REVISED KANSAS INCENTIVE PROPOSAL

Prepared especially for:

Client of Newmark Grubb Knight Frank: Project Maple

(Starwood Hotels and Resorts)
Stamford, CT

April 5, 2013
Bill Graper Business Development Consultant Kansas Department of Commerce 352 Mohawk Ave. Scotia, NY 12302 (518) 372-2898 bgraper@kansascommerce.com

East Coast Office 352 Mohawk Avenue Scotia, NY 12302-1823 Pat George, Secretary

Phone: (518) 372-2898 Fax: (518) 372-2899 bgraper@kansascommerce.com ThinkBigKS.com Sam Brownback, Governor

April 5, 2013 Mr. Noah Schlaes, CRE, FRICS Senior Managing Director Newmark Grubb Knight Frank Global Corporate Services 500 West Monroe Street, Suite 2900 Chicago, IL 60661 Dear Noah: We are pleased to present the following Revised Kansas Incentive Proposal for your client, Project Maple (Starwood Hotels and Resorts) to locate a new customer service center in Wichita, Kansas. At the clients request, we have adjusted our proposal to reflect an updated projection of worker ramp-up. As youll see, our offer generally remains the same, except that the total number of workers trained under our Kansas Industrial Training (KIT) program is reduced due to the slower ramp-up and total worker numbers after three years which is the maximum length of our KIT contracts. The company is still invited to apply for additional KIT assistance for new jobs in Years 4 and 5. This letter outlines our business advantages, the parameters of this project and the state business incentives being offered under current program statutes and policies. The incentives offered in this letter are valid until April 29, 2013.If the timeline or parameters of this project (e.g. job numbers, wages or capital investment) change materially, the Department reserves the right to renegotiate these incentives. We will be glad to answer any of your questions on our proposal or any aspect of doing business in Kansas. We look forward to working with you and the Project Maple team on this exciting project. Sincerely,

William E. Graper Business Development Consultant

PROJECT OVERVIEW
Based on the information provided, we understand the following: OPERATIONS: Establishment of an inbound customer service center in Wichita, The company is also considering locations in Washington and Texas The expected NAICS Code: 561422 Telemarketing Bureaus and other Contact Centers The company is a C-Corporation Over 50% of the revenues for this expanded worksite will come from outside Kansas

EMPLOYMENT: 955 (860 full-time and 95 part-time) new positions created in the first five years Year One 495 full-time and 55 part-time Year Two 90 full-time and 10 part-time (585 full-time and 65 part-time total) Year Three 90 full-time and 10 part-time (675 full-time and 75 part-time total) Year Four 90 full-time and 10 part-time (765 full-time and 85 part-time total) Year Five 95 full-time and 10 part-time (860 full-time and 95 part-time total) For incentive purposes, we assume that all part-time employees work more than 20 hours a week.

WAGES (Wages below do not include benefits): Projected average annual wage of new hires: Average Wage Average Wage w/o Overtime with Overtime Year one $23,816 $26,520 Year two $24,856 $27,560 Year three $26,000 $28,808 Year four $27,040 $29,744 Year five $27,872 $30,576

Median Wage with Overtime $23,920 $25,105 $25,792 $26,520 $27,248

The company will pay at least 50% of employee health insurance benefits

CAPITAL INVESTMENT: Up to $4,917,400 for building modifications and equipment, including: $2,932,000 - building modifications paid by the company $1,985,400 cost of new equipment, technology and internal infrastructure

STATE OF KANSAS ESTIMATED INCENTIVES

For establishment of a new customer service center in Wichita, Kansas:

Job Creation Fund

(offered in three increments based on job ramp-up)

up to $750,000

Kansas Industrial Training

(for up to 750 full and part-time positions in first three years)

up to $123,750

Kansas Recruitment and Screening Support

(for 955 new FT and PT hires)

up to $286,500

Estimated Personal Property Tax Savings

(first ten years savings continue indefinitely)

up to $278,088

Sales Tax Savings

up to $144,934

Total

up to $1,583,272

The State of Kansas, Department of Commerce (Commerce) considers the incentive offers and related information set forth in this document to constitute privileged and confidential information. The recipient agrees to retain this information as strictly confidential and to use such information for the sole purpose of evaluating the proposal set forth by Commerce. The release of such information, whole or in part, to any other party will be considered a violation of this agreement.

NEW TAX REFORM LAW

Effective Tax Year 2013, a new law collapses the previous three-bracket structure for individual state income taxes (3.5, 6.25 and 6.45 percent respectively) into a two-bracket system using rates of 3.0 and 4.9 percent. The individual income tax withholding rates for tax year 2013 and thereafter are: (1) Married individuals filing joint returns: Taxable income not over $30,000 - 3.0% of Kansas taxable income Taxable income over $30,000 $900 plus 4.9% of excess over $30,000 (2) All other individuals: Taxable income not over $15,000 3.0 % of Kansas taxable income Taxable income over $15,000 - $450 plus 4.9% of excess over $15,000 The law also flattens the tax structure and increases the standard deduction amount for single head-of-household filers from $4,500 to $9,000 and for married taxpayers filing jointly from $6,000 to $9,000 In addition, Kansas passed a business income tax exemption which eliminates certain non-wage business income for small business owners (income reported by Limited Liability Corporations, Subchapter-S Corporations, and Sole Proprietorships on lines 12, 17, and 18 of IRS Form 1040).

BUSINESS INCENTIVES
We have a number of major incentive programs to assist Project Maple to reduce the cost of establishing a new customer service center in Wichita, Kansas. Based on parameters identified in the preceding Project Overview, the incentive programs applicable to this project include:

DIRECT FINANCIAL ASSISTANCE

JOB CREATION FUND
Due to Project Maples importance to Wichita and Kansas, we are offering assistance from our Job Creation Fund (JCF). A total of $750,000 will be available. Based on updated job ramp-up projections, JCF dollars will be available to Project Maple on the following schedule, disbursed in three increments: $250,000 when the lease on a Kansas facility is signed $250,000 when the facility meets Year 2 job totals of 650 positions (585 FT and 65 PT) $250,000 when the facility meets Year 4 job totals of 850 positions (765 FT and 85 PT)

Job Creation Fund dollars may be used by the company for any project-related purpose.

WORKFORCE TRAINING PROGRAMS

Kansas Industrial Training KANSAS INDUSTRIAL TRAINING
We are offering Project Maple our Kansas Industrial Training (KIT) program, which is direct financial support to the company to assist in the training of net, new jobs to Kansas. We are making the following KIT offer for Project Maples new jobs in the first three years:

$165 per job, or up to $123,750 for the 750 net, new jobs projected in the first three years of the project.
Since KIT contracts are limited to three years, Project Maple is invited to apply for additional assistance to cover the 205 new jobs projected for Years 4 and 5. The program can be structured as pre-employment, classroom, on-the job or a combination of the three approaches. The program pays negotiated costs for instructors salaries; meals, travel and lodging (including out of state travel); video development; textbooks and training manuals; supplies and materials; temporary training facilities; and curriculum planning and development. Qualifying Criteria To access KIT funding, the company prepares a plan identifying trainers, trainees, type of training and the estimated cost. The training plan is approved by the Kansas Department of Commerce and funding allocated based on actual reimbursement of training expenditures per the plan and contract with our agency. The KIT application form must be submitted within 180 days from notification to the Kansas Department of Commerce of the companys decision to locate this operation in Kansas. More information on the program is at: http://www.kansascommerce.com/index.aspx?NID=140

WORKFORCE RECRUITMENT AND SCREENING ASSISTANCE

A wide variety of services are available through the Kansas Workforce Centers located in Sedgwick County and throughout the state, including: statewide and national job listings; applicant pre-screening and application acceptance; space to conduct interviews as well as staff to assist in scheduling; space for job fairs; applicant assessment services and testing; Veteran services; and current labor market information. These services are available to all Kansas employers at no cost and may be accessed through www.kansasworks.com or by contacting the local Kansas Workforce Center.

Private sector clients estimate our recruitment and screening services can save a company up to $300 per new worker. If the company utilizes these services for the 955 projected new positions, we can save Project Maple up to $286,500 on recruitment and screening costs.

PROPERTY TAX EXEMPTIONS

Both real and personal commercial property is assessed at 25% of appraised value, which is multiplied by the local mill levy to get a property tax figure. However, there are real and personal property tax abatement and exemption programs available in Kansas for tax savings.

REAL PROPERTY TAX ABATEMENT

State law allows 100% property tax abatement for ten (10) years on real property if industrial revenue bonds are utilized for an office project. Tax abatement for real property is a local decision of the community.

PERSONAL PROPERTY TAX EXEMPTION

For personal property, Kansas law exempts the property tax on commercial and industrial machinery and equipment purchased or transferred into Kansas after June 30, 2006. The personal property tax exemption continues each year under the law. As an illustration, we have outlined below the estimated personal property tax savings for this project using expected expenditures for purchased machinery and equipment. The property tax exemption is indefinite; however the property tax savings over a 10 year period using the 2011Wichita mill levy of 120.306 and the maximum equipment and technology costs are detailed below.

Estimated Machinery and Equipment (M & E) Property Tax Savings

M&E Cost Assessed Value (7-yr Depreciation) of M&E (25%) $1,985,400 $496,350 $1,701,488 $425,372 $1,417,576 $354,394 $1,133,663 $283,416 $851,737 $212,934 $567,824 $141,956 $397,080 $99,270 $397,080 $99,270 $397,080 $99,270 $397,080 $99,270 Estimate of 10-Year Tax Savings Property Tax Liability $59,714 $51,175 $42,636 $34,097 $25,617 $17,078 $11,943 $11,943 $11,943 $11,943 $278,088
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Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

This personal property tax exemption is a unique and significant savings each year for Project Maple. Actual savings will depend on the fair market value of the property, depreciation and the local mill levy rate. Personal property exemption can cover such items as: computers, desks & chairs, copiers, fax machines, business machinery, equipment used in manufacturing operations, and equipment used in warehousing.

SALES TAX EXEMPTION FOR EQUIPMENT

EXEMPTION THROUGH INDUSTRIAL REVENUE BONDS
Industrial revenue bonds (IRBs) are issued by cities and counties to provide funds for creditworthy companies to purchase land, pay the cost to construct and equip new facilities, or to purchase, remodel or expand existing facilities. IRBs allow for fixed-rate financing for the life of the bond for the project. The authority to approve the issuance comes from the governing body where the land site is located. A primary benefit of IRBs is a sales tax exemption. Statute K.S.A. 79-3606 exempts the cost of building materials and labor, as well as fixed items of machinery and equipment, from state and local sales taxes when IRBs are used. Based on Project Maples estimate for taxable equipment purchases, the expected savings based on the current Wichita sales tax rate of 7.3% would be: $1,985,400 (cost of equipment) times 7.3% sales tax rate = $144,934. This does not include bond issuance fees.

KANSAS CORPORATE INCOME TAX CREDITS

The corporate income tax rate for C-Corporations in Kansas is 4% of net income. Net income in excess of $50,000 is subject to a surtax of 3.00 percent. For corporations having facilities both inside and outside the state, the net income attributed to the Kansas operation is based upon the percentage of the corporations business located in Kansas. A business tax obligation is determined by a three-factor formula using the proportion of sales, property and payroll attributable to the Kansas facility. Corporations may opt to use a two-factor (sales and property) apportionment formula to calculate tax liability if the payroll factor for a taxable year exceeds 200% of the average of the property and sales factors. State law allows net operating losses to be carried forward to each of the ten years following the taxable year of the net operating loss.

However, Kansas offers corporate income tax reduction programs which may reduce a companys tax liability. The tax credits earned by a legal entity can be used to offset the Kansas income tax liability of that same entity. The corporate income tax rate in Kansas is 4% of net income. Net income in excess of $50,000 is subject to a 3.0% surtax as of tax year 2011. Kansas offers a method to reduce this liability:

MACHINERY/EQUIPMENT EXPENSING DEDUCTION

Effective January 1, 2012, Kansas taxpayers are allowed to claim an expense deduction for business machinery and equipment, placed in service in Kansas during the tax year. The onetime deduction is allowed for each qualified purchase of machinery and equipment in the year that it is placed in service. The unused expense deduction is treated as a Kansas net operating loss that may be carried forward for ten (10) years. If the property is relocated outside Kansas or disposed of before the end of its federal depreciable life, the amount of the tax liability relieved by the deduction may be subject to repayment. Eligible investment is machinery and equipment depreciable under the Modified Accelerated Cost Recovery System (MACRS) in section 168 of the Internal Revenue Code (IRC), or canned software as defined in section 197 of the Internal Revenue Code. Examples of eligible equipment include manufacturing equipment, office furniture, computers, software, and racking. The expense deduction is computed by multiplying the depreciable cost of the item placed into service times the factor shown in the table in subparagraph (f) of Section 2 of Kansas Senate Bill 196, based on the recovery period (differs by type of property) and method of depreciation (200% declining balance, 150% declining balance, straight-line) determined under IRC section 168, minus any IRC section 168(k) bonus depreciation claimed for the same item on the federal return. If the business is claiming IRC Section 179 expensing for the item, then no subtraction is made from the depreciable cost before multiplying that times the applicable factor to compute the Kansas expense deduction. For example, for a computer placed into service that cost $10,000, if the business is claiming IRC Section 168(k) 50% bonus depreciation in a tax year, that amount must be subtracted from the depreciable cost of the computer before the Kansas expensing deduction is calculated: $10,000 -$5,000 = $5,000. The amount of the Kansas expense deduction in this situation is: $5,000 times .116 = $580. If the business is claiming IRC Section 179 expensing for this computer, then no subtraction is made from the depreciable cost before multiplying that times the applicable factor to compute the Kansas expense deduction: $10,000 times .116 = $1,160. The expense deduction is claimed against a company's Kansas corporate income tax liability. The Kansas expense deduction is a post-apportionment deduction. For a multi-state business, this means the deduction is applied after the income has been apportioned to Kansas. A more detailed description of the benefit and example can be found in the "Expensing Primer" at: http://www.ksrevenue.org/pdf/SB196ExpensingDeduction.pdf
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If a taxpayer elects to claim an expensing deduction for certain investment, they cannot claim a tax credit for the same investment under the High Performance Incentive Program. They also cannot claim a credit under the following other tax credit programs: research and development credit; alternative fuel vehicle credit; swine facility improvement credit; historic preservation credit; refinery credit or accelerated depreciation; oil or gas pipeline or accelerated depreciation; integrated coal or coke gasification nitrogen fertilizer plant credit or accelerated depreciation; biomass-to-energy plant credit or accelerated depreciation; integrated coal gasification power plant credit; renewable electric cogeneration facility credit or accelerated depreciation; biofuel storage and blending equipment credit or accelerated depreciation; carbon dioxide capture equipment credit; or film production credit.

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KANSAS BUSINESS ADVANTAGES

Kansas offers definite business advantages to companies, advantages that translate to increased performance and profits. Some of these include: Cost Advantages: Cost for doing business averages more than 25% below the highest indexed state. Cost of living in Kansas is 8.7% below the national average. Workers compensation rates ranked 9th lowest in the U.S. Kansas has no inventory tax or franchise tax. Kansas cities or counties do not impose income or earnings taxes on personal or corporate income.

Workforce Advantages: Right-to-Work state by constitutional amendment. Union membership is well below the national average. Kansas invests greatly in education helping our workforce rank15thfor attainment of a high school degree and 16th for a college degree per US Department of Education.

Kansas Accolades: Forbes ranked Kansas 12th as a Top State for Business in 2011. Kansas ranked 6th by Site Selection magazine's 2011 Competitiveness Awards for capital investment and new facility development. Winner of Silver Shovel award by Area Development magazine for recruitment of business, jobs and capital investment in the last six out of seven years.

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