closing Date except for the Approved Service Contracts. No outstanding written notice of any Material default has been delivered by Seller or received by Seller with respect to any Approved Service Contract, except as disclosed on SCHEDULE 6.3.3 annexed hereto and made a part hereof. 6.3.4 Claims. There are no pending litigation or condemnation proceedings with respect to Seller or the Property which would result in an adverse effect on the ability of Buyer to operate the Property after the Closing, except as disclosed on SCHEDULE 6.3.4 annexed hereto and made a part hereof. There is no pending litigation or to Seller's knowledge, other claims of Seller with respect to the Property attributable to the period prior to the date hereof which may result in a material judgment in favor of Seller except as disclosed on SCHEDULE 6.3.4. 6.3.5 Employees. To Seller's Knowledge, SCHEDULE 1.1.6 sets forth a true and complete list of all Hotel Employees as of the Execution Date together with their positions, salaries or hourly wages, as applicable, and years of service. Except for or pursuant to the Employment Agreements, the Collective Bargaining Agreements, the Management Agreement and the agreements related to the Ritz-Carlton management of the Hotel described on SCHEDULE 6.3.5 hereto, neither Seller nor the Employer Corporation has relating to the Property (i) at any time maintained, contributed to or participated in, (ii) or had at any time obligation to maintain, contribute to, or participate in, or (iii) any liability or contingent liability, direct or indirect, with respect to: any employment agreement, oral or written retirement or deferred compensation plan, incentive compensation plan, stock plan, unemployment compensation plan, vacation pay plan, severance plan, bonus plan, stock compensation plan or any other type or form of employee-related (or independent contractor-related) arrangement, program, policy, plan or agreement. Except as set forth on SCHEDULE 6.3.5, to Seller's knowledge there is no Material default under any of the Employment Agreements. 6.3.6 Compliance with Laws. During the past twelve (12) months, Seller has not received any written notice from any party, including, without limitation, from any municipal, state, federal or other governmental authority, of a Material violation of any zoning, building, fire, water, use, health, or other similar statute, ordinance, or code bearing on the construction, operation or use of the Property or any part thereof (other than as to matters previously cured), except as disclosed on SCHEDULE 6.3.6 annexed hereto and made a part hereof and except for violations of Environmental Laws, which are addressed in SECTION 6.3.7 below. 6.3.7 Hazardous Materials. Seller has not received any written notice from any municipal, state, federal or other governmental authority or from any other person during the last three (3) years of (a) any Material violation of applicable Environmental Laws or (b) any Environmental Condition requiring Material remediation under applicable Environmental Laws, in either case only to the extent relating to Environmental Conditions at or on the Real Property, except as disclosed on SCHEDULE 6.3.7 annexed hereto and made a part hereof; 6.3.8 Records and Plans. Seller will have delivered to Buyer on the Closing Date true and correct copies of the Records and Plans. 6.3.9 Licenses and Permits. Seller has delivered to Buyer true and correct copies of the Liquor License and all other Material Licenses and Permits and such Licenses and Permits are identified on SCHEDULE 6.3.9 annexed hereto and made a part hereof. 6.3.10 Management Agreements. There are no hotel management or property management agreements, which will be binding upon Buyer after the Closing Date, other than the Management Agreement, a true and complete copy of which will be delivered to Buyer on the Closing Date. Seller has not sent or received any notice of default or notice of termination 26 under or with respect to the Management Agreement. 6.3.11 Personal Property. Seller owns the Tangible Personal Property (other than the Tangible Personal Property that is subject to the Equipment Leases) free and clear of any liens and/or encumbrances other than the Permitted Encumbrances. 6.3.12 Insurance. The Seller in respect of the Real Property is insured under those policies of casualty and general liability insurance ("Seller's Insurance") described on SCHEDULE 6.3.12 annexed hereto, each of which is in full force and effect as of the date hereof and will remain in full force and effect through the Closing Date. Seller has received no notices of any Material default or demands to cure from any applicable insurer in respect of Seller's Insurance. 6.3.13 Real Estate Taxes. Except as set forth on SCHEDULE 6.3.13 annexed hereto and made a part hereof, Seller has not commenced any proceedings which are pending for the reduction of the assessed valuation of the Real Property or any portion thereof, and other than the Permitted Encumbrances, to Seller's Knowledge, there are no special assessments affecting the Property. Nothing in this SECTION 6.3.13 or any other provision of this Agreement shall be construed to limit Seller's rights to initiate or prosecute after the Close of Escrow additional proceedings for property tax refunds for taxes relating to any relevant taxable period or periods prior to the taxable period during which the Proration Time occurs. 6.3.14 Residential Apartments; Rent Regulations. Except for Apartment 1706, which is currently leased to Lenore Morse, there are no rooms at the Property that are leased to third parties as residential apartments whether through written or statutory leases. Except for Apartment 1706, there are no apartments at the Property that are subject to Rent Control, Rent Stabilization or any similar governmental rent regulation. 6.3.15 Regarding The Ground Lease. There is no outstanding default of lessee under the Ground Lease. Seller has not received any notice by or on behalf of lessor thereunder or otherwise claiming a default under the Ground Lease. The Ground Lease has not been amended or modified whether by agreement of lessor and lessee, pursuant to the order of any court or otherwise except as set forth in SCHEDULE 1.1.5 hereto. 6.4 Buyer's Review of Records and Plans. 6.4.1 Access to Records and Plans; Specific Disclosures. Buyer acknowledges that prior to the Closing Date, Buyer has been provided with such access to the Records and Plans and such other information relating to the Hotel as Buyer has deemed relevant. Buyer acknowledges that it (a) has been made aware of and given an opportunity to inquire into the Specific Disclosure Matters described herein; (b) has been given access to the Property and the opportunity to conduct such inquiries and analyses as Buyer has deemed necessary or appropriate in order to evaluate the physical condition of the Property and any and all other matters concerning the current and future use, feasibility, or value, or any other matter or circumstance relevant to Buyer concerning the Property or its marketability; and (c) the Records and Plans and the other books and records of Seller with respect to the Hotel may not be complete. 6.4.2 Limitation on Access to Records and Plans. Notwithstanding anything in this Agreement to the contrary, Buyer acknowledges and agrees that the Records and Plans or other information made available to or delivered to Buyer prior to, or at the Closing, shall not include any information which is privileged, confidential or proprietary to Seller or any of its constituent partners or affiliates, including without limitation, (i) Seller's internal financial analyses, any appraisals undertaken for Seller or other parties, income tax returns, financial statements, corporate or partnership governance records, investment advisory records, and other 27 records concerning Seller's professional relationships, any Hotel Employee personnel files (prior to the Closing), or any other internal, proprietary, or confidential information, files, or records of Seller, (ii) the work papers, memoranda, analysis, correspondence, and similar materials prepared by or for Seller in connection with the negotiation and documentation of the transaction contemplated hereby or any other offer to purchase the Property received by Seller, and (iii) any documents or communications subject to the attorney/client privilege or attorney work product privilege. Buyer expressly agrees that its review of the Records and Plans, and any and all other information of any type or nature, whether oral or written, provided to Buyer by or on behalf of Seller and relating to the Property (collectively, the "PROPERTY INFORMATION") is for informational purposes only, and neither Seller nor any agent, advisor, officer, attorney, representative or other person acting or purporting to act on behalf of Seller has verified either the accuracy of the Property Information, or the adequacy of any method used to compile the Property Information or the qualifications of any person preparing the Property Information except that, in delivering or making available a copy of any document or papers to Buyer, Seller has delivered or made available copies of the originals of such documents or papers in Seller's possession or included in the Records and Plans. Except as expressly set forth in this SECTION 6, neither Seller nor any agent, advisor, officer, attorney, representative or other person acting or purporting to act on behalf of Seller is making or giving any representation or warranty about, or assuming any responsibility for, the accuracy or completeness of the Property Information. Reliance by Buyer upon any Property Information shall not create or give rise to any liability of or against Seller or any agent, advisor, officer, attorney, representative or other person acting or purporting to act on behalf of Seller. Subject to Seller's express representations and warranties set forth herein, the consummation of the Closing shall constitute Buyer's unconditional approval of all aspects of the Property and Buyer's unconditional acknowledgment that Buyer has had the opportunity to request from Seller and review such documents and materials relating of the Property as Buyer deems appropriate. All copies of such documents delivered to Buyer shall be returned to Seller if the Closing fails to occur for any reason. 6.5 PURCHASE AS IS. BUYER REPRESENTS, WARRANTS AND COVENANTS TO SELLER THAT BUYER HAS INDEPENDENTLY AND PERSONALLY INSPECTED THE PROPERTY AND THE PROPERTY INFORMATION AND THAT BUYER HAS ENTERED INTO THIS AGREEMENT BASED UPON SUCH PERSONAL EXAMINATION AND INSPECTION. BUYER ACCEPTS THE PROPERTY, IN ITS CONDITION ON THE CLOSE OF ESCROW AS-IS AND WITH ALL ITS FAULTS, INCLUDING WITHOUT LIMITATION, ANY FAULTS AND CONDITIONS SPECIFICALLY REFERENCED IN THIS AGREEMENT. NO PERSON ACTING ON BEHALF OF SELLER IS AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF, BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO: (A) THE VALUE OF THE PROPERTY; (B) THE INCOME TO BE DERIVED FROM THE PROPERTY; (C) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL 28 ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON; (D) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY; (E) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE PROPERTY; (F) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY; (G) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY; (H) THE MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY; (I) THE COMPLIANCE OF THE PROPERTY WITH ANY ENVIRONMENTAL LAWS OR THE AMERICANS WITH DISABILITIES ACT; (J) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON, UNDER, OR ADJACENT TO THE PROPERTY; (K) THE CONTENT, COMPLETENESS OR ACCURACY OF ANY OF THE RECORDS AND PLANS OR OTHER INFORMATION PROVIDED BY SELLER TO BUYER WITH RESPECT TO THE PROPERTY; (L) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR SPECIFICATIONS FOR THE PROPERTY, INCLUDING ANY PLANS AND SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYER; (M) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR FUTURE APPLICABLE ZONING OR BUILDING REQUIREMENTS; (N) DEFICIENCY OF ANY UNDER SHORING; (O) DEFICIENCY OF ANY DRAINAGE; (P) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE LOCATED ON OR NEAR AN EARTHQUAKE FAULT LINE; (Q) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING ENTITLEMENTS AFFECTING THE PROPERTY; (R) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE PROPERTY (INCLUDING, WITHOUT LIMITATION, THE TENANT LEASES, THE EQUIPMENT LEASES, ANY FIXTURES AND EQUIPMENT, THE LICENSES AND PERMITS, THE PERSONAL PROPERTY, THE SERVICE CONTRACTS, THE EMPLOYMENT CONTRACTS, ANY EMPLOYEE BENEFIT PLANS AND THE LIQUOR LICENSE) EXCEPT AS MAY BE OTHERWISE EXPRESSLY STATED HEREIN; (S) THE GROUND LEASE; (T) ANY OF THE SPECIFIC DISCLOSURE MATTERS; OR (U) WITHOUT LIMITING THE OTHER DISCLAIMERS SET FORTH HEREIN BUT SUBJECT TO THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT, THE ASSIGNMENTS AND CONVEYANCES OF THE PERSONAL PROPERTY, THE MANAGEMENT AGREEMENT AND THE GROUND LEASE, ARE WITHOUT ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS OF ANY KIND WHATSOEVER, INCLUDING, WITHOUT LIMITATION, (1) WARRANTIES AS TO THE VALIDITY, ENFORCEABILITY OR ASSIGNABILITY OF THE MANAGEMENT AGREEMENT, (2) WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE, (3) 29 WARRANTIES RELATING TO THE DESIGN, CONDITION, QUALITY, WORKMANSHIP OR CAPACITY OF THE TANGIBLE PERSONAL PROPERTY, (4) REPRESENTATIONS OR WARRANTIES THAT THE TANGIBLE PERSONAL PROPERTY IS IN COMPLIANCE WITH ALL LAWS, STATUTES, ORDINANCES RULES, REGULATIONS, SPECIFICATIONS OR CONTRACTS PERTAINING THERETO, (5) WARRANTIES AGAINST PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, AND (F) WARRANTIES AS TO THE VALIDITY, ENFORCEABILITY, OR COLLECTIBILITY OF ANY ITEM. 6.6 Limitation on Representations and Warranties of Seller. In no event shall Buyer be entitled to seek recovery against Seller for an alleged breach of any representation or warranty by Seller if the information, transaction, or occurrence alleged to give rise to such breach was disclosed to, made available to or discovered by Buyer, whether in the course of its review of the Records and Plans or otherwise, prior to the Close of Escrow (the sole adjustment with respect to same being as set forth in SECTION 6.7 below). Without limiting the foregoing, each of the representations and warranties by Seller set forth herein shall be deemed to be qualified in their entirety by the Specific Disclosure Matters in addition to any other qualifications of such representations and warranties. 6.7 Right to Supplement Disclosures. At any time prior to the Closing, Seller may add additional disclosures to the Specific Disclosure Matters and the Schedules referenced in this SECTION 6, and may make appropriate revisions thereto, provided, however, that any such revisions do not in the aggregate disclose any matter or matters which would reasonably be expected to have an impact upon the value of the Property in excess of the amount of the Deposit; and provided, further, that the receipt of any notice of termination under the Management Agreement shall not be deemed to create any diminution in value to the Property. In the event that Buyer or Seller discovers any matter or matters which would be expected to exceed the Threshold Amount, then, in such event, the provisions of SECTION 7.1.1 shall apply. 6.8 Basket. In no event will Seller be liable to Buyer for any breach of a representation or warranty hereunder unless and to the extent the Loss actually and directly incurred by Buyer as results of such breach together with the Loss actually and directly incurred by Buyer as results of any other breach(s) in the aggregate exceed the Threshold Amount, provided, that in no event shall Seller have any liability to Buyer for any consequential damages arising from a breach by Seller of any representation or warranty unless such breach results from the intentional concealment by Seller. 6.9 Survival. The Trust, the Corporation and Seller each hereby covenants and agrees with the other that the representations and warranties of the Trust, the Corporation and Seller (as the case may be) set forth in SECTIONS 6.1.1 through 6.1.3, inclusive, SECTION 6.2.1 through SECTION 6.2.3, inclusive and SECTION 6.3.1 and SECTION 6.3.2 shall survive the Close of Escrow without limitation as to duration. The remaining warranties and representations set forth in SECTION 6 shall survive the Close of Escrow until the date which is one (1) year following the Closing Date, at which time such representations and warranties shall expire unless prior to such time Buyer or Seller, as the case may be, have duly commenced an action in a court of competent jurisdiction, alleging a breach of such representation or warranty. Notwithstanding anything herein to the contrary, in no event shall either Buyer or Seller have any right to make a claim after the Closing with respect to any representation or warranty, the breach of which such party shall have discovered prior to the Closing, unless such party shall have notified the other party of such breach prior to the Close of Escrow. Nothing contained in this SECTION 6.9 shall limit the right of Seller to any remedy otherwise available under Federal 30 or other applicable securities law. SECTION 7 TITLE TO THE REAL PROPERTY: EXTENSION OF THE CLOSING 7.1 Buyer's Review of Title. Seller has caused to be delivered to Buyer and Buyer's Counsel a current preliminary title commitment for title insurance issued by the Title Company showing the condition of title to the Real Property (the "Preliminary Title Report") together with a copy of all documents evidencing or creating the exceptions to title referenced therein. 7.1.1 Failure to Satisfy Certain Closing Conditions; Monetary Liens. On or prior to the Close of Escrow, Seller shall be obligated (i) to cause to be insured over or removed of record all Monetary Liens affecting the Seller's interest in the Real Property as of the date hereof; and (ii) to remove or to bond over any Monetary Lien arising after the issuance of the Preliminary Title Report which (a) was created by or with the consent of Seller, or (b) is in an amount less than or equal to the Deposit. In the event that any Monetary Lien not reflected on the Preliminary Title Report exceeds the Deposit and was not created by or with the consent of Seller or any other title defect or other matters arise which requires Seller to supplement its disclosure pursuant to SECTION 6.7 and which in the aggregate may create a diminution in value to the Property in excess of the Deposit, and/or the Ground Lease Estoppel has not been obtained on or prior to the Closing Date in the form required pursuant to SECTION 9.1.4. (i) the Deposit shall be refunded by Escrow Holder to Buyer on February 28, 1998 if the Closing does not occur by such date in accordance with the provisions hereof; (ii) the Scheduled Closing Date shall be extended and Seller shall use all reasonable efforts, to remove or bond over or otherwise cause the Title Company to omit such Monetary Lien as an exception from coverage under the Title Policy and/or remove or cure as applicable such other defect or condition or obtain the Ground Lease Estoppel as applicable; and (iii) Buyer shall be permitted to record the Memorandum of Contract in the real property records of the state and county in which the Real Property is located. In the event that the Scheduled Closing Date is so extended and Seller is able to remove or cure such Monetary Lien, remove or cure as applicable the title defect or other condition and/or the Ground Lease Estoppel is delivered as is required, a consent to the transfer of the Ground Lease is obtained in form reasonably acceptable to Buyer and Seller or a judicial determination that no default exists is obtained as provided below, the Close of Escrow shall occur as soon as practicable following such removal, cure, or delivery with time being of the essence as to the performance of both Buyer's and Seller's obligations hereunder. THE PARTIES ACKNOWLEDGE AND AGREE THAT DAMAGES WILL NOT BE AN ADEQUATE REMEDY TO SELLER IF BUYER SHALL DEFAULT IN ITS OBLIGATION TO CLOSE IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 7.1.1 AND CONSEQUENTLY THAT BUYER'S OBLIGATIONS UNDER THIS SECTION 7.1.1 SHALL BE SPECIFICALLY ENFORCEABLE AGAINST THE TRUST. IN CONSIDERATION FOR THE REFUND TO BUYER OF THE DEPOSIT PROVIDED FOR UNDER THIS SECTION 7.1.1, THE RIGHT OF BUYER TO RECORD THE MEMORANDUM OF CONTRACT PURSUANT TO THIS SECTION 7.1.1, SELLER'S AGREEMENT TO ENTER INTO THE INTERIM MANAGEMENT AGREEMENT PURSUANT TO THE PROVISIONS OF THIS SECTION 17.20 (UNDER WHICH AGREEMENT THE VALUE OF THE HOTEL MAY BE AFFECTED BY THE PERFORMANCE BY THE MANAGER OF ITS RESPONSIBILITIES THEREUNDER) AND TO ENCUMBER THE PROPERTY WITH THIS AGREEMENT FOR A PERIOD OF UP TO FIVE (5) YEARS IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 7.1.1 31 AND IN LIGHT OF THE RISKS WHICH SELLER WILL BE ASSUMING AS A RESULT IN RELATION TO THE VALUE OF THE EQUITY PURCHASE PRICE TO BE DELIVERED IF AND WHEN THE CLOSING OCCURS HEREUNDER, THE PARTIES HAVE AGREED THAT THE PROVISIONS OF THIS SECTION 7.1.1 ARE SPECIFICALLY ENFORCEABLE AGAINST THE TRUST AS AND TO THE EXTENT PROVIDED IN THE PRECEDING SENTENCE. In the event that a Monetary Lien cannot be removed or cured or a title defect or other condition cannot be removed or cured as required hereunder to close within five (5) years of the date of this Agreement, this Agreement shall terminate and the parties hereto shall have no further obligations. In the event that the Ground Lease Estoppel is not obtained by April 15, 1998, then, in such event, Seller shall, upon written request of Buyer at any time thereafter, at its expense and with the full cooperation and support of Buyer at its expense, commence and prosecute to completion a lawsuit against lessor under the Ground Lease to obtain the delivery of the Ground Lease Estoppel or, in the alternative, a consent to the transfer of the Ground Lease in form reasonably acceptable to Buyer or a judicial determination that no default then exists under the Ground Lease and the Scheduled Closing Date shall be extended until such time as such Ground Lease Estoppel is obtained, a consent is given or a judicial determination is so made. (The satisfaction of one or more of the foregoing conditions being referred to herein as the "Ground Lease Transfer Requirement"). 7.1.2 [Intentionally omitted] 7.2 Title Insurance Policy. Buyer's title to the Real Property shall be insured at Closing by an ALTA extended coverage owner's policy or policies of title insurance in the amount of the Purchase Price (the "Title Policy") issued by the Title Company, insuring title to the Improvements and the lessee's interest under the Ground Lease vested in Buyer, subject only to the Permitted Encumbrances, together with such customary endorsements or affirmative insurance as may be reasonably requested by Buyer and purchased at Buyer's sole cost and expense. 7.3 Title to Real Property. At the Close of Escrow, title to the Improvements and the lessee's interest under the Ground Lease will be conveyed to Buyer by Seller pursuant to the Deed and the Assignment of Ground Lease, subject only to the matters of title respecting the Property shown on SCHEDULE 7.3 annexed hereto and, if the Closing is delayed pursuant to SECTION 7.1.1, any additional easements, covenants, conditions, restrictions or other matters entered into with the prior written consent of Buyer which consent shall not be unreasonably withheld, delayed or conditioned (collectively, the "Permitted Encumbrances"); Buyer agrees to rely exclusively on the Title Policy for protection against any title defects except as set forth in SECTION 7.1.2. Buyer shall have no claim following the Closing against Seller on account of the Permitted Encumbrances. Buyer's agreement under this SECTION 7.1 shall survive the execution, delivery, and recordation of the Deed and the Assignment of Ground Lease. SECTION 8 INTERIM ACTIVITIES During the period from the Execution Date through the Close of Escrow, Seller shall (subject to the provisions of the Interim Management Agreement if entered into in accordance with the provisions of this Agreement) cause the Property to be continued to be operated in ordinary course as a hotel consistent with current operating practices during the period since Manager has been manager of the Hotel. Buyer shall have the right to enter onto and inspect the Property, from and after the date hereof, through the Closing Date to inspect the Property and otherwise perform its due diligence provided such inspections are performed upon prior notice to Seller and so as not to interfere with the operation of the Property or to disclose the pendency 32 of the transaction contemplated hereby. All fees and expenses of any kind relating to the inspection of the Property by Buyer will be paid for by Buyer. Buyer agrees to keep the Property free from any liens arising out of or in connection with Buyer's or its agents entry or the Property. Buyer shall at its sole cost and expense, clean up and repair the Property as reasonably necessary after Buyer's or its agents entry thereon. Buyer shall hold harmless, indemnify and defend Seller from all Losses relating to any action by Buyer, its Affiliates and/or agents at or on the Property prior to Closing. Any of Buyer's agents shall be bound by the provisions of SECTION 17.19. SECTION 9 CONDITIONS PRECEDENT TO CLOSING 9.1 Conditions Precedent to Buyer's Obligations. The Close of Escrow and the obligation of Buyer to purchase the Property is subject to the satisfaction, not later than the Scheduled Closing Date, (subject to extensions as provided in Section 7.1) of the following conditions: 9.1.1 Seller's Deliveries. Seller shall have delivered the items described in SECTION 4.2 and shall be prepared to deliver the items described in SECTION 4.4; 9.1.2 Title Policy. The Title Company shall be unconditionally prepared (subject only to payment of all necessary title insurance premiums and other charges) to issue to Buyer the Title Policy insuring Buyer's title to the Real Property subject only to the Permitted Encumbrances; 9.1.3 Performance Under Related Agreement. All conditions precedent to the closing of the transactions contemplated by that certain Purchase and Sale Agreement and Joint Escrow Instructions (the "Related Agreement") dated as of the date hereof by and between D.C. Overnight Partners, L.P. and Buyer shall have been satisfied or waived and the Seller and Escrow Holder thereunder shall be ready, willing and able to perform thereunder, and there shall be no default of Seller under such agreement; 9.1.4 Ground Lessor Estoppel. The lessor (or its agent) under the Ground Lease shall have delivered a certificate in form and substance satisfactory to the Title Company, confirming that there are no defaults thereunder as of the Closing Date and otherwise sufficient to allow the Title Company to issue the Title Policy in the form required pursuant to this Agreement (the "Ground Lease Estoppel") and/or the Ground Lease Transfer Requirement shall have otherwise been satisfied; and 9.1.5 Seller Performance. Seller shall have performed in all material respects all of the obligations of Seller under this Agreement, to the extent required to be performed at or prior to the Close of Escrow. 9.1.6 Representations and Warranties of Seller. The Seller's representations and warranties set forth in SECTION 6.3 shall be true, correct and complete, as of the Close of Escrow subject to modification thereof to the extent permitted under SECTION 6.7 and subject further to the applicable provisions of SECTION 7.1.1. The conditions set forth in this SECTION 9.1 are solely for the benefit of Buyer and may be waived only by Buyer. Buyer shall at all times have the right to waive any such condition. Any such waiver or waivers shall be in writing and shall be delivered to Seller and Escrow Holder. 9.2 Conditions Precedent to Seller's Obligations. The Close of Escrow and Seller's obligation with respect to the transactions contemplated by this Agreement are subject to the satisfaction, not later than the Scheduled Closing Date, of the following conditions: 9.2.1 Funds and Documents. Buyer shall have delivered to Escrow Holder, 33 prior to the Closing Date, for disbursement as directed by Seller, the Paired Shares and all cash or other immediately available funds due from Buyer in accordance with SECTION 4 of this Agreement and the documents described in SECTION 4.3; 9.2.2 Representations and Warranties of Buyer. The Trust's representations and warranties set forth in SECTION 6.1 and the Corporation's representations and warranties set forth in SECTION 6.2 shall be true, correct and complete, as of the Close of Escrow; 9.2.3 No Material Changes. There shall have been no casualty or condemnation for which Buyer has elected to terminate this Agreement pursuant to SECTION 12 or SECTION 13 of this Agreement; 9.2.4 Ground Lessor Estoppel. The lessor (or its agent) under the Ground Lease shall have delivered the Ground Lease Estoppel or the Ground Lease Transfer Requirement shall have otherwise been satisfied; and 9.2.5 Performance Under Related Agreement. All conditions precedent to the closing of the transactions contemplated by the Related Agreement shall have been satisfied or waived and the Buyer and Escrow Holder thereunder shall be ready, willing and able to perform thereunder and there shall be no default of Buyer under such agreement. The conditions set forth in this SECTION 9.2 are solely for the benefit of Seller and may be waived only by Seller. Seller shall at all times have the right to waive any such condition. Any such waiver or waivers shall be in writing and shall be delivered to Buyer and Escrow Holder. 9.3 Failure of Condition. Except as otherwise provided in this Agreement, if the Escrow fails to close on the Outside Closing Date for any reason whatsoever, including, without limitation, a failure of a condition precedent set forth in this SECTION 9, either Buyer or Seller, if not then in default under this Agreement, may terminate the Escrow and this Agreement upon notice to the other; and, thereupon: 9.3.1 This Agreement and the Escrow shall terminate; 9.3.2 The costs of the Escrow through the Scheduled Closing Date shall be governed by SECTION 4.8; 9.3.3 All monies paid into the Escrow and all documents deposited in the Escrow shall be returned to the party paying or depositing the same together with interest earned thereon; and 9.3.4 Each party shall be released from all obligations under this Agreement except for the obligations that are expressly stated to survive the termination of this Agreement. SECTION 10 BROKER Buyer and Seller each represent and warrant to the other that it has not dealt with any broker, finder or other middleman in connection with this Agreement, or the transactions contemplated hereby and that no broker, finder, middleman or other person has claimed, or has the right to claim a commission, finder's fee or other brokerage fee in connection with this Agreement or the transactions contemplated hereby. Each party shall indemnify, protect, defend and hold the other party harmless from and against any costs, claims or expenses (including actual attorneys' fees and expenses), arising out of the breach by the indemnifying party of any of its representations, warranties or agreements contained in this SECTION 10. The representations and obligations under this SECTION 10 shall survive the Close of Escrow, or, if the Close of Escrow does not occur, the termination of this Agreement. 34 SECTION 11 REMEDIES FOR SELLER'S DEFAULT 11.1 Buyer's Remedies in General. If Buyer shall discover prior to the Close of Escrow any default in any of Seller's obligations under this Agreement (a "Seller Default"), Buyer shall notify Seller thereof, and Seller shall have a reasonable period of time (not in excess of thirty (30) days) unless extended by Buyer in its sole discretion in which to cure such default, in which case the Scheduled Closing Date shall be extended during the continuation of such cure period. If there shall be any Seller Default discovered by Buyer prior to the Close of Escrow and not cured by the Scheduled Closing Date, then Buyer's sole right and remedy other than with respect to a breach of a representation and warranty which shall be subject to the provisions of SECTION 6.7, shall be to compel specific performance of this Agreement; provided, however, that Buyer shall only be entitled to compel specific performance of this Agreement if, as of the time of Seller's default, Buyer shall (a) not be in default hereunder, (b) shall be ready, willing and able to perform its obligations hereunder, and (c) shall have waived all contingencies to closing other than those relating to Seller's default. 11.2 MATERIAL INDUCEMENT. BUYER SPECIFICALLY ACKNOWLEDGES THAT THE LIMITATIONS ON DAMAGES AND SURVIVAL AND OTHER REMEDIES WHICH BUYER MAY RECOVER FROM AND ENFORCE AGAINST SELLER UNDER THIS AGREEMENT ARE A SPECIFIC AND MATERIAL INDUCEMENT TO SELLER TO ENTER INTO THIS TRANSACTION. SECTION 12 DAMAGE TO OR DESTRUCTION OF THE PROPERTY 12.1 Insured Casualty. 12.1.1 If, prior to the Close of Escrow, the Property is damaged or destroyed, whether by fire or other insured casualty, Seller shall promptly notify Buyer of such damage or destruction and of the good-faith estimate of a reputable licensed contractor selected by Seller and reasonably approved by Buyer of the cost to repair the damage and Seller's good-faith belief that such casualty is insured (the "Insured Casualty Notice"). If the Insured Casualty Notice indicates that such casualty is a Material Casualty, Buyer may elect to be released from its obligations hereunder (including its obligation to purchase the Property) by delivering to Seller written notice of Buyer's intent to do so within ten (10) days after the date Buyer receives the Insured Casualty Notice. In such event, the Deposit together with all interest accrued thereon shall be promptly returned to Buyer. 12.1.2 If the casualty is insured, and (i) it is not a Material Casualty, or (ii) it is a Material Casualty, but Buyer elects not to terminate this Agreement in accordance with this SECTION 12.1, then the Escrow and this Agreement shall remain in full force and effect, the Closing shall occur on or before the Outside Closing Date, and Seller shall assign to Buyer, as a condition precedent to the Close of Escrow, all of Seller's right, title and interest in and to any of the casualty insurance proceeds or claims therefor with respect to such damage or destruction, together with any and all rental loss or business interruption insurance of Seller, if any, payable with respect to the Property for any period after the Proration Time and any and all claims against other persons for such damage or destruction. Additionally, if the Escrow and this Agreement remain in full force and effect, Seller shall pay to Buyer, by way of a reduction in the Cash Portion of the Closing Payment, an amount equal to the deductible under the casualty insurance. Within twelve (12) months following the Close of Escrow, Buyer shall upon thirty (30) days written notice by Seller, present reasonably satisfactory evidence to Seller that Buyer applied the proceeds of such insurance to the Property. If Buyer fails to present such evidence or such evidence is not reasonably satisfactory to Seller, Buyer shall promptly, but in any event within thirty (30) days of demand therefor from Seller, pay to Seller the proceeds of the casualty 35 insurance assigned by Seller to Buyer as provided herein, together with an amount equal to the deductible under such insurance for which Buyer received a credit to the Purchase Price. 12.2 Uninsured Casualty. 12.2.1 If, prior to the Close of Escrow, all or any portion of the property is damaged or destroyed by an uninsured casualty (including, without limitation, a casualty as to which coverage has been disclaimed by Seller's insurers), Seller shall promptly notify Buyer of such damage or destruction and of the Seller's reasonable estimate of the cost to Seller to repair the same of a reputable licensed contractor selected by Seller and reasonably approved by Buyer (the "Uninsured Estimate to Repair") and Seller's reasonable belief that such casualty is uninsured (the "Uninsured Casualty Notice"). 12.2.2 If such Uninsured Estimate to Repair indicates the occurrence of a Material Casualty, either Seller or Buyer may elect to terminate this Agreement by giving to the other party written notice of its intent to do so within ten (10) days after the Seller delivers the Uninsured Casualty Notice to Buyer. If this Agreement is terminated pursuant to this SECTION 12.2.2, the Deposit together with interest accrued thereon shall be promptly returned to Buyer. 12.2.3 If the casualty is uninsured, and (i) it is not a Material Casualty, or (ii) it is a Material Casualty and Buyer and Seller have not elected to terminate this Agreement in accordance with SECTION 12.2.2, then the Escrow and this Agreement shall remain in full force and effect, the Closing shall occur on or before the Outside Closing Date, and Buyer shall be entitled to a reduction in the Purchase Price in an amount equal to the Uninsured Estimate to Repair. 12.2.4 If and to the extent that the Purchase Price is adjusted pursuant to this SECTION 12.2 as a result of a disclaimer of coverage by Seller's insurers, Buyer shall not be entitled to insurance proceeds due under Seller's policies, or to be assigned any claim under or with respect to Seller's policies, and Seller shall retain all rights thereunder or with respect thereto and to proceeds therefrom, it being the intent of this SECTION 12 that there be no double recovery by, or double compensation of, Buyer for the casualty. SECTION 13 CONDEMNATION If, prior to the Close of Escrow, a Material Taking has occurred or is pending, Seller shall immediately notify Buyer of such fact. In such event, Buyer may elect upon written notice to Seller given not later than fifteen (15) days after receipt of Seller's notice to terminate this Agreement. If Buyer does not exercise option which Buyer may have pursuant to this SECTION 13 to terminate this Agreement, or if any such taking is not a Material Taking, then neither party shall have the right to terminate this Agreement, but Seller shall assign and turn over, and Buyer shall be entitled to receive and keep, all awards for the taking of any of the Real Property by eminent domain which accrue to Seller (other than those relating to loss of use prior to the Closing), and the parties shall proceed to the Close of Escrow pursuant to the terms hereof, without modification of the terms of this Agreement and without any reduction in the Purchase Price. SECTION 14 EMPLOYEES 14.1 Hiring of Hotel Employees; WARN Act Compliance. Buyer agrees to make an offer of employment to all existing Hotel Employees as of the Close of Escrow, on terms and conditions generally comparable to their existing terms and conditions of employment (to the extent such terms and conditions have been disclosed by Seller and/or its agents to Buyer) and to make all reasonable efforts to retain such employees for a reasonable period of time. Without 36 limiting the foregoing, Buyer shall offer to maintain without loss of employment (as defined in the WARN Act) the employment at the Property (other than upon good cause for termination) of such number of Hotel Employees and on such terms and conditions as shall not result in, and only to the extent necessary to prevent, a plant closing or mass layoff as defined in the WARN Act. Buyer (i) shall also cause each of the health and medical benefit plans maintained for Hotel Employees to waive any preexisting condition in connection with employment at the Property that was not excluded under the applicable program as of the Closing Date, (ii) shall also cause each of such benefit plans to take into account any deductibles or coinsurance amounts incurred by each Hotel Employee for the year in which the Closing Date occurs, and (iii) shall also cause each of the health and medical benefit plans to deem each Hotel Employee to be eligible for participation in such Plan as of the Close of Escrow. In the event that Buyer fails to comply with any of the foregoing covenants, Buyer agrees that Buyer shall be solely responsible for the payment of any and all costs, charges, penalties, compensation, severance pay, benefits and liabilities, arising under the WARN Act, and any other applicable law, rule or regulation on account thereof, and Buyer agrees to indemnify, defend and hold Seller and the Employer Corporation and their directors, officers, agents, affiliates, principals, partners, shareholders representatives and controlling persons harmless from and against any and all claims, causes of action, judgments, damages, penalties and liabilities asserted under the WARN Act or any other applicable law, rule or regulation, whether against Buyer or Seller, the Employer Corporation or any other such indemnified party and whether based on employment of any of the Hotel Employees prior to or following the Closing, arising from Buyer's failure to comply with the foregoing covenants (collectively, "Termination Charges"). Following the Closing, if Buyer desires to terminate the employment of any Hotel Employees other than for cause, Buyer shall be solely responsible for complying with all applicable provisions of the WARN Act and all other applicable laws, rules and regulations with respect to such termination, including without limitation, the payment of all costs and termination payments owing under the WARN Act and all other applicable laws, rules and regulations to any of such employees. Buyer shall assume all obligations under the Employment Agreement for the Director of Finance attributable to the period from and after the Closing Date (it being agreed that the Director of Finance may resign thereunder at any time without penalty). 14.2 Collective Bargaining Agreements. Without limiting the provisions of SECTION 14.1, immediately upon the Close of Escrow, without the necessity of further action by Buyer, Buyer shall assume each collective bargaining agreement or other labor union contracts identified on SCHEDULE 14.2 (the "Collective Bargaining Agreements"). Buyer further agrees to indemnify Seller and the Employer Corporation and their directors, officers, employees, agents, affiliates, principals, partners, shareholders, representatives and controlling persons for any and all liability to the bargaining agents or Hotel Employees, resulting from the failure of Buyer to comply with the terms and conditions of any of the Collective Bargaining Agreements with respect to periods beginning after the Close of Escrow. 14.3 Continuation of Benefits. 14.3.1 Except as provided in SECTION 14.3.2 , on and after the Closing Date, Seller (or any insurer at Seller's cost) shall continue to process and pay (or cause applicable insurers and third party administrators, including ITT Sheraton, to process and pay) in an expeditious manner and with respect to all covered Hotel Employees (and, to the extent applicable, their covered spouses, dependents and beneficiaries) all claims under the Employment Agreements that provide health and medical, or other welfare, benefits submitted for covered expenses with respect to occurrences commencing on or prior to the Closing Date, 37 including, but not limited to: (A) covered hospital benefits for any confinements; (B) covered life and survivor income benefits, if any, for deaths which occur on or prior to the Closing Date; (C) workers' compensation benefits for disabilities resulting from a work-related accident which occurred on or prior to the Closing Date; (D) all covered benefits that are being, or that may be, paid to, or with respect to, any of such individuals who are on short or long term disability, or medical, personal or other leaves of absence as of the Closing Date; (E) covered benefits under any "spending account," or similar arrangement, under any "cafeteria plan" (as defined under Section 125 of the Internal Code) with respect to salary reduction elections made prior to the Closing Date; and (F) covered benefits under all other such Employment Agreements which accrue on or before the Closing Date; but, only in each instance, to the extent that Buyer shall not have received a credit against the Purchase Price on account of such item. 14.3.2 Buyer (or any plan maintained by Buyer) will provide continued health and medical coverage as required under Section 4980B of the Code, Part 6 of Title I of ERISA or any other applicable federal, state or local law or ordinance to all current and former Hotel Employees (and their spouses, dependents and beneficiaries) with respect to whom a "qualifying event" (as such term is defined under Sections 4980B(f)(3) of the Code or 603 of ERISA) or other triggering event described under the applicable federal, state or local laws or ordinances occurred on or before the Closing Date. 14.3.3 Buyer shall maintain supplies of claims forms necessary for Hotel Employees to make claims under Employment Agreements that provide health, medical or other welfare benefits with respect to occurrences commencing on or prior to the Closing Date, and shall furnish such forms to the Hotel Employees when needed and otherwise assist the Hotel Employees in presenting such claims. 14.4 Buyer and Seller intend by this Agreement to comply with Section 4204 of ERISA, so as to prevent Seller from incurring at the Closing Date a complete or partial withdrawal in respect of any employee benefit plans, if any, in which the Hotel Employees currently participate that are "multiemployer plans," as defined in Section 4001(a)(3) of ERISA (and which have been disclosed to Buyer on the Schedule of Employment Agreements), determined as if Buyer is the "buyer" referred to in such Section 4204. Accordingly, with respect to such multiemployer plans, Buyer agrees as follows: (A) For the first plan year of each such multiemployer plan commencing after the Close of Escrow, and for each of the succeeding four plan years for each such plan, Buyer shall assume the obligation to contribute to each such plan with respect to operations conducted with business assets acquired from Seller for substantially the same number of contribution base units (as defined in Section 4001(a)(11) of ERISA) for which Seller had an obligation to contribute to such plan. (B) Prior to each such multiemployer plan's first plan year beginning after the Close of Escrow, Buyer shall apply to such plan for a variance from the requirement of Section 4204(a)(1)(b) of ERISA, that a bond be obtained or an amount be held in escrow as provided in said Section. In the event any such plan determines that the request does not qualify for a variance on it, Buyer shall obtain any required bond or establish any required escrow within thirty (30) days after the date on which it receives notice of the plan's decision, and shall maintain such bond or escrow until the earliest of: (i) the date a variance is obtained from the plan; (ii) the date a variance or exemption is obtained from the Pension Benefit Guaranty Corporation; or (iii) the last day of the fifth (5th) plan year commencing after the Close of Escrow; which bond or escrow shall be paid to such plan if Buyer withdraws therefrom or fails to make a contribution to such plan when due, at any time during the first (1st) five (5) plan 38 years of such plan beginning after the Closing Date. In order to comply with subsection (a)(1)(C) of such Section 4204, if Buyer withdraws in a complete withdrawal or a partial withdrawal from any multiemployer plan with respect to which Buyer has assumed an obligation to contribute pursuant to this Agreement and such withdrawal or partial withdrawal occurs during the five (5) plan years commencing with the first (1st) plan year beginning after the date of the Close of Escrow, Seller shall be secondarily liable for any withdrawal liability it would have had to such multiemployer plan on the date of the Close of Escrow under Title IV of ERISA. Buyer agrees to provide Seller with reasonable advance notice of its anticipated failure to pay any withdrawal liability and to furnish Seller promptly with a copy of any notice of withdrawal liability it may receive with respect to such plans. 14.5 Indemnification. Buyer and Seller (as applicable, the "Indemnitor") agrees to indemnify, defend, protect and hold the other and, the Employer Corporation in the case of Seller, and their directors, officers, agents, affiliates, principals, partners, shareholders, representatives and controlling persons (as applicable, the "Indemnitee") harmless from and against any and all claims, damages, liabilities, losses, and expenses, (including attorneys' fees and costs) paid, suffered or incurred by the Indemnitee, arising out of or related to Indemnitor's failure to comply with any of the covenants, obligations, or duties contained in SECTION 14. 14.6 Survival. The provisions of this SECTION 14 shall survive the Close of Escrow. SECTION 15 COOPERATION 15.1 Seller has advised Buyer that it may be necessary after the Close of Escrow for Seller (or its representatives) to audit the Records and Plans with respect to the period prior to the Closing Date. In addition, Seller may require access to the such Books and Records in connection with any litigation by or against Seller and its Affiliates with respect to the Property, any tax audit, examination or challenge or similar proceeding, or any calculation of sums payable under SECTION 5. Accordingly, Buyer hereby: (i) agrees to retain the Records and Plans with respect to the period prior to the Closing Date at the Property for a period of seven (7) years after the Close of Escrow or such additional period as may reasonably be requested by Seller; (ii) grants Seller, its Affiliates and their respective representatives access to the such Records and Plans and the Property after the Close of Escrow, at reasonable times and upon reasonable prior notice, for such purposes; (iii) subject to the rights of guests in guest rooms, tenants under tenant leases, grants Seller, its Affiliates, and their respective representatives access to the Property after the Close of Escrow for the purpose of conducting such inspections and/or testing (including destructive testing) of the Property as may be necessary or advisable in connection with any litigation and other proceedings to which Seller is a party (provided that Seller shall give Buyer prior notice of the scope of such inspections and testing) which shall be scheduled for such periods as shall be reasonably agreeable to the parties. 15.1.1 All inspections fees, appraisal fees, engineering fees and other expenses of any kind relating to the inspection of the Property by Seller or Seller's Affiliate will paid for by Seller and/or Seller's Affiliate. 15.1.2 Prior to Seller or Seller's Affiliate's entry on the Property for the purpose of conducting inspections and/or tests, Seller or Seller's Affiliate shall provide Buyer with certificates of insurance from Seller's agents from an insurance carrier and for such risks and policy limits as Seller shall reasonably approve. 15.1.3 Seller agrees to keep the Property free from any liens arising out of or in connection with such testing and inspection. 15.1.4 Seller, shall, at its sole cost and expense, clean up and repair the Property 39 as reasonably necessary, after Seller's or Seller's agents, entry thereon. 15.1.5 Seller shall hold harmless, indemnify and defend Buyer for all losses relating to any action by Seller, its Affiliates and/or agents at or on the Property after the Closing. 15.1.6 Buyer agrees to cooperate with Seller, its Affiliates and their respective representatives in connection with any such litigation or proceedings with respect to the Property, any such tax audit, examination or challenge or similar proceeding, or any such calculation of sums payable under SECTION 5, said cooperation to be at no material cost or expense to Buyer. 15.2 Seller shall cooperate with Buyer in connection with the assignment of all transferable Licenses and Permits to Buyer and the application for and procurement of replacements of any non-transferable Licenses and Permits. SECTION 16 NOTICES 16.1 Addresses. Whenever any notice, demand or request is required or permitted hereunder, such notice, demand or request shall be made in writing and shall be (a) sent via a nationally recognized overnight courier service fully prepaid, (b) deposited in the United States by mail, registered or certified, return receipt requested, postage prepaid, or (c) sent via telefacsimile, provided that the original of such notice, demand or request shall also be sent via one of the methods described in (a) and (b) above, in each case to the addressees (and individuals) set forth below: As to Seller: N.Y. Overnight Partners, L.P. c/o Al Anwa USA Incorporated 1925 Century Park East Suite 1900 Los Angeles, CA 90067 Attn: General Counsel Telefacsimile: (310) 229-2939 With a copy to Seller's Additional Addressees: Gordon Eng, Esq. 19191 S. Vermont Avenue Suite 420 Torrance, CA 90502 Telefacsimile: (310) 207-1006 Morrison & Foerster LLP 555 West Fifth Street, Suite 3500 Los Angeles, CA 90013-1024 Attn: Thomas R. Fileti, Esq. Telefacsimile: (213) 892-5454 As to Buyer: Starwood Lodging Corporation Starwood Lodging Trust 2231 E. Camelback Road 40 Suite 400 Phoenix, AZ 85016 Attn: Steven R. Goldman Telefacsimile: (602) 852-0115 With a copy to Buyer's Additional Addressee: Greenberg Traurig Hoffman Lipoff Rosen & Quentel 153 East 53rd Street New York, NY 10022 Attn: Andrew E. Zobler, Esq. Telefacsimile: (212) 223-7161 As to Escrow Holder: Chicago Title Insurance Company 700 South Flower Street, Suite 900 Los Angeles, CA 90017 Attn: Maggie Watson Telefacsimile: (213) 488-4388 16.2 Receipt of Notices. Any notice, demand or request that shall be delivered to Buyer and its Additional Addressee in the manner aforesaid shall be deemed sufficiently given to and received by Buyer for all purposes hereunder, and any notice, demand or request that shall be delivered to Seller and its Additional Addresses in the manner aforesaid shall be deemed sufficiently given to and received by Seller for all purposes hereunder (i) the next business day following the day such notice, demand or request is delivered by a nationally recognized overnight courier service fully prepaid, to such party and its Additional Addressee, (ii) if sent via registered or certified mail, at the time of receipt by such party and its Additional Addressee, or (iii) if sent via telefacsimile, as of the date and time stated upon confirmation reports generated by the sending party's telefacsimile machine confirming the delivery of such notice, demand or request to such party and its Additional Addressee. 16.3 Refusal of Delivery. The inability to deliver any notice, demand or request because the individual to whom it is properly addressed in accordance with this SECTION 16 refused delivery thereof or no longer can be located at that address shall constitute delivery thereof to such individual. 16.4 Change of Address. Each party shall have the right from time to time to designate by written notice to the other parties hereto such other person or persons and such other place or places as said party may desire written notices to be delivered or sent in accordance herewith. SECTION 17 GENERAL PROVISIONS 17.1 Amendment. Except as provided in SECTION 4.1, no provision of this Agreement or of any documents or instrument entered into, given or made pursuant to this Agreement may be amended, changed, waived, discharged or terminated except by an instrument in writing, signed by the party against whom enforcement of the amendment, change, waiver, discharge or termination is sought. 17.2 Time of Essence. All times provided for in this Agreement for the performance of any act will be strictly construed, time being of the essence. 41 17.3 Entire Agreement. This Agreement and other documents delivered at Closing, set forth the entire agreement and understanding of the parties in respect of the transactions contemplated by this Agreement, and supersede all prior agreements, arrangements and understandings relating to the subject matter hereof and thereof. No representation, promise, inducement or statement of intention has been made by Seller or Buyer which is not embodied in this Agreement, or in the attached Exhibits or the written certificates, schedules or instruments of assignment or conveyance delivered pursuant to this Agreement, and neither Buyer nor Seller shall be bound by or liable for any alleged representations, promise, inducement or statement of intention not therein so set forth. 17.4 No Waiver. No failure of any party to exercise any power given such party hereunder or to insist upon strict compliance by the other party with its obligations hereunder shall constitute a waiver of any party's right to demand strict compliance with the terms of this Agreement. 17.5 Counterparts. This Agreement, any document or instrument entered into, given or made pursuant to this Agreement or authorized hereby, and any amendment or supplement thereto may be executed in two or more counterparts, and, when so executed, will have the same force and effect as though all signatures appeared on a single document. Any signature page of this Agreement or of such an amendment, supplement, document or instrument may be detached from any counterpart without impairing the legal effect of any signatures thereon, and may be attached to another counterpart identical in form thereto but having attached to it one or more additional signature pages. 17.6 Costs and Attorneys' Fees. If any legal action or any arbitration or other proceeding is brought for the enforcement of this Agreement or any document or instrument entered into, given or made pursuant to this Agreement or authorized hereby or thereby (including, without limitation, the enforcement of any obligation to indemnify, defend or hold harmless provided for herein or therein), or because of an alleged dispute, default, or misrepresentation in connection with any of the provisions of this Agreement or of such document or instrument, or if Escrow Holder commences any action with respect to the Escrow(s), the successful or prevailing party shall be entitled to recover actual attorneys' fees, charges and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled. 17.7 Payments; Interests. Except as otherwise provided herein, payment of all amounts required by the terms of this Agreement shall be made in the United States and in immediately available funds of the United States of America which, at the time of payment, is accepted for the payment of all public and private obligations and debts. Unless the parties otherwise agree, payments shall be made through the Escrow Holder. If any payment due under this Agreement is not paid when due, it shall thereafter bear interest at a variable rate equal to the rate announced from time to time by Citibank, N.A. as its prime or reference rate, plus five percent (5%) per annum, but in no event more than the maximum rate, if any, allowed by law to be charged by the party receiving the interest on such type of indebtedness. 17.8 Transfer By Buyer. Buyer shall not have the right to assign this Agreement, but shall be permitted to designate an Affiliate or Affiliates to take title to the Property. In the event that Buyer elects to so designate any Affiliate or Affiliates to take title to the Property hereunder, (i) Buyer shall upon close of Escrow be released of all obligations hereunder other than pursuant to SECTION 6, SECTION 7.1, SECTION 10, SECTION 17.18, SECTION 17.19 and SECTION 17.20 or arising prior to the Close of Escrow, (ii) such Affiliate or Affiliates shall assume all of Buyer's obligations hereunder; and (iii) such Affiliate of Affiliates shall represent and warrant 42 to Seller that such entities are duly organized and validly existing and otherwise as to the matters covered in SECTION 6.1.1 and SECTION 6.1.2 as applicable. 17.9 Parties in Interest. Subject to SECTION 17.8, the rights and obligations of the parties hereto shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs and the legal representatives of their respective estates. Nothing in this Agreement is intended to confer any right or remedy under this Agreement on any person other than the parties to this Agreement and their respective successors and permitted assigns, or to relieve or discharge the obligation or liability of any person to any party to this Agreement or to give any person any right of subrogation or action over or against any party to this Agreement. 17.10 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the state in which the Real Property is located without giving effect to the conflict-of-law rules and principles of that state. 17.11 Incorporation of Recitals and Exhibits. The Recitals and Exhibits attached to this Agreement are incorporated into and made a part of this Agreement. 17.12 Construction of Agreement. The language in all parts of this Agreement shall be in all cases construed simply according to its fair meaning and not strictly for or against any of the parties hereto. Headings at the beginning of sections of this Agreement are solely for the convenience of the parties and are not a part of this Agreement. When required by the context, whenever the singular number is used in this Agreement, the same shall include the plural, and the plural shall include the singular, the masculine gender shall include the feminine and neuter genders, and vice versa. As used in this Agreement, the term "Seller" shall include the respective permitted successors and assigns of Seller, and the term "Buyer" shall include the permitted successors and assigns of Buyer, if any. 17.13 Severability. If any term or provision of this Agreement is determined to be illegal, unconscionable or unenforceable, all of the other terms, provisions and sections hereof will nevertheless remain effective and be in force to the fullest extent permitted by law. 17.14 Announcements. Seller and Buyer shall consult with each other and provide each other one (1) Business Day prior notice with regard to all press releases and other announcements issued at or prior to the Close of Escrow and during the one year period thereafter concerning the existence of this Agreement or the sale of the Property and, except as permitted under SECTION 17.19, neither Seller nor Buyer shall issue any such press release or other such publicity prior to the Close of Escrow without the prior written consent of the other party, which consent may be withheld in such other party's sole and absolute discretion. Buyer will not issue any public announcement with respect to Seller (other than to describe the transaction contemplated hereby to the extent permitted hereunder) without the prior written consent of Seller which may be withheld in its sole and absolute discretion. The agreements of the parties in this SECTION 17.14 shall survive the Close of Escrow or any termination of this Agreement. 17.15 Submission of Agreement. The submission of this Agreement to Buyer or its broker, agent or attorney for review or signature does not constitute an offer to sell the Property to Buyer or the granting of an option or other rights with respect to the Property to Buyer. No agreement with respect to the purchase and sale of the Property shall exist, and this writing shall have no binding force or effect, until this Agreement shall have been executed and delivered by Buyer and by Seller and Buyer shall have deposited the Deposit with Escrow Holder. 17.16 Further Assurances. Buyer and Seller agree to execute such instructions to the Escrow Holder and such other instruments and take such further actions either before or after 43 the Close of Escrow as may be reasonably necessary to carry out the provisions of this Agreement provided that no material additional cost or liability shall be created thereby. 17.17 Cooperation. Buyer and Seller shall cooperate with the other to carry out the purpose of this Agreement (provided, such cooperation shall not require either party to expend any sum not otherwise required pursuant to the other provisions of this Agreement). This SECTION 17.17 shall survive the Close of Escrow. 17.18 Moratorium on Re-Sale. Buyer covenants and agrees that it will not sell the Property to any third-party for a period (the "Transfer Restriction Period") commencing upon the Close of Escrow and expiring upon the later of (a) five (5) years following the Close of Escrow and (b) settlement of or the final non-appealable judgment is issued in connection with the existing litigation between Seller and the Ritz Carlton Hotel Company, LLC and their respective affiliates, provided, however, the foregoing prohibition shall not apply to a sale of all or substantially all of the assets of Buyer, the merger of Buyer into another entity or the transfer of the Property to a subsidiary and/or Affiliate of Buyer but shall be binding upon the party succeeding to all or substantially all of the assets of Buyer, the surviving entity in such merger, or such subsidiary or Affiliate. The provisions of this SECTION 17.18 shall be specifically enforceable. Buyer hereby waives any requirement for Seller to post a bond in order to seek or obtain any temporary restraining order or other injunctive relief pursuant to this SECTION 17.18. The parties acknowledge and agree that the provisions of this SECTION 17.18 form a material part of the consideration to Seller for entering into this Agreement. The parties agree that these provisions are reasonable in light of Seller's ongoing litigation with Ritz Carlton Hotel Company, LLC and its affiliates. 17.19 Confidentiality. Buyer shall hold as confidential all information concerning the transaction contemplated by this Agreement, Seller and the Property disclosed in connection with this transaction and Buyer shall not, prior to the Close of Escrow, release any such information relating to the transaction, Seller or the Property to any governmental agencies or third parties without Seller's prior written consent except as may be required by law and in such case subject to the provisions of SECTION 17.14. Seller hereby gives its consent to Buyer's disclosure of information relating to the transaction contemplated hereby to Buyer's Counsel and other consultants, in each instance to the extent reasonably necessary to verify information given to Buyer by Seller or otherwise to carry out the purposes of this Agreement and provided in each instance, such consultants agree in writing to be bound by the confidentiality provisions of this SECTION 17.19. If the Close of Escrow shall fail to occur for any reason, neither party shall issue any press release, publicity or other public announcement of the subject matter of this Agreement, or to make any other disclosure concerning the subject matter of this Agreement (except as may be required by law and in such case subject to the provisions of SECTION 17.14.), without the prior written consent of the other party, which consent may be withheld in such other party's sole and absolute discretion. The agreements of the parties in this SECTION 17.19 shall survive any termination of this Agreement. 17.20 Interim Management Agreement. Seller shall provide Manager with a notice of termination of the Management Agreement on January 2, 1998 or as soon thereafter as Seller shall have obtained any required lender consent thereto. Seller shall, on or prior to January 2,1998, seek any required lender contents and use all reasonable commercial efforts to obtain the same as promptly as possible. Buyer and Seller shall enter into a management agreement with respect to the Property in the form attached as EXHIBIT 17.20 hereto (the "Interim Management Agreement") which shall be effective (and the Interim Management Agreement shall be dated as of such effective date) on the earlier of (a) thirty days from the date of that at 44 delivery to Manager of such Termination Notice, and (b) the effective date of a written waiver of Manager of the notice of termination required under the Management Agreement. Buyer shall advance any fee payable to Manager under the Management Agreement on account of the termination thereof up to $69,767.00. Buyer shall be deemed to have waived delivery of all items under SECTIONS 4.2.1.15, 4.2.1.16, 4.2.1.17 and 4.2.1.19 in the event the Management Agreement is terminated in accordance with the provisions of this SECTION 17.20 prior to the Closing Date. 17.21 Starwood Lodging Trust. The parties hereto understand and agree that the name "Starwood Lodging Trust" is a designation of the Trust and its trustees (as trustees but not personally) under the Trust's Declaration of Trust, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. [BALANCE OF PAGE INTENTIONALLY BLANK] 45 IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be executed as of the day and year first above written. "Seller" N.Y. OVERNIGHT PARTNERS, L.P., a New York limited partnership By: N.Y. OVERNIGHT, INC. a New York corporation, its sole General Partner By: /s/ T. Ayoubi ------------------------------------- Name: Tarek Ayoubi Its: President "Buyer" STARWOOD LODGING TRUST, a Maryland real estate investment trust By: /s/ Steven R. Goldman __________________________ Name: Title: STARWOOD LODGING CORPORATION, a Maryland corporation By: /s/ Michael C. Mueller __________________________ Name: Michael C. Mueller Title: Vice President "Escrow Agent" CHICAGO TITLE INSURANCE COMPANY, a Missouri corporation By: /s/ Maggie G. Watson* __________________________ Name: Maggie G. Watson Title: Authorized Signatory * subject to receiving mutual instructions in the event paragraph #3.5 becomes operative 46 TABLE OF CONTENTS SECTION 1 - DEFINITIONS 1 1.1 Defined Terms 1 1.2 Other Definitional Provisions 10 SECTION 2 - PURCHASE AND SALE OF PROPERTY 11 SECTION 3 - PURCHASE PRICE; PAYMENT; BUYER'S DEFAULT; LIQUIDATED DAMAGES 11 3.1 Purchase Price 11 3.2 Payment 11 3.3 Investment of Escrowed Funds 12 3.4 Allocation of Purchase Price 12 3.5 Default by Buyer Prior to Closing; Liquidated Damages 12 SECTION 4 - ESCROW; CLOSING; COSTS 13 4.1 Escrow 13 4.2 Seller's Deliveries to Escrow Holder 13 4.2.1.1 Deed 13 4.2.1.2 Assignment and Assumption of Tenant Leases 14 4.2.1.3 General Assignment 14 4.2.1.4 Assignment and Assumption of Management Agreement 14 4.2.1.5 Bill of Sale 14 4.2.1.6 Stock Agreement 14 4.2.1.7 Liquor Licenses Management Agreement 14 4.2.1.8 Assignment and Assumption of Ground Lease 14 4.2.1.9 Assignment of Mortgage 14 4.2.1.10 [Intentionally Omitted] 15 4.2.1.11 [Intentionally Omitted] 15 4.2.1.12 [Intentionally Omitted] 15 4.2.1.13 Non-Foreign Person Certificate 15 4.2.1.14 Transfer Tax Forms 15 4.2.1.15 Certified Rent Roll 15 4.2.1.16 Certified Operating Statement 15 4.2.1.17 Guest Ledger 15 4.2.1.18 Closing Certificate 15 4.2.1.19 Schedule of Bookings 16 4.2.1.20 Title Requirements 16 4.2.1.21 Payoff Letters 16 4.2.1.22 Notices to Tenants 16 4.2.1.23 Opinion of Seller's Counsel 16 4.2.1.24 Other 16 4.3 Buyer's Deliveries to Escrow Holder 16 4.3.1.1 The Cash Purchase Price 17 4.3.1.2 Stock Certificates 17 4.3.1.3 Assignment and Assumption of Management Agreement 17 4.3.1.4 Value Letter 17 46 47 4.3.1.5 Opinion of Buyer's Counsel 17 4.3.1.6 Stock Agreement 17 4.3.1.7 Assignment and Assumption of Ground Lease 17 4.3.1.8 Liquor License Management Agreement 17 4.3.1.9 [Intentionally Omitted] 17 4.3.1.10 [Intentionally Omitted] 17 4.3.1.11 [Intentionally Omitted] 17 4.3.1.12 Closing Certificate 18 4.3.1.13 The Assignment and Assumption of Tenant Leases 18 4.3.1.14 The General Assignment and Assumption Agreement 18 4.3.1.15 Transfer Tax Forms 18 4.3.1.16 Other 18 4.4 Seller's Deliveries to Buyer 18 4.4.1 Tenant Leases/Tenant Deposits 18 4.4.2 Service Contracts 18 4.4.3 Licenses and Permits 18 4.4.4 Records and Plans 18 4.5 Possession 19 4.6 Evidence of Authorization 19 4.7 Close of Escrow 19 4.8 Costs of Escrow 20 4.9 Other Costs 21 4.10 Maintenance of Confidentiality by Escrow Holder 21 SECTION 5 - PRORATIONS AND ASSUMPTION OF OBLIGATIONS 21 5.1 General 21 5.2 General and Specific Prorations 21 5.3 Deposits 24 5.4 Tenant Leases 24 5.5 Service Contracts and Other Intangible Property 24 5.6 Tax Refunds and Proceedings 24 5.7 Guest Baggage 25 5.8 Safe Deposit Boxes 25 5.9 Advance Bookings 25 SECTION 6 - REPRESENTATIONS AND WARRANTIES; CONDITION OF PROPERTY 25 6.1 Of the Trust 25 6.1.1 Power and Authority 25 6.1.2 Authorization; Valid Obligation 26 6.1.3 Capital Structure 26 6.1.4 SEC Documents and Other Reports 26 6.1.5 Absence of Certain Changes or Events 27 6.1.6 Actions and Proceedings 27 6.1.7 REIT Status 28 6.1.8 Partnership Status 28 6.1.9 Hart-Scott-Rodino Act 28 6.2 Of the Corporation 28 6.2.1 Power and Authority 28 47 48 6.2.2 Authorization; Valid Obligation 28 6.2.3 Capital Structure 29 6.2.4 SEC Documents and Other Reports 29 6.2.5 Absence of Certain Changes or Events 29 6.2.6 Actions and Proceedings 30 6.2.8 Hart-Scott-Rodino 30 6.3 Of Seller 30 6.3.1 Regarding Seller's Authority 30 6.3.2 Tenant Leases 31 6.3.3 Service Contracts 31 6.3.4 Claims 31 6.3.5 Employees 31 6.3.6 Compliance with Laws 32 6.3.7 Hazardous Materials 32 6.3.8 Records and Plans 32 6.3.9 Licenses and Permits 32 6.3.10 Management Agreements 32 6.3.11 Personal Property 32 6.3.12 Insurance 33 6.3.13 Real Estate Taxes 33 6.3.14 Residential Apartments; Rent Regulations 33 6.3.15 Regarding The Ground Lease 33 6.4 Buyer's Review of Records and Plans 33 6.4.1 Access to Records and Plans; Specific Disclosures 33 6.4.2 Limitation on Access to Records and Plans 34 6.5 PURCHASE AS IS 34 6.6 Limitation on Representations and Warranties of Seller 36 6.7 Right to Supplement Disclosures 37 6.8 Basket 37 6.9 Survival 37 SECTION 7 - TITLE TO THE REAL PROPERTY: EXTENSION OF THE CLOSING 37 7.1 Buyer's Review of Title 38 7.1.1 Failure to Satisfy Certain Closing Conditions; Monetary Liens 38 7.1.2 [Intentionally omitted] 39 7.2 Title Insurance Policy 39 7.3 Title to Real Property 39 SECTION 8 - INTERIM ACTIVITIES 40 SECTION 9 - CONDITIONS PRECEDENT TO CLOSING 40 9.1 Conditions Precedent to Buyer's Obligations 40 9.1.1 Seller's Deliveries 40 9.1.2 Title Policy 40 9.1.3 Performance Under Related Agreement 40 9.1.4 Ground Lessor Estoppel 41 9.1.5 Seller Performance 41 9.1.6 Representations and Warranties of Seller 41 48 49 9.2 Conditions Precedent to Seller's Obligations 41 9.2.1 Funds and Documents 41 9.2.2 Representations and Warranties of Buyer 41 9.2.3 No Material Changes 41 9.2.4 Ground Lessor Estoppel 42 9.2.5 Performance Under Related Agreement 42 9.3 Failure of Condition 42 SECTION 10 - BROKER 42 SECTION 11 - REMEDIES FOR SELLER'S DEFAULT 43 11.1 Buyer's Remedies in General 43 11.2 MATERIAL INDUCEMENT 43 SECTION 12 - DAMAGE TO OR DESTRUCTION OF THE PROPERTY 43 12.1 Insured Casualty 43 12.2 Uninsured Casualty 44 SECTION 13 - CONDEMNATION 45 SECTION 14 -EMPLOYEES 45 14.1 Hiring of Hotel Employees; WARN Act Compliance 45 14.2 Collective Bargaining Agreements; ERISA Compliance 46 14.3 Continuation of Benefits 46 14.5 Indemnification 48 14.6 Survival 48 SECTION 15 - COOPERATION 48 SECTION 16 - NOTICES 49 16.1 Addresses 49 16.2 Receipt of Notices 51 16.3 Refusal of Delivery 51 16.4 Change of Address 51 SECTION 17 - GENERAL PROVISIONS 51 17.1 Amendment 51 17.2 Time of Essence 51 17.3 Entire Agreement 52 17.4 No Waiver 52 17.5 Counterparts 52 17.6 Costs and Attorneys' Fees 52 17.7 Payments; Interests 52 17.8 Transfer By Buyer 53 17.9 Parties in Interest 53 17.10 Applicable Law 53 17.11 Incorporation of Recitals and Exhibits 53 17.12 Construction of Agreement 53 17.13 Severability 53 17.14 Announcements 53 17.15 Submission of Agreement 54 17.16 Further Assurances 54 17.17 Cooperation 54 17.18 Moratorium on Re-Sale 54 17.19 Confidentiality 55 17.20 Interim Management Agreement 55 49 50 EXHIBITS Exhibit A Legal Description Exhibit B Memorandum of Contract Exhibit 4.2.1.1 Deed Exhibit 4.2.1.2 Assignment and Assumption of Tenant Leases Exhibit 4.2.1.3 General Assignment and Assumption Agreement Exhibit 4.2.1.4 Assignment and Assumption of Management Agreement Exhibit 4.2.1.5(a) Bill of Sale for Capitalized Tangible Property Exhibit 4.2.1.5(b) Bill of Sale for Expensed Tangible Property Exhibit 4.2.1.6 Stock Agreement Exhibit 4.2.1.7 Liquor License Management Agreement Exhibit 4.2.1.8 Assignment and Assumption of Ground Lease Exhibit 4.2.1.13 Non-Foreign Person Certificate Exhibit 17.20 Interim Management Agreement SCHEDULES Schedule 1.1.1 Approved Service Contracts Schedule 1.1.2 Employment Agreements Schedule 1.1.3 Equipment Leases Schedule 1.1.4 Excluded Property Schedule 1.1.5 Ground Lease Schedule 1.1.6 Hotel Employees Schedule 1.1.7 Schedule of Tenant Leases Schedule 1.1.8 Seller's Due Diligence and Seller's Knowledge Schedule 1.1.9 Specific Disclosure Matters Schedule 3.4 Allocation of Purchase Price Schedule 6.3.2 Material Defaults Under Tenant Lease Schedule 6.3.3 Material Defaults Under Approved Service Contracts Schedule 6.3.4 Material Claims Schedule 6.3.5 Material Defaults Under Employment Agreements Schedule 6.3.6 Material Violations Schedule 6.3.7 Material Environmental Conditions Schedule 6.3.9 Licenses and Permits Schedule 6.3.12 Seller's Insurance Schedule 6.3.13 Pending Tax Protests Schedule 7.3 Permitted Encumbrances Schedule 14.2 Collective Bargaining Agreements 50 EX-10.58 35 EX-10.58 1 Exhibit 10.58 STOCK AGREEMENT by and among N.Y. OVERNIGHT PARTNERS, L.P. a New York limited partnership as Stock Purchaser and STARWOOD HOTELS & RESORTS TRUST, a Maryland Real Estate Investment Trust and STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland Corporation, Dated as of January 15, 1998 2 STOCK AGREEMENT THIS STOCK AGREEMENT (this "Agreement") is entered into as of January 15, 1998 (the "Closing Date") by and between N.Y. OVERNIGHT PARTNERS, L.P., a New York limited partnership, ("Stock Purchaser"), STARWOOD HOTELS & RESORTS TRUST, a Maryland real estate investment trust (the "Trust"), and STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Corporation", and, with the Trust, "Starwood Lodging"). R E C I T A L S A. Stock Purchaser has agreed to acquire from Starwood Lodging, and Starwood Lodging has agreed to issue and deliver to Stock Purchaser, Paired Shares in partial consideration for certain assets owned by Stock Purchaser. B. The parties desire to enter into this Agreement in order to set forth certain terms and conditions under which the Paired Shares are to be issued to and held by Stock Purchaser. A G R E E M E N T NOW, THEREFORE, in consideration of the foregoing and the mutual promises and agreements contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby mutually acknowledged, Starwood Lodging and Stock Purchaser agree as follows: SECTION 1 DEFINITIONS 1.1 Defined Terms. "Accredited Investor" shall have the meaning ascribed to that term in Rule 501 promulgated by the SEC under the Securities Act. "Affiliate" shall mean, with respect to any Person, any other Person that controls, is controlled by or is under common control with such first Person. "Applicable Percentage" shall mean: (a) if Starwood Lodging delivers Registered Shares to Stock Purchaser pursuant to Section 2.1 hereof, 100% and (b) if Starwood Lodging delivers Unregistered Shares pursuant to Section 2.1 hereof, 91.95%. "Business Day" shall mean any day on which the New York Stock Exchange is open for business. "Closing Date" shall mean the date hereof. "Equity Value" shall mean Two Million Nine Hundred Forty-Two Thousand Four Hundred Dollars ($2,942,400), divided by the Applicable Percentage, rounded to the nearest whole number. "ITT Closing" shall have the meaning set forth in the Registration Rights Agreement. "Joinder Agreement" means an agreement to be bound by this Agreement in the form of Attachment A hereto. 3 "LIBOR" means the average of the interbank offered rates for three-month dollar deposits in the London market based on quotations at five (5) major banks, as published from time to time in The Wall Street Journal. If The Wall Street Journal ceases to publish such a compilation of interbank offered rates, or if The Wall Street Journal ceases to be published, then Starwood Lodging shall propose a substitute method of determining the interest rate generally known as the three-month LIBOR rate, which method, absent manifest error, shall be binding on all holders of the Subject Shares and Starwood Lodging. "Lock Price" shall mean the Market Price as of the Closing Date, provided, however, that in the event that, at any time during the period between December 30, 1997 and the Settlement Date, the Corporation or the Trust effects any reclassification, stock split or stock dividend with respect to their stock, any change or conversion of stock into other securities, or any other dividend or distribution with respect to the Paired Shares, other than (i) dividends contemplated by the Starwood Lodging Disclosure in effect as of December 30, 1997, or (ii) dividends in the aggregate not to exceed the greater of (a) the current rate (as of December 30, 1997) of their dividends (together with any increases in such rate in the ordinary course) and (b) the Trust's "real estate investment taxable income" (as such term is defined for purposes of the Internal Revenue Code) without regard to any net capital gains or the deduction for dividends paid, appropriate and proportionate adjustments shall be made to the Lock Price. "Market Price" shall mean, as of any date, the average closing prices of the Paired Shares on the New York Stock Exchange during the ten consecutive Business Days immediately preceding such date. "Open Market Sale" means one or more sales of Stock Agreements Shares (including "short sales" initiated with the intention of delivering Stock Agreements Shares) made or proposed to be made by placing one or more sale orders or offers to sell with one or more securities brokers or dealers with a view toward the consummation of one or more sale transactions that are required to be, or that actually are, reported to the New York Stock Exchange or the National Association of Securities Dealers. "Orderly Market Disposition" means the sale of Stock Agreements Shares by placing one or more sell orders with one or more securities brokers or dealers with a view toward the disposition in the market of such Stock Agreements Shares. "Other Stock Agreements" shall mean, collectively, (i) that certain Stock Agreement, dated as of January 15, 1998, among Savanah Limited Partnership, as stock purchaser, and Starwood Lodging, (ii) that certain Stock Agreement, dated as of January 15, 1998, among New Remington Partners, as stock purchaser, and Starwood Lodging, and (iii) that certain Stock Agreement, dated as of January 15, 1998, among D.C. Overnight Partners, L.P., as stock purchaser, and Starwood Lodging. "Paired Shares" shall mean one share of beneficial interest, par value $.01 per share, of the Trust, and one share of common stock, par value $.01 per share, of the Corporation that are subject to the Pairing Agreement. For purposes of calculating the number of Paired Shares to be delivered hereunder, each pair of the shares of the stock of the Trust and the Corporation shall be considered one share. "Pairing Agreement" shall mean the Pairing Agreement dated as of June 25, 1980, as amended, between the Trust and the Corporation providing, in relevant part, for the pairing of all outstanding shares of the Corporation and the Trust. 4 "Payment Rights" shall have the meaning set forth in Section 5 hereof. "Person" shall have the meaning set forth in the Registration Rights Agreement. "Proposed Disposition Shares" shall have the meaning set forth in Section 3 hereof. "Put Price" and "Put Right" shall have the meaning set forth in Section 2.4 hereof. "Registered Shares" means Subject Shares the issuance of which to Stock Purchaser has been registered under the Securities Act. "Registration Rights Agreement" means the Registration Rights Agreement by and among Stock Purchaser, the Trust and the Corporation in the form of Attachment B hereto. "Registration Statement" shall have the meaning set forth in the Registration Rights Agreement. "Required Effectiveness Date" shall have the meaning set forth in the Registration Rights Agreement. "Response Date" shall have the meaning set forth in Section 3 hereof. "Restricted Group" shall mean two (2) or more Restricted Holders acting in concert or under common direction. "Restricted Holder" shall mean Stock Purchaser and any other Person who shall have acquired any Stock Agreements Shares in a Transfer not constituting an Open Market Sale. A Restricted Holder shall not include any Person who shall have acquired any Stock Agreements Shares in a Transfer not constituting an Open Market Sale if such Transfer occurs after the first Open Market Sale of such Stock Agreements Shares. "Sale Notice" shall have the meaning set forth in Section 3 hereof. "SEC" shall mean the United States Securities and Exchange Commission. "SEC Documents" means all documents required to have been filed by the Trust or the Corporation with the SEC since January 1, 1996 and through the date hereof. "Securities Act" shall mean the Securities Act of 1933, as amended. "Settlement Date" shall mean, if Starwood Lodging shall deliver Unregistered Shares pursuant to Section 2.1 hereof, the date on which Starwood Lodging or its counsel shall notify Stock Purchaser that (i) the Registration Statement has been declared effective by the SEC, (ii) that the Subject Shares have been registered, on the terms and subject to the provisions of the Registration Rights Agreement, for Transfer by the selling shareholders named therein in Open Market Sales and in such other manner as is provided in the Registration Statement, and (iii) that Starwood Lodging has completed all deliveries and other actions required to enable trading of the Subject Shares on the New York Stock Exchange; provided, however, that if such notice is given later than 1:00 PM Eastern Time, the Settlement Date shall be deemed for all purposes to occur on the Business Day following the date of such notice. 5 "Starwood Lodging Disclosure" shall mean, collectively, the Form S-3 filed by the Corporation and the Trust with the SEC on November 12, 1997, and the Form S-4 filed by the Corporation and the Trust with the SEC on November 20, 1997, as the same has been or may hereafter be amended by any filing with the SEC made by the Trust or the Corporation. "Stock Agreements Shares" shall mean the aggregate of the Subject Shares and the other Paired Shares delivered pursuant to the Other Stock Agreements. . "Stock Purchaser Affiliates" shall have the meaning set forth in Section 6.1 hereof. "Subject Shares" means the 57,405 Paired Shares delivered by Starwood Lodging pursuant to Section 2.1 hereof. "Transfer" shall have the meaning set forth in the Registration Rights Agreement. "Transfer Agent" shall mean the transfer agent for the Paired Shares. "Unregistered Shares" means Subject Shares the issuance of which to Stock Purchaser has not been registered under the Securities Act. 1.2 Other Definitional Provisions. The terms "hereof," "hereto," "hereunder" and similar terms when used in this Agreement shall refer to this Agreement generally, rather than to the section in which such term is used, unless otherwise specifically provided. Unless the context otherwise requires, any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. SECTION 2 CALCULATION OF SUBJECT SHARES 2.1 Calculation of Subject Shares. Starwood Lodging shall deliver to Stock Purchaser on the Closing Date Paired Shares in an amount equal to the Equity Value divided by the Lock Price. Starwood Lodging shall have the option to deliver Registered Shares or Unregistered Shares on the Closing Date. 2.2 Delivery Requirements for Paired Shares. The Paired Shares to be delivered hereunder shall be properly endorsed and certificated Paired Shares in the amount required to be delivered in accordance with the provisions of this Agreement. If Registered Shares are delivered, such shares shall be unlegended and fully and freely transferable without any consent of, registration with or notice to any Person (except as provided for in Sections 3 and 4 hereof and in the Pairing Agreement). If Unregistered Shares are issued, each certificate evidencing Subject Shares shall be stamped or otherwise imprinted with a legend in substantially the following form (and no other restrictive legends): THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. THE SALE, PLEDGE OR OTHER TRANSFER OF THIS 6 CERTIFICATE OR THE SHARES EVIDENCED HEREBY IS SUBJECT TO THE TERMS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF JANUARY 15, 1998 BETWEEN THE ISSUER AND THE HOLDER HEREOF. There shall be no legend on the Paired Shares reflecting the restrictions in Sections 3 or 4 hereof. 2.3 Other Deliveries. Concurrently with the delivery of the Paired Shares, Starwood Lodging shall deliver to Stock Purchaser any statements, such as a transfer or conveyance tax forms or returns required by applicable federal or New York law to be executed by Starwood Lodging, as may reasonably be requested by Stock Purchaser in order to effect the delivery of the Subject Shares to Stock Purchaser. 2.4 Registration Rights and Requirements. (a) If Starwood Lodging delivers Unregistered Shares pursuant to Section 2.1 hereof, Stock Purchaser and Starwood Lodging shall on the Closing Date execute and deliver to each other the Registration Rights Agreement and the parties thereto shall perform their respective obligations thereunder. If Starwood Lodging delivers Registered Shares pursuant to Section 2.1 hereof, the Registration Rights Agreement shall not be executed or delivered and none of the parties shall have any obligations thereunder. (b) If Starwood Lodging delivers Unregistered Shares pursuant to Section 2.1 hereof, and if the Settlement Date shall not have occurred on or before the seventh Business Day after the Required Effectiveness Date, Starwood Lodging shall pay to each Restricted Holder, on the Settlement Date, an amount equal to the "Interest Factor." For each Restricted Holder, the "Interest Factor" shall be an amount equal to the product of (i) LIBOR plus 2% per annum for each day after the seventh Business Day after the Required Effectiveness Date to and including the earlier of the Settlement Date or the date that is 60 days after the Required Effectiveness Date, multiplied by (ii) the Market Price multiplied by the number of Subject Shares held by such Restricted Holder on the date of such payment. (c) In the event that the Settlement Date shall not have occurred by the date that is 60 days after the Required Effectiveness Date, each Person who is a Restricted Holder as of such date shall have the non-transferrable right (its "Put Right"), exercisable at any one time for each such Restricted Holder after such 60th day and through the earlier to occur of (i) the Settlement Date, and (ii) the day immediately prior to the first anniversary of the Closing, to "put" some or all of the Subject Shares held by such Restricted Holder to Starwood Lodging for an amount per share equal to the Put Price; provided, however, that the Put Right shall not be exercisable by any Restricted Holder for a number of Subject Shares that is less than the lesser of (i) 100,000, or (ii) the number of Subject Shares then held by such Restricted Holder. Such right shall be exercised by such Restricted Holder giving Starwood Lodging notice of its election to exercise its Put Right and the number of Subject Shares to be purchased by Starwood Lodging, whereupon Starwood Lodging shall purchase such shares at 9:00 a.m. (Eastern Time) on the second Business Day following its receipt of such notice, with payment to be delivered (against delivery to Starwood Lodging of such shares free of all rights of other Persons) on the third Business Day thereafter in cash or immediately available funds to such account as such Restricted Holder may designate in such notice. The Put Price shall be the Market Price determined as of the date such notice is given. Starwood Lodging shall have the right to satisfy 7 its obligations under the Put Rights by designating another Person as the purchaser of such shares, and such obligations shall be deemed satisfied upon such other Person's purchase of such shares for the Put Price and at the time and in the manner set forth herein. Such designation shall not affect Starwood Lodging's obligation to pay the Interest Factor as provided herein. (d) The Interest Factor and the right of each Restricted Holder to receive the Put Price in the event it elects to exercise its Put Right shall be each Restricted Holder's sole and exclusive monetary remedies arising from Starwood Lodging's failure to cause the Settlement Date to occur on or before the seventh Business Day after the Required Effectiveness Date and shall be deemed liquidated damages in respect of such failure; and each Restricted Holder shall be deemed to have waived its other monetary remedies. However, from and after the seventh Business Day after the Required Effectiveness Date, each Holder shall at all times have such equitable remedies as may be available under applicable law. SECTION 3 NOTICE PROCEDURES REGARDING OPEN MARKET SALE OF STOCK AGREEMENTS SHARES 3.1 If, at any time any Restricted Holder or Restricted Group elects to Transfer, in an Open Market Sale, more than 100,000 Stock Agreements Shares on any single Business Day (300,000 Stock Agreements Shares from and after the first Business Day after the ITT Closing), prior to executing such Transfer the designated representative of such Restricted Holder or Restricted Group shall provide Starwood Lodging's representative, the Chief Financial Officer of the Trust (or any successor representative identified by a notice given hereunder), with telephonic notice at (602) 852-3900 along with a confirmation of such notice by telefacsimile to Starwood Lodging and Starwood Lodging's additional addressees as provided in Section 7.1 hereof. Such notice (the "Sale Notice") shall indicate the number of Stock Agreements Shares which such Restricted Holder or Restricted Group has determined to Transfer in an Open Market Sale (the "Proposed Disposition Shares") on such day or days and shall comply with Section 3.5 hereof (if applicable). Such notice shall be deemed given on the Business Day the telephonic notice described above is given so long as such notice is given by 5:00 P.M., Eastern time, on such day; if given after that time, it shall be deemed given on the next Business Day. In the event that, at any time while this Section 3.1 is in effect, the Corporation or the Trust effects any reclassification, stock split or stock dividend with respect to their stock, any change or conversion of stock into other securities, or any other dividend or distribution with respect to the Paired Shares, other than (i) dividends contemplated by the Starwood Lodging Disclosure as in effect on December 30, 1997, or (ii) dividends in the aggregate not to exceed the greater of (a) the current rate (as of December 30, 1997) of their dividends (together with any increases in such rate in the ordinary course) and (b) the Trust's "real estate investment taxable income" (as such term is defined for purposes of the Internal Revenue Code) without regard to any net capital gains or the deduction for dividends paid, appropriate and proportionate adjustments shall be made to the numbers of Stock Agreements Shares set forth in the first sentence of this Section 3.1. 3.2 No later than noon, Eastern time, on the second Business Day after the Sale Notice is given as described above, Starwood Lodging may provide the representative(s) of such Restricted Holder or Restricted Group with telephonic notice, along with a confirmation of such notice to such representatives by telefacsimile, that Starwood Lodging is irrevocably offering to purchase or place all of the Proposed Disposition Shares at a price per share equal to the average of the closing prices on the New York Stock Exchange on the first and second 8 Business Days following the giving of the Sale Notice. Such notice shall be given as provided in Section 3.5 hereof. It shall be a condition to such notice and the consummation of such transaction that such transaction not constitute a violation of Regulation M promulgated by the SEC. If Starwood Lodging fails to make such an offer within such period, it shall have no further rights under this Section 3 with respect to any Orderly Market Disposition by such Restricted Holder or Restricted Group of Stock Agreements Shares up to the amount of the Proposed Disposition Shares that is commenced not later than the seventh Business Day after the Sale Notice is given. 3.3 If Starwood Lodging duly makes such an offer, such Restricted Holder or Restricted Group shall elect by telephonic notice to Starwood Lodging's representative delivered and confirmed as described above, given by 8:30 a.m. (Eastern Time) on the Business Day following receipt of Starwood Lodging's offer (such day is referred to herein as the "Response Date"), in their sole and absolute discretion, to either (i) proceed with such proposed disposition, in which instance Starwood Lodging shall purchase or place the Proposed Disposition Shares at 9:00 a.m. (Eastern Time), on the Response Date, with payment to be delivered (against delivery to Starwood Lodging of the Proposed Disposition Shares free of all rights of other Persons) on the third Business Day after the Response Date in cash or immediately available funds to such account as such Restricted Holder may designate by notice to Starwood Lodging, or (ii) not to proceed with such proposed disposition, in which instance the Sale Notice shall be withdrawn and such Restricted Holder shall continue to hold the Proposed Disposition Shares subject to the terms of this Section 3 (to the extent applicable). If such Restricted Holder shall fail to so elect by 8:30 a.m. (Eastern Time) on the Response Date, it shall irrevocably be deemed to have elected not to proceed with such proposed disposition. 3.4 On the first anniversary of the Settlement Date, the provisions of this Section 3 shall automatically lapse and be of no further force or effect with respect to each Restricted Holder that holds less than 500,000 Stock Agreements Shares (except (i) to the extent that such Restricted Holder acts on or after such date as a member of a Restricted Group that holds in the aggregate 500,000 or more Stock Agreements Shares, and (ii) to the extent such Restricted Holder, either alone or as a member of a Restricted Group, has given or was required to have given Starwood Lodging a Sale Notice prior to such date and as to which the procedures in this Section 3 have not been fully performed). 3.5 Any notice given by Starwood Lodging pursuant to Section 3.2 hereof to Stock Purchaser shall be given telephonically to Tarek Ayoubi at (310) 229-2929 and by telefacsimile at (310) 229-2927, or to such other telephone and telefacsimile numbers as may be set forth for such purpose in the Sale Notice. Any notice given by Starwood Lodging pursuant to Section 3.2 hereof to any other Restricted Holder or Restricted Group shall be given to the telephone and telefacsimile numbers as may be set forth for such purpose in the Sale Notice, and no Sale Notice from a Restricted Holder other than Stock Purchaser or from any Restricted Group shall be deemed properly given in accordance with Section 3.1 unless such numbers are set forth in such Sale Notice. 3.6 Time is of the essence in the performance by the parties of their obligations under this Section 3. SECTION 4 TRANSFERS NOT CONSTITUTING AN OPEN MARKET SALE; SHORT SALES 4.1 Each Restricted Holder covenants and agrees that, as a condition to any 9 Transfer by a such Restricted Holder of Subject Shares in a transaction that does not constitute an Open Market Sale, such Restricted Holder will obtain and deliver to Starwood Lodging a Joinder Agreement duly executed by the transferee or the intended transferee; and any purported Transfer of Subject Shares made in breach of this provision shall be null and void ab initio. 4.2 Each Restricted Holder covenants and agrees that, prior to the effectiveness of the Registration Statement, it will not "sell short" (as such term is commonly understood in the brokerage industry) any Paired Shares, whether "against the box" or otherwise. SECTION 5 PAYMENT RIGHTS On the Settlement Date, Starwood Lodging shall pay to Stock Purchaser in cash or other immediately available funds an amount equal to the amount, if any, by which the Lock Price exceeds the Market Price as of the Settlement Date, multiplied by the number of Paired Shares delivered by Starwood Lodging to Stock Purchaser hereunder. Stock Purchaser's right to receive the payments from Starwood Lodging described in this section are referred to herein as the "Payment Rights." Pursuant to a written instrument a copy of which is delivered to Starwood Lodging promptly following its execution by Stock Purchaser, Stock Purchaser may distribute to its partners or their shareholders or assign to any other Person all or any portion of the Payment Rights either together with or separately from the Paired Shares delivered hereunder. SECTION 6 REPRESENTATIONS AND WARRANTIES 6.1 Stock Purchaser represents and warrants to Starwood Lodging as follows: (a) Stock Purchaser has the power and authority to enter into this Agreement and the Registration Rights Agreement and to perform its obligations hereunder and thereunder. The execution and delivery hereof and thereof and the performance by Stock Purchaser of its obligations hereunder and thereunder will not violate or constitute an event of default under any material term or material provision of any agreement, document, instrument, judgment, order or decree to which Stock Purchaser is a party or by which it is bound, or violate any law, rule or regulation the violation of which would have a material adverse effect upon the principal benefits intended to be provided under this Agreement or the Registration Rights Agreement. (b) The individuals executing this Agreement and the Registration Rights Agreement on behalf of Stock Purchaser have the legal power, right and actual authority to bind Stock Purchaser to the terms and conditions hereof and thereof. Each of this Agreement and the Registration Rights Agreement is a valid and binding obligation of Stock Purchaser, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. (c) Stock Purchaser is acquiring the Subject Shares to be issued to it for 10 investment, solely for the account of itself, on behalf of its partners and Persons who are stockholders of such partners, or on behalf of certain Persons each of whom is both an Affiliate of a partner of Stock Purchaser and a creditor of Stock Purchaser (collectively, such partners and other Persons the "Stock Purchaser Affiliates"). Neither Stock Purchaser nor any of the Affiliates of Stock Purchaser is acquiring Subject Shares with a view to or for sale in connection with any distribution of such Subject Shares in violation of applicable securities laws. (d) Stock Purchaser and each of the Stock Purchaser Affiliates is an Accredited Investor. (e) Stock Purchaser has obtained and reviewed the Starwood Lodging Disclosure and the SEC Documents that have been filed with the SEC through the date hereof. 6.2 By its execution of its Joinder Agreement, each Restricted Holder other than Stock Purchaser shall be deemed to have represented and warranted to Starwood Lodging, as of the date of its delivery of such Joinder Agreement, as follows: (a) Such Restricted Holder has the power and authority to enter into this Agreement, the Registration Rights Agreement and its Joinder Agreement and to perform its obligations hereunder and thereunder. The execution and delivery hereof and thereof and the performance by such Restricted Holder of its obligations hereunder and thereunder will not violate or constitute an event of default under any material term or material provision of any agreement, document, instrument, judgment, order or decree to which such Restricted Holder is a party or by which it is bound, or violate any law, rule or regulation the violation of which would have a material adverse effect upon the principal benefits intended to be provided under this Agreement or the Registration Rights Agreement. (b) The individuals executing this Agreement, the Registration Rights Agreement and its Joinder Agreement on behalf of such Restricted Holder have the legal power, right and actual authority to bind such Restricted Holder to the terms and conditions hereof and thereof. Each of this Agreement, the Registration Rights Agreement and its Joinder Agreement is a valid and binding obligation of such Restricted Holder, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. (c) Such Restricted Holder is acquiring the Subject Shares Transferred or to be Transferred to it for investment, solely for the account of itself and not with a view to or for sale in connection with any distribution of such Subject Shares in violation of applicable securities laws; provided, however, that if such Restricted Holder is Stock Purchaser Affiliate, such Restricted Holder may acquire the Subject Shares on behalf of Persons who are stockholders of such Restricted Holder if each of such Persons is an Accredited Investor. (d) Such Restricted Holder is an Accredited Investor. (e) Such Restricted Holder has had the opportunity, prior to making the determination to acquire any Subject Shares, to obtain and review the Starwood Lodging Disclosure and the SEC Documents that have been filed with the SEC through the date of the execution of such Restricted Holder's Joinder Agreement. 6.3 11 The Trust hereby represents and warrants to Stock Purchaser as follows: (a) The Trust has the power and authority to enter into this Agreement and the Registration Rights Agreement and to consummate the transactions herein contemplated; neither the execution and delivery of this Agreement or the Registration Rights Agreement by the Trust, nor the performance by the Trust of the Trust's obligations hereunder or thereunder will violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which the Trust is a party or by which the Trust is bound, or violate any law, rule or regulation the violation of which would have a material adverse effect upon the principal benefits intended to be provided under this Agreement or the Registration Rights Agreement. (b) The individuals executing this Agreement and the Registration Rights Agreement and the documents referenced herein on behalf of the Trust have the legal power, right and actual authority to bind the Trust to the terms and conditions hereof. This Agreement and the Registration Rights Agreement is a valid and binding obligation of Trust, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. (c) All Paired Shares to be delivered in accordance with Section 2.1 hereof will, when so issued, be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights and will be paired with each other in the same ratio as all other shares are paired with each other pursuant to the Pairing Agreement. (d) The Trust has filed all of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of applicable law, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements (including, in each case, any notes thereto) of the Trust included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as of their respective dates of filing, were prepared in accordance with generally accepted accounting principles (except, in the case of the unaudited statements, as permitted by Regulation S-X of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented the consolidated financial position of the Trust and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the SEC Documents or as required by generally accepted accounting principles, the Trust has not, since December 31, 1996, made any change in the accounting practices or policies applied in the preparation of their financial statements. (e) Except as disclosed in the SEC Documents or the Starwood Lodging Disclosure, since December 31, 1996 and through the date hereof, (i) there have not been any events, changes or developments that, individually or in the aggregate, have had or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole, or (ii) there has not been any split, combination or reclassification of any of the capital stock or units of the Trust or its operating partnership or any issuance or the 12 authorization of any issuance of any other securities in respect of, in lieu of, or in substitution for shares of such capital stock. (f) Except as set forth in the SEC Documents or the Starwood Lodging Disclosure or in a separate writing provided to Stock Purchaser on or before the date hereof, as of the date hereof: there are no outstanding orders, judgments, injunctions, awards or decrees of any governmental entity against or involving the Trust or any of its subsidiaries, or against or involving any of the directors, officers or employees of the Trust or any of its subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole; and there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the knowledge of the Trust, threatened against or involving the Trust or any of its subsidiaries or any of their directors, officers or employees, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole. As of the date hereof, there are no actions, suits or other litigation, legal or administrative proceedings or governmental investigations pending or, to the knowledge of the Trust, threatened against or affecting the Trust or any of its subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement and the Registration Rights Agreement. 6.4 The Corporation hereby represents and warrants to Stock Purchaser as follows: (a) The Corporation has the power and authority to enter into this Agreement and the Registration Rights Agreement and to consummate the transactions herein contemplated; neither the execution and delivery of this Agreement or the Registration Rights Agreement by the Corporation, nor the performance by the Corporation of the Corporation's obligations hereunder or thereunder will violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which the Corporation is a party or by which the Corporation is bound, or violate any law, rule or regulation the violation of which would have a material adverse effect upon the principal benefits intended to be provided under this Agreement or the Registration Rights Agreement. (b) The individuals executing this Agreement and the Registration Rights Agreement and the documents referenced herein on behalf of the Corporation have the legal power, right and actual authority to bind the Corporation to the terms and conditions hereof. This Agreement and the Registration Rights Agreement is a valid and binding obligation of Corporation, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. (c) All Paired Shares to be delivered in accordance with Section 2.1 hereof will, when so issued, be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights and will be paired with each other in the same ratio as all other shares are paired with each other pursuant to the Pairing Agreement. (d) The Corporation has filed all of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of 13 applicable law, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements (including, in each case, any notes thereto) of the Corporation included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as of their respective dates of filing, were prepared in accordance with generally accepted accounting principles (except, in the case of the unaudited statements, as permitted by Regulation S-X of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented the consolidated financial position of the Corporation and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the SEC Documents or as required by generally accepted accounting principles, the Corporation has not, since December 31, 1996, made any change in the accounting practices or policies applied in the preparation of their financial statements. (e) Except as disclosed in the SEC Documents or the Starwood Lodging Disclosure, since December 31, 1996 and through the date hereof, (i) there have not been any events, changes or developments that, individually or in the aggregate, have had or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole, or (ii) there has not been any split, combination or reclassification of any of the capital stock or units of the Corporation or its operating partnership or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of, or in substitution for shares of such capital stock. (f) Except as set forth in the SEC Documents or the Starwood Lodging Disclosure or in a separate writing provided to Stock Purchaser on or before the date hereof, as of the date hereof: there are no outstanding orders, judgments, injunctions, awards or decrees of any governmental entity against or involving the Corporation or any of its subsidiaries, or against or involving any of the directors, officers or employees of the Corporation or any of its subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole; and there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the knowledge of the Corporation, threatened against or involving the Corporation or any of its subsidiaries or any of their directors, officers or employees, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole. As of the date hereof, there are no actions, suits or other litigation, legal or administrative proceedings or governmental investigations pending or, to the knowledge of the Corporation, threatened against or affecting the Corporation or any of its subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement and the Registration Rights Agreement (other than those arising in connection with the Registration Statement or the performance by the Corporation of its obligations under the Registration Rights Agreement). 14 SECTION 7 NOTICES 7.1 Addresses. Except for the notices given pursuant to Section 3, whenever any notice, demand or request is required or permitted hereunder, such notice, demand or request shall be made in writing and shall be (a) sent via a nationally recognized overnight courier service fully prepaid, (b) deposited in the United States by mail, registered or certified, return receipt requested, postage prepaid, or (c) sent via telefacsimile, provided that the original of such notice, demand or request shall also be sent via one of the methods described in (a) and (b) above, in each case to the addressees (and individuals) set forth below: As to Stock Purchaser: c/o Al Anwa USA, Inc. 1925 Century Park East, Suite 1900 Los Angeles, CA 90067 Attn: Tarek Ayoubi Telefacsimile: (310) 229-2927 With a copy to Stock Purchaser's additional addressees: Morrison & Foerster LLP 555 West Fifth Street, Suite 3500 Los Angeles, CA 90013-1024 Attn: Thomas R. Fileti, Esq. Telefacsimile: (213) 892-5454 Gordon K. Eng, Esq. 19191 South Vermont Avenue, Suite 420 Torrance, California 90502 Telefacsimile: (310) 207-1066 As to Starwood Lodging: Starwood Hotels & Resorts Trust 2231 E. Camelback Rd., Suite 410 Phoenix, AZ 85016 Attn: Ronald C. Brown or Chief Financial Officer Telefacsimile: (602) 852-0115 Starwood Hotels & Resorts Worldwide, Inc. 2231 E. Camelback Rd., Suite 400 Phoenix, AZ 85016 Attn: Alan M. Schnaid or Vice President Telefacsimile: (602) 852-0115 With a copy to Starwood Lodging's additional addressees: Greenberg Traurig Hoffman Lipoff Rosen & Quentel 153 East 53rd Street New York, NY 10022 Attn: Andrew E. Zobler, Esq. 15 Telefacsimile: (212) 223-7161 Sidley & Austin 555 West Fifth Street, Suite 4000 Los Angeles, CA 90013 Attn: Sherwin L. Samuels, Esq. and Kenneth H. Levin, Esq. Telefacsimile: (213) 896-6600 If to any Restricted Holder other than Stock Purchaser: to the address and telefacsimile number set forth in such Restricted Holder's Joinder Agreement (or to any other address or telefacsimile number provided to Starwood Lodging in writing pursuant to a notice given by such Restricted Holder pursuant to this Section 7.1). 7.2 Receipt of Notices. Any notice, demand or request that shall be delivered to Starwood Lodging and its Additional Addressee in the manner aforesaid shall be deemed sufficiently given to and received by Starwood Lodging for all purposes hereunder, and any notice, demand or request that shall be delivered to Stock Purchaser and its Additional Addressee in the manner aforesaid shall be deemed sufficiently given to and received by Stock Purchaser for all purposes hereunder (i) the next business day following the day such notice, demand or request is delivered by a nationally recognized overnight courier service fully prepaid, to such party and its Additional Addressee, (ii) if sent via registered or certified mail, at the time of receipt by such party and its Additional Addressee, or (iii) if sent via telefacsimile, as of the date and time stated upon confirmation reports generated by the sending party's telefacsimile machine confirming the delivery of such notice, demand or request to such party and its Additional Addressee. 7.3 Refusal of Delivery. The inability to deliver any notice, demand or request because the individual to whom it is properly addressed in accordance with this Section 7 refused delivery thereof or no longer can be located at that address shall constitute delivery thereof to such individual. 7.4 Change of Address. Each party shall have the right from time to time to designate by written notice to the other parties hereto such other Person or Persons and such other place or places as said party may desire written notices to be delivered or sent in accordance herewith. SECTION 8 GENERAL PROVISIONS 8.1 Amendment. No provision of this Agreement or of any documents or instrument entered into, given or made pursuant to this Agreement may be amended, changed, waived, discharged or terminated except by an instrument in writing, signed by the party against whom enforcement of the amendment, change, waiver, discharge or termination is sought. 8.2 Time of Essence. All times provided for in this Agreement for the performance of any act will be strictly construed, time being of the essence. 8.3 16 Entire Agreement. This Agreement and other documents delivered pursuant to this Agreement set forth the entire agreement and understanding of the parties in respect of the transactions contemplated by this Agreement, and supersede all prior agreements, arrangements and understandings relating to the subject matter hereof and thereof. No representation, promise, inducement or statement of intention with respect to the subject matter hereof has been made by Stock Purchaser or Starwood Lodging which is not embodied in this Agreement, and neither Starwood Lodging nor Stock Purchaser shall be bound by or liable for any alleged representations, promise, inducement or statement of intention not therein so set forth. 8.4 No Waiver. No failure of any party to exercise any power given such party hereunder or to insist upon strict compliance by the other party with its obligations hereunder shall constitute a waiver of any party's right to demand strict compliance with the terms of this Agreement. 8.5 Counterparts. This Agreement, any document or instrument entered into, given or made pursuant to this Agreement or authorized hereby, and any amendment or supplement thereto may be executed in two or more counterparts, and, when so executed, will have the same force and effect as though all signatures appeared on a single document. Any signature page of this Agreement or of such an amendment, supplement, document or instrument may be detached from any counterpart without impairing the legal effect of any signatures thereon, and may be attached to another counterpart identical in form thereto but having attached to it one or more additional signature pages. 8.6 Costs and Attorneys' Fees. If any legal action or any arbitration or other proceeding is brought for the enforcement of this Agreement or because of an alleged dispute, default, or misrepresentation in connection with any of the provisions of this Agreement the successful or prevailing party shall be entitled to recover reasonable attorneys' fees, charges and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled. 8.7 Payments; Interests. Except as otherwise provided herein, payment of all amounts required by the terms of this Agreement shall be made in the United States and in immediately available funds of the United States of America which, at the time of payment, is accepted for the payment of all public and private obligations and debts. If any payment due under this Agreement is not paid when due, it shall thereafter bear interest at a variable rate equal to the rate announced from time to time by Citibank, N.A. as its prime or reference rate, plus five percent (5%) per annum, but in no event more than the maximum rate, if any, allowed by law to be charged by the party receiving the interest on such type of indebtedness. 8.8 Parties in Interest. The rights and obligations of the parties hereto shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, heirs and the legal representatives of their respective estates. However, none of Stock Purchaser's rights under this Agreement shall be assignable except (i) in the case of the Payment Rights, as provided in Section 5 hereof, and (ii) in the case of all other rights of Stock Purchaser or another Restricted Holder, to a transferee of Subject Shares in a transaction not constituting an Open Market Sale if such transferee delivers a Joinder Agreement in compliance with Section 4 hereof. Nothing in this Agreement is intended to confer any right or remedy under this Agreement on any Person other than the parties to this Agreement and their respective successors and assigns, or to relieve or discharge the obligation or liability of any Person to any party to this Agreement or to give any Person any right of subrogation or action over or against any party to this Agreement. 17 8.9 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the conflict-of-law rules and principles of that state. 8.10 Incorporation of Recitals. The recitals of this Agreement are incorporated into and made a part of this Agreement. 8.11 Construction of Agreement. The language in all parts of this Agreement shall be in all cases construed simply according to its fair meaning and not strictly for or against any of the parties hereto. Headings at the beginning of sections of this Agreement are solely for the convenience of the parties and are not a part of this Agreement. When required by the context, whenever the singular number is used in this Agreement, the same shall include the plural, and the plural shall include the singular, the masculine gender shall include the feminine and neuter genders, and vice versa. As used in this Agreement, the term "Stock Purchaser" shall include the respective permitted successors and assigns of Stock Purchaser, and the term "Starwood Lodging" shall include the permitted successors and assigns of Starwood Lodging, if any. 8.12 Severability. If any term or provision of this Agreement is determined to be illegal, unconscionable or unenforceable, all of the other terms, provisions and sections hereof will nevertheless remain effective and be in force to the fullest extent permitted by law. 8.13 Further Assurances. Starwood Lodging and Stock Purchaser agree to execute upon the request of the other party such instruments and take such actions as may be reasonably necessary to carry out the provisions of this Agreement provided that no material additional cost or liability shall incurred thereby by the party of whom such request is made. 8.14 Starwood Hotels & Resorts Trust. The parties hereto understand and agree that the name "Starwood Hotels & Resorts Trust" is a designation of the Trust and its trustees (as trustees but not personally) under the Trust's Declaration of Trust, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 18 IN WITNESS WHEREOF, Starwood Lodging and Stock Purchaser have caused this Agreement to be executed as of the day and year first above written. "Stock Purchaser" N.Y. OVERNIGHT PARTNERS, L.P., a New York limited partnership By: N.Y. OVERNIGHT, INC., a New York corporation, its sole General Partner By: /s/ Tarek Ayoubi ______________________________ Tarek Ayoubi President "Starwood Lodging" STARWOOD HOTELS & RESORTS TRUST, a Maryland Real Estate Investment Trust By: /s/ Steven R. Goldman ____________________________ Steven R. Goldman Senior Vice President STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland Corporation By: /s/ Nir E. Margalit ____________________________ Nir E. Margalit Secretary 19 ATTACHMENT A to Stock Agreement AGREEMENT TO BE BOUND BY THE STOCK AGREEMENT (JOINDER AGREEMENT) The undersigned, being the transferee or the intended transferee of _________ Paired Shares (the "Subject Shares") of Starwood Hotels & Resorts Trust, a Maryland real estate investment trust, and Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (together, the "Company"), as a condition to the transfer to and acquisition by the undersigned of such Subject Shares, acknowledges that certain sales or other transfers of such Subject Shares are governed by the Stock Agreement (the "Stock Agreement"), dated as of January 15, 1998, initially among the Company and N.Y. Overnight Partners, L.P., a New York limited partnership, and the undersigned hereby (1) acknowledges receipt of a copy of the Stock Agreement, and (2) agrees to be bound as a "Restricted Holder" by the terms of the Stock Agreement, as the same has been or may be amended from time to time (including without limitation the representations and warranties of the undersigned set forth therein that will be deemed made by virtue hereof). The undersigned is hereby advised that the Subject Shares have not been registered under the Securities Act of 1933 and in such event cannot be resold unless they are registered under said act or unless an exemption from registration under said act is available. The following is the undersigned's representative and such representative's address, telephone number and fax number for all purposes under the Stock Agreement: _________________________________ _________________________________ _________________________________ Agreed to this ____ day of __________, ____. _________________________________ By: __________________________ Its: __________________________ 20 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of January 15, 1998 among STARWOOD HOTELS & RESORTS TRUST, a Maryland real estate investment trust (the "Trust"), STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Corporation" and, together with the Trust, the "Company"), and N.Y. OVERNIGHT PARTNERS, L.P., a New York limited partnership ("Shareholder"). RECITALS WHEREAS, pursuant to a Stock Agreement of even date herewith and by and among the parties hereto (the "Stock Agreement"), the Company is issuing and delivering to Shareholder certain Paired Shares; and WHEREAS, the Stock Agreement provides that if such Paired Shares are Unregistered Shares, the Company shall effect the registration of such Paired Shares under the Securities Act; and WHEREAS, the parties desire to set forth their rights and obligations with respect to such registration and certain other matters; NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. Each capitalized term used in this Agreement but not defined herein shall have the meaning ascribed to such term in the Stock Agreement; and as used in this Agreement the following terms shall have the following meanings: "Commission" means the Securities and Exchange Commission. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holder Information" means, with respect to a Selling Holder, (i) such information regarding such Selling Holder as is required by Section 507 of Regulation S-K promulgated by the Commission under the Securities Act, (ii) information as to whether (and if so, in what manner) the intended method of disposition of such Holder's Registrable Shares differs from the Plan of Distribution, and (iii) any such additional information as may be required to be included in the Registration Statement by a Selling Holder; in each case as shall be required to effect the registration of such Registrable Shares pursuant to the Registration Statement, the disclosures required in the Prospectus with respect thereto and the offer and Transfer of such Registrable Shares pursuant to the Prospectus. "Holders" means (i) Shareholder, and (ii) any other Person who acquires any of the Registrable Shares from Shareholder or another Holder if (a) the Transferor and such Person shall have delivered to the Company a written notice of such Transfer setting forth the name of such Person, and (b) such Person shall have executed and delivered to the Company a properly completed Joinder Agreement; in each case at such times as such Persons shall own Registrable Shares. "ITT Closing" means the consummation of the acquisition of ITT Corporation by the Company. 21 "ITT Termination" means the issuance by the Company of a press release stating that the Company will not consummate the acquisition of ITT Corporation. "Joinder Agreement" means an agreement to be bound by this Agreement in the form of Annex A hereto. "Paired Shares" means (i) "paired shares" (as such term is defined in the Purchase and Sale Agreement), and (ii) shares of capital stock of the Trust or the Corporation issued by the Trust or the Corporation in respect of or in exchange for paired shares in connection with any stock dividend or distribution, stock split-up, recapitalization, recombination or exchange by the Trust or the Corporation generally of such paired shares. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or other entity, or government or other agency or political subdivision thereof. "Proposed Plan of Distribution" means a draft of the portion of the Registration Statement that describes the intended methods of disposition of the Registrable Shares by the Selling Holders. "Prospectus" means, with respect to the Registration Statement and each amendment thereto, the form of prospectus included therein. "Registrable Shares" means, as of any date of determination, (i) the Paired Shares that are Unregistered Shares and that constitute the Subject Shares; (ii) any shares or other securities issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange by the Trust or the Corporation generally for, or in replacement by the Trust or the Corporation generally of, such Paired Shares; and (iii) any securities issued in exchange for such Paired Shares in any merger or reorganization of the Company; in each case that continue to be owned by a Holder on such date of determination. "Registration Statement" means a registration statement on Form S-3, as amended from time to time, registering the offer and sale by the Selling Holders of such Selling Holders' Registrable Shares included therein for offer and Transfer on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. "Required Effectiveness Date" means the later of (i) the 30th day after the Closing Date, or (ii) the earliest of: (a) The 30th day after the date of the ITT Closing; (b) The 30th day after the date of the ITT Termination; and 22 (c) If neither the ITT Closing nor the ITT Termination has occurred prior to April 1, 1998, the 30th day after a demand for registration is made by notice given by Shareholder to the Company on or after April 1, 1998; provided, however, that in the event that, following the initial filing of the Registration Statement, the Company is advised by the Commission that the Registration Statement will be reviewed, each of the time periods set forth above shall be extended for 20 days. "Securities Act" shall mean the Securities Act of 1933, as amended. "Selling Holders" means (a) each Holder (i) who complies with Sections 3.1.1 hereof, (ii) who holds not less than 100,000 Subject Shares at the both at the time such notice is given and the date the Registration Statement is declared effective (or such lesser number as the Company, in its sole and absolute discretion, shall determine for such Holder), and (iii) whose Registrable Shares are included in the Registration Statement; and (b) each Transferee of such a Holder who (x) provides such Transferee's Holder Information promptly after its acquisition of Subject Shares and prior to the Company's request for acceleration of the Registration Statement, and (y) satisfies the conditions set forth in clauses (ii) and (iii) above. "Transfer" means the act of selling, giving, transferring, creating a trust (voting or otherwise), assigning or otherwise disposing of (other than pledging, hypothecating or otherwise transferring as security) (and correlative words shall have correlative meanings). "Transferee" means a Person to whom Registerable Shares are Transferred. "Violation" shall have the meaning set forth in Section 5.1 hereof. 2. Registration Obligations of the Company. The Company shall: 2.1 File the Registration statement with the Commission not later than 15 days prior to the Required Effectiveness Date (determined without reference to the proviso included in the definition of such term) and thereafter use its best efforts to cause the Registration Statement to be declared effective on the Required Effectiveness Date. 2.2 Furnish to the Shareholder a copy of the Registration Statement for its review and comment not later than concurrently with the filing of the Registration Statement with the Commission. 2.3 The Company shall give notice to the Shareholder of the expected 23 effectiveness of the Registration Statement no later than the date acceleration of such effectiveness is requested of the Commission; provided, however, that in no event shall the Company have any liability for any failure to give such notice. 2.4 Include in the Registration Statement the number of each Holder's Registrable Shares for each Holder as shall be specified for such Holder pursuant to Section 3.1 hereof. 2.5 Use its best efforts to keep the Registration Statement effective until the earlier of (i) one year after the Closing Date, or (ii) such date as of which all the Selling Holders have completed the distribution or other disposition of the Registrable Shares registered under the Registration Statement. If the Registration Statement is terminated pursuant to clause (i) above, the Company shall timely file with the Commission all reports and other information required to enable all holders of Registrable Shares to Transfer such shares pursuant to Rule 144 promulgated by the Commission under the Exchange Act, as amended. 2.6 During the effectiveness of the Registration Statement, upon notice to the Company by a Selling Holder of a Transfer of Registrable Shares pursuant to the Registration Statement and receipt (i) by the Company of a certificate from such Selling Holder in the form of Annex B attached hereto, and (ii) by counsel for the Company of a certificate from such Selling Holder in the form of Annex C attached hereto, in each case representing that such Registrable Shares were offered and have been Transferred by such Selling Holder in a manner consistent with the description set under the caption "Plan of Distribution" in the Prospectus, the Company shall use its best efforts to cause such Registrable Shares to be reissued as soon as practicable (and not later than three Business Days following receipt by the Company and such counsel of such certificates) in the name of the transferee free of any restrictive legend under the Securities Act and to take all such actions as may be reasonably required to cause its transfer agent to comply with the undertakings set forth in this section. 2.7 Use its best efforts to amend the Registration Statement or supplement the Prospectus so that they will remain current and in compliance with the requirements of the Securities Act for the period specified in Section 2.4 hereof, and use its best efforts to give the Selling Holders notice of the happening of any event or development as a result of which the Registration Statement or Prospectus may contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein not misleading. In the event that any Registrable Shares included in the Registration Statement remain unsold at the end of the period during which the Company is obligated to use its best efforts to maintain the effectiveness of the Registration Statement, the Company may file a post-effective amendment to the Registration Statement for the purpose of de-registering such unsold Registrable Shares. 2.8 Furnish to each Selling Holder, without charge, such numbers of copies of the Registration Statement, any pre-effective or post-effective amendment thereto, the final Prospectus, and any amendments or supplements thereto, in each case in conformity with the requirements of the Securities Act, and such other related documents, as each Selling Holder may 24 reasonably request in order to facilitate the Transfer of the Registrable Shares owned by such Selling Holder. 2.9 Use its best efforts to register and qualify the Registrable Shares covered by the Registration Statement under such securities laws of such states or jurisdictions as shall be reasonably requested by the Selling Holders; provided, however, that neither the Trust nor the Corporation shall be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 2.10 Promptly notify each Selling Holder of any stop order issued or threatened to be issued by the Commission or any of the jurisdictions referred to in Section 2.9 hereof in connection with the Registration Statement (and use its best efforts to prevent the entry of such stop order or to remove it if entered as promptly as practicable). 2.11 Use its best efforts to cause the Registrable Shares covered by the Registration Statement, if the Paired Shares are then listed on a securities exchange or included for quotation in a recognized trading market, to continue to be so listed or included. 3. The Holders' Obligations. 3.1 The obligations of the Company under Section 2 with respect to each Holder are subject to the satisfaction of each of the following conditions: 3.1.1 Not later than 10 days after the later of (i) the date hereof, or (ii) the date on which the Company delivers the Proposed Plan of Distribution to the Shareholder (or such later date as the Company, in its sole and absolute discretion, shall determine), such Holder shall furnish all of its Holder Information to the Company, if such Holder Information discloses that such Holder holds not less than 100,000 Subject Shares (or such lesser number as the Company, in its sole and absolute discretion, shall determine for such Holder). 3.1.2 Prior to the effectiveness of the Registration Statement, such Holder shall furnish to the Company by a notice such amendments and supplements to its Holder Information provided pursuant to Section 3.1.1 hereof as may be necessary in order to assure that the Holder Information included in the Registration Statement for each Selling Holder does not include a misstatement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 3.1.3 Such Holder shall cooperate with the Company in the preparation of the Registration Statement in the manner and to the extent reasonably requested by the Company, including accurately and fully completing, executing and delivering to the Company such documents as the Company may reasonably request in order to permit the Company to obtain the Holder Information or to otherwise comply with all applicable laws or to obtain acceleration of the effectiveness of the Registration Statement. 25 3.1.4 Such Holder shall not have breached any of its obligations to the Company set forth in this Section 3.1 or in Sections 3 or 4 of the Stock Agreement; provided, however, that if such breach is one that is capable of being cured and is actually cured by such Holder in all material respects, the obligations of the Company to such Holder that arises, or which the Company is obligated to perform in whole or in part, after such cure shall be reinstated on the terms and subject to the conditions set forth herein. A Transferee of Subject Shares who is otherwise entitled to have such shares included in the Registration Statement shall be deemed not have breached its obligation to provide its Holder Information to the Company if it provides such information promptly after its acquisition of such shares and prior to the Company's request for acceleration of the Registration Statement 3.1.5 Such Holder shall not have made any material misrepresentation pursuant to Section 6 of the Stock Agreement. 3.2 No action taken or omitted to be taken by or on behalf of any Holder shall adversely affect the rights of any other Holder hereunder. 3.3 After the effectiveness of the Registration Statement, each Selling Holder (and each transferee thereof) shall furnish to the Company by a notice such amendments and supplements to its Holder Information provided pursuant to Section 3.1 hereof as may be necessary in order to assure that the Holder Information included in the Registration Statement for such Holder does not include a misstatement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 4. Expenses of Registration. The Company shall pay all expenses incurred in connection with the registration, filing and qualification of the Registrable Shares, including all registration, filing and NASD or securities exchange fees; all fees and expenses of complying with securities or blue sky laws; all word processing, duplicating and printing expenses; and the fees and disbursements of counsel and accountants for the Company; but excluding all discounts, commissions or fees of selling brokers or similar securities industry professionals and all fees and expenses of counsel and accountants for the Selling Holders. 5. Indemnification; Contribution. 5.1 To the extent permitted by applicable law, the Company shall indemnify and hold harmless each Selling Holder; each Person, if any, who controls such Selling Holder within the meaning of the Securities Act; and each officer, director, partner and employee of such Selling Holder and such controlling Person; against any and all losses, claims, damages, liabilities and expenses incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may become subject under the Securities Act, to the extent such losses, claims, damages, liabilities and expenses arise out of or are based upon any of the following (collectively a "Violation"): 5.1.1 Any untrue statement or alleged untrue statement of a material fact 26 contained in the Registration Statement, including any final Prospectus, or any amendments or supplements thereto; 5.1.2 The omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or 5.1.3 Any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any applicable state securities law; provided, however, that the indemnification required by this Section 5.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or expense incurred by a Selling Holder (or any Person, if any, who controls such Selling Holder within the meaning of the Securities Act, or any officer, director, partner and employee of such Selling Holder and such controlling Person) to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with the Holder Information or other information furnished to the Company by or on behalf of such Selling Holder expressly for use in connection with the Registration Statement. 5.2 To the extent permitted by applicable law, each Selling Holder shall indemnify and hold harmless the Company; each of its directors, each of its officers who shall have signed the Registration Statement; each Person, if any, who controls the Company within the meaning of the Securities Act; any other Selling Holder, any controlling Person of any such other Selling Holder and each officer, director, partner, and employee of such other Selling Holder and such controlling Person; against any and all losses, claims, damages, liabilities and expenses, incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may otherwise become subject under the Securities Act, to the extent such losses, claims, damages, liabilities and expenses arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with the Holder Information or other information furnished to the Company by or on behalf of that Selling Holder expressly for use in connection with the Registration Statement. 5.3 Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action, suit, proceeding, investigation or threat thereof made in writing for which such indemnified party may make a claim under this Section 5, such indemnified party shall deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties. The failure of an Indemnified Party to deliver written notice to the indemnifying party within a reasonable time following the commencement of any such action shall not relieve such indemnifying party of any liability to the indemnified party under this Section 5 unless such failure is prejudicial to such indemnifying party's ability to defend such action. Any fees and expenses incurred by the indemnified party (including any fees and expenses 27 incurred in connection with investigating or preparing to defend such action or proceeding) shall be paid to the indemnified party, as incurred, within 30 days of written notice thereof to the indemnifying party (regardless of whether it is ultimately determined that an indemnified party is not entitled to indemnification hereunder). Any such indemnified party shall have the right to employ separate counsel in any such action, claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be the expenses of such indemnified party unless (i) the indemnifying party has agreed to pay such fees and expenses, or (ii) the indemnifying party shall have failed to promptly assume the defense of such action, claim or proceeding, or (iii) the named parties to any such action, claim or proceeding (including any impleaded parties) include both such indemnified party and the indemnifying party, and such indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or in addition to those available to the indemnifying party and that the assertion of such defenses would create a conflict of interest such that counsel employed by the indemnifying party could not faithfully represent the indemnified party (in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action, claim or proceeding on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action, claim or proceeding or separate but substantially similar or related actions, claims or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all such indemnified parties, unless in the reasonable judgment of such indemnified party a conflict of interest would exist between such indemnified party and any other of such indemnified parties with respect to such action, claim or proceeding, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels). No indemnifying party shall be liable to an indemnified party for any settlement of any action, proceeding or claim without the written consent of the indemnifying party, which consent shall not be unreasonably withheld or delayed. 5.4 If the indemnification required by this Section 5 from the indemnifying party is determined by a court of competent jurisdiction to be unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to in this Section 5: 5.4.1 The indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any Violation has been committed by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such Violation. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses 28 referred to above shall be deemed to include, subject to the limitations set forth in Section 5.1 and 5.2, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. 5.4.2 The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5.4 were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in Section 5.4.1. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of a fraudulent misrepresentation. 5.5 If indemnification is available under this Section 5, the indemnifying parties shall indemnify each indemnified party to the full extent provided in this Section 5 without regard to the relative fault of such indemnifying party or indemnified party or any other equitable consideration referred to in Section 5.4. 5.6 The obligations of the Company and the Selling Holders under this Section 5 shall survive the completion of any offering of Registrable Shares pursuant to the Registration Statement and any termination of this Agreement. 6. Amendment, Modification and Waivers; Further Assurances. 6.1 This Agreement may be amended with the consent of the Company and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it; in each case only if the Company shall have obtained the written consent of Holders holding more than 50% of the Registrable Shares. Such amendment, action or omission shall not require the consent of any other Holder. In addition, the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, that affects the rights hereunder of a specific Holder with the written consent of such Holder. 6.2 No waiver of any terms or conditions of this Agreement shall operate as a waiver of any other breach of such terms and conditions or any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof. No written waiver hereunder, unless it by its own terms explicitly provides to the contrary, shall be construed to effect a continuing waiver of the provisions being waived and no such waiver in any instance shall constitute a waiver in any other instance or for any other purpose or impair the right of the party against whom such waiver is claimed in all other instances or for all other purposes to require full compliance with such provision. 6.3 Each of the parties hereto shall execute all such further instruments and documents and take all such further action as any other party hereto may reasonably require in order to effectuate the terms and purposes of this Agreement. 7. Miscellaneous. 29 7.1 Business Day. Whenever this Agreement requires that an action be taken or a notice be given on a date that would otherwise not be a Business Day, the time period for taking such action or giving such notice shall be extended to the first day thereafter that is a Business Day. 7.2 Governing Law. This agreement shall be governed by and construed in accordance with the laws of the state of New York, without giving regard to the conflict of laws principles thereof. 7.3 Notices. All notices, requests, demands, consents, approvals, designations and other deliveries and communications called for or contemplated by this Agreement shall be in writing and shall be given (i) in the case of Shareholder or the Company, to the address and in the manner set forth in Section 7 of the Stock Agreement, and (ii) in the case of any Holder other than Shareholder, in the manner set forth in Section 7 of the Stock Agreement and to the address provided to the Company in such Holder's Joinder Agreement. 7.4 Entire Agreement; Integration. This Agreement, together with the Stock Agreement, supersedes all prior agreements between or among any of the parties hereto with respect to the subject matter contained herein and therein, and such agreements embody the entire understanding among the parties relating to such subject matter. 7.5 Section Headings. Section headings are for convenience of reference only and shall not affect the meaning of any provision of this Agreement. 7.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which shall together constitute one and the same instrument. All signatures need not be on the same counterpart. 7.7 Severability. If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not affect the validity and enforceability of the remaining provisions of this Agreement, unless the result thereof would be unreasonable, in which case the parties hereto shall negotiate in good faith as to appropriate amendments hereto. 7.8 Termination. This Agreement may be terminated at any time by a written instrument signed by the parties hereto. Unless sooner terminated in accordance with the preceding sentence, this Agreement (other than Section 5 hereof) shall terminate in its entirety on such date as there shall be no Registrable Shares. 7.9 Attorneys' Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees (including any fees incurred in any appeal) in addition to its costs and expenses and any other available remedy. 7.10 No Third Party Beneficiaries or Assignees. Nothing herein expressed or 30 implied is intended to confer upon any person, other than the parties hereto or the Holders (to the extent expressly provided herein) any rights, remedies, obligations or liabilities under or by reason of this Agreement. Neither this Agreement not the rights or obligations hereunder may be assigned or otherwise transferred by any Holder except as permitted herein with respect to a Transfer of Registrable Shares. 7.11 Starwood Hotels & Resorts Trust. The parties hereto understand and agree that the name "Starwood Hotels & Resorts Trust" is a designation of the Trust and its trustees (as trustees but not personally) under the Trust's Declaration of Trust, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 31 IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date first written above. "Shareholder" N.Y. OVERNIGHT PARTNERS, L.P., a New York limited partnership By: N.Y. OVERNIGHT, INC. a New York corporation, its sole General Partner By: /s/ Tarek Ayoubi ------------------------------ Tarek Ayoubi President STARWOOD HOTELS & RESORTS TRUST a Maryland real estate investment trust By: /s/ Steven R. Goldman ----------------------------- Steven R. Goldman Senior Vice President STARWOOD HOTELS & RESORTS WORLDWIDE, INC. a Maryland corporation By: /s/ Nir E. Margalit ------------------------------- Nir E. Margalit Secretary 32 ANNEX A to Registration Rights Agreement AGREEMENT TO BE BOUND BY THE REGISTRATION RIGHTS AGREEMENT The undersigned, being the transferee or the intended transferee of _________ Paired Shares (the "Registrable Shares") of Starwood Hotels & Resorts Trust, a Maryland real estate investment trust, and Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (together, the "Company"), as a condition to the transfer to and acquisition by the undersigned of such Registrable Shares, acknowledges that matters pertaining to the sale and registration of such Registrable Shares are governed by the Registration Rights Agreement (the "Registration Rights Agreement"), dated as of January 15, 1998 initially among the Company and N.Y. Overnight Partners, L.P., and the undersigned hereby (1) acknowledges receipt of a copy of such agreement, and (2) agrees to be bound as a "Holder" by the terms of the Registration Rights Agreement, as the same has been or may be amended from time to time. Agreed to this ____ day of __________, ____. --------------------------------- By: __________________________ Its: __________________________ Address, telephone number and telecopy number for notices: --------------------------------- --------------------------------- --------------------------------- --------------------------------- 33 ANNEX B to Registration Rights Agreement [Letterhead of Selling Holder] ____________, 199__ BY TELECOPIER Starwood Hotels & Resorts Trust 2231 E. Camelback Road, Suite 410 Phoenix, Arizona 85016 Attention: Ronald C. Brown or Chief Financial Officer Starwood Hotels & Resorts Worldwide, Inc. 2231 E. Camelback Road, Suite 400 Phoenix, Arizona 85016 Attention: Alan M. Schnaid or Vice President Re: Starwood Hotels & Resorts Ladies and Gentlemen: Reference is made to the prospectus (the "Prospectus") included in the Registration Statement on Form S-3 (Registration No. ___________) filed by Starwood Hotels & Resorts Trust (the "Trust") and Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation" and, together with the Trust, the "Company") with the Securities and Exchange Commission on _________, 1998, under the Securities Act of 1933, as amended (the "Securities Act"), relating to the registration for resale by the shareholders named therein of certain shares of beneficial interest, par value $.01 per share, of the Trust, and shares of common stock, par value $.01 per share, of the Corporation (the "Paired Shares"), including _______ Paired Shares held by the undersigned. ___________ of the Paired Shares held by the undersigned were offered for sale and have been sold by the undersigned in a manner consistent with the description set under the caption "Plan of Distribution" in the Prospectus. Thus, the undersigned requests that new certificates evidencing such Paired Shares be issued in the name of _________________________, the transferee, free of any restrictive legend under the Securities Act. Very truly yours, 34 [Name and signature of Selling Holder] 35 ANNEX C to Registration Rights Agreement [Letterhead of Selling Holder] ____________, 199__ BY TELECOPIER Sidley & Austin 555 West Fifth Street Los Angeles, California 90013 Attention: Sherwin L. Samuels, Esq., Kenneth H. Levin, Esq. and James V. Robertson, Esq. Re: Starwood Hotels & Resorts Ladies and Gentlemen: Reference is made to the prospectus (the "Prospectus") included in the Registration Statement on Form S-3 (Registration No. ___________) filed by Starwood Hotels & Resorts Trust (the "Trust") and Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation" and, together with the Trust, the "Company") with the Securities and Exchange Commission on _________, 1998, under the Securities Act of 1933, as amended (the "Securities Act"), relating to the registration for resale by the shareholders named therein of certain shares of beneficial interest, par value $.01 per share, of the Trust, and shares of common stock, par value $.01 per share, of the Corporation (the "Paired Shares"), including _______ Paired Shares held by the undersigned. The undersigned understands that you have been requested by the Company to deliver an opinion to the Company's transfer agent that, upon the sale by the undersigned of the Paired Shares, certificates evidencing such shares may be issued to the transferee(s) without any restrictive legend under the Securities Act. For the purpose of facilitating the delivery by you of such opinion, the undersigned, hereby represents that _______ of the Paired Shares held by the undersigned were offered for sale and have been sold in a manner consistent with the description set under the caption "Plan of Distribution" in the Prospectus. The undersigned understands that you will be relying on the foregoing representations in rendering your opinion, and the undersigned consents to such reliance. 36 Very truly yours, [Name and signature of Selling Holder] EX-10.59 36 EX-10.59 1 Exhibit 10.59 D.C. EXECUTION PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS By And Between D.C. OVERNIGHT PARTNERS, L.P., a District of Columbia Limited Partnership, As Seller And STARWOOD LODGING TRUST, a Maryland Real Estate Investment Trust And STARWOOD LODGING CORPORATION, a Maryland Corporation, As Buyer. Dated As Of: December 30, 1997 Relating to the D.C. Luxury Collection Hotel Washington, D.C. 2 PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS THIS PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this "Agreement") is entered into as of the 30th day of December, 1997, by and between D.C. OVERNIGHT PARTNERS, L.P., a District of Columbia limited partnership ("Seller"), and STARWOOD LODGING TRUST, a Maryland Real Estate Investment Trust (the "Trust"), and STARWOOD LODGING CORPORATION, a Maryland corporation (the "Corporation"; the Trust and the Corporation being referred to herein collectively as, "Buyer"). A. Seller owns that certain parcel of land described in EXHIBIT A attached hereto and made a part hereof, which is improved with a hotel building and certain related improvements, all as more particularly set forth in this Agreement. B. Seller desires to sell, and Buyer desires to purchase, the above described land and hotel together with the related improvements upon the terms and subject to the conditions set forth in this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the foregoing and the mutual promises and agreements contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby mutually acknowledged, Buyer and Seller agree as follows: SECTION 1 DEFINITIONS 1.1 Defined Terms "Accounts Receivable" shall mean, collectively, all Cash Equivalent Receivables, all Invoiced Receivables and all Other Accounts Receivable. "Affiliate" shall have the meaning set forth in Rule 12b-2 of the regulations promulgated under the Exchange Act. "Approved Service Contracts" shall mean the Service Contracts identified on SCHEDULE 1.1.1 annexed hereto and made a part hereof and any other Service Contracts cancelable upon thirty (30) or fewer days notice without penalty, which Service Contracts Buyer shall assume as of the Closing pursuant to the General Assignment and Assumption Agreement. "Assignment and Assumption of Management Agreement" shall have the meaning set forth in SECTION 4.2.1.4. "Assignment and Assumption of Tenant Leases" shall have the meaning set forth in SECTION 4.2.1.2. "Bill of Sale" shall have the meaning set forth in SECTION 4.2.1.5. "Business Day" shall mean any day other than Saturday or Sunday on which the New York Stock Exchange is open for business. "Booking" shall mean a contract or reservation for the use of guest rooms, banquet facilities, meeting rooms, and/or conference facilities at the Hotel. "Buyer's Counsel" shall mean the law firm of Greenberg Traurig Hoffman Lipoff Rosen & Quentel acting through Andrew E. Zobler, Esq. "Buyer Default" shall have the meaning set forth in SECTION 3.5.1. "Cash Equivalent Receivables" shall mean all Guest Ledger Receivables which are in the form of drafts or checks written on any bank or other financial institution, certified checks, money orders, amounts owed to Seller from credit card, debit card, travel and 3 entertainment card or traveler's check companies, and are in such other forms which are considered to be cash equivalents under generally acceptable accounting principles, whether or not such Guest Ledger Receivables have been presented or billed to any such bank, financial institution or other company as of the Closing Date. "Cash Purchase Price" shall mean (a) Forty Three Million Two Hundred Thousand Dollars ($43,200,000) plus (b) an additional One Million Eight Hundred Thousand Dollars ($1,800,000) if the Scheduled Closing Date does not occur prior to July 15, 1998 plus (c) the Overage Cash Payment, if any, as adjusted pursuant to SECTION 3.2.2. "Closing" or "Close of Escrow" shall have the meaning set forth in SECTION 4.7.2. "Closing Agent" shall have the meaning set forth in SECTION 4.8.10. "Closing Date" shall mean the day on which the Closing occurs hereunder. "Closing Payment" shall have the meaning set forth in SECTION 3.2.2. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. "Collective Bargaining Agreements" shall have the meaning set forth in SECTION 14.2. "Conveyance Documents" shall mean the Deed, the Assignment and Assumption of Management Agreement, the Assignment and Assumption of Tenant Leases, the Bill of Sale and the General Assignment and Assumption Agreement. "Deed" shall have the meaning set forth in SECTION 4.2.1.1. "Deposit" shall mean an amount equal to $2,571,429.00, held in accordance with the provisions of SECTION 3 hereof together with all interest accrued thereon. "Employer Corporation" shall mean Luxury Holdings, Inc. (formerly known as TQM Inc.). "Employment Agreements" shall mean the Collective Bargaining Agreements and Employee Benefit Plans (as defined in Section 3(3) of ERISA), affecting Hotel Employees, including pension, profit sharing, employee benefit and similar plans, if any, and agreements with regard to any Hotel Employee each of which are identified on or expressly described in the materials identified on SCHEDULE 1.1.2 annexed hereto and made a part hereof. "Environmental Condition" shall mean any condition with respect to soil, surface waters, groundwater, land, stream sediments, surface or subsurface strata, ambient air and any environmental medium comprising or surrounding the Real Property, which results in any damage, loss, cost, expense, claim, demand, order or liability to or against Seller or Buyer by any third party (including, without limitation, any government entity) as a result of a violation of any applicable Environmental Laws. "Environmental Laws" shall mean all presently applicable statutes, regulations, rules, ordinances, codes, licenses, permits and orders of any and all governmental agencies, departments, commissions, boards, bureaus or instrumentalities of the United States, states and political subdivisions thereof, and all applicable judicial and administrative and regulatory decrees, judgments and orders relating to the protection of the environment, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9061 et seq.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C. 1801, et seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251, et seq.; and analogous state laws and regulations. 3 4 "Equipment Leases" shall mean all leases of equipment, vehicles, furniture or other personal property leased by, or on behalf of, Seller and located at, or used in the operation of the Real Property, together with any and all amendments thereto, which are identified on SCHEDULE 1.1.3 annexed hereto. "Equity Purchase Price" shall mean the number of Paired Shares with a value as determined pursuant to the Stock Agreement equal to One Million Six Hundred Fifty Five Thousand One Hundred Dollars ($1,655,100.00) provided, however, the Equity Purchase Price shall be reduced to Zero Dollars ($0.00) if the Scheduled Closing Date does not occur prior to July 15, 1998 to be delivered in accordance with the applicable provisions of the Stock Agreement. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder. "Escrow" shall mean an escrow opened with the Escrow Holder for the purchase and sale of the Property in accordance with the provisions of this Agreement. "Escrow Holder" shall mean the Title Company unless otherwise agreed in writing by Buyer and Seller. "Escrow Instructions" shall have the meaning set forth in SECTION 4.1. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Excluded Property" shall mean all Seller's right, title and interest in and to: (a) those claims of Seller attributable to the period prior to the Closing Date and described on SCHEDULE 1.1.4 annexed hereto and made a part hereof, or which Seller is entitled to assert under the express provisions of SECTION 5; (b) all insurance proceeds under Seller's Insurance and workers' compensation policies, including return premiums and dividends thereon and all claims thereunder in each case to the extent attributable to acts or occurrences prior to the Closing Date; (c) all accounts owned or maintained by Seller, or Manager on Seller's behalf, in connection with the Hotel, including all operating and reserve accounts; and (d) any books, records, files or papers specifically described in SECTION 6.3.2 as excluded from the Property Information. "Excluded Parties" shall have the meaning set forth in SECTION 17.18 "Execution Date" shall mean the date hereof. "General Assignment and Assumption Agreement" shall have the meaning set forth in SECTION 4.2.1.3. "Guest Ledger Receivables" shall mean amounts, including, without limitation, room charges, accrued to the accounts of guests occupying rooms at the Hotel or group, conference or banquet customers of Seller at the Hotel. "Hart-Scott-Rodino Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and regulations promulgated thereunder, as the same has been amended from time to time. "Hotel" shall mean the hotel located on the Land and commonly known as the D.C. Luxury Collection Hotel. "Hotel Employees" shall mean all full-time, part-time or temporary employees of Seller and/or the Employer Corporation (but not employees of Manager or any of its affiliates) who are employed by Seller and/or the Employer Corporation exclusively at or in connection with the Hotel as of the Closing Date and who are listed on SCHEDULE 1.1.6 annexed hereto and made a part hereof. 4 5 "Improvements" shall mean Seller's right, title and interest in and to the hotel building and other improvements now or hereafter located on the Land. "Insured Casualty Notice" shall have the meaning set forth in SECTION 12.1.1. "Intangible Property" shall mean all of Seller's right, title and interest in and to the following, in each case excluding any Excluded Property: (i) Licenses and Permits; (ii) trademark rights, and other intangible property, rights, titles, interests, privileges and appurtenances related to or used in connection with the Hotel or its operations; (iii) warranties and guaranties of architects, engineers, contractors, subcontractors, suppliers or materialmen involved in the repair, construction, maintenance, design, reconstruction or operation of the Hotel, or any equipment or systems constituting a part of the Hotel; (iv) Approved Service Contracts; (v) Equipment Leases; (vi) Bookings; and (vii) computer programs, software and documentation thereof (subject to the limitations of any applicable license agreements pertaining thereto), and including all electronic data processing systems, program specifications, source codes, logs, input data and report layouts and forms, record file layouts, diagrams, functional specifications and variable descriptions, flow charts and other related materials used in connection therewith; and (viii) any goodwill associated with the operation of the Hotel. "Interim Management Agreement" shall have the meaning set forth in SECTION 17.20 hereto. "Invoiced Receivables" shall mean all Guest Ledger Receivables other than Cash Equivalent Receivables whether or not such Guest Ledger Receivables have been invoiced by Seller as of the Closing Date. "Land" shall mean Seller's right, title and interest in and to the land described on EXHIBIT A annexed hereto and made a part hereof. "Licenses and Permits" shall mean all licenses, permits, registrations, certificates, authorizations and governmental approvals other than the Liquor License obtained in connection with the design, construction, rehabilitation, use and/or operation of the Hotel. "Liquor License" shall mean all licenses, permits, registrations, certificates, authorizations and governmental approvals with respect to service of alcoholic beverages at the Hotel. "Liquor License Management Agreement" shall have the meaning set forth in SECTION 4.2.1.8. "Lock Price" shall have the meaning set forth in the Stock Agreement. "Losses" shall mean any and all losses, liabilities, obligations, damages, claim or expense, including without limitation, reasonable attorneys' and accountants' fees and disbursements related thereto. "Manager" means Sheraton Operating Corporation, a wholly-owned subsidiary of ITT Sheraton Corporation. "Management Agreement" shall mean that certain Management Agreement entered into as of August 13, 1997 between Seller and Manager. "Market Price" shall have the meaning set forth in the Stock Agreement. "Material" shall mean $5,000 for any single occurrence and $15,000 in the aggregate for any group of occurrences whether or not related. "Material Casualty" shall mean a casualty or casualties that, in the aggregate: (i) causes in excess of $10,000,000.00 worth of damage to the Hotel; or (ii) will take twelve (12) months or longer from the date of the casualty to fully remediate. 5 6 "Material Taking" shall mean an exercise by an applicable governmental authority of the power of condemnation or eminent domain that results in: (a) the taking of more than twenty percent (20%) of the Real Property; (b) a material reduction or restriction in access to the Property; or (c) the inability to operate the Hotel in substantially the same manner (without material additional expense) as it was operated prior to such taking. "Memorandum of Contract" shall mean a memorandum of this Agreement in the form attached as EXHIBIT B hereto. "Monetary Lien" shall mean any monetary lien affecting the Real Property of an ascertainable amount, other than any lien for taxes or assessments which are not yet due and payable. "Non-Foreign Person Certificate" shall have the meaning set forth in SECTION 4.2.1.13. "Other Accounts Receivable" shall mean any and all rents, additional rent, deposits, and other sums and charges owing to Seller that are in any way attributable to the operation of the business at the Hotel, including, without limitation, all rents and/or license fees due from Tenants under Tenant Leases, and including any such amounts which are past due, but excluding Guest Ledger Receivables. "Overage Cash Payment" shall mean the portion of the Equity Purchase Price which is payable in cash at Closing as provided in SECTION 3.2.2.1, if any. "Ownership Limitation" shall mean the limitations contained in the declaration of trust for the Trust and the Corporation's articles of incorporation prohibiting actual or constructive ownership by any one person or group of related persons of more than 8% of the issued and outstanding Paired Shares taking into account the attribution rules of Section 544(a) of the Code as modified by Section 856(h) of the Code or Section 318(a) of the Code as modified by Section 856(d)(5) of the Code. "Paired Shares" shall mean one share of beneficial interest, par value $.01 per share of the Trust, and one share of common stock, par value $.01 per share, of the Corporation that are subject to the Pairing Agreement, which shares shall be transferable as provided in the Stock Agreement and the Pairing Agreement. "Pairing Agreement" shall mean the Pairing Agreement dated as of June 25, 1980, as amended, between the Trust and the Corporation providing, in relevant part, for the pairing of all outstanding beneficial interests of the Trust and shares of the Corporation. "Permitted Encumbrances" shall have the meaning set forth in SECTION 7.3. "Person" shall mean any natural person, partnership, corporation, association, limited liability company, trust or any other legal entity. "Personal Property" shall mean collectively the Tangible Personal Property and the Intangible Property. "Preliminary Title Report" shall have the meaning set forth in SECTION 7.1. "Property" shall mean collectively the Real Property, the Personal Property, the Tenant Leases, and the Accounts Receivable, but shall exclude the Excluded Property. "Property Information" shall have the meaning set forth in SECTION 6.4.2. "Proration Time" shall mean 12:01 a.m. Eastern Time on the Closing Date. "Purchase Price" shall mean the sum of the Cash Purchase Price and the Equity Purchase Price. "Real Property" shall mean the Land and the Improvements, together with 6 7 Seller's right, title and interest in and to all rights of way, easements, water or littoral rights, rights to any minerals, oil, gas and other hydrocarbon substances, or any portion thereof, relating to the Land, and Seller's right, title and interest in and to all streets, alleys, strips and gores abutting the Land, if any. "Records and Plans" shall mean, all financial records showing the income and expenses of the Hotel for the prior three (3) calendar years and for the current year to date, certificates of occupancy, records of the Hotel's operations (including utility bills), building plans, specifications and drawings, lists of Personal Property, surveys, tax bills for the Real Property for the last three (3) years and for the current year to date, copies of the Service Contracts, Licenses and Permits and other documents related to the use, maintenance, repair, management, construction and/or operation of the Hotel, in each case, to the extent located on-site at the Hotel, or to Seller's Knowledge, otherwise under the control of Seller. "Related Agreement" shall have the meaning set forth in SECTION 9.1.3. "Schedule of Advance Bookings" means the Schedule of Advance Bookings delivered pursuant to SECTION 4.2.1.19. "Schedule of Tenant Leases" means the Schedule of Tenant Leases set forth in SCHEDULE 1.1.7 annexed hereto and made a part hereof. "Scheduled Closing Date" shall mean January 15, 1998, as such date may be extended in accordance with the provisions of SECTION 7.1 time being of the essence. "SEC" shall mean the United States Securities and Exchange Commission. "SEC Documents" shall have the meaning set forth in SECTION 6.1.4. "Securities Act" shall mean the Securities Act of 1933, as amended. "Seller Default" shall have the meaning set forth in SECTION 11.1. "Seller's Closing Certificate" shall have the meaning set forth in SECTION 4.2.1.18. "Seller's Counsel" shall mean Morrison & Foerster LLP acting through Thomas R. Fileti, Esq. "Seller's Due Diligence" shall mean the information gathering and review process described on SCHEDULE 1.1.8. "Seller's Insurance" shall have the meaning set forth in SECTION 6.3.12. "Seller's Knowledge" shall mean with respect to any representation or warranty so qualified, the knowledge of the person(s) identified on SCHEDULE 1.1.8 annexed hereto and made a part hereof, on the date on or as of which such representation or warranty is made, following the completion by such person(s) of Seller's Due Diligence, but without any other duty to investigate or inquire and without attribution to any such identified person(s) of facts and matters otherwise within the personal knowledge of any other officers, employees, or agents of Seller or any third parties (including, but not limited to, the Manager or any previous manager of the Hotel), but not within the actual current knowledge of such named person(s). It is understood that none of the individuals identified on SCHEDULE 1.1.8 shall have any personal liability for any of Seller's representations, warranties and other obligations under this Agreement. "Service Contracts" shall mean any and all service contracts, landscaping contracts, maintenance agreements, open purchase orders and other contracts for the provision of services, materials or supplies to or for the benefit of the Property, except for the Management Agreement, together with any and all amendments thereto. 7 8 "Specific Disclosure Matters" shall mean certain disclosures and information provided or disclosed by Seller to Buyer described on SCHEDULE 1.1.9 annexed hereto and made a part hereof. "Starwood Disclosure" shall mean collectively, the Form S-3 filed by the Corporation and the Trust with the SEC on November 12, 1997, and the Form S-4 filed by the Corporation and the Trust with the SEC on November 20, 1997, as the same may be amended by any filing with the SEC made by the Trust or the Corporation, as amended to date and from time to time thereafter . "Starwood Operating Partnership" shall mean SLC Operating Limited Partnership, a Delaware limited partnership. "Starwood Realty Partnership" shall mean SLT Realty Limited Partnership, a Delaware limited partnership. "State" shall mean the state in which the Hotel is located. "Stock Agreement" shall have the meaning set forth in SECTION 4.2.1.6. "Survey" shall mean an as-built ALTA survey of the Real Property certified to the Title Company meeting all State land survey requirements. "Tangible Personal Property" shall mean, in each case to the extent owned by Seller and excluding any and all of the Excluded Property: (i) all Records and Plans; (ii) all "Inventories", as such term is defined in the Uniform System of Accounts; (iii) all depreciable personal property; and (iv) all other tools, vehicles, supplies, artwork, furniture, furnishings, machinery, equipment, licensed software and personal computer based security systems, if any, specialized hotel equipment and other tangible personal property, used in connection with the ownership, operation or maintenance of the Property, including, without limitation, all china, glassware, silverware, linens, towels, curtains, uniforms, engineering, maintenance, and housekeeping supplies, draperies, materials and carpeting, used or intended for use, but not for sale, in connection with the operation of the Hotel, all equipment used in the operation of the kitchen, dining rooms, lounges, bars, laundry, dry cleaners, lobby, reservation desk and all merchandise, food and beverages held for sale in connection with the operation of the Hotel, which are on hand on the Closing Date; provided, however, that to the extent that any applicable law prohibits the transfer of alcoholic beverages from Seller to Buyer, such beverages shall not be considered a part of the Tangible Personal Property. "Tenant" shall mean a tenant, licensee or concessionaire occupying space at any portion of the Property pursuant to a Tenant Lease. "Tenant Lease" shall mean a lease, concession agreement or license agreement entered into by or on behalf of Seller with a third party for the use of any part of the Real Property, including those leases, concession agreements and license agreements shown on the Schedule of Tenant Leases, together with any amendments thereto but excluding Bookings. "Tenant Security Deposits" shall mean all security deposits or other security of Tenants under the Tenant Leases, plus accrued interest, if any, payable thereon. "Termination Charges" shall have the meaning set forth in SECTION 14.1. "Termination Notice" shall have the meaning set forth in SECTION 3.5.1. "Threshold Amount" shall mean One Million Dollars ($1,000,000). "Title Company" shall mean Chicago Title Insurance Company. "Title Policy" shall have the meaning set forth in SECTION 7.2. "Transfer Restriction Period" shall have the meaning set forth in SECTION 17.18. 8 9 "Uninsured Casualty Notice" shall have the meaning set forth in SECTION 12.2.1. "Uninsured Estimate to Repair" shall have the meaning set forth in SECTION 12.2.1. "Uniform System of Accounts" shall mean the Uniform System of Accounts for Hotels, prepared by The Hotel Association of New York City, Inc., in effect as of the date hereof. "Utility Deposits" shall mean Seller's right, title and interest in and to all deposits delivered by Seller to utilities, governmental agencies, suppliers or others pursuant to an Approved Service Contract or otherwise in connection with the Real Property. "Value Letter" shall have the meaning set forth in SECTION 4.3.1.4. "WARN Act" shall mean the Workers Adjustment and Retraining Notification Act and the Regulations promulgated thereunder, as the same has been amended. 1.2 Other Definitional Provisions. The terms "hereof," "hereto," "hereunder" and similar terms when used in this Agreement shall refer to this Agreement generally, rather than to the section in which such term is used, unless otherwise specifically provided. Unless the context otherwise requires, any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. SECTION 2 PURCHASE AND SALE OF PROPERTY On the terms and subject to the conditions of this Agreement, Seller agrees to sell the Property to Buyer, and Buyer agrees to purchase the Property from Seller all as hereinafter provided. Notwithstanding any other provision of this Agreement, there shall be excluded from the Property being conveyed hereunder the Excluded Property. SECTION 3 PURCHASE PRICE; PAYMENT; BUYER'S DEFAULT; LIQUIDATED DAMAGES 3.1 Purchase Price. The purchase price for the Property shall be the Purchase Price. 3.2 Payment. The Purchase Price shall be paid as follows: 3.2.1 Upon the execution hereof, Buyer shall deliver to Escrow Holder, in cash or other immediately available funds, the Deposit, to be held by Escrow Holder strictly in accordance with the provisions of this Agreement. If the Close of Escrow shall occur, Seller shall be entitled to receive the Deposit as a credit against the Purchase Price. 3.2.2 At least one (1) day prior to the Scheduled Closing Date (unless extended pursuant to SECTION 7.1), Buyer shall deliver to Escrow Holder an amount (the "Closing Payment") payable in the form specified in SECTIONS 3.2.2.1 and 3.2.2.2 below, equal to the Purchase Price less the amount of the Deposit. The Closing Payment shall be paid as follows: 3.2.2.1 The Equity Purchase Price, if any, shall be delivered in Paired Shares without adjustment for the pro-rations hereunder, which shares shall be delivered in accordance with and subject to and transferable in accordance with the provisions of the Stock Agreement and the Pairing Agreement. If any portion of the Equity Purchase Price cannot be paid in Paired Shares on account of the Ownership Limitation, a cash payment in an amount equal to the product of (a) the number of Paired Shares which are not delivered hereunder or under the Stock Agreement because of the Ownership Limitation and (b) the Market Price on the Closing Date (the "Overage Cash Payment") shall be paid in cash or other 9 10 immediately available funds. 3.2.2.2 The balance of the Closing Payment shall be paid in cash or other immediately available funds adjusted for the pro-rations provided for expressly in this Agreement. 3.3 Investment of Escrowed Funds. Escrow Holder shall invest and reinvest any funds deposited by Buyer in the Escrow only in bonds, notes, Treasury bills or other securities having maturities of thirty (30) days or less and constituting direct obligations of, or fully guaranteed by, the United States of America (and provided, further, that such direct obligations or guarantees, as the case may be, are entitled to the full faith and credit of the United States of America) or such other investments as Buyer may direct and Seller may approve, until Escrow Holder is required to deliver or use such funds or any interest earned thereon in accordance with the provisions of this Agreement. All interest accruing on the Deposit shall be paid to the party ultimately entitled to the Deposit. All risk of loss on funds held in Escrow shall be borne by Buyer or Escrow Holder. 3.4 Allocation of Purchase Price. The Purchase Price shall be allocated among the assets and property that comprise the Property as proposed by Seller prior to Closing subject to the reasonable approval of Buyer, and such allocation shall be used by Seller and Buyer in connection with the preparation of their respective income tax, sales tax, transfer tax, and any other applicable tax returns. Seller and Buyer shall not, nor shall they permit their respective Affiliates to, take a federal or state income tax position with any taxing or other public authorities in any jurisdiction which is materially inconsistent with the allocation so agreed upon by the parties. 3.5 Default by Buyer Prior to Closing; Liquidated Damages. 3.5.1 EXCEPT AS PROVIDED TO THE CONTRARY IN SECTION 7.1.1., IF BUYER BREACHES ITS OBLIGATION TO PURCHASE THE PROPERTY UNDER THIS AGREEMENT AND FAILS TO CURE SUCH BREACH ON OR BEFORE THE SCHEDULED CLOSING DATE (A "BUYER DEFAULT"), THEN UPON WRITTEN NOTICE OF TERMINATION (A "TERMINATION NOTICE") FROM SELLER TO BUYER AND ESCROW HOLDER, THE ESCROW AND THIS AGREEMENT SHALL TERMINATE AND ESCROW HOLDER SHALL DISBURSE FROM THE ESCROW THE DEPOSIT TO SELLER AS LIQUIDATED DAMAGES, WHICH SHALL BE SELLER'S SOLE REMEDY AT LAW OR IN EQUITY FOR THE BUYER DEFAULT, AND THEREAFTER NEITHER PURCHASER NOR SELLER SHALL HAVE ANY FURTHER LIABILITY HEREUNDER, EXCEPT THAT BUYER SHALL REMAIN OBLIGATED FOR PERFORMANCE OF ITS OBLIGATIONS UNDER SECTIONS 8, 10, 17.14, 17.19 AND ANY OTHER PROVISION HEREOF WHICH BY ITS EXPRESS TERMS SURVIVES THE TERMINATION OF THIS AGREEMENT. NOTHING CONTAINED HEREIN SHALL LIMIT SELLER'S RIGHT TO OBTAIN SPECIFIC PERFORMANCE OF BUYER'S OBLIGATION TO CLOSE PURSUANT TO SECTION 7.1.1. 3.5.2 THE PARTIES ACKNOWLEDGE AND AGREE BY INITIALING THIS SECTION 3.5.2 THAT IF A BUYER DEFAULT OCCURS ON OR PRIOR TO THE SCHEDULED CLOSING DATE AND IF, AS A RESULT OF SUCH BUYER DEFAULT, CLOSE OF ESCROW FAILS TO OCCUR, SELLER WILL INCUR CERTAIN COSTS AND OTHER DAMAGES IN AN AMOUNT THAT WOULD BE EXTREMELY DIFFICULT OR IMPRACTICAL TO ASCERTAIN; AND THE DEPOSIT BEARS A REASONABLE 10 11 RELATIONSHIP TO THE DAMAGES WHICH THE PARTIES ESTIMATE MAY BE SUFFERED BY SELLER BY REASON OF SUCH FAILURE OF THE CLOSE OF ESCROW TO OCCUR AND THAT SELLER'S RETENTION OF THE DEPOSIT IS FAIR AND REASONABLE COMPENSATION TO SELLER BY REASON OF SUCH FAILURE OF THE CLOSE OF ESCROW TO OCCUR. INITIALS: /s/ T. Ayoubi /s/ SRG /s/ MCM ------------------------ ----------------------- Seller Buyer SECTION 4 ESCROW; CLOSING; COSTS 4.1 Escrow. The purchase and sale of the Property shall be consummated through the Escrow. Immediately upon the execution of this Agreement, the parties shall deposit a copy of this Agreement with Escrow Holder. This Agreement, together with any general provisions agreed to in writing by Buyer and Seller for the benefit of Escrow Holder, shall constitute the escrow instructions for the transfer of the Property (the "Escrow Instructions"). In the event of any conflict between this Agreement and such general provisions, this Agreement shall control unless otherwise expressly agreed in writing by Buyer, Seller and Escrow Holder. If any requirements relating to the duties or obligations of Escrow Holder are not acceptable to Escrow Holder, or if Escrow Holder requires additional instructions, the parties shall make such deletions, substitutions and additions to the Escrow Instructions as Buyer's Counsel and Seller's Counsel shall mutually approve and which do not substantially alter this Agreement or its intent. Written instructions from Seller's Counsel, in the case of Seller, or from Buyer's Counsel, in the case of Buyer, shall be accepted by Escrow Holder and shall be binding upon the party whose counsel gave such instructions to Escrow Holder. 4.2 Seller's Deliveries to Escrow Holder. 4.2.1 Prior to the Scheduled Closing Date (subject to extension pursuant to SECTION 7.1), Seller shall deliver to Escrow Holder the following documents duly executed and, where applicable, acknowledged by Seller, each of which shall be undated and the delivery of each of which shall be a condition precedent to the obligation of Buyer to close hereunder. 4.2.1.1 Deed. A deed with respect to the Real Property in the form of EXHIBIT 4.2.1.1 annexed hereto and made a part hereof, sufficient to transfer all of Seller's right, title and interest in and to the Real Property, subject only to matters of record as of the Closing Date, from Seller to Buyer (the "Deed"); 4.2.1.2 Assignment and Assumption of Tenant Leases. An Assignment and Assumption of Tenant Leases in the form of EXHIBIT 4.2.1.2 annexed hereto and made a part hereof pursuant to which Seller shall assign the Tenant Leases to Buyer and Buyer shall assume all of Seller's obligations thereunder (the "Assignment and Assumption of Tenant Leases"); 4.2.1.3 General Assignment. A General Assignment and Assumption Agreement in the form of EXHIBIT 4.2.1.3 annexed hereto and made a part thereof pursuant to which Seller shall assign to Buyer all of Seller's right, title and interest in and to all of the Intangible Property and Buyer shall assume all obligations thereunder (the "General Assignment and Assumption Agreement"); 4.2.1.4 Assignment and Assumption of Management Agreement. An Assignment and Assumption of Management Agreement in the form of EXHIBIT 4.2.1.4 annexed hereto and made a part hereof pursuant to which Seller shall assign to Buyer the 11 12 Management Agreement and Buyer shall assume the obligations of Seller thereunder, provided, however, the obligation to deliver the Assignment and Assumption of Management Agreement shall be irrevocably waived, if prior to the Close of Escrow, the Management Agreement shall have been terminated and the Interim Management Agreement shall have become effective in accordance with SECTION 17.20; 4.2.1.5 Bill of Sale. One or more Bills of Sale in the form of EXHIBIT 4.2.1.5A AND 4.2.1.5B annexed hereto and made a part hereof conveying to Buyer or designees of Buyer all of Seller's right, title and interest in and to the Tangible Personal Property (the "Bill of Sale"); 4.2.1.6 Stock Agreement. The Stock Agreement in the form of EXHIBIT 4.2.1.6 annexed hereto and made a part hereof (the "Stock Agreement"); 4.2.1.7 Liquor License Management Agreement. The Liquor License Management Agreement in the form of EXHIBIT 4.2.1.7 annexed hereto and made a part hereof (the "Liquor License Management Agreement"); 4.2.1.8 [Intentionally Omitted] 4.2.1.9 [Intentionally Omitted] 4.2.1.10 [Intentionally Omitted] 4.2.1.11 [Intentionally Omitted] 4.2.1.12 [Intentionally Omitted] 4.2.1.13 Non-Foreign Person Certificate. A Non-Foreign Person Certificate in the form of EXHIBIT 4.2.1.13 annexed hereto and made a part hereof (the "Non-Foreign Person Certificate"); 4.2.1.14 Transfer Tax Forms. Any statements, such as a transfer or conveyance tax forms or returns required by applicable state or local law to be executed by Seller in order to effect the Closing; 4.2.1.15 Certified Rent Roll. A copy of the rent roll for the Property dated as of the Closing Date and certified by Seller to be (a) a true, correct and complete copy of the rent roll for the Property provided to Seller by the Manager; and (b) to Seller's Knowledge, to be true, correct and complete; 4.2.1.16 Certified Operating Statement. An operating statement for the Property dated as of a date no more than thirty (30) days prior to the Closing Date and certified by Seller to be (a) a true, correct and complete copy of the operating statement for the Property provided to Seller by Manager for the period of Manager's employment at the Property; and (b) to Seller's Knowledge, to be, true, correct and complete; 4.2.1.17 Guest Ledger. A copy of the guest ledger dated as of the Proration Time showing all Guest Ledger Receivables and certified by Seller (a) to be a true, correct and complete copy of the guest ledger provided to Seller by Manager; and (b) to Seller's Knowledge, to be true, correct and complete; 4.2.1.18 Closing Certificate. A certification by Seller to Seller's Knowledge that the representations and warranties set forth in SECTION 6.3 are true, correct and complete as of the Closing Date, except to the extent that any such representation or warranty is expressly made only as of the Execution Date subject to Seller's right to make revisions pursuant to SECTION 6.7 to such representations and warranties ("Seller's Closing Certificate"); 4.2.1.19 Schedule of Bookings. A schedule of all Bookings relating to periods after the Proration Time, certified by Seller (a) to be a true, correct and 12 13 complete copy of the schedule of Bookings provided to Seller by Manager; and (b) to Seller's Knowledge, to be true, correct and complete; 4.2.1.20 Title Requirements. Any and all certificates, affidavits and other instruments and documents which the Title Company shall reasonably require, to permit it to issue the Title Policy in the condition required herein; provided, however, that (a) Seller is given written notice by Title Company of the requirement of any such certificates, affidavits or other instruments and documents within a reasonably sufficient time in advance of the Scheduled Closing Date and (b) such incidental documents do not create any liability to Seller that is inconsistent with the liability retained by Seller under the terms of this Agreement; 4.2.1.21 Payoff Letters. A pay-off letter from the holder of any mortgage or deed of trust presently encumbering the Real Property indicating all sums required to satisfy the debt secured by and permit the discharge of record the lien of such mortgage or deed of trust; 4.2.1.22 Notices to Tenants. Notices to Tenants of the assignment to Buyer of the Tenant Leases in form and substance satisfactory to Seller and Buyer; 4.2.1.23 Opinion of Seller's Counsel. An opinion of Seller's Counsel in a form to be agreed upon by the parties; and 4.2.1.24 Other. Any other incidental documents, not otherwise expressly provided for herein, reasonably required by Escrow Holder to consummate the purchase and sale of the Property; provided, however, that (a) Seller is given written notice by Escrow Holder of the requirement of any such incidental documents within a reasonably sufficient time in advance of the Scheduled Closing Date (subject to extension in accordance with the provisions of SECTION 7.1); and (b) such incidental documents do not create any liability to Seller that is inconsistent with the liability retained by Seller under the terms of the this Agreement. 4.3 Buyer's Deliveries to Escrow Holder. 4.3.1 Prior to the Scheduled Closing Date (subject to extension in accordance with the provisions of SECTION 7.1), and subject further to the provisions of SECTION 4.3.1.4 in the case of the Value Letter, Buyer shall deliver to Escrow Holder the following items and documents, which documents shall be duly executed and, where applicable, acknowledged by Buyer or its designee, as applicable, and undated, and the delivery of each of which shall be a condition precedent to the obligation of Seller to close hereunder: 4.3.1.1 The Cash Purchase Price. The Cash Purchase Price; 4.3.1.2 Stock Certificates. Paired Shares in the amount required to be delivered at the Closing in accordance with the provisions of this Agreement and in accordance with and subject to the provisions of the Stock Agreement; 4.3.1.3 Assignment and Assumption of Management Agreement. A counterpart of the Assignment and Assumption of Management Agreement, provided, however, the obligation to deliver the Assignment and Assumption of Management Agreement shall be irrevocably waived, if prior to the Close of Escrow, the Management Agreement shall have been terminated and the Interim Management Agreement shall have become effective in accordance with SECTION 17.20; 4.3.1.4 Value Letter. A letter (the "Value Letter") to be obtained by Buyer at Buyer's expense with respect to the reasonableness of the allocation of the purchase price among the transactions being entered into as of the date hereof between Buyer and Seller 13 14 and/or Seller's Affiliates issued by Bear Stearns; 4.3.1.5 Opinion of Buyer's Counsel. An opinion of Buyer's counsel in a form to be agreed upon by the parties; 4.3.1.6 Stock Agreement. A counterpart of the Stock Agreement; 4.3.1.7 [Intentionally Omitted] 4.3.1.8 Liquor License Management Agreement. A counterpart of the Liquor License Management Agreement; 4.3.1.9 [Intentionally Omitted] 4.3.1.10 [Intentionally Omitted] 4.3.1.11 [Intentionally Omitted] 4.3.1.12 Closing Certificate. A certification by Buyer that the representations and warranties set forth in SECTION 6.1 and SECTION 6.2 are true, correct and complete as of the Closing Date; 4.3.1.13 The Assignment and Assumption of Tenant Leases. A counterpart of the Assignment and Assumption of Tenant Leases; 4.3.1.14 The General Assignment and Assumption Agreement. A counterpart of the General Assignment and Assumption Agreement; 4.3.1.15 Transfer Tax Forms. Any statements, such as a transfer or conveyance tax forms or returns required by applicable state or local law to be executed by Buyer in order to effect the closing; and 4.3.1.16 Other. Any other incidental documents, not otherwise expressly provided for herein, required by Escrow Holder to consummate the purchase and sale of the Property; provided, however, that (a) Buyer is given written notice by Escrow Holder of the requirement of such incidental documents within a reasonably sufficient time in advance of the Scheduled Closing Date; and (b) Buyer shall not be required to incur any liability, in connection with the delivery of such incidental documents inconsistent with the provisions of this Agreement. 4.4 Seller's Deliveries to Buyer. At or prior to the Close of Escrow, Seller shall deliver to Buyer or cause to be available to Buyer on-site at the Hotel, the following documents, to the extent the same have not already been delivered and to the extent in the possession or control of Seller: 4.4.1 Tenant Leases/Tenant Deposits. The original Tenant Leases (or if not available, the best available copies), and the originals of Tenant Security Deposits which are evidenced by letters of credit or escrow agreements, if any, and if necessary to enable Buyer to realize or draw upon same, consents of the applicable Tenants and/or financial institutions or replacement letters of credit or escrow agreements in favor of Buyer; 4.4.2 Service Contracts. The originals, or, if not available, the best available copies, of the Approved Service Contracts; 4.4.3 Licenses and Permits. The originals, or, if not available, the best available copies of the Licenses and Permits; and 4.4.4 Records and Plans. The originals, or, if not available, the best available copies of the Records and Plans. 4.5 Possession. Seller shall deliver the keys and possession of the Property to Buyer at the Close of Escrow free and clear of all leases, tenancies and occupancies, except for the Management Agreement, the Bookings, the rights of guests in guest rooms, banquet facilities, 14 15 conference rooms and meeting rooms, the rights of Tenants under the Tenant Leases (including their assignees, subtenants or licensees), and the other Permitted Encumbrances. 4.6 Evidence of Authorization. At the Close of Escrow, each party shall deliver to the other party evidence in form and content reasonably satisfactory to the other party and the Title Company that (a) the party is duly organized and validly existing under the laws of the state of its organization and has the power and authority to enter into this Agreement, (b) this Agreement and all documents delivered pursuant hereto have been duly executed and delivered by the party, and (c) the performance by the party of its obligations under this Agreement have been duly authorized by all necessary corporate, partnership or other action. 4.7 Close of Escrow. 4.7.1 The Escrow shall close on or before the Scheduled Closing Date. 4.7.2 Provided that Escrow Holder has not received from either party written notice of the failure of any condition precedent specified in SECTION 9 to the obligations of such party (or any previous such notice has been withdrawn), then when the parties have each deposited into the Escrow the documents and funds required by this Agreement and the Title Company is unconditionally prepared to issue the Title Policy at the Close of Escrow, Escrow Holder shall perform the following actions (collectively, "Close of Escrow" or "Closing"): 4.7.2.1 Prepare a closing statement for the transaction for approval by Seller and Buyer prior to the Close of Escrow; 4.7.2.2 Insert the Closing Date as the date of any undated document to be delivered through Escrow; 4.7.2.3 Cause the Deed to be recorded in the land records of the state and county where the Real Property is located; 4.7.2.4 Deliver to Buyer the documents deposited into the Escrow for delivery to Buyer at the Close of Escrow; 4.7.2.5 Deliver to Seller (a) all funds and Paired Shares to be received by Seller from Buyer through the Escrow at the Close of Escrow less (i) all amounts to be paid by Seller for Escrow Holder's fees and expenses and (ii) all amounts paid by Escrow Holder in satisfaction of liens and encumbrances on the Real Property or other matters pursuant to the written instruction of Seller, and (b) the documents deposited into the Escrow for delivery to Seller at the Close of Escrow; and 4.7.2.6 Cause the Title Policy to be issued by the Title Company and delivered to Buyer. 4.8 Costs of Escrow. Costs of the Escrow shall be allocated as follows: 4.8.1 Buyer and Seller shall each pay one-half (1/2) of the fees of Escrow Holder; 4.8.2 Buyer and Seller shall each pay one-half (1/2) of the cost of providing the Survey required to be delivered in accordance with the provisions of SECTION 7.1; provided, however, Buyer shall be responsible for the full cost of the Survey in the event the Closing does not occur hereunder other than on account of default of Seller; 4.8.3 Buyer and Seller shall each pay one-half (1/2) of all transfer taxes and recording fees payable in connection with the conveyance of each portion of the Real Property and/or the recording of the Deed and any other documents or instruments recorded pursuant to this Agreement (other than the Assignment of Mortgage); 4.8.4 Buyer and Seller shall each pay one-half (1/2) of all sales or other 15 16 personal property taxes, levies, fees and charges payable as a result of the transfer of the Personal Property to Buyer and the consummation of the transactions contemplated hereby. Buyer shall be the reporting person for such purposes and shall prepare the necessary sales tax reports based upon the allocations set forth in SECTION 3.4. The parties acknowledge that additional sales tax may be assessed as a result of the transfer of the Personal Property to Buyer and the consummation of the transactions contemplated hereby after the Closing and that Buyer and Seller shall continue to each be responsible for one-half of any such additional taxes. The provisions of Section 4.8.3 and Section 4.8.4 shall survive the Closing; 4.8.5 Buyer and Seller shall each pay one-half (1/2) of the cost of obtaining the coverage under the Title Policy, except that the cost of any special endorsements shall be paid exclusively by Buyer; 4.8.6 At Closing or thereafter Buyer shall pay for the cost of the Value Letter; 4.8.7 [Intentionally Omitted] 4.8.8 If the Close of Escrow fails to occur other than as a result of a default hereunder by either party, including, without limitation, as a result of a failure of a condition precedent set forth in SECTION 9, the fees of the Escrow Holder and Title Company (including, without limitation, cancellation fees) shall be borne equally between Buyer and Seller; 4.8.9 If the Close of Escrow fails to occur as a result of a default hereunder by either party, the fees of the Escrow Holder and Title Company (including, without limitation, cancellation fees) shall be borne by the defaulting party; and 4.8.10 Pursuant to Section 6045 of the Internal Revenue and Taxation Code, the Title Company shall be designated the "Closing Agent" hereunder and shall be solely responsible for complying with the Tax Reform Act of 1986 with regard to the reporting of all settlement information to the Internal Revenue Service. 4.9 Other Costs. Except as set forth in SECTION 4.8.6, SECTION 11.1 and SECTION 15.1.6, each party shall pay all of its own legal, accounting and consulting fees and other costs and expenses incurred in connection with this Agreement. 4.10 Maintenance of Confidentiality by Escrow Holder. Escrow Holder shall maintain in strict confidence and not disclose to anyone the existence of the Escrow, the identity of the parties thereto, the amount of the Purchase Price, the existence or provisions of this Agreement or any other information concerning the Escrow or the transactions contemplated hereby, without the prior written consent of Buyer and Seller. SECTION 5 PRORATIONS AND ASSUMPTION OF OBLIGATIONS 5.1 General. All income, receivables, expenses (whether payable or prepaid) and payables of the Property shall be apportioned equitably between the parties as of the Proration Time in accordance with the provisions of this SECTION 5 (all prorations are to be based upon the number of days in a 365 day year). The obligation to make apportionments under SECTIONS 5.1 AND 5.2 shall, unless otherwise expressly provided in this SECTION 5, survive the Close of Escrow for a period of sixty (60) days at which time such apportionment shall be final unless disputed during such period. 5.2 General and Specific Prorations. Without limitation, the following items shall be apportioned: 5.2.1 At the Closing, Buyer shall assume all of the accounts payable relating to goods and services ordered or obtained in the ordinary course of operation of the business of the 16 17 Hotel (including without limitation, payments under the Service Contracts and Equipment Leases) prior to the Proration Time. Seller shall be obligated to credit Buyer at the Close of Escrow with an amount mutually agreed upon by Buyer and Seller at the Closing, reflecting the parties' good faith estimate of such accounts payable as of the Proration Time (which estimate shall deduct any discounts then available in the ordinary course of business for the prompt payment of such accounts payable), plus a further credit for any late fees then payable with respect to any identified accounts payable. Buyer shall be responsible for paying when due all accounts payable arising from the operation of the Property on or after the Proration Time, and Seller shall have no further liability for such payables or charges. As of the date which is sixty (60) days following the Closing Date, Buyer and Seller shall calculate the amount of all accounts payable relating to goods and services ordered or obtained in the ordinary course of operation of the business of the Hotel (including without limitation, payments under the Service Contracts and Equipment Leases) prior to the Proration Time. Seller shall reimburse Buyer for any payments made on account of any such accounts payable which were not reflected in the Parties' estimate of such amount credited to Buyer at Closing and which have been paid by Buyer or for which Buyer is obligated to pay in accordance with the provisions hereof, and if the amount of such credit exceeds the amounts so paid or for which Buyer is so obligated, Buyer shall pay such excess amount to Seller. 5.2.2 At the Closing, Seller shall assign to Buyer all of the Accounts Receivable, for which Seller shall receive a credit at the Close of Escrow in an amount equal to (a) the full, aggregate outstanding balance of the Cash Equivalent Receivables (without discount except for service charges due to charge card companies) plus (b) the full aggregate outstanding balance of the Invoiced Receivables and Other Accounts Receivable as of the Proration Time, provided, Buyer shall at its option accept or reject any Invoiced Receivables and Other Accounts Receivable over ninety (90) days and Seller shall not receive a credit for any Invoiced Receivables and Other Accounts Receivable over ninety (90) days rejected by Buyer; provided, that Buyer shall at its own expense use reasonable efforts to collect any such rejected Invoiced Receivables and Other Accounts Receivable on behalf of Seller for a period of sixty (60) days after the Closing Date and thereafter Seller shall have the right to collect same for its own account; provided, further, as of the date which is sixty (60) days following the Closing Date, Buyer and Seller shall make any adjustments required to reflect the collectibility of any Invoiced Receivables and Other Accounts Receivable (it being agreed that (a) any accounts receivable not listed on the schedule of accounts receivable of the Property as of the date which is sixty (60) days following the Closing Date shall be deemed paid as of such date and (b) except as provided in (a), any accounts receivable which are more than ninety (90) days past due as of the date which is sixty (60) days following the Closing Date shall be deemed uncollectable as of such date) and Seller and Buyer shall make a corresponding payment to the other as required to accurately reflect the collectibility of such Invoiced Receivables and Other Accounts Receivable and any accounts receivable deemed uncollectable as of such date in accordance with the terms hereof shall be the property of Seller and Seller shall be permitted (at its expense and for its own account) to collect the same; 5.2.3 In prorating the Accounts Receivable, Buyer and Seller shall each receive credit for one-half (1/2) of all Guest Ledger Receivables attributable to the room night during which the Proration Time occurs. Seller shall receive the income from all restaurant and bar facilities located at the Property through the Proration Time and Buyer shall receive such 17 18 income thereafter; 5.2.4 [Intentionally Omitted] 5.2.5 All sales, use and occupancy taxes arising from the operation of the Property shall be prorated as of the Proration Time; 5.2.6 Fees for transferable annual permits, licenses, and/or inspection fees, if any, for periods during which the Proration Time occurs shall be prorated as of the Proration Time; 5.2.7 Utility charges with respect to the Property levied against Seller or the Property and the value of fuel stored on the Property shall be prorated at Seller's cost therefor as of the Proration Time. Seller shall notify all utilities, governmental agencies, suppliers and others providing services to the Property of the prospective change in ownership and operation of the Property, and Seller shall use its reasonable efforts to cause all utilities furnished to the Property, including, but not limited to, electricity, gas, water and sewer, along with any fuel storage tanks to be read the day prior to the Proration Time; 5.2.8 Permitted administrative charges, if any, on Tenant Security Deposits shall be prorated; 5.2.9 Buyer shall receive a credit for advance payments and/or deposits, if any, under Bookings to the extent the Bookings relate to a period after the Proration Time; 5.2.10 Vending machine monies will be removed by Seller as of the Proration Time for the benefit of Seller; 5.2.11 Buyer shall purchase and Seller shall sell to Buyer (or Seller shall receive a credit therefore) all petty cash funds and cash in the Property's house banks at 100% of face value at the Proration Time; 5.2.12 Wages, salaries and payroll taxes and other payroll deductions for all Hotel Employees shall be apportioned as of the Proration Time (i.e., the night shift shall be prorated 50/50 for the night preceding the Closing Date). Buyer shall assume all accrued vacation benefits and sick leave benefits due to such Hotel Employees which relate to any period prior to the Proration Time and shall receive a credit for the full amount of all such accrued benefits reasonably expected to be paid after the Closing Date; provided, that as of the date which is sixty (60) days following the Closing, Buyer and Seller shall adjust the amount of the credit if required to take into account the benefits actually required to be paid by Buyer or then reasonably expected to be paid following the Closing Date by Buyer. Buyer shall also assume all obligations of Seller and the Employer Corporation, under the Employment Agreements and/or the Management Agreement to pay all such wages, salaries, and compensation set forth above accruing subsequent to Proration Time; provided, however, that other than as set forth in SECTION 14.1 hereof, no provision contained in this Agreement shall be construed to prevent the Buyer from terminating or amending in any manner such Employment Agreements and Management Agreements subsequent to the Proration Time. The obligation to pay bonuses, if any, following the Closing shall be allocated as of the Proration Time and adjusted between Buyer and Seller; and 5.2.13 Real and personal property taxes, assessments and special district levies shall be prorated for the tax fiscal year in which the Closing Date occurs on the basis of the then most current available tax bills, Seller being charged through the day prior to the Closing Date and Buyer with the Closing Date and thereafter. 5.3 Deposits. All rights to utility, assessment, and other cash deposits (including, 18 19 without limitation, any Utility Deposits) held by others for Seller's account, and all certificates of deposit or other forms of cash collateral held by or otherwise pledged to others for Seller's account to secure obligations of Seller under Service Contracts, Equipment Leases or other obligations assumed by Buyer, shall be assigned or transferred to Buyer at the Close of Escrow; provided, that if any of such deposits are not transferable, Seller shall retain all rights with respect thereto and there shall be no debit made to Buyer on account thereof. 5.4 Tenant Leases. At the Close of Escrow, pursuant to the Assignment and Assumption of Tenant Leases, Buyer shall assume all of the obligations of Seller under the Tenant Leases as of the Proration Time, including, without limitation, tenant improvement obligations of landlord thereunder and obligations with respect to Tenant Security Deposits (to the extent received by Buyer or credited to Buyer hereunder). 5.5 Service Contracts and Other Intangible Property. At the Close of Escrow, Seller shall assign to Buyer pursuant to the terms of the General Assignment and Assumption Agreement, all right, title and interest of Seller in and to the Approved Service Contracts and other Intangible Property, and Buyer shall assume all of the obligations of Seller under the Approved Service Contracts arising from and after the Close of Escrow. Buyer shall protect, hold harmless, indemnify and defend Seller and its directors, officers, agents, affiliates, principals, partners, shareholders, representatives and controlling persons from any Losses attributable to the period beginning on and after the Closing Date with respect to the Approved Service Contracts. Seller shall be responsible for all obligations thereunder attributable to the period prior to the Closing Date with respect to Approved Service Contracts (except to the extent that Buyer shall have received a credit hereunder with respect to any such obligations). The provisions of this SECTION 5.5 shall survive the Close of Escrow. 5.6 Tax Refunds and Proceedings. Buyer shall have the exclusive right to commence or continue any proceeding to determine the assessed value of the Property, the real or personal property taxes payable with respect to the Property or any action to contest water charges, sewer charges, sales tax or use tax for the relevant taxable period during which the Proration Time occurs and to settle or compromise any claim thereof, and any refunds or proceeds resulting from such proceedings along with the costs (including reasonable legal and accounting fees) incurred by Buyer in obtaining the same, shall be prorated as of the Proration Time. In prosecuting any such action, Buyer shall utilize the services of Marvin Poer & Co. Seller shall retain the right to continue, commence, prosecute, settle or compromise any proceedings relating exclusively to any relevant taxable period or periods prior to the period during which the Proration Time shall occur. Buyer and Seller agree to cooperate with each other and to execute any and all documents reasonably requested in furtherance of the foregoing. The provisions of SECTION 5.6 shall survive the Closing. 5.7 Guest Baggage. As of the Close of Escrow, Buyer shall indemnify and hold harmless Seller against all Losses with respect to all baggage of departed guests or guests who are still registered at the Hotel on the Closing Date which has been checked with the Hotel. As of the Close of Escrow, Seller shall assign to Buyer all claims and causes of action against the Manager with respect to any Losses with respect to such baggage. Seller agrees to submit to Seller's Insurance any claims for Losses with respect to such baggage which arose from acts or omissions prior to the Closing Date to the extent coverage is available under said insurance and provide Buyer with the proceeds therefrom provided Buyer is not in default under this SECTION 5.7. The provisions of this SECTION 5.7 shall survive the Closing. 19 20 5.8 Safe Deposit Boxes. As of the Close of Escrow, Buyer shall indemnify and hold harmless Seller against all Losses with respect to the contents of any safety deposit boxes in use at the Hotel. As of the Close of Escrow, Seller shall assign to Buyer all claims and causes of action against the Manager with respect to any Losses relating to said safety deposit boxes. Seller agrees to submit to Seller's insurance any claims for Losses which arose from acts or omissions prior to the Closing Date to the extent coverage is available under said insurance and provide Buyer with the proceeds therefrom provided Buyer is not in default under this SECTION 5.8. The provisions of this SECTION 5.8 shall survive the Closing. 5.9 Advance Bookings. Buyer shall assume and honor for its account all Bookings relating to dates after the Proration Time set forth on the Schedule of Advance Bookings delivered by Seller to Buyer at the Close of Escrow pursuant to SECTION 4.2.1.9. 5.10 [Intentionally Omitted] SECTION 6 REPRESENTATIONS AND WARRANTIES; CONDITION OF PROPERTY 6.1 Of the Trust. As an inducement to Seller to enter into this Agreement, the Trust hereby represents, warrants and covenants to Seller as follows: 6.1.1 Power and Authority. The Trust is a real estate investment trust duly organized and validly existing under the laws of the State of Maryland. The Trust has the power and authority to carry on its present business, to enter into this Agreement and to consummate the transactions herein contemplated; neither the execution and delivery of this Agreement by the Trust, nor the performance by the Trust of the Trust's obligations hereunder will violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which the Trust is a party or by which the Trust is bound and/or violate any applicable law, rule or regulation the violation of which would have a Material effect upon the principal benefits intended to be provided by this Agreement. 6.1.2 Authorization; Valid Obligation. All proceedings required to be taken by or on behalf of the Trust to authorize the Trust to make, deliver and carry out the terms of this Agreement will be duly taken prior to the Closing Date. No consent to the execution, delivery and performance of this Agreement will be required from any partner, board of directors, shareholder, creditor, investor, judicial or administrative body, governmental authority or other person, other than any such consent which already has been (or prior to the Closing will have been unconditionally given. The individuals executing this Agreement and the documents referenced herein on behalf of the Trust have the legal power, right and actual authority to bind the Trust to the terms and conditions hereof. This Agreement is a valid and binding obligation of Trust, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. 6.1.3 Capital Structure. The authorized and outstanding capital stock and units of the Trust and its operating partnership are as set forth in the Starwood Disclosure. All Paired Shares to be issued as the Equity Purchase Price at the Closing in accordance with this Agreement will, when so issued, be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights and will be paired with each other in the same ratio as all other shares are paired with each other pursuant to the Pairing Agreement. 20 21 6.1.4 SEC Documents and Other Reports. The Trust has filed all required documents with the SEC since January 1, 1996 (such documents together with the Starwood Disclosure being referred to herein as the "SEC Documents"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of applicable law, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements (including, in each case, any notes thereto) of the Trust included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as of their respective dates of filing, were prepared in accordance with generally accepted accounting principles (except, in the case of the unaudited statements, as permitted by Regulation S-X of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented the consolidated financial position of the Trust and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the SEC Documents or as required by generally accepted accounting principles, the Trust has not, since December 31, 1996, made any change in the accounting practices or policies applied in the preparation of their financial statements. Prior to the Closing Date, the Trust will file all required documents with the SEC, which documents will comply in all material respects with the requirements of the applicable law, and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 6.1.5 Absence of Certain Changes or Events. Except as disclosed in the SEC Documents filed prior to the date of this Agreement, since December 31, 1996, (a) there have not been any events, changes or developments that, individually or in the aggregate, have had or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole, or (b) there has not been any split, combination or reclassification of any of the capital stock or units of the Trust or its operating partnership or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of, or in substitution for shares of such capital stock. 6.1.6 Actions and Proceedings. Except as set forth in the SEC Documents filed prior to the date of this Agreement, there are no outstanding orders, judgments, injunctions, awards or decrees of any governmental entity against or involving the Trust or any of its subsidiaries, or against or involving any of the directors, officers or employees of the Trust or any of its subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole. Except as set forth in the SEC Documents, there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the knowledge of the Trust, threatened against or involving the Trust or any of its subsidiaries or any of their directors, officers or employees, as 21 22 such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole. As of the date hereof, there are no actions, suits, labor disputes or other litigation, legal or administrative proceedings or governmental investigations pending or, to the knowledge of the Trust, threatened against or affecting the Trust or any of their subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement. 6.1.7 REIT Status. The Trust is currently a "real estate investment trust" ("REIT") for federal income tax purposes and, to its knowledge, the Trust is and at all times during the testing period described in Code Section 897(h)(4)(D) has been a "domestically controlled REIT" (as defined in Section 897(h)(4)(D) of the Code). From and after January 1, 1995, neither the Internal Revenue Service nor any other taxing entity or authority has made any assertion that the Trust does not qualify as a REIT for income tax purposes, nor has there been any challenge to the REIT status of the Trust. From time to time upon request by the Seller or its assigns after the Closing Date, the Trust agrees to inform Seller or such assigns whether to its knowledge it complies with the representation and warranties set forth in this Section 6.1.7. 6.1.8 Partnership Status. Starwood Realty Partnership is classified and taxable as a partnership for U.S. federal income tax purposes. 6.1.9 Hart-Scott-Rodino Act. The provisions of the Hart-Scott-Rodino Act are not applicable to the transactions contemplated hereby and neither the Trust nor Seller is required to make any filings or submissions or obtain any approvals thereunder in connection herewith. 6.2 Of the Corporation. As an inducement to Seller to enter into this Agreement, the Corporation hereby represents, warrants and covenants to Seller as follows: 6.2.1 Power and Authority. The Corporation is a corporation duly organized and validly existing under the laws of the State of Maryland. The Corporation has the power and authority to carry on its present business, to enter into this Agreement and to consummate the transactions herein contemplated; neither the execution and delivery of this Agreement by the Corporation nor the performance by the Corporation of the Corporation's obligations hereunder will violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which the Corporation is a party or by which the Corporation is bound and/or violate any applicable law, rule or regulation the violation of which would have a Material effect upon the principal benefits intended to be provided by this Agreement. 6.2.2 Authorization; Valid Obligation. All proceedings required to be taken by, or on behalf of the Corporation, to authorize the Corporation to make, deliver and carry out the terms of this Agreement will be duly taken prior to the Closing Date. No consent to the execution, delivery and performance of this Agreement will be required from any partner, board of directors, shareholder, creditor, investor, judicial or administrative body, governmental authority or other person, other than any such consent which already has been (or prior to the Closing will have been) unconditionally given. The individuals executing this Agreement and the documents referenced herein on behalf of the Corporation have the legal power, right and actual authority to bind the Corporation to the terms and conditions hereof. This Agreement is a valid and binding obligation of Corporation, enforceable in accordance with its terms, except as 22 23 the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. 6.2.3 Capital Structure. The authorized and outstanding capital stock and units of the Corporation and its operating partnership are as set forth in the Starwood Disclosure. All Paired Shares to be issued as the Equity Purchase Price at the Closing in accordance with this Agreement will, when so issued, be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights and will be paired with each other in the same ratio as all other shares are paired with each other pursuant to the Pairing Agreement. 6.2.4 SEC Documents and Other Reports. The Corporation has filed all required SEC Documents since January 1, 1996. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the applicable law, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements (including, in each case, any notes thereto) of the Corporation included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as of their respective dates of filing, were prepared in accordance with generally accepted accounting principles (except, in the case of the unaudited statements, as permitted by Regulation S-X of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented the consolidated financial position of the Corporation and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the SEC Documents or as required by generally accepted accounting principles, the Corporation has not, since December 31, 1996, made any change in the accounting practices or policies applied in the preparation of their financial statements. Prior to the Closing Date, the Corporation will file all required documents with the SEC, which documents will comply in all material respects with the requirements of the applicable law, and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 6.2.5 Absence of Certain Changes or Events. Except as disclosed in the SEC Documents filed prior to the date of this Agreement, since December 31, 1996, (a) there have not been any events, changes or developments that, individually or in the aggregate, have had or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole, or (b) there has not been any split, combination or reclassification of any of the capital stock or units of the Corporation or its respective operating partnerships or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of such capital stock. 6.2.6 Actions and Proceedings. Except as set forth in the SEC Documents filed prior to the date of this Agreement, there are no outstanding orders, judgments, injunctions, awards or decrees of any governmental entity against or involving the Corporation or any of its 23 24 subsidiaries, or against or involving any of the directors, officers or employees of the Corporation or any of its subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole. Except as set forth in the SEC Documents, there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the knowledge of the Corporation, threatened against or involving the Corporation or any of its subsidiaries or any of their directors, officers or employees, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole. As of the date hereof, there are no actions, suits, labor disputes or other litigation, legal or administrative proceedings or governmental investigations pending or, to the knowledge of the Corporation, threatened against or affecting the Corporation or any of their subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement. 6.2.7 Starwood Operating Partnership is classified and taxable as a partnership for U.S. Federal Income Tax purposes. 6.2.8 Hart-Scott-Rodino. The provisions of the Hart-Scott-Rodino Act are not applicable to the transactions contemplated hereby and neither the Corporation nor Seller is required to make any filings or submissions to obtain any approvals thereunder in connection herewith. 6.3 Of Seller. As an inducement to Buyer to enter into this Agreement, Seller, represents, warrants and covenants to Buyer as follows: 6.3.1 Regarding Seller's Authority. 6.3.1.1 Seller is a limited partnership in dissolution under the laws of the District of Columbia. Seller has the power and authority to enter into this Agreement and the Conveyance Documents and, to sell the Property on the terms set forth in this Agreement. The execution and delivery hereof and the performance by Seller of its obligations hereunder, will not violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which Seller is a party or by which Seller is bound and/or violate any applicable law, rule or regulation the violation of which would have a Material effect upon the principal benefits intended to be provided by this Agreement. 6.3.1.2 The individuals executing this Agreement and the documents referenced herein on behalf of Seller have the legal power, right and actual authority to bind Seller to the terms and conditions hereof. This Agreement is a valid and binding obligation of Seller, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. 6.3.2 Tenant Leases. There are no leases, licenses or concessions for space which will affect the Real Property or any portion thereof following the Close of Escrow other than as set forth on the Schedule of Tenant Leases. Seller has delivered to Buyer a true, correct and complete copy of each lease and agreement listed on the Schedule of Lease. Seller 24 25 has not received written notice of any sublease and/or assignment of any Tenant Lease except as set forth on SCHEDULE 6.3.2. No outstanding written notice of any Material default has been delivered by Seller or received by Seller with respect to any Tenant Lease, except as disclosed on the SCHEDULE 6.3.2 annexed hereto and made a part hereof. To Seller's knowledge, all rent under the leases listed on the Schedule of Leases is being paid currently. All Material brokerage, leasing and other commissions due in connection with the Tenant Leases have been paid by Seller other than those payable with respect to the renewal or extension of such Tenant Leases or expansion of the leased premises thereunder after the Closing Date, each of which are payable under agreements described on SCHEDULE 6.3.2. 6.3.3 Service Contracts. There are no Service Contracts which will affect the Property after the Closing Date except for the Approved Service Contracts. No outstanding written notice of any Material default has been delivered by Seller or received by Seller with respect to any Approved Service Contract, except as disclosed on SCHEDULE 6.3.3 annexed hereto and made a part hereof. 6.3.4 Claims. There are no pending litigation or condemnation proceedings with respect to Seller or the Property which would result in an adverse effect on the ability of Buyer to operate the Property after the Closing, except as disclosed on SCHEDULE 6.3.4 annexed hereto and made a part hereof. There is no pending litigation or to Seller's knowledge, other claims of Seller with respect to the Property attributable to the period prior to the date hereof which may result in a material judgment in favor of Seller except as disclosed on SCHEDULE 6.3.4. 6.3.5 Employees. To Seller's Knowledge, SCHEDULE 1.1.6 sets forth a true and complete list of all Hotel Employees as of the Execution Date together with their positions, salaries or hourly wages, as applicable, and years of service. Except for or pursuant to the Employment Agreements, the Collective Bargaining Agreements, the Management Agreement and the agreements related to the Ritz-Carlton management of the Hotel described on SCHEDULE 6.3.5 hereto, neither Seller nor the Employer Corporation has relating to the Property (i) at any time maintained, contributed to or participated in, (ii) or had at any time obligation to maintain, contribute to, or participate in, or (iii) any liability or contingent liability, direct or indirect, with respect to: any employment agreement, oral or written retirement or deferred compensation plan, incentive compensation plan, stock plan, unemployment compensation plan, vacation pay plan, severance plan, bonus plan, stock compensation plan or any other type or form of employee-related (or independent contractor-related) arrangement, program, policy, plan or agreement. Except as set forth on SCHEDULE 6.3.5, to Seller's knowledge there is no Material default under any of the Employment Agreements. 6.3.6 Compliance with Laws. During the past twelve (12) months, Seller has not received any written notice from any party, including, without limitation, from any municipal, state, federal or other governmental authority, of a Material violation of any zoning, building, fire, water, use, health, or other similar statute, ordinance, or code bearing on the construction, operation or use of the Property or any part thereof (other than as to matters previously cured), except as disclosed on SCHEDULE 6.3.6 annexed hereto and made a part hereof and except for violations of Environmental Laws, which are addressed in SECTION 6.3.7 below. 6.3.7 Hazardous Materials. Seller has not received any written notice from any municipal, state, federal or other governmental authority or from any other person during the last three (3) years of (a) any Material violation of applicable Environmental Laws or (b) any 25 26 Environmental Condition requiring Material remediation under applicable Environmental Laws, in either case only to the extent relating to Environmental Conditions at or on the Real Property, except as disclosed on SCHEDULE 6.3.7 annexed hereto and made a part hereof; 6.3.8 Records and Plans. Seller will have delivered to Buyer on the Closing Date true and correct copies of the Records and Plans. 6.3.9 Licenses and Permits. Seller has delivered to Buyer true and correct copies of the Liquor License and all other Material Licenses and Permits and such Licenses and Permits are identified on SCHEDULE 6.3.9 annexed hereto and made a part hereof. 6.3.10 Management Agreements. There are no hotel management or property management agreements, which will be binding upon Buyer after the Closing Date, other than the Management Agreement, a true and complete copy of which will be delivered to Buyer on the Closing Date. Seller has not sent or received any notice of default or notice of termination under or with respect to the Management Agreement. 6.3.11 Personal Property. Seller owns the Tangible Personal Property (other than the Tangible Personal Property that is subject to the Equipment Leases) free and clear of any liens and/or encumbrances other than the Permitted Encumbrances. 6.3.12 Insurance. The Seller in respect of the Real Property is insured under those policies of casualty and general liability insurance ("Seller's Insurance") described on SCHEDULE 6.3.12 annexed hereto, each of which is in full force and effect as of the date hereof and will remain in full force and effect through the Closing Date. Seller has received no notices of any Material default or demands to cure from any applicable insurer in respect of Seller's Insurance. 6.3.13 Real Estate Taxes. Except as set forth on SCHEDULE 6.3.13 annexed hereto and made a part hereof, Seller has not commenced any proceedings which are pending for the reduction of the assessed valuation of the Real Property or any portion thereof, and other than the Permitted Encumbrances, to Seller's Knowledge, there are no special assessments affecting the Property. Nothing in this SECTION 6.3.13 or any other provision of this Agreement shall be construed to limit Seller's rights to initiate or prosecute after the Close of Escrow additional proceedings for property tax refunds for taxes relating to any relevant taxable period or periods prior to the taxable period during which the Proration Time occurs. 6.3.14 [Intentionally Omitted] 6.3.15 [Intentionally Omitted] 6.3.16 District of Columbia Underground Storage Tank Disclosure Notice. In accordance with the requirements of the D.C. Underground Storage Tank Management Act of 1990 as amended by the District of Columbia Underground Storage Tank Management Act of 1990 Amendment Act of 1992 (D.C. Code 6-995.1 et seq.) (the "Act") and the D.C. Underground Storage Tank Regulations, 20 DCMR Chapters 55-68 (the "Regulations"), Seller hereby informs Buyer that Seller has knowledge of the past existence of one or more "underground storage tanks" in, under, or upon the Property as that term is defined in the Act and the Regulations. In accordance with the Regulations, Seller has executed the disclosure form attached as EXHIBIT 6.3.16. This disclosure notice was provided to Buyer prior to entering into this Agreement. 6.4 Buyer's Review of Records and Plans. 6.4.1 Access to Records and Plans; Specific Disclosures. Buyer acknowledges that prior to the Closing Date, Buyer has been provided with such access to the Records and 26 27 Plans and such other information relating to the Hotel as Buyer has deemed relevant. Buyer acknowledges that it (a) has been made aware of and given an opportunity to inquire into the Specific Disclosure Matters described herein; (b) has been given access to the Property and the opportunity to conduct such inquiries and analyses as Buyer has deemed necessary or appropriate in order to evaluate the physical condition of the Property and any and all other matters concerning the current and future use, feasibility, or value, or any other matter or circumstance relevant to Buyer concerning the Property or its marketability; and (c) the Records and Plans and the other books and records of Seller with respect to the Hotel may not be complete. 6.4.2 Limitation on Access to Records and Plans. Notwithstanding anything in this Agreement to the contrary, Buyer acknowledges and agrees that the Records and Plans or other information made available to or delivered to Buyer prior to, or at the Closing, shall not include any information which is privileged, confidential or proprietary to Seller or any of its constituent partners or affiliates, including without limitation, (i) Seller's internal financial analyses, any appraisals undertaken for Seller or other parties, income tax returns, financial statements, corporate or partnership governance records, investment advisory records, and other records concerning Seller's professional relationships, any Hotel Employee personnel files (prior to the Closing), or any other internal, proprietary, or confidential information, files, or records of Seller, (ii) the work papers, memoranda, analysis, correspondence, and similar materials prepared by or for Seller in connection with the negotiation and documentation of the transaction contemplated hereby or any other offer to purchase the Property received by Seller, and (iii) any documents or communications subject to the attorney/client privilege or attorney work product privilege. Buyer expressly agrees that its review of the Records and Plans, and any and all other information of any type or nature, whether oral or written, provided to Buyer by or on behalf of Seller and relating to the Property (collectively, the "PROPERTY INFORMATION") is for informational purposes only, and neither Seller nor any agent, advisor, officer, attorney, representative or other person acting or purporting to act on behalf of Seller has verified either the accuracy of the Property Information, or the adequacy of any method used to compile the Property Information or the qualifications of any person preparing the Property Information except that, in delivering or making available a copy of any document or papers to Buyer, Seller has delivered or made available copies of the originals of such documents or papers in Seller's possession or included in the Records and Files. Except as expressly set forth in this SECTION 6, neither Seller nor any agent, advisor, officer, attorney, representative or other person acting or purporting to act on behalf of Seller is making or giving any representation or warranty about, or assuming any responsibility for, the accuracy or completeness of the Property Information. Reliance by Buyer upon any Property Information shall not create or give rise to any liability of or against Seller or any agent, advisor, officer, attorney, representative or other person acting or purporting to act on behalf of Seller. Subject to Seller's express representations and warranties set forth herein, the consummation of the Closing shall constitute Buyer's unconditional approval of all aspects of the Property and Buyer's unconditional acknowledgment that Buyer has had the opportunity to request from Seller and review such documents and materials relating of the Property as Buyer deems appropriate. All copies of such documents delivered to Buyer shall be returned to Seller if the Closing fails to occur for any reason. 6.5 PURCHASE AS IS. BUYER REPRESENTS, WARRANTS AND 27 28 COVENANTS TO SELLER THAT BUYER HAS INDEPENDENTLY AND PERSONALLY INSPECTED THE PROPERTY AND THE PROPERTY INFORMATION AND THAT BUYER HAS ENTERED INTO THIS AGREEMENT BASED UPON SUCH PERSONAL EXAMINATION AND INSPECTION. BUYER ACCEPTS THE PROPERTY, IN ITS CONDITION ON THE CLOSE OF ESCROW AS-IS AND WITH ALL ITS FAULTS, INCLUDING WITHOUT LIMITATION, ANY FAULTS AND CONDITIONS SPECIFICALLY REFERENCED IN THIS AGREEMENT. NO PERSON ACTING ON BEHALF OF SELLER IS AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF, BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO: (A) THE VALUE OF THE PROPERTY; (B) THE INCOME TO BE DERIVED FROM THE PROPERTY; (C) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON; (D) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY; (E) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE PROPERTY; (F) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY; (G) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY; (H) THE MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY; (I) THE COMPLIANCE OF THE PROPERTY WITH ANY ENVIRONMENTAL LAWS OR THE AMERICANS WITH DISABILITIES ACT; (J) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON, UNDER, OR ADJACENT TO THE PROPERTY; (K) THE CONTENT, COMPLETENESS OR ACCURACY OF ANY OF THE RECORDS AND PLANS OR OTHER INFORMATION PROVIDED BY SELLER TO BUYER WITH RESPECT TO THE PROPERTY; (L) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR SPECIFICATIONS FOR THE PROPERTY, INCLUDING ANY PLANS AND SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYER; (M) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR FUTURE APPLICABLE ZONING OR BUILDING REQUIREMENTS; (N) DEFICIENCY OF ANY UNDER SHORING; (O) DEFICIENCY OF ANY DRAINAGE; (P) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY 28 29 BE LOCATED ON OR NEAR AN EARTHQUAKE FAULT LINE; (Q) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING ENTITLEMENTS AFFECTING THE PROPERTY; (R) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE PROPERTY (INCLUDING, WITHOUT LIMITATION, THE TENANT LEASES, THE EQUIPMENT LEASES, ANY FIXTURES AND EQUIPMENT, THE LICENSES AND PERMITS, THE PERSONAL PROPERTY, THE SERVICE CONTRACTS, THE EMPLOYMENT CONTRACTS, ANY EMPLOYEE BENEFIT PLANS AND THE LIQUOR LICENSE) EXCEPT AS MAY BE OTHERWISE EXPRESSLY STATED HEREIN; (S) [INTENTIONALLY OMITTED] (T) ANY OF THE SPECIFIC DISCLOSURE MATTERS; OR (U) WITHOUT LIMITING THE OTHER DISCLAIMERS SET FORTH HEREIN BUT SUBJECT TO THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT, THE ASSIGNMENTS AND CONVEYANCES OF THE PERSONAL PROPERTY AND THE MANAGEMENT AGREEMENT ARE WITHOUT ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS OF ANY KIND WHATSOEVER, INCLUDING, WITHOUT LIMITATION, (1) WARRANTIES AS TO THE VALIDITY, ENFORCEABILITY OR ASSIGNABILITY OF THE MANAGEMENT AGREEMENT, (2) WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE, (3) WARRANTIES RELATING TO THE DESIGN, CONDITION, QUALITY, WORKMANSHIP OR CAPACITY OF THE TANGIBLE PERSONAL PROPERTY, (4) REPRESENTATIONS OR WARRANTIES THAT THE TANGIBLE PERSONAL PROPERTY IS IN COMPLIANCE WITH ALL LAWS, STATUTES, ORDINANCES RULES, REGULATIONS, SPECIFICATIONS OR CONTRACTS PERTAINING THERETO, (5) WARRANTIES AGAINST PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, AND (F) WARRANTIES AS TO THE VALIDITY, ENFORCEABILITY, OR COLLECTIBILITY OF ANY ITEM. 6.6 Limitation on Representations and Warranties of Seller. In no event shall Buyer be entitled to seek recovery against Seller for an alleged breach of any representation or warranty by Seller if the information, transaction, or occurrence alleged to give rise to such breach was disclosed to, made available to or discovered by Buyer, whether in the course of its review of the Records and Plans or otherwise, prior to the Close of Escrow (the sole adjustment with respect to same being as set forth in SECTION 6.7 below). Without limiting the foregoing, each of the representations and warranties by Seller set forth herein shall be deemed to be qualified in their entirety by the Specific Disclosure Matters in addition to any other qualifications of such representations and warranties. 6.7 Right to Supplement Disclosures. At any time prior to the Closing, Seller may add additional disclosures to the Specific Disclosure Matters and the Schedules referenced in this SECTION 6, and may make appropriate revisions thereto, provided, however, that any such revisions do not in the aggregate disclose any matter or matters which would reasonably be expected to have an impact upon the value of the Property in excess of the amount of the Deposit; and provided, further, that the receipt of any notice of termination under the Management Agreement shall not be deemed to create any diminution in value to the Property. In the event that Buyer or Seller discovers any matter or matters which would be expected to exceed the Threshold Amount, then, in such event, the provisions of SECTION 7.1.1 shall apply. 29 30 6.8 Basket. In no event will Seller be liable to Buyer for any breach of a representation or warranty hereunder unless and to the extent the Loss actually and directly incurred by Buyer as results of such breach together with the Loss actually and directly incurred by Buyer as results of any other breach(s) in the aggregate exceed the Threshold Amount, provided, that in no event shall Seller have any liability to Buyer for any consequential damages arising from a breach by Seller of any representation or warranty unless such breach results from the intentional concealment by Seller. 6.9 Survival. The Trust, the Corporation and Seller each hereby covenants and agrees with the other that the representations and warranties of the Trust, the Corporation and Seller (as the case may be) set forth in SECTIONS 6.1.1 through 6.1.3, inclusive, SECTION 6.2.1 through SECTION 6.2.3, inclusive and SECTION 6.3.1 and SECTION 6.3.2 shall survive the Close of Escrow without limitation as to duration. The remaining warranties and representations set forth in SECTION 6 shall survive the Close of Escrow until the date which is one (1) year following the Closing Date, at which time such representations and warranties shall expire unless prior to such time Buyer or Seller, as the case may be, have duly commenced an action in a court of competent jurisdiction, alleging a breach of such representation or warranty. Notwithstanding anything herein to the contrary, in no event shall either Buyer or Seller have any right to make a claim after the Closing with respect to any representation or warranty, the breach of which such party shall have discovered prior to the Closing, unless such party shall have notified the other party of such breach prior to the Close of Escrow. Nothing contained in this SECTION 6.9 shall limit the right of Seller to any remedy otherwise available under Federal or other applicable securities law. 6.10 Soil Disclosure. In accordance with D.C. CodeSection45-508(b), Seller advises Buyer that the characteristics of the soil on the Property is Urban Land. For further information, Buyer can contact a soil testing laboratory, the D.C. Department of Consumer and Regulatory Affairs or the Soil Conservation Service (U.S.D.A.). The foregoing is given pursuant to District of Columbia statutory requirements and does not constitute a representation or warranty by Seller as to soil characteristics or conditions. SECTION 7 TITLE TO THE REAL PROPERTY: EXTENSION OF THE CLOSING 7.1 Buyer's Review of Title. Seller has caused to be delivered to Buyer and Buyer's Counsel a current preliminary title commitment for title insurance issued by the Title Company showing the condition of title to the Real Property (the "Preliminary Title Report") together with a copy of all documents evidencing or creating the exceptions to title referenced therein. 7.1.1 Failure to Satisfy Certain Closing Conditions; Monetary Liens. On or prior to the Close of Escrow, Seller shall be obligated (i) to cause to be insured over or removed of record all Monetary Liens affecting the Property as of the date hereof; and (ii) to remove or to bond over any Monetary Lien arising after the issuance of the Preliminary Title Report which (a) was created by or with the consent of Seller, or (b) is in an amount less than the Deposit. In the event that any Monetary Lien not reflected on the Preliminary Title Report exceeds the Deposit and was not created by or with the consent of Seller or any other title defect or other matters arise which requires Seller to supplement its disclosure pursuant to SECTION 6.7 and which in the aggregate may create a diminution in value to the Property in excess of the Deposit, (i) the Deposit shall be refunded by Escrow Holder to Buyer on February 28, 1998 if 30 31 the Closing does not occur by such date in accordance with the provisions hereof; (ii) the Scheduled Closing Date shall be extended and Seller shall use all reasonable efforts, to remove or bond over or otherwise cause the Title Company to omit such Monetary Lien as an exception from coverage under the Title Policy and/or remove or cure as applicable such other defect or condition as applicable; and (iii) Buyer shall be permitted to record the Memorandum of Contract in the real property records of the state and county in which the Real Property is located. In the event that the Scheduled Closing Date is so extended and Seller is able to remove or cure such Monetary Lien, remove or cure as applicable the title defect or other condition, the Close of Escrow shall occur as soon as practicable following such removal or cure with time being of the essence as to the performance of both Buyer's and Seller's obligations hereunder. THE PARTIES ACKNOWLEDGE AND AGREE THAT DAMAGES WILL NOT BE AN ADEQUATE REMEDY TO SELLER IF BUYER SHALL DEFAULT IN ITS OBLIGATION TO CLOSE IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 7.1.1 AND CONSEQUENTLY THAT BUYER'S OBLIGATIONS UNDER THIS SECTION 7.1.1 SHALL BE SPECIFICALLY ENFORCEABLE AGAINST THE TRUST. IN CONSIDERATION FOR THE REFUND TO BUYER OF THE DEPOSIT PROVIDED FOR UNDER THIS SECTION 7.1.1, THE RIGHT OF BUYER TO RECORD THE MEMORANDUM OF CONTRACT PURSUANT TO THIS SECTION 7.1.1, SELLER'S AGREEMENT TO ENTER INTO THE INTERIM MANAGEMENT AGREEMENT PURSUANT TO THE PROVISIONS OF THIS SECTION 17.20 (UNDER WHICH AGREEMENT THE VALUE OF THE HOTEL MAY BE AFFECTED BY THE PERFORMANCE BY THE MANAGER OF ITS RESPONSIBILITIES THEREUNDER) AND TO ENCUMBER THE PROPERTY WITH THIS AGREEMENT FOR A PERIOD OF UP TO FIVE (5) YEARS IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 7.1.1 AND IN LIGHT OF THE RISKS WHICH SELLER WILL BE ASSUMING AS A RESULT IN RELATION TO THE VALUE OF THE EQUITY PURCHASE PRICE TO BE DELIVERED IF AND WHEN THE CLOSING OCCURS HEREUNDER, THE PARTIES HAVE AGREED THAT THE PROVISIONS OF THIS SECTION 7.1.1 ARE SPECIFICALLY ENFORCEABLE AGAINST THE TRUST AS AND TO THE EXTENT PROVIDED IN THE PRECEDING SENTENCE. In the event that a Monetary Lien cannot be removed or cured or a title defect or other condition cannot be removed or cured as required hereunder to close within five (5) years of the date of this Agreement, this Agreement shall terminate and the parties hereto shall have no further obligations. 7.1.2 [Intentionally Omitted] 7.2 Title Insurance Policy. Buyer's title to the Real Property shall be insured at Closing by an ALTA extended coverage owner's policy or policies of title insurance in the amount of the Purchase Price (the "Title Policy") issued by the Title Company, insuring title to the Real Property vested in Buyer, subject only to the Permitted Encumbrances, together with such customary endorsements or affirmative insurance as may be reasonably requested by Buyer and purchased at Buyer's sole cost and expense. 7.3 Title to Real Property. At the Close of Escrow, title to the Real Property will be conveyed to Buyer by Seller pursuant to the Deed, subject only to the matters of title respecting the Property shown on SCHEDULE 7.3 annexed hereto and, if the Closing is delayed pursuant to SECTION 7.1.1, any additional easements, covenants, conditions, restrictions or other matters entered into with the prior written consent of Buyer which consent shall not be unreasonably 31 32 withheld, delayed or conditioned (collectively, the "Permitted Encumbrances"); Buyer agrees to rely exclusively on the Title Policy for protection against any title defects except as set forth in SECTION 7.1.2. Buyer shall have no claim following the Closing against Seller on account of the Permitted Encumbrances. Buyer's agreement under this SECTION 7.1 shall survive the execution, delivery, and recordation of the Deed. SECTION 8 INTERIM ACTIVITIES During the period from the Execution Date through the Close of Escrow, Seller shall (subject to the provisions of the Interim Management Agreement if entered into in accordance with the provisions of this Agreement) cause the Property to be continued to be operated in ordinary course as a hotel consistent with current operating practices during the period since Manager has been manager of the Hotel. Buyer shall have the right to enter onto and inspect the Property, from and after the date hereof, through the Closing Date to inspect the Property and otherwise perform its due diligence provided such inspections are performed upon prior notice to Seller and so as not to interfere with the operation of the Property or to disclose the pendency of the transaction contemplated hereby. All fees and expenses of any kind relating to the inspection of the Property by Buyer will be paid for by Buyer. Buyer agrees to keep the Property free from any liens arising out of or in connection with Buyer's or its agents entry or the Property. Buyer shall at its sole cost and expense, clean up and repair the Property as reasonably necessary after Buyer's or its agents entry thereon. Buyer shall hold harmless, indemnify and defend Seller from all Losses relating to any action by Buyer, its Affiliates and/or agents at or on the Property prior to Closing. Any of Buyer's agents shall be bound by the provisions of SECTION 17.19. SECTION 9 CONDITIONS PRECEDENT TO CLOSING 9.1 Conditions Precedent to Buyer's Obligations. The Close of Escrow and the obligation of Buyer to purchase the Property is subject to the satisfaction, not later than the Scheduled Closing Date, (subject to extensions as provided in Section 7.1) of the following conditions: 9.1.1 Seller's Deliveries. Seller shall have delivered the items described in SECTION 4.2 and shall be prepared to deliver the items described in SECTION 4.4; 9.1.2 Title Policy. The Title Company shall be unconditionally prepared (subject only to payment of all necessary title insurance premiums and other charges) to issue to Buyer the Title Policy insuring Buyer's title to the Real Property subject only to the Permitted Encumbrances; 9.1.3 Performance Under Related Agreements. All conditions precedent to the closing of the transactions contemplated by that certain Purchase and Sale Agreements with Joint Escrow Instructions (the "Related Agreement"), dated as of the date hereof, by and between N.Y. Overnight Partners, L.P. and Buyer, shall have been satisfied or waived and the Seller and Escrow Holder thereunder shall be ready, willing and able to perform thereunder, and there shall be no default of Seller under such agreement. 9.1.4 [Intentionally Omitted] 9.1.5 Seller Performance. Seller shall have performed in all material respects all of the obligations of Seller under this Agreement, to the extent required to be performed at or prior to the Close of Escrow. 32 33 9.1.6 Representations and Warranties of Seller. The Seller's representations and warranties set forth in SECTION 6.3 shall be true, correct and complete, as of the Close of Escrow subject to modification thereof to the extent permitted under SECTION 6.7 and subject further to the applicable provisions of SECTION 7.1.1. The conditions set forth in this SECTION 9.1 are solely for the benefit of Buyer and may be waived only by Buyer. Buyer shall at all times have the right to waive any such condition. Any such waiver or waivers shall be in writing and shall be delivered to Seller and Escrow Holder. 9.2 Conditions Precedent to Seller's Obligations. The Close of Escrow and Seller's obligation with respect to the transactions contemplated by this Agreement are subject to the satisfaction, not later than the Scheduled Closing Date, of the following conditions: 9.2.1 Funds and Documents. Buyer shall have delivered to Escrow Holder, prior to the Closing Date, for disbursement as directed by Seller, the Paired Shares and all cash or other immediately available funds due from Buyer in accordance with SECTION 4 of this Agreement and the documents described in SECTION 4.3; 9.2.2 Representations and Warranties of Buyer. The Trust's representations and warranties set forth in SECTION 6.1 and the Corporation's representations and warranties set forth in SECTION 6.2 shall be true, correct and complete, as of the Close of Escrow; 9.2.3 No Material Changes. There shall have been no casualty or condemnation for which Buyer has elected to terminate this Agreement pursuant to SECTION 12 or SECTION 13 of this Agreement; 9.2.4 [Intentionally Omitted] 9.2.5 Performance Under Related Agreements. All conditions precedent to the closing of the transactions contemplated by the Related Agreement shall have been satisfied or waived and the Buyer and Escrow Holder thereunder shall be ready, willing and able to perform thereunder and there shall be no default of Buyer under such agreement. The conditions set forth in this SECTION 9.2 are solely for the benefit of Seller and may be waived only by Seller. Seller shall at all times have the right to waive any such condition. Any such waiver or waivers shall be in writing and shall be delivered to Buyer and Escrow Holder. 9.3 Failure of Condition. Except as otherwise provided in this Agreement, if the Escrow fails to close on the Outside Closing Date for any reason whatsoever, including, without limitation, a failure of a condition precedent set forth in this SECTION 9, either Buyer or Seller, if not then in default under this Agreement, may terminate the Escrow and this Agreement upon notice to the other; and, thereupon: 9.3.1 This Agreement and the Escrow shall terminate; 9.3.2 The costs of the Escrow through the Scheduled Closing Date shall be governed by SECTION 4.8; 9.3.3 All monies paid into the Escrow and all documents deposited in the Escrow shall be returned to the party paying or depositing the same together with interest earned thereon; and 9.3.4 Each party shall be released from all obligations under this Agreement except for the obligations that are expressly stated to survive the termination of this Agreement. 33 34 SECTION 10 BROKER Buyer and Seller each represent and warrant to the other that it has not dealt with any broker, finder or other middleman in connection with this Agreement, or the transactions contemplated hereby and that no broker, finder, middleman or other person has claimed, or has the right to claim a commission, finder's fee or other brokerage fee in connection with this Agreement or the transactions contemplated hereby. Each party shall indemnify, protect, defend and hold the other party harmless from and against any costs, claims or expenses (including actual attorneys' fees and expenses), arising out of the breach by the indemnifying party of any of its representations, warranties or agreements contained in this SECTION 10. The representations and obligations under this SECTION 10 shall survive the Close of Escrow, or, if the Close of Escrow does not occur, the termination of this Agreement. SECTION 11 REMEDIES FOR SELLER'S DEFAULT 11.1 Buyer's Remedies in General. If Buyer shall discover prior to the Close of Escrow any default in any of Seller's obligations under this Agreement (a "Seller Default"), Buyer shall notify Seller thereof, and Seller shall have a reasonable period of time (not in excess of thirty (30) days) unless extended by Buyer in its sole discretion in which to cure such default, in which case the Scheduled Closing Date shall be extended during the continuation of such cure period. If there shall be any Seller Default discovered by Buyer prior to the Close of Escrow and not cured by the Scheduled Closing Date, then Buyer's sole right and remedy other than with respect to a breach of a representation and warranty which shall be subject to the provisions of SECTION 6.7, shall be to compel specific performance of this Agreement; provided, however, that Buyer shall only be entitled to compel specific performance of this Agreement if, as of the time of Seller's default, Buyer shall (a) not be in default hereunder, (b) shall be ready, willing and able to perform its obligations hereunder, and (c) shall have waived all contingencies to closing other than those relating to Seller's default. 11.2 MATERIAL INDUCEMENT. BUYER SPECIFICALLY ACKNOWLEDGES THAT THE LIMITATIONS ON DAMAGES AND SURVIVAL AND OTHER REMEDIES WHICH BUYER MAY RECOVER FROM AND ENFORCE AGAINST SELLER UNDER THIS AGREEMENT ARE A SPECIFIC AND MATERIAL INDUCEMENT TO SELLER TO ENTER INTO THIS TRANSACTION. SECTION 12 DAMAGE TO OR DESTRUCTION OF THE PROPERTY 12.1 Insured Casualty. 12.1.1 If, prior to the Close of Escrow, the Property is damaged or destroyed, whether by fire or other insured casualty, Seller shall promptly notify Buyer of such damage or destruction and of the good-faith estimate of a reputable licensed contractor selected by Seller and reasonably approved by Buyer of the cost to repair the damage and Seller's good-faith belief that such casualty is insured (the "Insured Casualty Notice"). If the Insured Casualty Notice indicates that such casualty is a Material Casualty, Buyer may elect to be released from its obligations hereunder (including its obligation to purchase the Property) by delivering to Seller written notice of Buyer's intent to do so within ten (10) days after the date Buyer receives the Insured Casualty Notice. In such event, the Deposit together with all interest accrued thereon shall be promptly returned to Buyer. 12.1.2 If the casualty is insured, and (i) it is not a Material Casualty, or (ii) it is a Material Casualty, but Buyer elects not to terminate this Agreement in accordance with this 34 35 SECTION 12.1, then the Escrow and this Agreement shall remain in full force and effect, the Closing shall occur on or before the Outside Closing Date, and Seller shall assign to Buyer, as a condition precedent to the Close of Escrow, all of Seller's right, title and interest in and to any of the casualty insurance proceeds or claims therefor with respect to such damage or destruction, together with any and all rental loss or business interruption insurance of Seller, if any, payable with respect to the Property for any period after the Proration Time and any and all claims against other persons for such damage or destruction. Additionally, if the Escrow and this Agreement remain in full force and effect, Seller shall pay to Buyer, by way of a reduction in the Cash Portion of the Closing Payment, an amount equal to the deductible under the casualty insurance. Within twelve (12) months following the Close of Escrow, Buyer shall upon thirty (30) days written notice by Seller, present reasonably satisfactory evidence to Seller that Buyer applied the proceeds of such insurance to the Property. If Buyer fails to present such evidence or such evidence is not reasonably satisfactory to Seller, Buyer shall promptly, but in any event within thirty (30) days of demand therefor from Seller, pay to Seller the proceeds of the casualty insurance assigned by Seller to Buyer as provided herein, together with an amount equal to the deductible under such insurance for which Buyer received a credit to the Purchase Price. 12.2 Uninsured Casualty. 12.2.1 If, prior to the Close of Escrow, all or any portion of the property is damaged or destroyed by an uninsured casualty (including, without limitation, a casualty as to which coverage has been disclaimed by Seller's insurers), Seller shall promptly notify Buyer of such damage or destruction and of the Seller's reasonable estimate of the cost to Seller to repair the same of a reputable licensed contractor selected by Seller and reasonably approved by Buyer (the "Uninsured Estimate to Repair") and Seller's reasonable belief that such casualty is uninsured (the "Uninsured Casualty Notice"). 12.2.2 If such Uninsured Estimate to Repair indicates the occurrence of a Material Casualty, either Seller or Buyer may elect to terminate this Agreement by giving to the other party written notice of its intent to do so within ten (10) days after the Seller delivers the Uninsured Casualty Notice to Buyer. If this Agreement is terminated pursuant to this SECTION 12.2.2, the Deposit together with interest accrued thereon shall be promptly returned to Buyer. 12.2.3 If the casualty is uninsured, and (i) it is not a Material Casualty, or (ii) it is a Material Casualty and Buyer and Seller have not elected to terminate this Agreement in accordance with SECTION 12.2.2, then the Escrow and this Agreement shall remain in full force and effect, the Closing shall occur on or before the Outside Closing Date, and Buyer shall be entitled to a reduction in the Purchase Price in an amount equal to the Uninsured Estimate to Repair. 12.2.4 If and to the extent that the Purchase Price is adjusted pursuant to this SECTION 12.2 as a result of a disclaimer of coverage by Seller's insurers, Buyer shall not be entitled to insurance proceeds due under Seller's policies, or to be assigned any claim under or with respect to Seller's policies, and Seller shall retain all rights thereunder or with respect thereto and to proceeds therefrom, it being the intent of this SECTION 12 that there be no double recovery by, or double compensation of, Buyer for the casualty. SECTION 13 CONDEMNATION If, prior to the Close of Escrow, a Material Taking has occurred or is pending, Seller shall immediately notify Buyer of such fact. In such event, Buyer may elect upon written notice 35 36 to Seller given not later than fifteen (15) days after receipt of Seller's notice to terminate this Agreement. If Buyer does not exercise option which Buyer may have pursuant to this SECTION 13 to terminate this Agreement, or if any such taking is not a Material Taking, then neither party shall have the right to terminate this Agreement, but Seller shall assign and turn over, and Buyer shall be entitled to receive and keep, all awards for the taking of any of the Real Property by eminent domain which accrue to Seller (other than those relating to loss of use prior to the Closing), and the parties shall proceed to the Close of Escrow pursuant to the terms hereof, without modification of the terms of this Agreement and without any reduction in the Purchase Price. SECTION 14 EMPLOYEES 14.1 Hiring of Hotel Employees; WARN Act Compliance. Buyer agrees to make an offer of employment to all existing Hotel Employees as of the Close of Escrow, on terms and conditions generally comparable to their existing terms and conditions of employment (to the extent such terms and conditions have been disclosed by Seller and/or its agents to Buyer) and to make all reasonable efforts to retain such employees for a reasonable period of time. Without limiting the foregoing, Buyer shall offer to maintain without loss of employment (as defined in the WARN Act) the employment at the Property (other than upon good cause for termination) of such number of Hotel Employees and on such terms and conditions as shall not result in, and only to the extent necessary to prevent, a plant closing or mass layoff as defined in the WARN Act. Buyer (i) shall also cause each of the health and medical benefit plans maintained for Hotel Employees to waive any preexisting condition in connection with employment at the Property that was not excluded under the applicable program as of the Closing Date, (ii) shall also cause each of such benefit plans to take into account any deductibles or coinsurance amounts incurred by each Hotel Employee for the year in which the Closing Date occurs and (iii) shall also cause each of the health and medical benefit plans to deem each Hotel Employee to be eligible for participation in such plan as of the Close of Escrow. In the event that Buyer fails to comply with any of the foregoing covenants, Buyer agrees that Buyer shall be solely responsible for the payment of any and all costs, charges, penalties, compensation, severance pay, benefits and liabilities, arising under the WARN Act, and any other applicable law, rule or regulation on account thereof, and Buyer agrees to indemnify, defend and hold Seller and the Employer Corporation and their directors, officers, agents, affiliates, principals, partners, shareholders representatives and controlling persons harmless from and against any and all claims, causes of action, judgments, damages, penalties and liabilities asserted under the WARN Act or any other applicable law, rule or regulation, whether against Buyer or Seller, the Employer Corporation or any other such indemnified party and whether based on employment of any of the Hotel Employees prior to or following the Closing, arising from Buyer's failure to comply with the foregoing covenants (collectively, "Termination Charges"). Following the Closing, if Buyer desires to terminate the employment of any Hotel Employees other than for cause, Buyer shall be solely responsible for complying with all applicable provisions of the WARN Act and all other applicable laws, rules and regulations with respect to such termination, including without limitation, the payment of all costs and termination payments owing under the WARN Act and all other applicable laws, rules and regulations to any of such employees. Buyer shall assume all obligations under the Employment Agreement for the Director of Finance attributable to the period from and after the Closing Date (it being agreed that the 36 37 Director of Finance may resign thereunder at any time without penalty). 14.2 Collective Bargaining Agreements. Without limiting the provisions of SECTION 14.1, immediately upon the Close of Escrow, without the necessity of further action by Buyer, Buyer shall assume each collective bargaining agreement or other labor union contracts identified on SCHEDULE 14.2 (the "Collective Bargaining Agreements"). Buyer further agrees to indemnify Seller and the Employer Corporation and their directors, officers, employees, agents, affiliates, principals, partners, shareholders, representatives and controlling persons for any and all liability to the bargaining agents or Hotel Employees, resulting from the failure of Buyer to comply with the terms and conditions of any of the Collective Bargaining Agreements with respect to periods beginning after the Close of Escrow. 14.3 Continuation of Benefits. 14.3.1 (i) Except as provided in SECTION 14.3.2, on and after the Closing Date, Seller (or any insurer at Seller's cost) shall continue to process and pay (or cause applicable insurers and third party administrators, including ITT Sheraton, to process and pay) in an expeditious manner and with respect to all covered Hotel Employees (and, to the extent applicable, their covered spouses, dependents and beneficiaries) all claims under the Employment Agreements that provide health and medical, or other welfare, benefits submitted for covered expenses with respect to occurrences commencing on or prior to the Closing Date, including, but not limited to: (A) covered hospital benefits for any confinements; (B) covered life and survivor income benefits, if any, for deaths which occur on or prior to the Closing Date; (C) workers' compensation benefits for disabilities resulting from a work-related accident which occurred on or prior to the Closing Date; (D) all covered benefits that are being, or that may be, paid to, or with respect to, any of such individuals who are on short or long term disability, or medical, personal or other leaves of absence as of the Closing Date; (E) covered benefits under any "spending account," or similar arrangement, under any "cafeteria plan" (as defined under Section 125 of the Internal Code) with respect to salary reduction elections made prior to the Closing Date; and (F) covered benefits under all other such Employment Agreements which accrue on or before the Closing Date; but, only in each instance, to the extent that Buyer shall not have received a credit against the Purchase Price on account of such item. (ii) [Intentionally Omitted] 14.3.2 Buyer (or any plan maintained by Buyer) will provide continued health and medical coverage as required under Section 4980B of the Code, Part 6 of Title I of ERISA or any other applicable federal, state or local law or ordinance to all current and former Hotel Employees (and their spouses, dependents and beneficiaries) with respect to whom a "qualifying event" (as such term is defined under Sections 4980B(f)(3) of the Code or 603 of ERISA) or other triggering event described under the applicable federal, state or local laws or ordinances occurred on or before the Closing Date. 14.3.3 Buyer shall maintain supplies of claims forms necessary for Hotel Employees to make claims under Employment Agreements that provide health, medical or other welfare benefits with respect to occurrences commencing on or prior to the Closing Date, and shall furnish such forms to the Hotel Employees when needed and otherwise assist the Hotel Employees in presenting such claims. 14.4 Buyer and Seller intend by this Agreement to comply with Section 4204 of ERISA, so as to prevent Seller from incurring at the Closing Date a complete or partial withdrawal in respect of any employee benefit plans, if any, in which the Hotel Employees 37 38 currently participate that are "multiemployer plans," as defined in Section 4001(a)(3) of ERISA (and which have been disclosed to Buyer on the Schedule of Employment Agreements), determined as if Buyer is the "buyer" referred to in such Section 4204. Accordingly, with respect to such multiemployer plans, Buyer agrees as follows: (A) For the first plan year of each such multiemployer plan commencing after the Close of Escrow, and for each of the succeeding four plan years for each such plan, Buyer shall assume the obligation to contribute to each such plan with respect to operations conducted with business assets acquired from Seller for substantially the same number of contribution base units (as defined in Section 4001(a)(11) of ERISA) for which Seller had an obligation to contribute to such plan. (B) Prior to each such multiemployer plan's first plan year beginning after the Close of Escrow, Buyer shall apply to such plan for a variance from the requirement of Section 4204(a)(1)(b) of ERISA, that a bond be obtained or an amount be held in escrow as provided in said Section. In the event any such plan determines that the request does not qualify for a variance on it, Buyer shall obtain any required bond or establish any required escrow within thirty (30) days after the date on which it receives notice of the plan's decision, and shall maintain such bond or escrow until the earliest of: (i) the date a variance is obtained from the plan; (ii) the date a variance or exemption is obtained from the Pension Benefit Guaranty Corporation; or (iii) the last day of the fifth (5th) plan year commencing after the Close of Escrow; which bond or escrow shall be paid to such plan if Buyer withdraws therefrom or fails to make a contribution to such plan when due, at any time during the first (1st) five (5) plan years of such plan beginning after the Closing Date. In order to comply with subsection (a)(1)(C) of such Section 4204, if Buyer withdraws in a complete withdrawal or a partial withdrawal from any multiemployer plan with respect to which Buyer has assumed an obligation to contribute pursuant to this Agreement and such withdrawal or partial withdrawal occurs during the five (5) plan years commencing with the first (1st) plan year beginning after the date of the Close of Escrow, Seller shall be secondarily liable for any withdrawal liability it would have had to such multiemployer plan on the date of the Close of Escrow under Title IV of ERISA. Buyer agrees to provide Seller with reasonable advance notice of its anticipated failure to pay any withdrawal liability and to furnish Seller promptly with a copy of any notice of withdrawal liability it may receive with respect to such plans. 14.5 Indemnification. Buyer and Seller (as applicable, the "Indemnitor") agrees to indemnify, defend, protect and hold the other and, the Employer Corporation in the case of Seller, and their directors, officers, agents, affiliates, principals, partners, shareholders, representatives and controlling persons (as applicable, the "Indemnitee") harmless from and against any and all claims, damages, liabilities, losses, and expenses, (including attorneys' fees and costs) paid, suffered or incurred by the Indemnitee, arising out of or related to Indemnitor's failure to comply with any of the covenants, obligations, or duties contained in SECTION 14. 14.6 Survival. The provisions of this SECTION 14 shall survive the Close of Escrow. SECTION 15 COOPERATION 15.1 Seller has advised Buyer that it may be necessary after the Close of Escrow for Seller (or its representatives) to audit the Records and Plans with respect to the period prior to the Closing Date. In addition, Seller may require access to the such Books and Records in connection with any litigation by or against Seller and its Affiliates with respect to the Property, 38 39 any tax audit, examination or challenge or similar proceeding, or any calculation of sums payable under SECTION 5. Accordingly, Buyer hereby: (i) agrees to retain the Records and Plans with respect to the period prior to the Closing Date at the Property for a period of seven (7) years after the Close of Escrow or such additional period as may reasonably be requested by Seller; (ii) grants Seller, its Affiliates and their respective representatives access to the such Records and Plans and the Property after the Close of Escrow, at reasonable times and upon reasonable prior notice, for such purposes; (iii) subject to the rights of guests in guest rooms, tenants under tenant leases, grants Seller, its Affiliates, and their respective representatives access to the Property after the Close of Escrow for the purpose of conducting such inspections and/or testing (including destructive testing) of the Property as may be necessary or advisable in connection with any litigation and other proceedings to which Seller is a party (provided that Seller shall give Buyer prior notice of the scope of such inspections and testing) which shall be scheduled for such periods as shall be reasonably agreeable to the parties; 15.1.1 All inspections fees, appraisal fees, engineering fees and other expenses of any kind relating to the inspection of the Property by Seller or Seller's Affiliate will paid for by Seller and/or Seller's Affiliate. 15.1.2 Prior to Seller or Seller's Affiliate's entry on the Property for the purpose of conducting inspections and/or tests, Seller or Seller's Affiliate shall provide Buyer with certificates of insurance from Seller's agents from an insurance carrier and for such risks and policy limits as Seller shall reasonably approve. 15.1.3 Seller agrees to keep the Property free from any liens arising out of or in connection with such testing and inspection. 15.1.4 Seller, shall, at its sole cost and expense, clean up and repair the Property as reasonably necessary, after Seller's or Seller's agents, entry thereon. 15.1.5 Seller shall hold harmless, indemnify and defend Buyer for all losses relating to any action by Seller, its Affiliates and/or agents at or on the Property after the Closing; [and] 15.1.6 Buyer agrees to cooperate with Seller, its Affiliates and their respective representatives in connection with any such litigation or proceedings with respect to the Property, any such tax audit, examination or challenge or similar proceeding, or any such calculation of sums payable under SECTION 5, said cooperation to be at no material cost or expense to Buyer; and 15.2 Seller shall cooperate with Buyer in connection with the assignment of all transferable Licenses and Permits to Buyer and the application for and procurement of replacements of any non-transferable Licenses and Permits. SECTION 16 NOTICES 16.1 Addresses. Whenever any notice, demand or request is required or permitted hereunder, such notice, demand or request shall be made in writing and shall be (a) sent via a nationally recognized overnight courier service fully prepaid, (b) deposited in the United States by mail, registered or certified, return receipt requested, postage prepaid, or (c) sent via telefacsimile, provided that the original of such notice, demand or request shall also be sent via one of the methods described in (a) and (b) above, in each case to the addressees (and individuals) set forth below: 39 40 As to Seller: D.C. Overnight Partners, L.P. c/o Al Anwa USA International 1925 Century Park East Suite 1900 Los Angeles, CA 90067 Attn: General Counsel Telefacsimile: (310) 229-2939 With a copy to Seller's Additional Addressees: Gordon Eng, Esq. 19191 S. Vermont Avenue Suite 420 Torrance, CA 90502 Telefacsimile: (310) 207-1006 Morrison & Foerster LLP 555 West Fifth Street, Suite 3500 Los Angeles, CA 90013-1024 Attn: Thomas R. Fileti, Esq. Telefacsimile: (213) 892-5454 As to Buyer: Starwood Lodging Corporation Starwood Lodging Trust 2231 E. Camelback Road Suite 400 Phoenix, AZ 85016 Attn: Steven R. Goldman Telefacsimile: (602) 852-0115 With a copy to Buyer's Additional Addressee: Greenberg Traurig Hoffman Lipoff Rosen & Quentel 153 East 53rd Street New York, NY 10022 Attn: Andrew E. Zobler, Esq. Telefacsimile: (212) 223-7161 As to Escrow Holder: Chicago Title Insurance Company 700 South Flower Street, Suite 900 Los Angeles, CA 90017 Attn: Maggie Watson Telefacsimile: (213) 488-4388 16.2 Receipt of Notices. Any notice, demand or request that shall be delivered to 40 41 Buyer and its Additional Addressee in the manner aforesaid shall be deemed sufficiently given to and received by Buyer for all purposes hereunder, and any notice, demand or request that shall be delivered to Seller and its Additional Addresses in the manner aforesaid shall be deemed sufficiently given to and received by Seller for all purposes hereunder (i) the next business day following the day such notice, demand or request is delivered by a nationally recognized overnight courier service fully prepaid, to such party and its Additional Addressee, (ii) if sent via registered or certified mail, at the time of receipt by such party and its Additional Addressee, or (iii) if sent via telefacsimile, as of the date and time stated upon confirmation reports generated by the sending party's telefacsimile machine confirming the delivery of such notice, demand or request to such party and its Additional Addressee. 16.3 Refusal of Delivery. The inability to deliver any notice, demand or request because the individual to whom it is properly addressed in accordance with this SECTION 16 refused delivery thereof or no longer can be located at that address shall constitute delivery thereof to such individual. 16.4 Change of Address. Each party shall have the right from time to time to designate by written notice to the other parties hereto such other person or persons and such other place or places as said party may desire written notices to be delivered or sent in accordance herewith. SECTION 17 GENERAL PROVISIONS 17.1 Amendment. Except as provided in SECTION 4.1, no provision of this Agreement or of any documents or instrument entered into, given or made pursuant to this Agreement may be amended, changed, waived, discharged or terminated except by an instrument in writing, signed by the party against whom enforcement of the amendment, change, waiver, discharge or termination is sought. 17.2 Time of Essence. All times provided for in this Agreement for the performance of any act will be strictly construed, time being of the essence. 17.3 Entire Agreement. This Agreement and other documents delivered at Closing, set forth the entire agreement and understanding of the parties in respect of the transactions contemplated by this Agreement, and supersede all prior agreements, arrangements and understandings relating to the subject matter hereof and thereof. No representation, promise, inducement or statement of intention has been made by Seller or Buyer which is not embodied in this Agreement, or in the attached Exhibits or the written certificates, schedules or instruments of assignment or conveyance delivered pursuant to this Agreement, and neither Buyer nor Seller shall be bound by or liable for any alleged representations, promise, inducement or statement of intention not therein so set forth. 17.4 No Waiver. No failure of any party to exercise any power given such party hereunder or to insist upon strict compliance by the other party with its obligations hereunder shall constitute a waiver of any party's right to demand strict compliance with the terms of this Agreement. 17.5 Counterparts. This Agreement, any document or instrument entered into, given or made pursuant to this Agreement or authorized hereby, and any amendment or supplement thereto may be executed in two or more counterparts, and, when so executed, will have the same force and effect as though all signatures appeared on a single document. Any signature page of this Agreement or of such an amendment, supplement, document or instrument may be detached 41 42 from any counterpart without impairing the legal effect of any signatures thereon, and may be attached to another counterpart identical in form thereto but having attached to it one or more additional signature pages. 17.6 Costs and Attorneys' Fees. If any legal action or any arbitration or other proceeding is brought for the enforcement of this Agreement or any document or instrument entered into, given or made pursuant to this Agreement or authorized hereby or thereby (including, without limitation, the enforcement of any obligation to indemnify, defend or hold harmless provided for herein or therein), or because of an alleged dispute, default, or misrepresentation in connection with any of the provisions of this Agreement or of such document or instrument, or if Escrow Holder commences any action with respect to the Escrow(s), the successful or prevailing party shall be entitled to recover actual attorneys' fees, charges and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled. 17.7 Payments; Interests. Except as otherwise provided herein, payment of all amounts required by the terms of this Agreement shall be made in the United States and in immediately available funds of the United States of America which, at the time of payment, is accepted for the payment of all public and private obligations and debts. Unless the parties otherwise agree, payments shall be made through the Escrow Holder. If any payment due under this Agreement is not paid when due, it shall thereafter bear interest at a variable rate equal to the rate announced from time to time by Citibank, N.A. as its prime or reference rate, plus five percent (5%) per annum, but in no event more than the maximum rate, if any, allowed by law to be charged by the party receiving the interest on such type of indebtedness. 17.8 Transfer By Buyer. Buyer shall not have the right to assign this Agreement, but shall be permitted to designate an Affiliate or Affiliates to take title to the Property. In the event that Buyer elects to so designate any Affiliate or Affiliates to take title to the Property hereunder, (i) Buyer shall upon close of Escrow be released of all obligations hereunder other than pursuant to SECTION 6, SECTION 7.1, SECTION 10, SECTION 17.18, SECTION 17.19 and SECTION 17.20 or arising prior to the Close of Escrow, (ii) such Affiliate or Affiliates shall assume all of Buyer's obligations hereunder; and (iii) such Affiliate of Affiliates shall represent and warrant to Seller that such entities are duly organized and validly existing and otherwise as to the matters covered in SECTION 6.1.1 and SECTION 6.1.2 as applicable. 17.9 Parties in Interest. Subject to SECTION 17.8, the rights and obligations of the parties hereto shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs and the legal representatives of their respective estates. Nothing in this Agreement is intended to confer any right or remedy under this Agreement on any person other than the parties to this Agreement and their respective successors and permitted assigns, or to relieve or discharge the obligation or liability of any person to any party to this Agreement or to give any person any right of subrogation or action over or against any party to this Agreement. 17.10 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the state in which the Real Property is located without giving effect to the conflict-of-law rules and principles of that state. 17.11 Incorporation of Recitals and Exhibits. The Recitals and Exhibits attached to this Agreement are incorporated into and made a part of this Agreement. 17.12 Construction of Agreement. The language in all parts of this Agreement shall be 42 43 in all cases construed simply according to its fair meaning and not strictly for or against any of the parties hereto. Headings at the beginning of sections of this Agreement are solely for the convenience of the parties and are not a part of this Agreement. When required by the context, whenever the singular number is used in this Agreement, the same shall include the plural, and the plural shall include the singular, the masculine gender shall include the feminine and neuter genders, and vice versa. As used in this Agreement, the term "Seller" shall include the respective permitted successors and assigns of Seller, and the term "Buyer" shall include the permitted successors and assigns of Buyer, if any. 17.13 Severability. If any term or provision of this Agreement is determined to be illegal, unconscionable or unenforceable, all of the other terms, provisions and sections hereof will nevertheless remain effective and be in force to the fullest extent permitted by law. 17.14 Announcements. Seller and Buyer shall consult with each other and provide each other One (1) Business Day prior notice with regard to all press releases and other announcements issued at or prior to the Close of Escrow and during the one year period thereafter concerning the existence of this Agreement or the sale of the Property and, except as permitted under SECTION 17.19, neither Seller nor Buyer shall issue any such press release or other such publicity prior to the Close of Escrow without the prior written consent of the other party, which consent may be withheld in such other party's sole and absolute discretion. Buyer will not issue any public announcement with respect to Seller (other than to describe the transaction contemplated hereby to the extent permitted hereunder) without the prior written consent of Seller which may be withheld in its sole and absolute discretion. The agreements of the parties in this SECTION 17.14 shall survive the Close of Escrow or any termination of this Agreement. 17.15 Submission of Agreement. The submission of this Agreement to Buyer or its broker, agent or attorney for review or signature does not constitute an offer to sell the Property to Buyer or the granting of an option or other rights with respect to the Property to Buyer. No agreement with respect to the purchase and sale of the Property shall exist, and this writing shall have no binding force or effect, until this Agreement shall have been executed and delivered by Buyer and by Seller and Buyer shall have deposited the Deposit with Escrow Holder. 17.16 Further Assurances. Buyer and Seller agree to execute such instructions to the Escrow Holder and such other instruments and take such further actions either before or after the Close of Escrow as may be reasonably necessary to carry out the provisions of this Agreement provided that no material additional cost or liability shall be created thereby. 17.17 Cooperation. Buyer and Seller shall cooperate with the other to carry out the purpose of this Agreement (provided, such cooperation shall not require either party to expend any sum not otherwise required pursuant to the other provisions of this Agreement). This SECTION 17.17 shall survive the Close of Escrow. 17.18 Moratorium on Re-Sale. Buyer covenants and agrees that it will not sell the Property to Marriott International, Inc., Host Marriott, the Ritz Carlton Hotel Company, L.L.C. or any of their respective affiliates, successors and assigns, or any other party that Buyer reasonably believes will sell, and/or operate the Property pursuant to a franchise or operating agreement with any of the above-described entities, (collectively, "Excluded Parties") during the period (the "Transfer Restriction Period") commencing upon the Close of Escrow and expiring upon the later of (a) five (5) years following the Close of Escrow and (b) settlement of or the final non-appealable judgment is issued in connection with the existing litigation between Seller 43 44 and the Ritz Carlton Hotel Company, LLC and their respective affiliates and shall cause any permitted purchaser of the Property during the Transfer Restriction Period to covenant and agree not to sell the Property to any Excluded Party for the balance of the Transfer Restriction Period. The provisions of this SECTION 17.18 shall be specifically enforceable. Buyer hereby waives any requirement for Seller to post a bond in order to seek or obtain any temporary restraining order or other injunctive relief pursuant to this SECTION 17.18. The parties acknowledge and agree that the provisions of this Section 17.18 form a material part of the consideration to Seller for entering into this Agreement. The parties agree that these provisions are reasonable in light of Seller's ongoing litigation with Ritz Carlton Hotel Company and its affiliates. 17.19 Confidentiality. Buyer shall hold as confidential all information concerning the transaction contemplated by this Agreement, Seller and the Property disclosed in connection with this transaction and Buyer shall not, prior to the Close of Escrow, release any such information relating to the transaction, Seller or the Property to any governmental agencies or third parties without Seller's prior written consent except as may be required by law and in such case subject to the provisions of SECTION 17.14. Seller hereby gives its consent to Buyer's disclosure of information relating to the transaction contemplated hereby to Buyer's Counsel and other consultants, in each instance to the extent reasonably necessary to verify information given to Buyer by Seller or otherwise to carry out the purposes of this Agreement and provided in each instance, such consultants agree in writing to be bound by the confidentiality provisions of this SECTION 17.19. If the Close of Escrow shall fail to occur for any reason, neither party shall issue any press release, publicity or other public announcement of the subject matter of this Agreement, or to make any other disclosure concerning the subject matter of this Agreement (except as may be required by law and in such case subject to the provisions of SECTION 17.14.), without the prior written consent of the other party, which consent may be withheld in such other party's sole and absolute discretion. The agreements of the parties in this SECTION 17.19 shall survive any termination of this Agreement. 17.20 Interim Management Agreement. Seller shall provide Manager with a notice of termination of the Management Agreement on January 2, 1998 or as soon thereafter as Seller shall have obtained any required lender consent thereto. Seller shall, on or prior to January 2, 1998, seek any required lender consents and use all reasonable commercial efforts to obtain the same as promptly as possible. Buyer and Seller shall enter into a management agreement with respect to the Property in the form attached as EXHIBIT 17.20 hereto (the "Interim Management Agreement") which shall be effective (and the Interim Management Agreement shall be dated as of such effective date) on the earlier of (a) thirty days from the date of the delivery to Manager of such termination notice, and (b) the effective date of a written waiver of Manager of the notice of termination required under the Management Agreement. Buyer shall advance any fee payable to Manager under the Management Agreement on account of the termination thereof up to $127,132.00. Buyer shall be deemed to have waived delivery of all items under SECTIONS 4.2.1.15, 4.2.1.16, 4.2.1.17 and 4.2.1.19 in the event the Management Agreement is terminated in accordance with the provisions of this SECTION 17.20 prior to the Closing Date. 17.21 Starwood Lodging Trust. The parties hereto understand and agree that the name "Starwood Lodging Trust" is a designation of the Trust and its trustees (as trustees but not personally) under the Trust's Declaration of Trust, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for 44 45 obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] 45 46 IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be executed as of the day and year first above written. "Seller" D.C. OVERNIGHT PARTNERS, L.P., a District of Columbia limited partnership By: D.C. OVERNIGHT, INC. a District of Columbia corporation, its sole General Partner By: /s/ T. Ayoubi ---------------------- Name: Tarek Ayoubi Its: President "Buyer" STARWOOD LODGING TRUST, a Maryland real estate investment trust By: /s/ Steven R. Goldman ---------------------- Name: Steven G. Goldman Title: Senior Vice President STARWOOD LODGING CORPORATION, a Maryland corporation By: /s/ Michael C. Mueller ---------------------- Name: Michael C. Mueller Title: Vice President "Escrow Agent" CHICAGO TITLE INSURANCE COMPANY, a Missouri corporation By: /s/ Maggie G. Watson* ---------------------- Name: Maggie G. Watson Title: Authorized Signatory *Subject to receiving mutual instructions in the event Paragraph #3.5 becomes operative 46 47 TABLE OF CONTENTS SECTION 1 - DEFINITIONS 1 1.1 Defined Terms 1 1.2 Other Definitional Provisions 10 SECTION 2 - PURCHASE AND SALE OF PROPERTY 10 SECTION 3 - PURCHASE PRICE; PAYMENT; BUYER'S DEFAULT; LIQUIDATED DAMAGES 11 3.1 Purchase Price 11 3.2 Payment 11 3.3 Investment of Escrowed Funds 11 3.4 Allocation of Purchase Price 12 3.5 Default by Buyer Prior to Closing; Liquidated Damages 12 SECTION 4 - ESCROW; CLOSING; COSTS 13 4.1 Escrow 13 4.2 Seller's Deliveries to Escrow Holder 13 4.2.1.1 Deed 13 4.2.1.2 Assignment and Assumption of Tenant Leases 13 4.2.1.3 General Assignment 13 4.2.1.4 Assignment and Assumption of Management Agreement 13 4.2.1.5 Bill of Sale 14 4.2.1.6 Stock Agreement 14 4.2.1.7 Liquor Licenses Management Agreement 14 4.2.1.8 [Intentionally Omitted] 14 4.2.1.9 [Intentionally Omitted] 14 4.2.1.10 [Intentionally Omitted] 14 4.2.1.11 [Intentionally Omitted] 14 4.2.1.12 [Intentionally Omitted] 14 4.2.1.13 Non-Foreign Person Certificate 14 4.2.1.14 Transfer Tax Forms 14 4.2.1.15 Certified Rent Roll 14 4.2.1.16 Certified Operating Statement 14 4.2.1.17 Guest Ledger 15 4.2.1.18 Closing Certificate 15 4.2.1.19 Schedule of Bookings 15 4.2.1.20 Title Requirements 15 4.2.1.21 Payoff Letters 15 4.2.1.22 Notices to Tenants 15 4.2.1.23 Opinion of Seller's Counsel 15 4.2.1.24 Other 15 4.3 Buyer's Deliveries to Escrow Holder 16 4.3.1.1 The Cash Purchase Price 16 4.3.1.2 Stock Certificates 16 4.3.1.3 Assignment and Assumption of Management Agreement 16 4.3.1.4 Value Letter 16 4.3.1.5 Opinion of Buyer's Counsel 16 4.3.1.6 Stock Agreement 16 48 4.3.1.7 [Intentionally Omitted] 16 4.3.1.8 Liquor License Management Agreement 16 4.3.1.9 [Intentionally Omitted] 16 4.3.1.10 [Intentionally Omitted] 16 4.3.1.11 [Intentionally Omitted] 16 4.3.1.12 Closing Certificate 16 4.3.1.13 The Assignment and Assumption of Tenant Leases 17 4.3.1.14 The General Assignment and Assumption Agreement 17 4.3.1.15 Transfer Tax Forms 17 4.3.1.16 Other 17 4.4 Seller's Deliveries to Buyer 17 4.4.1 Tenant Leases/Tenant Deposits 17 4.4.2 Service Contracts 17 4.4.3 Licenses and Permits 17 4.4.4 Records and Plans 17 4.5 Possession 17 4.6 Evidence of Authorization 17 4.7 Close of Escrow 18 4.8 Costs of Escrow 18 4.9 Other Costs 19 4.10 Maintenance of Confidentiality by Escrow Holder 19 SECTION 5 - PRORATIONS AND ASSUMPTION OF OBLIGATIONS 20 5.1 General 20 5.2 General and Specific Prorations 20 5.3 Deposits 22 5.4 Tenant Leases 22 5.5 Service Contracts and Other Intangible Property 23 5.6 Tax Refunds and Proceedings 23 5.7 Guest Baggage 23 5.8 Safe Deposit Boxes 23 5.9 Advance Bookings 24 5.10 [Intentionally Omitted] 24 SECTION 6 - REPRESENTATIONS AND WARRANTIES; CONDITION OF PROPERTY 24 6.1 Of the Trust 24 6.1.1 Power and Authority 24 6.1.2 Authorization; Valid Obligation 24 6.1.3 Capital Structure 24 6.1.4 SEC Documents and Other Reports 25 6.1.5 Absence of Certain Changes or Events 25 6.1.6 Actions and Proceedings 25 6.1.7 REIT Status 26 6.1.8 Partnership Status 26 6.1.9 Hart-Scott-Rodino Act 26 6.2 Of the Corporation 26 48 49 6.2.1 Power and Authority 26 6.2.2 Authorization; Valid Obligation 26 6.2.3 Capital Structure 27 6.2.4 SEC Documents and Other Reports 27 6.2.5 Absence of Certain Changes or Events 27 6.2.6 Actions and Proceedings 28 6.2.8 Hart-Scott-Rodino 28 6.3 Of Seller 28 6.3.1 Regarding Seller's Authority 28 6.3.2 Tenant Leases 29 6.3.3 Service Contracts 29 6.3.4 Claims 29 6.3.5 Employees 29 6.3.6 Compliance with Laws 30 6.3.7 Hazardous Materials 30 6.3.8 Records and Plans 30 6.3.9 Licenses and Permits 30 6.3.10 Management Agreements 30 6.3.11 Personal Property 30 6.3.12 Insurance 30 6.3.13 Real Estate Taxes 31 6.3.14 [Intentionally Omitted] 31 6.3.15 [Intentionally Omitted] 31 6.3.16 District of Columbia Underground Storage Tank Disclosure Notice 31 6.4 Buyer's Review of Records and Plans 31 6.4.1 Access to Records and Plans; Specific Disclosures 31 6.4.2 Limitation on Access to Records and Plans 31 6.5 PURCHASE AS IS 32 6.6 Limitation on Representations and Warranties of Seller 34 6.7 Right to Supplement Disclosures 34 6.8 Basket 35 6.9 Survival 35 6.10 Soil Disclosure 35 SECTION 7 - TITLE TO THE REAL PROPERTY: EXTENSION OF THE CLOSING 35 7.1 Buyer's Review of Title 35 7.1.1 Failure to Satisfy Certain Closing Conditions; Monetary Liens 36 7.1.2 [Intentionally Omitted] 36 7.2 Title Insurance Policy 37 7.3 Title to Real Property 37 SECTION 8 - INTERIM ACTIVITIES 37 SECTION 9 - CONDITIONS PRECEDENT TO CLOSING 38 9.1 Conditions Precedent to Buyer's Obligations 38 49 50 9.1.1 Seller's Deliveries 38 9.1.2 Title Policy 38 9.1.3 Performance Under Related Agreements 38 9.1.4 [Intentionally Omitted] 38 9.1.5 Seller Performance 38 9.1.6 Representations and Warranties of Seller 38 9.2 Conditions Precedent to Seller's Obligations 38 9.2.1 Funds and Documents 38 9.2.2 Representations and Warranties of Buyer 39 9.2.3 No Material Changes 39 9.2.4 [Intentionally Omitted] 39 9.2.5 Performance Under Related Agreements 39 9.3 Failure of Condition 39 SECTION 10 - BROKER 40 SECTION 11 - REMEDIES FOR SELLER'S DEFAULT 40 11.1 Buyer's Remedies in General 40 11.2 MATERIAL INDUCEMENT 40 SECTION 12 - DAMAGE TO OR DESTRUCTION OF THE PROPERTY 41 12.1 Insured Casualty 41 12.2 Uninsured Casualty 41 SECTION 13 - CONDEMNATION 42 SECTION 14 -EMPLOYEES 42 14.1 Hiring of Hotel Employees; WARN Act Compliance 42 14.2 Collective Bargaining Agreements 43 14.3 Continuation of Benefits 44 14.5 Indemnification 45 14.6 Survival 45 SECTION 15 - COOPERATION 46 SECTION 16 - NOTICES 47 16.1 Addresses 47 16.2 Receipt of Notices 48 16.3 Refusal of Delivery 48 16.4 Change of Address 49 SECTION 17 - GENERAL PROVISIONS 49 17.1 Amendment 49 17.2 Time of Essence 49 17.3 Entire Agreement 49 17.4 No Waiver 49 17.5 Counterparts 49 17.6 Costs and Attorneys' Fees 49 17.7 Payments; Interests 50 17.8 Transfer By Buyer 50 17.9 Parties in Interest 50 17.10 Applicable Law 50 17.11 Incorporation of Recitals and Exhibits 50 50 51 17.12 Construction of Agreement 50 17.13 Severability 51 17.14 Announcements 51 17.15 Submission of Agreement 51 17.16 Further Assurances 51 17.17 Cooperation 51 17.18 Moratorium on Re-Sale 51 17.19 Confidentiality 52 17.20 Interim Management Agreement 52 51 52 EXHIBITS Exhibit A Legal Description Exhibit B Memorandum of Contract Exhibit 4.2.1.1 Deed Exhibit 4.2.1.2 Assignment and Assumption of Tenant Leases Exhibit 4.2.1.3 General Assignment and Assumption Agreement Exhibit 4.2.1.4 Assignment and Assumption of Management Agreement Exhibit 4.2.1.5(a) Bill of Sale for Capitalized Tangible Property Exhibit 4.2.1.5(b) Bill of Sale for Expensed Tangible Property Exhibit 4.2.1.6 Stock Agreement Exhibit 4.2.1.7 Liquor License Management Agreement Exhibit 4.2.1.13 Non-Foreign Person Certificate Exhibit 6.3.16 District of Columbia Storage Tank Disclosure Exhibit 17.20 Interim Management Agreement SCHEDULES Schedule 1.1.1 Approved Service Contracts Schedule 1.1.2 Employment Agreements Schedule 1.1.3 Equipment Leases Schedule 1.1.4 Excluded Property Schedule 1.1.5 [Intentionally Omitted] Schedule 1.1.6 Hotel Employees Schedule 1.1.7 Schedule of Tenant Leases Schedule 1.1.8 Seller's Due Diligence and Seller's Knowledge Schedule 1.1.9 Specific Disclosure Matters Schedule 6.3.2 Material Defaults Under Tenant Lease Schedule 6.3.3 Material Defaults Under Approved Service Contracts Schedule 6.3.4 Material Claims Schedule 6.3.5 Material Defaults Under Employment Agreements Schedule 6.3.6 Material Violations Schedule 6.3.7 Material Environmental Conditions Schedule 6.3.9 Licenses and Permits Schedule 6.3.12 Seller's Insurance Schedule 6.3.13 Pending Tax Protests Schedule 7.3 Permitted Encumbrances Schedule 14.2 Collective Bargaining Agreements 52 EX-10.60 37 EX-10.60 1 Exhibit 10.60 STOCK AGREEMENT by and among D.C. OVERNIGHT PARTNERS, L.P. a District of Columbia limited partnership as Stock Purchaser and STARWOOD HOTELS & RESORTS TRUST, a Maryland real estate investment trust and STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation, Dated as of January 15, 1998 2 STOCK AGREEMENT THIS STOCK AGREEMENT (this "Agreement") is entered into as of January 15, 1998 (the "Closing Date") by and between D.C. OVERNIGHT PARTNERS, L.P., a District of Columbia limted partnership, ("Stock Purchaser"), STARWOOD HOTELS & RESORTS TRUST, a Maryland real estate investment trust (the "Trust"), and STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Corporation", and, with the Trust, "Starwood Lodging"). R E C I T A L S A. Stock Purchaser has agreed to acquire from Starwood Lodging, and Starwood Lodging has agreed to issue and deliver to Stock Purchaser, Paired Shares in partial consideration for certain assets owned by Stock Purchaser. B. The parties desire to enter into this Agreement in order to set forth certain terms and conditions under which the Paired Shares are to be issued to and held by Stock Purchaser. A G R E E M E N T NOW, THEREFORE, in consideration of the foregoing and the mutual promises and agreements contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby mutually acknowledged, Starwood Lodging and Stock Purchaser agree as follows: SECTION 1 DEFINITIONS 1.1 Defined Terms. "Accredited Investor" shall have the meaning ascribed to that term in Rule 501 promulgated by the SEC under the Securities Act. "Affiliate" shall mean, with respect to any Person, any other Person that controls, is controlled by or is under common control with such first Person. "Applicable Percentage" shall mean: (a) if Starwood Lodging delivers Registered Shares to Stock Purchaser pursuant to Section 2.1 hereof, 100% and (b) if Starwood Lodging delivers Unregistered Shares pursuant to Section 2.1 hereof, 91.95%. "Business Day" shall mean any day on which the New York Stock Exchange is open for business. "Closing Date" shall mean the date hereof. "Equity Value" shall mean One Million Six Hundred Fifty-Five Thousand One Hundred Dollars ($1,655,100), divided by the Applicable Percentage, rounded to the nearest whole number. "ITT Closing" shall have the meaning set forth in the Registration Rights Agreement. "Joinder Agreement" means an agreement to be bound by this Agreement in the form of Attachment A hereto. "LIBOR" means the average of the interbank offered rates for three-month dollar 3 deposits in the London market based on quotations at five (5) major banks, as published from time to time in The Wall Street Journal. If The Wall Street Journal ceases to publish such a compilation of interbank offered rates, or if The Wall Street Journal ceases to be published, then Starwood Lodging shall propose a substitute method of determining the interest rate generally known as the three-month LIBOR rate, which method, absent manifest error, shall be binding on all holders of the Subject Shares and Starwood Lodging. "Lock Price" shall mean the Market Price as of the Closing Date, provided, however, that in the event that, at any time during the period between December 30, 1997 and the Settlement Date, the Corporation or the Trust effects any reclassification, stock split or stock dividend with respect to their stock, any change or conversion of stock into other securities, or any other dividend or distribution with respect to the Paired Shares, other than (i) dividends contemplated by the Starwood Lodging Disclosure in effect as of December 30, 1997, or (ii) dividends in the aggregate not to exceed the greater of (a) the current rate (as of December 30, 1997) of their dividends (together with any increases in such rate in the ordinary course) and (b) the Trust's "real estate investment taxable income" (as such term is defined for purposes of the Internal Revenue Code) without regard to any net capital gains or the deduction for dividends paid, appropriate and proportionate adjustments shall be made to the Lock Price. "Market Price" shall mean, as of any date, the average closing prices of the Paired Shares on the New York Stock Exchange during the ten consecutive Business Days immediately preceding such date. "Open Market Sale" means one or more sales of Stock Agreements Shares (including "short sales" initiated with the intention of delivering Stock Agreements Shares) made or proposed to be made by placing one or more sale orders or offers to sell with one or more securities brokers or dealers with a view toward the consummation of one or more sale transactions that are required to be, or that actually are, reported to the New York Stock Exchange or the National Association of Securities Dealers. "Orderly Market Disposition" means the sale of Stock Agreements Shares by placing one or more sell orders with one or more securities brokers or dealers with a view toward the disposition in the market of such Stock Agreements Shares. "Other Stock Agreements" shall mean, collectively, (i) that certain Stock Agreement, dated as of January 15, 1998, among Savanah Limited Partnership, as stock purchaser, and Starwood Lodging, (ii) that certain Stock Agreement, dated as of January 15, 1998, among New Remington Partners, as stock purchaser, and Starwood Lodging, and (iii) that certain Stock Agreement, dated as of January 15, 1998, among N.Y. Overnight Partners, L.P., as stock purchaser, and Starwood Lodging. "Paired Shares" shall mean one share of beneficial interest, par value $.01 per share, of the Trust, and one share of common stock, par value $.01 per share, of the Corporation that are subject to the Pairing Agreement. For purposes of calculating the number of Paired Shares to be delivered hereunder, each pair of the shares of the stock of the Trust and the Corporation shall be considered one share. "Pairing Agreement" shall mean the Pairing Agreement dated as of June 25, 1980, as amended, between the Trust and the Corporation providing, in relevant part, for the pairing of all outstanding shares of the Corporation and the Trust. "Payment Rights" shall have the meaning set forth in Section 5 hereof. "Person" shall have the meaning set forth in the Registration Rights Agreement. "Proposed Disposition Shares" shall have the meaning set forth in Section 3 hereof. 4 "Put Price" and "Put Right" shall have the meaning set forth in Section 2.4 hereof. "Registered Shares" means Subject Shares the issuance of which to Stock Purchaser has been registered under the Securities Act. "Registration Rights Agreement" means the Registration Rights Agreement by and among Stock Purchaser, the Trust and the Corporation in the form of Attachment B hereto. "Registration Statement" shall have the meaning set forth in the Registration Rights Agreement. "Required Effectiveness Date" shall have the meaning set forth in the Registration Rights Agreement. "Response Date" shall have the meaning set forth in Section 3 hereof. "Restricted Group" shall mean two (2) or more Restricted Holders acting in concert or under common direction. "Restricted Holder" shall mean Stock Purchaser and any other Person who shall have acquired any Stock Agreements Shares in a Transfer not constituting an Open Market Sale. A Restricted Holder shall not include any Person who shall have acquired any Stock Agreements Shares in a Transfer not constituting an Open Market Sale if such Transfer occurs after the first Open Market Sale of such Stock Agreements Shares. "Sale Notice" shall have the meaning set forth in Section 3 hereof. "SEC" shall mean the United States Securities and Exchange Commission. "SEC Documents" means all documents required to have been filed by the Trust or the Corporation with the SEC since January 1, 1996 and through the date hereof. "Securities Act" shall mean the Securities Act of 1933, as amended. "Settlement Date" shall mean, if Starwood Lodging shall deliver Unregistered Shares pursuant to Section 2.1 hereof, the date on which Starwood Lodging or its counsel shall notify Stock Purchaser that (i) the Registration Statement has been declared effective by the SEC, (ii) that the Subject Shares have been registered, on the terms and subject to the provisions of the Registration Rights Agreement, for Transfer by the selling shareholders named therein in Open Market Sales and in such other manner as is provided in the Registration Statement, and (iii) that Starwood Lodging has completed all deliveries and other actions required to enable trading of the Subject Shares on the New York Stock Exchange; provided, however, that if such notice is given later than 1:00 PM Eastern Time, the Settlement Date shall be deemed for all purposes to occur on the Business Day following the date of such notice. "Starwood Lodging Disclosure" shall mean, collectively, the Form S-3 filed by the Corporation and the Trust with the SEC on November 12, 1997, and the Form S-4 filed by the Corporation and the Trust with the SEC on November 20, 1997, as the same has been or may hereafter be amended by any filing with the SEC made by the Trust or the Corporation. "Stock Agreements Shares" shall mean the aggregate of the Subject Shares and the other Paired Shares delivered pursuant to the Other Stock Agreements. 5 . "Stock Purchaser Affiliates" shall have the meaning set forth in Section 6.1 hereof. "Subject Shares" means the 32,291 Paired Shares delivered by Starwood Lodging pursuant to Section 2.1 hereof. "Transfer" shall have the meaning set forth in the Registration Rights Agreement. "Transfer Agent" shall mean the transfer agent for the Paired Shares. "Unregistered Shares" means Subject Shares the issuance of which to Stock Purchaser has not been registered under the Securities Act. 1.2 Other Definitional Provisions. The terms "hereof," "hereto," "hereunder" and similar terms when used in this Agreement shall refer to this Agreement generally, rather than to the section in which such term is used, unless otherwise specifically provided. Unless the context otherwise requires, any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. SECTION 2 CALCULATION OF SUBJECT SHARES 2.1 Calculation of Subject Shares. Starwood Lodging shall deliver to Stock Purchaser on the Closing Date Paired Shares in an amount equal to the Equity Value divided by the Lock Price. Starwood Lodging shall have the option to deliver Registered Shares or Unregistered Shares on the Closing Date. 2.2 Delivery Requirements for Paired Shares. The Paired Shares to be delivered hereunder shall be properly endorsed and certificated Paired Shares in the amount required to be delivered in accordance with the provisions of this Agreement. If Registered Shares are delivered, such shares shall be unlegended and fully and freely transferable without any consent of, registration with or notice to any Person (except as provided for in Sections 3 and 4 hereof and in the Pairing Agreement). If Unregistered Shares are issued, each certificate evidencing Subject Shares shall be stamped or otherwise imprinted with a legend in substantially the following form (and no other restrictive legends): THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. THE SALE, PLEDGE OR OTHER TRANSFER OF THIS CERTIFICATE OR THE SHARES EVIDENCED HEREBY IS SUBJECT TO THE TERMS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF JANUARY 15, 1998 BETWEEN THE ISSUER AND THE HOLDER HEREOF. There shall be no legend on the Paired Shares reflecting the restrictions in Sections 3 or 4 hereof. 2.3 Other Deliveries. Concurrently with the delivery of the Paired Shares, Starwood Lodging shall deliver to Stock Purchaser any statements, such as a transfer or 6 conveyance tax forms or returns required by applicable federal or New York law to be executed by Starwood Lodging, as may reasonably be requested by Stock Purchaser in order to effect the delivery of the Subject Shares to Stock Purchaser. 2.4 Registration Rights and Requirements. (a) If Starwood Lodging delivers Unregistered Shares pursuant to Section 2.1 hereof, Stock Purchaser and Starwood Lodging shall on the Closing Date execute and deliver to each other the Registration Rights Agreement and the parties thereto shall perform their respective obligations thereunder. If Starwood Lodging delivers Registered Shares pursuant to Section 2.1 hereof, the Registration Rights Agreement shall not be executed or delivered and none of the parties shall have any obligations thereunder. (b) If Starwood Lodging delivers Unregistered Shares pursuant to Section 2.1 hereof, and if the Settlement Date shall not have occurred on or before the seventh Business Day after the Required Effectiveness Date, Starwood Lodging shall pay to each Restricted Holder, on the Settlement Date, an amount equal to the "Interest Factor." For each Restricted Holder, the "Interest Factor" shall be an amount equal to the product of (i) LIBOR plus 2% per annum for each day after the seventh Business Day after the Required Effectiveness Date to and including the earlier of the Settlement Date or the date that is 60 days after the Required Effectiveness Date, multiplied by (ii) the Market Price multiplied by the number of Subject Shares held by such Restricted Holder on the date of such payment. (c) In the event that the Settlement Date shall not have occurred by the date that is 60 days after the Required Effectiveness Date, each Person who is a Restricted Holder as of such date shall have the non-transferrable right (its "Put Right"), exercisable at any one time for each such Restricted Holder after such 60th day and through the earlier to occur of (i) the Settlement Date, and (ii) the day immediately prior to the first anniversary of the Closing, to "put" some or all of the Subject Shares held by such Restricted Holder to Starwood Lodging for an amount per share equal to the Put Price; provided, however, that the Put Right shall not be exercisable by any Restricted Holder for a number of Subject Shares that is less than the lesser of (i) 100,000, or (ii) the number of Subject Shares then held by such Restricted Holder. Such right shall be exercised by such Restricted Holder giving Starwood Lodging notice of its election to exercise its Put Right and the number of Subject Shares to be purchased by Starwood Lodging, whereupon Starwood Lodging shall purchase such shares at 9:00 a.m. (Eastern Time) on the second Business Day following its receipt of such notice, with payment to be delivered (against delivery to Starwood Lodging of such shares free of all rights of other Persons) on the third Business Day thereafter in cash or immediately available funds to such account as such Restricted Holder may designate in such notice. The Put Price shall be the Market Price determined as of the date such notice is given. Starwood Lodging shall have the right to satisfy its obligations under the Put Rights by designating another Person as the purchaser of such shares, and such obligations shall be deemed satisfied upon such other Person's purchase of such shares for the Put Price and at the time and in the manner set forth herein. Such designation shall not affect Starwood Lodging's obligation to pay the Interest Factor as provided herein. (d) The Interest Factor and the right of each Restricted Holder to receive the Put Price in the event it elects to exercise its Put Right shall be each Restricted Holder's sole and exclusive monetary remedies arising from Starwood Lodging's failure to cause the Settlement Date to occur on or before the seventh Business Day after the Required Effectiveness Date and shall be deemed liquidated damages in respect of such failure; and each Restricted Holder shall be deemed to have waived its other monetary remedies. However, from and after the seventh Business Day after the Required Effectiveness Date, each Holder shall at all times have such equitable remedies as may be available under applicable law. 7 SECTION 3 NOTICE PROCEDURES REGARDING OPEN MARKET SALE OF STOCK AGREEMENTS SHARES 3.1 If, at any time any Restricted Holder or Restricted Group elects to Transfer, in an Open Market Sale, more than 100,000 Stock Agreements Shares on any single Business Day (300,000 Stock Agreements Shares from and after the first Business Day after the ITT Closing), prior to executing such Transfer the designated representative of such Restricted Holder or Restricted Group shall provide Starwood Lodging's representative, the Chief Financial Officer of the Trust (or any successor representative identified by a notice given hereunder), with telephonic notice at (602) 852-3900 along with a confirmation of such notice by telefacsimile to Starwood Lodging and Starwood Lodging's additional addressees as provided in Section 7.1 hereof. Such notice (the "Sale Notice") shall indicate the number of Stock Agreements Shares which such Restricted Holder or Restricted Group has determined to Transfer in an Open Market Sale (the "Proposed Disposition Shares") on such day or days and shall comply with Section 3.5 hereof (if applicable). Such notice shall be deemed given on the Business Day the telephonic notice described above is given so long as such notice is given by 5:00 P.M., Eastern time, on such day; if given after that time, it shall be deemed given on the next Business Day. In the event that, at any time while this Section 3.1 is in effect, the Corporation or the Trust effects any reclassification, stock split or stock dividend with respect to their stock, any change or conversion of stock into other securities, or any other dividend or distribution with respect to the Paired Shares, other than (i) dividends contemplated by the Starwood Lodging Disclosure as in effect on December 30, 1997, or (ii) dividends in the aggregate not to exceed the greater of (a) the current rate (as of December 30, 1997) of their dividends (together with any increases in such rate in the ordinary course) and (b) the Trust's "real estate investment taxable income" (as such term is defined for purposes of the Internal Revenue Code) without regard to any net capital gains or the deduction for dividends paid, appropriate and proportionate adjustments shall be made to the numbers of Stock Agreements Shares set forth in the first sentence of this Section 3.1. 3.2 No later than noon, Eastern time, on the second Business Day after the Sale Notice is given as described above, Starwood Lodging may provide the representative(s) of such Restricted Holder or Restricted Group with telephonic notice, along with a confirmation of such notice to such representatives by telefacsimile, that Starwood Lodging is irrevocably offering to purchase or place all of the Proposed Disposition Shares at a price per share equal to the average of the closing prices on the New York Stock Exchange on the first and second Business Days following the giving of the Sale Notice. Such notice shall be given as provided in Section 3.5 hereof. It shall be a condition to such notice and the consummation of such transaction that such transaction not constitute a violation of Regulation M promulgated by the SEC. If Starwood Lodging fails to make such an offer within such period, it shall have no further rights under this Section 3 with respect to any Orderly Market Disposition by such Restricted Holder or Restricted Group of Stock Agreements Shares up to the amount of the Proposed Disposition Shares that is commenced not later than the seventh Business Day after the Sale Notice is given. 3.3 If Starwood Lodging duly makes such an offer, such Restricted Holder or Restricted Group shall elect by telephonic notice to Starwood Lodging's representative delivered and confirmed as described above, given by 8:30 a.m. (Eastern Time) on the Business Day following receipt of Starwood Lodging's offer (such day is referred to herein as the "Response Date"), in their sole and absolute discretion, to either (i) proceed with such proposed disposition, in which instance Starwood Lodging shall purchase or place the Proposed Disposition Shares at 9:00 a.m. (Eastern Time), on the Response Date, with payment to be delivered (against delivery 8 to Starwood Lodging of the Proposed Disposition Shares free of all rights of other Persons) on the third Business Day after the Response Date in cash or immediately available funds to such account as such Restricted Holder may designate by notice to Starwood Lodging, or (ii) not to proceed with such proposed disposition, in which instance the Sale Notice shall be withdrawn and such Restricted Holder shall continue to hold the Proposed Disposition Shares subject to the terms of this Section 3 (to the extent applicable). If such Restricted Holder shall fail to so elect by 8:30 a.m. (Eastern Time) on the Response Date, it shall irrevocably be deemed to have elected not to proceed with such proposed disposition. 3.4 On the first anniversary of the Settlement Date, the provisions of this Section 3 shall automatically lapse and be of no further force or effect with respect to each Restricted Holder that holds less than 500,000 Stock Agreements Shares (except (i) to the extent that such Restricted Holder acts on or after such date as a member of a Restricted Group that holds in the aggregate 500,000 or more Stock Agreements Shares, and (ii) to the extent such Restricted Holder, either alone or as a member of a Restricted Group, has given or was required to have given Starwood Lodging a Sale Notice prior to such date and as to which the procedures in this Section 3 have not been fully performed). 3.5 Any notice given by Starwood Lodging pursuant to Section 3.2 hereof to Stock Purchaser shall be given telephonically to Tarek Ayoubi at (310) 229-2929 and by telefacsimile to (310) 229-2927, or to such other telephone and telefacsimile numbers as may be set forth for such purpose in the Sale Notice. Any notice given by Starwood Lodging pursuant to Section 3.2 hereof to any other Restricted Holder or Restricted Group shall be given to the telephone and telefacsimile numbers as may be set forth for such purpose in the Sale Notice, and no Sale Notice from a Restricted Holder other than Stock Purchaser or from any Restricted Group shall be deemed properly given in accordance with Section 3.1 unless such numbers are set forth in such Sale Notice. 3.6 Time is of the essence in the performance by the parties of their obligations under this Section 3. SECTION 4 TRANSFERS NOT CONSTITUTING AN OPEN MARKET SALE; SHORT SALES 4.1 Each Restricted Holder covenants and agrees that, as a condition to any Transfer by a such Restricted Holder of Subject Shares in a transaction that does not constitute an Open Market Sale, such Restricted Holder will obtain and deliver to Starwood Lodging a Joinder Agreement duly executed by the transferee or the intended transferee; and any purported Transfer of Subject Shares made in breach of this provision shall be null and void ab initio. 4.2 Each Restricted Holder covenants and agrees that, prior to the effectiveness of the Registration Statement, it will not "sell short" (as such term is commonly understood in the brokerage industry) any Paired Shares, whether "against the box" or otherwise. SECTION 5 PAYMENT RIGHTS On the Settlement Date, Starwood Lodging shall pay to Stock Purchaser in cash or other immediately available funds an amount equal to the amount, if any, by which the Lock 9 Price exceeds the Market Price as of the Settlement Date, multiplied by the number of Paired Shares delivered by Starwood Lodging to Stock Purchaser hereunder. Stock Purchaser's right to receive the payments from Starwood Lodging described in this section are referred to herein as the "Payment Rights." Pursuant to a written instrument a copy of which is delivered to Starwood Lodging promptly following its execution by Stock Purchaser, Stock Purchaser may distribute to its partners or their shareholders or assign to any other Person all or any portion of the Payment Rights either together with or separately from the Paired Shares delivered hereunder. SECTION 6 REPRESENTATIONS AND WARRANTIES 6.1 Stock Purchaser represents and warrants to Starwood Lodging as follows: (a) Stock Purchaser has the power and authority to enter into this Agreement and the Registration Rights Agreement and to perform its obligations hereunder and thereunder. The execution and delivery hereof and thereof and the performance by Stock Purchaser of its obligations hereunder and thereunder will not violate or constitute an event of default under any material term or material provision of any agreement, document, instrument, judgment, order or decree to which Stock Purchaser is a party or by which it is bound, or violate any law, rule or regulation the violation of which would have a material adverse effect upon the principal benefits intended to be provided under this Agreement or the Registration Rights Agreement. (b) The individuals executing this Agreement and the Registration Rights Agreement on behalf of Stock Purchaser have the legal power, right and actual authority to bind Stock Purchaser to the terms and conditions hereof and thereof. Each of this Agreement and the Registration Rights Agreement is a valid and binding obligation of Stock Purchaser, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. (c) Stock Purchaser is acquiring the Subject Shares to be issued to it for investment, solely for the account of itself, on behalf of its partners and Persons who are stockholders of such partners, or on behalf of certain Persons each of whom is both an Affiliate of a partner of Stock Purchaser and a creditor of Stock Purchaser (collectively, such partners and other Persons the "Stock Purchaser Affiliates"). Neither Stock Purchaser nor any of the Affiliates of Stock Purchaser is acquiring Subject Shares with a view to or for sale in connection with any distribution of such Subject Shares in violation of applicable securities laws. (d) Stock Purchaser and each of the Stock Purchaser Affiliates is an Accredited Investor. (e) Stock Purchaser has obtained and reviewed the Starwood Lodging Disclosure and the SEC Documents that have been filed with the SEC through the date hereof. 6.2 By its execution of its Joinder Agreement, each Restricted Holder other than Stock Purchaser shall be deemed to have represented and warranted to Starwood Lodging, as of the date of its delivery of such Joinder Agreement, as follows: (a) Such Restricted Holder has the power and authority to enter into this 10 Agreement, the Registration Rights Agreement and its Joinder Agreement and to perform its obligations hereunder and thereunder. The execution and delivery hereof and thereof and the performance by such Restricted Holder of its obligations hereunder and thereunder will not violate or constitute an event of default under any material term or material provision of any agreement, document, instrument, judgment, order or decree to which such Restricted Holder is a party or by which it is bound, or violate any law, rule or regulation the violation of which would have a material adverse effect upon the principal benefits intended to be provided under this Agreement or the Registration Rights Agreement. (b) The individuals executing this Agreement, the Registration Rights Agreement and its Joinder Agreement on behalf of such Restricted Holder have the legal power, right and actual authority to bind such Restricted Holder to the terms and conditions hereof and thereof. Each of this Agreement, the Registration Rights Agreement and its Joinder Agreement is a valid and binding obligation of such Restricted Holder, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. (c) Such Restricted Holder is acquiring the Subject Shares Transferred or to be Transferred to it for investment, solely for the account of itself and not with a view to or for sale in connection with any distribution of such Subject Shares in violation of applicable securities laws; provided, however, that if such Restricted Holder is Stock Purchaser Affiliate, such Restricted Holder may acquire the Subject Shares on behalf of Persons who are stockholders of such Restricted Holder if each of such Persons is an Accredited Investor. (d) Such Restricted Holder is an Accredited Investor. (e) Such Restricted Holder has had the opportunity, prior to making the determination to acquire any Subject Shares, to obtain and review the Starwood Lodging Disclosure and the SEC Documents that have been filed with the SEC through the date of the execution of such Restricted Holder's Joinder Agreement. 6.3 The Trust hereby represents and warrants to Stock Purchaser as follows: (a) The Trust has the power and authority to enter into this Agreement and the Registration Rights Agreement and to consummate the transactions herein contemplated; neither the execution and delivery of this Agreement or the Registration Rights Agreement by the Trust, nor the performance by the Trust of the Trust's obligations hereunder or thereunder will violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which the Trust is a party or by which the Trust is bound, or violate any law, rule or regulation the violation of which would have a material adverse effect upon the principal benefits intended to be provided under this Agreement or the Registration Rights Agreement. (b) The individuals executing this Agreement and the Registration Rights Agreement and the documents referenced herein on behalf of the Trust have the legal power, right and actual authority to bind the Trust to the terms and conditions hereof. This Agreement and the Registration Rights Agreement is a valid and binding obligation of Trust, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. 11 (c) All Paired Shares to be delivered in accordance with Section 2.1 hereof will, when so issued, be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights and will be paired with each other in the same ratio as all other shares are paired with each other pursuant to the Pairing Agreement. (d) The Trust has filed all of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of applicable law, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements (including, in each case, any notes thereto) of the Trust included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as of their respective dates of filing, were prepared in accordance with generally accepted accounting principles (except, in the case of the unaudited statements, as permitted by Regulation S-X of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented the consolidated financial position of the Trust and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the SEC Documents or as required by generally accepted accounting principles, the Trust has not, since December 31, 1996, made any change in the accounting practices or policies applied in the preparation of their financial statements. (e) Except as disclosed in the SEC Documents or the Starwood Lodging Disclosure, since December 31, 1996 and through the date hereof, (i) there have not been any events, changes or developments that, individually or in the aggregate, have had or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole, or (ii) there has not been any split, combination or reclassification of any of the capital stock or units of the Trust or its operating partnership or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of, or in substitution for shares of such capital stock. (f) Except as set forth in the SEC Documents or the Starwood Lodging Disclosure or in a separate writing provided to Stock Purchaser on or before the date hereof, as of the date hereof: there are no outstanding orders, judgments, injunctions, awards or decrees of any governmental entity against or involving the Trust or any of its subsidiaries, or against or involving any of the directors, officers or employees of the Trust or any of its subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole; and there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the knowledge of the Trust, threatened against or involving the Trust or any of its subsidiaries or any of their directors, officers or employees, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Trust and its subsidiaries taken as a whole. As of the date hereof, there are no actions, suits or other litigation, legal or administrative proceedings or governmental investigations pending or, to the knowledge of the Trust, threatened against or affecting the Trust or any of its subsidiaries or any of their officers, directors or employees, as such, or any of 12 their properties, assets or business relating to the transactions contemplated by this Agreement and the Registration Rights Agreement. 6.4 The Corporation hereby represents and warrants to Stock Purchaser as follows: (a) The Corporation has the power and authority to enter into this Agreement and the Registration Rights Agreement and to consummate the transactions herein contemplated; neither the execution and delivery of this Agreement or the Registration Rights Agreement by the Corporation, nor the performance by the Corporation of the Corporation's obligations hereunder or thereunder will violate or constitute an event of default under any material terms or material provisions of any agreement, document, instrument, judgment, order or decree to which the Corporation is a party or by which the Corporation is bound, or violate any law, rule or regulation the violation of which would have a material adverse effect upon the principal benefits intended to be provided under this Agreement or the Registration Rights Agreement. (b) The individuals executing this Agreement and the Registration Rights Agreement and the documents referenced herein on behalf of the Corporation have the legal power, right and actual authority to bind the Corporation to the terms and conditions hereof. This Agreement and the Registration Rights Agreement is a valid and binding obligation of Corporation, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. (c) All Paired Shares to be delivered in accordance with Section 2.1 hereof will, when so issued, be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights and will be paired with each other in the same ratio as all other shares are paired with each other pursuant to the Pairing Agreement. (d) The Corporation has filed all of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of applicable law, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements (including, in each case, any notes thereto) of the Corporation included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as of their respective dates of filing, were prepared in accordance with generally accepted accounting principles (except, in the case of the unaudited statements, as permitted by Regulation S-X of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented the consolidated financial position of the Corporation and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the SEC Documents or as required by generally accepted accounting principles, the Corporation has not, since December 31, 1996, made any change in the accounting practices or policies applied in the preparation of their financial statements. (e) Except as disclosed in the SEC Documents or the Starwood Lodging Disclosure, since December 31, 1996 and through the date hereof, (i) there have not been any events, changes or developments that, individually or in the aggregate, have had or would reasonably be expected to have, a material adverse change in or effect on the financial 13 condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole, or (ii) there has not been any split, combination or reclassification of any of the capital stock or units of the Corporation or its operating partnership or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of, or in substitution for shares of such capital stock. (f) Except as set forth in the SEC Documents or the Starwood Lodging Disclosure or in a separate writing provided to Stock Purchaser on or before the date hereof, as of the date hereof: there are no outstanding orders, judgments, injunctions, awards or decrees of any governmental entity against or involving the Corporation or any of its subsidiaries, or against or involving any of the directors, officers or employees of the Corporation or any of its subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole; and there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the knowledge of the Corporation, threatened against or involving the Corporation or any of its subsidiaries or any of their directors, officers or employees, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a material adverse change in or effect on the financial condition, properties, business, results of operations or prospects of the Corporation and its subsidiaries taken as a whole. As of the date hereof, there are no actions, suits or other litigation, legal or administrative proceedings or governmental investigations pending or, to the knowledge of the Corporation, threatened against or affecting the Corporation or any of its subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement and the Registration Rights Agreement (other than those arising in connection with the Registration Statement or the performance by the Corporation of its obligations under the Registration Rights Agreement). SECTION 7 NOTICES 7.1 Addresses. Except for the notices given pursuant to Section 3, whenever any notice, demand or request is required or permitted hereunder, such notice, demand or request shall be made in writing and shall be (a) sent via a nationally recognized overnight courier service fully prepaid, (b) deposited in the United States by mail, registered or certified, return receipt requested, postage prepaid, or (c) sent via telefacsimile, provided that the original of such notice, demand or request shall also be sent via one of the methods described in (a) and (b) above, in each case to the addressees (and individuals) set forth below: As to Stock Purchaser: c/o Al Anwa USA, Inc. 1925 Century Park East, Suite 1900 Los Angeles, CA 90067 Attn: Tarek Ayoubi Telefacsimile: (310) 229-2927 With a copy to Stock Purchaser's additional addressees: Morrison & Foerster LLP 555 West Fifth Street, Suite 3500 14 Los Angeles, CA 90013-1024 Attn: Thomas R. Fileti, Esq. Telefacsimile: (213) 892-5454 Gordon K. Eng, Esq. 19191 South Vermont Avenue, Suite 420 Torrance, California 90502 Telefacsimile: (310) 207-1066 As to Starwood Lodging: Starwood Lodging Hotels & Resorts Trust 2231 E. Camelback Rd., Suite 410 Phoenix, AZ 85016 Attn: Ronald C. Brown or Chief Financial Officer Telefacsimile: (602) 852-0115 Starwood Lodging Hotels & Resorts Worldwide, Inc. 2231 E. Camelback Rd., Suite 400 Phoenix, AZ 85016 Attn: Alan M. Schnaid or Vice President With a copy to Starwood Lodging's additional addressees: Greenberg Traurig Hoffman Lipoff Rosen & Quentel 153 East 53rd Street New York, NY 10022 Attn: Andrew E. Zobler, Esq. Telefacsimile: (212) 223-7161 Sidley & Austin 555 West Fifth Street, Suite 4000 Los Angeles, CA 90013 Attn: Sherwin L. Samuels, Esq. and Kenneth H. Levin, Esq. Telefacsimile: (213) 896-6600 If to any Restricted Holder other than Stock Purchaser: to the address and telefacsimile number set forth in such Restricted Holder's Joinder Agreement (or to any other address or telefacsimile number provided to Starwood Lodging in writing pursuant to a notice given by such Restricted Holder pursuant to this Section 7.1). 7.2 Receipt of Notices. Any notice, demand or request that shall be delivered to Starwood Lodging and its Additional Addressee in the manner aforesaid shall be deemed sufficiently given to and received by Starwood Lodging for all purposes hereunder, and any notice, demand or request that shall be delivered to Stock Purchaser and its Additional Addressee in the manner aforesaid shall be deemed sufficiently given to and received by Stock Purchaser for all purposes hereunder (i) the next business day following the day such notice, demand or request is delivered by a nationally recognized overnight courier service fully prepaid, to such party and its Additional Addressee, (ii) if sent via registered or certified mail, at the time of receipt by such party and its Additional Addressee, or (iii) if sent via telefacsimile, as of the date and time stated upon confirmation reports generated by the sending party's telefacsimile machine confirming the delivery of such notice, demand or request to such party 15 and its Additional Addressee. 7.3 Refusal of Delivery. The inability to deliver any notice, demand or request because the individual to whom it is properly addressed in accordance with this Section 7 refused delivery thereof or no longer can be located at that address shall constitute delivery thereof to such individual. 7.4 Change of Address. Each party shall have the right from time to time to designate by written notice to the other parties hereto such other Person or Persons and such other place or places as said party may desire written notices to be delivered or sent in accordance herewith. SECTION 8 GENERAL PROVISIONS 8.1 Amendment. No provision of this Agreement or of any documents or instrument entered into, given or made pursuant to this Agreement may be amended, changed, waived, discharged or terminated except by an instrument in writing, signed by the party against whom enforcement of the amendment, change, waiver, discharge or termination is sought. 8.2 Time of Essence. All times provided for in this Agreement for the performance of any act will be strictly construed, time being of the essence. 8.3 Entire Agreement. This Agreement and other documents delivered pursuant to this Agreement set forth the entire agreement and understanding of the parties in respect of the transactions contemplated by this Agreement, and supersede all prior agreements, arrangements and understandings relating to the subject matter hereof and thereof. No representation, promise, inducement or statement of intention with respect to the subject matter hereof has been made by Stock Purchaser or Starwood Lodging which is not embodied in this Agreement, and neither Starwood Lodging nor Stock Purchaser shall be bound by or liable for any alleged representations, promise, inducement or statement of intention not therein so set forth. 8.4 No Waiver. No failure of any party to exercise any power given such party hereunder or to insist upon strict compliance by the other party with its obligations hereunder shall constitute a waiver of any party's right to demand strict compliance with the terms of this Agreement. 8.5 Counterparts. This Agreement, any document or instrument entered into, given or made pursuant to this Agreement or authorized hereby, and any amendment or supplement thereto may be executed in two or more counterparts, and, when so executed, will have the same force and effect as though all signatures appeared on a single document. Any signature page of this Agreement or of such an amendment, supplement, document or instrument may be detached from any counterpart without impairing the legal effect of any signatures thereon, and may be attached to another counterpart identical in form thereto but having attached to it one or more additional signature pages. 8.6 Costs and Attorneys' Fees. If any legal action or any arbitration or other proceeding is brought for the enforcement of this Agreement or because of an alleged dispute, default, or misrepresentation in connection with any of the provisions of this Agreement the successful or prevailing party shall be entitled to recover reasonable attorneys' fees, charges and other costs incurred in that action or proceeding, in addition to any other relief to which it 16 may be entitled. 8.7 Payments; Interests. Except as otherwise provided herein, payment of all amounts required by the terms of this Agreement shall be made in the United States and in immediately available funds of the United States of America which, at the time of payment, is accepted for the payment of all public and private obligations and debts. If any payment due under this Agreement is not paid when due, it shall thereafter bear interest at a variable rate equal to the rate announced from time to time by Citibank, N.A. as its prime or reference rate, plus five percent (5%) per annum, but in no event more than the maximum rate, if any, allowed by law to be charged by the party receiving the interest on such type of indebtedness. 8.8 Parties in Interest. The rights and obligations of the parties hereto shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, heirs and the legal representatives of their respective estates. However, none of Stock Purchaser's rights under this Agreement shall be assignable except (i) in the case of the Payment Rights, as provided in Section 5 hereof, and (ii) in the case of all other rights of Stock Purchaser or another Restricted Holder, to a transferee of Subject Shares in a transaction not constituting an Open Market Sale if such transferee delivers a Joinder Agreement in compliance with Section 4 hereof. Nothing in this Agreement is intended to confer any right or remedy under this Agreement on any Person other than the parties to this Agreement and their respective successors and assigns, or to relieve or discharge the obligation or liability of any Person to any party to this Agreement or to give any Person any right of subrogation or action over or against any party to this Agreement. 8.9 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the conflict-of-law rules and principles of that state. 8.10 Incorporation of Recitals. The recitals of this Agreement are incorporated into and made a part of this Agreement. 8.11 Construction of Agreement. The language in all parts of this Agreement shall be in all cases construed simply according to its fair meaning and not strictly for or against any of the parties hereto. Headings at the beginning of sections of this Agreement are solely for the convenience of the parties and are not a part of this Agreement. When required by the context, whenever the singular number is used in this Agreement, the same shall include the plural, and the plural shall include the singular, the masculine gender shall include the feminine and neuter genders, and vice versa. As used in this Agreement, the term "Stock Purchaser" shall include the respective permitted successors and assigns of Stock Purchaser, and the term "Starwood Lodging" shall include the permitted successors and assigns of Starwood Lodging, if any. 8.12 Severability. If any term or provision of this Agreement is determined to be illegal, unconscionable or unenforceable, all of the other terms, provisions and sections hereof will nevertheless remain effective and be in force to the fullest extent permitted by law. 8.13 Further Assurances. Starwood Lodging and Stock Purchaser agree to execute upon the request of the other party such instruments and take such actions as may be reasonably necessary to carry out the provisions of this Agreement provided that no material additional cost or liability shall incurred thereby by the party of whom such request is made. 8.14 Starwood Hotels & Resorts Trust. The parties hereto understand and agree that the name "Starwood Hotels & Resorts Trust" is a designation of the Trust and its trustees (as trustees but not personally) under the Trust's Declaration of Trust, and all persons 17 dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 18 IN WITNESS WHEREOF, Starwood Lodging and Stock Purchaser have caused this Agreement to be executed as of the day and year first above written. "Stock Purchaser" D.C. OVERNIGHT PARTNERS, L.P., a District of Columbia limited partnership By: D.C. OVERNIGHT, INC., a District of Columbia corporation, its sole General Partner By: /s/ Tarek Ayoubi --------------------------- Tarek Ayoubi President "Starwood Lodging" STARWOOD HOTELS & RESORTS TRUST, a Maryland real estate investment trust By: /s/ Steven R. Goldman ---------------------------- Steven R. Goldman Senior Vice President STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation By: /s/ Nir E. Margalit ------------------------------ Nir E. Margalit Secretary 19 ATTACHMENT A to Stock Agreement AGREEMENT TO BE BOUND BY THE STOCK AGREEMENT (JOINDER AGREEMENT) The undersigned, being the transferee or the intended transferee of ________________ Paired Shares (the "Subject Shares") of Starwood Hotels & Resorts Trust, a Maryland real estate investment trust, and Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (together, the "Company"), as a condition to the transfer to and acquisition by the undersigned of such Subject Shares, acknowledges that certain sales or other transfers of such Subject Shares are governed by the Stock Agreement (the "Stock Agreement"), dated as of January 15, 1998, initially among the Company and D.C. Overnight Partners, L.P., and the undersigned hereby (1) acknowledges receipt of a copy of the Stock Agreement, and (2) agrees to be bound as a "Restricted Holder" by the terms of the Stock Agreement, as the same has been or may be amended from time to time (including without limitation the representations and warranties of the undersigned set forth therein that will be deemed made by virtue hereof). The undersigned is hereby advised that the Subject Shares have not been registered under the Securities Act of 1933 and in such event cannot be resold unless they are registered under said act or unless an exemption from registration under said act is available. The following is the undersigned's representative and such representative's address, telephone number and fax number for all purposes under the Stock Agreement: _________________________________ _________________________________ _________________________________ Agreed to this ____ day of __________, ____. _________________________________ By: __________________________ Its: __________________________ 20 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of January 15, 1998 among STARWOOD HOTELS & RESORTS TRUST, a Maryland real estate investment trust (the "Trust"), STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Corporation" and, together with the Trust, the "Company"), and D.C. OVERNIGHT PARTNERS, L.P., a District of Columbia limited partnership ("Shareholder"). RECITALS WHEREAS, pursuant to a Stock Agreement of even date herewith and by and among the parties hereto (the "Stock Agreement"), the Company is issuing and delivering to Shareholder certain Paired Shares; and WHEREAS, the Stock Agreement provides that if such Paired Shares are Unregistered Shares, the Company shall effect the registration of such Paired Shares under the Securities Act; and WHEREAS, the parties desire to set forth their rights and obligations with respect to such registration and certain other matters; NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. Each capitalized term used in this Agreement but not defined herein shall have the meaning ascribed to such term in the Stock Agreement; and as used in this Agreement the following terms shall have the following meanings: "Commission" means the Securities and Exchange Commission. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holder Information" means, with respect to a Selling Holder, (i) such information regarding such Selling Holder as is required by Section 507 of Regulation S-K promulgated by the Commission under the Securities Act, (ii) information as to whether (and if so, in what manner) the intended method of disposition of such Holder's Registrable Shares differs from the Plan of Distribution, and (iii) any such additional information as may be required to be included in the Registration Statement by a Selling Holder; in each case as shall be required to effect the registration of such Registrable Shares pursuant to the Registration Statement, the disclosures required in the Prospectus with respect thereto and the offer and Transfer of such Registrable Shares pursuant to the Prospectus. "Holders" means (i) Shareholder, and (ii) any other Person who acquires any of the Registrable Shares from Shareholder or another Holder if (a) the Transferor and such Person shall have delivered to the Company a written notice of such Transfer setting forth the name of such Person, and (b) such Person shall have executed and delivered to the Company a properly completed Joinder Agreement; in each case at such times as such Persons shall own Registrable Shares. "ITT Closing" means the consummation of the acquisition of ITT Corporation by the Company. 21 "ITT Termination" means the issuance by the Company of a press release stating that the Company will not consummate the acquisition of ITT Corporation. "Joinder Agreement" means an agreement to be bound by this Agreement in the form of Annex A hereto. "Paired Shares" means (i) "paired shares" (as such term is defined in the Purchase and Sale Agreement), and (ii) shares of capital stock of the Trust or the Corporation issued by the Trust or the Corporation in respect of or in exchange for paired shares in connection with any stock dividend or distribution, stock split-up, recapitalization, recombination or exchange by the Trust or the Corporation generally of such paired shares. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or other entity, or government or other agency or political subdivision thereof. "Proposed Plan of Distribution" means a draft of the portion of the Registration Statement that describes the intended methods of disposition of the Registrable Shares by the Selling Holders. "Prospectus" means, with respect to the Registration Statement and each amendment thereto, the form of prospectus included therein. "Registrable Shares" means, as of any date of determination, (i) the Paired Shares that are Unregistered Shares and that constitute the Subject Shares; (ii) any shares or other securities issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange by the Trust or the Corporation generally for, or in replacement by the Trust or the Corporation generally of, such Paired Shares; and (iii) any securities issued in exchange for such Paired Shares in any merger or reorganization of the Company; in each case that continue to be owned by a Holder on such date of determination. "Registration Statement" means a registration statement on Form S-3, as amended from time to time, registering the offer and sale by the Selling Holders of such Selling Holders' Registrable Shares included therein for offer and Transfer on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. "Required Effectiveness Date" means the later of (i) the 30th day after the Closing Date, or (ii) the earliest of: (a) The 30th day after the date of the ITT Closing; (b) The 30th day after the date of the ITT Termination; and (c) If neither the ITT Closing nor the ITT Termination has occurred prior to April 1, 1998, the 30th day after a demand for registration is made by notice given by Shareholder to the Company on or after April 1, 1998; provided, however, that in the event that, following the initial filing of the Registration Statement, the Company is advised by the Commission that the Registration Statement will be reviewed, each of the time periods set forth above shall be extended for 20 days. "Securities Act" shall mean the Securities Act of 1933, as amended. 22 "Selling Holders" means (a) each Holder (i) who complies with Sections 3.1.1 hereof, (ii) who holds not less than 100,000 Subject Shares at the both at the time such notice is given and the date the Registration Statement is declared effective (or such lesser number as the Company, in its sole and absolute discretion, shall determine for such Holder), and (iii) whose Registrable Shares are included in the Registration Statement; and (b) each Transferee of such a Holder who (x) provides such Transferee's Holder Information promptly after its acquisition of Subject Shares and prior to the Company's request for acceleration of the Registration Statement, and (y) satisfies the conditions set forth in clauses (ii) and (iii) above. "Transfer" means the act of selling, giving, transferring, creating a trust (voting or otherwise), assigning or otherwise disposing of (other than pledging, hypothecating or otherwise transferring as security) (and correlative words shall have correlative meanings). "Transferee" means a Person to whom Registerable Shares are Transferred. "Violation" shall have the meaning set forth in Section 5.1 hereof. 2. Registration Obligations of the Company. The Company shall: 2.1 File the Registration Statement with the Commission not later than 15 days prior to the Required Effectiveness Date (determined without reference to the proviso included in the definition of such term) and thereafter use its best efforts to cause the Registration Statement to be declared effective on the Required Effectiveness Date. 2.2 Furnish to the Shareholder a copy of the Registration Statement for its review and comment not later than concurrently with the filing of the Registration Statement with the Commission. 2.3 The Company shall give notice to the Shareholder of the expected effectiveness of the Registration Statement no later than the date acceleration of such effectiveness is requested of the Commission; provided, however, that in no event shall the Company have any liability for any failure to give such notice. 2.4 Include in the Registration Statement the number of each Holder's Registrable Shares for each Holder as shall be specified for such Holder pursuant to Section 3.1 hereof. 2.5 Use its best efforts to keep the Registration Statement effective until the earlier of (i) one year after the Closing Date, or (ii) such date as of which all the Selling Holders have completed the distribution or other disposition of the Registrable Shares registered under the Registration Statement. If the Registration Statement is terminated pursuant to clause (i) above, the Company shall timely file with the Commission all reports and other information required to enable all holders of Registrable Shares to Transfer such shares pursuant to Rule 144 promulgated by the Commission under the Exchange Act, as amended. 2.6 During the effectiveness of the Registration Statement, upon notice to the Company by a Selling Holder of a Transfer of Registrable Shares pursuant to the Registration 23 Statement and receipt (i) by the Company of a certificate from such Selling Holder in the form of Annex B attached hereto, and (ii) by counsel for the Company of a certificate from such Selling Holder in the form of Annex C attached hereto, in each case representing that such Registrable Shares were offered and have been Transferred by such Selling Holder in a manner consistent with the description set under the caption "Plan of Distribution" in the Prospectus, the Company shall use its best efforts to cause such Registrable Shares to be reissued as soon as practicable (and not later than three Business Days following receipt by the Company and such counsel of such certificates) in the name of the transferee free of any restrictive legend under the Securities Act and to take all such actions as may be reasonably required to cause its transfer agent to comply with the undertakings set forth in this section. 2.7 Use its best efforts to amend the Registration Statement or supplement the Prospectus so that they will remain current and in compliance with the requirements of the Securities Act for the period specified in Section 2.4 hereof, and use its best efforts to give the Selling Holders notice of the happening of any event or development as a result of which the Registration Statement or Prospectus may contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein not misleading. In the event that any Registrable Shares included in the Registration Statement remain unsold at the end of the period during which the Company is obligated to use its best efforts to maintain the effectiveness of the Registration Statement, the Company may file a post-effective amendment to the Registration Statement for the purpose of de-registering such unsold Registrable Shares. 2.8 Furnish to each Selling Holder, without charge, such numbers of copies of the Registration Statement, any pre-effective or post-effective amendment thereto, the final Prospectus, and any amendments or supplements thereto, in each case in conformity with the requirements of the Securities Act, and such other related documents, as each Selling Holder may reasonably request in order to facilitate the Transfer of the Registrable Shares owned by such Selling Holder. 2.9 Use its best efforts to register and qualify the Registrable Shares covered by the Registration Statement under such securities laws of such states or jurisdictions as shall be reasonably requested by the Selling Holders; provided, however, that neither the Trust nor the Corporation shall be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 2.10 Promptly notify each Selling Holder of any stop order issued or threatened to be issued by the Commission or any of the jurisdictions referred to in Section 2.9 hereof in connection with the Registration Statement (and use its best efforts to prevent the entry of such stop order or to remove it if entered as promptly as practicable). 2.11 Use its best efforts to cause the Registrable Shares covered by the Registration Statement, if the Paired Shares are then listed on a securities exchange or included for quotation in a recognized trading market, to continue to be so listed or included. 3. The Holders' Obligations. 3.1 The obligations of the Company under Section 2 with respect to each Holder are subject to the satisfaction of each of the following conditions: 3.1.1 Not later than 10 days after the later of (i) the date hereof, or (ii) the date on which the Company delivers the Proposed Plan of Distribution to the Shareholder 24 (or such later date as the Company, in its sole and absolute discretion, shall determine), such Holder shall furnish all of its Holder Information to the Company, if such Holder Information discloses that such Holder holds not less than 100,000 Subject Shares (or such lesser number as the Company, in its sole and absolute discretion, shall determine for such Holder). 3.1.2 Prior to the effectiveness of the Registration Statement, such Holder shall furnish to the Company by a notice such amendments and supplements to its Holder Information provided pursuant to Section 3.1.1 hereof as may be necessary in order to assure that the Holder Information included in the Registration Statement for each Selling Holder does not include a misstatement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 3.1.3 Such Holder shall cooperate with the Company in the preparation of the Registration Statement in the manner and to the extent reasonably requested by the Company, including accurately and fully completing, executing and delivering to the Company such documents as the Company may reasonably request in order to permit the Company to obtain the Holder Information or to otherwise comply with all applicable laws or to obtain acceleration of the effectiveness of the Registration Statement. 3.1.4 Such Holder shall not have breached any of its obligations to the Company set forth in this Section 3.1 or in Sections 3 or 4 of the Stock Agreement; provided, however, that if such breach is one that is capable of being cured and is actually cured by such Holder in all material respects, the obligations of the Company to such Holder that arises, or which the Company is obligated to perform in whole or in part, after such cure shall be reinstated on the terms and subject to the conditions set forth herein. A Transferee of Subject Shares who is otherwise entitled to have such shares included in the Registration Statement shall be deemed not have breached its obligation to provide its Holder Information to the Company if it provides such information promptly after its acquisition of such shares and prior to the Company's request for acceleration of the Registration Statement 3.1.5 Such Holder shall not have made any material misrepresentation pursuant to Section 6 of the Stock Agreement. 3.2 No action taken or omitted to be taken by or on behalf of any Holder shall adversely affect the rights of any other Holder hereunder. 3.3 After the effectiveness of the Registration Statement, each Selling Holder (and each transferee thereof) shall furnish to the Company by a notice such amendments and supplements to its Holder Information provided pursuant to Section 3.1 hereof as may be necessary in order to assure that the Holder Information included in the Registration Statement for such Holder does not include a misstatement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 4. Expenses of Registration. The Company shall pay all expenses incurred in connection with the registration, filing and qualification of the Registrable Shares, including all registration, filing and NASD or securities exchange fees; all fees and expenses of complying with securities or blue sky laws; all word processing, duplicating and printing expenses; and the fees and disbursements of counsel and accountants for the Company; but excluding all discounts, commissions or fees of selling brokers or similar securities industry professionals and all fees and expenses of counsel and accountants for the Selling Holders. 25 5. Indemnification; Contribution. 5.1 To the extent permitted by applicable law, the Company shall indemnify and hold harmless each Selling Holder; each Person, if any, who controls such Selling Holder within the meaning of the Securities Act; and each officer, director, partner and employee of such Selling Holder and such controlling Person; against any and all losses, claims, damages, liabilities and expenses incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may become subject under the Securities Act, to the extent such losses, claims, damages, liabilities and expenses arise out of or are based upon any of the following (collectively a "Violation"): 5.1.1 Any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including any final Prospectus, or any amendments or supplements thereto; 5.1.2 The omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or provided, however, that the indemnification required by this Section 5.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or expense incurred by a Selling Holder (or any Person, if any, who controls such Selling Holder within the meaning of the Securities Act, or any officer, director, partner and employee of such Selling Holder and such controlling Person) to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with the Holder Information or other information furnished to the Company by or on behalf of such Selling Holder expressly for use in connection with the Registration Statement. 5.2 To the extent permitted by applicable law, each Selling Holder shall indemnify and hold harmless the Company; each of its directors, each of its officers who shall have signed the Registration Statement; each Person, if any, who controls the Company within the meaning of the Securities Act; any other Selling Holder, any controlling Person of any such other Selling Holder and each officer, director, partner, and employee of such other Selling Holder and such controlling Person; against any and all losses, claims, damages, liabilities and expenses, incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may otherwise become subject under the Securities Act, to the extent such losses, claims, damages, liabilities and expenses arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with the Holder Information or other information furnished to the Company by or on behalf of that Selling Holder expressly for use in connection with the Registration Statement. 5.3 Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action, suit, proceeding, investigation or threat thereof made in writing for which such indemnified party may make a claim under this Section 5, such indemnified party shall deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof 26 with counsel mutually satisfactory to the parties. The failure of an Indemnified Party to deliver written notice to the indemnifying party within a reasonable time following the commencement of any such action shall not relieve such indemnifying party of any liability to the indemnified party under this Section 5 unless such failure is prejudicial to such indemnifying party's ability to defend such action. Any fees and expenses incurred by the indemnified party (including any fees and expenses incurred in connection with investigating or preparing to defend such action or proceeding) shall be paid to the indemnified party, as incurred, within 30 days of written notice thereof to the indemnifying party (regardless of whether it is ultimately determined that an indemnified party is not entitled to indemnification hereunder). Any such indemnified party shall have the right to employ separate counsel in any such action, claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be the expenses of such indemnified party unless (i) the indemnifying party has agreed to pay such fees and expenses, or (ii) the indemnifying party shall have failed to promptly assume the defense of such action, claim or proceeding, or (iii) the named parties to any such action, claim or proceeding (including any impleaded parties) include both such indemnified party and the indemnifying party, and such indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or in addition to those available to the indemnifying party and that the assertion of such defenses would create a conflict of interest such that counsel employed by the indemnifying party could not faithfully represent the indemnified party (in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action, claim or proceeding on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action, claim or proceeding or separate but substantially similar or related actions, claims or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all such indemnified parties, unless in the reasonable judgment of such indemnified party a conflict of interest would exist between such indemnified party and any other of such indemnified parties with respect to such action, claim or proceeding, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels). No indemnifying party shall be liable to an indemnified party for any settlement of any action, proceeding or claim without the written consent of the indemnifying party, which consent shall not be unreasonably withheld or delayed. 5.4 If the indemnification required by this Section 5 from the indemnifying party is determined by a court of competent jurisdiction to be unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to in this Section 5: 5.4.1 The indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any Violation has been committed by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such Violation. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 5.1 and 5.2, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. 27 5.4.2 The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5.4 were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in Section 5.4.1. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of a fraudulent misrepresentation. 5.5 If indemnification is available under this Section 5, the indemnifying parties shall indemnify each indemnified party to the full extent provided in this Section 5 without regard to the relative fault of such indemnifying party or indemnified party or any other equitable consideration referred to in Section 5.4. 5.6 The obligations of the Company and the Selling Holders under this Section 5 shall survive the completion of any offering of Registrable Shares pursuant to the Registration Statement and any termination of this Agreement. 6. Amendment, Modification and Waivers; Further Assurances. 6.1 This Agreement may be amended with the consent of the Company and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it; in each case only if the Company shall have obtained the written consent of Holders holding more than 50% of the Registrable Shares. Such amendment, action or omission shall not require the consent of any other Holder. In addition, the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, that affects the rights hereunder of a specific Holder with the written consent of such Holder. 6.2 No waiver of any terms or conditions of this Agreement shall operate as a waiver of any other breach of such terms and conditions or any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof. No written waiver hereunder, unless it by its own terms explicitly provides to the contrary, shall be construed to effect a continuing waiver of the provisions being waived and no such waiver in any instance shall constitute a waiver in any other instance or for any other purpose or impair the right of the party against whom such waiver is claimed in all other instances or for all other purposes to require full compliance with such provision. 6.3 Each of the parties hereto shall execute all such further instruments and documents and take all such further action as any other party hereto may reasonably require in order to effectuate the terms and purposes of this Agreement. 7. Miscellaneous. 7.1 Business Day. Whenever this Agreement requires that an action be taken or a notice be given on a date that would otherwise not be a Business Day, the time period for taking such action or giving such notice shall be extended to the first day thereafter that is a Business Day. 7.2 Governing Law. This agreement shall be governed by and construed in accordance with the laws of the state of New York, without giving regard to the conflict of laws principles thereof. 7.3 Notices. All notices, requests, demands, consents, approvals, designations and other deliveries and communications called for or contemplated by this Agreement shall be in 28 writing and shall be given (i) in the case of Shareholder or the Company, to the address and in the manner set forth in Section 7 of the Stock Agreement, and (ii) in the case of any Holder other than Shareholder, in the manner set forth in Section 7 of the Stock Agreement and to the address provided to the Company in such Holder's Joinder Agreement. 7.4 Entire Agreement; Integration. This Agreement, together with the Stock Agreement, supersedes all prior agreements between or among any of the parties hereto with respect to the subject matter contained herein and therein, and such agreements embody the entire understanding among the parties relating to such subject matter. 7.5 Section Headings. Section headings are for convenience of reference only and shall not affect the meaning of any provision of this Agreement. 7.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which shall together constitute one and the same instrument. All signatures need not be on the same counterpart. 7.7 Severability. If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not affect the validity and enforceability of the remaining provisions of this Agreement, unless the result thereof would be unreasonable, in which case the parties hereto shall negotiate in good faith as to appropriate amendments hereto. 7.8 Termination. This Agreement may be terminated at any time by a written instrument signed by the parties hereto. Unless sooner terminated in accordance with the preceding sentence, this Agreement (other than Section 5 hereof) shall terminate in its entirety on such date as there shall be no Registrable Shares. 7.9 Attorneys' Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees (including any fees incurred in any appeal) in addition to its costs and expenses and any other available remedy. 7.10 No Third Party Beneficiaries or Assignees. Nothing herein expressed or implied is intended to confer upon any person, other than the parties hereto or the Holders (to the extent expressly provided herein) any rights, remedies, obligations or liabilities under or by reason of this Agreement. Neither this Agreement not the rights or obligations hereunder may be assigned or otherwise transferred by any Holder except as permitted herein with respect to a Transfer of Registrable Shares. 7.11 Starwood Hotels & Resorts Trust. The parties hereto understand and agree that the name "Starwood Hotels & Resorts Trust" is a designation of the Trust and its trustees (as trustees but not personally) under the Trust's Declaration of Trust, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 29 IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date first written above. "Shareholder" D.C. OVERNIGHT PARTNERS, L.P., a District of Columbia limited partnership By: D.C. OVERNIGHT, INC., a District of Columbia corporation, its sole General Partner /s/ Tarek Ayoubi ----------------------------- Tarek Ayoubi President STARWOOD HOTELS & RESORTS TRUST a Maryland real estate investment trust By: /s/ Steven R. Goldman ----------------------------- Steven R. Goldman Senior Vice President STARWOOD HOTELS & RESORTS WORLDWIDE, INC. a Maryland corporation By: /s/ Nir E. Margalit ----------------------------- Nir E. Margalit Secretary 30 ANNEX A to Registration Rights Agreement AGREEMENT TO BE BOUND BY THE REGISTRATION RIGHTS AGREEMENT The undersigned, being the transferee or the intended transferee of _________ Paired Shares (the "Registrable Shares") of Starwood Hotels & Resorts Trust, a Maryland real estate investment trust, and Starwood Lodging Corporation, a Maryland corporation (together, the "Company"), as a condition to the transfer to and acquisition by the undersigned of such Registrable Shares, acknowledges that matters pertaining to the sale and registration of such Registrable Shares are governed by the Registration Rights Agreement (the "Registration Rights Agreement"), dated as of January 15, 1998, initially among the Company and D.C. Overnight Partners, L.P., a District of Columbia limited partnership, and the undersigned hereby (1) acknowledges receipt of a copy of such agreement, and (2) agrees to be bound as a "Holder" by the terms of the Registration Rights Agreement, as the same has been or may be amended from time to time. Agreed to this ____ day of __________, _____. ___________________________________ By: __________________________ Its: __________________________ Address, telephone number and telecopy number for notices: ___________________________________ ___________________________________ ___________________________________ ___________________________________ 31 ANNEX B to Registration Rights Agreement [Letterhead of Selling Holder] ____________, 199__ BY TELECOPIER Starwood Hotels & Resorts Trust 2231 E. Camelback Road, Suite 410 Phoenix, Arizona 85016 Attention: Ronald C. Brown or Chief Financial Officer Starwood Hotels & Resorts Worldwide, Inc. 2231 E. Camelback Road, Suite 400 Phoenix, Arizona 85016 Attention: Alan M. Schnaid or Vice President Re: Starwood Hotels & Resorts Ladies and Gentlemen: Reference is made to the prospectus (the "Prospectus") included in the Registration Statement on Form S-3 (Registration No. ___________) filed by Starwood Hotels & Resorts Trust (the "Trust") and Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation" and, together with the Trust, the "Company") with the Securities and Exchange Commission on _________, 1998, under the Securities Act of 1933, as amended (the "Securities Act"), relating to the registration for resale by the shareholders named therein of certain shares of beneficial interest, par value $.01 per share, of the Trust, and shares of common stock, par value $.01 per share, of the Corporation (the "Paired Shares"), including _______ Paired Shares held by the undersigned. ___________ of the Paired Shares held by the undersigned were offered for sale and have been sold by the undersigned in a manner consistent with the description set under the caption "Plan of Distribution" in the Prospectus. Thus, the undersigned requests that new certificates evidencing such Paired Shares be issued in the name of _________________________, the transferee, free of any restrictive legend under the Securities Act. Very truly yours, [Name and signature of Selling Holder] 32 ANNEX C to Registration Rights Agreement [Letterhead of Selling Holder] ____________, 199__ BY TELECOPIER Sidley & Austin 555 West Fifth Street Los Angeles, California 90013 Attention: Sherwin L. Samuels, Esq., Kenneth H. Levin, Esq. and James V. Robertson, Esq. Re: Starwood Hotels & Resorts Ladies and Gentlemen: Reference is made to the prospectus (the "Prospectus") included in the Registration Statement on Form S-3 (Registration No. ___________) filed by Starwood Hotels & Resorts Trust (the "Trust") and Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation" and, together with the Trust, the "Company") with the Securities and Exchange Commission on _________, 1998, under the Securities Act of 1933, as amended (the "Securities Act"), relating to the registration for resale by the shareholders named therein of certain shares of beneficial interest, par value $.01 per share, of the Trust, and shares of common stock, par value $.01 per share, of the Corporation (the "Paired Shares"), including _______ Paired Shares held by the undersigned. The undersigned understands that you have been requested by the Company to deliver an opinion to the Company's transfer agent that, upon the sale by the undersigned of the Paired Shares, certificates evidencing such shares may be issued to the transferee(s) without any restrictive legend under the Securities Act. For the purpose of facilitating the delivery by you of such opinion, the undersigned, hereby represents that _______ of the Paired Shares held by the undersigned were offered for sale and have been sold in a manner consistent with the description set under the caption "Plan of Distribution" in the Prospectus. The undersigned understands that you will be relying on the foregoing representations in rendering your opinion, and the undersigned consents to such reliance. Very truly yours, [Name and signature of Selling Holder] EX-10.63 38 EX-10.63 1 Exhibit 10.63 PLEDGE AND SECURITY AGREEMENT PLEDGE AND SECURITY AGREEMENT, dated as of February 23, 1998 (as amended, modified or supplemented from time to time, this "Agreement"), made by each of the undersigned (each a "Pledgor", and together with any entity that becomes a party hereto pursuant to Section 24 hereof, the "Pledgors"), in favor of BANKERS TRUST COMPANY, as Collateral Agent (the "Pledgee"), for the benefit of the Secured Creditors (as defined below). Except as otherwise defined herein, terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. W I T N E S S E T H : WHEREAS, Starwood Hotels & Resorts ("Starwood REIT"), SLT Realty Limited Partnership ("SLT RLP"), Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation"), ITT Corporation (as successor in interest to Chess Acquisition Corp., "ITT"), each Alternate Currency Revolving Loan Borrower from time to time party thereto (together with Starwood REIT, SLT RLP, the Corporation and ITT, each a "Borrower" and collectively, the "Borrowers"), various lenders from time to time party thereto (the "Lenders"), Bankers Trust Company and The Chase Manhattan Bank, as Administrative Agents (in such capacity and together with any successor agent, the "Administrative Agents,"), and Lehman Commercial Paper Inc. and Bank of Montreal, as Syndication Agents (in such capacity, the "Syndication Agents" and, together with the Pledgee, the Administrative Agents, and the Lenders and their respective successors and assigns, and together with any other lenders from time to time party to the Credit Agreement hereinafter referred to, the "Lender Creditors"), have entered into a Credit Agreement, dated as of February 23, 1998, providing for the making of Loans to the Borrowers and the issuance of, and participation in, Letters of Credit for the account of the Dollar Revolving Loan Borrowers, all as contemplated therein (as used herein, the term "Credit Agreement" means the Credit Agreement described above in this paragraph, as the same may be amended, modified, extended, renewed, replaced restated, supplemented or refinanced from time to time, and including any agreement extending the maturity of, or refinancing or restructuring (including, but not limited to, the inclusion of additional borrowers or guarantors thereunder or any increase in the amount borrowed) all or any portion of, the indebtedness under such agreement or any successor agreement, whether or not with the same agent, trustee, representative, lenders or holders; provided that, with respect to any agreement providing for the refinancing or replacement of indebtedness under the Credit Agreement, such agreement shall only be treated as, or as part of, the Credit Agreement hereunder if (i) either (A) all obligations under the Credit Agreement being refinanced or replaced shall be paid in full at the time of such refinancing or replacement, and all commitments and letters of credit issued pursuant to the refinanced or replaced Credit Agreement shall have terminated in accordance with their terms or (B) the Required Lenders shall have consented in writing to the refinancing or replacement indebtedness being treated as indebtedness pursuant to the Credit Agreement, and (ii) a notice to the effect that the refinancing or replacement indebtedness shall be treated as issued under the Credit Agreement shall be 2 delivered by the Parent Companies to the Pledgee); WHEREAS, each Borrower may from time to time be party to (or guaranty the obligations of one or more of its Subsidiaries under) one or more Interest Rate Protection Agreements with a Lender Creditor or an affiliate of a Lender Creditor (each such Lender Creditor or affiliate, even if the respective Lender Creditor subsequently ceases to be a Lender under the Credit Agreement for any reason, together with such Lender Creditor's or affiliate's successors and assigns, collectively, the "Interest Rate Protection Creditors"); WHEREAS, pursuant to the Guaranty, the Guarantors have jointly and severally guaranteed to the Lender Creditors and the Interest Rate Protection Creditors the payment when due of all obligations and liabilities of each Borrower under or with respect to (x) the Credit Documents (as used herein, the term "Credit Documents" shall have the meaning provided in the Credit Agreement and shall include any documentation executed and delivered in connection with any replacement or refinancing Credit Agreement) and (y) each Interest Rate Protection Agreement with one or more Interest Rate Protection Creditors; WHEREAS, ITT has, prior to the date hereof, issued $2,000,000,000 in aggregate principal amount of ITT Notes (with the holders from time to time of such ITT Notes being herein called the "ITT Noteholders") pursuant to the ITT Indenture; WHEREAS, to the extent permitted pursuant to the Credit Agreement, various of the Pledgors may issue, or enter into, guarantees of the payment when due of the obligations and liabilities of ITT under or with respect to the ITT Notes and the ITT Indenture (with any such guarantees, together with the ITT Notes and ITT Indenture being herein collectively called "ITT Note Documents"); WHEREAS, Permitted Refinancing Indebtedness may from time to time be incurred in accordance with the requirements of the Credit Agreement in respect of the ITT Notes or Permitted Refinancing Indebtedness which previously refinanced the ITT Notes, and any such Permitted Refinancing Indebtedness (such Permitted Refinancing Indebtedness being herein called "Qualified Permitted Refinancing Indebtedness") may be (in accordance with the terms thereof and to the extent permitted pursuant to the Credit Agreement) (x) guaranteed by various of the Pledgors and (y) secured hereunder on an equal and ratable basis as with the Credit Document Obligations (as defined below) as provided herein (with any holders or lenders of such Qualified Permitted Refinancing Indebtedness from time to time being herein collectively called the "Permitted Refinancing Creditors" and with all documentation evidencing any Qualified Permitted Refinancing Indebtedness or any guarantees thereof being herein called the "Permitted Refinancing Documents"); WHEREAS, the Corporate Borrowers may in the future issue Senior Secured Notes as provided in Section 9.04(viii) of the Credit Agreement that may be (in accordance with the terms thereof and to the extent permitted pursuant to the Credit Agreement as same is in effect on the date of the respective issuance) (x) guaranteed by various of the Pledgors and (y) equally and ratably secured hereunder with the Credit Document Obligations as hereinafter provided (with any holders of Senior Secured Notes from time to time being herein collectively 3 called "Senior Secured Noteholders" and with all documentation evidencing any Senior Secured Notes or any guarantees thereof being herein called "Senior Secured Note Documents"); WHEREAS, it is a condition precedent to the extensions of credit under the Credit Agreement that each Pledgor shall have executed and delivered to the Pledgee this Agreement; WHEREAS, each Pledgor desires to execute this Agreement to satisfy the conditions described in the immediately preceding paragraph; NOW, THEREFORE, in consideration of the benefits accruing to each Pledgor, the receipt and sufficiency of which are hereby acknowledged, each Pledgor hereby makes the following representations and warranties to the Pledgee and hereby covenants and agrees with the Pledgee as follows: 1. SECURITY FOR OBLIGATIONS; CERTAIN EXCLUDED OBLIGATIONS; SUBORDINATION OF CERTAIN SECURITY INTERESTS. (a) Subject to the provisions of the following clauses (b) and (c) of this Section 1, this Agreement is made by each Pledgor for the benefit of the Lender Creditors and, to the extent from time to time holding Obligations (as defined below) of such Pledgor secured hereunder, each of the Interest Rate Protection Creditors, the ITT Noteholders, the Permitted Refinancing Creditors and the Senior Secured Noteholders (collectively, together with the Pledgee, the "Secured Creditors"), to secure: (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities (including, without limitation, indemnities, Fees and interest thereon) of such Pledgor to the Lender Creditors, now existing or hereafter incurred under, arising out of or in connection with each Credit Agreement and all other Credit Document to which it is at any time a party (including, without limitation, all such obligations and liabilities of such Pledgor under each Credit Agreement (if a party thereto) and under the Guaranty or under any other guarantee by it of obligations pursuant to any Credit Agreement) and the due performance and compliance by such Pledgor with the terms of each such Credit Document (all such obligations and liabilities under this clause (i) being herein collectively called the "Credit Document Obligations"); (ii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of such Pledgor to the Interest Rate Protection Creditors, now existing or hereafter incurred under, arising out of or in connection with any Interest Rate Protection Agreement (including, without limitation, all such obligations and liabilities of such Pledgor under the Guaranty with respect thereto or under any other guarantee by it of obligations pursuant to any Interest Rate Protection Agreement) and the due performance and compliance by such Pledgor with the terms of each such Interest Rate Protection Agreement (all such obligations and liabilities under this clause (ii) being herein 4 collectively called the "Interest Rate Protection Obligations"); (iii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of such Pledgor (as obligor or guarantor, as the case may be) to the ITT Noteholders, whether now existing or hereafter incurred under, arising out of or in connection with the ITT Notes and the other ITT Note Documents to which such Pledgor is at any time a party and the due performance and compliance by such Pledgor with all of the terms, conditions and agreements on its part contained in the ITT Note Documents (all such obligations and liabilities under this clause (iii) being herein collectively, called the "ITT Note Obligations"); (iv) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of such Pledgor (as obligor or guarantor, as the case may be) to the Permitted Refinancing Creditors, whether now existing or hereafter incurred under, arising out of or in connection with the Permitted Refinancing Documents to which such Pledgor is at any time a party and the due performance and compliance by such Pledgor with all of the terms, conditions and agreements on its part contained in the Permitted Refinancing Documents (all such obligations and liabilities under this clause (iv) being herein collectively, called the "Permitted Refinancing Obligations"); (v) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of such Pledgor (as obligor or guarantor, as the case may be) to the Senior Secured Noteholders, whether now existing or hereafter incurred under, arising out of or in connection with the Senior Secured Notes and the other Senior Secured Note Documents to which such Pledgor is at any time a party and the due performance and compliance by such Pledgor with all of the terms, conditions and agreements on its part contained in the Senior Secured Note Documents (all such obligations and liabilities under this clause (v) being herein collectively, called the "Senior Secured Note Obligations"); (vi) any and all sums advanced by the Pledgee in order to preserve the Collateral (as hereinafter defined) or preserve its security interest in the Collateral; (vii) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities referred to in clauses (i) through (vi) above, after an Event of Default (such term, as used in this Agreement, shall mean any Event of Default at any time under, and as defined in, any of the Credit Agreement and, if the related Obligations (as defined below) are secured hereunder at such time, the ITT Note Documents, the Permitted Refinancing Documents and the Senior Secured Note Documents and any payment default (after the expiration of any applicable grace period) 5 on any of the Obligations secured hereunder at such time) shall have occurred and be continuing, the reasonable expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing or realizing on the Collateral, or of any exercise by the Pledgee of its rights hereunder, together with reasonable attorneys' fees and court costs; and (viii) all amounts paid by any Secured Creditor as to which such Secured Creditor has the right to reimbursement under Section 11 of this Agreement; all such obligations, liabilities, sums and expenses set forth in clauses (i) through (viii) of this Section 1, subject to the provisions of following clause (b), being herein collectively called the "Obligations," it being acknowledged and agreed that the "Obligations" shall include extensions of credit of the type described above, whether outstanding on the date of this Agreement or extended from time to time after the date of this Agreement. (b) Notwithstanding anything to the contrary contained above in this Section 1 or elsewhere in this Agreement, (i) obligations and liabilities which would otherwise constitute Obligations as defined in clauses (iii) through (v) inclusive, of Section 1(a) shall not constitute Obligations for purposes of (or be secured pursuant to) this Agreement if same were incurred (or guaranteed) in violation of the provisions of Section 9.04 of the Credit Agreement as same is in effect on the date of the incurrence of the respective obligations or liabilities (or, in the case of ITT Note Obligations, as same is in effect on the Initial Borrowing Date), (ii) no Obligations as otherwise described in clauses (iii) through (v) inclusive, of Section 1(a) of this Agreement shall be secured pursuant hereto if the respective security interests are prohibited by the terms of Section 9.01 of the Credit Agreement as same is in effect on the date of the incurrence of the respective obligations or liabilities (or, in the case of ITT Note Obligations, as same is in effect on the Initial Borrowing Date) and (iii) no obligations of the types described in clauses (iii) through (v), inclusive, of Section 1(a) of this Agreement shall constitute Obligations secured pursuant to this Agreement unless, within 30 days of the date of the incurrence of the respective Indebtedness (or within 30 days after the Initial Borrowing Date in the case of Indebtedness outstanding on the Initial Borrowing Date), the following condition is satisfied: A written notice from the Parent Companies, stating that it is a "Notice of Pledge Agreement Entitlement" (each a "Notice of Pledge Agreement Entitlement") shall be delivered to the Pledgee, which written notice shall describe the respective Obligations (and which shall describe the Pledgors obligated, as obligors or guarantors, with respect thereto) to be secured hereby. Each Notice of Pledge Agreement Entitlement shall state that it is delivered pursuant to Section 1(b) of this Pledge and Security Agreement and shall reference the aggregate principal amount of the respective Indebtedness constituting Obligations hereunder and shall specify the sub-clause of Section 1(a) pursuant to which same constitute Obligations. At the option of the Parent Companies, a Notice of Pledge Agreement Entitlement may also contain an election as described in the immediately succeeding sentence. 6 Notwithstanding anything to the contrary contained in Section 1 or elsewhere in this Agreement, if the Parent Companies elect, in the respective Notice of Pledge Agreement Entitlement, that any Pledgor's or Pledgors' obligations with respect to any Indebtedness of the type described in clauses (iii) through (v) inclusive, of Section 1(a) of this Agreement shall not be secured pursuant to this Agreement, then any obligations of the respective Pledgor or Pledgors so designated shall not be secured pursuant to this Agreement. 2. DEFINITION OF STOCK, LIMITED LIABILITY COMPANY INTERESTS, PARTNERSHIP INTERESTS, SECURITIES, ETC. (a) As used herein: (i) the term "Stock" shall mean (x) with respect to corporations incorporated under the laws of the United States or any State or territory thereof (each a "Domestic Corporation"), all of the issued and outstanding shares of capital stock of any Domestic Corporation at any time owned by any Pledgor and (y) with respect to corporations that are not Domestic Corporations (each a "Foreign Corporation"), all of the issued and outstanding shares of capital stock of any Foreign Corporation at any time owned by any Pledgor, provided that, (A) except as provided in the last sentence of this Section 2(a), such Pledgor shall not be required to pledge hereunder more than 65% of the total combined voting power of all classes of capital stock entitled to vote for the directors of such Foreign Corporation (herein called "Voting Stock") owned by such Pledgor of any Foreign Corporation, (B) the Pledgor shall be required to pledge hereunder 100% of the issued and outstanding shares of all capital stock which is not Voting Stock (herein called "Non-Voting Stock") at any time owned by the Pledgor of any Foreign Corporation, (C) to the extent provided in Section 8.16 of the Credit Agreement, such Pledgor shall not be required to pledge hereunder any Margin Stock owned by such Pledgor (although, to the extent required by Section 8.16 of the Credit Agreement, Margin Stock may be required to be pledged hereunder from time to time) (and (D) to the extent provided in Section 13.19 of the Credit Agreement, such Pledgor shall not be required to pledge hereunder any outstanding shares of ITT MSG, Inc. capital stock (although, to the extent required by Section 13.19 of the Credit Agreement, the capital stock of ITT MSG, Inc. shall be required to be pledged hereunder); (ii) the term "Limited Liability Company Interest" shall mean the entire limited liability company interests at any time owned by each Pledgor in any limited liability company; (iii) the term "Partnership Interest" shall mean the entire partnership interests (whether general and/or limited partnership interests) at any time owned by each Pledgor in any Person; and (iv) the term "Securities" shall mean all of the Stock, Limited Liability Company Interests and Partnership Interests. Each Pledgor represents and warrants that on the date hereof (i) the Stock held by such Pledgor consists of the number and type of shares of the stock of the corporations as described in Annex A hereto; (ii) such Stock constitutes that percentage of the issued and outstanding capital stock of the issuing corporation as is set forth in Annex A hereto; (iii) the Limited Liability Interests held by such Pledgor consist of the number and type of interest of the issuing Person as described in Annex B hereto; (iv) such Limited Liability Company Interests constitute that percentage of the issued and outstanding equity interests of the issuing Person as set forth in Annex B hereto; (v) the Partnership Interests held by such Pledgor constitute that percentage of the entire Partnership Interest of the respective Pledged Partnership as is set forth in Annex C hereto for such Pledgor; and (vi) on the date hereof, such Pledgor owns no other Securities. In the circumstances and to the extent provided in Section 8.14 of the Credit Agreement, the limitation set forth in part (A) of the proviso to clause (i)(y) of this Section 2(a) and in Section 3.2 hereof shall no longer be applicable and such 7 Pledgor shall duly pledge and deliver to the Pledgee such of the Securities not theretofore required to be pledged hereunder. (b) All Stock at any time pledged or required to be pledged hereunder is hereinafter called the "Pledged Stock," all Limited Liability Company Interests at any time pledged or required to be pledged hereunder are hereinafter called the "Pledged Limited Liability Company Interests," all Partnership Interests at any time pledged or required to be pledged hereunder are hereinafter called the "Pledged Partnership Interests," all of the Pledged Stock, Pledged Limited Liability Interests and Pledged Partnership Interests together are hereinafter called the "Pledged Securities," which together with all proceeds thereof, including any securities and moneys received and at the time held by the Pledgee hereunder and all rights under Section 3.1(a)(iv) and (v) are hereinafter called the "Collateral". 3. PLEDGE OF SECURITIES, ETC. 3.1. Pledge. (a) To secure all Obligations of such Pledgor and for the purposes set forth in Section 1 hereof, each Pledgor hereby: (i) grants to the Pledgee a security interest in all of the Collateral owned by such Pledgor; (ii) pledges and deposits as security with the Pledgee the Securities owned by such Pledgor on the date hereof, and delivers to the Pledgee certificates or instruments therefor, accompanied by undated stock powers duly executed in blank by such Pledgor in the case of Stock, or such other instruments of transfer as are reasonably acceptable to the Pledgee; (iii) assigns, transfers, hypothecates, mortgages, charges and sets over to the Pledgee all of such Pledgor's right, title and interest in and to such Securities (and in and to all certificates or instruments evidencing such Securities), to be held by the Pledgee, upon the terms and conditions set forth in this Agreement; (iv) transfers and assigns to the Pledgee all of such Pledgor's Limited Liability Company Interests and all of such Pledgor's right, title and interest in each limited liability company to which such interests relate, whether now existing or hereafter acquired, including, without limitation: (A) all the capital thereof and its interest in all profits, losses, Limited Liability Company Assets (as defined below) and other distributions to which such Pledgor shall at any time be entitled in respect of such Limited Liability Company Interests; (B) all other payments due or to become due to such Pledgor in respect of Limited Liability Company Interests, whether under any limited liability company agreement or otherwise, whether as contractual obligations, damages, insurance proceeds or otherwise; (C) all of its claims, rights, powers, privileges, authority, options, security interest, liens and remedies, if any, under any limited liability company agreement or operating agreement, or at law or otherwise in respect of such Limited Liability Company Interests; (D) all present and future claims, if any, of such Pledgor against any such limited liability company for moneys loaned or advanced, for services rendered or otherwise; 8 (E) all of such Pledgor's rights under any limited liability company agreement or operating agreement or at law to exercise and enforce every right, power, remedy, authority, option and privilege of such Pledgor relating to such Limited Liability Company Interests, including any power to terminate, cancel or modify any limited liability company agreement or operating agreement, to execute any instruments and to take any and all other action on behalf of and in the name of such Pledgor in respect of such Limited Liability Company Interest and any such limited liability company, to make determinations, to exercise any election (including, but not limited to, election of remedies) or option or to give or receive any notice, consent, amendment, waiver or approval, together with full power and authority to demand, receive, enforce, collect or receipt for any of the foregoing or for any Limited Liability Company Asset, to enforce or execute any checks, or other instruments or orders, to file any claims and to take any action in connection with any of the foregoing; (F) all other property hereafter delivered in substitution for or in addition to any of the foregoing, all certificates and instruments representing or evidencing such other property and all cash, securities, interest, dividends, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all thereof; and (G) to the extent not otherwise included, all proceeds of any or all of the foregoing; and (v) transfers and assigns to the Pledgee such Pledgor's Partnership Interests (and delivers any certificates or instruments evidencing such partnership interests, duly endorsed in blank) and all of such Pledgor's right, title and interest in each Pledged Partnership including, without limitation: (A) all of the capital thereof and its interest in all profits, losses, Partnership Assets (as defined below) and other distributions to which such Pledgor shall at any time be entitled in respect of any such Collateral; (B) all other payments due or to become due to such Pledgor in respect of any such Collateral, whether under any partnership agreement or otherwise, whether as contractual obligations, damages, insurance proceeds or otherwise; (C) all of its claims, rights, powers, privileges, authority, options, security interest, liens and remedies, if any, under any partnership or other agreement or at law or otherwise in respect of any such Collateral; (D) all present and future claims, if any, of such Pledgor against any Pledged Partnership for moneys loaned or advanced, for services rendered or otherwise; (E) all of such Pledgor's rights under any partnership agreement or at law to exercise and enforce every right, power, remedy, authority, option and privilege of such Pledgor relating to any Partnership Interest, including any power, if any, to terminate, 9 cancel or modify any general or limited partnership agreement, to execute any instruments and to take any and all other action on behalf of and in the name of such Pledgor in respect of such Partnership Interest and any Pledged Partnership, to make determinations, to exercise any election (including, but not limited to, election of remedies) or option or to give or receive any notice, consent, amendment, waiver or approval, together with full power and authority to demand, receive, enforce, collect or receipt for any of the foregoing or for any Partnership Asset, to enforce or execute any checks, or other instruments or orders, to file any claims and to take any action in connection with any of the foregoing; (F) all other property hereafter delivered in substitution for or in addition to any of the foregoing, all certificates and instruments representing or evidencing such other property and all cash, securities, interest, dividends, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all thereof; and (G) to the extent not otherwise included, all proceeds of any or all of the foregoing. (b) As used herein, the term "Limited Liability Company Assets" shall mean all assets, whether tangible or intangible and whether real, personal or mixed (including, without limitation, all limited liability company capital and interests in other limited liability companies), at any time owned or represented by any Limited Liability Company Interest. (c) As used herein, the term "Partnership Assets" shall mean all assets, whether tangible or intangible and whether real, personal or mixed (including, without limitation, all partnership capital and interests in other partnerships), at any time owned by any Pledged Partnership or represented by any Partnership Interest. 3.2. Subsequently Acquired Securities. If any Pledgor shall acquire (by purchase, stock dividend or otherwise) any additional Securities at any time or from time to time after the date hereof, such Securities shall automatically (and without any further action being required to be taken) be subject to the pledge and security interests created pursuant to Section 3.1(a) and, furthermore, such Pledgor will forthwith deliver and deposit such Securities (or certificates or instruments representing such Securities) as security with the Pledgee and deliver to the Pledgee certificates therefor or instruments thereof, and accompanied by undated stock powers duly executed in blank in the case of Stock, Limited Liability Company Interests or Partnership Interests or such other instruments of transfer as are reasonably acceptable to the Pledgee, and will promptly thereafter deliver to the Pledgee a certificate executed by any Authorized Officer of such Pledgor describing such Securities and certifying that the same have been duly pledged with the Pledgee hereunder. Subject to the last sentence of Section 2(a) hereof, any pledge of Voting Stock of any Foreign Corporation shall be subject to the provisions of part (A) of the proviso to clause (i)(y) of Section 2(a) hereof. 3.3. Uncertificated Securities. If any Securities (whether now owned or hereafter acquired) are uncertificated securities, the respective Pledgor shall promptly notify the Pledgee 10 thereof, and shall promptly take all actions required to perfect the security interest of the Pledgee under applicable law (including, in any event, under Sections 8-106 and 9-115 of the New York UCC, if applicable). Each Pledgor further agrees to take such actions as the Pledgee deems reasonably necessary or desirable to effect the foregoing and to permit the Pledgee to exercise any of its rights and remedies hereunder, and agrees to provide an opinion of counsel reasonably satisfactory to the Pledgee with respect to any such pledge of uncertificated Securities promptly upon request of the Pledgee. 4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. (a) The Pledgee shall have the right to appoint one or more sub-agents for the purpose of retaining physical possession of the Pledged Securities, which may be held (in the discretion of the Pledgee) in the name of such Pledgor, endorsed or assigned in blank or in favor of the Pledgee or any nominee or nominees of the Pledgee or a sub-agent appointed by the Pledgee. The Pledgee agrees to promptly notify the relevant Pledgor after the appointment of any sub-agent; provided, however, that the failure to give such notice shall not affect the validity of such appointment. (b) In the case of any Pledgor's grant to the Pledgee of Securities of any corporation, partnership or limited liability company that holds a Nevada gaming license, such Securities shall be held by a sub-agent of the Pledgee residing in the state of Nevada. 5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until an Event of Default shall have occurred and be continuing, each Pledgor shall be entitled to (i) exercise any and all voting and other consensual rights pertaining to the Pledged Stock and to give all consents, waivers or ratification's in respect thereof; and (ii) exercise any and all voting, consent, administration, management and other rights and remedies under (x) any limited liability company agreement or operating agreement or otherwise with respect to the Pledged Limited Liability Interests of such Pledgor and (y) any partnership agreement or otherwise with respect to the Pledged Partnership Interests of such Pledgor; provided, that no vote shall be cast or any consent, waiver or ratification given or any action taken which would violate or be inconsistent with any of the terms of this Agreement or any other Credit Document, or which would have the effect of impairing the rights, priorities or remedies of the Pledgee or any other Secured Creditor under this Agreement or any other Credit Documents. All such rights of such Pledgor to vote and to give consents, waivers and ratification's shall cease in case an Event of Default shall occur and be continuing, and Section 7 hereof shall become applicable. 6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless an Event of Default shall have occurred and be continuing, all cash dividends and other cash distributions payable in respect of the Pledged Securities shall be paid to the respective Pledgor; provided, that all cash dividends and other cash distributions payable in respect of any Pledged Security which are determined by the Pledgee to represent in whole or in part an extraordinary, liquidating or other distribution in return of capital shall be paid, to the extent so determined to represent an extraordinary, liquidating or other distribution in return of capital, to the Pledgee and retained by it as part of the Collateral. The Pledgee shall also be entitled to receive directly, and to retain as part of the Collateral: (i) all other or additional stock or other securities or property (other than cash) 11 paid or distributed by way of dividend or otherwise in respect of the Pledged Stock, Pledged Limited Liability Company Interests and Pledged Partnership Interests; (ii) all other or additional stock or other securities or property (including cash) paid or distributed in respect of the Pledged Stock, Pledged Limited Liability Company Interests or Pledged Partnership Interests by way of stock-split, spin-off, split-up, reclassification, combination of shares or similar rearrangement; and (iii) all other or additional stock or other securities or property (including cash) which may be paid in respect of the Collateral by reason of any consolidation, merger, exchange of stock, conveyance of assets, liquidation or similar corporate reorganization. Nothing contained in this Section 6 shall limit or restrict in any way the Pledgee's right to receive proceeds of the Collateral in any form in accordance with Section 3 of this Agreement. All dividends, distributions or other payments which are received by the Pledgor contrary to the provisions of this Section 6 and Section 7 below shall be received in trust for the benefit of the Pledgee, shall be segregated from other property or funds of the Pledgor and shall be forthwith paid over to the Pledgee as Collateral in the same form as so received (with any necessary endorsement). 7. REMEDIES IN CASE OF EVENT OF DEFAULT. In case an Event of Default shall have occurred and be continuing, the Pledgee shall be entitled to exercise all of the rights, powers and remedies (whether vested in it by this Agreement or by any other Credit Document or, to the extent then in effect and secured hereby, any Interest Rate Protection Agreement, any ITT Note Document, any Permitted Refinancing Document, any Senior Secured Note Document (with all of the Documents listed above being herein collectively called the "Senior Documents" or the "Secured Debt Agreements") or by law) for the protection and enforcement of its rights in respect of the Collateral, and the Pledgee shall be entitled to exercise all the rights and remedies of a secured party under the UCC and also shall be entitled, without limitation, to exercise the following rights, which each Pledgor hereby agrees to be commercially reasonable: (i) to receive all amounts payable in respect of the Collateral payable to such Pledgor under Section 6 hereof; (ii) to transfer all or any part of the Pledged Securities into the Pledgee's name or the name of its nominee or nominees (the Pledgee agrees to promptly notify the relevant Pledgor after such transfer; provided, however, that the failure to give such notice shall not affect the validity of such transfer); (iii) to vote all or any part of the Pledged Stock, Pledged Limited Liability Company Interests or Pledged Partnership Interests (whether or not transferred into the name of the Pledgee) and give all consents, waivers and ratification's in respect of the Collateral and otherwise act with respect thereto as though it were the outright owner thereof (each Pledgor hereby irrevocably constituting and appointing the Pledgee the proxy and attorney-in-fact of such Pledgor, with full power of substitution to do so); and 12 (iv) at any time or from time to time to sell, assign and deliver, or grant options to purchase, all or any part of the Collateral, or any interest therein, at any public or private sale, without demand of performance, advertisement or notice of intention to sell or of the time or place of sale or adjournment thereof or to redeem or otherwise (all of which are hereby waived by each Pledgor), for cash, on credit or for other property, for immediate or future delivery without any assumption of credit risk, and for such price or prices and on such terms as the Pledgee in its absolute discretion may determine; provided, that at least 10 Business Days' notice of the time and place of any such sale shall be given to such Pledgor. Each Pledgor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale hereunder, and all rights, if any, of marshalling the Collateral and any other security for the Obligations or otherwise. At any such sale, unless prohibited by applicable law, the Pledgee on behalf of the Secured Creditors may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. Neither the Pledgee nor any Secured Creditor shall be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing nor shall any of them be under any obligation to take any action whatsoever with regard thereto. 8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of the Pledgee provided for in this Agreement or any other Secured Debt Agreement or now or hereafter existing at law or in equity or by statute shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy. The exercise or beginning of the exercise by the Pledgee or any other Secured Creditor of any one or more of the rights, powers or remedies provided for in this Agreement or any other Secured Debt Agreement or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Pledgee or any other Secured Creditor of all such other rights, powers or remedies, and no failure or delay on the part of the Pledgee or any other Secured Creditor to exercise any such right, power or remedy shall operate as a waiver thereof. The Secured Creditors agree that this Agreement may be enforced only by the action of the Administrative Agents or the Pledgee, in each case acting upon the instructions of the Required Secured Creditors (as defined in Annex G hereto) and that no other Secured Creditor shall have any right individually to seek to enforce or to enforce this Agreement or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agents or the Pledgee, as the case may be, for the benefit of the Secured Creditors upon the terms of this Agreement. 9. APPLICATION OF PROCEEDS. (a) All moneys collected by the Collateral Agent upon any sale or other disposition of the Collateral of each Pledgor, together with all other moneys received by the Collateral Agent hereunder, shall be applied as follows: (i) first, to the payment of all Obligations owing to the Collateral Agent of the type provided in clauses (vii) and (viii) of the definition of Obligation; (ii) second, to the extent proceeds remain after the application pursuant to the preceding clause (i), an amount equal to the outstanding Primary Obligations of the respective Pledgor shall be paid to the Secured Creditors (with such Secured Creditors 13 being herein called the "Senior Secured Creditors") as provided in Section 9(e) hereof, with each Senior Secured Creditor receiving an amount equal to its outstanding Primary Obligations of such Pledgor or, if the proceeds are insufficient to pay in full all such Primary Obligations, its Pro Rata Share of the amount remaining to be distributed; (iii) third, to the extent proceeds remain after the application pursuant to the preceding clauses (i) and (ii), an amount equal to the outstanding Secondary Obligations of the respective Pledgor shall be paid to the Senior Secured Creditors as provided in Section 9(e) hereof, with each Senior Secured Creditor receiving an amount equal to its outstanding Secondary Obligations of such Pledgor or, if the proceeds are insufficient to pay in full all such Secondary Obligations, its Pro Rata Share of the amount remaining to be distributed; and (iv) fifth, to the extent proceeds remain after the application pursuant to the preceding clauses (i) through (iii), inclusive, and following the termination of this Agreement pursuant to Section 18 hereof, to the relevant Pledgor or to whomever may be lawfully entitled to receive such surplus. (b) For purposes of this Agreement (x) "Pro Rata Share" shall mean, when calculating a Secured Creditor's portion of any distribution or amount, that amount (expressed as a percentage) equal to a fraction the numerator of which is the then unpaid amount of such Secured Creditor's Primary Obligations or Secondary Obligations, as the case may be, of the respective Pledgor and the denominator of which is the then outstanding amount of all Primary Obligations or Secondary Obligations, as the case may be, of the respective Pledgor, (y) "Primary Obligations" of any Pledgor shall mean (i) in the case of the Credit Document Obligations, all Obligations of such Pledgor arising out of or in connection with (including, without limitation, as obligor or guarantor, as the case may be) the principal of, and interest on, all Loans, all Unpaid Drawings theretofore made (together with all interest accrued thereon), and the aggregate Stated Amounts of all Letters of Credit issued under the Credit Agreement, and all regularly accruing Fees, (ii) in the case of the ITT Note Obligations, all Obligations of such Pledgor secured hereby arising out of or in connection with (including, without limitation, as obligor or guarantor, as the case may be) the principal of, and interest on, the ITT Notes, (iii) in the case of Qualified Permitted Refinancing Obligations, all Obligations of such Pledgor secured hereby arising out of or in connection with (including, without limitation, as obligor or guarantor, as the case may be) the principal of, and interest on, the Qualified Permitted Refinancing Indebtedness, (iv) in the case of the Senior Secured Note Obligations, all Obligations of such Pledgor secured hereby arising out of or in connection with (including, without limitation, as obligor or guarantor, as the case may be) the principal of, and interest on, the Senior Secured Notes and (v) in the case of the Interest Rate Protection Obligations, all Obligations of such Pledgor arising out of or in connection with (including, without limitation, as a direct obligor or a guarantor, as the case may be) Interest Rate Protection Agreements (other than indemnities, fees (including, without limitation, attorneys' fees) and similar obligations and liabilities), and (z) "Secondary Obligations" of any Pledgor shall mean all Obligations of such Pledgor secured hereby other than Primary Obligations. (c) When payments to Senior Secured Creditors are based upon their respective 14 Pro Rata Shares, the amounts received by such Senior Secured Creditors hereunder shall be applied (for purposes of making determinations under this Section 9 only) (i) first, to the Primary Obligations of the respective Pledgor and (ii) second, to the Secondary Obligations of the respective Pledgor. (d) Each of the Secured Creditors agrees and acknowledges that if the Lender Creditors are to receive a distribution on account of undrawn amounts with respect to Letters of Credit issued under the Credit Agreement, such amounts shall be paid to the Paying Agent under the Credit Agreement and held by it, for the equal and ratable benefit of the Lender Creditors as such. If any amounts are held as cash security pursuant to the immediately preceding sentence, then upon the termination of all outstanding Letters of Credit, and after the application of all such cash security to the repayment of all Obligations owing to the Lender Creditors after giving effect to the termination of all such Letters of Credit, if there remains any excess cash, such excess cash shall be returned by the Paying Agent to the Collateral Agent for distribution in accordance with Section 9(a) hereof. (e) Except as set forth in Section 9(d) hereof, all payments required to be made hereunder shall be made (i) if to the Lender Creditors, to the Paying Agent under the Credit Agreement for the account of the Lender Creditors, and (ii) if to any other Secured Creditors (other than the Collateral Agent), to the trustee, paying agent or other similar representative (each a "Representative") for such Secured Creditors or, in the absence of such a Representative, directly to the other Secured Creditors. (f) For purposes of applying payments received in accordance with this Section 9, the Collateral Agent shall be entitled to rely upon (i) the Paying Agent under the Credit Agreement and (ii) the Representative for any other Secured Creditors or, in the absence of such a Representative, upon the respective Secured Creditors for a determination (which the Paying Agent, each Representative for any other Secured Creditors and the Secured Creditors agree (or shall agree) to provide upon request of the Collateral Agent) of the outstanding Primary Obligations and Secondary Obligations owed to the Secured Creditors. Unless it has actual knowledge (including by way of written notice from a Representative for any Secured Creditor or directly from a Secured Creditor) to the contrary, the Collateral Agent, in acting hereunder, shall be entitled to assume that no Interest Rate Protection Agreements are in existence. (g) It is understood and agreed that each Pledgor shall remain liable to the extent of any deficiency between the amount of the proceeds of the Collateral pledged by it hereunder and the aggregate amount of the Obligations of such Pledgor. 10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the Pledgee hereunder (whether by virtue of the power of sale herein granted, pursuant to judicial process or otherwise), the receipt of the Pledgee or the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold, and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Pledgee or such officer or be answerable in any way for the misapplication or nonapplication thereof. 15 11. INDEMNITY. Each Pledgor jointly and severally agrees (i) to indemnify and hold harmless the Pledgee in such capacity and each other Secured Creditor from and against any and all claims, demands, losses, judgments and liabilities of whatsoever kind or nature, and (ii) to reimburse the Pledgee and each other Secured Creditor for all reasonable costs and expenses, including reasonable attorneys' fees, in each case to the extent growing out of or resulting from the exercise by the Pledgee of any right or remedy granted to it hereunder or under any other Secured Debt Agreement except, with respect to clauses (i) and (ii) above, to the extent arising from the Pledgee's or such other Secured Creditor's gross negligence or willful misconduct. In no event shall the Pledgee be liable, in the absence of gross negligence or willful misconduct on its part, for any matter or thing in connection with this Agreement other than to account for moneys actually received by it in accordance with the terms hereof. If and to the extent that the obligations of the Pledgors under this Section 11 are unenforceable for any reason, each Pledgor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 12. FURTHER ASSURANCES; POWER OF ATTORNEY. (a) Each Pledgor agrees that it will join with the Pledgee in executing and, at such Pledgor's own expense, file and refile under the applicable UCC or such other law such financing statements, continuation statements and other documents in such offices as the Pledgee may reasonably deem necessary or appropriate and wherever required or permitted by law in order to perfect and preserve the Pledgee's security interest in the Collateral and hereby authorizes the Pledgee to file financing statements and amendments thereto relative to all or any part of the Collateral without the signature of such Pledgor where permitted by law, and agrees to do such further acts and things and to execute and deliver to the Pledgee such additional conveyances, assignments, agreements and instruments as the Pledgee may reasonably deem necessary or advisable to carry into effect the purposes of this Agreement or to further assure and confirm unto the Pledgee its rights, powers and remedies hereunder. (b) Each Pledgor hereby appoints the Pledgee such Pledgor's attorney-in-fact, with full authority in the place and stead of such Pledgor and in the name of such Pledgor or otherwise, to act from time to time after the occurrence and during the continuance of an Event of Default in the Pledgee's reasonable discretion to take any action and to execute any instrument which the Pledgee may deem necessary or advisable to accomplish the purposes of this Agreement. 13. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance with this Agreement all items of the Collateral at any time received under this Agreement. It is expressly understood and agreed that the obligations of the Pledgee as holder of the Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement. The Pledgee shall act hereunder on the terms and conditions set forth in Annex G hereto, the terms of which shall be deemed incorporated herein by reference as fully as if same were set forth herein in their entirety. 14. TRANSFER BY PLEDGORS. No Pledgor will sell or otherwise dispose of, grant any option with respect to, or mortgage, pledge or otherwise encumber any of the Collateral or any interest therein (except in accordance with the terms of this Agreement and as permitted 16 by the terms of the Credit Agreement). 15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGORS. (a) Each Pledgor represents, warrants and covenants that: (i) it is the legal, record and beneficial owner of, and has good title to, all Pledged Securities purported to be owned by such Pledgor (including as shown on Annexes A, B and C hereof), subject to no Lien, except the Liens created by this Agreement and Liens permitted under Section 9.01 of the Credit Agreement; (ii) it has full power, authority and legal right to pledge all the Pledged Securities; (iii) this Agreement has been duly authorized, executed and delivered by such Pledgor and constitutes the legal, valid and binding obligation of such Pledgor enforceable in accordance with its terms, except to the extent that the enforceability hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by equitable principles (regardless of whether enforcement is sought in equity or at law); (iv) no consent of any other party (including, without limitation, any stockholder or creditor of such Pledgor or any of its Subsidiaries and any other partners or members of such Pledgor's partnerships or limited liability companies) and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing (except any filings required under the UCC, which filings have been made) or declaration with, any governmental authority is required to be obtained by such Pledgor in connection with the execution, delivery or performance of this Agreement, or in connection with the exercise of its rights and remedies pursuant to this Agreement, except those which have been obtained or made or as may be required by laws affecting the offer and sale of securities generally in connection with the exercise by the Pledgee of certain of its remedies hereunder or which may be required to be obtained by the Pledgee pursuant to Section 22 or 23 hereof in connection with the exercise of its rights and remedies hereunder; (v) the execution, delivery and performance of this Agreement by such Pledgor does not violate any provision of any applicable law or regulation or of any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, or of the certificate of incorporation or by-laws (or analogous organizational documents) of such Pledgor or of any securities issued by such Pledgor or any of its Subsidiaries, or of any mortgage, indenture, lease, deed of trust, credit agreement or loan agreement, or any other material agreement, contract or instrument to which such Pledgor or any of its Subsidiaries is a party or which purports to be binding upon such Pledgor or any of its Subsidiaries or upon any of their respective assets and will not result in the creation or imposition (or the obligation to create or impose) of any lien or encumbrance on any of the assets of such Pledgor or any of its Subsidiaries except as contemplated by this Agreement; 17 (vi) all the shares of Stock and all Pledged Limited Liability Company Interests have been duly and validly issued, are fully paid and nonassessable and subject to no options to purchase or similar rights; (vii) the pledge, assignment and delivery (which delivery has been made) to the Pledgee of the Pledged Stock creates a valid and perfected first security interest in such Stock, subject to no prior lien or encumbrance or to any agreement purporting to grant to any third party a lien or encumbrance on the property or assets of such Pledgor which would include the Securities; (viii) each Pledged Partnership Interest has been validly acquired and is fully paid for (to the extent applicable) and is duly and validly pledged hereunder; (ix) each partnership agreement is the legal, valid and binding obligation of the applicable Pledgor, enforceable in accordance with its terms; (x) no Pledgor is in default in the payment of any portion of any mandatory capital contribution, if any, required to be made under any general or limited partnership agreement to which such Pledgor is a party, and no Pledgor is in violation of any other material provisions of any partnership agreement to which such Pledgor is a party, or otherwise in default or violation thereunder; (xi) no Pledged Partnership Interest is subject to any defense, offset or counterclaim, nor have any of the foregoing been asserted or alleged against such Pledgor by any Person with respect thereto; (xii) the pledge and assignment of the Pledged Partnership Interests and/or Pledged Limited Liability Company Interests pursuant to this Agreement, together with the relevant filings or recordings under the UCC (which filings and recordings have been or will be made), create a valid perfected and continuing first priority security interest in such Partnership Interests and/or Limited Liability Company Interests and the proceeds thereof, subject to no prior lien or encumbrance or to any agreement purporting to grant to any third party a lien or encumbrance on the property or assets of such Pledgee or which would include the collateral; (xiii) there are no currently effective financing statements in respect of the UCC covering property which is now or hereafter may be included in the Collateral and such Pledgor will not, without the prior written consent of the Pledgee, execute and, until the Termination Date (as hereinafter defined), there will not ever be on file in any public office any enforceable financing statement or statements covering any or all of the Collateral, except financing statements filed or to be filed in favor of the Pledgee as secured party; (xiv) each Pledgor shall give the Pledgee prompt notice of any written claim it receives relating to the Collateral; and (xv) each Pledgor shall deliver to the Pledgee a copy of each other demand, notice 18 or document received by it which may adversely affect the Pledgee's interest in the Collateral promptly upon, but in any event within 10 days after, such Pledgor's receipt thereof. Each Pledgor covenants and agrees that it will defend the Pledgee's right, title and security interest in and to the Securities and the proceeds thereof against the claims and demands of all persons whomsoever; and such Pledgor covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter pledged to the Pledgee as Collateral hereunder and will likewise defend the right thereto and security interest therein of the Pledgee and the other Secured Creditors. (b) Each Pledgor hereby further represents, warrants and covenants that as of the date hereof, the chief executive office of such Pledgor is located at the address indicated on Annex F hereto for such Pledgor. Such Pledgor will not move its chief executive office except to such new location as such Pledgor may establish in accordance with the last sentence of this Section 15(b). No Pledgor shall establish new locations for such offices until (i) it shall have given to the Pledgee not less than 30 days' prior written notice of its intention to do so, clearly describing such new location and providing such other information in connection therewith as the Pledgee may reasonably request, (ii) it shall have delivered to the Pledgee a written supplement to Annex F hereto in the form of Exhibit A-1 hereto as provided in clause (c) below showing the new location of its chief executive office and (iii) with respect to such new location, it shall have taken all action, reasonably satisfactory to the Pledgee, to maintain all security interest of the Pledgee in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. (c) Without in any way limiting Section 3.2 hereof, at any time and from time to time that any Pledgor (x) determines that the information with respect to it contained on Annex A, B, C and/or F, as the case may be, is inaccurate or (y) acquires any additional Securities which have not already been pledged hereunder and reflected on Annexes A through C, as appropriate, such Pledgor shall deliver a supplement to this Agreement, substantially in the form of Exhibit A-1 hereto (each a "Pledge and Security Agreement Supplement") adding (or, in the case of any Securities released pursuant to Section 18(b) hereof, deleting) such Securities to (from) Annexes A through C hereto, as appropriate. The execution and delivery of any such supplement shall not require the consent of any Pledgor hereunder. It is understood and agreed that the pledge and security interests granted hereunder shall apply to all Collateral as provided in Section 3.1 regardless of the failure of any Pledgor to deliver, or any inaccurate information stated in, the Pledge and Security Agreement Supplement as otherwise provided above. (d) Each Pledgor hereby covenants and agrees that with respect to all Partnership Interests or Limited Liability Company Interests, in each case required to be pledged by it hereunder, such Pledgor will deliver to the respective Pledged Partnerships or Pledged Limited Liability Companies, as the case may be (with copies to the Collateral Agent) a notice (appropriately completed) in the form of Annex D attached hereto and by this reference made a part hereof (each such notice a "Partnership/LLC Notice") and such Pledgor will use its reasonable best efforts to cause to be delivered to the Collateral Agent an acknowledgment in the form set forth as Annex E attached hereto (each such acknowledgment, a "Pledge 19 Acknowledgment"), duly executed by the relevant Pledged Partnership and/or Pledged Limited Liability Company, as the case may be, in each case within forty-five days following the date of any pledge of any Pledged Partnership Interests or Pledged Limited Liability Company Interests hereunder. 16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of each Pledgor under this Agreement shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, any circumstance or occurrence whatsoever, including, without limitation: (i) any renewal, extension, amendment or modification of or addition or supplement to or deletion from any Secured Debt Agreement or any other instrument or agreement referred to therein, or any assignment or transfer of any thereof; (ii) any waiver, consent, extension, indulgence or other action or inaction under or in respect of any such agreement or instrument or this Agreement; (iii) any furnishing of any additional security to the Pledgee or its assignee or any acceptance thereof or any release of any security by the Pledgee or its assignee; (iv) any limitation on any party's liability or obligations under any such instrument or agreement or any invalidity or unenforceability, in whole or in part, of any such instrument or agreement or any term thereof; (v) any limitation on any other Pledgor's liability or obligations under this Agreement, the Guaranty or any other Credit Document or any invalidity or unenforceability, in whole or in part, of this Agreement, the Guaranty or any other Credit Document or any term thereof; or (vi) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to such Pledgor or any Subsidiary of such Pledgor, or any action taken with respect to this Agreement by any trustee or receiver, or by any court, in any such proceeding, whether or not such Pledgor shall have notice or knowledge of any of the foregoing. 17. REGISTRATION, ETC. (a) If an Event of Default shall have occurred and be continuing and any Pledgor shall have received from the Pledgee a written request or requests that such Pledgor cause any registration, qualification or compliance under any Federal or state securities law or laws to be effected with respect to all or any part of the Pledged Securities, such Pledgor as soon as practicable and at its expense will use its best efforts to cause such registration to be effected (and be kept effective) and will use its best efforts to cause such qualification and compliance to be effected (and be kept effective) as may be so requested and as would permit or facilitate the sale and distribution of such Pledged Securities, including, without limitation, registration under the Securities Act as then in effect (or any similar statute then in effect), appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with any other government requirements; provided, that the Pledgee shall furnish to such Pledgor such information regarding the Pledgee as such Pledgor may request in writing and as shall be required in connection with any such registration, qualification or compliance. Such Pledgor will cause the Pledgee to be kept reasonably advised in writing as to the progress of each such registration, qualification or compliance and as to the completion thereof, will furnish to the Pledgee such number of prospectuses, offering circulars or other documents incident thereto as the Pledgee from time to time may reasonably request, and will indemnify the Pledgee, each other Secured Creditor and all others participating in the distribution of the Pledged Securities against all claims, losses, damages and liabilities caused by any untrue statement (or alleged untrue statement) of a material fact contained therein (or in any related 20 registration statement, notification or the like) or by any omission (or alleged omission) to state therein (or in any related registration statement, notification or the like) a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same may have been caused by an untrue statement or omission based upon information furnished in writing to such Pledgor by the Pledgee or such other Secured Creditor expressly for use therein. (b) If at any time when the Pledgee shall determine to exercise its right to sell all or any part of the Pledged Securities pursuant to Section 6 hereof, such Pledged Securities or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act, as then in effect, the Pledgee may, in its sole and absolute discretion, sell such Pledged Securities or part thereof by private sale in such manner and under such circumstances as the Pledgee may deem necessary or advisable in order that such sale may legally be effected without such registration; provided, that at least 10 Business Days' notice of the time and place of any such sale shall be given to such Pledgor. Without limiting the generality of the foregoing, in any such event the Pledgee, in its sole and absolute discretion: (i) may proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Securities or part thereof shall have been filed under such Securities Act; (ii) may approach and negotiate with a single possible purchaser to effect such sale; and (iii) may restrict such sale to a purchaser who will represent and agree that such purchaser is purchasing for its own account, for investment, and not with a view to the distribution or sale of such Pledged Securities or part thereof. In the event of any such sale, the Pledgee shall incur no responsibility or liability for selling all or any part of the Pledged Securities at a price which the Pledgee, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might be realized if the sale were deferred until after registration as aforesaid. 18. TERMINATION, RELEASE. (a) After the Termination Date (as defined below), this Agreement shall terminate (provided that all indemnities set forth herein including, without limitation, in Section 11 hereof shall survive any such termination) and the Pledgee, at the request and expense of the respective Pledgor, will promptly execute and deliver to such Pledgor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to such Pledgor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Pledgee and as has not theretofore been sold or otherwise applied or released pursuant to this Agreement. As used in this Agreement, "Termination Date" shall mean the date upon which the Total Commitments and all Interest Rate Protection Agreements have been terminated, no Note or Letter of Credit is outstanding and all other Obligations (excluding normal continuing indemnity obligations which survive in accordance with their terms, so long as no amounts are then due and payable in respect thereof) have been indefeasibly paid in full. (b) So long as no ITT Note Event (as defined below) has occurred and is continuing, in the event that any part of the Collateral is sold (but not to any Borrower or a Subsidiary thereof) in connection with a sale permitted by Section 9.02 of the Credit Agreement or is otherwise released at the direction of the Required Secured Creditors), the Pledgee, at the request and expense of such Pledgor will duly assign, transfer and deliver to such Pledgor 21 (without recourse and without any representation or warranty) such of the Collateral as is then being (or has been) so sold or released and as may be in possession of the Pledgee and has not theretofore been released pursuant to this Agreement. Any proceeds of Collateral sold as contemplated by the immediately preceding sentence may be applied in accordance with the requirements of the Credit Agreement. As used herein, an "ITT Note Event" shall mean the acceleration of the maturity of any ITT Notes or the failure to pay at maturity any ITT Notes, or the occurrence of any default or event of default of the types specified in Section 6.1(f) or (g) of the ITT Indenture; provided that no ITT Note Event shall be deemed to exist (x) at any time when no ITT Note Obligations are secured hereunder or (y) after all ITT Note Obligations have been repaid in full. (c) At any time that a Pledgor desires that Collateral be released as provided in the foregoing Section 18(a) or (b), it shall deliver to the Pledgee a certificate signed by an Authorized Officer of such Pledgor stating that the release of the respective Collateral is permitted pursuant to Section 18(a) or (b), and the Pledgee shall be entitled (but not required) to conclusively rely thereon. 19. NOTICES, ETC. Except as otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made when delivered to the party to which such notice, request, demand or other communication is required or permitted to be given or made under this Agreement, addressed as follows: (a) if to any Pledgor, at: c/o Starwood Hotels & Resorts 2231 East Camelback Road Suite 410 Phoenix, AZ 85016 Attention: Chief Executive Officer Telephone No.: (602) 852-3900 Facsimile No.: (602) 852-0115 (b) if to the Pledgee, at: Bankers Trust Company 130 Liberty Street New York, New York 10006 Attention: Laura S. Burwick Telephone No.: (212) 250-2568 Telecopier No.: (212)669-0743 (c) if to any Lender Creditor (other than the Pledgee), (x) to the Paying Agent, at the address of the Paying Agent specified in the Credit Agreement or (y) at such address as such Lender Creditor shall have specified in the Credit Agreement; 22 (d) if to any other Secured Creditor, (x) to the Representative for such Secured Creditor or (y) if there is no such Representative, at such address as such Secured Creditor shall have specified in writing to each Pledgor and the Pledgee; or at such other address as shall have been furnished in writing by any Person described above to the party required to give notice hereunder. 20. WAIVER; AMENDMENT. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by each Pledgor directly affected thereby (it being understood that additional Pledgors may be added as parties hereto from time to time in accordance with Section 24 and Pledgors may be released as parties hereto in accordance with Section 21, and that no consent of any other Pledgor or of the Secured Creditors shall be required in connection therewith) and the Pledgee (with the written consent of either (x) the Required Lenders (or all the Lenders if required by Section 13.12 of the Credit Agreement) at all times prior to the time at which all Credit Document Obligations have been paid in full and all commitments pursuant to the Credit Agreement have terminated (with such date being herein called the "Credit Document Obligations Termination Date") or (y) the holders of at least a majority of the then outstanding Obligations secured hereby at all times after the Credit Document Obligations Termination Date provided, that any change, waiver, modification or variance affecting the rights and benefits of a single Class (as defined below), with outstanding Obligations of the respective Class secured hereby at such time, of Secured Creditors (and not all Secured Creditors in a like or similar manner) shall require the written consent of the Requisite Creditors (as defined below) of such Class. Notwithstanding anything to the contrary contained above, it is understood and agreed that the Required Lenders may agree to modifications to this Agreement for the purpose, among other things, of securing additional extensions of credit (including, without limitation, pursuant to the Credit Agreement or any refinancing or extension thereof), with such changes not being subject to the proviso to the immediately preceding sentence. Furthermore, the proviso to the second preceding sentence shall not apply to any release of collateral effected in accordance with the requirements of Section 18 of this Agreement, or any other release of collateral or termination of this Agreement so long as the Parent Companies certify that such actions will not violate the terms of any Secured Debt Agreement then in effect. For the purpose of this Agreement, the term "Class" shall mean each class of Secured Creditors with outstanding Obligations secured hereby at such time, i.e., whether (i) the Lender Creditors as holders of the Credit Document Obligations, (ii) the ITT Noteholders as holders of ITT Note Obligations secured hereby, (iii) the Permitted Refinancing Creditors as holders of Permitted Refinancing Obligations secured hereby, (iv) the Senior Secured Noteholders as the holders of Senior Secured Note Obligations secured hereby and (v) the Interest Rate Protection Creditors as holders of the Interest Rate Protection Obligations. For the purpose of this Agreement, the term "Requisite Creditors" of any Class shall mean each of (i) with respect to the Credit Document Obligations, the Required Lenders and (ii) with respect to any other Obligations, the holders of at least a majority of all obligations outstanding from time to time under the respective Secured Debt Agreement. 21. RELEASE OF GUARANTORS. In the event any Pledgor which is a Subsidiary of any Borrower party to the Guaranty is released from the Guaranty, such Pledgor (so long as not a Borrower) shall be released from this Agreement and this Agreement shall, as to 23 such Pledgor only, have no further force or effect. 22. GAMING APPROVALS. (a) Unless approved in advance by the Nevada Gaming Commission (the "NGC"), the Pledged Securities issued by ITT Corporation, a Nevada corporation ("ITT"), and ITT Sheraton Corporation, a Nevada Corporation ("ITTSC"), shall not be subject to the pledge under this Pledge Agreement, and the grant of any security interest shall not be effective for any purpose as to any Pledged Securities issued by ITT or ITTSC, nor shall any interest in any Pledged Securities issued by ITT or ITTSC be transferred in any manner whatsoever to the Pledgee or any other Person. (b) No Pledged Securities issued by ITT or ITTSC shall be otherwise sold, assigned, transferred, pledged or otherwise disposed of, whether pursuant to the Pledge Agreement or the exercise of any right, power or remedy provided for therein or otherwise, unless the grant of the security interest or such other disposition as the case may be, has been approved in advance by the NGC, and unless the transferee of the Pledged Securities issued by ITT and ITTSC disposed of shall have first obtained any and all licenses, findings of suitability or approvals required by the Nevada Gaming Control Act and the regulations thereunder, or shall have been found to be individually qualified to be licensed, as appropriate. Without limiting the generality of foregoing, approval of the Pledge Agreement by the NGC shall not constitute permission to foreclose on the same or make any other disposition of the Pledged Securities issued by ITT or ITTSC without a further order of the NGC. (c) Unless the Pledgee or any other Person required to do so, has obtained any and all licenses, findings of suitability or approvals required by the Nevada Gaming Control Act and the regulations thereunder, such Pledgee or other Person shall not receive any dividend, payment or other distribution from or exercise any right in respect to, any Pledged Securities issued by ITT or ITTSC. (d) Unless approved in advance by the NGC, no restriction on the transfer of any Pledged Securities issued by ITT or ITTSC, or any covenant or agreement not to encumber any Pledged Securities issued by ITT or ITTSC, shall be effective for any purpose whatsoever. (e) If at any time after the Pledgee or any other Person becomes the owner of any Pledged Securities issued by ITT or ITTSC, whether pursuant to the Pledge Agreement or the exercise of any right, power or remedy provided for therein or otherwise, the NGC finds that such Pledgee or other Person is unsuitable to continue as a gaming licensee or otherwise to be associated with a gaming licensee in the state of Nevada (hereinafter referred to as an "Unsuitable Person"), such Unsuitable Person shall immediately offer any and all Pledged Securities of ITT and ITTSC owned by such Unsuitable Person to ITT or ITTSC, respectively, for purchase and shall allow ITT and ITTSC, respectively, to purchase such Pledged Securities for cash at fair market value thereof, as determined by the NGC, within ten (10) days after the date of the offer or upon such other terms and conditions for such acquisition of such Pledged Securities as may be prescribed by the NGC. (f) The Pledgee and any such other Person hereby acknowledge, understand and agree and each other person that concurrently with the execution and delivery of the Pledge 24 Agreement or at any time thereafter, acquires any right, title or interest in any Pledged Securities of ITT or ITTSC, pursuant to the Pledge Agreement or the exercise of any right, power or remedy provided for therein by virtue of such acquisition of the Pledged Securities, shall be deemed to have acknowledged. understood and agreed that: (i) Beginning upon the date on which the NGC serves upon ITT or ITTSC, respectively, notice of the determination of unsuitability pursuant to Section 2 of Nevada Revised Statutes ("NRS") 463.510, it will be unlawful for the Unsuitable Person owning any Pledged Securities issued by ITT or ITTSC: (A) To receive any dividend or interest upon any such securities; (B) To exercise, directly or through any Pledgee or nominee, any voting right conferred by such security; (C) To receive any remuneration in any form from ITT or ITTSC, for services rendered or otherwise; or, (D) To receive any other payment or distribution, of any kind whatsoever, in respect of any such security, by way of or pursuant to payment of principal, redemption, conversion, exchange or liquidation or any other transaction. (ii) Each certificate evidencing one or more of the Pledged Securities issued by ITT or ITTSC shall bear a statement on both sides of the certificate of the restrictions described in subsection (f) (i) above, to the extent required by Nevada law or any order of the NGC. (iii) The physical location of each certificate evidencing one or more of the Pledged Securities issued by ITT or ITTSC shall at all times remain within the territory of the state of Nevada, and each of such certificates shall be made available for inspection by agents of the NGC or the Nevada State Gaming Control Board ("SGCB"), immediately upon request during normal business hours. Except as permitted by the NGC for the purpose of perfecting the Pledge Agreement, the holder of any such certificate shall not surrender or transfer possession of the same without the prior approval of the NGC. The person located within the territory of the state of Nevada designated to hold the Pledged Securities on behalf of the Pledgee for the purpose of perfecting the Pledge Agreement is FIRST SECURITY TRUST COMPANY OF NEVADA. (g) No covenant or provision in the Pledge Agreement shall preclude ITT or ITTSC from satisfying any financial obligation or requirement imposed by the Nevada Gaming Control Act or regulations thereunder, including but not limited to minimum casino bankroll requirements, mandatory game security reserves, redemption of casino chips and tokens, or payment of winning wagers to gaming patrons. (h) The Pledgee and any other Person who becomes the owner of any Pledged 25 Securities issued by ITT or ITTSC, each severally agree to cooperate with the NGC and the SGCB in connection with the administration of their regulatory jurisdiction over ITT, ITTSC and their affiliated companies, including the provision of such documents or other information as may be reasonably requested by the NGC or SGCB relating to ITT, ITTSC or any of their affiliated companies or to the Pledge Agreement. (i) The Pledgee or any other Person who becomes the owner of any Pledged Securities issued by ITT or ITTSC, each severally agree to comply with any order or directive of the NGC or SGCB requiring such person or persons to submit an application for any license, finding of suitability or other approval pursuant to the Nevada Gaming Control Act and the regulations thereunder. (j) The provisions of this Section 22 of this Pledge Agreement shall not modify or restrict the rights and remedies of the Pledgee or any other Person under the Pledge Agreement in any other pledged collateral except for the Pledged Securities of ITT or ITTSC; provided, the Pledgee and other Persons acknowledge, understand and agree that the Nevada Gaming Control Act and the regulations thereunder impose certain licensing or transaction approval requirements prior to the exercise of such rights and remedies under the Pledge Agreement with the respect to the Pledged Securities and other pledged collateral subject to the Nevada Gaming Control Act and the regulations thereunder. (k) Notwithstanding any provision contained in this Pledge Agreement to the contrary, if the granting of a security interest in the capital stock of any Subsidiary shall conflict with or violate any Gaming Laws, the Pledgee agrees to (i) release such capital stock from the pledge of this Pledge Agreement to the extent necessary to avoid such conflict or violation or, (ii) take any other action, including filing for applicable Approvals, sufficient to avoid such conflict or violation. The Pledgee further acknowledges and agrees that, prior to exercising any remedies set forth in the Pledge Agreement with respect to the Pledged Securities of ITT or ITTSC subject to or affected by any Gaming Laws, the Pledgee shall obtain any and all Approvals as may be required by applicable Gaming Laws. 23. ACTIONS REQUIRING FCC APPROVAL. (a) Notwithstanding anything to the contrary contained in this Agreement, or any of the documents executed pursuant hereto, the Pledgee will not take any action pursuant to this Agreement, or any such documents, which would constitute or result in any assignment of any FCC license or any transfer of control of the holder of any FCC license if such assignment of such license or such transfer of control would require under then existing law (including the Communications Act and the written rules and regulations promulgated by the FCC), the prior approval of the FCC, without first obtaining such approval. In connection with this Section 23(a), the Pledgee shall be entitled to rely in good faith upon an opinion of outside FCC counsel of the Pledgee's choice with respect to such assignment or transfer whether or not the advice rendered is ultimately determined to have been accurate. To the extent such an opinion is requested, a copy of such opinion shall be delivered to the Pledgor. The Pledgee specifically agrees that to the extent required by the Communications Act (i) even after an Event of Default shall have occurred, voting rights in the Collateral will remain with the respective Pledgor until any and all required approval of the FCC shall be obtained to the transfer of such voting rights, (ii) after an Event of Default and a foreclosure on the Collateral by the 26 Pledgee, there will be either a private or public sale of the Collateral, and (iii) pursuant to Section 310(d) of the Communications Act, prior to the exercise of stockholder rights by a purchaser at such sale, the prior consent of the FCC will be obtained to such exercise. (b) If an Event of Default shall have occurred and be continuing, the Pledgors shall take any action which the Pledgee may reasonably request in the exercise of its rights and remedies under this Agreement in order to transfer or assign the Collateral to the Pledgee or to such one or more third parties as the Pledgee may designate, or to a combination of the foregoing. To enforce the provisions of this Section 23, upon an Event of Default the Pledgee is empowered to seek from the FCC and any other governmental authority, to the extent required, consent to or approval of any involuntary transfer of control of any entity whose Collateral is subject to this Agreement for the purpose of seeking a bona fide purchaser to whom control will ultimately be transferred. Each Pledgor agrees to cooperate with any such purchaser and with the Pledgee in the preparation, execution and filing of any forms and providing any information that may be necessary or helpful in obtaining the FCC's consent to the assignment to such purchaser of the Collateral. Each Pledgor hereby agrees to consent to any such an involuntary transfer of control upon the request of the Pledgee after and during the continuation of an Event of Default and, without limiting any rights of the Pledgee under this Agreement, to authorize the Pledgee to nominate a trustee or receiver to assume control of the Collateral, subject only to required judicial, FCC or other consent required by governmental authorities, in order to effectuate the transactions contemplated in this Section 23. Such trustee or receiver shall have all the rights and powers as provided to it by law or court order, or to the Pledgee under this Agreement. Each Pledgor shall cooperate fully in obtaining the consent of the FCC and the approval or consent of each other governmental authority required to effectuate the foregoing. (c) Each Pledgor shall use its best efforts to assist in obtaining consent or approval of the FCC and any other governmental authority, if required, for any action or transactions contemplated by this Agreement, including, without limitation, the preparation, execution and filing with the FCC of the transferor's or assignor's portion of any application or applications for consent to the transfer of control or assignment necessary or appropriate under the FCC's rules and regulations for approval of the transfer or assignment of any portion of the Collateral. Anything herein to the contrary notwithstanding, the Pledgors shall not be obligated to sign any such document which such Pledgor has reasonable cause to believe contains any inaccuracy or to make any statements concerning the qualifications of any transferee or assignee. (d) Each Pledgor hereby acknowledges and agrees that the Collateral is a unique asset and that a violation of the Pledgor's covenant to cooperate with respect to any regulatory consents would result in irreparable harm to the Pledgee for which monetary damages are not readily ascertainable. The Pledgor further agrees that, because of the unique nature of its undertaking in this Section 23, the same may be specifically enforced, and it hereby waives, and agrees to waive, any claim or defense that the Pledgee would have an adequate remedy at law for the breach of this undertaking. (e) Without limiting the obligations of the Pledgors hereunder in any respect, each Pledgor further agrees that if such Pledgor, upon or after the occurrence of an Event of Default, should fail or refuse for any reason whatsoever, without limitation, including any refusal 27 pursuant to Section 23(c), to execute any application necessary or appropriate to obtain any governmental consent necessary or appropriate for the exercise of any right of the Pledgee hereunder, such Pledgor agrees that such application may be executed on such Pledgor's behalf by the clerk of any competent jurisdiction without notice to such Pledgor pursuant to court order. 24. ADDITIONAL PLEDGORS. Pursuant to Section 8.15 of the Credit Agreement, certain Subsidiaries of a Borrower may after the date hereof be required to enter into this Agreement as a Pledgor. Upon execution and delivery, after the date hereof, by the Collateral Agent and such Subsidiary of an instrument in the form of Exhibit A-2, such Subsidiary shall become a Pledgor hereunder with the same force and effect as if originally named as a Pledgor hereunder. Each Subsidiary which is required to become a party to this Agreement shall so execute and deliver a copy of Exhibit A-2 to the Collateral Agent and, at such time, shall execute a Pledge and Security Agreement Supplement in the form of Exhibit A-1 to this Agreement with respect to all Collateral of such Pledgor required to be pledged hereunder, which Supplement shall be completed in accordance with Exhibit A-1. The execution and delivery of any such instrument shall not require the consent of any other Pledgor hereunder. Upon the execution and delivery by the Collateral Agent and such Subsidiary of an instrument in the form of Exhibit A-2 as provided above, it is understood and agreed that the pledge and security interests hereunder shall apply to all Collateral of such additional Pledgor as provided in Section 3.1 hereof regardless of any failure of any additional Pledgor to deliver, or any inaccurate information stated in, the Pledge and Security Agreement Supplement. 25. RECOURSE. This Agreement is made with full recourse to the Pledgors and pursuant to and upon all representations, warranties, covenants and agreements on the part of the Pledgors contained herein and otherwise in writing in connection herewith. 26. LIMITATION BY LAW; SEVERABILITY. All rights, remedies and powers in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable law and may be limited to the extent necessary so that they will not render this Agreement invalid or unenforceable, in whole or in part. 27. PLEDGEE NOT BOUND. (a) Nothing herein shall be construed to make the Pledgee or any other Secured Creditor liable as a member of any limited liability company or any partnership and the Pledgee or any other Secured Creditor by virtue of this Agreement or otherwise (except as referred to in the following sentence) shall not have any of the duties, obligations or liabilities of a member of any limited liability company or partnership. The parties hereto expressly agree that, unless the Pledgee shall become the absolute owner of the respective Pledged Limited Liability Interest or Pledged Partnership Interest pursuant hereto, this Agreement shall not be construed as creating a partnership or joint venture among the Pledgee, any other Secured Creditor and/or any Pledgor. (b) Except as provided in the last sentence of paragraph (a) of this Section, the Pledgee, by accepting this Agreement, did not intend to become a member of any limited liability company or partnership or otherwise be deemed to be a co-venturer with respect to any Pledgor or any limited liability company or partnership either before or after an Event of Default shall have occurred. The Pledgee shall have only those powers set forth herein and shall assume none 28 of the duties, obligations or liabilities of a member of any limited liability company or partnership or any Pledgor. (c) The Pledgee shall not be obligated to perform or discharge any obligation of any Pledgor as a result of the collateral assignment hereby effected. (d) The acceptance by the Pledgee of this Agreement, with all the rights, powers, privileges and authority so created, shall not at any time or in any event obligate the Pledgee to appear in or defend any action or proceeding relating to the Collateral to which it is not a party, or to take any action hereunder or thereunder, or to expend any money or incur any expenses or perform or discharge any obligation, duty or liability under the Collateral. 28. CONTINUING PLEDGORS. The rights and obligations of each Pledgor (other than the respective released Pledgor in the case of following clause (y)) hereunder shall remain in full force and effect notwithstanding (x) the addition of any new Pledgor as a party to this Agreement as contemplated by preceding Section 24 or otherwise and/or (y) the release of any Pledgor under this Agreement as contemplated by Section 21 or otherwise. 29. NO FRAUDULENT CONVEYANCE. Each Pledgor hereby confirms that it is its intention that this Agreement not constitute a fraudulent transfer or conveyance for purposes of any bankruptcy, insolvency or similar law, the Uniform Fraudulent Conveyance Act or any similar Federal, state or foreign law. To effectuate the foregoing intention, each Pledgor hereby irrevocably agrees that its obligations and liabilities hereunder shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of such Pledgor that are relevant under such laws, result in the obligations and liabilities of such Pledgor hereunder in respect of such maximum amount not constituting a fraudulent transfer or conveyance. 30. ALTERNATE CURRENCY REVOLVING LOAN BORROWERS. The Pledgors hereby acknowledge that pursuant to the terms of the Credit Agreement various Alternate Currency Revolving Loan Borrowers may become a party to the Credit Agreement from time to time and incur Loans thereunder. The Pledgors further acknowledge and agree that all obligations and liabilities of any Alternate Currency Revolving Loan Borrower under the Credit Agreement shall be fully secured hereunder as provided in Section 3.1 and no consent of the Pledgors is required to effect the same. 31. MISCELLANEOUS. This Agreement shall be binding upon the successors and assigns of each Pledgor and shall inure to the benefit of and be enforceable by the Pledgee and its successors and assigns; provided that no Pledgor may assign any of its rights or obligations hereunder without the prior written consent of the Pledgee (with the consent of the Required Secured Creditors and, if required by Section 13.12 of the Credit Agreement, all Lenders). THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS). The headings in this Agreement are for purposes of reference only and shall not limit or define the meaning hereof. This Agreement may be executed in any number of counterparts, each of which 29 shall be an original, but all of which shall constitute one instrument. 32. STARWOOD REIT. Each Lender acknowledges and agrees that the name "Starwood Hotels & Resorts" is a designation of Starwood REIT and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated as of June 6, 1988, as further amended on February 1, 1995 and as further amended on June 19, 1995 and as the same may be further amended from time to time, and all persons dealing with Starwood REIT shall look solely to Starwood REIT's assets for the enforcement of any claims against Starwood REIT, as the Trustees, officers, agents and security holders of Starwood REIT assume no personal liability for obligations entered into on behalf of Starwood REIT, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 30 IN WITNESS WHEREOF, each Pledgor has caused this Agreement to be duly executed and delivered by its duly authorized officer on the date first above written. STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller STARWOOD HOTELS & RESORTS By: /s/ Ronald C. Brown ----------------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT REALTY 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: Senior Vice President and Chief Financial Officer ITT CORPORATION By: /s/ Theodore W. Darnall ----------------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer W&S SEATTLE CORP., 31 a Delaware corporation By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ----------------------------------------------------------- Name: Ronald C. Brown Title:Senior Vice President and Chief Financial Officer W&S REALTY CORPORATION OF DELAWARE a Delaware corporation By: /s/ Ronald C. Brown ----------------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer BENJAMIN FRANKLIN HOTEL, INCORPORATED, a Washington corporation By: /s/ Ronald C. Brown ----------------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer W&S LAUDERDALE CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown ----------------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer LAUDERDALE HOTEL COMPANY, a Delaware corporation 32 By: /s/ Ronald C. Brown ----------------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer WESTIN BAY HOTEL CO., a Delaware corporation By: /s/ Ronald C. Brown ----------------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer CINCINNATI PLAZA CO., a Delaware corporation By: /s/ Ronald C. Brown ----------------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SOUTH COAST WESTIN HOTEL CO., a Delaware corporation By: /s/ Ronald C. Brown ----------------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer TOWNHOUSE MANAGEMENT INC., a Delaware corporation By: /s/ Ronald C. Brown ----------------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer WESTIN PREMIER INCORPORATED, a Delaware corporation 33 By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN VACATION MANAGEMENT CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown ----------------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer WVC RANCHO MIRAGE, INCORPORATED, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN VACATION EXCHANGE COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN ASSET MANAGEMENT COMPANY, a Delaware corporation By: /s/ Ronald C. Brown ----------------------------------------------------------- Name: Ronald C. Brown 34 Title: Senior Vice President and Chief Financial Officer MIDLAND BUILDING CORPORATION, an Illinois corporation By: /s/ Theodore W. Darnall ----------------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer WESTIN HOTEL COMPANY, a Delaware company By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller W&S ATLANTA CORPORATION, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN ONTARIO (LONDON) HOTEL COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN ASIA MANAGEMENT HOLDING COMPANY, a Delaware corporation 35 By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN ASIA MANAGEMENT COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN CANADA MANAGEMENT COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid WESTIN OTTAWA MANAGEMENT COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN MEXICO MANAGEMENT COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller 36 WESTIN CHARLOTTE MANAGEMENT COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN RIVER NORTH MANAGEMENT COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN HILTON HEAD MANAGEMENT COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN KANSAS CITY MANAGEMENT COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN MAUI MANAGEMENT COMPANY, a Delaware corporation 37 By: /s/ Theodore W. Darnall ----------------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer WESTIN BOSTON MANAGEMENT HOLDING COMPANY, a Delaware corporation By: /s/ Theodore W. Darnall ----------------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer WESTIN BOSTON MANAGEMENT COMPANY, a Delaware corporation By: /s/ Theodore W. Darnall ----------------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer WESTIN CENTURY CITY MANAGEMENT HOLDING COMPANY, a Delaware corporation By: /s/ Theodore W. Darnall ----------------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer WESTIN CENTURY CITY MANAGEMENT COMPANY, a Delaware corporation By: /s/ Theodore W. Darnall ----------------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer 38 WESTIN NEW ORLEANS MANAGEMENT COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN NEW ORLEANS MANAGEMENT COMPANY, a Delaware corporation By: /s/ Theodore W. Darnall ----------------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer WESTIN SANTA CLARA MANAGEMENT COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN TUCSON MANAGEMENT COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN INTERNATIONAL MANAGEMENT COMPANY, a Delaware corporation 39 By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN INNISBROOK MANAGEMENT COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN PITTSBURGH MANAGEMENT COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN PITTSBURGH MANAGEMENT HOLDING COMPANY, a Delaware Corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN PEACHTREE MANAGEMENT COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller 40 WESTIN DALLAS MANAGEMENT COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN RIVERWALK MANAGEMENT COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN REPRESENTATION COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN LICENSE COMPANY SOUTH, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- 41 Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN LICENSE COMPANY NORTH, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN LICENSE COMPANY EAST, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN LICENSE COMPANY WEST, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN LICENSE COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller WESTIN INTERNATIONAL SERVICES COMPANY, a Delaware corporation By: /s/ Alan M. Schnaid ----------------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller SHERATON FLORIDA CORPORATION, 42 a Delaware corporation By: /s/ James D. Latham ------------------------------------------ Name: James D. Latham Title: Senior Vice President and Secretary SHERATON HARBOR ISLAND CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------------ Name: James D. Latham Title: Senior Vice President and Secretary SHERATON HARTFORD CORPORATION, a Connecticut corporation By: /s/ James D. Latham ------------------------------------------ Name: James D. Latham Title: Senior Vice President and Secretary SHERATON HAWAII HOTELS CORPORATION, a Hawaii corporation By: /s/ James D. Latham ------------------------------------------ Name: James D. Latham Title: Senior Vice President and Secretary SHERATON INTERNATIONAL, INC., a Delaware corporation By: /s/ James D. Latham ------------------------------------------ 43 Name: James D. Latham Title: Senior Vice President and Secretary SHERATON INTER-AMERICAS, LTD., a Delaware corporation By: /s/ James D. Latham ------------------------------------------ Name: James D. Latham Title: Senior Vice President and Secretary SHERATON INTERNATIONAL DE MEXICO, INC., a Delaware corporation By: /s/ James D. Latham ------------------------------------------ Name: James D. Latham Title: Senior Vice President and Secretary SHERATON MANAGEMENT CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------------ Name: James D. Latham Title: Senior Vice President and Secretary SHERATON OVERSEAS MANAGEMENT CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------------ Name: James D. Latham Title: Senior Vice President and Secretary SHERATON WARSAW CORPORATION, a Delaware corporation 44 By: /s/ James D. Latham ------------------------------------------ Name: James D. Latham Title: Senior Vice President and Secretary SHERATON MARKETING CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------------ Name: James D. Latham Title: Senior Vice President and Secretary ITT SHERATON CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------------ Name: James D. Latham Title: Senior Vice President and Secretary DESTINATION SERVICES OF SCOTTSDALE, INC., a Delaware corporation By: /s/ James D. Latham ------------------------------------------ Name: James D. Latham Title: Senior Vice President and Secretary GENERAL FIDUCIARY CORPORATION, a Massachusetts corporation By: /s/ James D. Latham ------------------------------------------ Name: James D. Latham Title: Senior Vice President and Secretary 45 GLOBAL CONNECTIONS, INC., a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary HUDSON SHERATON LLC, a New York corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary ITT SHERATON RESERVATIONS CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary MANHATTAN SHERATON CORPORATION, a New York corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SAN DIEGO SHERATON CORPORATION, a Delaware corporation 46 By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SAN FERNANDO SHERATON CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SHERATON 45 PARK CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SHERATON ARIZONA CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SHERATON ASIA-PACIFIC CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary 47 SHERATON BLACKSTONE CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SHERATON BOSTON CORPORATION, a Massachusetts corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SHERATON CALIFORNIA CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SHERATON CAMELBACK CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SHERATON MIAMI CORPORATION, a Delaware corporation 48 By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SHERATON MIDDLE EAST MANAGEMENT CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SHERATON NEW YORK CORPORATION, a New York corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SHERATON O'HARE CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SHERATON OVERSEAS TECHNICAL SERVICES CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary 49 SHERATON PEACHTREE CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SHERATON PHOENICIAN CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SHERATON SAVANNAH CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SHERATON SERVICES CORPORATION, a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SOUTH CAROLINA SHERATON CORPORATION, a Delaware corporation 50 By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary ST. REGIS SHERATON CORPORATION, a New York corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary SHERATON VERMONT CORPORATION, a Vermont corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary WORLDWIDE FRANCHISE SYSTEMS, INC., a Delaware corporation By: /s/ James D. Latham ------------------------------------- Name: James D. Latham Title: Sr. Vice President & Secretary ITT BROADCASTING CORPORATION, a Delaware corporation By: /s/ Alan M. Schnaid ---------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller 51 CHARLESTON HOTEL ASSOCIATES L.L.C., a New Jersey limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer By: SLT Financing Partnership, a Delaware general partnership, its member By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer CRYSTAL CITY HOTEL ASSOCIATES, L.L.C., a New Jersey limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, 52 its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer By: SLT Financing Partnership, a Delaware general partnership, its member By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer LONG BEACH HOTEL ASSOCIATES L.L.C., a New Jersey limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner 53 By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer By: SLT Financing Partnership, a Delaware general partnership, its member By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer PRUDENTIAL-HEI JOINT VENTURE, a Georgia general partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial 54 Officer By: SLT Financing Partnership, a Delaware general partnership, its limited partner By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SANTA ROSA HOTEL ASSOCIATES, L.L.C., a New Jersey limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer By: SLT Financing Partnership, a Delaware general partnership, its member 55 By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT ALLENTOWN LLC, a Delaware limited liability company By: SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership, its managing member By: STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT ARLINGTON L.L.C., a Delaware limited liability company By: SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership, its managing member By: STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust, 56 its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT ASPEN DEAN STREET, LLC, a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels and Resorts, a Maryland real estate investment trust, its managing general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT BLOOMINGTON LLC, a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels and Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial 57 Officer SLT CENTRAL PARK SOUTH, LLC, a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels and Resorts, a Maryland real estate investment trust, its managing general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT DANIA LLC, a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels and Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT DC MASSACHUSETTS AVENUE, LLC, a Delaware limited liability company By: SLT Realty Limited Partnership, 58 a Delaware limited partnership, its managing member By: Starwood Hotels and Resorts, a Maryland real estate investment trust, its managing general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT INDIANAPOLIS L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer By: SLT Financing Partnership, a Delaware general partnership, its member By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner 59 By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT KANSAS CITY L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT LOS ANGELES L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial 60 Officer SLT MINNEAPOLIS L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT PALM DESERT L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT PHILADELPHIA L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, 61 a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT REALTY COMPANY, L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT SAN DIEGO L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner 62 By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT SOUTHFIELD L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer By: SLT Financing Partnership, a Delaware general partnership, its member By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer 63 SLT ST. LOUIS L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT TUCSON L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer STARLEX L.L.C., a New York limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, 64 its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer STARWOOD ATLANTA L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer STARWOOD ATLANTA II L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner 65 By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer STARWOOD MISSION HILLS, L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer By: SLT Financing Partnership, a Delaware general partnership, its member By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer 66 STARWOOD NEEDHAM L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer STARWOOD WALTHAM L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ------------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer OPERATING PHILADELPHIA L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member 67 By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC ALLENTOWN L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC ARLINGTON L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner 68 By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC ATLANTA L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC ATLANTA II L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC BLOOMINGTON L.L.C., 69 a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC CENTRAL PARK SOUTH, L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its managing general partner By: /s/ Alan M. Schnaid --------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller SLC DANIA L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, 70 its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC DC MASSACHUSETTS AVENUE, L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its managing general partner By: /s/ Alan M. Schnaid ---------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller SLC KANSAS CITY L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating 71 Officer SLC LOS ANGELES L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC MINNEAPOLIS L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC NEEDHAM L.L.C., 72 a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC PALM DESERT L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC SAN DIEGO L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member 73 By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC SOUTHFIELD L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC ST. LOUIS L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner 74 By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC TUCSON L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC WALTHAM L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating 75 Officer STARWOOD MANAGEMENT COMPANY, L.L.C., a Delaware limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Alan M. Schnaid --------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller BW HOTEL REALTY LIMITED PARTNERSHIP, a Maryland limited partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown --------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer By: SLT Financing Partnership, a Delaware general partnership, its limited partner By: SLT Realty Limited Partnership, 76 a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown --------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer CP HOTEL REALTY LIMITED PARTNERSHIP, a Maryland limited partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown --------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer EDISON HOTEL ASSOCIATES LIMITED PARTNERSHIP, a New Jersey limited partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner 77 By: /s/ Ronald C. Brown --------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer By: SLT Financing Partnership, a Delaware general partnership, its limited partner By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown --------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer NOVI HOTEL ASSOCIATES, L.P. a Delaware limited partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown --------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer 78 By: SLT Financing Partnership, a Delaware general partnership, its limited partner By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown --------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer PARK RIDGE HOTEL ASSOCIATES L.P. a Delaware limited partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown --------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer By: SLT Financing Partnership, a Delaware general partnership, its limited partner 79 By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown --------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT FINANCING PARTNERSHIP, a Delaware partnership By: SLT Realty Limited Partnership, a Delaware partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown --------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT HOUSTON BRIAR OAKS, LP, a Delaware limited partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its managing general partner 80 By: /s/ Ronald C. Brown --------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer VIRGINIA HOTEL ASSOCIATES, L.P., a Delaware limited partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown --------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer By: SLT Financing Partnership, a Delaware general partnership, its limited partner By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown --------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial 81 Officer MOORLAND HOTEL LIMITED PARTNERSHIP, a Wisconsin limited liability company By: SLT Operating Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC-CALVERTON LIMITED PARTNERSHIP, a Delaware limited partnership By: SLT Operating Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer SLC HOUSTON BRIAR OAKS, LP, a Delaware limited partnership By: SLT Operating Limited Partnership, 82 a Delaware limited partnership, its managing general partner By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Alan M. Schnaid --------------------------------------------------- Name: Alan M. Schnaid Title: Vice President and Corporate Controller SLC OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Theodore W. Darnall --------------------------------------------------- Name: Theodore W. Darnall Title: Executive Vice President and Chief Operating Officer WESTIN SEATTLE HOTEL COMPANY, a Washington general partnership By: W&S Realty Corp. of Delaware, a Delaware corporation, its general partnership By: /s/ Ronald C. Brown --------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer By: Benjamin Franklin Hotel, Inc., a Washington corporation 83 By: /s/ Ronald C. Brown --------------------------------------------------- Name: Ronald C. Brown Title: Senior Vice President and Chief Financial Officer SLT REALTY 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: Senior Vice President and Chief Financial Officer ACCEPTED AND AGREED TO: BANKERS TRUST COMPANY as Collateral Agent and Pledgee By: /s/ Laura S. Burwick --------------------------------------------------- Name: Laura S. Burwick Title: Principal 84 ANNEX A to PLEDGE AND SECURITY AGREEMENT LIST OF STOCK 85 Annex C Page 34 LIST OF LIMITED LIABILITY COMPANY INTERESTS 86 Annex D Page 35 LIST OF PARTNERSHIP INTERESTS 87 ANNEX D Page 36 FORM OF PARTNERSHIP/LLC NOTICE [Letterhead of Pledgor] - -------- --, ---- TO: [Name of Pledged Partnership/Limited Liability Company] Notice is hereby given that pursuant to a Pledge Agreement (a true and correct copy of which is attached hereto), dated as of February 23, 1998 (as amended, modified or supplemented from time to time in accordance with the terms thereof, the "Pledge Agreement"), among [NAME OF PLEDGOR] (the "Pledgor"), the other pledgors from time to time party thereto and Bankers Trust Company (the "Pledgee"), as Collateral Agent on behalf of the Secured Creditors described therein, the Pledgor has pledged and assigned to the Pledgee for the benefit of the Secured Creditors, and granted to the Pledgee for the benefit of the Secured Creditors, a continuing security interest in, all right, title and interest of the Pledgor, whether now existing or hereafter arising or acquired, [as a [limited] [general] partner in [NAME OF PLEDGED PARTNERSHIP] (the "Partnership"), and in, to and under the [TITLE OF APPLICABLE PARTNERSHIP AGREEMENT] (the "Partnership Agreement"),] [as a member in [Name of Pledged Limited Liability Company] (the "LLC"), and into and under its Articles of Organization (the "Articles")] including, without limitation: (i) the Pledgor's interest in all of the capital of the Partnership/LLC and the Pledgor's interest in all profits, losses, (as defined in the Pledge Agreement) and other distributions to which the Pledgor shall at any time be entitled in respect of such partnership/limited liability company interest; (ii) all other payments due or to become due to the Pledgor in respect of such partnership/limited liability company interest, whether under the Partnership Agreement/Articles or otherwise, whether as contractual obligations, damages, insurance proceeds or otherwise; (iii) all of the Pledgor's claims, rights, powers, privileges, authority, options, security interest, liens and remedies, if any, under the Partnership Agreement/Articles or at law or otherwise in respect of such partnership/membership interest; (iv) all present and future claims, if any, of the Pledgor against the Partnership/LLC for moneys loaned or advanced, for services rendered or otherwise; (v) all of the Pledgor's rights under the Partnership Agreement/Articles or at law to exercise and enforce every right, power, remedy, authority, option and privilege of the Pledgor relating to the partnership/limited liability company interest, including any power to terminate, cancel or modify the Partnership Agreement/Articles, to execute any instruments and to take any and all other action on behalf of and in the name of the 88 ANNEX D Page 37 Pledgor in respect of the partnership/limited liability company interest and the Partnership/LLC, to make determinations, to exercise any election (including, but not limited, election of remedies) or option or to give or receive any notice, consent, amendment, waiver or approval, together with full power and authority to demand, receive, enforce, collect or receipt for any of the foregoing, to enforce or execute any checks, or other instruments or orders, to file any claims and to take any action in connection with any of the foregoing; (vi) all other property hereafter delivered to the Pledgor in substitution for or in addition to any of the foregoing, all certificates and instruments representing or evidencing such other property and all cash, securities, interest, dividends, distributions, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all thereof; and (vii) to the extent not otherwise included, all proceeds of any or all of the foregoing. Pursuant to the Pledge Agreement, the Partnership/LLC is hereby authorized and directed to register the Pledgor's pledge to the Pledgee on behalf of the Secured Creditors of the interest of the Pledgor on the Partnership/LLC's books. The Pledgor hereby irrevocably agrees and authorizes and directs the Partnership/LLC that instructions originated by the Pledgee on behalf of the Secured Creditors with respect to the Pledgor's claims, rights, interests, powers, remedies, authorities, options and privileges set forth above shall, unless written notice to the contrary is given by the Pledgee to the Partnership/LLC, be complied with by the Partnership/LLC, without further consent by the Pledgor. The Pledgor hereby requests the Partnership/LLC to indicate its acceptance of this Notice and consent to and confirmation of its terms and provisions by signing a copy hereof where indicated on the attached page and returning the same to the Pledgee on behalf of the Secured Creditors. [NAME OF PLEDGOR] By: Name: Title: 89 ANNEX E to PLEDGE AND SECURITY AGREEMENT FORM OF ACKNOWLEDGMENT [NAME OF PLEDGED PARTNERSHIP/LIMITED LIABILITY COMPANY] (the "Partnership"/"LLC") hereby acknowledges receipt of a copy of the assignment by [NAME OF PLEDGOR] ("Pledgor") of its interest under the [TITLE OF APPLICABLE PARTNERSHIP AGREEMENT/ARTICLES OF ORGANIZATION] (the "Partnership Agreement"/"Articles") pursuant to the terms of the Pledge Agreement, dated as of February 23, 1998 (as amended, modified or supplemented from time to time in accordance with the terms thereof, the "Pledge Agreement"), among the Pledgor, the other pledgors from time to time party thereto and Bankers Trust Company (the "Pledgee"), as Collateral Agent on behalf of the Secured Creditors described therein. The undersigned hereby further confirms the registration of the Pledgor's pledge of its interest to the Pledgee on behalf of the Secured Creditors on the Partnership's/LLC's books. The Partnership/LLC hereby acknowledges the rights of and remedies available to the Secured Creditors under the Pledge Agreement. The Partnership/LLC hereby irrevocably agrees to comply with the instructions originated by the Pledgee, on behalf of the Secured Creditors, of the type referred to in the penultimate paragraph of the Partnership/LLC Notice dated ___________ __, ____ signed by the Pledgor, without further consent by the Pledgor. The undersigned further hereby irrevocably agrees, except upon the prior written consent of the Pledgee, not to honor any such instructions given by any other person or entity. Dated: ___________ __, ____ [NAME OF PLEDGED PARTNERSHIP/LLC] By: Name: Title: 90 ANNEX F to PLEDGE AND SECURITY AGREEMENT CHIEF EXECUTIVE OFFICE 1. Starwood Hotels and Resorts 2231 East Camelback Road Suite 410 Phoenix, AZ 85016 2. Starwood Hotels & Resorts Worldwide, Inc. 2231 East Camelback Road Suite 400 Phoenix, AZ 85016 3. Westin Hotel Company The Westin Building 2001 Sixth Avenue Seattle, WA 98121 4. ITT Corporation 1330 Avenue of the Americas New York, NY 10019 5. ITT Sheraton Corporation 60 State Street Boston, MA 02109 6. Sheraton International, Inc. 60 State Street Boston, MA 02109 Attached to this Annex F to the Pledge and Security Agreement is a list of entities whose ownership is being pledged with the legal address at such noted alongside; such address corresponds entity with the address set forth above. 91 ANNEX G Page 40 THE PLEDGEE 1. Appointment. The Secured Creditors, by their acceptance of the benefits of the Pledge and Security Agreement to which this Annex G is attached (the "Pledge Agreement") hereby irrevocably designate Bankers Trust Company (and any successor Pledgee) to act as specified herein and therein. Unless otherwise defined herein, all capitalized terms used herein (x) and defined in the Pledge Agreement, are used herein as therein defined and (y) not defined in the Pledge Agreement, are used herein as defined in the Credit Agreement referenced in the Pledge Agreement. Each Secured Creditor hereby irrevocable authorizes, and each holder of any Obligation by the acceptance of such Obligation and by the acceptance of the benefits of the Pledge Agreement shall be deemed irrevocably to authorize, the Pledgee to take such action on its behalf under the provisions of the Pledge Agreement and any instruments and agreements referred to therein and to exercise such powers and to perform such duties thereunder as are specifically delegated to or required of the Pledge Agreement by the terms thereof and such other powers as are reasonably incidental thereto. The Pledgee may perform any of its duties hereunder or thereunder by or through its authorized agents, sub-agents or employees. 2. Nature of Duties. (a) The Pledgee shall have no duties or responsibilities except those expressly set forth herein or in the Pledge Agreement. The duties of the Pledgee shall be mechanical and administrative in nature; the Pledgee shall not have by reason of this Agreement, any other Credit Document or any other Secured Debt Agreement a fiduciary relationship in respect of any Secured Creditor; and nothing in this Agreement, any other Credit Document or any other Secured Debt Agreement, expressed or implied, is intended to or shall be so construed as to impose upon the Pledgee any obligations in respect of the Pledge Agreement except as expressly set forth herein and therein. (b) The Pledgee shall not be responsible for insuring the Collateral or for the payment of taxes, charges or assessments or discharging of Liens upon the collateral or otherwise as to the maintenance of the Collateral. (c) The Pledgee shall not be required to ascertain or inquire as to the performance by any Pledgor of any of the covenants or agreements contained in the Pledge Agreement, any other Credit Document or any other Secured Debt Agreement. (d) The Pledgee shall be under no obligation or duty to take any action under, or with respect to, the Pledge Agreement if taking such action (i) would subject the Pledgee to a tax in any jurisdiction where it is not then subject to a tax or (ii) would require the Pledgee to qualify to do business, or obtain any license, in any jurisdiction where it is not then so qualified or licensed or (iii) would subject the Pledgee to in personam jurisdiction in any locations where it is not then so subject. (e) Notwithstanding any other provision of this Annex G, neither the Pledgee nor any of its officers, directors, employees, affiliates or agents shall, in its individual capacity, be personally liable for any action taken or omitted to be taken by it in accordance with, or pursuant to this Annex G or the Pledge Agreement except for its own gross negligence or willful 92 ANNEX G Page 41 misconduct. 3. Lack of Reliance on the Pledgee. Independently and without reliance upon the Pledgee, each Secured Creditor, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of each Pledgor and its Subsidiaries in connection with the making and the continuance of the Obligations and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of each Pledgor and its Subsidiaries, and the Pledgee shall have no duty or responsibility, either initially or on a continuing basis, to provide any Secured Creditor with any credit or other information with respect thereto, whether coming into its possession before the extension of any Obligations or the purchase of any notes or at any time or times thereafter. The Pledgee shall not be responsible in any manner whatsoever to any Secured Creditor for the correctness of any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Pledge Agreement or the security interests granted hereunder or the financial condition of any Pledgor or any Subsidiary of any Pledgor or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Pledge Agreement, or the financial condition of any Pledgor or any Subsidiary of any Pledgor, or the existence or possible existence of any default or event of default. The Pledgee makes no representations as to the value or condition of the Collateral or any part thereof, or as to the title of any Pledgor thereto or as to the security afforded by the Pledge Agreement. 4. Certain Rights of the Pledgee. (a) No Secured Creditor shall have the right to cause the Pledgee to take any action with respect to the Collateral, with only the Required Secured Creditors having the right to direct the Pledgee to take any such action. If the Pledgee shall request instructions from the Required Secured Creditors, with respect to any act or action (including failure to act) in connection with the Pledge Agreement, the Pledgee shall be entitled to refrain from such act or taking such action unless and until it shall have received instructions from the Required Secured Creditors and to the extent requested, appropriate indemnification in respect of actions to be taken, and the Pledgee shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Secured Creditor shall have any right of action whatsoever against the Pledgee as a result of the Pledgee acting or refraining from acting hereunder in accordance with the instructions of the Required Secured Creditors. As used herein, the term "Required Secured Creditors" shall mean (i) the Required Lenders (or, to the extent required by Section 13.12 of the Credit Agreement, each of the Lenders) at all times prior to the occurrence of the Credit Document Obligations Termination Date (as defined in the Pledge and Security Agreement) and (ii) the holders of at least the majority of the then outstanding Obligations secured hereby at all times after the Credit Document Obligations Termination Date and prior to the repayment in full, in cash, of all outstanding Obligations secured hereby. Notwithstanding anything to the contrary contained in clause (i) or (ii) of the immediately preceding sentence, if at any time the principal of any Obligations secured hereby has been accelerated, or the final maturity date with respect to any such principal Obligations has occurred, and as a result thereof one or more payment Events of Default (where the aggregate 93 ANNEX G Page 42 principal amount of such Obligations accelerated or not paid at final maturity equals or exceeds $100,000,000), which payment Events of Default shall have continued in existence for at least 90 consecutive days after the date of such acceleration or final maturity, and the Required Secured Creditors at such time (determined without regard to this sentence) have not directed the Pledgee to commence enforcement proceedings pursuant to the Pledge Agreement, then so long as such payment Event of Default is continuing the Secured Creditors holding at least a majority of the outstanding Obligations secured hereby subject to such payment Event of Default shall constitute the Required Secured Creditors for purposes of causing the Pledgee to commence enforcement proceedings pursuant to the Pledge Agreement, provided that in such event the Secured Creditors who would constitute the Required Secured Creditors in the absence of this sentence shall have the right to direct the manner and method of enforcement so long as such directions do not materially delay or impair the taking of enforcement action. (b) Notwithstanding anything to the contrary contained herein, the Pledgee is authorized, but not obligated, (i) to take any action reasonably required to perfect or continue the perfection of the liens on the Collateral for the benefit of the Secured Creditors and (ii) when instructions from the Required Secured Creditors have been requested by the Pledgee but have not yet been received, to take any action which the Pledgee, in good faith, believes to be reasonably required to promote and protect the interests of the Secured Creditors in the Collateral; provided that once instructions have been received, the actions of the Pledgee shall be governed thereby and the Pledgee shall not take any further action which would be contrary thereto. (c) Notwithstanding anything to the contrary contained herein or in the Pledge Agreement, the Pledgee shall not be required to take any action that exposes or, in the good faith judgment of the Pledgee may expose, the Pledgee or its officers, directors, agents or employees to personal liability, unless the Pledgee shall be adequately indemnified as provided herein, or that is, or in the good faith judgment of the Pledgee may be, contrary to the Pledge Agreement, any Secured Debt Agreement or applicable law. 5. Reliance. The Pledgee shall be entitled to rely, and shall be fully protected in relying, upon, any note, writing, resolution, notice, statement, certificate, telex, teletype or telescopes message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper Person or entity, and, with respect to all legal matters pertaining hereto or to the Pledge Agreement and its duties thereunder and hereunder, upon advice of counsel selected by it. 6. Indemnification. To the extent the Pledgee is not reimbursed and indemnified by the Pledgors under the Pledge Agreement, the Secured Creditors will reimburse and indemnify the Pledgee, in proportion to their respective outstanding principal amounts (including, for this purpose, the Stated Amount of outstanding Letters of Credit, as well as any unpaid Primary Obligations in respect of Interest Rate Protection Agreements, as outstanding principal) of Obligations, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature 94 ANNEX G Page 43 whatsoever which may be imposed on, incurred by or asserted against the Pledgee in performing its duties hereunder, or in any way relating to or arising out of its actions as Pledgee in respect of the Pledge Agreement except for those resulting solely from the Pledgee's own gross negligence or willful misconduct. The indemnities set forth in this Section 6 shall survive the repayment of all Obligations, with the respective indemnification at such time to be based upon the outstanding principal amounts (determined as described above) of Obligations at the time of the respective occurrence upon which the claim against the Pledgee is based or, if same is not reasonably determinable, based upon the outstanding principal amounts (determined as described above) of Obligations as in effect immediately prior to the termination of the Pledge Agreement. The indemnities set forth in this Section 6 are in addition to any indemnities provided by the Lenders to the Pledgee pursuant to the Credit Agreement, with the effect being that the Lenders shall be responsible for indemnifying the Pledgee to the extent the Pledgee does not receive payments pursuant to this Section 6 from the Secured Creditors (although in such event, and upon the payment in full of all such amounts owing to the Pledgee by the Lenders, the Lenders shall be subrogated to the rights of the Pledgee to receive payment from the Secured Creditors). 7. The Pledgee in its Individual Capacity. With respect to its obligations as a lender under the Credit Agreement and any other Credit Documents to which the Pledgee is a party, and to act as agent under one or more of such Credit Documents, the Pledgee shall have the rights and powers specified therein and herein for a "Lender", or an "Agent", as the case may be, and may exercise the same rights and powers as though it were not performing the duties specified herein; and the terms "Lenders," "Required Lenders," "holders of Notes," or any similar terms shall, unless the context clearly otherwise indicates, include the Pledgee in its individual capacity. The Pledgee and its affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, investment banking, trust or other business with any Pledgor or any Affiliate or Subsidiary of any Pledgor as if it were not performing the duties specified herein or in the other Credit Documents, and may accept fees and other consideration from the Pledgors for services in connection with the Credit Agreement, the other Credit Documents and otherwise without having to account for the same to the Secured Creditors. 8. Holders. The Pledgee may deem and treat the payee of any note as the owner thereof for all purposes hereof unless and until written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Pledgee. Any request, authority or consent of any person or entity who, at the time of making such request or giving such authority or consent, is the holder of any note, shall be final and conclusive and binding on any subsequent holder, transferee, assignee or endorsee, as the case may be, of such note or of any note or notes issued in exchange therefor. 9. Resignation by the Pledgee. (a) The Pledgee may resign from the performance of all of its functions and duties hereunder and under the Pledge Agreement at any time by giving 15 Business Days' prior or written notice to the Parent Companies and the Secured Creditors. Such resignation shall take effect upon the appointment of a successor Pledgee pursuant to clause (b) or (c) below. 95 ANNEX G Page 44 (b) If a successor Pledgee shall not have been appointed within said 15 Business Day period by the Required Secured Creditors, the Pledgee, with the consent of the Parent Companies, which consent shall not be unreasonably withheld or delayed, shall then appoint a successor Pledgee who shall serve as Pledgee hereunder or thereunder until such time, if any, as the Required Secured Creditors appoint a successor Pledgee as provided above. (c) If no successor Pledgee has been appointed pursuant to clause (b) above by the 15th Business Day after the date of such notice of resignation was given by the Pledgee, as a result of a failure by the Parent Companies to consent to the appointment of such a successor Pledgee, the Required Secured Creditors shall then appoint a successor Pledgee who shall serve as Pledgee hereunder or thereunder until such time, if any, as the Required Secured Creditors appoint a successor Pledgee as provided above. 96 EXHIBIT A-1 to PLEDGE AND SECURITY AGREEMENT FORM OF PLEDGE AND SECURITY AGREEMENT SUPPLEMENT PLEDGE AND SECURITY SUPPLEMENT, dated as of [ ] (this "Supplement"), made by , a [ ] corporation (the "Pledgor"), in favor of BANKERS TRUST COMPANY, as pledgee and as collateral agent (in such capacities, the "Pledgee") for the Secured Creditors (such term and each other capitalized term used but not defined having the meaning given in the Pledge and Security Agreement referred to below). 1. Reference is hereby made to that certain Pledge and Security Agreement, dated as of February 23, 1998 (as amended, supplemented or otherwise modified as of the date hereof, the "Pledge and Security Agreement"), made by the Pledgors party thereto in favor of the Pledgee for the benefit of the Secured Creditors described therein. 2. The Pledgor hereby confirms and reaffirms the security interest in the Collateral granted to the Pledgee for the benefit of the Secured Creditors under the Pledge and Security Agreement, and, as additional collateral security for the prompt and complete payment when due (whether at stated maturity, by acceleration or otherwise) of the Obligations and in order to induce the Secured Creditors to make loans and other extensions of credit constituting Obligations, the Pledgor hereby delivers to the Pledgee, for the benefit of the Secured Creditors, [(i) all of the issued and outstanding shares of capital stock listed in Schedule I hereto, together with all stock certificates, options, or rights of any nature whatsoever which may be issued or granted in respect of such stock while the Pledge and Security Agreement, as supplemented hereby, is in force (the "Additional Pledged Stock"; as used in the Pledge and Security Agreement as supplemented by this Supplement, "Pledged Stock" shall be deemed to include the Additional Pledged Stock)], [(ii) all limited liability company interests listed on Schedule II hereto (the "Additional Pledged Limited Liability Company Interests" as used in the Pledge and Security Agreement as supplemented by this Supplement, "Pledged Limited Liability Company Interests" shall be deemed to include the Additional Pledged Limited Liability Company Interests)], [(iii) all partnership interests listed on Schedule III here to (the "Additional Pledged Partnership Interests"; as used in the Pledged and Security Agreement as supplemented by this Supplement, "Pledged Partnership Interests" shall be deemed to include Additional Pledged Partnership Interests)], and hereby grants to the Pledgee, for the benefit of the Secured Creditors, a first security interest in the Additional Pledged Stock, Additional Pledged Partnership Interests and/or Additional Pledged Limited Liability Company Interests, as the case may be, and all Proceeds thereof. 3. The Pledgor hereby represents and warrants that the representations and warranties contained in Section 15 of the Pledge and Security Agreement are true and correct on the date of this Supplement [with references therein with the "Pledged Stock" to include the Additional Pledged Stock,] [with references to the "Pledged Partnership Interests" to include the Additional Pledged Partnership Interests,] [with references to the "Pledged Limited Liability Company Interests" to include the Additional Pledged Limited Liability Company Interests,] and with references to the "Pledge and Security Agreement" to mean the Pledge and Security Agreement as supplemented by this Supplement. 97 EXHIBIT A-1 Page 46 4. The Pledgor hereby represents and warrants that, as of the date hereof, the chief executive office of the Pledgor is located at the address indicated on Schedule IV hereto. 5. This Supplement is supplemental to the Pledge and Security Agreement, forms a part thereof and is subject to the terms thereof and the Pledge and Security Agreement is hereby supplemented as provided herein. Without limiting the foregoing, Annex A to the Pledge and Security Agreement shall hereby be deemed to include each item listed on Schedule I to this Supplement and Annexes B and C to the Pledge and Security Agreement shall hereby be deemed to include each item listed on Schedule II to this Supplement. Annex C to the Pledge and Security Agreement shall hereby be deemed to include each term listed on Schedule III to this Supplement and Annex F to the Pledge and Security Agreement shall be deemed to include the location listed on Schedule IV to this Supplement. 98 EXHIBIT A-1 Page 47 IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused this Supplement to be duly executed and delivered on the date first set forth above. [PLEDGOR] By:_______________________ Name: Title: BANKERS TRUST COMPANY, as Pledgee By:________________________ Name: Title: 99 SCHEDULE I to PLEDGE AND SECURITY AGREEMENT SUPPLEMENT PLEDGED STOCK Pledgor Issuer Pledged Stock Ownership Interest 100 EXHIBIT A-2 Page 49 PLEDGED LIMITED LIABILITY COMPANY INTERESTS Pledged Limited Percentage Owned Liability Interests 101 EXHIBIT A-2 Page 50 PLEDGED PARTNERSHIP INTERESTS Pledged Partnership Percentage Owned Type of Partnership 102 EXHIBIT A-2 Page 51 CHIEF EXECUTIVE OFFICE 103 ANNEX 1 Page 52 SUPPLEMENT NO. dated as of [ ], to the Pledge and Security Agreement dated as of February 23, 1998 (the "Pledge and Security Agreement"), among the Pledgors party thereto (immediately before giving effect to this Supplement) and BANKERS TRUST COMPANY as collateral agent and as pledgee (in such capacities, the "Pledgee") for the Secured Creditors (such term and each other capitalized term used but not defined having the meaning given it in the Pledge and Security Agreement referred to below). A. The Pledgors have entered into the Pledge and Security Agreement in order to induce the Secured Creditors to make loans and other extensions of credit constituting Obligations as defined in the Pledge and Security Agreement. Pursuant to Section 8.15 of the Credit Agreement, certain Subsidiaries of the Borrowers are, after the date of the Pledge and Security Agreement, required to enter into the Pledge and Security Agreement as a Pledgor. Section 24 of the Pledge and Security Agreement provides that additional Subsidiaries may become Pledgors under the Pledge and Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the "New Pledgor") is a Subsidiary of a Borrower and is executing this Supplement in accordance with the requirements of the Credit Agreement and/or the Pledge and Security Agreement to become a Pledgor under the Pledge and Security Agreement in order to induce the Secured Creditors to extend, or maintain, Obligations. Accordingly, the Pledgee and the New Pledgor agree as follows: SECTION 1. The New Pledgor by its signature below becomes a Pledgor under the Pledge and Security Agreement with the same force and effect as if originally named therein as a Pledgor and the New Pledgor hereby agrees to all the terms and provisions of the Pledge and Security Agreement applicable to it as a Pledgor thereunder. Each reference to a "Pledgor" in the Pledge and Security Agreement shall be deemed to include the New Pledgor. The Pledge and Security Agreement is hereby incorporated herein by reference. SECTION 2. The New Pledgor represents and warrants to the Secured Creditors that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to the effects of applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and equitable principles of general applicability. SECTION 3. This Supplement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but 104 ANNEX 1 Page 53 one instrument. This Supplement shall become effective when the Pledgee shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Pledgor and the Pledgee. SECTION 4. Except as expressly supplemented hereby, the Pledge and Security Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Pledge and Security Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in the Pledge and Security Agreement. All communications and notices hereunder to the New Pledgor shall be given to it at the address set forth under its signature, with a copy to the Parent Companies. 105 ANNEX 1 Page 54 IN WITNESS WHEREOF, the New Pledgor and the Pledgee have duly executed this Supplement to the Pledge and Security Agreement as of the day and year first above written. [NAME OF NEW PLEDGOR] By:_______________________ Name: Title: Address: BANKERS TRUST COMPANY, as Pledgee By:_________________________ Name: Title: 106 Annex F TO PLEDGE AND SECURITY AGREEMENT 1. Starwood Hotels and Resorts 2231 East Camelback Road Suite 410 Phoenix, AZ 85016 2. Starwood Hotels & Resorts Worldwide, Inc. 2231 East Camelback Road Suite 400 Phoenix, AZ 85016 3. Westin Hotel Company The Westin Building 2001 Sixth Avenue Seattle, WA 98121 4. ITT Corporation 1330 Avenue of the Americas New York, NY 10019 5. ITT Sheraton Corporation 60 State Street Boston, MA 02109 6. Sheraton International, Inc. 60 State Street Boston, MA 02109 ATTACHED TO THIS ANNEX F TO THE PLEDGE AND SECURITY AGREEMENT IS A LIST OF ENTITIES WHOSE OWNERSHIP IS BEING PLEDGED WITH THE LEGAL ADDRESS OF SUCH ENTITY NOTED ALONGSIDE; SUCH ADDRESS CORRESPONDS WITH THE ADDRESS SET FORTH BELOW. EX-10.65 39 EX-10.65 1 Exhibit 10.65 LOAN AGREEMENT between STARWOOD HOTELS & RESORTS WORLDWIDE, INC. and STARWOOD HOTELS & RESORTS ------------------------------------ Dated as of February 23, 1998 ------------------------------------ $3,282,000,000 2 LOAN AGREEMENT, dated as of February 23, 1998, between STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Borrower"), and STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust (the "Lender"). W I T N E S S E T H : WHEREAS, the Borrower and the Lender are among the parties to that certain Agreement and Plan of Merger, dated as of October 19, 1997 (as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, the "Merger Agreement"); WHEREAS, in connection with the transactions contemplated by the Merger Agreement and the Stock Purchase Agreement, the Lender has agreed to advance the loan to the Borrower and, along with SLT Realty Limited Partnership, a Delaware limited partnership (SLT"), to guaranty the repayment of any indebtedness of the Borrower to third parties on the terms provided for herein. NOW, THEREFORE, the parties hereto have agreed as follows: ARTICLE I DEFINITIONS As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms in this Agreement shall include in the singular number the plural and in the plural the singular: "Affiliate" means, to any Person, any Person which, directly or indirectly, controls, is controlled by or is under common control with such Person and includes each executive officer, director, trustee, limited liability company manager or general partner of such Person, and each Person who is the beneficial owner of 10% or more of any class of voting stock of such Person. For the purposes of this definition, "control" means the possession of the power to direct or cause the direction of management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Business Day" means a day of the year on which banks are not required or authorized to close in New York City. "Closing Date" means the date on which all conditions precedent to the Loan set forth in Article IV shall have been satisfied and the Loan is made. 3 "Default" means any event which with the passing of time or the giving of notice or both would become an Event of Default. "Default Rate" has the meaning specified in Section 2.5(b). "Event of Default" has the meaning specified in Article VII. "Final Maturity Date" means February 23, 2005. "Governmental Authority" means any federal, state, county or municipal government, or political subdivision thereof, any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality, or public body, or any court, administrative tribunal or public utility. "Guaranties" means those certain guaranties dated as of the date hereof made by each of the Owners of hotels in New York and Florida. "Indebtedness" of any Person means such Person's (a) obligations for borrowed money, (b) obligations representing the deferred purchase price of property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (c) obligations secured by liens or payable out of the proceeds or production from property or assets now or hereafter owned or acquired by such Person and (d) obligations which are evidenced by notes, acceptances or other instruments. "Interest Rate" means the rate of 8.5% per annum. "Laws" means collectively, all federal, state and local laws, statutes, codes, ordinances, orders, rules and regulations, including judicial opinions or precedential authority in the applicable jurisdiction, and all directions, requirements, orders and notices of violation of any governmental or quasi-governmental agency, body or office having or asserting jurisdiction over Borrower, the properties identified on Exhibit A attached hereto or both, as the same may be amended, modified or supplemented from time to time. "Loan" has the meaning specified in Section 2.1(b). "Loan Documents" shall mean this Loan Agreement, the Note, the Mortgages, the Guaranties, the Subordination Agreement and any other documents, agreements or instruments now or hereafter executed which evidence, secure or otherwise relate to the Loan. -3- 4 "Merger Agreement" has the meaning specified in the Recitals to this Agreement. "Mortgages" means the Mortgage (or Deed of Trust), Security Agreement and Financing Statement in favor of the Lender dated as of the date hereof encumbering each of the properties identified on Exhibit A attached hereto and made a part hereof. "Note" has the meaning specified in Section 2.1(a). "Obligations" means the Loan and all other advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Lender, any Affiliate of the Lender or any Indemnitee, of every type and description, present or future, arising under this Agreement or the Note, whether direct or indirect (including, without limitation, those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term "Obligations" includes, without limitation, all interest, charges, expenses, fees, attorneys' fees and disbursements and any other sum then payable by the Borrower under this Agreement or the Note. "Owners" means the Persons holding fee simple title to the real property identified on Exhibit A attached hereto. "Person" means an individual, partnership, corporation (including, without limitation, a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a governmental authority. "Principal Balance" means the outstanding principal balance of the Note from time to time. "Stock Purchase Agreement" means that certain Stock Purchase Agreement dated as of the date hereof between the Borrower and the Lender. "Subordination Agreement" means that certain Subordination and Intercreditor Agreement dated as of the date hereof to which the Borrower and the Lender are parties. "Taxes" means any and all present or future taxes, levies, imposts, deductions, charges or withholdings or any liabilities with respect thereto including those arising after the date hereof as a result of the adoption of or any change in any law, treaty, rule, regulation, guideline or determination of a Governmental Authority or by any change in the interpretation or application thereof by a Governmental Authority, but excluding such taxes as are imposed on or measured by the Lender's income. -4- 5 ARTICLE II AMOUNT AND TERM OF THE LOAN 2.1. The Note; The Loan. (a) The Borrower's obligation to pay the principal of, and interest on, the Loan shall be evidenced by a promissory note, in the form attached hereto as Exhibit B, dated the date hereof and made by the Borrower payable to the order of the Lender in a stated principal amount equal to the amount of the Loan (as the same may be amended, modified, supplemented, extended or consolidated, the "Note"). (b) On the terms and subject to the conditions contained in this Agreement, the Lender agrees to make to the Borrower a loan in the maximum principal amount of $3,282,000,000 (the "Loan"). 2.2. Advances. The Lender will, on the Closing Date, advance the sum of $2,699,467,038.25 to the Borrower. Subject to the requirements set forth in Section 9.05(viii)(III) of the Credit Agreement (as defined in the Subordination Agreement), the Lender will make further advances of the Loan to the Borrower from time to time upon the Borrower's request, provided that in no event shall the aggregate amount of all advances exceed $3,282,000,000. 2.3. Repayment. The Borrower shall repay the entire Principal Balance on the Final Maturity Date. 2.4. Prepayments. (a) The Borrower shall have no right to prepay the Principal Balance other than as provided in this Section 2.4. (b) The Borrower may, upon at least two (2) Business Days' prior notice (which may be by telephone, provided that confirmation in writing is received within one (1) Business Day after such telephonic notice) to the Lender, stating the proposed date and aggregate principal amount of the prepayment, prepay Principal Balance in whole or ratably in part, without premium or penalty, together with accrued interest to the date of such prepayment on the principal amount prepaid. Upon the giving of such notice of prepayment, the principal amount of the Loan specified to be prepaid shall become due and payable on the date specified for such prepayment. 2.5. Interest. (a) The Borrower shall pay interest on the Principal Balance until the Principal Balance and all Obligations shall be paid in full, at the Interest Rate. (b) Unless prohibited by the terms of the Subordination Agreement, any overdue amount payable hereunder shall bear interest from the date due, until the date paid in full, at a rate per annum (calculated for the actual number of days elapsed -5- 6 on the basis of a 365-day year) equal to, on a daily basis, 1% plus the Interest Rate (the "Default Rate"), provided, however, that such interest rate shall in no event exceed the maximum interest rate which the Borrower may by law pay. 2.6. Increased Costs. If due to (a) the introduction of or any change in or in the interpretation of any law or regulation, (b) compliance by the Lender with any law or regulation or with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) or (c) payment by the Lender of Taxes, there shall be any increase in the cost to the Lender of funding or maintaining the Loan, then the Borrower shall from time to time, upon demand by the Lender, pay to the Lender additional amounts sufficient to compensate the Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrower by the Lender, shall be conclusive and binding for all purposes, absent manifest error. 2.7. Payments and Computations. (a) The Borrower shall pay to Lender at its address referred to opposite its signature to this Agreement not later than 11:00 A.M. (New York City time) on the first (1st) day of each calendar month after the date hereof, in immediately available funds without set-off or counterclaim, all interest accrued under the Note during the immediately prior calendar month; provided, however, in the event the Borrower gives telephonic notice to the Lender by 11:00 AM (New York City time) on the day when due that a payment has been made by wire transfer of immediately available funds, such payment may be received by the Lender not later than 2:00 PM (New York City time) on the same day. Payment received by the Lender after 11:00 A.M. (New York City time) or after 2:00 P.M. (New York City time), if the Borrower has given the Lender the notice required above, shall be deemed to be received on the next Business Day. (b) All computations of interest and fees shall be made by the Lender on the basis of the actual number of days elapsed in a 365-day year. (c) Whenever any payment hereunder or under the Note shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be. ARTICLE III GUARANTIES 3.1. Guaranties. Subject to the terms and conditions set forth in this Agreement and in the Subordination Agreement, the Lender hereby agrees to issue and to cause SLT and certain Affiliates of the Lender and SLT to issue for the account of the Borrower and certain of the Borrower's Affiliates one or more guaranties of indebtedness of -6- 7 the Borrower and certain of the Borrower's Affiliates other than this Loan, subject to the following provisions: (a) Conditions. The obligation of the Lender and SLT to issue a guaranty is subject to the satisfaction in full of the following conditions: (i) the proposed guaranty must be permitted under the terms of the Credit Agreement and comply with the terms and conditions of the Subordination Agreement; (ii) the Borrower shall have executed and/or delivered to the Lender and SLT such documents and materials as may be reasonably required by the Lender and SLT in connection with the guaranty; and (iii) the terms of the proposed guaranty shall be satisfactory to the Lender and SLT in their sole discretion and in no event shall be inconsistent with or put at risk the Lender's status as a real estate investment trust. (b) Issuance of Guaranty. (i) The Borrower shall give the Lender and SLT written notice that it needs the Lender and SLT to issue a guaranty not later than the twentieth (20th) Business Day preceding the requested date for issuance thereof under this Agreement, or such shorter notice as may be acceptable to the Lender and SLT. Such notice shall specify (A) the amount that the guaranty requested is to cover, (B) the effective date (which shall be a Business Day) of such guaranty, (C) the date or conditions upon which such guaranty is to terminate (which shall be no later than the Business Day immediately preceding the scheduled Final Maturity Date), (D) the Person(s) for whose benefit such guaranty is to be issued, and (E) other relevant terms of such guaranty. (c) Reimbursement Obligations: (A) subject to the terms of the Credit Agreement and the Subordination Agreement and to the same limits on subrogation and subordination as provided in the relevant guaranty, the Borrower shall reimburse the Lender and SLT, as applicable, for any and all amounts paid and expenses incurred under or in connection with any guaranty (the "Reimbursement Obligations") no later than the date (the "Reimbursement Date") which is three (3) Business Days after the Borrower receives written notice from the Lender and SLT that payment has been made under a guaranty by the Lender and SLT; and (B) all Reimbursement Obligations with respect to any guaranty shall bear interest at the Interest Rate from the date of the relevant payment under such guaranty until the Reimbursement Date. If any Reimbursement Obligations are not paid by the Reimbursement Date, the outstanding amounts shall bear interest at the Default Rate from the Reimbursement Date until the date paid. -7- 8 (C) No action taken or omitted in good faith by the Lender or SLT under or in connection with any guaranty shall put such party under any resulting liability to the Borrower. (d) Payment of Reimbursement Obligations. Subject to the terms of the Credit Agreement and the Subordination Agreement, the Borrower unconditionally agrees to pay to each of the Lender and SLT the amount of all Reimbursement Obligations, interest and other amounts payable to the Lender and SLT under or in connection with the guaranties when such amounts are due and payable, irrespective of any claim, setoff, defense or other right which the Borrower may have at any time against the Lender, SLT or any other Person. (e) Charges. Commencing April 1, 1998, the Borrower shall pay to the SLT on the first day of each calendar quarter, an amount equal to one-quarter (1/4) of one percent (0.25%) per annum, payable quarterly on the average amount guaranteed by the Lender and SLT for the immediately prior calendar quarter, as consideration for the issuance, administration, amendment and payment or cancellation of any guaranties. SLT shall pay the Lender an equitable portion of such amount. (f) Indemnification; Exoneration. (i) In addition to all other amounts payable to the Lender and SLT, the Borrower hereby agrees to defend, indemnify, and save each of the Lender and SLT harmless from and against any and all claims, demands, liabilities, penalties, damages, losses (other than loss of profits), costs, charges and expenses (including reasonable attorneys' fees) which the Lender or SLT may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any guaranty other than as a result of the gross negligence or willful misconduct of the Lender or SLT, as determined by a court of competent jurisdiction, or (B) the failure of the Lender or SLT to honor a payment request under any guaranty as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority. (g) Acts or Omissions. The Borrower assumes (and not the Lender or SLT) all risks of the acts and omissions of, or misuse of guaranties by, the respective beneficiaries of the guaranties. In furtherance and not in limitation of the foregoing, the Lender and SLT shall not be responsible for: (A) the form, validity, legality, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the issuance of or payment under the guaranties, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the validity, legality or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a guaranty or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (C) failure of the beneficiary of a guaranty to duly comply with conditions required in order to receive a payment under such guaranty; (D) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (E) errors in -8- 9 interpretation of technical terms; (F) any loss or delay in the transmission or otherwise of any document required in order to make a request for payment under any guaranty or of the proceeds thereof; (G) the misapplication by the beneficiary of a guaranty of the proceeds of any payment under such guaranty; and (H) any consequences arising from causes beyond the control of the Lender or SLT. 3.2 Obligations Several. The obligations of each of the Lender and SLT under this Article III are several and not joint, and neither party shall be responsible for the obligation to issue guaranties of the other party. 3.3 Assignment by Lender. The obligations of the Lender to issue guaranties pursuant to this Article III shall continue to be binding on Starwood Hotels & Resorts, as the initial Lender hereunder, after any assignment of the Loan to SLT. ARTICLE IV CONDITIONS PRECEDENT The obligation of the Lender to make the Loan on the Closing Date shall be subject to the satisfaction of all of the following conditions precedent any of which may be waived by Lender at any time either orally or in writing: (a) Documents. The Lender shall have received this Agreement, the Note, the Mortgages and the Guaranties duly executed by the Borrower or the Owners, as applicable, and in form and substance satisfactory to the Lender, together with such other documents, certificates and opinions as shall be reasonably requested by the Lender. (b) Merger. The conditions set forth in Article VI of the Merger Agreement shall have been satisfied or waived, and the Merger (as defined in the Merger Agreement) shall have taken place. (c) No Default. No Default or Event of Default shall have occurred and be continuing or would result from the making of the Loan on the Closing Date. (d) Representations and Warranties. The representations and warranties described in Article V shall be true and correct on and as of the Closing Date. ARTICLE V REPRESENTATIONS AND WARRANTIES -9- 10 In order to induce the Lender to enter into this Agreement and to make the Loan provided for herein, the Borrower hereby represents and warrants as follows: (a) Borrower is a corporation duly formed, validly existing and in good standing under the laws of the State of Maryland. Borrower is qualified and authorized to do business in the State of Maryland. (b) Borrower has full power and authority to perform the obligations and carry out the duties imposed upon Borrower by this Agreement and the Note, and Borrower has taken all action necessary to carry out Borrower's obligations and duties in connection with the Loan. (c) No aspect of the Loan transaction violates or will violate any usury laws or laws of the State of Maryland, regarding the validity of agreements to pay interest in effect on the date hereof. (d) Borrower is not a "foreign person" within the meaning of Section 1445 or 7701 of the Internal Revenue Code. (e) Borrower has delivered to Lender a true, correct and complete copy of Borrower's organizational documents and the same are in full force and effect. To the best of Borrower's knowledge, there are no defaults by any party under Borrower's organizational documents, nor do circumstances exist which, with the passage of time, the giving of notice, or both, would constitute a default thereunder. ARTICLE VI COVENANTS The Borrower hereby covenants and agrees that for so long as this Agreement is in effect and the Note is outstanding and until the Loan, together with interest and all other Obligations incurred hereunder, are paid in full, unless otherwise permitted by Lender: 6.1 Use of Proceeds. The proceeds of the Loan shall be used to purchase shares of ITT Corporation, a Nevada corporation, from the Lender pursuant to the Stock Purchase Agreement and shares of beneficial interest of the Lender. 6.2 Compliance with Merger Agreement. The Borrower shall comply in all respects with the Merger Agreement and shall not take any action to terminate the Merger Agreement (other than in accordance with Article VII thereof) without the prior written consent of the Lender. -10- 11 6.3 Negative Covenants. Borrower shall not, on or after the date hereof, without the prior written consent of Lender: (a) Materially alter the character of its business from that conducted on the date hereof; (b) Wind up, liquidate or dissolve its affairs; (c) Take any action or omit to take any action that would cause it not to be in good standing in the State of Maryland; (d) Amend, modify or change in any manner materially adverse to the interests of the Lender the certificate of incorporation (including, without limitation, by the filing of any certificate of designation) or by-laws of the Borrower; ARTICLE VII EVENTS OF DEFAULT Upon the occurrence and continuation of any of the following specified events (each, an "Event of Default"): 7.1 Payments. The Borrower shall (i) default in the payment when due of any Principal Balance or (ii) default, and such default shall continue for ten (10) or more Business Days after written notice from Lender, in the payment when due of any interest on the Loan or any fees or any other Obligations owing hereunder or under the Note; or 7.2 Covenants. The Borrower shall default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in Section 7.1) contained in this Agreement or one of the Owners shall default in the due performance or observance by it of any term, covenant or agreement contained in the Mortgages and such default shall continue beyond the period of time specified by Lender in its written notice of default, which period shall be no less than twenty (20) Business Days; or 7.3 Default Under Other Agreements The Borrower shall (i) default in any payment with respect to any Indebtedness (other than the Obligations) beyond the period of grace, if any, applicable thereto or (ii) default in the observance or performance of any agreement or condition relating to any such Indebtedness or -11- 12 contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause any such Indebtedness to become due prior to its stated maturity; or (b) any such Indebtedness shall be declared to be due and payable (other than to the extent the Borrower promptly denies in writing to the applicable creditor the validity of such declaration and is contesting same in good faith), or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof, and such default shall continue beyond the period of time specified by Lender in its written notice of default, which period shall be no less than twenty (20) Business Days. Borrower shall have the right to cure any default under this Section 7.3 by repaying or refinancing the Indebtedness with respect to which a default has occurred. 7.4 Bankruptcy, etc. The Borrower shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy", as now or here after in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the Borrower and the petition is not controverted within 20 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower, or the Borrower commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower, or there is commenced against the Borrower any such proceeding which is not controverted within 20 days or remains undismissed for a period of 60 days; or the Borrower is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or the Borrower makes a general assignment for the benefit of creditors; or any corporate action is taken by the Borrower for the purpose of effecting any of the foregoing; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Lender may, at its sole discretion, but subject to (and only to the extent permitted by) the Subordination Agreement, by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of the Lender to enforce its claims against the Borrower, except as otherwise specifically provided for in this Agreement: (i) declare the Lender's obligation to advance the Loan or any portion thereof terminated; and (ii) declare the principal of and any accrued interest in respect of the Loan and all Obligations to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. -12- 13 ARTICLE VIII MISCELLANEOUS 8.1. Payment of Expenses, etc. The Borrower agrees to: (i) pay all reasonable out-of-pocket costs and expenses of the Lender in connection with the administration and enforcement of this Agreement and the Note and any amendment, waiver or consent relating thereto (including, without limitation, the reasonable fees and disbursements of counsel for the Lender), provided that each of the parties hereto shall pay its own costs and expenses relating to the negotiation, preparation and delivery of this Agreement and the Note; and (ii) indemnify the Lender, its Affiliates and their respective officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, an investigation, litigation or other proceeding (whether or not the Lender is a party thereto) related to the entering into and/or performance of this Agreement or the Note or the use of the proceeds of the Loan hereunder. 8.2. Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier, facsimile or cable communication) and mailed, telegraphed, telexed, telecopied, faxed, cabled or delivered at the address specified opposite its signature below or at such other address as shall be designated by any party in a written notice to the other party hereto. All such notices and communications shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and shall be effective when received. 8.3. Benefit of Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that the Borrower may not assign or transfer any of its rights or obligations hereunder other than in accordance with the Transaction Agreement. 8.4. No Waiver; Remedies Cumulative. No failure or delay on the part of the Lender in exercising any right, power or privilege hereunder and no course of dealing between the Borrower and the Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Lender would otherwise have. No notice to or demand on the Borrower in any case shall entitle the Borrower to any -13- 14 other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Lender to any other or further action in any circumstances without notice or demand. 8.5. Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial. (a) This Agreement and the Note and the rights and obligations of the parties hereunder and thereunder shall be construed in accordance with and be governed by the law of the State of New York, in accordance with the provisions of New York State General Obligations Law Section 5-1401. The parties hereto irrevocably submit to the jurisdiction of the courts of the State of New York and the Federal courts of the United States of America located in the State of New York solely in respect of the interpretation and enforcement of the provisions of this Agreement and the Note, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or the Note may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a New York State or Federal court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 8.2 or in such other manner as may be permitted by law shall be valid and sufficient service thereof. (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.5. 8.6. Counterparts. This Agreement may be executed in any number of -14- 15 counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 8.7. Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 8.8. Amendment or Waiver. Neither this Agreement nor the Note nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Borrower and the Lender. 8.9. Survival. All indemnities set forth herein shall survive the execution and delivery of this Agreement and the making and repayment of the Loan. 8.10 Recourse to Trust. The Borrower acknowledges and agrees that the name "Starwood Hotels & Resorts" is a designation of the Lender and its trustees (as trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated as of June 6, 1988, and as the same has been or may be amended from time to time thereafter, and that the Borrower shall look solely to the Lender's assets for the enforcement of any claims against the Lender, as the trustees, officers, agents and security holders of the Lender assume no personal liability for obligations entered into on behalf of the Lender, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. The foregoing shall govern all direct and indirect obligations of the Lender under this Agreement and the Note. 8.11 Subordination. The Lender and the Borrower acknowledge and agree that all rights of the Lender to receive any payments from the Borrower hereunder or under any guarantees, mortgages, other types of security documents or otherwise are and shall continue to be subject and subordinate in payment to the prior payment in full, in cash, of all Senior Indebtedness (as defined in the Subordination Agreement), to the extent, and in the manner set forth in the Subordination Agreement. All of the terms, covenants and conditions hereof are hereby and shall continue to be subordinate to all of the terms, covenants and conditions of the Senior Indebtedness. The foregoing shall apply, notwithstanding the availability of other collateral to the Senior Creditors (as defined in the Subordination Agreement) or the actual date and time of execution, delivery, recordation, filing or perfection of any of the Senior Indebtedness, or the lien or priority of payment thereof, and in any instance wherein the Senior Indebtedness or any claim for the Senior Indebtedness is subordinated, avoided or disallowed, in whole or in part, under Title 11 of the United States Code (the "Bankruptcy Code") or other applicable federal or state law. -15- 16 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. BORROWER: Address: STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation Starwood Hotels & Resorts Worldwide, Inc. 2231 Camelback Road, Suite 400 Phoenix, Arizona 85016 By: /s/ Richard A. Smith Attention: Alan M. Schnaid ----------------------------------- Fax: (602) 852-0984 Name: Richard A. Smith Title: Authorized Signatory Copies to: Sherwin Samuels, Esq. Sidley & Austin 555 West Fifth Street Los Angeles, California 90013 Fax: (213) 896-6600 LENDER: Address: STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust Starwood Hotels & Resorts 2231 East Camelback Road, Ste. 410 Phoenix, Arizona 85016 Attention: Ronald C. Brown By: /s/ Ronald C. Brown Fax: (602) 852-0984 ----------------------------------- Name: Ronald C. Brown Copies to: Title: Senior Vice President Sherwin Samuels Sidley & Austin 555 West Fifth Street Los Angeles, California 90013 Fax: (203) 861-2101 -16- 17 EXHIBIT A OWNED PROPERTIES 1. The Phoenician 6000 E. Camelback Road Scottsdale, Arizona 85251 2. Sheraton San Diego Hotel & Marina 1380 Harbor Island Drive San Diego, California 92101 3. The Carlton 923 16th & K Streets, NW Washington, D.C. 20006 4. Sheraton Bal-Harbour 9701 Collins Avenue Bal Harbour, Florida 33154 5. Sheraton Boston Hotel & Towers 39 Dalton Street Boston, Massachusetts 02199 6. Sheraton Manhattan 790 Seventh Avenue New York, New York 10019 7. Sheraton New York Hotel & Towers 811 Seventh Avenue New York, New York 10019 8. Sheraton Russell 45 Park Avenue New York, New York 10016 9. The St. Regis Two East 55th Street New York, New York 10022 10. Caesars Cove Haven Route 590 Lakeville, Pennsylvania 18438 11. Caesars Paradise Stream -17- 18 Route 940 Mt. Pocono, Pennsylvania 18344 12. Caesars Pocono Palace Route 209 Marshalls Creek, Pennsylvania 18335 13. Caesars Brookdale Route 611 Scotrun, Pennsylvania 18355 14. Caesars Atlantic City 2100 Pacific Avenue Atlantic City, New Jersey 08401 15. The Desert Inn 3145 Las Vegas Blvd. South Las Vegas, Nevada 89109 16. Caesars Palace 3570 Las Vegas Blvd., South Las Vegas, Nevada 89109 17. Caesars Tahoe 55 Highway 50 Stateline, Nevada 89449 -18- 19 EXHIBIT B FORM OF NOTE SEE ATTACHED 20 PROMISSORY NOTE U.S. $3,282,000,000 Dated: February 23, 1998 FOR VALUE RECEIVED, the undersigned, STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust (the "Lender"), the principal sum of THREE BILLION TWO HUNDRED EIGHTY-TWO MILLION UNITED STATES DOLLARS ($3,282,000,000), or so much thereof as may have been advanced to or for the benefit of the Borrower and remains unpaid from time to time (the "Principal Balance") payable at such times, and in such amounts, as are specified in the Loan Agreement (defined below). Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Loan Agreement. The Borrower promises to pay, together with all fees and other amounts due under the Loan Agreement, interest on the Principal Balance of this Promissory Note ("Note") from the date made until such Principal Balance is paid in full, at such interest rates, and payable at such times, as are specified in the Loan Agreement. Both principal and interest are payable in lawful money of the United States of America to the Lender at 2231 East Camelback Road, Suite 410, Phoenix, Arizona 85016, in immediately available funds, or to such other address or bank account as the Lender shall direct. This Note is the Note referred to in, and is entitled to the benefits of, the Loan Agreement, dated as of the date hereof (said Agreement, as it may be amended or otherwise modified from time to time, being the "Loan Agreement"), among the Borrower and the Lender. The Loan Agreement, among other things, (i) provides for the advance of the Loan in an aggregate amount not to exceed at any time outstanding the United States dollar amount first above mentioned, the indebtedness of the Borrower to the Lender resulting from such Loan being evidenced by this Note, and (ii) contains provisions for acceleration of the maturity of the Principal Balance of this Note upon the happening of certain stated events and also for prepayments on account of the Principal Balance hereof prior to the maturity hereof upon the terms and conditions therein specified. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by the Borrower. 21 The Lender and the Borrower acknowledge and agree that all rights of the Lender to receive any payments from the Borrower hereunder or under any guarantees, mortgages, other types of security documents or otherwise are and shall continue to be subject and subordinate in payment to the prior payment in full, in cash, of all Senior Indebtedness (as defined in the Subordination Agreement (as defined in the Loan Agreement)), to the extent, and in the manner set forth in the Subordination Agreement. All of the terms, covenants and conditions hereof are hereby and shall continue to be subordinate to all of the terms, covenants and conditions of the Senior Indebtedness. The foregoing shall apply, notwithstanding the availability of other collateral to the Senior Creditors (as defined in the Subordination Agreement) or the actual date and time of execution, delivery, recordation, filing or perfection of any of the Senior Indebtedness, or the lien or priority of payment thereof, and in any instance wherein the Senior Indebtedness or any claim for the Senior Indebtedness is subordinated, avoided or disallowed, in whole or in part, under Title 11 of the United States Code (the "Bankruptcy Code") or other applicable federal or state law. [Remainder of page intentionally left blank] 22 This Note shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation By: /s/ Richard A. Smith ------------------------------ Name: Richard A. Smith Title: Authorized Signatory EX-10.66 40 EX-10.66 1 Exhibit 10.66 LOAN AGREEMENT between STARWOOD HOTELS & RESORTS WORLDWIDE, INC. and STARWOOD HOTELS & RESORTS ------------------------------------ Dated as of February 23, 1998 ------------------------------------ $100,000,000 2 LOAN AGREEMENT, dated as of February 23, 1998, between STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Borrower"), and STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust (the "Lender"). W I T N E S S E T H : WHEREAS, the Borrower and the Lender are among the parties to that certain Agreement and Plan of Merger, dated as of October 19, 1997 (as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, the "Merger Agreement"); WHEREAS, in connection with the transactions contemplated by the Merger Agreement and the Stock Purchase Agreement, the Lender has agreed to advance the loan to the Borrower and, along with SLT Realty Limited Partnership, a Delaware limited partnership (SLT"), to guaranty the repayment of any indebtedness of the Borrower to third parties on the terms provided for herein. NOW, THEREFORE, the parties hereto have agreed as follows: ARTICLE I DEFINITIONS As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms in this Agreement shall include in the singular number the plural and in the plural the singular: "Affiliate" means, to any Person, any Person which, directly or indirectly, controls, is controlled by or is under common control with such Person and includes each executive officer, director, trustee, limited liability company manager or general partner of such Person, and each Person who is the beneficial owner of 10% or more of any class of voting stock of such Person. For the purposes of this definition, "control" means the possession of the power to direct or cause the direction of management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Business Day" means a day of the year on which banks are not required or authorized to close in New York City. "Closing Date" means the date on which all conditions precedent to the Loan set forth in Article IV shall have been satisfied and the Loan is made. 3 "Default" means any event which with the passing of time or the giving of notice or both would become an Event of Default. "Default Rate" has the meaning specified in Section 2.5(b). "Event of Default" has the meaning specified in Article VII. "Final Maturity Date" means February 23, 2005. "Governmental Authority" means any federal, state, county or municipal government, or political subdivision thereof, any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality, or public body, or any court, administrative tribunal or public utility. "Indebtedness" of any Person means such Person's (a) obligations for borrowed money, (b) obligations representing the deferred purchase price of property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (c) obligations secured by liens or payable out of the proceeds or production from property or assets now or hereafter owned or acquired by such Person and (d) obligations which are evidenced by notes, acceptances or other instruments. "Interest Rate" means the rate of 8.5% per annum. "Laws" means collectively, all federal, state and local laws, statutes, codes, ordinances, orders, rules and regulations, including judicial opinions or precedential authority in the applicable jurisdiction, and all directions, requirements, orders and notices of violation of any governmental or quasi-governmental agency, body or office having or asserting jurisdiction over Borrower, the properties identified on Exhibit A attached hereto or both, as the same may be amended, modified or supplemented from time to time. "Loan" has the meaning specified in Section 2.1(b). "Loan Documents" shall mean this Loan Agreement, the Note, the Mortgage, the Subordination Agreement and any other documents, agreements or instruments now or hereafter executed which evidence, secure or otherwise relate to the Loan. "Merger Agreement" has the meaning specified in the Recitals to this Agreement. -3- 4 "Mortgage" means the Deed of Trust, Security Agreement and Financing Statement made by the Owner in favor of the Lender dated as of the date hereof. "Note" has the meaning specified in Section 2.1(a). "Obligations" means the Loan and all other advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Lender, any Affiliate of the Lender or any Indemnitee, of every type and description, present or future, arising under this Agreement or the Note, whether direct or indirect (including, without limitation, those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term "Obligations" includes, without limitation, all interest, charges, expenses, fees, attorneys' fees and disbursements and any other sum then payable by the Borrower under this Agreement or the Note. "Owner" means Harbor-Cal S.D. "Person" means an individual, partnership, corporation (including, without limitation, a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a governmental authority. "Principal Balance" means the outstanding principal balance of the Note from time to time. "Stock Purchase Agreement" means that certain Stock Purchase Agreement dated as of the date hereof between the Borrower and the Lender. "Subordination Agreement" means that certain Subordination and Intercreditor Agreement dated as of the date hereof to which the Borrower and the Lender are parties. "Taxes" means any and all present or future taxes, levies, imposts, deductions, charges or withholdings or any liabilities with respect thereto including those arising after the date hereof as a result of the adoption of or any change in any law, treaty, rule, regulation, guideline or determination of a Governmental Authority or by any change in the interpretation or application thereof by a Governmental Authority, but excluding such taxes as are imposed on or measured by the Lender's income. ARTICLE II AMOUNT AND TERM OF THE LOAN 2.1. The Note; The Loan. (a) The Borrower's obligation to pay the principal of, and interest on, the Loan shall be evidenced by a promissory note, in the form attached hereto as Exhibit A, dated the date hereof and made by the Borrower -4- 5 payable to the order of the Lender in a stated principal amount equal to the amount of the Loan (as the same may be amended, modified, supplemented, extended or consolidated, the "Note"). (b) On the terms and subject to the conditions contained in this Agreement, the Lender agrees to make to the Borrower a loan in the principal amount of $100,000,000 (the "Loan") on the Closing Date. 2.2. No Additional Advance. The Borrower shall have no right to any further advances or readvances under this Agreement after the funding of the Loan on the Closing Date. 2.3. Repayment. The Borrower shall repay the entire Principal Balance on the Final Maturity Date. 2.4. Prepayments. (a) The Borrower shall have no right to prepay the Principal Balance other than as provided in this Section 2.4. (b) The Borrower may, upon at least two (2) Business Days' prior notice (which may be by telephone, provided that confirmation in writing is received within one (1) Business Day after such telephonic notice) to the Lender, stating the proposed date and aggregate principal amount of the prepayment, prepay the Principal Balance in whole or ratably in part, without premium or penalty, together with accrued interest to the date of such prepayment on the principal amount prepaid. Upon the giving of such notice of prepayment, the principal amount of the Loan specified to be prepaid shall become due and payable on the date specified for such prepayment. 2.5. Interest. (a) The Borrower shall pay interest on the Principal Balance from the date hereof until the Principal Balance and all Obligations shall be paid in full, at the Interest Rate. (b) Unless prohibited by the terms of the Subordination Agreement, any overdue amount payable hereunder shall bear interest from the date due, until the date paid in full, at a rate per annum (calculated for the actual number of days elapsed on the basis of a 365-day year) equal to, on a daily basis, 1% plus the Interest Rate (the "Default Rate"), provided, however, that such interest rate shall in no event exceed the maximum interest rate which the Borrower may by law pay. 2.6. Increased Costs. If due to (a) the introduction of or any change in or in the interpretation of any law or regulation, (b) compliance by the Lender with any law or regulation or with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) or (c) payment by the Lender of Taxes, there shall be any increase in the cost to the Lender of funding or maintaining the Loan, then the Borrower shall from time to time, upon demand by the Lender, pay to the Lender -5- 6 additional amounts sufficient to compensate the Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrower by the Lender, shall be conclusive and binding for all purposes, absent manifest error. 2.7. Payments and Computations. (a) The Borrower shall pay to Lender at its address referred to opposite its signature to this Agreement not later than 11:00 A.M. (New York City time) on the first (1st) day of each calendar month after the date hereof, in immediately available funds without set-off or counterclaim, all interest accrued under the Note during the immediately prior calendar month; provided, however, in the event the Borrower gives telephonic notice to the Lender by 11:00 AM (New York City time) on the day when due that a payment has been made by wire transfer of immediately available funds, such payment may be received by the Lender not later than 2:00 PM (New York City time) on the same day. Payment received by the Lender after 11:00 A.M. (New York City time) or after 2:00 P.M. (New York City time), if the Borrower has given the Lender the notice required above, shall be deemed to be received on the next Business Day. (b) All computations of interest and fees shall be made by the Lender on the basis of the actual number of days elapsed in a 365-day year. (c) Whenever any payment hereunder or under the Note shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be. ARTICLE III GUARANTIES 3.1. Guaranties. Subject to the terms and conditions set forth in this Agreement and in the Subordination Agreement, the Lender hereby agrees to issue and to cause SLT and certain Affiliates of the Lender and SLT to issue for the account of the Borrower and certain of the Borrower's Affiliates one or more guaranties of indebtedness of the Borrower and certain of the Borrower's Affiliates other than this Loan, subject to the following provisions: (a) Conditions. The obligation of the Lender and SLT to issue a guaranty is subject to the satisfaction in full of the following conditions: (i) the proposed guaranty must be permitted under the terms of the Credit Agreement (as defined in the Subordination Agreement) and comply with the terms and conditions of the Subordination Agreement; -6- 7 (ii) the Borrower shall have executed and/or delivered to the Lender and SLT such documents and materials as may be reasonably required by the Lender and SLT in connection with the guaranty; and (iii) the terms of the proposed guaranty shall be satisfactory to the Lender and SLT in their sole discretion and in no event shall be inconsistent with or put at risk the Lender's status as a real estate investment trust. (b) Issuance of Guaranty. (i) The Borrower shall give the Lender and SLT written notice that it needs the Lender and SLT to issue a guaranty not later than the twentieth (20th) Business Day preceding the requested date for issuance thereof under this Agreement, or such shorter notice as may be acceptable to the Lender and SLT. Such notice shall specify (A) the amount that the guaranty requested is to cover, (B) the effective date (which shall be a Business Day) of such guaranty, (C) the date or conditions upon which such guaranty is to terminate (which shall be no later than the Business Day immediately preceding the scheduled Final Maturity Date), (D) the Person(s) for whose benefit such guaranty is to be issued, and (E) other relevant terms of such guaranty. (c) Reimbursement Obligations: (A) subject to the terms of the Credit Agreement and the Subordination Agreement and to the same limits on subrogation and subordination as provided in the relevant guaranty, the Borrower shall reimburse the Lender and SLT, as applicable, for any and all amounts paid and expenses incurred under or in connection with any guaranty (the "Reimbursement Obligations") no later than the date (the "Reimbursement Date") which is three (3) Business Days after the Borrower receives written notice from the Lender and SLT that payment has been made under a guaranty by the Lender and SLT; and (B) all Reimbursement Obligations with respect to any guaranty shall bear interest at the Interest Rate from the date of the relevant payment under such guaranty until the Reimbursement Date. If any Reimbursement Obligations are not paid by the Reimbursement Date, the outstanding amounts shall bear interest at the Default Rate from the Reimbursement Date until the date paid. (C) No action taken or omitted in good faith by the Lender or SLT under or in connection with any guaranty shall put such party under any resulting liability to the Borrower. (d) Payment of Reimbursement Obligations. Subject to the terms of the Credit Agreement and the Subordination Agreement, the Borrower unconditionally agrees to pay to each of the Lender and SLT the amount of all Reimbursement Obligations, interest and other amounts payable to the Lender and SLT under or in connection with the guaranties when such amounts are due and payable, irrespective of any claim, setoff, defense or other right -7- 8 which the Borrower may have at any time against the Lender, SLT or any other Person. (e) Charges. Commencing April 1, 1998, the Borrower shall pay to the SLT on the first day of each calendar quarter, an amount equal to one-quarter (1/4) of one percent (0.25%) per annum, payable quarterly on the average amount guaranteed by the Lender and SLT for the immediately prior calendar quarter, as consideration for the issuance, administration, amendment and payment or cancellation of any guaranties. SLT shall pay the Lender an equitable portion of such amount. (f) Indemnification; Exoneration. (i) In addition to all other amounts payable to the Lender and SLT, the Borrower hereby agrees to defend, indemnify, and save each of the Lender and SLT harmless from and against any and all claims, demands, liabilities, penalties, damages, losses (other than loss of profits), costs, charges and expenses (including reasonable attorneys' fees) which the Lender or SLT may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any guaranty other than as a result of the gross negligence or willful misconduct of the Lender or SLT, as determined by a court of competent jurisdiction, or (B) the failure of the Lender or SLT to honor a payment request under any guaranty as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority. (g) Acts or Omissions. The Borrower assumes (and not the Lender or SLT) all risks of the acts and omissions of, or misuse of guaranties by, the respective beneficiaries of the guaranties. In furtherance and not in limitation of the foregoing, the Lender and SLT shall not be responsible for: (A) the form, validity, legality, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the issuance of or payment under the guaranties, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the validity, legality or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a guaranty or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (C) failure of the beneficiary of a guaranty to duly comply with conditions required in order to receive a payment under such guaranty; (D) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (E) errors in interpretation of technical terms; (F) any loss or delay in the transmission or otherwise of any document required in order to make a request for payment under any guaranty or of the proceeds thereof; (G) the misapplication by the beneficiary of a guaranty of the proceeds of any payment under such guaranty; and (H) any consequences arising from causes beyond the control of the Lender or SLT. 3.2 Obligations Several. The obligations of each of the Lender and SLT under this Article III are several and not joint, and neither party shall be responsible for the obligation to issue guaranties of the other party. -8- 9 3.3 Assignment by Lender. The obligations of the Lender to issue guaranties pursuant to this Article III shall continue to be binding on Starwood Hotels & Resorts, as the initial Lender hereunder, after any assignment of the Loan to SLT. ARTICLE IV CONDITIONS PRECEDENT The obligation of the Lender to make the Loan on the Closing Date shall be subject to the satisfaction of all of the following conditions precedent any of which may be waived by Lender at any time either orally or in writing: (a) Documents. The Lender shall have received this Agreement, the Note and the Mortgage duly executed by the Borrower or the Owner, as applicable, and in form and substance satisfactory to the Lender, together with such other documents, certificates and opinions as shall be reasonably requested by the Lender. (b) Merger. The conditions set forth in Article VI of the Merger Agreement shall have been satisfied or waived, and the Merger (as defined in the Merger Agreement) shall have taken place. (c) No Default. No Default or Event of Default shall have occurred and be continuing or would result from the making of the Loan on the Closing Date. (d) Representations and Warranties. The representations and warranties described in Article V shall be true and correct on and as of the Closing Date. ARTICLE V REPRESENTATIONS AND WARRANTIES In order to induce the Lender to enter into this Agreement and to make the Loan provided for herein, the Borrower hereby represents and warrants as follows: (a) Borrower is a corporation duly formed, validly existing and in good standing under the laws of the State of Maryland. Borrower is qualified and authorized to do business in the State of Maryland. (b) Borrower has full power and authority to perform the obligations and carry out the duties imposed upon Borrower by this Agreement and the Note, and Borrower has taken all action necessary to carry out Borrower's obligations and duties in connection with the Loan. -9- 10 (c) No aspect of the Loan transaction violates or will violate any usury laws or laws of the State of Maryland, regarding the validity of agreements to pay interest in effect on the date hereof. (d) Borrower is not a "foreign person" within the meaning of Section 1445 or 7701 of the Internal Revenue Code. (e) Borrower has delivered to Lender a true, correct and complete copy of Borrower's organizational documents and the same are in full force and effect. To the best of Borrower's knowledge, there are no defaults by any party under Borrower's organizational documents, nor do circumstances exist which, with the passage of time, the giving of notice, or both, would constitute a default thereunder. ARTICLE VI COVENANTS The Borrower hereby covenants and agrees that for so long as this Agreement is in effect and the Note is outstanding and until the Loan, together with interest and all other Obligations incurred hereunder, are paid in full, unless otherwise permitted by Lender: 6.1 Use of Proceeds. The proceeds of the Loan shall be used to purchase shares of ITT Corporation, a Nevada corporation, from the Lender pursuant to the Stock Purchase Agreement and shares of beneficial interest of Lender. 6.2 Compliance with Merger Agreement. The Borrower shall comply in all respects with the Merger Agreement and shall not take any action to terminate the Merger Agreement (other than in accordance with Article VII thereof) without the prior written consent of the Lender. 6.3 Negative Covenants. Borrower shall not, on or after the date hereof, without the prior written consent of Lender: (a) Materially alter the character of its business from that conducted on the date hereof; (b) Wind up, liquidate or dissolve its affairs; (c) Take any action or omit to take any action that would cause it not to be in good standing in the State of Maryland; -10- 11 (d) Amend, modify or change in any manner materially adverse to the interests of the Lender the certificate of incorporation (including, without limitation, by the filing of any certificate of designation) or by-laws of the Borrower; ARTICLE VII EVENTS OF DEFAULT Upon the occurrence and continuation of any of the following specified events (each, an "Event of Default"): 7.1 Payments. The Borrower shall (i) default in the payment when due of any Principal Balance or (ii) default, and such default shall continue for ten (10) or more Business Days after written notice from Lender, in the payment when due of any interest on the Loan or any fees or any other Obligations owing hereunder or under the Note; or 7.2 Covenants. The Borrower shall default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in Section 7.1) contained in this Agreement or one of the Owners shall default in the due performance or observance by it of any term, covenant or agreement contained in the Mortgages and such default shall continue beyond the period of time specified by Lender in its written notice of default, which period shall be no less than twenty (20) Business Days; or 7.3 Default Under Other Agreements. The Borrower shall (i) default in any payment with respect to any Indebtedness (other than the Obligations) beyond the period of grace, if any, applicable thereto or (ii) default in the observance or performance of any agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause any such Indebtedness to become due prior to its stated maturity; or (b) any such Indebtedness shall be declared to be due and payable (other than to the extent the Borrower promptly denies in writing to the applicable creditor the validity of such declaration and is contesting same in good faith), or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof, and such default shall continue beyond -11- 12 the period of time specified by Lender in its written notice of default, which period shall be no less than twenty (20) Business Days. Borrower shall have the right to cure any default under this Section 7.3 by repaying or refinancing the Indebtedness with respect to which a default has occurred. 7.4 Bankruptcy, etc. The Borrower shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy", as now or here after in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the Borrower and the petition is not controverted within 20 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower, or the Borrower commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower, or there is commenced against the Borrower any such proceeding which is not controverted within 20 days or remains undismissed for a period of 60 days; or the Borrower is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or the Borrower makes a general assignment for the benefit of creditors; or any cor- porate action is taken by the Borrower for the purpose of effecting any of the foregoing; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Lender may, at its sole discretion, but subject to (and only to the extent permitted by) the Subordination Agreement, by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of the Lender to enforce its claims against the Borrower, except as otherwise specifically provided for in this Agreement: (i) declare the Lender's obligation to advance the Loan or any portion thereof terminated; and (ii) declare the principal of and any accrued interest in respect of the Loan and all Obligations to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. ARTICLE VIII MISCELLANEOUS 8.1. Payment of Expenses, etc. The Borrower agrees to: (i) pay all reasonable out-of-pocket costs and expenses of the Lender in connection with the -12- 13 administration and enforcement of this Agreement and the Note and any amendment, waiver or consent relating thereto (including, without limitation, the reasonable fees and disbursements of counsel for the Lender), provided that each of the parties hereto shall pay its own costs and expenses relating to the negotiation, preparation and delivery of this Agreement and the Note; and (ii) indemnify the Lender, its Affiliates and their respective officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, an investigation, litigation or other proceeding (whether or not the Lender is a party thereto) related to the entering into and/or performance of this Agreement or the Note or the use of the proceeds of the Loan hereunder. 8.2. Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier, facsimile or cable communication) and mailed, telegraphed, telexed, telecopied, faxed, cabled or delivered at the address specified opposite its signature below or at such other address as shall be designated by any party in a written notice to the other party hereto. All such notices and communications shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and shall be effective when received. 8.3. Benefit of Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that the Borrower may not assign or transfer any of its rights or obligations hereunder other than in accordance with the Transaction Agreement. 8.4. No Waiver; Remedies Cumulative. No failure or delay on the part of the Lender in exercising any right, power or privilege hereunder and no course of dealing between the Borrower and the Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Lender would otherwise have. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Lender to any other or further action in any circumstances without notice or demand. 8.5. Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial. (a) This Agreement and the Note and the rights and obligations of the parties hereunder and thereunder shall be construed in accordance with and be governed by the law of the State of New York, in accordance with the provisions of New York State -13- 14 General Obligations Law Section 5-1401. The parties hereto irrevocably submit to the jurisdiction of the courts of the State of New York and the Federal courts of the United States of America located in the State of New York solely in respect of the interpretation and enforcement of the provisions of this Agreement and the Note, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or the Note may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a New York State or Federal court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 8.2 or in such other manner as may be permitted by law shall be valid and sufficient service thereof. (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.5. 8.6. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 8.7. Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. -14- 15 8.8. Amendment or Waiver. Neither this Agreement nor the Note nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Borrower and the Lender. 8.9. Survival. All indemnities set forth herein shall survive the execution and delivery of this Agreement and the making and repayment of the Loan. 8.10 Recourse to Trust. The Borrower acknowledges and agrees that the name "Starwood Hotels & Resorts" is a designation of the Lender and its trustees (as trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated as of June 6, 1988, as the same has been or may be amended from time to time thereafter, and that the Borrower shall look solely to the Lender's assets for the enforcement of any claims against the Lender, as the trustees, officers, agents and security holders of the Lender assume no personal liability for obligations entered into on behalf of the Lender, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. The foregoing shall govern all direct and indirect obligations of the Lender under this Agreement and the Note. 8.11 Subordination. The Lender and the Borrower acknowledge and agree that all rights of the Lender to receive any payments from the Borrower hereunder or under any guarantees, mortgages, other types of security documents or otherwise are and shall continue to be subject and subordinate in payment to the prior payment in full, in cash, of all Senior Indebtedness (as defined in the Subordination Agreement), to the extent, and in the manner set forth in the Subordination Agreement. All of the terms, covenants and conditions hereof are hereby and shall continue to be subordinate to all of the terms, covenants and conditions of the Senior Indebtedness. The foregoing shall apply, notwithstanding the availability of other collateral to the Senior Creditors (as defined in the Subordination Agreement) or the actual date and time of execution, delivery, recordation, filing or perfection of any of the Senior Indebtedness, or the lien or priority of payment thereof, and in any instance wherein the Senior Indebtedness or any claim for the Senior Indebtedness is subordinated, avoided or disallowed, in whole or in part, under Title 11 of the United States Code (the "Bankruptcy Code") or other applicable federal or state law. -15- 16 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. BORROWER: Address: STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation Starwood Hotels & Resorts Worldwide, Inc. 2231 East Camelback Road, Ste. 400 By: /s/ Richard A. Smith Phoenix, Arizona 85016 --------------------------- Attention: Alan M. Schnaid Name: Richard A. Smith Fax: (602)852-0984 Title: Authorized Signatory Copies to: Sherwin Samuels, Esq. Sidley & Austin 555 West Fifth Street Los Angeles, California 90013 Fax: (213) 896-6600 LENDER: Address: STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust Starwood Hotels & Resorts 2231 East Camelback Road, Ste. 410 Phoenix, Arizona 85016 Attention: Ronald C. Brown By: /s/ Ronald C. Brown Fax: (602) 852-3379 --------------------------- Name: Ronald C. Brown Copies to: Title: Senior Vice President Sherwin Samuels, Esq. Sidley & Austin 555 West Fifth Street Los Angeles, California 90013 Fax: (213) 896-6600 -16- 17 EXHIBIT A FORM OF NOTE -17- 18 PROMISSORY NOTE U.S. $100,000,000 Dated: February 23, 1998 FOR VALUE RECEIVED, the undersigned, STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust (the "Lender"), the principal sum of ONE HUNDRED MILLION UNITED STATES DOLLARS ($100,000,000), payable at such times, and in such amounts, as are specified in the Loan Agreement (defined below). Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Loan Agreement. The Borrower promises to pay, together with all fees and other amounts due under the Loan Agreement, interest on the unpaid principal amount of this Promissory Note ("Note") from the date made until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Loan Agreement. Both principal and interest are payable in lawful money of the United States of America to the Lender at 2231 East Camelback Road, Suite 410, Phoenix, Arizona 85016, in immediately available funds, or to such other address or bank account as the Lender shall direct. This Note is the Note referred to in, and is entitled to the benefits of, the Loan Agreement, dated as of the date hereof (said Agreement, as it may be amended or otherwise modified from time to time, being the "Loan Agreement"), among the Borrower and the Lender. The Loan Agreement, among other things, (i) provides for the advance of the Loan in an aggregate amount not to exceed at any time outstanding the United States dollar amount first above mentioned, the indebtedness of the Borrower to the Lender resulting from such Loan being evidenced by this Note, and (ii) contains provisions for acceleration of the maturity of the unpaid principal amount of this Note upon the happening of certain stated events and also for prepayments on account of the principal hereof prior to the maturity hereof upon the terms and conditions therein specified. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by the Borrower. 19 The Lender and the Borrower acknowledge and agree that all rights of the Lender to receive any payments from the Borrower hereunder or under any guarantees, mortgages, other types of security documents or otherwise are and shall continue to be subject and subordinate in payment to the prior payment in full, in cash, of all Senior Indebtedness (as defined in the Subordination Agreement (as defined in the Loan Agreement)), to the extent, and in the manner set forth in the Subordination Agreement. All of the terms, covenants and conditions hereof are hereby and shall continue to be subordinate to all of the terms, covenants and conditions of the Senior Indebtedness. The foregoing shall apply, notwithstanding the availability of other collateral to the Senior Creditors (as defined in the Subordination Agreement) or the actual date and time of execution, delivery, recordation, filing or perfection of any of the Senior Indebtedness, or the lien or priority of payment thereof, and in any instance wherein the Senior Indebtedness or any claim for the Senior Indebtedness is subordinated, avoided or disallowed, in whole or in part, under Title 11 of the United States Code (the "Bankruptcy Code") or other applicable federal or state law. [Remainder of page intentionally left blank] 20 This Note shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation By: /s/ Richard A. Smith -------------------------------- Name: Richard A. Smith Title: Authorized Signatory EX-10.67 41 EX-10.67 1 Exhibit 10.67 LOAN AGREEMENT between STARWOOD HOTELS & RESORTS WORLDWIDE, INC. and STARWOOD HOTELS & RESORTS ------------------------------------ Dated as of February 23, 1998 ------------------------------------ $50,000,000 2 LOAN AGREEMENT, dated as of February 23, 1998, between STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Borrower"), and STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust (the "Lender"). W I T N E S E T H : WHEREAS, the Borrower and the Lender are among the parties to that certain Agreement and Plan of Merger, dated as of October 19, 1997 (as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, the "Merger Agreement"); WHEREAS, in connection with the transactions contemplated by the Merger Agreement and the Stock Purchase Agreement, the Lender has agreed to advance the loan to the Borrower and, along with SLT Realty Limited Partnership, a Delaware limited partnership (SLT"), to guaranty the repayment of any indebtedness of the Borrower to third parties on the terms provided for herein. NOW, THEREFORE, the parties hereto have agreed as follows: ARTICLE I DEFINITIONS As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms in this Agreement shall include in the singular number the plural and in the plural the singular: "Affiliate" means, to any Person, any Person which, directly or indirectly, controls, is controlled by or is under common control with such Person and includes each executive officer, director, trustee, limited liability company manager or general partner of such Person, and each Person who is the beneficial owner of 10% or more of any class of voting stock of such Person. For the purposes of this definition, "control" means the possession of the power to direct or cause the direction of management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Business Day" means a day of the year on which banks are not required or authorized to close in New York City. "Closing Date" means the date on which all conditions precedent to the Loan set forth in Article IV shall have been satisfied and the Loan is made. 3 "Default" means any event which with the passing of time or the giving of notice or both would become an Event of Default. "Default Rate" has the meaning specified in Section 2.5(b). "Event of Default" has the meaning specified in Article VII. "Final Maturity Date" means February 23, 2005. "Governmental Authority" means any federal, state, county or municipal government, or political subdivision thereof, any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality, or public body, or any court, administrative tribunal or public utility. "Indebtedness" of any Person means such Person's (a) obligations for borrowed money, (b) obligations representing the deferred purchase price of property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (c) obligations secured by liens or payable out of the proceeds or production from property or assets now or hereafter owned or acquired by such Person and (d) obligations which are evidenced by notes, acceptances or other instruments. "Interest Rate" means the rate of 8.5% per annum. "Laws" means collectively, all federal, state and local laws, statutes, codes, ordinances, orders, rules and regulations, including judicial opinions or precedential authority in the applicable jurisdiction, and all directions, requirements, orders and notices of violation of any governmental or quasi-governmental agency, body or office having or asserting jurisdiction over Borrower, the properties identified on Exhibit A attached hereto or both, as the same may be amended, modified or supplemented from time to time. "Loan" has the meaning specified in Section 2.1(b). "Loan Documents" shall mean this Loan Agreement, the Note, the Mortgage, the Subordination Agreement and any other documents, agreements or instruments now or hereafter executed which evidence, secure or otherwise relate to the Loan. "Merger Agreement" has the meaning specified in the Recitals to this Agreement. -3- 4 "Mortgage" means the Deed of Trust, Security Agreement and Financing Statement made by the Owner in favor of the Lender dated as of the date hereof. "Note" has the meaning specified in Section 2.1(a). "Obligations" means the Loan and all other advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Lender, any Affiliate of the Lender or any Indemnitee, of every type and description, present or future, arising under this Agreement or the Note, whether direct or indirect (including, without limitation, those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term "Obligations" includes, without limitation, all interest, charges, expenses, fees, attorneys' fees and disbursements and any other sum then payable by the Borrower under this Agreement or the Note. "Owner" means Harbor-Cal S.D. "Person" means an individual, partnership, corporation (including, without limitation, a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a governmental authority. "Principal Balance" means the outstanding principal balance of the Note from time to time. "Stock Purchase Agreement" means that certain Stock Purchase Agreement dated as of the date hereof between the Borrower and the Lender. "Subordination Agreement" means that certain Subordination and Intercreditor Agreement dated as of the date hereof to which the Borrower and the Lender are parties. "Taxes" means any and all present or future taxes, levies, imposts, deductions, charges or withholdings or any liabilities with respect thereto including those arising after the date hereof as a result of the adoption of or any change in any law, treaty, rule, regulation, guideline or determination of a Governmental Authority or by any change in the interpretation or application thereof by a Governmental Authority, but excluding such taxes as are imposed on or measured by the Lender's income. ARTICLE II AMOUNT AND TERM OF THE LOAN 2.1. The Note; The Loan. (a) The Borrower's obligation to pay the principal of, and interest on, the Loan shall be evidenced by a promissory note, in the form attached hereto as Exhibit A, dated the date hereof and made by the Borrower -4- 5 payable to the order of the Lender in a stated principal amount equal to the amount of the Loan (as the same may be amended, modified, supplemented, extended or consolidated, the "Note"). (b) On the terms and subject to the conditions contained in this Agreement, the Lender agrees to make to the Borrower a loan in the principal amount of $50,000,000 (the "Loan") on the Closing Date. 2.2. No Additional Advance. The Borrower shall have no right to any further advances or readvances under this Agreement after the funding of the Loan on the Closing Date. 2.3. Repayment. The Borrower shall repay the entire Principal Balance on the Final Maturity Date. 2.4. Prepayments. (a) The Borrower shall have no right to prepay the Principal Balance other than as provided in this Section 2.4. (b) The Borrower may, upon at least two (2) Business Days' prior notice (which may be by telephone, provided that confirmation in writing is received within one (1) Business Day after such telephonic notice) to the Lender, stating the proposed date and aggregate principal amount of the prepayment, prepay the Principal Balance in whole or ratably in part, without premium or penalty, together with accrued interest to the date of such prepayment on the principal amount prepaid. Upon the giving of such notice of prepayment, the principal amount of the Loan specified to be prepaid shall become due and payable on the date specified for such prepayment. 2.5. Interest. (a) The Borrower shall pay interest on the Principal Balance from the date hereof until the Principal Balance and all Obligations shall be paid in full, at the Interest Rate. (b) Unless prohibited by the terms of the Subordination Agreement, any overdue amount payable hereunder shall bear interest from the date due, until the date paid in full, at a rate per annum (calculated for the actual number of days elapsed on the basis of a 365-day year) equal to, on a daily basis, 1% plus the Interest Rate (the "Default Rate"), provided, however, that such interest rate shall in no event exceed the maximum interest rate which the Borrower may by law pay. 2.6. Increased Costs. If due to (a) the introduction of or any change in or in the interpretation of any law or regulation, (b) compliance by the Lender with any law or regulation or with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) or (c) payment by the Lender of Taxes, there shall be any increase in the cost to the Lender of funding or maintaining the Loan, then the Borrower shall from time to time, upon demand by the Lender, pay to the Lender -5- 6 additional amounts sufficient to compensate the Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrower by the Lender, shall be conclusive and binding for all purposes, absent manifest error. 2.7. Payments and Computations. (a) The Borrower shall pay to Lender at its address referred to opposite its signature to this Agreement not later than 11:00 A.M. (New York City time) on the first (1st) day of each calendar month after the date hereof, in immediately available funds without set-off or counterclaim, all interest accrued under the Note during the immediately prior calendar month; provided, however, in the event the Borrower gives telephonic notice to the Lender by 11:00 AM (New York City time) on the day when due that a payment has been made by wire transfer of immediately available funds, such payment may be received by the Lender not later than 2:00 PM (New York City time) on the same day. Payment received by the Lender after 11:00 A.M. (New York City time) or after 2:00 P.M. (New York City time), if the Borrower has given the Lender the notice required above, shall be deemed to be received on the next Business Day. (b) All computations of interest and fees shall be made by the Lender on the basis of the actual number of days elapsed in a 365-day year. (c) Whenever any payment hereunder or under the Note shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be. ARTICLE III GUARANTIES 3.1. Guaranties. Subject to the terms and conditions set forth in this Agreement and in the Subordination Agreement, the Lender hereby agrees to issue and to cause SLT and certain Affiliates of the Lender and SLT to issue for the account of the Borrower and certain of the Borrower's Affiliates one or more guaranties of indebtedness of the Borrower and certain of the Borrower's Affiliates other than this Loan, subject to the following provisions: (a) Conditions. The obligation of the Lender and SLT to issue a guaranty is subject to the satisfaction in full of the following conditions: (i) the proposed guaranty must be permitted under the terms of the Credit Agreement (as defined in the Subordination Agreement) and comply with the terms and conditions of the Subordination Agreement; -6- 7 (ii) the Borrower shall have executed and/or delivered to the Lender and SLT such documents and materials as may be reasonably required by the Lender and SLT in connection with the guaranty; and (iii) the terms of the proposed guaranty shall be satisfactory to the Lender and SLT in their sole discretion and in no event shall be inconsistent with or put at risk the Lender's status as a real estate investment trust. 6 (b) Issuance of Guaranty. (i) The Borrower shall give the Lender and SLT written notice that it needs the Lender and SLT to issue a guaranty not later than the twentieth (20th) Business Day preceding the requested date for issuance thereof under this Agreement, or such shorter notice as may be acceptable to the Lender and SLT. Such notice shall specify (A) the amount that the guaranty requested is to cover, (B) the effective date (which shall be a Business Day) of such guaranty, (C) the date or conditions upon which such guaranty is to terminate (which shall be no later than the Business Day immediately preceding the scheduled Final Maturity Date), (D) the Person(s) for whose benefit such guaranty is to be issued, and (E) other relevant terms of such guaranty. (c) Reimbursement Obligations: (A) subject to the terms of the Credit Agreement and the Subordination Agreement and to the same limits on subrogation and subordination as provided in the relevant guaranty, the Borrower shall reimburse the Lender and SLT, as applicable, for any and all amounts paid and expenses incurred under or in connection with any guaranty (the "Reimbursement Obligations") no later than the date (the "Reimbursement Date") which is three (3) Business Days after the Borrower receives written notice from the Lender and SLT that payment has been made under a guaranty by the Lender and SLT; and (B) all Reimbursement Obligations with respect to any guaranty shall bear interest at the Interest Rate from the date of the relevant payment under such guaranty until the Reimbursement Date. If any Reimbursement Obligations are not paid by the Reimbursement Date, the outstanding amounts shall bear interest at the Default Rate from the Reimbursement Date until the date paid. (C) No action taken or omitted in good faith by the Lender or SLT under or in connection with any guaranty shall put such party under any resulting liability to the Borrower. (d) Payment of Reimbursement Obligations. Subject to the terms of the Credit Agreement and the Subordination Agreement, the Borrower unconditionally agrees to pay to each of the Lender and SLT the amount of all Reimbursement Obligations, interest and other amounts payable to the Lender and SLT under or in connection with the guaranties when -7- 8 such amounts are due and payable, irrespective of any claim, setoff, defense or other right which the Borrower may have at any time against the Lender, SLT or any other Person. (e) Charges. Commencing April 1, 1998, the Borrower shall pay to the SLT on the first day of each calendar quarter, an amount equal to one-quarter (1/4) of one percent (0.25%) per annum, payable quarterly on the average amount guaranteed by the Lender and SLT for the immediately prior calendar quarter, as consideration for the issuance, administration, amendment and payment or cancellation of any guaranties. SLT shall pay the Lender an equitable portion of such amount. (f) Indemnification; Exoneration. (i) In addition to all other amounts payable to the Lender and SLT, the Borrower hereby agrees to defend, indemnify, and save each of the Lender and SLT harmless from and against any and all claims, demands, liabilities, penalties, damages, losses (other than loss of profits), costs, charges and expenses (including reasonable attorneys' fees) which the Lender or SLT may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any guaranty other than as a result of the gross negligence or willful misconduct of the Lender or SLT, as determined by a court of competent jurisdiction, or (B) the failure of the Lender or SLT to honor a payment request under any guaranty as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority. (g) Acts or Omissions. The Borrower assumes (and not the Lender or SLT) all risks of the acts and omissions of, or misuse of guaranties by, the respective beneficiaries of the guaranties. In furtherance and not in limitation of the foregoing, the Lender and SLT shall not be responsible for: (A) the form, validity, legality, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the issuance of or payment under the guaranties, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the validity, legality or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a guaranty or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (C) failure of the beneficiary of a guaranty to duly comply with conditions required in order to receive a payment under such guaranty; (D) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (E) errors in interpretation of technical terms; (F) any loss or delay in the transmission or otherwise of any document required in order to make a request for payment under any guaranty or of the proceeds thereof; (G) the misapplication by the beneficiary of a guaranty of the proceeds of any payment under such guaranty; and (H) any consequences arising from causes beyond the control of the Lender or SLT. 3.2 Obligations Several. The obligations of each of the Lender and SLT under this Article III are several and not joint, and neither party shall be responsible for the obligation to issue guaranties of the other party. -8- 9 3.3 Assignment by Lender. The obligations of the Lender to issue guaranties pursuant to this Article III shall continue to be binding on Starwood Hotels & Resorts, as the initial Lender hereunder, after any assignment of the Loan to SLT. ARTICLE IV CONDITIONS PRECEDENT The obligation of the Lender to make the Loan on the Closing Date shall be subject to the satisfaction of all of the following conditions precedent any of which may be waived by Lender at any time either orally or in writing: (a) Documents. The Lender shall have received this Agreement, the Note and the Mortgage duly executed by the Borrower or the Owner, as applicable, and in form and substance satisfactory to the Lender, together with such other documents, certificates and opinions as shall be reasonably requested by the Lender. (b) Merger. The conditions set forth in Article VI of the Merger Agreement shall have been satisfied or waived, and the Merger (as defined in the Merger Agreement) shall have taken place. (c) No Default. No Default or Event of Default shall have occurred and be continuing or would result from the making of the Loan on the Closing Date. (d) Representations and Warranties. The representations and warranties described in Article V shall be true and correct on and as of the Closing Date. ARTICLE V REPRESENTATIONS AND WARRANTIES In order to induce the Lender to enter into this Agreement and to make the Loan provided for herein, the Borrower hereby represents and warrants as follows: (a) Borrower is a corporation duly formed, validly existing and in good standing under the laws of the State of Maryland. Borrower is qualified and authorized to do business in the State of Maryland. (b) Borrower has full power and authority to perform the obligations and carry out the duties imposed upon Borrower by this Agreement and the Note, and Borrower has taken -9- 10 all action necessary to carry out Borrower's obligations and duties in connection with the Loan. (c) No aspect of the Loan transaction violates or will violate any usury laws or laws of the State of Maryland, regarding the validity of agreements to pay interest in effect on the date hereof. (d) Borrower is not a "foreign person" within the meaning of Section 1445 or 7701 of the Internal Revenue Code. (e) Borrower has delivered to Lender a true, correct and complete copy of Borrower's organizational documents and the same are in full force and effect. To the best of Borrower's knowledge, there are no defaults by any party under Borrower's organizational documents, nor do circumstances exist which, with the passage of time, the giving of notice, or both, would constitute a default thereunder. ARTICLE VI COVENANTS The Borrower hereby covenants and agrees that for so long as this Agreement is in effect and the Note is outstanding and until the Loan, together with interest and all other Obligations incurred hereunder, are paid in full, unless otherwise permitted by Lender: 6.1 Use of Proceeds. The proceeds of the Loan shall be used to purchase shares of ITT Corporation, a Nevada corporation, from the Lender pursuant to the Stock Purchase Agreement and shares of beneficial interest of the Lender. 6.2 Compliance with Merger Agreement. The Borrower shall comply in all respects with the Merger Agreement and shall not take any action to terminate the Merger Agreement (other than in accordance with Article VII thereof) without the prior written consent of the Lender. 6.3 Negative Covenants. Borrower shall not, on or after the date hereof, without the prior written consent of Lender: (a) Materially alter the character of its business from that conducted on the date hereof; (b) Wind up, liquidate or dissolve its affairs; (c) Take any action or omit to take any action that would cause it not to be in -10- 11 good standing in the State of Maryland; (d) Amend, modify or change in any manner materially adverse to the interests of the Lender the certificate of incorporation (including, without limitation, by the filing of any certificate of designation) or by-laws of the Borrower; ARTICLE VII EVENTS OF DEFAULT Upon the occurrence and continuation of any of the following specified events (each, an "Event of Default"): 7.1 Payments. The Borrower shall (i) default in the payment when due of any Principal Balance or (ii) default, and such default shall continue for ten (10) or more Business Days after written notice from Lender, in the payment when due of any interest on the Loan or any fees or any other Obligations owing hereunder or under the Note; or 7.2 Covenants. The Borrower shall default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in Section 7.1) contained in this Agreement or one of the Owners shall default in the due performance or observance by it of any term, covenant or agreement contained in the Mortgages and such default shall continue beyond the period of time specified by Lender in its written notice of default, which period shall be no less than twenty (20) Business Days; or 7.3 Default Under Other Agreements The Borrower shall (i) default in any payment with respect to any Indebtedness (other than the Obligations) beyond the period of grace, if any, applicable thereto or (ii) default in the observance or performance of any agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause any such Indebtedness to become due prior to its stated maturity; or (b) any such Indebtedness shall be declared to be due and payable (other than to the extent the Borrower promptly denies in writing to the applicable creditor the validity of such declaration and is contesting same in good faith), or required to be prepaid other than by a regularly scheduled required -11- 12 prepayment, prior to the stated maturity thereof, and such default shall continue beyond the period of time specified by Lender in its written notice of default, which period shall be no less than twenty (20) Business Days. Borrower shall have the right to cure any default under this Section 7.3 by repaying or refinancing the Indebtedness with respect to which a default has occurred. 7.4 Bankruptcy, etc. The Borrower shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy", as now or here after in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the Borrower and the petition is not controverted within 20 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower, or the Borrower commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower, or there is commenced against the Borrower any such proceeding which is not controverted within 20 days or remains undismissed for a period of 60 days; or the Borrower is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or the Borrower makes a general assignment for the benefit of creditors; or any cor- porate action is taken by the Borrower for the purpose of effecting any of the foregoing; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Lender may, at its sole discretion, but subject to (and only to the extent permitted by) the Subordination Agreement, by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of the Lender to enforce its claims against the Borrower, except as otherwise specifically provided for in this Agreement: (i) declare the Lender's obligation to advance the Loan or any portion thereof terminated; and (ii) declare the principal of and any accrued interest in respect of the Loan and all Obligations to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. ARTICLE VIII MISCELLANEOUS 8.1. Payment of Expenses, etc. The Borrower agrees to: (i) pay all reasonable out-of-pocket costs and expenses of the Lender in connection with the -12- 13 administration and enforcement of this Agreement and the Note and any amendment, waiver or consent relating thereto (including, without limitation, the reasonable fees and disbursements of counsel for the Lender), provided that each of the parties hereto shall pay its own costs and expenses relating to the negotiation, preparation and delivery of this Agreement and the Note; and (ii) indemnify the Lender, its Affiliates and their respective officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, an investigation, litigation or other proceeding (whether or not the Lender is a party thereto) related to the entering into and/or performance of this Agreement or the Note or the use of the proceeds of the Loan hereunder. 8.2. Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier, facsimile or cable communication) and mailed, telegraphed, telexed, telecopied, faxed, cabled or delivered at the address specified opposite its signature below or at such other address as shall be designated by any party in a written notice to the other party hereto. All such notices and communications shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and shall be effective when received. 8.3. Benefit of Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that the Borrower may not assign or transfer any of its rights or obligations hereunder other than in accordance with the Transaction Agreement. 8.4. No Waiver; Remedies Cumulative. No failure or delay on the part of the Lender in exercising any right, power or privilege hereunder and no course of dealing between the Borrower and the Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Lender would otherwise have. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Lender to any other or further action in any circumstances without notice or demand. 8.5. Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial. (a) This Agreement and the Note and the rights and obligations of the parties hereunder and thereunder shall be construed in accordance with and be governed by the law of the State of New York, in accordance with the provisions of New York State -13- 14 General Obligations Law Section 5-1401. The parties hereto irrevocably submit to the jurisdiction of the courts of the State of New York and the Federal courts of the United States of America located in the State of New York solely in respect of the interpretation and enforcement of the provisions of this Agreement and the Note, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or the Note may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a New York State or Federal court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 8.2 or in such other manner as may be permitted by law shall be valid and sufficient service thereof. (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.5. 8.6. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 8.7. Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. -14- 15 8.8. Amendment or Waiver. Neither this Agreement nor the Note nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Borrower and the Lender. 8.9. Survival. All indemnities set forth herein shall survive the execution and delivery of this Agreement and the making and repayment of the Loan. 8.10 Recourse to Trust. The Borrower acknowledges and agrees that the name "Starwood Hotels & Resorts" is a designation of the Lender and its trustees (as trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated as of June 6, 1988, and as the same has been or may be amended from time to time thereafter, and that the Borrower shall look solely to the Lender's assets for the enforcement of any claims against the Lender, as the trustees, officers, agents and security holders of the Lender assume no personal liability for obligations entered into on behalf of the Lender, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. The foregoing shall govern all direct and indirect obligations of the Lender under this Agreement and the Note. 8.11 Subordination. The Lender and the Borrower acknowledge and agree that all rights of the Lender to receive any payments from the Borrower hereunder or under any guarantees, mortgages, other types of security documents or otherwise are and shall continue to be subject and subordinate in payment to the prior payment in full, in cash, of all Senior Indebtedness (as defined in the Subordination Agreement), to the extent, and in the manner set forth in the Subordination Agreement. All of the terms, covenants and conditions hereof are hereby and shall continue to be subordinate to all of the terms, covenants and conditions of the Senior Indebtedness. The foregoing shall apply, notwithstanding the availability of other collateral to the Senior Creditors (as defined in the Subordination Agreement) or the actual date and time of execution, delivery, recordation, filing or perfection of any of the Senior Indebtedness, or the lien or priority of payment thereof, and in any instance wherein the Senior Indebtedness or any claim for the Senior Indebtedness is subordinated, avoided or disallowed, in whole or in part, under Title 11 of the United States Code (the "Bankruptcy Code") or other applicable federal or state law. -15- 16 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. BORROWER: Address: STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation Starwood Hotels & Resorts Worldwide, Inc. 2231 Camelback Road, Suite 400 Phoenix, Arizona 85016 By: /s/ Richard A. Smith Attention: Alan M. Schnaid ------------------------------- Fax: (602)852-0984 Name: Richard A. Smith Title: Authorized Signatory Copies to: Sherwin Samuels, Esq. Sidley & Austin 555 West Fifth Avenue Los Angeles, California 90013 Fax: (203)896-6600 LENDER: Address: STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust Starwood Hotels & Resorts 2231 East Camelback Road, Ste. 410 Phoenix, Arizona 85016 Attention: Ronald C. Brown By: /s/ Ronald C. Brown Fax: (602) 852-3379 -------------------------- Name: Ronald C. Brown Copies to: Title: Senior Vice President Sherwin Samuels, Esq. Sidley & Austin 555 West Fifth Avenue Los Angeles, California 90013 Fax: (203)896-6600 -16- 17 EXHIBIT A FORM OF NOTE -17- 18 PROMISSORY NOTE U.S. $50,000,000 Dated: February 23, 1998 FOR VALUE RECEIVED, the undersigned, STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust (the "Lender"), the principal sum of FIFTY MILLION UNITED STATES DOLLARS ($50,000,000), payable at such times, and in such amounts, as are specified in the Loan Agreement (defined below). Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Loan Agreement. The Borrower promises to pay, together with all fees and other amounts due under the Loan Agreement, interest on the unpaid principal amount of this Promissory Note ("Note") from the date made until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Loan Agreement. Both principal and interest are payable in lawful money of the United States of America to the Lender at 2231 East Camelback Road, Suite 410, Phoenix, Arizona 85016, in immediately available funds, or to such other address or bank account as the Lender shall direct. This Note is the Note referred to in, and is entitled to the benefits of, the Loan Agreement, dated as of the date hereof (said Agreement, as it may be amended or otherwise modified from time to time, being the "Loan Agreement"), among the Borrower and the Lender. The Loan Agreement, among other things, (i) provides for the advance of the Loan in an aggregate amount not to exceed at any time outstanding the United States dollar amount first above mentioned, the indebtedness of the Borrower to the Lender resulting from such Loan being evidenced by this Note, and (ii) contains provisions for acceleration of the maturity of the unpaid principal amount of this Note upon the happening of certain stated events and also for prepayments on account of the principal hereof prior to the maturity hereof upon the terms and conditions therein specified. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by the Borrower. 19 The Lender and the Borrower acknowledge and agree that all rights of the Lender to receive any payments from the Borrower hereunder or under any guarantees, mortgages, other types of security documents or otherwise are and shall continue to be subject and subordinate in payment to the prior payment in full, in cash, of all Senior Indebtedness (as defined in the Subordination Agreement (as defined in the Loan Agreement)), to the extent, and in the manner set forth in the Subordination Agreement. All of the terms, covenants and conditions hereof are hereby and shall continue to be subordinate to all of the terms, covenants and conditions of the Senior Indebtedness. The foregoing shall apply, notwithstanding the availability of other collateral to the Senior Creditors (as defined in the Subordination Agreement) or the actual date and time of execution, delivery, recordation, filing or perfection of any of the Senior Indebtedness, or the lien or priority of payment thereof, and in any instance wherein the Senior Indebtedness or any claim for the Senior Indebtedness is subordinated, avoided or disallowed, in whole or in part, under Title 11 of the United States Code (the "Bankruptcy Code") or other applicable federal or state law. [Remainder of page intentionally left blank] 20 This Note shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation By: /s/ Richard A. Smith -------------------------- Name: Richard A. Smith Title: Authorized Signatory EX-10.68 42 EX-10.68 1 Exhibit 10.68 EXECUTION COPY PURCHASE AGREEMENT THIS PURCHASE AGREEMENT is made as of the 23rd day of February, 1998, by and among Starwood Hotels & Resorts (the "REIT"), a Maryland real estate investment trust, Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the "OPCO") (the REIT and the OPCO, each a "Company" and together the "Companies"), Lehman Brothers Inc. ("LBI") and, solely with respect to the covenants, representation and warranties in Sections 5 and 6, Lehman Brothers Finance S.A. ("LBF"). IN CONSIDERATION of the mutual covenants contained in this Purchase Agreement, the Companies and LBI hereby agrees as follows: SECTION 1. Authorization of Sale of the Shares. Subject to the terms and conditions of this Purchase Agreement, the REIT has authorized the sale to LBI of 1,547,000 shares of beneficial interest, $.01 par value per share, of the REIT (the "REIT Shares") and the OPCO has authorized the sale to LBI of 1,547,000 shares of common stock, $.01 par value per share, of the OPCO (the "OPCO Shares"), which REIT Shares and OPCO Shares are paired as a unit consisting of one (1) REIT Share and one (1) OPCO Share (hereinafter each such paired unit is referred to as a "Paired Share") and the Paired Shares referred to in this sentence are herein called the "Purchase Shares"). In addition, the REIT and the OPCO may issue to LBF additional Paired Shares in settlement of certain of their obligations under that certain Agreement (the "Agreement"), dated as of the date hereof, between the REIT, the OPCO and LBF (the "Additional Shares"). The Paired Shares and the Additional Shares are hereinafter collectively called the "Shares." SECTION 2. Agreement to Sell and Purchase the Purchase Shares. Subject to the terms and conditions of this Purchase Agreement, on the Closing Date (as defined in Section 3 hereof), the Companies will sell to LBI the Purchase Shares for a per Paired Share purchase price equal to 98.00% of the Closing Price. The "Closing Price" shall equal the closing price reported on the New York Stock Exchange for a Paired Share on February 23, 1998. SECTION 3. Delivery of the Purchase Shares at the Closing. 3.1 Closing. The completion of the purchase and sale of the Purchase Shares (the "Closing") shall occur as soon as practicable on or after the date hereof on a business day to be agreed upon by the Companies and LBI, but in no event later than five business days after the execution of this Purchase Agreement (hereinafter, the "Closing Date"). 3.2 Conditions. At Closing, the Companies shall deliver to LBI one or more stock certificates registered in the name of LBI representing the number of Purchase Shares set forth in Section 2 above. 2 The obligation of the Companies to complete the purchase and sale of the Purchase Shares and deliver such stock certificate(s) to LBI at the Closing shall be subject to the following conditions, any one or more of which may be waived by both of the Companies acting together: (i) receipt by the Companies of Federal Funds (or other mutually agreed upon form of payment) in the full amount of the purchase price for the Purchase Shares being purchased hereunder, (ii) the accuracy in all material respects as of the Closing Date, of the representations and warranties made by LBI herein and the fulfillment, in all material respects, of those undertakings of LBI to be fulfilled prior to the Closing, (iii) execution and delivery of the Agreement by LBF, (iv) receipt by the Companies of a cross-receipt with respect to the Purchase Shares executed by LBI and (v) receipt by the Companies of a certificate by an officer or authorized representative of LBI to the effect that the representations and warranties of LBI set forth in Section 5 hereof are true and correct as of the date of this Purchase Agreement and as of the Closing Date. LBI's obligation to accept delivery of such stock certificate(s) and to pay for the Purchase Shares evidenced thereby shall be subject to the following conditions, any one or more of which may be waived by LBI: (i) the accuracy in all material respects, as of the Closing Date, of the representations and warranties made by the Companies herein and the fulfillment, in all material respects, of those undertakings of the Companies to be fulfilled prior to the Closing, (ii) receipt by LBI of all opinions, letters and certificates to be delivered by the Companies pursuant to this Purchase Agreement, (iii) execution and delivery of the Agreement by each of the Companies, and (iv) receipt by LBI of a cross-receipt with respect to the purchase price for the Purchase Shares executed by the Companies. SECTION 4. Representations, Warranties and Covenants of the Companies. Except as disclosed in the Companies' SEC Filings (as defined below), each of the REIT and the OPCO, severally and not jointly, hereby represents and warrants to LBI, and covenants with LBI, with respect to such Company and its Subsidiaries (as defined below) only, as follows: 4.1 Organization and Qualification of the Companies. Each of the REIT and the OPCO has been duly organized and is validly existing in good standing under the laws of Maryland with power and authority to own and lease its properties and to conduct its business as currently conducted. Each of the REIT and the OPCO is duly qualified to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing or managing of property or the conduct of business, except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings, assets, business affairs or business prospects of the Companies and the Subsidiaries of the Companies considered as one enterprise (a "Material Adverse Effect"). Entities in which either of the Companies directly or indirectly has at least a 50% ownership interest are herein referred to as the "Subsidiaries," and each individually, as a "Subsidiary." 4.2 Organization and Qualification of Subsidiaries. Each of the Subsidiaries has been duly organized and is validly existing as a corporation, limited partnership, or limited liability company, as the case may be, in good standing under the laws of its respective jurisdiction of organization, with full power and authority to own, lease and operate its properties 3 and to conduct the business in which it currently is engaged. Each of the Subsidiaries is duly qualified as a foreign corporation, limited partnership, or limited liability company, as the case may be, to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify would not have a Material Adverse Effect. All of the issued and outstanding shares of capital stock of each of the corporate Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable. The ownership by the Companies or the Subsidiaries of the shares of capital stock or limited partnership or equity interests, as the case may be, of each of the Subsidiaries is as described in the Companies' SEC Filings. 4.3 Authorized Capital Stock. The REIT has the following authorized shares: 1,000,000,000 REIT shares par value $0.01 per share, 200,000,000 excess shares of beneficial interest, par value $.01 per share, 100,000,000 shares of trust preferred, par value $.01 per share, and 50,000,000 shares of excess trust preferred, par value $0.01 per share. The OPCO has the following authorized shares: 1,000,000,000 OPCO shares, par value $0.01 per share, 200,000,000 shares of preferred stock, par value $0.01 per share, 50,000,000 shares of excess common stock, par value $0.01 per share and 100,000,000 shares of excess preferred stock, par value $0.01 per share. As of January 20, 1998, there were 55,392,389 Paired Shares, 6,285,765 Class A Exchangeable Preferred Shares of the Trust and 5,502,711 Class B Exchangeable Preferred Shares of the Trust outstanding, and 21,292,005 REIT shares and 21,292,005 OPCO shares were reserved for issuance. The issued and outstanding Paired Shares of the Companies have been duly authorized and validly issued, are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and conform to the description thereof in the Companies' SEC Filings. Other than as described in the Companies' SEC Filings, the REIT does not have outstanding any options to purchase, or other rights to subscribe for or purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. The description of the Companies' stock, stock bonus and other stock plans or arrangements and the options or other rights granted and exercised thereunder in the Companies' SEC Filings accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. 4.4 Issuance, Sale and Delivery of the Shares. The Purchase Shares to be sold by the Companies have been duly authorized for issuance and, when issued, delivered and paid for in the manner set forth in this Purchase Agreement, will be validly issued, fully paid and non-assessable. The Additional Shares, if and when issued pursuant to the Agreement, have been duly authorized and will be validly issued, fully paid and non-assessable. Upon payment of the purchase price and delivery of the Shares in accordance with this Purchase Agreement, LBI will receive good, valid and marketable title to the Shares, free and clear of all security interests, mortgages, pledges, liens, encumbrances and claims. No approval of or authorization by the respective shareholders or boards of trustees or directors of the Companies will be required for the issuance and/or sale of the Shares to be sold by the Companies as contemplated herein or in the Agreement, except such as shall have been obtained on or before the Closing Date or the 4 applicable Settlement Date. The issuance and/or sale of the Shares to LBI or LBF by the Companies pursuant to this Purchase Agreement or the Agreement (as the case may be), the compliance by the Companies with the other provisions of this Purchase Agreement or the Agreement and the consummation of the other transactions contemplated hereby or thereby do not require the consent, approval, authorization, registration or qualification of or with any court, governmental authority or agency, except such as shall have been obtained on or before the Closing Date or in connection with any Resale Registration Statement filed with respect to any of the Shares. The Companies meet and will continue to meet the requirements for use of Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations of the U.S. Securities and Exchange Commission (the "Commission") under the Securities Act (the "1933 Act Regulations"). The Companies have filed and will file all documents which they are required to file under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations promulgated thereunder (the "1934 Act Regulations") within the time periods prescribed by the Exchange Act and the 1934 Act Regulations since December 31, 1996 and all such documents (collectively, together with the Companies' registration statements filed under the Securities Act which have been declared effective since January 1, 1997 and have not been withdrawn, the "Companies' SEC Filings") comply and will comply in all material respects with the requirements of the Exchange Act and the 1934 Act Regulations, as applicable, and none of such documents, when so filed, contained or will contain any untrue statement of a material fact or omitted or will omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. No Resale Registration Statement filed in respect of any of the Shares, when so filed, contained or will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. 4.5 Due Execution, Delivery and Performance by the Company. Each of the Companies has full right, power and authority to enter into this Purchase Agreement and the Agreement and perform the transactions contemplated hereby and thereby. This Purchase Agreement and the Agreement have been duly authorized, executed and delivered by each of the Companies. The execution and delivery of the Purchase Agreement and the Agreement by each of the Companies and the consummation of the transactions and the performance of the obligations herein and therein contemplated will not violate any provision of the declaration of trust, certificate of incorporation, bylaws, or other organizational documents of either of the Companies, and will not conflict with, result in the breach or violation of, or constitute, either by itself or upon notice or the passage of time or both, a default under any material agreement, mortgage, deed of trust, credit agreement, lease, franchise, license, indenture, note, permit or other instrument to which either Company is a party or by which either Company or its respective properties may be bound or affected, any statute or any authorization, judgment, decree, order, rule or regulation of any court or any regulatory body, administrative agency or other governmental body applicable to either Company or any of its respective properties other than violations, conflicts, breaches or defaults that individually or in the aggregate would not have a Material Adverse Effect. No consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body is required for the execution and delivery of this Purchase Agreement, the Agreement or the consummation of the transactions 5 contemplated hereby or thereby, except in connection with the filing of any Resale Registration Statements pursuant to Section 7 below or for compliance with the blue sky laws applicable to the offering of the Shares. 4.6 Accountants. The Companies' independent certified public accountants, who have expressed their opinion with respect to the Most Recent Financial Statements (as defined below) are independent accountants as required by the Securities Act and the 1933 Act Regulations. 4.7 No Defaults. Except as to defaults, violations and breaches which individually or in the aggregate would not have a Material Adverse Effect, neither of the Companies nor any of their respective Subsidiaries is in violation or default of any provision of its declaration of trust, certificate of incorporation or bylaws, or other organizational documents, and is not in breach of or default with respect to any provision of any agreement, judgment, decree, order, mortgage, deed of trust, credit agreement, lease, franchise, license, indenture, permit or other instrument to which it is a party or by which it or any of its properties are bound. 4.8 No Actions. There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of each Company, threatened against or affecting such Company or any of its Subsidiaries, any real property or improvements thereon owned or leased by such Company or its Subsidiaries, including any property underlying indebtedness held by such Company (each, individually, a "Property" and collectively, the "Properties"), or any officer of such Company or any of its Subsidiaries that, if determined adversely to such Company or any Subsidiary, any Property, including any property underlying indebtedness held by such Company and any of its Subsidiaries, or any such officer, would reasonably be expected to (A) result in any Material Adverse Effect or (B) materially and adversely affect the consummation of the transactions contemplated by this Purchase Agreement or the Agreement. 4.9 Properties. (A) Each Company and its respective Subsidiaries, as the case may be, has good and marketable title to all the properties and assets reflected as owned by such entities in the Most Recent Financial Statements, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if any, reflected in the Most Recent Financial Statements, or (ii) those which would not have a Material Adverse Effect, (B) the leases of any real property and buildings held under lease by such Company or any of its Subsidiaries are in full force and effect, and such entities are not in default in respect of any of the terms or provisions of such leases and have not received notice of the assertion of any claim by anyone adverse to such entities' rights as lessee under such leases, or affecting or questioning such entity's right to the continued possession or use of the real property and buildings held under such leases or of a default under such leases, in each case with such exceptions as would not have a Material Adverse Effect; (C) neither Company nor any of its respective Subsidiaries or any tenant of any of the Properties is in default under any of the leases pursuant to which such Company or its Subsidiaries, as lessor, leases its Property (and to the best knowledge of such Company no 6 event has occurred which, but for the passage of time or the giving of notice, or both, would constitute a default under any of such leases) other than such defaults that would not have a Material Adverse Effect; (D) no person has an option or right of first refusal to purchase all or part of any Property or any interest therein, other than such options or rights of first refusal which would not have a Material Adverse Effect; (E) each of the Properties complies with all applicable codes, laws and regulations (including, without limitation, building and zoning codes, laws and regulations and laws relating to access to the Properties), except for such failures to comply that would not individually or in the aggregate have a Material Adverse Effect; and (F) neither Company has knowledge of any pending or threatened condemnation proceedings, zoning change, or other proceeding or action that will in any manner affect the size of, use of, improvements on, construction on or access to the Properties, including any property underlying indebtedness held by either Company or any of its respective Subsidiaries, except such proceedings or actions that would not have a Material Adverse Effect. 4.10 REIT Qualification. The REIT qualified as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the "Code"), with respect to its taxable years ended December 31, 1995, December 31, 1996 and December 31, 1997, and is organized in conformity with the requirements for qualification as a real estate investment trust, and its manner of operation has enabled it to meet the requirements for qualification as a real estate investment trust as of the date hereof, and its proposed manner of operation will enable it to meet the requirements for qualification as a real estate investment trust in the future. 4.11 No Material Change. Since the date of the Most Recent Financial Statements, and except as otherwise disclosed in the Companies' SEC Filings as of the Closing Date, (i) no material casualty loss or material condemnation or other material adverse event with respect to any Property or any of the Subsidiaries, has occurred that would singly or in the aggregate have a Material Adverse Effect; (ii) neither of the Companies, nor any of their respective Subsidiaries is in default in the payment of principal or interest on any outstanding debt obligations; (iii) except as a result of (a) the Companies' acquisition of Westin Hotels & Resorts Worldwide, Inc. and certain affiliates and the related financing transactions and (b) the OPCO's acquisition of ITT Corporation and the related financing transactions, there has not been any change in the capital stock of either Company or the Subsidiaries (other than the sale of the Purchase Shares hereunder or those reserved for issuance pursuant to the Agreement, issuances pursuant to the incentive compensation plans of the Companies), or any increase in the indebtedness of either Company or their respective Subsidiaries that is material to such entities, considered as one enterprise; (iv) and except for regular quarterly distributions on the REIT Shares, there has been no dividend or distribution of any kind declared, paid or made by the REIT or the OPCO; and (v) there has not been any material adverse change in the condition, financial or otherwise, or in the earnings, assets, business affairs or business prospects of the Companies and the Subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business. 4.12 Intellectual Property. Neither of the Companies nor the Subsidiaries is required to own or possess trademarks, trade names, patent rights, copyrights, licenses, approvals and governmental authorizations, which it does not already own or possess to conduct its 7 businesses as now conducted; and neither Company has knowledge of any material infringement by it of trademark, trade name rights, patent rights, copyrights, licenses, trade secrets or other similar rights of others, and has not received any notice that any claim has been made against such Company regarding trademark, trade name, patent, copyright, license, trade secrets or other infringement that would not singly or in the aggregate have a Material Adverse Effect. 4.13 Compliance. Neither Company has been advised, or has reason to believe, that it is not conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, except where failure to be so in compliance will not have a Material Adverse Effect. 4.14 Taxes. Each of the Companies and its Subsidiaries have filed all material federal, state and foreign income and franchise tax returns which have been required to be filed and has paid or accrued all taxes shown as due thereon (except for those taxes which are being contested in good faith through appropriate proceeding, for which adequate reserves have been established and which are either reflected in the Most Recent Financial Statements or disclosed by the Companies to LBI), and neither Company has any knowledge of any tax deficiency which has been or might be asserted or threatened against such Company and its Subsidiaries which would singly or in the aggregate have a Material Adverse Effect. 4.15 Transfer Taxes. On the Closing Date, all stock transfer or other taxes, if any (other than income taxes) which are required to be paid in connection with the sale and transfer of the Purchase Shares to be sold to LBI hereunder will be, or will have been, fully paid or provided for by the Companies and all laws imposing such taxes will be or will have been fully complied with. 4.16 Investment Company. Neither of the Companies nor any of their Subsidiaries is required to register as an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 4.17 Offering Materials. Neither the REIT nor the OPCO has distributed nor will distribute prior to the Closing Date any offering material in connection with the offering and sale of the Purchase Shares other than the documents and information provided to LBI pursuant to this Section 4. 4.18 Additional Information. Each of the Companies represents and warrants that the information contained in the following documents, which the Companies have furnished to LBI, or will be furnished or made available upon request prior to the Closing, is true and correct in all material respects as of their respective filing dates: (a) Joint Annual Report on Form 10-K for the year ended December 31, 1996, which Joint Annual Report includes the Companies' most recently available audited financial statements together with the report thereon of the independent certified public accountants (the "Most Recent Financial Statements"), 8 (b) Joint Quarterly Reports on Form 10-Q, as amended if applicable, for the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997; (c) the Companies' proxy statements on Form 14A relating to (i) the most recent Annual Meetings of the REIT's Shareholders and the OPCO's Shareholders and (ii) the Special Meetings of the REIT's Shareholders and the OPCO's Shareholders which occurred during the 12 month period prior to the date hereof or for which a meeting date has been fixed and a proxy statement distributed; (d) all other documents, if any, filed by or with respect to the REIT and the OPCO with the Commission since January 1, 1997 pursuant to Section 13, 15(d) or 16(a) of the Exchange Act; and (e) covenant compliance certificates stating that none of the REIT, the OPCO or their respective Subsidiaries are in default under any of their respective credit agreements or other financing arrangements. 4.19 Legal Opinion. At or prior to the Closing, counsel to the Companies will deliver their legal opinions dated the Closing Date to LBI in substantially the form of Exhibit A hereto. 4.20 ERISA. Each of the Companies and their respective Subsidiaries are in compliance with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended and the rules and regulations promulgated thereunder ("ERISA"), except for such failures to comply as will not have a Material Adverse Effect. Neither a Reportable Event (as defined under ERISA) nor a Prohibited Transaction (as defined under ERISA) has occurred with respect to any Plan (as defined below) of the Companies and/or their respective affiliates; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated within the past five years; to the Companies' knowledge, no circumstance exists which constitutes grounds under Section 402 of ERISA entitling the Pension Benefit Guaranty Corporation ("PBGC") to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; neither Company nor their respective affiliates has completely or partially withdrawn under Section 4201 or 4202 of ERISA from any Multiemployer Plan (as defined therein); each of the Companies and their respective affiliates have met the minimum funding requirements of Section 412 of the Code and Section 302 of ERISA with respect to each Plan and there is no unfunded current liability (as defined below) with respect to any Plan; each of the Companies and their respective affiliates have not incurred any liability to the PBGC under ERISA (other than for the payment of premiums under Section 4007 of ERISA); no part of the funds to be used by the Companies in satisfaction of their respective obligations under this Purchase Agreement or the Agreement constitute "plan assets" of any "employee benefit plan" within the meaning of ERISA or of any "plan" within the meaning of Section 4957(e)(I) of the Code, as interpreted by the Internal Revenue Service and the U.S. Department of Labor in rules, regulations, releases and bulletins or as interpreted under applicable case law. As used below,"Plan" means an "employee benefit plan" or "plan" as described in Section 3(3) of ERISA; and "unfunded current liability" has the meaning provided in Section 302(d)(8)(A) of ERISA. 9 4.21 Environmental Protection. Except as otherwise disclosed in the Companies' SEC Filings and except for such exceptions as would not singly or in the aggregate have a Material Adverse Effect, none of the REIT's or the OPCO's or their respective affiliates' properties contain any Hazardous Materials that, under any Environmental Law, (i) would impose liability on such Company or any affiliate that is likely to have a Material Adverse Effect or (ii) is likely to result in the imposition of a lien on any material asset owned, directly or indirectly, by such Company. Neither Company nor any affiliate is subject to any existing, pending or, to the best knowledge of each Company, threatened investigation or proceeding by any governmental agency or authority with respect to pursuant to any Environmental law, except any which, if adversely determined, would not have a Material Adverse Effect. As used herein, "Environmental Laws" mean all federal, state, local and foreign environmental, health and safety laws, codes and ordinances and all rules and regulations promulgated thereunder, including, without limitation laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, solid, toxic or hazardous substances or wastes; and "Hazardous Material" includes, without limitation, (i) all substances which are designated pursuant to Section 311(b)(2)(A) of the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C. Section 1251 et seq.; (ii) any element, compound, mixture, solution, or substance which is designated pursuant to Section 102 of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 et seq.; (iii) any hazardous waste having the characteristics which are identified under or listed pursuant to Section 3001 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901 et seq.; (iv) any toxic pollutant listed under Section 307(a) of the FWPCA; (v) any hazardous air pollutant which is listed under Section 112 of the Clean Air Act, 42 U.S.C. Section 7401 et seq.; (vi) any imminently hazardous chemical substance or mixture with respect to which action has been taken pursuant to Section 7 of the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; and (vii) petroleum, petroleum products, petroleum by-products, petroleum decomposition by-products, and waste oil. 4.22 Solvency. Immediately following (i) the execution of this Purchase Agreement and the Agreement, (ii) the purchase of the Purchase Shares pursuant hereto and (iii) the completion of any other transaction contemplated by this Purchase Agreement and the Agreement, each of the Companies will be solvent and able to pay its debts as they mature, will have capital sufficient to carry on its business and all businesses in which it is to engage, and will have assets which will have a present fair market valuation greater than the amount of all of its liabilities. This Purchase Agreement and the Agreement have been executed and delivered by the Companies in good faith and in exchange for reasonably equivalent value. Neither of the Companies intends to incur debts beyond its ability to pay them as they become due. Each of the Companies' assets and capital are now, and are expected in the future to be, sufficient to pay the Companies' ongoing expenses as they are incurred and to discharge all of the Companies' liabilities in the event that the business of the Companies is required to be liquidated. The Companies have not entered into this Purchase Agreement or the Agreement or any transaction contemplated hereby or thereby with an intent to hinder, delay or defraud creditors of any persons 10 or entity. 4.23 Certificate. At or prior to the Closing, each Company shall deliver an officer's certificate to be dated the Closing Date in form and substance satisfactory to LBI to the effect that (i) the representations and warranties of such Company set forth in this Section 4 are true and correct in all material respects as of the date of this Purchase Agreement and as of the Closing Date and (ii) such Company has complied in all material respects with all the covenants and satisfied in all material respects all the conditions on its respective part to be performed or satisfied pursuant to this Purchase Agreement or the Agreement on or prior to such Closing Date. 4.24 Financial Statements. The Most Recent Financial Statements (including the notes thereto) present fairly in all material respects the financial position of the respective entity or entities presented therein at the respective dates indicated and the results of their operations for the respective periods specified, and except as otherwise stated in the Most Recent Financial Statements, said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis. The supporting schedules included in the Companies' SEC Filings fairly present in all material respects the information required to be stated therein. The financial information and data included in the Companies' SEC Filings present fairly in all material respects the information included therein and have been prepared on a basis consistent with that of the financial statements included in the Companies' SEC Filings and the books and records of the respective entities presented therein. The pro forma financial information included in the Companies' SEC Filings has been prepared in accordance with the applicable requirements of Rules 11-01 and 11-02 of Regulation S-X under the Securities Act and other 1933 Act Regulations and American Institute of Certified Public Accountants ("AICPA") guidelines with respect to pro forma financial information and includes all adjustments necessary to present fairly in all material respects the pro forma financial position of the respective entity or entities presented therein at the respective dates indicated and the results of their operations for the respective periods specified. Other than the historical and pro forma financial statements (and schedule) included therein, no other historical or pro forma financial statements (or schedules) are required to be included in the Companies' SEC Filings. Except as reflected or disclosed in the financial statements included in the Companies' SEC Filings, none of the Companies or any of the Subsidiaries is subject to any material indebtedness, obligation, or liability, contingent or otherwise. 4.25 Labor Disputes. No labor dispute with the employees of either of the Companies or their respective Subsidiaries exists or, to the knowledge of the such Company is imminent. 4.26 Regulation M. Each Company, its Subsidiaries and, to such Company's knowledge, any of their respective trustees, directors, executive officers or controlling persons, has not taken or will not take, directly or indirectly, any action resulting in a material violation of Regulation M under the Exchange Act, or designed to cause or result under the Exchange Act or otherwise in, or which has constituted or which reasonably might be expected to constitute, the 11 unlawful stabilization or manipulation of the price of Paired Shares in connection with the public sale or distribution of the Shares. SECTION 5. Representations, Warranties and Covenants of LBI or LBF. 5.1 Investment. LBI represents and warrants to, and covenants with each of the Companies that: (i) LBI is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in shares presenting an investment decision like that involved in the purchase of the Purchase Shares, including investments in securities issued by the Companies; (ii) LBI is acquiring the number of Purchase Shares set forth in Section 2 above in the ordinary course of its business and for its own account for investment (as defined for purposes of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the regulations thereunder) only and with no present intention of distributing any of such Purchase Shares or any arrangement or understanding with any other persons regarding the distribution of such Purchase Shares, except pursuant to a registration statement declared effective under, or an exemption from the registration requirements of, the Securities Act, (iii) LBI will not, directly or indirectly, sell or otherwise dispose of (or solicit any offers to purchase or otherwise acquire) any of the Purchase Shares except in compliance with the Securities Act, the Rules and Regulations and any applicable state securities or blue sky laws; (iv) LBI has completed or caused to be completed the Registration Statement Questionnaire and the Stock Certificate Questionnaire, both attached hereto as Appendix I, for use in preparation of the Resale Registration Statement and the answers thereto are true and correct as of the date hereof and will be true and correct as of the effective date of the Resale Registration Statement; (v) LBI has, in connection with their decision to purchase the number of Purchase Shares set forth in Section 2 above, relied solely upon the documents identified in Section 4.17, the information referred to in Section 7.7 and the representations and warranties of each of the Companies contained herein; (vi) LBI has had access to such additional information, if any, concerning the Companies as it has considered necessary in connection with its investment decision to acquire the Purchase Shares; (vii) LBI is an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D promulgated under the Securities Act; and (viii) LBI understands that until the Shares are sold under an appropriate Resale Registration Statement that has been declared effective by the Commission, the Shares will contain a legend to the following effect: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANIES THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. 5.2 Resale. LBI acknowledges and agrees that in connection with any transfer 12 of any Shares it will provide to the transfer agent prompt notice of any Shares sold pursuant to a Resale Registration Statement or otherwise transferred in compliance with applicable federal and state securities laws. LBI acknowledges that there may occasionally be times when, subject to the provisions of Section 7.2(a)(v), the Companies must suspend the right of LBI to effect sales of the Shares through the use of the Resale Prospectus (as defined below) forming a part of a Resale Registration Statement until such time as an amendment to such Resale Registration Statement has been filed by the Companies and declared effective by the Commission, or until such time as the Companies have filed an appropriate report with the Commission pursuant to the Exchange Act (each, a "Black-out Period"); provided that no Black-out Period shall exceed 90 consecutive days. LBI hereby covenants that it will not effect sales of any Shares pursuant to said Resale Prospectus during the period commencing at the time at which the Companies give LBI written notice (which such notice shall have been given by the Companies as promptly as practicable) of the suspension of the use of said Resale Prospectus and ending at the time the Companies give LBI written notice that LBI may thereafter effect sales pursuant to said Resale Prospectus. LBI further covenants to notify the Companies promptly of the sale of all of the Shares. 5.3 Due Execution, Delivery and Performance of this Purchase Agreement. Each of LBI and LBF further represents and warrants to, and covenant with, the Companies that (i) LBI has full right, power, authority and capacity to enter into this Purchase Agreement and that each of LBI and LBF has full right, power, authority and capacity to enter into the Agreement, and each has the full right, power, authority and capacity to perform its respective obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby and has taken all necessary action to authorize the execution, delivery and performance of this Purchase Agreement and the Agreement, and (ii) upon the execution and delivery of this Purchase Agreement and the Agreement, this Purchase Agreement and the Agreement shall constitute valid and binding obligations of LBI and LBF, respectively, enforceable against each in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except that the enforcement of the indemnification agreements in Section 7.5 hereof may be limited by public policy. 5.4 Residence of LBI. LBI is organized in the State of Delaware and has its principal place of business in the State of New York; LBF is organized under the laws of Switzerland and has its principal place of business in Zurich, Switzerland. 5.5 Certain Tax Considerations. LBI represents and warrants that it is a "corporation" for U.S. federal income tax purposes and for purposes of any exemptions from information reporting and backup withholding requirements that may apply to payments by the Companies to LBI under this Purchase Agreement. SECTION 6. Survival of Representations, Warranties and Agreements. Notwithstanding any investigation made by any party to this Purchase Agreement, all covenants, 13 agreements, representations and warranties made by each of the Companies and LBI and LBF herein shall survive the execution of this Purchase Agreement, the Agreement, the delivery to LBI of the Purchased Shares being purchased and the payment therefor and the consummation of any other transactions contemplated hereby or thereby. SECTION 7. Registration of the Shares; Compliance with the Securities Act. 7.1 Registration Procedures and Expenses. The Companies shall: (a) within 45 days after the Closing, prepare and file with the Commission a Resale Registration Statement (as defined below) covering the resale by LBI, from time to time, of a number of Shares equal to the number of Purchase Shares in any of the manners specified in the Agreement (the "Initial Resale Registration Statement") and use its best efforts to obtain effectiveness of the Initial Resale Registration Statement within 90 days after the Closing Date. If the total number of Shares exceeds the number of Shares covered by the Initial Resale Registration Statement, then the Companies shall promptly prepare and file with the Commission such additional Resale Registration Statement or Statements as shall be necessary to cover the resale by LBI of such excess Shares in the same manner as contemplated by the Initial Registration Statement for the Shares covered thereby (each, an "Additional Resale Registration Statement"); provided that, except as provided for in Section 5 of the Agreement, prior to issuing any such excess Shares to LBI, the Companies shall cause such Resale Registration Statement to have become effective. For purposes of this Purchase Agreement, "Resale Registration Statement" means the Initial Resale Registration Statement, any Additional Resale Registration Statement or any other registration statement under the Securities Act on Form S-3 covering the resale by LBI of up to a specified number of Shares, filed and maintained continuously effective by the Companies pursuant to the provisions of this Section 7, including the prospectus contained therein (the "Resale Prospectus"), any amendments and supplements to such registration statement, including all post-effective amendments thereto, and all exhibits and all material incorporated by reference into such registration statement; (b) use commercially reasonable best efforts to prevent the issuance of any order suspending the effectiveness of such Resale Registration Statement or Resale Prospectus or suspending the qualification (or exemption from qualification) of any of the Shares in any jurisdiction; (c) prepare and file with the Commission such amendments and supplements to each Resale Registration Statement and the Resale Prospectus as may be reasonably requested by LBI in order to accomplish the public resale or other disposition of any Shares in accordance with the terms of the Agreement, or as may be necessary to keep such Resale Registration Statement effective until the date on which either (i) the Shares covered thereby have been sold by or on behalf of LBI or (ii) LBI has advised the Companies that they no longer require that such Resale Registration Statement remain effective; (d) furnish to LBI with respect to the Shares registered under any 14 Resale Registration Statement such reasonable number of copies of Resale Prospectuses, including any supplements and amendments thereto, in order to facilitate the public sale or other disposition of all or any of the Shares by LBI; (e) in order to facilitate the public sale or other disposition of all or any of the Shares by LBI, furnish to LBI with respect to the Shares registered under any Resale Registration Statement, in connection with any such public sale or other disposition, an opinion of counsel to the Companies covering such matters as are customarily covered by legal opinions delivered in connection with secondary public offerings of equity securities and such other documents as LBI may reasonably request (including a comfort letter from the Companies' independent certified public accountants and a certificate of bring down of representations and warranties in connection with sale of Shares under the Resale Registration Statement) (collectively, the "Resale Closing Documents") (i) upon the effectiveness of the Initial Resale Registration Statement, (ii) upon the commencement of any continuous offering of Shares under any Resale Registration Statement and on the last day of every 30-day period thereafter for the duration of such continuous offering, and (iii) in the event the public sale or other disposition of the Shares is effected through an underwritten offering or a block trade, as of the date of the closing of any sale of such Shares or date of pricing with respect to the sale of such Shares, as applicable upon prior notice from LBI to the Companies as to which date applies; provided, however, that the Companies shall not be required to deliver any Resale Closing Documents in the event that the aggregate offering price of any Shares offered in a public sale or other distribution is less than $20,000,000, unless as of the date of any such public sale or other distribution, the Companies have not made any previous delivery of Resale Closing Documents to LBI in connection with any other public sale or other disposition of the Shares; (f) use its reasonable best efforts to prevent the happening of any event that would cause any such Resale Registration Statement to contain a material misstatement or omission or to be not effective and continuously useable for resale of the Shares during the period that such Resale Registration Statement is required to be effective and useable; (g) file documents required of the Companies for normal blue sky clearance in states specified in writing by LBI, provided, however, that the Companies shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; (h) bear all reasonable expenses in connection with the procedures in paragraphs (a) through (g) of this Section 7.1 and Section 7.2(a) and the registration of the Shares pursuant to each Resale Registration Statement, which expenses shall not include brokerage or underwriting commissions and taxes of any kind (including without limitation, transfer bonuses) with respect to any disposition, sale or transfer of Shares sold by LBI and for any legal, accounting and other expenses incurred by LBI which expenses shall be borne by LBI; and (i) promptly file any necessary listing applications or amendments to existing listing applications to cause any Shares registered under any Resale Registration Statement to be listed or admitted to trading, on or prior to the effectiveness of any Resale 15 Registration Statement, on the New York Stock Exchange or any national stock exchange or automated quotation system on which the Paired Shares are then listed or traded. 7.2 Covenants in Connection With Registration. (a) Each of the Companies hereby covenants with LBI that (i) such Company shall not file any Resale Registration Statement or Resale Prospectus relating to the resale of the Shares or any amendment or supplement thereto, unless a copy thereof shall have been first submitted to LBI and LBI did not object thereto in good faith (provided that if LBI does not object within two business days of receiving any such material, there shall be deemed to have been no objection thereto); (ii) such Company shall immediately notify LBI of the issuance by the Commission of any stop order suspending the effectiveness of such Resale Registration Statement or the initiation of any proceedings for such purpose; (iii) such Company shall make every reasonable effort to promptly obtain the withdrawal of any order suspending the effectiveness of such Resale Registration Statement at the earliest possible moment; (iv) such Company shall immediately notify LBI of the receipt of any notification with respect to the suspension of the qualification of the Shares for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose; and (v) such Companies shall as soon as practicable notify LBI in writing of the happening of any event or the failure of any event to occur or the existence of any fact or otherwise which results in any Resale Registration Statement, any amendment or post-effective amendment thereto, the Resale Prospectus, any prospectus supplement, or any document incorporated therein by reference containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading and promptly shall prepare, file with the Commission and promptly furnish to LBI a reasonable number of copies of a supplement or post-effective amendment to such Resale Registration Statement or the Resale Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Shares, the Resale Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading provided that this clause (v) shall in no way limit the Companies' right to suspend the right of LBI to affect sales under the Resale Registration Statement during any Black-out Period as specified in Section 5.2 above. (b) LBI shall cooperate with the Companies in connection with the preparation of the Resale Registration Statement and shall furnish to the Companies, in a timely manner, all information in their possession or reasonably obtainable by them and necessary for inclusion in the Resale Registration Statement (including, without limitation, information relating to the ownership by each of them of Paired Shares and the plan of distribution). (c) LBI shall notify the Companies at least two business days prior to the earlier of the date on which they intend to commence effecting any resales of Shares under a Resale Registration Statement or the date of pricing with respect to the public sale or other disposition of any Shares under a Resale Registration Statement effected through an underwritten offering or block trade and if the Companies do not, within such two day period, advise LBI of the existence of any facts of the type referred to in Section 7.2(a) above, then the Companies 16 shall be deemed to have certified and represented to LBI that no such facts then exist and LBI may rely on such certificate and representations in making such sales. The preceding sentence shall in no way limit the Companies' obligations under Section 7.2(a) above. (d) the Companies shall cooperate with LBI to facilitate the timely preparation and delivery of certificates representing the Shares to be sold under the Resale Registration Statements and not bearing any restrictive legends and in such denominations and registered in such names as LBI may reasonably request at least two business days prior to the closing of any sale of the Shares. (e) If the Companies notify LBI that they wish LBI to effect an underwritten offering or block trade of Shares, (i) LBI shall have the right to select the managing underwriters or the executing dealer, as the case may be, who shall be subject to the approval of the Companies, which approval shall not be unreasonably withheld (it being understood that LBI is, in any event, reasonably acceptable to the Companies for this purpose) and (ii) the Companies shall (A) enter into written agreements (including underwriting agreements) as are customary in underwritten offerings or block trades, as the case may be; (B) obtain an opinion of counsel to the Companies and other entities reasonably requested by the underwriters or the executing dealer, as the case may be, and updates thereof (which may be in the form of a reliance letter) in form and substance reasonably satisfactory to the managing underwriters or the executing dealer, as the case may be, and LBI addressed to the underwriters or the executing dealer, as the case may be, and LBI covering the matters customarily covered in opinions requested in underwritten offerings or block trades, as the case may be, and such other matters as may be reasonably requested by such underwriters or the executing dealer, as the case may be, and LBI (it being agreed that the matters to be covered by such opinion may be subject to customary qualifications and exceptions); (C) obtain "cold comfort" letters and updates thereof in form and substance reasonably satisfactory to the managing underwriters or the executing dealer, as the case may be, and LBI from the independent certified public accountants of the Companies (and, if necessary, other independent certified public accountants of any affiliate or Subsidiary of either of the Companies or of any business acquired by the Companies for which financial statements and financial data are, or are required to be, included in the Resale Registration Statement), addressed to each of the underwriters or the executing dealer, as the case may be, ad, if permitted by applicable accounting rules and statements, LBI, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings or block trades, as the case may be, and such other matters as may be reasonably requested by such underwriters or the executing dealer, as the case may be, in accordance with Statement on Auditing Standards No. 72; (D) ensure that any underwriting agreement contains indemnification provisions and procedures not less favorable than that included herein (or such other provisions and procedures acceptable to LBI and the underwriters) with respect to all parties to be indemnified pursuant to said section (including, without limitation, the underwriters and LBI); and (E) deliver such other documents as are customarily delivered in connection with closing of underwritten offerings or block trades, as the case may be. (f) The Companies will make reasonably available for inspection by LBI, any underwriter, agent or broker-dealer participating in any disposition of Shares such 17 information and corporate documents as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities for the purposes of applicable law, and cause the officers of the Companies and their "significant subsidiaries" (as that term is defined in Regulation S-X) to be available, upon request at least two business days in advance, to respond to questions relevant to such due diligence inquiries. (g) The parties hereby acknowledge and agree that the Companies may suspend the right of LBI to effect sales of the Paired Shares through use of the Resale Prospectus forming a part of a Resale Registration Statement for a period of 90 days (or fewer if LBI are notified to that effect by the Companies) in connection with a public offering or a sale pursuant to Rule 144A under the Securities Act (an "Offering") of Paired Shares (or shares of capital stock convertible into Paired Shares) by the Companies (a "Suspension Period"); provided that (i) there shall be no more than three Suspension Periods during any 12-month period, and (ii) the total number of days of all Suspension Periods during any 12-month period shall not exceed 120. LBI hereby covenants that it will not sell any Paired Shares pursuant to said Resale Prospectus during a Suspension Period which shall commence at the time the Companies give LBI written notice of such Suspension Period; provided further, that no Suspension Period shall be applicable or in any way restrict LBI after the occurrence of the Maturity Date or a Price Decline Termination Event. The ability of the Companies to suspend the right of LBI to effect sales of the Paired Shares pursuant to this Section 7.2(g) shall not be construed to limit the Companies' rights under Section 5.2. 7.3 Extension of Required Effectiveness. In the event that the Companies shall give any notice required by Section 7.2(a)(v) hereof, the period during which the Companies are required to keep such Resale Registration Statement effective and useable shall be extended by the number of days during the period from and included in such Black-out Period. 7.4 Transfer of Shares After Registration. LBI agrees that it will not effect any disposition of the Shares or its right to purchase the Shares that would constitute a sale within the meaning of the Securities Act or pursuant to any applicable state securities or blue sky laws expect as contemplated in each Resale Registration Statement referred to in Section 7.1 or except pursuant to any exemption from the registration requirements of the Securities Act (including, without limitation, Rule 144 promulgated thereunder and any successor thereto) and that it will promptly notify the Companies of any changes in the information set forth in any such Resale Registration Statement regarding LBI or its plan of distribution. 7.5 Indemnification. For the purpose of this Section 7.5 only, the term "Resale Registration Statement" shall include any final prospectus, exhibit, supplement or amendment included in or relating to any Resale Registration Statement referred to in Section 7.1. (a) Indemnification by the Companies. Each of the Companies agrees, severally and not jointly, to indemnify and hold harmless LBI and each person, if any, who controls LBI within the meaning of Section 15 of the Securities Act, and any director, officer, 18 employee or affiliate thereof, as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Resale Registration Statement (or any amendment thereto), including the information deemed to be part of any Resale Registration Statement pursuant to Rule 430A(b) of the 1933 Act Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any related Resale Prospectus or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Companies shall not be required under this subsection (i) to indemnify LBI with respect to any loss, liability, claim, damage or expense to the extent such loss, liability, claim, damage or expense arises out of (A) any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Companies by LBI specifically for inclusion in any Resale Registration Statement or any related Resale Prospectus or (B) any statement or omission in any Resale Prospectus that is corrected in any subsequent Resale Prospectus that was delivered to LBI prior to the pertinent sale or sales by LBI and not delivered in connection with such sale, when such delivery was required by the Securities Act or any state securities law; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation or of any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever for which indemnification is provided under subsection (i) above, only if such settlement is effected with the written consent of the Companies; and (iii) against any and all expense whatsoever (including, without limitation, the fees and other charges of counsel chosen by you) reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceedings by any governmental agency or body, commenced or threatened, or any claim whatsoever for which indemnification is provided under subsection (i) above, to the extent that any such expense is not paid under subsection (i) (other than expenses not paid pursuant to the proviso to subsection (i)) or (ii) above (other than any settlement effected without the written consent of the Companies). (b) Indemnification by LBI. LBI agrees to indemnify and hold harmless the Companies, and each person, if any, who controls the Companies within the meaning of Section 15 of the Securities Act, and any trustee, director, officer, employee or affiliate thereof, against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section 7.5, as incurred, but only with respect to (A) untrue statements or omissions, or alleged untrue statements or omissions, made in any Resale 19 Registration Statement (or any amendment thereto) or any related Resale Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Companies by LBI specifically for inclusion in any Resale Registration Statement or any related Resale Prospectus or (B) any statement or omission in any Resale Prospectus that is corrected in any subsequent Resale Prospectus that was delivered to LBI prior to the pertinent sale or sales by LBI and not delivered in connection with such sale, when such delivery was required by the Securities Act or any state securities law. (c) Proceedings. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relive it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. If it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and reasonably acceptable to the indemnified parties defendant in such action, unless such indemnified parties reasonably object to such assumption on the ground that the named parties to any such action (including any impleaded parties) include both such indemnified parties and an indemnifying party, and such indemnified parties reasonably believe that there may be legal defenses available to them which are different from or in addition to those available to such indemnifying party. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 7.5 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 7.5(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance 20 with such request prior to the date of such settlement. (d) Contribution. If the indemnification provided for in this Section 7.5 is required by its terms but is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party under paragraph (a), (b) or (c) of this Section 7.5 in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any losses, claims, damages, liabilities or expenses referred to herein, (i) in such proportion as is appropriate to reflect the relative benefits received by the Companies and LBI from the purchase and sale of the Shares or (ii) if the allocation provided in clause (i) is not permitted by applicable law, in such proportion or as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Companies and LBI in connection with the statements or omissions or inaccuracies in the representations and warranties in this Purchase Agreement which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The respective relative benefits received by the Companies on the one hand and LBI on the other shall be deemed to be in the same proportion as the amount paid by LBI to the Companies pursuant to this Purchase Agreement and the Agreement and the net proceeds retained or discounts received by LBI from the transactions contemplated by this Purchase Agreement and the Agreement. The relative fault of the Companies and LBI shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or the alleged omission to state a material fact or the inaccurate or the alleged inaccurate representation and/or warranty relates to information supplied by the Companies or by LBI and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in paragraph (c) of this Section 7.5 any reasonable legal or other fees or expenses incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in paragraph (c) of this Section 7.5 with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this paragraph (d); provided, however, that no additional notice shall be required with respect to any action for which notice has been given under paragraph (c) for purposes of indemnification. The Companies and LBI agree that it would not be just and equitable if contribution pursuant to this Section 7.5 were determined solely by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph (d). Notwithstanding the provisions of this Section 7.5, LBI shall not be required to contribute any amount in excess of the amount by which the aggregate net proceeds retained or discounts received by LBI from the transactions contemplated hereby and by the Agreement exceeds the amount of any damages that LBI has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) Relationship Between the REIT and OPCO. The obligations set forth in this Section 7.5 shall in no way limit the ability of the Companies to allocate liability 21 between themselves. 7.6 Information Available. So long as any Resale Registration Statement covering the resale of any shares owned by LBI or LBF is effective, the Companies will furnish to LBI: (a) as soon as practicable after available, one copy of (i) their Joint Annual Report to Shareholders, (ii) their Joint Annual Report on Form 10-K, (iii) their Joint Quarterly Reports to Shareholders, (iv) their Joint Quarterly Reports on Form 10-Q, (v) a full copy of the particular Resale Registration Statement covering the Shares (the foregoing, in each case, excluding exhibits) and (iv) upon request, any or all other filings made with the Commission by the Companies; and (b) upon the reasonable request of LBI, a reasonable number of copies of the Resale Prospectuses to supply to any other party requiring such Resale Prospectuses; and the Companies, upon the reasonable request of LBI, will meet with LBI or a representative thereof at the Companies' headquarters to discuss all information relevant for disclosure in such Resale Registration Statement covering the Shares, subject to appropriate confidentiality limitations. 7.7 Remedies. The Companies and LBI acknowledge that there would be no adequate remedy at law if the Companies fail to perform any of their obligations under this Section 7, and accordingly agree that LBI, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to compel specific performance of the obligations of the Companies under this Section 7, and the Companies hereby waive the defense that a remedy at law would be adequate. 7.8 Notice Requirement. The REIT and the OPCO each covenants and agrees that it will notify LBI at any time it becomes aware that as a result of a change in the REIT's and the OPCO's capital stock, LBI beneficially holds more than 4.9% of the REIT's and the OPCO's Paired Shares. SECTION 8. Broker's Fee. Other than any fees payable under or in connection with the Agreement, each of the parties hereto represents that, on the basis of any actions and agreements by it, there are no brokers or finders entitled to compensation in connection with the sale or issuance of the Shares to LBI. SECTION 9. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed by first-class registered or certified airmail, by telegram or telecopy or sent by nationally recognized overnight express courier postage prepaid, and shall be deemed given when so mailed or for telecopies, when transmitted and receipt confirmed, and shall be delivered as addressed as follows: (a) if to the Companies, to: 22 Starwood Hotels & Resorts Starwood Hotels & Resorts Worldwide, Inc. 2231 East Camelback Road Suite 400 and 410 Phoenix, Arizona 85016 Attention: Ronald C. Brown/Alan M. Schnaid Telecopier: 602-852-0115 with copies so mailed to: Sidley & Austin 555 West Fifth Street Suite 4000 Los Angeles, California 90013 Attention: Sherwin L. Samuels Telecopier: 213-896-6600 or to such other person at such other place as the Companies shall designate to LBI in writing; and (b) if to LBI or LBF, to: Lehman Brothers Inc. 3 World Financial Center, 6th Floor New York, New York 10285 Attention: Mr. Mark Sanborn Telecopier: 212-528-6678 SECTION 10. Changes. This Purchase Agreement may not be modified or amended except pursuant to an instrument in writing signed by each of the Companies and By each of LBI and LBF. SECTION 11. Headings. The headings of the various sections of this Purchase Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Purchase Agreement. SECTION 12. Severability. In case any provision contained in this Purchase Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. SECTION 13. Successors and Assigns. The Companies or LBI may assign any 23 of their respective rights, or delegate any of their respective duties under this Purchase Agreement, if the other party first consents to such assignment in writing. This Purchase Agreement shall inure to the benefit of and be binding upon (i) the successors of LBI and (ii) any assignee or transferee of rights and obligations of LBF pursuant to the Agreement and any assignee or transferee of rights and obligations of LBI pursuant to this Purchase Agreement. A transferee of LBF pursuant to the Agreement and a transferee of LBI pursuant to this Purchase Agreement, and, in each case, any successor, assignee, or transferee, shall be held subject to all of the terms of this Purchase Agreement. SECTION 14. Governing Law; Jurisdiction. This Purchase Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflicts of law principles thereof. SECTION 15. Transfer to Affiliate. Notwithstanding anything herein to the contrary, LBI may transfer the Purchase Shares to any affiliate of LBI, together with all of LBI's rights hereunder, provided that (i) such affiliate shall be an "accredited investor" within the meaning of Rule 501 (a)(1), (2), (3) or (7) of Regulation D promulgated under the Securities Act, and (ii) such transfer shall be consistent with the investment representations set forth at Section 5.1 hereto. In the event of such an assignment, such affiliate shall in all respects be substituted for LBI as a party hereto. SECTION 16. Counterparts. This Purchase Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. SECTION 17. Recourse. LBI acknowledges and agrees that the name "Starwood Hotels & Resorts" is a designation of the REIT and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated as of June 6, 1988, as further amended on February 1, 1995, June 19, 1995, January 2, 1998 and February 23, 1998 and as the same may be further amended from time to time, and all persons dealing with the REIT shall look solely to the REIT's assets for the enforcement of any claims against the REIT, as the Trustees, officers, agents and security holders of the REIT assume no personal liability for obligations entered into on behalf of the REIT, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 24 IN WITNESS WHEREOF, the parties hereto have caused this Purchase Agreement to be executed by their duly authorized representatives as of the day and year first above written. STARWOOD HOTELS & RESORTS By: Name: Title: STARWOOD HOTELS & RESORTS WORLDWIDE, INC. By: Name: Title: LEHMAN BROTHERS INC. By: Name: Title: LEHMAN BROTHERS FINANCE S.A., solely with respect to the covenants, representation and warranties set forth in Sections 5 and 6, which are hereby made mutatis mutandis by LBF to the Companies By: Name: Title: 25 Appendix I (one of two) STOCK CERTIFICATE QUESTIONNAIRE Pursuant to Section 5 of the Purchase Agreement, please provide us with the following information: 1. The exact name that your Shares are to be registered in (this is the name that will appear on your stock certificate(s)). You may use a nominee name if appropriate: 2. All relationships between Lehman Brothers and the Registered Holder listed in response to Item 1 above: 3. The mailing address of the Registered Holder listed in response to Item 1 above: 4. The Social Security Number or Tax Identification Number of the Registered Holder listed in response to Item 1 above: 26 Appendix I (two of two) REGISTRATION STATEMENT QUESTIONNAIRE In connection with the preparation of the Registration Statement, please provide us with the following information: 1. Pursuant to the "Selling Shareholders" section of the Registration Statement, please state your or your organization's name exactly as it should appear in the Registration Statement: 2. Please provide the number of shares that you or your organization (including all affiliates) will own immediately after Closing, including those Shares purchased by you or your organization (including all affiliates) pursuant to this Purchase Agreement and those shares purchased by you or your organization (including all affiliates) through other transactions: 3. Have you or your organization had any position, office or other material relationship within the past three years with the Company or its affiliates: _____ Yes _____ No If yes, please indicate the nature of any such relationships below: 27 Appendix II Attention: PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE The undersigned, [an officer of, or other person duly authorized by] ________________________________ hereby certifies that he/she [fill in official name of individual or institution] [said institution] is the Purchaser of the shares evidenced by the attached certificate, and as such, sold such shares on [date] in accordance with Registration Statement number [fill in the number of or otherwise identify Registration Statement], the Securities Act of 1933, as amended, and any applicable state securities or blue sky laws and the requirement of delivering a current prospectus by the Company has been complied with in connection with such sale. Print or Type: NAME OF PURCHASER (Individual or Institution): NAME OF INDIVIDUAL representing Purchaser (if an Institution) TITLE OF INDIVIDUAL representing Purchaser (if an Institution) Signature by: Individual Purchaser or Individual representing Purchaser: 28 EXHIBIT A FORM OF CLOSING OPINION OF COUNSEL TO THE COMPANY 29 AGREEMENT THIS AGREEMENT is made as of the 23rd day of February, 1998, by and between Starwood Hotels & Resorts (the "REIT"), Starwood Hotels & Resorts Worldwide, Inc. ("OPCO," and together with the REIT, the "Companies") and Lehman Brothers Finance S.A. ("LBF"), through its agent Lehman Brothers Inc. ("LBI"). The purpose of this Agreement is to confirm the terms and conditions of the transaction (the "Transaction") entered into between LBF and the Companies. IN CONSIDERATION of the mutual representations, warranties and covenants herein contained, and on the terms and subject to the conditions herein set forth, the Companies and LBF hereby agree as follows: Section 1. Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: (a) Ability to Settle in Paired Shares. As of the date hereof, the Companies have not, and after the date hereof, the Companies will not, enter into any obligation that would contractually prohibit the Companies from delivering Paired Shares pursuant to Sections 3.2, 4.2 or 5 of this Agreement. (b) Certain Adjustments to Reference Price or Number of Notional Shares. In the event of: (i) a subdivision, consolidation or reclassification of the Paired Shares, or a free distribution or dividend of any Paired Shares to all existing holders of Paired Shares by way of bonus, capitalization or similar issue; or (ii) a distribution or dividend to all existing holders of Paired Shares of (A) additional Paired Shares or (B) other share capital or securities granting right to payment of dividends and/or the proceeds of liquidation of the Companies equally or proportionally with such payments to holders of Paired Shares, an adjustment shall thereupon be effected to the Reference Price and/or the Notional Shares at the time of such event with the intent that following such adjustment, the value of this Transaction is economically equivalent to the value immediately prior to the occurrence of the event causing the adjustment. (c) Block Sale. Any privately negotiated sales of the Paired Shares involving at least a block of such security (as defined in Rule 10b-18 under the Exchange Act). (d) Business Day. Any day other than a Saturday, Sunday, or any other day on which banking institutions in the States of Delaware or New York are not open for business. 30 (e) Calculation Agent. LBF, whose calculations and determinations shall be made in a reasonable manner. (f) Closing Price. The last sale price of the Paired Shares on the Relevant Exchange on the relevant date. (g) Commission. The Securities and Exchange Commission. (h) Compounding Period. Means each period commencing on and including: (i) in the case of the first Compounding Period, the Initial Settlement Date and ending on but excluding the first Reset Date, and (ii) for each period thereafter, a Reset Date and ending on (but excluding) the next following Reset Date. (i) Distribution Amount. Means, on each Reset Date, an amount in U.S. Dollars equal to: (i) the sum of all cash distributions paid on a single Paired Share during the relevant Compounding Period; plus (ii) an amount representing interest that could have been earned on such distributions at the USD LIBOR rate having a designated maturity of three months, plus Spread, for the period from the date that such distributions would have been received by a holder of a single Paired Share until such Reset Date. (j) DRIP Distribution. Sales to any Distribution Reinvestment Plan now or hereafter established by the Companies, or to any agent acting on behalf of such Plan, for sale to participants in such Plan. (k) Effective Date. February 24, 1998. (l) Exchange Act. The Securities Exchange Act of 1934, as amended. (m) Exchange Trading Day. Each day on which the Relevant Exchange is open for trading. (n) Execution Price. The Closing Price on the Effective Date`. (o) Gradual Market Distribution. An offering of the Paired Shares into the existing trading market for outstanding shares of the same class at other than (i) a fixed price on or through the facilities of a national securities exchange or (ii) to or through a market maker otherwise than on an exchange. 31 (p) Initial Price. Means, (i) for the Compounding Period ending on the first Reset Date, an amount in U.S. Dollars equal to $53.875, and (ii) for each subsequent Reset Date, the Reference Price as calculated on or adjusted as of the prior Reset Date. (q) Initial Settlement Date. February 24, 1998. (r) Interim Settlement Amount. With respect to a given Reset Date, means the amount by which the Reference Amount minus $5,000,000 exceeds the product of (x) the Closing Price on such Reset Date and (y) the number of Notional Shares. (s) Interim Settlement Shares. The Interim Settlement Amount divided by the Closing Price on such Reset Date. (t) Maturity Date. March 1, 1999. (u) Notional Shares. 1,547,000 Paired Shares, as may be adjusted from time to time pursuant to Section 1(b), reduced by the number of Settlement Shares that have been settled prior to the date of calculation pursuant to Section 3.1 or Section 4.1. (v) Paired Shares. Units consisting of one share of beneficial interest, $.01 par value per share, in the REIT and one share of common stock, par value $.01 per share, of OPCO, which shares are paired and traded as a unit. (w) Pooled Underwritten Secondary Offering. An underwritten fixed price offering of Paired Shares, in which the Settlement Shares and other Paired Shares, which may include the Paired Shares of other selling shareholders and previously unissued Paired Shares. (x) Pooling Exit Fee. 50 basis points on the Settlement Amount in connection with the related Pooled Underwritten Secondary Offering. (y) Purchase Shares. Paired Shares sold to LBF pursuant to the Purchase Agreement. (z) Purchase Agreement. The Purchase Agreement, dated as of February 23, 1998 (the "Purchase Agreement"), among the Companies, LBF and LBI (aa) Reference Amount. On each Reset Date, the Reference Price multiplied by the Notional Shares or Settlement Shares, as applicable. (bb) Reference Price. On each Reset Date, the Reference Price shall be determined by: 32 (i) compounding the Initial Price for the previous Compounding Period at USD LIBOR rate plus Spread for a designated maturity of three months (Actual/360 day count fraction) to such Reset Date and (ii) subtracting the Distribution Amount at that date. (cc) Relevant Exchange. Means, with respect to any Exchange Trading Day, the principal Stock Exchange on which the Paired Shares are traded on that day. (dd) Reset Date. Means, through the final Trade Date, (i) the last day of each three-month period, beginning on May 31, 1998 (provided, that if such day is not a Business Day then the Reset Date shall be the next Business Day), (ii) as to any Settlement Shares, but only as to such Settlement Shares, the related Trade Date and (iii) as to any Gross Settlement Shares, but only as to such Gross Settlement Shares, the Exchange Trading Day immediately prior to the date on which the related Gross Settlement Notice is delivered. (ee) Securities Act. The Securities Act of 1933, as amended. (ff) Settlement. Has the meaning set forth in Section 3.1 or Section 4.1, as applicable. (gg) Settlement Amount. Except as set forth in subsection (iv) below, the net sales proceeds realized by or on behalf of LBF for all sales of Paired Shares in connection with any Settlement, calculated as follows: (i) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is an Underwritten Secondary Offering, the Settlement Amount will equal the gross proceeds realized, net of a negotiated underwriting discount; (ii) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is a Block Sale, the Settlement Amount will equal the gross sales proceeds realized, net of a negotiated underwriting discount; (iii) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is a Gradual Market Distribution, the Settlement Amount will equal the gross sales proceeds realized from sales to the market over the period of the distribution, net of a resale spread of 50 basis points; (iv) with respect to a given Trade Date, if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is a VWAP Sale, the Settlement Amount will equal the product of (a) the volume weighted average price of the Paired Shares for such Trade Date and (b) the number of Paired Shares determined by the Company to be sold by LBF on such Trade Date, net of a resale spread of 50 basis points; 33 (v) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is a DRIP Distribution, the Settlement Amount will equal the gross sales proceeds realized from sales to any Purchase Agent for a Company Distribution Reinvestment Plan, net of a resale spread of 50 basis points; and (vi) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is a Pooled Underwritten Secondary Offering, the Settlement Amount will equal a pro rata share of the gross proceeds realized, net of a negotiated underwriting discount. (hh) Settlement Date. The date after each Trade Date on which, in accordance with standard market practice, any Paired Shares are delivered and the funds received, in respect of any Settlement in accordance with Section 3.2 or Price Decline Termination Event in accordance with Section 4.2. (ii) Settlement Shares. The number of Notional Shares which will be settled on a given Settlement Date pursuant to Section 3.2 or Section 4.2, as applicable. (jj) Spread. 175 basis points, subject to adjustment pursuant to Section 6.3. (kk) Stock Exchange. Means the New York Stock Exchange, the American Stock Exchange or NASDAQ. (ll) Trade Date. Any date on which LBF executes a settlement trade or trades as part of a Settlement in any of the manners of Settlement Sale set forth in Section 3.1, pursuant to either Section 3.1 or 4.1. (mm) Underwritten Secondary Offering. An underwritten fixed price offering of the Paired Shares. (nn) USD LIBOR. The London Inter Bank Offered Rate in respect of U.S. Dollars for the designated maturity as quoted on Page 3750 on the Telerate Service (or such other page as may replace Page 3750 on that service) as of 11:00 a.m., London time, on the date on which it is to be determined. (oo) VWAP Sale. A sale of the Paired Shares into the existing trading market for outstanding shares of the same class effected in order to approximate the volume weighted average price of the Paired Shares on the Relevant Exchange on the relevant date. Section 2. Representations and Warranties. The representations and warranties of the Companies in Section 4 of the Purchase Agreement are hereby incorporated by reference herein, and each Company hereby so represents and warrants to LBF, and the representations and warranties of LBI and LBF in Section 5 of the Purchase Agreement are hereby incorporated by reference, and the LBF hereby so represents and warrants to each Company. The provisions of Section 6 of the Purchase Agreement shall also be applicable to any Paired Shares delivered to 34 LBF under this Agreement. Section 3. Settlement. 3.1 Settlement Sale. On any Reset Date of the type referred to in clause (i) of the definition of Reset Date, on any Exchange Trading Day that is one month or two months following such a Reset Date or on any other Exchange Trading Day (in each case, if other than such a Reset Date, the related Settlement (as defined below) will include standard market interest breakage fees), up to and including the Maturity Date, the Companies may give telephonic notice to LBF to settle, and LBF shall settle, in a commercially reasonable manner (which may require sales over a period of more than 1 day), all or a portion of the Notional Shares to be settled on the related Settlement Date or Dates, as specified by the Companies ("Settlement"), through sale of not less than the number of Paired Shares, the sale of which would result in a Settlement Amount equal to 100% of the Reference Amount on the Settlement Date, and not more than the number of Paired Shares, the sale of which would result in a Settlement Amount equal, to 105% of the Reference Amount on the Settlement Date, in any of the manners set forth below, as selected by the Companies: (i) an Underwritten Secondary Offering (for which the Companies shall provide at least 21 Business Days prior notice to LBF); (ii) a Block Sale (for which the Companies shall provide at least 3 Business Days prior notice to LBF); (iii) a Gradual Market Distribution (for which the Companies shall provide at least 1 Business Day prior notice to LBF); (iv) a VWAP Sale (for which the Companies shall provide at least 1 Business Day prior notice to LBF); (v) a DRIP Distribution (for which the Companies shall provide at least 1 Business Day prior notice to LBF); or (vi) a Pooled Underwritten Secondary Offering (for which the Companies shall provide at least 21 Business Day prior notice to LBF). If the Companies do not specify a manner of sale, a Gradual Market Distribution shall be used. If the Paired Shares delivered by the Companies to LBF pursuant to the Purchase Agreement and this Agreement are not, on the applicable trade date, the subject of an Effective Resale Registration Statement (as defined in Section 6.3), the Companies may not select a VWAP Sale as the manner of Settlement. The number of shares sold as part of a VWAP Sale on any Trade Date shall not be less than 20% of the six-month daily average trading volume of the Paired Shares as calculated by the Calculation Agent and shall not exceed 40% of the six-month daily average trading volume of the Paired Shares as calculated by the Calculation Agent, unless both parties agree otherwise prior to the execution of any trades in connection with such VWAP Sale. In connection with any Underwritten Secondary Offering or Block Sale, LBI shall be the sole 35 manager and underwriter. In connection with a Pooled Underwritten Secondary Offering, LBF and LBI may, in their discretion, elect to (a) participate in such offering as a first-tier co-manager on the same terms as all other first-tier co-managers or (b) receive the Pooling Exit Fee; provided, however, that regardless of the election of LBF and LBI, all of the Notional Shares shall be included in the Pooled Underwritten Secondary Offering. Settlement procedures shall begin as soon as commercially practicable, as determined by LBF, after LBF receives notice from the Companies and no later than the first Exchange Trading Day after expiration of the notice period unless otherwise agreed by the Companies and LBF. At such time as the Companies deliver notice pursuant to this Section 3.1, the Companies may direct LBF to sell not less than the number of Paired Shares equal to the number of Settlement Shares, and LBF shall comply with such direction in a commercially reasonable manner. In connection with a Gradual Market Distribution, there shall be a separate Settlement Date for each Trade Date. Final Settlement shall occur no later than the Maturity Date. However, if the Companies have not given LBF notice to settle by the Maturity Date, then LBF shall settle the Notional Shares using a Gradual Market Distribution to begin as soon as commercially practicable, as determined by LBF, on or after the Maturity Date. 3.2 Settlement. (a) If, on a Settlement Date, the Settlement Amount is greater than the Reference Amount, LBF, on such Settlement Date, will pay the Companies an amount in cash or Paired Shares (valued at the Closing Price on the Trade Date), at the election of the Companies, equal to the difference. (b) If the number of Paired Shares sold by LBF pursuant to Section 3.1 is greater than the number of Settlement Shares, the Companies shall deliver to LBF, on the Settlement Date, a number of Paired Shares equal to the difference. If the number of Paired Shares sold by LBF pursuant to Section 3.1 is less than the number of Settlement Shares, LBF shall deliver to the Companies, on the Settlement Date, a number of Paired Shares equal to the difference. (c) In all events, LBF will pay to the Companies an amount equal to all cash distributions payable to LBF but not paid prior to the Settlement Date, on a number of Paired Shares equal to the Settlement Shares on the Business Day after the relevant distribution payment date declared by the Board of Directors of the REIT and OPCO. (d) If LBF, in connection with any Settlement, receives net sales proceeds, as calculated pursuant to the definition of Settlement Amount, from the sale of Paired Shares prior to the applicable Settlement Date, LBF, on the Settlement Date, shall pay the Companies an amount in cash representing interest that could have been earned on such net sales proceeds at the USD LIBOR rate having a designated maturity of three months, plus Spread, for the period from the date that such net sales proceeds are received by LBF until such Settlement Date. 3.3 Gross Share Settlement. 36 (a) The Companies may elect, in their sole discretion, to settle all or any portion of the then outstanding Notional Shares by delivering Paired Shares in exchange for such number of Notional Shares (a "Gross Share Settlement"). The Companies may effect a Gross Share Settlement by delivering a written notice (the "Gross Settlement Notice") to LBF indicating the date of such Gross Share Settlement and the number of then outstanding Notional Shares subject to such Gross Share Settlement; provided that such notice must be accompanied by a notice pursuant to Section 3.1 to effect settlement of all Paired Shares delivered pursuant to this Section 3.3(a). To effect a Gross Share Settlement, LBF Shall deliver to the Companies the number of Notional Shares subject to such Gross Share Settlement ("Gross Settlement Shares") against delivery by the Companies to LBF of a number of Paired Shares equal to the product of (i) the number of Gross Settlement Shares and (ii) the quotient obtained by dividing (A) the Reference Price by (B) the Closing Price, in each case, on the Reset Date for such Gross Settlement Shares. The deliveries set forth in the immediately preceding sentence shall be made on the Exchange Trading Day immediately following the date on which the Gross Settlement Notice is delivered. All Paired Shares delivered to the Companies by LBF as part of a Gross Share Settlement shall be immediately retired and shall cease to be issued and outstanding Paired Shares. (b) For purposes of the Settlement of the Paired Shares delivered to LBF pursuant to Section 3.3(a), the Settlement Shares shall be deemed to be equal to the Gross Settlement Shares, provided that for purposes of Section 3.2(b), the Settlement Shares shall be deemed to be equal to the Paired Shares delivered to LBF pursuant to Section 3.3(a), and provided further that, for purposes of Section 3.2(c), with respect to any distribution payable to LBF on the Gross Settlement Shares but not paid prior to the Settlement Date for which the record date occurs after the date on which the Gross Settlement Notice is delivered, the Settlement Shares shall be deemed to be equal to the Paired Shares delivered to LBF pursuant to Section 3.3(a). (c) The amount of any distribution referred to in clause (i) of the definition of Distribution Amount for which the record date occurs after a Gross Share Settlement with respect to the Paired Shares delivered to LBF pursuant to Section 3.3 shall be multiplied by the quotient obtained in clause (ii) of Section 3.3(a). Section 4. Price Decline Termination Event. 4.1 Price Decline Termination Event Sale. If the Closing Price on any Exchange Trading Day falls below any Termination Price listed in the following schedule ("Price Decline Termination Event"), LBF will, at its discretion, in a commercially reasonable manner (which may require sales over a period of more than 1 day) following notice to the Companies, settle the percentage of the Notional Shares indicated in the table below ("Settlement") through sale of not less than the number of Paired Shares, the sale of which would result in a Settlement Amount equal to 100% of the Reference Amount on the Settlement Date, and not more than the number of Paired Shares, the sale of which would result in a Settlement Amount equal to 105% of the Reference Amount on the Settlement Date, in any of the manners specified in Section 3.1, 37 as specified by the Companies:
Percentage of Initial Notional Termination Price Shares to be Settled - --------------------------- ----------------- 25% $37.7125 50% $35.0188 75% $33.6719 100% $32.3250
Settlement procedures shall commence on the date specified by LBF. 4.2 Price Decline Termination Event Settlement. (a) If, on the Settlement Date, the Settlement Amount is greater than the Reference Amount, LBF, on the Settlement Date, will pay the Companies an amount in cash or Paired Shares (valued at the Closing Price on the Trade Date), at the election of the Companies, equal to the difference. (b) If the number of Paired Shares sold by LBF pursuant to Section 4.1 is greater than the number of Settlement Shares, the Companies shall deliver to LBF, on the Settlement Date, a number of Paired Shares equal to the difference. If the number of Paired Shares sold by LBF pursuant to Section 4.1 is less than the number of Settlement Shares, LBF shall deliver to the Companies, on the Settlement Date, a number of Paired Shares equal to the difference. (c) In all events, LBF will pay to the Companies an amount equal to all cash distributions payable to LBF but not paid prior to the Settlement Date, on a number of Paired Shares equal to the Settlement Shares on the Business Day after the relevant distribution payment date declared by the Boards of Directors of the REIT and OPCO. (d) If LBF, in connection with any Settlement, receives net sales proceeds, as calculated pursuant to the definition of Settlement Amount, from the sale of Paired Shares prior to the applicable Settlement Date, LBF, on the Settlement Date, shall pay the Companies an amount in cash representing interest that could have been earned on such net sales proceeds at the USD LIBOR rate having a designated maturity of three months, plus Spread, for the period from the date that such net sales proceeds are received by LBF until such Settlement Date. Section 5. Interim Settlements. Within 5 Business Days following each Reset Date of the type referred to in clause (i) of the definition of Reset Date, the Companies shall (i) deliver the Interim Settlement Amount, if any, in Interim Settlement Shares to LBF. Interim Settlement Shares shall be the subject of a registration statement covering any sale of such Interim 38 Settlement Shares by LBI that has been declared effective under the Securities Act by the Commission (an "Effective Registration Statement"). Interim Settlement Shares shall be registered in the stock register of the Companies as instructed by LBF and shall be held by LBI or a custodian or depository designated by LBI. If the Companies are unable to deliver Interim Settlement Shares in accordance with the preceding sentence, the Companies shall deliver "restricted" Interim Settlement Shares that are not the subject of an Effective Registration Statement in an amount equal to the Interim Settlement Amount. If the Interim Settlement Shares are not the subject of an Effective Registration Statement, the Companies shall deliver additional Interim Settlement Shares equal to 20% of the Interim Settlement Shares. At such time as the Interim Settlement Shares are the subject of an Effective Registration Statement, the Companies may elect to have returned all additional Interim Settlement Shares delivered pursuant to the preceding sentence. On any Reset Date, if Interim Settlement Shares are held by LBF, LBF shall deliver to the Companies within five (5) Business Days after such Reset Date, the amount in Interim Settlement Shares by which the amount in Interim Settlement Shares held by LBF (valued at the Closing Price on such Reset Date) plus any cash amounts in the collateral account exceeds the Interim Settlement Amount (or 120% of the Interim Settlement Amount, in the event that LBF holds restricted Interim Settlement Shares that are not the subject of an Effective Registration Statement). Distributions on the Interim Settlement Shares will be deposited in a collateral account at LI or a custodian or depositary designated by LBI. All Interim Settlement Shares will be, when delivered, duly authorized, validly issued, fully paid and non-assessable. Interim Settlement Shares shall not be voted by LBF or LBI. All distributions received in respect of the Interim Settlement Shares shall be held in the collateral account at LBI or a depositary designated by LBI. The cash amounts in the collateral account will be immediately returned to the Companies by LBF, but should LBF fail to return any cash amounts in the collateral account, such cash amounts will earn interest at the USD LIBOR rate having a designated maturity of three months. Upon final Settlement, LBF shall immediately release all claims to cash held in the collateral account, if any (including interest earned thereon), and Interim Settlement Shares and deliver such amounts and all Interim Settlement Shares to the Companies. Section 6. Certain Covenants and Other Provisions. 6.1 Par Value. LBF shall pay to the Companies $.01 par value per share for each share comprising a Paired Share delivered to LBF pursuant to this Agreement, including any Interim Settlement Shares. 6.2 Allocation of Payment and Deliveries. As between the REIT and OPCO, any delivery of, or payments attributable to, the REIT portion of Paired Shares pursuant to this Agreement shall be made to or by the REIT, and any delivery of, or payments attributable to, the OPCO portion of Paired Shares pursuant to this Agreement shall be made to or by OPCO. When making any payment to the Companies pursuant to this Agreement, LBF shall allocate such payment between the REIT and OPCO in the manner specified by the Companies. 6.3 Resale Registration Statement. The Companies shall file a resale registration statement covering any resales of Paired Shares delivered by the Companies to LBF 39 pursuant to this Agreement and the Purchase Agreement (a "Resale Registration Statement") within 45 Business Days of the Closing Date and the Companies shall use their best efforts to obtain effectiveness of such Resale Registration Statement within 90 Business Days of the Closing Date. If the Paired Shares delivered by the Companies to LBF pursuant to the Purchase Agreement are not the subject of a Resale Registration Statement that has been declared effective under the Securities Act by the Commission (an "Effective Resale Registration Statement") within 90 Business Days of the Closing Date, the Spread shall increase, retroactively effective commencing on the Initial Settlement Date, to the Spread plus 125 basis points. At such time as the Purchase Shares are the subject of an Effective Resale Registration Statement, the Spread shall be reduced, from and after such time, to the Spread. The Companies further agree that they will cause any Resale Registration Statement to remain in effect until the earliest of the date on which (i) the Notional Shares plus all of the Interim Settlement Shares and any other Paired Shares delivered by the Companies to LBF pursuant this Agreement have been sold by or on behalf of LBF, or (ii) LBF has advised the Companies that it no longer requires that such registration be effective. The provisions of Section 5.2 and Section 7.2 of the Purchase Agreement shall be deemed to apply to any Resale Registration Statement filed by the Companies pursuant to this Agreement. 6.4 Delivery of Paired Shares. Each Company covenants and agrees with LBF that Paired Shares delivered by the Companies pursuant to settlement events in accordance herewith will be duly authorized, validly issued, fully paid and nonassessable. The issuance of such Paired Shares will not require the consent, approval, authorization, registration, or qualification of any government authority, except such as shall have been obtained on or before the delivery date to LBF in connection with any registration statement filed with respect to any Paired Shares. Each party agrees that the Companies shall not deliver Paired Shares to LBF or any other person in connection with an Interim Settlement or the final Settlement until such time as such delivery would not cause LBF or any other person to violate the "Ownership Limit" set forth in the Amended and Restated Declaration of Trust of the REIT or the Articles of Amendment and Restatement of OPCO, in each case, as in effect on the date hereof. 6.5 Securities Law Compliance. Each party agrees that it will comply, in connection with this Transaction and all related or contemporaneous sales and purchases of the Companies' Paired Shares, with the applicable provisions of the Securities Act, the Exchange Act and the rules and regulations thereunder. 6.6 Regulatory Compliance. Each party agrees that if the delivery of Paired Shares upon settlement is subject to any restriction imposed by a regulatory authority, it shall not be an event of default, and the parties will negotiate in good faith a procedure to effect settlement of such Paired Shares in a manner which complies with any relevant rules of such regulatory authority and which is satisfactory in form and substance to their respective counsel, subject to Section 6.2 of this Agreement and Section 7 of the Purchase Agreement. Each party further agrees that any sale pursuant to Section 3.1 may be delayed or postponed if, in LBF's reasonable judgement, such delay or postponement is necessary to comply with the requirements of applicable law or regulation; provided, however, that LBF will act in good faith to end such delay or postponement or otherwise effect such sale on a reasonably timely basis in a manner which 40 complies with any such applicable law or regulation and which is satisfactory in form and substance to its respective counsel. 6.7 Settlement Transfer. All settlements shall occur through DTC or any other mutually acceptable depository. 6.8 Trading Authorization. The following individuals and/or any individual authorized in writing by the respective officers of the Companies are authorized by the Companies to provide trading instructions to LBF with regard to this transaction: Ronald C. Brown 2231 E. Camelback Road Suite 410 Phoenix, Arizona 85016 and Richard Smith 2231 E. Camelback Road Suite 400 Phoenix, Arizona 85016 6.9 Specific Performance. The parties acknowledge and agree that the failure of the Companies or LBF to deliver Paired Shares in accordance with the provisions hereof would result in damage to the other party that could not be adequately compensated by a monetary award. The parties therefore agree that, if either party fails to deliver Paired Shares in accordance with the provisions hereof, the other party may, in addition to all other remedies, seek an order of specific performance from a court of appropriate jurisdiction. 6.10 Recourse. LBF acknowledges and agrees that the name "Starwood Hotels & Resorts" is a designation of the REIT and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated as of June 6, 1988, as further amended on February 1, 1995, June 19, 1995, January 2, 1998 and February 23, 1998 and as the same may be further amended from time to time, and all persons dealing with the REIT shall look solely to REIT's assets for the enforcement of any claims against the REIT, as the Trustees, officers, agents and security holders of the REIT assume no personal liability for obligations entered into on behalf of the REIT, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 6.11 Successors and Assigns. The Companies or LBF may assign any of their respective rights, or delegate any of their respective duties under this Agreement, if the other party first consents to such assignment in writing. This Agreement shall inure to the benefit of and be binding upon (i) the successors of LBF and (ii) any assignee or transferee of rights and obligations of LBI pursuant to the Purchase Agreement and any assignee or transferee of rights 41 and obligations of LBF pursuant to this Agreement. A transferee of LBI pursuant to the Purchase Agreement and a transferee of LBF pursuant to this Agreement, and, in each case, any successor, assignee, or transferee, shall be held subject to all of the terms of this Agreement. 6.12 Transfer to Affiliate. Notwithstanding anything herein to the contrary, if LBF transfers the Purchase Shares to any affiliate of LBF, together with all of LBF's rights under the Purchase Agreement pursuant to Section 15 of the Purchase Agreement, then LBF's rights and obligations under this Agreement shall be transferred to such affiliate of LBF. In the event of such an assignment, such affiliate shall in all respects be substituted for LBF as a party hereto. 6.13 Governing Law. The Agreement will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine. 6.14 Confidentiality. Subject to the other applicable subsections of this Section 6, to any contrary requirement of law, including any disclosure obligations of the Companies under the Securities Act, the Exchange Act and the rules and regulations thereunder, and to the right of each party to enforce its rights hereunder in any legal action, each party shall keep strictly confidential and shall cause its employees and agents to keep strictly confidential the terms of this Agreement and any information relating to or concerning the other party which it or any of its agents or employees may acquire pursuant to, or in the course of performing its obligation under, any provision of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. By: Name: Title: STARWOOD HOTELS & RESORTS By: Name: Title: LEHMAN BROTHERS FINANCE S.A. 42 By: Name: Title: LEHMAN BROTHERS INC., as agent By: Name: Title: EX-10.69 43 EX-10.69 1 Exhibit 10.69 EXECUTION COPY PURCHASE AGREEMENT THIS PURCHASE AGREEMENT is made as of the 23rd day of February, 1998, by and among Starwood Hotels & Resorts (the "REIT"), a Maryland real estate investment trust, Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the "OPCO") (the REIT and the OPCO, each a "Company" and together the "Companies"), NMS Services, Inc. ("NMSSI"), and NationsBanc Montgomery Securities LLC, on behalf of itself and as agent acting for the account of NMSSI ("NMS" and, collectively with NMSSI, the "NMS Parties"). IN CONSIDERATION of the mutual covenants contained in this Purchase Agreement, the Companies and the NMS Parties hereby agree as follows: SECTION 1. Authorization of Sale of the Shares. Subject to the terms and conditions of this Purchase Agreement, the REIT has authorized the sale to the NMS Parties of 1,547,000 shares of beneficial interest, $.01 par value per share, of the REIT (the "REIT Shares") and the OPCO has authorized the sale to the NMS Parties of 1,547,000 shares of common stock, $.01 par value per share, of the OPCO (the "OPCO Shares"), which REIT Shares and OPCO Shares are paired as a unit consisting of one (1) REIT Share and one (1) OPCO Share (hereinafter each such paired unit is referred to as a "Paired Share") and the Paired Shares referred to in this sentence are herein called the "Purchase Shares"). In addition, the REIT and the OPCO may issue to NMSSI additional Paired Shares in settlement of certain of their obligations under that certain Agreement (the "Agreement"), dated as of the date hereof, between the REIT, the OPCO and NMSSI (the "Additional Shares"). The Paired Shares and the Additional Shares are hereinafter collectively called the "Shares." SECTION 2. Agreement to Sell and Purchase the Purchase Shares. Subject to the terms and conditions of this Purchase Agreement, on the Closing Date (as defined in Section 3 hereof), the Companies will sell to the NMS Parties the Purchase Shares for a per Paired Share purchase price equal to 98.00% of the Closing Price. The "Closing Price" shall equal the closing price reported on the New York Stock Exchange for a Paired Share on February 23, 1998. SECTION 3. Delivery of the Purchase Shares at the Closing. 3.1. Closing. The completion of the purchase and sale of the Purchase Shares (the "Closing") shall occur as soon as practicable on or after the date hereof on a business day to be agreed upon by the Companies and the NMS Parties, but in no event later than five business days after the execution of this Purchase Agreement (hereinafter, the "Closing Date"). 2 3.2. Conditions. At Closing, the Companies shall deliver to the NMS Parties one or more stock certificates registered in the name of NMSSI representing the number of Purchase Shares set forth in Section 2 above. The obligation of the Companies to complete the purchase and sale of the Purchase Shares and deliver such stock certificate(s) to the NMS Parties at the Closing shall be subject to the following conditions, any one or more of which may be waived by both of the Companies acting together: (i) receipt by the Companies of Federal Funds (or other mutually agreed upon form of payment) in the full amount of the purchase price for the Purchase Shares being purchased hereunder, (ii) the accuracy in all material respects as of the Closing Date, of the representations and warranties made by the NMS Parties herein and the fulfillment, in all material respects, of those undertakings of the NMS Parties to be fulfilled prior to the Closing, (iii) execution and delivery of the Agreement by NMSSI, (iv) receipt by the Companies of a cross-receipt with respect to the Purchase Shares executed by NMSSI and (v) receipt by the Companies of a certificate by an officer or authorized representative of each of the NMS Parties to the effect that the representations and warranties of the NMS Parties set forth in Section 5 hereof are true and correct as of the date of this Purchase Agreement and as of the Closing Date. The NMS Parties' obligation to accept delivery of such stock certificate(s) and to pay for the Purchase Shares evidenced thereby shall be subject to the following conditions, any one or more of which may be waived by the NMS Parties: (i) the accuracy in all material respects, as of the Closing Date, of the representations and warranties made by the Companies herein and the fulfillment, in all material respects, of those undertakings of the Companies to be fulfilled prior to the Closing, (ii) receipt by the NMS Parties of all opinions, letters and certificates to be delivered by the Companies pursuant to this Purchase Agreement, (iii) execution and delivery of the Agreement by each of the Companies, and (iv) receipt by the NMS Parties of a cross-receipt with respect to the purchase price for the Purchase Shares executed by the Companies. SECTION 4. Representations, Warranties and Covenants of the Companies. Except as disclosed in the Companies' SEC Filings (as defined below), each of the REIT and the OPCO, severally and not jointly, hereby represents and warrants to the NMS Parties, and covenants with the NMS Parties, with respect to such Company and its Subsidiaries (as defined below) only, as follows: 4.1. Organization and Qualification of the Companies. Each of the REIT and the OPCO has been duly organized and is validly existing in good standing under the laws of Maryland with power and authority to own and lease its properties and to conduct its business as currently conducted. Each of the REIT and the OPCO is duly qualified to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing or 3 managing of property or the conduct of business, except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings, assets, business affairs or business prospects of the Companies and the Subsidiaries of the Companies considered as one enterprise (a "Material Adverse Effect"). Entities in which either of the Companies directly or indirectly has at least a 50% ownership interest are herein referred to as the "Subsidiaries," and each individually, as a "Subsidiary." 4.2. Organization and Qualification of Subsidiaries. Each of the Subsidiaries has been duly organized and is validly existing as a corporation, limited partnership, or limited liability company, as the case may be, in good standing under the laws of its respective jurisdiction of organization, with full power and authority to own, lease and operate its properties and to conduct the business in which it currently is engaged. Each of the Subsidiaries is duly qualified as a foreign corporation, limited partnership, or limited liability company, as the case may be, to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify would not have a Material Adverse Effect. All of the issued and outstanding shares of capital stock of each of the corporate Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable. The ownership by the Companies or the Subsidiaries of the shares of capital stock or limited partnership or equity interests, as the case may be, of each of the Subsidiaries is as described in the Companies' SEC Filings. 4.3. Authorized Capital Stock. The REIT has the following authorized shares:1,000,000,000 REIT shares par value $0.01 per share, 200,000,000 excess shares of beneficial interest, par value $.01 per share, 100,000,000 shares of trust preferred shares, par value $.01 per share, and 50,000,000 shares of excess preferred stock, par value $0.01 per share. The OPCO has the following authorized shares: 1,000,000,000 OPCO shares, par value $0.01 per share, 200,000,000 shares of preferred stock, par value $0.01 per share, 50,000,000 shares of excess common stock, par value $0.01 per share and 100,000,000 shares of excess preferred shares, par value $0.01 per share. As of January 20, 1998, there were 55,392,389 Paired Shares, 6,285,765 Class A Exchangeable Preferred Shares of the Trust and 5,502,711 Class B Exchangeable Preferred Shares of the Trust outstanding, and 21,292,005 REIT shares and 21,292,005 OPCO shares were reserved for issuance. The issued and outstanding Paired Shares of the Companies have been duly authorized and validly issued, are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and conform to the description thereof in the Companies' SEC Filings. Other than as described in the Companies' SEC Filings, the REIT does not have outstanding any options to purchase, or other rights to subscribe for or purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. The description of the 4 Companies' stock, stock bonus and other stock plans or arrangements and the options or other rights granted and exercised thereunder in the Companies' SEC Filings accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. 4.4. Issuance, Sale and Delivery of the Shares. The Purchase Shares to be sold by the Companies have been duly authorized for issuance and, when issued, delivered and paid for in the manner set forth in this Purchase Agreement, will be validly issued, fully paid and non-assessable. The Additional Shares, if and when issued pursuant to the Agreement, have been duly authorized and will be validly issued, fully paid and non-assessable. Upon payment of the purchase price and delivery of the Shares in accordance with this Purchase Agreement, NMSSI will receive good, valid and marketable title to the Shares, free and clear of all security interests, mortgages, pledges, liens, encumbrances and claims. No approval of or authorization by the respective shareholders or boards of trustees or directors of the Companies will be required for the issuance and/or sale of the Shares to be sold by the Companies as contemplated herein or in the Agreement, except such as shall have been obtained on or before the Closing Date or the applicable Settlement Date. The issuance and/or sale of the Shares to the NMS Parties by the Companies pursuant to this Purchase Agreement or the Agreement (as the case may be), the compliance by the Companies with the other provisions of this Purchase Agreement or the Agreement and the consummation of the other transactions contemplated hereby or thereby do not require the consent, approval, authorization, registration or qualification of or with any court, governmental authority or agency, except such as shall have been obtained on or before the Closing Date or in connection with any Resale Registration Statement filed with respect to any of the Shares. The Companies meet and will continue to meet the requirements for use of Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations of the U.S. Securities and Exchange Commission (the "Commission") under the Securities Act (the "1933 Act Regulations"). The Companies have filed and will file all documents which they are required to file under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations promulgated thereunder (the "1934 Act Regulations") within the time periods prescribed by the Exchange Act and the 1934 Act Regulations since December 31, 1996 and all such documents (collectively, together with the Companies' registration statements filed under the Securities Act which have been declared effective since January 1, 1997 and have not been withdrawn, the "Companies' SEC Filings") comply and will comply in all material respects with the requirements of the Exchange Act and the 1934 Act Regulations, as applicable, and none of such documents, when so filed, contained or will contain any untrue statement of a material fact or omitted or will omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. No Resale Registration Statement filed in respect of any of the Shares, when so filed, contained or will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. 5 4.5. Due Execution, Delivery and Performance by the Company. Each of the Companies has full right, power and authority to enter into this Purchase Agreement and the Agreement and perform the transactions contemplated hereby and thereby. This Purchase Agreement and the Agreement have been duly authorized, executed and delivered by each of the Companies. The execution and delivery of the Purchase Agreement and the Agreement by each of the Companies and the consummation of the transactions and the performance of the obligations herein and therein contemplated will not violate any provision of the declaration of trust, certificate of incorporation, bylaws, or other organizational documents of either of the Companies, and will not conflict with, result in the breach or violation of, or constitute, either by itself or upon notice or the passage of time or both, a default under any material agreement, mortgage, deed of trust, credit agreement, lease, franchise, license, indenture, note, permit or other instrument to which either Company is a party or by which either Company or its respective properties may be bound or affected, any statute or any authorization, judgment, decree, order, rule or regulation of any court or any regulatory body, administrative agency or other governmental body applicable to either Company or any of its respective properties other than violations, conflicts, breaches or defaults that individually or in the aggregate would not have a Material Adverse Effect. No consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body is required for the execution and delivery of this Purchase Agreement, the Agreement or the consummation of the transactions contemplated hereby or thereby, except in connection with the filing of any Resale Registration Statements pursuant to Section 7 below or for compliance with the blue sky laws applicable to the offering of the Shares. 4.6. Accountants. The Companies' independent certified public accountants, who have expressed their opinion with respect to the Most Recent Financial Statements (as defined below) are independent accountants as required by the Securities Act and the 1933 Act Regulations. 4.7. No Defaults. Except as to defaults, violations and breaches which individually or in the aggregate would not have a Material Adverse Effect, neither of the Companies nor any of their respective Subsidiaries is in violation or default of any provision of its declaration of trust, certificate of incorporation or bylaws, or other organizational documents, and is not in breach of or default with respect to any provision of any agreement, judgment, decree, order, mortgage, deed of trust, credit agreement, lease, franchise, license, indenture, permit or other instrument to which it is a party or by which it or any of its properties are bound. 4.8. No Actions. There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of each Company, threatened against or affecting such Company or any of its Subsidiaries, any real property or improvements thereon owned or leased by such Company or its Subsidiaries, including any property underlying indebtedness held by 6 such Company (each, individually, a "Property" and collectively, the "Properties"), or any officer of such Company or any of its Subsidiaries that, if determined adversely to such Company or any Subsidiary, any Property, including any property underlying indebtedness held by such Company and any of its Subsidiaries, or any such officer, would reasonably be expected to (A) result in any Material Adverse Effect or (B) materially and adversely affect the consummation of the transactions contemplated by this Purchase Agreement or the Agreement. 4.9. Properties. (A) Each Company and its respective Subsidiaries, as the case may be, has good and marketable title to all the properties and assets reflected as owned by such entities in the Most Recent Financial Statements, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if any, reflected in the Most Recent Financial Statements, or (ii) those which would not have a Material Adverse Effect, (B) the leases of any real property and buildings held under lease by such Company or any of its Subsidiaries are in full force and effect, and such entities are not in default in respect of any of the terms or provisions of such leases and have not received notice of the assertion of any claim by anyone adverse to such entities' rights as lessee under such leases, or affecting or questioning such entity's right to the continued possession or use of the real property and buildings held under such leases or of a default under such leases, in each case with such exceptions as would not have a Material Adverse Effect; (C) neither Company nor any of its respective Subsidiaries or any tenant of any of the Properties is in default under any of the leases pursuant to which such Company or its Subsidiaries, as lessor, leases its Property (and to the best knowledge of such Company no event has occurred which, but for the passage of time or the giving of notice, or both, would constitute a default under any of such leases) other than such defaults that would not have a Material Adverse Effect; (D) no person has an option or right of first refusal to purchase all or part of any Property or any interest therein, other than such options or rights of first refusal which would not have a Material Adverse Effect; (E) each of the Properties complies with all applicable codes, laws and regulations (including, without limitation, building and zoning codes, laws and regulations and laws relating to access to the Properties), except for such failures to comply that would not individually or in the aggregate have a Material Adverse Effect; and (F) neither Company has knowledge of any pending or threatened condemnation proceedings, zoning change, or other proceeding or action that will in any manner affect the size of, use of, improvements on, construction on or access to the Properties, including any property underlying indebtedness held by either Company or any of its respective Subsidiaries, except such proceedings or actions that would not have a Material Adverse Effect. 4.10. REIT Qualification. The REIT qualified as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the "Code"), with respect to its taxable years ended December 31, 1995, December 31, 1996 and December 31, 1997, and is organized in conformity with the requirements for qualification as a real estate investment trust, and its manner of operation has enabled it to meet the requirements for qualification as a real estate investment trust as of the date hereof, 7 and its proposed manner of operation will enable it to meet the requirements for qualification as a real estate investment trust in the future. 4.11. No Material Change. Since the date of the Most Recent Financial Statements, and except as otherwise disclosed in the Companies' SEC Filings as of the Closing Date, (i) no material casualty loss or material condemnation or other material adverse event with respect to any Property or any of the Subsidiaries, has occurred that would singly or in the aggregate have a Material Adverse Effect; (ii) neither of the Companies, nor any of their respective Subsidiaries is in default in the payment of principal or interest on any outstanding debt obligations; (iii) except as a result of (a) the Companies' acquisition of Westin Hotels & Resorts Worldwide, Inc. and certain affiliates and the related financing transactions and (b) the OPCO's acquisition of ITT Corporation and the related financing transactions, there has not been any change in the capital stock of either Company or the Subsidiaries (other than the sale of the Purchase Shares hereunder or those reserved for issuance pursuant to the Agreement, issuances pursuant to the incentive compensation plans of the Companies), or any increase in the indebtedness of either Company or their respective Subsidiaries that is material to such entities, considered as one enterprise; (iv) and except for regular quarterly distributions on the REIT Shares, there has been no dividend or distribution of any kind declared, paid or made by the REIT or the OPCO; and (v) there has not been any material adverse change in the condition, financial or otherwise, or in the earnings, assets, business affairs or business prospects of the Companies and the Subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business. 4.12. Intellectual Property. Neither of the Companies nor the Subsidiaries is required to own or possess trademarks, trade names, patent rights, copyrights, licenses, approvals and governmental authorizations, which it does not already own or possess to conduct its businesses as now conducted; and neither Company has knowledge of any material infringement by it of trademark, trade name rights, patent rights, copyrights, licenses, trade secrets or other similar rights of others, and has not received any notice that any claim has been made against such Company regarding trademark, trade name, patent, copyright, license, trade secrets or other infringement that would not singly or in the aggregate have a Material Adverse Effect. 4.13. Compliance. Neither Company has been advised, or has reason to believe, that it is not conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, except where failure to be so in compliance will not have a Material Adverse Effect. 4.14. Taxes. Each of the Companies and its Subsidiaries have filed all material federal, state and foreign income and franchise tax returns which have been required to be filed and has paid or accrued all taxes shown as due thereon (except for those taxes which are being contested in good faith through appropriate proceeding, for which adequate reserves have been established and which are either reflected in the Most Recent Financial Statements or disclosed by the Companies to the NMS Parties), 8 and neither Company has any knowledge of any tax deficiency which has been or might be asserted or threatened against such Company and its Subsidiaries which would singly or in the aggregate have a Material Adverse Effect. 4.15. Transfer Taxes. On the Closing Date, all stock transfer or other taxes, if any (other than income taxes) which are required to be paid in connection with the sale and transfer of the Purchase Shares to be sold to the NMS Parties hereunder will be, or will have been, fully paid or provided for by the Companies and all laws imposing such taxes will be or will have been fully complied with. 4.16. Investment Company. Neither of the Companies nor any of their Subsidiaries is required to register as an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 4.17. Offering Materials. Neither the REIT nor the OPCO has distributed nor will distribute prior to the Closing Date any offering material in connection with the offering and sale of the Purchase Shares other than the documents and information provided to the NMS Parties pursuant to this Section 4. 4.18. Additional Information. Each of the Companies represents and warrants that the information contained in the following documents, which the Companies have furnished to the NMS Parties, or will be furnished or made available upon request prior to the Closing, is true and correct in all material respects as of their respective filing dates: (a) Joint Annual Report on Form 10-K for the year ended December 31, 1996, which Joint Annual Report includes the Companies' most recently available audited financial statements together with the report thereon of the independent certified public accountants (the "Most Recent Financial Statements"), (b) Joint Quarterly Reports on Form 10-Q, as amended if applicable, for the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997; (c) the Companies' proxy statements on Form 14A relating to (i) the most recent Annual Meetings of the REIT's Shareholders and the OPCO's Shareholders and (ii) the Special Meetings of the REIT's Shareholders and the OPCO's Shareholders which occurred during the 12 month period prior to the date hereof or for which a meeting date has been fixed and a proxy statement distributed; (d) all other documents, if any, filed by or with respect to the REIT and the OPCO with the Commission since January 1, 1997 pursuant to Section 13, 15(d) or 16(a) of the Exchange Act; and 9 (e) covenant compliance certificates stating that none of the REIT, the OPCO or their respective Subsidiaries are in default under any of their respective credit agreements or other financing arrangements. 4.19. Legal Opinion. At or prior to the Closing, counsel to the Companies will deliver their legal opinions dated the Closing Date to the NMS Parties in substantially the form of Exhibit A hereto. 4.20. ERISA. Each of the Companies and their respective Subsidiaries are in compliance with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended and the rules and regulations promulgated thereunder ("ERISA"), except for such failures to comply as will not have a Material Adverse Effect. Neither a Reportable Event (as defined under ERISA) nor a Prohibited Transaction (as defined under ERISA) has occurred with respect to any Plan (as defined below) of the Companies and/or their respective affiliates; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated within the past five years; to the Companies' knowledge, no circumstance exists which constitutes grounds under Section 402 of ERISA entitling the Pension Benefit Guaranty Corporation ("PBGC") to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; neither Company nor their respective affiliates has completely or partially withdrawn under Section 4201 or 4202 of ERISA from any Multiemployer Plan (as defined therein); each of the Companies and their respective affiliates have met the minimum funding requirements of Section 412 of the Code and Section 302 of ERISA with respect to each Plan and there is no unfunded current liability (as defined below) with respect to any Plan; each of the Companies and their respective affiliates have not incurred any liability to the PBGC under ERISA (other than for the payment of premiums under Section 4007 of ERISA); no part of the funds to be used by the Companies in satisfaction of their respective obligations under this Purchase Agreement or the Agreement constitute "plan assets" of any "employee benefit plan" within the meaning of ERISA or of any "plan" within the meaning of Section 4957(e)(I) of the Code, as interpreted by the Internal Revenue Service and the U.S. Department of Labor in rules, regulations, releases and bulletins or as interpreted under applicable case law. As used below, "Plan" means an "employee benefit plan" or "plan" as described in Section 3(3) of ERISA; and "unfunded current liability" has the meaning provided in Section 302(d)(8)(A) of ERISA. 4.21. Environmental Protection. Except as otherwise disclosed in the Companies' SEC Filings and except for such exceptions as would not singly or in the aggregate have a Material Adverse Effect, none of the REIT's or the OPCO's or their respective affiliates' properties contain any Hazardous Materials that, under any Environmental Law, (i) would impose liability on such Company or any affiliate that is likely to have a Material Adverse Effect or (ii) is likely to result in the imposition of a lien on any material asset owned, directly or indirectly, by such Company. Neither Company nor any affiliate is subject to any existing, pending or, to the best knowledge 10 of each Company, threatened investigation or proceeding by any governmental agency or authority with respect to pursuant to any Environmental law, except any which, if adversely determined, would not have a Material Adverse Effect. As used herein, "Environmental Laws" mean all federal, state, local and foreign environmental, health and safety laws, codes and ordinances and all rules and regulations promulgated thereunder, including, without limitation laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, solid, toxic or hazardous substances or wastes; and "Hazardous Material" includes, without limitation, (i) all substances which are designated pursuant to Section 311(b)(2)(A) of the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C. ss.1251 et seq.; (ii) any element, compound, mixture, solution, or substance which is designated pursuant to Section 102 of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. ss.9601 et seq.; (iii) any hazardous waste having the characteristics which are identified under or listed pursuant to Section 3001 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. ss.6901 et seq.; (iv) any toxic pollutant listed under Section 307(a) of the FWPCA; (v) any hazardous air pollutant which is listed under Section 112 of the Clean Air Act, 42 U.S.C. ss.7401 et seq.; (vi) any imminently hazardous chemical substance or mixture with respect to which action has been taken pursuant to Section 7 of the Toxic Substances Control Act, 15 U.S.C. ss.2601 et seq.; and (vii) petroleum, petroleum products, petroleum by-products, petroleum decomposition by-products, and waste oil. 4.22. Solvency. Immediately following (i) the execution of this Purchase Agreement and the Agreement, (ii) the purchase of the Purchase Shares pursuant hereto and (iii) the completion of any other transaction contemplated by this Purchase Agreement and the Agreement, each of the Companies will be solvent and able to pay its debts as they mature, will have capital sufficient to carry on its business and all businesses in which it is to engage, and will have assets which will have a present fair market valuation greater than the amount of all of its liabilities. This Purchase Agreement and the Agreement have been executed and delivered by the Companies in good faith and in exchange for reasonably equivalent value. Neither of the Companies intends to incur debts beyond its ability to pay them as they become due. Each of the Companies' assets and capital are now, and are expected in the future to be, sufficient to pay the Companies' ongoing expenses as they are incurred and to discharge all of the Companies' liabilities in the event that the business of the Companies is required to be liquidated. The Companies have not entered into this Purchase Agreement or the Agreement or any transaction contemplated hereby or thereby with an intent to hinder, delay or defraud creditors of any persons or entity. 4.23. Certificate. At or prior to the Closing, each Company shall deliver an officer's certificate to be dated the Closing Date in form and substance satisfactory to the NMS Parties to the effect that (i) the representations and warranties of such 11 Company set forth in this Section 4 are true and correct in all material respects as of the date of this Purchase Agreement and as of the Closing Date and (ii) such Company has complied in all material respects with all the covenants and satisfied in all material respects all the conditions on its respective part to be performed or satisfied pursuant to this Purchase Agreement or the Agreement on or prior to such Closing Date. 4.24. Financial Statements. The Most Recent Financial Statements (including the notes thereto) present fairly in all material respects the financial position of the respective entity or entities presented therein at the respective dates indicated and the results of their operations for the respective periods specified, and except as otherwise stated in the Most Recent Financial Statements, said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis. The supporting schedules included in the Companies' SEC Filings fairly present in all material respects the information required to be stated therein. The financial information and data included in the Companies' SEC Filings present fairly in all material respects the information included therein and have been prepared on a basis consistent with that of the financial statements included in the Companies' SEC Filings and the books and records of the respective entities presented therein. The pro forma financial information included in the Companies' SEC Filings has been prepared in accordance with the applicable requirements of Rules 11-01 and 11-02 of Regulation S-X under the Securities Act and other 1933 Act Regulations and American Institute of Certified Public Accountants ("AICPA") guidelines with respect to pro forma financial information and includes all adjustments necessary to present fairly in all material respects the pro forma financial position of the respective entity or entities presented therein at the respective dates indicated and the results of their operations for the respective periods specified. Other than the historical and pro forma financial statements (and schedule) included therein, no other historical or pro forma financial statements (or schedules) are required to be included in the Companies' SEC Filings. Except as reflected or disclosed in the financial statements included in the Companies' SEC Filings, none of the Companies or any of the Subsidiaries is subject to any material indebtedness, obligation, or liability, contingent or otherwise. 4.25. Labor Disputes. No labor dispute with the employees of either of the Companies or their respective Subsidiaries exists or, to the knowledge of the such Company is imminent. 4.26. Regulation M. Each Company, its Subsidiaries and, to such Company's knowledge, any of their respective trustees, directors, executive officers or controlling persons, has not taken or will not take, directly or indirectly, any action resulting in a material violation of Regulation M under the Exchange Act, or designed to cause or result under the Exchange Act or otherwise in, or which has constituted or which reasonably might be expected to constitute, the unlawful stabilization or manipulation of the price of Paired Shares in connection with the public sale or distribution of the Shares. 12 SECTION 5. Representations, Warranties and Covenants of NMS or NMSSI. 5.1. Investment. The NMS Parties represent and warrant to, and covenants with each of the Companies that: (i) the NMS Parties are knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in shares presenting an investment decision like that involved in the purchase of the Purchase Shares, including investments in securities issued by the Companies; (ii) NMSSI is acquiring the number of Purchase Shares set forth in Section 2 above in the ordinary course of its business and for its own account for investment (as defined for purposes of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the regulations thereunder) only and with no present intention of distributing any of such Purchase Shares or any arrangement or understanding with any other persons regarding the distribution of such Purchase Shares, except pursuant to a registration statement declared effective under, or an exemption from the registration requirements of, the Securities Act, (iii) neither NMS Party will directly or indirectly, sell or otherwise dispose of (or solicit any offers to purchase or otherwise acquire) any of the Purchase Shares except in compliance with the Securities Act, the Rules and Regulations and any applicable state securities or blue sky laws; (iv) each NMS Party has completed or caused to be completed the Registration Statement Questionnaire and the Stock Certificate Questionnaire, both attached hereto as Appendix I, for use in preparation of the Resale Registration Statement and the answers thereto are true and correct as of the date hereof and will be true and correct as of the effective date of the Resale Registration Statement; (v) the NMS Parties have, in connection with their decision to purchase the number of Purchase Shares set forth in Section 2 above, relied solely upon the documents identified in Section 4.17, the information referred to in Section 7.7 and the representations and warranties of each of the Companies contained herein; (vi) the NMS Parties have had access to such additional information, if any, concerning the Companies as they have considered necessary in connection with their investment decision to acquire the Purchase Shares; (vii) each of the NMS Parties is an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D promulgated under the Securities Act; and (viii) the NMS Parties understand that until the Shares are sold under an appropriate Resale Registration Statement that has been declared effective by the Commission, the Shares will contain a legend to the following effect: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANIES THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. 13 5.2. Resale. The NMS Parties acknowledge and agree that in connection with any transfer of any Shares they will provide to the transfer agent prompt notice of any Shares sold pursuant to a Resale Registration Statement or otherwise transferred in compliance with applicable federal and state securities laws. The NMS Parties acknowledge that there may occasionally be times when, subject to the provisions of Section 7.2(a)(v), the Companies must suspend the right of the NMS Parties to effect sales of the Shares through the use of the Resale Prospectus (as defined below) forming a part of a Resale Registration Statement until such time as an amendment to such Resale Registration Statement has been filed by the Companies and declared effective by the Commission, or until such time as the Companies have filed an appropriate report with the Commission pursuant to the Exchange Act (each, a "Black-out Period"); provided that no Black-out Period shall exceed 90 consecutive days. The NMS Parties hereby covenant that they will not effect sales of any Shares pursuant to said Resale Prospectus during the period commencing at the time at which the Companies give the NMS Parties written notice (which such notice shall have been given by the Companies as promptly as practicable) of the suspension of the use of said Resale Prospectus and ending at the time the Companies give the NMS Parties written notice that the NMS Parties may thereafter effect sales pursuant to said Resale Prospectus. The NMS Parties further covenant to notify the Companies promptly of the sale of all of the Shares. 5.3. Due Execution, Delivery and Performance of this Purchase Agreement. The NMS Parties further represent and warrant to, and covenant with, the Companies that (i) each NMS Party has full right, power, authority and capacity to enter into this Purchase Agreement and the Agreement and to perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby and has taken all necessary action to authorize the execution, delivery and performance of this Purchase Agreement and the Agreement, and (ii) upon the execution and delivery of this Purchase Agreement and the Agreement, this Purchase Agreement and the Agreement shall constitute valid and binding obligations of the NMS Parties enforceable against the NMS Parties in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except that the enforcement of the indemnification agreements in Section 7.5 hereof may be limited by public policy. 5.4. Residence of NMSSI. NMSSI is organized in the State of Delaware and has its principal place of business outside the United States. 5.5. Certain Tax Considerations. NMSSI represents and warrants that it is a "corporation" for U.S. federal income tax purposes and for purposes of any exemptions from information reporting and backup withholding requirements that may apply to payments by the Companies to NMSSI under this Purchase Agreement. 14 SECTION 6. Survival of Representations, Warranties and Agreements. Notwithstanding any investigation made by any party to this Purchase Agreement, all covenants, agreements, representations and warranties made by each of the Companies and the NMS Parties herein shall survive the execution of this Purchase Agreement, the Agreement, the delivery to NMSSI of the Purchased Shares being purchased and the payment therefor and the consummation of any other transactions contemplated hereby or thereby. SECTION 7. Registration of the Shares; Compliance with the Securities Act. 7.1. Registration Procedures and Expenses. The Companies shall: (a) within 45 days after the Closing, prepare and file with the Commission a Resale Registration Statement (as defined below) covering the resale by the NMS Parties, from time to time, of a number of Shares equal to the number of Purchase Shares in any of the manners specified in the Agreement (the "Initial Resale Registration Statement") and use its best efforts to obtain effectiveness of the Initial Resale Registration Statement within 90 days after the Closing Date. If the total number of Shares exceeds the number of Shares covered by the Initial Resale Registration Statement, then the Companies shall promptly prepare and file with the Commission such additional Resale Registration Statement or Statements as shall be necessary to cover the resale by the NMS Parties of such excess Shares in the same manner as contemplated by the Initial Registration Statement for the Shares covered thereby (each, an "Additional Resale Registration Statement"); provided that, except as provided for in Section 5 of the Agreement, prior to issuing any such excess Shares to the NMS Parties, the Companies shall cause such Resale Registration Statement to have become effective. For purposes of this Purchase Agreement, "Resale Registration Statement" means the Initial Resale Registration Statement, any Additional Resale Registration Statement or any other registration statement under the Securities Act on Form S-3 covering the resale by the NMS Parties of up to a specified number of Shares, filed and maintained continuously effective by the Companies pursuant to the provisions of this Section 7, including the prospectus contained therein (the "Resale Prospectus"), any amendments and supplements to such registration statement, including all post-effective amendments thereto, 15 and all exhibits and all material incorporated by reference into such registration statement; (b) use commercially reasonable best efforts to prevent the issuance of any order suspending the effectiveness of such Resale Registration Statement or Resale Prospectus or suspending the qualification (or exemption from qualification) of any of the Shares in any jurisdiction; (c) prepare and file with the Commission such amendments and supplements to each Resale Registration Statement and the Resale Prospectus as may be reasonably requested by the NMS Parties in order to accomplish the public resale or other disposition of any Shares in accordance with the terms of the Agreement, or as may be necessary to keep such Resale Registration Statement effective until the date on which either (i) the Shares covered thereby have been sold by or on behalf of the NMS Parties or (ii) the NMS Parties have advised the Companies that they no longer require that such Resale Registration Statement remain effective; (d) furnish to the NMS Parties with respect to the Shares registered under any Resale Registration Statement such reasonable number of copies of Resale Prospectuses, including any supplements and amendments thereto, in order to facilitate the public sale or other disposition of all or any of the Shares by the NMS Parties; (e) in order to facilitate the public sale or other disposition of all or any of the Shares by the NMS Parties, furnish to the NMS Parties with respect to the Shares registered under any Resale Registration Statement, in connection with any such public sale or other disposition, an opinion of counsel to the Companies covering such matters as are customarily covered by legal opinions delivered in connection with secondary public offerings of equity securities and such other documents as the NMS Parties may reasonably request (including a comfort letter from the Companies' independent certified public accountants and a certificate of bring down of representations and warranties in connection with sale of Shares under the Resale Registration Statement) (collectively, the "Resale Closing Documents") (i) upon the effectiveness of the Initial Resale Registration Statement, (ii) upon the commencement of any continuous offering of Shares under any Resale Registration Statement 16 and on the last day of every 30-day period thereafter for the duration of such continuous offering, and (iii) in the event the public sale or other disposition of the Shares is effected through an underwritten offering or a block trade, as of the date of the closing of any sale of such Shares or date of pricing with respect to the sale of such Shares, as applicable upon prior notice from the NMS Parties to the Companies as to which date applies; provided, however, that the Companies shall not be required to deliver any Resale Closing Documents in the event that the aggregate offering price of any Shares offered in a public sale or other distribution is less than $20,000,000, unless as of the date of any such public sale or other distribution, the Companies have not made any previous delivery of Resale Closing Documents to the NMS Parties in connection with any other public sale or other disposition of the Shares; (f) use its reasonable best efforts to prevent the happening of any event that would cause any such Resale Registration Statement to contain a material misstatement or omission or to be not effective and continuously useable for resale of the Shares during the period that such Resale Registration Statement is required to be effective and useable; (g) file documents required of the Companies for normal blue sky clearance in states specified in writing by the NMS Parties, provided, however, that the Companies shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; (h) bear all reasonable expenses in connection with the procedures in paragraphs (a) through (g) of this Section 7.1 and Section 7.2(a) and the registration of the Shares pursuant to each Resale Registration Statement, which expenses shall not include brokerage or underwriting commissions and taxes of any kind (including without limitation, transfer bonuses) with respect to any disposition, sale or transfer of Shares sold by the NMS Parties and for any legal, accounting and other expenses incurred by the NMS Parties which expenses shall be borne by the NMS Parties; and (i) promptly file any necessary listing applications or amendments to existing listing applications to cause any 17 Shares registered under any Resale Registration Statement to be listed or admitted to trading, on or prior to the effectiveness of any Resale Registration Statement, on the New York Stock Exchange or any national stock exchange or automated quotation system on which the Paired Shares are then listed or traded. 7.2. Covenants in Connection With Registration. (a) Each of the Companies hereby covenants with the NMS Parties that (i) such Company shall not file any Resale Registration Statement or Resale Prospectus relating to the resale of the Shares or any amendment or supplement thereto, unless a copy thereof shall have been first submitted to the NMS Parties and the NMS Parties did not object thereto in good faith (provided that if the NMS Parties do not object within two business days of receiving any such material, there shall be deemed to have been no objection thereto); (ii) such Company shall immediately notify the NMS Parties of the issuance by the Commission of any stop order suspending the effectiveness of such Resale Registration Statement or the initiation of any proceedings for such purpose; (iii) such Company shall make every reasonable effort to promptly obtain the withdrawal of any order suspending the effectiveness of such Resale Registration Statement at the earliest possible moment; (iv) such Company shall immediately notify the NMS Parties of the receipt of any notification with respect to the suspension of the qualification of the Shares for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose; and (v) such Companies shall as soon as practicable notify the NMS Parties in writing of the happening of any event or the failure of any event to occur or the existence of any fact or otherwise which results in any Resale Registration Statement, any amendment or post-effective amendment thereto, the Resale Prospectus, any prospectus supplement, or any document incorporated therein by reference containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading and promptly shall prepare, file with the Commission and promptly furnish to the NMS Parties a reasonable number of copies of a supplement or post-effective amendment to such Resale Registration Statement or the Resale Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Shares, the Resale Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading provided that this clause (v) shall in no way limit the Companies' right to suspend the right of the NMS Parties to affect sales under the Resale Registration Statement during any Black-out Period as specified in Section 5.2 above. (b) The NMS Parties shall cooperate with the Companies in connection with the preparation of the Resale Registration Statement and shall furnish to the Companies, in a timely manner, all information in their possession or reasonably obtainable by them and necessary for inclusion in the Resale Registration Statement 18 (including, without limitation, information relating to the ownership by each of them of Paired Shares and the plan of distribution). (c) The NMS Parties shall notify the Companies at least two business days prior to the earlier of the date on which they intend to commence effecting any resales of Shares under a Resale Registration Statement or the date of pricing with respect to the public sale or other disposition of any Shares under a Resale Registration Statement effected through an underwritten offering or block trade and if the Companies do not, within such two day period, advise the NMS Parties of the existence of any facts of the type referred to in Section 7.2(a) above, then the Companies shall be deemed to have certified and represented to the NMS Parties that no such facts then exist and the NMS Parties may rely on such certificate and representations in making such sales. The preceding sentence shall in no way limit the Companies' obligations under Section 7.2(a) above. (d) the Companies shall cooperate with the NMS Parties to facilitate the timely preparation and delivery of certificates representing the Shares to be sold under the Resale Registration Statements and not bearing any restrictive legends and in such denominations and registered in such names as the NMS Parties may reasonably request at least two business days prior to the closing of any sale of the Shares. (e) If the Companies notify the NMS Parties that they wish the NMS Parties to effect an underwritten offering or block trade of Shares, (i) the NMS Parties shall have the right to select the managing underwriters or the executing dealer, as the case may be, who shall be subject to the approval of the Companies, which approval shall not be unreasonably withheld (it being understood that NMS is, in any event, reasonably acceptable to the Companies for this purpose) and (ii) the Companies shall (A) enter into written agreements (including underwriting agreements) as are customary in underwritten offerings or block trades, as the case may be; (B) obtain an opinion of counsel to the Companies and other entities reasonably requested by the underwriters or the executing dealer, as the case may be, and updates thereof (which may be in the form of a reliance letter) in form and substance reasonably satisfactory to the managing underwriters or the executing dealer, as the case may be, and the NMS Parties addressed to the underwriters or the executing dealer, as the case may be, and the NMS Parties covering the matters customarily covered in opinions requested in underwritten offerings or block trades, as the case may be, and such other matters as may be reasonably requested by such underwriters or the executing dealer, as the case may be, and the NMS Parties (it being agreed that the matters to be covered by such opinion may be subject to customary qualifications and exceptions); (C) obtain "cold comfort" letters and updates thereof in form and substance reasonably satisfactory to the managing underwriters or the executing dealer, as the case may be, and the NMS Parties from the independent certified public accountants of the Companies (and, if necessary, other independent certified public accountants of any affiliate or Subsidiary of either of the Companies or of any business acquired by the Companies for which financial statements and financial data are, or are required to be, included in the Resale 19 Registration Statement), addressed to each of the underwriters or the executing dealer, as the case may be, and, if permitted by applicable accounting rules and statements, the NMS Parties, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings or block trades, as the case may be, and such other matters as may be reasonably requested by such underwriters or the executing dealer, as the case may be, in accordance with Statement on Auditing Standards No. 72; (D) ensure that any underwriting agreement contains indemnification provisions and procedures not less favorable than that included herein (or such other provisions and procedures acceptable to the NMS Parties and the underwriters) with respect to all parties to be indemnified pursuant to said section (including, without limitation, the underwriters and the NMS Parties); and (E) deliver such other documents as are customarily delivered in connection with closing of underwritten offerings or block trades, as the case may be. (f) The Companies will make reasonably available for inspection by the NMS Parties, any underwriter, agent or broker-dealer participating in any disposition of Shares such information and corporate documents as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities for the purposes of applicable law, and cause the officers of the Companies and their "significant subsidiaries" (as that term is defined in Regulation S-X) to be available, upon request at least two business days in advance, to respond to questions relevant to such due diligence inquiries. (g) The parties hereby acknowledge and agree that the Companies may suspend the right of the NMS Parties to effect sales of the Paired Shares through use of the Resale Prospectus forming a part of a Resale Registration Statement for a period of 90 days (or fewer if the NMS Parties are notified to that effect by the Companies) in connection with a public offering or a sale pursuant to Rule 144A under the Securities Act (an "Offering") of Paired Shares (or shares of capital stock convertible into Paired Shares) by the Companies (a "Suspension Period"); provided that (i) there shall be no more than three Suspension Periods during any 12-month period, and (ii) the total number of days of all Suspension Periods during any 12-month period shall not exceed 120. The NMS Parties hereby covenant that they will not sell any Paired Shares pursuant to said Resale Prospectus during a Suspension Period which shall commence at the time the Companies give the NMS Parties written notice of such Suspension Period; provided further, that no Suspension Period shall be applicable or in any way restrict the NMS Parties after the occurrence of the Maturity Date or a Price Decline Termination Event. The ability of the Companies to suspend the right of the NMS Parties to effect sales of the Paired Shares pursuant to this Section 7.2(g) shall not be construed to limit the Companies' rights under Section 5.2. 7.3. Extension of Required Effectiveness. In the event that the Companies shall give any notice required by Section 7.2(a)(v) hereof, the period during which the Companies are required to keep such Resale Registration Statement effective and useable shall be extended by the number of days during the period from and included in such Black-out Period. 20 7.4. Transfer of Shares After Registration. The NMS Parties agree that they will not effect any disposition of the Shares or their right to purchase the Shares that would constitute a sale within the meaning of the Securities Act or pursuant to any applicable state securities or blue sky laws expect as contemplated in each Resale Registration Statement referred to in Section 7.1 or except pursuant to any exemption from the registration requirements of the Securities Act (including, without limitation, Rule 144 promulgated thereunder and any successor thereto) and that it will promptly notify the Companies of any changes in the information set forth in any such Resale Registration Statement regarding the NMS Parties or their plan of distribution. 7.5. Indemnification. For the purpose of this Section 7.5 only, the term "Resale Registration Statement" shall include any final prospectus, exhibit, supplement or amendment included in or relating to any Resale Registration Statement referred to in Section 7.1. (a) Indemnification by the Companies. Each of the Companies agrees, severally and not jointly, to indemnify and hold harmless the NMS Parties and each person, if any, who controls the NMS Parties within the meaning of Section 15 of the Securities Act, and any director, officer, employee or affiliate thereof, as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Resale Registration Statement (or any amendment thereto), including the information deemed to be part of any Resale Registration Statement pursuant to Rule 430A(b) of the 1933 Act Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any related Resale Prospectus or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Companies shall not be required under this subsection (i) to indemnify the NMS Parties with respect to any loss, liability, claim, damage or expense to the extent such loss, liability, claim, damage or expense arises out of (A) any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Companies by the NMS Parties specifically for inclusion in any Resale Registration Statement or any related Resale Prospectus or (B) any statement or omission in any Resale Prospectus that is corrected in any subsequent Resale Prospectus that was delivered to an NMS Party prior to the pertinent sale or sales by an NMS Party and not delivered in connection with such sale, when such delivery was required by the Securities Act or any state securities law; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation or of any investigation or proceeding by any governmental 21 agency or body, commenced or threatened, or of any claim whatsoever for which indemnification is provided under subsection (i) above, only if such settlement is effected with the written consent of the Companies; and (iii) against any and all expense whatsoever (including, without limitation, the fees and other charges of counsel chosen by you) reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceedings by any governmental agency or body, commenced or threatened, or any claim whatsoever for which indemnification is provided under subsection (i) above, to the extent that any such expense is not paid under subsection (i) (other than expenses not paid pursuant to the proviso to subsection (i)) or (ii) above. (b) Indemnification by the NMS Parties. The NMS Parties agree to indemnify and hold harmless the Companies, and each person, if any, who controls the Companies within the meaning of Section 15 of the Securities Act, and any trustee, director, officer, employee or affiliate thereof, against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section 7.5, as incurred, but only with respect to (A) untrue statements or omissions, or alleged untrue statements or omissions, made in any Resale Registration Statement (or any amendment thereto) or any related Resale Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Companies by the NMS Parties specifically for inclusion in any Resale Registration Statement or any related Resale Prospectus or (B) any statement or omission in any Resale Prospectus that is corrected in any subsequent Resale Prospectus that was delivered to an NMS Party prior to the pertinent sale or sales by an NMS Party and not delivered in connection with such sale, when such delivery was required by the Securities Act or any state securities law. (c) Proceedings. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relive it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. If it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and reasonably acceptable to the indemnified parties defendant in such action, unless such indemnified parties reasonably object to such assumption on the ground that the named parties to any such action (including any impleaded parties) include both such indemnified parties and an indemnifying party, and such indemnified parties reasonably believe that there may be legal defenses available to them which are different from or in addition to those available to such indemnifying party. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of 22 counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 7.5 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 7.5(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (d) Contribution. If the indemnification provided for in this Section 7.5 is required by its terms but is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party under paragraph (a), (b) or (c) of this Section 7.5 in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any losses, claims, damages, liabilities or expenses referred to herein, (i) in such proportion as is appropriate to reflect the relative benefits received by the Companies and the NMS Parties from the purchase and sale of the Shares or (ii) if the allocation provided in clause (i) is not permitted by applicable law, in such proportion or as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Companies and the NMS Parties in connection with the statements or omissions or inaccuracies in the representations and warranties in this Purchase Agreement which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The respective relative benefits received by the Companies on the one hand and the NMS Parties on the other shall be deemed to be in the same proportion as the amount paid by the NMS Parties to the Companies pursuant to this Purchase Agreement and the Agreement and the net proceeds retained or discounts received by the NMS Parties from the transactions contemplated by this Purchase Agreement and 23 the Agreement. The relative fault of the Companies and the NMS Parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or the alleged omission to state a material fact or the inaccurate or the alleged inaccurate representation and/or warranty relates to information supplied by the Companies or by the NMS Parties and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in paragraph (c) of this Section 7.5 any reasonable legal or other fees or expenses incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in paragraph (c) of this Section 7.5 with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this paragraph (d); provided, however, that no additional notice shall be required with respect to any action for which notice has been given under paragraph (c) for purposes of indemnification. The Companies and the NMS Parties agree that it would not be just and equitable if contribution pursuant to this Section 7.5 were determined solely by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph (d). Notwithstanding the provisions of this Section 7.5, the NMS Parties shall not be required to contribute any amount in excess of the amount by which the aggregate net proceeds retained or discounts received by the NMS Parties from the transactions contemplated hereby and by the Agreement exceeds the amount of any damages that the NMS Parties has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) Relationship Between the REIT and OPCO. The obligations set forth in this Section 7.5 shall in no way limit the ability of the Companies to allocate liability between themselves. 7.6. Information Available. So long as any Resale Registration Statement covering the resale of any shares owned by the NMS Parties is effective, the Companies will furnish to the NMS Parties: (a) as soon as practicable after available, one copy of (i) their Joint Annual Report to Shareholders, (ii) their Joint Annual Report on Form 10-K, (iii) their Joint Quarterly Reports to Shareholders, (iv) their Joint Quarterly Reports on Form 10-Q, (v) a full copy of the particular Resale Registration Statement covering the Shares (the foregoing, in each case, excluding exhibits) and (iv) upon request, any or all other filings made with the Commission by the Companies; and 24 (b) upon the reasonable request of the NMS Parties, a reasonable number of copies of the Resale Prospectuses to supply to any other party requiring such Resale Prospectuses; and the Companies, upon the reasonable request of the NMS Parties, will meet with the NMS Parties or a representative thereof at the Companies' headquarters to discuss all information relevant for disclosure in such Resale Registration Statement covering the Shares, subject to appropriate confidentiality limitations. 7.7. Remedies. The Companies and the NMS Parties acknowledge that there would be no adequate remedy at law if the Companies fail to perform any of their obligations under this Section 7, and accordingly agree that the NMS Parties, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to compel specific performance of the obligations of the Companies under this Section 7, and the Companies hereby waive the defense that a remedy at law would be adequate. 7.8. Notice Requirement. The REIT and the OPCO each covenants and agrees that it will notify the NMS Parties at any time it becomes aware that as a result of a change in the REIT's and the OPCO's capital stock, the NMS Parties beneficially hold more than 4.9% of the REIT's and the OPCO's Paired Shares. SECTION 8. Broker's Fee. Other than any fees payable under or in connection with the Agreement, each of the parties hereto represents that, on the basis of any actions and agreements by it, there are no brokers or finders entitled to compensation in connection with the sale or issuance of the Shares to NMSSI. SECTION 9. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed by first-class registered or certified airmail, by telegram or telecopy or sent by nationally recognized overnight express courier postage prepaid, and shall be deemed given when so mailed or for telecopies, when transmitted and receipt confirmed, and shall be delivered as addressed as follows: (a) if to the Companies, to: Starwood Hotels & Resorts Starwood Hotels & Resorts Worldwide, Inc. 2231 East Camelback Road Suite 400 and 410 Phoenix, Arizona 85016 Attention: Ronald C. Brown/Alan M. Schnaid Telecopier: 602-852-0115 25 with copies so mailed to: Sidley & Austin 555 West Fifth Street Suite 4000 Los Angeles, California 90013 Attention: Sherwin L. Samuels Telecopier: 213-896-6600 or to such other person at such other place as the Companies shall designate to NMS in writing; and (b) if to NMS or NMSSI, to: NationsBanc Montgomery Securities LLC 9 West 57th Street 47th Floor New York, NY 10019 Attention: Christopher J. Innes Telecopier: (212) 583-8573 SECTION 10. Changes. This Purchase Agreement may not be modified or amended except pursuant to an instrument in writing signed by each of the Companies and the NMS Parties. SECTION 11. Headings. The headings of the various sections of this Purchase Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Purchase Agreement. SECTION 12. Severability. In case any provision contained in this Purchase Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. SECTION 13. Successors and Assigns. The Companies or the NMS Parties may assign any of their respective rights, or delegate any of their respective duties under this Purchase Agreement, if the other party first consents to such assignment in writing. This Purchase Agreement shall inure to the benefit of and be binding upon (i) the successors of the NMS Parties and (ii) any assignee or transferee of rights and obligations of NMSSI pursuant to the Agreement and any assignee or transferee of rights and obligations of the NMS Parties pursuant to this Purchase Agreement. A transferee of NMSSI pursuant to the Agreement and a transferee of the NMS Parties pursuant to this Purchase Agreement, and, in each case, any successor, assignee, or transferee, shall be held subject to all of the terms of this Purchase Agreement. 26 SECTION 14. Governing Law; Jurisdiction. This Purchase Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflicts of law principles thereof. SECTION 15. Transfer to Affiliate. Notwithstanding anything herein to the contrary, NMSSI may transfer the Purchase Shares to any affiliate of NMSSI, together with all of NMSSI's rights hereunder, provided that (i) such affiliate shall be an "accredited investor" within the meaning of Rule 501 (a)(1), (2), (3) or (7) of Regulation D promulgated under the Securities Act, and (ii) such transfer shall be consistent with the investment representations set forth at Section 5.1 hereto. In the event of such an assignment, such affiliate shall in all respects be substituted for NMSSI as a party hereto. SECTION 16. Counterparts. This Purchase Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. SECTION 17. Recourse. Each NMS Party acknowledges and agrees that the name "Starwood Hotels & Resorts" is a designation of the REIT and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated as of June 6, 1988, as further amended on February 1, 1995, June 19, 1995, January 2, 1998 and February 23, 1998 and as the same may be further amended from time to time, and all persons dealing with the REIT shall look solely to the REIT's assets for the enforcement of any claims against the REIT, as the Trustees, officers, agents and security holders of the REIT assume no personal liability for obligations entered into on behalf of the REIT, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 27 IN WITNESS WHEREOF, the parties hereto have caused this Purchase Agreement to be executed by their duly authorized representatives as of the day and year first above written. STARWOOD HOTELS & RESORTS By: Name: Title: STARWOOD HOTELS & RESORTS WORLDWIDE, INC. By: Name: Title: NATIONSBANC MONTGOMERY SECURITIES LLC By: Name: Title: NMS SERVICES, INC. By: Name: Title: 28 Appendix I (one of two) STOCK CERTIFICATE QUESTIONNAIRE Pursuant to Section 5 of the Purchase Agreement, please provide us with the following information: 1. The exact name that your Shares are to be registered in (this is the name that will appear on your stock certificate(s)). You may use a nominee name if appropriate: _______________________________ 2. All relationships between the NMS Parties and the Registered Holder listed in response to Item 1 above: _______________________________ _______________________________ 3. The mailing address of the Registered Holder listed in response to Item 1 above: _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ 4. The Social Security Number or Tax Identification Number of the Registered Holder listed in response to Item 1 above: _______________________________ 29 Appendix I (two of two) REGISTRATION STATEMENT QUESTIONNAIRE In connection with the preparation of the Registration Statement, please provide us with the following information: 1. Pursuant to the "Selling Shareholders" section of the Registration Statement, please state your or your organization's name exactly as it should appear in the Registration Statement: 2. Please provide the number of shares that you or your organization (including all affiliates) will own immediately after Closing, including those Shares purchased by you or your organization (including all affiliates) pursuant to this Purchase Agreement and those shares purchased by you or your organization (including all affiliates) through other transactions: 3. Have you or your organization had any position, office or other material relationship within the past three years with the Company or its affiliates: _____ Yes _____ No If yes, please indicate the nature of any such relationships below: _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ 30 Appendix II Attention: PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE The undersigned, [an officer of, or other person duly authorized by] hereby certifies that he/she [fill in official name of individual or institution] [said institution] is the Purchaser of the shares evidenced by the attached certificate, and as such, sold such shares on [date] in accordance with Registration Statement number [fill in the number of or otherwise identify Registration Statement], the Securities Act of 1933, as amended, and any applicable state securities or blue sky laws and the requirement of delivering a current prospectus by the Company has been complied with in connection with such sale. Print or Type:
NAME OF PURCHASER (Individual or Institution): NAME OF INDIVIDUAL representing Purchaser (if an Institution) TITLE OF INDIVIDUAL representing Purchaser (if an Institution) Signature by: Individual Purchaser or Individual representing Purchaser:
31 EXHIBIT A FORM OF CLOSING OPINION OF COUNSEL TO THE COMPANY 32 AGREEMENT THIS AGREEMENT is made as of the 23rd day of February, 1998, by and between Starwood Hotels & Resorts (the "REIT"), Starwood Hotels & Resorts Worldwide, Inc. ("OPCO," and together with the REIT, the "Companies") and NMS Services, Inc. ("NMSSI"), through its agent NationsBanc Montgomery Securities LLC ("NMS" and together with NMSSI, the "NMS Parties"). The purpose of this Agreement is to confirm the terms and conditions of the transaction (the "Transaction") entered into between NMSSI and the Companies. IN CONSIDERATION of the mutual representations, warranties and covenants herein contained, and on the terms and subject to the conditions herein set forth, the Companies and NMSSI hereby agree as follows: Section 1 Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: (a) Ability to Settle in Paired Shares. As of the date hereof, the Companies have not, and after the date hereof, the Companies will not, enter into any obligation that would contractually prohibit the Companies from delivering Paired Shares pursuant to Sections 3.2, 4.2 or 5 of this Agreement. (b) Certain Adjustments to Reference Price or Number of Notional Shares. In the event of: (i) a subdivision, consolidation or reclassification of the Paired Shares, or a free distribution or dividend of any Paired Shares to all existing holders of Paired Shares by way of bonus, capitalization or similar issue; or (ii) a distribution or dividend to all existing holders of Paired Shares of (A) additional Paired Shares or (B) other share capital or securities granting right to payment of dividends and/or the proceeds of liquidation of the Companies equally or proportionally with such payments to holders of Paired Shares, an adjustment shall thereupon be effected to the Reference Price and/or the Notional Shares at the time of such event with the intent that following such adjustment, the value of this Transaction is economically equivalent to the value immediately prior to the occurrence of the event causing the adjustment. 33 (c) Block Sale. any privately negotiated sales of the Paired Shares involving at least a block of such security (as defined in Rule 10b-18 under the Exchange Act). (d) Business Day. Any day other than a Saturday, Sunday, or any other day on which banking institutions in the States of Delaware or New York are not open for business. (e) Calculation Agent. NMSSI, whose calculations and determinations shall be made in a reasonable manner. (f) Closing Price. The last sale price of the Paired Shares on the Relevant Exchange on the relevant date. (g) Commission. The Securities and Exchange Commission. (h) Compounding Period. Means each period commencing on and including: (i) in the case of the first Compounding Period, the Initial Settlement Date and ending on but excluding the first Reset Date, and (ii) for each period thereafter, a Reset Date and ending on (but excluding) the next following Reset Date. (i) Distribution Amount. Means, on each Reset Date, an amount in U.S. Dollars equal to: (i) the sum of all cash distributions paid on a single Paired Share during the relevant Compounding Period; plus (ii) an amount representing interest that could have been earned on such distributions at the USD LIBOR rate having a designated maturity of three months, plus Spread, for the period from the date that such distributions would have been received by a holder of a single Paired Share until such Reset Date. (j) DRIP Distribution. Sales to any Distribution Reinvestment Plan now or hereafter established by the Companies, or to any agent acting on behalf of such Plan, for sale to participants in such Plan. (k) Effective Date. February 24, 1998. (l) Exchange Act. The Securities Exchange Act of 1934, as amended. 34 (m) Exchange Trading Day. Each day on which the Relevant Exchange is open for trading. (n) Execution Price. The Closing Price on the Effective Date`. (o) Gradual Market Distribution. An offering of the Paired Shares into the existing trading market for outstanding shares of the same class at other than (i) a fixed price on or through the facilities of a national securities exchange or (ii) to or through a market maker otherwise than on an exchange. (p) Initial Price. Means, (i) for the Compounding Period ending on the first Reset Date, an amount in U.S. Dollars equal to $53.875, and (ii) for each subsequent Reset Date, the Reference Price as calculated on or adjusted as of the prior Reset Date. (q) Initial Settlement Date. February 24, 1998. (r) Interim Settlement Amount. With respect to a given Reset Date, means the amount by which the Reference Amount minus $5,000,000 exceeds the product of (x) the Closing Price on such Reset Date and (y) the number of Notional Shares. (s) Interim Settlement Shares. The Interim Settlement Amount divided by the Closing Price on such Reset Date. (t) Maturity Date. March 1, 1999. (u) Notional Shares. 1,547,000 Paired Shares, as may be adjusted from time to time pursuant to Section 1(b), reduced by the number of Settlement Shares that have been settled prior to the date of calculation pursuant to Section 3.1 or Section 4.1. (v) Paired Shares. Units consisting of one share of beneficial interest, $.01 par value per share, in the REIT and one share of common stock, par value $.01 per share, of OPCO, which shares are paired and traded as a unit. (w) Pooled Underwritten Secondary Offering. An underwritten fixed price offering of Paired Shares, in which the Settlement Shares and other Paired Shares, which may include the Paired Shares of other selling shareholders and previously unissued Paired Shares. 35 (x) Pooling Exit Fee. 50 basis points on the Settlement Amount in connection with the related Pooled Underwritten Secondary Offering. (y) Purchase Shares. Paired Shares sold to NMSSI pursuant to the Purchase Agreement. (z) Purchase Agreement. The Purchase Agreement, dated as of February 23, 1998 (the "Purchase Agreement"), among the Companies, NMSSI and NMS. (aa) Reference Amount. On each Reset Date, the Reference Price multiplied by the Notional Shares or Settlement Shares, as applicable. (bb) Reference Price. On each Reset Date, the Reference Price shall be determined by: (i) compounding the Initial Price for the previous Compounding Period at USD LIBOR rate plus Spread for a designated maturity of three months (Actual/360 day count fraction) to such Reset Date and (ii) subtracting the Distribution Amount at that date. (cc) Relevant Exchange. Means, with respect to any Exchange Trading Day, the principal Stock Exchange on which the Paired Shares are traded on that day. (dd) Reset Date. Means, through the final Trade Date, (i) the last day of each three-month period, beginning on May 31, 1998 (provided, that if such day is not a Business Day then the Reset Date shall be the next Business Day), (ii) as to any Settlement Shares, but only as to such Settlement Shares, the related Trade Date and (iii) as to any Gross Settlement Shares, but only as to such Gross Settlement Shares, the Exchange Trading Day immediately prior to the date on which the related Gross Settlement Notice is delivered. (ee) Securities Act. The Securities Act of 1933, as amended. (ff) Settlement. Has the meaning set forth in Section 3.1 or Section 4.1, as applicable. (gg) Settlement Amount. Except as set forth in subsection (iv) below, the net sales proceeds realized by or on behalf of NMSSI for all sales of Paired Shares in connection with any Settlement, calculated as follows: 36 (i) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is an Underwritten Secondary Offering, the Settlement Amount will equal the gross proceeds realized, net of a negotiated underwriting discount; (ii) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is a Block Sale, the Settlement Amount will equal the gross sales proceeds realized, net of a negotiated underwriting discount; (iii) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is a Gradual Market Distribution, the Settlement Amount will equal the gross sales proceeds realized from sales to the market over the period of the distribution, net of a resale spread of 50 basis points; (iv) with respect to a given Trade Date, if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is a VWAP Sale, the Settlement Amount will equal the product of (a) the volume weighted average price of the Paired Shares for such Trade Date and (b) the number of Paired Shares determined by the Company to be sold by NMSSI on such Trade Date, net of a resale spread of 50 basis points; (v) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is a DRIP Distribution, the Settlement Amount will equal the gross sales proceeds realized from sales to any Purchase Agent for a Company Distribution Reinvestment Plan, net of a resale spread of 50 basis points; and (vi) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is a Pooled Underwritten Secondary Offering, the Settlement Amount will equal a pro rata share of the gross proceeds realized, net of a negotiated underwriting discount. (hh) Settlement Date. The date after each Trade Date on which, in accordance with standard market practice, any Paired Shares are delivered and the funds received, in respect of any Settlement in accordance with Section 3.2 or Price Decline Termination Event in accordance with Section 4.2. (ii) Settlement Shares. The number of Notional Shares which will be settled on a given Settlement Date pursuant to Section 3.2 or Section 4.2, as applicable. (jj) Spread. 175 basis points, subject to adjustment pursuant to Section 6.3. (kk) Stock Exchange. Means the New York Stock Exchange, the American 37 Stock Exchange or NASDAQ. (ll) Trade Date. Any date on which NMSSI executes a settlement trade or trades as part of a Settlement in any of the manners of Settlement Sale set forth in Section 3.1, pursuant to either Section 3.1 or 4.1. (mm) Underwritten Secondary Offering. An underwritten fixed price offering of the Paired Shares. (nn) USD LIBOR. The London Inter Bank Offered Rate in respect of U.S. Dollars for the designated maturity as quoted on Page 3750 on the Telerate Service (or such other page as may replace Page 3750 on that service) as of 11:00 a.m., London time, on the date on which it is to be determined. (oo) VWAP Sale. A sale of the Paired Shares into the existing trading market for outstanding shares of the same class effected in order to approximate the volume weighted average price of the Paired Shares on the Relevant Exchange on the relevant date. 38 Section 2 Representations and Warranties. The representations and warranties of the Companies in Section 4 of the Purchase Agreement are hereby incorporated by reference herein, and each Company hereby so represents and warrants to NMSSI, and the representations and warranties of the NMS Parties in Section 5 of the Purchase Agreement are hereby incorporated by reference, and NMSSI hereby so represents and warrants to each Company. The provisions of Section 6 of the Purchase Agreement shall also be applicable to any Paired Shares delivered to NMSSI under this Agreement. Section 3 Settlement. 3.1 Settlement Sale. On any Reset Date of the type referred to in clause (i) of the definition of Reset Date, on any Exchange Trading Day that is one month or two months following such a Reset Date or on any other Exchange Trading Day (in each case, if other than such a Reset Date, the related Settlement (as defined below) will include standard market interest breakage fees), up to and including the Maturity Date, the Companies may give telephonic notice to NMSSI to settle, and NMSSI shall settle, in a commercially reasonable manner (which may require sales over a period of more than 1 day), all or a portion of the Notional Shares to be settled on the related Settlement Date or Dates, as specified by the Companies ("Settlement"), through sale of not less than the number of Paired Shares, the sale of which would result in a Settlement Amount equal to 100% of the Reference Amount on the Settlement Date, and not more than the number of Paired Shares, the sale of which would result in a Settlement Amount equal, to 105% of the Reference Amount on the Settlement Date, in any of the manners set forth below, as selected by the Companies: (i) an Underwritten Secondary Offering (for which the Companies shall provide at least 21 Business Days prior notice to NMSSI); (ii) a Block Sale (for which the Companies shall provide at least 3 Business Days prior notice to NMSSI); (iii) a Gradual Market Distribution (for which the Companies shall provide at least 1 Business Day prior notice to NMSSI); (iv) a VWAP Sale (for which the Companies shall provide at least 1 Business Day prior notice to NMSSI); (v) a DRIP Distribution (for which the Companies shall provide at least 39 1 Business Day prior notice to NMSSI); or (vi) a Pooled Underwritten Secondary Offering (for which the Companies shall provide at least 21 Business Day prior notice to NMSSI). If the Companies do not specify a manner of sale, a Gradual Market Distribution shall be used. If the Paired Shares delivered by the Companies to NMSSI pursuant to the Purchase Agreement and this Agreement are not, on the applicable trade date, the subject of an Effective Resale Registration Statement (as defined in Section 6.3), the Companies may not select a VWAP Sale as the manner of Settlement. The number of shares sold as part of a VWAP Sale on any Trade Date shall not be less than 20% of the six-month daily average trading volume of the Paired Shares as calculated by the Calculation Agent and shall not exceed 40% of the six-month daily average trading volume of the Paired Shares as calculated by the Calculation Agent, unless both parties agree otherwise prior to the execution of any trades in connection with such VWAP Sale. In connection with any Underwritten Secondary Offering or Block Sale, NMS shall be the sole manager and underwriter. In connection with a Pooled Underwritten Secondary Offering, NMSSI and NMS may, in their discretion, elect to (a) participate in such offering as a first-tier co-manager on the same terms as all other first-tier co-managers or (b) receive the Pooling Exit Fee; provided, however, that regardless of the election of NMSSI and NMS, all of the Notional Shares shall be included in the Pooled Underwritten Secondary Offering. Settlement procedures shall begin as soon as commercially practicable, as determined by NMSSI, after NMSSI receives notice from the Companies and no later than the first Exchange Trading Day after expiration of the notice period unless otherwise agreed by the Companies and NMSSI. At such time as the Companies deliver notice pursuant to this Section 3.1, the Companies may direct NMSSI to sell not less than the number of Paired Shares equal to the number of Settlement Shares, and NMSSI shall comply with such direction in a commercially reasonable manner. In connection with a Gradual Market Distribution, there shall be a separate Settlement Date for each Trade Date. Final Settlement shall occur no later than the Maturity Date. However, if the Companies have not given NMSSI notice to settle by the Maturity Date, then NMSSI shall settle the Notional Shares using a Gradual Market Distribution to begin as soon as commercially practicable, as determined by NMSSI, on or after the Maturity Date. 3.2 Settlement. (a) If, on a Settlement Date, the Settlement Amount is greater than the Reference Amount, NMSSI, on such Settlement Date, will pay the Companies an amount in cash or Paired Shares (valued at the Closing Price on the Trade Date), at the election of the Companies, equal to the difference. (b) If the number of Paired Shares sold by NMSSI pursuant to Section 3.1 is 40 greater than the number of Settlement Shares, the Companies shall deliver to NMSSI, on the Settlement Date, a number of Paired Shares equal to the difference. If the number of Paired Shares sold by NMSSI pursuant to Section 3.1 is less than the number of Settlement Shares, NMSSI shall deliver to the Companies, on the Settlement Date, a number of Paired Shares equal to the difference. (c) In all events, NMSSI will pay to the Companies an amount equal to all cash distributions payable to NMSSI but not paid prior to the Settlement Date, on a number of Paired Shares equal to the Settlement Shares on the Business Day after the relevant distribution payment date declared by the Board of Directors of the REIT and OPCO. (d) If NMSSI, in connection with any Settlement, receives net sales proceeds, as calculated pursuant to the definition of Settlement Amount, from the sale of Paired Shares prior to the applicable Settlement Date, NMSSI, on the Settlement Date, shall pay the Companies an amount in cash representing interest that could have been earned on such net sales proceeds at the USD LIBOR rate having a designated maturity of three months, plus Spread, for the period from the date that such net sales proceeds are received by NMSSI until such Settlement Date. 3.3 Gross Share Settlement. (a) The Companies may elect, in their sole discretion, to settle all or any portion of the then outstanding Notional Shares by delivering Paired Shares in exchange for such number of Notional Shares (a "Gross Share Settlement"). The Companies may effect a Gross Share Settlement by delivering a written notice (the "Gross Settlement Notice") to NMSSI indicating the date of such Gross Share Settlement and the number of then outstanding Notional Shares subject to such Gross Share Settlement; provided that such notice must be accompanied by a notice pursuant to Section 3.1 to effect settlement of all Paired Shares delivered pursuant to this Section 3.3(a). To effect a Gross Share Settlement, NMSSI Shall deliver to the Companies the number of Notional Shares subject to such Gross Share Settlement ("Gross Settlement Shares") against delivery by the Companies to NMSSI of a number of Paired Shares equal to the product of (i) the number of Gross Settlement Shares and (ii) the quotient obtained by dividing (A) the Reference Price by (B) the Closing Price, in each case, on the Reset Date for such Gross Settlement Shares. The deliveries set forth in the immediately preceding sentence shall be made on the Exchange Trading Day immediately following the date on which the Gross Settlement Notice is delivered. All Paired Shares delivered to the Companies by NMSSI as part of a Gross Share Settlement shall be immediately retired and shall cease to be issued and outstanding Paired Shares. (b) For purposes of the Settlement of the Paired Shares delivered to NMSSI 41 pursuant to Section 3.3(a), the Settlement Shares shall be deemed to be equal to the Gross Settlement Shares, provided that for purposes of Section 3.2(b), the Settlement Shares shall be deemed to be equal to the Paired Shares so delivered to NMSSI pursuant to Section 3.3(a), and provided further that, for purposes of Section 3.2(c), with respect to any distribution payable to NMSSI but not paid prior to the Settlement Date for which the record date occurs after the date on which the Gross Settlement Notice is delivered, the Settlement Shares shall be deemed to be equal to the Paired Shares delivered to NMSSI pursuant to Section 3.3(a). (c) The amount of any distribution referred to in clause (i) of the definition of Distribution Amount for which the record date occurs after a Gross Share Settlement with respect to the Paired Shares delivered to NMSSI pursuant to Section 3.3 shall be multiplied by the quotient obtained in clause (ii) of Section 3.3(a). Section 4 Price Decline Termination Event. 4.1 Price Decline Termination Event Sale. If the Closing Price on any Exchange Trading Day falls below any Termination Price listed in the following schedule ("Price Decline Termination Event"), NMSSI will, at its discretion, in a commercially reasonable manner (which may require sales over a period of more than 1 day) following notice to the Companies, settle the percentage of the Notional Shares indicated in the table below ("Settlement") through sale of not less than the number of Paired Shares, the sale of which would result in a Settlement Amount equal to 100% of the Reference Amount on the Settlement Date, and not more than the number of Paired Shares, the sale of which would result in a Settlement Amount equal to 105% of the Reference Amount on the Settlement Date, in any of the manners specified in Section 3.1, as specified by the Companies: Percentage of Initial Notional Shares to be Settled Termination Price --------------------- ----------------- 25% $37.7125 50% $35.0188 75% $33.6719 100% $32.3250 42 Settlement procedures shall commence on the date specified by NMSSI. 4.2 Price Decline Termination Event Settlement. (a) If, on the Settlement Date, the Settlement Amount is greater than the Reference Amount, NMSSI, on the Settlement Date, will pay the Companies an amount in cash or Paired Shares (valued at the Closing Price on the Trade Date), at the election of the Companies, equal to the difference. (b) If the number of Paired Shares sold by NMSSI pursuant to Section 4.1 is greater than the number of Settlement Shares, the Companies shall deliver to NMSSI, on the Settlement Date, a number of Paired Shares equal to the difference. If the number of Paired Shares sold by NMSSI pursuant to Section 4.1 is less than the number of Settlement Shares, NMSSI shall deliver to the Companies, on the Settlement Date, a number of Paired Shares equal to the difference. (c) In all events, NMSSI will pay to the Companies an amount equal to all cash distributions payable to NMSSI but not paid prior to the Settlement Date, on a number of Paired Shares equal to the Settlement Shares on the Business Day after the relevant distribution payment date declared by the Boards of Directors of the REIT and OPCO. (d) If NMSSI, in connection with any Settlement, receives net sales proceeds, as calculated pursuant to the definition of Settlement Amount, from the sale of Paired Shares prior to the applicable Settlement Date, NMSSI, on the Settlement Date, shall pay the Companies an amount in cash representing interest that could have been earned on such net sales proceeds at the USD LIBOR rate having a designated maturity of three months, plus Spread, for the period from the date that such net sales proceeds are received by NMSSI until such Settlement Date. Section 5 Interim Settlements. Within 5 Business Days following each Reset Date of the type referred to in clause (i) of the definition of Reset Date, the Companies shall (i) deliver the Interim Settlement Amount, if any, in Interim Settlement Shares to NMSSI. Interim Settlement Shares shall be the subject of a registration statement covering any sale of such Interim Settlement Shares by NMSSI that has been declared effective under the Securities Act by the Commission (an "Effective Registration Statement"). Interim Settlement Shares shall be registered in the stock register of the Companies as instructed by NMSSI and shall be held by NMS or a custodian or depository designated by NMS. If the Companies are unable to deliver Interim Settlement Shares in accordance with the preceding sentence, the Companies shall deliver "restricted" Interim Settlement Shares that are not the subject 43 of an Effective Registration Statement in an amount equal to the Interim Settlement Amount. If the Interim Settlement Shares are not the subject of an Effective Registration Statement, the Companies shall deliver additional Interim Settlement Shares equal to 20% of the Interim Settlement Shares. At such time as the Interim Settlement Shares are the subject of an Effective Registration Statement, the Companies may elect to have returned all additional Interim Settlement Shares delivered pursuant to the preceding sentence. On any Reset Date, if Interim Settlement Shares are held by NMSSI, NMSSI shall deliver to the Companies within five (5) Business Days after such Reset Date, the amount in Interim Settlement Shares by which the amount in Interim Settlement Shares held by NMSSI (valued at the Closing Price on such Reset Date) plus any cash amounts in the collateral account exceeds the Interim Settlement Amount (or 120% of the Interim Settlement Amount, in the event that NMSSI holds restricted Interim Settlement Shares that are not the subject of an Effective Registration Statement). Distributions on the Interim Settlement Shares will be deposited in a collateral account at NMS or a custodian or depositary designated by NMS. All Interim Settlement Shares will be, when delivered, duly authorized, validly issued, fully paid and non-assessable. Interim Settlement Shares shall not be voted by NMSSI or NMS. All distributions received in respect of the Interim Settlement Shares shall be held in the collateral account at NMS or a depositary designated by NMS. The cash amounts in the collateral account will be immediately returned to the Companies by NMSSI, but should NMSSI fail to return any cash amounts in the collateral account, such cash amounts will earn interest at the USD LIBOR rate having a designated maturity of three months. Upon final Settlement, NMSSI shall immediately release all claims to cash held in the collateral account, if any (including interest earned thereon), and Interim Settlement Shares and deliver such amounts and all Interim Settlement Shares to the Companies. Section 6 Certain Covenants and Other Provisions. 6.1 Par Value. NMSSI shall pay to the Companies $.01 par value per share for each share comprising a Paired Share delivered to NMSSI pursuant to this Agreement, including any Interim Settlement Shares. 44 6.2 Allocation of Payment and Deliveries As between the REIT and OPCO, any delivery of, or payments attributable to, the REIT portion of Paired Shares pursuant to this Agreement shall be made to or by the REIT, and any delivery of, or payments attributable to, the OPCO portion of Paired Shares pursuant to this Agreement shall be made to or by OPCO. When making any payment to the Companies pursuant to this Agreement, NMSSI shall allocate such payment between the REIT and OPCO in the manner specified by the Companies. 6.3 Resale Registration Statement. The Companies shall file a resale registration statement covering any resales of Paired Shares delivered by the Companies to NMSSI pursuant to this Agreement and the Purchase Agreement (a "Resale Registration Statement") within 45 Business Days of the Closing Date and the Companies shall use their best efforts to obtain effectiveness of such Resale Registration Statement within 90 Business Days of the Closing Date. If the Paired Shares delivered by the Companies to NMSSI pursuant to the Purchase Agreement are not the subject of a Resale Registration Statement that has been declared effective under the Securities Act by the Commission (an "Effective Resale Registration Statement") within 90 Business Days of the Closing Date, the Spread shall increase, retroactively effective commencing on the Initial Settlement Date, to the Spread plus 125 basis points. At such time as the Purchase Shares are the subject of an Effective Resale Registration Statement, the Spread shall be reduced, from and after such time, to the Spread. The Companies further agree that they will cause any Resale Registration Statement to remain in effect until the earliest of the date on which (i) the Notional Shares plus all of the Interim Settlement Shares and any other Paired Shares delivered by the Companies to NMSSI pursuant this Agreement have been sold by or on behalf of NMSSI, or (ii) NMSSI has advised the Companies that it no longer requires that such registration be effective. The provisions of Section 5.2 and Section 7.2 of the Purchase Agreement shall be deemed to apply to any Resale Registration Statement filed by the Companies pursuant to this Agreement. 6.4 Delivery of Paired Shares. Each Company covenants and agrees with NMSSI that Paired Shares delivered by the Companies pursuant to settlement events in accordance herewith will be duly authorized, validly issued, fully paid and nonassessable. The issuance of such Paired Shares will not require the consent, approval, authorization, registration, or qualification of any government authority, except such as shall have been obtained on or before the delivery date to NMSSI in connection with any registration statement filed with respect to any Paired Shares. Each party agrees that the Companies shall not deliver Paired Shares to NMSSI or any other person in connection with an Interim Settlement or the final 45 Settlement until such time as such delivery would not cause NMSSI or any other person to violate the "Ownership Limit" set forth in the Amended and Restated Declaration of Trust of the REIT or the Articles of Amendment and Restatement of OPCO, in each case, as in effect on the date hereof. 6.5 Securities Law Compliance. Each party agrees that it will comply, in connection with this Transaction and all related or contemporaneous sales and purchases of the Companies' Paired Shares, with the applicable provisions of the Securities Act, the Exchange Act and the rules and regulations thereunder. 6.6 Regulatory Compliance. Each party agrees that if the delivery of Paired Shares upon settlement is subject to any restriction imposed by a regulatory authority, it shall not be an event of default, and the parties will negotiate in good faith a procedure to effect settlement of such Paired Shares in a manner which complies with any relevant rules of such regulatory authority and which is satisfactory in form and substance to their respective counsel, subject to Section 6.2 of this Agreement and Section 7 of the Purchase Agreement. Each party further agrees that any sale pursuant to Section 3.1 may be delayed or postponed if, in NMSSI's reasonable judgement, such delay or postponement is necessary to comply with the requirements of applicable law or regulation; provided, however, that NMSSI will act in good faith to end such delay or postponement or otherwise effect such sale on a reasonably timely basis in a manner which complies with any such applicable law or regulation and which is satisfactory in form and substance to its respective counsel. 6.7 Settlement Transfer. All settlements shall occur through DTC or any other mutually acceptable depository. 6.8 Trading Authorization. The following individuals and/or any individual authorized in writing by the respective officers of the Companies are authorized by the Companies to provide trading instructions to NMSSI with regard to this transaction: 46 Ronald C. Brown 2231 E. Camelback Road Suite 410 Phoenix, Arizona 85016 and Richard Smith 2231 E. Camelback Road Suite 400 Phoenix, Arizona 85016 6.9 Specific Performance. The parties acknowledge and agree that the failure of the Companies or NMSSI to deliver Paired Shares in accordance with the provisions hereof would result in damage to the other party that could not be adequately compensated by a monetary award. The parties therefore agree that, if either party fails to deliver Paired Shares in accordance with the provisions hereof, the other party may, in addition to all other remedies, seek an order of specific performance from a court of appropriate jurisdiction. 6.10 Recourse. NMSSI acknowledges and agrees that the name "Starwood Hotels & Resorts" is a designation of the REIT and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated as of June 6, 1988, as further amended on February 1, 1995, on June 19, 1995, January 2, 1998 and February 23, 1998 and as the same may be further amended from time to time, and all persons dealing with the REIT shall look solely to REIT's assets for the enforcement of any claims against the REIT, as the Trustees, officers, agents and security holders of the REIT assume no personal liability for obligations entered into on behalf of the REIT, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 6.11 Successors and Assigns. The Companies or NMSSI may assign any of their respective rights, or delegate any of their respective duties under this Agreement, if the other party first consents to such assignment in writing. This Agreement shall inure to the benefit of and be binding upon (i) the successors of NMSSI and (ii) any assignee or transferee of rights and obligations of the NMS Parties pursuant to the Purchase Agreement and any assignee or transferee of rights and obligations of NMSSI pursuant to this Agreement. A transferee of the NMS Parties pursuant to the Purchase Agreement and a transferee of NMSSI pursuant to this Agreement, and, in each case, any successor, assignee, or transferee, shall be held subject to all of the terms of this Agreement. 47 6.12 Transfer to Affiliate. Notwithstanding anything herein to the contrary, if NMSSI transfers the Purchase Shares to any affiliate of NMSSI, together with all of NMSSI's rights under the Purchase Agreement pursuant to Section 15 of the Purchase Agreement, then NMSSI's rights and obligations under this Agreement shall be transferred to such affiliate of NMSSI. In the event of such an assignment, such affiliate shall in all respects be substituted for NMSSI as a party hereto. 6.13 Governing Law. The Agreement will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine. 6.14 Confidentiality. Subject to the other applicable subsections of this Section 6, to any contrary requirement of law, including any disclosure obligations of the Companies under the Securities Act, the Exchange Act and the rules and regulations thereunder, and to the right of each party to enforce its rights hereunder in any legal action, each party shall keep strictly confidential and shall cause its employees and agents to keep strictly confidential the terms of this Agreement and any information relating to or concerning the other party which it or any of its agents or employees may acquire pursuant to, or in the course of performing its obligation under, any provision of this Agreement. 48 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. By:__________________________________ Name: Title: STARWOOD HOTELS & RESORTS By:__________________________________ Name: Title: NMS SERVICES, INC. By:__________________________________ Name: Title: NATIONSBANC MONTGOMERY SECURITIES LLC By:__________________________________ Name: Title: EX-10.70 44 EX-10.70 1 Exhibit 10.70 EXECUTION COPY PURCHASE AGREEMENT THIS PURCHASE AGREEMENT is made as of the 23rd day of February, 1998, by and among Starwood Hotels & Resorts (the "REIT"), a Maryland real estate investment trust, Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the "OPCO") (the REIT and the OPCO, each a "Company" and together the "Companies"), Merrill Lynch International ("MLI"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated, on behalf of itself and as agent acting for the account of MLI ("Merrill Lynch" and, collectively with MLI, the "Merrill Lynch Parties"). IN CONSIDERATION of the mutual covenants contained in this Purchase Agreement, the Companies and the Merrill Lynch Parties hereby agree as follows: SECTION 1. Authorization of Sale of the Shares. Subject to the terms and conditions of this Purchase Agreement, the REIT has authorized the sale to the Merrill Lynch Parties of 1,547,000 shares of beneficial interest, $.01 par value per share, of the REIT (the "REIT Shares") and the OPCO has authorized the sale to the Merrill Lynch Parties of 1,547,000 shares of common stock, $.01 par value per share, of the OPCO (the "OPCO Shares"), which REIT Shares and OPCO Shares are paired as a unit consisting of one (1) REIT Share and one (1) OPCO Share (hereinafter each such paired unit is referred to as a "Paired Share") and the Paired Shares referred to in this sentence are herein called the "Purchase Shares"). In addition, the REIT and the OPCO may issue to MLI additional Paired Shares in settlement of certain of their obligations under that certain Agreement (the "Agreement"), dated as of the date hereof, between the REIT, the OPCO and MLI (the "Additional Shares"). The Paired Shares and the Additional Shares are hereinafter collectively called the "Shares." SECTION 2. Agreement to Sell and Purchase the Purchase Shares. Subject to the terms and conditions of this Purchase Agreement, on the Closing Date (as defined in Section 3 hereof), the Companies will sell to the Merrill Lynch Parties the Purchase Shares for a per Paired Share purchase price equal to 98.00% of the Closing Price. The "Closing Price" shall equal the closing price reported on the New York Stock Exchange for a Paired Share on February 23, 1998. SECTION 3. Delivery of the Purchase Shares at the Closing. 3.1. Closing. The completion of the purchase and sale of the Purchase Shares (the "Closing") shall occur as soon as practicable on or after the date hereof on a business day to be agreed upon by the Companies and the Merrill Lynch Parties, but in no event later than five business days after the execution of this Purchase Agreement (hereinafter, the "Closing Date"). 2 3.2. Conditions. At Closing, the Companies shall deliver to the Merrill Lynch Parties one or more stock certificates registered in the name of MLI representing the number of Purchase Shares set forth in Section 2 above. The obligation of the Companies to complete the purchase and sale of the Purchase Shares and deliver such stock certificate(s) to the Merrill Lynch Parties at the Closing shall be subject to the following conditions, any one or more of which may be waived by both of the Companies acting together: (i) receipt by the Companies of Federal Funds (or other mutually agreed upon form of payment) in the full amount of the purchase price for the Purchase Shares being purchased hereunder, (ii) the accuracy in all material respects as of the Closing Date, of the representations and warranties made by the Merrill Lynch Parties herein and the fulfillment, in all material respects, of those undertakings of the Merrill Lynch Parties to be fulfilled prior to the Closing, (iii) execution and delivery of the Agreement by MLI, (iv) receipt by the Companies of a cross-receipt with respect to the Purchase Shares executed by Merrill Lynch and (v) receipt by the Companies of a certificate by an officer or authorized representative of Merrill Lynch to the effect that the representations and warranties of the Merrill Lynch Parties set forth in Section 5 hereof are true and correct as of the date of this Purchase Agreement and as of the Closing Date. The Merrill Lynch Parties' obligation to accept delivery of such stock certificate(s) and to pay for the Purchase Shares evidenced thereby shall be subject to the following conditions, any one or more of which may be waived by the Merrill Lynch Parties: (i) the accuracy in all material respects, as of the Closing Date, of the representations and warranties made by the Companies herein and the fulfillment, in all material respects, of those undertakings of the Companies to be fulfilled prior to the Closing, (ii) receipt by the Merrill Lynch Parties of all opinions, letters and certificates to be delivered by the Companies pursuant to this Purchase Agreement, (iii) execution and delivery of the Agreement by each of the Companies, and (iv) receipt by the Merrill Lynch Parties of a cross-receipt with respect to the purchase price for the Purchase Shares executed by the Companies. SECTION 4. Representations, Warranties and Covenants of the Companies. Except as disclosed in the Companies' SEC Filings (as defined below), each of the REIT and the OPCO, severally and not jointly, hereby represents and warrants to the Merrill Lynch Parties, and covenants with the Merrill Lynch Parties, with respect to such Company and its Subsidiaries (as defined below) only, as follows: 4.1. Organization and Qualification of the Companies. Each of the REIT and the OPCO has been duly organized and is validly existing in good standing under the laws of Maryland with power and authority to own and lease its properties and to conduct its business as currently conducted. Each of the REIT and the OPCO is duly qualified to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing or 3 managing of property or the conduct of business, except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings, assets, business affairs or business prospects of the Companies and the Subsidiaries of the Companies considered as one enterprise (a "Material Adverse Effect"). Entities in which either of the Companies directly or indirectly has at least a 50% ownership interest are herein referred to as the "Subsidiaries," and each individually, as a "Subsidiary." 4.2. Organization and Qualification of Subsidiaries. Each of the Subsidiaries has been duly organized and is validly existing as a corporation, limited partnership, or limited liability company, as the case may be, in good standing under the laws of its respective jurisdiction of organization, with full power and authority to own, lease and operate its properties and to conduct the business in which it currently is engaged. Each of the Subsidiaries is duly qualified as a foreign corporation, limited partnership, or limited liability company, as the case may be, to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify would not have a Material Adverse Effect. All of the issued and outstanding shares of capital stock of each of the corporate Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable. The ownership by the Companies or the Subsidiaries of the shares of capital stock or limited partnership or equity interests, as the case may be, of each of the Subsidiaries is as described in the Companies' SEC Filings. 4.3. Authorized Capital Stock. The REIT has the following authorized shares:1,000,000,000 REIT shares par value $0.01 per share, 200,000,000 excess shares of beneficial interest, par value $.01 per share, 100,000,000 shares of trust preferred shares, par value $.01 per share, and 50,000,000 shares of excess preferred stock, par value $0.01 per share. The OPCO has the following authorized shares: 1,000,000,000 OPCO shares, par value $0.01 per share, 200,000,000 shares of preferred stock, par value $0.01 per share, 50,000,000 shares of excess common stock, par value $0.01 per share and 100,000,000 shares of excess preferred shares, par value $0.01 per share. As of January 20, 1998, there were 55,392,389 Paired Shares, 6,285,765 Class A Exchangeable Preferred Shares of the Trust and 5,502,711 Class B Exchangeable Preferred Shares of the Trust outstanding, and 21,292,005 REIT shares and 21,292,005 OPCO shares were reserved for issuance. The issued and outstanding Paired Shares of the Companies have been duly authorized and validly issued, are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and conform to the description thereof in the Companies' SEC Filings. Other than as described in the Companies' SEC Filings, the REIT does not have outstanding any options to purchase, or other rights to subscribe for or purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. The description of the 4 Companies' stock, stock bonus and other stock plans or arrangements and the options or other rights granted and exercised thereunder in the Companies' SEC Filings accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. 4.4. Issuance, Sale and Delivery of the Shares. The Purchase Shares to be sold by the Companies have been duly authorized for issuance and, when issued, delivered and paid for in the manner set forth in this Purchase Agreement, will be validly issued, fully paid and non-assessable. The Additional Shares, if and when issued pursuant to the Agreement, have been duly authorized and will be validly issued, fully paid and non-assessable. Upon payment of the purchase price and delivery of the Shares in accordance with this Purchase Agreement, MLI will receive good, valid and marketable title to the Shares, free and clear of all security interests, mortgages, pledges, liens, encumbrances and claims. No approval of or authorization by the respective shareholders or boards of trustees or directors of the Companies will be required for the issuance and/or sale of the Shares to be sold by the Companies as contemplated herein or in the Agreement, except such as shall have been obtained on or before the Closing Date or the applicable Settlement Date. The issuance and/or sale of the Shares to the Merrill Lynch Parties by the Companies pursuant to this Purchase Agreement or the Agreement (as the case may be), the compliance by the Companies with the other provisions of this Purchase Agreement or the Agreement and the consummation of the other transactions contemplated hereby or thereby do not require the consent, approval, authorization, registration or qualification of or with any court, governmental authority or agency, except such as shall have been obtained on or before the Closing Date or in connection with any Resale Registration Statement filed with respect to any of the Shares. The Companies meet and will continue to meet the requirements for use of Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations of the U.S. Securities and Exchange Commission (the "Commission") under the Securities Act (the "1933 Act Regulations"). The Companies have filed and will file all documents which they are required to file under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations promulgated thereunder (the "1934 Act Regulations") within the time periods prescribed by the Exchange Act and the 1934 Act Regulations since December 31, 1996 and all such documents (collectively, together with the Companies' registration statements filed under the Securities Act which have been declared effective since January 1, 1997 and have not been withdrawn, the "Companies' SEC Filings") comply and will comply in all material respects with the requirements of the Exchange Act and the 1934 Act Regulations, as applicable, and none of such documents, when so filed, contained or will contain any untrue statement of a material fact or omitted or will omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. No Resale Registration Statement filed in respect of any of the Shares, when so filed, contained or will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. 5 4.5. Due Execution, Delivery and Performance by the Company. Each of the Companies has full right, power and authority to enter into this Purchase Agreement and the Agreement and perform the transactions contemplated hereby and thereby. This Purchase Agreement and the Agreement have been duly authorized, executed and delivered by each of the Companies. The execution and delivery of the Purchase Agreement and the Agreement by each of the Companies and the consummation of the transactions and the performance of the obligations herein and therein contemplated will not violate any provision of the declaration of trust, certificate of incorporation, bylaws, or other organizational documents of either of the Companies, and will not conflict with, result in the breach or violation of, or constitute, either by itself or upon notice or the passage of time or both, a default under any material agreement, mortgage, deed of trust, credit agreement, lease, franchise, license, indenture, note, permit or other instrument to which either Company is a party or by which either Company or its respective properties may be bound or affected, any statute or any authorization, judgment, decree, order, rule or regulation of any court or any regulatory body, administrative agency or other governmental body applicable to either Company or any of its respective properties other than violations, conflicts, breaches or defaults that individually or in the aggregate would not have a Material Adverse Effect. No consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body is required for the execution and delivery of this Purchase Agreement, the Agreement or the consummation of the transactions contemplated hereby or thereby, except in connection with the filing of any Resale Registration Statements pursuant to Section 7 below or for compliance with the blue sky laws applicable to the offering of the Shares. 4.6. Accountants. The Companies' independent certified public accountants, who have expressed their opinion with respect to the Most Recent Financial Statements (as defined below) are independent accountants as required by the Securities Act and the 1933 Act Regulations. 4.7. No Defaults. Except as to defaults, violations and breaches which individually or in the aggregate would not have a Material Adverse Effect, neither of the Companies nor any of their respective Subsidiaries is in violation or default of any provision of its declaration of trust, certificate of incorporation or bylaws, or other organizational documents, and is not in breach of or default with respect to any provision of any agreement, judgment, decree, order, mortgage, deed of trust, credit agreement, lease, franchise, license, indenture, permit or other instrument to which it is a party or by which it or any of its properties are bound. 4.8. No Actions. There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of each Company, threatened against or affecting such Company or any of its Subsidiaries, any real property or improvements thereon owned or leased by such Company or its Subsidiaries, including any property underlying indebtedness held by 6 such Company (each, individually, a "Property" and collectively, the "Properties"), or any officer of such Company or any of its Subsidiaries that, if determined adversely to such Company or any Subsidiary, any Property, including any property underlying indebtedness held by such Company and any of its Subsidiaries, or any such officer, would reasonably be expected to (A) result in any Material Adverse Effect or (B) materially and adversely affect the consummation of the transactions contemplated by this Purchase Agreement or the Agreement. 4.9. Properties. (A) Each Company and its respective Subsidiaries, as the case may be, has good and marketable title to all the properties and assets reflected as owned by such entities in the Most Recent Financial Statements, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if any, reflected in the Most Recent Financial Statements, or (ii) those which would not have a Material Adverse Effect, (B) the leases of any real property and buildings held under lease by such Company or any of its Subsidiaries are in full force and effect, and such entities are not in default in respect of any of the terms or provisions of such leases and have not received notice of the assertion of any claim by anyone adverse to such entities' rights as lessee under such leases, or affecting or questioning such entity's right to the continued possession or use of the real property and buildings held under such leases or of a default under such leases, in each case with such exceptions as would not have a Material Adverse Effect; (C) neither Company nor any of its respective Subsidiaries or any tenant of any of the Properties is in default under any of the leases pursuant to which such Company or its Subsidiaries, as lessor, leases its Property (and to the best knowledge of such Company no event has occurred which, but for the passage of time or the giving of notice, or both, would constitute a default under any of such leases) other than such defaults that would not have a Material Adverse Effect; (D) no person has an option or right of first refusal to purchase all or part of any Property or any interest therein, other than such options or rights of first refusal which would not have a Material Adverse Effect; (E) each of the Properties complies with all applicable codes, laws and regulations (including, without limitation, building and zoning codes, laws and regulations and laws relating to access to the Properties), except for such failures to comply that would not individually or in the aggregate have a Material Adverse Effect; and (F) neither Company has knowledge of any pending or threatened condemnation proceedings, zoning change, or other proceeding or action that will in any manner affect the size of, use of, improvements on, construction on or access to the Properties, including any property underlying indebtedness held by either Company or any of its respective Subsidiaries, except such proceedings or actions that would not have a Material Adverse Effect. 4.10. REIT Qualification. The REIT qualified as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the "Code"), with respect to its taxable years ended December 31, 1995, December 31, 1996 and December 31, 1997, and is organized in conformity with the requirements for qualification as a real estate investment trust, and its manner of operation has enabled it to meet the requirements for qualification as a real estate investment trust as of the date hereof, 7 and its proposed manner of operation will enable it to meet the requirements for qualification as a real estate investment trust in the future. 4.11. No Material Change. Since the date of the Most Recent Financial Statements, and except as otherwise disclosed in the Companies' SEC Filings as of the Closing Date, (i) no material casualty loss or material condemnation or other material adverse event with respect to any Property or any of the Subsidiaries, has occurred that would singly or in the aggregate have a Material Adverse Effect; (ii) neither of the Companies, nor any of their respective Subsidiaries is in default in the payment of principal or interest on any outstanding debt obligations; (iii) except as a result of (a) the Companies' acquisition of Westin Hotels & Resorts Worldwide, Inc. and certain affiliates and the related financing transactions and (b) the OPCO's acquisition of ITT Corporation and the related financing transactions, there has not been any change in the capital stock of either Company or the Subsidiaries (other than the sale of the Purchase Shares hereunder or those reserved for issuance pursuant to the Agreement, issuances pursuant to the incentive compensation plans of the Companies), or any increase in the indebtedness of either Company or their respective Subsidiaries that is material to such entities, considered as one enterprise; (iv) and except for regular quarterly distributions on the REIT Shares, there has been no dividend or distribution of any kind declared, paid or made by the REIT or the OPCO; and (v) there has not been any material adverse change in the condition, financial or otherwise, or in the earnings, assets, business affairs or business prospects of the Companies and the Subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business. 4.12. Intellectual Property. Neither of the Companies nor the Subsidiaries is required to own or possess trademarks, trade names, patent rights, copyrights, licenses, approvals and governmental authorizations, which it does not already own or possess to conduct its businesses as now conducted; and neither Company has knowledge of any material infringement by it of trademark, trade name rights, patent rights, copyrights, licenses, trade secrets or other similar rights of others, and has not received any notice that any claim has been made against such Company regarding trademark, trade name, patent, copyright, license, trade secrets or other infringement that would not singly or in the aggregate have a Material Adverse Effect. 4.13. Compliance. Neither Company has been advised, or has reason to believe, that it is not conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, except where failure to be so in compliance will not have a Material Adverse Effect. 4.14. Taxes. Each of the Companies and its Subsidiaries have filed all material federal, state and foreign income and franchise tax returns which have been required to be filed and has paid or accrued all taxes shown as due thereon (except for those taxes which are being contested in good faith through appropriate proceeding, for which adequate reserves have been established and which are either reflected in the Most Recent Financial Statements or disclosed by the Companies to the Merrill Lynch 8 Parties), and neither Company has any knowledge of any tax deficiency which has been or might be asserted or threatened against such Company and its Subsidiaries which would singly or in the aggregate have a Material Adverse Effect. 4.15. Transfer Taxes. On the Closing Date, all stock transfer or other taxes, if any (other than income taxes) which are required to be paid in connection with the sale and transfer of the Purchase Shares to be sold to the Merrill Lynch Parties hereunder will be, or will have been, fully paid or provided for by the Companies and all laws imposing such taxes will be or will have been fully complied with. 4.16. Investment Company. Neither of the Companies nor any of their Subsidiaries is required to register as an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 4.17. Offering Materials. Neither the REIT nor the OPCO has distributed nor will distribute prior to the Closing Date any offering material in connection with the offering and sale of the Purchase Shares other than the documents and information provided to the Merrill Lynch Parties pursuant to this Section 4. 4.18. Additional Information. Each of the Companies represents and warrants that the information contained in the following documents, which the Companies have furnished to the Merrill Lynch Parties, or will be furnished or made available upon request prior to the Closing, is true and correct in all material respects as of their respective filing dates: (a) Joint Annual Report on Form 10-K for the year ended December 31, 1996, which Joint Annual Report includes the Companies' most recently available audited financial statements together with the report thereon of the independent certified public accountants (the "Most Recent Financial Statements"), (b) Joint Quarterly Reports on Form 10-Q, as amended if applicable, for the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997; (c) the Companies' proxy statements on Form 14A relating to (i) the most recent Annual Meetings of the REIT's Shareholders and the OPCO's Shareholders and (ii) the Special Meetings of the REIT's Shareholders and the OPCO's Shareholders which occurred during the 12 month period prior to the date hereof or for which a meeting date has been fixed and a proxy statement distributed; (d) all other documents, if any, filed by or with respect to the REIT and the OPCO with the Commission since January 1, 1997 pursuant to Section 13, 15(d) or 16(a) of the Exchange Act; and 9 (e) covenant compliance certificates stating that none of the REIT, the OPCO or their respective Subsidiaries are in default under any of their respective credit agreements or other financing arrangements. 4.19. Legal Opinion. At or prior to the Closing, counsel to the Companies will deliver their legal opinions dated the Closing Date to the Merrill Lynch Parties in substantially the form of Exhibit A hereto. 4.20. ERISA. Each of the Companies and their respective Subsidiaries are in compliance with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended and the rules and regulations promulgated thereunder ("ERISA"), except for such failures to comply as will not have a Material Adverse Effect. Neither a Reportable Event (as defined under ERISA) nor a Prohibited Transaction (as defined under ERISA) has occurred with respect to any Plan (as defined below) of the Companies and/or their respective affiliates; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated within the past five years; to the Companies' knowledge, no circumstance exists which constitutes grounds under Section 402 of ERISA entitling the Pension Benefit Guaranty Corporation ("PBGC") to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; neither Company nor their respective affiliates has completely or partially withdrawn under Section 4201 or 4202 of ERISA from any Multiemployer Plan (as defined therein); each of the Companies and their respective affiliates have met the minimum funding requirements of Section 412 of the Code and Section 302 of ERISA with respect to each Plan and there is no unfunded current liability (as defined below) with respect to any Plan; each of the Companies and their respective affiliates have not incurred any liability to the PBGC under ERISA (other than for the payment of premiums under Section 4007 of ERISA); no part of the funds to be used by the Companies in satisfaction of their respective obligations under this Purchase Agreement or the Agreement constitute "plan assets" of any "employee benefit plan" within the meaning of ERISA or of any "plan" within the meaning of Section 4957(e)(I) of the Code, as interpreted by the Internal Revenue Service and the U.S. Department of Labor in rules, regulations, releases and bulletins or as interpreted under applicable case law. As used below, "Plan" means an "employee benefit plan" or "plan" as described in Section 3(3) of ERISA; and "unfunded current liability" has the meaning provided in Section 302(d)(8)(A) of ERISA. 4.21. Environmental Protection. Except as otherwise disclosed in the Companies' SEC Filings and except for such exceptions as would not singly or in the aggregate have a Material Adverse Effect, none of the REIT's or the OPCO's or their respective affiliates' properties contain any Hazardous Materials that, under any Environmental Law, (i) would impose liability on such Company or any affiliate that is likely to have a Material Adverse Effect or (ii) is likely to result in the imposition of a lien on any material asset owned, directly or indirectly, by such Company. Neither Company nor any affiliate is subject to any existing, pending or, to the best knowledge 10 of each Company, threatened investigation or proceeding by any governmental agency or authority with respect to pursuant to any Environmental law, except any which, if adversely determined, would not have a Material Adverse Effect. As used herein, "Environmental Laws" mean all federal, state, local and foreign environmental, health and safety laws, codes and ordinances and all rules and regulations promulgated thereunder, including, without limitation laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, solid, toxic or hazardous substances or wastes; and "Hazardous Material" includes, without limitation, (i) all substances which are designated pursuant to Section 311(b)(2)(A) of the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C. Section 1251 et seq.; (ii) any element, compound, mixture, solution, or substance which is designated pursuant to Section 102 of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 et seq.; (iii) any hazardous waste having the characteristics which are identified under or listed pursuant to Section 3001 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901 et seq.; (iv) any toxic pollutant listed under Section 307(a) of the FWPCA; (v) any hazardous air pollutant which is listed under Section 112 of the Clean Air Act, 42 U.S.C. Section 7401 et seq.; (vi) any imminently hazardous chemical substance or mixture with respect to which action has been taken pursuant to Section 7 of the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; and (vii) petroleum, petroleum products, petroleum by-products, petroleum decomposition by-products, and waste oil. 4.22. Solvency. Immediately following (i) the execution of this Purchase Agreement and the Agreement, (ii) the purchase of the Purchase Shares pursuant hereto and (iii) the completion of any other transaction contemplated by this Purchase Agreement and the Agreement, each of the Companies will be solvent and able to pay its debts as they mature, will have capital sufficient to carry on its business and all businesses in which it is to engage, and will have assets which will have a present fair market valuation greater than the amount of all of its liabilities. This Purchase Agreement and the Agreement have been executed and delivered by the Companies in good faith and in exchange for reasonably equivalent value. Neither of the Companies intends to incur debts beyond its ability to pay them as they become due. Each of the Companies' assets and capital are now, and are expected in the future to be, sufficient to pay the Companies' ongoing expenses as they are incurred and to discharge all of the Companies' liabilities in the event that the business of the Companies is required to be liquidated. The Companies have not entered into this Purchase Agreement or the Agreement or any transaction contemplated hereby or thereby with an intent to hinder, delay or defraud creditors of any persons or entity. 4.23. Certificate. At or prior to the Closing, each Company shall deliver an officer's certificate to be dated the Closing Date in form and substance satisfactory 11 to the Merrill Lynch Parties to the effect that (i) the representations and warranties of such Company set forth in this Section 4 are true and correct in all material respects as of the date of this Purchase Agreement and as of the Closing Date and (ii) such Company has complied in all material respects with all the covenants and satisfied in all material respects all the conditions on its respective part to be performed or satisfied pursuant to this Purchase Agreement or the Agreement on or prior to such Closing Date. 4.24. Financial Statements. The Most Recent Financial Statements (including the notes thereto) present fairly in all material respects the financial position of the respective entity or entities presented therein at the respective dates indicated and the results of their operations for the respective periods specified, and except as otherwise stated in the Most Recent Financial Statements, said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis. The supporting schedules included in the Companies' SEC Filings fairly present in all material respects the information required to be stated therein. The financial information and data included in the Companies' SEC Filings present fairly in all material respects the information included therein and have been prepared on a basis consistent with that of the financial statements included in the Companies' SEC Filings and the books and records of the respective entities presented therein. The pro forma financial information included in the Companies' SEC Filings has been prepared in accordance with the applicable requirements of Rules 11-01 and 11-02 of Regulation S-X under the Securities Act and other 1933 Act Regulations and American Institute of Certified Public Accountants ("AICPA") guidelines with respect to pro forma financial information and includes all adjustments necessary to present fairly in all material respects the pro forma financial position of the respective entity or entities presented therein at the respective dates indicated and the results of their operations for the respective periods specified. Other than the historical and pro forma financial statements (and schedule) included therein, no other historical or pro forma financial statements (or schedules) are required to be included in the Companies' SEC Filings. Except as reflected or disclosed in the financial statements included in the Companies' SEC Filings, none of the Companies or any of the Subsidiaries is subject to any material indebtedness, obligation, or liability, contingent or otherwise. 4.25. Labor Disputes. No labor dispute with the employees of either of the Companies or their respective Subsidiaries exists or, to the knowledge of the such Company is imminent. 4.26. Regulation M. Each Company, its Subsidiaries and, to such Company's knowledge, any of their respective trustees, directors, executive officers or controlling persons, has not taken or will not take, directly or indirectly, any action resulting in a material violation of Regulation M under the Exchange Act, or designed to cause or result under the Exchange Act or otherwise in, or which has constituted or which reasonably might be expected to constitute, the unlawful stabilization or manipulation of the price of Paired Shares in connection with the public sale or 12 distribution of the Shares. SECTION 5. Representations, Warranties and Covenants of Merrill Lynch or MLI. 5.1. Investment. The Merrill Lynch Parties represent and warrant to, and covenants with each of the Companies that: (i) the Merrill Lynch Parties are knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in shares presenting an investment decision like that involved in the purchase of the Purchase Shares, including investments in securities issued by the Companies; (ii) MLI is acquiring the number of Purchase Shares set forth in Section 2 above in the ordinary course of its business and for its own account for investment (as defined for purposes of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the regulations thereunder) only and with no present intention of distributing any of such Purchase Shares or any arrangement or understanding with any other persons regarding the distribution of such Purchase Shares, except pursuant to a registration statement declared effective under, or an exemption from the registration requirements of, the Securities Act, (iii) neither Merrill Lynch Party will directly or indirectly, sell or otherwise dispose of (or solicit any offers to purchase or otherwise acquire) any of the Purchase Shares except in compliance with the Securities Act, the Rules and Regulations and any applicable state securities or blue sky laws; (iv) each Merrill Lynch Party has completed or caused to be completed the Registration Statement Questionnaire and the Stock Certificate Questionnaire, both attached hereto as Appendix I, for use in preparation of the Resale Registration Statement and the answers thereto are true and correct as of the date hereof and will be true and correct as of the effective date of the Resale Registration Statement; (v) the Merrill Lynch Parties have, in connection with their decision to purchase the number of Purchase Shares set forth in Section 2 above, relied solely upon the documents identified in Section 4.17, the information referred to in Section 7.7 and the representations and warranties of each of the Companies contained herein; (vi) the Merrill Lynch Parties have had access to such additional information, if any, concerning the Companies as they have considered necessary in connection with their investment decision to acquire the Purchase Shares; (vii) each of the Merrill Lynch Parties is an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D promulgated under the Securities Act; and (viii) the Merrill Lynch Parties understand that until the Shares are sold under an appropriate Resale Registration Statement that has been declared effective by the Commission, the Shares will contain a legend to the following effect: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL 13 REASONABLY SATISFACTORY TO THE COMPANIES THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. 5.2. Resale. The Merrill Lynch Parties acknowledge and agree that in connection with any transfer of any Shares they will provide to the transfer agent prompt notice of any Shares sold pursuant to a Resale Registration Statement or otherwise transferred in compliance with applicable federal and state securities laws. The Merrill Lynch Parties acknowledge that there may occasionally be times when, subject to the provisions of Section 7.2(a)(v), the Companies must suspend the right of the Merrill Lynch Parties to effect sales of the Shares through the use of the Resale Prospectus (as defined below) forming a part of a Resale Registration Statement until such time as an amendment to such Resale Registration Statement has been filed by the Companies and declared effective by the Commission, or until such time as the Companies have filed an appropriate report with the Commission pursuant to the Exchange Act (each, a "Black-out Period"); provided that no Black-out Period shall exceed 90 consecutive days. The Merrill Lynch Parties hereby covenant that they will not effect sales of any Shares pursuant to said Resale Prospectus during the period commencing at the time at which the Companies give the Merrill Lynch Parties written notice (which such notice shall have been given by the Companies as promptly as practicable) of the suspension of the use of said Resale Prospectus and ending at the time the Companies give the Merrill Lynch Parties written notice that the Merrill Lynch Parties may thereafter effect sales pursuant to said Resale Prospectus. The Merrill Lynch Parties further covenant to notify the Companies promptly of the sale of all of the Shares. 5.3. Due Execution, Delivery and Performance of this Purchase Agreement. The Merrill Lynch Parties further represent and warrant to, and covenant with, the Companies that (i) each Merrill Lynch Party has full right, power, authority and capacity to enter into this Purchase Agreement and the Agreement and to perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby and has taken all necessary action to authorize the execution, delivery and performance of this Purchase Agreement and the Agreement, and (ii) upon the execution and delivery of this Purchase Agreement and the Agreement, this Purchase Agreement and the Agreement shall constitute valid and binding obligations of the Merrill Lynch Parties enforceable against the Merrill Lynch Parties in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except that the enforcement of the indemnification agreements in Section 7.5 hereof may be limited by public policy. 5.4. Residence of Merrill Lynch. Merrill Lynch is organized in the State of Delaware and has its principal place of business in the State of New York. 14 5.5. Certain Tax Considerations. MLI represents and warrants that it is fully eligible for the benefits of the "Business Profits" or "Industrial and Commercial Profits" provision, as the case may be, the "Interest" provision or the "Other Income" provision (if any) of the 1975 United States-United Kingdom Income Tax Treaty with respect to any payment described in such provisions and received or to be received by it in connection with this Purchase Agreement and no such payment is attributable to a trade or business carried on by it through a permanent establishment in the United States. SECTION 6. Survival of Representations, Warranties and Agreements. Notwithstanding any investigation made by any party to this Purchase Agreement, all covenants, agreements, representations and warranties made by each of the Companies and the Merrill Lynch Parties herein shall survive the execution of this Purchase Agreement, the Agreement, the delivery to Merrill Lynch of the Purchased Shares being purchased and the payment therefor and the consummation of any other transactions contemplated hereby or thereby. SECTION 7. Registration of the Shares; Compliance with the Securities Act. 7.1. Registration Procedures and Expenses. The Companies shall: (a) within 45 days after the Closing, prepare and file with the Commission a Resale Registration Statement (as defined below) covering the resale by the Merrill Lynch Parties, from time to time, of a number of Shares equal to the number of Purchase Shares in any of the manners specified in the Agreement (the "Initial Resale Registration Statement") and use its best efforts to obtain effectiveness of the Initial Resale Registration Statement within 90 days after the Closing Date. If the total number of Shares exceeds the number of Shares covered by the Initial Resale Registration Statement, then the Companies shall promptly prepare and file with the Commission such additional Resale Registration Statement or Statements as shall be necessary to cover the resale by the Merrill Lynch Parties of such excess Shares in the same manner as contemplated by the Initial Registration Statement for the Shares covered thereby (each, an "Additional Resale Registration Statement"); provided that, except as provided for in Section 5 of the Agreement, prior to issuing any such excess Shares to the Merrill Lynch Parties, the Companies shall cause such Resale Registration Statement to have become effective. For purposes of this Purchase Agreement, "Resale Registration Statement" means the Initial Resale Registration Statement, 15 any Additional Resale Registration Statement or any other registration statement under the Securities Act on Form S-3 covering the resale by the Merrill Lynch Parties of up to a specified number of Shares, filed and maintained continuously effective by the Companies pursuant to the provisions of this Section 7, including the prospectus contained therein (the "Resale Prospectus"), any amendments and supplements to such registration statement, including all post- effective amendments thereto, and all exhibits and all material incorporated by reference into such registration statement; (b) use commercially reasonable best efforts to prevent the issuance of any order suspending the effectiveness of such Resale Registration Statement or Resale Prospectus or suspending the qualification (or exemption from qualification) of any of the Shares in any jurisdiction; (c) prepare and file with the Commission such amendments and supplements to each Resale Registration Statement and the Resale Prospectus as may be reasonably requested by the Merrill Lynch Parties in order to accomplish the public resale or other disposition of any Shares in accordance with the terms of the Agreement, or as may be necessary to keep such Resale Registration Statement effective until the date on which either (i) the Shares covered thereby have been sold by or on behalf of the Merrill Lynch Parties or (ii) the Merrill Lynch Parties have advised the Companies that they no longer require that such Resale Registration Statement remain effective; (d) furnish to the Merrill Lynch Parties with respect to the Shares registered under any Resale Registration Statement such reasonable number of copies of Resale Prospectuses, including any supplements and amendments thereto, in order to facilitate the public sale or other disposition of all or any of the Shares by the Merrill Lynch Parties; (e) in order to facilitate the public sale or other disposition of all or any of the Shares by the Merrill Lynch Parties, furnish to the Merrill Lynch Parties with respect to the Shares registered under any Resale Registration Statement, in connection with any such public sale or other disposition, an opinion of counsel to the Companies covering such matters as are customarily covered by legal opinions delivered in connection with secondary public offerings of equity 16 securities and such other documents as the Merrill Lynch Parties may reasonably request (including a comfort letter from the Companies' independent certified public accountants and a certificate of bring down of representations and warranties in connection with sale of Shares under the Resale Registration Statement) (collectively, the "Resale Closing Documents") (i) upon the effectiveness of the Initial Resale Registration Statement, (ii) upon the commencement of any continuous offering of Shares under any Resale Registration Statement and on the last day of every 30-day period thereafter for the duration of such continuous offering, and (iii) in the event the public sale or other disposition of the Shares is effected through an underwritten offering or a block trade, as of the date of the closing of any sale of such Shares or date of pricing with respect to the sale of such Shares, as applicable upon prior notice from the Merrill Lynch Parties to the Companies as to which date applies; provided, however, that the Companies shall not be required to deliver any Resale Closing Documents in the event that the aggregate offering price of any Shares offered in a public sale or other distribution is less than $20,000,000, unless as of the date of any such public sale or other distribution, the Companies have not made any previous delivery of Resale Closing Documents to the Merrill Lynch Parties in connection with any other public sale or other disposition of the Shares; (f) use its reasonable best efforts to prevent the happening of any event that would cause any such Resale Registration Statement to contain a material misstatement or omission or to be not effective and continuously useable for resale of the Shares during the period that such Resale Registration Statement is required to be effective and useable; (g) file documents required of the Companies for normal blue sky clearance in states specified in writing by the Merrill Lynch Parties, provided, however, that the Companies shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; (h) bear all reasonable expenses in connection with the procedures in paragraphs (a) through (g) of this Section 7.1 and Section 7.2(a) and the registration of the Shares pursuant to each Resale Registration Statement, which 17 expenses shall not include brokerage or underwriting commissions and taxes of any kind (including without limitation, transfer bonuses) with respect to any disposition, sale or transfer of Shares sold by the Merrill Lynch Parties and for any legal, accounting and other expenses incurred by the Merrill Lynch Parties which expenses shall be borne by the Merrill Lynch Parties; and (i) promptly file any necessary listing applications or amendments to existing listing applications to cause any Shares registered under any Resale Registration Statement to be listed or admitted to trading, on or prior to the effectiveness of any Resale Registration Statement, on the New York Stock Exchange or any national stock exchange or automated quotation system on which the Paired Shares are then listed or traded. 7.2. Covenants in Connection With Registration. (a) Each of the Companies hereby covenants with the Merrill Lynch Parties that (i) such Company shall not file any Resale Registration Statement or Resale Prospectus relating to the resale of the Shares or any amendment or supplement thereto, unless a copy thereof shall have been first submitted to the Merrill Lynch Parties and the Merrill Lynch Parties did not object thereto in good faith (provided that if the Merrill Lynch Parties do not object within two business days of receiving any such material, there shall be deemed to have been no objection thereto); (ii) such Company shall immediately notify the Merrill Lynch Parties of the issuance by the Commission of any stop order suspending the effectiveness of such Resale Registration Statement or the initiation of any proceedings for such purpose; (iii) such Company shall make every reasonable effort to promptly obtain the withdrawal of any order suspending the effectiveness of such Resale Registration Statement at the earliest possible moment; (iv) such Company shall immediately notify the Merrill Lynch Parties of the receipt of any notification with respect to the suspension of the qualification of the Shares for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose; and (v) such Companies shall as soon as practicable notify the Merrill Lynch Parties in writing of the happening of any event or the failure of any event to occur or the existence of any fact or otherwise which results in any Resale Registration Statement, any amendment or post-effective amendment thereto, the Resale Prospectus, any prospectus supplement, or any document incorporated therein 18 by reference containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading and promptly shall prepare, file with the Commission and promptly furnish to the Merrill Lynch Parties a reasonable number of copies of a supplement or post-effective amendment to such Resale Registration Statement or the Resale Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Shares, the Resale Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading provided that this clause (v) shall in no way limit the Companies' right to suspend the right of the Merrill Lynch Parties to affect sales under the Resale Registration Statement during any Black-out Period as specified in Section 5.2 above. (b) The Merrill Lynch Parties shall cooperate with the Companies in connection with the preparation of the Resale Registration Statement and shall furnish to the Companies, in a timely manner, all information in their possession or reasonably obtainable by them and necessary for inclusion in the Resale Registration Statement (including, without limitation, information relating to the ownership by each of them of Paired Shares and the plan of distribution). (c) The Merrill Lynch Parties shall notify the Companies at least two business days prior to the earlier of the date on which they intend to commence effecting any resales of Shares under a Resale Registration Statement or the date of pricing with respect to the public sale or other disposition of any Shares under a Resale Registration Statement effected through an underwritten offering or block trade and if the Companies do not, within such two day period, advise the Merrill Lynch Parties of the existence of any facts of the type referred to in Section 7.2(a) above, then the Companies shall be deemed to have certified and represented to the Merrill Lynch Parties that no such facts then exist and the Merrill Lynch Parties may rely on such certificate and representations in making such sales. The preceding sentence shall in no way limit the Companies' obligations under Section 7.2(a) above. (d) the Companies shall cooperate with the Merrill Lynch Parties to facilitate the timely preparation and delivery of certificates representing the Shares to be sold under the Resale Registration Statements and not bearing any restrictive legends and in such denominations and registered in such names as the Merrill Lynch Parties may reasonably request at least two business days prior to the closing of any sale of the Shares. (e) If the Companies notify the Merrill Lynch Parties that they wish the Merrill Lynch Parties to effect an underwritten offering or block trade of Shares, (i) the Merrill Lynch Parties shall have the right to select the managing underwriters or the executing dealer, as the case may be, who shall be subject to the approval of the Companies, which approval shall not be unreasonably withheld (it being understood that Merrill Lynch is, in any event, reasonably acceptable to the Companies for this purpose) and (ii) the Companies shall (A) enter into written agreements (including underwriting agreements) as are customary in underwritten offerings or block trades, as the case may be; (B) obtain an opinion of counsel to the Companies and other entities reasonably requested by the underwriters or the executing dealer, as the case may be, and updates thereof (which may be in the form of a reliance letter) in form and substance reasonably satisfactory to the managing underwriters or the executing 19 dealer, as the case may be, and the Merrill Lynch Parties addressed to the underwriters or the executing dealer, as the case may be, and the Merrill Lynch Parties covering the matters customarily covered in opinions requested in underwritten offerings or block trades, as the case may be, and such other matters as may be reasonably requested by such underwriters or the executing dealer, as the case may be, and the Merrill Lynch Parties (it being agreed that the matters to be covered by such opinion may be subject to customary qualifications and exceptions); (C) obtain "cold comfort" letters and updates thereof in form and substance reasonably satisfactory to the managing underwriters or the executing dealer, as the case may be, and the Merrill Lynch Parties from the independent certified public accountants of the Companies (and, if necessary, other independent certified public accountants of any affiliate or Subsidiary of either of the Companies or of any business acquired by the Companies for which financial statements and financial data are, or are required to be, included in the Resale Registration Statement), addressed to each of the underwriters or the executing dealer, as the case may be, and, if permitted by applicable accounting rules and statements, the Merrill Lynch Parties, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings or block trades, as the case may be, and such other matters as may be reasonably requested by such underwriters or the executing dealer, as the case may be, in accordance with Statement on Auditing Standards No. 72; (D) ensure that any underwriting agreement contains indemnification provisions and procedures not less favorable than that included herein (or such other provisions and procedures acceptable to the Merrill Lynch Parties and the underwriters) with respect to all parties to be indemnified pursuant to said section (including, without limitation, the underwriters and the Merrill Lynch Parties); and (E) deliver such other documents as are customarily delivered in connection with closing of underwritten offerings or block trades, as the case may be. (f) The Companies will make reasonably available for inspection by the Merrill Lynch Parties, any underwriter, agent or broker-dealer participating in any disposition of Shares such information and corporate documents as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities for the purposes of applicable law, and cause the officers of the Companies and their "significant subsidiaries" (as that term is defined in Regulation S-X) to be available, upon request at least two business days in advance, to respond to questions relevant to such due diligence inquiries. (g) The parties hereby acknowledge and agree that the Companies may suspend the right of the Merrill Lynch Parties to effect sales of the Paired Shares through use of the Resale Prospectus forming a part of a Resale Registration Statement for a period of 90 days (or fewer if the Merrill Lynch Parties are notified to that effect by the Companies) in connection with a public offering or a sale pursuant to Rule 144A under the Securities Act (an "Offering") of Paired Shares (or shares of capital stock convertible into Paired Shares) by the Companies (a "Suspension Period"); provided that (i) there shall be no more than three Suspension Periods during any 12-month period, and (ii) the total number of days of all Suspension Periods during 20 any 12-month period shall not exceed 120. The Merrill Lynch Parties hereby covenant that they will not sell any Paired Shares pursuant to said Resale Prospectus during a Suspension Period which shall commence at the time the Companies give the Merrill Lynch Parties written notice of such Suspension Period; provided further, that no Suspension Period shall be applicable or in any way restrict the Merrill Lynch Parties after the occurrence of the Maturity Date or a Price Decline Termination Event. The ability of the Companies to suspend the right of the Merrill Lynch Parties to effect sales of the Paired Shares pursuant to this Section 7.2(g) shall not be construed to limit the Companies' rights under Section 5.2. 7.3. Extension of Required Effectiveness. In the event that the Companies shall give any notice required by Section 7.2(a)(v) hereof, the period during which the Companies are required to keep such Resale Registration Statement effective and useable shall be extended by the number of days during the period from and included in such Black-out Period. 7.4. Transfer of Shares After Registration. The Merrill Lynch Parties agree that they will not effect any disposition of the Shares or their right to purchase the Shares that would constitute a sale within the meaning of the Securities Act or pursuant to any applicable state securities or blue sky laws expect as contemplated in each Resale Registration Statement referred to in Section 7.1 or except pursuant to any exemption from the registration requirements of the Securities Act (including, without limitation, Rule 144 promulgated thereunder and any successor thereto) and that it will promptly notify the Companies of any changes in the information set forth in any such Resale Registration Statement regarding the Merrill Lynch Parties or their plan of distribution. 7.5. Indemnification. For the purpose of this Section 7.5 only, the term "Resale Registration Statement" shall include any final prospectus, exhibit, supplement or amendment included in or relating to any Resale Registration Statement referred to in Section 7.1. (a) Indemnification by the Companies. Each of the Companies agrees, severally and not jointly, to indemnify and hold harmless the Merrill Lynch Parties and each person, if any, who controls the Merrill Lynch Parties within the meaning of Section 15 of the Securities Act, and any director, officer, employee or affiliate thereof, as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Resale Registration Statement (or any amendment thereto), including the information deemed to be part of any Resale Registration Statement pursuant to Rule 430A(b) of the 1933 Act Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising 21 out of any untrue statement or alleged untrue statement of a material fact contained in any related Resale Prospectus or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Companies shall not be required under this subsection (i) to indemnify the Merrill Lynch Parties with respect to any loss, liability, claim, damage or expense to the extent such loss, liability, claim, damage or expense arises out of (A) any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Companies by the Merrill Lynch Parties specifically for inclusion in any Resale Registration Statement or any related Resale Prospectus or (B) any statement or omission in any Resale Prospectus that is corrected in any subsequent Resale Prospectus that was delivered to a Merrill Lynch Party prior to the pertinent sale or sales by a Merrill Lynch Party and not delivered in connection with such sale, when such delivery was required by the Securities Act or any state securities law; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation or of any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever for which indemnification is provided under subsection (i) above, only if such settlement is effected with the written consent of the Companies; and (iii) against any and all expense whatsoever (including, without limitation, the fees and other charges of counsel chosen by you) reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceedings by any governmental agency or body, commenced or threatened, or any claim whatsoever for which indemnification is provided under subsection (i) above, to the extent that any such expense is not paid under subsection (i) (other than expenses not paid pursuant to the proviso to subsection (i)) or (ii) above. (b) Indemnification by the Merrill Lynch Parties. The Merrill Lynch Parties agree to indemnify and hold harmless the Companies, and each person, if any, who controls the Companies within the meaning of Section 15 of the Securities Act, and any trustee, director, officer, employee or affiliate thereof, against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section 7.5, as incurred, but only with respect to (A) untrue statements or omissions, or alleged untrue statements or omissions, made in any Resale Registration Statement (or any amendment thereto) or any related Resale Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Companies by the Merrill Lynch Parties specifically for inclusion in any Resale Registration Statement or any related Resale Prospectus or (B) any statement or omission in any Resale Prospectus that is corrected in any subsequent Resale Prospectus that was delivered to a Merrill Lynch Party prior to the pertinent sale or sales by a Merrill Lynch Party and not delivered in connection with 22 such sale, when such delivery was required by the Securities Act or any state securities law. (c) Proceedings. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relive it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. If it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and reasonably acceptable to the indemnified parties defendant in such action, unless such indemnified parties reasonably object to such assumption on the ground that the named parties to any such action (including any impleaded parties) include both such indemnified parties and an indemnifying party, and such indemnified parties reasonably believe that there may be legal defenses available to them which are different from or in addition to those available to such indemnifying party. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 7.5 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 7.5(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. 23 (d) Contribution. If the indemnification provided for in this Section 7.5 is required by its terms but is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party under paragraph (a), (b) or (c) of this Section 7.5 in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any losses, claims, damages, liabilities or expenses referred to herein, (i) in such proportion as is appropriate to reflect the relative benefits received by the Companies and the Merrill Lynch Parties from the purchase and sale of the Shares or (ii) if the allocation provided in clause (i) is not permitted by applicable law, in such proportion or as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Companies and the Merrill Lynch Parties in connection with the statements or omissions or inaccuracies in the representations and warranties in this Purchase Agreement which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The respective relative benefits received by the Companies on the one hand and the Merrill Lynch Parties on the other shall be deemed to be in the same proportion as the amount paid by the Merrill Lynch Parties to the Companies pursuant to this Purchase Agreement and the Agreement and the net proceeds retained or discounts received by the Merrill Lynch Parties from the transactions contemplated by this Purchase Agreement and the Agreement. The relative fault of the Companies and the Merrill Lynch Parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or the alleged omission to state a material fact or the inaccurate or the alleged inaccurate representation and/or warranty relates to information supplied by the Companies or by the Merrill Lynch Parties and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in paragraph (c) of this Section 7.5 any reasonable legal or other fees or expenses incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in paragraph (c) of this Section 7.5 with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this paragraph (d); provided, however, that no additional notice shall be required with respect to any action for which notice has been given under paragraph (c) for purposes of indemnification. The Companies and the Merrill Lynch Parties agree that it would not be just and equitable if contribution pursuant to this Section 7.5 were determined solely by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph (d). Notwithstanding the provisions of this Section 7.5, the Merrill Lynch Parties shall not be required to contribute any amount in excess of the amount by which the aggregate net proceeds retained or discounts received by the Merrill Lynch Parties from the transactions contemplated hereby and by the Agreement exceeds the amount of any damages that the Merrill Lynch Parties has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or 24 alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) Relationship Between the REIT and OPCO. The obligations set forth in this Section 7.5 shall in no way limit the ability of the Companies to allocate liability between themselves. 7.6. Information Available. So long as any Resale Registration Statement covering the resale of any shares owned by the Merrill Lynch Parties is effective, the Companies will furnish to the Merrill Lynch Parties: (a) as soon as practicable after available, one copy of (i) their Joint Annual Report to Shareholders, (ii) their Joint Annual Report on Form 10-K, (iii) their Joint Quarterly Reports to Shareholders, (iv) their Joint Quarterly Reports on Form 10-Q, (v) a full copy of the particular Resale Registration Statement covering the Shares (the foregoing, in each case, excluding exhibits) and (iv) upon request, any or all other filings made with the Commission by the Companies; and (b) upon the reasonable request of the Merrill Lynch Parties, a reasonable number of copies of the Resale Prospectuses to supply to any other party requiring such Resale Prospectuses; and the Companies, upon the reasonable request of the Merrill Lynch Parties, will meet with the Merrill Lynch Parties or a representative thereof at the Companies' headquarters to discuss all information relevant for disclosure in such Resale Registration Statement covering the Shares, subject to appropriate confidentiality limitations. 7.7. Remedies. The Companies and the Merrill Lynch Parties acknowledge that there would be no adequate remedy at law if the Companies fail to perform any of their obligations under this Section 7, and accordingly agree that the Merrill Lynch Parties, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to compel specific performance of the obligations of the Companies under this Section 7, and the Companies hereby waive the defense that a remedy at law would be adequate. 7.8. Notice Requirement. The REIT and the OPCO each covenants and agrees that it will notify the Merrill Lynch Parties at any time it becomes aware that as a result of a change in the REIT's and the OPCO's capital stock, the Merrill Lynch Parties beneficially hold more than 4.9% of the REIT's and the OPCO's Paired Shares. SECTION 8. Broker's Fee. Other than any fees payable under or in 25 connection with the Agreement, each of the parties hereto represents that, on the basis of any actions and agreements by it, there are no brokers or finders entitled to compensation in connection with the sale or issuance of the Shares to Merrill Lynch. SECTION 9. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed by first-class registered or certified airmail, by telegram or telecopy or sent by nationally recognized overnight express courier postage prepaid, and shall be deemed given when so mailed or for telecopies, when transmitted and receipt confirmed, and shall be delivered as addressed as follows: (a) if to the Companies, to: Starwood Hotels & Resorts Starwood Hotels & Resorts Worldwide, Inc. 2231 East Camelback Road Suite 400 and 410 Phoenix, Arizona 85016 Attention: Ronald C. Brown/Alan M. Schnaid Telecopier: 602-852-0115 with copies so mailed to: Sidley & Austin 555 West Fifth Street Suite 4000 Los Angeles, California 90013 Attention: Sherwin L. Samuels Telecopier: 213-896-6600 or to such other person at such other place as the Companies shall designate to Merrill Lynch in writing; and (b) if to Merrill Lynch or MLI, to: Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281-1305 Attention: David Moran SECTION 10. Changes. This Purchase Agreement may not be modified or amended except pursuant to an instrument in writing signed by each of the 26 Companies and the Merrill Lynch Parties. SECTION 11. Headings. The headings of the various sections of this Purchase Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Purchase Agreement. SECTION 12. Severability. In case any provision contained in this Purchase Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. SECTION 13. Successors and Assigns. The Companies or the Merrill Lynch Parties may assign any of their respective rights, or delegate any of their respective duties under this Purchase Agreement, if the other party first consents to such assignment in writing. This Purchase Agreement shall inure to the benefit of and be binding upon (i) the successors of the Merrill Lynch Parties and (ii) any assignee or transferee of rights and obligations of MLI pursuant to the Agreement and any assignee or transferee of rights and obligations of the Merrill Lynch Parties pursuant to this Purchase Agreement. A transferee of MLI pursuant to the Agreement and a transferee of the Merrill Lynch Parties pursuant to this Purchase Agreement, and, in each case, any successor, assignee, or transferee, shall be held subject to all of the terms of this Purchase Agreement. SECTION 14. Governing Law; Jurisdiction. This Purchase Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflicts of law principles thereof. SECTION 15. Transfer to Affiliate. Notwithstanding anything herein to the contrary, MLI may transfer the Purchase Shares to any affiliate of MLI, together with all of MLI's rights hereunder, provided that (i) such affiliate shall be an "accredited investor" within the meaning of Rule 501 (a)(1), (2), (3) or (7) of Regulation D promulgated under the Securities Act, and (ii) such transfer shall be consistent with the investment representations set forth at Section 5.1 hereto. In the event of such an assignment, such affiliate shall in all respects be substituted for MLI as a party hereto. SECTION 16. Counterparts. This Purchase Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. SECTION 17. Recourse. Each Merrill Lynch Party acknowledges and agrees that the name "Starwood Hotels & Resorts" is a designation of the REIT and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated as of June 6, 1988, as further amended on February 1, 27 1995, June 19, 1995, January 2, 1998 and February 23, 1998 and as the same may be further amended from time to time, and all persons dealing with the REIT shall look solely to the REIT's assets for the enforcement of any claims against the REIT, as the Trustees, officers, agents and security holders of the REIT assume no personal liability for obligations entered into on behalf of the REIT, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 28 IN WITNESS WHEREOF, the parties hereto have caused this Purchase Agreement to be executed by their duly authorized representatives as of the day and year first above written. STARWOOD HOTELS & RESORTS By: Name: Title: STARWOOD HOTELS & RESORTS WORLDWIDE, INC. By: Name: Title: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: Name: Title: MERRILL LYNCH INTERNATIONAL By: Name: Title: 29 Appendix I (one of two) STOCK CERTIFICATE QUESTIONNAIRE Pursuant to Section 5 of the Purchase Agreement, please provide us with the following information: 1. The exact name that your Shares are to be registered in (this is the name that will appear on your stock certificate(s)). You may use a nominee name if appropriate: ____________________________________ 2. All relationships between the Merrill Lynch Parties and the Registered Holder listed in response to Item 1 above: ____________________________________ ____________________________________ 3. The mailing address of the Registered Holder listed in response to Item 1 above: ____________________________________ ____________________________________ ____________________________________ ____________________________________ ____________________________________ ____________________________________ 4. The Social Security Number or Tax Identification Number of the Registered Holder listed in response to Item 1 above: ____________________________________ 30 Appendix I (two of two) REGISTRATION STATEMENT QUESTIONNAIRE In connection with the preparation of the Registration Statement, please provide us with the following information: 1. Pursuant to the "Selling Shareholders" section of the Registration Statement, please state your or your organization's name exactly as it should appear in the Registration Statement: 2. Please provide the number of shares that you or your organization (including all affiliates) will own immediately after Closing, including those Shares purchased by you or your organization (including all affiliates) pursuant to this Purchase Agreement and those shares purchased by you or your organization (including all affiliates) through other transactions: 3. Have you or your organization had any position, office or other material relationship within the past three years with the Company or its affiliates: _____ Yes _____ No If yes, please indicate the nature of any such relationships below: __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ 31 Appendix II Attention: PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE The undersigned, [an officer of, or other person duly authorized by] ______________________________ hereby certifies that he/she [fill in official name of individual or institution] [said institution] is the Purchaser of the shares evidenced by the attached certificate, and as such, sold such shares on [date] in accordance with Registration Statement number [fill in the number of or otherwise identify Registration Statement], the Securities Act of 1933, as amended, and any applicable state securities or blue sky laws and the requirement of delivering a current prospectus by the Company has been complied with in connection with such sale. Print or Type: NAME OF PURCHASER (Individual or Institution): NAME OF INDIVIDUAL representing Purchaser (if an Institution) TITLE OF INDIVIDUAL representing Purchaser (if an Institution) Signature by: Individual Purchaser or Individual representing Purchaser: 32 EXHIBIT A FORM OF CLOSING OPINION OF COUNSEL TO THE COMPANY 33 AGREEMENT THIS AGREEMENT is made as of the 23rd day of February, 1998, by and between Starwood Hotels & Resorts (the "REIT"), Starwood Hotels & Resorts Worldwide, Inc. ("OPCO," and together with the REIT, the "Companies") and Merrill Lynch International ("MLI"), through its agent Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"). The purpose of this Agreement is to confirm the terms and conditions of the transaction (the "Transaction") entered into between MLI and the Companies. IN CONSIDERATION of the mutual representations, warranties and covenants herein contained, and on the terms and subject to the conditions herein set forth, the Companies and MLI hereby agree as follows: Section 1 Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: (a) Ability to Settle in Paired Shares. As of the date hereof, the Companies have not, and after the date hereof, the Companies will not, enter into any obligation that would contractually prohibit the Companies from delivering Paired Shares pursuant to Sections 3.2, 4.2 or 5 of this Agreement. (b) Certain Adjustments to Reference Price or Number of Notional Shares. In the event of: (i) a subdivision, consolidation or reclassification of the Paired Shares, or a free distribution or dividend of any Paired Shares to all existing holders of Paired Shares by way of bonus, capitalization or similar issue; or (ii) a distribution or dividend to all existing holders of Paired Shares of (A) additional Paired Shares or (B) other share capital or securities granting right to payment of dividends and/or the proceeds of liquidation of the Companies equally or proportionally with such payments to holders of Paired Shares, an adjustment shall thereupon be effected to the Reference Price and/or the Notional Shares at the time of such event with the intent that following such adjustment, the value of this Transaction is economically equivalent to the value immediately prior to the occurrence of the event causing the adjustment. 34 (c) Block Sale. any privately negotiated sales of the Paired Shares involving at least a block of such security (as defined in Rule 10b-18 under the Exchange Act). (d) Business Day. Any day other than a Saturday, Sunday, or any other day on which banking institutions in the States of Delaware or New York are not open for business. (e) Calculation Agent. MLI, whose calculations and determinations shall be made in a reasonable manner. (f) Closing Price. The last sale price of the Paired Shares on the Relevant Exchange on the relevant date. (g) Commission. The Securities and Exchange Commission. (h) Compounding Period. Means each period commencing on and including: (i) in the case of the first Compounding Period, the Initial Settlement Date and ending on but excluding the first Reset Date, and (ii) for each period thereafter, a Reset Date and ending on (but excluding) the next following Reset Date. (i) Distribution Amount. Means, on each Reset Date, an amount in U.S. Dollars equal to: (i) the sum of all cash distributions paid on a single Paired Share during the relevant Compounding Period; plus (ii) an amount representing interest that could have been earned on such distributions at the USD LIBOR rate having a designated maturity of three months, plus Spread, for the period from the date that such distributions would have been received by a holder of a single Paired Share until such Reset Date. (j) DRIP Distribution. Sales to any Distribution Reinvestment Plan now or hereafter established by the Companies, or to any agent acting on behalf of such Plan, for sale to participants in such Plan. (k) Effective Date. February 24, 1998. 35 (l) Exchange Act. The Securities Exchange Act of 1934, as amended. (m) Exchange Trading Day. Each day on which the Relevant Exchange is open for trading. (n) Execution Price. The Closing Price on the Effective Date`. (o) Gradual Market Distribution. An offering of the Paired Shares into the existing trading market for outstanding shares of the same class at other than (i) a fixed price on or through the facilities of a national securities exchange or (ii) to or through a market maker otherwise than on an exchange. (p) Initial Price. Means, (i) for the Compounding Period ending on the first Reset Date, an amount in U.S. Dollars equal to $53.875, and (ii) for each subsequent Reset Date, the Reference Price as calculated on or adjusted as of the prior Reset Date. (q) Initial Settlement Date. February 24, 1998. (r) Interim Settlement Amount. With respect to a given Reset Date, means the amount by which the Reference Amount minus $5,000,000 exceeds the product of (x) the Closing Price on such Reset Date and (y) the number of Notional Shares. (s) Interim Settlement Shares. The Interim Settlement Amount divided by the Closing Price on such Reset Date. (t) Maturity Date. March 1, 1999. (u) Notional Shares. 1,547,000 Paired Shares, as may be adjusted from time to time pursuant to Section 1(b), reduced by the number of Settlement Shares that have been settled prior to the date of calculation pursuant to Section 3.1 or Section 4.1. (v) Paired Shares. Units consisting of one share of beneficial interest, $.01 par value per share, in the REIT and one share of common stock, par value $.01 per share, of OPCO, which shares are paired and traded as a unit. (w) Pooled Underwritten Secondary Offering. An underwritten fixed price offering of Paired Shares, in which the Settlement Shares and other Paired Shares, which may include the Paired Shares of other selling shareholders and previously unissued Paired Shares. 36 (x) Pooling Exit Fee. 50 basis points on the Settlement Amount in connection with the related Pooled Underwritten Secondary Offering. (y) Purchase Shares. Paired Shares sold to MLI pursuant to the Purchase Agreement. (z) Purchase Agreement. The Purchase Agreement, dated as of February 23, 1998 (the "Purchase Agreement"), among the Companies, MLI and MLPF&S (aa) Reference Amount. On each Reset Date, the Reference Price multiplied by the Notional Shares or Settlement Shares, as applicable. (bb) Reference Price. On each Reset Date, the Reference Price shall be determined by: (i) compounding the Initial Price for the previous Compounding Period at USD LIBOR rate plus Spread for a designated maturity of three months (Actual/360 day count fraction) to such Reset Date and (ii) subtracting the Distribution Amount at that date. (cc) Relevant Exchange. Means, with respect to any Exchange Trading Day, the principal Stock Exchange on which the Paired Shares are traded on that day. (dd) Reset Date. Means, through the final Trade Date, (i) the last day of each three-month period, beginning on May 31, 1998 (provided, that if such day is not a Business Day then the Reset Date shall be the next Business Day), (ii) as to any Settlement Shares, but only as to such Settlement Shares, the related Trade Date and (iii) as to any Gross Settlement Shares, but only as to such Gross Settlement Shares, the Exchange Trading Day immediately prior to the date on which the related Gross Settlement Notice is delivered. (ee) Securities Act. The Securities Act of 1933, as amended. (ff) Settlement. Has the meaning set forth in Section 3.1 or Section 4.1, as applicable. (gg) Settlement Amount. Except as set forth in subsection (iv) below, the net sales proceeds realized by or on behalf of MLI for all sales of Paired Shares in connection with any Settlement, calculated as follows: (i) if the manner of Settlement Sale pursuant to Section 3.1 or 37 4.1 is an Underwritten Secondary Offering, the Settlement Amount will equal the gross proceeds realized, net of a negotiated underwriting discount; (ii) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is a Block Sale, the Settlement Amount will equal the gross sales proceeds realized, net of a negotiated underwriting discount; (iii) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is a Gradual Market Distribution, the Settlement Amount will equal the gross sales proceeds realized from sales to the market over the period of the distribution, net of a resale spread of 50 basis points; (iv) with respect to a given Trade Date, if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is a VWAP Sale, the Settlement Amount will equal the product of (a) the volume weighted average price of the Paired Shares for such Trade Date and (b) the number of Paired Shares determined by the Company to be sold by MLI on such Trade Date, net of a resale spread of 50 basis points; (v) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is a DRIP Distribution, the Settlement Amount will equal the gross sales proceeds realized from sales to any Purchase Agent for a Company Distribution Reinvestment Plan, net of a resale spread of 50 basis points; and (vi) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is a Pooled Underwritten Secondary Offering, the Settlement Amount will equal a pro rata share of the gross proceeds realized, net of a negotiated underwriting discount. (hh) Settlement Date. The date after each Trade Date on which, in accordance with standard market practice, any Paired Shares are delivered and the funds received, in respect of any Settlement in accordance with Section 3.2 or Price Decline Termination Event in accordance with Section 4.2. (ii) Settlement Shares. The number of Notional Shares which will be settled on a given Settlement Date pursuant to Section 3.2 or Section 4.2, as applicable. (jj) Spread. 175 basis points, subject to adjustment pursuant to Section 6.3. 38 (kk) Stock Exchange. Means the New York Stock Exchange, the American Stock Exchange or NASDAQ. (ll) Trade Date. Any date on which MLI executes a settlement trade or trades as part of a Settlement in any of the manners of Settlement Sale set forth in Section 3.1, pursuant to either Section 3.1 or 4.1. (mm) Underwritten Secondary Offering. An underwritten fixed price offering of the Paired Shares. (nn) USD LIBOR. The London Inter Bank Offered Rate in respect of U.S. Dollars for the designated maturity as quoted on Page 3750 on the Telerate Service (or such other page as may replace Page 3750 on that service) as of 11:00 a.m., London time, on the date on which it is to be determined. (oo) VWAP Sale. A sale of the Paired Shares into the existing trading market for outstanding shares of the same class effected in order to approximate the volume weighted average price of the Paired Shares on the Relevant Exchange on the relevant date. 39 Section 2 Representations and Warranties. The representations and warranties of the Companies in Section 4 of the Purchase Agreement are hereby incorporated by reference herein, and each Company hereby so represents and warrants to MLI, and the representations and warranties of the Merrill Lynch Parties in Section 5 of the Purchase Agreement are hereby incorporated by reference, and the MLI hereby so represents and warrants to each Company. The provisions of Section 6 of the Purchase Agreement shall also be applicable to any Paired Shares delivered to MLI under this Agreement. Section 3 Settlement. 3.1 Settlement Sale. On any Reset Date of the type referred to in clause (i) of the definition of Reset Date, on any Exchange Trading Day that is one month or two months following such a Reset Date or on any other Exchange Trading Day (in each case, if other than such a Reset Date, the related Settlement (as defined below) will include standard market interest breakage fees), up to and including the Maturity Date, the Companies may give telephonic notice to MLI to settle, and MLI shall settle, in a commercially reasonable manner (which may require sales over a period of more than 1 day), all or a portion of the Notional Shares to be settled on the related Settlement Date or Dates, as specified by the Companies ("Settlement"), through sale of not less than the number of Paired Shares, the sale of which would result in a Settlement Amount equal to 100% of the Reference Amount on the Settlement Date, and not more than the number of Paired Shares, the sale of which would result in a Settlement Amount equal, to 105% of the Reference Amount on the Settlement Date, in any of the manners set forth below, as selected by the Companies: (i) an Underwritten Secondary Offering (for which the Companies shall provide at least 21 Business Days prior notice to MLI); (ii) a Block Sale (for which the Companies shall provide at least 3 Business Days prior notice to MLI); (iii) a Gradual Market Distribution (for which the Companies shall provide at least 1 Business Day prior notice to MLI); (iv) a VWAP Sale (for which the Companies shall provide at least 1 Business Day prior notice to MLI); (v) a DRIP Distribution (for which the Companies shall provide at 40 least 1 Business Day prior notice to MLI); or (vi) a Pooled Underwritten Secondary Offering (for which the Companies shall provide at least 21 Business Day prior notice to MLI). If the Companies do not specify a manner of sale, a Gradual Market Distribution shall be used. If the Paired Shares delivered by the Companies to MLI pursuant to the Purchase Agreement and this Agreement are not, on the applicable trade date, the subject of an Effective Resale Registration Statement (as defined in Section 6.3), the Companies may not select a VWAP Sale as the manner of Settlement. The number of shares sold as part of a VWAP Sale on any Trade Date shall not be less than 20% of the six-month daily average trading volume of the Paired Shares as calculated by the Calculation Agent and shall not exceed 40% of the six-month daily average trading volume of the Paired Shares as calculated by the Calculation Agent, unless both parties agree otherwise prior to the execution of any trades in connection with such VWAP Sale. In connection with any Underwritten Secondary Offering or Block Sale, MLPF&S shall be the sole manager and underwriter. In connection with a Pooled Underwritten Secondary Offering, MLI and MLPF&S may, in their discretion, elect to (a) participate in such offering as a first-tier co-manager on the same terms as all other first-tier co-managers or (b) receive the Pooling Exit Fee; provided, however, that regardless of the election of MLI and MLPF&S, all of the Notional Shares shall be included in the Pooled Underwritten Secondary Offering. Settlement procedures shall begin as soon as commercially practicable, as determined by MLI, after MLI receives notice from the Companies and no later than the first Exchange Trading Day after expiration of the notice period unless otherwise agreed by the Companies and MLI. At such time as the Companies deliver notice pursuant to this Section 3.1, the Companies may direct MLI to sell not less than the number of Paired Shares equal to the number of Settlement Shares, and MLI shall comply with such direction in a commercially reasonable manner. In connection with a Gradual Market Distribution, there shall be a separate Settlement Date for each Trade Date. Final Settlement shall occur no later than the Maturity Date. However, if the Companies have not given MLI notice to settle by the Maturity Date, then MLI shall settle the Notional Shares using a Gradual Market Distribution to begin as soon as commercially practicable, as determined by MLI, on or after the Maturity Date. 3.2 Settlement. (a) If, on a Settlement Date, the Settlement Amount is greater than the Reference Amount, MLI, on such Settlement Date, will pay the Companies an amount in cash or Paired Shares (valued at the Closing Price on the Trade Date), at the election of the Companies, equal to the difference. (b) If the number of Paired Shares sold by MLI pursuant to Section 3.1 41 is greater than the number of Settlement Shares, the Companies shall deliver to MLI, on the Settlement Date, a number of Paired Shares equal to the difference. If the number of Paired Shares sold by MLI pursuant to Section 3.1 is less than the number of Settlement Shares, MLI shall deliver to the Companies, on the Settlement Date, a number of Paired Shares equal to the difference. (c) In all events, MLI will pay to the Companies an amount equal to all cash distributions payable to MLI but not paid prior to the Settlement Date, on a number of Paired Shares equal to the Settlement Shares on the Business Day after the relevant distribution payment date declared by the Board of Directors of the REIT and OPCO. (d) If MLI, in connection with any Settlement, receives net sales proceeds, as calculated pursuant to the definition of Settlement Amount, from the sale of Paired Shares prior to the applicable Settlement Date, MLI, on the Settlement Date, shall pay the Companies an amount in cash representing interest that could have been earned on such net sales proceeds at the USD LIBOR rate having a designated maturity of three months, plus Spread, for the period from the date that such net sales proceeds are received by MLI until such Settlement Date. 3.3 Gross Share Settlement. (a) The Companies may elect, in their sole discretion, to settle all or any portion of the then outstanding Notional Shares by delivering Paired Shares in exchange for such number of Notional Shares (a "Gross Share Settlement"). The Companies may effect a Gross Share Settlement by delivering a written notice (the "Gross Settlement Notice") to MLI indicating the date of such Gross Share Settlement and the number of then outstanding Notional Shares subject to such Gross Share Settlement; provided that such notice must be accompanied by a notice pursuant to Section 3.1 to effect settlement of all Paired Shares delivered pursuant to this Section 3.3(a). To effect a Gross Share Settlement, MLI Shall deliver to the Companies the number of Notional Shares subject to such Gross Share Settlement ("Gross Settlement Shares") against delivery by the Companies to MLI of a number of Paired Shares equal to the product of (i) the number of Gross Settlement Shares and (ii) the quotient obtained by dividing (A) the Reference Price by (B) the Closing Price, in each case, on the Reset Date for such Gross Settlement Shares. The deliveries set forth in the immediately preceding sentence shall be made on the Exchange Trading Day immediately following the date on which the Gross Settlement Notice is delivered. All Paired Shares delivered to the Companies by MLI as part of a Gross Share Settlement shall be immediately retired and shall cease to be issued and outstanding Paired Shares. (b) For purposes of the Settlement of the Paired Shares delivered to 42 MLI pursuant to Section 3.3(a), the Settlement Shares shall be deemed to be equal to the Gross Settlement Shares, provided that for purposes of Section 3.2(b), the Settlement Shares shall be deemed to be equal to the Paired Shares so delivered to MLI pursuant to Section 3.3(a), and provided further that, for purposes of Section 3.2(c), with respect to any distribution payable to MLI but not paid prior to the Settlement Date for which the record date occurs after the date on which the Gross Settlement Notice is delivered, the Settlement Shares shall be deemed to be equal to the Paired Shares delivered to MLI pursuant to Section 3.3(a). (c) The amount of any distribution referred to in clause (i) of the definition of Distribution Amount for which the record date occurs after a Gross Share Settlement with respect to the Paired Shares delivered to MLI pursuant to Section 3.3 shall be multiplied by the quotient obtained in clause (ii) of Section 3.3(a). Section 4 Price Decline Termination Event. 4.1 Price Decline Termination Event Sale. If the Closing Price on any Exchange Trading Day falls below any Termination Price listed in the following schedule ("Price Decline Termination Event"), MLI will, at its discretion, in a commercially reasonable manner (which may require sales over a period of more than 1 day) following notice to the Companies, settle the percentage of the Notional Shares indicated in the table below ("Settlement") through sale of not less than the number of Paired Shares, the sale of which would result in a Settlement Amount equal to 100% of the Reference Amount on the Settlement Date, and not more than the number of Paired Shares, the sale of which would result in a Settlement Amount equal to 105% of the Reference Amount on the Settlement Date, in any of the manners specified in Section 3.1, as specified by the Companies:
Percentage of Initial Notional Shares to be Settled Termination Price ------- ----------------- 25% $37.7125 50% $35.0188 75% $33.6719 100% $32.3250
Settlement procedures shall commence on the date specified by MLI. 4.2 Price Decline Termination Event Settlement. 43 (a) If, on the Settlement Date, the Settlement Amount is greater than the Reference Amount, MLI, on the Settlement Date, will pay the Companies an amount in cash or Paired Shares (valued at the Closing Price on the Trade Date), at the election of the Companies, equal to the difference. (b) If the number of Paired Shares sold by MLI pursuant to Section 4.1 is greater than the number of Settlement Shares, the Companies shall deliver to MLI, on the Settlement Date, a number of Paired Shares equal to the difference. If the number of Paired Shares sold by MLI pursuant to Section 4.1 is less than the number of Settlement Shares, MLI shall deliver to the Companies, on the Settlement Date, a number of Paired Shares equal to the difference. (c) In all events, MLI will pay to the Companies an amount equal to all cash distributions payable to MLI but not paid prior to the Settlement Date, on a number of Paired Shares equal to the Settlement Shares on the Business Day after the relevant distribution payment date declared by the Boards of Directors of the REIT and OPCO. (d) If MLI, in connection with any Settlement, receives net sales proceeds, as calculated pursuant to the definition of Settlement Amount, from the sale of Paired Shares prior to the applicable Settlement Date, MLI, on the Settlement Date, shall pay the Companies an amount in cash representing interest that could have been earned on such net sales proceeds at the USD LIBOR rate having a designated maturity of three months, plus Spread, for the period from the date that such net sales proceeds are received by MLI until such Settlement Date. Section 5 Interim Settlements. Within 5 Business Days following each Reset Date of the type referred to in clause (i) of the definition of Reset Date, the Companies shall (i) deliver the Interim Settlement Amount, if any, in Interim Settlement Shares to MLI. Interim Settlement Shares shall be the subject of a registration statement covering any sale of such Interim Settlement Shares by MLPF&S that has been declared effective under the Securities Act by the Commission (an "Effective Registration Statement"). Interim Settlement Shares shall be registered in the stock register of the Companies as instructed by MLI and shall be held by MLPF&S or a custodian or depository designated by MLPF&S. If the Companies are unable to deliver Interim Settlement Shares in accordance with the preceding sentence, the Companies shall deliver "restricted" Interim Settlement Shares that are not the subject of an Effective Registration Statement in an amount equal to the Interim Settlement Amount. If the Interim Settlement Shares are not the subject of an Effective Registration Statement, the Companies shall deliver additional Interim Settlement Shares equal to 20% of the Interim Settlement Shares. At 44 such time as the Interim Settlement Shares are the subject of an Effective Registration Statement, the Companies may elect to have returned all additional Interim Settlement Shares - delivered pursuant to the preceding sentence. On any Reset Date, if Interim Settlement Shares are held by MLI, MLI shall deliver to the Companies within five (5) Business Days after such Reset Date, the amount in Interim Settlement Shares by which the amount in Interim Settlement Shares held by MLI (valued at the Closing Price on such Reset Date) plus any cash amounts in the collateral account exceeds the Interim Settlement Amount (or 120% of the Interim Settlement Amount, in the event that MLI holds restricted Interim Settlement Shares that are not the subject of an Effective Registration Statement). Distributions on the Interim Settlement Shares will be deposited in a collateral account at MLPF&S or a custodian or depositary designated by MLPF&S. All Interim Settlement Shares will be, when delivered, duly authorized, validly issued, fully paid and non-assessable. Interim Settlement Shares shall not be voted by MLI or MLPF&S. All distributions received in respect of the Interim Settlement Shares shall be held in the collateral account at MLPF&S or a depositary designated by MLPF&S. The cash amounts in the collateral account will be immediately returned to the Companies by MLI, but should MLI fail to return any cash amounts in the collateral account, such cash amounts will earn interest at the USD LIBOR rate having a designated maturity of three months. Upon final Settlement, MLI shall immediately release all claims to cash held in the collateral account, if any (including interest earned thereon), and Interim Settlement Shares and deliver such amounts and all Interim Settlement Shares to the Companies. Section 6 Certain Covenants and Other Provisions. 6.1 Par Value. MLI shall pay to the Companies $.01 par value per share for each share comprising a Paired Share delivered to MLI pursuant to this Agreement, including any Interim Settlement Shares. 6.2 Allocation of Payment and Deliveries As between the REIT and OPCO, any delivery of, or payments attributable to, the REIT portion of Paired Shares pursuant to this Agreement shall be made to or by the REIT, and any delivery of, or payments attributable to, the OPCO portion of Paired Shares pursuant to this Agreement shall be made to or by OPCO. When making any payment to the Companies pursuant to this Agreement, MLI shall allocate such payment between the REIT and OPCO in the manner specified by the Companies. 6.3 Resale Registration Statement. 45 The Companies shall file a resale registration statement covering any resales of Paired Shares delivered by the Companies to MLI pursuant to this Agreement and the Purchase Agreement (a "Resale Registration Statement") within 45 Business Days of the Closing Date and the Companies shall use their best efforts to obtain effectiveness of such Resale Registration Statement within 90 Business Days of the Closing Date. If the Paired Shares delivered by the Companies to MLI pursuant to the Purchase Agreement are not the subject of a Resale Registration Statement that has been declared effective under the Securities Act by the Commission (an "Effective Resale Registration Statement") within 90 Business Days of the Closing Date, the Spread shall increase, retroactively effective commencing on the Initial Settlement Date, to the Spread plus 125 basis points. At such time as the Purchase Shares are the subject of an Effective Resale Registration Statement, the Spread shall be reduced, from and after such time, to the Spread. The Companies further agree that they will cause any Resale Registration Statement to remain in effect until the earliest of the date on which (i) the Notional Shares plus all of the Interim Settlement Shares and any other Paired Shares delivered by the Companies to MLI pursuant this Agreement have been sold by or on behalf of MLI, or (ii) MLI has advised the Companies that it no longer requires that such registration be effective. The provisions of Section 5.2 and Section 7.2 of the Purchase Agreement shall be deemed to apply to any Resale Registration Statement filed by the Companies pursuant to this Agreement. 6.4 Delivery of Paired Shares. Each Company covenants and agrees with MLI that Paired Shares delivered by the Companies pursuant to settlement events in accordance herewith will be duly authorized, validly issued, fully paid and nonassessable. The issuance of such Paired Shares will not require the consent, approval, authorization, registration, or qualification of any government authority, except such as shall have been obtained on or before the delivery date to MLI in connection with any registration statement filed with respect to any Paired Shares. Each party agrees that the Companies shall not deliver Paired Shares to MLI or any other person in connection with an Interim Settlement or the final Settlement until such time as such delivery would not cause MLI or any other person to violate the "Ownership Limit" set forth in the Amended and Restated Declaration of Trust of the REIT or the Articles of Amendment and Restatement of OPCO, in each case, as in effect on the date hereof. 6.5 Securities Law Compliance. Each party agrees that it will comply, in connection with this Transaction and all related or contemporaneous sales and purchases of the Companies' Paired Shares, with the applicable provisions of the Securities Act, the Exchange Act and the rules and regulations thereunder. 46 6.6 Regulatory Compliance. Each party agrees that if the delivery of Paired Shares upon settlement is subject to any restriction imposed by a regulatory authority, it shall not be an event of default, and the parties will negotiate in good faith a procedure to effect settlement of such Paired Shares in a manner which complies with any relevant rules of such regulatory authority and which is satisfactory in form and substance to their respective counsel, subject to Section 6.2 of this Agreement and Section 7 of the Purchase Agreement. Each party further agrees that any sale pursuant to Section 3.1 may be delayed or postponed if, in MLI's reasonable judgement, such delay or postponement is necessary to comply with the requirements of applicable law or regulation; provided, however, that MLI will act in good faith to end such delay or postponement or otherwise effect such sale on a reasonably timely basis in a manner which complies with any such applicable law or regulation and which is satisfactory in form and substance to its respective counsel. 6.7 Settlement Transfer. All settlements shall occur through DTC or any other mutually acceptable depository. 6.8 Trading Authorization. The following individuals and/or any individual authorized in writing by the respective officers of the Companies are authorized by the Companies to provide trading instructions to MLI with regard to this transaction: Ronald C. Brown 2231 E. Camelback Road Suite 410 Phoenix, Arizona 85016 and Richard Smith 2231 E. Camelback Road Suite 400 Phoenix, Arizona 85016 47 6.9 Specific Performance. The parties acknowledge and agree that the failure of the Companies or MLI to deliver Paired Shares in accordance with the provisions hereof would result in damage to the other party that could not be adequately compensated by a monetary award. The parties therefore agree that, if either party fails to deliver Paired Shares in accordance with the provisions hereof, the other party may, in addition to all other remedies, seek an order of specific performance from a court of appropriate jurisdiction. 6.10 Recourse. MLI acknowledges and agrees that the name "Starwood Hotels & Resorts" is a designation of the REIT and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated as of June 6, 1988, as further amended on February 1, 1995, on June 19, 1995, January 2, 1998 and February 23, 1998 and as the same may be further amended from time to time, and all persons dealing with the REIT shall look solely to REIT's assets for the enforcement of any claims against the REIT, as the Trustees, officers, agents and security holders of the REIT assume no personal liability for obligations entered into on behalf of the REIT, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 6.11 Successors and Assigns. The Companies or MLI may assign any of their respective rights, or delegate any of their respective duties under this Agreement, if the other party first consents to such assignment in writing. This Agreement shall inure to the benefit of and be binding upon (i) the successors of MLI and (ii) any assignee or transferee of rights and obligations of the Merrill Lynch Parties pursuant to the Purchase Agreement and any assignee or transferee of rights and obligations of MLI pursuant to this Agreement. A transferee of the Merrill Lynch Parties pursuant to the Purchase Agreement and a transferee of MLI pursuant to this Agreement, and, in each case, any successor, assignee, or transferee, shall be held subject to all of the terms of this Agreement. 6.12 Transfer to Affiliate. Notwithstanding anything herein to the contrary, if MLI transfers the Purchase Shares to any affiliate of MLI, together with all of MLI's rights under the Purchase Agreement pursuant to Section 15 of the Purchase Agreement, then MLI's rights and obligations under this Agreement shall be transferred to such affiliate of MLI. In the event of such an assignment, such affiliate shall in all respects be substituted for MLI as a party hereto. 6.13 Governing Law. The Agreement will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine. 48 6.14 Confidentiality. Subject to the other applicable subsections of this Section 6, to any contrary requirement of law, including any disclosure obligations of the Companies under the Securities Act, the Exchange Act and the rules and regulations thereunder, and to the right of each party to enforce its rights hereunder in any legal action, each party shall keep strictly confidential and shall cause its employees and agents to keep strictly confidential the terms of this Agreement and any information relating to or concerning the other party which it or any of its agents or employees may acquire pursuant to, or in the course of performing its obligation under, any provision of this Agreement. 49 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. By:________________________________ Name: Title: STARWOOD HOTELS & RESORTS By:________________________________ Name: Title: MERRILL LYNCH INTERNATIONAL By:________________________________ Name: Title: EX-21.1 45 EX-21.1 1 Exhibit 21.1 Subsidiaries of the Trust ENTITY PLACE OF ORGANIZATION ------ --------------------- Alstar Realty LLC New York Benjamin Franklin Hotel, Inc. Washington BW Hotel Realty, LP Maryland Charleston Hotel Associates, LLC New Jersey Cincinnati Plaza Company Delaware CP Hotel Realty LP Maryland Crystal City Hotel Associates, LLC New Jersey Edison Hotel Associates, LP New Jersey Emstar Realty LLC Delaware Lauderdale Hotel Company Delaware Long Beach Hotel Associates, LLC New Jersey Novi Hotel Associates, LP Delaware Park Ridge Hotel Associates, LP Delaware Post Oak Westin Hotel Company Delaware Prudential HEI Joint Venture Georgia Santa Rosa Hotel Associates, LLC New Jersey Saunstar Land Co. LLC Delaware Sea-Tac Hotel Venture LLC Washington SLT Allentown LLC Delaware SLT Arlington LLC Delaware SLT Aspen Dean Street, LLC Delaware SLT Bloomington LLC Delaware SLT Cabo San Lucas S. de R.L. de C.V. Mexico SLT Cancun S. de R.L. de C.V. Mexico SLT Central Park South, LLC Delaware SLT CMBS I Holding LLC Delaware SLT CMBS I, Inc. Delaware SLT CMBS I LLC Delaware SLT Dania LLC Delaware SLT DC Massachusetts Avenue, LLC Delaware SLT Financing Partnership Delaware SLT Houston Briar Oaks, LP Delaware SLT Indianapolis LLC Delaware SLT Kansas City LLC Delaware SLT Los Angeles LLC Delaware SLT Mexico S. de R.L. de C.V. Mexico SLT Minneapolis LLC Delaware SLT Palm Desert LLC Delaware SLT Philadelphia LLC Delaware SLT Puerto Vallarta S. de R.L. de C.V. Mexico SLT Realty Company, LLC Delaware SLT Realty Limited Partnership Delaware SLT San Diego LLC Delaware SLT Southfield LLC Delaware SLT St. Louis LLC Delaware SLT Tucson LLC Delaware SLT Westwood Realty LLC Delaware South Coast Westin Hotel Company Delaware Starlex LLC New York Starwood Atlanta II LLC Delaware Starwood Atlanta LLC Delaware Starwood Mission Hills, L.L.C. Delaware Starwood Needham LLC Delaware Starwood Waltham LLC Delaware Townhouse Management, Inc. Delaware Virginia Hotel Associates, LP Delaware W&S Denver Corp. Delaware W&S Lauderdale Corp. Delaware W&S Realty Corp. of Arizona Arizona W&S Realty Corporation of Delaware Delaware W&S Seattle Corp. Delaware Westin 200 LLC Delaware Westin Bay Hotel Company Delaware Westin Denver Hotel Company Delaware Westin Denver LLC Delaware Westin Indianapolis Hotel Company Delaware Westin Indianapolis LLC Delaware Westin MV Sport LLC Delaware Westin New York Hotel Company Delaware Westin Philadelphia Downtown Hotel Company Delaware Westin Philadelphia Hotel Company Delaware Westin Portland Hotel Company Delaware Westin San Antonio Resort Company Delaware Westin Sea-Tac Hotel Company Delaware Westin Seattle Hotel Company Washington Westin WC Sport LLC Delaware EX-21.2 46 EX-21.2 1 Exhibit 21.2 Subsidiaries of the Corporation (other than ITT Corporation and its subsidiaries) ENTITY PLACE OF ORGANIZATION ------ --------------------- 909 North Michigan Avenue Corp. Delaware Alstar Operating LLC New York Belvedere Hospitality Corp Texas Columbus Operators, Inc. Ohio Consort Corp. Texas Emstar Operating LLC New York Galleria Hotel Venture Texas Georgia Westin Hotel Company Delaware Great Cruz Villas Partnership U.S. Virgin Islands HEI Hotels, L.L.C. Delaware Hotel Investors of Arizona Arizona Hotel Investors of Michigan Michigan Hotel Investors of Nebraska Nebraska Hotel Investors of Virginia Virginia Hotel Los Angeles (Westin) Company Delaware LAX Payroll Company Delaware LCWW Partners Lihue Service Company Delaware Midland Building Corporation Illinois Midland Holding Corporation Illinois Midland Hotel Corporation Illinois Milwaukee Brookfield LP Wisconsin Moorland Hotel LP Wisconsin North Dallas Holding Co. Delaware North Dallas Hotel Company Delaware Operating Philadelphia LLC Delaware Sabrina Operators Wisconsin Santa Clara Payroll Company Delaware Saunstar Operating Co. LLC Delaware Savannah Harbor Resorts Developers, LLC Delaware Savannah Harbor Venture Partners, LLC Delaware Scoops, Inc. Kansas Sixth Virginia Properties Washington SLC Allentown LLC Delaware SLC Arlington LLC Delaware SLC Aspen Dean Street, LLC Delaware SLC Atlanta II LLC Delaware SLC Atlanta LLC Delaware SLC Bloomington LLC Delaware SLC Central Park South, LLC Delaware SLC CMBS I, Inc. Delaware SLC CMBS I, LLC Delaware SLC Dania LLC Delaware SLC DC Massachusetts Avenue, LLC Delaware SLC Houston Briar Oaks, LP Delaware SLC Indianapolis LLC Delaware SLC Kansas City LLC Delaware SLC Los Angeles LLC Delaware SLC Minneapolis LLC Delaware 2 SLC Needham LLC Delaware SLC Operating Limited Partnership Delaware SLC Palm Desert LLC Delaware SLC San Diego LLC Delaware SLC Southfield LLC Delaware SLC St. Louis LLC Delaware SLC Tucson LLC Delaware SLC Waltham LLC Delaware SLC Westwood Operating LLC Delaware SLC-Calverton LP Delaware St. Francis Hotel Corp. Delaware Starwood Management Company, LLC Delaware Vine Hotel (London) Inc. Canada W&S Atlanta Corp. Delaware Waltham Payroll Company Delaware Weena Tower Exploitatie Maatschapp* BV Netherlands Westel Insurance Company Vermont Westin Asia Management Company Delaware Westin Asia Management Holding Company Delaware Westin Asia Pacific Management PTE, Ltd Singapore Westin Asia Pacific Marketing PTE, Ltd. Singapore Westin Asset Management Company Delaware Westin Atlanta LLC Delaware Westin Boston Management Company Delaware Westin Boston Management Holding Company Delaware Westin Building Company Washington Westin Call Centre Europe Ireland Westin Canada Management Company Delaware Westin Century City Management Company Delaware Westin Century City Management Holding Company Delaware Westin Charlotte Management Company Delaware Westin Charlotte Payroll Company Delaware Westin Chicago at North River Payroll Company Delaware Westin Chicago Limited Partnership Delaware Westin Crowne Plaza Hotel Company Delaware Westin Dallas Management Company Delaware Westin France Management Company Delaware Westin Franchise Company Delaware Westin Hilton Head Management Company Delaware Westin Host, Inc. California Westin Hotel Company Delaware Westin Hotel Company Fiji Ltd. Fiji Westin Hotels Australia Pty, Ltd. Australia Westin Hotels France SARL France Westin Hotels Germany GmbH Germany 3 Westin Hotels Guam Guam Westin Hotels Ireland Ireland Westin Hotels Japan Company Japan Westin Hotels L.P. Delaware Westin Hotels Morocco SARL Morocco Westin Innisbrook Management Company Delaware Westin International (Canada) Ltd Canada Westin International (Malta) Ltd. Malta Westin International (U.K.) Ltd United Kingdom Westin International Europe B.V. Netherlands Westin International Management Company Delaware Westin International Services Company Delaware Westin Kansas City Management Company Delaware Westin License Company Delaware Westin License Company East Delaware Westin License Company North Delaware Westin License Company South Delaware Westin License Company West Delaware Westin London Hotel Company Nova Scotia Westin Los Angeles Payroll Company Delaware Westin Maui Management Company Delaware Westin Mexico Management Company Delaware Westin Mexico S.A. de C.V. Mexico Westin Mission Hills Payroll Company Delaware Westin New Orleans Management Company Delaware Westin New Orleans Payroll Company Delaware Westin O'Hare Hotel Venture Illinois Westin Omaha Payroll Company Delaware Westin Ontario (London) Hotel Company Canada Westin Orlando Hotel Company Delaware Westin Orlando Management Company Delaware Westin Ottawa Management Company Delaware Westin O'Hare Hotel Company Delaware Westin Payroll Company Nevada Westin Peachtree I, Inc. Delaware Westin Peachtree II, Inc. Delaware Westin Peachtree Management Company Delaware Westin Pittsburgh Management Company Delaware Westin Pittsburgh Management Holding Company Delaware Westin Portman Peachtree I, LLC Delaware Westin Portman Peachtree II, LLC Delaware Westin Premier, Inc. Delaware Westin Realty Corp. Colorado Westin Renaissance Company Delaware Westin Representation Company Delaware Westin River North Management Company Delaware Westin Riverwalk Management Company Delaware Westin San Antonio Payroll Company Delaware Westin Santa Clara Management Company Delaware Westin Savannah Hotel Company Delaware Westin Sport LLC Delaware Westin St. Francis, Limited Partnership Delaware Westin St. John Hotel Company, Inc. U.S. Virgin Islands Westin Tucker Hotel Venture Delaware Westin Tucson Management Company Delaware Westin Vacation Exchange Company Delaware Westin Vacation Management Corporation Delaware WHC Payroll Company Delaware WHR Colorado Beverage Company Delaware WVC Rancho Mirage, Inc. Delaware WVC St. John, Inc. U.S. Virgin Islands EX-21.3 47 EX-21.3 1 Exhibit 21.3 Subsidiaries of ITT Corporation ENTITY PLACE OF ORGANIZATION ------ --------------------- 2660 Woodley Road Joint Venture Delaware 357, Inc. Nevada 47 Redevelopment 520 Canal Street Louisiana Aegean Management Corporation Nevada Aerhotel SPA Italy Alexandria Suites Investment Limited Partnership Virginia Alphaventure Music Publishing Corp. Amar Hotel Investment Corporation, N.V. Netherlands Antilles Aronimink Corporation Nevada Asian Financial Syndicate, Inc. New Jersey Atlantic HMO, Inc. New Jersey Barton, Ltd. Fiji Baumgartner Company Nevada Betaventure Music Publishing Corp. Blue Marble Company Boardwalk Regency Corporation New Jersey Brookdale Resorts, Inc. Pennsylvania Caesars New Jersey, Inc. New Jersey Caesars Palace Corporation Nevada Caesars Palace, Inc. Nevada Caesars Palace, Ltd. Nevada Caesars Palace Realty Corporation Nevada Caesars Palace Sports Promotions, Inc. Nevada Caesars World Business Services Corporation Nevada Caesars World Entertainment, Inc. California Caesars World Finance Corporation Delaware Caesars World Gaming Development Corporation Nevada Caesars World, Inc. Nevada Caesars World, Inc. Delaware Caesars World Marketing Corporation New Jersey Caesars World Merchandising, Inc. Nevada California Clearing Corporation California Centre City International Hotel Pty. Ltd. Chicago Sheraton Corporation Illinois Ciga S.P.A. Holding Italy Companhia Palmares Hotels E. Turismo Brazil Concord International Mauritius Limited Consolidated Hotel Limited Hong Kong Cove Haven, Inc. Pennsylvania CS&M Associates Louisiana CWI Terminal Corporation Nevada Desert Inn Improvement Company Nevada Desert Palace, Inc. Nevada Destination Services of Scottsdale, Inc. Delaware Dubbo, Ltd. Fiji El Conquistador Hotel Associates Arizona Elk Grove Suites, Inc. Delaware Florida M. Corporation Nevada General Fiduciary Corporation Massachusetts Global Connections, Inc. Delaware Granton Inter-Heritage SDN BHD British Virgin Island Granton International, Ltd. British Virgin Islands Harbor-Cal S.C. California Hartford Center Hotel Partnership Connecticut Hotel Atlantis A.G. Greece Hoteles Sheraton de Argentina S.A.C. Argentina Hoteles Sheraton del Peru S.A. Peru Hoteles Sheraton S.A. de C.V. Mexico Hotels Sheraton de Portugal, SARL Portugal Hudson Sheraton LLC Delaware Indo-Pacific Sheraton Ltd. Hong Kong ITT Broadcasting Corp. Delaware ITT Eden Corporation (owned by ITT Sheraton Corporation) ITT Educational Services, Inc. Delaware ITT Flight Operations, Inc. Pennsylvania ITT Industries Belgium, S.A. Belgium ITT Information Services, Inc. Delaware 2 ITT MSG, Inc. Delaware ITT Sheraton Canada Ltd. Canada ITT Sheraton Corporation Delaware ITT Sheraton International Ltd. Hong Kong ITT Sheraton Reservations Corporation Delaware ITT Sheraton Singapore Pte. Ltd. Singapore Keiyo Resort Development Co. Ltd. Japan Key West Beach Suites L.P. Delaware LA Airport Hotel Venture Leisure Themes Corporation New Jersey Manhattan Sheraton Corporation New York Marceau Investissement France Martial Development Corp. New Jersey MH Limited United Kingdom ML Hotel Investors LP Hawaii Operadora Interamericana de Hoteles S.A. de C.V. Mexico Operadora Sheraton S.A. de C.V. Mexico Paradise Stream, Inc. Pennsylvania Pocono Palace, Inc. Pennsylvania Port de Plaisance Hotel Management N.V. Netherlands Antilles Radio Corporation of Cuba Cuba Rimtech Corporation Nevada Roman Entertainment Corporation of Indiana Indiana Roman Entertainment Corporation of Texas Texas Roman Holding Corporation of Indiana Indiana Romantic Advertising, Inc. Pennsylvania Romantic Tours, Inc. Pennsylvania San Diego Sheraton Corporation Delaware San Fernando Sheraton Corporation Delaware Seattle Union Street Associates Washington Sheraton (Bermuda) Limited Bermuda Sheraton 45 Park Corporation Delaware Sheraton Acceptance Trust Sheraton Arizona Corporation Delaware Sheraton Asia-Pacific Corporation Delaware Sheraton Bal Harbour Associates Joint Venture Florida Sheraton Bal Harbour Associates Ltd. Florida Sheraton Beijing Corp. Delaware Sheraton Blackstone Corporation Delaware Sheraton Boston Corporation Massachusetts Sheraton Building Corporation Sheraton California Corporation Delaware Sheraton Camelback Corporation Delaware Sheraton Caribbean Corporation (Netherlands Antilles) N.V. Sheraton Carson Corporation
3 Sheraton Colorado Corporation Sheraton Copenhagen Corporation Delaware Sheraton Corner Enterprises Corporation Nevada Sheraton Crescent Corporation Delaware Sheraton Dallas Corporation Delaware Sheraton de Venezuela C.A. Venezuela Sheraton Desert Inn Corporation Nevada Sheraton Employees Public Interest Corporation Sheraton Florida Corporation Delaware Sheraton Gaming (Peru) Inc. Delaware Sheraton Gaming Corporation Nevada Sheraton Gateway Suites Investment, L.P. Delaware Sheraton Gateway Suites O'Hare, Investment LP Sheraton Harbor Island Corporation Delaware Sheraton Hartford Corporation Connecticut Sheraton Hawaii Hotels Corporation Hawaii Sheraton Hawaii Management Corporation Delaware Sheraton Hellas E.P.E. Sheraton Hotel (Namibia) (Proprietary) Limited Sheraton Hotels (Ireland) Ltd. Sheraton Hotels (Italia) SRL Italy Sheraton Hotels (Proprietary) Limited Sheraton Hotels (UK) Plc United Kingdom Sheraton Hotels and Inns Limited Sheraton Houston Corporation Delaware Sheraton Inter-Americas, Ltd. Delaware Sheraton Intercontinental Limited Bahamas Sheraton International (Jamaica) Limited Sheraton International de Paraguay S.A. Sheraton International De Mexico, Inc. Delaware Sheraton International Gesellschaft cmbH Austria Sheraton International, Inc. Delaware Sheraton Key West, Inc. Delaware Sheraton Management Company Limited Bahamas Sheraton Management Corporation Delaware Sheraton Management GMBh Germany Sheraton Marketing Corporation Delaware Sheraton Miami Corporation Delaware Sheraton Middle East Management Corporation Delaware Sheraton New Jersey Corporation New Jersey Sheraton New York Corporation New York Sheraton O'Hare Corporation Delaware Sheraton On the Park, Pty. Ltd. Australia Sheraton Operating Corporation Delaware Sheraton Orlando Corporation Delaware 4 Sheraton Overseas Company, Ltd. Bahamas Sheraton Overseas Management Corporation Delaware Sheraton Overseas Technical Services Corporation Delaware Sheraton Pacific Hotels Pty. Ltd. Australia Sheraton Paris, Inc. Delaware Sheraton Paris Investment Limited Partnership Bermuda Sheraton Peachtree Corporation Delaware Sheraton Phillippines Corporation Phillippines Sheraton Phillippines, Inc. Sheraton Phoenician Corporation Delaware Sheraton Pittsburgh Corporation Delaware Sheraton Roissy SA France Sheraton Rosemont Corporation Sheraton Royal Orchid Co. Ltd. Thailand Sheraton Savannah Corporation Delaware Sheraton Services Corporation Delaware Sheraton Steamboat Corporation Delaware Sheraton Suites, Inc. Delaware Sheraton Suites Investment LP Delaware Sheraton Texas Corporation Delaware Sheraton Tunica Corporation Delaware Sheraton Vermont Corporation Vermont Sheraton Warsaw Corporation Delaware Sheraton Warsaw Hotel S.P.Z.O.O. Poland Ski Time Square Enterprises Colorado Sociedad Immobiliara San Cristobal S.A. Chile South Carolina Sheraton Corporation Delaware St. Regis Hotel Joint Venture New York St. Regis Sheraton Corporation New York Suites Management, Inc. Delaware Tegelbacken Investment, A.B. Sweden Tele-Info, Inc. Nevada Telemontage, Inc. The Hotel Clearing Corporation The Hotel Source Asia-Pacific Ltd. Torrey Pines Hotel Associates California Tulsa Hotel Management Corporation Turistica Tabasco S.A. de C.V. Washington Sheraton Corp. Delaware WD Investments LLC Delaware WD Parent Corporation Delaware Westwood Hotel Venture Florida Wharfside One Partnership California Worldwide Franchise Systems, Inc. Delaware EX-23 48 EX-23 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Starwood Hotels & Resorts and Starwood Hotels & Resorts Worldwide, Inc. (the "Company") on Forms S-3 (File No. 333-13411 and 333-13325) of our report dated February 27, 1998 on our audits of the separate and combined financial statements of the Company as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997, which report is included in the Company's Annual Report on Form 10-K. Coopers & Lybrand, L.L.P. Phoenix, Arizona March 31, 1998 EX-27.1 49 EX-27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATIONEXTRACTED FROM THE RELATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ON THE JOINT ANNUAL REPORT ON FORM 10K. 0000316206 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. 1 U.S. DOLLARS YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1 13,644,000 0 73,085,000 0 0 153,597,000 318,325,000 0 558,651,000 508,483,000 0 0 0 513,000 49,655,000 558,651,000 909,824,000 913,688,000 0 630,653,000 274,861,000 0 16,499,000 (9,223,000) 0 (9,223,000) 0 0 0 (9,223,000) 0.20 0.20
EX-27.2 50 EX-27.2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ON THE JOINT ANNUAL REPORT ON FORM 10K. 0000048595 STARWOOD HOTELS & RESORTS 1 U.S. DOLLARS YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1 9,818,000 0 413,265,000 0 0 38,802,000 2,310,538,000 0 2,772,423,000 1,313,112,000 217,567,000 0 0 513,000 1,241,231,000 2,772,423,000 0 270,768,000 0 0 137,363,000 0 64,872,000 50,747,000 0 50,747,000 0 (3,452,000) 0 47,295,000 1.03 0.97
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