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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
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PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 9, 1997
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COMMISSION FILE NUMBER 0-26304
SUNSTONE HOTEL INVESTORS, INC.
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(Exact name of registrant as specified in its charter)
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MARYLAND 52-1891908
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
115 CALLE DE INDUSTRIAS, SUITE 201, SAN CLEMENTE, CA 92672
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(Address of Principal Executive Offices) (Zip Code)
(714) 361-3900
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(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
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(former name or former address, if changed since last report)
The undersigned Registrant hereby amends the following items, the financial
statements, Pro Forma Financial information and Exhibits of their Form 8-K
dated October 29, 1996, as set forth in the pages attached hereto:
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This Current Report is being filed for the sole purpose of incorporating
the exhibits hereto by reference into the Registration Statement on Form S-3
(File No. 333-16887) of Sunstone Hotel Investors, Inc. These exhibits include
the Form of Underwriting Agreement (Exhibit 1.1 to the Registration Statement)
and the Opinion of Brobeck, Phleger & Harrison LLP as to tax matters (Exhibit
8.1 to the Registration Statement). These exhibits are deemed incorporated into
the Registration Statement as of the date hereof.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits
1.1 Form of Underwriting Agreement
8.1 Opinion of Brobeck, Phleger & Harrison LLP as to
tax matters
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SUNSTONE HOTEL INVESTORS, INC.
Date: January 8, 1997 By: /s/ ROBERT A. ALTER, President
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Robert A. Alter, President
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EXHIBIT 1.1
[_________] Shares
SUNSTONE HOTEL INVESTORS, INC.
COMMON SHARES
UNDERWRITING AGREEMENT
____________, 1997
MONTGOMERY SECURITIES
BEAR, STEARNS & CO. INC.
EVEREN SECURITIES, INC.
RAYMOND JAMES & ASSOCIATES, INC.
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
As Representatives of the several Underwriters
Dear Sirs:
SECTION 1. Introductory. Sunstone Hotel Investors, Inc., a
Maryland corporation (the "Company"), proposes to issue and sell [_________]
shares (the "Firm Common Shares") of its authorized but unissued common stock at
$.01 par value (the "Shares"), to the several underwriters named in Schedule A
annexed hereto (the "Underwriters"), for whom you are acting as Representatives.
In addition, the Company proposes to grant to the Underwriters an option to
purchase up to [_________] additional Shares (the "Optional Common Shares") as
provided in Section 4 hereof. The Firm Common Shares and, to the extent such
option is exercised, the Optional Common Shares are hereinafter collectively
referred to as the "Common Shares."
You have advised the Company that the Underwriters propose to
make a public offering of their respective portions of the Common Shares on the
effective date of the registration statement hereinafter referred to, or as soon
thereafter as in your judgment is advisable.
The Company and Sunstone Hotel Investors, L.P., a Delaware
limited partnership (the "Partnership") hereby confirm their respective
agreements with respect to the purchase of the Common Shares by the Underwriters
as follows:
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SECTION 2. Representations and Warranties of the Company and
the Partnership. The Company and the Partnership hereby jointly and severally
represent and warrant to the several Underwriters that:
(a) The Company meets the requirements for use of Form S-3 and
a registration statement on Form S-3 (File No. 333-16887) with respect
to the Common Shares, including a prospectus (the "Base Prospectus"),
has been carefully prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and
filed with the Commission and has become effective. There have been
delivered to you two signed copies of such Registration Statement and
amendments, together with two copies of each exhibit filed therewith.
Conformed copies of such Registration Statement and amendments (but
without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested
for each of the Underwriters. No stop order suspending the
effectiveness of the registration statement has been issued, and no
proceeding for that purpose has been instituted or, to the Company's
knowledge, threatened by the Commission. The Company will next file
with the Commission one of the following: (i) prior to effectiveness of
such registration statement, a further amendment thereto, including the
form of final prospectus, or (ii) a final prospectus in accordance with
Rules 430A and 424(b) of the Rules and Regulations. As filed, such
amendment and form of final prospectus, or such final prospectus, shall
include all Rule 430A Information (as hereinafter defined) and, except
to the extent that you shall agree in writing to a modification, shall
be in all substantive respects in the form furnished to you prior to
the date and time that this Agreement was executed and delivered by the
parties hereto, or, to the extent not completed at such date and time,
shall contain only such specific additional information and other
changes (beyond that contained in the latest Preliminary Prospectus) as
the Company shall have previously advised you in writing would be
included or made therein.
The term "Registration Statement" shall mean the registration statement
as amended at the time such registration statements become or became
effective (the "Effective Date"), including financial statements and
all exhibits and any information deemed by virtue of Rule 430A of the
Rules and Regulations to be included in such Registration Statement at
the Effective Date and any prospectus supplement filed thereafter with
the Commission and shall include the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 which were filed
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under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The term "Prospectus" means, collectively, the Base Prospectus
together with any prospectus supplement (the "Prospectus Supplement"),
in the respective forms they are filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations. Any reference herein to the
terms "amend," "amendment" or "supplement" with respect to the
Registration Statement, the Base Prospectus, any prospectus supplement
or the Prospectus shall be deemed to refer to and include the filing of
any document under the Exchange Act after the Effective Date, or the
date of the Prospectus, as the case may be, that is incorporated
therein by reference.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects to the requirements
of the Act and the Rules and Regulations and, as of its date, has not
included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at
the time the Registration Statement becomes effective, and at all times
subsequent thereto up to and including each Closing Date (as
hereinafter defined), the Registration Statement and the Prospectus,
and any amendments or supplements thereto, will contain all material
statements and information required to be included therein by the Act
and the Rules and Regulations and will in all material respects conform
to the requirements of the Act and the Rules and Regulations, and
neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will include any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, no representation or warranty contained in this
Section 2(b) shall be applicable to information contained in or omitted
from any Preliminary Prospectus, the Registration Statement, the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of any Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof.
(c) The Company has been duly formed and is validly existing
as a corporation, is in good standing under the laws of the State of
Maryland, with full power and authority (corporate and other) to own
and lease its properties and conduct its business as currently
conducted or as described in the Prospectus. Except as disclosed in the
Registration Statement neither the Company nor the Partnership owns or
controls, directly or indirectly, any corporation, partnership,
association or other entity.
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(d) Sunstone Hotel Properties, Inc. (the "Lessee") has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of the State of Colorado with full power and
authority (corporate and other) to own and lease its properties and
conduct its business as described in the Prospectus.
(e) The Partnership has been duly formed and is validly
existing as a limited partnership under the laws of the State of
Delaware with full power and authority (partnership and other) to own
and lease its properties and conduct its business as currently
conducted or as described in the Prospectus. The Company is and will on
each Closing Date be the sole general partner of the Partnership, and
upon the consummation of the Offering and the application of the
proceeds therefrom as described in the Prospectus, will be the holder
of [_________] Units (assuming no Optional Common Shares are sold), or
approximately [____] of the Units in the Partnership. Upon the
consummation of the Offering, the Company will own the Units it holds
free and clear of all liens, encumbrances, equities, claims, security
interests, voting trusts or charges. Except as set forth in the
Prospectus, each of the Company, the Partnership, the Lessee and each
property to be owned by the Partnership as of the First Closing Date
is, and after the consummation of the Offering will be, in possession
of and operating in compliance with all authorizations, licenses,
permits, consents, certificates and orders material to the conduct of
its business, all of which are valid and in full force and effect. Each
of the Company, the Partnership and the Lessee is, and after the
consummation of the Offering will be, duly qualified to do business and
in good standing as a foreign corporation, real estate investment trust
or partnership, as applicable, in each jurisdiction in which the
ownership or leasing of properties or the conduct of its respective
business requires such qualification, except for jurisdictions in which
the failure to so qualify would not have a material adverse effect upon
the Company, the Partnership or the Lessee, as the case may be, and no
proceeding has been instituted in any such jurisdiction, revoking,
limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
(f) All of the issued and outstanding Shares of the Company
(the "Current Shares") have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, were not issued in violation of
or subject to any preemptive rights or other rights to subscribe for or
purchase securities, and conform to the description thereof contained
in the Prospectus. All of the issued and outstanding Units of the
Partnership have been validly issued and are fully paid and
nonassessable and have been
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issued in compliance with all federal and state securities laws. Except
as disclosed in or contemplated by the Prospectus and the financial
statements of the Company, and the related notes thereto and except for
warrants to acquire Units (the "Warrants"), neither the Company nor the
Partnership has outstanding any options to purchase, or any preemptive
rights or other rights to subscribe for or to purchase, any securities
or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or partnership interests, as
the case may be, or any such options, rights, convertible securities or
obligations.
(g) The Common Shares to be sold by the Company in the public
offering contemplated by this Agreement, when issued, delivered and
paid for in the manner set forth in this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable, have been
duly authorized for listing on the New York Stock Exchange upon
official notice of issuance and will conform in all material respects
to the description thereof contained in the Prospectus. No shareholder
of the Company has any right which has not been waived to require the
Company to register the sale of any shares owned by such shareholder
under the Act in the public offering contemplated by this Agreement. No
further approval or authority of the shareholders or the Board of
Directors of the Company will be required for the issuance and sale of
the Common Shares to be sold by the Company as contemplated herein. The
description of the Company's share option, share bonus and other share
plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus are accurate in all
material respects the information required to be shown with respect to
such plans, arrangements, options and rights. The Company is, and
following the issuance and sale of the Common Shares will be, in
compliance in all material respects with all of the rules and
regulations of the New York Stock Exchange applicable to the Company.
(h) Each of the Company and the Partnership has full legal
right, power and authority to enter into this Agreement and perform the
transactions contemplated hereby. This Agreement has been duly
authorized by the Company and the Partnership, has been duly executed
and delivered by the Company and the Partnership and constitutes a
valid and binding obligation of each of the Company and the Partnership
in accordance with its terms. The making and performance of this
Agreement by each of the Company and the Partnership and the
consummation of the transactions herein contemplated will not violate
any provisions of the partnership agreement, certificate of
partnership, charter, by-laws or other organizational documents, as
applicable, of the Company, the Partnership or the Lessee and will not
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conflict with, result in the breach or violation of, or constitute,
either by itself or upon notice or the passage of time or both, a
material default under (i) any agreement, mortgage, deed of trust,
lease, franchise, license, indenture, permit or other instrument to
which the Company, the Partnership, the Manager or the Lessee is a
party or by which the Company, the Partnership, the Manager or the
Lessee or any of their respective properties may be bound or affected
or (ii) any statute or any authorization, judgment, decree, order, rule
or regulation of any court or any regulatory body, administrative
agency or other governmental body applicable to the Company, the
Partnership the Lessee or any of their respective properties. No
consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body is
required, including the satisfaction of any requirements pursuant to
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
for the execution and delivery of this Agreement or the consummation of
the transactions contemplated by this Agreement, except for compliance
with the Act, the Blue Sky and Canadian securities laws applicable to
the public offering of the Common Shares by the several Underwriters
and the clearance of such offering with the National Association of
Securities Dealers, Inc. (the "NASD") and the listing of additional
shares with the New York Stock Exchange.
(i) Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), who has
expressed its opinion with respect to the financial statements and
schedules filed with the Commission or incorporated by reference as a
part of the Registration Statement and included in the Prospectus and
in the Registration Statement, is an independent accountant as required
by the Act and the Rules and Regulations.
(j) The financial statements, together with the related notes
thereto, of the Company and the Lessee set forth or incorporated by
reference in the Registration Statement and Prospectus fairly present
the financial condition of such entities as of the dates indicated and
the results of operations and changes in financial position for the
periods presented. The pro forma financial statements included in the
Registration Statement and the Prospectus comply in all material
respects with the applicable requirements of Rule 11-02 of Regulation
S-X of the Commission and the pro forma adjustments have been properly
applied to the historical amounts in the compilation of such
statements. Such statements, schedules and related notes have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis as certified by the independent
accountants named in Section 2(i). No other financial statements or
schedules are required to be included in the Registration Statement.
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The selected financial data set forth in the Prospectus under the
caption "Selected Financial Information" fairly presents the
information set forth therein on the basis stated in the Registration
Statement.
(k) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to
the Registration Statement by the Act or by the Rules and Regulations
which have not been described or filed as required.
(l) There are no legal or governmental actions, suits or
proceedings pending in which service of process has been received by an
employee of the Company or, to the best of the Company's knowledge,
threatened to which the Company, the Partnership, or the Lessee is or
may be, a party or of which property owned or leased by the Company,
the Partnership or the Lessee is or may be, the subject, or related to
environmental or discrimination matters, which actions, suits or
proceedings might, individually or in the aggregate, prevent or
adversely affect the transactions contemplated by this Agreement or
result in a material adverse change in the condition (financial or
otherwise), properties, business, results of operations or prospects of
the Company, the Partnership or the Lessee, taken as a whole; and no
labor disturbance by the employees of the Company, the Partnership or
the Lessee exists or to the Company's knowledge is imminent which might
be expected to affect adversely such condition (financial or
otherwise), properties, business, results of operations or prospects.
None of the Company, the Partnership nor the Lessee is a party or
subject to the provisions of any material injunction, judgment, decree
or order of any court, regulatory body, administrative agency or other
governmental body.
(m) The Partnership has good and marketable title to the
Hotels (as defined in the Prospectus), subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except (i) those reflected in
the financial statements (or described elsewhere in the Prospectus),
(ii) $8 million in mortgages encumbering the Holiday Inn-Harbor View
hotel which the Company intends to repay within 60 days following the
Offering, or (iii) those which are not material in amount and do not
adversely affect the use made and proposed to be made of such property
by the Company and the Partnership. The Partnership holds its leased
properties under valid and binding leases, with such exceptions as are
not or will not be materially significant in relation to the business
of any of the Partnership. The Company does not own or lease any real
property. The Partnership owns or leases all such real and personal
properties (except for items of inventory, vehicles, liquor licenses
and Franchise
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Agreements to be held by the Lessee) as are necessary to operate the
Properties as now operated or as proposed to be operated.
(n) To the knowledge of the Company (i) no lessee, licensee,
concessionaire or vendor of any portion of any of the Hotels is in
default under any of the leases or licenses governing such properties
and there is no event which, but for the passage of time or the giving
of notice, or both, would constitute a default under any of such leases
or licenses, except such defaults that would not have a material
adverse effect on the condition (financial or otherwise) or on the
earnings, business affairs or business prospects of the Company, the
Partnership or the Lessee; (ii) all such material leases or licenses
are assignable without consent or approval or if such consent or
approval is required the applicable the consent or approval has been
obtained to assign any such lease or license, to the Partnership or the
Lessee, as applicable, on the Closing Date; (iii) the current and
intended use and occupancy of each of the Hotels complies with all
applicable codes and zoning laws and regulations, if any, except for
such failures to comply which would not, individually or in the
aggregate, have a material adverse effect on the condition (financial
or otherwise) or on the earnings, business affairs or business
prospects of the Company, the Partnership or the Lessee; and (iv) there
is no pending or to the Company's knowledge threatened condemnation,
zoning change, environmental or other proceeding or action that will in
any material respect affect the size of, use of, improvements on,
construction on, or access to any of the Hotels or actions that would
have a material adverse effect on the condition (financial or
otherwise) or on the earnings, business affairs or business prospects
of the Company, the Partnership or the Lessee.
(o) Since September 30, 1996, and except as described in or
specifically contemplated by the Prospectus: (i) none of the Company,
the Partnership nor the Lessee has incurred any material liabilities or
obligations, indirect, direct or contingent, or entered into any
material verbal or written agreement or other transaction which is not
in the ordinary course of business or which could result in a material
reduction in the future earnings of the Company, the Partnership or the
Lessee; (ii) none of the Company, the Partnership nor the Lessee has
sustained any material loss or interference with its respective
businesses or properties from fire, flood, windstorm, accident or other
calamity, whether or not covered by insurance; (iii) none of the
Company, the Partnership nor the Lessee has paid or declared any
dividends or other distributions with respect to its capital stock
other than a dividend of $0.25 paid by the Company and a distribution
of $0.25 per Unit paid by the
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Partnership in November, 1996, and none of the Company, the Partnership
nor the Lessee is in default in the payment of principal or interest on
any outstanding material debt obligations; (iv) there has not been any
change in the number of outstanding Shares (other than upon the sale of
the Common Shares or purchase of shares pursuant to the Company's
dividend reinvestment program) of the Company, the ownership interests
in any of the Partnership or the common stock of the Lessee or
indebtedness material to the Company, the Partnership or the Lessee
(other than in the ordinary course of business); and (v) there has not
been any material adverse change in the condition (financial or
otherwise), business, properties, results of operations or prospects of
the Company, the Partnership or the Lessee.
(p) Except as disclosed in or specifically contemplated by the
Prospectus, the Company, the Partnership, the Manager and the Lessee
have sufficient trademarks, trade names, patent rights, copyrights,
licenses or other similar rights and proprietary knowledge
(collectively, "Intangibles"), approvals and governmental
authorizations to conduct their businesses as now conducted; the
expiration of any Intangibles, approvals or governmental authorizations
would not have a material adverse effect on the condition (financial or
otherwise), business, results of operations or prospects of the
Partnership or the Company or the Lessee; and the Company has no
knowledge of any material infringement by the Partnership of any
Intangibles, and there is no claim being made against the Company, the
Partnership or the Lessee regarding any Intangible or other
infringement which could have a material adverse effect on the
condition (financial or otherwise), business, results of operations or
prospects of the Company, the Partnership or the Lessee.
(q) Neither the Company nor the Partnership has been advised,
or has reason to believe, that the Company, the Partnership and the
Lessee are not conducting business in compliance with all applicable
laws, rules and regulations of the jurisdictions in which any of them
is conducting business, including, without limitation, all applicable
local, state and federal environmental laws and regulations; except
where failure to be in compliance would not materially adversely affect
the condition (financial or otherwise), business, results of operations
or prospects of any such entity.
(r) The Company, the Partnership and the Lessee each has filed
all necessary federal, state and foreign income and franchise tax
returns and has paid all taxes shown as due thereon; and to the
Company's knowledge, there is no tax deficiency which has been or might
be asserted or threatened against which could materially and adversely
affect the
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business, operations or properties of, the Company, the Partnership or
the Lessee, as the case may be.
(s) Neither the Company nor the Partnership has distributed or
will distribute prior to the First Closing Date any offering material
in connection with the offering and sale of the Common Shares other
than the Prospectus, the Registration Statement and the other materials
permitted by the Act.
(t) None of the Company, the Partnership nor the Lessee has at
any time during the last five years (i) made any unlawful contribution
to any candidate for foreign office or failed to disclose fully any
contribution in violation of law or (ii) made any payment to any
federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any
jurisdiction thereof.
(u) Neither the Company nor any of its affiliates has taken or
will take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Shares to facilitate the sale
or resale of the Common Shares.
(v) The Company, the Partnership or the Lessee, as applicable,
have and maintains liability, property and casualty insurance (insured
by insurers of recognized financial responsibility) in favor of the
Partnership, and in the case of liability insurance, the Lessee and the
Partnership, with respect to each of the Hotels, in an amount and on
such terms as is reasonable and customary for businesses of the type
proposed to be conducted by the Partnership and the Lessee, including,
among other things, insurance against theft, damage, destruction and
acts of vandalism. Neither the Company nor the Partnership has received
from any insurance company written notice of any material defects or
deficiencies affecting the insurability of any such Hotels.
(w) Title insurance in favor of the Partnership is in force
with respect to each of the Hotels in an amount reasonably acceptable
to the Representatives.
(x) The mortgages and deeds of trust encumbering the Hotels
are not convertible nor does the Company or the Partnership hold a
participating interest therein and such mortgages and deeds of trust
are not cross-defaulted or cross-collateralized to any property not to
be owned directly or indirectly by the Company or the Partnership.
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(y) Each of the Company, the Partnership and the Lessee (i) is
in compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health
and safety, the environment or any Hazardous Material (as hereinafter
defined) ("Environmental Laws"), (ii) has received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) is
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals are otherwise disclosed in the Prospectus or
would not, singly or in the aggregate, have a material adverse effect
on the Company, the Partnership or the Lessee. As used herein,
"Hazardous Material" shall mean (a) any "hazardous substance" as
defined by the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA"), (b) any "hazardous waste"
as defined by the Resource Conservation and Recovery Act, as amended,
(c) any petroleum or petroleum product, (d) any polychlorinated
biphenyl and (e) any pollutant or contaminant or hazardous, dangerous,
or toxic chemical, material, waste or substance regulated under or
within the meaning of any other Environmental Law.
(z) To the knowledge of the Company, there is no liability,
alleged liability or potential liability (including, without
limitation, liability, alleged liability or potential liability for
investigatory costs, cleanup costs, governmental response costs,
natural resources damages, property damages, personal injuries or
penalties), of the Company, the Partnership or the Lessee arising out
of, based on or resulting from (a) the presence or release into the
environment of any Hazardous Material at any location, whether or not
owned by the Company or the Lessee or (b) any violation or alleged
violation of any Environmental Law, which liability, alleged liability
or potential liability is required to be disclosed in the Registration
Statement, other than as disclosed therein, or which liability, alleged
liability or potential liability, singly or in the aggregate, would
have a material and adverse effect on the respective business,
prospects, properties, condition (financial or otherwise) or results of
operations of any of the Hotels or the Company, the Partnership or the
Lessee.
(aa) None of the Company, the Partnership nor the Lessee is or
will conduct their respective businesses in a manner in which any such
entity would become an "investment company" or an entity "controlled"
by an "investment
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company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act").
(bb) Neither the assets of the Company nor the Partnership
constitutes, nor will such assets, as of the Closing Date, constitute
"plan assets" under the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
(cc) As of the Closing Date, the Company will be organized and
will operate in a manner so as to qualify as a "real estate investment
trust" ("REIT") under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the "Code"), and has elected to, is qualified
to and intends to remain qualified to, be taxed as a REIT under the
Code and pursuant to any applicable state tax laws. As of the Closing
Date, less than 15 percent of the aggregate adjusted tax bases of both
the personal property and the real property (the "Total Bases") to be
leased pursuant to any Percentage Lease shall consist of the adjusted
tax bases of the personal property (the "Personal Property Bases"),
except in each instance where the failure to maintain such ratios will
not disqualify the Company's election as a REIT or otherwise have a
material adverse effect on the business and operations of the Company;
in each succeeding year the Personal Property Bases in connection with
each Percentage Lease will not exceed 15 percent of the Total Bases for
such lease, except in each instance where the failure to maintain such
ratios will not cause the Company to fail to qualify as a REIT or
otherwise have a material adverse effect on the business and operations
of the Company; and the Company has received a segmentation study from
Coopers & Lybrand L.L.P. stating that based on its projections, during
the first five years of the term of each Percentage Lease less than 15
percent of the Total Bases of each such Percentage Lease is expected to
consist of Personal Property Bases, except in each instance where the
failure to maintain such ratios will not cause the Company to fail to
qualify as a REIT or otherwise have a material adverse effect on the
business and operations of the Company. The Company does not know of
any event which would cause or is likely to cause the Company to fail
to qualify as a REIT at any time. All of the assets, liabilities and
items of income, deduction and credit of the Partnership are treated as
assets, liabilities and items of income, deduction and credit of the
Company under the provisions of the Code and the Partnership is not,
nor will it be, treated as a separate corporation under the provisions
of the Code. The Partnership is treated for federal income tax purposes
as a partnership and not as an association taxable as a corporation.
(dd) The Company, the Partnership and the Lessee each maintain
a system of internal accounting controls sufficient
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to provide reasonable assurances that (i) transactions are executed in
accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to
financial and corporate books and records is permitted only in
accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(ee) Neither the Company, the Partnership nor any other
affiliate of the Company has incurred any liability for a fee,
commission or other compensation on account of the employment of a
broker or finder in connection with the transactions contemplated by
this Agreement other than as disclosed in the Registration Statement.
(ff) No environmental engineering firm which prepared Phase I
environmental assessment reports of the Properties with respect to the
Hotels as set forth in the Registration Statement was employed for such
purpose on a contingent basis or has any substantial interest in the
Company, the Partnership or the Lessee.
(gg) To the best knowledge of the Company, no general labor
problem exists or is imminent with the employees of any of the Hotels,
the Company, the Manager, the Partnership or the Lessee.
(hh) Each certificate signed by any officer of the Company,
the Partnership or the Lessee or any of their affiliates and delivered
to the Representatives or counsel for the Underwriters shall be deemed
to be a representation and warranty by the Company, the Partnership or
the Lessee, as the case may be, as to the matters covered thereby.
(ii) None of the Company, the Partnership, the Lessee nor any
of their affiliates does business with the government of Cuba or with
any person or affiliate located in Cuba in violation of Section 517.075
of the Florida Statutes.
SECTION 3. Representations and Warranties of the Underwriters.
The Representatives, on behalf of the several Underwriters, represent and
warrant to the Company and the Partnership that the information set forth (i) on
the cover page of the Prospectus with respect to price, underwriting discounts
and commissions and terms of offering and (ii) under
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<PAGE> 14
"Underwriting" in the Prospectus was furnished to the Company by and on behalf
of the Underwriters for use in connection with the preparation of the
Registration Statement and the Prospectus and is complete and correct in all
material respects. The Representatives represent and warrant that they have been
authorized by each of the other Underwriters as the Representatives to enter
into this Agreement on its behalf and to act for it in the manner herein
provided.
SECTION 4. Purchase, Sale and Delivery of Common Shares. On
the basis of the representations, warranties and agreements herein contained,
but subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Underwriters the Firm Common Shares. The Underwriters
agree, severally and not jointly, to purchase from the Company the number of
Firm Common Shares described below. The purchase price per share to be paid by
the several Underwriters to the Company shall be [_____] per share.
Delivery of certificates for the Firm Common Shares to be
purchased by the Underwriters and payment therefor shall be made at such place
as set forth below at such time and date, not later than the third (or, if the
Firm Common Shares are priced, as contemplated by Rule 15c6-1(c) of the
Securities Exchange Act of 1934, after 4:30 P.M. Washington, D.C. Time, the
fourth) full business day following the first date that any of the Common Shares
are released by you for sale to the public, as you shall designate by at least
48 hours' prior notice to the Company (or at such other time and date, not later
than one week after such third full business day as may be agreed upon by the
Company and the Representatives) (the "First Closing Date"); provided, however,
that if the Prospectus is at any time prior to the First Closing Date
recirculated to the public, the First Closing Date shall occur upon the later of
the third or fourth, as the case may be, full business day following the first
date that any of the Common Shares are released by you for sale to the public or
the date that is 48 hours after the date that the Prospectus has been so
recirculated.
Delivery of certificates for the Firm Common Shares shall be
made by or on behalf of the Company to you, for the respective accounts of the
Underwriters against payment by you, for the accounts of the several
Underwriters, of the purchase price therefor by wire transfer of same day funds
to the order of the Company for the purposes set forth in the Prospectus. At
your option, the certificates for the Firm Common Shares shall be registered in
such names and denominations as you shall have requested in writing to the
Company or the Company's transfer agent at least two full business days prior to
the First Closing Date, and shall be made available for checking and packaging
on the business day preceding the First Closing Date at a location in New York,
New York or such other location, as may be designated by you. Time shall be of
the essence, and delivery at
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<PAGE> 15
the time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.
In addition, on the basis of the representations, warranties
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, the Optional Common Shares at the purchase
price per share to be paid for the Firm Common Shares, for use solely in
covering any over-allotments made by you for the account of the Underwriters in
the sale and distribution of the Firm Common Shares. The option granted
hereunder may be exercised at any time (but not more than once) within 30 days
after the first date that any of the Common Shares are released by you for sale
to the public, upon notice by you to the Company setting forth the aggregate
number of Optional Common Shares as to which the Underwriters are exercising the
option, the names and denominations in which the certificates for such shares
are to be registered and the time and place at which such certificates will be
delivered. Such time of delivery (which may not be earlier than the First
Closing Date), being herein referred to as the "Second Closing Date," shall be
determined by you, but if at any time other than the First Closing Date shall
not be earlier than three nor later than five full business days after delivery
of such notice of exercise. The number of Optional Common Shares to be purchased
by each Underwriter shall be determined by multiplying the number of Optional
Common Shares to be sold by the Company pursuant to such notice of exercise by a
fraction, the numerator of which is the number of Firm Common Shares to be
purchased by such Underwriter as set forth opposite its name in Schedule A and
the denominator of which is [________] (subject to such adjustments to eliminate
any fractional share purchases as you in your discretion may make). At the
Company's option, certificates for the Optional Common Shares will be made
available for checking and packaging on the business day preceding the Second
Closing Date at a location in New York, New York or such other location, as may
be designated by you. Payment for the Optional Common Shares shall be made
directly to the Company, or such other party as designated by the Company, by
wire transfer of same-day funds and delivery of the Optional Common Shares shall
be the same as for the Firm Common Shares purchased from the Company as
specified in the two preceding paragraphs. At any time before lapse of the
option, you may cancel such option by giving written notice of such cancellation
to the Company.
You have advised the Company that each Underwriter has
authorized you to accept delivery of its Common Shares, to make payment and to
issue a receipt therefor. You, individually and not as the Representatives of
the Underwriters, may (but shall not be obligated to) make payment for any
Common Shares to be purchased by any Underwriter whose funds shall not have been
15
<PAGE> 16
received by you by the First Closing Date or the Second Closing Date, as the
case may be, for the account of such Underwriter, but any such payment shall not
relieve such Underwriter from any of its obligations under this Agreement.
Subject to the terms and conditions hereof, the Underwriters
propose to make a public offering of their respective portions of the Common
Shares as soon after the effective date of the Registration Statement as in the
judgment of the Representatives is advisable and at the public offering price
set forth on the cover page of and on the terms set forth in the Prospectus.
SECTION 5. Covenants of the Company and the Partnership. The
Company and the Partnership covenant and agree that:
(a) The Company will file the Prospectus, properly completed,
pursuant to the applicable paragraph of Rule 424(b) of the Rules and
Regulations within the time period prescribed and will provide evidence
satisfactory to you of such timely filing. Notwithstanding the
foregoing, the Company may file any filing required under the Exchange
Act which will be incorporated by reference into the Registration
Statement, any Preliminary Prospectus or the Prospectus without the
need to furnish a copy to the Underwriters prior to such filing. The
Company will promptly advise you in writing (i) of the receipt of any
comments of the Commission, (ii) of any request of the Commission for
amendment of or supplement to the Registration Statement (either before
or after it becomes effective), any Preliminary Prospectus or the
Prospectus or for additional information, (iii) when the Registration
Statement shall have become effective and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for
that purpose. If the Commission shall enter any such stop order at any
time, the Company will use its best efforts to obtain the lifting of
such order at the earliest possible moment. The Company will not file
any amendment or supplement to the Registration Statement (either
before or after it becomes effective), any Preliminary Prospectus or
the Prospectus of which you have not been furnished with a copy a
reasonable time prior to such filing or to which you reasonably object
or which is not in compliance with the Act and the Rules and
Regulations.
(b) The Company will prepare and file with the Commission,
promptly upon your request, any amendments or supplements to the
Registration Statement or the Prospectus which in your judgment may be
necessary or advisable to enable the several Underwriters to continue
the distribution
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<PAGE> 17
of the Common Shares and will use its best efforts to cause the same to
become effective as promptly as possible. The Company will fully and
completely comply with the provisions of Rule 430A of the Rules and
Regulations with respect to information omitted from the Registration
Statement in reliance upon such Rule.
(c) If at any time within the applicable period referred to in
Section 10(a)(3) of the Act or Rule 174 of the Rules and Regulations
during which a prospectus relating to the Common Shares is required to
be delivered any event occurs, as a result of which the Prospectus,
including any amendments or supplements, would include an untrue
statement of a material fact, or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, or if it is necessary at any time to amend the
Prospectus, including any amendments or supplements, to comply with the
Act or the Rules and Regulations, the Company will promptly advise you
thereof and will promptly prepare and file with the Commission, at its
own expense, an amendment or supplement which will correct such
statement or omission or an amendment or supplement which will effect
such compliance and will use its best efforts to cause the same to
become effective as soon as possible; and, in case any Underwriter is
required to deliver a prospectus after the applicable time period, the
Company upon request, but at the expense of such Underwriter, will
promptly prepare such amendment or amendments to the Registration
Statement and such Prospectus or Prospectuses as may be necessary to
permit compliance with the requirements of Section 10(a)(3) of the Act
and Rule 174 of the Rules and Regulations, as applicable.
(d) As soon as practicable, but not later than 45 days (or 90
days if such quarter is the fiscal year end) after the end of the first
quarter ending after one year following the effective date of the
Registration Statement (as defined in Rule 158(c) of the Rules and
Regulations), the Company will make generally available to its security
holders an earnings statement (which need not be audited) covering a
period of 12 consecutive months beginning after the effective date of
the Registration Statement which will satisfy the provisions of the
last paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to
be delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the applicable period referred to
in Section 10(a)(3) of the Act or Rule 174 of the Rules and
Regulations, will furnish to you or mail to your order copies of the
Registration Statement, the Prospectus, the Preliminary Prospectus and
all amendments and supplements to any such
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<PAGE> 18
documents in each case as soon as available and in such quantities as
you may reasonably request, for the purposes contemplated by the Act
and the Rules and Regulations.
(f) The Company shall cooperate with you and your counsel in
order to qualify or register the Common Shares for sale under (or
obtain exemptions from the application of) the Blue Sky and Canadian
securities laws of such jurisdictions as you designate, will comply
with such laws and will continue such qualifications, registrations and
exemptions in effect so long as reasonably required for the
distribution of the Common Shares; provided, however, that neither the
Company nor the Partnership shall be required to qualify as a foreign
real estate investment trust, corporation or partnership, as
applicable, or to file a general consent to service of process in any
such jurisdiction where it is not presently qualified or where it would
be subject to taxation as a foreign real estate investment trust,
corporation or partnership. The Company will advise you promptly of the
suspension of the qualification or registration of (or any such
exemption relating to) the Common Shares for offering; sale or trading
in any jurisdiction or any initiation or threat of any proceeding for
any such purpose, and in the event of the issuance of any order
suspending such qualification, registration or exemption, the Company,
with your cooperation, will use its best efforts to obtain the
withdrawal thereof.
(g) During the period of five years hereafter, the Company
will furnish to the Representatives and, upon request of the
Representatives, to each of the other Underwriters: (i) as soon as
available after the end of each fiscal year and mailing to the
shareholders, copies of the Annual Report of the Company containing the
balance sheet of the Company as of the close of such fiscal year and
statements of income, shareholders' equity and cash flows for the year
then ended and the opinion thereon of the Company's independent public
accountants; (ii) as soon as practicable after the filing thereof,
copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Report on Form 8-K or other report filed by the
Company with the Commission, the NASD or any securities exchange; and
(iii) as soon as available, copies of any report or communication of
the Company mailed generally to holders of its Shares.
(h) During the period of 90 days after the first date that any
of the Common Shares are released by you for sale to the public,
without the prior written consent of Montgomery Securities (which
consent may be withheld at the sole discretion of Montgomery
Securities), the Company will not, other than pursuant to the Company's
share incentive
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<PAGE> 19
plans and dividend reinvestment plan, pursuant to redemptions in
accordance with the Partnership Agreement or in connection with the
acquisition of real estate or hotel properties, or in response to the
exercise of any outstanding warrants or in connection with a merger,
consolidation or similar transaction issue, offer, sell, grant options
to purchase or otherwise dispose of any of the Company's equity
securities or any other securities convertible into or exchangeable
with its Shares or other equity security.
(i) The Company and the Partnership will apply the net
proceeds of the sale of the Common Shares sold by the Company
substantially in accordance with the statements under the caption "Use
of Proceeds" in the Prospectus.
(j) As necessary, the Company will use its reasonable best
efforts to qualify or register its Common Shares for sale in non-issuer
transactions under (or obtain exemptions from the application of) the
Blue Sky laws of the State of California and the provincial laws of
Canada as specified by the Representatives (and thereby permit market
making transactions and secondary trading in the Company's Common
Shares in California and such Canadian provinces as specified by the
Representatives), will comply with such Blue Sky or Canadian provincial
laws and will use its reasonable best efforts to continue such
qualifications, registrations and exemptions in effect for a period of
five years after the date hereof; provided, however, that neither the
Company nor the Partnership shall be required to qualify as a foreign
real estate investment trust, corporation or partnership, as
applicable, or to file a general consent to service of process in any
such jurisdiction where it is not presently qualified or where it would
be subject to taxation as a foreign real estate investment trust,
corporation or partnership.
(k) The Company will use its reasonable best efforts to
continue the listing of the Common Shares on the New York Stock
Exchange and will continue to comply with all of the rules and
regulations of the New York Stock Exchange applicable to the Company
and the trading of the Common Shares.
(l) The Company will continue to meet the requirements to
qualify as a REIT, effective for the year ending December 31, 1995 and
thereafter.
(m) The Company will maintain a transfer agent for the Common
Shares and, if necessary under the jurisdiction of formation of the
Company, a registrar (which may be the same entity as the transfer
agent).
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(n) The Company and the Partnership will not permit the
conversion of any of the Units into Shares in any manner which would or might
affect the Company's qualification as a REIT.
(o) The Company and the Partnership in good faith will
expend reasonable efforts to enforce the terms of any agreements with the
Lessee, the Manager, Messrs. Alter and Biederman, Enever or any parties
affiliated with the Lessee or Messrs. Alter, Biederman or Enever.
[(p) The Partnership will, per quarter on a cumulative basis,
make available for periodic replacement and refurbishment of furniture,
fixtures and equipment at each of the Hotels an amount equal to 4% of
room revenues (as defined in the Percentage Leases).]
You, on behalf of the Underwriters, may, in your sole discretion, waive in
writing the performance by the Company or the Partnership, as applicable, of any
one or more of the foregoing covenants or extend the time for their performance.
SECTION 6. Payment of Expenses. Whether or not the
transactions contemplated hereunder are consummated or this Agreement becomes
effective or is terminated, the Company agrees to pay all costs, fees and
expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limiting the generality of the foregoing, (i) all expenses incident to
the issuance and delivery of the Common Shares (including all printing and
engraving costs), (ii) all fees and expenses of the registrar and transfer agent
of the Common Shares, (iii) all necessary issue, transfer and other stamp taxes
in connection with the issuance and sale of the Common Shares to the
Underwriters, (iv) all fees and expenses of the Company's counsel and the
Company's independent accountants, (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution of
the Registration Statement, each Preliminary Prospectus and the Prospectus
(including all exhibits and financial statements) and all amendments and
supplements provided for herein and the Blue Sky memorandum, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the Blue Sky laws or the provincial securities laws of Canada,
(vii) the filing fee of the NASD and the related legal fees in connection with
such filing (other than counsel fees incurred relating to compensation issues)
and (viii) all other fees, costs and expenses referred to in Item 14 of the
Registration Statement. Except as provided in this Section 6, Section 8 and
Section 10 hereof, the Underwriters shall pay all of their own expenses,
including the fees and
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<PAGE> 21
disbursements of their counsel (excluding those relating to qualification,
registration or exemption under the Blue Sky and Canadian provincial securities
laws and the Blue Sky memorandum which fees shall be paid on the First Closing
Date or the Second Closing Date, as applicable).
SECTION 7. Conditions of the Obligations of the Underwriters.
The obligations of the several Underwriters to purchase and pay for the Firm
Common Shares on the First Closing Date and the Optional Common Shares on the
Second Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Partnership herein set forth as of
the date hereof and as of the First Closing Date or the Second Closing Date, as
the case may be, to the accuracy of the statements of the Company's officers and
the Partnership's officers made pursuant to the provisions hereof, to the
performance by each of the Company and the Partnership of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M. (or, in the case of a registration statement filed
pursuant to Rule 462(b) of the Rules and Regulations relating to the
Common Shares, not later than 10:00 P.M.) Miami, Florida time, on the
date of this Agreement, or at such later time as shall have been
consented to by you; if the filing of the Prospectus, or any supplement
thereto, is required pursuant to Rule 424(b) of the Rules and
Regulations, the Prospectus shall have been filed in the manner and
within the time period required by Rule 424(b) of the Rules and
Regulations; and prior to such Closing Date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued
and no proceedings for that purpose shall have been instituted or shall
be pending or, to the knowledge of the Company or you, shall be
contemplated by the Commission; and any request of the Commission for
inclusion of additional information in the Registration Statement, or
otherwise, shall have been complied with to your satisfaction.
(b) There shall have been furnished to you, as Representatives
of the Underwriters, on each Closing Date, in form and substance
satisfactory to you, except as otherwise expressly provided below:
(i) An opinion of Brobeck, Phleger & Harrison LLP, counsel
for the Company, the Partnership and the Lessee, or Ballard
Spahr Andrews & Ingersoll, special Maryland counsel to the
Company, addressed to the Underwriters and dated the First
Closing Date, or the Second Closing Date, as the case may be,
to the effect that:
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(1) The Company has been duly formed and is validly
existing as a corporation, is in good standing under the laws
of the state of Maryland, and is duly qualified to do business
as a foreign corporation and is in good standing in all other
jurisdictions where the ownership or leasing of properties or
the conduct of its business requires such qualification,
except for jurisdictions in which the failure to so qualify
would not reasonably be expected to have a material adverse
effect on the Company, the Partnership or any Property, and
has the requisite power to own its properties and conduct its
business substantially as described in the Registration
Statement; and, to such counsel's knowledge, other than the
Partnership, the Company does not own or control, directly or
indirectly, any corporation, association, partnership or other
entity;
(2) The Lessee has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Colorado, and is duly qualified to do
business as a foreign corporation and is in good standing in
each of the states in which it leases real property from the
Partnership and has the requisite corporate power and
authority to own its properties and conduct its business as
described in the Registration Statement;
(3) The Partnership has been duly formed and is
validly existing as a limited partnership under the laws of
the State of Delaware, is duly qualified to do business as a
foreign limited partnership and is in good standing in each of
the states in which it owns real property, has the requisite
partnership power and authority to own and lease its
properties and conduct its business as currently conducted as
described in the Prospectus. The Company is the sole general
partner of the Partnership and will be the holder of
[_________] Units (assuming no Optional Common Shares are
sold), or approximately [_____] of the Units in the
Partnership which Units, to such counsel's knowledge shall be
held free and clear of all liens, encumbrances, equities,
claims, security interests, voting trusts or charges;
(4) All of the issued and outstanding Shares have
been duly authorized and validly issued; all outstanding
Shares were duly registered under the Act or were issued in
transactions exempt from the registration requirements of the
Act and were duly
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<PAGE> 23
registered or subject to an available exemption from the
registration requirements of the applicable state securities
or blue sky laws, are fully paid and nonassessable, were not
issued in violation of or subject to any statutory, or to such
counsel's knowledge, other preemptive rights or other rights
to subscribe for or purchase any securities and conformed in
all material respects to the description thereof incorporated
by reference in the Registration Statement; provided however
that such counsel need not express any opinion with respect to
the registration or availability of an exemption under
applicable state securities or blue sky laws for Common Shares
issued pursuant to an underwritten public offering;
(5) The Company has given proper authorization to
Chase Mellon Shareholder Service, L.L.C. (the "Transfer
Agent") to issue the Firm Common Shares to you at the First
Closing by electronic transfer through the FAST system of The
Depository Trust Company, upon receipt of telephonic
notification from you and the Company to issue such shares.
Upon your payment of the agreed consideration for the Firm
Common Shares in accordance with the provisions of the
Underwriting Agreement, and the electronic transfer to you of
the Firm Common Shares by the Transfer Agent, the Firm Common
Shares will be duly authorized and validly issued, fully paid
and nonassessable, and will not have been issued in violation
of or subject to any preemptive rights or (to our knowledge)
other rights to subscribe for or purchase securities from the
Company. The certificates representing the Common Shares to be
delivered hereunder are in due and proper form under Maryland
law, and when duly countersigned by the Company's transfer
agent and registrar, and delivered to you or upon your order
against payment of the agreed consideration therefor in
accordance with the provisions of this Agreement, the Common
Shares represented thereby will be duly authorized and validly
issued, fully paid and nonassessable, will not have been
issued in violation of or subject to any statutory, or to such
counsel's knowledge, other preemptive rights or other rights
to subscribe for or purchase securities;
(6) Except as disclosed in or specifically
contemplated by the Prospectus, to such counsel's knowledge,
there are no outstanding options,
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<PAGE> 24
warrants or other rights calling for the issuance of, and no
commitments, plans or arrangements to issue, any shares of
capital stock of the Company or any security convertible into
or exchangeable for capital stock of the Company;
(7)(a) To such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or
preventing the use of the Prospectus has been issued and no
proceedings for that purpose have been instituted or are
pending or contemplated by the Commission and any required
filing of the Prospectus and any supplement thereto pursuant
to Rule 424(b) of the Rules and Regulations has been made in
the manner and within the time period required by such Rule
424(b);
(b) The Registration Statement, the Prospectus and
any amendment or supplement thereto (except for the financial
statements and schedules and other financial and statistical
information included therein as to which such counsel need
express no opinion) comply as to form in all material respects
with the requirements of the Act and the Rules and
Regulations;
(c) To such counsel's knowledge, there are no
franchise agreements, leases, contracts, agreements or
documents of a character required to be disclosed in the
Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement which are not disclosed
or filed, as required; and
(d) To such counsel's knowledge, there are no legal
or governmental actions, suits or proceedings pending (in
which service or notice of process has been received by the
Company) or threatened against the Company which are required
to be described in the Prospectus which are not described as
required;
(8) The Company has the corporate power and authority
to enter into this Agreement, to sell and deliver the Common
Shares to be sold by it to the several Underwriters and to
consummate the other transactions contemplated herein; the
Partnership has the partnership power and authority to enter
into this Agreement and to consummate the transactions
contemplated herein; this Agreement has been duly and validly
authorized by all necessary partnership action by
24
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each of the Company and the Partnership, respectively, has
been duly and validly executed and delivered by and on behalf
of each of the Company and the Partnership; and no approval,
authorization, order, consent, registration, filing,
qualification, license or permit of or with any court,
regulatory, administrative or other governmental body is
required for the execution and delivery of this Agreement by
each of the Company and the Partnership or the consummation of
the transactions contemplated by this Agreement, except such
as have been obtained and are in full force and effect under
the Act and such as may be required under applicable Blue Sky
or Canadian securities laws in connection with the purchase
and distribution of the Common Shares by the Underwriters and
the clearance of such offering with the NASD;
(9) The execution and delivery of the Underwriting
Agreement and the issuance of the Common Shares contemplated
therein will not conflict with, result in the material breach
of, or constitute, either by itself or upon notice or the
passage of time or both, a material default under, any
agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument listed on Schedule 1 to
any of the Backup Officers' Certificates; or violate any of
the provisions of the partnership certificate, partnership
agreement, articles of incorporation or bylaws, or other
organizational documents, as applicable, of the Company, the
Partnership, or the Lessee; or to our knowledge, violate any
California statute, judgment, decree, order, rule or
regulation of any court or California governmental body having
jurisdiction over the Company, the Partnership, the Lessee, or
any of their property;
(10) To such counsel's knowledge, none of the
Company, the Partnership nor the Lessee is in violation of its
respective declaration of trust, partnership certificate,
partnership agreement, certificate of incorporation or bylaws,
or other organizational documents, as applicable, or is in
breach of or default with respect to any provision of any
agreements, mortgages, deeds of trust, leases, franchises,
licenses, indentures, permits or other instruments listed in
Schedule 1 to any of the Officers' Certificates delivered
pursuant to Section 7(b)(iii) of this Agreement, known to such
counsel and which is required to be filed as
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an item 10 exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, to which the Company,
the Partnership or the Lessee is a party or by which they or
any of their properties may be bound or affected, except where
such default would not materially adversely affect the
Company, the Partnership or the Lessee, as the case may be;
(11) To such counsel's knowledge, no holders of
securities of the Company or the Partnership have rights to
register Shares, Units or other securities because of the
filing of the Registration Statement by the Company or the
offering;
(12) No transfer taxes are required to be paid to the
states of Maryland and New York in connection with the sale
and delivery of the Common Shares to the Underwriters
hereunder;
(13) Neither the Company nor the Partnership is or
will be an "investment company" within the meaning of the 1940
Act;
(14) Each of the Closing Agreements has been duly
authorized, executed and delivered by the Company, the
Partnership or the Lessee, as applicable, and constitutes a
valid and binding agreement on such parties, enforceable in
accordance with its terms, except as may be limited or
otherwise affected by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other
laws affecting the rights of creditors generally and by
principles of equity, whether considered at law or in equity,
and except with respect to those provisions relating to
indemnities or contributions for liabilities under the Act, as
to which no opinion need be expressed;
(15) The Common Shares have been duly authorized for
listing by the New York Stock Exchange upon official notice of
issuance; and
In rendering such opinion, such counsel may rely as to matters
of local law, on opinions of local counsel, and as to matters of fact,
on certificates of officers of the Company, the Partnership or the
Lessee, as applicable, and certificates and verbal advice of
governmental officials, in which case their opinion is to state that
they are so doing and that the
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Underwriters are justified in relying on such opinions or certificates
and copies of said opinions or certificates are to be attached to the
opinion. Such counsel shall also include a statement to the effect that
although such counsel is not passing upon and does not assume
responsibility for the accuracy, completeness or fairness of the
statements contained therein, nothing has come to such counsel's
attention that would lead such counsel to believe that either at the
effective date of the Registration Statement or at the applicable
Closing Date the Registration Statement or the Prospectus, or any
amendment or supplement thereto, contains any untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading
(other than with respect to the financial statements, the notes thereto
and the related financial schedules and other financial or statistical
data as to which such counsel need express no opinion).
(ii) Such opinion or opinions of O'Melveny & Myers LLP,
counsel for the Underwriters, dated the First Closing Date or the
Second Closing Date, as the case may be, with respect to the formation
of the Company, the execution and delivery of the Agreement, the
validity of the Common Shares, certain legal matters related to the
Registration Statement and the Prospectus and other related matters as
you may reasonably require, and the Company shall have furnished to
such counsel such documents and shall have exhibited to them such
papers and records as they may reasonably request for the purpose of
enabling them to pass upon such matters. In connection with such
opinions, such counsel may rely on representations or certificates of
officers of the Company and governmental officials.
(iii) A certificate of each of the Company, executed by the
Chairman of the Board and President of the Company solely in their
capacity as such, and the Partnership executed by an authorized officer
of its general partner solely in his capacity as such, dated the First
Closing Date or the Second Closing Date, as the case may be, to the
effect that:
(1) The representations and warranties of the Company
and the Partnership set forth in Section 2 of this Agreement
are true and correct as of the date of this Agreement and as
of the First Closing Date or the Second Closing Date, as the
case may be, and the Company and the Partnership each has
complied with all the agreements and satisfied all of the
conditions on
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<PAGE> 28
its part to be performed or satisfied on or prior to such
Closing Date;
(2) The Commission has not issued any order preventing
or suspending the use of the Prospectus or any Preliminary
Prospectus filed as a part of the Registration Statement or
any amendment thereto; no stop order suspending the
effectiveness of the Registration Statement has been issued;
and to the best of the knowledge of the respective signers, no
proceedings for that purpose have been instituted or are
pending or contemplated under the Act;
(3) Each of the respective signers of each certificate
has carefully examined the Registration Statement and the
Prospectus; in his opinion and to the best of his knowledge,
the Registration Statement and the Prospectus and any
amendments or supplements thereto contain all statements
required to be stated therein; and neither the Registration
Statement nor the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or
omits to state any material fact required to be stated
therein, in light of the circumstances under which they were
made, or necessary to make the statements therein not
misleading;
(4) Since the initial date on which the Registration
Statement was filed, no agreement, written or oral,
transaction or event has occurred which should have been set
forth in an amendment to the Registration Statement or in a
supplement to or amendment of any prospectus which has not
been incorporated by reference into the Prospectus or
Registration Statement or disclosed in such a supplement or
amendment;
(5) As to the Company's certificate only, since the
respective dates as of which information is given in the
Registration Statement and the Prospectus, and except as
disclosed in or contemplated by the Prospectus, there has not
been any material adverse change or a development involving a
material adverse change in the condition (financial or
otherwise), business, properties, results of operations,
management or prospects of the Company or, to the best of such
officer's knowledge, any of the Hotels; and no legal or
governmental action, suit or proceeding is pending or, to the
best knowledge of such officer, threatened against the
Company, or, to
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<PAGE> 29
the best of such officer's knowledge, any of the Hotels which
is material to the Company or any of the Hotels, as
applicable, whether or not arising from transactions in the
ordinary course of business, or which may adversely affect the
transactions contemplated by this Agreement; since such dates
and except as so disclosed, the Company has not entered into
any verbal or written agreement or other transaction which is
not in the ordinary course of business or which could
reasonably be expected to result in a material reduction in
the future earnings of the Company or the Partnership or
incurred any material liability or obligation, direct,
contingent or indirect, made any material adverse change in
its short-term debt or funded debt or repurchased or otherwise
acquired any of the Company's Shares or the Partnership's
interests; and the Company, has not declared or paid any
dividend, or made any other distribution, upon its outstanding
Shares payable to shareholders of record on a date prior to
the First Closing Date or Second Closing Date except as set
forth in the Prospectus and except for the dividend of $0.25
paid by the Company in November, 1996;
(6) As to the Partnership's certificate only, since the
respective dates as of which information is given in the
Registration Statement and the Prospectus, and except as
disclosed in or contemplated by the Prospectus, there has not
been any material adverse change or a development involving a
material adverse change in the condition (financial or
otherwise), business, properties, results of operations,
management or prospects of the Partnership, or to the best of
such officer's knowledge, any of the Hotels; and no legal or
governmental action, suit or proceeding is pending or, to the
best knowledge of such officer, threatened against the
Partnership or, to the best of such officer's knowledge, any
of the Hotels, which is material to the Partnership or any of
the Hotels, as applicable, whether or not arising from
transactions in the ordinary course of business, or which may
adversely affect the transactions contemplated by this
Agreement; since such dates and except as so disclosed, the
Partnership has not entered into any verbal or written
agreement or other transaction which is not in the ordinary
course of business or which could reasonably be expected to
result in a material reduction in the future earnings of the
Company or the Partnership or
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<PAGE> 30
incurred any material liability or obligation, direct,
contingent or indirect, made any change in its partnership
interests, made any material adverse change in its short-term
debt or funded debt or repurchased or otherwise acquired any
of the Partnership's interests other than as set forth on
Schedule B; and the Partnership has not declared or paid any
dividend, or made any other distribution, upon its outstanding
partnership interests payable to partners of record on a date
prior to the First Closing Date or Second Closing Date, except
as set forth in the Prospectus and except for the distribution
of $0.25 per Unit paid by the Partnership in November, 1996;
(7) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus and
except as disclosed in or contemplated by the Prospectus, none
of the Hotels (or any other hotel property owned by the
Partnership) has sustained a material loss or damage by
strike, fire, flood, windstorm, accident or other calamity
(whether or not insured); and
(8) To the best knowledge of such officer, each of the
Company, the Partnership and each of the Hotels owned by the
Partnership (i) will be in compliance with any and all
applicable Environmental Laws, (ii) will have received all
permits, licenses or other approvals required under applicable
Environmental Laws to conduct its operations and (iii) will be
in compliance with all terms and conditions of any such
permit, license or approval except where such noncompliance
with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals
are otherwise disclosed in the Prospectus or would not, singly
or in the aggregate, have a material adverse effect on the
Company, the Partnership or any Hotel.
(iv) On the date that this Agreement is executed and also on
the First Closing Date and the Second Closing Date a letter addressed
to you, as Representatives of the Underwriters, from Coopers & Lybrand,
as independent accountants, the first one to be dated the day of this
Agreement, the second one to be dated the First Closing Date and the
third one (in the event of a Second Closing) to be dated the Second
Closing Date, in form and substance satisfactory to the
Representatives, to the effect that:
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<PAGE> 31
(1) Coopers & Lybrand is an independent certified public
accountants with respect to the Company and the Partnership
within the meaning of the Act and the Rules and Regulations;
(2) It is its opinion that the financial statements,
historical summaries and any supplementary financial
information and supporting schedule included or incorporated
by reference in the Registration Statement and the Prospectus
examined by them comply as to form in all material respects
with the applicable accounting requirements of the Act and the
Rules and Regulations;
(3) The financial statements of each of the entities and
properties included in the Prospectus for the periods
referenced therein to the extent applicable, were reviewed by
them in accordance with the standards established by the
American Institute of Certified Public Accountants and based
upon their review they are not aware of any material
modifications that should be made to such financial statements
or historical summaries for them to be in conformity with
generally accepted accounting principles and such financial
statements comply as to form in all material respects with the
applicable requirements of the Act and the Rules and
Regulations;
(4) Based upon procedures set forth in detail in such
letter, including a reading of the latest available interim
financial statements of the Company and inquiries of officials
of the Company responsible for financial and accounting
matters, nothing has come to their attention which causes them
to believe that:
(A) the unaudited financial information with respect to
the results of operations for and at the end of each of the
five years (or such lesser period, if applicable) in the
period ended December 31, 1995 and any subsequent quarters
included in the Registration Statement under the captions
"Prospectus Summary" and "Selected Financial Information" do
not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules
and Regulations or are not presented in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements included in the Registration Statement, or do not
agree
31
<PAGE> 32
with the corresponding amounts in the audited financial
statements for each of the years then ended, or that with
respect to the unaudited pro forma financial statements, such
financial statements do not comply as to form in all material
respects with the applicable accounting requirements of the
Act and the Rules and Regulations and the pro forma
adjustments have not been properly applied to the historical
amounts in the compilation of such statements, or
(B) at a specified date not more than five days prior to
the date of this Agreement, (i) there has been any change in
the assets or shareholders' equity, as compared with the
amounts shown in the __________, 1996 balance sheet of the
Company included in the Registration Statement, (ii) there has
been any increase in indebtedness or other liabilities as
compared with the amounts shown in the __________, 1996
historical or pro forma balance sheets related to the Hotels
(other than accrued interest) or during the period __________,
1996 to a specified date not more than five days prior to the
date of this Agreement, there were any decreases, as compared
with the corresponding period in the preceding year, in
combined revenues or net income of the Hotels, except in all
instances for changes, increases or decreases which the
Registration Statement and the Prospectus disclose have
occurred or may occur or (iii) there has been any decrease
since __________, 1996 in room revenues or total revenues from
the Hotels which would adversely affect the Percentage Lease
revenue of the Company or the Partnership, in each case as
compared with the corresponding period of the preceding year,
except in each case for decreases which the Prospectus
discloses have occurred or may occur or which are described in
such letter; and
(5) In addition to the examination referred to in their
opinions and the procedures referred to above, they have
carried out certain specified procedures, not constituting an
audit, in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and
financial information which are included in the Registration
Statement and Prospectus and which were specified by you, and
have found such amounts, percentages and financial information
to be in agreement with, or derived from, the relevant
accounting, financial and other
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records of the Company, the Partnership and the Present
Owners.
(v) On or before the First Closing Date, a copy of the
segmentation study of Coopers & Lybrand referred to in Section
2(cc).
(c) The Firm Common Shares and the Optional Common Shares
shall have been approved for listing on the New York Stock Exchange,
subject to official notice of issuance, and the NASD, upon review of
the terms of the public offering, shall not have objected to such
offering, such terms or the Underwriters' participation in the same.
(d) The Company shall have furnished to you such further
certificates and documents as you shall have reasonably requested.
(e) There shall have been delivered to you the Firm Common
Shares and, if any Optional Common Shares are purchased, the Optional
Common Shares in the manner required pursuant to Section 4 hereof.
All such opinions, certificates, letters and documents shall
be in compliance with the provisions hereof only if they are reasonably
satisfactory to you and to O'Melveny & Myers LLP, counsel for the Underwriters.
The Company shall furnish you with such manually signed or conformed copies of
such opinions, certificates, letters and documents as you request. Any
certificate signed by any officer of the Company and delivered to the
Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the
statements made therein.
If any condition to the Underwriters' obligations hereunder to
be satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon written notification by you as
Representatives to the Company without liability on the part of any Underwriter
or the Company, except for the expenses to be paid or reimbursed by the Company
pursuant to Sections 6 and 8 hereof and except to the extent provided in Section
10 hereof.
SECTION 8. Reimbursement of Underwriters' Expenses.
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to the last paragraph of Section 7, or if the sale to
the Underwriters of the Common Shares at the First Closing is not consummated
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or to comply with any provision hereof, the Company
agrees to reimburse you and the other Underwriters upon demand for all
out-of-pocket expenses that shall have been reasonably incurred by you and them
in connection
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<PAGE> 34
with the proposed purchase and the sale of the Common Shares, including but not
limited to fees and disbursements of counsel relating directly to the offering
contemplated by the Prospectus. Any such termination shall be without liability
of any party to any other party except that the provisions of this Section 8,
Section 6 and Section 10 shall at all times be effective and shall apply.
SECTION 9. Effectiveness of Registration Statement. You and
the Company will use your and its best efforts to cause the Registration
Statement to become effective, to prevent the issuance of any stop order
suspending the effectiveness of the Registration Statement and, if such stop
order be issued, to obtain as soon as possible the lifting thereof.
SECTION 10. Indemnification. (a) The Company and the
Partnership, jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act against any losses, claims, damages, liabilities or expenses,
joint or several, to which such Underwriter or such controlling person may
become subject, under the Act, the Exchange Act, or other federal, state or
Canadian statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the written
consent of the Company or the Partnership, as applicable), insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof
as contemplated below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in any of them not misleading, or arise out
of or are based in whole or in part on any inaccuracy in the representations and
warranties of the Company or the Partnership contained herein or any failure of
the Company or the Partnership to perform its obligations hereunder or under
law; and will reimburse each Underwriter and each such controlling person for
any legal and other expenses as such expenses are reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that neither the Company nor
the Partnership will be liable in any such case to the extent that any such
loss, claim, damage, liability or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto in reliance upon and in conformity with
the information furnished to the Company and the Partnership pursuant to Section
3 hereof; and provided further, that with respect to any untrue statement or
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<PAGE> 35
omission or alleged untrue statement or omission made in any Preliminary
Prospectus, the indemnity agreement contained in this Section 10(a) shall not
inure to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages, liabilities or expenses purchased the Common Shares
concerned (or to the benefit of any person controlling such Underwriter) to the
extent that any such loss, claim, damage, liability or expense of such
Underwriter or controlling person results from the fact that a copy of the
Prospectus was not sent or given to such person at or prior to the written
confirmation of sale of such Common Shares to such person as required by the
Act. In addition to its other obligations under this Section 10(a), the Company
and the Partnership agree that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission, or
any inaccuracy in the representations and warranties of the Company or the
Partnership herein or failure to perform its obligations hereunder, all as
described in this Section 10(a), they will reimburse each Underwriter not less
than on a quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
or the Partnership's obligation to reimburse each Underwriter for such expenses
and the possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, each Underwriter shall
promptly return it to the Company or the Partnership, as applicable, together
with interest, compounded daily, determined on the basis of the prime rate (or
other commercial lending rate for borrowers of the highest credit standing)
announced from time to time by Bank of America NT&SA, San Francisco, California
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to an Underwriter within 30 days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement will be in addition to any liability which the Company or the
Partnership may otherwise have.
(b) Each Underwriter will severally indemnify and hold
harmless the Company, each of its directors, each of its officers who signed the
Registration Statement, the Partnership and each person, if any, who controls
the Company or the Partnership within the meaning of the Act, against any
losses, claims, damages, liabilities or expenses to which the Company, or any
such director, officer, the Partnership, or controlling person may become
subject, under the Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such losses, claims, damages,
35
<PAGE> 36
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with the information furnished to the Company and the Partnership
pursuant to Section 3 hereof; and will reimburse the Company, or any such
director, officer, the Partnership or any controlling person of the Company or
the Partnership for any legal and other expense reasonably incurred by the
Company, or any such director, officer, the Partnership, any controlling person
of the Company or the Partnership in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage, liability,
expense or action. In addition to its other obligations under this Section
10(b), each Underwriter severally agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged statement
or omission, or any inaccuracy in the representations and warranties of the
Underwriters herein or the failure to perform its obligations hereunder, all as
described in this Section 10(b), that it will reimburse expenses as provided in
this Section 10(b) as incurred, but no less frequently than quarterly,
notwithstanding the absence of a judicial determination at to the propriety and
enforceability of the Underwriters' obligation to reimburse the Company, the
Partnership (and, to the extent applicable, each officer, trustee or controlling
person of the Company or the Partnership) on a quarterly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
and the possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company or the
Partnership (and, to the extent applicable, each officer, director or
controlling person of the Company or the Partnership) shall promptly return it
to the Underwriters together with interest, compounded daily, determined on the
basis of the Prime Rate. Any such interim reimbursement payments which are not
made within 30 days of a request for reimbursement, shall bear interest at the
Prime Rate from the date of such request. This indemnity agreement will be in
addition to any liability which such Underwriter may otherwise have.
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(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section, notify the indemnifying party in writing of the commencement
thereof; but the omission to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party for contribution
or otherwise than under the indemnity agreement contained in this Section or to
the extent it is not prejudiced as a proximate result of such failure. In case
any such action is brought against any indemnified party and such indemnified
party seeks or intends to seek indemnity from an indemnifying party, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with all other indemnifying parties similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be a conflict
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties; provided, however, that the indemnifying
party shall only be obligated to pay the reasonable fees and expenses of a
single law firm employed by all of the indemnified parties. Upon receipt of
notice from the indemnifying party to such indemnified party of its election so
to assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the next
preceding sentence or (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying party.
(d) If the indemnification provided for in this Section 10 is
required by its terms, but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under Sections (a),
(b) or (c) of this Section 10 in respect of any losses, claims, damages,
liabilities or expenses referred to herein, then each applicable indemnifying
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<PAGE> 38
party shall contribute to the amount paid or payable by such indemnified party
as a result of any losses, claims, damages, liabilities or expenses referred to
herein (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Partnership and the Underwriters from the
offering of the Common Shares or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company, the Partnership and the Underwriters in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company, the
Partnership and the Underwriters shall be deemed to be in the same proportion,
in the case of the Company and the Partnership as the total price paid to the
Company, for the Common Shares sold by the Company to the Underwriters (net of
underwriting commissions, but before deducting expenses), and in the case of the
Underwriters as the underwriting commissions received by them bears to the total
of such amounts paid to the Company and received by the Underwriters as
underwriting commissions. The relative fault of the Company, the Partnership and
the Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact or the inaccurate or the
alleged inaccurate representation and/or warranty relates to information
supplied by the Company, the Partnership or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section (c) of this Section 10, any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim. The provisions set forth in Section (c) of this Section 10 with
respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this Section (d); provided, however, that no
additional notice shall be required with respect to any action for which notice
has been given under Section (c) of this Section 10 for purposes of
indemnification. The Company, the Partnership and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 10 were
determined solely by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 10, no
Underwriter shall be required to contribute any amount in excess of the amount
of the total underwriting commissions received by such
38
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Underwriter in connection with the Common Shares underwritten by it and
distributed to the public. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 10 are several in proportion to their respective underwriting
commitments and not joint.
(e) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections 10(a)
or 10(b) hereof, including the amounts of any requested reimbursement payments
and the method of determining such amounts, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in Section 10(a) hereof and would
not resolve the ultimate propriety or enforceability of the obligation to
reimburse expenses which is created by the provisions of such Sections 10(a) and
10(b) hereof.
SECTION 11. Default of Underwriters. It shall be a condition
to this Agreement and the obligation of the Company to sell and deliver the
Common Shares hereunder, and of each Underwriter to purchase the Common Shares
in the manner as described herein, that, except as hereinafter in this Section
provided, each of the Underwriters shall purchase and pay for all the Common
Shares agreed to be purchased by such Underwriter hereunder upon tender to the
Representatives of all such shares in accordance with the terms hereof. If any
Underwriter or Underwriters default in its or their obligations to purchase
Common Shares hereunder on either the First or Second Closing Date and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase on such Closing Date does not exceed
10% of the total number of Common Shares which the Underwriters are obligated to
purchase on such Closing Date, the non-defaulting Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the Common Shares which such defaulting Underwriters agreed but failed
to purchase on such Closing Date. If any Underwriter or Underwriters so default
and the aggregate number of Common Shares with respect to which such default
occurs is more than 10% of the total number of Common Shares which the
Underwriters are obligated to purchase on such Closing Date and arrangements
satisfactory to the Representatives
39
<PAGE> 40
and the Company for the purchase of such Common Shares by other persons are not
made within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company or the
Partnership except for the expenses to be paid by the Company pursuant to
Section 6 hereof and except to the extent provided in Section 10 hereof.
In the event that Common Shares to which a default relates are
to be purchased by the non-defaulting Underwriters or by another party or
parties, the Representatives or the Company shall have the right to postpone the
First or Second Closing Date, as the case may be, for not more than five
business days in order that the necessary changes in the Registration Statement,
Prospectus and any other documents, as well as any other arrangements, may be
effected. As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. Nothing herein will relieve a
defaulting Underwriter from liability for its default.
SECTION 12. Effective Date. This Agreement shall become
effective immediately as to Sections 6, 8, 10, 13 and 14 and, as to all other
provisions, (i) if at the time of execution of this Agreement the Registration
Statement has not become effective, at 8:00 A.M., California time, on the first
full business day following the effectiveness of the Registration Statement, or
(ii) if at the time of execution of this Agreement the Registration Statement
has been declared effective, at 2:00 P.M., California time, on the first full
business day following the date of execution of this Agreement; but this
Agreement shall nevertheless become effective at such earlier time after the
Registration Statement becomes effective as you may determine on and by notice
to the Company or by release of any of the Common Shares for sale to the public.
For the purposes of this Section 12, the Common Shares shall be deemed to have
been so released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams (i)
advising Underwriters that the Common Shares are released for public offering or
(ii) offering the Common Shares for sale to securities dealers, whichever may
occur first.
SECTION 13. Termination. Without limiting the right to
terminate this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice
to you or by you by notice to the Company at any time prior to the time
this Agreement shall become effective as to all its provisions, and any
such termination shall be without liability on the part of the Company
to any Underwriter (except for the expenses to be paid or reimbursed by
the Company pursuant to Sections 6 and 8 (if
40
<PAGE> 41
applicable) hereof and except to the extent provided in Section 10
hereof) or of any Underwriter to the Company (except to the extent
provided in Section 10 hereof).
(b) This Agreement may also be terminated by you prior to the
First Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum
or maximum prices shall have been generally established on the New York
Stock Exchange or on the American Stock Exchange or in the over the
counter market by the NASD, or trading in securities generally shall
have been suspended on either such Exchange or in the over the counter
market by the NASD, or a general banking moratorium shall have been
established by federal, New York or California authorities; (ii) if an
outbreak of major hostilities or other national or international
calamity or any substantial change in political, financial or economic
conditions shall have occurred or shall have accelerated or escalated
to such an extent, as, in the judgment of the Representatives, to
affect adversely the marketability of the Common Shares; (iii) if any
adverse event shall have occurred or shall exist which makes untrue or
incorrect in any material respect any statement or information
contained in the Registration Statement or Prospectus or which is not
reflected in the Registration Statement or Prospectus but should be
reflected therein in order to make the statements or information
contained therein not misleading in any material respect; or (iv) if
there shall be any action, suit or proceeding pending or threatened, or
there shall have been any development involving particularly the
business or properties or securities of the Company, the Partnership or
the transactions contemplated by this Agreement, which, in the
reasonable judgment of the Representatives, may materially and
adversely affect the Company's or the Partnership's business or
earnings and makes it impracticable or inadvisable to offer or sell the
Common Shares. Any termination pursuant to this Section (b) shall be
without liability on the part of any Underwriter to the Company or on
the part of the Company to any Underwriter (except for expenses to be
paid or reimbursed by the Company pursuant to Sections 6 and 8 hereof
and except to the extent provided in Section 10 hereof).
SECTION 14. Representations and Indemnities to Survive
Delivery. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Partnership, the Company's and the
Partnership's officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter or the Company or the
Partnership or any of its or their partners,
41
<PAGE> 42
officers or trustees or any controlling person, as the case may be, and will
survive delivery of and payment for the Common Shares sold hereunder and any
termination of this Agreement.
SECTION 15. Notices. All communications hereunder shall be in
writing and, if sent to the Representatives shall be mailed, delivered,
telecopied or telegraphed and confirmed to you at 600 Montgomery Street, San
Francisco, California 94111, Telecopier: (415) 249-5513, Attention: Sam Wilkins
III with a copy to O'Melveny & Myers LLP, Embarcadero Center West 275 Battery
Street, San Francisco, California 94111, Telecopier: (415) 984-8701, Attention:
Peter T. Healy; and if sent to the Company or the Partnership shall be mailed,
delivered or telegraphed and confirmed to the Company at 115 Calle de
Industrias, Suite 201 San Clemente, California 92672, Telecopier: (714)
361-3900, Attention: Robert A. Alter with a copy to Brobeck, Phleger & Harrison
LLP, 4675 MacArthur Court, Suite 1000, Newport Beach, California 92660,
Telecopier: (714) 752- 7522, Attention: Roger M. Cohen. The Company, the
Partnership or you may change the address for receipt of communications
hereunder by giving notice to the others.
SECTION 16. Successors. This Agreement will inure to the
benefit of and be binding upon the parties hereto, including any substitute
Underwriters pursuant to Section 11 hereof, and to the benefit of the officers
and directors and controlling persons referred to in Section 10, and in each
case their respective successors, personal representatives and assigns, and no
other person will have any right or obligation hereunder. No such assignment
shall relieve any party of its obligations hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
SECTION 17. Underwriters' Representatives. You will act as
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you, as
Representatives, will be binding upon all of the Underwriters.
SECTION 18. Partial Unenforceability. The invalidity or
unenforceability of any section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other section, paragraph or
provision hereof. If any section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 19. Applicable Law. This Agreement shall be governed
by and construed in accordance with the internal laws (and not the laws
pertaining to conflicts of laws) of the State of California.
42
<PAGE> 43
SECTION 20. General. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
several counterparts, each one of which shall be an original, and all of which
shall constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders
and the singular and the plural include one another. The section headings in
this Agreement are for the convenience of the parties only and will not affect
the construction or interpretation of this Agreement. This Agreement may be
amended or modified, and the observance of any term of this Agreement may be
waived, only by a writing signed by the Company, the Partnership and you.
43
<PAGE> 44
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed copies hereof,
whereupon it will become a binding agreement among the Company, the Partnership
and the several Underwriters, including you, all in accordance with its terms.
Very truly yours,
SUNSTONE HOTEL INVESTORS, INC.
By: ____________________________
Robert A. Alter, President
SUNSTONE HOTEL INVESTORS, L.P.
By: SUNSTONE HOTEL INVESTORS, INC.
Its: General Partner
By: _________________________
Robert A. Alter,
President
The foregoing Underwriting Agreement is
hereby confirmed and accepted by us in
San Francisco, California as of the date
first above written.
MONTGOMERY SECURITIES
BEAR, STEARNS & CO. INC.
EVEREN SECURITIES, INC.
RAYMOND JAMES & ASSOCIATES, INC.
Acting as Representatives of the several
Underwriters named in the attached
Schedule A.
By: MONTGOMERY SECURITIES
_____________________
Managing Director
44
<PAGE> 45
SCHEDULE A
----------
Amount of
Securities
to be
Underwriter Purchased
- ----------- ---------
Total
==========
<PAGE> 46
SCHEDULE B
CUMULATIVE UNIT ISSUANCE CHART
FOR SUNSTONE HOTEL INVESTORS, INC.
SSI REIT UNITS
<TABLE>
<CAPTION>
1. 2. 3. 4. 5. 6. 7. 8. 9.
Common OTHER LPS TOTAL
TRANSACTION Date New Units New Shares Stock(1) GP(2) LP UNITS UNITS(3)
----------- ---- --------- ---------- ----- -- -- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Opening Balance 08/23/96 N/A N/A 10,323,500 117,823 10,205,677 1,458,800 11,792,300
Over-Allotment 09/10/96 600,000 600,000 10,923,500 123,823 10,799,677 1,458,800 12,382,300
for Secondary
Public Offering
Redemption of 10/04/96 (3,000) N/A 10,923,500 123,793 10,799,707 1,455,800 12,379,300
Units by
Steamboat Hotel
Partners, Ltd.
Issuance of Shares 10/10/96 7,500 7,500 10,931,000 123,868 10,807,132 1,455,800 12,386,800
to Directors
Issuance of Shares 10/16/96 1,250 1,250 10,932,250 123,881 10,808,369 1,455,800 12,388,050
to Laurence Geller
Acquisition of 10/29/96 706,347 N/A 10,932,250 130,944 10,801,306 2,162,147 13,094,397
Summit Hotels
DRIP Issuance 11/15/96 1,182 1,182 10,933,432 130,956 10,802,476 2,162,147 13,095,579
DRIP Issuance 12/15/96 1,525 1,525 10,934,957 130,971 10,803,986 2,162,147 13,097,104
</TABLE>
- ----------
1 Common Stock (column 5) should always equal SSI REIT Units outstanding
(column 6 + column 7).
2 Units held by Sunstone Hotel Investors, Inc. as G.P. (column 6) must
always equal 1% of the total outstanding limited partnership units
(column 9).
3 Total Units (column 9) should always equal REIT Units (columns 6 + 7)
plus Other LP Units (column 8).
<PAGE> 1
BROBECK, PHLEGER & HARRISON LLP EXHIBIT 8.1
January 8, 1997
Sunstone Hotel Investors, Inc.
115 Calle de Industrias, Suite 201
San Clemente, CA 92672
RE: SUNSTONE HOTEL INVESTORS, INC./TAX OPINION
Gentlemen:
We have acted as counsel to Sunstone Hotel Investors, Inc., a
Maryland corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission (as amended, the "Registration Statement") and the Prospectus
Supplement, with respect to the offering and sale (the "Offering") of
approximately 3,200,000 shares of the Company's common shares (the "Common
Shares"), and the Company's contribution of substantially all of the net
proceeds of the Offering to Sunstone Hotel Investors, L.P., a Delaware limited
partnership (the "Partnership"), in exchange for an additional interest in the
Partnership.
The Partnership currently owns several hotels and associated
personal property (the "Current Hotels") and leases each of the Current Hotels
to Sunstone Hotel Properties, Inc., a Colorado corporation (the "Lessee"),
pursuant to a percentage lease (the "Leases"). Sunstone Hotel Management, Inc.
(the "Management Company") is managing the Current Hotels and will continue to
do so. Robert A. Alter and Charles L. Biederman are 80% and 20% shareholders,
respectively, of the Lessee and Mr. Alter is the sole shareholder of the
Management Company. Mr. Alter is the Chairman of the Board of Directors and
President of the Company and will continue to serve as such.
Terms not defined in this letter have the meaning ascribed to
them in the Registration Statement, the Prospectus and the Prospectus
Supplement.
The Company has requested our opinion as to:
A. Whether, since the inception of its taxable year ended on
December 31, 1995, the Company has been organized and operated in conformity
with
<PAGE> 2
Sunstone Hotel Investors, Inc. January 8, 1997
Page 2
the requirements for qualification as a real estate investment trust (a "REIT")
pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended (the "Code"), and whether the Company's organization and contemplated
method of operation will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code in 1996 and subsequent
years.
B. Whether the description of law and legal conclusions
contained in the Registration Statement with respect to the Offering under the
caption "Federal Income Tax Considerations" are correct in all material
respects, and whether the discussion therein fairly summarizes the federal
income tax considerations that are material to a holder of Common Shares.
C. Whether the Partnership has been and will continue to be
treated for federal income tax purposes as a partnership and not as an
association taxable as a corporation.
In connection with the opinions rendered below, we have
examined the following:
1. The Amended Articles of Incorporation of the Company.
2. The Company's By-Laws.
3. The Registration Statement.
4. The Prospectus and the Prospectus Supplement.
5. The form of First Amended and Restated Limited Partnership
Agreement of the Partnership and each of the amendments
thereto through the date hereof.
6. The forms of Percentage Leases.
7. The cost segmentation analysis dated August 15, 1995,
the cost segmentation analysis as of December 31, 1995,
the cost segmentation analysis as of May 31, 1996, and the
cost segmentation analysis as of December 31, 1996
(collectively, the "Cost Segmentation Analyses") prepared
by Coopers & Lybrand L.L.P.
<PAGE> 3
Sunstone Hotel Investors, Inc. January 8, 1997
Page 3
8. Such other documents as we have deemed necessary or
appropriate for purposes of this opinion.
In connection with the opinions rendered below, we have
assumed generally that:
a. Each of the documents referred to above has been duly
authorized, executed, and delivered, is authentic, if an original, or accurate,
if a copy, and has not been amended.
b. Commencing with its 1995 taxable year and in all subsequent
years, the Company has been operated and will operate in such a manner that will
make the representations set forth below true for all such years.
c. The Company will not make any amendments to its
organizational documents after the date of this opinion that would affect its
qualification as a REIT for any taxable year.
d. No actions will be taken by the Company, the Partnership,
or the Partners after the date hereof that would have the effect of altering the
facts upon which the opinions set forth below are based.
e. The Cost Segmentation Analyses are accurate in all material
respects.
Furthermore, we have relied upon the correctness of the
following representations of the Company and its authorized representatives on
behalf of itself and the Partnership:
(1) The following requirements have been and will be met by
the Lessee, the Management Company and any other person who leases, manages, or
operates the hotels which the Company currently owns (the "Current Hotels") or
other hotel properties in which the Company may own an interest in the future
("Other Hotel Properties"):
(a) Such person will not own, directly or indirectly
(within the meaning of Section 856(d)(5) of the Code), more than 35% of
the shares of the Company.
<PAGE> 4
Sunstone Hotel Investors, Inc. January 8, 1997
Page 4
(b) If such person is a corporation, not more than
35% of its stock, measured by voting power or number of shares, or, if
such person is a noncorporate entity, not more than 35% of the interest
in its assets or net profits will be owned, directly or indirectly
(within the meaning of Section 856(d)(5) of the Code), by one or more
persons who own 35% or more of the shares of the Company.
(c) The Company will not derive or receive any income
from such person, other than rents from the Current Hotels or Other
Hotel Properties.
(d) Such person will be adequately compensated for
its services.
(e) If such person is an individual, he or she will
not be an officer or employee of the Company.
(f) If such person is a corporation, none of its
officers or employees will be officers or employees of the Company.
(g) If an individual serves as both (i) one of such
person's directors and (ii) a director and officer or employee of the
Company, that individual will not receive any compensation for serving
as one of such person's directors.
(h) If an individual serves as both (i) one of such
person's directors and officers (or employees) and (ii) a director of
the Company, that individual will not receive any compensation for
serving as a director of the Company.
(i) If an individual serves as a director, officer or
employee of the Company, such person will not be engaged in the
day-to-day management of the Current Hotels or Other Hotel Properties
and will confine his or her activities as a shareholder or director of
any corporate entity which leases or manages the Current Hotels or
Other Hotel Properties to such activities as are consistent with his or
her status as a shareholder and/or director (as opposed to an officer
or employee) of such entity.
(2) The Company will not furnish or render, or bear the
cost of furnishing or rendering, any services to tenants of the Current Hotels
or Other Hotel Properties, other than the payment of real and personal property
taxes, ground lease rent (where applicable), insurance (other than workers'
compensation insurance), capital
<PAGE> 5
Sunstone Hotel Investors, Inc. January 8, 1997
Page 5
improvements, and the cost of repairing, replacing or refurbishing furniture,
fixtures and equipment with respect to such hotel property (to the extent
prescribed in the Percentage Leases). The payments described in the preceding
sentence are usually or customarily borne by lessors of hotel properties in the
geographic areas in which the Current Hotels or Other Hotel Properties are
located.
(3) The following requirements will be met by the Lessee, the
Management Company and any other person who furnishes or renders services
("Noncustomary Services") to the tenants of the Current Hotels or Other Hotel
Properties, other than services that are usually or customarily rendered in
connection with the rental of space for occupancy only and are not otherwise
considered rendered to the occupant:
(a) The Lessee, the Management Company and each such
other person will satisfy the requirements described in paragraph (1)
above.
(b) The cost of the Noncustomary Services will be
borne by the Lessee, the Management Company or such other person.
(c) Any charge for such Noncustomary Services will be
made, received and retained by the Lessee, the Management Company or
such other person.
(4) The Company is not chartered or supervised as a bank,
savings and loan, or similar association under state or federal law.
(5) The Company will not operate as a small business
investment company under the Small Business Investment Act of 1958.
(6) The Company was not created by or pursuant to an act of a
state legislature for the purpose of promoting, maintaining, and assisting the
economy within the state by making loans that generally would not be made by
banks.
(7) The Company will not engage in the business of issuing
life insurance, annuity contracts, or contracts of health or accident insurance.
(8) Beginning with the Company's 1996 taxable year, beneficial
ownership of the Company has been and will be held by 100 or more persons for at
least 335 days of each taxable year. During the entire 1995 and 1996 taxable
years as well as the 1997 taxable year to date, the Company has been managed by
one or more directors and the beneficial ownership of the Company has been
represented by transferable shares.
<PAGE> 6
Sunstone Hotel Investors, Inc. January 8, 1997
Page 6
(9) At all times during the last half of each taxable year
beginning with the Company's 1996 taxable year no more than 50% in value of the
Company's outstanding shares has been or will be owned, directly or indirectly
(within the meaning of Section 544 of the Code, as modified by Section
856(h)(i)(B) of the Code), by or for five or fewer individuals. For this
purpose, a qualified stock bonus, pension, or profit-sharing plan (as described
in Section 401(a) of the Code), a supplemental unemployment compensation
benefits plan (as described in Section 501(c)(17) of the Code), a private
foundation (as described in Section 509(a) of the Code), or a portion of a trust
permanently set aside or to be used exclusively for charitable purposes (as
described in Section 642(c) of the Code) generally is considered an individual.
However, stock held by a trust described in Section 401(a) of the Code and
exempt from tax under Section 501(a) of the Code (a "Qualified Trust") generally
is treated as held directly by the Qualified Trust's beneficiaries in proportion
to their actuarial interests in the Qualified Trust.
(10) The Company was organized on September 23, 1994. The
Company has not at any time been a party to a tax-free reorganization with
another corporation and does not hold any asset the disposition of which could
be subject to Section 1374 of the Code.
(11) The Company has elected to be a REIT for its taxable year
ending December 31, 1995 by computing its taxable income as a REIT on its
federal income tax return for that taxable year (i.e., I.R.S. Form 1120-REIT).
The Company will continue to so compute and report its income in 1996 and in
subsequent years as a REIT and will not terminate or revoke its REIT election.
(12) The Company has not and will not have at the end of any
taxable year, and will not succeed to, any earnings and profits accumulated
during a non-REIT year of the Company or any other corporation.
(13) During 1995 and each subsequent taxable year, at least
95% of the Company's gross income, excluding gross income from the sale of
property held as inventory or held primarily for sale to customers in the
ordinary course of the Company's trade or business ("Prohibited Income"), has
been and will be derived from:
(a) Dividends.
(b) Interest.
(c) "Rents from real property," within the meaning
of Section 856(d) of the Code.
<PAGE> 7
Sunstone Hotel Investors, Inc. January 8, 1997
Page 7
(d) Gain from the sale or other disposition of stock,
securities, and real property (including interests in real property and
interests in mortgages on real property) that is not Prohibited Income.
(e) Abatements and refunds of taxes on real property.
(f) Income and gain derived from real property
acquired directly by foreclosure or deed in lieu thereof ("Foreclosure
Property"), not including property acquired as a result of indebtedness
arising from the sale of property held as inventory or primarily for
sale to customers in the ordinary course of the Company's business.
(g) Amounts (other than amounts based on the income
or profits of any person) received or accrued as consideration for
entering into agreements (i) to make loans secured by mortgages on real
property or on interests in real property or (ii) to purchase or lease
real property (including interests in real property and interests in
mortgages on real property).
(h) Gain from the sale or other disposition of real
estate assets that is not Prohibited Income.
(i) Payments under bona fide interest rate swap or
cap agreements entered into by the Company to hedge variable rate
indebtedness it incurred to acquire or carry real estate assets
("Qualified Hedging Contracts").
(j) Gain from the sale or other disposition of
Qualified Hedging Contracts.
(14) During 1995 and each subsequent taxable year, at least
75% of the Company's gross income (excluding Prohibited Income) has been and
will be derived from:
(a) "Rents from real property" as defined in Section
856(d) of the Code.
(b) Interest (as defined in Section 856(f) of the
Code) on obligations secured by mortgages on real property or on
interests in real property.
<PAGE> 8
Sunstone Hotel Investors, Inc. January 8, 1997
Page 8
(c) Gain from the sale or other disposition of real
property (including interests in real property and interests in
mortgages on real property) that is not Prohibited Income.
(d) Dividends or other distributions on, and gain
(other than Prohibited Income) from the sale or other disposition of,
transferable shares in other REITs.
(e) Abatements and refunds of taxes on real property.
(f) Income and gain (other than Prohibited Income)
derived from Foreclosure Property.
(g) Amounts (other than amounts based on the income
or profits of any person) received or accrued as consideration for
entering into agreements (i) to make loans secured by mortgages on real
property or on interests in real property or (ii) to purchase or lease
real property (including interests in real property and interests in
mortgages on real property).
(h) Gain from the sale or other disposition of real
estate assets that is not Prohibited Income.
(i) Income that was (i) attributable to stock or a
debt instrument (with a maturity date of at least 5 years), (ii)
attributable to the temporary investment of new capital, and (iii)
received or accrued during the one-year period beginning on the date on
which the Company received such capital.
(15) To the extent that the Partnership acquired the personal
property contained in each of the Current Hotels for cash, the initial adjusted
basis of such personal property was equal to the fair market value of such
personal property that is shown on the Cost Segmentation Analyses. To the extent
that the Partnership acquired the personal property contained in a Current Hotel
in exchange for interests in the Partnership, the initial adjusted basis of such
personal property was the same as the transferor's basis in such personal
property on the date of acquisition. With respect to each Current Hotel for 1995
and each subsequent taxable year, the ratio of (i) the average of the adjusted
bases of the personal property contained in the Current Hotel at the beginning
and at the end of such taxable year to (ii) the average of the aggregate
adjusted bases of both the real property and personal property comprising the
Current Hotel at the beginning and at the end of such taxable year (the
"Adjusted Basis Ratio")
<PAGE> 9
Sunstone Hotel Investors, Inc. January 8, 1997
Page 9
has not exceeded and will not exceed 15%. The Adjusted Basis Ratio for any Other
Hotel Properties of the Partnership also will not exceed 15% for any taxable
year.
(16) The Percentage Leases provide that rent is the greater of
a fixed amount or a percentage amount that is calculated by multiplying
specified percentages by the gross room revenues for each of the Current Hotels
in excess of certain levels (the "Percentage Rent"). The percentages used to
compute the Percentage Rent (i) have not been and will not be renegotiated
during the term of the Percentage Leases in a manner that has the effect of
basing the Percentage Rent on income or profits of any person and (ii) conform
with normal business practice. The Company and the Lessee anticipate that the
Lessee will have sufficient future revenue to enable the Lessee to satisfy all
of its liabilities (including payments under the Percentage Leases and payments
to the Management Company) and generate a reasonable profit to the Lessee.
(17) The Company has not received and will not receive or
accrue, directly or indirectly, any rent, interest, contingency fees, or other
amounts that were determined in whole or in part with reference to the income or
profits derived by any person (excluding amounts received (i) as rents from
Hotels of the Partnership (including under the Leases and any subsequent leases)
that are (A) based solely on a percentage or percentages of receipts or sales
and the percentage or percentages are fixed at the time the leases are entered
into, are not renegotiated during the term of the leases in a manner that has
the effect of basing rent on income or profits, and conform with normal business
practices or (B) attributable to qualified rents from subtenants as provided by
Section 856(d)(6) of the Code and (ii) as interest that was (A) based solely on
a fixed percentage or percentages of receipts or sales or (B) attributable to
qualified rents received or accrued by debtors as provided by Section 856(f)(2)
of the Code).
(18) The Company has not owned and will not own, directly or
indirectly (within the meaning of Section 856(d)(5) of the Code), 10% or more of
the stock, by voting power or number of shares, of the Lessee, any other lessee
of its properties, the Management Company or any other manager of its
properties. The Company will not receive or accrue, directly or indirectly, any
rents from any of the following parties:
(a) A corporation of which the Company owns, directly
or indirectly (within the meaning of Section 856(d)(5) of the Code),
10% or more of the stock, by voting power or number of shares.
(b) A noncorporate entity in which the Company owns,
directly or indirectly (within the meaning of Section 856(d)(5) of the
Code), an interest of 10% or more of the assets or net profits.
<PAGE> 10
Sunstone Hotel Investors, Inc. January 8, 1997
Page 10
(19) During each taxable year, less than 30% of the Company's
gross income has been and will be derived from the sale or other disposition of:
(a) Stock, Qualified Hedging Contracts or other
securities held for less than one year.
(b) Property in a transaction that generates
Prohibited income.
(c) Real property (including interests in real
property interests in mortgages on real property) held for less than
four years other than (i) property compulsorily or involuntarily
converted to another form as a result of its destruction (in whole or
in part), seizure, requisition, or condemnation (or the threat or
imminence thereof) and (ii) Foreclosure Property.
(20) At the close of each quarter of each taxable year
(including the taxable year commencing January 1, 1995), (i) at least 75% of the
value of the Company's total assets have and will be represented by real estate
assets, cash and cash items, and government securities (the "75% Basket") and
(ii) with respect to the Company's securities not included in the 75% Basket,
(A) not more than 5% of the value of Company's total assets have or will consist
of the securities of any one issuer (excluding corporations with respect to
which the Company has held 100% of the stock at all times during the
corporation's existence) and (B) the Company has not and will not hold more than
10% of the outstanding voting securities of any one issuer (excluding
corporations with respect to which the Company has held 100% of the stock at all
times during the corporation's existence). For purposes of this representation,
(i) the term "securities" does not include the Company's interest in the
Partnership (or any other partnership in which the Company owns an interest),
(ii) the Company's proportionate share of the assets of the Partnership (and any
other partnership in which the Company owns an interest) are treated as assets
of the Company, and (iii) the term "value" means (A) fair value as determined in
good faith by the Board of Directors of the Company or (B) in the case of
securities for which market quotations are readily available, the market value
of such securities.
(21) The Company has and will maintain sufficient records as
to its investments to be able to show that it complies with the diversification
requirements described in the preceding paragraph.
(22) For each taxable year, the deduction for dividends paid
by the Company (as defined in Section 561 of the Code, but without regard to
capital gain dividends, as defined in Section 857(b)(3)(C) of the Code) has and
will equal or exceed (i) the sum of (A) 95% of the Company's real estate
investment trust taxable income (as
<PAGE> 11
Sunstone Hotel Investors, Inc. January 8, 1997
Page 11
defined in Section 857(b)(2) of the Code, but without regard to the deduction
for dividends paid and excluding any net capital gain) and (B) 95% of the excess
of its net income from Foreclosure Property over the tax imposed on such income
by Section 857(b)(4)(A) of the Code, minus (ii) any excess noncash income (as
defined in Section 857(e) of the Code).
(23) The dividends paid by the Company have been and will be
made pro rata, with no preference to any share as compared with other shares of
the same class.
(24) Within 30 days after the end of the 1995 taxable year and
within 30 days after the end of each subsequent taxable year, the Company has
demanded and will demand written statements from its shareholders that, at any
time during the last six months of the taxable year, owned 5% or more of its
shares (or if the Company has less than 2,000 and more than 200 shareholders of
record of its shares on any dividend record date, 1% or more of its shares, or
if the Company has 200 or less shareholders of record on any dividend record
date, one-half of 1% or more of its shares) setting forth the following
information:
(a) The actual owners of the Company's stock (i.e.,
the persons who are required to include in gross income in their
returns the dividends received on the stock).
(b) The maximum number of shares of the Company
(including the number and face value of securities convertible into
shares of the Company) that were considered owned, directly or
indirectly (within the meaning of Section 544 of the Code, as modified
by Section 856 (h)(1)(B) of the Code), by each of the actual owners of
any of the Company's shares at any time during the last half of the
Company's taxable year.
(25) The Company has maintained and will maintain the written
statements described in the preceding paragraph (and other information required
by Section 1.857-8(d) of the Regulations) in its principal office, and the
statements (and such other information) will be available for inspection by the
Internal Revenue Service (the "Service").
(26) The Company has and will use the calendar year as its
taxable year.
<PAGE> 12
Sunstone Hotel Investors, Inc. January 8, 1997
Page 12
(27) The Company intends to operate in such a manner that the
representations described in paragraphs 1 through 26 will continue to be true
throughout its existence.
(28) The Partnership has been duly formed as a limited
partnership under Delaware law and has been and will be operated in accordance
with applicable Delaware law and the Partnership Agreement.
(29) The Partnership Agreement will remain in substantially
the same form as its current form and will not be amended in any material
respect (except for the amendments made prior to the date hereof or upon the
substitution of partners in accordance with the terms of the Partnership
Agreement).
(30) The Company is not acting as an agent of the Limited
Partners in connection with the investment by the Limited Partners in, and
operation of, the Partnership.
(31) The investment in the Partnership by the Limited Partners
will not entail a mandatory purchase of any type of security of, or interest in,
the Company.
(32) No Limited Partner (nor any affiliate of any Limited
Partner) has owned or will own, directly or indirectly (as defined in Section
856(d)(5) of the Code), 10% or more of the Company.
(33) The Partnership has since its formation satisfied the
private placement "safe harbor" from publicly traded partnership status under
Notice 88-75 issued by the Service (including the requirement that the
Partnership not have more than 500 partners). If the Partnership should fail to
satisfy at least one of the safe harbors set forth in Notice 88-75, or the
Regulations under Section 7704 of the Code, whichever is applicable, in any
taxable year, the Partnership will satisfy the gross income test to avoid
corporate treatment, as set forth in Section 7704(c)(2) of the Code, for such
taxable year and all taxable years thereafter.
(34) The interests in the Partnership have not been and will
not be traded on an established securities market.
(35) The Partnership has not issued and will not issue any
Units in a transaction required to be registered under the Securities Act of
1933 (the "1933 Act").
<PAGE> 13
Sunstone Hotel Investors, Inc. January 8, 1997
Page 13
After reasonable inquiry, we are not aware of any facts
inconsistent with the representations set forth in paragraphs 1 through 36
above. Furthermore, where such representations involve matters of law, we have
explained to the Company's representatives the relevant and material sections of
the Code, the Regulations thereunder, published rulings of the Service, and
other relevant authority to which such representations relate and are satisfied
that the Company's representatives understand such provisions and are capable of
making such representations.
Based on the documents, assumptions and representations set
forth above, the discussion in the Prospectus under the caption "Federal Income
Tax Considerations" (which is incorporated herein by reference) and the
discussion set forth below, we are of the opinion that:
(a) Since the inception of its taxable year ended on
December 31, 1995, the Company has been organized and operated in
conformity with the requirements for qualification as a REIT pursuant
to Sections 856 through 860 of the Code, and the Company's organization
and contemplated method of operation will enable it to continue to meet
the requirements for qualification and taxation as a REIT under the
Code in 1996 and subsequent years.
(b) The description of law and legal conclusions
contained in the Registration Statement under the caption "Federal
income Tax Considerations" are correct in all material respects, and
the discussion therein fairly summarizes the federal income tax
considerations that are material to a holder of Common Shares.
(c) The Partnership will be treated for federal
income tax purposes as a partnership and not as an association taxable
as a corporation.
We will not review the Company's compliance with the
documents, assumptions, and representations set forth above on a continuing
basis. Accordingly, we can provide no assurance that the Company's or
Partnership's operations for any given taxable year will satisfy the
requirements for qualification and taxation as a REIT or partnership,
respectively.
With regard to the opinion set forth in subparagraph (c)
above, Section 7704 of the Code generally provides that a "publicly traded
partnership" will be taxed as a corporation unless at least 90% of its gross
income in each year consists of "qualifying income" within the meaning of
Section 7704(c)(2) of the Code. Section 7704(b) defines
<PAGE> 14
Sunstone Hotel Investors, Inc. January 8, 1997
Page 14
a "publicly traded partnership" as any partnership whose interests are traded on
an established securities market or are readily tradable on a secondary market
(or the substantial equivalent thereof). The Treasury Department recently issued
Regulations providing rules governing the meaning of the term "publicly traded
partnership." Prior to the issuance of those Regulations, the Service issued a
notice providing limited safe harbors from the definition of a "publicly traded
partnership." I.R.S. Notice 88-75, 1988-2 C.B. 386.
Pursuant to one of the safe harbors provided in Notice 88-75
(a "private placement" safe harbor), interests in a partnership will not be
treated as readily tradable on a secondary market or the substantial equivalent
thereof if (i) all of the partnership interests are issued in transactions that
are not required to be registered under the 1933 Act and (ii) the partnership
does not have more than 500 partners (as calculated in the manner specified in
Notice 88-75). Since the General Partner has represented that (i) the
Partnership has not and will not offer any Units in a transaction required to be
registered under the 1933 Act, (ii) the Partnership does not currently have more
than 500 Partners, and (iii) the interests in the Partnership are not traded on
an established securities market, we are of the opinion that the Partnership is
not a publicly traded partnership at present.
The Regulations under Section 7704 provide that Notice 88-75
will continue to apply to the Partnership through the year 2005 unless the
Partnership enters into a "substantial new line of business" prior to that date.
Commencing in the year 2006 (or in such earlier taxable year in which the
Partnership enters a substantial new line of business), the Partnership would be
required to have less than 100 partners in order to fall under the private
placement safe harbor. There is no assurance that the Partnership will continue
to satisfy either the 500-partner safe harbor provided in Notice 88-75 or that
the Partnership will satisfy the 100-partner safe harbor provided in the
Regulations. However, the Partnership has represented that, if in any taxable
year the Partnership falls outside of an applicable safe harbor from publicly
traded partnership status, it will satisfy the gross income test set forth in
Section 7704(c)(2) of the Code in that taxable year and each subsequent taxable
year. (Among other things, this will require that Mr. Alter (or any other
substantial shareholder of the Lessee) own less than a 5% interest in the
Partnership in the particular taxable year. Mr. Alter currently owns less than a
5% interest in the Partnership.)
Our opinion as to the classification of the Partnership is
based on an assumption that the Partnership will either (i) continue to fall
within a safe harbor from publicly traded partnership status, or (ii) if the
Partnership is ever treated as a publicly traded partnership, it will satisfy
the qualifying income test of Section 7704(c)(2) of the
<PAGE> 15
Sunstone Hotel Investors, Inc. January 8, 1997
Page 15
Code in the taxable year in which such treatment commences and all years
thereafter. If future events prove to be inconsistent with our assumptions, our
opinion would be altered. Because the continuing treatment of the Partnership as
a partnership is based on subsequent events, we can provide no absolute
assurance that the Partnership will not be treated as a corporation at some time
in the future.
# # #
The foregoing opinions are based on current provisions of the
Code and the Regulations, published administrative interpretations thereof, and
published court decisions. The Service has not issued Regulations or
administrative interpretations with respect to various provisions of the Code
relating to REIT qualification. No assurance can be given that the law will not
change in a way that will prevent the Company from qualifying as a REIT, or the
Partnership from being classified as a partnership for federal income tax
purposes.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement. We also consent to the references to Brobeck,
Phleger & Harrison LLP under the captions "Federal Income Tax Considerations"
and "Legal Matters" in the Registration Statement.
The foregoing opinions are limited to the federal income tax
matters addressed herein, and no other opinions are rendered with respect to
other federal tax matters or to any issues arising under the tax laws of any
state or locality. We undertake no obligation to update the opinions expressed
herein after the date of this letter. This opinion letter is solely for the
information and use of the addressee and the purchasers of the Common Shares in
the Offering, and may not be relied upon for any purpose by any other person
without our express written consent.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
