-----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, QDpV3ajSDCPSegOYEibCOfoYE7PmDOneG9xfWET/0bzRBGjHwzFZBoNa32x0YUki HId6+kYAz713ooBhgJr2Sg== 0000950153-98-000969.txt : 19980817 0000950153-98-000969.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950153-98-000969 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: STARWOOD HOTELS & RESORTS CENTRAL INDEX KEY: 0000048595 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 520901263 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06828 FILM NUMBER: 98690925 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-Q SEC ACT: SEC FILE NUMBER: 001-07959 FILM NUMBER: 98690926 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-Q 1 10-Q 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ COMMISSION FILE NUMBER: 1-6828 COMMISSION FILE NUMBER: 1-7959 STARWOOD HOTELS & RESORTS STARWOOD HOTELS & RESORTS WORLDWIDE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ITS CHARTER) MARYLAND MARYLAND (STATE OR OTHER JURISDICTION (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) OF INCORPORATION OR ORGANIZATION) 52-0901263 52-1193298 (I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.) 777 WESTCHESTER AVENUE 777 WESTCHESTER AVENUE WHITE PLAINS, NY 10604 WHITE PLAINS, NY 10604 (ADDRESS OF PRINCIPAL EXECUTIVE (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) OFFICES, INCLUDING ZIP CODE) (914) 640-8100 (914) 640-8100 (REGISTRANT'S TELEPHONE NUMBER, (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INCLUDING AREA CODE)
Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 188,569,988 common shares of beneficial interest, par value $0.01 per share, of Starwood Hotels & Resorts paired with 188,569,988 shares of common stock, par value $0.01 per share, of Starwood Hotels & Resorts Worldwide, Inc., outstanding as of August 13, 1998. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. TABLE OF CONTENTS
PAGE ---- ITEM PART I. FINANCIAL INFORMATION 1. Financial Statements Starwood Hotels & Resorts and Starwood Hotels & Resorts Worldwide, Inc.: Combined Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997........................... 3 Combined Consolidated Statements of Income for the Three and Six Months Ended June 30, 1998 and 1997.... 4 Combined Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 1998 and 1997........................................ 5 Combined Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997.............. 6 Starwood Hotels & Resorts: Consolidated Balance Sheet as of June 30, 1998........ 7 Consolidated Statements of Income for the Three Months Ended June 30, 1998 and for the Period from February 23, 1998 to June 30, 1998............................ 8 Consolidated Statement of Cash Flows for the Period from February 23, 1998 to June 30, 1998.............. 9 Starwood Hotels & Resorts Worldwide, Inc.: Consolidated Balance Sheet as of June 30, 1998........ 10 Consolidated Statements of Income for the Three and Six Months Ended June 30, 1998....................... 11 Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 1998......... 12 Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1998........................... 13 Notes to Financial Statements........................... 14 Unaudited Condensed Combined Consolidated Pro Forma Statements of Income for the Three and Six Months Ended June 30, 1998.......................................... 27 Notes to Unaudited Condensed Combined Consolidated Pro Forma Statements of Income............................. 29 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 30 PART II. OTHER INFORMATION 1. Legal Proceedings....................................... 44 6. Exhibits and Reports on Form 8-K........................ 44
1 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following unaudited financial statements of Starwood Hotels & Resorts (the "Trust") and Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation" and, together with the Trust, "Starwood Hotels" or the "Company") are provided pursuant to the requirements of this Item. In the opinion of management, all adjustments necessary for fair presentation, consisting of only normal recurring adjustments, have been included. The financial statements presented herein have been prepared in accordance with the accounting policies described in the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1997 and the accounting policies described in the notes to ITT Corporation's historical financial statements included in the Company's Current Report on Form 8-K filed April 24, 1998 (see Note 3) and should be read in conjunction therewith. See Note 1 in the Notes to Financial Statements for the basis of presentation. 2 4 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. COMBINED CONSOLIDATED BALANCE SHEETS (IN MILLIONS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31, 1998 1997 -------- ------------ (AUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 487 $ 201 Accounts receivable, net.................................. 593 424 Inventories............................................... 69 63 Prepaid expenses and other................................ 140 105 ------- ------ Total current assets................................... 1,289 793 Plant, property and equipment, net.......................... 9,714 4,832 Investment in Madison Square Garden......................... 43 85 Other investments........................................... 320 368 Long-term receivables, net.................................. 371 281 Other assets................................................ 513 450 Goodwill, net............................................... 3,554 1,257 Net assets held for sale.................................... 416 386 Net assets of discontinued operations....................... 33 73 ------- ------ $16,253 $8,525 ======= ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 237 $ 273 Accrued expenses.......................................... 977 1,078 Notes payable and current maturities of long-term debt.... 988 898 Other current liabilities................................. 217 161 ------- ------ Total current liabilities.............................. 2,419 2,410 Long-term debt.............................................. 7,085 1,070 Deferred income taxes....................................... 703 97 Other liabilities........................................... 407 423 Net liabilities of discontinued operations.................. -- 1,600 Minority interest........................................... 511 181 ------- ------ 11,125 5,781 ------- ------ Class B exchangeable preferred shares, at redemption value..................................................... 170 -- ------- ------ Commitments and contingencies Stockholders' equity: Class A exchangeable preferred shares..................... 5 -- Corporation common stock at June 30, 1998 and December 31, 1997; $0.01 par value; authorized 1,050,000,000 and 308,600,000 shares; outstanding 188,856,037 and 126,653,880 at June 30, 1998 and December 31, 1997, respectively........................................... 2 1 Trust common shares of beneficial interest at June 30, 1998 and December 31, 1997; $0.01 par value; authorized 1,200,000,000 and 308,600,000 shares; outstanding 188,856,037 and 126,653,880 at June 30, 1998 and December 31, 1997, respectively........................ 2 1 Additional paid-in capital................................ 5,066 2,934 Cumulative translation adjustment......................... (148) (135) Retained earnings (accumulated deficit)................... 31 (57) ------- ------ Total stockholders' equity............................. 4,958 2,744 ------- ------ $16,253 $8,525 ======= ======
The accompanying notes to financial statements are an integral part of the above statements. 3 5 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. COMBINED CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ----------------- 1998 1997 1998 1997 ------ ------ ------ ------ Revenues.................................................... $2,307 $1,482 $4,010 $2,815 Costs and expenses: Salaries, benefits and other operating.................... 1,673 1,106 2,957 2,132 Selling, general and administrative....................... 247 170 445 334 Restructuring and other special charges................... -- -- -- 58 Depreciation and amortization............................. 172 66 278 134 ------ ------ ------ ------ 2,092 1,342 3,680 2,658 ------ ------ ------ ------ 215 140 330 157 Interest expense, net of interest income of $9 and $3 for the three months ended June 30, 1998 and 1997, respectively, and $17 and $9 for the six months ended June 30, 1998 and 1997, respectively........................... (146) (20) (236) (43) Gain on sale of Alcatel Alsthom shares...................... -- -- -- 183 Gain on investment in Madison Square Garden................. 31 200 31 200 Miscellaneous income (expense), net......................... 3 1 9 (19) ------ ------ ------ ------ 103 321 134 478 Income tax expense.......................................... (24) (136) (30) (200) Minority equity............................................. (9) (2) (6) -- ------ ------ ------ ------ Income from continuing operations........................... 70 183 98 278 Discontinued operations: Net income (loss) from operations, net of taxes and minority interest of $2 and $19 for the three months ended June 30, 1998 and 1997, respectively, and $4 and $12 for the six months ended June 30, 1998 and 1997, respectively............................................ (1) 14 (9) (1) Gain on sale of Educational Services, Inc. shares, net of taxes and minority interest of $100..................... 153 -- 153 -- Gain on disposition of World Directories, net of taxes and minority interest of $543 for the six months ended June 30, 1998................................................ -- -- 948 -- Cumulative effect of accounting change, net of tax benefit of $6................................................... -- -- -- (11) ------ ------ ------ ------ Net income.................................................. $ 222 $ 197 $1,190 $ 266 ====== ====== ====== ====== Basic earnings per Paired Share: Income from continuing operations......................... $ 0.35 $ 1.46 $ 0.47 $ 2.22 Income (loss) from discontinued operations................ 0.80 0.11 5.86 (0.01) Cumulative effect of accounting change.................... -- -- -- (0.09) ------ ------ ------ ------ Net income.................................................. $ 1.15 $ 1.57 $ 6.33 $ 2.12 ====== ====== ====== ====== Diluted earnings per Paired Share: Income from continuing operations......................... $ 0.35 $ 1.44 $ 0.46 $ 2.19 Income (loss) from discontinued operations................ 0.75 0.11 5.76 (0.01) Cumulative effect of accounting change.................... -- -- -- (0.09) ------ ------ ------ ------ Net income.................................................. $ 1.10 $ 1.55 $ 6.22 $ 2.09 ====== ====== ====== ====== Weighted average number of Paired Shares.................... 189 125 186 125 ====== ====== ====== ====== Weighted average number of equivalent Paired Shares......... 202 127 190 127 ====== ====== ====== ======
The accompanying notes to financial statements are an integral part of the above statements. 4 6 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. COMBINED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN MILLIONS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ----------------- 1998 1997 1998 1997 ------ ------ ------ ---- Net income........................................... $222 $197 $1,190 $266 Other comprehensive income: Foreign currency translation adjustments........... (14) 2 (13) (75) Unrealized holding gains (losses) arising during period.......................................... (1) -- (1) 176 Less: reclassification adjustment for gains included in net income.......................... -- -- -- (114) ---- ---- ------ ---- (15) 2 (14) (13) ---- ---- ------ ---- Comprehensive income................................. $207 $199 $1,176 $253 ==== ==== ====== ====
The accompanying notes to financial statements are an integral part of the above statements. 5 7 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)
SIX MONTHS ENDED JUNE 30, ------------------ 1998 1997 ------- ------- OPERATING ACTIVITIES Net income.................................................. $ 1,190 $ 266 Exclude: Discontinued operations -- Net loss from operations.................................. 9 1 Gain on sale of World Directories and Educational Services, Inc........................................... (1,101) -- Cumulative effect of accounting change.................... -- 11 ------- ------- Income from continuing operations........................... 98 278 Adjustments to income from continuing operations: Depreciation and amortization............................. 278 134 Provision for doubtful receivables........................ 24 19 Minority equity in net income............................. 6 -- Equity income, net of dividends received.................. (13) (3) Gain on sale of real estate and investments -- pretax..... (57) (411) Changes in working capital: Accounts receivable....................................... (17) (17) Inventories............................................... (1) (2) Accounts payable.......................................... (68) (22) Accrued expenses.......................................... (402) 41 Accrued and deferred income taxes........................... 46 24 Other, net.................................................. (67) (19) ------- ------- Cash from (used for) continuing operations................ (173) 22 ------- ------- Cash used for discontinued operations..................... -- (44) ------- ------- Cash used for operating activities........................ (173) (22) ------- ------- INVESTING ACTIVITIES Additions to plant, property and equipment.................. (419) (470) Proceeds from sale of real estate and investments........... 2,772 1,597 Collection of Cablevision note receivable................... -- 169 Acquisitions, net of acquired cash.......................... (51) (29) Employee benefit trust...................................... 90 (71) Other, net.................................................. (95) 37 ------- ------- Cash from investing activities............................ 2,297 1,233 ------- ------- FINANCING ACTIVITIES Short-term debt, net........................................ 518 (8) Long-term debt issued, net.................................. 2,016 98 Long-term debt repaid....................................... (1,388) (1,197) Proceeds from equity offering............................... 245 -- Dividends paid.............................................. (3,145) -- Stock repurchases........................................... (97) -- Other, net.................................................. 13 5 ------- ------- Cash used for financing activities........................ (1,838) (1,102) ------- ------- Exchange rate effect on cash and cash equivalents........... -- (2) ------- ------- Increase in cash and cash equivalents....................... 286 107 Cash and cash equivalents -- beginning of period............ 201 205 ------- ------- Cash and cash equivalents -- end of period.................. $ 487 $ 312 ======= ======= Supplemental disclosures of cash flow information: Cash paid during the period for -- Interest.................................................. $ 227 $ 43 ======= ======= Income taxes, net of refunds.............................. $ 46 $ 162 ======= =======
The accompanying notes to financial statements are an integral part of the above statements. 6 8 STARWOOD HOTELS & RESORTS CONSOLIDATED BALANCE SHEET JUNE 30, 1998 (IN MILLIONS, EXCEPT SHARE DATA) ASSETS Current assets: Cash and cash equivalents................................. $ 219 Accounts receivable, net.................................. 6 Accounts receivable, Corporation.......................... 257 Prepaid expenses and other................................ 3 ------ Total current assets................................... 485 Plant, property and equipment, net.......................... 4,247 Other investments, Corporation.............................. 848 Long-term receivables, net.................................. 55 Long-term receivables, Corporation.......................... 2,623 Other assets................................................ 63 Goodwill, net............................................... 145 Net assets held for sale.................................... 29 ------ $8,495 ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 1 Accrued expenses.......................................... 129 Notes payable and current maturities of long-term debt.... 288 ------ Total current liabilities.............................. 418 Long-term debt.............................................. 303 Minority interest........................................... 399 ------ 1,120 ------ Class B exchangeable preferred shares, at redemption value..................................................... 170 ------ Commitments and contingencies Stockholders' equity: Class A exchangeable preferred shares..................... 5 Trust common shares of beneficial interest at June 30, 1998; $0.01 par value; authorized 1,200,000,000 shares; outstanding 188,856,037 at June 30, 1998............... 2 Additional paid-in capital................................ 7,260 Accumulated deficit....................................... (62) ------ Total stockholders' equity............................. 7,205 ------ $8,495 ======
The accompanying notes to financial statements are an integral part of the above statement. 7 9 STARWOOD HOTELS & RESORTS CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS, EXCEPT PER SHARE DATA)
PERIOD FROM THREE MONTHS ENDED FEBRUARY 23, 1998 JUNE 30, 1998 TO JUNE 30, 1998 ------------------ ----------------- Revenues................................................... $ -- $ 1 Rent and interest, Corporation............................. 174 255 Costs and expenses: Selling, general and administrative...................... 5 6 Depreciation and amortization............................ 58 75 ----- ----- 63 81 ----- ----- 111 175 Interest expense, net of interest income of $0 and $3, respectively............................................. (5) (8) ----- ----- 106 167 Income tax expense......................................... (1) (1) Minority equity............................................ (9) (9) ----- ----- Net income................................................. $ 96 $ 157 ===== ===== Basic net income per share................................. $0.48 $0.79 ===== ===== Diluted net income per share............................... $0.48 $0.79 ===== ===== Weighted average number of shares.......................... 189 186 ===== ===== Weighted average number of equivalent shares............... 202 200 ===== =====
The accompanying notes to financial statements are an integral part of the above statements. 8 10 STARWOOD HOTELS & RESORTS CONSOLIDATED STATEMENT OF CASH FLOWS (IN MILLIONS)
PERIOD FROM FEBRUARY 23, 1998 TO JUNE 30, 1998 ----------------- OPERATING ACTIVITIES Net income.................................................. $157 Adjustments to net income: Depreciation and amortization............................. 75 Minority equity in net income............................. 9 Changes in working capital: Accounts Receivable....................................... (1) Accounts payable.......................................... (4) Accrued expenses.......................................... (13) Other, net.................................................. 3 ---- Cash from operating activities............................ 226 ---- INVESTING ACTIVITIES Additions to plant, property and equipment.................. (92) Proceeds from divestments................................... 250 Acquisitions, net of acquired cash.......................... (13) Notes receivable, Corporation............................... (110) Other, net.................................................. (45) ---- Cash used for investing activities........................ (10) ---- FINANCING ACTIVITIES Long-term debt issued, net.................................. (1) Proceeds from equity offering............................... 171 Dividends paid.............................................. (109) Stock repurchases........................................... (68) Other, net.................................................. 10 ---- Cash from financing activities............................ 3 ---- Increase in cash and cash equivalents....................... 219 Cash and cash equivalents -- beginning of period............ -- ---- Cash and cash equivalents -- end of period.................. $219 ==== Supplemental disclosures of cash flow information: Cash paid during the period for -- Interest.................................................. $ 10 ==== Income taxes.............................................. $ 1 ====
The accompanying notes to financial statements are an integral part of the above statements. 9 11 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED BALANCE SHEET JUNE 30, 1998 (IN MILLIONS, EXCEPT SHARE DATA) ASSETS Current assets: Cash and cash equivalents................................. $ 268 Accounts receivable, net.................................. 587 Inventories............................................... 69 Prepaid expenses and other................................ 137 ------- Total current assets................................... 1,061 Plant, property and equipment, net.......................... 5,467 Investment in Madison Square Garden......................... 43 Other investments........................................... 320 Long-term receivables, net.................................. 316 Other assets................................................ 450 Goodwill, net............................................... 3,409 Net assets held for sale.................................... 387 Net assets of discontinued operations....................... 33 ------- $11,486 ======= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable.......................................... $ 236 Accrued expenses.......................................... 848 Notes payable and current maturities of long-term debt.... 700 Notes payable and current maturities of long-term debt, Trust.................................................. 257 Other current liabilities................................. 217 ------- Total current liabilities.............................. 2,258 Long-term debt.............................................. 6,782 Long-term debt, Trust....................................... 2,623 Deferred income taxes....................................... 703 Other liabilities........................................... 407 Minority interest........................................... 960 ------- 13,733 ------- Commitments and contingencies Stockholders' deficit: Corporation common stock at June 30, 1998; $0.01 par value; authorized 1,050,000,000 shares; outstanding 188,856,037 at June 30, 1998........................... 2 Additional paid-in capital................................ (2,194) Cumulative translation adjustment......................... (148) Retained earnings......................................... 93 ------- Total stockholders' deficit............................ (2,247) ------- $11,486 =======
The accompanying notes to financial statements are an integral part of the above statement. 10 12 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1998 JUNE 30, 1998 ------------------ ----------------- Revenues................................................... $2,307 $4,009 Costs and expenses: Salaries, benefits and other operating................... 1,673 2,957 Selling, general and administrative...................... 242 439 Rent and interest, Trust................................. 174 255 Depreciation and amortization............................ 114 203 ------ ------ 2,203 3,854 ------ ------ 104 155 Interest expense, net of interest income of $6 and $14, respectively............................................. (141) (228) Gain on sale of Madison Square Garden...................... 31 31 Miscellaneous income, net.................................. 3 9 ------ ------ (3) (33) Income tax expense......................................... (23) (29) Minority equity............................................ -- 3 ------ ------ Loss from continuing operations............................ (26) (59) Discontinued operations: Net loss from operations, net of taxes and minority interest of $2 and $4 for the three and six months ended June 30, 1998, respectively..................... (1) (9) Gain on sale of Educational Services, Inc. shares, net of taxes and minority interest of $100................... 153 153 Gain on disposition of World Directories, net of taxes and minority interest of $543......................... -- 948 ------ ------ Net income................................................. $ 126 $1,033 ====== ====== Basic earnings per share: Loss from continuing operations.......................... $(0.14) $(0.32) Income from discontinued operations...................... 0.80 5.86 ------ ------ Net income................................................. $ 0.66 $ 5.54 ====== ====== Diluted earnings per share: Loss from continuing operations.......................... $(0.14) $(0.32) Income from discontinued operations...................... 0.80 5.86 ------ ------ Net income................................................. $ 0.66 $ 5.54 ====== ====== Weighted average number of shares.......................... 189 186 ====== ====== Weighted average number of equivalent shares............... 189 186 ====== ======
The accompanying notes to financial statements are an integral part of the above statements. 11 13 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN MILLIONS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1998 JUNE 30, 1998 ------------------ ----------------- Net income................................................ $126 $1,033 Other comprehensive income: Foreign currency translation adjustments................ (14) (13) Unrealized holding losses arising during the period..... (1) (1) ---- ------ (15) (14) ---- ------ Comprehensive income...................................... $111 $1,019 ==== ======
The accompanying notes to financial statements are an integral part of the above statements. 12 14 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN MILLIONS)
SIX MONTHS ENDED JUNE 30, 1998 ---------------- OPERATING ACTIVITIES Net income.................................................. $ 1,033 Exclude: Discontinued operations -- Net loss from operations.................................. 9 Gain on sale of World Directories and Educational Services, Inc.......................................... (1,101) Cumulative effect of accounting change.................... -- ------- Income from continuing operations........................... (59) Adjustments to income from continuing operations: Depreciation and amortization............................. 203 Provision for doubtful receivables........................ 24 Minority equity in net income............................. (3) Equity income, net of dividends received.................. (13) Gain on sale of real estate and investments -- pretax..... (57) Changes in working capital: Accounts receivables...................................... (16) Inventories............................................... (1) Accounts payable.......................................... (64) Accrued expenses.......................................... (389) Accrued and deferred income taxes........................... 46 Other, net.................................................. (70) ------- Cash used for operating activities........................ (399) ------- INVESTING ACTIVITIES Additions to plant, property and equipment.................. (327) Proceeds from sale of real estate and investments........... 2,522 Acquisitions, net of acquired cash.......................... (38) Employee benefit trust...................................... 90 Other, net.................................................. (50) ------- Cash from investing activities............................ 2,197 ------- FINANCING ACTIVITIES Short-term debt, net........................................ 518 Long-term debt issued, net.................................. 2,017 Long-term debt repaid by discontinued operations............ (1,388) Notes payable, Trust........................................ 110 Proceeds from equity offering............................... 74 Dividends paid.............................................. (3,036) Stock repurchases........................................... (29) Other, net.................................................. 3 ------- Cash used for financing activities........................ (1,731) ------- Exchange rate effect on cash and cash equivalents........... -- ------- Increase in cash and cash equivalents....................... 67 Cash and cash equivalents -- beginning of period............ 201 ------- Cash and cash equivalents -- end of period.................. $ 268 ======= Supplemental disclosures of cash flow information: Cash paid during the period for -- Interest.................................................. $ 217 ======= Income taxes, net of refunds.............................. $ 45 =======
The accompanying notes to financial statements are an integral part of the above statement. 13 15 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The accompanying balance sheets as of June 30, 1998 and statements of income, comprehensive income and cash flows for the three months ended June 30, 1998 include the accounts of Starwood Hotels & Resorts and its subsidiaries (the "Trust") and Starwood Hotels & Resorts Worldwide, Inc. and its subsidiaries (the "Corporation" and, together with the Trust, "Starwood Hotels" or the "Company"), inclusive of ITT Corporation and its subsidiaries ("ITT") (see Note 3). Because the acquisition of ITT (the "ITT Merger") is treated as a reverse purchase for financial accounting purposes, the statements of income, comprehensive income and cash flows for the six months ended June 30, 1998 include the accounts of the Trust and the Corporation for the period from the closing of the ITT Merger on February 23, 1998 through June 30, 1998 and the accounts of ITT for the six months ending June 30, 1998. The Trust was formed in 1969 and elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code. In 1980, the Trust formed the Corporation and made a distribution to the Trust's shareholders of one share of common stock, par value $0.01 per share, of the Corporation (a "Corporation Share") for each common share of beneficial interest, par value $0.01 per share, of the Trust (a "Trust Share"). Trust Shares and Corporation Shares are paired on a one-for-one basis and, pursuant to an agreement between the Trust and the Corporation, may be held or transferred only in units ("Paired Shares") consisting of one Trust Share and one Corporation Share. The Company is one of the largest hotel and gaming companies in the world and the Trust is one of the largest REITs in the United States. The Company's principal lines of business are hotels and gaming. The hotels segment is comprised of a worldwide hospitality network of 650 full-service hotels primarily serving three markets: luxury, upscale and mid-price. The Company's hotel operations are represented on every continent and in nearly every major world market. The Company's gaming operations are located in several key domestic jurisdictions. The Company also operates various hotel/casino ventures outside the United States. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES Comprehensive Income On January 1, 1998, the Company adopted the Financial Accounting Standards Board ("FASB")-issued Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income, which establishes standards for the reporting and display of comprehensive income and its components. SFAS No. 130 requires a separate statement to report the components of comprehensive income for each period reported. As a result of the adoption of SFAS No. 130, the required statement of comprehensive income and the expanded disclosure are included in the accompanying financial statements for the Company and the Corporation. During the six months ended June 30, 1998 and 1997, the Company engaged in numerous transactions involving foreign currency resulting in translation adjustments of approximately $13 million and $75 million, respectively. In addition, during the six months ended June 30, 1997, ITT held securities classified as available-for-sale which had unrealized gains during the period of approximately $176 million. ITT sold these securities during the six months ended June 30, 1997 recognizing a gain of $114 million. Earnings Per Share Earnings per share for the three and six months ended June 30, 1997, as previously reported by ITT, has been restated to give effect to the reverse purchase accounting for the ITT Merger and to conform to the presentation as required by SFAS No. 128, Earnings Per Share. The following is a reconciliation of basic 14 16 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) earnings per Paired Share to diluted earnings per Paired Share for income from continuing operations (in millions, except per share data):
THREE MONTHS ENDED JUNE 30, ------------------------------------------------------------------ 1998 1997 ------------------------------- ------------------------------- EARNINGS SHARES PER SHARE EARNINGS SHARES PER SHARE -------- ------ --------- -------- ------ --------- Income from continuing operations....................... $70 $183 Dividends on Class A and B EPS..... (5) -- --- ---- Basic earnings per Paired Share.... 65 189 $0.35 183 125 $1.46 Effect of dilutive securities: Impact of assumed conversions of Class A and B EPS............. 5 9 -- -- UBS settlement security (Note 9)............................ -- 1 -- -- Paired Share options............. -- 3 -- 2 --- --- ---- --- Diluted earnings per Paired Share............................ $70 202 $0.35 $183 127 $1.44 === === ===== ==== === =====
SIX MONTHS ENDED JUNE 30, ------------------------------------------------------------------ 1998 1997 ------------------------------- ------------------------------- EARNINGS SHARES PER SHARE EARNINGS SHARES PER SHARE -------- ------ --------- -------- ------ --------- Income from continuing operations....................... $98 $278 Dividends on Class A and B EPS..... (11) -- --- ---- Basic earnings per Paired Share.... 87 186 $0.47 278 125 $2.22 Effect of dilutive securities: UBS settlement security (Note 9)............................ -- 1 -- -- Paired Share options............. -- 3 -- 2 --- --- ---- --- Diluted earnings per Paired Share............................ $87 190 $0.46 $278 127 $2.19 === === ===== ==== === =====
Class A and B exchangeable preferred shares were outstanding as of June 30, 1998, but were not included in the computation of diluted earnings per Paired Share for the six months ended June 30, 1998 as the effects were anti-dilutive. 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. 15 17 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 income (the fair value method). NOTE 3. ACQUISITIONS Hotel Acquisitions In May 1998, the Company acquired the 242-room Danbury Hilton Hotel in Danbury, Connecticut for approximately $20 million in cash. In January 1998, the Company completed the acquisition of four full-service, luxury properties located in Aspen, Colorado; New York City, New York; Washington, D.C.; and Houston, Texas for a total consideration of approximately $334 million, consisting of $150 million in cash and 3.7 million Paired Shares valued for purposes of this transaction at approximately $184 million. The acquisition agreements required the Company to pay the sellers an additional purchase price in cash representing the difference between Starwood Hotels' stock price at the date of the acquisition agreements and a 10-day period average closing price ending on April 25, 1998 of Starwood Hotels' stock ($50.087). In May 1998, this requirement was fulfilled with a cash payment of approximately $14 million to the sellers. Acquisition of ITT On February 23, 1998, pursuant to an Amended and Restated Agreement and Plan of Merger dated as of November 12, 1997 (the "ITT Merger Agreement") among the Corporation, Chess Acquisition Corp. ("Merger Sub"), the Trust and ITT, the Company acquired ITT. Pursuant to the terms of the ITT Merger Agreement, Merger Sub, a newly formed Nevada corporation and a subsidiary of the Company, was merged with and into ITT (the "ITT Merger"), whereupon the separate corporate existence of Merger Sub ceased and ITT continued as the surviving corporation. As a result of the ITT Merger, ITT was owned jointly by the Trust and the Corporation. Immediately after the effective time of the ITT Merger, the Corporation purchased all of the common stock, no par value, of ITT ("ITT Common Stock") owned by the Trust for a combination of cash and notes. After such purchase, ITT became a wholly owned subsidiary of the Corporation. Under the terms of the ITT Merger Agreement, each outstanding share of ITT Common Stock, together with the associated right to purchase shares of Series A Participating Cumulative Preferred Stock of ITT (the "Rights" and, together with the ITT Common Stock, "ITT Shares"), other than those that were converted into cash pursuant to a cash election by the holder (and other than ITT Shares owned directly or indirectly by ITT or Starwood Hotels, which shares were canceled), was converted into 1.543 Paired Shares. Pursuant to cash election procedures, approximately 35 million ITT Shares, representing approximately 30% of the outstanding ITT Shares, were converted into $85 in cash per share. In addition, each ITT Share was converted into additional cash consideration in the amount of $0.37493151, which amount represents the interest that would have accrued (without compounding) on $85 at an annual rate of 7% during the period from and including January 31, 1998 to but excluding the date of the closing of the ITT Merger (February 23, 1998). The aggregate value of the ITT acquisition in cash, Paired Shares and assumed debt was approximately $14.6 billion. On February 23, 1998, the Company obtained two additional credit facilities ($5.6 billion in total) with Lehman Commercial Paper Inc., Bankers Trust Company and The Chase Manhattan Bank to fund the cash portion of the ITT Merger consideration, to refinance a portion of the Company's existing indebtedness (including indebtedness outstanding under the $2.2 Billion Facility, as defined below) and to provide funds for 16 18 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 rate notes facility (the "IRN Facility"). The $3.1 Billion Facility has three tranches: a $1.0 billion, one-year term loan; a $1.0 billion, five-year term loan; and a $1.1 billion, five-year revolving credit facility. The Corporation, the Trust and certain of their respective direct and indirect subsidiaries may be designated as borrowers or co-borrowers under all or a portion of the $3.1 Billion Facility. The interest rate for the $3.1 Billion Facility is one-, two- or three-month LIBOR, at the Company's option, plus 187.5 basis points for the six months ending August 24, 1998, and 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, fourth 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, as defined below) 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. The Company accounted for the ITT Merger as a reverse purchase in accordance with Accounting Principles Board Opinion No. 16. Purchase accounting for a combination is similar to the accounting treatment used in the acquisition of any asset group. Although the Trust and the Corporation issued Paired Shares to ITT stockholders and survived the ITT Merger, the Trust and the Corporation are considered the acquired companies for accounting purposes since the prior ITT stockholders held a majority of the outstanding Paired Shares after the ITT Merger was consummated. The fair market value of the Paired Shares outstanding and available upon conversion of the Partnership units held by the Starwood Hotels' stockholders prior to the ITT Merger and the Partnerships' unit holders, respectively (using the stock price of $54.31 per Paired Share, based on the average of the high and low prices per Paired Share of Starwood Hotels as reported on the New York Stock Exchange (the "NYSE") on November 12, 1997), is used as the valuation basis for the combination. The fair market value of the Paired Shares outstanding of the Company at February 23, 1998 (ITT Merger closing date) in excess of the net book value of the assets and liabilities of Starwood Hotels is allocated to plant, property and equipment and goodwill on a preliminary basis. The goodwill is being amortized over a 40-year period. The allocation of the excess of fair market value of the assets and liabilities will be finalized when the Company completes its evaluation of the assets acquired and 17 19 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) liabilities assumed. The calculation of the excess of the fair market value of the Paired Shares over the book value of the Company's assets and liabilities at February 23, 1998 is as follows (in millions):
Total Paired Shares and Partnership units outstanding prior to the ITT Merger......................................... 80 Fair market value of the Company's stock using the stock price of $54.31 (based on the average of the high and low prices per Paired Share of Starwood Hotels as reported on the NYSE on November 12, 1997)............................ $4,350 Book value of the Company's combined consolidated equity.... (1,775) Transaction-related fees.................................... 37 Minority interest related to the Partnerships............... (152) ------ Excess of fair market value of Paired Shares over the book value of net assets....................................... $2,460 ======
Because the acquisition of ITT is treated as a reverse purchase for financial accounting purposes, the statements of income, comprehensive income and cash flows for the six months ended June 30, 1998 include the accounts of the Trust and the Corporation for the period from the closing of the ITT Merger on February 23, 1998 through June 30, 1998 and the accounts of ITT for the six months ending June 30, 1998. The financial statements for the Company as of and for the three months ended June 30, 1998 include the accounts of the Trust, the Corporation and ITT. Historical stockholders' equity of the Company prior to the ITT Merger is retroactively restated for the equivalent number of shares received in the ITT Merger after giving effect to the difference in par value between Starwood Hotels' and ITT's stock. Unless otherwise indicated, all references herein to the number of Paired Shares and per share amounts have been restated to reflect the impact of the reverse acquisition at the conversion factor of 1.543. Certain reclassifications have been made to the Company's balance sheet in the current year to conform to the presentation of the ITT balance sheet as of December 31, 1997. See Note 12 and the Combined Consolidated Pro Forma Statements of Unaudited Income included therein for the pro forma information giving effect to the ITT Merger. Acquisition of Westin On January 2, 1998, pursuant to a Transaction Agreement dated as of September 8, 1997 (the "Westin Transaction Agreement"), among WHWE L.L.C. ("WHWE"), Woodstar Investor Partnership ("Woodstar"), Nomura Asset Capital Corporation ("Nomura"), Juergen Bartels (Mr. Bartels together with WHWE, Woodstar and Nomura, the "Members"), Westin Worldwide, W&S Lauderdale Corp. ("Lauderdale"), W&S Seattle Corp. ("Seattle"), Westin St. John Hotel Company, Inc. ("St. John"), W&S Denver Corp. ("Denver"), W&S Atlanta Corp. ("Atlanta" and, together with Westin Worldwide, Lauderdale, Seattle, St. John and Denver, "Westin"), W&S Hotel L.L.C. ("W&S LLC" and, together with Westin, the "Westin Companies" or "Westin"), the Trust, SLT Realty Limited Partnership (the "Realty Partnership"), the Corporation and SLC Operating Limited Partnership (the "Operating Partnership" and, together with the Realty Partnership, the "Partnerships"), Starwood Hotels acquired Westin. Pursuant to the terms of the Transaction Agreement, (i) Westin Worldwide merged into the Trust (the "Westin Merger"). In connection with the Westin Merger, all of the issued and outstanding shares of capital stock of Westin Worldwide (other than shares held by Westin Worldwide and its subsidiaries or by the Company) were converted into an aggregate of 6,285,783 Class A Exchangeable Preferred Shares, par value $0.01 per share (the "Class A EPS"), of the Trust and 5,294,783 Class B Exchangeable Preferred Shares, liquidation value $38.50 per share (the "Class B EPS" and, together with the Class A EPS, the "EPS"), of the Trust and cash in the amount of $177.9 million; (ii) The stockholders of Lauderdale, Seattle and Denver contributed all 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 18 20 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 Merger, to require the Trust to redeem such shares at a price of $38.50. On January 2, 1998, the Company obtained a $2.265 billion credit facility (the "$2.2 Billion Facility") from a group of lenders led by Bankers Trust Company and The Chase Manhattan Bank to fund the cash portion of the purchase of Westin for approximately $178 million and to repay an aggregate of approximately $1.0 billion of outstanding debt of Westin and of the Company under a $1.2 billion facility. The $2.2 Billion Facility was refinanced on February 23, 1998 with proceeds from the $3.1 Billion Facility and the IRN Facility. NOTE 4. DISPOSITIONS In June 1998, the Company sold the 151-room Bay Valley Hotel and Resort in Bay City, Michigan for approximately $5 million and its remaining interest in the King 8 Hotel and Casino in Las Vegas, Nevada for approximately $3 million. In June 1998, the Company sold 11.35 million shares of ITT Educational Services, Inc. ("Educational Services") in a public offering. Additionally, the underwriters' option to purchase an additional 1.7 million shares to cover over-allotments was exercised. Total proceeds from these sales were approximately $315 million. The Company continues to explore its options regarding the disposition of its remaining 35% ownership interest in Educational Services. The assets and liabilities of Educational Services are included in net assets of discontinued operations in the Company's financial statements. The Company disposed of the following eight properties in May 1998 for approximately $245 million in cash: the 229-room Embassy Suites Phoenix Airport in Phoenix, Arizona; the 224-room Tempe Embassy Suites in Tempe, Arizona; the 198-room Palm Desert Embassy Suites in Palm Desert, California; the 233-room Embassy Suites Hotel in Atlanta, Georgia; the 297-room St. Louis Embassy Suites in St. Louis, Missouri; the 308-room Doubletree Guest Suites in Dallas-Ft. Worth Airport, Texas; the 254-room Doubletree Guest Suites Cypress Creek in Ft. Lauderdale, Florida; and the 155-room Doubletree Guest 19 21 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Suites in Lexington, Kentucky. Proceeds from these dispositions were reinvested in a transaction that is intended to qualify as a tax-deferred exchange under Section 1031 of the Internal Revenue Code. In May 1998, the Company sold a Gulfstream V corporate aircraft for approximately $39 million in cash. In March 1998, ITT and Dow Jones & Company, Inc. sold WBIS+, Channel 31 in New York City, to Paxson Communications Corporation ("Paxson") for a total cash purchase price of approximately $258 million, approximately $128 million of which represented ITT's interest. In February 1998, ITT disposed of World Directories ("WD"), the subsidiary through which ITT conducted its telephone directories publishing business, to VNU, a leading international publishing and information company based in The Netherlands, for gross consideration to ITT of $2.1 billion. Company interest expense and debt related to the disposition of WD is allocated to discontinued operations based upon the amount of debt repaid with the proceeds from these sales. The assets and liabilities of WD are included in net liabilities of discontinued operations in the Company's financial statements. In July 1997, ITT sold its 38.5% ownership interest in Madison Square Garden, L.P. ("MSG") to Cablevision Systems Corporation ("Cablevision") for approximately $500 million and a pretax gain of $200 million. ITT also had two "put" options to require Cablevision or MSG to purchase one-half of ITT's continuing 7.81% interest in MSG for $75 million. In addition, ITT agreed to contribute to MSG an ITT-owned aircraft which MSG had used for the New York Knickerbockers and the New York Rangers. In consideration of the aircraft contribution, Cablevision agreed to add an additional $19 million to the exercise price of each of ITT's "put" options. ITT exercised one "put" option in April 1998 and the remaining "put" option if exercised, should close on June 17, 1999. During February and March 1997, ITT sold its interest in the capital stock of Alcatel Alsthom. Total proceeds from these sales were approximately $830 million, resulting in an after-tax gain of $106 million ($183 million pretax). In April 1997, ITT received the remaining balance of $533 million from these sales. NOTE 5. CHANGES IN ACCOUNTING PRINCIPLES Effective January 1, 1997, ITT changed its method of accounting for start-up costs on major hospitality and gaming projects to expense these costs as incurred. Prior to 1997, ITT capitalized these costs and amortized them over a three-year period. This change was made to increase the focus on controlling costs associated with the start-up of new projects. The 1997 results were restated to record a pretax charge of $17 million ($11 million after taxes) as the cumulative effect of this accounting change. NOTE 6. RESTRUCTURING AND OTHER SPECIAL CHARGES During the first quarter of 1997, ITT recorded pretax charges totaling $58 million to restructure and rationalize operations at its World Headquarters. Of the total pretax charge, approximately $28 million represented severance and other related employee termination costs associated with the elimination of nearly 115 positions worldwide. The balance of the restructuring charge ($30 million pretax) related primarily to asset write-offs, lease commitments and termination penalties. The substantial portion of these costs were paid during 1997. NOTE 7. NET ASSETS HELD FOR SALE At June 30, 1998, the Company's hotel portfolio included four properties held for sale: the 155-room Tyee Hotel in Olympia, Washington; the 195-room Gainesville Radisson in Gainesville, Florida; the 155-room Four Points Hotel in Wichita, Kansas; and the 220-room Sheraton Tara Hotel in South Portland, Maine. These properties were all included in net assets held for sale as of June 30, 1998. 20 22 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) In April 1997, ITT announced its intention to sell one of its gaming properties, the Desert Inn in Las Vegas, Nevada. For financial reporting purposes, the assets and liabilities attributable to this property have been included in net assets held for sale as of June 30, 1998. NOTE 8. STOCKHOLDERS' EQUITY On March 31, 1998, the Trust consented to the conversion of 1,097,585 shares of Class B EPS by a stockholder into an equal number of shares of Class A EPS, and the stockholder thereafter converted 2,400,000 shares of Class A EPS into an equal number of Paired Shares. During the six months ended June 30, 1998, the Company has repurchased in the open market approximately 2 million Paired Shares at an average purchase price of $48.78. NOTE 9. COMMITMENTS AND CONTINGENCIES Pursuant to a Purchase Agreement dated as of October 10, 1997, the Company sold to UBS Limited ("UBS Ltd.") 2,185,000 Paired Shares ("UBS Shares") at a cash price of $57.25 per share, and paid to Warburg Dillon Read LLC, an affiliate of UBS Ltd., a placement fee equal to 2.5% of the gross proceeds to the Company from such sale of shares. Concurrently therewith, the Company entered into a Forward Stock Contract dated October 13, 1997, with Union Bank of Switzerland, London Branch ("UBS/LB") (the "UBS Price Adjustment Agreement"). The UBS Price Adjustment Agreement provides for a settlement payment to be made, in the form of Paired Shares or cash, by the Company to UBS/LB, or by UBS/LB to the Company, based on the market price of the Paired Shares over a specified unwind period, as compared to a "Forward Price" (as defined, but essentially equal to $57.25 per Paired Share, plus an implicit interest factor less dividends 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 prior to October 10, 1998 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 the Company's obligations under the contract by repurchasing for cash at the Forward Price a number of Paired Shares equal to the UBS Shares. The Company has the obligation to settle the UBS Price Adjustment Agreement on October 10, 1998 unless UBS/LB agrees to extend such agreement's term. UBS/LB 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/LB to settle its obligation through the payment of cash to the Company. The effect of the UBS Price Adjustment Agreement will be to cause UBS Ltd. and UBS/LB to receive and retain an amount equal to the purchase price paid by UBS Ltd. for the Paired Shares plus a return on that purchase price equal to the three-month LIBOR for a specified period plus 150 basis points. 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/LB to be held as security for the Company's settlement obligation. As of June 30, 1998, the security for the Company's settlement obligation was $26 million which the Company had fully funded. Subsequent to June 30, 1998, the Company provided an additional $15 million to UBS/LB to meet the security requirement as of July 31, 1998. 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 to UBS/LB based on the amount of the net stock settlement, if any, as well as an unwind fee 21 23 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) equal to one half of the settlement amount multiplied by an interest factor calculated for the actual term of the UBS Price Adjustment Agreement. On February 24, 1998, the Trust and the Corporation sold an aggregate of 4.6 million Paired Shares to Merrill Lynch International, NMS Services, Inc., Lehman Brothers Inc. and certain affiliates (collectively, the "February Purchasers" and together with UBS Ltd., the "Purchasers") for a cash purchase price per Paired Share of $52.798, which price reflected a 2% discount from the last reported sale price of the Paired Shares on the date of the purchase. Concurrently with these sales, the Trust and the Corporation entered into three separate agreements (the "February Price Adjustment Agreements" and together with the UBS Price Adjustment Agreement, the "Price Adjustment Agreements") with the February Purchasers and/or certain affiliates pursuant to which each of the February Purchasers or their respective affiliates will sell, as directed by the Trust and the Corporation and on or before February 24, 1999, in an underwritten fixed price offering or another method specified in the February Price Adjustment Agreements, a sufficient number of the purchased Paired Shares to achieve net sales proceeds equal to the aggregate market value of the Paired Shares purchased by such February Purchaser in February 1998, plus a forward accretion component, minus an adjustment for dividends paid on the purchased Paired Shares. In addition, each February Purchaser has the right to cause a sale of all or a portion of the purchased Paired Shares in the event the market prices of the Paired Shares decline below certain levels. The precise numbers of Paired Shares that will be required to be sold pursuant to the February Price Adjustment Agreements will depend primarily on the market prices of the Paired Shares at the time of settlement. If the number of Paired Shares so required to be sold is greater than the number of Paired Shares purchased by the February Purchasers as a result of a decrease in the market prices of the Paired Shares, the Trust and the Corporation are required to issue additional Paired Shares to the February Purchasers at a cash price of $0.01 per share. If the number of Paired Shares so required to be sold is less than the number of Paired Shares purchased by the February Purchasers on February 24, 1998 as a result of an increase in the market prices of the Paired Shares, the February Purchasers will deliver to the Trust and the Corporation specified numbers of Paired Shares. The effect of the February Price Adjustment Agreements will be to cause the February Purchasers to receive and retain an amount equal to the purchase price paid by the February Purchasers for the Paired Shares plus an annual rate of return on that purchase price equal to the three-month LIBOR for a specified period plus 1.75%, subject to adjustment under certain circumstances. In the event that the cash purchase price of the aggregate Paired Shares purchased by the February Purchasers less $5 million is in excess of the aggregate closing price of those Paired Shares on certain dates during the term of the February Price Adjustment Agreements, the Company is obligated to deliver additional Paired Shares to the February Purchasers as security for the Company's settlement obligations. As of June 30, 1998, the Company had delivered 503,441 Paired Shares in accordance with this security requirement. Any and all Paired Shares delivered as security will be issued and outstanding when delivered. The Trust and the Corporation are required to cause to be registered under the Securities Act of 1933, as amended (the "Securities Act"), for sale to the public of all of the Paired Shares originally sold to the Purchasers and the additional Paired Shares, if any, issued under the Price Adjustment Agreements. The Trust and the Corporation have filed with the Securities and Exchange Commission registration statements for such resales. NOTE 10. GAMING OPERATIONS Casino revenues represent the net win from gaming wins and losses. Revenues exclude the retail value of rooms, food, beverage, entertainment and other promotional allowances provided on a complimentary basis to customers. The estimated retail value of such promotional allowances was $47 million and $36 million for the three months ended June 30, 1998 and 1997, respectively, and $96 million and $75 million for the six months 22 24 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) ended June 30, 1998 and 1997, respectively. The estimated cost of such promotional allowances was $38 million and $29 million for the three months ended June 30, 1998 and 1997, respectively, and $67 million and $59 million for the six months ended June 30, 1998 and 1997, respectively, and has been included in costs and expenses. Revenues and costs and expenses of the Gaming operations, excluding the King 8 Hotel & Casino which was leased by the Company and sold in June 1998, are comprised of the following (in millions):
THREE MONTHS ENDED JUNE 30, ------------------------------------------- 1998 1997 -------------------- -------------------- COSTS AND COSTS AND REVENUES EXPENSES REVENUES EXPENSES -------- --------- -------- --------- Gaming......................................... $238 $135 $242 $144 Rooms.......................................... 32 11 17 6 Food and beverage.............................. 29 26 18 17 Other operations............................... 31 17 26 14 Selling, general and administrative............ -- 51 -- 41 Preopening costs............................... -- 16 -- 3 Depreciation and amortization.................. -- 34 -- 20 Provision for doubtful accounts................ -- 11 -- 4 ---- ---- ---- ---- Total........................................ $330 $301 $303 $249 ==== ==== ==== ====
SIX MONTHS ENDED JUNE 30, ------------------------------------------- 1998 1997 -------------------- -------------------- COSTS AND COSTS AND REVENUES EXPENSES REVENUES EXPENSES -------- --------- -------- --------- Gaming......................................... $468 $278 $473 $296 Rooms.......................................... 62 21 33 12 Food and beverage.............................. 57 50 36 34 Other operations............................... 61 31 53 28 Selling, general and administrative............ -- 105 -- 91 Preopening costs............................... -- 26 -- 3 Depreciation and amortization.................. -- 67 -- 41 Provision for doubtful accounts................ -- 21 -- 14 ---- ---- ---- ---- Total........................................ $648 $599 $595 $519 ==== ==== ==== ====
NOTE 11. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS SFAS No. 133 In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the fair value of the derivative be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows the gains and losses on a derivative to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. 23 25 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A company may also implement SFAS No. 133 as of the beginning of any fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and thereafter). SFAS No. 133 cannot be applied retroactively and must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired or substantively modified after December 31, 1997. Management has not yet quantified the impacts of adopting SFAS No. 133 on the Company's financial statements or determined the timing of or method of the adoption of SFAS No. 133. EITF 97-2 In November 1997, the Emerging Issues Task Force ("EITF") of the FASB reached a consensus on EITF 97-2, Application of SFAS No. 94 and APB Opinion No. 16 to Physician Practice Management Entities and Certain Other Entities with Contractual Management Arrangements. EITF 97-2 addresses the circumstances in which a management entity may include the revenues and expenses of a managed entity in its financial statements. As a result of EITF 97-2, the Company intends to change its accounting policy for its managed hotels beginning in the fourth quarter of 1998. There will be no impact on operating income, net income, earnings per Paired Share or stockholders' equity as a result of this change in accounting policy. SFAS No. 131 In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. This statement is effective for financial statements for fiscal years beginning after December 15, 1997. The expanded disclosure required by this statement will be included in the Company's 1998 annual financial statements. FRR 48 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 for the six months ended June 30, 1998. Additionally, the amendments contained in FRR 48 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 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. NOTE 12. PRO FORMA RESULTS Due to the impact of the ITT Merger and the acquisition of Westin during the six months ended June 30, 1998, the unaudited condensed combined consolidated pro forma statements of income of Starwood Hotels & Resorts and Starwood Hotels & Resorts Worldwide, Inc. for the three and six months ended June 30, 1998 are included herein and the following pro forma data is presented to supplement the historical statements of 24 26 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) income. This information reflects the ITT Merger and the acquisition of Westin as if they occurred on January 1, 1997 and does not purport to present what actual results would have been had such transactions, in fact, occurred at January 1, 1997, or to project results for any future period (in millions, except per share data):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ---------------- 1998 1997 1998 1997 ------- ------- ------ ------ Revenues........................................ $2,276 $2,064 $4,387 $3,905 Income before discontinued operations and cumulative effect of accounting change........ $ 96 $ 154 $ 118 $ 251 Net income...................................... $ 248 $ 168 $1,210 $ 239 Basic income from continuing operations per Paired Share.................................. $ 0.48 $ 0.85 $ 0.57 $ 1.42 Diluted income from continuing operations per Paired Share.................................. $ 0.48 $ 0.81 $ 0.56 $ 1.38
NOTE 13. SUBSEQUENT EVENTS In August 1998, the Company acquired a 95% non-controlling interest in the 760-room Westin Maui in Maui, Hawaii for approximately $132 million in cash. Subsequent to June 30, 1998, the Company repurchased in the open market approximately 225,000 of its Paired Shares at an average purchase price of $39.29. 25 27 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Funds from Operations Management believes that funds from operations ("FFO") (as defined by the National Association of Real Estate Investments Trusts)(1) is one measure of financial performance of an equity REIT such as the Trust. Combined pro forma FFO for the three months ended June 30, 1998 grew by 398% to $259 million, compared to combined FFO of $52 million as reported by Starwood Hotels for the corresponding period in 1997. Combined pro forma FFO for the six months ended June 30, 1998 grew by 376% to $405 million compared to FFO of $85 million as reported by Starwood Hotels for the corresponding period of 1997. The following table shows the calculation of pro forma combined FFO for the three and six months ended June 30, 1998 (see the unaudited condensed combined consolidated pro forma statements of income and the notes thereto beginning on page 27) and historical combined FFO as reported by Starwood Hotels for the three and six months ended June 30, 1997 (in millions):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 1998 1997 1998 1997 --------- ---------- --------- ---------- PRO FORMA HISTORICAL PRO FORMA HISTORICAL --------- ---------- --------- ---------- Income from continuing operations before minority interest....................................... $ 105 $ 26 $ 123 $ 36 Minority interest in consolidated joint ventures....................................... (3) (3) (4) (4) Depreciation and amortization.................... 165 30 323 55 Depreciation and amortization for unconsolidated joint ventures................................. (4) -- (2) -- Amortization of financing costs.................. (2) (1) (3) (2) Deferred taxes................................... 19 -- 1 -- Gain on sale of real estate and investments...... (37) -- (49) -- Preopening costs................................. 16 -- 26 -- Other non-recurring items, net................... -- -- (10) -- Funds from Operations............................ $ 259 $ 52 $ 405 $ 85 ========= ========== ========= ==========
- --------------- (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 (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. 26 28 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. UNAUDITED CONDENSED COMBINED CONSOLIDATED PRO FORMA STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 1998 The following unaudited condensed combined consolidated pro forma statement of income for the three months ended June 30, 1998 gives effect as of January 1, 1998, to the ITT Merger and the acquisition of Westin. The pro forma information is based upon historical information as described in Note 1 of the Notes to Financial Statements and does not purport to present what actual results would have been had such transactions, in fact, occurred at January 1, 1998, or to project results for any future period. Historical results are for the three months ended June 30, 1998.
PRO FORMA ADJUSTMENTS ---------------------- HISTORICAL DESERT INN(B) OTHERS PRO FORMA ---------- ------------- ------ --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues........................................... $2,307 $(31) $ -- $2,276 Costs and expenses: Salaries, benefits and other operating........... 1,673 (31) -- 1,642 Selling, general and administrative.............. 247 -- (5)(h) 242 Depreciation and amortization.................... 172 (4) (3)(f)(g) 165 ------ ---- ---- ------ 2,092 (35) (8) 2,049 ------ ---- ---- ------ 215 4 8 227 Interest expense, net.............................. (146) -- 22(d) (124) Gain on investment in Madison Square Garden........ 31 -- -- 31 Miscellaneous income, net.......................... 3 1 -- 4 ------ ---- ---- ------ 103 5 30 138 Income tax expense................................. (24) (2) (7) (33) Minority equity.................................... (9) -- -- (9) ------ ---- ---- ------ Income from continuing operations.................. $ 70 $ 3 $ 23 $ 96 ====== ==== ==== ====== Basic earnings per Paired Share: Income from continuing operations................ $ 0.35 $ 0.48 ====== ====== Diluted earnings per Paired Share: Income from continuing operations................ $ 0.35 $ 0.48 ====== ====== Weighted average number of Paired Shares........... 189 189 ====== ====== Weighted average number of equivalent Paired Shares........................................... 202 202 ====== ======
The accompanying notes to financial statements are an integral part of the above pro forma statement. 27 29 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. UNAUDITED CONDENSED COMBINED CONSOLIDATED PRO FORMA STATEMENT OF INCOME The following unaudited condensed combined consolidated pro forma statement of income for the six months ended June 30, 1998 gives effect as of January 1, 1998, to the ITT Merger and the acquisition of Westin. The pro forma information is based upon historical information as described in Note 1 of the Notes to Financial Statements and does not purport to present what actual results would have been had such transactions, in fact, occurred at January 1, 1998, or to project results for any future period. Historical results are for the six months ended June 30, 1998.
PRO FORMA ADJUSTMENTS ------------------------------------------- HISTORICAL STARWOOD HOTELS(A) DESERT INN(B) OTHERS PRO FORMA ---------- ------------------ ------------- ------ --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues........................... $4,010 $437 $(60) $ -- $4,387 Costs and expenses: Salaries, benefits and other operating..................... 2,957 325 (64) -- 3,218 Selling, general and administrative................ 445 42 -- (9)(h) 478 Depreciation and amortization.... 278 43 (7) 9(f)(g) 323 ------ ---- ---- ---- ------ 3,680 410 (71) -- 4,019 ------ ---- ---- ---- ------ 330 27 11 -- 368 Interest expense, net.............. (236) (25) -- (39)(c) (253) 44(d) 3(e) Gain on investment in Madison Square Garden.................... 31 -- -- -- 31 Miscellaneous income, net.......... 9 4 2 -- 15 ------ ---- ---- ---- ------ 134 6 13 8 161 Income tax expense................. (30) (2) (4) (2) (38) Minority equity.................... (6) 1 -- -- (5) ------ ---- ---- ---- ------ Income from continuing operations....................... $ 98 $ 5 $ 9 $ 6 $ 118 ====== ==== ==== ==== ====== Basic earnings per Paired Share: Income from continuing operations.................... $ 0.47 $ 0.57 ====== ====== Diluted earnings per Paired Share: Income from continuing operations.................... $ 0.46 $ 0.56 ====== ====== Weighted average number of Paired Shares........................... 186 186 ====== ====== Weighted average number of equivalent Paired Shares......... 190 190 ====== ======
The accompanying notes to financial statements are an integral part of the above pro forma statement. 28 30 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME (a) Represents the historical results of Starwood Hotels & Resorts and Starwood Hotels & Resorts Worldwide, Inc., inclusive of Westin, for the period of January 1, 1998, through the closing of the ITT Merger on February 23, 1998. (b) Represents the elimination of Desert Inn from continuing operations. The Company has announced its intentions to sell the Desert Inn and, as a result, has excluded its results from continuing operations. (c) Represents interest expense as if the ITT Merger had occurred on January 1, 1998, using an average rate of 7.5%, on the additional debt incurred to finance (i) the $2.991 billion representing the cash portion of the purchase price of the shares to be acquired from the ITT stockholders; (ii) the $312 million representing cash used to retire ITT stock options; and (iii) the $102 million representing ITT transaction fees including amounts paid as commitment fees for advisory services and finders fees. (d) Represents reduction of interest expense, using an average rate of 7.5%, for the paydown of the term loans with proceeds from actual or planned asset dispositions as if the dispositions had occurred on January 1, 1998. The actual dispositions include the disposition of WD for gross proceeds of $2.1 billion to VNU in February 1998; the sale of ITT's interest in WBIS+, Channel 31 in New York City, to Paxson for gross proceeds of $128 million in March 1998; the exercise of one of the two "put" options in April 1998 which require Cablevision or MSG to purchase or redeem ITT's continuing 7.81% interest in MSG for gross proceeds of $94 million each; the sale of an aircraft for gross proceeds of $39 million in April 1998; and the sale of 11.35 million shares of ESI and the exercise of the underwriters' option to purchase an additional 1.7 million shares to cover over-allotments for gross proceeds of $315 million in June 1998. The planned asset dispositions include the exercise of the remaining "put" option with Cablevision or MSG, sale of the Company's remaining 35% interest in ESI and the sale of the Desert Inn. The pro forma net proceeds of the planned dispositions, after certain costs and income taxes, would reduce debt by approximately $735 million. (e) Represents the reduction of interest expense, using an average rate of 7.5%, for the paydown of term loans with the proceeds of $245 million, net of costs of $6 million, from the sale of 4.6 million Paired Shares on February 24, 1998 as if such offering had taken place on January 1, 1998. (f) Represents a reduction of the amortization recognized on the deferred loan fees which were incurred in connection with the one-year $1.0 billion term loan facility (see Note 3) as if the asset dispositions had occurred on January 1, 1998. This reduction is net of the increased amortization on deferred loan fees recognized for the period of January 1, 1998 through the closing of the ITT Merger on February 23, 1998 for the costs incurred in connection with the additional debt (see Note (c)). (g) Represents the depreciation and amortization expense related to the excess value recorded as a result of the purchase consideration exceeding the fair market value of the combined net assets of Starwood Hotels and Westin as if the transactions had taken place on January 1, 1998. (h) Represents effects of termination of certain executives under contractual severance agreements, net of additional costs for new executives under employment contracts, removal of duplicate third-party consulting fees and termination of certain advertising contracts and rental agreements, less related termination fees. 29 31 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements. This report contains certain statements that may be deemed "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements relating to the Company's objectives, strategies, plans, intentions and expectations, and all statements (other than statements of historical facts) that address actions, events or circumstances that the Company or its management expects, believes or intends will occur in the future, are forward-looking statements. All such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated in the forward-looking statements, including, without limitation, risks and uncertainties associated with the following: the recently enacted legislation restricting the Company's ability to acquire additional assets; the Trust's continued ability to qualify for taxation as a REIT; the Company's integration of the assets and operations of ITT and Westin; completion of future acquisitions; the availability of capital for acquisitions and for renovations; the ability to maintain existing management, franchise or representation agreements and to obtain new agreements on favorable terms; competition within the lodging industry and the gaming industry; the cyclicality of the real estate business, the hotel business and the gaming business; general real estate and economic conditions; impact of the Year 2000 issue; and the other risks and uncertainties set forth in the annual, quarterly and current reports and proxy statements of the Trust and the Corporation. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. 30 32 THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE AND SIX MONTHS ENDED JUNE 30, 1997 To facilitate a meaningful comparison between periods, this Management's Discussion and Analysis focuses on pro forma information for the periods covered, which management believes provides the most meaningful comparability among historical periods. The pro forma information reflects the ITT Merger, the Westin acquisition and certain asset dispositions as if they had occurred on January 1, 1997. In addition, the following pro forma data for the periods ended June 30, 1997 reflects the 44 hotel properties acquired by Starwood Hotels in 1997 and two hotel properties acquired by Westin in 1997 (the "1997 Acquisitions") and the sale, by ITT, of 5 hotel properties during 1997 (the "1997 Dispositions") as if all of such transactions had occurred on January 1, 1997. Period-to-period comparisons of the Company's historical information are, in management's view, less relevant to an understanding of the Company due to the significance of the ITT Merger and the acquisition of Westin. The following combined, consolidated, comparative operating data for the Company is presented on a historical reporting basis for the three and six months ended June 30, 1998 and 1997 excluding preopening costs, non-recurring items and the operations of the Desert Inn in Las Vegas which was held for sale at June 30, 1998. The pro forma data includes the historical results of Starwood Hotels and Westin prior to the ITT Merger and certain pro forma adjustments as more fully described in the notes to the unaudited combined consolidated pro forma statements of income (see page 29). The pro forma data is not necessarily indicative of the results that would have been achieved had such transactions actually occurred on January 1, 1997, nor are they necessarily indicative of the Company's future results.
THREE MONTHS ENDED JUNE 30, -------------------------------------------------- HISTORICAL PRO FORMA HISTORICAL PRO FORMA 1998 1998 1997 1997 ---------- --------- ---------- --------- (IN MILLIONS) REVENUES Hotel Owned................................................. $ 816 $ 810 $362 $ 754 Managed............................................... 1,072 1,072 736 1,031 Other................................................. 48 48 32 34 Gaming.................................................. 303 299 274 270 Other................................................... 10 10 -- 12 COSTS AND EXPENSES Salaries, benefits and other operating: Hotel Owned................................................. $ 430 $ 430 $203 $ 424 Managed............................................... 1,023 1,020 697 983 Other................................................. (19) (19) (14) (14) Gaming.................................................. 175 170 162 158 Other................................................... (1) (1) -- 6 Selling, general and administrative: Hotel Owned................................................. $ 110 $ 109 $ 50 $ 95 Managed............................................... -- -- -- -- Other................................................. 46 46 53 53 Gaming.................................................. 49 49 42 42 Other................................................... 33 33 18 30 EBITDA(1) Hotel Owned................................................. $ 276 $ 271 $109 $ 235 Managed............................................... 49 52 39 48 Other................................................. 21 21 (7) (5) Gaming.................................................. 79 80 70 70 Other................................................... (22) (22) (18) (24) Depreciation and amortization........................... $ 172 $ 66
- --------------- (1) EBITDA is defined as income before minority interest, interest, taxes and depreciation and amortization. Non-cash items such as provision for losses, gains and losses from debt restructuring and sales of property are also excluded from EBITDA as these items do not impact operating results on a recurring basis. Management considers EBITDA to be one measure of the cash flows from operations of the Company before debt service that provides a relevant basis for comparison among REITs and it is presented to assist investors in analyzing the performance of the Company. This information should not be considered as an alternative to any measure of performance as promulgated under generally accepted accounting principles, nor should it be considered as an indicator of the overall financial performance of the Company. The Company's calculation of EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited. 31 33
SIX MONTHS ENDED JUNE 30, -------------------------------------------------- HISTORICAL PRO FORMA HISTORICAL PRO FORMA 1998 1998 1997 1997 ---------- --------- ---------- --------- (IN MILLIONS) REVENUES Hotel Owned.......................................... $1,301 $1,515 $ 658 $1,384 Managed........................................ 1,911 2,095 1,417 1,969 Other.......................................... 83 83 64 68 Gaming........................................... 595 588 556 556 Other............................................ 15 25 -- 26 COSTS AND EXPENSES Salaries, benefits and other operating: Hotel Owned.......................................... $ 701 $ 832 $ 367 $ 789 Managed........................................ 1,822 2,000 1,346 1,889 Other.......................................... (31) (31) (15) (15) Gaming........................................... 351 343 335 335 Other............................................ (8) (8) -- 6 Selling, general and administrative: Hotel Owned.......................................... $ 181 $ 211 $ 109 $ 199 Managed........................................ -- -- -- -- Other.......................................... 97 97 92 92 Gaming........................................... 96 96 82 82 Other............................................ 55 65 38 63 EBITDA Hotel Owned.......................................... $ 419 $ 472 $ 182 $ 396 Managed........................................ 89 95 71 80 Other.......................................... 17 17 (13) (9) Gaming........................................... 148 149 139 139 Other............................................ (32) (32) (38) (43) Depreciation and amortization.................... $ 278 $ 134
32 34 RESULTS OF OPERATIONS CONTINUED OPERATIONS Revenues Pro Forma: Pro forma revenues for properties owned, leased or managed by the Company increased 5.4% and 7.7% to $1.9 billion and $3.6 billion for the three and six months ended June 30, 1998, respectively, when compared to the corresponding periods of 1997. The increase in revenues was driven by an increase in revenues for owned, leased and consolidated joint venture hotels of 7.4% and 9.5% to $810 million and $1.5 billion in the three and six months ended June 30, 1997, respectively, when compared to the 1997 periods. The increase in hotel revenues at the Company's 172 owned, leased and consolidated joint venture hotels resulted from an increase in revenue per available room ("REVPAR") of 7.4% and 8.3% to $104 and $98 for the three and six months ended June 30, 1998, respectively, when compared to the same periods of 1997, an increase in average daily rate ("ADR") of 8.4% and 8.4% to $144 and $142 for the three and six months ended June 30, 1998, respectively, when compared to the corresponding 1997 periods, and a slight decrease of less than one percentage point in occupancy rates to 72.3% and 69.2% for the three and six months ended June 30, 1998, respectively, when compared to the same periods of 1997. REVPAR at the Company's international owned, leased and consolidated joint venture hotels were especially strong with growth of 12.5% and 10.2% for the three and six months ended June 30, 1998, respectively, when compared to the same periods of 1997. The results at owned, leased and consolidated joint venture properties in North America were also strong with REVPAR increasing 5.3% and 7.3% for the three and six months ended June 30, 1998, respectively, when compared to the same periods of 1997. The second quarter 1998 results at the Company's U.S. properties were specifically affected by the timing of the Easter holiday period, which typically results in reduced occupancy levels. The Easter holiday fell in the month of April during 1998 and in the month of March in the prior year. Hotel revenues for properties managed by the Company for third-party owners increased 4.0% and 6.4% to $1.1 billion and $2.1 billion for the three and six months ended June 30, 1998, respectively, when compared to the same periods of 1997. Management fees and equity earnings from these hotels increased 8.3% and 18.8% to $52 million and $95 million for the three and six months ended June 30, 1998, respectively, when compared to the same periods of 1997. Gaming revenues, excluding the results of the Desert Inn in Las Vegas, Nevada which is held for disposition, increased 10.7% and 5.8% to $299 million and $588 million for the three and six months ended June 30, 1998, respectively, when compared to the same periods of 1997. The increase in revenues from the additional 1,130 rooms and 110,000 square feet of convention space at Caesars Palace in Las Vegas, Nevada was offset by the adverse impact of the declines in the Asian financial markets on high-end baccarat play. Historical: On an historical basis, revenues for properties owned, leased or managed by the Company increased 71.9% and 54.8% to $1.9 billion and $3.2 billion for the three and six months ended June 30, 1998, respectively, when compared to the corresponding periods of 1997. Since the ITT Merger is accounted for as a reverse purchase and the reflected amounts accordingly are those of ITT, the increase in hotel revenues was due primarily to the inclusion of the results of approximately 160 hotels owned, leased or managed by Starwood Hotels beginning February 23, 1998. For discussion of gaming revenues, see the pro forma discussion above. 33 35 Costs and Expenses Pro Forma: Pro forma salaries, benefits and other operating costs increased 2.6% and 4.5% in the three and six months ended June 30, 1998, respectively, to $1.6 billion and $3.1 billion when compared to the same periods of 1997. The increase in costs is due primarily to the reopening of hotel properties in 1998 which were closed for renovations in 1997, the inclusion of new managed hotel properties and the inclusion of the operating costs associated with the tower at Caesars Palace which was opened at the end of 1997. Pro forma selling, general and administrative expenses increased 7.7% and 7.6% in the three and six months ended June 30, 1998, respectively, to $237 million and $469 million when compared to the same periods of 1997. Historical: On an historical basis, the increase in salaries, benefits and other operating costs and the increase in selling, general and administrative expenses for the three and six months ended June 30, 1998 when compared to the same periods of 1997 was due primarily to the reverse purchase accounting treatment and the inclusion of the results of approximately 160 hotels owned, leased or managed by Starwood Hotels beginning February 23, 1998. Included in the three and six months ended June 30, 1998 are approximately $5 and $9 million, respectively, of transition costs and costs of personnel terminated as a result of the ITT Merger. EBITDA Pro Forma: On a pro forma basis, the Company's earnings before interest, taxes, depreciation and amortization ("EBITDA"), excluding non-recurring items and discontinued operations, increased 24.1% and 24.5% to $402 million and $701 million in the three and six months ended June 30, 1998, respectively, when compared to the same periods of 1997. The increase was primarily due to the improved results at the Company's owned, leased and consolidated joint venture hotels. These hotels benefited from an increase in EBITDA of $36 million and $76 million to $271 million and $472 million in the three and six months ended June 30, 1998, respectively, when compared to the same periods of 1997. The EBITDA improvement of approximately 15.3% and 19.2% in the three and six months ended June 30, 1998, respectively, was due primarily to an increase in ADR discussed above. EBITDA margins for these hotels increased 2.3 and 2.6 percentage points to 33.5% and 31.2% in the three and six months ended June 30, 1998, respectively, when compared to the same periods of 1997, demonstrating the Company's continued focus on improving margins by cost containment and purchasing synergies. Excluding assets held for sale and preopening costs, gaming EBITDA for the three and six months ended June 30, 1998 was $80 million and $149 million, respectively, compared to $70 million and $139 million in the same periods of 1997. The increase in gaming EBITDA resulted from positive results at Caesars Palace and Caesars Atlantic City. EBITDA at Caesars Palace was $29 million and $55 million in the three and six months ended June 30, 1998, respectively, compared to $27 million and $59 million in the same periods of 1997. EBITDA at Caesars Atlantic City was $39 million and $68 million in the three and six months ended June 30, 1998, respectively, compared to $30 million and $56 million in the same periods of 1997, as the addition of 620 new rooms had a positive effect on all areas of the casino and hotel operations. Historical: On an historical basis, the Company's EBITDA increased 108.8% and 88.0% to $403 million and $641 million in the three and six months ended June 30, 1998, respectively, when compared to the same periods of 34 36 1997, due primarily to the reverse purchase accounting treatment and the inclusion of the results of the hotels owned and managed by Starwood Hotels beginning February 23, 1998. For the discussion of gaming EBITDA, see the pro forma discussion above. Depreciation and Amortization On an historical basis, depreciation and amortization expense increased to $172 million and $278 million in the three and six months ended June 30, 1998, respectively, when compared to $66 million and $134 million in the same periods of 1997. The increase was primarily due to depreciation expense on approximately 160 hotels owned, leased or managed by Starwood Hotels beginning February 23, 1998, the amortization of goodwill related to the ITT Merger and the commencement of depreciation on certain newly completed hotel and gaming projects. Net Interest Expense Net interest expense for the three and six months ended June 30, 1998 increased to $146 million and $236 million, respectively, when compared to $20 million and $43 million in the same periods of 1997. The increase relates primarily to the debt incurred to finance the ITT Merger. See "Liquidity and Capital Resources." DISPOSITIONS The Desert Inn in Las Vegas, Nevada, the gaming property held for disposition, experienced a $0 and $3.6 million EBITDA loss in the three and six months ended June 30, 1998, respectively, compared to EBITDA of $5 million and a $18 million EBITDA loss in the same periods of 1997. The improved performance was due to a normalized hold percentage in baccarat (which percentage in 1997 was negative) and a significantly higher average room rate due to improvements made to the property in 1997. These improvements were offset by the Asian economic crisis which negatively impacted results at the Desert Inn by significantly reducing the amount of high end baccarat volume. DISCONTINUED OPERATIONS Results for the three and six months ended June 30, 1998 include a net loss from discontinued operations of $1 million and $9 million, respectively, compared to a net income (loss) of $14 million and $(1) million in the same periods of 1997. The negative results are due to the reduced income of the Company's WD subsidiary which decreased 100% and 109% in the three and six months ended June 30, 1998, respectively, when compared to the same periods in 1997. The results of WD have historically been lower in the first quarter compared to the second quarter and this subsidiary was disposed of on February 19, 1998. The results from discontinued operations for the six months ended June 30, 1998 include gains of $948 million and $153 million, net of $643 million of taxes and minority interest, related to the disposition of WD and the sale of Educational Services shares, respectively. MADISON SQUARE GARDEN In April 1997, ITT entered into a Partnership Interest Transfer Agreement with Cablevision. Pursuant to this agreement, Cablevision paid ITT $500 million in cash on June 17, 1997 for 38.5% of ITT's ownership interest in MSG and ITT received a "put" option to require Cablevision or MSG to purchase half of ITT's continuing interest in MSG for $75 million on June 17, 1998 and the other half of this continuing interest for an additional $75 million on June 17, 1999 (or, if the first option were not exercised, the entire continuing interest for $150 million). In addition, ITT agreed to contribute to MSG an ITT-owned aircraft which MSG has used for the New York Knickerbockers and the New York Rangers. In consideration of the aircraft contribution, an additional $19 million was added to the exercise price of each of ITT's "put" options. In April 1998, the Company exercised its first "put" option on one-half of its interest in MSG and received a payment of $94 million in June 1998. 35 37 EXTERNAL GROWTH During the first quarter of 1998, in addition to the ITT Merger and the Westin acquisition, the Company acquired four full-service, luxury hotel properties located in Aspen, Colorado; New York City, New York; Washington, D.C.; and Houston, Texas for a total purchase price of approximately $334 million consisting of $150 million in cash and 3.7 million Paired Shares (which shares were valued for purposes of the acquisition at approximately $184 million). The acquisition agreements required the Company to pay the sellers an additional purchase price in cash representing the difference between Starwood Hotels' stock price at the date of the acquisition agreements and a 10-day period average closing price ending on April 25, 1998 of Starwood Hotels' stock ($50.087). In May 1998, this requirement was fulfilled with a cash payment of approximately $14 million to the sellers. Also in May 1998, the Company acquired the 242-room Danbury Hilton in Danbury, Connecticut for approximately $20 million in cash. INTERNAL GROWTH The following tables summarize average occupancy, ADR and REVPAR on a year-over-year basis for the Company's 153 owned hotel properties for the three and six months ended June 30, 1998 (excluding nine hotels sold during the second quarter of 1998, four hotels held for sale at June 30, 1998, 10 hotels under significant renovation during the second quarter of 1998 and five hotels under renovation during the second quarter of 1997): OWNED, LEASED AND CONSOLIDATED JOINT VENTURE HOTELS
THREE MONTHS ENDED JUNE 30, ------------------ PERCENTAGE 1998 1997 VARIANCE ------- ------- ---------- WORLDWIDE ALL HOTELS Number of hotels............................................ 153 153 Number of rooms............................................. 49,855 49,855 REVPAR...................................................... $106.97 $ 97.96 9.2% ADR......................................................... $144.18 $133.77 7.8% Occupancy................................................... 74.2% 73.2% 1.0% SHERATON Number of hotels............................................ 77 77 Number of rooms............................................. 26,098 26,098 REVPAR...................................................... $116.97 $106.98 9.3% ADR......................................................... $159.97 $147.95 8.1% Occupancy................................................... 73.1% 72.3% 0.8% WESTIN Number of hotels............................................ 25 25 Number of rooms............................................. 10,411 10,411 REVPAR...................................................... $100.39 $ 92.37 8.7% ADR......................................................... $132.49 $123.89 6.9% Occupancy................................................... 75.8% 74.6% 1.2% OTHER Number of hotels............................................ 51 51 Number of rooms............................................. 13,346 13,346 REVPAR...................................................... $ 90.81 $ 82.99 9.4% ADR......................................................... $120.76 $111.95 7.9% Occupancy................................................... 75.2% 74.1% 1.1%
36 38
THREE MONTHS ENDED JUNE 30, ------------------ PERCENTAGE 1998 1997 VARIANCE ------- ------- ---------- NORTH AMERICA ALL HOTELS Number of hotels............................................ 106 106 Number of rooms............................................. 36,748 36,748 REVPAR...................................................... $102.92 $ 94.91 8.4% ADR......................................................... $137.85 $127.34 8.3% Occupancy................................................... 74.7% 74.5% 0.2% SHERATON Number of hotels............................................ 34 34 Number of rooms............................................. 14,031 14,031 REVPAR...................................................... $115.25 $106.75 8.0% ADR......................................................... $157.20 $143.59 9.5% Occupancy................................................... 73.3% 74.3% (1.0)% WESTIN Number of hotels............................................ 22 22 Number of rooms............................................. 9,503 9,503 REVPAR...................................................... $100.64 $ 92.79 8.5% ADR......................................................... $132.51 $123.53 7.3% Occupancy................................................... 76.0% 75.1% 0.9% OTHER Number of hotels............................................ 50 50 Number of rooms............................................. 13,214 13,214 REVPAR...................................................... $ 89.79 $ 82.15 9.3% ADR......................................................... $119.28 $110.57 7.9% Occupancy................................................... 75.3% 74.3% 1.0% INTERNATIONAL ALL HOTELS Number of hotels............................................ 47 47 Number of rooms............................................. 13,107 13,107 REVPAR...................................................... $118.12 $106.41 11.0% ADR......................................................... $162.00 $152.79 6.0% Occupancy................................................... 72.9% 69.6% 3.3% SHERATON Number of hotels............................................ 43 43 Number of rooms............................................. 12,067 12,067 REVPAR...................................................... $119.06 $107.27 11.0% ADR......................................................... $163.37 $153.67 6.3% Occupancy................................................... 72.9% 69.8% 3.1% WESTIN Number of hotels............................................ 3 3 Number of rooms............................................. 908 908 REVPAR...................................................... $ 98.07 $ 88.34 11.0% ADR......................................................... $132.20 $127.75 3.5% Occupancy................................................... 74.1% 69.1% 5.0%
37 39
THREE MONTHS ENDED JUNE 30, ------------------ PERCENTAGE 1998 1997 VARIANCE ------- ------- ---------- OTHER Number of hotels............................................ 1 1 Number of rooms............................................. 132 132 REVPAR...................................................... $183.10 $160.95 13.8% ADR......................................................... $271.33 $272.14 (0.3)% Occupancy................................................... 67.5% 59.1% 8.4%
SIX MONTHS ENDED JUNE 30, ------------------ PERCENTAGE 1998 1997 VARIANCE ------- ------- ---------- WORLDWIDE ALL HOTELS Number of hotels............................................ 153 153 Number of rooms............................................. 49,855 49,855 REVPAR...................................................... $100.67 $ 91.96 9.5% ADR......................................................... $142.14 $132.05 7.6% Occupancy................................................... 70.8% 69.6% 1.2% SHERATON Number of hotels............................................ 77 77 Number of rooms............................................. 26,098 26,098 REVPAR...................................................... $110.20 $101.51 8.6% ADR......................................................... $157.28 $146.00 7.7% Occupancy................................................... 70.1% 69.5% 0.6% WESTIN Number of hotels............................................ 25 25 Number of rooms............................................. 10,411 10,411 REVPAR...................................................... $100.22 $ 90.02 11.3% ADR......................................................... $133.70 $124.78 7.1% Occupancy................................................... 75.0% 72.1% 2.9% OTHER Number of hotels............................................ 51 51 Number of rooms............................................. 13,346 13,346 REVPAR...................................................... $ 80.89 $ 73.75 9.7% ADR......................................................... $117.22 $108.73 7.8% Occupancy................................................... 69.0% 67.8% 1.2% NORTH AMERICA ALL HOTELS Number of hotels............................................ 106 106 Number of rooms............................................. 36,748 36,748 REVPAR...................................................... $ 98.02 $ 89.02 10.1% ADR......................................................... $138.26 $127.28 8.6% Occupancy................................................... 70.9% 69.9% 1.0%
38 40
SIX MONTHS ENDED JUNE 30, ------------------ PERCENTAGE 1998 1997 VARIANCE ------- ------- ---------- SHERATON Number of hotels............................................ 34 34 Number of rooms............................................. 14,031 14,031 REVPAR...................................................... $112.74 $103.00 9.5% ADR......................................................... $161.05 $146.48 9.9% Occupancy................................................... 70.0% 70.3% (0.3)% WESTIN Number of hotels............................................ 22 22 Number of rooms............................................. 9,503 9,503 REVPAR...................................................... $ 98.07 $ 87.80 11.7% ADR......................................................... $131.70 $122.28 7.7% Occupancy................................................... 74.5% 71.8% 2.7% OTHER Number of hotels............................................ 50 50 Number of rooms............................................. 13,214 13,214 REVPAR...................................................... $ 80.59 $ 73.46 9.7% ADR......................................................... $116.35 $107.89 7.8% Occupancy................................................... 69.3% 68.1% 1.2% INTERNATIONAL ALL HOTELS Number of hotels............................................ 47 47 Number of rooms............................................. 13,107 13,107 REVPAR...................................................... $108.08 $100.52 7.5% ADR......................................................... $153.05 $146.17 4.7% Occupancy................................................... 70.6% 68.8% 1.8% SHERATON Number of hotels............................................ 43 43 Number of rooms............................................. 12,067 12,067 REVPAR...................................................... $107.06 $ 99.59 7.5% ADR......................................................... $152.63 $145.38 5.0% Occupancy................................................... 70.1% 68.5% 1.6% WESTIN Number of hotels............................................ 3 3 Number of rooms............................................. 908 908 REVPAR...................................................... $119.81 $111.50 7.5% ADR......................................................... $150.79 $147.86 2.0% Occupancy................................................... 79.5% 75.4% 4.1% OTHER Number of hotels............................................ 1 1 Number of rooms............................................. 132 132 REVPAR...................................................... $109.12 $100.52 8.6% ADR......................................................... $241.87 $231.37 4.5% Occupancy................................................... 45.1% 43.4% 1.7%
39 41 SEASONALITY AND DIVERSIFICATION The hotel and gaming industries are seasonal in nature; however, the periods during which the Company's properties experience higher hotel revenues or gaming activities vary from property to property and depend principally upon location. Although the Company's revenues historically have been lower in the first quarter than in the second, third or fourth quarters, the acquisitions of Westin and ITT are expected to affect, and future acquisitions may further affect, seasonal fluctuations in revenues and cash flows. 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 be sufficient to service short- and long-term indebtedness, fund maintenance requirements and capital expenditures and meet operating cash requirements, including all distributions to shareholders by the Trust. During the first quarter of 1998, the Trust paid a distribution of $0.48 per share for the fourth quarter of 1997. During each of the second and third quarters of 1998, the Trust paid a distribution of $0.52 per share for the quarters ended March 31, 1998 and June 30, 1998. CASH FLOW FROM INVESTING AND FINANCING ACTIVITIES The Company intends to finance the acquisition of additional hotel properties, hotel renovations and capital improvements and provide for general corporate purposes through its credit facilities described below, through additional lines of credit, and when market conditions warrant, through the issuance of additional equity or debt securities. Loans and Credit Facilities. At December 31, 1997, ITT had total debt outstanding of $1,968 million comprised of bank loans and other short-term facilities outstanding of $258 million and long-term facilities of $3,043 million, less net debt allocated to discontinued operations of $1,333 million. The weighted average interest rate for bank loans and other short-term borrowings was 6.71% at December 31, 1997. The weighted average interest rate on the long-term facilities was 6.98% at December 31, 1997. At December 31, 1997, Starwood Hotels had total debt outstanding of $1,564 million comprised of revolving lines of credit and other short-term notes and mortgages payable of $1,467 million and long-term notes and mortgages payable of $97 million. The weighted average interest rate for the revolving lines of credit and other short-term notes and mortgages payable was 7.37% at December 31, 1997. The weighted average interest rate for the long-term notes and mortgages payable was 7.46% at December 31, 1997. The weighted average interest rates are comprised of interest rates on both U.S. dollar and non-U.S. dollar denominated indebtedness. On January 2, 1998, Starwood Hotels obtained the $2.2 Billion Facility from a group of lenders led by Bankers Trust Company and The Chase Manhattan Bank to fund the cash portion of the purchase of Westin for approximately $178 million and to repay an aggregate of approximately $1.0 billion of outstanding debt of Westin and of the Company under the $1.2 Billion Facility. On February 23, 1998, Starwood Hotels obtained two additional credit facilities ($5.6 billion in total) with Lehman Brothers, Bankers Trust Company and The Chase Manhattan Bank to fund the cash portion of the ITT Merger consideration, to refinance a portion of Starwood Hotels' existing indebtedness (including indebtedness outstanding under the $2.2 Billion Facility) and to provide funds for general corporate purposes. These facilities are comprised of the $3.1 Billion Facility and the IRN Facility. The $3.1 Billion Facility has three tranches: a $1.0 billion, one-year term loan; a $1.0 billion, five-year term loan; and a $1.1 billion, five-year revolving credit facility. The Corporation, the Trust and certain of their respective direct and indirect subsidiaries may be designated as borrowers or co-borrowers under all or a 40 42 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 six months ending August 24, 1998, and thereafter is determined pursuant to a pricing "grid" with rates based on Starwood Hotels' leverage and/or senior unsecured debt rating. Quarterly amortization of the five-year term loan begins in the third year, with total amortization of 10%, 20% and 70% of the principal amount over the third, fourth and fifth years, respectively. Repayment of amounts borrowed under the $3.1 Billion Facility is guaranteed by the Trust and the Corporation and substantially all of their respective significant subsidiaries (including the Partnerships) other than gaming 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. Stock Sales and Repurchases. At December 31, 1997, ITT had 180 million shares outstanding. On February 23, 1998, Starwood Hotels completed the acquisition of ITT. Each outstanding share of common stock of ITT, together with the associated Right, other than those that were converted into cash pursuant to a cash election by the holder (and other than shares owned directly or indirectly by ITT or Starwood Hotels, which shares were canceled), was converted into 1.543 Paired Shares. Pursuant to cash election procedures, approximately 35 million (pre-reverse acquisition) shares of ITT's common stock, representing approximately 30% of the outstanding shares prior to the ITT Merger, were converted into $85 in cash per share. In addition, each share of ITT's common stock was converted into additional cash consideration in the amount of $0.37493151, which amount represents the interest that would have accrued (without compounding) on $85 at an annual rate of 7% during the period from and including January 31, 1998 to but excluding the date of the closing (February 23, 1998). Pursuant to a Purchase Agreement dated as of October 10, 1997, the Company sold to UBS Ltd. 2,185,000 UBS Shares at a cash price of $57.25 per share, and paid to Warburg Dillon Read LLC, an affiliate of UBS Ltd., a placement fee equal to 2.5% of the gross proceeds to the Company from such sale of shares. Concurrently therewith, the Company entered into the UBS Price Adjustment Agreement with UBS/LB. The UBS Price Adjustment Agreement provides for a settlement payment to be made, in the form of Paired Shares or cash, by the Company to UBS/LB, or by UBS/LB to the Company, based on the market price of the Paired Shares over a specified unwind period, as compared to a "Forward Price" (as defined, but essentially equal to $57.25 per Paired Share, plus an implicit interest factor less dividends 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 prior to October 10, 1998 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 the Company's obligations under the contract by repurchasing for cash at the Forward Price a number of Paired Shares equal to the UBS Shares. The Company has the obligation to settle the UBS Price Adjustment Agreement on October 10, 1998 unless UBS/LB agrees to extend such agreement's term. UBS/LB 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/LB to settle its obligation through the payment of cash to the Company. The effect of the UBS Price Adjustment Agreement will be to cause UBS Ltd. and UBS/LB to receive and retain an amount equal 41 43 to the purchase price paid by UBS Ltd. for the Paired Shares plus a return on that purchase price equal to the three-month LIBOR for a specified period plus 150 basis points. 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/LB to be held as security for the Company's settlement obligation. As of June 30, 1998, the security for the Company's settlement obligation was $26 million which the Company had fully funded. Subsequent to June 30, 1998, the security for the Company provided an additional $15 million to UBS/LB to meet the security requirement as of July 31, 1998. 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 to UBS/LB based on the amount of the net stock settlement, if any, as well as an unwind fee equal to one half of the settlement amount multiplied by an interest factor calculated for the actual term of the UBS Price Adjustment Agreement. On February 24, 1998, the Trust and the Corporation sold an aggregate of 4.6 million Paired Shares to Merrill Lynch International, NMS Services, Inc., Lehman Brothers Inc. and certain affiliates (collectively, the "February Purchasers" and together with UBS Ltd., the "Purchasers") for a cash purchase price per Paired Share of $52.798, which price reflected a 2% discount from the last reported sale price of the Paired Shares on the date of the purchase. Concurrently with these sales, the Trust and the Corporation entered into three separate agreements (the "February Price Adjustment Agreements" and together with the UBS Price Adjustment Agreement, the "Price Adjustment Agreements") with the February Purchasers and/or certain affiliates pursuant to which each of the February Purchasers or their respective affiliates will sell, as directed by the Trust and the Corporation and on or before February 24, 1999, in an underwritten fixed price offering or another method specified in the February Price Adjustment Agreements, a sufficient number of the purchased Paired Shares to achieve net sales proceeds equal to the aggregate market value of the Paired Shares purchased by such February Purchaser in February 1998, plus a forward accretion component, minus an adjustment for dividends paid on the purchased Paired Shares. In addition, each February Purchaser has the right to cause a sale of all or a portion of the purchased Paired Shares in the event the market prices of the Paired Shares decline below certain levels. The precise numbers of Paired Shares that will be required to be sold pursuant to the February Price Adjustment Agreements will depend primarily on the market prices of the Paired Shares at the time of settlement. If the number of Paired Shares so required to be sold is greater than the number of Paired Shares purchased by the February Purchasers as a result of a decrease in the market prices of the Paired Shares, the Trust and the Corporation are required to issue additional Paired Shares to the February Purchasers at a cash price of $0.01 per share. If the number of Paired Shares so required to be sold is less than the number of Paired Shares purchased by the February Purchasers on February 24, 1998 as a result of an increase in the market prices of the Paired Shares, the February Purchasers will deliver to the Trust and the Corporation specified numbers of Paired Shares. The effect of the February Price Adjustment Agreements will be to cause the February Purchasers to receive and retain an amount equal to the purchase price paid by the February Purchasers for the Paired Shares plus an annual rate of return on that purchase price equal to the three-month LIBOR for a specified period plus 1.75%, subject to adjustment under certain circumstances. In the event that the cash purchase price of the aggregate Paired Shares purchased by the February Purchasers less $5 million is in excess of the aggregate closing price of those Paired Shares on certain dates during the term of the February Price Adjustment Agreements, the Company is obligated to deliver additional Paired Shares to the February Purchasers as security for the Company's settlement obligations. As of June 30, 1998, the Company had delivered 503,441 Paired Shares in accordance with this security requirement. Any and all Paired Shares delivered as security will be issued and outstanding when delivered. The Trust and the Corporation are required to cause to be registered under the Securities Act of 1933, as amended (the "Securities Act"), for sale to the public of all of the Paired Shares originally sold to the Purchasers and the additional Paired Shares, if any, issued under the Price Adjustment Agreements. The 42 44 Trust and the Corporation have filed with the Securities and Exchange Commission registration statements for such resales. If during specified periods prior to settlement of the Company's obligations under the Price Adjustment Agreements the Paired Shares trade at market prices that are less than the prices specified in the agreements and the Company settles such obligations by the issuance of additional Paired Shares, such issuances would be for no or nominal additional consideration and thus would have a dilutive effect on the Company's shareholders and stockholders. During the six months ended June 30, 1998, the Company has repurchased in the open market approximately 2 million of its Paired Shares at an average purchase price of $48.78. OTHER MATTERS IMPACT OF RECENTLY ENACTED TAX LEGISLATION The Internal Revenue Service Restructuring and Reform Act of 1998 (H.R. 2676) was enacted on July 22, 1998. H.R. 2676 limits the grandfathering from the anti-pairing of Section 269B(a)(3) of the Code that the Company has enjoyed since 1984. Under H.R. 2676, for purposes of the gross income tests for qualification as a REIT, the anti-pairing rules of Section 269B(a)(3) of the Code generally would apply to interests in real property acquired directly or indirectly after March 26, 1998 by the Trust or the Corporation, or a subsidiary or partnership in which a 10% or greater interest is owned by the Trust or the Corporation (collectively, the "REIT Group"), unless (i) the interests in real property are acquired pursuant to a written agreement binding on March 26, 1998 and all times thereafter or (ii) the acquisition of such interests in real property was described in a public announcement or in a filing with the Securities and Exchange Commission on or before March 26, 1998. H.R. 2676 also provides that an interest in real property held by the REIT Group that is not subject to the anti-pairing of Section 269B(a)(3) of the Code would become subject to such rules in the event an improvement to such interest in real property is placed in service after December 31, 1999 that changes the use of the property and the cost of which is greater than 200 percent of (x) the undepreciated cost of the property (prior to the improvement) or (y) in the case of property acquired where there is a substituted basis, the fair market value of the property on the day it was acquired by the REIT Group. There is an exception for improvements placed in service before January 1, 2004 pursuant to a binding contract in effect as of December 31, 1999 and at all times thereafter. The Company expects to restructure its organization and mode of operation such that the restrictions of H.R. 2676 do not prevent the Company from acquiring additional interests in real property. Prior to the completion of such restructuring, the Company will monitor the acquisition of interests in real property by the REIT Group to ensure that such acquisitions do not prevent the Trust from qualifying for taxation as a REIT. 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 in the process of reviewing and evaluating its existing computerized systems as part of a program to bring all such financial, information and operational 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 financial position or results of operations. 43 45 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in various claims and lawsuits arising in the ordinary course of business, none of which, in the opinion of management, is expected to have a material adverse effect on the Company's consolidated financial position or results of operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
EXHIBIT NO. DESCRIPTION ------- ----------- 3.1 Declaration of Trust of the Trust, amended and restated as of June 6, 1988, as amended through February 23, 1998 (incorporated by reference to Exhibit 3.1 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K")). 3.2 Charter of the Corporation, amended and restated as of February 1, 1995, as amended through March 19, 1998 (incorporated by reference to Exhibit 3.2 to the 1997 Form 10-K).
44 46
EXHIBIT NO. DESCRIPTION ------- ----------- 3.3 Amended and Restated Trustees' Regulations of the Trust, as amended through June 25, 1998. 3.4 Amended and Restated Bylaws of the Corporation, as amended through June 25, 1998. 4.1 Pairing Agreement, dated June 25, 1986, between the Trust and the Corporation (incorporated by reference to Exhibit 4.1 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1994). 4.2 Amendment No. 1 to the Pairing Agreement, dated as of February 1, 1995, between the Trust and the Corporation (incorporated by reference to Exhibit 4.2 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1995). 4.3 Amendment No. 2 to the Pairing Agreement, dated as of January 2, 1998, between the Trust and the Corporation (incorporated by reference to Exhibit 4.3 to the 1997 Form 10-K). 10.1 Amended and Restated Employment Agreement, dated as of April 15, 1998, between the Corporation and Richard D. Nanula. 10.2 Second Amendment to Credit Agreement, dated as of April 30, 1998, among the Trust, Realty Partnership, the Corporation, ITT, the lenders named therein (collectively, the "Lenders"), Bankers Trust Company and The Chase Manhattan Bank, as Administrative Agents, and Lehman Paper and Bank of Montreal, as Syndication Agents (the Administrative Agents and the Syndication Agents, collectively, the "Agents"). 10.3 Third Amendment to Credit Agreement, dated as of June 15, 1998, among the Trust, Realty Partnership, the Corporation, ITT, the Lenders, and the Agents. 10.4 Fourth Amendment to Credit Agreement, dated as of July 15, 1998, among the Trust, Realty Partnership, the Corporation, ITT, the Lenders, and the Agents. 27.1 Financial Data Schedule, Starwood Hotels & Resorts Worldwide, Inc. 27.2 Financial Data Schedule, Starwood Hotels & Resorts.
(b) Reports on Form 8-K During the second quarter of 1998, the Trust and the Corporation filed the following Joint Current Reports on Form 8-K: (i) Joint Current Report on Form 8-K dated April 24, 1998, reporting under Item 4 the dismissal of Coopers & Lybrand LLP and the engagement of Arthur Andersen LLP as the Company's independent accountants. (ii) Joint Current Report on Form 8-K dated February 23, 1998, filing under Item 7 (i) the unaudited combined consolidated pro forma balance sheet as of December 31, 1997 and the unaudited combined consolidated pro forma statement of income for year then ended of the Trust, the Corporation and ITT; (ii) the audited consolidated balance sheet of ITT as of December 31, 1997 and 1996 and the related audited consolidated statements of income, cash flow and stockholders' equity for each of the three years in the period ended December 31, 1997, together with the related report of Arthur Andersen LLP; and (iii) the audited combined balance sheet of Westin Hotels & Resorts Worldwide, Inc. and certain affiliates as of December 31, 1997, the consolidated balance sheet of W&S Hotel L.L.C. as of December 31, 1996 and the related combined and consolidated statements of operations, changes in stockholders' equity (deficit), members' equity and cash flows for the years ended December 31, 1997 and 1996 and for the period from May 12, 1995 through December 31, 1995. 45 47 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STARWOOD HOTELS & RESORTS STARWOOD HOTELS & RESORTS WORLDWIDE, INC. /s/ BARRY STERNLICHT /s/ RONALD C. BROWN - -------------------------------------------- -------------------------------------------- BARRY STERNLICHT RONALD C. BROWN CHAIRMAN AND CHIEF EXECUTIVE OFFICER EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Date: August 14, 1998 46 48 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ------- ----------- 3.1 Declaration of Trust of Starwood Hotels & Resorts (the "Trust"), amended and restated as of June 6, 1988, as amended through February 23, 1998 (incorporated by reference to Exhibit 3.1 to the Trust's and the Corporation's Joint Annual Report on Form 10-K of the Trust and Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation") for the year ended December 31, 1997 (the "1997 Form 10-K")). 3.2 Charter of the Corporation, amended and restated as of February 1, 1995, as amended through March 19, 1998. (Incorporated by reference to Exhibit 3.2 to the 1997 Form 10-K). 3.3 Amended and Restated Trustees' Regulations of the Trust, as amended through June 25, 1998. 3.4 Amended and Restated Bylaws of the Corporation, as amended through June 25, 1998. 4.1 Pairing Agreement, dated June 25, 1986, between the Trust and the Corporation (incorporated by reference to Exhibit 4.1 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1994). 4.2 Amendment No. 1 to the Pairing Agreement, dated as of February 1, 1995, between the Trust and the Corporation (incorporated by reference to Exhibit 4.2 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1995). 4.3 Amendment No. 2 to the Pairing Agreement, dated as of January 2, 1998, between the Trust and the Corporation (incorporated by reference to Exhibit 4.3 to the 1997 Form 10-K). 10.1 Amended and Restated Employment Agreement, dated as of April 15, 1998, between the Corporation and Richard D. Nanula. 10.2 Second Amendment to Credit Agreement, dated as of April 30, 1998, among the Trust, SLT Realty Limited Partnership ("Realty Partnership"), the Corporation, ITT Corporation ("ITT"), the lenders named therein (collectively, the "Lenders"), Bankers Trust Company and The Chase Manhattan Bank, as Administrative Agents, and Lehman Brothers and Bank of Montreal, as Syndication Agents (the Administrative Agents and the Syndication Agents collectively the "Agents"). 10.3 Third Amendment to Credit Agreement, dated as of June 15, 1998, among the Trust, Realty Partnership, the Corporation, ITT, the Lenders, and the Agents. 10.4 Fourth Amendment to Credit Agreement, dated as of July 15, 1998, among the Trust, Realty Partnership, the Corporation, ITT, the Lenders, and the Agents. 27.1 Financial Data Schedule, Starwood Hotels & Resorts Worldwide, Inc. 27.2 Financial Data Schedule, Starwood Hotels & Resorts.
47 EX-3.3 2 EX-3.3 1 Exhibit 3.3 AMENDED AND RESTATED TRUSTEES' REGULATIONS OF STARWOOD HOTELS & RESORTS (AS AMENDED AND RESTATED THROUGH JUNE 25, 1998) 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 each Trustee to hold office until his or her successor shall have been duly elected and qualified. At each Annual Meeting of Shareholders (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. 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 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. 2 SECTION 8. REGULAR MEETINGS. Regular meetings of the Board of Trustees need not be held. 3 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. 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. (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. 4 (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 committees 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, 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, 5 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 June 25, 1998 (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 Hotels & Resorts Worldwide, Inc., 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 6 Units 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 amended from time to time. (vi) "Partnership Agreement" shall mean the Limited Partnership Agreement of the Realty Partnership, as 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) "Trust" means Starwood Hotels & Resorts, a Maryland real estate investment trust. (xiii) "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 18, 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 18, as may be reasonably requested of such 7 Person, and such Person shall furnish such information within 10 days after receipt of such demand. (d) Nothing contained in this Section 18 shall be construed to relieve any Interested Person from any fiduciary obligation imposed by law. (e) Notwithstanding anything to the contrary contained in these Trustees' Regulations this Section 18 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 19, 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 8 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 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. 9 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 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 10 special meeting is not so fixed and notice thereof given within twenty (20) 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 twenty (20), 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 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 11 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 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 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. 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 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 Shareholder or any Shareholder's proxy shall, appoint a Person to fill that vacancy. The inspector(s) 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; 12 (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 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. 13 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 in person or by an agent or attorney and shall include the right to make extracts. Demand for 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 14 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 Declaration of Trust of Hotel Investors Trust dated as of August 15, 1969, as amended from time to time, shall have the same meaning when used in these Trustees' Regulations. THIS IS TO CERTIFY: That I am the duly elected, qualified and acting Secretary of Starwood Hotels & Resorts and that the foregoing Amended and Restated Trustees' Regulations were adopted as the Trustees' Regulations of said Trust as of June 25, 1998. ------------------------------------ Sherwin L. Samuels, Secretary EX-3.4 3 EX-3.4 1 Exhibit 3.4 AMENDED AND RESTATED BYLAWS OF STARWOOD HOTELS & RESORTS WORLDWIDE, INC. (AS AMENDED AND RESTATED THROUGH JUNE 25, 1998) ARTICLE I OFFICES In addition to the required principal office, Starwood Hotels & Resorts Worldwide, Inc. (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 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. 2 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 an Assistant Secretary or such other 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' 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. 3 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. 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 4 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 June 25, 1998 (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. 5 ARTICLE III DIRECTORS 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 each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders (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. 6 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 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 Board of Directors shall be held at such place within or without the State of Maryland as is fixed from time to time by resolution of the Board of Directors (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 Board of Directors 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. 7 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. 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 8 (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. (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 amended from time to time. (vi) "Partnership Agreement" shall mean the Limited Partnership Agreement of the Operating Partnership, as 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. 9 (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 Hotels & Resorts, 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. (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. 10 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 or such other person 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 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 11 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 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. 12 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. 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. 13 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." 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 14 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 Assistant Secretary of Starwood Hotels & Resorts Worldwide, Inc. and that the foregoing Amended and Restated Bylaws were adopted as the Bylaws of said Corporation as of June 25, 1998. ------------------------------------ Charles E. McCain, Assistant Secretary EX-10.1 4 EX-10.1 1 Exhibit 10.1 Amended and Restated EMPLOYMENT AGREEMENT between STARWOOD HOTELS & RESORTS WORLDWIDE, INC. and RICHARD D. NANULA Amended and Restated Employment Agreement ("Agreement"), dated as of April 15, 1998, between Richard D. Nanula ("Executive") and Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the "Company"). WHEREAS, the Company desires to employ the Executive as its President and Chief Executive Officer and the Executive desires to accept such employment upon the terms and conditions hereinafter set forth; WHEREAS, the Executive currently holds a senior level position with another employer and will forfeit certain equity awards related to such employer's stock that have substantial economic value; WHEREAS, by reason of his position at such other employer the Executive has a reasonable expectation of continuing to receive substantial equity awards expected to have significant value in the future; WHEREAS, to induce the Executive to enter into employment with the Company, the Company has to provide the Executive with an economic package of compensation and benefits intended to approximate the value of the benefits forfeited to join employment with the Company and the economic opportunity the Executive expected to receive from his current employer; WHEREAS, the Executive has indicated to the Company that, under the current policies of his current employer, he would be entitled to receive additional equity awards in the near term with respect to a significant number of shares of such employer's stock. Such other employer's stock trades at significantly higher value that a Paired Share. The Company believes that any sizeable equity award to the Executive should take such factors into account, should provide the Executive an incentive to increase substantially the value of a Paired Share and should provide significant value to the Executive only when holders of Paired Shares receive significant increases in value. NOW, THEREFORE, in consideration of the agreements and covenants contained herein, the Executive and the Company hereby agree as follows: EXECUTION COPY 2 ARTICLE I Employment and Term Section I.1 Position; Responsibilities. (a) The Company hereby employs Executive as its President and Chief Executive Officer ("CEO") upon the terms and conditions hereinafter set forth. (b) The Board of Directors of the Company (the "Board") has also elected the Executive as a member of the Board effective upon execution of this Agreement and the Executive agrees to serve as a member of the Board. (c) Executive will use his reasonable best efforts to obtain and possess, and once obtained, will maintain throughout the Term hereof, all licenses, findings of suitability, qualifications, approvals, permits and authorizations ("Licenses") necessary to perform Executive's duties hereunder, including without limitation all Licenses required by any governmental agency ("Regulators") of any country, state, province, county, city or other similar entity having jurisdiction to regulate gaming, liquor or other business activities undertaken by the Company or any of its subsidiaries. Executive will timely file all necessary applications required to obtain such Licenses and will fully cooperate at all times with the Regulators. The Company will use its reasonable best efforts to assist the Executive in applying for, obtaining and maintaining the Licenses, including, without limitation, providing and paying for the services of legal counsel to facilitate the licensing process. Notwithstanding anything herein to the contrary, should the Board determine, in good faith after due consideration and an opportunity for the Executive (with the assistance of his counsel) to present his position at a meeting of the Board at which the issue is considered, that the Executive (i) has failed to use his reasonable best efforts to obtain the Licenses, (ii) has engaged in conduct which is reasonably likely to result in the revocation or expiration without renewal of any License, (iii) has failed after a reasonable period of time to obtain any License that is material to the performance of his duties hereunder and it is reasonably expected that the Executive will not obtain such License in the near future, the Company may immediately terminate this Agreement. The Executive shall assist the Company, its subsidiaries and their employees obtain and thereafter maintain all Licenses required by any applicable law, ordinance, regulation, order or otherwise. (d) Inasmuch as the Executive will be the CEO of the Company, except as and to the extent provided below in the case of a "Paired Share REIT Transaction," no other person will be elected or appointed by the Board during the term as an executive officer of the Company senior to the Executive. The Executive shall have such duties, responsibilities and authority, consistent with his position as a chief executive officer, as shall be prescribed by the Board from time to time; and he shall be involved, consistent with the foregoing, in all aspects of the Company's business. (e) In the event of a merger, consolidation or other combination of the Company with the Trust, or a de-pairing of the Paired Shares of the Trust and the Corporation, or another corporate transaction in response to, or for the purpose of complying with, any proposed -2- 3 or enacted legislation which would limit the expansion of paired share REITs (a "Paired Share REIT Transaction"), the person who, immediately prior to such Paired Share REIT Transaction, was serving as the Chief Executive Officer of the Trust (the "Trust CEO") may be the chief executive officer of the resulting entity or entities and have duties, responsibilities and authority senior to the Executive; and in such event Executive's title, position, duties, responsibilities and authority may be appropriately modified to give effect thereto, but in such event Executive shall be senior to all other executives. Section I.2 Performance of Duties. (a) The Executive shall duly and faithfully perform all of the duties assigned to him to the best of his abilities, and he shall devote his full business time, attention and best efforts to the performance of such duties and shall not engage in any other business activities except with the prior written approval of the Board. The preceding sentence shall not be construed to prevent the Executive from managing the Executive's own personal and family investments or performing services for any charitable, religious or community organizations, so long as such activities do not materially interfere with the performance of the Executive's duties hereunder. (b) The Executive's base of operations shall be at the principal executive office of the Company. In that regard, Executive acknowledges that the Company intends to move its principal executive office from Phoenix, Arizona to the Westchester County, New York or Fairfield County, Connecticut area. Executive will relocate his residence as soon as practicable to the area of the Company's new principal executive office. Section I.3 Term. Executive's term of employment under this Agreement (the "Term") shall commence on June 1, 1998 (the "Commencement Date") and shall expire on the fifth anniversary of the Commencement Date unless extended or sooner terminated as herein provided. Section I.4 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). Prior to his employment by the Company, Executive was employed by The Walt Disney Company ("Prior Employer"). Executive represents and warrants that any and all employment understandings or agreements with the Prior Employer were completely at will and that Executive is free to terminate his employment with the Prior Employer and to commence employment with the Company pursuant to this Agreement. Section I.5 Representation and Warranty of Company. The Company hereby represents and warrants to Executive that (i) it is not aware of any fact, circumstance or event which would give rise to any breach of any term or provision of this Agreement or which would form the basis for any claim or allegation that Executive's employment hereunder could be -3- 4 terminated for Cause or Good Reason hereunder, and (ii) it has received all authorizations and has taken all actions, necessary or appropriate for the due execution, delivery and performance of this Agreement, including all amendments thereto effected by this Agreement. ARTICLE II Compensation Section II.1 General. The Company shall compensate Executive for all of his services under this Agreement, as set forth herein. Section II.2 Basic Compensation. Executive's annual salary during the Term ("Base Salary") shall be at the rate of $950,000 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 in the sole discretion of the Board be increased (but not decreased) for subsequent years. In addition, the Company will compensate Executive for all consulting services rendered to the Company between the date of this Agreement and the Commencement Date by a payment as soon as practicable following the Commencement Date of $70,000. Section II.3 Incentive Compensation. (a) In addition to the Base Salary, the Executive shall be eligible to receive incentive compensation ("Incentive Compensation") in respect of each calendar year (or portion thereof) of the Company during the Term. (b) The Executive is not guaranteed any Incentive Compensation for 1998. Rather, for the period from the Commencement Date to December 31, 1998 the Incentive Compensation shall be as determined by the Board in its discretion, taking into account such factors as it may deem appropriate, including but not limited to Executive's performance during 1998 and the amount of incentive compensation he could reasonably have expected for 1998 at his Prior Employer. (c) For 1999 and later years, Executive's opportunity for Incentive Compensation shall be determined in accordance with a bonus or a short term incentive compensation program which is expected to be established by the Board either for Executive or for senior management generally, and which shall be based generally on principles set forth on the attached Schedule A. (d) Except as otherwise expressly contemplated in Schedule A, 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. Section II.4 Other Programs. (a) The Executive shall also be entitled to participate in all employee benefit plans, including retirement programs, if any, and group health care plans, and to take time off for vacation or illness in accordance with the Company's policy for senior management (provided that Executive shall not accrue more than 20 days of unused vacation at -4- 5 any time). Such plans shall at all times be comparable to those made available to the senior-most management of the Trust. In addition, the Company shall provide the Executive such fringe benefits and perquisites as are equivalent to those which the Trust provides to its Chief Executive Officer (including appropriate and reasonable use of any Company-owned aircraft). The foregoing shall not, however, apply to the Company's LTIP or to any other stock award, stock option or stock derivative or equity-based plan or program, for which separate provision is made in Sections 2.05 and 2.06 of this Agreement. (b) During the Term, the Company shall purchase and maintain a life 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 from time to time 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. (c) The Company shall reimburse Executive for all legal fees (not exceeding $25,000) and expenses reasonably incurred by Executive in connection with the negotiation and execution of this Agreement and any stock option or Restricted Stock Unit Award agreements expressly contemplated hereunder. Section II.5 Severance. Except only to the limited extent hereinafter provided, Executive shall not be entitled to any severance compensation in the event of a termination of employment with or without cause. Section II.6 Premium Priced Stock Options. (a) As material inducement to Executive's entering into this Agreement, the Option Committee of the Board has also granted to the Executive on April 15, 1998, conditioned upon commencement of his employment by the Company hereunder, five premium priced (i.e., the exercise price per Paired Share exceeds the market price per Paired Share on the date of grant) "Paired Options" (the "Options") under the LTIP as follows: (i) One Paired Option (the "First Tranche") is for the purchase of an aggregate of 600,000 Paired Shares of the Company and the Trust and is exercisable at $53.2875 per Paired Share. (ii) The second Paired Option is for the purchase of an aggregate of 400,000 Paired Shares of the Company and the Trust and is exercisable at $53.2875 per Paired Share . (iii) The third Paired Option is for the purchase of an aggregate of 1,000,000 Paired Shares of the Company and the Trust and is exercisable at $55.8250 per Paired Share. -5- 6 (iv) The fourth Paired Option is for the purchase of an aggregate of 500,000 Paired Shares of the Company and the Trust and is exercisable at $63.4375 per Paired Share. (v) The fifth Paired Option is for the purchase of an aggregate of 500,000 Paired Shares of the Company and the Trust and is exercisable at $76.1250 per Paired Share. Except to the extent otherwise provided in this Agreement, each of the Options shall vest in 48 equal monthly installments with one installment vesting on May 1, 1998 and one installment vesting on each of the next 47 monthly anniversaries of May 1, 1998 so long as Executive is still employed on such monthly anniversary date. To the extent not previously exercised, each of the Options will terminate one year after any termination of Executive's employment, except that in the event of a termination by the Company without Cause or by the Executive for "Good Reason" each of the Options will terminate on the second anniversary of the date of Executive's termination of employment. To the extent not previously exercised or terminated as provided herein, the Options will in all events each expire ten years from the date of grant. (b) In order to assure to the Company the deductibility of the compensation payable upon exercise of the Options, except as provided below, the grant of the Options (other than the First Tranche) shall be subject to the approval by the Company's stockholders of an appropriate amendment to the Company's LTIP relating to the grant of the Options, in accordance with the requirements of 162(m) of the Internal Revenue Code (the "Shareholder Approval"). The Company agrees to use its reasonable best commercial efforts to seek and obtain such Shareholder Approval as soon as practicable after the execution hereof. (c) The Executive shall be eligible for grants in the future of additional Paired Options under the LTIP at the discretion of the Option Committee of the Board. Section II.7 Change of Control. In the event that during the Term, there shall occur a "Change of Control" as defined in the LTIP (as such definition is expected to be changed in the future so as (i) to exclude an acquisition such as the recent acquisition of ITT Corporation by the Company and (ii) to exclude a Paired Share REIT Transaction (such change to be generally applicable to all LTIP awards)) the Restricted Stock Unit Award and the Options shall become fully vested. Section II.8 Relocation. In recognition of the necessity for the Executive to relocate his residence from Beverly Hills, California where he currently resides ("Executive's Current Residence") to the vicinity of Company's new executive offices in Westchester County, New York (the "New Offices"), the Company shall reimburse Executive for his reasonable out-of-pocket expenses for transporting his family and household furnishings and belongings from his Existing Residence to his new residence ("Executive's New Residence") in the community of the Company's New Offices. Relocation expenses will include, with respect to Executive's Existing -6- 7 Residence, the amount of any shortfall of the actual sales price after reasonable sales efforts, compared to the current appraised value of Executive's Existing Residence (provided that Company may instead elect to purchase Executive's Existing Residence at its current appraised value). Relocation expenses shall also include (i) normal escrow costs, (ii) up to one mortgage "point" and (iii) other out-of-pocket closing costs in respect of the purchase of the Executive's New Residence. The Company will also reimburse the Executive for reasonable out-of-pocket temporary housing expenses for the Executive and his family for a period of time (up to 12 months) necessary to make a full transition to Executive's New Residence and travel expenses for Executive and his family to and from his Existing Residence as necessary during the transition. The foregoing relocation expense reimbursements shall be made in accordance with the Company's current policy. Section II.9 Expense Reimbursements. The Company shall reimburse Executive for all proper expenses incurred by him in the performance of his duties hereunder, upon presentation of expense statements or vouchers and such other information as the Company may require and in accordance with the generally applicable policies and procedures of the Company. Section II.10 Withholding. The Base Salary and all other payments to Executive for his services to the Company shall be subject to all withholding and deductions required by federal, state or other law (including those authorized by Executive but not otherwise required by law), including but not limited to state, federal and local income taxes, unemployment tax, Medicare and FICA, together with such deductions as Executive may from time to time specifically authorize under any employee benefit program which may be adopted by the Company for the benefit of its senior executives or Executive. ARTICLE III Termination of Employment Section III.1 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 (as defined below) and the failure of the Company to remedy the circumstances giving rise to such notice within the cure period provided below. For purposes of this Agreement, "Good Reason" means except as provided below in this paragraph (c): (i) the failure to elect and continue Executive as CEO and President of the Company (subject to the provisions of Section 1.01(e)) or -7- 8 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 (subject to the provisions of Section 1.01(e)) if the scope of any of Executive's material duties or responsibilities as CEO of the Company is reduced 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 (not to exceed one month) in the payment of Executive's compensation or benefits from those required to be provided in accordance with the provisions of this Agreement; (iv) the failure of the Company to indemnify Executive (including the prompt advancement of expenses), or to maintain directors' and officers' liability insurance coverage for Executive, in accordance with the provisions of Section 5.11 hereof; (v) the Company's purported termination of Executive's employment for Cause other than in accordance with the requirements of this Agreement; (vi) a "Change of Control," as such term is defined and used in the LTIP (as the same may be amended as contemplated by Section 2.07), shall have occurred (unless a Cause Termination Notice shall theretofore have been given to Executive), (vii) a requirement by the Company or the Board, without the Executive's prior consent, that Executive be based outside of Westchester County, New York or Fairfield County, Connecticut, other than on travel reasonably required to carry out the Executive's obligations under this Agreement, (viii) Barry S. Sternlicht shall for any reason cease to be Chairman of the Board of the Company or Chairman and CEO of the Trust and his successor shall not have been approved by the Executive (such approval not to be unreasonably withheld), 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) (other than with respect to the payment of Base Salary), (iv) 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 180 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 -8- 9 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 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. Notwithstanding the foregoing, "Good Reason" shall not exist in the event that any reduction in duties, titles or responsibilities results from the senior position of the Trust's CEO in the case of a Paired Share REIT Transaction as contemplated in Section 1.01(e). (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 Directors then in office, which shall include a written statement of the particular acts or circumstances which are the basis for the termination for Cause and shall set forth a reasonable period (not less than 30 days) to cure (the "Cure Period"), shall have been given to Executive by the Board within sixty days after the Company first learns of the act, failure or event constituting Cause; and (ii) Executive shall not have cured the acts or circumstances complained of within the Cure Period; and (iii) the Board shall have called an in personam meeting of the Board, at which termination of Executive is an agenda item, and shall have provided Executive with not less than 20 days' notice thereof; and (iv) Executive shall have been afforded the opportunity, accompanied by counsel, to provide written materials to the Board in advance of such meeting and, if he so desires, personally to address the Board at such meeting; and (v) the Board shall have provided, within three business days after such meeting, a written notice of termination for Cause, stating that, based upon the evidence it has received and reviewed, and specifying in reasonable detail the acts and circumstances complained of, it has voted by a vote of at least a majority of all of the disinterested Directors then in office to terminate Executive for Cause (such a notice, a "Cause Termination Notice"), which such notice shall be effective on the sixteenth day after receipt -9- 10 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. 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. Upon any termination of Executive's employment, whether by the Company or by the Executive, Executive will concurrently resign his membership, if any, on the Board. Section III.2 Rights on Termination. (a) In the event of termination of Executive's employment during the Term for any reason, including but not limited to termination by the Company with Cause or without Cause or termination by the Executive with Good Reason or without Good Reason or due to death or disability of Executive then, except as and to the extent provided below in Section 3.02(b), 3.02(c) and 3.02(d): (i) Executive shall not be entitled to any severance or other special payments or awards from the Company; (ii) Executive shall be paid all accrued but unpaid Base Salary and any earned but unpaid Incentive Compensation and other benefits through the date of termination; (iii) Executive shall be entitled to receive and retain all Paired Shares underlying the Restricted Stock Unit Award referenced in Section 2.05 as well as all Paired Shares received in respect of the Incentive Compensation Formula referenced in Item 7 of Schedule A hereto; and -10- 11 (iv) There shall be no acceleration of vesting of any Paired Shares underlying Paired Options or of unvested restricted Paired Shares, and all such unvested Paired Options (including but not limited to the Options referred to in Section 2.06) and unvested restricted Paired Shares held by Executive shall automatically be forfeited (subject however to any contrary provisions in the agreements relating to the grant of such Paired Options or the award of such Paired Shares or any contrary determination of the Board in its sole discretion). (b) In the event Executive exercises his right to terminate under Clause (viii) of Section 3.01(c), an amount equal to 50% of the then unvested Paired Shares underlying any Paired Options and 50% of any then unvested restricted Paired Shares held by Executive shall be deemed accelerated to the date of termination; in addition, such termination shall be deemed a voluntary termination of employment by the Executive and all Paired Options held by Executive, including the Options referred to in Section 2.06, shall be deemed to terminate one year after the date of termination of employment. (c) In the event of the termination of Executive's employment due to death or disability of Executive, all then unvested Paired Shares underlying any Paired Options held by Executive and all then unvested restricted Paired Shares held by Executive shall be deemed accelerated to the date of termination; and all such Paired Options held by Executive, including the Options referred to Section 2.06, shall be deemed to terminate one year after such date of termination of employment. (d) If Shareholder Approval is not obtained by April 15, 1999, the Executive shall be entitled to be paid, if and to the extent applicable, the "Basic Severance" plus the "Additional Severance" (each defined below) as follows: (i) To the extent that the exercise price per Paired Share of a Paired Option included in the Restorative Grants exceeds the exercise price per Paired Share of its "Hypothetically Equivalent Option" defined below, then upon each exercise of such a Paired Option the Executive shall be entitled to receive Basic Severance equal to the amount of such excess multiplied by the number of Paired Shares purchased upon such exercise. Basic Severance shall be paid within 10 days after termination of employment for all Paired Options exercised prior to any termination of employment and otherwise within 10 days after exercise. (ii) The Hypothetically Equivalent Options shall be hypothetical Paired Options deemed granted for the number of Paired Shares indicated, sequentially at the increasing exercise prices as follows: 400,000 Paired Shares exercisable at $53.2875 per Paired Share; 1,000,000 Paired Shares exercisable at $55.8250 per Paired Share; 500,000 Paired Shares exercisable at $63.4375 per Paired Share; 500,000 Paired Shares exercisable at $76.1250 per Paired Share. -11- 12 (Thus, by way of illustration, the initial Restorative Grant on May 1, 1999 for purchase of 900,000 Paired Shares shall be deemed to have as its Hypothetically Equivalent Options a Paired Option for 400,000 Paired Shares exercisable at $53.2875 per Paired Share, and a Paired Option for 500,000 Paired Shares exercisable at $55.8250 per Paired Share.) (iii) If Executive's employment is terminated prior to January 2, 2001 by the Company without Cause or by the Executive for Good Reason, and if the Market Price per Paired Share exceeds the exercise price per Paired Share with respect to one or more segments of the then ungranted Restorative Grants (such excess hereafter called the "Spread"), the Company shall pay as Additional Severance the sum of the products, calculated separately for each segment of the ungranted Restorative Grants as to which there is a Spread (A) the Spread times (B) the number of Paired Shares subject to such segment which would have been vested had the Options under Section 2.06(a) been granted instead of such Restorative Grants. For purposes of the foregoing, the Market Price per Paired Share shall be the closing sale price of a Paired Share on the New York Stock Exchange Composite Transactions Tape on the earlier to occur of (i) the second anniversary of the date of Executive's termination of employment and (ii) the date of the last exercise of Paired Options granted to the Executive pursuant to the terms of this Agreement. Section III.3 Sole Remedy. The parties agree that the foregoing shall be Executive's sole and exclusive monetary remedy under this Agreement by reason of termination by Executive or by the Company, 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. Such payments shall not be reduced or limited by amounts Executive might earn or be able to earn from other employment or ventures. Section 3.04 Restricted Stock Units. As material inducement to Executive's entering into this Agreement and in order to compensate in part for the stock option and other benefits from his prior employer forfeited by Executive, the Option Committee of the Board has granted to the Executive on April 15, 1998, conditioned on commencement of his employment by the Company hereunder, an award under the Company's 1995 Long-Term Incentive Plan (the "LTIP") of 300,000 Restricted Stock Units, each such Unit representing the right to receive, subject to vesting, at the times provided for herein one Paired Share of the Company and the Trust (the "Restricted Stock Unit Award"). In addition, the Company shall pay to the Executive dividend equivalent amounts with respect to the Restricted Stock Units at the time and in the amount of any dividend distributions paid with respect to Paired Shares. The Restricted Stock Unit Award shall vest at the end of 120 days after the Commencement Date (subject to acceleration as provided in Section 2.07). The number of Paired Shares underlying vested Restricted Stock Units shall be delivered to the Executive upon the earlier of (i) the termination of Executive's employment for any reason and (ii) the fifth anniversary of the Commencement Date (provided that Executive shall be permitted to elect to defer delivery of all or a portion of such Paired Shares by written notice specifying a deferred delivery date(s) sent to the Company not later than the fourth anniversary of the Commencement Date (or such other dates as the Company and Executive shall determine)). The Company and the Executive will work together -12- 13 in good faith towards the establishment of a "rabbi trust" or other structure to assure Executive that the Paired Shares underlying the Restricted Stock Unit Award will be delivered as contemplated hereunder, subject to appropriate protections for the Trust's REIT status (including seeking an appropriate ruling from the Internal Revenue Service). ARTICLE IV Noncompetition; Confidential Information; Etc. Section IV.1 Other Business Ventures. In addition to the restriction from having other employment provided in Section 1.02 above, during the term of Executive's employment hereunder the Executive shall not, without the prior written approval of the Board, directly or indirectly engage in, represent, be connected with or have a financial interest in any business which is or, to the best of his knowledge, is about to become competitive with the business of the Company; provided, however, that nothing herein contained shall be deemed to prohibit the Executive from being a passive investor owning up to 1% of any class of outstanding publicly traded securities of any Company. Section IV.2 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 IV.3 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 18 month period after his termination of employment hereunder, in any way directly or indirectly hire, attempt to hire, or cause to 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 (other than Executive's secretaries or personal assistants). Section IV.4 Prior Employment. The Company has no desire to obtain nor to utilize any proprietary or confidential information to which the Executive may have had access during his employment with his Prior Employer. The Executive shall not in the performance of his duties hereunder utilize or disclose (whether to the Company or any of its officers, employees, directors or agents) any trade secrets or other proprietary or confidential information of his Prior Employer to which the Executive may have had access during his employment with his Prior -13- 14 Employer. The Company agrees that it will not request the Executive to utilize or disclose any trade secrets or other proprietary or confidential information of his Prior Employer. Section 4.05 Restorative Grants. (a) If Shareholder Approval is not received by April 15, 1999, then on each of May 1, 1999 and January 2, 2000, the Company will grant to Executive a Paired Option for the purchase of 900,000 Paired Shares of the Company and the Trust, and on January 2, 2001, a Paired Option for 600,000 Paired Shares of the Company and the Trust, each exercisable at a price per Paired Share equal to the "Fair Market Value" per Paired Share on the date of its grant as defined in the LTIP (the foregoing Paired Options for an aggregate of 2,400,000 Paired Shares are referred to as the "Restorative Grants"). Each of the Restorative Grants shall, however, only be made if Executive is then employed by the Company. Each Paired Option in the Restorative Grants shall be vested as of its date of grant in a number of Paired Shares subject to that Paired Option equal to a fraction the numerator of which the number of whole months elapsed between May 1, 1998 and its date of grant, and the denominator of which is 48; and each such Paired Option shall thereafter vest in equal monthly installments for the balance of the 48 month period commencing May 1, 1998 ("the Vesting Period"), on the last day of the month of the date of grant and on the last day of each month thereafter during the Vesting Period (thus, by way of illustration, the Restorative Grant of a Paired Option on May 1, 1999 for 900,000 Paired Shares would be vested on the date of its grant to the extent of 225,000 Paired Shares, and the balance would vest in equal monthly increments of 18,750 Paired Shares through April 30, 2002). (b) The Company acknowledges that in the event that Shareholder Approval is not received by April 15, 1999, the Restorative Grants may not provide Executive with the full equivalent economic benefits as Executive would otherwise receive by the grant of the Options. In that event, the Board will consider such additional compensation for Executive (which may or may not be other performance based compensation deductible under Section 162(m) of the Internal Revenue Code and which may be conditioned on changes to this Agreement, including but not limited to modifications to the terms of the Restorative Grants) as it may in its sole discretion deem appropriate in the circumstances ARTICLE V Miscellaneous Section V.1 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: Debevoise & Plimpton -14- 15 875 Third Avenue New York, New York 10022 Attention: Lawrence K. Cagney, Esq. Facsimile: (212) 909-6836 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 All notices, requests or other communications required or permitted by this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by mailing via certified mail, postage prepaid, return receipt requested, in the United States mails to the last known address of the party entitled thereto, (c) by reputable overnight courier service, or (d) by facsimile with confirmation 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 V.2 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 (i) a consolidation or merger with, or a transfer of all or substantially all of the assets of the Company to, another entity reasonably acceptable to Executive which not later than 15 days prior to the consummation of such combination transaction expressly assumes in a writing reasonably satisfactory in form and substance to Executive all of the Company's obligations to Executive hereunder or (ii) a Paired Share REIT Transaction. 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. This Agreement shall inure to the benefit of and be enforceable by Executive's heirs, beneficiaries and/or legal representatives. Section V.3 Headings. The Article, Section, paragraph and subparagraph headings are for convenience of reference only and shall not define or limit the provisions hereof. Section V.4 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, -15- 16 notwithstanding the provisions of Rule 1 of the National Rules, in the event that there is a conflict between the provisions of the National Rules and the provisions of this Agreement, the provisions of this Agreement shall control): (a) The Arbitrator shall be determined from a list of names of five impartial arbitrators each of whom shall be an attorney experienced in arbitration matters concerning executive employment disputes, supplied by the AAA chosen by Executive and the Company each in turn striking a name from the list until one name remains (with the Company being the first to strike a name). (b) The Arbitrator shall assess the costs of the proceeding, including the prevailing party's reasonable attorneys' fees on any unsuccessful party to the extent the Arbitrator concludes that such party is unsuccessful unless he or she concludes that matters of equity or important considerations of fairness dictate otherwise. (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 in any subsequent arbitral or judicial proceedings between the parties. (f) The arbitration shall take place in New York, New York. (g) The arbitration proceeding and all filing, testimony, documents and -16- 17 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) If a corporate transaction which would constitute a Change of Control event under the LTIP is agreed to during the pendency of an arbitration hereunder, the Company will include appropriate provisions which will enable Executive to participate in such Change of Control event as if the arbitration were resolved favorably to Executive, but subject to such a favorable resolution. Section V.5 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 V.6 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 V.7 Counterparts. This Agreement may be executed in multiple counterparts, -17- 18 each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Section V.8 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 V.9 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 V.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 York without reference to principles of conflict of laws. Section V.11 Indemnification. In addition to any additional benefits provided under applicable state law, as a Director and Officer of the Company, Executive shall be entitled to the benefits of: (a) those provisions of the Articles of Incorporation of the Company, as amended, and of the Bylaws of the Company, as amended, which provide for indemnification of Officers and Directors of the Company (and no such provision shall be amended in any way to limit or reduce the extent of indemnification available to Executive as a Director or Officer of the Company), (b) the customary Indemnification Agreement between the Company and its Directors and Officers, 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 -18- 19 in such amounts as the Board shall deem appropriate for coverage of all Directors and Officers of the Company. Section V.12 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 Commencement Date shall not have occurred by December 31, 1998. 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. The "Company": STARWOOD HOTELS & RESORTS WORLDWIDE, INC. By:____________________________________ Name: Ronald C. Brown Its: Executive Vice President and Chief Financial Officer By:____________________________________ Name: _________________________________ Its: ___________________________________ The "Executive": _______________________________________ Richard D. Nanula -19- 20 Schedule A to Employment Agreement Principles To Be Used In Developing Performance-Based Formula For Incentive Compensation 1. The Formula will be calculated by awarding a certain percentage of growth in the Company's EBITDA (or the combined EBITDA of the Company and the Trust), over a hurdle rate, adjusted for the number of Paired Shares outstanding and the capital structure of the Company (or of the Company and the Trust); 2. The Formula is to be applied on an ongoing/multi-year basis; 3. The Formula is to be structured so that it has no floor but has a maximum of $6 million. 4. The Company understands that the Executive's range of expectation for 1999, which the Executive understands is not guaranteed, is between $1 million and $3 million. 5. The Board will maintain discretion to provide a bonus award over and above the Formula amount, based on exceptional circumstances. 6. A deferred compensation plan is expected to be developed for the senior management team, in order to maximize the tax efficiency of the Incentive Compensation awards. 7. Any Incentive Compensation in any year in excess of $3 million will be paid in restricted Paired Shares or Restricted Stock Units (at the Executive's election), which are expected to have a vesting period equal to the then balance of the Term (provided that any such Paired Shares or Restricted Stock Units shall vest immediately upon the termination of Executive's employment for any reason). -20- EX-10.2 5 EX-10.2 1 Exhibit 10.2 SECOND AMENDMENT TO CREDIT AGREEMENT SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of April 30, 1998, among STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust ("Starwood REIT"), SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership ("SLT RLP"), STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Corporation"), ITT CORPORATION, a Nevada corporation ("ITT" and, together with Starwood REIT, SLT RLP and the Corporation, the "Borrowers") the lenders from time to time party to the Credit Agreement referred to below (the "Lenders"), BANKERS TRUST COMPANY and THE CHASE MANHATTAN BANK, as Administrative Agents (in such capacity, the "Administrative Agents") and LEHMAN COMMERCIAL PAPER INC. and BANK OF MONTREAL, as Syndication Agents (in such capacity, the "Syndication Agents"). Unless otherwise defined herein, all capitalized terms used herein shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H: WHEREAS, the Borrowers, the Lenders, the Administrative Agents and the Syndication Agents are parties to a Credit Agreement, dated as of February 23, 1998 (as amended, modified or supplemented to the date hereof, the "Credit Agreement"); and WHEREAS, the parties hereto wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: I. AMENDMENTS TO THE CREDIT AGREEMENT A. Section 9.03(iv)(y) of the Credit Agreement is hereby amended by deleting the $50,000,000 amount set forth therein and inserting in lieu thereof $135,000,000. II. MISCELLANEOUS PROVISIONS A. In order to induce the Lenders to enter into this Amendment, each of the Borrowers hereby represents and warrants that: 1. no Default or Event of Default exists as of the Amendment Effective Date (as hereinafter defined), both before and after giving effect to this Amendment; and 2. all of the representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects as of the Amendment Effective Date, both before and after giving effect to this Amendment, with the same effect as though such representations and warranties had been made on and as of the Amendment Effective Date (it being understood that any representation or 2 warranty made as of a specific date shall be true and correct in all material respects as of such specific date). B. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. C. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrowers and the Paying Agent. D. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. E. This Amendment shall become effective on the date (the "Amendment Effective Date") when each of the Borrowers and the Required Lenders shall have signed a counterpart hereof (whatever the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Paying Agent at its Notice Office. F. From and after the Amendment Effective Date, all references in the Credit Agreement and each of the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as modified hereby. * * * 3 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust By: ----------------------------------- Name: Title: STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation By: ----------------------------------- Name: Title: SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: ----------------------------------- Name: Title: ITT CORPORATION, a Nevada corporation By: ----------------------------------- Name: Title: 4 BANKERS TRUST COMPANY, Individually and as Administrative Agent and as Paying Agent By:__________________________________ Name: Title: THE CHASE MANHATTAN BANK, Individually and as Administrative Agent By:__________________________________ Name: Title: LEHMAN COMMERCIAL PAPER INC., Individually and as Syndication Agent By:__________________________________ Name: Title: 5 BANK OF MONTREAL, CHICAGO BRANCH Individually and as Syndication Agent By: -------------------------------------- Name: Title: ARAB BANKING CORPORATION (B.S.C.) By: -------------------------------------- Name: Title: BANCA POPOLARE DI MILANO By: -------------------------------------- Name: Title: By: -------------------------------------- Name: Title: BANKBOSTON, N.A. By: -------------------------------------- Name: Title: 6 BANK LEUMI USA By: -------------------------------------- Name: Title: 7 THE BANK OF TOKYO-MITSUBISHI, LIMITED, NEW YORK BRANCH By: ---------------------------------- Name: Title: BANK POLSKA KASA OPIEKI S.A. - PEKAO S.A. GROUP, NEW YORK BRANCH By: ---------------------------------- Name: Title: BANQUE PARIBAS By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: BANQUE WORMS CAPITAL CORP. By: ---------------------------------- Name: Title: BEAR STEARNS INVESTMENT PRODUCTS INC. By: ---------------------------------- Name: Title: 8 BARCLAYS BANK PLC By: --------------------------- Name: Title: CHANG HWA COMMERCIAL BANK, LTD., NEW YORK BRANCH By: --------------------------- Name: Title: CHIAO TUNG BANK CO., LTD. NEW YORK AGENCY By: --------------------------- Name: Title: CIBC INC. By: --------------------------- Name: Title: 9 COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: CREDIT LYONNAIS NEW YORK BRANCH By: ---------------------------------- Name: Title: CREDIT SUISSE FIRST BOSTON By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: 10 CREDITO ITALIANO By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN ISLANDS BRANCH By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: 11 FIRST COMMERCIAL BANK By: ----------------------------------- Name: Title: FIRST SECURITY BANK, N.A. By: ----------------------------------- Name: Title: FLEET BANK, N.A. By: ----------------------------------- Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION By: ----------------------------------- Name: Title: GOLDMAN SACHS CREDIT PARTNERS L.P. By: ----------------------------------- Name: Title: 12 GULF INTERNATIONAL BANK B.S.C. By: ------------------------------------ Name: Title: HUA NAN COMMERCIAL BANK, LTD. NEW YORK AGENCY By: ------------------------------------ Name: Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH By: ------------------------------------ Name: Title: ISTITUTO BANCARIO DI TORINO SpA By: ------------------------------------ Name: Title: LAND BANK OF TAWAIN, LOS ANGELES BRANCH By: ------------------------------------ Name: Title: 13 THE LONG-TERM CREDIT BANK OF JAPAN, LTD By: ---------------------------------------- Name: Title: MITSUBISHI TRUST & BANKING CORPORATION By: ---------------------------------------- Name: Title: NATIONSBANK, N.A. By: ---------------------------------------- Name: Title: 14 THE ROYAL BANK OF SCOTLAND, PLC By: ---------------------------------- Name: Title: SOCIETE GENERALE, SOUTHWEST AGENCY By: ---------------------------------- Name: Title: SOUTHERN PACIFIC BANK By: ---------------------------------- Name: Title: THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH By: ---------------------------------- Name: Title: WACHOVIA BANK, N.A. By: ---------------------------------- Name: Title: 15 WESTDEUTSCHE LANDESBANK GIROZENTRALE By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: EX-10.3 6 EX-10.3 1 Exhibit 10.3 THIRD AMENDMENT TO CREDIT AGREEMENT THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of June 15, 1998, among STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust ("Starwood REIT"), SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership ("SLT RLP"), STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Corporation"), ITT CORPORATION, a Nevada corporation ("ITT" and, together with Starwood REIT, SLT RLP and the Corporation, the "Borrowers") the lenders from time to time party to the Credit Agreement referred to below (the "Lenders"), BANKERS TRUST COMPANY and THE CHASE MANHATTAN BANK, as Administrative Agents (in such capacity, the "Administrative Agents) and LEHMAN COMMERCIAL PAPER INC. and BANK OF MONTREAL, as Syndication Agents (in such capacity, the "Syndication Agents"). Unless otherwise defined herein, all capitalized terms used herein shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H: WHEREAS, the Borrowers, the Lenders, the Administrative Agents and the Syndication Agents are parties to a certain Credit Agreement, dated as of February 23, 1998 (as amended, modified or supplemented to the date hereof, the "Credit Agreement"); and WHEREAS, 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; WHEREAS, ITT, through ITT MSG Inc. ("ITT MSG"), owns an approximately 7.81% limited partnership interest in MSG; WHEREAS, ITT MSG under a certain Partnership Interest Transfer Agreement had two "put" options - one to require Cablevision to purchase (or cause MSG to redeem) one half of ITT's continuing limited partnership interest in MSG for $94 million on June 17, 1998 and one to require Cablevision to purchase (or cause MSG to redeem) the entire remaining interest on June 17, 1999 for an additional $94 million or thereabouts. The first put option was exercised in March 1998. In addition, on June 17, 2000, Cablevision has the right to purchase (or cause MSG to redeem) ITT MSG's 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; WHEREAS, in order to comply with National Basketball Association and National Hockey League regulations that prohibit the pledge of any direct or indirect interest in ITT MSG, ITT MSG intends to sell its remaining limited partnership interest in MSG to the Corporation; 2 WHEREAS, the purchase price will be paid in the form of an unsecured promissory note or notes and any proceeds received by ITT MSG from Cablevision will be loaned to the Corporation in exchange for other notes (all of the foregoing notes, collectively, the "Note") in each case executed by the Corporation in the aggregate principal amount of $188 million. The Note will constitute additional intercompany indebtedness that will be subordinated to the obligations under the Credit Agreement pursuant to a Subordination Agreement to be executed by ITT MSG and the Collateral Agent in substantially the same form attached to the Credit Agreement as Exhibit L (the "ITT MSG Subordination Agreement"); WHEREAS, all amounts received by ITT MSG or the Corporation from the transactions described in the third preceding recital shall be applied in accordance with the requirements of Section 4.02(e) of the Credit Agreement; WHEREAS, following the sale by ITT MSG to the Corporation, the Borrowers have agreed that ITT Sheraton will pledge 100% of the stock in ITT MSG to the Lenders and ITT MSG will be added as a guarantor pursuant to the Guaranty; WHEREAS, the Credit Agreement may prohibit some of the transactions described in the foregoing recitals (collectively, the "MSG Transactions") and, accordingly, the Borrowers wish to secure the Lenders' consent and approval of the MSG Transactions; WHEREAS, in April 1998 SLT RLP sold eight suites hotels to Felcor (the "Felcor Sale") and received approximately $245,000,000 in proceeds, $225,000,000 of which are presently being held in escrow in anticipation of a like kind exchange under Section 1031 of the Internal Revenue Code which is to occur within 180 days of the Felcor Sale; WHEREAS, at the time of the Felcor Sale the Borrowers delivered a certificate (the "Reinvestment Notice") to the Administrative Agents pursuant to Sections 9.02(viii) and 4.02(e) advising the Lenders of the intent to reinvest the proceeds of such sale in accordance with the terms of the Credit Agreement; WHEREAS, in order to effect the like kind exchange pursuant to Section 1031 of the Internal Revenue Code (the "Exchange Transaction"), SLT RLP intends to purchase from a subsidiary of the Corporation either of the assets known as The Phoenician, Scottsdale, Arizona or the St. Regis Hotel, New York, New York (the "Exchange Asset") for the fair market value of either such Exchange Asset; WHEREAS, upon receipt of the remaining approximately $225,000,000 of proceeds from the Felcor Sale together with the balance of the consideration for the Exchange Asset, if any (which amount shall be drawn by Starwood REIT from a Revolving Loan), the Corporation has agreed to cause all such proceeds received in connection with the Exchange Transaction to be applied to reduce the outstanding amounts under the Revolving Loans; - 2 - 3 WHEREAS, the Borrowers wish to request a one time waiver from the restrictions set forth in Section 9.02 (including Section 9.02(xi)) of the Credit Agreement in order to permit the Exchange Transaction; WHEREAS, the parties hereto wish to amend the Credit Agreement as herein provided to evidence their agreement regarding the MSG Transactions and the Exchange Transaction; NOW, THEREFORE, it is agreed: I. Waivers, Amendments and Agreements with Respect to the Credit Agreement A. Notwithstanding anything to the contrary contained in the Credit Agreement, the Lenders hereby consent to the MSG Transactions; provided that; simultaneous with the closing of ITT MSG's transfer of all or any portion of the limited partnership interest in MSG to the Corporation, (i) ITT Sheraton shall confirm to the Administrative Agents' reasonable satisfaction that 100% of the capital stock of ITT MSG is pledged to the Collateral Agent pursuant to the Pledge and Security Agreement and shall deliver to the Collateral Agent the certificates for such stock of ITT MSG (together with stock powers executed in blank), (ii) ITT MSG shall become a Guarantor and shall execute and deliver an instrument in the form of Annex 1 to the Guaranty (in accordance with the requirements of Section 22(f) of the Guaranty) and, if at any time ITT MSG acquires assets of the type required to be pledged to the Lenders pursuant to the Pledge and Security Agreement, ITT MSG shall become a party to the Pledge and Security Agreement as a Pledgor in accordance with the provisions of Section 24 of the Pledge and Security Agreement, and (iii) ITT MSG shall execute and deliver to the Collateral Agent the ITT MSG Subordination Agreement, together with an Acknowledgment in the form of Exhibit A to Exhibit L to the Credit Agreement executed and delivered by the Corporation. B. The Corporation agrees that all Net Proceeds received by the Corporation or ITT MSG from the MSG Transactions shall be applied in accordance with Section 4.02(e) of the Credit Agreement, subject to the right of the Parent Companies to deliver a reinvestment notice as contemplated by the first proviso to said Section 4.02(e) (which the Parent Companies advise the Lenders that they intend to deliver). In the event that a reinvestment notice is delivered, the Corporate Borrowers hereby jointly and severally agree that, on the date of the receipt by the Parent Companies or any of their Subsidiaries of any Net Proceeds from the MSG Transactions, same shall be applied to reduce outstanding Revolving Loans, subject to the rights of the various Revolving Loan Borrowers to reborrow same in accordance with the terms and conditions contained in the Credit Agreement. C. The Lenders agree, in connection with the Exchange Transaction only, to waive the requirements of Section 9.02 of the Credit Agreement and to permit the Borrowers to cause the Exchange Transaction to occur within 180 days of the date of the Felcor Sale. Such Exchange Transaction (i) shall not violate the provisions of the Credit Agreement and shall not be deemed to be a transfer of Assets by the Corporation or its Subsidiaries to Starwood REIT or - 3 - 4 its Subsidiaries for purposes of Subsection 9.02(xi) of the Credit Agreement, and (ii) shall not be deemed to constitute a reinvestment of the proceeds from the Felcor Sale pursuant to Sections 9.02 (viii) and 4.02(e) of the Credit Agreement. The Corporation agrees that all cash proceeds received by the Corporation or its Subsidiaries in connection with the Exchange Transaction shall be applied to reduce outstanding Revolving Loans (but not the Revolving Loan Commitments) under the Credit Agreement, subject to the right of the Borrowers to re-borrow Revolving Loans, including, without limitation, to effect a reinvestment of the proceeds from the Felcor Sale as contemplated by the Reinvestment Notice. Because the Exchange Transaction does not constitute a reinvestment of the proceeds from the Felcor Sale pursuant to Section 9.02(viii) and 4.02(e) of the Credit Agreement, to the extent that the Net Proceeds received from the Felcor Sale are not reinvested in accordance with the first proviso to Section 4.02(e) of the Credit Agreement within the time period set forth therein (which shall run from the date of the Felcor Sale), such Net Proceeds shall continue to be subject to the requirements of the second proviso to Section 4.02(e) of the Credit Agreement. II. Miscellaneous Provisions A. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. D. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrowers and the Paying Agent. E. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. F. This Amendment shall become effective on the date (the "Amendment Effective Date") when each of the Borrowers and the Required Lenders shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Paying Agent at its Notice Office. G. From and after the Amendment Effective Date, all references in the Credit Agreement and each of the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as modified hereby. * * * - 4 - 5 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. STARWOOD HOTELS & RESORTS a Maryland real estate investment trust By:_______________________________ Name: Title: STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation By:_______________________________ Name: Title: SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:_______________________________ Name: Title: ITT CORPORATION, a Nevada corporation By:_______________________________ Name: Title: - 5 - 6 BANKERS TRUST COMPANY, Individually and as Administrative Agent and as Paying Agent By:_______________________________ Name: Title: THE CHASE MANHATTAN BANK, Individually and as Administrative Agent By:_______________________________ Name: Title: LEHMAN COMMERCIAL PAPER, INC., Individually and as Syndication Agent By:_______________________________ Name: Title: BANK OF MONTREAL, CHICAGO BRANCH Individually and as Syndication Agent By:_______________________________ Name: Title: - 6 - 7 ARAB BANKING CORPORATION (B.S.C.) By:_______________________________ Name: Title: BANCA POPOLARE DI MILANO By:_______________________________ Name: Title: By:_______________________________ Name: Title: BANKBOSTON, N.A. By:_______________________________ Name: Title: BANK LEUMI USA By:_______________________________ Name: Title: - 7 - 8 THE BANK OF TOKYO-MITSUBISHI, LIMITED, NEW YORK BRANCH By:_______________________________ Name: Title: BANK POLSKA KASA OPIEKI S.A. PEKAO S.A. GROUP, NEW YORK BRANCH By:_______________________________ Name: Title: BANQUE PARIBAS By:_______________________________ Name: Title: By:_______________________________ Name: Title: BANQUE WORMS CAPITAL CORP. By:_______________________________ Name: Title: - 8 - 9 BEAR STEARNS INVESTMENT PRODUCTS INC. By:_______________________________ Name: Title: BARCLAYS BANK PLC By:_______________________________ Name: Title: CHANG HWA COMMERCIAL BANK, LTD., NEW YORK BRANCH By:_______________________________ Name: Title: CHIAO TUNG BANK CO., LTD. NEW YORK AGENCY By:_______________________________ Name: Title: CIBC INC. By:_______________________________ - 9 - 10 Name: Title: COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE By:_______________________________ Name: Title: By:_______________________________ Name: Title: CREDIT LYONNAIS NEW YORK BRANCH By:_______________________________ Name: Title: CREDIT SUISSE FIRST BOSTON By:_______________________________ Name: Title: By:_______________________________ Name: Title: CREDITO ITALIANO - 10 - 11 By:_______________________________ Name: Title: By:_______________________________ Name: Title: DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN ISLANDS BRANCH By:_______________________________ Name: Title: By:_______________________________ Name: Title: ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG By:_______________________________ Name: Title: By:_______________________________ Name: Title: FIRST COMMERCIAL BANK By:_______________________________ - 11 - 12 Name: Title: FIRST SECURITY BANK, N.A. By:_______________________________ Name: Title: FLEET BANK, N.A. By:_______________________________ Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION By:_______________________________ Name: Title: GOLDMAN SACHS CREDIT PARTNERS L.P. By:_______________________________ Name: Title: GULF INTERNATIONAL BANK B.S.C. - 12 - 13 By:_______________________________ Name: Title: HUA NAN COMMERCIAL BANK, LTD. NEW YORK AGENCY By:_______________________________ Name: Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED NEW YORK BRANCH By:_______________________________ Name: Title: ISTITUTO BANCARIO DI TORINO SpA By:_______________________________ Name: Title: LAND BANK OF TAWAIN, LOS ANGELES BRANCH By:_______________________________ Name: Title: THE LONG TERM CREDIT BANK OF - 13 - 14 JAPAN, LTD. By:_______________________________ Name: Title: MITSUBISHI TRUST & BANKING CORPORATION By:_______________________________ Name: Title: NATIONSBANK, N.A. By:_______________________________ Name: Title: THE ROYAL BANK OF SCOTLAND, PLC By:_______________________________ Name: Title: SOCIETE GENERALE, SOUTHWEST AGENCY By:_______________________________ Name: Title: SOUTHERN PACIFIC BANK - 14 - 15 By:_______________________________ Name: Title: THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH By:_______________________________ Name: Title: WACHOVIA BANK, N.A. By:_______________________________ Name: Title: WESTDEUTSCHE LANDESBANK GIROZENTRALE By:_______________________________ Name: Title: By:_______________________________ Name: Title: - 15 - 16 VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By:_____________________________________ VAN KAMPEN CLO I, LIMITED By: Van Kampen American Capital Management Inc., as collateral manager By:__________________________________ THE TORONTO DOMINION BANK By:_____________________________________ - 16 - EX-10.4 7 EX-10.4 1 Exhibit 10.4 FOURTH AMENDMENT TO CREDIT AGREEMENT FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of July 15, 1998, among STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust ("Starwood REIT"), SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership ("SLT RLP"), STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Corporation"), ITT CORPORATION, a Nevada corporation ("ITT" and, together with Starwood REIT, SLT RLP and the Corporation, the "Borrowers") the lenders from time to time party to the Credit Agreement referred to below (the "Lenders"), BANKERS TRUST COMPANY and THE CHASE MANHATTAN BANK, as Administrative Agents (in such capacity, the "Administrative Agents) and LEHMAN COMMERCIAL PAPER INC. and BANK OF MONTREAL, as Syndication Agents (in such capacity, the "Syndication Agents"). Unless otherwise defined herein, all capitalized terms used herein shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H: WHEREAS, the Borrowers, the Lenders, the Administrative Agents and the Syndication Agents are parties to a certain Credit Agreement, dated as of February 23, 1998 (as amended, modified or supplemented to the date hereof, the "Credit Agreement"); and WHEREAS, ITT and its Subsidiaries have incurred certain intercompany debt (the "ITT Foreign Debt") more particularly described in Exhibit 1 attached hereto; WHEREAS, ITT and its Subsidiaries have incurred certain intercompany debt (the "Sheraton Suites Debt") more particularly described in Exhibit 2 attached hereto; WHEREAS, the Parent Companies are considering an investment of between 25% and 50% of the equity in the Camino Real luxury hotel chain with 16 hotels (15 in Mexico and 1 in the United States) being offered for sale by Mexico's Banking Deposit and Insurance Agency (the "Camino Real Transaction") with a total acquisition investment by the equity of between $300 and $450 million; WHEREAS, the Parent Companies and certain Subsidiaries are contemplating adding three Sheraton Mexico Hotels described in Exhibit 3 attached hereto (the "Mexico Sheratons") to certain existing financing provided by Bancomer S.A. (the "Bancomer Financing") covering three hotels in Mexico described in Exhibit 4 attached hereto (the "Mexico Regina Hotels") resulting in a secured recourse financing on the Mexico Sheratons and the Mexico Regina Hotels (the "Proposed Mexico Refinancing"), which Proposed Mexico Refinancing shall otherwise be on substantially the same terms (except that the amount thereof may be increased in accordance with the terms hereof) as the existing Bancomer Financing; 2 WHEREAS, the Borrowers desire to increase the total Tranche II Term Loan Commitments and the total Revolving Loan Commitments, on a pro rata basis, in an amount up to $500,000,000 of total new commitments and, in connection therewith, to add certain new Lenders and to provide for the modification of Schedule I-A and Schedule I-B to the Credit Agreement in the manner hereinafter set forth; WHEREAS, the Borrowers wish to request certain waivers from certain restrictions set forth in certain sections of the Credit Agreement in order to permit certain transactions described herein; and WHEREAS, the parties hereto wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: I. Waivers, Amendments and Agreements with Respect to the Credit Agreement A. Notwithstanding anything to the contrary contained in the Credit Agreement, the Lenders hereby consent to the Parent Companies or any Subsidiaries of the Parent Companies incurring new Indebtedness and/or refinancing the ITT Foreign Debt and the Sheraton Suites Debt (with all Indebtedness incurred pursuant to this clause A. being collectively referred to as "New Debt") in an aggregate principal amount of up to $500 million (subject to reduction as provided in the last sentence of the definition of Permitted Refinancing Indebtedness); provided that (w) no New Debt shall be incurred if, at the time of such incurrence or immediately after giving effect thereto, any Specified Default or any Event of Default shall be in existence, (x) New Debt may not be secured by any assets of any Significant Obligor (as defined in clause B. below), (y) to the extent any New Debt involves any element of recourse to any Significant Obligor, then the maximum amount of the recourse to the Significant Obligors from time to time with respect to any New Debt shall be deemed to constitute a utilization of, and shall therefore reduce the amount otherwise available pursuant to, the Recourse Basket (as hereinafter defined) (and shall not exceed the amount of the Recourse Basket before giving effect to such reduction), without duplication, and (z) the incurrence of such New Debt shall result in the satisfaction of at least one of the following requirements: (i) the reduction of foreign withholding taxes, (ii) the reduction of foreign currency exposure, (iii) the creation of an interest expense deduction which otherwise would have resulted in the accumulation of net operating losses, or (iv) the reclassification of the respective Indebtedness to non-recourse, off-balance sheet obligations, on the combined consolidated financial statements of the Parent Companies. All Net Proceeds received by the Borrowers or their Subsidiaries from incurrences of New Debt shall be applied to repay outstanding Revolving Loans and Swingline Loans (to the extent then outstanding), but shall not otherwise be required to be applied in accordance with the provisions of Section 4.02(d) of the Credit Agreement. B. Notwithstanding anything to the contrary contained in clause (v) of the definition of "Permitted Refinancing Indebtedness" set forth in Section 11.01 of the Credit Agreement, up to two (2) additional obligors shall be permitted to be added in connection with any Permitted Refinancing Indebtedness; provided that if either (i) any Parent Company, SLC OLP, SLT RLP, ITT, ITT Sheraton, Sheraton International Corporation and any successor to any -2- 3 such entity (collectively, the "Significant Obligors") become additional obligors or (ii) upon the addition of a new obligor (whether as a direct obligor or as a guarantor), the recourse obligations of the Significant Obligors increase or stay the same, (unless such recourse obligations were already zero) then the maximum amount of the recourse to the Significant Obligors from time to time with respect to any such Permitted Refinancing Indebtedness shall be deemed to constitute a utilization of, and shall therefore reduce the amount otherwise available pursuant to, the Recourse Basket (as hereinafter defined) (and shall not exceed the amount of the Recourse Basket before giving effect to such reduction), without duplication. In connection with the refinancing of the Asset known as Sheraton on the Park, Sydney, Australia, Sheraton Pacific Hotels Management Company (SHP) may be added as an obligor in connection with such refinancing, provided that ITT and ITT Sheraton Corporation shall have no further liability for such Indebtedness being Refinanced following the addition of such obligor. C. Section 4.02(k) of the Credit Agreement is hereby amended by deleting the phrase "with the net cash proceeds of any issuance of Permanent Senior Notes" appearing therein and by inserting in lieu thereof the phrase "(x) with the net cash proceeds of any issuance of Permanent Senior Notes and/or (y) pursuant to the second proviso to Section 9.12 (iii)". D. Section 6 of the Credit Agreement is hereby amended by adding the following new Section 6.07 immediately after Section 6.06 thereof: "6.07 Compliance with Senior Secured Bridge Note Agreement; Permanent Senior Notes. If at any time any Administrative Agent or the Required Lenders reasonably believe that the respective Credit Event might give rise to a violation of the covenants governing incurrences of Indebtedness or the existence of Liens contained in the documentation with respect to the Senior Secured Bridge Notes (if any are then outstanding) or the Permanent Senior Notes (if any are then outstanding), the respective Administrative Agent or Required Lenders may (but shall have no duty to) require the Borrowers to furnish such evidence that the respective Credit Event shall comply with the applicable provisions of such documentation as may be reasonably required by the respective Administrative Agent or the Required Lenders, as the case may be (which evidence may be required to include, but shall not be limited to, officers' certificates, supporting computations and/or opinions of counsel)." E. The Lenders agree to waive the requirement in Section 8.01(d) that the Borrowers furnish to the Lender a budget for each of the four fiscal quarters of Fiscal Year 1998. F. Section 8.01(e) of the Credit Agreement is hereby amended by adding the following new sentence immediately at the end thereof: "Furthermore, from and after the first date of upon which any New Commitments under, and as defined in, the Fourth Amendment are furnished, and so long as any Senior Secured Bridge Notes or Permanent Senior Notes remain outstanding, each certificate delivered pursuant to this clause (e) shall set forth in reasonable detail calculations establishing compliance with Section 5.9 of the Senior Secured Bridge Note Agreement -3- 4 (or the analogous provisions contained in any successor documents entered into with respect to the Senior Secured Bridge Notes or the Permanent Senior Notes) for all Indebtedness incurred during the respective fiscal quarter or year, as the case may be." G. Section 9.02(ix) of the Credit Agreement is hereby amended by deleting therefrom the phrase "immediately after giving effect to each such Permitted Acquisition, the Total Unutilized Revolving Loan Commitment shall be at least equal to $200,000,000" and by inserting in lieu thereof the phrase "[intentionally omitted]". H. Section 9.04(xii) of the Credit Agreement is hereby amended by (i) deleting the amount "$100,000,000" appearing therein and inserting in lieu thereof the amount "$350,000,000" and (ii) inserting the following additional phrase immediately after the phrase "at any time outstanding" appearing therein: "(with the amount of Unsecured Indebtedness permitted to be outstanding at any time pursuant to this clause (xii) being herein referred to as the "Recourse Basket"); provided that the amount of the Recourse Basket shall be reduced from time to time to the extent provided in Parts I.A. and I.B. of the Fourth Amendment and the last sentence of the definition of Permitted Refinancing Indebtedness contained herein". I. Section 9.05 of the Credit Agreement is hereby amended by (i) deleting the amount "$20,000,000" appearing in clause (xi) thereof and by inserting in lieu thereof the amount "$50,000,000", (ii) deleting the word "and" appearing at the end of clause (xiii) thereof, (iii) deleting the phrase "through (xiv)" appearing in clause (xiv) thereof and by inserting in lieu thereof the phrase "through (xiii)", (iv) deleting the period at the end of clause (xiv) thereof and by inserting in lieu thereof"; and" and (v) inserting the following new clause (xv) immediately at the end thereof: "(xv) so long as no Specified Default and no Event of Default then exists or would exist immediately after giving effect thereto, in addition to the investments permitted by clauses (i) through (xiv) above, the Parent Companies shall be permitted, pursuant to the Camino Real Transaction, to acquire, directly or indirectly through their Subsidiaries, between 25% and 50% of the equity interests therein (or in the entity which acquires the assets described in the definition of Camino Real Transaction contained herein) so long as the aggregate amount invested pursuant to this clause (xv) in no event exceeds $225 million." J. Section 9.12 of the Credit Agreement is hereby amended by inserting the following new proviso immediately at the end of the existing proviso to clause (iii) thereof (and before the comma appearing at the end of such proviso): "; provided further that, at any time after the occurrence of one or more New Commitment Effective Dates under, and as defined in, the Fourth Amendment, and so long as no Specified Default, and no Event of Default, then exists or would exist after giving effect thereto, either Parent Company or any of its Subsidiaries may voluntarily redeem (in part) Senior Secured Bridge Notes in accordance with the terms of the Senior Secured Bridge Note Agreement so long -4- 5 as the aggregate principal amount of Senior Secured Bridge Notes from time to time redeemed pursuant to this proviso at no time exceeds the New Commitment Amount as from time to time in effect" K. Section 11.01 of the Credit Agreement is hereby amended by adding the following new definitions in appropriate alphabetical order therein: "Camino Real Transaction" shall mean an investment by the Parent Companies and/or their Subsidiaries whereby the Parent Companies acquire, directly or indirectly, between 25% and 50% of the equity interests in the Camino Real luxury hotel chain with 16 hotels (15 in Mexico and 1 in the United States) being offered for sale by Mexico's Banking Deposit and Insurance Agency. "Fourth Amendment" shall mean the Fourth Amendment to this Agreement dated as of July 15, 1998. "New Commitment Amount" at any time shall mean the aggregate amount of New Commitments furnished after the date of the effectiveness of the Fourth Amendment and on or prior to the date of determination; provided that such New Commitments shall only be included if (i) in the case of each such New Commitment, the New Commitment Effective Date with respect thereto under, and as defined in, the Fourth Amendment has therefore occurred and the funding thereof required pursuant to clauses (vii) and and/or (viii), as the case may be, of Part I. N of the Fourth Amendment has actually occurred. "New Commitments" shall have the meaning assigned that term in the Fourth Amendment. "Proposed Mexico Refinancing" shall have the meaning provided in the Fourth Amendment. "Recourse Basket" shall have the meaning provided in Section 9.04(xii). L. The definition of "Applicable Asset Sale Percentage" appearing in Section 11.01 of the Credit Agreement is hereby amended by adding the phrase "specified in this clause (ii)" immediately after the phrase "then the applicable Asset Sale Percentage" in each place said phrase appears therein. M. The definition of "Permitted Refinancing Indebtedness" set forth in Section 11.01 of the Credit Agreement is hereby amended by adding the following new sentence at the end of such definition: "Notwithstanding anything to the contrary set forth above, the Proposed Mexico Refinancing shall constitute Permitted Refinancing Indebtedness so long as the aggregate principal amount of the Indebtedness actually incurred pursuant thereto does -5- 6 not exceed $275 million and the only additional Assets securing the Indebtedness incurred as a result thereof are the Mexico Sheratons as defined, and described, in the Fourth Amendment; provided that to the extent the aggregate principal amount of Indebtedness incurred pursuant to the Proposed Mexico Refinancing exceeds $118.75 million, such excess amount shall apply to reduce, at the option of the Parent Company, either (x) the $500 million amount of permitted New Debt pursuant to Part I.A of the Fourth Amendment and/or (y) the amount of the Recourse Basket, so long as (i) there exists availability pursuant to the baskets referenced in preceding clauses (x) and (y) at least equal to the amount of the reductions required by the proviso to this sentence and (ii) the sum of the amounts applied as reductions pursuant to preceding clauses (x) and (y) equals the amount by which the amount of Indebtedness incurred pursuant to the Proposed Mexico Refinancing exceeds $118.75 million". N. The Lenders agree that, at any time and from time to time on or prior to January 15, 1999, the Borrowers shall have the right to increase the Tranche II Term Loan Commitments (each such increase a "New Tranche II Term Loan Commitment") and the Revolving Loan Commitments (each such increase, a "New Revolving Loan Commitment"), on a pro rata basis as more fully described below, by an aggregate amount of up to $500,000,000 by notice (a "New Commitment Notice") to the Administrative Agents given at least 3 Business Days before the respective New Commitment Effective Date (as defined below) and upon the following terms and conditions: (i) on each date upon which any New Tranche II Term Loan Commitment or New Revolving Loan Commitment (each a "New Commitment") becomes effective in accordance with the terms of the respective Assumption Agreement described in clause (ii) below (each such date, a "New Commitment Effective Date"), no Specified Default and no Event of Default shall be in existence (and no Specified Default and no Event Default shall result therefrom); (ii) on or prior to each New Commitment Effective Date, each Lender (which may be an existing Lender or a new Lender) furnishing a New Commitment shall have executed and delivered to the Paying Agent an Assumption Agreement in the form of Annex A attached to this Fourth Amendment with respect to the New Commitments of such Lender (each an "Assumption Agreement"), appropriately completed to the reasonable satisfaction of the Paying Agent (and with such modifications as may be approved by the Paying Agent); (iii)the consent of the Paying Agent and, in the case of a New Revolving Loan Commitment, the Swingline Lender and each Issuing Bank (in each case not to be unreasonably withheld or delayed) shall be required to each Lender which furnishes one or more New Commitments and the assumption of such New Commitments shall otherwise be made in compliance with the relevant requirements expressed in Section 13.04(b) of the Credit Agreement with respect to assignments (including, without limitation that the respective entity assuming any New Commitments shall be an Eligible Transferee, compliance with the minimum amounts provided in Section 13.04(b) and the requirement that the Paying Agent receive the fees provided in said Section 13.04(b)); -6- 7 (iv) on each New Commitment Effective Date, additional Tranche II Term Loans shall be extended pursuant to the New Commitments, and the Revolving Loan Commitments shall be increased, in each case on a pro rata basis so that the relationship of (x) the aggregate principal amount of outstanding Tranche II Term Loans to (y) the Total Revolving Loan Commitment (expressed as a ratio) remains the same after giving effect to the occurrence of the New Commitment Effective Date as same was in effect immediately prior to giving effect thereto; (v) each New Revolving Loan Commitment shall, as provided in the Assumption Agreement, be allocated amongst the various Alternate Currency Revolving Loan Sub-Commitments and the Non-Alternate Currency Revolving Loan Sub-Commitment as may be agreed upon by the Borrowers and the respective Lender; provided that (x) the aggregate amount allocated to such sub-commitments shall equal the amount of the New Revolving Loan Commitment and (y) unless the Required Lenders otherwise consent, the allocations to the various Alternate Currency Revolving Loan Sub-Commitments shall in no event result in the limitations specified in Section 13.12 (d) of the Credit Agreement being exceeded; (vi) based on the information contained in the respective Assumption Agreement, and consistent with the requirements set forth above, on each New Commitment Effective Date Schedule I-A, Schedule I-B and Schedule II to the Credit Agreement shall be deemed amended accordingly; (vii) each Lender furnishing a New Tranche II Term Loan Commitment shall, on the respective New Commitment Effective Date, make Tranche II Term Loans to the Corporate Borrowers, consistent with the manner provided in Section 1.01 of the Credit Agreement, in an aggregate principal amount equal to the New Tranche II Term Loan Commitment of such Lender (which New Tranche II Term Loan Commitment shall terminate immediately after giving effect to such funding); provided that the Tranche II Term Loans made by each Lender on any New Commitment Effective Date shall be (1) allocated proportionally to each Borrowing of Tranche II Term Loans then outstanding (based upon the relative aggregate principal amounts of each such Borrowing), (2) shall bear interest at the same rates as are applicable thereto and (3) to the extent the amount so added to any Borrowing is in respect of a Borrowing of Eurodollar Loans with an Interest Period which began prior to, and ends after, the respective New Commitment Effective Date, the Borrowers and such Lender may agree, as between themselves, for the payment of any amounts to the respective Lender to compensate it for extending the respective Tranche II Term Loans during an existing Interest Period; (viii) each Lender furnishing a New Revolving Loan Commitment shall, on the respective New Commitment Effective Date, extend Dollar Revolving Loans and/or Alternate Currency Revolving Loans in such currencies, and in such amounts, so that the respective Lender furnishing the New Revolving Loan Commitment shall have its pro rata share of each then outstanding Borrowing of Revolving Loans on the same basis (taking into account the respective Alternate Currency Sub-Commitments of the respective Lender) as would have been the case had such new Lender originally funded its pro rata share (pursuant to Section 1.08 of the Credit Agreement) of each then outstanding Borrowing (as increased for the amounts made available by the new Lender); provided that to the extent any Lender is required to fund its portion of any then outstanding Borrowing of Euro Rate Loans which has an Interest Period which began prior to, and ends after, the respective New Commitment Effective Date, the -7- 8 relevant Borrowers may agree to compensate the respective Lender for amounts determined by them in good faith with such Lender to be the incremental costs to such Lender of funding its share of such Borrowings during the respective Interest Period; (ix) on or prior to each New Commitment Effective Date, but subject to the provisions of Section 1.06(j) of the Credit Agreement, (x) the Corporate Borrowers shall execute and deliver to each Lender furnishing a New Tranche II Term Loan Commitment a Tranche II Term Note payable to the order of such Lender in the stated amount equal to such New Tranche II Term Loan Commitment and (y) the Revolving Loan Borrowers shall execute and deliver to each Lender furnishing a New Revolving Loan Commitment the applicable Revolving Notes executed and delivered in conformance with the requirements of Section 1.06 of the Credit Agreement (in each case appropriately completed); (x) on each New Commitment Effective Date, the amount of each Tranche II Scheduled Repayment set forth in subsection 4.02(b)(ii) of the Credit Agreement shall be increased by the amounts calculated as follows: (x) each Tranche II Scheduled Repayment of $25,000,000 shall be increased by an amount equal to two and one half percent (2.5%) of the amount of the New Tranche II Term Loan Commitments furnished on such New Commitment Effective Date, (y) each Tranche II Scheduled Repayment of $50,000,000 shall be increased by five percent (5%) of the amount of the New Tranche II Term Loan Commitments furnished on such New Commitment Effective Date and (z) the Tranche II Scheduled Repayment of $550,000,000 shall be increased by an amount equal to fifty-five percent (55%) of the amount of the New Tranche II Term Loan Commitments furnished on such New Commitment Effective Date; and (xi) on each New Commitment Effective Date, there shall occur an automatic adjustment to the participations pursuant to Section 2.04 of the Credit Agreement to reflect the new Dollar Percentages and/or new RL Percentages of the various RL Lenders, in each case in accordance with the last sentence of Section 2.04(a) of the Credit Agreement. Notwithstanding anything to the contrary contained above or elsewhere in this Fourth Amendment, it is acknowledged and agreed that no Lender shall be required to provide any New Commitment, except to the extent agreed in writing by such Lender with the Borrowers (with each Lender being entitled in its sole discretion not to furnish any New Commitment). O. Without limiting the representations and warranties contained in the Credit Agreement (which are made on the date of the occurrence of each Credit Event), the Borrowers represent and warrant that all extensions of credit pursuant to the New Commitments (or which would be in excess of the amount permitted pursuant to the Credit Agreement in the absence of the New Commitments), shall in each case be permitted to be incurred pursuant to clause (a) or clause (i) of the second paragraph, or pursuant to the first paragraph, of Section 5.9 of the Senior Secured Bridge Note Agreement (so long as same is in effect) and that the Liens securing such extensions of credit are permitted in accordance with Section 5.12 of the Senior Secured Bridge Note Agreement (so long as same remains in effect). P. Each of Exhibit A (the Form of Notice of Borrowing) and Exhibit B (the Form of Notice of Competitive Bid Borrowing) to the Credit Agreement is hereby amended by -8- 9 (i) deleting the word "and" appearing at the end of clause (A) of the last paragraph thereof, (ii) deleting the period appearing at the end of clause (B) of the last paragraph thereof and inserting in lieu thereof "; and" and (iii) inserting the following new clause (C) immediately after clause (B) of the last paragraph thereof: "(C) Without limiting the foregoing, the undersigned [has/have] reviewed the provisions of Section 5.9 of the Senior Secured Bridge Note Agreement and the Proposed Borrowing is permitted to be incurred in accordance with the provisions of clauses (a) and (i) of the second paragraph thereof, or pursuant to the first paragraph thereof. [Note: The references contained in this clause (C) shall be appropriately modified at such time, if any, as the Senior Secured Bridge Notes are refinanced through the issuance of Permanent Senior Notes.]" Q. Exhibit D (the Form of Letter of Credit Request) to the Credit Agreement is hereby amended by inserting the following new clause (3) immediately after clause (2) thereof: "(3) Without limiting the foregoing, the undersigned [has/have] reviewed the provisions of Section 5.9 of the Senior Secured Bridge Note Agreement and the proposed Letter of Credit is permitted to be issued in accordance with the provisions of clauses (a) and (i) of the second paragraph thereof, or pursuant to the first paragraph thereof. [Note: The references contained in this clause (3) shall be appropriately modified at such time, if any, as the Senior Secured Bridge Notes are refinanced through the issuance of Permanent Senior Notes.]" II. Confirmation and Agreement with respect to Guaranty and Security Documents Each Guarantor and each Borrower, by their signatures below hereby confirms and agrees that (x) the Guaranty shall remain in full force and effect and the Guaranty shall cover all obligations of each of the Borrowers under the Credit Agreement, as modified and amended by this Fourth Amendment (including without limitation all additional extensions of credit at any time furnished pursuant to one or more New Commitments), and (y) the Pledge and Security Agreement shall remain in full force and effect as security for all obligations under the Credit Agreement, as modified and amended by this Fourth Amendment (including without limitation all obligations resulting from additional extensions of credit pursuant to New Commitments furnished from time to time as contemplated by this Fourth Amendment) and the Guaranty. III. Miscellaneous Provisions A. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. B. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same -9- 10 instrument. A complete set of counterparts shall be lodged with the Borrowers and the Paying Agent. C. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. D. This Amendment shall become effective on the date (the "Amendment Effective Date") when (i) each of the Borrowers, each Guarantor and the Required Lenders shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Paying Agent at its Notice Office and (ii) the Paying Agent shall have received a legal opinion from Sidley & Austin in form and substance satisfactory to the Paying Agent with respect to the execution and delivery of this Fourth Amendment and the transactions contemplated hereby. E. The Borrowers hereby covenant and agree that, so long as the Amendment Effective Date occurs, they shall pay (and shall be jointly and severally obligated to pay) each Lender which executes and delivers to the Paying Agent a counterpart hereof by the later to occur of (x) the close of business on the Amendment Effective Date or (y) 5:00 p.m. (New York time) on July 17, 1998, a cash fee in an amount equal to 5 basis points (.05%) of an amount equal to the sum of the outstanding principal amount of Term Loans of such Lender and the Revolving Loan Commitment of such Lender, in each case as same is in effect on the Amendment Effective Date. All fees payable pursuant to this clause E shall be paid by the Borrowers to the Paying Agent for distribution to the Lenders not later than the first Business Day following the Amendment Effective Date. F. From and after the Amendment Effective Date, all references in the Credit Agreement and each of the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as modified hereby. * * * -10- 11 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation By:__________________________________________ Name: Title STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust By:__________________________________________ Name: Title SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: __________________________________ Name: Title ITT CORPORATION, a Nevada corporation By:__________________________________________ Name: Title: -11- 12 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:__________________________________ Name: Title: 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:_________________________________ Name: Title: 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:_________________________________ Name: Title: -12- 13 CRYSTAL CITY HOTEL ASSOCIATES, L.L.C., a New Jersey limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:__________________________________________ Name: Title: -13- 14 EDISON HOTEL ASSOCIATES LIMITED PARTNERSHIP, a New Jersey limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:_________________________________ Name: Title: LONG BEACH HOTEL ASSOCIATES L.L.C., a New Jersey limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:_________________________________ Name: Title: 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:_________________________________ Name: Title: -14- 15 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:_________________________________ Name: Title: 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:_________________________________ Name: Title: 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:_________________________________ Name: Title: -15- 16 SLT ALLENTOWN LLC, a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investments trust, its general partner By:_________________________________ Name: Title: SLT ARLINGTON L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:_________________________________ Name: Title: 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:________________________________ Name: Title: -16- 17 SLT BLOOMINGTON, LLC, a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels and Resorts, a Maryland real estate investment trust, its managing general partner By:_________________________________ Name: Title: SLT CENTRAL PARK SOUTH, LLC, a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its managing general partner By:_________________________________ Name: Title: SLT DANIA L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:_________________________________ Name: Title: -17- 18 SLT DC MASSACHUSETTS AVENUE, L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its managing general partner By:________________________________ Name: Title: SLT FINANCING PARTNERSHIP, a Delaware general partnership By: SLT Realty Limited Partnership, a Delaware partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment partnership, its general partner By:___________________________ Name: Title: SLT HOUSTON BRIAR OAKS, LP, a Delaware limited partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its managing general partner By:________________________________ Name: Title: -18- 19 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:_________________________________ Name: Title: 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:__________________________________ Name: Title: 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:_________________________________ Name: Title: -19- 20 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:_________________________________ Name: Title: 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:__________________________________ Name: Title: SLT PHILADELPHIA L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:_________________________________ Name: Title: -20- 21 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:_________________________________ Name: Title: SLT SAN DIEGO L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:_________________________________ Name: Title: 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:_________________________________ Name: Title: -21- 22 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:__________________________________ Name: Title: 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:_________________________________ Name: Title: STARLEX L.L.C., a New York limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:_________________________________ Name: Title: -22- 23 STARWOOD ATLANTA II L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:__________________________________ Name: Title: 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:__________________________________ Name: Title: 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:_________________________________ Name: Title: -23- 24 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:________________________________ Name: Title: STARWOOD WALTHAM LLC, a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:_________________________________ Name: Title: VIRGINIA HOTEL ASSOCIATES, L.P., a Delaware limited partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:_________________________________ Name: Title: W&S DENVER CORP. By:__________________________________________ Name: Title: -24- 25 W&S SEATTLE CORP., a Delaware corporation By:__________________________________________ Name: Title: W&S REALTY CORPORATION OF DELAWARE, a Delaware corporation By:__________________________________________ Name: Title: BENJAMIN FRANKLIN HOTEL, INCORPORATED, a Washington corporation By:__________________________________________ Name: Title: WESTIN SEATTLE HOTEL COMPANY, a Washington general partnership By: W&S Realty Corporation of Delaware, a Delaware corporation, its general partnership By:______________________________________ Name: Title: By: Benjamin Franklin Hotel, Incorporated, a Washington corporation By:______________________________________ Name: Title: W&S LAUDERDALE CORPORATION, a Delaware corporation By:__________________________________________ Name: Title: -25- 26 LAUDERDALE HOTEL COMPANY, a Delaware corporation By:__________________________________________ Name: Title: WESTIN BAY HOTEL CO., a Delaware corporation By:__________________________________________ Name: Title: CINCINNATI PLAZA CO., a Delaware corporation By:__________________________________________ Name: Title: SOUTH COAST WESTIN HOTEL CO., a Delaware corporation By:__________________________________________ Name: Title: TOWNHOUSE MANAGEMENT INC., a Delaware corporation By:__________________________________________ Name: Title: -26- 27 HEI HOTELS, L.L.C. By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:_________________________________ Name: Title: MIDLAND BUILDING CORPORATION, an Illinois corporation By:__________________________________________ Name: Title: MIDLAND HOLDING CORPORATION, an Illinois corporation By:__________________________________________ Name: Title: -27- 28 MIDLAND HOTEL CORPORATION, an Illinois corporation By:__________________________________________ Name: Title: MILWAUKEE BROOKFIELD L.P., a Wisconsin limited partnership By: SLC Operating Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts Worldwide, Inc. a Maryland corporation, its general partner By:__________________________________ Name: Title: MOORLAND HOTEL LIMITED PARTNERSHIP, a Wisconsin limited partnership By: Milwaukee Brookfield L.P., a Wisconsin limited partnership, its general partner By: SLC Operating Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, Worldwide, Inc., a Maryland corporation, its general partner By:_________________________________ Name: Title: -28- 29 OPERATING PHILADELPHIA LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:_________________________________ Name: Title: SLC ALLENTOWN LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:_________________________________ Name: Title: SLC ARLINGTON L.L.C. a Delaware limited liability company By: SLC Operating Limited Partnership a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide Inc., a Maryland corporation, its general partner By:__________________________________ Name: Title: -29- 30 SLC ASPEN DEAN STREET, LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:_______________________________ Name: Title: SLC ATLANTA II LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:________________________________ Name: Title: SLC ATLANTA LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:________________________________ Name: Title: -30- 31 SLC BLOOMINGTON LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:________________________________ Name: Title: SLC-CALVERTON LIMITED PARTNERSHIP, a Delaware limited partnership By: SLC Operating Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:________________________________ Name: Title: -31- 32 SLC CENTRAL PARK SOUTH, LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its managing general partner By:______________________________ Name: Title: SLC DANIA LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:________________________________ Name: Title: -32- 33 SLC DC MASSACHUSETTS AVENUE, LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its managing general partner By:___________________________________ Name: Title: SLC HOUSTON BRIAR OAKS, LP, a Delaware limited partnership By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing general partner By: Starwood Hotels and Resorts Worldwide, Inc., a Maryland corporation, its managing general partner By:___________________________________ Name: Title: SLC INDIANAPOLIS LLC By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:___________________________________ Name: Title: - 33 - 34 SLC KANSAS CITY L.L.C., a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:___________________________________ Name: Title: SLC LOS ANGELES, LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:___________________________________ Name: Title: SLC MINNEAPOLIS LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:___________________________________ Name: Title: - 34 - 35 SLC NEEDHAM, LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc. a Maryland corporation, its general partner By:___________________________________ Name: Title: SLC OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:_______________________________________ Name: Title: SLC PALM DESERT LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:___________________________________ Name: Title: SLC SAN DIEGO LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc. a Maryland corporation, its general partner By:___________________________________ Name: Title: - 35 - 36 SLC SOUTHFIELD LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc. a Maryland corporation, its general partner By:___________________________________ Name: Title: SLC ST. LOUIS L.L.C., a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc. a Maryland corporation, its general partner By:___________________________________ Name: Title: SLC TUCSON LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:___________________________________ Name: Title: - 36 - 37 SLC WALTHAM LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By:___________________________________ Name: Title: STARWOOD MANAGEMENT COMPANY, LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels and Resorts Worldwide, Inc., a Maryland corporation, its general partner By:___________________________________ Name: Title: WESTIN PREMIER, INCORPORATED, a Delaware corporation By:___________________________________________ Name: Title: WESTIN VACATION MANAGEMENT CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: - 37 - 38 WESTIN VACATION EXCHANGE COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WVC RANCHO MIRAGE, INCORPORATED, a Delaware corporation By:___________________________________________ Name: Title: WESTIN ASSET MANAGEMENT COMPANY, a Delaware company By:___________________________________________ Name: Title: WESTIN HOTEL COMPANY, a Delaware company By:___________________________________________ Name: Title: W&S ATLANTA CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: - 38 - 39 ITT SHERATON CORPORATION, a Delaware corporation, By:___________________________________________ Name: Title: DESTINATION SERVICES OF SCOTTSDALE, INC., a Delaware corporation By:___________________________________________ Name: Title: GENERAL FIDUCIARY CORPORATION, a Massachusetts corporation By:___________________________________________ Name: Title: GLOBAL CONNEXIONS, INC., a Delaware corporation By:___________________________________________ Name: Title: SHERATON INTER-AMERICAS, LTD., a Delaware corporation By:___________________________________________ Name: Title: HUDSON SHERATON LLC, a New York limited liability company By:___________________________________________ Name: Title: - 39 - 40 ITT SHERATON RESERVATIONS CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: MANHATTAN SHERATON CORPORATION, a New York corporation By:___________________________________________ Name: Title: SAN DIEGO SHERATON CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: SAN FERNANDO SHERATON CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: SHERATON 45 PARK CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: SHERATON ARIZONA CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: - 40 - 41 SHERATON ASIA-PACIFIC CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: SHERATON BLACKSTONE CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: SHERATON BOSTON CORPORATION, a Massachusetts corporation By:___________________________________________ Name: Title: SHERATON CALIFORNIA CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: SHERATON CAMELBACK CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: - 41 - 42 SHERATON FLORIDA CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: SHERATON HARBOR ISLAND CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: SHERATON HARTFORD CORPORATION, a Connecticut corporation By:___________________________________________ Name: Title: SHERATON HAWAII HOTELS CORPORATION, a Hawaii corporation By:___________________________________________ Name: Title: SHERATON INTERNATIONAL, INC., a Delaware corporation By:___________________________________________ Name: Title: SHERATON INTERNATIONAL DE MEXICO, INC., a Delaware corporation By:___________________________________________ Name: Title: - 42 - 43 SHERATON MANAGEMENT CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: SHERATON OVERSEAS MANAGEMENT CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: SHERATON WARSAW CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: SHERATON MARKETING CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: SHERATON MIAMI CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: - 43 - 44 SHERATON MIDDLE EAST MANAGEMENT CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: SHERATON NEW YORK CORPORATION, a New York corporation By:___________________________________________ Name: Title: SHERATON OVERSEAS TECHNICAL SERVICES CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: - 44 - 45 SHERATON PEACHTREE CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: SHERATON PHOENICIAN CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: SHERATON SAVANNAH CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: SHERATON SERVICES CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: - 45 - 46 SOUTH CAROLINA SHERATON CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: ST. REGIS SHERATON CORPORATION, a New York corporation By:___________________________________________ Name: Title: WORLDWIDE FRANCHISE SYSTEMS, INC., a Delaware corporation By:___________________________________________ Name: Title: SHERATON VERMONT CORPORATION, a Vermont corporation By:___________________________________________ Name: Title: ITT BROADCASTING CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: WESTIN LICENSE COMPANY, a Delaware company By:___________________________________________ Name: Title: - 46 - 47 WESTIN INTERNATIONAL SERVICES COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN ASIA MANAGEMENT HOLDING COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN ASIA MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN CANADA MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: - 47 - 48 WESTIN OTTAWA MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN MEXICO MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN CHARLOTTE MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN RIVER NORTH MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN HILTON HEAD MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: - 48 - 49 WESTIN KANSAS CITY MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN MAUI MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN BOSTON MANAGEMENT HOLDING COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN BOSTON MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN CENTURY CITY MANAGEMENT HOLDING COMPANY, a Delaware corporation By:___________________________________________ Name: Title: - 49 - 50 WESTIN CENTURY CITY MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN NEW ORLEANS MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN ORLANDO MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN SANTA CLARA MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN TUCSON MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: - 50 - 51 WESTIN INTERNATIONAL MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN INNISBROOK MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN FRANCE MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN PITTSBURGH MANAGEMENT HOLDING COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN PITTSBURGH MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: - 51 - 52 WESTIN PEACHTREE MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN DALLAS MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN RIVERWALK MANAGEMENT COMPANY, a Delaware corporation By:___________________________________________ Name: Title: WESTIN REPRESENTATION COMPANY, a Delaware corporation By:___________________________________________ Name: Title: - 52 - 53 WESTIN LICENSE COMPANY SOUTH, a Delaware corporation By:___________________________________________ Name: Title: WESTIN LICENSE COMPANY NORTH, a Delaware corporation By:___________________________________________ Name: Title: WESTIN LICENSE COMPANY EAST, a Delaware corporation By:___________________________________________ Name: Title: - 53 - 54 WESTIN LICENSE COMPANY WEST, a Delaware corporation By:___________________________________________ Name: Title: WESTIN FRANCHISE COMPANY, a Delaware corporation By:___________________________________________ Name: Title: SHERATON O'HARE CORPORATION, a Delaware corporation By:___________________________________________ Name: Title: - 54 - 55 BANKERS TRUST COMPANY, Individually and as Administrative Agent and as Paying Agent By:___________________________________________ Name: Title: THE CHASE MANHATTAN BANK, Individually and as Administrative Agent By:___________________________________________ Name: Title: LEHMAN COMMERCIAL PAPER, INC., Individually and as Syndication Agent By:___________________________________________ Name: Title: - 55 - 56 BANK OF MONTREAL, CHICAGO BRANCH Individually and as Syndication Agent By:___________________________________________ Name: Title: ARAB BANKING CORPORATION (B.S.C.) By:___________________________________________ Name: Title: BANCA POPOLARE DI MILANO By:___________________________________________ Name: Title: By:___________________________________________ Name: Title: BANKBOSTON, N.A. By:___________________________________________ Name: Title: BANK LEUMI USA By:___________________________________________ Name: Title: - 56 - 57 THE BANK OF TOKYO-MITSUBISHI, LIMITED, NEW YORK BRANCH By:___________________________________________ Name: Title: BANK POLSKA KASA OPIEKI S.A. PEKAO S.A. GROUP, NEW YORK BRANCH By:___________________________________________ Name: Title: BANQUE PARIBAS By:___________________________________________ Name: Title: By:___________________________________________ Name: Title: - 57 - 58 BANQUE WORMS CAPITAL CORP. By:___________________________________________ Name: Title: BEAR STEARNS INVESTMENT PRODUCTS INC. By:___________________________________________ Name: Title: BARCLAYS BANK PLC By:___________________________________________ Name: Title: CANADIAN IMPERIAL BANK OF COMMERCE By:___________________________________________ Name: Title: CHANG HWA COMMERCIAL BANK, LTD., NEW YORK BRANCH By:___________________________________________ Name: Title: - 58 - 59 CHIAO TUNG BANK CO., LTD. NEW YORK AGENCY By:___________________________________________ Name: Title: CITIBANK, N.A. By:___________________________________________ Name: Title: - 59 - 60 COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE By:___________________________________________ Name: Title: By:___________________________________________ Name: Title: CREDIT LYONNAIS NEW YORK BRANCH By:___________________________________________ Name: Title: CREDIT SUISSE FIRST BOSTON By:___________________________________________ Name: Title: By:___________________________________________ Name: Title: CREDITO ITALIANO By:___________________________________________ Name: Title: By:___________________________________________ Name: - 60 - 61 Title: DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN ISLANDS BRANCH By:___________________________________________ Name: Title: By:___________________________________________ Name: Title: DOMINION BANK By:___________________________________________ Name: ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG By:___________________________________________ Name: Title: By:___________________________________________ Name: Title: FIRST COMMERCIAL BANK By:___________________________________________ Name: Title: - 61 - 62 FIRST SECURITY BANK, N.A. By:___________________________________________ Name: Title: FLEET BANK, N.A. By:___________________________________________ Name: Title: GENERAL MOTORS CASH MANAGEMENT MASTER TRUST By:___________________________________________ Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION By:___________________________________________ Name: Title: GOLDMAN SACHS CREDIT PARTNERS L.P. By:___________________________________________ Name: Title: GULF INTERNATIONAL BANK B.S.C. - 62 - 63 By:___________________________________________ Name: Title: HUA NAN COMMERCIAL BANK, LTD. NEW YORK AGENCY By:___________________________________________ Name: Title: INDOSUEZ CAPITAL FUNDING IIA, FUNDING By:___________________________________________ Name: Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED NEW YORK BRANCH By:___________________________________________ Name: Title: ISTITUTO BANCARIO DI TORINO SpA By:___________________________________________ Name: Title: KZH-CNC CORPORATION By:___________________________________________ Name: Title: - 63 - 64 LAND BANK OF TAWAIN, LOS ANGELES BRANCH By:___________________________________________ Name: Title: THE LONG TERM CREDIT BANK OF JAPAN, LTD. By:___________________________________________ Name: Title: MITSUBISHI TRUST & BANKING CORPORATION By:___________________________________________ Name: Title: ML CLO STERLING (Cayman) LTD. By:___________________________________________ Name: Title: NATIONSBANK, N.A. By:___________________________________________ Name: Title: - 64 - 65 THE ROYAL BANK OF SCOTLAND, PLC By:___________________________________________ Name: Title: SOCIETE GENERALE, SOUTHWEST AGENCY By:___________________________________________ Name: Title: SOUTHERN PACIFIC BANK By:___________________________________________ Name: Title: THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH By:___________________________________________ Name: Title: WACHOVIA BANK, N.A. By:___________________________________________ Name: Title: - 65 - 66 WESTDEUTSCHE LANDESBANK GIROZENTRALE By:___________________________________________ Name: Title: By:___________________________________________ Name: Title: VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By:___________________________________________ By:___________________________________________ VAN KAMPEN CLO I, LIMITED By: Van Kampen American Capital Management Inc., as collateral manager By:_______________________________________ THE TORONTO DOMINION BANK By:___________________________________________ Name: Title: - 66 - 67 ACKNOWLEDGMENT AND AGREEMENT Each of the undersigned, each being a Guarantor (other than the Guarantors which are already signatories to the foregoing Fourth Amendment as Borrowers) hereby acknowledges and agrees to the provisions of the Fourth Amendment to Credit Agreement to which this acknowledgment and agreement is attached (as well as to the provisions of all prior amendments to the Credit Agreement), and without limiting the foregoing, each of the undersigned expressly acknowledges and agrees to the provisions contained as Article II of the foregoing Fourth Amendment. - 67 - 68 Annex A TO FOURTH AMENDMENT FORM OF ASSUMPTION AGREEMENT Date __________, 19__ Reference is made to the Credit Agreement described in Item 2 of Annex I hereto (as such Credit Agreement may hereafter be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"). Unless defined in Annex I hereto, terms defined in the Credit Agreement are used herein as therein defined. Each of Starwood Hotels & Resorts, a Maryland real estate investment trust ("Starwood REIT"), SLT Realty Limited Partnership, a Delaware limited partnership ("SLT RLP"), Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the "Corporation") and ITT Corporation, a Nevada corporation ("ITT" and, together with Starwood REIT, SLT RLP and the Corporation, the "Starwood Entities") and _______________________ (the "New Lender") hereby agree as follows: 1. In accordance with the terms of the Credit Agreement (and the Fourth Amendment thereto) the New Lender hereby acknowledges and agrees that it hereby makes (x) a New Tranche II Term Loan Commitment (as defined in the Fourth Amendment) in the amount specified in Item 4 of Annex I hereto and (y) a New Revolving Loan Commitment in the amount specified in Item 4 of Annex I hereto (which shall result in Alternate Currency Revolving Loan Sub-Commitments and/or a Non-Alternate Currency Revolving Loan Sub-Commitment with respect thereto as also specified in Item 4 of Annex I hereto (which sub-commitments must, in aggregate, equal the amount of the New Revolving Loan Commitment)). The New Lender further agrees to make Loans pursuant to its New Commitments (as defined in the Fourth Amendment) in accordance with the requirements of the Credit Agreement and the Fourth Amendment. If any New Revolving Loan Commitment is furnished, the Lender also acknowledges and agrees that it shall acquire participations in Letters of Credit in accordance with the terms of the Credit Agreement and the Fourth Amendment. 2. The New Lender acknowledges and agrees that no Agent and no other Lender (i) makes any representation or warranty or assumes any responsibility with respect to the financial condition of the Parent Companies or any of their Subsidiaries or the performance or observance by the Parent Companies or any of their Subsidiaries of any of their respective obligations under the Credit Agreement or the other Credit Documents to which they are a party or any other instrument or document furnished pursuant thereto or (ii) makes any representation or warranty or assumes any responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the other Credit Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or the other Credit Documents or any other instrument or document furnished pursuant thereto. 3. The New Lender (i) confirms that it has received a copy of the Credit Agreement and the other Credit Documents, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assumption Agreement; (ii) agrees that it will, independently and without reliance upon the Administrative Agents or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Transferee as defined in the Credit Agreement; (iv) appoints and authorizes the 69 Annex A to Fourth Amendment Page 2 Administrative Agents and the Collateral Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Credit Documents as are delegated to the Administrative Agents and the Collateral Agent, by the terms thereof, together with such powers as are reasonably incidental thereto; [and] (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement and the other Credit Documents are required to be performed by it as a Lender; [and (vi) to the extent legally entitled to do so, attaches the forms described in Section 13.04(b) of the Credit Agreement.](1) 4. Following the execution of this Assumption Agreement by the Starwood Entities and the New Lender, an executed original hereof (together with all attachments) will be delivered to the Paying Agent. The effective date of this Assumption Agreement shall be the date of execution hereof by the Starwood Entities and the New Lender, the receipt of the consent of the Paying Agent and, if any New Revolving Loan Commitment is made, the consent of the Swingline Lender and each Issuing Bank, the receipt by the Paying Agent of the administrative fee referred to in Section 13.04(b) of the Credit Agreement and the recordation of the assignment effected hereby on the Register by the Paying Agent as provided in Section 13.15 of the Credit Agreement, or such later date, if any, which may be specified in Item 5 of Annex I hereto (the "New Commitment Effective Date"). 5. Upon the delivery of a fully executed original hereof to the Paying Agent, as of the New Commitment Effective Date, the New Lender shall be a party to the Credit Agreement and, to the extent provided in this Assumption Agreement, have the rights and obligations of a Lender thereunder and under the other Credit Documents. 6. It is agreed that the New Lender shall be entitled to (x) interest on the Loans made by it; (y) Commitment Commission (if applicable); and (z) Letter of Credit Fees (if applicable) on the New Lender's participation in all Letters of Credit, in each case at the rates specified in the Credit Agreement, for periods after such extensions of credit are made by such New Lender pursuant to this Assumption Agreement and the terms of the Credit Agreement.. 7. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. - ---------- (1) Include if the New Lender is organized under the laws of a jurisdiction outside of the United States. 70 Annex A to Fourth Amendment Page 3 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Assumption Agreement, as of the date first above written, such execution also being made on Annex I hereto. Accepted this ____ day of __________, 19__ STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust By:___________________________________________ Name: Title: STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation By:___________________________________________ Name: Title: SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:___________________________________________ Name: Title: ITT CORPORATION, a Nevada corporation By:___________________________________________ Name: Title: 71 Annex A to Fourth Amendment Page 4 [NAME OF NEW LENDER], as a New Lender By____________________________________________ Title: Acknowledged and Agreed as of _________ ___, 19__: BANKERS TRUST COMPANY, as Paying Agent By__________________________ Title: [NAME OF SWINGLINE LENDER], as Swingline Lender By__________________________ Title: [NAME OF EACH ISSUING BANK], as an Issuing Bank By__________________________ Title:](2) (2) The consent of the Swingline Lender and each Issuing Bank is required with respect to New Revolving Loan Commitments. 72 Annex 1 to Assumption Agreement ANNEX FOR ASSUMPTION AGREEMENT 1. Borrowers: Starwood Hotels & Resorts Starwood Hotels & Resorts Worldwide, Inc. SLT Realty Limited Partnership ITT Corporation [Alternative Currency Revolving Loan Borrower] 2. Name and Date of Credit Agreement: Credit Agreement, dated as of February 23, 1998, among Starwood Hotels & Resorts, SLT Realty Limited Partnership, Starwood Hotels & Resorts Worldwide, Inc., ITT Corporation (as successor in interest to Chess Acquisition Corp.), each Alternate Currency Revolving Loan Borrower from time to time party thereto, the Lenders from time to time party thereto, Bankers Trust Company and The Chase Manhattan Bank, as Administrative Agents, and Lehman Commercial Paper Inc. and Bank of Montreal, as Syndication Agents, as amended, modified or supplemented to the date hereof. 3. Date of Assumption Agreement: 4. Amounts (as of date of item #3 above): Tranche I Term Loans a. Aggregate Outstanding Principal Amount for all Lenders $______ Tranche II Term Loans a. Aggregate Outstanding Principal $__________ Amount for all Lenders (before giving effect to New Commitment Effective Date) b. New Tranche II Term Loan $__________ Commitment of New Lender
Revolving Pounds Sterling Canadian Dollar French Franc Non-Alternate Loan Commitments Revolving Loan Revolving Loan Revolving Loan Currency Revolving Sub-Commitments Sub-Commitments Sub-Commitments Loan Sub-Commitments a. Aggregate Amount for all Lenders before giving $__________ $__________ $__________ $__________ $__________ effect to New Commitment Effective Date
73 Annex 1 to Assumption Agreement Page 2 b. Amount of New Revolving $__________ $__________ $__________ $__________ $__________](3) Loan Commitment of New Lender (and related Sub- Commitments)
[Outstanding Principal Outstanding Outstanding Principal Outstanding Principal of Dollar Principal of Canadian Dollar of French Franc Revolving Loans of Pounds Sterling Revolving Loans Revolving Loans Revolving Loans a. Aggregate Amount $__________ pound sterling__________ Cdn.$_________ FF__________] for all Lenders before giving effect to New Commitment Effective Date
5. New Commitment Effective Date: 6. Notice: NEW LENDER: _____________________ _____________________ _____________________ _____________________ Attention: Telephone: Telecopier: Reference: Payment Instructions: NEW LENDER: _____________________ _____________________ _____________________ _____________________ Attention: Reference: - ---------- (3) The sum of the Pounds Sterling Revolving Loan Sub-Commitment(s), the Canadian Dollar Revolving Loan Sub-Commitment(s), the French Franc Revolving Loan Sub-Commitment(s) and the Non-Alternate Currency Revolving Loan Sub-Commitment(s) shall equal the Revolving Loan Commitment(s). 74 Annex 1 to Assumption Agreement Page 3 Accepted and Agreed: [NAME OF NEW LENDER] By__________________________ STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust By:___________________________________________ Name: Title: STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation By:___________________________________________ Name: Title: SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:___________________________________________ Name: Title: ITT CORPORATION, a Nevada corporation By:___________________________________________ Name: Title: EX-27.1 8 EX-27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998 AND THE RELATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998 OF STARWOOD HOTELS AND RESORTS WORLDWIDE, INC. WHICH INCLUDE THE ACCOUNTS OF STARWOOD HOTELS AND RESORTS WORLDWIDE, INC. AND WESTIN FROM THE DATE OF THE ITT MERGER ON FEBRUARY 23, 1998 THROUGH JUNE 30, 1998 AND THE ACCOUNTS OF ITT AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998. EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY. 0000316206 STARWOOD HOTELS & RESORTS WORLDWIDE 1,000,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 268 0 903 0 69 1,061 6,420 953 11,486 2,258 10,362 2 0 0 (2,249) 11,486 0 4,009 2,957 897 9 0 228 (33) 29 (59) 1,092 0 0 1,033 (0.32) (0.32)
EX-27.2 9 EX-27.2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998 EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY AND THE RELATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE PERIOD FROM THE ITT MERGER ON FEBRUARY 23, 1998 THROUGH JUNE 30, 1998. NO RESULTS PRIOR TO FEBRUARY 23, 1998 ARE REPORTED AS A RESULT OF THE REVERSE PURCHASE PRICE ACCOUNTING FOR THE ITT MERGER. EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY. 0000048595 STARWOOD HOTELS & RESORTS 1,000,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 219 0 2,941 0 0 485 4,480 233 8,495 418 591 170 5 2 7,198 8,495 0 256 0 81 0 0 8 167 0 167 0 0 0 167 0.79 0.79
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