<PAGE>   1
                                                                    EXHIBIT 10.6


                              SEPARATION AGREEMENT

                  THIS SEPARATION AGREEMENT (this "Agreement"), dated as of
April 30, 1999, is by and between STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a
Maryland corporation having offices at 777 Westchester Avenue, Suite 400, White
Plains, New York 10604 (the "Company"), and RICHARD D. NANULA ("Employee").

                                    RECITALS

                  WHEREAS, pursuant to an Amended and Restated Employment
Agreement dated as of April 15, 1998, between the Company and the Employee (the
"Employment Agreement"), Employee is employed by the Company as its President
and Chief Operating Officer and serves as a director of the Company; and

                  WHEREAS, Employee desires to resign his employment with the
Company and his position as President and Chief Operating Officer and all other
director, officer and employee positions, if any, held by Employee in the
Company or any of its subsidiaries effective as of April 30, 1999 (the
"Termination Date"); and

                  WHEREAS, the parties desire to set forth their respective
rights and obligations in respect of Employee's resignation from the above
positions;

                  NOW, THEREFORE, in consideration of the covenants and
conditions set forth herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties, intending to
be legally bound, agree as follows:

                                    AGREEMENT

                  1.  Resignation.

                  (a) Effective as of the Termination Date, Employee will resign
from his position as President and Chief Operating Officer, and all other
director, officer and employee positions held by Employee in the Company or any
of its subsidiaries. It is agreed by the parties that, on and as of the
Termination Date, all rights and obligations of Employee and the Company with
respect to such employment shall terminate.

                  (b) On the Termination Date, Employee will deliver to the
Company a letter of resignation in the form of EXHIBIT A hereto and a
certificate of release in the form of EXHIBIT B hereto, and the Company will
deliver a certificate of release in the form of EXHIBIT C hereto.

                  2. Benefits. In consideration of the agreements of Employee
herein, Employee will be entitled to the benefits set forth in this Section 2.
<PAGE>   2
                  (a) Salary. On the Termination Date, the Company shall wire
transfer to an account specified by Employee $1,175,000. In addition, the
Company will pay Employee $48,958.33 per month for a period of 24 months from
and after the Termination Date, such amount to be payable in accordance with the
Company's regular payroll policies as in effect from time to time. All payments
to Employee under this Section 2(a) will be less applicable withholdings for
federal, state and local taxes.

                  (b) Stock Options. Options to purchase up to 250,000 shares of
the Company's common stock at $24 per share previously awarded to the Employee
shall vest on the Termination Date and be exercisable by Employee at any time
prior to the close of business on December 31, 1999. Any and all other stock
options, awards, warrants or similar rights to purchase the Company's common
stock previously awarded to the Executive under the Company's Long-Term
Incentive Plan, the Employment Agreement or otherwise shall terminate on, and be
null and void after, the Termination Date.

                  (c) Restricted Stock Units. Nothing in this Agreement shall be
construed to in any way modify, impede or impair Employee's rights in respect of
the 300,000 Restricted Stock Units awarded to Employee under the Company's 1995
Long-Term Incentive Plan pursuant to the terms of the Employment Agreement, and
each provision of the Employment Agreement relating to such Restricted Stock
Units shall, notwithstanding any other provision of this Agreement, continue in
full force and effect as though incorporated herein by reference and made a part
hereof.

                  (d) Office. For a period of one year from and after the
Termination Date, or until the date Employee becomes employed by an entity other
than the Company, whichever occurs first, the Company will provide Employee with
reasonable office space at a location in Greenwich, Connecticut to be determined
by the Company and reasonable attendant office services such as telephone,
telecopier, computer and office supplies, together with the services of one
full-time secretary who shall not be an employee of the Company, who shall be
compensated by the Company at the current base salary of the Employee's current
secretary, and which secretary must be reasonably acceptable to Employee.
Notwithstanding the foregoing, Executive may elect at any time by written notice
to the Company to maintain his office in his home, in which case the Company
shall, in lieu of providing Executive with an office and paying the expenses of
attendant office services, pay Executive a monthly stipend on the fifteenth day
of each calendar month of $3,500.

                  (e) Directors and Officers Insurance/Indemnification. Employee
will continue to be covered under the Company's directors and officers insurance
policy for the period during which he served as an officer or director of the
Company, and shall be entitled to such other indemnification as is required by
applicable law.

                  (f) Expenses. The Company shall reimburse Employee for any
reasonable business expenses incurred in the performance of his duties for the
Company prior to the Termination Date in accordance with the Company's generally
applicable policies, subject to appropriate documentation and review.


                                      -2-
<PAGE>   3
                  (g) No Other Benefits. Employee acknowledges that he is not
entitled to receive benefits from the Company other than as set forth in this
Section 2, except for any benefits afforded Employee by applicable law
(including, without limitation, Section 601 et.seq. of ERISA).

                  3. Termination of All Existing Agreements. Except as otherwise
expressly provided herein, all rights and obligations of the Company and the
Employee under the Employment Agreement, and any other agreement, arrangement or
understanding between the Company and the Employee are hereby canceled and
terminated as of the Termination Date without liability of any party thereunder.

                  4. No Solicitation. Employee hereby represents and warrants
that during the six month period preceding the date of this Agreement he has not
(i) solicited any customers of the Company or induced any customer of the
Company to enter into a business relationship with Employee or any other person
or (ii) solicited for employment or induced any person currently employed by the
Company to terminate employment. The provisions of Section 4.03 of the
Employment Agreement, entitled "Inducing of Company Employees", shall,
notwithstanding any other provision of this Agreement, continue in full force
and effect as though incorporated herein by reference and made a part hereof.

                   5. Retained Property. Within five (5) business days of the
Termination Date, Employee shall return all property of the Company in his
possession, including, but not limited to, credit cards, security key cards,
telephone cards, car service cards, computer software or hardware, Company
identification cards, Company records and copies of records, correspondence and
copies of correspondence and other books or manuals issued by the Company.
Employee also warrants that he has no debts to or loans from the Company.
Notwithstanding the foregoing, Employee shall have the right to retain all
personal property of the Employee located on the premises of the Company.
Notwithstanding the foregoing provisions of this Section 6, Employee shall be
entitled to retain any business equipment made available for his use at his
personal residence and any other portable business equipment furnished for his
use by the Company, and upon execution of this Agreement, Employee will
reimburse the Company for the reasonable cost of such equipment, as determined
by the Company.

                  6. Confidentiality. Employee acknowledges that he has had and
through the Termination Date will continue to have access to Confidential
Information (as hereinafter defined) of the Company. Except to the extent
required pursuant to any law, court order or similar process (based on the
written opinion of counsel). Employee agrees not to disclose, communicate or
divulge to, or use for the direct or indirect benefit of, any person (including
Employee), firm, association or other entity (other than the Company or its
affiliates) any Confidential Information. "Confidential Information" includes,
but is not limited to, customer and vendor lists, database, computer programs,
frameworks, models, marketing programs, sales, financial, marketing, training
and technical information, business methods, business policies, procedures,
techniques, research or development projects or results, trade secrets (which
Employee agrees include the Company's customer and prospective customer lists),
pricing policies, business plans, computer software, intellectual property,
information concerning how the Company creates, develops, acquires or maintains
its products and marketing plans, targets


                                      -3-
<PAGE>   4
its potential customers, and operates its retail and other businesses, other
than information which is otherwise available in the public domain (other than
by reason of the breach by Employee of any confidentiality agreement with the
Company) or which was known to Employee prior to the date as of which he
commenced employment with the Company. If any person (including any government
employee) requests the disclosure or release of Confidential Information,
Employee shall (i) promptly notify the Company of such request so that the
Company may pursue any available remedies to prevent the disclosure or release
of such Confidential Information and (ii) furnish the Company a copy of all
written materials pertaining to such request for Confidential Information as the
Company shall deem appropriate.

                  7. Non-Disparagement. Employee covenants and agrees not to
engage in any act or say anything that is intended, or may reasonably be
expected, to harm the reputation, business, prospects or operations of the
Company, its officers, directors, stockholders or employees. The Company agrees
that its sole remedy for the breach of this Section 7 by Employee shall be to
withhold any benefits remaining to be paid to Employee under Section 2 hereof
from and after the date of such breach. The Company and Barry S. Sternlicht, the
Company's Chairman of the Board and Chief Executive Officer, agree that they
will not engage in any act or make any announcement which is intended to harm
the reputation, business or prospects of Employee. However, nothing in this
Agreement shall restrict the Company or Mr. Sternlicht from making disclosure or
taking any action required by law. The Company will notify its directors and
officers, in writing, of the agreement between the Company, the Employee and Mr.
Sternlicht as set forth in this Section 7 and will advise such directors and
officers not to engage in any act or say anything that is intended to harm the
reputation, business or prospects of Employee. The parties hereby agree that any
reasonable comments or statements that are necessary or appropriate to correct
or refute any statement made by the other party or any of its affiliates which
is in breach of such other party's covenants and agreements under this Section 7
shall not be deemed in breach of the provision of this Section 7 or the
provisions of Section 14.

                  8. No Inducements. Employee warrants that he is entering into
this Agreement voluntarily, and that, except as set forth herein, no promises or
inducements for this Agreement have been made, and he is entering into this
Agreement without reliance upon any statement or representation by any of the
Company and its affiliates, and its and their present and former stockholders,
directors, officers, employees, agents, attorneys, successors and assigns or any
other person, concerning any fact material hereto.

                  9. 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 (including, without limitation, any dispute or claim under Section 7
hereof), the parties shall negotiate in good faith in an attempt to reach a
mutually acceptable settlement of such dispute. If negotiations in good faith do
not result in a settlement of any such controversy, dispute or claim, it shall,
except as otherwise provided for herein, be finally settled by expedited
arbitration conducted by a single arbitrator selected as hereinafter provided
(the "Arbitrator") in accordance with the National Rules, subject to the
following (the parties hereby agreeing that, notwithstanding the provisions of
Rule 1 of the National Rules, in the event that there is a conflict between the
provisions of the National Rules and the provisions of this Agreement, the
provisions of this Agreement shall control):


                                      -4-
<PAGE>   5
                  (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
American Arbitration Association 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; provided, however, that if the
Company brings any action against Executive (whether or not pursuant to the
provisions of Section 10 hereof) based in whole or in part upon any action or
omission alleged to have occurred prior to the date hereof, and the arbitrator
finds that the action was frivolous, in bad faith or without any factual basis,
then, in addition to any other relief the arbitrator determines to award, the
arbitrator shall order the Company to pay to Executive the balance, if any,
remaining to be paid under Section 2(a) in a single lump sum within 5 business
days of the date of the arbitrator's ruling in favor of Executive and such
payment shall in no respect modify or otherwise limit in any respect any
obligation of the Company to Executive under any provision of this Agreement
other than Section 2(a). 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 any 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.


                                      -5-
<PAGE>   6
                  (g) The arbitration proceeding and all filing, testimony,
documents and information relating to or presented during the arbitration
proceeding shall be disclosed exclusively for the purpose of facilitating the
arbitration process and in any court proceeding relating to the arbitration, and
for no other purpose, and shall be deemed to be information subject to the
confidentiality provisions of this Agreement.

                  (h) The parties shall continue performing their respective
obligations under this Agreement notwithstanding the existence of a dispute
while the dispute is being resolved unless and until such obligations are
terminated or expire in accordance with the provisions hereof.

                  (i) The parties may obtain a pre-hearing exchange of
information including depositions, interrogatories, production of documents,
exchange of summaries of testimony or exchange of statements of position, and
the Arbitrator shall limit such disclosure to avoid unnecessary burden to the
parties and shall schedule promptly all discovery and other procedural steps and
otherwise assume case management initiative and control to effect an efficient
and expeditious resolution of the dispute. At any oral hearing of evidence in
connection with an arbitration proceeding, each party and its counsel shall have
the right to examine its witness and to cross-examine the witnesses of the other
party. No testimony of any witness, or any evidence, shall be introduced by
affidavit, except as the parties otherwise agree in writing.

                  (j) Notwithstanding the dispute resolution procedures
contained in this Section 9, 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 9.

                  10. Reservation of Rights. Notwithstanding anything in this
Agreement, if the Company reasonably determines after the Termination Date that
the Employee in the course of his employment with the Company has acted in bad
faith or taken any other actions that are dishonest, illegal, a breach of the
duty of loyalty or ultra vires and any such actions could reasonably harm the
Company, the Company may, in lieu of making any cash payments required to be
made to Executive hereunder, deposit such amounts in escrow with a bank having
assets in excess of $100,000,000, and commence an arbitration proceeding
pursuant to Section 9. The escrow agent shall invest all amounts held by it in
high quality short-term investments with the objective of preserving principal.
If the arbitrator finds in favor of the Company on the question of whether
Executive has engaged in such improper acts, the arbitrator shall direct the
escrow agent promptly to pay the Company the amounts held in escrow (including,
without limitation, any earnings thereon) and the Company shall have no
obligation to make any further payments to Executive under any provision of
Section 2 of this Agreement other than Sections 2(c) and (e). If the arbitrator
finds in favor of Executive on such question, the arbitrator shall direct the
escrow agent promptly to pay Executive the amounts held in escrow (including,
without limitation, any earnings thereon).


                                      -6-
<PAGE>   7
                  11. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
supersedes any and all prior agreements or understandings between the parties
arising out of or relating to the Employee's employment and the cessation
thereof. This Agreement may only be changed by written agreement executed by the
parties.

                  12. Governing Law. This Agreement shall be governed by the
laws of the State of New York, without giving effect to the conflicts of law
principles thereof.

                  13. Representations and Warranties. (a) Each party represents
and warrants to the other party that (i) the execution and delivery of this
Agreement has been duly authorized and all actions necessary for the due
execution of this Agreement have been taken, (ii) this Agreement constitutes the
legal, valid and binding obligation of the party, and (iii) this Agreement has
been executed and delivered as its own free act and deed and not as the result
of duress by the other party hereto.

                  (b) Employee specifically represents and warrants to the
Company that (i) on the date hereof he is, and on and as of the Termination Date
he will be, less than 40 years of age, and (ii) that he has consulted legal
counsel prior to executing this Agreement.

                  14. Public Announcement. Employee is required to request and
receive approval of the Company of the content of any voluntary statements,
whether oral or written, to be made by Employee to any third party or parties
regarding Employee's termination of employment, including, without limitation,
any press release or other statements to the press, except that this Section
shall not apply to any statements required to be made by reason of law,
regulation, or any judicial or other similar proceeding or order. Employee
hereby covenants and agrees not to make any public statements to any third
party, including, without limitation, to any representative of any news
organization, which is inconsistent in any material respect with the agreed upon
statements to the public.

                  15. No Admissions. Nothing contained in this Agreement shall
be considered an admission by either party of any wrongdoing or liability under
any Federal, state or local statute, public policy, tort law, contract law,
common law or otherwise.

                  16. Expenses. Except to the extent otherwise provided in
Section 9, each party shall pay its own costs incident to the negotiation,
preparation, performance, execution, and enforcement of this Agreement, and all
fees and expenses of its or his counsel, accountants, and other consultants,
advisors and representatives for all activities of such persons undertaken in
connection with this Agreement.

                  17. Cooperation. Upon reasonable written notice and during
reasonable business hours taking into account Employee's business commitments,
Employee agrees to cooperate reasonably with the Company and its affiliates in
the defense of any claim asserted against them and as to which Employee has, or
may have, knowledge. The Company agrees to reimburse Employee for any regular
and ordinary expenses incurred in connection with such cooperation.


                                      -7-
<PAGE>   8
                  18. No Third Party Claims. Employee represents and warrants
that no other person or entity has, or to the best knowledge of Employee,
claims, any interest in any potential claims, demands, causes of action,
obligations, damages or suits pursuant to this Agreement; that he is the owner
of all other claims, demands, causes of action, obligations, damages or suits
pursuant to this Agreement; that he has full and complete authority to execute
this Agreement; and that he has not sold, assigned, transferred, conveyed or
otherwise disposed of any claim, demand, cause of action, obligation or
liability subject to this Agreement.

                  19. No Third Party Beneficiaries. Except as expressly stated
herein, the parties do not intend to make any person or entity who is not a
party to this Agreement a beneficiary hereof, and this Agreement should not be
construed as being made for the benefit of any person or entity not expressly
provided for herein.

                  20. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
together shall be one and the same instrument.

                  21. Future Employment. Employee hereby waives any right to
reinstatement or future employment with the Company following the Termination
Date.

                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.





                                 STARWOOD HOTELS & RESORTS
                                       WORLDWIDE, INC.


                                 By: /s/ Barry S. Sternlicht
                                     -------------------------------------------
                                     Name: Barry S. Sternlicht
                                     Title: Chairman and Chief Executive Officer





                                 EMPLOYEE


                                 /s/ Richard D. Nanula
                                 -----------------------------------------------
                                 Richard D. Nanula


                                      -8-