Starwood 2004 Annual Report Download - page 52

where it is anticipated that the equity will be acquired by the debt holder within one year from the acquisition of
such debt (the ""Starwood Capital Noncompete''). During the term of the Starwood Capital Noncompete,
Starwood Capital and its affiliates are not permitted to acquire any such interest, or any ground lease interest or
other equity interest, in hotels in the United States without the consent of the Board. In addition, our Corporate
Opportunity Policy requires that each executive officer submit to the Governance Committee any opportunity
that the executive officer reasonably believes is within our lines of business or in which we have an interest. Non-
employee directors are subject to the same obligations with respect to opportunities presented to them in their
capacity as directors. Therefore, as a matter of practice, all opportunities to purchase hotel assets, even those
outside of the United States, that Starwood Capital may pursue are first presented to us. The Starwood Capital
Noncompete continues until no officer, director, general partner or employee of Starwood Capital is on either
the Board of Directors of the Corporation or the Board of Trustees of the Trust (subject to exceptions for certain
restructurings, mergers or other combination transactions with unaffiliated parties). Several properties owned or
managed by us, including the Westin Innisbrook Resort (the ""Innisbrook Resort''), the Westin Mission Hills
Resort and the Westin Turnberry Resort, were opportunities brought to us or our predecessors by Starwood
Capital or entities related to Mr. Sternlicht. With the approval in each case of the Governance Committee of the
Board of Directors of the Corporation and the Board of Trustees of the Trust, from time to time we have waived
the restrictions of the Starwood Capital Noncompete, in whole or in part, (or passed on the opportunity in cases
of the Corporate Opportunity Policy for non-U.S. opportunities) with respect to particular acquisition or
investment opportunities in which we have no business or strategic interest. In each instance, members of
management not having an interest in the transaction review and analyze the proposed transaction and may seek
the advice of independent advisors. Following its review and analysis, management makes a recommendation to
the Governance Committee. Upon receiving such recommendation and analysis, the Governance Committee
will consider the recommendations and advice of management and may, depending on the transaction involved,
retain independent financial and legal advisors in determining whether or not to pursue an opportunity or waive
the Starwood Capital Noncompete.
Miscellaneous. In July 2003, we waived the Starwood Capital Noncompete in connection with the
acquisition of the Renaissance Wailea hotel in Hawaii by an aÇliate of Starwood Capital. We signed a letter
of intent with the aÇliate to manage this property after it is extensively repositioned and renovated. We are
currently negotiating the management agreement. Our Governance Committee, advised by separate indepen-
dent legal and hospitality advisors, approved the waiver of the Starwood Capital Noncompete and the terms of
the proposed management agreement as being at or better than market terms. We also declined the
opportunity to purchase the asset because the expected after tax return on investment as determined by
management based on its experience in the industry and concurred to by the Governance Committee was less
than our minimum threshold and because the acquisition was not consistent with our strategic priorities.
In August 2003, we acquired from an aÇliate of Starwood Capital its beneÑcial ownership interest in
15 acres of land contiguous to the Westin Mission Hills Resort for a purchase price of $2.8 million. Our
Governance Committee approved the transaction, which was at a discount from the price determined by an
independent third party appraiser engaged by the Governance Committee.
In November 2004, we waived the Starwood Capital Noncompete in connection with the potential
acquisition of two hotels in Florida which are currently franchised under a Starwood brand. Pursuant to the
waiver, we permitted Starwood Capital to enter into a contract to acquire the assets on the condition that it
enters into a management agreement for us to manage the assets for up to three years. The management
agreement would provide for a management fee of 5% of gross operating revenues in exchange for us loaning
Starwood Capital up to $2 million to facilitate capital improvements on the properties. The loan would be
repayable upon expiration of the management contracts unless Starwood Capital enters into long term
contracts with us. If Starwood Capital determines to operate the properties as hotels, time shares, fractional
interests, branded residential or any type of transient lodging facility, Starwood Capital would be required to
negotiate a ""market'' management agreement with us. The Governance Committee approved the waiver of
the Starwood Capital Noncompete and the proposed management fee as being at or better than market rates
based on management's recommendation. In addition, we were provided an opportunity to acquire the assets
but declined to do so because the expected after tax return on investment as determined by management based
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