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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): October 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)
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This Current Report is being filed for the sole purpose of incorporating
the exhibits filed herewith by reference into the Registration Statements on
Form S-3 (File No. 333-34377 and File No. 333-16887) of Sunstone Hotel
Investors, Inc. These exhibits include the U.S. Underwriting Agreement (Exhibits
1.1 and 1.4 to the Registration Statements, respectively), the International
Underwriting Agreement (Exhibits 1.2 and 1.5 to the Registration Statements,
respectively) and the Opinion of Brobeck, Phleger & Harrison LLP as to tax
matters (Exhibits 8.1 and 8.4 to the Registration Statements, respectively).
These exhibits are deemed incorporated into the Registration Statements as of
the date hereof.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits
1.1/1.4 U.S. Underwriting Agreement (File No. 333-34377/File
No. 333-16887)
1.2/1.5 International Underwriting Agreement (File No.
333-34377/File No. 333-16887)
8.1/8.4 Opinion of Brobeck, Phleger & Harrison LLP as to tax
matters (File No. 333-34377/File No. 333-16887)
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: October 9, 1997 By: /s/ KENNETH J. BIEHL,
Chief Financial Officer
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Kenneth J. Biehl,
Chief Financial Officer
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EXHIBIT 1.1/1.4
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SUNSTONE HOTEL INVESTORS, INC.
(a Maryland corporation)
7,200,000 Shares of Common Stock
U.S. PURCHASE AGREEMENT
Dated: October 8, 1997
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SUNSTONE HOTEL INVESTORS, INC.
(a Maryland corporation)
7,200,000 Shares of Common Stock
(Par Value $.01 Per Share)
U.S. PURCHASE AGREEMENT
October 8, 1997
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY SECURITIES, INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
EVEREN SECURITIES, INC.
RAYMOND JAMES & ASSOCIATES, INC.
as Representatives of several Underwriters
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, NY 10281-1209
Ladies and Gentlemen:
Sunstone Hotel Investors, Inc., a Maryland corporation (the
"Company") and Sunstone Hotel Investors, L.P., a Delaware limited partnership
(the "Partnership", which term shall also include, as applicable, each
subsidiary partnership or limited liability company which is a subsidiary of
the Partnership), confirm their respective agreements with Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Bear, Stearns & Co.
Inc., NationsBanc Montgomery Securities, Inc., Credit Suisse First Boston
Corporation, EVEREN Securities, Inc., Raymond James & Associates, Inc. and each
of the other Underwriters named in Schedule A hereto (collectively, the "U.S.
Underwriters", which term shall also include any underwriter substituted as
hereinafter provided in Section 10 hereof), for whom Merrill Lynch, Bear,
Stearns & Co. Inc., NationsBanc Montgomery Securities, Inc., Credit Suisse
First Boston Corporation, EVEREN Securities, Inc. and Raymond James &
Associates, Inc. are acting as representatives (in such capacity, the "U. S.
Representatives"), with respect to the issue and sale by the Company and the
purchase by the U.S. Underwriters, acting severally and not jointly, of the
respective numbers of shares of Common Stock, par value $.01 per share, of the
Company ("Common
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Stock") set forth in said Schedule A, and with respect to the grant by the
Company to the U.S. Underwriters, acting severally and not jointly, of the
option described in Section 2(b) hereof to purchase all or any part of
1,080,000 additional shares of Common Stock to cover over-allotments, if any.
The aforesaid 7,200,000 shares of Common Stock (the "Initial U.S. Securities")
to be purchased by the U.S. Underwriters and all or any part of the 1,080,000
shares of Common Stock subject to the option described in Section 2(b) hereof
(the "U.S. Option Securities") are hereinafter called, collectively, the "U.S.
Securities."
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "International Purchase Agreement")
providing for the offering by the Company of an aggregate of 1,800,000 shares
of Common Stock (the "Initial International Securities") through arrangements
with certain underwriters outside the United States and Canada (the
"International Managers") for which Merrill Lynch International, Bear, Stearns
International Limited, NationsBanc Montgomery Securities, Inc., Credit Suisse
First Boston, EVEREN Securities, Inc. and Raymond James & Associates, Inc. are
acting as lead managers (the "Lead Managers") and the grant by the Company to
the International Managers, acting severally and not jointly, of an option to
purchase all or any part of the International Managers' pro rata portion of up
to 270,000 additional shares of Common Stock solely to cover over-allotments,
if any (the "International Option Securities" and, together with the U.S.
Option Securities, the "Option Securities"). The Initial International
Securities and the International Option Securities are hereinafter called the
"International Securities." It is understood that the Company is not obligated
to sell and the U.S. Underwriters are not obligated to purchase, any Initial
U.S. Securities unless all of the Initial International Securities are
contemporaneously purchased by the International Managers.
The U.S. Underwriters and the International Managers are
hereinafter collectively called the "Underwriters," the Initial U.S. Securities
and the Initial International Securities are hereinafter collectively called
the "Initial Securities," and the U.S. Securities and the International
Securities are hereinafter collectively called the "Securities."
The Underwriters will concurrently enter into an
Intersyndicate Agreement of even date herewith (the "Intersyndicate Agreement")
providing for the coordination of certain transactions among the Underwriters
under the direction of Merrill Lynch, Pierce, Fenner & Smith Incorporated (in
such capacity, the "Global Coordinator").
The Company understands that the U.S. Underwriters propose to
make a public offering of the U.S. Securities as soon as the U.S.
Representatives deem advisable after this Agreement has been executed and
delivered.
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The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 dated
November 16, 1996 (No. 333-16887) and a registration statement on Form S-3
dated August 26, 1997 (No. 333-34377) covering the registration of the
Securities under the Securities Act of 1933, as amended (the "1933 Act"), and
the offering thereof from time to time in accordance with Rule 415 of the rules
and regulations of the Commission under the 1933 Act (the "1933 Act
Regulations"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will
either (i) prepare and file a prospectus in accordance with the provisions of
Rule 430A ("Rule 430A") of the 1933 Act Regulations and paragraph (b) of Rule
424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has
elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare
and file a term sheet (a "Term Sheet") in accordance with the provisions of
Rule 434 and Rule 424(b). Two forms of prospectus are to be used in connection
with the offering and sale of the Securities: one relating to the International
Securities (the "Form of International Prospectus") and one relating to the
U.S. Securities (the "Form of U.S. Prospectus"). The Form of International
Prospectus is identical to the Form of U.S. Prospectus except for the front
cover, the back cover and the information under the caption "Underwriting".
The information included in any such prospectus or in any such Term Sheet, as
the case may be, that was omitted from such registration statements at the time
they became effective but that is deemed to be part of such registration
statements at the time they became effective (a) pursuant to paragraph (b) of
Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to
paragraph (d) of Rule 434 is referred to as "Rule 434 Information." Each Form
of International Prospectus and Form of U.S. Prospectus used before such
registration statements became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was
used after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." The registration
statements described above, including the exhibits thereto, schedules thereto,
if any, and the documents incorporated by reference therein pursuant to Item 12
of Form S-3 under the 1933 Act, at the time each of them became effective and
including the Rule 430A Information and the Rule 434 Information, as
applicable, are herein collectively called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act
Regulations is herein referred to as the "Rule 462(b) Registration Statement,"
and after such filing the term "Registration Statement" shall include the Rule
462(b) Registration Statement. The final Form of International Prospectus and
the final Form of U.S. Prospectus, including the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, in the
forms first furnished to the Underwriters for use in connection with the
offering of the Securities are herein called the "International Prospectus" and
the "U.S. Prospectus," respectively, and collectively, the "Prospectuses." If
Rule 434 is relied on, the terms "International Prospectus" and "U.S.
Prospectus" shall refer to the preliminary International Prospectus dated
September 22, 1997, and preliminary U.S. Prospectus dated September 22, 1997,
respectively, each together with the applicable Term Sheet and all references
in this Agreement to the date of such Prospectuses shall mean the date of the
applicable Term Sheet. For purposes of this Agreement, all references to the
Registration Statement, any preliminary prospectus, the International
Prospectus, the U.S. Prospectus or any Term Sheet or any amendment or
supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
All references in this Agreement to financial statements and
schedules and other information which is "contained," "included" or "stated" in
the Registration Statement, any preliminary prospectus (including the Form of
U.S. Prospectus and Form of International Prospectus) or the Prospectuses (or
other references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus
(including the Form of U.S. Prospectus and Form of International Prospectus) or
the Prospectuses, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectuses shall be deemed to mean and include the filing
of any of any document under the Securities Exchange Act of 1934 (the "1934
Act") which is incorporated by reference in the Registration Statement, such
preliminary prospectus or the Prospectuses, as the case may be.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company and the
Partnership. The Company and the Partnership, jointly and severally, represent
and warrant to each U.S. Underwriter as of the date hereof, as of the Closing
Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if
any) referred to in Section 2(b) hereof, and agrees with each U.S. Underwriter,
as follows:
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(i) Compliance and Registration Requirements.
The Company meets the requirements for use of Form S-3 under the 1933 Act.
Each of the Registration Statement and any Rule 462(b) Registration Statement
has become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of the
Commission for additional information has been complied with. At the
respective times the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendments thereto became effective and at the
Closing Time (and, if any U.S. Option Securities are purchased, at the Date of
Delivery referred to below), the Registration Statement, the Rule 462(b)
Registration Statement and any amendments and supplements thereto complied and
will comply in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations and did not and will not contain an 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. On the
date hereof and at the Closing Time (and, if any U.S. Option Securities are
purchased, at such Date of Delivery) neither the Prospectuses nor any
amendments or supplements thereto contained or will contain an untrue statement
of a material fact or omitted or will omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. If Rule 434 is used, the Company
will comply with the requirements of Rule 434. The representations and
warranties in this subsection shall not apply to statements in or omissions
from the Registration Statement or U.S. Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement or Prospectuses.
Each preliminary prospectus and the Prospectuses filed as part
of the Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectuses delivered to the Underwriters for
use in connection with this offering was substantially identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(ii) Incorporated Documents. The documents
incorporated or deemed to be incorporated by reference in the Registration
Statement and the Prospectuses, at the time they were or hereafter are filed
with the Commission, complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the Commission
thereunder (the "1934 Act Regulations"), and, when read together with the other
information in the Prospectuses, at the date of the Prospectuses and at the
Closing Time, (and, if any U.S. Option Securities are purchased, at the Date of
Delivery) will not contain an 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, in the light of the circumstances under which they were
made, not misleading.
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(iii) Independent Accountants. The accountants
who certified the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required by the
1933 Act and the 1933 Act Regulations.
(iv) Financial Statements. The financial
statements included, or incorporated by reference in the Registration Statement
and the Prospectuses, together with the related schedules and notes, present
fairly the financial position of the Company and its consolidated subsidiaries
and of the Lessee and of Kahler Realty Corporation and its consolidated
subsidiaries at the dates indicated and the statements of operations, changes
in stockholders' equity and cash flows of the Company and its consolidated
subsidiaries and of the Lessee and of Kahler Realty Corporation and its
consolidated subsidiaries for the periods specified; said financial statements
have been prepared in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved. The
supporting schedules, if any, included in the Registration Statement present
fairly in accordance with GAAP the information required to be stated therein.
The financial and operating information included in the Prospectuses present
fairly the information shown therein and have been compiled on a basis
consistent with that of the last audited financial statements included or
incorporated by reference in the Registration Statement. The pro forma
financial statements and the related notes thereto included in the Registration
Statement and the Prospectuses present fairly the information shown therein,
have been prepared in accordance with the Commission's rules and guidelines
with respect to pro forma financial statements and have been properly compiled
on the bases described therein, and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate to give
effect to the transactions and circumstances referred to therein.
(v) No Material Adverse Change in Business.
Since the respective dates as of which information is given in the Registration
Statement and the Prospectuses, except as otherwise stated therein, (A) there
has been no material adverse change in the condition, financial or otherwise,
or in the earnings, business affairs or business prospects of the Company or
the Partnership, considered as a whole, or the Lessee, whether or not arising
in the ordinary course of business (a "Material Adverse Effect"), (B) there
have been no transactions entered into by the Company, other than those in the
ordinary course of business, which are material with respect to the Company,
and (C) there has been no dividend or distribution of any kind declared, paid
or made by the Company on any class of its capital stock.
(vi) Good Standing of the Company, the Lessee
and the Manager. Each of the Company, Sunstone Hotel Properties, Inc. (the
"Lessee") and Sunstone Hotel Management, Inc. (the "Manager") has been duly
organized and is validly existing as a corporation in good standing under the
laws of the state of incorporation and has corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Prospectuses. The Company has the corporate power and authority to
enter into and perform its obligations under this Agreement. Each of the
Company, the Lessee and the Manager is duly qualified as a foreign corporation
to transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure to so
qualify or to be in good standing would not result in a Material Adverse
Effect. 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.
(vii) Good Standing of the Partnership. 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 Prospectuses. The
Company is the sole general partner of 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 Prospectuses, each of the Company, the
Partnership, the Lessee and each property to be owned by the Partnership as of
the Closing Time 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 necessary to the conduct of its
business, all of which are valid and in full force and effect, except where the
failure to be in such possession or compliance will not have a Material Adverse
Effect. Each of the Company, the Partnership, the Manager 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, limited liability company 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,
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.
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(viii) Good Standing of the Kahler Subsidiaries.
Each entity that is to become a subsidiary of the Company (the "Kahler
Entities") in accordance with the terms of the Kahler Transaction (as herein
defined) is duly organized, validly existing and in good standing under the
laws of its state of incorporation and qualified to do business in the state
where any material asset of such entity is located, except where the failure to
so qualify would not have a Material Adverse Effect.
(ix) Qualification as a REIT. The Company is
organized in accordance with the requirements for qualification as a real
estate investment trust under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code") and the rules and
regulations thereunder. The contemplated method of operation of the Company's
business as described in the Registration Statement will allow the Company to
satisfy the operational requirements for qualification as a real estate
investment trust under Sections 856 through 860 of the Internal Revenue Code,
and the rules and regulations thereunder. Less than 15% of the aggregate
adjusted tax bases of both the personal property and the real property (the
"Total Bases") to be leased pursuant to any lease to the Lessee (a "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; in each succeeding year the Personal
Property Bases in connection with each Percentage Lease will not exceed 15% 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; and the Company has received a
segmentation study from its independent accountants stating that based on its
projections, during the first five years of the term of each Percentage Lease
less than 15% 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. Except as described in the
Prospectuses, 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 Internal Revenue Code and
the Partnership is not, nor will it be, treated as a separate corporation under
the provisions of the Internal Revenue Code. The Partnership is treated for
federal income tax purposes as a partnership and not as an association taxable
as a corporation.
(x) Capitalization. The authorized, issued
and outstanding capital stock of the Company is as set forth in the
Prospectuses in the column entitled "Actual" under the caption "Capitalization"
(except for subsequent issuances, if any, pursuant to this Agreement, pursuant
to reservations, agreements or employee benefit plans referred to in the
Prospectuses or pursuant to the exercise of options referred to in the
Prospectuses) and except for warrants to acquire Partnership Units (the
"Warrants"). The shares of issued and outstanding capital stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; none of the outstanding shares of capital stock of the Company
was issued in violation of any preemptive or other similar rights of any
security holder of the Company.
(xi) Authorization of Agreement. This
Agreement and the International Purchase Agreement have been duly authorized,
executed and delivered by the Company and the Partnership.
(xii) Authorization and Description of
Securities. The Securities to be purchased by the International Managers and
the U.S. Underwriters from the Company have been duly authorized for issuance
and sale to the International Managers pursuant to this Agreement and the
International Managers pursuant to the International Purchase Agreement,
respectively, and, when issued and delivered by the Company pursuant to this
Agreement and the International Purchase Agreement, respectively, against
payment of the consideration set forth herein and the International Purchase
Agreement, respectively, will be validly issued and fully paid and
non-assessable; the Common Stock conforms to all statements relating thereto
contained in the Prospectuses and such description conforms to the rights set
forth in the instruments defining the same, no holder of the Securities will be
subject to personal liability by reason of being such a holder; and the
issuance of the Securities is not subject to the preemptive or other similar
rights of any securityholder of the Company. As of the Closing Time, the
Securities will have been approved for listing on the New York Stock Exchange,
subject only to official notice of issuance.
(xiii) Absence of Defaults and Conflicts. The
Company is not in violation of its charter or by-laws or in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or other agreement or instrument to which the Company is
a party or by which it may be bound, or to which any of the property or assets
of the Company is subject (collectively, for purposes of this paragraph
"Agreements and Instruments") except for such defaults that would not result in
a Material Adverse Effect; and the execution, delivery and performance of this
Agreement and the International Purchase Agreement and the consummation of the
transactions contemplated in this Agreement, the International Purchase
Agreement and in the Registration Statement (including the issuance and sale of
the Securities and the use of the proceeds from the sale of the Securities as
described in the Prospectuses under the caption "Use of Proceeds") and
compliance by the Company with its obligations
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under this Agreement have been duly authorized by all necessary corporate
action and do not and will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a breach of, or default or
Repayment Event (as defined below) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that would
not result in a Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by-laws of the Company or any
applicable law, statute, rule, regulation, judgment, order, writ or decree of
any government, government instrumentality or court, domestic or foreign having
jurisdiction over the Company or any of its assets, properties or operations.
As used in this Agreement, a "Repayment Event" means any event or condition
which gives the holder of any note, debenture or other evidence of indebtedness
(or any person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such indebtedness by
the Company.
(xiv) Absence of Labor Dispute. To the
Company's knowledge, no general labor problem exists or is imminent with the
employees of any of the Hotels, the Company, the Manager or the Lessee.
(xv) Absence of Proceedings. There is no
action, suit, proceeding, inquiry or investigation before or brought by any
court or governmental agency or body, domestic or foreign now pending, or, to
the knowledge of the Company, threatened, against or affecting the Company,
which is required to be disclosed in the Registration Statement (other than as
disclosed therein), or which might reasonably be expected to result in a
Material Adverse Effect, or the consummation of the transactions contemplated
in this Agreement and the International Purchase Agreement or the performance
by the Company of its obligations hereunder or thereunder; the aggregate of all
pending legal or governmental proceedings to which the Company is a party or of
which any of its property or assets is the subject which are not described in
the Registration Statement, including ordinary routine litigation incidental to
the business and litigation affecting assets to be acquired in the Kahler
Transaction, are not reasonably expected to result in a Material Adverse
Effect.
(xvi) Accuracy of Exhibits. There are no
contracts or documents which are required to be described in the Registration
Statement or the Prospectuses or to be filed as exhibits thereto which have not
been so described and filed as required other than a copy of this Agreement,
the International Purchase Agreement and the tax opinion to be rendered in
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connection with this offering, all of which will be filed on Form 8-K on or
before October 10, 1997.
(xvii) Possession of Intellectual Property. The
Company owns or possesses, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks,
trade names or other intellectual property (collectively, "Intellectual
Property") necessary to carry on its business as contemplated in the
Prospectuses, and the Company has not received any notice and is not otherwise
aware of any infringement of or conflict with asserted rights of others with
respect to any Intellectual Property or of any facts or circumstances which
would render any Intellectual Property invalid or inadequate to protect the
interest of the Company therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in a Material Adverse
Effect.
(xviii) Absence of Further Requirements. No
filing with or authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency is
necessary or required for the performance by the Company of its obligations
under this Agreement, in connection with the offering, issuance or sale of the
Securities under this Agreement and the International Purchase Agreement or the
consummation of the transactions contemplated by this Agreement and the
International Purchase Agreement, except such as have been already obtained or
as may be required under the 1933 Act or the 1933 Act Regulations and foreign
or state securities or blue sky laws and the listing of the Securities with the
New York Stock Exchange.
(xix) Possession of Licenses and Permits. Each
of the Company, the Partnership, the Lessee, the Manager and the Kahler
Entities possesses such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct its business as contemplated in the Prospectuses; each of
the Company, the Partnership, the Lessee, the Manager and, to the Company's
knowledge, the Kahler Entities is in compliance with the terms and conditions
of all such Governmental Licenses, except where the failure to so comply would
not, singly or in the aggregate, have a Material Adverse Effect; and the
Company has not received any notice of proceedings relating to the revocation
or modification of any such Governmental Licenses which, singly or in the
aggregate, if the subject of an unfavorable decision, rating or finding, would
result in a Material Adverse Effect.
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(xx) Investment Company Act. The Company is
not, and upon the issuance and sale of the Securities as herein contemplated
and the application of the net proceeds from the sale of the Securities
substantially as described in the Prospectuses will not be, an "investment
company" or an entity "controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
(xxi) Accounting Controls. The Company
maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (A) transactions are executed in accordance with
management's general or specific authorization and (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain accountability for assets.
(xxii) Registration Rights. There are no persons
with registration rights or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise registered by
the Company under the 1933 Act, except as set forth in the amended and restated
partnership agreement of the Partnership, a true and current copy of which has
been delivered to the U.S. Underwriters and except those registration rights to
be granted in connection with the Kahler Transaction.
(xxiii) Good and Marketable Title. The
Partnership has (or will have upon consummation of the Kahler transaction
described in the Prospectuses (the "Kahler Transaction")) good and marketable
title to the Hotels (as defined in the Prospectuses), 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 Prospectuses) or
(ii) 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 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 agreements to be held by the Lessee) as are necessary to
operate the Properties as now operated or as proposed to be operated.
(xxiv) No Defaults. 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; (ii) all such material leases or licenses are
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assignable without consent or approval or if such consent or approval is
required the applicable consent or approval has been obtained to assign any
such lease or license, to the Partnership or the Lessee, as applicable except
where the failure to obtain such consents would not have a Material Adverse
Effect; (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; 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 reasonably be expected to have a Material Adverse Effect.
(xxv) No Material Change. Since June 30, 1997
and except as described in or specifically contemplated by the Prospectuses:
(i) none of the Company, the Partnership, the Manager 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, the Manager or the Lessee; (ii) none of the Company, the
Partnership, the Manager 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 and none
of the Company, the Partnership, the Manager 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 Stock 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, the Manager 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, the Manager or the Lessee.
(xxvi) No Violation of Law. Neither the Company
nor the Partnership has been advised, or has reason to believe, that the
Company, the Partnership, the Manager 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 have a Material
Adverse Effect.
(xxvii) Tax Returns. The Company, the
Partnership, the Manager 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 business, operations or properties of, the
Company, the Partnership, the Manager or the Lessee, as the case may be.
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(xxviii) Distribution of Offering Materials.
Neither the Company nor the Partnership has distributed or will distribute
prior to the Closing Time any offering material in connection with the offering
and sale of the Common Stock other than the Prospectuses, the Registration
Statement and the other materials permitted by the Act (including press
releases permitted by the Act).
(xxix) Unlawful Contributions. None of the
Company, the Partnership, the Manager 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.
(xxx) Price Manipulation. 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 Stock to facilitate
the sale or resale of the Common Stock.
(xxxi) Maintenance of Insurance. The Company,
the Partnership, the Manager 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 and the Manager, 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, the Manager 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.
(xxxii) Title Insurance. Title insurance in favor
of the Partnership is (or will be upon consummation of the Kahler Transaction)
in force with respect to each of the Hotels.
(xxxiii) Mortgages. 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.
(xxxiv) Compliance With Environmental Laws. Each
of the Company, the Partnership, the Manager 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 Prospectuses or would not,
singly or in the aggregate, have a Material Adverse Effect. 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 Laws.
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(xxxv) Environmental Laws. 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, the Manager 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 Laws,
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 Adverse Effect or 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.
(b) Officers' Certificates. Any certificate signed by any
officer of the Company, the Partnership or any of their respective subsidiaries
and delivered to the U.S. Representatives or to counsel for the U.S.
Underwriters shall be deemed a representation and warranty by the Company and
the Partnership to each U.S. Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing.
(a) Initial U. S. Securities. On the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to each U.S.
Underwriter, severally and not jointly, and each U.S. Underwriter, severally
and not jointly, agrees to purchase from the Company, at the price per share
set forth in Schedule B, the number of Initial U.S. Securities set forth in
Schedule A opposite the name of such U.S. Underwriter, plus any additional
number of Initial U.S. Securities which such U.S. Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the U.S.
Underwriters, severally and not jointly, to purchase up to an additional
1,080,000 shares of Common Stock at the price per share set forth in Schedule
B, less an amount per share equal to any dividends or distributions declared by
the Company and payable on the Initial U.S. Securities but not payable on the
U.S. Option Securities. The option hereby granted will expire 30 days after the
date hereof and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with
the offering and distribution of the Initial U.S. Securities upon notice by
Merrill Lynch to the Company setting forth the number of U.S. Option Securities
as to which the several Underwriters are then exercising the option and the
time and date of payment and delivery for such U.S. Option Securities. Any such
time and date of delivery (a "Date of Delivery") shall be determined by Merrill
Lynch, but shall not be later than seven full business days after the exercise
of said option, nor in any event prior to the Closing Time, as hereinafter
defined. If the option is exercised as to all or any portion of the U.S.
Option Securities, each of the Underwriters, acting severally and not jointly,
will purchase that proportion of the total number of U.S. Option Securities
then being purchased which the number of Initial U.S. Securities set forth in
Schedule A opposite the name of such U.S. Underwriter bears to the total number
of Initial U.S. Securities, subject in each case to such adjustments as the
Global Coordinator in its discretion shall make to eliminate any sales or
purchases of fractional shares.
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(c) Payment. Transfer of the Initial U.S. Securities to be
purchased by the U.S. Underwriters and payment therefor shall be made at 10:00
A.M. (Eastern time) at such place and in the manner set forth below on the
third (or, if the Initial U.S. Securities 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 Securities 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 "Closing
Time"); provided, however, that if the Prospectuses are at any time prior to
the Closing Time recirculated to the public, the Closing Time 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 Securities are released by you for
sale to the public or the date that is 48 hours after the date that the
Prospectuses have been so recirculated.
Transfer of the Initial U.S. Securities shall be made by or on
behalf of the Company to you, through the FAST system of The Depository Trust
Company, for the respective accounts of the U.S. Underwriters, in New York, New
York, against payment by you, for the accounts of the several U.S.
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 Prospectuses.
Time shall be of the essence, and delivery in the manner specified in this
Agreement is a further condition to the obligations of the U.S. Underwriters.
In addition, in the event that any or all of the Option
Securities are purchased by the U.S. Underwriters, payment of the purchase
price for, and delivery of such U.S. Option Securities shall be made in the
above-mentioned manner, or at such over place as shall be agreed upon by the
Global Coordinator and the Company, on each Date of Delivery as specified in
the notice from the Global Coordinator to the Company.
It is understood that each Underwriter has authorized the U.S.
Representatives, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Initial U. S. Securities and the U.S.
Option Securities, if any, which it has agreed to purchase. Merrill Lynch,
individually and not as representative of the U.S. Underwriters, may (but shall
not be obligated to) make payment of the purchase price for the Initial U. S.
Securities or the U.S. Option Securities, if any, to be purchased by any U.S.
Underwriter whose funds have not been received by the Closing Time or the
relevant Date of Delivery, as the case may be, but such payment shall not
relieve such U.S. Underwriter from its obligations hereunder. Payment of such
purchase price shall be made into an escrow account providing for the closing
of the Kahler Transaction on terms and conditions satisfactory to the Company
and the U.S. Underwriters.
(d) Denominations; Registration. At your option,
certificates for the Initial U. S. Securities and the U.S. Option Securities,
if any, shall be in such denominations and registered in such names as the U.S.
Representatives may request in writing at least one full business day before
the Closing Time or the relevant Date of Delivery, as the case may be. The
certificates for the Initial U. S. Securities and the U.S. Option Securities,
if any, will be made available for examination and packaging by the U.S.
Representatives in the City of New York not later than 10:00 A.M. (Eastern
Time) on the business day prior to the Closing Time or the relevant Date of
Delivery, as the case may be.
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SECTION 3. Covenants of the Company and the Partnership.
The Company and the Partnership covenant with each U.S.
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify the U.S.
Representatives immediately, and confirm the notice in writing, (i) when any
post-effective amendment to the Registration Statement, shall become effective,
or any supplement to the Prospectuses or any amended Prospectuses shall have
been filed, (ii) of the receipt of any comments from the Commission, (iii) of
any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectuses or for additional
information, and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any order
preventing suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings for any of
such purposes. The Company will promptly effect the filings necessary pursuant
to Rule 424(b) and will take such steps as it deems necessary to ascertain
promptly whether the form of prospectus transmitted for filing under Rule
424(b) was received for filing by the Commission and, in the event that it was
not, it will promptly file such prospectus. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the U.S.
Representatives notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term Sheet
or any amendment, supplement or revision to either the prospectus included in
the Registration Statement at the time it became effective or to the U.S.
Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise, will
furnish the U.S. Representatives with a reasonable number of copies of any such
documents a reasonable amount of time prior to such proposed filing or use, as
the case may be, and, unless required to do so by law, will not file or use any
such document to which the U.S. Representatives or counsel for the U.S.
Underwriters shall reasonably object.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the U.S. Representatives and counsel for the U.S.
Underwriters, without charge, signed copies of the Registration Statement as
originally filed and of each amendment thereto (including exhibits filed
therewith) and signed copies of all consents and certificates of experts, and
will also deliver to the U.S. Representatives, without charge, a conformed copy
of the Registration Statement as originally filed and of each amendment thereto
(without exhibits) for each of the U.S. Underwriters. The copies of the
Registration Statement and each amendment thereto furnished to the U.S.
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to
each U.S. Underwriter, without charge, as many copies of each preliminary
prospectus as such U.S. Underwriter reasonably requested, and the Company
hereby consents to the use of such copies for purposes permitted by the 1933
Act. The Company will furnish to each U.S. Underwriter, without charge, during
the period when the U.S. Prospectus is required to be delivered under the 1933
Act or the 1934 Act, such number of copies of the U.S. Prospectus (as amended
or supplemented) as such U.S. Underwriter may reasonably request. The U.S.
Prospectus and any amendments or supplements thereto furnished to the U.S.
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) Continued Compliance with Securities Laws. The
Company will comply with the 1933 Act and the 1933 Act Regulations and the 1934
Act and the 1934 Act Regulations so as to permit the completion of the
distribution of the Securities as contemplated in this Agreement, in the
International Purchase Agreement and in the Prospectuses. If at any time when a
prospectus is required by the 1933 Act to be delivered in connection with sales
of the Securities, any event shall occur or condition shall exist as a result
of which it is necessary, in the opinion of counsel for the U.S. Underwriters
or for the Company, to amend the Registration Statement or amend or supplement
the Prospectuses in order that the Prospectuses will not include any untrue
statements of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the opinion of such counsel, at any such time to amend
the Registration Statement or amend or supplement the Prospectuses in order to
comply with the requirements of the 1933 Act or the 1933 Act Regulations, the
Company will promptly prepare and file with the Commission, subject to Section
3(b), such amendment or supplement as may be necessary to correct such
statement or omission or to make the Registration Statement or the Prospectuses
comply with such requirements, and the Company will furnish to the U.S.
Underwriters such number of copies of such amendment or supplement as the U.S.
Underwriters may reasonably request.
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(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the U.S. Underwriters, to qualify the Securities
for offering and sale under the applicable securities laws of such states and
other jurisdictions (domestic or foreign) as the Global Coordinator may
designate and to maintain such qualifications in effect for a period of not
less than one year from the later of the effective date of the Registration
Statement and any Rule 462(b) Registration Statement; provided, however, that
the Company shall not be obligated to file any general consent to service of
process or to qualify as a foreign corporation or as a dealer in securities in
any jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is not
otherwise so subject. In each jurisdiction in which the Securities have been so
qualified, the Company will file such statements and reports as may be required
by the laws of such jurisdiction to continue such qualification in effect for a
period of not less than one year from the effective date of the Registration
Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally available
to its securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last paragraph of
Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities substantially in the manner
specified in the Prospectuses under "Use of Proceeds." Pending use of the
proceeds, the net proceeds shall remain in escrow as provided in Section 2(c).
(i) Restriction on Sale of Securities. During a period of
90 days from the date of the Prospectuses, the Company will not, without the
prior written consent of Merrill Lynch, (A) directly or indirectly, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any share of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
file any registration statement under the 1933 Act with respect to any of the
foregoing or (B) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction described in clause (A) or (B) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Securities to be sold under this Agreement
or under the International Purchase Agreement, (B) any shares of Common Stock
issued by the Company upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof and referred to in the
Prospectuses, (C) any shares of Common Stock issued or options to purchase
Common Stock granted pursuant to existing employee benefit plans of the Company
referred to in the Prospectuses, (D) any shares of Common Stock issued pursuant
to any non-employee director stock plan or dividend reinvestment plan, (E) the
filing of a registration statement for the benefit of any limited partner who
elects to redeem his Units for Common Stock and the sale by any such limited
partner of such shares of registered Common Stock, (F) any shares of Common
Stock issued by the Company pursuant to the existing Stock Purchase and
Dividend Reinvestment Plan, (G) any Units issued by the Partnership in
connection with any purchase of any hotel or other asset, or (H) any shares of
Common Stock or preferred stock issued in connection with any purchase of any
hotel or other assets, including any merger or other business combinations.
(j) Reporting Requirements. The Company, during the
period when the Prospectuses are required to be delivered under the 1933 Act or
the 1934 Act, will file all documents required to be filed with the Commission
pursuant to the 1934 Act within the time periods required by the 1934 Act and
the 1934 Act Regulations.
(k) REIT Requirements. The Company will continue to meet
the requirements to qualify as a REIT under the Internal Revenue Code, unless
the Company's Board of Directors determines to revoke the Company's REIT
election because of circumstances or changes in the Internal Revenue Code (or
the Treasury regulations).
(l) Lock-Up Agreements with Respect to the Kahler
Transaction. The Company will not amend the terms and conditions of the
transfer restrictions imposed on the shares being issued in connection with the
Kahler Transaction as provided in Section 4.10 of the Stock Purchase Agreement.
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(m) Earnings and Profits. The Company will apply for a
private letter ruling from the United States Internal Revenue Service (the
"Letter Ruling") regarding the determination of earnings and profits acquired
by the Company as a result of the Kahler Transaction. If the Letter Ruling
(or, in lieu thereof, a tax opinion acceptable to the Company and the U.S.
Representatives) is not received on or before December 31, 1997, the Company
will, on or before such date, make an extraordinary distribution to its
shareholders sufficient to eliminate such acquired earnings and profits.
(n) Reliance. The Company will obtain from each entity
delivering a certificate or legal opinion in connection with the Kahler
Transaction a reliance letter addressed to the U.S. Underwriters specifically
providing that such certificates and legal opinions may be relied upon by the
U.S. Underwriters in connection with the consummation of the purchase of the
U.S. Securities.
(o) German Tax Representative. At the request of Merrill
Lynch, the Company shall engage German counsel recommended by the Global
Coordinator to act as the German tax representative for the Company. The
Company will use reasonable efforts to finalize such appointment by December
31, 1997, and to maintain such appointment thereafter for the benefit of German
securityholders.
SECTION 4. Payment of Expenses.
(a) Expenses. The Company will pay all expenses incident
to the performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the U.S. Underwriters
of this Agreement, any Agreement among Underwriters and such other documents as
may be required in connection with the offering, purchase, sale, issuance or
delivery of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the U.S. Underwriters, including any stock
or other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters and the transfer of
the Securities between the U.S. Underwriters and the International Managers,
(iv) the fees and disbursements of the Company's counsel, accountants and other
advisors, (v) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(f) hereof, including filing fees
and the reasonable fees and disbursements of counsel for the U.S. Underwriters
in connection therewith and in connection with the preparation of the Blue Sky
Survey and any supplement thereto, (vi) the printing and delivery
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to the Underwriters of copies of each preliminary prospectus, any Term Sheets
and of the Prospectuses and any amendments or supplements thereto, (vii) the
preparation, printing and delivery to the Underwriters of copies of the Blue
Sky Survey and any supplement thereto, (viii) the fees and expenses of any
transfer agent or registrar for the Securities, (ix) the filing fees incident
to, and the reasonable fees and disbursements of counsel to the U.S.
Underwriters in connection with, the review by the National Association of
Securities Dealers, Inc. ("NASD") of the terms of the sale of the Securities
(other than counsel fees incurred relating to compensation issues), and (x) the
fees and expenses incurred in connection with the listing of the Securities on
the New York Stock Exchange.
(b) Termination of Agreement. If this Agreement is
terminated by the U.S. Representatives in accordance with the provisions of
Section 5 (other than Section 5(g)) or Section 9(a)(i) hereof, the Company or
the Partnership shall reimburse the Underwriters for all of their out-of-pocket
expenses, including the reasonable fees and disbursements of counsel for the
U.S. Underwriters.
SECTION 5. Conditions of U.S. Underwriters' Obligations.
The obligations of the several U.S. Underwriters under this
Agreement are subject to the accuracy in all material respects of the
representations and warranties of the Company and the Partnership contained in
Section 1 hereof or in certificates of any officer of the Company, the
Partnership, the Lessee or the Manager delivered pursuant to the provisions
hereof, to the performance by each of the Company and the Partnership, of its
respective covenants and other obligations under this Agreement, and to the
following further conditions;
(a) Effectiveness of Registration Statement. The
Registration Statement, including any Rule 462(b) Registration Statement, has
become effective and at Closing Time no stop order suspending the effectiveness
of the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of counsel to the U.S.
Underwriters. A prospectus containing the Rule 430A Information shall have
been filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A) or, if the
Company has elected to rely upon Rule 434, a Term Sheet shall have been filed
with the Commission in accordance with Rule 424(b).
(b) Opinion of Counsel for the Company, the Partnership
and the Lessee. At Closing Time, the U.S.
17
<PAGE> 19
Representatives shall have received the favorable opinion, dated as of Closing
Time, of counsel for the Partnership and the Lessee, Brobeck Phleger & Harrison
LLP, or as to matters of Maryland law, from Ballard Spahr Andrews & Ingersoll,
opining as to the matters set forth in Exhibit A and to such further effect as
counsel to the U.S. Underwriters may reasonably request, together with signed
or reproduced copies of such letter for each of the other U.S. Underwriters.
(c) Opinion of Counsel for U.S. Underwriters. At Closing
Time, the U.S. Representatives shall have received the favorable opinion, dated
as of Closing Time, of O'Melveny & Myers LLP, counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letter for each
of the other U.S. Underwriters, in form satisfactory to the Underwriters. In
giving such opinion O'Melveny & Myers LLP may rely, as to all matters governed
by the laws of jurisdictions other than the law of the State of California and
the federal law of the United States and the General Corporation Law of the
State of Delaware, upon the opinions of counsel satisfactory to the U.S.
Representatives. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper,
upon certificates of officers of the Company, the Lessee, the Partnership and
the Manager and certificates of public officials.
(d) Officers' Certificate of the Company. At Closing
Time, there shall not have been, since the date hereof or since the respective
dates as of which information is given in the Prospectuses, any material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company, whether or not arising
in the ordinary course of business, and the U.S. Representatives and their
counsel shall have received a certificate of the President or a Vice President
of the Company and of the chief financial or chief accounting officer of the
Company, dated as of Closing Time, to the effect that (i) there has been no
such material adverse change, (ii) the representations and warranties in
Section 1(a) hereof are true and correct in all material respects with the same
force and effect as though expressly made at and as of Closing Time, (iii) the
Company has complied in all material respects with all agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to Closing
Time, and (iv) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or are contemplated by the Commission.
(e) Accountants' Comfort Letter. At the time of the
execution of this Agreement, the U.S. Representatives shall have received from
Ernst & Young LLP, Coopers & Lybrand L.L.P., Arthur Andersen LLP and KPMG Peat
Marwick LLP a letter dated such date, in form and substance satisfactory to the
U.S. Representatives,
18
<PAGE> 20
together with signed or reproduced copies of such letter for each of the other
U.S. Underwriters containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectuses.
(f) Bring-down Comfort Letter. At Closing Time, the U.S.
Representatives shall have received from Ernst & Young LLP, Coopers & Lybrand
L.L.P., Arthur Andersen LLP and KPMG Peat Marwick LLP a letter or letters ,
dated as of Closing Time, to the effect that they reaffirm the statements made
in the letter furnished pursuant to subsection (e) of this Section, except that
the specified date referred to shall be a date not more than three business
days prior to Closing Time.
(g) No Objection. The NASD has confirmed that it has not
raised any objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(h) Lock-up Agreements. At the date of this Agreement the
U.S. Representatives shall have received an agreement substantially in the form
of Exhibit B hereto signed by the persons listed on Schedule C hereto.
(i) Purchase of Initial International Securities.
Contemporaneously with the purchase by the U.S. Underwriters of the Initial
U.S. Securities under this Agreement, the International Managers shall have
purchased the Initial International Securities under the International Purchase
Agreement.
(j) Conditions to Purchase of Option Securities. In the
event that the U.S. Underwriters exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the Option Securities, the
representations and warranties of the Company and the Partnership contained
herein and the statements in any certificates finished by the Company, the
Partnership, the Lessee or the Manager under this Agreement shall be true and
correct as of each Date of Delivery and, at the relevant Date of Delivery, the
U.S. Representatives shall have received:
(i) Officers' Certificate. A certificate,
dated such Date of Delivery, of the President or a Vice President of
the Company and of the chief financial or chief accounting officer of
the Company confirming that the certificate delivered at the Closing
Time pursuant to Section 5(d) hereof remains true and correct in all
material respects as of such Date of Delivery.
(ii) Opinion of Counsel for the Partnership and
the Lessee. The favorable opinion of Brobeck, Phleger & Harrison LLP,
and Ballard Spahr Andrews & Ingersoll, as
19
<PAGE> 21
applicable, counsel for the Company, the Partnership and the Lessee, in
form and substance satisfactory to counsel for the U.S. Underwriters,
dated such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same effect as
the opinion required by Section 5(b) hereof.
(iii) Opinion of Counsel for U.S. Underwriters.
The favorable opinion of O'Melveny & Myers LLP, counsel for the U.S.
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to
the same effect as the opinion required by Section 5(c) hereof.
(iv) Bring-down Comfort Letter. A letter from
Ernst & Young LLP, Coopers & Lybrand L.L.P., and Arthur Andersen LLP
and KPMG Peat Marwick LLP, in form and substance satisfactory to the
U.S. Representatives and dated such Date of Delivery, substantially in
the same form and substance as the letter furnished to the U.S.
Representatives pursuant to Section 5(f) hereof, except that the
"specified date" in the letter furnished pursuant to this paragraph
shall be a date not more than five days prior to such Date of Delivery.
(k) Additional Documents. At Closing Time and at each
Date of Delivery, counsel for the U.S. Underwriters shall have been furnished
with such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as herein
contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company, the Partnership and
the Lessee in connection with the issuance and sale of the Securities as herein
contemplated shall be satisfactory in form and substance to the U.S.
Representatives and counsel for the U.S. Underwriters.
(l) All Necessary Consents. All of the consents necessary
or required to be obtained in connection with the consummation of the Kahler
Transaction shall have been obtained, including, without limitation, each of
the consents set forth in Schedule 3.1(h) and Schedule 7.3(a) of the Stock
Purchase Agreement, except where the failure to obtain such consents will not
have a Material Adverse Effect. No consents are required pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
(m) Conditions to Consummation of Stock Purchase
Agreement. Each of the conditions set forth in Section 5.1 and 5.2 of the
Stock Purchase Agreement shall have been satisfied in all material respects
20
<PAGE> 22
or waived.
(n) Increase in Line of Credit. The Company shall have
entered into an amendment with its existing lenders (led by Bank One of
Arizona, NA, as the agent bank) to increase its unsecured revolving line of
credit facility to $200 million.
(o) Termination of Agreement. If any condition specified
in this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the purchase of
Option Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several U.S. Underwriters to purchase the relevant Option
Securities, may be terminated by the U.S. Representatives by notice to the
Company at any time at or prior to Closing Time or such Date of Delivery, as
the case may be, and such termination shall be without liability of any party
to any other party except as provided in Section 4 and except that Sections l,
6, 7 and 8 shall survive any such termination and remain in full force and
effect.
SECTION 6. Indemnification.
(a) Indemnification of U.S. Underwriters. The Company and
the Partnership, jointly and severally, agree to indemnify and hold harmless
each U.S. Underwriter and each person, if any, who controls any U.S.
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability,
claim, damage and expense whatsoever, as incurred, arising out of any
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment thereto),
including the Rule 430A Information and the Rule 434 Information, if
applicable, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact included in any preliminary
prospectus or the Prospectuses (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability,
claim, damage and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim
21
<PAGE> 23
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, provided that (subject to
Section 6(d) below) any such settlement is effected with the written
consent of the Company; and
(iii) against any and all expense whatsoever, as
incurred (including the fees and disbursements of counsel chosen by
Merrill Lynch), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto).
(b) Indemnification of the Company, the Partnership and
their Respective Directors and Officers. Each U.S. Underwriter severally
agrees to indemnify and hold harmless the Company, the Partnership and their
respective directors, each of the Company's officers who signed the
Registration Statement, and each person, if any, who controls the Company or
the Partnership within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectuses
(or any amendment or supplement thereto) in reliance upon and in conformity
with written information furnished to the Company by such U.S. Underwriter
through Merrill Lynch expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the Prospectuses (or any
amendment or supplement thereto).
(c) Actions against Parties; Notification. Each
indemnified party shall give notice as promptly as reasonably practicable to
each indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability hereunder to
the extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. In the case of parties indemnified
pursuant to Section 6(a) above, counsel to the indemnified parties shall be
selected by Merrill Lynch, and, in the case of parties indemnified pursuant to
Section 6(b) above, counsel to the indemnified parties shall be selected by the
Company. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the indemnifying parties be
liable for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent
of the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified
parties are actual or potential parties thereto), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such litigation, investigation,
proceeding or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.
22
<PAGE> 24
(d) Settlement without Consent if Failure to Reimburse. If
at any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered and (iii) such indemnifying party shall not have
reimbursed such indemnified party in accordance with such request prior to the
date of such settlement.
SECTION 7. Contribution.
If the indemnification provided for in Section 6 hereof is for
any reason unavailable to or insufficient to hold harmless an indemnified party
in respect of any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate amount
of such losses, liabilities, claims, damages and expenses incurred by such
indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Partnership on
the one hand and the U.S. Underwriters on the other hand from the offering of
the Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) 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 and the Partnership on the one
hand and of the U.S. Underwriters on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the
Partnership on the one hand and the U.S. Underwriters on the other hand in
connection with the offering of the U.S. Securities pursuant to this Agreement
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the U.S. Securities pursuant to this Agreement
(before deducting expenses) received by the Company and the total underwriting
discount received by the U.S. Underwriters, in each case as set forth on the
cover of the U.S. Prospectus, or, if Rule 434 is used, the corresponding
location on the Term Sheet, bear to the aggregate initial public offering price
of the Securities as set forth on such cover.
The relative fault of the Company and the Partnership, on the
one hand, and the U.S. Underwriters on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company, or the
Partnership, on the one hand, or by the U.S. Underwriters on the other hand and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company, the Partnership and the U.S. Underwriters agree
that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation (even if the U.S. 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 above in this Section 7. The aggregate amount of losses, liabilities,
claims, damages and expenses incurred by an indemnified party and referred to
above in this Section 7 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in investigating, preparing or
defending against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue or alleged untrue statement or omission or alleged
omission.
23
<PAGE> 25
Notwithstanding the provisions of this Section 7, no U.S.
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
any such untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who
controls a U.S. Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, the Partnership, and each
officer of the Company who signed the Registration Statement, and each person,
if any, who controls the Company or the Partnership within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company and the Partnership respectively. The
U.S. Underwriters respective obligations to contribute pursuant to this Section
7 are several in proportion to the number of Initial U.S. Securities set forth
opposite their respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery.
All representations, warranties and agreements contained in
this Agreement or in certificates of officers of the Company or the Partnership
submitted pursuant to this Agreement, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Company or the
Partnership, and shall survive delivery of the U.S. Securities to the U.S.
Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The U.S. Representatives may
terminate this Agreement, by notice to the Company, at any time at or prior to
Closing Time (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in the
Prospectuses, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company, whether or not arising in the ordinary course of business, or any such
adverse change with respect to the Partnership, the Manager, or the Lessee
which is material in the context of the transactions contemplated by this
Agreement, or (ii) if there has occurred any material adverse change in the
financial markets in the United States or the international financial markets,
any outbreak of hostilities or escalation thereof or other calamity or crisis
or any change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the U.S.
Representatives, impracticable to market the Securities or to enforce contracts
for the sale of the Securities, or (iii) if trading in any securities of the
Company has been suspended or materially limited by the Commission or the New
York Stock Exchange, or if trading generally on the American Stock Exchange or
the New York Stock Exchange or in the Nasdaq National Market has been suspended
or materially limited, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices have been required, by any of said
exchanges or by such system or by order of the Commission, the NASD or any
other governmental authority, or (iv) if a banking moratorium has been declared
by either Federal or New York authorities.
24
<PAGE> 26
(b) Liabilities. If this Agreement is terminated pursuant
to this Section 9, such termination shall be without liability of any party to
any other party except as provided in Section 4 hereof, and provided further
that Sections 1, 6, 7 and 8 shall survive such termination and remain in full
force and effect.
SECTION 10. Default by One or More of the U.S. Underwriters.
If one or more of the U.S. Underwriters shall fail at Closing
Time or a Date of Delivery to purchase the U.S. Securities which it or they
are obligated to purchase under this Agreement (the "Defaulted Securities"),
the U.S. Representatives shall have the right, within 24 hours thereafter, to
make arrangements for one or more of the non-defaulting U.S. Underwriters, or
any other underwriters, to purchase all, but not less than all, of the
Defaulted Securities in such amounts as may be agreed upon and upon the terms
herein set forth; if, however, the U.S. Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed
10% of the number of U.S. Securities to be purchased on such date, each of the
non-defaulting U.S. Underwriters shall be obligated, severally and not jointly,
to purchase the full amount thereof in the proportions that their respective
underwriting obligations under this Agreement bear to the underwriting
obligations of all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of
the number of U.S. Securities to be purchased on such date, this Agreement or,
with respect to any Date of Delivery which occurs after the Closing Time, the
obligation of the U.S. Underwriters to purchase and of the Company to sell the
Option Securities to be purchased and sold on such Date of Delivery shall
terminate without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section 10 shall relieve any
defaulting U.S. Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after the Closing Time, which does not result in a termination of the
obligation of the U.S. Underwriters to purchase and the Company to sell the
relevant U.S. Option Securities, as the case may be, either the U.S.
Representatives or the Company shall have the right to postpone Closing Time or
the relevant Date of Delivery, as the case may be, for a period not exceeding
seven days in order to effect any required changes in the Registration
Statement or Prospectuses or in any other documents or arrangements. As used
herein, the term "U.S. Underwriter" includes any person substituted for a U.S.
Underwriter under this Section 10.
SECTION 11. Notices.
All notices and other communications under this Agreement
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the U.S. Representatives at North Tower,
World Financial Center, 250 Vesey Street, New York, New York 10281-1201,
Attention: Corporate and Institutional Client Group, and at 101 California
Street, Suite 1420, San Francisco, California 94111, with a copy to O'Melveny &
Myers LLP, 275 Battery Street, 26th Floor, San Francisco, California 94111,
Attention: Peter T. Healy, Esq.; and notices to the Company shall be directed
to it at 115 Calle de Industrias, Suite 201, San Clemente, California 92672,
Attention: Mr. Robert A. Alter, with a copy to Brobeck, Phleger & Harrison LLP,
4675 MacArthur Court, Suite 1000, Newport Beach, California 92660, Attention:
Laura B. Hunter, Esq.
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<PAGE> 27
SECTION 12. Parties.
This Agreement shall inure to the benefit of and be binding
upon the U.S. Underwriters, the Company, the Partnership and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the U.S.
Underwriters, the Company and the Partnership and their respective successors
and the controlling persons and officers and directors referred to in Sections
6 and 7 and their heirs and legal representatives, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
herein contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the U.S. Underwriters, the
Company and the Partnership and their respective successors, and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation.
No purchaser of Securities from any Underwriter shall be deemed to be a
successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES OF DAY
REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
[signature page follows]
26
<PAGE> 28
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the U.S. Underwriters, the Company and the Partnership, in
accordance with its terms.
Very truly yours,
SUNSTONE HOTEL INVESTORS, INC.
By: /s/ Robert A. Alter
-----------------------------------------
Robert A. Alter, President
SUNSTONE HOTEL INVESTORS, L.P.
By: SUNSTONE HOTEL INVESTORS, INC.
-----------------------------------------
Its: General Partner
By: /s/ Robert A. Alter
-----------------------------------------
Robert A. Alter, President
S-1
<PAGE> 29
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY SECURITIES, INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
EVEREN SECURITIES, INC.
RAYMOND JAMES & ASSOCIATES, INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By /s/ Brian Maier
Brian Maier
Authorized Signatory
For themselves and as U.S. Representatives of the other U.S. Underwriters named
in Schedule A hereto.
S-2
<PAGE> 30
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
Name of Underwriter Securities
------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated 925,000
Bear, Stearns & Co. Inc. 925,000
NationsBanc Montgomery Securities, Inc. 925,000
Credit Suisse First Boston Corporation 925,000
EVEREN Securities, Inc. 925,000
Raymond James & Associates, Inc. 925,000
BT Alex. Brown Incorporated 100,000
Donaldson, Lufkin & Jenrette Securities Corporation 100,000
Lazard Freres & Co. LLC 100,000
Legg Mason Wood Walker, Incorporated 100,000
Lehman Brothers Inc. 100,000
Morgan Stanley & Co., Incorporated 100,000
PaineWebber Incorporated 100,000
Prudential Securities Incorporated 100,000
Schroder & Co. Inc. 100,000
Smith Barney Inc. 100,000
J.C. Bradford & Co. 50,000
Crowell, Weedon & Co. 50,000
Davenport & Company LLC 50,000
Furman Selz LLC 50,000
Janney Montgomery Scott Inc. 50,000
Morgan Keegan & Company, Inc. 50,000
Ragen MacKenzie Incorporated 50,000
The Robinson-Humphrey Company, Inc. 50,000
Sands Brothers & Co., Ltd. 50,000
The Seidler Companies Incorporated 50,000
Southwest Securities, Inc. 50,000
Sutro & Co. Incorporated 50,000
Wedbush Morgan Securities 50,000
-----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,200,000
===========
Schedule A-1
</TABLE>
<PAGE> 31
SCHEDULE B
SUNSTONE HOTEL INVESTORS, INC.
7,200,000 Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $17.250.
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $16.345, being an amount equal to the
initial public offering price set forth above less $.905 per share.
Schedule B-1
<PAGE> 32
SCHEDULE C
Persons Subject to Lock-Up Agreements
Robert A. Alter
Charles L. Biederman
Schedule C-1
<PAGE> 33
Exhibit A
FORM OF OPINION OF COUNSEL TO BE DELIVERED PURSUANT
TO SECTION 5(B)
(i) 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, 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.
(ii) Each of the Lessee and Manager 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.
(iii) 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 Prospectuses.
The Company is the sole general partner of 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.
(iv) 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 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
Stock issued pursuant to an underwritten public offering.
<PAGE> 34
(v) The Company has given proper authorization to ChaseMellon
Shareholder Service, L.L.C. (the "Transfer Agent") to issue the Initial U.S.
Securities to you at the Closing Time 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 Stock Initial U.S. Securities in accordance
with the provisions of the U.S. Purchase Agreement, and the electronic transfer
to you of the Initial by the Transfer Agent, the Initial U.S. Securities 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.
(vi) Except as disclosed in or specifically contemplated by the
Prospectuses, the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 or the Company's Proxy Statement prepared in connection with
its 1997 annual shareholders' meeting, to such counsel's knowledge, there are
no outstanding options, 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.
(vii) (a) To such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or
preventing the use of the Prospectuses 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
Prospectuses 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
Prospectuses 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; and
(c) 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 Prospectuses which are not described as required.
(viii) The Company has the corporate power and authority to enter
into this Agreement, to sell and deliver the Common Stock to be sold by it to
the several U.S. 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 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
Stock by the U.S. Underwriters and the clearance of such offering with the
NASD.
<PAGE> 35
(ix) The execution and delivery of the U.S. Purchase Agreement and
the issuance of the Common Stock 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;
(x) Such counsel has not received written notice that the
Company, the Partnership or 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 5(d) of this Agreement,
known to such counsel and which is required to be filed as 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.
(xi) 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.
(xii) 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
Stock to the U.S. Underwriters hereunder.
(xiii) Neither the Company nor the Partnership is or will be an
"investment company" within the meaning of the 1940 Act.
(xiv) 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.
<PAGE> 36
(xv) The Common Stock have been duly authorized for listing by the
New York Stock Exchange upon official notice of issuance.
(xvi) An opinion on the REIT status of the Company and the
treatment of the Partnership as a partnership for federal income tax purposes
in form and substance satisfactory to Underwriter's counsel.
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 U.S. 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 Prospectuses, 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).
<PAGE> 37
Exhibit B
[FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS PURSUANT TO
SECTION 5(H)]
____, 1997
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY SECURITIES, INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
EVEREN SECURITIES, INC.
RAYMOND JAMES & ASSOCIATES, INC.
as U.S. Representatives of the several
U.S. Underwriters to be named in the
within-mentioned U.S. Purchase Agreement
c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Sunstone Hotel Investors, Inc.
Ladies and Gentlemen:
The undersigned, a stockholder of Sunstone Hotel Investors,
Inc., a Maryland corporation (the "Company"), understands that Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Bear, Stearns & Co.
Inc., NationsBanc Montgomery Securities, Inc., Credit Suisse First Boston
Corporation, EVEREN Securities, Inc., and Raymond James & Associates propose to
enter into a Purchase Agreement (the "Purchase Agreement") with the Company
providing for the public offering of shares (the "Securities") of the Company's
common stock, par value $.01 per share (the "Common Stock"). In recognition of
the benefit that such an offering will confer upon the undersigned as a
stockholder of the Company, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the undersigned
agrees with each underwriter to be named in the Purchase Agreement that, during
a period of 90 days from the date of the Purchase Agreement, the undersigned
will not, without the prior written consent of Merrill Lynch, directly or
indirectly, (i) offer, pledge, sell,
B-1
<PAGE> 38
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant for the sale of, or
otherwise dispose of or transfer any shares of the Company's Common Stock or
any securities convertible into or exchangeable or exercisable for Common
Stock, whether now owned or hereafter acquired by the undersigned or with
respect to which the undersigned has or hereafter acquires the power of
disposition, or file any registration statement under the Securities Act of
1933, as amended, with respect to any of the foregoing or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction is to be settled by delivery
of Common Stock or other securities, in cash or otherwise. Notwithstanding the
foregoing, the undersigned shall be allowed to effect the (A) conversion of
Partnership Units (as defined in the U.S. Purchase Agreement) owned by the
undersigned for shares of Common Stock, (B) the exercise of warrants to
purchase Partnership Units, (C) the exercise of any stock option or warrant to
purchase securities of the Company, and (D) the enrollment in, and purchase of
any shares of Common Stock issued pursuant to, any stock plan or dividend
reinvestment plan of the Company, including, without limitation, the existing
Stock Purchase and Dividend Reinvestment Plan.
Very truly yours,
Signature:
------------------------
Print Name:
------------------------
<PAGE> 1
EXHIBIT 1.2/1.5
SUNSTONE HOTEL INVESTORS, INC.
(a Maryland corporation)
1,800,000 Shares of Common Stock
INTERNATIONAL PURCHASE AGREEMENT
Dated: October 8, 1997
<PAGE> 2
SUNSTONE HOTEL INVESTORS, INC.
(a Maryland corporation)
1,800,000 Shares of Common Stock
(Par Value $.01 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
Dated: October 8, 1997
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
NATIONSBANC MONTGOMERY SECURITIES, INC.
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
EVEREN SECURITIES, INC.
RAYMOND JAMES & ASSOCIATES, INC.
as Lead Manager of the Several International Managers
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London ECZY 9LY
England
Ladies and Gentlemen:
Sunstone Hotel Investors, Inc., a Maryland corporation (the
"Company") and Sunstone Hotel Investors, L.P., a Delaware limited partnership
(the "Partnership", which term shall also include, as applicable, each
subsidiary partnership or limited liability company which is a subsidiary of
the Partnership), confirm their respective agreements with Merrill Lynch
International ("Merrill Lynch"), Bear, Stearns International Limited,
Nationsbanc Montgomery Securities, Inc., Credit Suisse First Boston (Europe)
Limited, EVEREN Securities, Inc., Raymond James & Associates, Inc. and each of
the other international underwriters named in Schedule A hereto (collectively,
the "International Managers", which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for whom Merrill
Lynch, Bear, Stearns International Limited, Nationsbanc Montgomery Securities,
Inc., Credit Suisse First Boston (Europe) Limited, EVEREN Securities, Inc. and
Raymond James & Associates, Inc. are acting as representatives (in such
capacity, the "Lead Managers"), with respect to the issue and sale by the
Company and the purchase by the International Managers acting severally and not
jointly, of the respective numbers of shares of Common Stock, par value $.01
per share, of the Company ("Common Stock") set forth in said Schedule A, and
with respect to the grant by the Company to the
1
<PAGE> 3
International Managers, acting severally and not jointly, of the option
described in Section 2(b) hereof to purchase all or any part of 270,000
additional shares of Common Stock to cover over-allotments, if any. The
aforesaid 1,800,000 shares of Common Stock (the "Initial International
Securities") to be purchased by the U.S. Underwriters and all or any part of
the 270,000 shares of Common Stock subject to the option described in Section
2(b) hereof (the "International Option Securities") are hereinafter called,
collectively, the "International Securities".
It is understood that the Company is concurrently entering
into an agreement dated the date hereof (the "U.S. Purchase Agreement")
providing for the offering by the Company of an aggregate of 7,200,000 shares
of Common Stock (the "Initial U.S. Securities") through arrangements with
certain underwriters in the United States and Canada (the "U.S. Underwriters")
for which Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns &
Co. Inc., NationsBanc Montgomery Securities, Inc., Credit Suisse First Boston
(Europe) Limited, EVEREN Securities, Inc. and Raymond James & Associates, Inc.
are acting as representatives (the "U.S. Representatives") and the grant by
the Company to the U.S. Underwriters, acting severally and not jointly, of an
option to purchase all or any part of the U.S. Underwriters' pro rata portion
of up to 1,080,000 additional shares of Common Stock solely to cover over
allotments, if any (the "U.S. Option Securities" and, together with the
International Option Securities, the "Option Securities"). The Initial U.S.
Securities and the U.S. Option Securities are hereinafter called the "U.S.
Securities". It is understood that the Company is not obligated to sell and the
International Managers are not obligated to purchase, any Initial International
Securities unless all of the Initial U.S. Securities are contemporaneously
purchased by the U.S. Underwriters.
The International Managers and the U.S. Underwriters are
hereinafter collectively called the "Underwriters", the Initial International
Securities and the Initial U.S. Securities are hereinafter collectively called
the "Initial Securities", and the International Securities, and the U.S.
Securities are hereinafter collectively called the "Securities".
The Underwriters will concurrently enter into an
Intersyndicate Agreement of even date herewith (the "Intersyndicate Agreement")
providing for the coordination of certain transactions among the Underwriters
under the direction of Merrill Lynch Co. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated (in such capacity, the "Global Coordinator").
The Company understands that the International Managers
propose to make a public offering of the International Securities as soon as
the Lead Managers deem advisable after this Agreement has been executed and
delivered.
2
<PAGE> 4
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 dated
November 16, 1996 (No. 333-16887) and a registration statement on Form S-3
dated August 26, 1997 (No. 333-34377) covering the registration of the
Securities under the Securities Act of 1933, as amended (the "1933 Act"), and
the offering thereof from time to time in accordance with Rule 415 of the rules
and regulations of the Commission under the 1933 Act (the "1933 Act
Regulations"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will
either (i) prepare and file a prospectus in accordance with the provisions of
Rule 430A ("Rule 430A") of the 1933 Act Regulations and paragraph (b) of Rule
424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has
elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare
and file a term sheet (a "Term Sheet") in accordance with the provisions of
Rule 434 and Rule 424(b). Two forms of prospectus are to be used in connection
with the offering and sale of the Securities: one relating to the International
Securities (the "Form of International Prospectus") and one relating to the
U.S. Securities (the "Form of U.S. Prospectus"). The Form of International
Prospectus is identical to the Form of U.S. Prospectus except for the front
cover, the back cover and the information under the caption "Underwriting".
The information included in any such prospectus or in any such Term Sheet, as
the case may be, that was omitted from such registration statements at the time
they became effective but that is deemed to be part of such registration
statements at the time they became effective (a) pursuant to paragraph (b) of
Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to
paragraph (d) of Rule 434 is referred to as "Rule 434 Information." Each Form
of International Prospectus and Form of U.S. Prospectus used before such
registration statements became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was
used after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." The registration
statements described above, including the exhibits thereto, schedules thereto,
if any, and the documents incorporated by reference therein pursuant to Item 12
of Form S-3 under the 1933 Act, at the time each of them became effective and
including the Rule 430A Information and the Rule 434 Information, as
applicable, are herein collectively called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act
Regulations is herein referred to as the "Rule 462(b) Registration Statement,"
and after such filing the term "Registration Statement" shall include the Rule
462(b) Registration Statement. The final Form of International Prospectus and
the final Form of U.S. Prospectus, including the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, in the
forms first furnished to the Underwriters for use in connection with the
offering of the Securities are herein called the "International Prospectus" and
the "U.S. Prospectus," respectively, and collectively, the "Prospectuses." If
Rule 434 is relied on, the terms "International Prospectus" and "U.S.
Prospectus" shall refer to the preliminary International Prospectus dated
September 22, 1997, and preliminary U.S. Prospectus dated September 22, 1997,
respectively, each together with the applicable Term Sheet and all references
in this Agreement to the date of such Prospectuses shall mean the date of the
applicable Term Sheet. For purposes of this Agreement, all references to the
Registration Statement, any preliminary prospectus, the International
Prospectus, the U.S. Prospectus or any Term Sheet or any amendment or
supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
All references in this Agreement to financial statements and
schedules and other information which is "contained," "included" or "stated" in
the Registration Statement, any preliminary prospectus (including the Form of
U.S. Prospectus and Form of International Prospectus) or the Prospectuses (or
other references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus
(including the Form of U.S. Prospectus and Form of International Prospectus) or
the Prospectuses, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectuses shall be deemed to mean and include the filing
of any of any document under the Securities Exchange Act of 1934 (the "1934
Act") which is incorporated by reference in the Registration Statement, such
preliminary prospectus or the Prospectuses, as the case may be.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company and the
Partnership. The Company and the Partnership, jointly and severally, represent
and warrant to each International Manager as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with each
International Manager, as follows:
(i) Compliance and Registration Requirements.
The Company meets the requirements for use of Form S-3 under the 1933 Act.
Each of the Registration Statement and any Rule 462(b) Registration Statement
has become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of the
Commission for additional information has been complied with.
3
<PAGE> 5
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any International Option Securities
are purchased, at the Date of Delivery) referred to below, the Registration
Statement, the Rule 462(b) Registration Statement and any amendments and
supplements thereto complied and will comply in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations and did not and will
not contain an 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. On the date hereof and at the Closing Time (and, if any
International Option Securities are purchased, at such Date of Delivery)
neither the Prospectuses nor any amendments or supplements thereto contained or
will contain an untrue statement of a material fact or omitted or will omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. If Rule
434 is used, the Company will comply with the requirements of Rule 434. The
representations and warranties in this subsection shall not apply to statements
in or omissions from the Registration Statement or the International Prospectus
made in reliance upon and in conformity with information furnished to the
Company in writing by any International Manager through the Lead Managers
expressly for use in the Registration Statement or Prospectus.
Each preliminary prospectus and the prospectuses filed as part
of the Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectuses delivered to the Underwriters for
use in connection with this offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.
(ii) Incorporated Documents. The documents
incorporated or deemed to be incorporated by reference in the Registration
Statement and the Prospectuses, at the time they were or hereafter are filed
with the Commission, complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the Commission
thereunder (the "1934 Act Regulations"), and, when read together with the other
information in the Prospectuses, at the date of the Prospectuses and at the
Closing Time, (and, if any International Option Securities are purchased, at
the Date of Delivery) will not contain an 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, in the light of the circumstances under which they
were made, not misleading.
(iii) Independent Accountants. The accountants
who certified the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required by the
1933 Act and the 1933 Act Regulations.
(iv) Financial Statements. The financial
statements included, or incorporated by reference in the Registration Statement
and the Prospectuses, together with the related schedules and notes, present
fairly the financial position of the Company and its consolidated subsidiaries
and of the Lessee and of Kahler Realty Corporation and its consolidated
subsidiaries at the dates indicated and the statements of operations, changes
in stockholders' equity and cash flows of the Company and its consolidated
subsidiaries and of the Lessee and of Kahler Realty Corporation and its
consolidated subsidiaries for the periods specified; said financial statements
have been prepared in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved. The
supporting schedules, if any, included in the Registration Statement present
fairly in accordance with GAAP the information required to be stated therein.
The financial and operating information included in the Prospectuses present
fairly the information shown therein and have been compiled on a basis
consistent with that of the last audited financial statements included or
incorporated by reference in the Registration Statement. The pro forma
financial statements and the related notes thereto included in the Registration
Statement and the Prospectuses present fairly the information shown therein,
have been prepared in accordance with the Commission's rules and guidelines
with respect to pro forma financial statements and have been properly compiled
on the bases described therein, and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate to give
effect to the transactions and circumstances referred to therein.
4
<PAGE> 6
(v) No Material Adverse Change in Business.
Since the respective dates as of which information is given in the Registration
Statement and the Prospectuses, except as otherwise stated therein, (A) there
has been no material adverse change in the condition, financial or otherwise,
or in the earnings, business affairs or business prospects of the Company or
the Partnership, considered as a whole, or the Lessee, whether or not arising
in the ordinary course of business (a "Material Adverse Effect"), (B) there
have been no transactions entered into by the Company, other than those in the
ordinary course of business, which are material with respect to the Company,
and (C) there has been no dividend or distribution of any kind declared, paid
or made by the Company on any class of its capital stock.
(vi) Good Standing of the Company, the Lessee
and the Manager. Each of the Company, Sunstone Hotel Properties, Inc. (the
"Lessee") and Sunstone Hotel Management, Inc. (the "Manager") has been duly
organized and is validly existing as a corporation in good standing under the
laws of the state of its incorporation and has corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Prospectuses. The Company has the corporate power and authority to
enter into and perform its obligations under this Agreement. Each of the
Company, the Lessee and the Manager is duly qualified as a foreign corporation
to transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure to so
qualify or to be in good standing would not result in a Material Adverse
Effect. 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.
(vii) Good Standing of the Partnership. 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 Prospectuses. The
Company is the sole general partner of 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 Prospectuses, each of the Company, the
Partnership, the Lessee and each property to be owned by the Partnership as of
the Closing Time 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 necessary to the conduct of its
business, all of which are valid and in full force and effect, except where the
failure to be in such possession or compliance will not have a Material Adverse
Effect. Each of the Company, the Partnership, the Manager 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, limited liability company 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 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.
(viii) Good Standing of the Kahler Subsidiaries.
Each entity that is to become a subsidiary of the Company (the "Kahler
Entities") in accordance with the terms of the Kahler Transaction (as herein
defined) is duly organized, validly existing and in good standing under the
laws of its state of incorporation and qualified to do business in the state
where any material asset of such entity is located, except where the failure to
so qualify would not have a Material Adverse Effect.
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(ix) Qualification as a REIT. The Company is
organized in accordance with the requirements for qualification as a real
estate investment trust under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code") and the rules and
regulations thereunder. The contemplated method of operation of the Company's
business as described in the Registration Statement will allow the Company to
satisfy the operational requirements for qualification as a real estate
investment trust under Sections 856 through 860 of the Internal Revenue Code,
and the rules and regulations thereunder. Less than 15% of the aggregate
adjusted tax bases of both the personal property and the real property (the
"Total Bases") to be leased pursuant to any lease to the Lessee (a "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 in each succeeding year the Personal
Property Bases in connection with each Percentage Lease will not exceed 15% 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 and the Company has received a
segmentation study from its independent accountants stating that based on its
projections, during the first five years of the term of each Percentage Lease
less than 15% 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. Except as described in the
Prospectuses, 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 Internal Revenue Code and
the Partnership is not, nor will it be, treated as a separate corporation under
the provisions of the Internal Revenue Code. The Partnership is treated for
federal income tax purposes as a partnership and not as an association taxable
as a corporation.
(x) Capitalization. The authorized, issued
and outstanding capital stock of the Company is as set forth in the
Prospectuses in the column entitled "Actual" under the caption "Capitalization"
(except for subsequent issuances, if any, pursuant to this Agreement, pursuant
to reservations, agreements or employee benefit plans referred to in the
Prospectuses or pursuant to the exercise of options referred to in the
Prospectuses) and except for warrants to acquire Partnership Units (the
"Warrants"). The shares of issued and outstanding capital stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; none of the outstanding shares of capital stock of the Company
was issued in violation of the preemptive or other similar rights of any
security holder of the Company.
(xi) Authorization of Agreement. This
Agreement and the U.S. Purchase Agreement have been duly authorized, executed
and delivered by the Company and the Partnership.
(xii) Authorization and Description of
Securities. The Securities to be purchased by the International Managers and
the U.S. Underwriters from the Company have been duly authorized for issuance
and sale to the International Managers pursuant to this Agreement and the U.S.
Underwriters pursuant to the U.S. Purchase Agreement, respectively, and, when
issued and delivered by the Company pursuant to this Agreement and the U.S.
Purchase Agreement, respectively, against payment of the consideration set
forth herein and the U.S. Purchase Agreement, respectively, will be validly
issued, fully paid and non-assessable; the Common Stock conforms to all
statements relating thereto contained in the Prospectuses and such description
conforms to the rights set forth in the instruments defining the same; no
holder of the Securities will be subject to personal liability by reason of
being such a holder; and the issuance of the Securities is not subject to the
preemptive or other similar rights of any securityholder of the Company. As of
the Closing Time, the Securities will have been approved for listing on the New
York Stock Exchange, subject only to official notice of issuance.
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(xiii) Absence of Defaults and Conflicts. The
Company is not in violation of its charter or by-laws or in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or other agreement or instrument to which the Company is
a party or by which it may be bound, or to which any of the property or assets
of the Company is subject (collectively, for purposes of this paragraph
"Agreements and Instruments") except for such defaults that would not result in
a Material Adverse Effect; and the execution, delivery and performance of this
Agreement and the U.S. Purchase Agreement and the consummation of the
transactions contemplated in this Agreement, the U.S. Purchase Agreement and in
the Registration Statement (including the issuance and sale of the Securities
and the use of the proceeds from the sale of the Securities as described in the
Prospectuses under the caption "Use of Proceeds") and compliance by the Company
with its obligations under this Agreement have been duly authorized by all
necessary corporate action and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or constitute a
breach of, or default or Repayment Event (as defined below) under, or result in
the creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company pursuant to, the Agreements and Instruments (except
for such conflicts, breaches or defaults or liens, charges or encumbrances that
would not result in a Material Adverse Effect), nor will such action result in
any violation of the provisions of the charter or by-laws of the Company or any
applicable law, statute, rule, regulation, judgment, order, writ or decree of
any government, government instrumentality or court, domestic or foreign having
jurisdiction over the Company or any of its assets, properties or operations.
As used in this Agreement, a "Repayment Event" means any event or condition
which gives the holder of any note, debenture or other evidence of indebtedness
(or any person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such indebtedness by
the Company.
(xiv) Absence of Labor Dispute. To the
Company's knowledge, no general labor problem exists or is imminent with the
employees of any of the Hotels, the Company, the Manager or the Lessee.
(xv) Absence of Proceedings. There is no
action, suit, proceeding, inquiry or investigation before or brought by any
court or governmental agency or body, domestic or foreign now pending, or, to
the knowledge of the Company, threatened, against or affecting the Company,
which is required to be disclosed in the Registration Statement (other than as
disclosed therein), or which might reasonably be expected to result in a
Material Adverse Effect, or the consummation of the transactions contemplated
in this Agreement and the U.S. Purchase Agreement or the performance by the
Company of its obligations hereunder or thereunder; the aggregate of all
pending legal or governmental proceedings to which the Company is a party or of
which any of its property or assets is the subject which are not described in
the Registration Statement, including ordinary routine litigation incidental to
the business and litigation affecting assets to be acquired in the Kahler
Transaction, are not reasonably be expected to result in a Material Adverse
Effect.
(xvi) Accuracy of Exhibits. There are no
contracts or documents which are required to be described in the Registration
Statement or the Prospectuses or to be filed as exhibits thereto which have not
been so described and filed as required other than a copy of this Agreement,
the U.S. Purchase Agreement and the tax opinion to be rendered in connection
with this offering, all of which will be filed on Form 8-K on or before October
10, 1997.
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(xvii) Possession of Intellectual Property. The
Company owns or possesses, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks,
trade names or other intellectual property (collectively, "Intellectual
Property") necessary to carry on its business as contemplated in the
Prospectuses, and the Company has not received any notice and is not otherwise
aware of any infringement of or conflict with asserted rights of others with
respect to any Intellectual Property or of any facts or circumstances which
would render any Intellectual Property invalid or inadequate to protect the
interest of the Company therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in a Material Adverse
Effect.
(xviii) Absence of Further Requirements. No
filing with or authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency is
necessary or required for the performance by the Company of its obligations
under this Agreement, in connection with the offering, issuance or sale of the
Securities under this Agreement and the U.S. Purchase Agreement or the
consummation of the transactions contemplated by this Agreement and the U.S.
Purchase Agreement, except such as have been already obtained or as may be
required under the 1933 Act or the 1933 Act Regulations and foreign or state
securities or blue sky laws and the listing of the Securities with the New York
Stock Exchange.
(xix) Possession of Licenses and Permits. Each
of the Company, the Partnership, the Lessee, the Manager and the Kahler
Entities possesses such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct its business as contemplated in the Prospectuses; each of
the Company, the Partnership, the Lessee, the Manager and, to the Company's
knowledge, the Kahler Entities is in compliance with the terms and conditions
of all such Governmental Licenses, except where the failure to so comply would
not, singly or in the aggregate, have a Material Adverse Effect; and the
Company has not received any notice of proceedings relating to the revocation
or modification of any such Governmental Licenses which, singly or in the
aggregate, if the subject of an unfavorable decision, rating or finding, would
result in a Material Adverse Effect.
(xx) Investment Company Act. The Company is
not, and upon the issuance and sale of the Securities as herein contemplated
and the application of the net proceeds from the sale of the Securities
substantially as described in the Prospectuses will not be, an "investment
company" or an entity "controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
(xxi) Accounting Controls. The Company
maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (A) transactions are executed in accordance with
management's general or specific authorization and (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain accountability for assets.
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(xxii) Registration Rights. There are no persons
with registration rights or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise registered by
the Company under the 1933 Act, except as set forth in the amended and restated
partnership agreement of the Partnership, a true and current copy of which has
been delivered to the U.S. Underwriters and except those registration rights to
be granted in connection with the Kahler Transaction.
(xxiii) Good and Marketable Title. The
Partnership has (or will have upon consummation of the Kahler transaction
described in the Prospectuses (the "Kahler Transaction")) good and marketable
title to the Hotels (as defined in the Prospectuses), 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 Prospectuses) or
(ii) 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 agreements to be held by the Lessee) as are
necessary to operate the Properties as now operated or as proposed to be
operated.
(xxiv) No Defaults. 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
(ii) all such material leases or licenses are assignable without consent or
approval or if such consent or approval is required the applicable consent or
approval has been obtained to assign any such lease or license, to the
Partnership or the Lessee, as applicable except where the failure to obtain
such consents would not have a Material Adverse Effect; (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 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 reasonably be expected to have a Material Adverse Effect.
(xxv) No Material Change. Since June 30, 1997
and except as described in or specifically contemplated by the Prospectuses:
(i) none of the Company, the Partnership, the Manager 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, the Manager or the Lessee; (ii) none of the Company, the
Partnership, the Manager 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 and none
of the Company, the Partnership, the Manager 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 Stock 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, the Manager 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, the Manager or the Lessee.
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(xxvi) No Violation of Law. Neither the Company
nor the Partnership has been advised, or has reason to believe, that the
Company, the Partnership, the Manager 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 have a Material
Adverse Effect.
(xxvii) Tax Returns. The Company, the
Partnership, the Manager 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 business, operations or properties of, the
Company, the Partnership, the Manager or the Lessee, as the case may be.
(xxviii) Distribution of Offering Materials.
Neither the Company nor the Partnership has distributed or will distribute
prior to the Closing Time any offering material in connection with the offering
and sale of the Common Stock other than the Prospectuses, the Registration
Statement and the other materials permitted by the Act (including press
releases permitted by the Act).
(xxix) Unlawful Contributions. None of the
Company, the Partnership, the Manager 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.
(xxx) Price Manipulation. 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 Stock to facilitate
the sale or resale of the Common Stock.
(xxxi) Maintenance of Insurance. The Company,
the Partnership, the Manager 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 and the Manager, 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, the Manager 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.
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(xxxii) Title Insurance. Title insurance in favor
of the Partnership is (or will be upon consummation of the Kahler Transaction)
in force with respect to each of the Hotels.
(xxxiii) Mortgages. 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.
(xxxiv) Compliance With Environmental Laws. Each
of the Company, the Partnership, the Manager 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 Prospectuses or would not,
singly or in the aggregate, have a Material Adverse Effect. 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 Laws.
(xxxv) Environmental Laws. 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, the Manager 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 Laws,
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 Adverse Effect or 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.
(b) Officers' Certificates. Any certificate signed by any
officer of the Company, the Partnership or any of their respective subsidiaries
and delivered to the Global Coordinator, the Lead Managers or to counsel for
the International Managers shall be deemed a representation and warranty by the
Company and the Partnership to each International Manager as to the matters
covered thereby.
SECTION 2. Sale and Delivery to International Managers; Closing.
(a) Initial Securities. On the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to each International
Manager, severally and not jointly, and each International Manager, severally
and not jointly, agrees to purchase from the Company, at the price per share
set forth in Schedule B the number of Initial International Securities set
forth in Schedule A opposite the name of such International Manager, plus any
additional number of Initial International Securities which such International
Manager may become obligated to purchase pursuant to the provisions of Section
10 hereof.
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(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
International Managers, severally and not jointly, to purchase up to an
additional 270,000 shares of Common Stock at the price per share set forth in
Schedule B, less an amount per share equal to any dividends or distributions
declared by the Company and payable on the Initial International Securities but
not payable on the International Option Securities. The option hereby granted
will expire 30 days after the date hereof and may be exercised in whole or in
part from time to time only for the purpose of covering over-allotments which
may be made in connection with the offering and distribution of the Initial
International Securities upon notice by the Global Coordinator to the Company
setting forth the number of International Option Securities as to which the
several International Managers are then exercising the option and the time and
date of payment and delivery for such International Option Securities. Any such
time and date of delivery for the International Option Securities (a "Date of
Delivery") shall be determined by the Global Coordinator, but shall not be
later than seven full business days after the exercise of said option, nor in
any event prior to the Closing Time, as hereinafter defined. If the option is
exercised as to all or any portion of the International Option Securities, each
of the International Managers, acting severally and not jointly, will purchase
that proportion of the total number of International Option Securities then
being purchased which the number of Initial International set forth in Schedule
A opposite the name of such International Manager bears to the total number of
Initial International Securities, subject in each case to such adjustments as
the Global Coordinator in its discretion shall make to eliminate any sales or
purchases of fractional shares.
(c) Payment. Transfer of the Initial International
Securities to be purchased by the International Managers and payment therefor
shall be made at 10:00 A.M. (Eastern time) at such place and in the manner set
forth below on the third (or, if the Initial International Securities 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 Securities 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 Lead
Managers) (the "Closing Time"); provided, however, that if the Prospectuses are
at any time prior to the Closing Time recirculated to the public, the Closing
Time 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 Securities are
released by you for sale to the public or the date that is 48 hours after the
date that the Prospectuses have been so recirculated.
Transfer of the Initial International Securities shall be made
by or on behalf of the Company to you, through the FAST system of The
Depository Trust Company, for the respective accounts of the International
Managers, in New York, New York, against payment by you, for the accounts of
the several International Managers, 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 Prospectuses. Time shall be of the essence, and delivery in the
manner specified in this Agreement is a further condition to the obligations of
the International Managers.
In addition, in the event that any or all of the International
Option Securities are purchased by the International Managers, payment of the
purchase price for, and delivery of such International Option Securities shall
be made in the above-mentioned manner, or at such over place as shall be agreed
upon by the Global Coordinator and the Company, on each Date of Delivery as
specified in the notice from the Global Coordinator to the Company.
It is understood that each International Manager has
authorized the Lead Managers, for its account, to accept delivery of, receipt
for, and make payment of the purchase price for, the Initial International
Securities and the International Option Securities, if any, which it has agreed
to purchase. Merrill Lynch, individually and not as a Lead Manager, may (but
shall not be obligated to) make payment of the purchase price for the Initial
International Securities or the International Option Securities, if any, to be
purchased by any International Manager whose funds have not been received by
the Closing Time or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such International Manager from its obligations
hereunder. Payment of such purchase price shall be made into an escrow account
providing for the closing of the Kahler Transaction on terms and conditions
satisfactory to the Company and the International Managers.
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(d) Denominations; Registration. At your option,
certificates for the Initial International Securities and the International
Option Securities, if any, shall be in such denominations and registered in
such names as the Lead Managers may request in writing at least one full
business day before the Closing Time or the relevant Date of Delivery, as the
case may be. The certificates for the Initial International Securities and the
International Option Securities, if any, will be made available for examination
and packaging by the Lead Managers in The City of New York not later than 10:00
A.M. (Eastern time) on the business day prior to the Closing Time or the
relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company and the Partnership.
The Company and the Partnership covenant with each U.S.
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify the
Global Coordinator immediately, and confirm the notice in writing, (i) when any
post-effective amendment to the Registration Statement shall become effective,
or any supplement to the Prospectuses or any amended Prospectuses shall have
been filed, (ii) of the receipt of any comments from the Commission, (iii) of
any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectuses or for additional
information, and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings for any of
such purposes. The Company will promptly effect the filings necessary pursuant
to Rule 424(b) and will take such steps as it deems necessary to ascertain
promptly whether the form of prospectus transmitted for filing under Rule
424(b) was received for filing by the Commission and, in the event that it was
not, it will promptly file such prospectus. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the Global
Coordinator notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term Sheet
or any amendment, supplement or revision to either the prospectus included in
the Registration Statement at the time it became effective or to the
Prospectuses, whether pursuant to the 1933 Act, the 1934 Act or otherwise, will
furnish the Global Coordinator with a reasonable number of copies of any such
documents a reasonable amount of time prior to such proposed filing or use, as
the case may be, and, unless required to do so by law, will not file or use any
such document to which the Global Coordinator or counsel for the International
Managers shall reasonably object.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the Lead Managers and counsel for the
International Managers, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including exhibits
filed therewith) and signed copies of all consents and certificates of experts,
and will also deliver to the Lead Managers, without charge, a conformed copy of
the Registration Statement as originally filed and of each amendment thereto
(without exhibits) for each of the International Managers. The copies of the
Registration Statement and each amendment thereto furnished to the
International Managers will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
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(d) Delivery of Prospectuses. The Company has delivered
to each International Manager, without charge, as many copies of each
preliminary prospectus as such International Manager reasonably requested, and
the Company hereby consents to the use of such copies for purposes permitted by
the 1933 Act. The Company will furnish to each International Manager, without
charge, during the period when the International Prospectus is required to be
delivered under the 1933 Act or the 1934 Act, such number of copies of the
International Prospectus (as amended or supplemented) as such International
Manager may reasonably request. The International Prospectus and any amendments
or supplements thereto furnished to the International Managers will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The
Company will comply with the 1933 Act and the 1933 Act Regulations and the 1934
Act and the 1934 Act Regulations so as to permit the completion of the
distribution of the Securities as contemplated in this Agreement, the U.S.
Purchase Agreement and in the Prospectuses. If at any time when a prospectus is
required by the 1933 Act to be delivered in connection with sales of the
Securities, any event shall occur or condition shall exist as a result of which
it is necessary, in the opinion of counsel for the International Managers or
for the Company, to amend the Registration Statement or amend or supplement the
Prospectuses in order that the Prospectuses will not include any untrue
statements of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the opinion of such counsel, at any such time to amend
the Registration Statement or amend or supplement the Prospectuses in order to
comply with the requirements of the 1933 Act or the 1933 Act Regulations, the
Company will promptly prepare and file with the Commission, subject to Section
3(b), such amendment or supplement as may be necessary to correct such
statement or omission or to make the Registration Statement or the Prospectuses
comply with such requirements, and the Company will furnish to the
International Managers such number of copies of such amendment or supplement as
the International Managers may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the International Managers, to qualify the
Securities for offering and sale under the applicable securities laws of such
states and other jurisdictions (domestic or foreign) as the Global Coordinator
may designate and to maintain such qualifications in effect for a period of not
less than one year from the later of the effective date of the Registration
Statement and any Rule 462(b) Registration Statement; provided, however, that
the Company shall not be obligated to file any general consent to service of
process or to qualify as a foreign corporation or as a dealer in securities in
any jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is not
otherwise so subject. In each jurisdiction in which the Securities have been so
qualified, the Company will file such statements and reports as may be required
by the laws of such jurisdiction to continue such qualification in effect for a
period of not less than one year from the effective date of the Registration
Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally available
to its securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last paragraph of
Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities substantially in the manner
specified in the Prospectuses under "Use of Proceeds". Pending use of the
proceeds, the net proceeds shall remain in escrow as provided in Section 2(c).
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(i) Restriction on Sale of Securities. During a period of
90 days from the date of the Prospectuses, the Company will not, without the
prior written consent of the Global Coordinator, (i) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any share of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
file any registration statement under the 1933 Act with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Securities to be sold hereunder or under
the U.S. Purchase Agreement, (B) any shares of Common Stock issued by the
Company upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof and referred to in the Prospectuses,
(C) any shares of Common Stock issued or options to purchase Common Stock
granted pursuant to existing employee benefit plans of the Company referred to
in the Prospectuses, (D) any shares of Common Stock issued pursuant to any
non-employee director stock plan or dividend reinvestment plan, (E) the filing
of a registration statement for the benefit of any limited partner who elects
to redeem his Units for Common Stock and the sale by any such limited partner
of such shares of registered Common Stock, (F) any shares of Common Stock
issued by the Company pursuant to the existing Stock Purchase and Dividend
Reinvestment Plan, (G) any Units issued by the Partnership in connection with
any purchase of any hotel or other asset, or (H) any shares of Common Stock or
preferred stock issued in connection with any purchase of any hotel or other
assets, including any merger or other business combinations.
(j) Reporting Requirements. The Company, during the
period when the Prospectuses are required to be delivered under the 1933 Act or
the 1934 Act, will file all documents required to be filed with the Commission
pursuant to the 1934 Act within the time periods required by the 1934 Act and
the 1934 Act Regulations.
(k) REIT Requirements. The Company will continue to meet
the requirements to qualify as a REIT under the Internal Revenue Code, unless
the Company's Board of Directors determines to revoke the Company's REIT
election because of circumstances or changes in the Internal Revenue Code (or
the Treasury regulations).
(l) Lock-Up Agreements with Respect to the Kahler
Transaction. The Company will not amend the terms and conditions of the
transfer restrictions imposed on the shares being issued in connection with the
Kahler Transaction as provided in Section 4.10 of the Stock Purchase Agreement.
(m) Earnings and Profits. The Company will apply for a
private letter ruling from the United States Internal Revenue Service (the
"Letter Ruling") regarding the determination of earnings and profits acquired
by the Company as a result of the Kahler Transaction. If the Letter Ruling
(or, in lieu thereof, a tax opinion acceptable to the Company and the U.S.
Representatives) is not received on or before December 31, 1997, the Company
will, on or before such date, make an extraordinary distribution to its
shareholders sufficient to eliminate such acquired earnings and profits.
(n) Reliance. The Company will obtain from each entity
delivering a certificate or legal opinion in connection with the Kahler
Transaction a reliance letter addressed to the International Managers
specifically providing that such certificates and legal opinions may be relied
upon by the International Managers in connection with the consummation of the
purchase of the International Securities.
(o) German Tax Representative. At the request of Merrill
Lynch, the Company shall engage German counsel recommended by the Global
Coordinator to act as the German tax representative for the Company. The
Company will use reasonable efforts to finalize such appointment by December
31, 1997, and to maintain such appointment thereafter for the benefit of German
securityholders.
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SECTION 4. Payment of Expenses.
(a) Expenses. The Company will pay all expenses incident
to the performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of
this Agreement, any Agreement among Underwriters and such other documents as
may be required in connection with the offering, purchase, sale, issuance or
delivery of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters and the transfer of
the Securities between the U.S. Underwriters and the International Managers,
(iv) the fees and disbursements of the Company's counsel, accountants and other
advisors, (v) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(f) hereof, including filing fees
and the reasonable fees and disbursements of counsel for the Underwriters in
connection therewith and in connection with the preparation of the Blue Sky
Survey and any supplement thereto, (vi) the printing and delivery to the
Underwriters of copies of each preliminary prospectus, any Term Sheets and of
the Prospectuses and any amendments or supplements thereto, (vii) the
preparation, printing and delivery to the Underwriters of copies of the Blue
Sky Survey and any supplement thereto, (viii) the fees and expenses of any
transfer agent or registrar for the Securities, (ix) the filing fees incident
to, and the reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the National Association of Securities Dealers,
Inc. ("NASD") of the terms of the sale of the Securities (other than counsel
fees incurred relating to compensation issues), and (x) the fees and expenses
incurred in connection with the listing of the Securities on the New York Stock
Exchange.
(b) Termination of Agreement. If this Agreement is
terminated by the Lead Managers in accordance with the provisions of Section 5
(other than Section 5(g)) or Section 9(a)(i) hereof, the Company or the
Partnership shall reimburse the International Managers for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the International Managers.
SECTION 5. Conditions of International Managers' Obligations.
The obligations of the several International Managers
hereunder are subject to the accuracy in all material respects of the
representations and warranties of the Company and the Partnership contained in
Section 1 hereof or in certificates of any officer of the Company, the
Partnership, the Lessee or the Manager delivered pursuant to the provisions
hereof, to the performance by each of the Company and the Partnership, of its
respective covenants and other obligations under this Agreement, and to the
following further conditions:
(a) Effectiveness of Registration Statement. The
Registration Statement, including any Rule 462(b) Registration Statement, has
become effective and at Closing Time no stop order suspending the effectiveness
of the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of counsel to the International
Managers. A prospectus containing the Rule 430A Information shall have been
filed with the Commission in accordance with Rule 424(b) (or a post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A) or, if the Company
has elected to rely upon Rule 434, a Term Sheet shall have been filed with the
Commission in accordance with Rule 424(b).
(b) Opinion of Counsel for the Company, the Partnership
and the Lessee. At Closing Time, the Lead Managers shall have received the
favorable opinion, dated as of Closing Time, of counsel for the Partnership and
the Lessee, Brobeck Phleger & Harrison LLP, or as to matters of Maryland law,
from Ballard Spahr Andrews & Ingersoll, together with signed or reproduced
copies of such letter for each of the other International Managers, opining as
to the matters set forth in Exhibit A and to such further effect as counsel to
the International Managers may reasonably request, together with signed or
reproduced copies of such letter for each of the other International Managers.
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(c) Opinion of Counsel for the Managers. At Closing Time,
the Lead Managers shall have received the favorable opinion, dated as of
Closing Time, of O'Melveny & Myers LLP, counsel for the International Managers,
together with signed or reproduced copies of such letter for each of the other
International Managers, in form satisfactory to the Lead Managers. In giving
such opinion O'Melveny & Myers LLP may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of California and the
federal law of the United States and the General Corporation Law of the State
of Delaware, upon the opinions of counsel satisfactory to the Lead Managers.
Such counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon certificates of
officers of the Company, the Lessee, the Partnership and the Manager and
certificates of public officials.
(d) Officers' Certificate of the Company. At Closing
Time, there shall not have been, since the date hereof or since the respective
dates as of which information is given in the Prospectuses, any material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company, whether or not arising
in the ordinary course of business, and the Lead Managers and their counsel
shall have received a certificate of the President or a Vice President of the
Company and of the chief financial or chief accounting officer of the Company,
dated as of Closing Time, to the effect that (i) there has been no such
material adverse change, (ii) the representations and warranties in Section
1(a) hereof are true and correct in all material respects with the same force
and effect as though expressly made at and as of Closing Time, (iii) the
Company has complied in all material respects with all agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to Closing
Time, and (iv) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or are contemplated by the Commission.
(e) Accountants' Comfort Letter. At the time of the
execution of this Agreement, the Lead Managers shall have received from Ernst &
Young LLP, Coopers & Lybrand L.L.P., Arthur Andersen LLP and KPMG Peat Marwick
LLP a letter dated such date, in form and substance satisfactory to the Lead
Managers, together with signed or reproduced copies of such letter for each of
the other International Managers containing statements and information of the
type ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectuses.
(f) Bring-down Comfort Letter. At Closing Time, the Lead
Managers shall have received from Ernst & Young LLP, Coopers & Lybrand L.L.P.,
Arthur Andersen LLP and KPMG Peat Marwick LLP a letter or letters , dated as of
Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (e) of this Section, except that the
specified date referred to shall be a date not more than three business days
prior to Closing Time.
(g) No Objection. The NASD has confirmed that it has not
raised any objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(h) Lock-up Agreements. At the date of this Agreement the
Lead Managers shall have received an agreement substantially in the form of
Exhibit B hereto signed by the persons listed on Schedule C hereto.
(i) Purchase of Initial U.S. Securities.
Contemporaneously with the purchase by the International Managers of the
Initial International Securities under this Agreement, the U.S.
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Underwriters shall have purchased the Initial U.S. Securities under the U.S.
Purchase Agreement.
(j) Conditions to Purchase of International Option
Securities. In the event that the International Managers exercise their option
provided in Section 2(b) hereof to purchase all or any portion of the
International Option Securities, the representations and warranties of the
Company and the Partnership contained herein and the statements in any
certificates finished by the Company, the Partnership, the Lessee or the
Manager under this Agreement shall be true and correct as of each Date of
Delivery and, at the relevant Date of Delivery, the Lead Managers shall have
received:
(i) Officers' Certificate. A certificate,
dated such Date of Delivery, of the President or a Vice President of
the Company and of the chief financial or chief accounting officer of
the Company confirming that the certificate delivered at the Closing
Time pursuant to Section 5(d) hereof remains true and correct in all
material respects as of such Date of Delivery.
(ii) Opinion of Counsel for the Partnership and
the Lessee. The favorable opinion of Brobeck, Phleger & Harrison LLP,
and Ballard Spahr Andrews & Ingersoll, as applicable, counsel for the
Company, the Partnership and the Lessee, in form and substance
satisfactory to counsel for the International Managers, dated such Date
of Delivery, relating to the International Option Securities to be
purchased on such Date of Delivery and otherwise to the same effect as
the opinion required by Section 5(b) hereof.
(iii) Opinion of Counsel for International
Managers. The favorable opinion of O'Melveny & Myers LLP, counsel for
the International Managers, dated such Date of Delivery, relating to
the International Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion required by
Section 5(c) hereof.
(iv) Bring-down Comfort Letter. A letter from
Ernst & Young LLP, Coopers & Lybrand L.L.P., and Arthur Andersen LLP
and KPMG Peat Marwick LLP, in form and substance satisfactory to the
Lead Managers and dated such Date of Delivery, substantially in the
same form and substance as the letter furnished to the Lead Managers
pursuant to Section 5(f) hereof, except that the "specified date" in
the letter furnished pursuant to this paragraph shall be a date not
more than five days prior to such Date of Delivery.
(k) Additional Documents. At Closing Time and at each
Date of Delivery counsel for the International Managers shall have been
furnished with such documents and opinions as they may require for the purpose
of enabling them to pass upon the issuance and sale of the Securities as herein
contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company, the Partnership and
the Lessee in connection with the issuance and sale of the Securities as herein
contemplated shall be satisfactory in form and substance to the Lead Managers
and counsel for the International Managers.
(l) All Necessary Consents. All of the consents necessary
or required to be obtained in connection with the consummation of the Kahler
Transaction shall have been obtained, including, without limitation, each of
the consents set forth in Schedule 3.1(h) and Schedule 7.3(a) of the Stock
Purchase Agreement, except where the failure to obtain such consents will not
have a Material Adverse Effect. No consents are required pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
(m) Conditions to Consummation of Stock Purchase
Agreement. Each of the conditions set forth in Section 5.1 and 5.2 of the
Stock Purchase Agreement shall have been satisfied in all material respects or
waived.
(n) Increase in Line of Credit. The Company shall have
entered into an amendment with its existing lenders (led by Bank One of
Arizona, NA, as the agent bank) to increase its unsecured revolving line of
credit facility to $200 million.
(o) Termination of Agreement. If any condition specified
in this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the purchase of
International Option Securities on a Date of Delivery which is after the
Closing Time, the obligations of the several International Managers to purchase
the relevant Option Securities may be terminated by the Lead Manager(s) by
notice to the Company at any time at or prior to Closing Time or such Date of
Delivery, as the case may be, and such termination shall be without liability
of any party to any other party except as provided in Section 4 and except that
Sections 1, 6, 7 and 8 shall survive any such termination and remain in full
force and effect.
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SECTION 6. Indemnification.
(a) Indemnification of International Managers. The Company
and the Partnership, jointly and severally, agree to indemnify and hold
harmless each International Manager and each person, if any, who controls any
International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability,
claim, damage and expense whatsoever, as incurred, arising out of any
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment thereto),
including the Rule 430A Information and the Rule 434 Information, if
applicable, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact included in any preliminary
prospectus or the Prospectuses (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability,
claim, damage and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, provided that (subject to Section 6(d) below) any such
settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as
incurred (including the fees and disbursements of counsel chosen by
Merrill Lynch), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above; provided, however, that
this indemnity agreement shall not apply to any loss, liability, claim,
damage or expense to the extent arising out of any untrue statement or
omission or alleged untrue statement or omission made in reliance upon
and in conformity with written information furnished to the Company by
any International Manager through the Lead Managers expressly for use
in the Registration Statement (or any amendment thereto), including the
Rule 430A Information and the Rule 434 Information, if applicable, or
any preliminary prospectus or the Prospectuses (or any amendment or
supplement thereto).
(b) Indemnification of the Company, the Partnership and
their Respective Directors and Officers. Each International Manager severally
agrees to indemnify and hold harmless the Company, the Partnership and their
respective directors, each of the Company's officers who signed the
Registration Statement, and each person, if any, who controls the Company or
the Partnership within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectuses
(or any amendment or supplement thereto) in reliance upon and in conformity
with written information furnished to the Company by such International Manager
through the Lead Managers expressly for use in the Registration Statement (or
any amendment thereto) or such preliminary prospectus or the Prospectuses (or
any amendment or supplement thereto).
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(c) Actions against Parties; Notification. Each
indemnified party shall give notice as promptly as reasonably practicable to
each indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability hereunder to
the extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. In the case of parties indemnified
pursuant to Section 6(a) above, counsel to the indemnified parties shall be
selected by Merrill Lynch, and, in the case of parties indemnified pursuant to
Section 6(b) above, counsel to the indemnified parties shall be selected by the
Company. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the indemnifying parties be
liable for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent
of the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified
parties are actual or potential parties thereto), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such litigation, investigation,
proceeding or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.
(d) Settlement without Consent if Failure to Reimburse. If
at any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
SECTION 7. Contribution.
If the indemnification provided for in Section 6 hereof is for
any reason unavailable to or insufficient to hold harmless an indemnified party
in respect of any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate amount
of such losses, liabilities, claims, damages and expenses incurred by such
indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Partnership on
the one hand and the International Managers on the other hand from the offering
of the Securities pursuant to this Agreement or (ii) if the allocation provided
by clause (i) 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 and the Partnership on the one
hand and of the International Managers on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
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The relative benefits received by the Company and the
Partnership on the one hand and the International Managers on the other hand in
connection with the offering of the International Securities pursuant to this
Agreement shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the International Securities pursuant to this
Agreement (before deducting expenses) received by the Company and the total
underwriting discount received by the International Managers, in each case as
set forth on the cover of the International Prospectus, or, if Rule 434 is
used, the corresponding location on the Term Sheet, bear to the aggregate
initial public offering price of the International Securities as set forth on
such cover.
The relative fault of the Company and the Partnership on the one hand
and the International Managers on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Partnership, on the one hand, or by the International Managers on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company, the Partnership and the International Managers
agree that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation (even if the International
Managers 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 above in this Section 7. The aggregate amount of losses, liabilities,
claims, damages and expenses incurred by an indemnified party and referred to
above in this Section 7 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in investigating, preparing or
defending against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue or alleged untrue statement or omission or alleged
omission.
Notwithstanding the provisions of this Section 7, no
International Manager shall be required to contribute any amount in excess of
the amount by which the total price at which the International Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such International Manager has
otherwise been required to pay by reason of any such untrue or alleged untrue
statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.For
purposes of this Section 7, each person, if any, who controls an International
Manager within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as such International
Manager, and each director of the Company, the Partnership, and each officer of
the Company who signed the Registration Statement, and each person, if any, who
controls the Company or the Partnership within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company and the Partnership respectively. The
International Managers' respective obligations to contribute pursuant to this
Section 7 are several in proportion to the number of Initial International
Securities set forth opposite their respective names in Schedule A hereto and
not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery.
All representations, warranties and agreements contained in
this Agreement or in certificates of officers of the Company or the Partnership
submitted pursuant to this Agreement, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
International Manager or controlling person, or by or on behalf of the Company
or the Partnership, and shall survive delivery of the Securities to the
International Managers.
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SECTION 9. Termination of Agreement.
(a) Termination; General. The Lead Managers may terminate
this Agreement, by notice to the Company, at any time at or prior to Closing
Time (i) if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the
International Prospectus, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company, whether or not arising in the ordinary course of
business, or any such adverse change with respect to the Partnership, the
Manager, or the Lessee which is material in the context of the transactions
contemplated by this Agreement, or (ii) if there has occurred any material
adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or
economic conditions, in each case the effect of which is such as to make it, in
the judgment of the Lead Managers, impracticable to market the Securities or to
enforce contracts for the sale of the Securities, or (iii) if trading in any
securities of the Company has been suspended or materially limited by the
Commission or the New York Stock Exchange, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq
National Market has been suspended or materially limited, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices have been
required, by any of said exchanges or by such system or by order of the
Commission, the NASD or any other governmental authority, or (iv) if a banking
moratorium has been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant
to this Section 9 such termination shall be without liability of any party to
any other party except as provided in Section 4 hereof, and provided further
that Sections 1, 6, 7 and 8 shall survive such termination and remain in full
force and effect.
SECTION 10. Default by One or More of the International Managers.
If one or more of the International Managers shall fail at
Closing Time or a Date of Delivery to purchase the Securities which it or they
are obligated to purchase under this Agreement (the "Defaulted Securities"),
the Lead Managers shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting International Managers, or
any other underwriters, to purchase all, but not less than all, of the
Defaulted Securities in such amounts as may be agreed upon and upon the terms
herein set forth; if, however, the Lead Managers shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed
10% of the number of International Securities to be purchased on such
date, each of the non-defaulting International Managers shall be
obligated, severally and not jointly, to purchase the full amount
thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting International Managers, or
(b) if the number of Defaulted Securities exceeds 10% of
the number of International Securities to be purchased on such date,
this Agreement or, with respect to any Date of Delivery which occurs
after the Closing Time, the obligation of the International Managers to
purchase and of the Company to sell the Option Securities to be
purchased and sold on such Date of Delivery shall terminate without
liability on the part of any non-defaulting International Manager.
No action taken pursuant to this Section 10 shall relieve any
defaulting International Manager from liability in respect of its default.
22
<PAGE> 24
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
International Managers to purchase and the Company to sell the relevant
International Option Securities, as the case may be, either the Lead Managers
or the Company shall have the right to postpone Closing Time or the relevant
Date of Delivery, as the case may be, for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements. As used herein, the term
"International Manager" includes any person substituted for an International
Manager under this Section 10.
SECTION 11. Notices.
All notices and other communications under this Agreement
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
International Managers shall be directed to the Lead Managers at North Tower,
World Financial Center, 250 Vesey Street, New York, New York 10281-1201
attention of Corporate and Institutional Client Group, and at 101 California
Street, Suite 1420, San Francisco, California 94111, with a copy to O'Melveny &
Myers LLP, 275 Battery Street, 26th Floor, San Francisco, California 94111,
Attention Peter T. Healy, Esq.; and notices to the Company shall be directed to
it at 115 Calle de Industrias, Suite 201, San Clemente, California 92672,
Attention Mr. Robert A. Alter, with a copy to Brobeck, Phleger & Harrison LLP,
4675 MacArthur Court, Suite 1000, Newport Beach, California 92660, Attention
Roger M. Cohen, Esq.
SECTION 12. Parties.
This Agreement shall inure to the benefit of and be binding
upon the International Managers, the Company, the Partnership and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the International Managers, the Company and the Partnership and their
respective successors and the controlling persons and officers and directors
referred to in Sections 6 and 7 and their heirs and legal representatives, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein contained. This Agreement and all conditions and
provisions hereof are intended to be for the sole and exclusive benefit of the
International Managers, the Company and the Partnership and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm
or corporation. No purchaser of Securities from any International Manager shall
be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES OF DAY
REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
[signature page follows]
23
<PAGE> 25
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the International Managers, the Company and the Partnership,
in accordance with its terms.
Very truly yours,
SUNSTONE HOTEL INVESTORS, INC.
By: /s/ Robert A. Alter
-----------------------------------
Robert A. Alter, President
SUNSTONE HOTEL INVESTORS, L.P.
By: SUNSTONE HOTEL INVESTORS, INC.
-----------------------------------
Its: General Partner
By: /s/ Robert A. Alter
-----------------------------------
Robert A. Alter, President
<PAGE> 26
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
NATIONSBANC MONTGOMERY SECURITIES, INC.
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
EVEREN SECURITIES, INC.
RAYMOND JAMES & ASSOCIATES, INC.
By: MERRILL LYNCH INTERNATIONAL
By /s/ Brian Maier
Brian Maier
Authorized Signatory
For themselves and as Lead Managers
of the other International Managers
named in Schedule A hereto.
<PAGE> 27
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
International
Name of International Manager Securities
----------------------------- ----------
<S> <C>
Merrill Lynch International 300,000
Bear, Stearns International Limited 300,000
NationsBanc Montgomery Securities, Inc. 300,000
Credit Suisse First Boston (Europe) Limited 300,000
EVEREN Securities, Inc. 300,000
Raymond James & Associates, Inc. 300,000
Total............................................................ 1,800,000
---------
</TABLE>
Sch A -1
<PAGE> 28
SCHEDULE B
SUNSTONE HOTEL INVESTORS, INC.
1,800,000 Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $__________.
2. The purchase price per share for the Securities to be paid by the
several International Managers shall be $__________, being an amount
equal to the initial public offering price set forth above less
$________ per share.
Sch B-1
<PAGE> 29
SCHEDULE C
Persons Subject to Lock-Up Agreements
Robert A. Alter
Charles L. Biederman
Sch C-1
<PAGE> 30
Exhibit A
FORM OF OPINION OF COUNSEL TO BE DELIVERED PURSUANT
TO SECTION 5(B)
(i) 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 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.
(ii) Each of the Lessee and Manager 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.
(iii) 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 Prospectuses.
The Company is the sole general partner of 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.
(iv) 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 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
A-1
<PAGE> 31
availability of an exemption under applicable state securities or blue sky laws
for Common Stock issued pursuant to an underwritten public offering.
(v) The Company has given proper authorization to ChaseMellon
Shareholder Service, L.L.C. (the "Transfer Agent") to issue the Initial
International Securities to you at the Closing Time 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 Initial International
Securities in accordance with the provisions of the International Purchase
Agreement, and the electronic transfer to you of the Initial International
Securities by the Transfer Agent, the Initial International Securities 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.
(vi) Except as disclosed in or specifically contemplated by the
Prospectuses, the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 or the Company's Proxy Statement prepared in connection with
its 1997 annual shareholders' meeting, to such counsel's knowledge, there are
no outstanding options, 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.
(vii) (a) To such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or
preventing the use of the Prospectuses 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
Prospectuses 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
Prospectuses 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; and
(c) 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 Prospectuses which are not described as required.
A-2
<PAGE> 32
(viii) The Company has the corporate power and authority to enter
into this Agreement, to sell and deliver the Common Stock to be sold by it to
the several International Managers 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 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
Stock by the International Managers and the clearance of such offering with the
NASD.
(ix) The execution and delivery of the International Purchase
Agreement and the issuance of the Common Stock 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;
(x) Such counsel has not received written notice that the
Company, the Partnership or 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 5(d) of this Agreement,
known to such counsel and which is required to be filed as 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
A-3
<PAGE> 33
adversely affect the Company, the Partnership or the Lessee, as the case may
be.
(xi) 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.
(xii) 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
Stock to the International Managers hereunder.
(xiii) Neither the Company nor the Partnership is or will be an
"investment company" within the meaning of the 1940 Act.
(xiv) 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.
(xv) The Common Stock have been duly authorized for listing by the
New York Stock Exchange upon official notice of issuance.
(xvi) An opinion on the REIT status of the Company and the
treatment of the Partnership as a partnership for federal income tax purposes
in form and substance satisfactory to International Managers' counsel.
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 International Managers
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 Prospectuses, 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).
A-4
<PAGE> 34
Exhibit B
[FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS PURSUANT TO
SECTION 5(H)]
October 8, 1997
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
NATIONSBANC MONTGOMERY SECURITIES, INC.
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
EVEREN SECURITIES, INC.
RAYMOND JAMES & ASSOCIATES, INC.
as Lead Managers of the several International Managers
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC24 9L4
England
Re: Proposed Public Offering by Sunstone Hotel Investors, Inc.
Ladies and Gentlemen:
The undersigned, a stockholder of Sunstone Hotel Investors,
Inc., a Maryland corporation (the "Company"), understands that Merrill Lynch
International ("Merrill Lynch"), Bear, Stearns International Limited,
NationsBanc Montgomery Securities, Inc., Credit Suisse First Boston (Europe)
Limited, EVEREN Securities, Inc. and Raymond James & Associates, Inc. propose
to enter into an International Purchase Agreement (the "Purchase Agreement")
with the Company providing for the public offering of shares (the "Securities")
of the Company's common stock, par value $.01 per share (the "Common Stock").
In recognition of the benefit that such an offering will confer upon the
undersigned as a stockholder of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the undersigned agrees with each underwriter to be named in the International
Purchase Agreement that, during a period of 90 days from the date of the
International Purchase Agreement, the undersigned will not, without the prior
written consent of Merrill Lynch, directly or indirectly, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for the sale of,
or otherwise dispose of or transfer any shares of the Company's Common Stock or
any securities convertible into or exchangeable or exercisable for Common
Stock, whether now owned or hereafter
B-1
<PAGE> 35
acquired by the undersigned or with respect to which the undersigned has or
hereafter acquires the power of disposition, or file any registration statement
under the Securities Act of 1933, as amended, with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities,
in cash or otherwise. Notwithstanding the foregoing, the undersigned shall be
allowed to effect the (A) conversion of Partnership Units (as defined in the
U.S. Purchase Agreement) owned by the undersigned for shares of Common Stock,
(B) the exercise of warrants to purchase Partnership Units, (C) the exercise of
any stock option or warrant to purchase securities of the Company, and (D) the
enrollment in, and purchase of any shares of Common Stock issued pursuant to,
any stock plan or dividend reinvestment plan of the Company, including, without
limitation, the existing Stock Purchase and Dividend Reinvestment Plan.
Very truly yours,
Signature:
------------------------
Print Name:
-----------------------
B-2
<PAGE> 1
EXHIBIT 8.1/8.4
[FORM OF OPINION]
October 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 nine
million shares of the Company's common shares (the "Common Shares").
The Company currently owns approximately an 88% general
partner interest in Sunstone Hotel Investors, L.P., a Delaware limited
partnership (the "Partnership"). The Partnership currently owns several hotels
and associated personal property. In addition, the Partnership has an indirect
ownership interest in a hotel owned by a limited partnership between the
Partnership and a qualified REIT subsidiary of the Company. (All of the
foregoing hotels are referred to herein as the "Current Hotels.") Each of the
Current Hotels is leased 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.
Immediately after completion of the Offering, the Company will
acquire all of the stock of Kahler Realty Corporation ("Kahler"). (This
transaction is referred to herein as the "Acquisition".) Kahler will adopt a
plan of liquidation immediately after the Acquisition and all of its assets,
subject to all of its outstanding liabilities, will be transferred to the
Company. The Company will thereafter merge into itself any of the Kahler
subsidiaries (other than limited liability companies) that it receives in the
liquidation and will transfer all of the assets, subject to such liabilities,
received in the Kahler liquidation (including any assets
<PAGE> 2
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 2
received in any such mergers of Kahler subsidiaries into the Company) to the
Partnership in exchange for additional Units. All of the hotels previously
owned by Kahler or its subsidiaries (in whole or in part and directly or
indirectly) (the "Kahler Hotels") will be leased to the Lessee pursuant to
Leases. (The Current Hotels and the Kahler Hotels will be referred to
collectively herein as the "Hotels".)
Terms not defined in this letter have the meaning ascribed to
them in the Registration Statement 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 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 1997
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 of the Company
filed in connection with the Offering.
4. The Prospectus Supplement of the Company
filed in connection with the Offering.
<PAGE> 3
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 3
5. The form of Second Amended and Restated
Limited Partnership Agreement of the Partnership (the "Partnership
Agreement").
6. The 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, prepared by Coopers &
Lybrand L.L.P., the supplemental tax basis information provided by the
Company and Coopers & Lybrand L.L.P. with respect to hotels acquired
since December 31, 1996, and the cost segmentation analysis dated
_______________, 1997, prepared by Ernst & Young LLP ("Ernst &
Young"). (The foregoing analyses and information are referred to
herein as the "Cost Segmentation Analyses.")
8. An analysis of the projected disqualified
REIT income prepared by Ernst & Young.
9. Projections as to the expected financial
performance of the Company, the Lessee and the Management Company.
10. The analysis of Kahler's pre-Acquisition
earnings and profits prepared by KPMG Peat Marwick LLP dated as of
___________, 1997 (the "KPMG E&P Analysis").
11. The review of the KPMG E&P Analysis prepared
by Ernst & Young dated as of ___________, 1997 (the "Ernst & Young E&P
Review").
12. The Stock Purchase Agreement dated August 5,
1997, setting forth the terms and conditions of the Acquisition (the
"Stock Purchase Agreement").
13. A representation certificate as to factual
matters from the Company.
14. Such other documents and data as we have
deemed necessary or appropriate for purposes of this opinion.
In connection with the opinions rendered below, we have
assumed generally that:
<PAGE> 4
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 4
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
shareholders of the Company, the Partnership, the Partners, Kent Hotel
Investors, Inc. or Sunstone/Kent Associates, L.P. or any other entity in which
the Company owns an interest 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 and there have been no material changes in the information
reflected in the Ernst & Young cost segmentation analysis since the date
thereof.
f. The information and conclusions reflected in the KPMG
E&P analysis and the Ernst & Young Analysis E&P are accurate in all material
respects.
g. The accumulated earnings and profits of Kahler and
its subsidiaries at the time of the Acquisition and liquidation of Kahler will
be approximately $30 million, increased by any additional earnings and profits
generated as a result of asset dispositions and the triggering of any excess
loss accounts and deferred intercompany gains upon the liquidation, but not
taking into account the planned pre- Acquisition extraordinary distribution to
the Kahler shareholders.
h. The Company will acquire all of the stock of Kahler
in accordance with the Stock Purchase Agreement.
We have also relied upon the correctness of the following
representations of the Company and its authorized representatives on behalf of
itself and the Partnership in a representation certificate delivered to us by
the Company:
<PAGE> 5
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 5
(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, other hotel properties ("Other Hotel Properties") or
non-hotel properties ("Non-Hotel Properties") in which the Company owns, or may
in the future own, an interest, either directly, through a qualified REIT
subsidiary (a "QRS") within the meaning of Section 856(i) of the Code or
through a limited liability company or a partnership:
(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.
(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 and any QRS of the Company will
not derive or receive any income, directly or indirectly, from such
person, other than rents from the Hotels, Other Hotel Properties or
Non-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 Hotels, Other Hotel Properties or
Non-Hotel Properties and will confine his or her activities as
<PAGE> 6
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 6
a shareholder or director of any corporate entity which leases or
manages the Hotels, Other Hotel Properties or Non-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 (and any QRS of the Company and any
partnership or limited liability company in which the Company owns an interest)
will not furnish or render, or bear the cost of furnishing or rendering, any
services to tenants (including the Lessee) of the 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 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 Leases). The costs and services
described in the preceding sentences are usually or customarily borne or
provided by lessors of hotel properties in the geographic areas in which the
Hotels or Other Hotel Properties are located. The Company (and any QRS of the
Company and any partnership or limited liability company in which the Company
owns an interest) will not render, or bear the cost of furnishing or rendering,
any services to tenants (including the Lessee) of any Non-Hotel Properties.
(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 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.
<PAGE> 7
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 7
(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.
(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, prior to the Acquisition and the liquidation of
Kahler, has not held any asset the disposition of which could be subject to
Section 1374 of the Code. The assets received upon the liquidation of Kahler
will be assets subject to Section 1374 of the Code.
(11) The Company elected to be a REIT for its taxable year
ended 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 also computed and reported its taxable income as a REIT for the
taxable year ended December 31, 1996, and will continue to so compute and
report its income in 1997 and subsequent years. The Company will not terminate
or revoke its REIT election.
<PAGE> 8
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 8
(12) The Company has not had, 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.
The Company has applied for a ruling from the Internal Revenue Service that a
distribution of Kahler's estimated earnings and profits immediately prior to
the Acquisition will be treated as a "dividend" for federal income tax
purposes. In the event a favorable ruling is not obtained by the end of 1997
or in the event the pre-Acquisition distribution is less than the full amount
of Kahler's earnings and profits, the Company will, prior to year end,
distribute an extraordinary (or early) dividend to its shareholders in an
amount sufficient to eliminate Kahler's non-REIT earnings and profits. In the
event a favorable ruling is not obtained by the end of 1997, the Company will
assume that Kahler's pre-Acquisition distribution did not constitute a dividend
to any extent. The Company will also assume that Kahler's pre-Acquisition
earnings and profits are equal to the amount determined in the KPMG E&P
Analysis, as adjusted for any additional earnings and profits generated as a
result of asset dispositions and the triggering of any excess loss accounts and
deferred intercompany gains upon the liquidation Kahler.
(13) During 1995 and each subsequent taxable year, at
least 95% of the Company's gross income, including any gross income of any QRS
of the Company and 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 (or any QRS'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.
(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.
<PAGE> 9
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 9
(g) Amounts (other than amounts based on the
income or profits of any person within the meaning of Section 856 of
the Code) 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, options, futures contracts, forward rate agreement,
or any similar financial instrument, entered into by the Company (or
any QRS of the Company) in a transaction to reduce the interest rate
risks with respect to any indebtedness incurred or to be incurred by
the Company 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 (including any gross income of any QRS
of the Company, but 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.
(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.
<PAGE> 10
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 10
(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) Income that was (i) attributable to stock or
a debt instrument (with a maturity date of at least five 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) With respect to each Current Hotel for 1995 and each
subsequent taxable year while the Current Hotel has been owned by the
Partnership, 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") has
not exceeded and will not exceed 15%. The Adjusted Basis Ratio for any Kahler
Hotels, Other Hotel Properties or Non-Hotel Properties of the Partnership (or
any partnership or limited liability company in which the Partnership, the
Company or a QRS of the Company owns an interest) will not exceed 15% for any
taxable year or, to the extent (if any) that the Adjusted Basis Ratio for any
such property exceeds 15%, the percentage-of-gross-income tests set forth in
the two immediately preceding representations will be satisfied notwithstanding
that the gross income of the Company properly attributable to the subject
personal property is disqualified income not constituting "rents from real
property."
(16) The 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 Hotels in excess of
certain levels (the "Percentage Rent"). The lease terms, base rent and
percentages used to compute the Percentage Rent (i) have not been and will not
be renegotiated during the term of the Leases in a manner that bases the
Percentage Rent on income or profits of any person and (ii) have and will at
all times conform with normal business practices.
(17) The Company believes that the Lessee presently has
substantial value based on projections as to the Lessee's future financial
performance. The Company anticipates that the Lessee will have sufficient
future revenue to enable the Lessee to satisfy all of its liabilities
(including payments under the Leases and payments to the Management Company)
and generate a reasonable profit to the Lessee.
<PAGE> 11
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 11
(18) The Company will lease any Non-Hotel Properties to
the Lessee (or another lessee) for fixed rental payments on commercially
reasonable terms.
(19) The Company has not received and will not receive or
accrue, directly or indirectly (including through any QRS of the Company, the
Partnership or any other partnership or limited liability company), 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 (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).
(20) The Company (and any QRS of 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 (and any QRS of
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 (or any
QRS of 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
(or any QRS of 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.
(21) During each taxable year through 1997, less than 30%
of the Company's gross income (including any gross income of any QRS of the
Company) 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.
<PAGE> 12
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 12
(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.
(22) 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 (including the assets of any QRS of the
Company) have and will be represented by real estate assets, cash and cash
items, and government securities (the "75% Basket") and (ii) with respect to
securities not included in the 75% Basket, (A) not more than 5% of the value of
the Company's total assets have or will consist of the securities of any one
issuer (excluding QRS's of the Company) and (B) the Company has not and will
not hold more than 10% of the outstanding voting securities of any one issuer
(excluding QRS's of the Company). For purposes of this representation, (i) the
term "securities" does not include the Company's interest in the Partnership
(or any other partnership or limited liability company) in which the Company or
the Partnership owns an interest if such entity is not taxable as a
corporation), (ii) the Company's proportionate share of the assets of the
Partnership (and any other partnership or limited liability company in which
the Company or the Partnership owns an interest if such entity is not taxable
as a corporation) 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. In
order to assure compliance with the asset requirements set forth in this
representation, the Company will complete the liquidation of Kahler and any
corporate subsidiaries of Kahler prior to December 31, 1997, and will, as of
December 31, 1997, have no ownership of any corporate stock (directly or
indirectly) which would cause the representation in this paragraph to be
inaccurate in any respect.
(23) 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.
(24) 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 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).
<PAGE> 13
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 13
(25) The dividends paid by the Company (including
dividends deemed paid under any dividend reinvestment plan) have been and will
be made pro rata, with no preference to any share as compared with other shares
of the same class.
(26) Within 30 days after the end of each of the 1995
taxable year and the 1996 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.
(27) 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").
(28) The Company has and will use the calendar year as its
taxable year.
(29) 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.
(30) The Partnership Agreement will remain in
substantially the same form as its current form and will not be amended in any
material respect (except upon the substitution of partners in accordance with
the terms of the Partnership Agreement).
<PAGE> 14
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 14
(31) No Limited Partner (nor any affiliate of any Limited
Partner) has owned or will own at any time, directly, indirectly or by
attribution (as defined in Section 856(d)(5) of the Code), 10% or more of the
Company. For purposes of this representation, beneficial ownership of the
interests in the Partnership is taken into account.
(32) A majority of the Company's Board of Directors at all
times will be independent directors.
(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").
(36) The Partnership has not elected and will not elect to
be taxable as a corporation under the Code.
(37) Sunstone/Kent Associates, L.P., a California limited
partnership ("Sunstone/Kent"), was duly formed in March, 1997, as a partnership
between Kent Hotel Investors, Inc., as the 1% general partner, and the
Partnership, as the 99% limited partner. Sunstone/Kent has not elected and
will not elect to be treated as a corporation for tax purposes.
(38) The Company has owned all of the stock of Kent Hotel
Investors, Inc. at all times since its incorporation in March, 1997, and will
continue to own all such stock.
(39) Immediately after the Acquisition, the Company will
cause Kahler to be liquidated and dissolved pursuant to applicable Minnesota
corporate dissolution provisions (and not pursuant to any statutory merger
provisions). The Company will receive all of Kahler's assets, subject to all
of its liabilities, in the liquidation. The plan of liquidation of Kahler will
be adopted by Kahler's board of directors (and approved by the Company) after
the closing of the Acquisition, and no plan of liquidation will be adopted
prior to the Acquisition. The
<PAGE> 15
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 15
dissolution of Kahler will be completed in all respects (including the filing
of all necessary forms and certificates under state law) prior to December 31,
1997.
(40) Before the Acquisition, most or all of Kahler's
directly and indirectly wholly owned subsidiaries will be merged into their
immediate parent corporations or, in the case of first-tier subsidiaries, into
one or more single-member limited liability companies wholly owned by Kahler
(the "Pre-Acquisition Mergers"). All of the Pre-Acquisition Mergers will be
completed in all respects prior to the adoption of the plan of liquidation by
Kahler. To the extent any Kahler subsidiaries are not merged out of existence
in the Pre-Acquisition Mergers, they will be merged into the Company
immediately after the liquidation of Kahler and prior to the Company's
contribution of assets to the Partnership ("Post-Acquisition Mergers"). Any
excess loss accounts of Kahler subsidiaries merged into the Company in
Post-Acquisition Mergers will be taken into account in determining Kahler's
earnings and profits. All of the foregoing transactions are intended to
qualify as complete liquidations of the subject corporations under Section 332
of the Code.
(41) After the liquidation of Kahler, the Company will
contribute all of Kahler's assets, subject to all of Kahler's liabilities, to
the Partnership.
(42) The Company will treat the Acquisition as a taxable
purchase of Kahler's stock.
(43) The Company will not make an election under Section
338 of the Code and will instead take a carryover basis in Kahler's and its
subsidiaries' assets.
(44) Following the Acquisition, the Company will elect
pursuant to Notice 88-19, 1988-1 C.B. 486, to be subject to rules similar to
those in Section 1374 of the Code with respect to the net built-in gain in
properties acquired from Kahler and its subsidiaries.
(45) On the date of the adoption of the plan of
liquidation of Kahler and at all times until the final liquidating distribution
is made by Kahler, the Company will be the owner of all of Kahler's stock.
(46) All distributions by Kahler pursuant to its plan of
liquidation will be completed prior to December 31, 1997. Kahler will retain
no assets after December 30, 1997, and will be formally dissolved under
Minnesota law by that date. As soon as the first liquidating distribution by
Kahler is made, Kahler will cease to be a going concern and its activities will
be limited to winding up its affairs, paying its debts and distributing its
assets to the Company.
<PAGE> 16
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 16
(47) The liquidation of Kahler will not be preceded or
followed by the reincorporation in, or transfer or sale to, a recipient
corporation of any of the businesses or assets of Kahler, if persons holding,
directly or indirectly, more than 20% in value of the Kahler stock also hold,
directly or indirectly, more than 20% in value of the stock of the recipient.
For purposes of this representation, ownership will be determined by
application of the constructive ownership rules of Section 318(a) of the Code
as modified by Section 304(c)(3).
In cases where the representations set forth above 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 Registration Statement and Prospectus
Supplement 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 1997 and subsequent years.
(b) The description of law and legal conclusions
contained in the Registration Statement and the Prospectus Supplement
under the caption "Federal Income Tax Considerations" are correct in
all material respects, and the discussion therein fairly summarizes
the federal income tax considerations and tax risks 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 are assuming that each of the representations set forth in
this letter is accurate as of the date hereof. 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.
<PAGE> 17
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 17
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 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
<PAGE> 18
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 18
will satisfy the qualifying income test of Section 7704(c)(2) of the 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. The foregoing opinions are not binding on the
Internal Revenue Service, and no assurance can be given that the Service will
not successfully challenge our opinions upon audit. Furthermore, 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.
Our opinion is conditioned and based upon the accuracy of
substantial factual information, representations and conclusions provided to us
by various parties, including (without limitation) the representation
certificate provided by the Company, the Cost Segmentation Analyses, the KPMG
E&P Analysis and the Ernst & Young E&P Review. We have not rendered an opinion
as to any factual matters, including (without limitation) the accuracy of the
information, representations and conclusions referred to in the preceding
sentence. In particular, we have rendered no opinion as to such factual
matters as the amount of Kahler's pre-Acquisition earnings and profits, the
conformity of the Leases with normal business practices or the accuracy of the
Cost Segmentation Analyses. If any such information, representations or
conclusions as to factual matters is inaccurate in any material respect, our
opinion would be different. In addition, we have rendered no opinion as to
whether the pre-Acquisition distribution by Kahler will be treated as a
"dividend" for federal income tax purposes. Furthermore, we will not monitor
compliance by the Company with the ongoing requirements for qualification as a
REIT and, therefore, cannot assure that the Company will satisfy each of those
requirements.
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 and the Prospectus
Supplement.
<PAGE> 19
[FORM OF OPINION]
Sunstone Hotel Investors, Inc. October 8, 1997
Page 19
The foregoing opinions are limited to the federal income tax
matters specifically 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
