<PAGE> 1
This filing is made pursuant
to Rule 424(b)(5) under
the Securities Act of
1933 in connection with
Registration No. 333-13911
- -----
Investing in the common stock of Sunstone Hotel Investors, Inc.
("Sunstone") has never been easier. With the company's new Dividend
Reinvestment and Stock Purchase Plan, participants have a simple,
convenient way to automatically reinvest dividends in new shares of
Sunstone's common stock or to make additional cash investments in new shares.
X Participation is easy and flexible. Shareholders can reinvest all or just a
portion of their dividend income each quarter. Shareholders and
non-shareholders may also make additional cash investments in Sunstone's
common stock of up to $3,000 in any month, and, amounts above $3,000 in
certain months with Sunstone's prior approval.
X Direct purchases are free of normal brokerage commissions and fees. There
will be no brokerage commissions for shares purchased directly from Sunstone.
(Please note, that brokerage commissions will apply to shares purchased for
the plan in the open market and that certain fees may be charged by brokers or
others who hold shares as nominee, or by the plan administrator.)
X The plan administrator handles all the paperwork so record-keeping is a
snap. Once you enroll, the plan administrator will send you regular account
statements and provide free safekeeping for all shares purchased under the
plan, protecting you against loss, theft or destruction of stock certificates.
X Enrolling in the plan is simple. This booklet provides a detailed description
of the plan and all of your participation options. After reviewing it, just
complete an authorization form and return it in the envelope we've provided,
or, if you are a shareholder and your stock is registered in the name of a
nominee, contact your bank or broker for further information.
For a complete description of this plan, please review the enclosed
prospectus.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information 2
Incorporation of Certain Information by Reference 2
The Company 3
Summary of the Plan 4
The Plan 8
Purpose 8
Participation Options 8
Benefits and Disadvantages 8
Administration 10
Participation 10
Enrollment 11
Purchases 13
Certificates 18
Sale of Shares 19
Reports 19
Withdrawal 19
Taxes 20
Other Provisions 21
Use of Proceeds 24
Indemnification Under the Securities Act 24
Plan of Distribution and Underwriters 24
Legal Matters 25
Experts 25
Appendix I A-1
</TABLE>
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, securities in any jurisdiction where, or to any
person to whom, it is unlawful to make any such offer or solicitation. Neither
the delivery of this Prospectus nor any offer or sale made hereunder shall,
under any circumstances, create an implication that there has not been any
change in the facts set forth in this Prospectus or in the affairs of the
Company since the date hereof.
<PAGE> 3
PROSPECTUS
SUNSTONE HOTEL INVESTORS, INC.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
------------------------
Sunstone Hotel Investors, Inc. ("Sunstone" or the "Company") hereby offers
participation in its Dividend Reinvestment and Stock Purchase Plan (the "Plan").
The Plan is designed to provide the Company's shareholders and other investors
with a convenient and economical method to purchase shares of the Company's
common stock, $.01 par value per share (the "Common Stock"), and to reinvest all
or a portion of their cash dividends in additional shares of Common Stock. Some
of the significant features of the Plan are as follows:
X Participants may purchase newly issued shares of Common Stock by
automatically reinvesting all or a portion of their cash dividends (or
their partnership distributions, for those who own units in Sunstone Hotel
Investors, L.P. (the "Partnership")).
X Participants may purchase additional Common Stock by making optional cash
investments during permitted investment periods of $100 to $3,000 per
month or by making an initial optional cash investment of $1,000 to
$3,000. Optional cash investments in excess of $3,000 may be made with
permission of the Company.
X Common Stock will be purchased by the Administrator directly from the
Company or in open market or privately negotiated transactions, as
determined from time to time by the Company to fulfill requirements for
the Plan. At present, the Company expects that shares usually will be
purchased directly from the Company.
X Common Stock purchased directly from the Company pursuant to an optional
cash investment of more than $3,000 (with permission of the Company) may
be priced at a discount from recent market prices (determined in
accordance with the Plan) ranging from 0% to 5%. The discount, if offered,
may be adjusted by the Company in its discretion at any time. No discount
will be available for Common Stock purchased in the open market or in
privately negotiated transactions.
X Holders of shares in broker or nominee names may participate in the Plan,
in which case, brokers or nominees will reinvest dividends and make
optional cash investments on behalf of beneficial owners.
Participation in the Plan is entirely voluntary, and participants may
terminate their participation at any time. Shareholders that do not choose to
participate in the Plan will continue to receive cash dividends, as declared, in
the usual manner. Holders of units in the Partnership that do not choose to
participate in the Plan will continue to receive cash distributions, as
declared, in the usual manner.
This Prospectus relates to 1,000,000 shares of Common Stock offered for
purchase under the Plan.
------------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Prospectus is October 18, 1996.
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at regional offices
of the Commission located at 7 World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Corp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained by mail
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains a web
site that contains reports, proxy statements and other information regarding
registrants that file electronically with the Commission, such as the Company,
and the address is http://www.sec.gov. The Company's Common Stock is listed on
the New York Stock Exchange, Inc. (the "NYSE"), and reports, proxy statements
and other information concerning the Company can be inspected at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations promulgated thereunder, with respect to the Common Stock
offered pursuant to this Prospectus. This Prospectus, which is part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits. For further information concerning the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed therewith, which may
be obtained as described above.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which have been filed with the Commission, are
hereby incorporated by reference:
1. Annual Report (i) on Form 10-K of the Company for the fiscal year ended
December 31, 1995; and (ii) on Form 10-K/A filed with the Commission on
October 11, 1996;
2. Quarterly Reports (i) on Form 10-Q for the quarters ended March 31,
1996, and June 30, 1996; and (ii) on Form 10-Q/A for the quarter ended
March 31, 1996 filed with the Commission on May 21, 1996 and June 27,
1996;
3. Current Reports (i) on Form 8-K filed with the Commission on February
20, 1996, July 13, 1996 and August 28, 1996; and (ii) on Form 8-K/A
filed with the Commission on April 19, 1996 and August 28, 1996;
4. The description of the Common Stock of the Company included in the
Company's Registration Statement on Form 8-A, filed with the Commission
on June 26, 1995; and on Form 8-A/A, filed with the Commission on July
17, 1996.
In addition, all reports and other documents subsequently filed by the
Company with the Commission pursuant to Section 13, 14 or 15(d) of the Exchange
Act after the date of this Prospectus and prior to the termination of the
offering shall be deemed to be incorporated by reference in this
2
<PAGE> 5
Prospectus and to be a part hereof from the date of the filing of such documents
(such documents, and the documents enumerated above, being herein referred to as
"Incorporated Documents," provided however, that the documents enumerated above
or subsequently filed by the Company pursuant to Section 13, 14 or 15(d) of the
Exchange Act prior to the filing of the Company's next Annual Report on Form
10-K with the Commission shall not be Incorporated Documents or be incorporated
by reference in this Prospectus or be a part hereof from and after any such
filing of an Annual Report on Form 10-K). Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein (or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein) modifies or
supersedes such statement. Any statements so modified or superseded shall not be
deemed to constitute a part of this Prospectus, except as so modified or
superseded.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the documents referred to above which have been or may be
incorporated by reference in this Prospectus (other than certain exhibits to
such documents). Requests for such documents should be directed to Sunstone
Hotel Investors, Inc., 115 Calle de Industrias, Suite 201, San Clemente,
California 92672, Attention: Secretary (telephone: (714) 361-3900).
THE COMPANY
The Company is a self-administered real estate investment trust ("REIT")
that, through Sunstone Hotel Investors, L.P. (the "Partnership"), owns mid-price
and upscale hotels in the western United States. The hotels operate under
nationally recognized franchises, including Courtyard by Marriott, Doubletree
Hotel, Hampton Inn, Holiday Inn, Holiday Inn Hotel & Suites, Holiday Inn
Express, Holiday Inn Select, Comfort Suites and Residence Inn. As of the date of
this Prospectus, the Company owns an approximately 88.2% partnership interest in
the Partnership and the Partnership owns 20 hotels, with an aggregate of 2,612
rooms in seven states, including Arizona (1 hotel), California (5), Colorado
(6), New Mexico (1), Utah (2), Oregon (2), and Washington (3). The Company's
principal executive office is located at 115 Calle de Industrias, Suite 201, San
Clemente, California 92672; telephone number (714) 361-3900.
3
<PAGE> 6
SUMMARY OF THE PLAN
The following summary description of the Sunstone Hotel Investors, Inc.
("Sunstone" or the "Company") Dividend Reinvestment and Stock Purchase Plan (the
"Plan") is qualified by reference to the full text of the Plan which is
contained herein. Terms used in the summary have the meanings attributed to them
in the Plan.
Purposes of the Plan........ The purposes of the Plan are twofold: first, to
provide the Company's shareholders and those who
own units in the Sunstone Hotel Investors, L.P.
(the "Partnership") with a convenient and
economical method of purchasing additional
shares of Common Stock with all or a portion of
their cash dividends or Partnership
distributions; and second, to provide the
Company a means of raising additional capital
through the direct sale of Common Stock to
shareholders or other investors making optional
cash investments.
Dividend Reinvestments...... Shareholders may by enrolling in the Plan
automatically reinvest all or a portion of the
dividends paid by the Company in additional
shares of Common Stock. Those who own units in
the Partnership ("Partnership Units") may also
enroll in the Plan and automatically reinvest
all or a portion of the distributions paid by
the Partnership in shares of Common Stock. The
Plan currently provides no discount on the
purchase price for shares of Common Stock
purchased with reinvested dividends or
Partnership distributions or for optional cash
investments of $3,000 or less, but the Company
reserves the right to provide a discount in the
future for shares purchased from the Company
(provided the purchase price is not less than
95% of the average of the high and low trading
prices of the stock on the Investment Date).
Purchase Price.............. The Plan provides that the shares to be purchased
may be either newly issued shares acquired from
the Company or shares purchased on the open
market or in privately negotiated transactions
from third parties. Under the Plan, the purchase
price for newly issued shares purchased with
reinvested dividends or Partnership
distributions will be the average of the daily
high and low sales prices on the NYSE on the
Investment Date (see Question 9 for definition).
The purchase price for newly issued shares
purchased with optional cash investments will be
the average of the daily high and low sales
prices of the Common Stock on the NYSE during a
Pricing Period consisting of the twelve Trading
Days (see Question 11 for definitions) preceding
the Investment Date. Additionally, for optional
cash investments the Company may provide a
discount of 0% to 5% from such twelve-day
average for shares purchased directly from the
Company. In the case of optional investments of
$3,000 or less, however, the purchase price
shall in no event be less than 95% of the
average of the high and low trading prices of
the stock on
4
<PAGE> 7
the Investment Date. The purchase price for
shares purchased on the open market or in
privately negotiated transactions (whether to
fulfill dividend reinvestments or optional cash
investments) is the weighted average price paid
for such shares by the Administrator with all
Participants' reinvested dividends or
Partnership distributions and optional cash
investments for the month. In addition, each
Participant will be charged a pro rata portion
of any brokerage fee or other charges paid by
the Administrator in connection with such open
market or privately negotiated purchases.
The shares purchased with an optional cash
investment pursuant to a Request for Waiver,
described below, will be subject to a Threshold
Price while those purchased within the $100 to
$3,000 price range will not be subject to a
Threshold Price.
The purchase price for shares of Common Stock
purchased pursuant to a Request for Waiver may
reflect a discount of 0% to 5% (the "Waiver
Discount") from the market price.
Plan Limitations............ Optional cash investments by existing
shareholders are subject to a minimum investment
of $100 and a maximum investment of $3,000 per
month. Initial optional cash investments by
investors that are not shareholders of the
Company (including owners of Partnership Units
that do not own Common Stock) are subject to a
minimum of $1,000 and a maximum of $3,000. The
$3,000 per month maximum may be waived only
pursuant to a written request approved by the
Company ("Request for Waiver").
Optional Cash Investments
Pursuant to Request for
Waiver.................... Optional cash investments in excess of $3,000 may
be made pursuant to a Request for Waiver, but
only during the months in which quarterly
dividends are not being paid by the Company
(each, a "Waiver Month"). Optional cash
investments pursuant to a Request for Waiver are
not subject to a predetermined maximum limit on
the amount of the investment or on the number of
shares that may be purchased. With respect to
optional cash investments made pursuant to a
Request for Waiver, the Company may, in its sole
discretion, establish each Waiver Month a Waiver
Discount and a Threshold Price. The Waiver
Discount, which may vary each month between 0%
and 5%, may be adjusted by the Company after a
review of current market conditions, the level
of participation, and current and projected
capital needs. The Threshold Price will be the
minimum price applicable to purchases of Common
Stock in a given month. For each Trading Day
during the Pricing Period on which the Threshold
Price is not satisfied, one-twelfth of a
Participant's optional cash investment made
pursuant to a Request for Waiver
5
<PAGE> 8
will be returned without interest. The Company
reserves the right to allow optional cash
investments pursuant to a Request for Waiver in
the months in which a dividend is paid, but does
not currently intend to do so. If the Company
does allow such optional cash investments in
dividend payment months in the future, the
months in which dividends are paid will also be
considered "Waiver Months" for purposes of the
Plan.
Optional Cash Investments
Between $100 and $3,000... Optional cash investments of between $100 and
$3,000 ($1,000 to $3,000 for non-shareholders)
may be made in each month without the need for a
Request for Waiver and the Threshold Price shall
not apply.
Optional cash investments of less than $100
($1,000 for non-shareholders) and that portion
of any optional cash investment that exceeds
$3,000, unless such limit has been waived, will
be returned to the Participant without interest.
Request for Waiver.......... In deciding whether to approve a Request for
Waiver, the Company will consider relevant
factors including, but not limited to, the
Company's current and projected capital needs,
the alternatives available to the Company to
meet those needs, prevailing market prices for
the Common Stock, general economic and market
conditions, expected aberrations in the price or
trading volume of the Common Stock, the
aggregate amount of optional cash investments
for which such waivers have been submitted and
the administrative constraints associated with
granting such waivers. If Requests for Waiver
are submitted for any Investment Date for an
aggregate amount in excess of the amount the
Company is then willing to accept, the Company
may honor such requests in order of receipt, pro
rata or by any other method the Company in its
discretion determines is appropriate.
Any person who acquires shares of Common Stock
through the Plan and resells them shortly before
or after acquiring them may be considered to be
underwriter within the meaning of the Securities
Act of 1933, as amended (the "Securities Act").
The Company expects that certain persons will
acquire shares of Common Stock pursuant to
Requests for Waiver and resell such shares in
order to obtain the financial benefit of any
Waiver Discount then being offered under the
Plan. The Company has no arrangements or
understandings, formal or informal, with any
person relating to a distribution of shares to
be received pursuant to the Plan. See "Plan of
Distribution and Underwriters."
6
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Number of Shares Offered.... Initially, 1,000,000 shares of Common Stock are
authorized to be issued and registered under the
Securities Act for offering pursuant to the
Plan. Because the Company expects to continue
the Plan indefinitely, it expects to authorize
for issuance and register under the Securities
Act additional shares from time to time as
necessary for purposes of the Plan.
7
<PAGE> 10
THE PLAN
The following questions and answers explain and constitute the Sunstone
Dividend Reinvestment and Stock Purchase Plan, as in effect beginning October
18, 1996.
PURPOSE
1. What are the purposes of the Plan?
The purposes of the Plan are twofold: first, to provide the Company's
shareholders and holders of Partnership Units ("Unitholders") with a convenient
and economical method to purchase shares of Common Stock by reinvesting all or a
portion of their cash dividends or Partnership distributions; and second, to
provide the Company with a means of raising additional capital through sales of
Common Stock under the Plan to shareholders and other investors making optional
cash investments. Whether significant additional capital is raised may be
affected, in part, by the Company's decision to waive the limitations applicable
to optional cash investments in excess of $3,000 and, in part, by the Company's
decision to sell newly issued shares of Common Stock to fulfill the requirements
of the Plan. See Question 13 regarding the Company's criteria for granting a
Request for Waiver.
PARTICIPATION OPTIONS
2. What options are available under the Plan?
Registered holders or beneficial owners of Common Stock, Unitholders and
other interested investors may elect to participate in the Plan (each a
"Participant"). Participants may have cash dividends on all or a portion of
their shares, or cash distributions on all or a portion of their Partnership
Units, automatically reinvested in Common Stock. Even if they do not reinvest
dividends, Participants who are shareholders may make optional cash investments
to purchase Common Stock, subject to a minimum investment of $100 and a maximum
investment of $3,000 per month. Interested investors that are not shareholders
of the Company (including Unitholders that do not own Common Stock) may make an
initial optional cash investment in Common Stock of not less than $1,000 and not
more than $3,000. In certain instances, however, the Company may permit greater
optional cash investments. See Question 12 regarding optional cash investments
and Question 13 regarding a Request for Waiver.
BENEFITS AND DISADVANTAGES
3. What are the benefits and disadvantages of the Plan?
BENEFITS
-- The Plan provides Participants the opportunity to automatically reinvest
cash dividends on all or a portion of their Common Stock, or cash
distributions on all or a portion of their Partnership Units, in shares
of Common Stock at the average market price of the stock on the day of
purchase.
-- In addition to reinvestment of dividends, shareholders may purchase
additional shares of Common Stock pursuant to optional cash investments
of not less than $100 and not more than $3,000 per month, unless the
$3,000 limit is waived by the Company. Optional cash investments may be
made occasionally or at regular intervals, as the Participants desire.
Participants may make optional cash investments even if dividends on
their shares are not being reinvested under the Plan.
8
<PAGE> 11
-- Persons not presently shareholders of the Company may become
Participants by making an initial cash investment of not less than
$1,000 and not more than $3,000 to purchase shares of Common Stock under
the Plan, unless the $3,000 limit is waived by the Company.
-- Shares purchased directly from the Company under the Plan pursuant to a
Request for Waiver may be issued at a discount to the market price.
Initially, shares purchased directly from the Company pursuant to
optional cash investments of up to $3,000 and dividend or distribution
reinvestments will not be subject to a discount, but the Company
reserves the right to grant a discount in the future for such purchases,
provided that the purchase price shall not be less than 95% of the
average of the high and low trading prices of the stock on the
Investment Date.
-- Dividends, Partnership distributions and any optional cash investments
will be fully invested because the Plan permits fractional shares to be
credited to Participants' accounts. Dividends on whole and on fractional
shares may be reinvested in additional shares and such shares will be
credited to Participants' accounts. See Question 7.
-- Participants will avoid the need for safekeeping of certificates for
shares of Common Stock credited to their Plan accounts and may submit
for safekeeping certificates held by them and registered in their name.
See Questions 15 and 16.
-- Participants that are registered holders may direct the Administrator to
sell or transfer all or a portion of their shares held in the Plan. See
Question 17.
-- Periodic statements reflecting all current activity in Plan accounts,
including purchases, sales and latest balances, will simplify
recordkeeping for registered holders. See Question 18.
DISADVANTAGES
-- Participants may not be able to depend on the availability of a market
discount regarding shares acquired under the Plan. Initially, no
discount will be established for the purchase of shares directly from
the Company, and the granting of a discount for one month will not
insure the availability of a discount or the same discount in future
months. Each month, the Company may lower or eliminate the discount
without prior notice to Participants. The Company may also, without
prior notice to Participants, change its determination as to whether
Common Stock will be purchased by the Administrator directly from
Company or in the open market or in privately negotiated transactions
from third parties (although the Company may not effect such a change
more than once in any three-month period). See Question 13.
-- Participants that reinvest cash dividends will be treated for federal
income tax purposes as having received a dividend on the dividend
payment date; such dividend may give rise to a liability for the payment
of income tax without providing Participants with immediate cash to pay
such tax when it becomes due. See Question 20.
-- Participants will not know the actual number of shares purchased under
the Plan until after the Investment Date. See Question 9 regarding the
timing of the purchase of shares.
-- The purchase price per share for optional investments will be an average
price over a twelve-day trading period (subject to certain limits for
investments of $3,000 or less). The purchase price, therefore, may
exceed the price at which shares are trading on the Investment Date when
the shares are issued. See Questions 11 and 12 regarding the period of
time and the purchase price of the shares.
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<PAGE> 12
-- Execution of sales of shares held in the Plan may be subject to delay.
See Question 17.
-- No interest will be paid on funds held by the Company pending
reinvestment or investment. See Questions 12 and 14.
-- Shares deposited in a Plan account may not be pledged until the shares
are withdrawn from the Plan. See Question 29.
ADMINISTRATION
4. Who will administer the Plan?
The Plan will be administered by Mellon Bank, N.A. or such successor
administrator as the Company may designate (the "Administrator"). The
Administrator acts as agent for Participants, keeps records of the accounts of
Participants, sends regular account statements to Participants, and performs
other duties relating to the Plan. Shares purchased for each Participant under
the Plan will be held by the Administrator and will be registered in the name of
the Administrator or its nominee on behalf of the Participants, unless and until
a Participant requests that a stock certificate for all or part of such shares
be issued, as more fully described in Question 15. The Administrator also serves
as dividend disbursement agent, transfer agent, and registrar for the Common
Stock and Partnership Units. Correspondence with the Administrator should be
sent to:
Mellon Bank, N.A.
Shareholder Investment Service
P.O. Box 750
Pittsburgh, Pennsylvania 15230
or, if using overnight courier service:
Mellon Bank, N.A.
Shareholder Investment Service
Commerce Court
4 Station Square
Third Floor
Pittsburgh, Pennsylvania 15219
or call: (888) 261-6776
PARTICIPATION
5. Who is Eligible to Participate?
A "registered holder" (which means a holder whose shares of Common Stock or
Partnership Units are registered in the stock transfer books of the Company or
partnership records of the Partnership in his or her name) or a "beneficial
owner" (which means a shareholder whose shares of Common Stock are registered in
a name other than his or her name, for example, in the name of a broker, bank or
other nominee) may participate in the Plan. A registered holder may participate
in the Plan directly; a beneficial owner must either become a registered holder
by having such shares transferred into his or her name or by making arrangements
with his or her broker, bank or other nominee to participate in the Plan on the
Participant's behalf. In addition, an interested investor that is not a
shareholder may participate in the Plan by making an initial optional cash
investment in Common Stock of not less than $1,000 or more than $3,000 unless
granted a Request for Waiver (in which case such initial investment may exceed
$3,000). See Question 6 regarding enrollment.
10
<PAGE> 13
The right to participate in the Plan is not transferable to another person
apart from a transfer of the underlying shares of Common Stock.
Participants residing in jurisdictions in which their participation in the
Plan would be unlawful will not be eligible to participate in the Plan.
ENROLLMENT
6. How Does An Eligible Holder of Common Stock or Partnership Units or any Other
Interested Investor Enroll in the Plan and Become A Participant?
Each eligible registered holder of Common Stock or Partnership Units may
enroll in the Plan and become a Participant by completing and signing an
Authorization Form (enclosed herein) and returning it to the Administrator at
the address set forth in Question 4. An Authorization Form may also be obtained
at any time upon request from the Administrator at the same address. If shares
are registered in more than one name (e.g., joint tenants, trustees), all
registered holders of such shares or Partnership Units must sign the
Authorization Form exactly as their names appear on the account registration.
Eligible beneficial owners must instruct their brokers, banks or other
nominees in whose name their shares are held to participate in the Plan on their
behalf. If a broker, bank or other nominee holds shares of beneficial owners
through a securities depository, such broker, bank or other nominee will be
required to provide a Broker and Nominee Form (a "B/N Form") to the
Administrator in order to participate in the optional cash investment portion of
the Plan. See Question 12.
An interested investor that is not presently a shareholder of the Company
or a Unitholder of the Partnership, but desires to become a Participant by
making an initial investment in Common Stock, may join the Plan by signing an
Authorization Form and forwarding it, together with such initial investment, to
the Administrator at the address set forth in Question 4. See Question 12
regarding initial optional cash investments.
7. What Does the Authorization Form Provide?
The Authorization Form appoints the Administrator as the Participant's
agent for purposes of the Plan and directs the Administrator to apply to the
purchase of additional shares of Common Stock all of the cash dividends on the
specified number of shares of Common Stock or cash distributions on a specified
number of Partnership Units owned by the Participant on the applicable Record
Date and designated by the Participant to be included in the Plan, and to
reinvest automatically cash dividends on whole and fractional shares of Common
Stock that have been credited to the Participant's account pursuant to dividend
or distribution reinvestment or optional cash investment that have been
designated to be included in the Plan. The Authorization Form also directs the
Administrator to purchase additional shares of Common Stock with any optional
cash investments that the Participant may elect to make.
THERE ARE SEPARATE AUTHORIZATION FORMS TO MAKE ELECTIONS WITH RESPECT TO
SHARES OF COMMON STOCK OR PARTNERSHIP UNITS.
11
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The Authorization Form provides for the purchase of additional shares of
Common Stock through the following investment options:
(1) "Full Dividend Reinvestment" -- This option directs the Administrator
to invest in accordance with the Plan all cash dividends on all whole
or fractional shares of Common Stock or cash distributions on all
whole or fractional Partnership Units then or subsequently registered
in the Participant's name. This option also permits the Participant to
make optional cash investments of up to $3,000 per month and directs
the Administrator to apply such investments towards the purchase of
additional shares of Common Stock in accordance with the Plan.
(2) "Partial Dividend Reinvestment" -- This option directs the
Administrator to invest in accordance with the Plan all cash dividends
on the specified number of whole or fractional shares of Common Stock
or cash distributions on a specified number of Partnership Units then
registered in the Participant's name and so designated in the
appropriate space on the Authorization Form. If this option is
selected, the Participant will continue to receive cash dividends in
the usual manner on all shares of Common Stock or cash distributions
on Partnership Units that have not been designated for participation
in the Plan. This option also permits the Participant to make optional
cash investments of up to $3,000 per month and directs the
Administrator to apply such investments towards the purchase of
additional shares of Common Stock in accordance with the Plan.
(3) "Optional Cash Investments Only" -- This option permits a Participant
to make optional cash investments of up to $3,000 per month and
directs the Administrator to apply such investments towards the
purchase of additional shares of Common Stock in accordance with the
Plan. If this option is selected, unless the Participant designates
such additional shares for participation in the Plan, the Participant
will continue to receive cash dividends on all shares of Common Stock
and cash distributions on Partnership Units registered in his or her
name in the usual manner, and the Administrator will apply only
optional cash investments received from the Participant towards the
purchase of additional shares of Common Stock of up to $3,000 per
month.
Any one of the above three options may be selected. IN EACH CASE, CASH
DIVIDENDS OR DISTRIBUTIONS WILL BE REINVESTED ON ALL SHARES OR PARTNERSHIP UNITS
DESIGNATED FOR PARTICIPATION IN THE PLAN UNTIL THE PARTICIPANT SPECIFIES
OTHERWISE OR WITHDRAWS FROM THE PLAN ALTOGETHER, OR UNTIL THE PLAN IS
TERMINATED.
ANY PARTICIPANT WHO RETURNS A PROPERLY EXECUTED AUTHORIZATION FORM TO THE
ADMINISTRATOR WITHOUT ELECTING AN INVESTMENT OPTION WILL BE ENROLLED AS HAVING
SELECTED FULL DIVIDEND OR PARTNERSHIP DISTRIBUTION REINVESTMENT.
8. When Will Participation in the Plan Begin?
Participation as to dividend reinvestment or reinvestment of Partnership
distributions will commence with the next Investment Date after receipt of the
Authorization Form, provided it is received by the Administrator on or before
the Record Date for the payment of the dividend or distributions. Participation
as to optional cash investments will commence with the next Investment Date,
provided (1) the Authorization Form has been received, for an investment of up
to $3,000 (or the waiver has been granted, for investments in excess of $3,000);
and (2) the funds to be invested are received by the close
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of business on the last business day immediately preceding the first day of the
Pricing Period for the next succeeding Investment Date. For optional investments
pursuant to a Request for Waiver, however, Plan participation can only begin in
the months in which the Company does not pay a dividend, unless the Company
decides to allow such optional investments in dividend payment months. See
Questions 9 and 11 below and Appendix I to determine the applicable Pricing
Period and Investment Date. Should the funds to be invested arrive after the
time indicated above and before the next succeeding Investment Date, such funds
will be returned to the Participant, without interest.
Eligible shareholders and other interested investors may enroll in the Plan
at any time. Once enrolled, a Participant will remain enrolled until the
Participant discontinues participation or until the Company terminates the Plan.
See Question 19 regarding withdrawal from the Plan and Question 31 regarding
termination of the Plan.
PURCHASES
9. When Will Shares be Acquired Under The Plan?
If shares are being acquired for the Plan directly from the Company,
dividends, distributions and optional cash investments (other than those made
pursuant to a Request for Waiver) will be reinvested or invested, as the case
may be, on the payment date during a month in which a cash dividend or
distribution is paid and, in any other month, on the fifteenth calendar day of
such month. If shares are being acquired for the Plan directly from the Company,
optional cash investments made pursuant to a Request for Waiver will be invested
on the fifteenth calendar day of each Waiver Month (e.g. months other than those
in which a dividend is paid by the Company). Each such date described in the two
preceding sentences is referred to as an "Investment Date". However, if either
the dividend payment date or such fifteenth calendar day falls on a date when
the NYSE is closed, the Investment Date will be the first day following such
date on which the NYSE is open.
If shares are being acquired for the Plan through open market or privately
negotiated transactions, the Company will pay the reinvested dividends (and the
Partnership will pay the reinvested distributions) to the Administrator on the
subject Investment Date. The Administrator will apply all such dividends and
distributions together with all optional cash investments the Administrator has
received from investors relating to the Investment Date to the purchase of
Common Stock pursuant to the Plan as soon as practicable on or after the
Investment Date, but in no event later than 10 trading days after the Investment
Date.
In the past, record dates for dividends on the Common Stock and
distribution on Partnership Units have preceded the dividend or distribution
payment dates by approximately two weeks. Dividend and Partnership distribution
payment dates historically have occurred on or about the fifteenth day of each
February, April, August and November. This past pattern with respect to timing
of dividend and distribution record dates and payment dates is expected to be
followed generally in the future. Please see Appendix I for information with
respect to Pricing Periods, Investment Dates, Record Dates, and other market
data.
DIVIDENDS ARE PAID AS AND WHEN DECLARED BY THE COMPANY'S BOARD OF
DIRECTORS, AND PARTNERSHIP DISTRIBUTIONS ARE PAID AS AND WHEN DECLARED BY THE
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COMPANY, AS THE PARTNERSHIP'S GENERAL PARTNER. THERE CAN BE NO ASSURANCE AS TO
THE DECLARATION OR PAYMENT OF A DIVIDEND, AND NOTHING CONTAINED IN THE PLAN
OBLIGATES THE COMPANY TO DECLARE OR PAY ANY SUCH DIVIDEND ON COMMON STOCK OR
DISTRIBUTION ON PARTNERSHIP UNITS. THE PLAN DOES NOT REPRESENT A GUARANTEE OF
FUTURE DIVIDENDS OR DISTRIBUTIONS.
10. What is the Source of Shares to be Purchased Under the Plan?
For any particular Investment Date, all dividends reinvested through the
Plan and all optional cash investments will be used to purchase either newly
issued shares directly from the Company or shares on the open market or in
privately negotiated transactions from third parties, but not a combination of
both. Shares purchased directly from the Company will consist of authorized but
unissued shares of Common Stock.
11. At What Price Will Shares Be Purchased?
The shares purchased directly from the Company with reinvested dividends or
distributions will be acquired at a price equal to the average of the daily high
and low sales prices computed up to seven decimals, if necessary, of the Common
Stock as reported on the NYSE on the Investment Date, subject to a discount in
the Company's discretion of up to 5% of such average price. The shares purchased
directly from the Company with optional cash investments will be acquired at a
price to the Participant of the average of the daily high and low sales prices
computed up to seven decimal places, if necessary, of the Common Stock as
reported on the NYSE for the twelve Trading Days (as defined below) immediately
preceding the applicable Investment Date. Additionally, for optional cash
investments the Company may provide a discount of 0% to 5% from such twelve-day
average for shares purchased directly from the Company. In the case of optional
investments of $3,000 or less, however, the purchase price shall in no event be
less than 95% of the average of the high and low trading prices of the stock on
the Investment Date. A "Trading Day" means a day on which trades in Common Stock
are reported on the NYSE. The period encompassing the first twelve Trading Days
immediately preceding the next following Investment Date constitutes the
relevant "Pricing Period."
All shares purchased by the Administrator in the open market or in
negotiated transactions with third parties will be acquired as soon as
practicable on or after the applicable Investment Date (but in no event later
than 10 Trading Days after the Investment Date). The purchase price for such
shares to the Participant will be the weighted average purchase price for such
shares, including brokerage fees and commissions, computed up to seven decimal
places, if necessary, paid by the Administrator for the Common Stock.
Shares purchased pursuant to a Request for Waiver may be subject to a
Threshold Price and a Waiver Discount as more fully described in Question 13
below.
12. How Are Optional Cash Investments Made?
All registered holders, including brokers, banks and nominees with respect
to shares or Partnership Units registered in their name on behalf of beneficial
owners that have submitted signed Authorization Forms are eligible to make
optional cash investments at any time, except that any optional cash investment
pursuant to a Request for Waiver may be made only during Waiver Months.
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<PAGE> 17
A broker, bank or nominee, as holder on behalf of a beneficial owner, may
utilize an Authorization Form for optional cash investments unless it holds the
shares in the name of a securities depository. In that event, the optional cash
investment must be accompanied by a Broker and Nominee Form ("B/N Form").
The B/N Form provides the sole means whereby a broker, bank or other
nominee holding shares on behalf of beneficial owners in the name of a
securities depository may make optional cash investments on behalf of such
beneficial owners. In such case, the broker, bank or other nominee must use a
B/N Form for transmitting optional cash investments on behalf of the beneficial
owners. A B/N Form must be delivered to the Administrator at the address
specified in Question 4 each time that such broker, bank or other nominee
transmits optional cash investments on behalf of the beneficial owners. B/N
Forms will be furnished by the Administrator upon request.
Other interested investors that are not shareholders of the Company, but
have submitted Authorization Forms, are also eligible to make an initial
investment in Common Stock through an optional cash investment.
The Administrator will apply all optional cash investments for which good
funds are received on or before the first business day before the Pricing Period
to the purchase of shares of Common Stock on the next following Investment Date,
or if shares are acquired on the open market or in privately negotiated
transactions, as soon as practicable on or after such Investment Date (but in no
event later than 10 Trading Days after the Investment Date).
NO INTEREST WILL BE EARNED ON OPTIONAL CASH INVESTMENTS HELD PENDING
INVESTMENT. THE COMPANY SUGGESTS THEREFORE THAT ANY OPTIONAL CASH INVESTMENT A
PARTICIPANT WISHES TO MAKE BE SENT SO AS TO REACH THE ADMINISTRATOR AS CLOSE AS
POSSIBLE TO THE FIRST BUSINESS DAY PRECEDING THE PRICING PERIOD FOR THE NEXT
FOLLOWING INVESTMENT DATE. ANY QUESTIONS REGARDING THESE DATES SHOULD BE
DIRECTED TO THE ADMINISTRATOR AT THE ADDRESS OR TELEPHONE NUMBER SET FORTH IN
QUESTION 4.
All optional cash investments received by the Administrator after the close
of business on the last business day immediately preceding the first day of the
Pricing Period and before the next succeeding Investment Date will promptly be
returned to the Participant without interest.
Participants should be aware that since investments under the Plan are made
as of specified dates, one may lose any advantage that otherwise might be
available from being able to select the timing of an investment. NEITHER THE
COMPANY NOR THE ADMINISTRATOR CAN ASSURE A PROFIT OR PROTECT AGAINST A LOSS ON
SHARES OF COMMON STOCK PURCHASED UNDER THE PLAN.
ALL OPTIONAL CASH INVESTMENTS MADE BY CHECK SHOULD BE MADE PAYABLE TO
MELLON BANK, N.A. AND MAILED TO MELLON AT THE ADDRESS LISTED IN QUESTION 4.
INQUIRIES REGARDING OTHER FORMS OF PAYMENTS AND ALL OTHER WRITTEN INQUIRIES
SHOULD BE DIRECTED TO THE ADMINISTRATOR AT THE ADDRESS LISTED IN QUESTION 4.
13. What Limitations Apply to Optional Cash Investments?
Minimum/Maximum Limits. For any Investment Date, optional cash investments
made by shareholders of the Company are subject to a minimum of $100 and a
maximum of $3,000, and optional cash investments made by interested investors
who are not then shareholders of the Company
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<PAGE> 18
(including Unitholders who do not hold Common Stock) are subject to a minimum
initial investment of $1,000 and a maximum of $3,000. See Question 9 regarding
the determination of Investment Dates for optional cash investments. Optional
cash investments of less than the allowable monthly minimum amount and that
portion of any optional cash investment that exceeds the allowable monthly
maximum amount will be returned promptly to Participants without interest,
except as noted below.
Request For Waiver. Unless otherwise specified by the Company, optional
cash investments in excess of $3,000 per month may be made only during the
months in which quarterly dividends are not being made by the Company and only
pursuant to a Request for Waiver accepted by the Company. Participants who wish
to submit an optional cash investment in excess of $3,000 for any Investment
Date during a Waiver Month must obtain the prior written approval of the Company
and a copy of such written approval must accompany any such optional cash
investment. Request for Waiver forms will be furnished at any time upon request
to the Plan Administrator at the address or telephone number specified in
Question 4. A completed Request for Waiver should be directed to the Company via
facsimile at (714) 369-8989. THE COMPANY HAS SOLE DISCRETION TO GRANT ANY
APPROVAL FOR OPTIONAL CASH INVESTMENTS IN EXCESS OF THE $3,000 ALLOWABLE MAXIMUM
AMOUNT. The Company expects to grant Requests for Waiver to financial
intermediaries, including brokers and dealers, and other Participants in the
future. Grants of Requests for Waiver will be made in the sole discretion of the
Company based on a variety of factors, which may include: the Company's current
and projected capital needs, the alternatives available to the Company to meet
those needs, prevailing market prices for the Common Stock, general economic and
market conditions, expected aberrations in the price or trading volume of the
Common Stock, the aggregate amount of optional cash investments for which such
waivers have been submitted and the administrative constraints associated with
granting such waivers. If such Requests for Waiver are granted, a portion of the
shares available for issuance under the Plan will be purchased by Participants
(including brokers or dealers) who, in connection with any resales of such
shares, may be deemed to be underwriters within the meaning of the Securities
Act. To the extent that Requests for Waiver are granted, it is expected that a
greater number of shares will be issued under the optional cash investments
pursuant to the Request for Waiver feature of the Plan as opposed to the
dividend or Partnership distribution reinvestment feature of the Plan.
Financial intermediaries may purchase a significant portion of the shares
of Common Stock issued pursuant to the optional cash payment feature of the
Plan. The Company does not have any formal or informal understanding with any
such organizations and, therefore, the extent of such financial intermediaries'
participation under the Plan cannot be estimated at this time. Participants that
are financial intermediaries that acquire shares of Common Stock under the Plan
with a view to distribution of such shares or that offer or sell shares for the
Company in connection with the Plan may be deemed to be underwriters within the
meaning of the Securities Act. If Requests for Waiver are submitted for any
Investment Date during a Waiver Month for an aggregate amount in excess of the
amount the Company is then willing to accept, the Company may honor such
requests in order of receipt, pro rata or by any other method that the Company
determines to be appropriate. With regard to optional cash investments made
pursuant to a Request for Waiver, the Plan does not provide for a predetermined
maximum limit on the amount that a Participant may invest or on the number of
shares that may be purchased pursuant to a Request for Waiver.
Threshold Price. The Company may establish for any Pricing Period a
minimum price (the "Threshold Price") applicable to optional cash investments
made pursuant to Requests for Waiver. At
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least three business days prior to the first day of the applicable Pricing
Period, the Company will determine whether to establish a Threshold Price, and
if a Threshold Price is established, its amount, and will so notify the
Administrator. This determination will be made by the Company in its discretion
after a review of current market conditions, the level of participation in the
Plan, and current and projected capital needs.
If established for any Pricing Period, the Threshold Price will be stated
as a dollar amount that the average of the high and low sale prices of the
Common Stock on the NYSE for each Trading Day of the relevant Pricing Period
must equal or exceed. In the event that the Threshold Price is not satisfied for
a Trading Day in the Pricing Period, then that Trading Day will be excluded from
the Pricing Period and all trading prices for that day will be excluded from the
determination of the Purchase Price. A day will also be excluded if no trades of
Common Stock are made on the NYSE for that day. Thus, for example, if the
Threshold Price is not satisfied for three of the twelve Trading Days in a
Pricing Period, then the purchase price will be based upon the remaining nine
Trading Days in which the Threshold Price was satisfied.
In addition, a portion of each optional cash investment made pursuant to a
Request for Waiver will be returned for each Trading Day of a Pricing Period in
which the Threshold Price is not satisfied or for each day in which no trades of
Common Stock are reported on the NYSE. The returned amount will equal
one-twelfth of the total amount of such optional cash investment (not just the
amount exceeding $3,000) for each Trading Day that the Threshold Price is not
satisfied. Thus, for example, if the Threshold Price is not satisfied or no such
sales are reported for three of the twelve Trading Days in a Pricing Period,
3/12 (i.e., 25%) of such optional cash investment will be returned to the
Participant without interest.
The establishment of the Threshold Price and the possible return of a
portion of the investment applies only to optional cash investments made
pursuant to a Request for Waiver. Setting a Threshold Price for a Pricing Period
shall not affect the setting of a Threshold Price for any subsequent Pricing
Period. For any particular Waiver Month, the Company may waive its right to set
a Threshold Price. Neither the Company nor the Administrator shall be required
to provide any written notice to Participants as to the Threshold Price for any
Pricing Period. Participants may, however, ascertain whether a Threshold Price
has been set or waived for any given Pricing Period by telephoning the Company
at (714) 361-3900.
Waiver Discount. Each Waiver Month, at least three business days prior to
the first day of the applicable Pricing Period, the Company may establish a
discount from the market price applicable to optional cash investments made
pursuant to a Request for Waiver. Such discount (the "Waiver Discount") may be
between 0% and 5% of the purchase price and may vary each Waiver Month, but once
established will apply uniformly to all optional cash investments made pursuant
to a Request for Waiver for that Waiver Month. The Waiver Discount will apply to
the entire optional cash investment for such month and not just the portion of
such investment that exceeds $3,000. The Waiver Discount will be established in
the Company's sole discretion after a review of current market conditions, the
level of participation in the Plan, and current and projected capital needs and
the other factors listed under Question 13. Participants may obtain the Waiver
Discount applicable to the next Pricing Period by telephoning the Company at
(714) 361-3900. Setting a Waiver Discount for a particular Waiver Month shall
not affect the setting of a Waiver Discount for any subsequent Waiver Month. The
Waiver Discount will apply only to optional cash investments of more than
$3,000, but the Company reserves the right to establish, in the future, a
discount from the market price for reinvestment of cash dividends
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and optional cash investments of $3,000 or less, provided the purchase price
will not be less than 95% of the average of the high and low trading prices of
the Common Stock on the Investment Date.
14. What if a Participant has more Than One Account?
For the purpose of the limitations discussed in Question 13, the Company
may aggregate all dividend or distribution reinvestments and optional cash
investments for Participants with more than one account using the same social
security or taxpayer identification number. For Participants unable to supply a
social security or taxpayer identification number, their participation may be
limited by the Company to only one Plan account.
Also for the purpose of such limitations, all Plan accounts that the
Company believes to be under common control or management or to have common
ultimate beneficial ownership may, in the Company's discretion, be aggregated.
Unless the Company has determined that reinvestment of dividends or
distributions and optional cash investments for each such account would be
consistent with the purposes of the Plan, the Company will have the right to
aggregate all such accounts and to return, without interest, within thirty days
of receipt, any amounts in excess of the investment limitations applicable to a
single account received in respect of all such accounts.
CERTIFICATES
15. Will Certificates be Issued for Share Purchases?
All shares purchased pursuant to the Plan will be held together in the name
of the Administrator or its nominee and credited to each individual account in
"book entry" form. This service protects against the loss, theft, or destruction
of certificates evidencing shares. Upon written request of a Participant or upon
withdrawal of a Participant from the Plan or upon termination of the Plan, the
Administrator will have certificates issued and delivered for all full shares
credited to that Participant's account. Certificates will be issued only in the
same names as those enrolled in the Plan. In no event will certificates for
fractional shares be issued. See Questions 16 and 17.
16. May a Participant Add Shares of Common Stock to His or Her Account by
Transferring Stock Certificates That the Participant Possesses?
Any Participant may send to the Plan for safekeeping all Common Stock
certificates which such Participant holds. The safekeeping of shares offers the
advantage of protection against loss, theft or destruction of certificates as
well as convenience, if and when shares are sold through the Plan. All shares
represented by such certificates will be kept for safekeeping in "book entry"
form and combined with any full and fractional shares then held by the Plan for
the Participant.
To deposit certificates for safekeeping under the Plan, a Participant
should submit his or her share certificates, in non-negotiable form, to the
Administrator by insured mail at the address listed in Question 4.
Shares deposited for safekeeping may be withdrawn by the Participant by
submitting a written request to the Administrator.
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SALE OF SHARES
17. Can Participants Sell Shares Held Under the Plan?
Participants may request that all or a portion of the shares held in their
accounts under the Plan (including shares held for safekeeping) be sold.
Following receipt of written instructions from a Participant, the Administrator
will sell, through an independent broker or institution, those shares and will
remit a check for the proceeds of such sale, less applicable brokerage
commissions, service charges and any taxes. Prior written instructions from the
Participant must be received at least 48 hours preceding the sale. Shares will
be sold at least once per week by the Plan at then current market prices in
transactions carried out through one or more brokerage firms. This procedure for
selling shares may be particularly attractive to holders of small amounts of
Common Stock because the Plan can combine odd lots and small numbers of shares
into larger blocks to be sold, and thereby take advantage of lower brokerage
costs that otherwise might not be available to individual Participants in the
sale of their shares. HOWEVER, THE ADMINISTRATOR WILL NOT PROCESS A SALE OF
SHARES RESULTING IN A TERMINATION IN THE PLAN BETWEEN THE FOURTH BUSINESS DAY
PRIOR TO A DIVIDEND RECORD DATE AND THE FOLLOWING DIVIDEND PAYMENT DATE.
REPORTS
18. What Reports Will be Sent to Participants in the Plan?
Unless a Participant participates in the Plan through a broker, bank or
nominee, each Participant will receive from the Administrator a detailed
statement of the Participant's account following each dividend and distribution
payment and account transaction. These detailed statements will show total cash
dividends and distributions received, total optional cash investments received,
total shares purchased (including fractional shares), price paid per share, and
total shares held in the Plan. THESE STATEMENTS SHOULD BE RETAINED BY THE
PARTICIPANT TO DETERMINE THE TAX COST BASIS FOR SHARES PURCHASED PURSUANT TO THE
PLAN. Any Participant that participates in the Plan through a broker, bank or
nominee, should contact such party for such a statement.
WITHDRAWAL
19. How May Participants Withdraw From The Plan?
A Participant may terminate enrollment in the Plan by giving written notice
to the Administrator, and thereafter all cash dividends on shares or cash
distributions on Partnership Units owned by such Participant will be sent to the
Participant. In order to terminate participation prior to the usual dividend or
distribution payment dates in February, April, August and November, written
notice must be received by the Record Date for the payment of such dividend or
distribution. Upon termination, stock certificates for any full shares will be
issued in the Participant's name or, upon receipt of written instructions,
shares will be sold for the Participant. See Question 17. Any fractional shares
held in the Plan at the time of termination will be converted to cash on the
basis of the then current market price of the Common Stock. HOWEVER, THE
ADMINISTRATOR WILL NOT PROCESS A WITHDRAWAL OF SHARES RESULTING IN A TERMINATION
IN THE PLAN BETWEEN THE FOURTH BUSINESS DAY PRIOR TO A DIVIDEND OR DISTRIBUTION
RECORD DATE AND THE FOLLOWING DIVIDEND OR DISTRIBUTION PAYMENT DATE.
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TAXES
20. What are the Federal Income Tax Consequences for Shareholders of
Participating in the Plan?
Reinvestment of dividends in the Plan will not avoid the tax that would
otherwise apply to the dividends. With respect to shares purchased from the
Company with reinvested dividends, a Participant will be treated for federal
income tax purposes as having received a distribution from the Company equal to
the fair market value on the Investment Date of the shares acquired with the
reinvested dividends. A Participant's tax basis in such shares received will
equal their fair market value on the Investment Date.
With respect to shares purchased in open market or privately negotiated
transactions with reinvested dividends, a Participant will be treated as having
received a distribution equal to the cash paid to the Administrator on behalf of
the Participant (which will be used to acquire shares and pay brokerage
commissions and other fees incurred in the acquisition). A Participant's
aggregate tax basis in the acquired shares will have the same basis as the
amount deemed to be received as a distribution.
Under Internal Revenue Service rulings, a shareholder Participant will be
treated as having received a distribution from the Company upon the purchase of
shares from the Company with an optional cash investment in an amount equal to
the excess, if any, of the fair market value of the acquired shares on the
Investment Date over the optional cash investment. Such shares will have a tax
basis equal to such fair market value of the shares purchased.
For federal income tax purposes, distributions deemed to be made to a
Participant under the rules prescribed above will be treated as dividends to the
extent of the Company's current or accumulated earnings and profits, with any
excess generally being treated as a nontaxable return of capital.
When a Participant receives certificates for whole shares credited to the
Participant's account under the Plan, the Participant will not realize any
taxable income. However, a Participant that receives a cash adjustment for a
fraction of a share may realize a gain or loss with respect to such fraction. A
gain or loss may also be realized by the Participant whenever whole shares are
sold, either pursuant to the Participant's request, upon withdrawal from the
Plan or after withdrawal from the Plan. The amount of such gain or loss will be
the difference between the amount that the Participant realizes for the shares
or fraction of a share and the tax basis of the Participant in the shares.
In the case of corporate shareholders, dividends will not be eligible for
the dividends-received tax deduction.
THE FOREGOING IS ONLY A SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES OF
PARTICIPATION IN THE PLAN AND DOES NOT CONSTITUTE TAX ADVICE. THIS SUMMARY DOES
NOT REFLECT EVERY POSSIBLE OUTCOME THAT COULD RESULT FROM PARTICIPATION IN THE
PLAN AND, THEREFORE, PARTICIPANTS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE TAX CONSEQUENCES APPLICABLE TO THEIR PARTICULAR SITUATION.
21. What are the Federal Income Tax Consequences for Unitholders participating
in the Plan?
There is no clear legal authority regarding the income tax treatment of a
limited partner in a partnership who invests cash distributions from the
partnership in stock of another entity that is a partner in the partnership.
However, the Company presently intends to treat a Unitholder Participant in the
same manner for federal income tax purposes as any other investor who makes
optional cash
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investments in the Company. Thus, in the case of Common Stock purchased by the
Administrator from the Company, whether through the investment of a Unitholder's
Partnership distribution or through an optional cash investment by the
Unitholder, the Unitholder will be treated for federal income tax purposes as
having received a distribution from the Company equal to the excess, if any, of
the fair market value on the Investment Date of the Common Stock credited to the
Unitholder's account over the amount of cash deemed paid by the Unitholder for
the Common Stock (i.e., the amount of the Partnership distribution and any
optional cash investment).
Because Common Stock purchased by the Administrator on the open market
pursuant to a Unitholder's invested distribution or optional cash investment
will not be purchased at a discount, a Unitholder should not be treated for
federal income tax purposes as having received a distribution from the Company
upon such purchase.
Unitholders should note that distributions from the Partnership, unlike
dividends from the Company, are generally not taxable, but instead reduce a
Unitholder's basis in his Partnership Units by the amount distributed. However,
amounts distributed to a Unitholder in excess of his basis in his Partnership
Units generally will be taxable as capital gain, either long- or short-term,
depending on whether the Unitholder's holding period for his Partnership Units
is or is not more than one year. However, under Section 751(b) of the Internal
Revenue Code, to the extent a distribution is considered to be in exchange for a
Unitholder's interest in substantially appreciated inventory items or unrealized
receivables of the Partnership, the Unitholder may recognize ordinary income
rather than a capital gain.
THE FOREGOING IS ONLY A SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES OF
PARTICIPATION IN THE PLAN AND DOES NOT CONSTITUTE TAX ADVICE. THIS SUMMARY DOES
NOT REFLECT EVERY POSSIBLE OUTCOME THAT COULD RESULT FROM PARTICIPATION IN THE
PLAN AND, THEREFORE, PARTICIPANTS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE TAX CONSEQUENCES APPLICABLE TO THEIR PARTICULAR SITUATION.
22. How are Income Tax Withholding Provisions Applied to Shareholders or
Unitholders Who Participate in the Plan?
If a Participant fails to provide certain federal income tax certifications
in the manner required by law, dividends on shares of Common Stock, proceeds
from the sale of fractional shares and proceeds from the sale of shares held for
a Participant's account will be subject to federal income tax withholding at the
rate of 31%. If withholding is required for any reason, the appropriate amount
of tax will be withheld from the Participant. Certain Participants (including
most corporations) are, however, exempt from the above withholding requirements.
If a Participant is a foreign shareholder or foreign Unitholder whose
dividends or distributions are subject to federal income tax withholding, the
appropriate amount will be withheld from the Participant and the balance will be
credited to such Participant's account.
OTHER PROVISIONS
23. What Happens if a Participant Sells or Transfers Shares of Stock or
Partnership Units or Acquires Additional Shares of Stock or Partnership
Units?
21
<PAGE> 24
If a Participant has elected to have dividends or distributions
automatically reinvested in the Plan and subsequently sells or transfers all or
any part of the shares or Partnership Units registered in the Participant's
name, automatic reinvestment will continue as long as shares or Partnership
Units are registered in the name of the Participant or held for the Participant
by the Administrator or until termination of enrollment. Similarly, if a
Participant has elected the "Full Dividend Reinvestment" option under the Plan
and subsequently acquires additional shares or Partnership Units registered in
the Participant's name, dividends or distributions paid on such shares or
Partnership Units will automatically be reinvested until termination of
enrollment. If, however, a Participant has elected the "Partial Dividend
Reinvestment" option and subsequently acquires additional shares or Partnership
Units that are registered in the Participant's name, dividends or distributions
paid on such shares or Partnership Units will not be automatically reinvested
under the Plan. See Question 7. A Participant may, however, change his or her
reinvestment election by submitting a new Authorization Form.
24. How Will a Participant's Shares be Voted?
For any meeting of shareholders, each Participant will receive proxy
materials in order to vote all shares held by the Plan for the Participant's
account. If a proxy is returned properly signed and marked for voting, all the
shares covered by the proxy will be voted as marked. If a proxy is returned
properly signed but no voting instructions are given, all of the Participant's
shares will be voted in accordance with recommendations of the Board of
Directors of the Company, unless applicable laws require otherwise. If the proxy
is not returned, or if it is returned unexecuted or improperly executed, shares
registered in a Participant's name may be voted only by the Participant in
person at the meeting of shareholders.
25. Who Pays the Expenses of the Plan?
Participants will have to pay their pro rata share of any brokerage fees or
commissions on shares of Common Stock purchased for their account in the open
market or in privately negotiated transactions, which sums will first be
deducted before determining the number of shares to be purchased. Participants
will not incur brokerage commissions or service charges in connection with the
reinvestment of dividends or distributions or for optional cash investments to
purchase Common Stock directly from the Company. However, the Administrator will
charge an administrative fee on sales of shares made pursuant to the Plan. This
fee will vary depending on whether the transaction is initiated by a registered
holder or through a broker, bank or other nominee that holds shares through a
securities depository. These fees, as well as any related brokerage commissions
and applicable stock transfer taxes must be paid to the Administrator at the
time of the transaction, and will be deducted from the funds received by the
Administrator from the proceeds of sale of shares. The Administrator may also
charge Participants for additional services not provided under the Plan or for
other specified charges. Any of such administrative fees may be changed by the
Administrator at any time, without notice to Participants. Participants may
obtain a current listing of all applicable administrative fees by contacting the
Administrator at the address or telephone number listed in Question 4 above.
Brokers or nominees that participate on behalf of beneficial owners for whom
they are holding shares or Partnership Units may also charge such beneficial
owners fees in connection with such participation, for which neither the
Administrator nor the Company will be responsible.
22
<PAGE> 25
26. What are the Responsibilities of the Company or the Administrator Under the
Plan?
Neither the Company nor the Administrator will be liable for any act done
in good faith or for any good faith omission to act, including, without
limitation, any claims of liability arising out of a failure to terminate a
Participant's account upon such Participant's death or adjudication of
incompetence prior to the receipt of notice in writing of such death or
adjudication of incompetence, the prices at which shares are purchased for the
Participant's account, the times when purchases are made or fluctuations in the
market value of the Common Stock. Neither the Company nor the Administrator has
any duties, responsibilities or liabilities except as expressly set forth in the
Plan or as imposed by applicable laws, including, without limitation, federal
securities laws.
THE PARTICIPANT SHOULD RECOGNIZE THAT THE COMPANY CANNOT ASSURE A PROFIT OR
PROTECT AGAINST A LOSS ON THE SHARES PURCHASED BY A PARTICIPANT UNDER THE PLAN.
27. What Happens if the Company Issues a Stock Dividend or Declares a Stock
Split?
Any Common Stock distributed by the Company as a result of a stock dividend
or a stock split on shares held under the Plan for a Participant will be
credited to the Participant's account, but the Administrator may curtail or
suspend any other transaction processing for a short period of time following
the record date for such action to permit the Administrator to calculate the
number of shares to be added to each account.
28. If the Company Has a Rights Offering Related to the Common Stock, How Will a
Participant's Entitlement be Computed?
A Participant's entitlement in a rights offering related to the Common
Stock will be based upon the number of whole shares credited to the
Participant's account. Rights based on a fraction of a share credited to a
Participant's Plan account will be sold for that account and the net proceeds
will be invested as an optional cash payment on the next Investment Date. In the
event of a rights offering, transaction processing may be curtailed or suspended
by the Administrator for a short period of time following the record date for
such action to permit the Administrator to calculate the rights allocable to
each account.
29. May Shares in a Participant's Account be Pledged?
None of the shares credited to a Participant's account may be pledged and
any such purported pledge will be void. If a Participant wishes to pledge
shares, those shares must be withdrawn from the Plan.
30. May a Participant Transfer All or a Part of the Participant's Shares Held in
the Plan to Another Person?
A Participant may transfer ownership of all or part of his or her shares
held in the Plan through gift, private sale or otherwise, by mailing to the
Administrator at the address in Question 4 a properly executed stock assignment,
along with a letter with specific instructions regarding the transfer and both
an Authorization Form and a Form W-9 (Certification of Taxpayer Identification
Number) completed by the transferee. Requests for transfer of shares held in the
Plan are subject to the same requirements as the transfer of Common Stock
certificates, including the requirement of a medallion signature guarantee on
the stock assignment. The Administrator will provide Participants with the
appropriate forms upon
23
<PAGE> 26
request. If any stock certificates bearing a restrictive legend are contained in
the Participant's Plan account, the Administrator will comply with the
provisions of such restrictive legend before effecting a sale or transfer of
such restricted shares.
A Participant may also transfer all or a portion of his or her shares into
an account established for another person within the Plan. In order to effect
such a "book-to-book" transfer, the transferee must complete an Authorization
Form to open a new account within the Plan. (See Question 7). The Authorization
Form should be sent to the Administrator along with a written request to effect
the "book-to-book" transfer indicating the number of shares to be transferred to
the new account.
31. May the Plan be Changed or Terminated?
While the Plan is intended to continue indefinitely, the Company reserves
the right to amend, modify, suspend or terminate the Plan at any time.
Participants will be notified in writing of any modifications made to the Plan.
USE OF PROCEEDS
The net proceeds from the sale of the original issue shares of Common Stock
issued under the Plan will be contributed by the Company to the Partnership in
exchange for additional Partnership Units. The Partnership will use these
proceeds for working capital and for other general purposes. The Company will
not receive any funds under the Plan from the purchase for a Participant's
account of shares of Common Stock in the open market by the Plan Administrator.
The Company has no basis for estimating either the number of shares of Common
Stock that ultimately will be sold pursuant to the Plan or the prices at which
such shares will be sold.
INDEMNIFICATION UNDER THE SECURITIES ACT
The Certificate of Incorporation and Bylaws of the Company contain certain
provisions to indemnify its directors and officers against liability incurred by
them as a result of their service in those capacities. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.
PLAN OF DISTRIBUTION AND UNDERWRITERS
Pursuant to the Plan, the Company may be requested to approve optional cash
investments in excess of the allowable $3,000 maximum amounts pursuant to
Requests for Waiver on behalf of Participants that may be engaged in the
securities business. In deciding whether to approve such a request, the Company
will consider relevant factors including, but not limited to, whether the Plan
is then acquiring newly issued shares of Common Stock or acquiring shares
through open market purchases or privately negotiated transactions, the
Company's need for additional funds, the attractiveness of obtaining such funds
by the sale of Common Stock under the Plan in comparison to other sources of
funds, the purchase price likely to apply to any sale of Common Stock, and the
aggregate number of Requests for Waiver that have been submitted by all
Participants. Persons who acquire shares of Common Stock through the Plan and
resell them shortly after acquiring them, including coverage of
24
<PAGE> 27
short positions, under certain circumstances, may be participating in a
distribution of securities that would require compliance with Rule 10b-6 under
the Exchange Act and may be considered to be underwriters within the meaning of
the Securities Act. The Company will not extend to any such person any rights or
privileges other than those to which it would be entitled as a Participant, nor
will the Company enter into any agreement with any such person regarding such
person's purchase of such shares or any resale or distribution thereof.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered pursuant
to this Prospectus will be passed upon for the Company by Ballard Spahr Andrews
& Ingersoll.
EXPERTS
The following financial statements have been audited by Coopers & Lybrand
L.L.P., independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference: (1) the consolidated financial
statements of Sunstone Hotel Investors, Inc. as of December 31, 1995 and 1994,
and for the period August 16, 1995 (inception) through December 31, 1995, and
the combined financial statements of Sunstone Initial Hotels (Predecessor) as of
December 31, 1994, and for the period January 1, 1995 through August 15, 1995,
and for the years ended December 31, 1994 and 1993, the financial statements of
Sunstone Hotel Properties, Inc. (the Lessee) as of December 31, 1995 and for the
period August 16, 1995 (inception) through December 31, 1995, all appearing in
the Company's Annual Report (Form 10-K) for the year ended December 31, 1995;
(2) the combined financial statements of The Cypress Inns, Acquisition Hotels as
of December 31, 1995 and 1994 and for each of the years then ended, appearing in
the Company's Current Report (Form 8-K/A) filed April 19, 1996; and (3) the
financial statements of Renton Joint Venture as of December 31, 1995, and for
the year then ended, and the combined financial statements of Bay City
Hospitality, Inc. and Price Hospitality, Inc. as of October 31, 1995 and for the
year then ended appearing in the Company's Prospectus filed pursuant to Rule
424(b)(4) on August 8, 1996 (which were in turn incorporated by reference into
the Company's Current Reports (Form 8-K and 8-K/A) filed August 28, 1996). Such
financial statements are incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
25
<PAGE> 28
APPENDIX I
<TABLE>
<CAPTION>
(C)
------------------- (D) (E)
THRESHOLD PRICE ------------------- ------------------- (F) (G)
AND WAIVER OPTIONAL CASH OPTIONAL INVESTMENT ----------------- -------------------
DISCOUNT, IF ANY, INVESTMENTS MUST PRICING PERIOD EXPECTED DIVIDEND INVESTMENT
CYCLE WILL BE SET BY BE RECEIVED BY START DATE RECORD DATE DATE
- ----- ------------------- ------------------- ------------------- ----------------- -------------------
<C> <S> <C> <C> <C> <C>
A N/A October 29, 1996 October 30, 1996 November 1, 1996 November 15, 1996
B November 22, 1996 November 26, 1996 November 27, 1996 N/A December 16, 1996
B December 23, 1996 December 26, 1996 December 27, 1996 N/A January 15, 1997
A N/A January 29, 1997 January 30, 1997 February 1, 1997 February 18, 1997
B February 24, 1997 February 26, 1997 February 27, 1997 N/A March 17, 1997
B March 24, 1997 March 26, 1997 March 27, 1997 N/A April 15, 1997
A N/A April 28, 1997 April 29, 1997 May 1, 1997 May 15, 1997
B May 23, 1997 May 28, 1997 May 29, 1997 N/A June 16, 1997
B June 23, 1997 June 25, 1997 June 26, 1997 N/A July 15, 1997
A N/A July 29, 1997 July 30, 1997 August 1, 1997 August 15, 1997
B August 22, 1997 August 26, 1997 August 27, 1997 N/A September 15, 1997
B September 24, 1997 September 26, 1997 September 29, 1997 N/A October 15, 1997
A N/A October 29, 1997 October 30, 1997 November 1, 1997 November 17, 1997
B November 21, 1997 November 25, 1997 November 26, 1997 N/A December 15, 1997
B December 24, 1997 December 29, 1997 December 30, 1997 N/A January 15, 1998
A N/A January 28, 1998 January 29, 1998 February 1, 1998 February 17, 1998
B February 23, 1998 February 25, 1998 February 26, 1998 N/A March 16, 1998
B March 24, 1998 March 26, 1998 March 27, 1998 N/A April 15, 1998
A N/A April 28, 1998 April 29, 1998 May 1, 1998 May 15, 1998
B May 22, 1998 May 27, 1998 May 28, 1998 N/A June 15, 1998
B June 24, 1998 June 26, 1998 June 29, 1998 N/A July 15, 1998
N/A July 29, 1998 July 30, 1998 August 1, 1998 August 17, 1998
August 24, 1996 August 26, 1998 August 27, 1998 N/A September 15, 1998
September 24, 1998 September 28, 1998 September 29, 1998 N/A October 15, 1998
N/A October 28, 1998 October 29, 1998 November 1, 1998 November 16, 1998
</TABLE>
- ---------------
A. Optional cash investments without Requests for Waiver and reinvestment of
dividends or distributions.
B. Only optional cash investments, including Requests for Waiver.
C. The Threshold Price and the Waiver Discount, if any, which may be applied to
optional cash investments pursuant to Requests for Waiver will be
established no later than three business days prior to the first day of the
Pricing Period. A separate discount may be applied at any time and for any
duration to optional investments of $3,000 or less and to dividend
reinvestments or reinvestments of Partnership distributions.
D. Optional cash investments are due by the close of business on the last
business day immediately preceding the first day of the Pricing Period.
E. The Pricing Period will be the twelve consecutive Trading Days ending on the
Trading Day immediately preceding the Investment Date. The Pricing Period
does not apply to dividend reinvestments or reinvestments of Partnership
distributions.
F. The Record Dates for Partnership distributions are expected to be the same
as those for dividends. The actual Record Date for dividend or distribution
reinvestment months (indicated by the letter "A" in the Cycle column) will
be established by the Board of Directors.
G. The Investment Date will be the dividend payment date during a month in
which a cash dividend is paid (as determined by the Board of Directors) and
in any other month will be the fifteenth calendar day of such month,
provided, however, that if either the dividend payment date or such
fifteenth calendar day falls on a date when the NYSE is closed, the
Investment Date will be the next succeeding day on which the NYSE is open.
A-1
<PAGE> 29
U.S. EQUITY MARKETS CLOSED IN 1996
<TABLE>
<S> <C>
Thanksgiving Day......................................................... November 28
Christmas Day............................................................ December 25
</TABLE>
U.S. EQUITY MARKETS CLOSED IN 1997
<TABLE>
<S> <C>
New Years Day............................................................ January 1
Presidents Day........................................................... February 17
Good Friday.............................................................. March 28
Memorial Day............................................................. May 26
Independence Day......................................................... July 4
Labor Day................................................................ September 1
Thanksgiving Day......................................................... November 27
Christmas Day............................................................ December 25
</TABLE>
U.S. EQUITY MARKETS CLOSED IN 1998
<TABLE>
<S> <C>
New Years Day............................................................ January 1
Presidents Day........................................................... February 16
Good Friday.............................................................. April 10
Memorial Day............................................................. May 25
Independence Day......................................................... July 4
Labor Day................................................................ September 7
Thanksgiving Day......................................................... November 26
Christmas Day............................................................ December 25
</TABLE>
A-2
<PAGE> 30
After reading the enclosed prospectus, if you
have any questions about Sunstone's new Dividend
Reinvestment and Stock Purchase Plan, please
contact the plan administrator:
MELLON BANK, N.A.
Shareholder Investment Service
Commerce Court
4 Station Square
Third Floor
Pittsburgh, PA 15219
Or call toll-free between 9:00 a.m.
and 5:00 p.m. EST:
(888) 261-6776
For additional information about Sunstone Hotel
Investors, please contact the company's investor
relations department:
SUNSTONE HOTEL INVESTORS, INC.
Investor Relations
115 Calle de Industrias, Suite 201
San Clemente, CA 92672
(714) 361-3900
SUNSTONE HOTEL INVESTORS, INC.
DIVIDEND REINVESTMENT
AND STOCK
PURCHASE PLAN
X Simple
X Convenient
X Commission-Free
for Direct Purchases
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