SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
(Amendment No. 1)1
Sunstone Hotel Investors, Inc.
-------------------------------------------------------
(Name of Issuer)
Common Stock, par value $0.01 per share
-------------------------------------------------------
(Title of Class of Securities)
867933 10 3
----------------------
(CUSIP Number)
Jonathan H. Paul
Westbrook Real Estate Partners, L.L.C.
599 Lexington Avenue
New York, NY 10022
(212) 849-8800
with a copy to:
Patrick K. Fox, Esq.
Westbrook Real Estate Partners, L.L.C.
13155 Noel Road - LB54
Suite 2300
Dallas, TX 75240
(972) 934-0100
-------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
April 5, 1999
----------------------
(Date of Event which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is
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<PAGE>
filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check
the following box / /.
Note: Schedules filed in paper format shall include a signed original and
five copies of the schedule, including all exhibits. See Rule 13d-7(b) for
other parties to whom copies are to be sent.
1The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that section of the
Act but shall be subject to all other provisions of the Act (however, see the
Notes).
PAGE 1 of 53 PAGES
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<PAGE>
SCHEDULE 13D
CUSIP No. 867933 10 3 Page 2 of 53 Pages
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
WESTBROOK REAL ESTATE PARTNERS, L.L.C.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /x/
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED
BY 3,986,867
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 0
WITH 10 SHARED DISPOSITIVE POWER
3,986,867
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,986,867
<PAGE>
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES /x/
889,611
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.6%
14 TYPE OF REPORTING PERSON*
OO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
<PAGE>
SCHEDULE 13D
CUSIP No. 867933 10 3 Page 3 of 53 Pages
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
WESTBROOK REAL ESTATE PARTNERS MANAGEMENT I, L.L.C.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /x/
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED
BY 3,986,867
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 0
WITH 10 SHARED DISPOSITIVE POWER
3,986,867
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,986,867
<PAGE>
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
/x/
889,611
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.6%
14 TYPE OF REPORTING PERSON*
OO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
<PAGE>
SCHEDULE 13D
CUSIP No. 867933 10 3 Page 4 of 53 Pages
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
WESTBROOK REAL ESTATE FUND I, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /x/
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED
BY 3,576,794
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 0
WITH 10 SHARED DISPOSITIVE POWER
3,576,794
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,576,794
<PAGE>
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* /x/
889,611
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.6%
14 TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
<PAGE>
SCHEDULE 13D
CUSIP No. 867933 10 3 Page 5 of 53 Pages
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
WESTBROOK REAL ESTATE CO-INVESTMENT PARTNERSHIP I, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /x/
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED
BY 413,073
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 0
WITH 10 SHARED DISPOSITIVE POWER
413,073
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
413,073
<PAGE>
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* /x/
889,611
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.0%
14 TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
<PAGE>
SCHEDULE 13D
CUSIP No. 867933 10 3 Page 6 of 53 Pages
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON
Gregory H. Hartman
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /x/
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED
BY 0
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 0
WITH 10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
<PAGE>
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES /x/
4,876,478
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
14 TYPE OF REPORTING PERSON*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
<PAGE>
SCHEDULE 13D
CUSIP No. 867933 10 3 Page 7 of 53 Pages
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON
Paul D. Kazilionis
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /x/
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED
BY 0
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 0
WITH 10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
<PAGE>
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* /x/
4,876,478
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
14 TYPE OF REPORTING PERSON*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
<PAGE>
SCHEDULE 13D
CUSIP No. 867933 10 3 Page 8 of 53 Pages
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON
Jonathan H. Paul
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /x/
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED
BY 0
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 0
WITH 10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
<PAGE>
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* /x/
4,876,478
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
14 TYPE OF REPORTING PERSON*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
<PAGE>
SCHEDULE 13D
CUSIP No. 867933 10 3 Page 9 of 53 Pages
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON
William H. Walton III
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /x/
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED
BY 0
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 0
WITH 10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
<PAGE>
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* /x/
4,876,478
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
14 TYPE OF REPORTING PERSON*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
<PAGE>
SCHEDULE 13D
CUSIP No. 867933 10 3 Page 10 of 53 Pages
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
WESTBROOK REAL ESTATE CO-INVESTMENT PARTNERSHIP III, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /x/
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED
BY 0
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 0
WITH 10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
<PAGE>
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* /x/
4,876,478
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
14 TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
<PAGE>
SCHEDULE 13D
CUSIP No. 867933 10 3 Page 11 of 53 Pages
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
WESTBROOK REAL ESTATE FUND III, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /x/
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED
BY 0
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 0
WITH 10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
<PAGE>
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES /x/
4,876,478
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
14 TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
<PAGE>
SCHEDULE 13D
CUSIP No. 867933 10 3 Page 12 of 53 Pages
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
WESTBROOK REAL ESTATE PARTNERS MANAGEMENT III, L.L.C.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /x/
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED
BY 0
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 0
WITH 10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
<PAGE>
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* /x/
4,876,478
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
14 TYPE OF REPORTING PERSON*
OO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
<PAGE>
SCHEDULE 13D
CUSIP No. 867933 10 3 Page 13 of 53 Pages
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
WESTBROOK FUND III ACQUISITIONS, L.L.C.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /x/
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED
BY 0
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 0
WITH 10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
<PAGE>
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* /x/
4,876,478
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
14 TYPE OF REPORTING PERSON*
OO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
<PAGE>
SCHEDULE 13D
CUSIP No. 867933 10 3 Page 14 of 53 Pages
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
SHP ACQUISITION, L.L.C.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /x/
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED
BY 0
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 0
WITH 10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
<PAGE>
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
/x/
4,876,478
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
14 TYPE OF REPORTING PERSON*
OO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
<PAGE>
AMENDMENT NO. 1 TO
STATEMENT PURSUANT TO RULE 13d-1
OF THE
GENERAL RULES AND REGULATIONS
UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
This Amendment No. 1 amends the Schedule 13D filed on October 24,
1997 (the "Schedule 13D") which relates to shares of common stock, par value
$0.01 per share, of Sunstone Hotel Investors, Inc., a Maryland corporation.
Capitalized terms used herein but not defined shall have the meanings
attributed to them in the Schedule 13D.
Items 2, 3, 4, 5, 6 and 7 of the Schedule 13D are hereby amended and
supplemented as follows:
Item 2. Identity and Background.
Item 2 of the Schedule 13D is hereby amended by deleting the first
three paragraphs thereof in their entirety and replacing them with the
following paragraphs:
This Schedule 13D is being filed jointly by (i) Westbrook Real
Estate Fund I, L.P., a Delaware limited partnership ("WREF I"), (ii)
Westbrook Real Estate Co-Investment Partnership I, L.P., a Delaware
limited partnership ("WRECIP I"), (iii) Westbrook Real Estate Partners
Management I, L.L.C., a Delaware limited liability company ("WREM I"),
(iv) Westbrook Real Estate Partners, L.L.C., a Delaware limited
liability company ("WREP"), (v) Gregory H. Hartman ("Hartman"), a member
of WREP, (vi) Paul D. Kazilionis ("Kazilionis"), a member of WREP, (vii)
Jonathan H. Paul ("Paul"), a member of WREP, (viii) William H. Walton
III ("Walton"), a member of WREP (the foregoing clauses (i) through
(viii), collectively, the "Original Reporting Persons"), (ix) Westbrook
Real Estate Fund III, L.P., a Delaware limited partnership ("WREF III"),
(x) Westbrook Real Estate Co-Investment Partnership III, L.P., a
Delaware limited partnership ("WRECIP III"), (xi) Westbrook Real Estate
Partners Management III, L.L.C., a Delaware limited liability company
("WREM IIII"), (xii) Westbrook Fund III Acquisitions, L.L.C., a Delaware
limited liability company ("WF III") and (xiii) SHP Acquisition, L.L.C.,
a Delaware limited liability company ("SHP Acquisition") (the foregoing
clauses (ix) through (xiii), collectively, the "Amended Reporting
Persons" and, collectively with the Original Reporting Persons, the
"Reporting Persons").
<PAGE>
<PAGE>
The state of organization for each of WREF I, WRECIP I, WREM I,
WREP, WREF III, WRECIP III, WREM III, WF III and SHP Acquisition is
Delaware. Each of Hartman, Kazilionis, Paul and Walton are citizens of
the United States. The principal executive offices of WREF I, WRECIP I,
WREM I, WREP, WREF III, WRECIP III, WREM III and WF III are located at
599 Lexington Avenue, Suite 3800, New York, New York 10022. The
principal office address of SHP Acquisition is 903 Calle Amanecer, San
Clemente, CA 92673-6212. The principal business address
Page 15 of 53 Pages
for Paul and Walton is 599 Lexington Avenue, Suite 3800, New York, New
York 10022. The principal business address for Hartman is 11150 Santa
Monica Boulevard, Suite 1450, Los Angeles, California 90025. The
principal business address for Kazilionis is 284 South Beach Road, Hobe
Sound, Florida 33455.
The principal business of WREF I, WRECIP I, WREF III, WRECIP III
and WF III is to make direct and indirect investments in real estate and
real estate interests. The principal business of WREM I is to serve as
the general partner of each of WREF I and WRECIP I, and the principal
business of WREM III is to serve as the general partner of each of WREF
III and WRECIP IIII. The principal business of WREP is to serve as the
managing member of WREM I, WREM III and as the managing member of other
similar funds. The principal business of SHP Acquisition is to engage
in the Proposed Transactions (as defined in Item 4 below). The principal
occupations of Hartman, Kazilionis, Paul and Walton are their activities
on behalf of WREP.
Item 2 of the Schedule 13D is hereby further amended and
supplemented by adding the following paragraphs after paragraph four thereof:
As described in Items 3 and 4 below, on April 5, 1999, SHP
Acquisition submitted a merger proposal to the Issuer pursuant to which
it would acquire the Issuer and holders of Issuer Common Stock (other
than certain holders described in Item 4 below) would receive
consideration of $9.50 to $10.00 per share in cash in exchange for their
shares. SHP Acquisition is a Delaware limited liability company newly
formed by Robert A. Alter ("Mr. Alter") and WF III (which is a wholly
owned subsidiary of WREM III and WRECIP III).
The Reporting Persons together with Mr. Alter and certain
management personnel of Sunstone Hotel Properties, Inc. ("Lessee")
identified below (collectively, the "Alter Affiliates") may be deemed to
constitute a group within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Neither the present filing nor anything contained herein shall be
construed as (i) an admission that the Reporting Persons together with
any of the Alter Affiliates constitute a "person" or "group" for any
purpose or (ii) an admission that the Reporting Persons are, for the
<PAGE>
<PAGE>
purposes of Section 13(d) or 13(g) of the Exchange Act, the beneficial
owners of any of the securities owned by any of the Alter Affiliates.
Pursuant to Rule 13d-1(k)(2) under the Exchange Act, the Reporting
Persons are filing this Schedule 13D on their own behalf and not on
behalf of any other person.
The Reporting Persons have been advised by Mr. Alter of the
following information with respect to the Alter Affiliates as set forth
below:
Mr. Alter is a United States citizen whose principal occupation is
President, Chief Executive Officer, Secretary and Chairman of the Board
of the Issuer. His business address is Sunstone Hotel Investors, Inc.,
903 Calle Amanecer, San Clemente, CA 92673-6212.
The Alter Affiliates other than Mr. Alter consist of Mr. Charles L.
Biederman ("Mr. Biederman"), Mr. Randy C. Hulce ("Mr. Hulce") and Mr.
Douglas C. Sutten ("Mr. Sutten"). Mr. Biederman is a United States
citizen whose principal occupation is Executive Vice President and Vice
Page 16 of 53 Pages
Chairman of the Board of the Issuer and President of Woodstone Homes,
Inc. His business address is Sunstone Hotel Investors, Inc., 903 Calle
Amanecer, San Clemente, CA 92673-6212.
Mr. Hulce is a United States citizen whose principal occupation is
President and Chief Executive Officer of Lessee. Mr. Hulce's business
address is Sunstone Hotel Properties, Inc., 903 Calle Amanecer, San
Clemente, CA 92673-6212.
Mr. Sutten is a United States citizen whose principal occupation is
Chief Financial Officer of Lessee. Mr. Sutten's business address is
Sunstone Hotel Properties, Inc., 903 Calle Amanecer, San Clemente, CA
92673-6212.
The Alter Affiliates have advised the Reporting Persons that,
during the last five years, to the best knowledge of the Alter
Affiliates, none of the Alter Affiliates has been (i) convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) a party to any civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order
enjoining any future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any
violations with respect to such laws.
<PAGE>
<PAGE>
Item 3. Source and Amount of Funds or Other Consideration.
Item 3 of the Schedule 13D is hereby amended and supplemented by
adding the following paragraphs after the first paragraph thereof:
The Proposed Transactions (as defined in Item 4 below) would be
funded through a combination of equity and debt financing. Pursuant to
a letter dated April 5, 1999 between WF III and Mr. Alter (such letter,
together with the "Summary of Terms" attached thereto, the "Letter
Agreement") (attached hereto as Exhibit 5), Mr. Alter has agreed to
contribute to SHP Acquisition all shares of Issuer Common Stock and OP
Units (as defined in Item 4 below) beneficially owned by him. In
addition, subject to the terms and conditions of the Letter Agreement,
WREF III and WRECIP III are prepared to provide equity for the Proposed
Transactions. WREF III has entered into an agreement with Mr. Alter,
dated April 5, 1999 (such letter, the "WREF III Letter") (attached
hereto as Exhibit 6), in which WREF agrees to be bound by certain
provisions of the Letter Agreement. SHP Acquisition has had discussions
with an affiliate of PaineWebber to provide debt financing to consummate
the Proposed Transactions; however, SHP Acquisition has not yet received
a commitment letter with respect to the debt financing for the Proposed
Transactions, and there is no assurance that one will be successfully
obtained. In addition, the proposed financing of the Proposed
Transactions may change based on availability of such financing and
other facts and circumstances with respect to such Proposed Transactions
or financing.
None of the Reporting Persons has contributed any funds or other
consideration toward the purchase of the shares of Issuer Common Stock
that may be deemed to be beneficially owned by the Alter Affiliates as
described in Item 5.
The transactions contemplated by the Letter Agreement are subject
to a number of terms and conditions set forth therein, including, among
others, the approval of the Issuer's Board of Directors,
Page 17 of 53 Pages
the execution of mutually acceptable documentation and the satisfaction
of the conditions set forth in the Proposal Letter (as defined in Item 4
below). The information set forth in response to this Item 3 is
qualified in its entirety by reference to the Letter Agreement (attached
hereto as Exhibit 5) and the WREF III Letter (attached hereto as Exhibit
6), each of which is expressly incorporated herein by reference.
Item 4. Purpose of Transaction.
Item 4 of the Schedule 13D is hereby amended by deleting the last
paragraph thereof in its entirety and adding the following paragraphs after
the fifth paragraph thereof:
<PAGE>
<PAGE>
As described in a letter, dated April 5, 1999, from SHP Acquisition
to the Issuer (the "Proposal Letter") (attached hereto as Exhibit 7),
SHP Acquisition has made a proposal with respect to a transaction in
which (i) SHP Acquisition would acquire all of the Issuer's interests in
Sunstone Hotel Investors, L.P., a Delaware limited partnership which is
the operating partnership of the Issuer ("Sunstone OP"), and would
acquire or receive a contribution of certain stock and certain assets of
Lessee and Sunstone Hotel Management, Inc. (collectively, the
"Subsidiary Acquisitions") and (ii) a subsidiary of SHP Acquisition
would merge with and into the Issuer (the "Issuer Merger"). Pursuant to
the proposed terms of the Issuer Merger, each holder of Issuer Common
Stock other than Mr. Alter and dissenting shares (but including WREF I
and WRECIP I) would receive an amount per share in cash (the "Cash
Price"). The Cash Price specified in the Proposal Letter is $9.50 to
$10.00. Pursuant to the proposed terms of the Issuer Merger, the
holders of outstanding partnership units in Sunstone OP ("OP Units")
other than SHP Acquisition and Mr. Alter would receive, at the election
of the holders thereof, either cash (in an amount per OP Unit equal to
the Cash Price) or redeemable perpetual preferred units (in a face
amount per OP Unit equal to the Cash Price). The Issuer Preferred Stock
would be redeemed in accordance with its terms for a cash amount equal
to its liquidation preference plus accrued and unpaid dividends. The
Issuer Merger and the Subsidiary Acquisitions are collectively referred
to herein as the "Proposed Transactions." In connection with the
Proposed Transactions, the Issuer Common Stock would be delisted from
the New York Stock Exchange and would be deregistered under the Exchange
Act.
The Proposal Letter provides that the Proposed Transactions would
be subject to a number of conditions, including, among others, (i)
completion of the financing arrangements necessary to consummate the
Proposed Transactions, (ii) approval by the Issuer's Board of Directors
and shareholders pursuant to the requirements of Maryland law and the
rules of the New York Stock Exchange, (iii) any required approval by the
holders of the OP Units, (iv) receipt of any consents of third parties
required under material contracts of the Issuer, Lessee and Sunstone
Hotel Management, Inc., (v) the Issuer having balance sheet liabilities
at the closing of the Proposed Transactions not in excess of those shown
on its consolidated balance sheet dated as of March 31, 1999, (vi)
completion of confirmatory due diligence and (vii) the negotiation and
execution of definitive agreements providing for the Proposed
Transactions and the transactions described in the Letter Agreement and
the satisfaction of the conditions set forth therein, including a
mutually satisfactory definitive merger agreement which would contain
customary covenants, representations, warranties, conditions and other
provisions normal to such agreements. Under the terms of the Proposal
Letter, the merger agreement would prohibit the Issuer from soliciting
<PAGE>
<PAGE>
indications of interest from other persons with respect to an
acquisition of the Issuer, although it would permit the Board
Page 18 of 53 Pages
of Directors of the Issuer to respond to inquiries from and provide
information to bona fide interested third parties and, subject to
reimbursement of expenses and payment of a termination fee in the amount
of 3% of the total transaction value (which value shall include the
total price to be paid to the Issuer's shareholders, all debt to be
assumed or refinanced and all fees and expenses), terminate the merger
agreement if it determined to accept an alternative transaction.
SHP Acquisition's proposal contained in the Proposal Letter expires
by its terms at 5:00 p.m. on April 19, 1999. The Reporting Persons
expect to evaluate on an ongoing basis the Issuer's financial condition,
business, operations and prospects, market price of the Issuer Common
Stock, conditions in securities markets generally, general economic and
industry conditions and other factors. Accordingly, the Reporting
Persons reserve the right to change their plans and intentions at any
time, as they deem appropriate, and may or may not submit a revised
proposal or extend the expiration date of the proposal contained in the
Proposal Letter and reserve the right to terminate, modify or withdraw
the proposal contained in the Proposal Letter. In particular, the
Reporting Persons may at any time and from time to time acquire shares
of Issuer Common Stock or securities convertible or exchangeable for
Issuer Common Stock or dispose of shares of Issuer Common Stock or
Issuer Preferred Stock, or exchange Issuer Preferred Stock or OP Units
which they have acquired for Issuer Common Stock. Any such transactions
may be effected at any time and from time to time subject to any
applicable limitations of the Securities Act of 1933, as amended, and
the Exchange Act.
The Reporting Persons have been advised that each of the Alter
Affiliates originally acquired the shares of Issuer Common Stock
beneficially owned by each of them in their respective capacities as
officers and directors of the Issuer and Lessee, as the case may be.
Other than as described above in Item 3 and this Item 4, none of
the Reporting Persons have, and the Reporting Persons have been advised
that none of the Alter Affiliates have any plans or proposals which
relate to or would result in any of the matters described in
subparagraphs (a) through (j) of Item 4 of Schedule 13D (although they
reserve the right to develop such plans).
The information set forth in response to this Item 4 is qualified
in its entirety by reference to the Proposal Letter (attached hereto as
Exhibit 7), which is expressly incorporated herein by reference.
<PAGE>
<PAGE>
Item 5. Interest in Securities of the Issuer.
Item 5 of the Schedule 13D is hereby amended by deleting each
paragraph after the second paragraph thereof in its entirety and adding the
following paragraphs after the second paragraph thereof:
In his capacity as a member of the Board of Directors of the
Issuer, Kazilionis has been granted stock options with respect to 3,000
shares of Issuer Common Stock which are currently exercisable (the
"Director Options"). Kazilionis has assigned all beneficial ownership
of all Director Options to WREF I and WRECIP I.
As the sole general partner of WREF I and WRECIP I, WREM I may be
deemed to own beneficially the WREF I Common Shares, the WRECIP I Common
Shares, the WREF I
Page 19 of 53 Pages
Conversion Shares, the WRECIP I Conversion Shares and
the Director Options pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Act"). As the sole managing
member of WREM I, WREP may be deemed to own beneficially the WREF I
Common Shares, the WRECIP I Common Shares, the WREF I Conversion Shares,
the WRECIP I Conversion Shares and the Director Options pursuant to Rule
13d-3 under the Act. As the managing members of WREP, Hartman,
Kazilionis, Paul and Walton may be deemed to own beneficially the WREF I
Common Shares, the WRECIP I Common Shares, the WREF I Conversion Shares,
the WRECIP I Conversion Shares and the Director Options pursuant to
Rule 13d-3 under the Act. As of the date of this Schedule 13D, Jeffrey
M. Kaplan is no longer a managing member of WREP.
Hartman, Kazilionis, Paul and Walton each disclaims beneficial
ownership of the WREF I Common Shares, the WRECIP I Common Shares, WREF
I Conversion Shares, the WRECIP I Conversion Shares and the Director
Options.
Each of the Original Reporting Persons may be deemed to
beneficially own 9.6% of the Issuer's Common Stock. All percentages of
Issuer Common Stock set forth in this Item 5 are calculated based upon
(i) 37,638,427 shares of Issuer Common Stock reported outstanding by the
Issuer as of March 5, 1999, as disclosed in the Issuer's most recent
Form 10-K filed with the Securities and Exchange Commission, (ii) that
number of shares of Issuer Common Stock (2,072,250) issuable upon
conversion of OP Units and (iii) that number of shares of Issuer Common
Stock (1,699,605) issuable upon the conversion of the WREF I Issuer
Preferred Stock and the WRECIP I Issuer Preferred Stock. In addition,
the numbers and percentages set forth in this Item 5 assume that all OP
Units held by Mr. Alter and Mr. Biederman, but not by any other person,
are redeemed for shares of Issuer Common Stock.
Each of the Original Reporting Persons has: sole power to vote or
direct the vote of no shares of Issuer Common Stock, shared power to
vote or direct the vote of 3,986,867 shares of Issuer Common Stock, sole
<PAGE>
<PAGE>
power to dispose or to direct the disposition of no shares of Issuer
Common Stock and shared power to dispose or direct the disposition of
3,986,867 shares of Issuer Common Stock.
None of the Amended Reporting Persons beneficially owns any
Issuer Common Stock, Issuer Preferred Stock or OP Units.
As a result of the matters described in Items 3 and 4 above, the
Reporting Persons together with the Alter Affiliates may be deemed to
constitute a group within the meaning of Section 13(d)(3) of the
Exchange Act and the Reporting Persons may be deemed to have acquired
beneficial ownership of the shares of Issuer Common Stock owned or
deemed to be beneficially owned by the Alter Affiliates. The Reporting
Persons disclaim beneficial ownership of any such shares of Issuer
Common Stock.
The Reporting Persons have been advised that Mr. Alter beneficially
owns 427,564 shares of Issuer Common Stock which includes (i) 42,000
shares of Issuer Common Stock underlying stock options which are
currently exercisable or which become exercisable within 60 days after
March 24, 1999 and (ii) 385,564 OP Units, which includes 65,600 OP Units
owned by Riverside Hotel Partners (in which Mr. Alter has an 82%
interest) and 1,003 OP Units owned by Alter Investment
Page 20 of 53 Pages
Group, Ltd. Pursuant to the limited partnership agreement of the Sunstone
OP, the OP Units are redeemable for cash, or at the election of the
Issuer, Issuer Common Stock. These holdings constitute approximately 1.1
percent of the Issuer Common Stock. The numbers of shares of Issuer
Common Stock set forth in this Schedule 13D for Mr. Alter and Mr.
Biederman include the number each of them could receive if he redeemed
his OP Units for shares of Issuer Common Stock under certain
circumstances. The percentages with respect to beneficial ownership for
Mr. Alter and Mr. Biederman contained in this Item 5 assume that all OP
Units held by each such person, but no OP Units held any other person,
are redeemed for Issuer Common Stock.
The Reporting Persons have been advised that Mr. Biederman
beneficially owns 462,047 shares of Issuer Common Stock which includes
(i) 26,320 shares of Issuer Common Stock underlying stock options
granted pursuant to the Incentive Plan which are currently exercisable
or which become exercisable within 60 days after March 24, 1999 and (ii)
397,047 OP Units which includes 14,400 OP Units owned by Riverside Hotel
Partners (in which Mr. Biederman has an 18% interest). These holdings
constitute approximately 1.2 percent of the Issuer Common Stock.
The Reporting Persons have been advised that each of Mr. Alter and
Mr. Biederman has sole power (and does not share any power) to vote or
direct the vote of all OP Units and shares of Issuer Common Stock
<PAGE>
<PAGE>
beneficially owned by him and has sole power (and does not share any
power) to dispose or to direct the disposition all shares of Issuer
Common Stock beneficially owned by him.
The Reporting Persons have been advised that neither Mr. Hulce nor
Mr. Sutten beneficially owns any Issuer Common Stock or OP Units.
Other than as set forth above, the Reporting Persons have been
advised by the Alter Affiliates that, as of April 5, 1999, none of the
Alter Affiliates beneficially owns any shares of any class of capital
stock of the Issuer.
None of the Reporting Persons have, and the Reporting Persons have
been advised by the Alter Affiliates that none of the Alter Affiliates
has, effected any transactions in any shares of Issuer Common Stock
during the 60-day period ended April 5, 1999, except as disclosed in
this Schedule 13D.
No one other than the Reporting Persons has the right to receive,
or the power to direct the receipt of, dividends from, or the proceeds
from the sale of, any of the securities of the Issuer acquired by the
Reporting Persons as described in Item 5. The Reporting Persons have
been advised that no person other than the Alter Affiliates has the
right to receive or the power to direct the receipt of dividends from,
or the proceeds from the sale of, the shares of Issuer Common Stock
beneficially owned by the Alter Affiliates as described above.
Item 5(e) is not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships With
Respect to Securities of the Issuer.
Item 6 of the Schedule 13D is hereby amended and supplemented by
deleting the third paragraph thereof in its entirety and replacing it with
the following paragraphs:
Page 21 of 53 Pages
As described in Item 3 of this Schedule 13D, the Letter Agreement
(attached hereto as Exhibit 5) sets forth certain understandings between
WF III and Mr. Alter with respect to the Proposed Transactions and the
rights and obligations of the members of SHP Acquisition with respect to
their interests therein, including without limitation as to structure,
capitalization, distributions, liquidations, governance, transfers of
interests, call rights, rights of first offer, restrictions on sale of
assets and exclusivity. The Letter Agreement also contains certain
proposed terms of Mr. Alter's employment with SHP Acquisition. Other
than with respect to confidentiality, exclusivity, submissions to the
Issuer Board of Directors, good faith negotiations, costs and governing
<PAGE>
<PAGE>
law and attorney's fees, none of the provisions of the Letter Agreement
are intended to be binding between WF III and Mr. Alter. As described
in Item 3 of this Schedule 13D, the WREF III Letter (attached hereto as
Exhibit 6) contains the agreement of WREF III to be bound by certain
provisions of the Letter Agreement, including the agreement as to
exclusivity contained therein. The descriptions of the Letter Agreement
and the WREF Letter contained in this Schedule 13D are qualified in
their entirety by reference to the Letter Agreement (attached hereto as
Exhibit 5) and the WREF III Letter (attached hereto as Exhibit 6),
respectively
As described in Item 4 of this Schedule 13D, the Proposal Letter
(attached hereto as Exhibit 7) contains the proposal by SHP Acquisition
to the Issuer with respect to the Proposed Transactions. The
description of the Proposal Letter contained in this Schedule 13D is
qualified in its entirety by reference to the Proposal Letter (attached
hereto as Exhibit 7).
Except as set forth in this Schedule 13D, and except for the Joint
Filing Agreement dated April 5, 1999 among the Reporting Persons
attached as Exhibit 8 to this Schedule 13 D, the Reporting Persons do
not have any contracts, arrangements, understandings or relationships
(legal or otherwise) with any person with respect to any securities of
the Issuer, including but not limited to transfer or voting of any of
the securities of the Issuer, finder's fees, joint ventures, loan or
option arrangements, puts or calls, guarantees of profits, division of
profits or loss, or the giving or withholding of proxies, or a pledge or
contingency the occurrence of which would give another person voting
power over the securities of the Issuer.
Item 7. Material to be Filed as Exhibits.
Item 7 of the Schedule 13D is amended and supplemented by adding
the following exhibits after exhibit 4:
5. Letter agreement dated April 5, 1999 between Mr. Alter and WF
III.
6. Letter agreement dated April 5, 1999 between Mr. Alter and
WREF III.
7. Proposal Letter dated April 5, 1999.
8. Joint Filing Agreement dated April 5, 1999 among the Reporting
Persons.
Page 22 of 53 Pages
<PAGE>
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Date: April 5, 1999
WESTBROOK REAL ESTATE PARTNERS, L.L.C.
By: /s/ Jonathan H. Paul
----------------------------
Name: Jonathan H. Paul
Title: Managing Principal
WESTBROOK REAL ESTATE PARTNERS
MANAGEMENT I, L.L.C.
By: Westbrook Real Estate Partners, L.L.C.,
its sole member
By: /s/ Jonathan H. Paul
----------------------------
Name: Jonathan H. Paul
Title: Managing Principal
WESTBROOK REAL ESTATE FUND I, L.P.
By: Westbrook Real Estate Partners
Management I, L.L.C.,
its General Partner
By: Westbrook Real Estate Partners, L.L.C.,
its sole member
By: /s/ Jonathan H. Paul
----------------------------
Name: Jonathan H. Paul
Title: Managing Principal
Page 23 of 53 Pages
<PAGE>
<PAGE>
WESTBROOK REAL ESTATE
CO-INVESTMENT PARTNERSHIP I, L.P.
By: Westbrook Real Estate Partners
Management I, L.L.C.,
its General Partner
By: Westbrook Real Estate Partners, L.L.C.,
its sole member
By: /s/ Jonathan H. Paul
----------------------------
Name: Jonathan H. Paul
Title: Managing Principal
WESTBROOK REAL ESTATE PARTNERS
MANAGEMENT III, L.L.C.
By: Westbrook Real Estate Partners, L.L.C.,
its sole member
By: /s/ Jonathan H. Paul
----------------------------
Name: Jonathan H. Paul
Title: Managing Principal
WESTBROOK REAL ESTATE FUND III, L.P.
By: Westbrook Real Estate Partners
Management III, L.L.C.,
its General Partner
By: Westbrook Real Estate Partners, L.L.C.,
its sole member
By: /s/ Jonathan H. Paul
----------------------------
Name: Jonathan H. Paul
Title: Managing Principal
WESTBROOK REAL ESTATE
CO-INVESTMENT PARTNERSHIP III, L.P.
By: Westbrook Real Estate Partners
Management III, L.L.C.,
its General Partner
<PAGE>
<PAGE>
By: Westbrook Real Estate Partners, L.L.C.,
its sole member
By: /s/ Jonathan H. Paul
----------------------------
Name: Jonathan H. Paul
Title: Managing Principal
Page 24 of 53 Pages
WESTBROOK FUND III ACQUISITIONS, L.L.C.
By: /s/ Jonathan H. Paul
----------------------------
Name: Jonathan H. Paul
Title: Vice President
SHP ACQUISITION, L.L.C.
By: /s/ Jonathan H. Paul
----------------------------
Name: Jonathan H. Paul
Title: Manager
By: /s/ Robert A. Alter
----------------------------
Name: Robert A. Alter
Title: Manager
GREGORY J. HARTMAN
/s/ Gregory J. Hartman
------------------------------
Name: Gregory J. Hartman
PAUL D. KAZILIONIS
/s/ Paul D. Kazilionis
------------------------------
Name: Paul D. Kazilionis
JONATHAN H. PAUL
/s/ Jonathan H. Paul
------------------------------
Name: Jonathan H. Paul
<PAGE>
<PAGE>
WILLIAM H. WALTON III
------------------------------
/s/ William H. Walton III
Name: William H. Walton
Page 25 of 53 Pages
<PAGE>
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit Number Description of Exhibits
- -------------- -----------------------
5. Letter agreement dated April 5, 1999 between Mr. Alter and WF
III.
6. Letter agreement dated April 5, 1999 between Mr. Alter and
WREF III.
7. Proposal Letter dated April 5, 1999.
8. Joint Filing Agreement dated April 5, 1999 among WREF I,
WRECIP I, WREM I, WREP, Hartman, Kazilionis, Paul, Walton,
WREF III, WRECIP III, WREM III, WF III and SHP Acquisition.
Page 26 of 53 Pages
Exhibit 5
TERM SHEET LETTER
Mr. Robert A. Alter
Chief Executive Officer
Sunstone Hotel Properties, Inc.
903 Calle Amanecer
San Clemente, CA 92673-6212
The following outlines the general terms and conditions under which Westbrook
Fund III Acquisitions, L.L.C. and/or its affiliates ("Westbrook") may
consider forming a venture with you ("Alter") and key management personnel of
Sunstone Hotel Properties, Inc. (the "Lessee") for the acquisition of the
following: (i) 100% (with the exception of the shares or OP units owned by
Alter and certain other persons -- see below) of the outstanding
common/preferred stock of Sunstone Hotel Investors, Inc. ("Sunstone") and
operating partnership interests ("OP Units") in Sunstone Hotel Investors,
L.P. ("Sunstone OP"); (ii) certain equity interests in the Lessee; and (iii)
100% of the assets of Sunstone Hotel Management, Inc. (the "Management
Company"). The acquisition of the foregoing is referred to as the
"Transaction." Pursuant to the Transaction, holders of OP Units in Sunstone
OP (other than Alter and certain key management of the Lessee participating
in the Venture) may be granted the right to receive consideration (i.e.
redeemable perpetual preferred units) that would not result in the immediate
recapture of any of their deferred tax liability.
1. Transaction Structure: Westbrook and Alter (each referred to herein as
a "Member") would form a Delaware limited liability company (the
"Venture"), or alternative ownership vehicle with similar economic
characteristics, in which Westbrook, subject to the limitations set
forth in paragraphs 4 and 9, would act as managing member. All net cash
flow from the Venture would be distributed to the Members as described
below. The Venture would focus on the ownership, acquisition,
management, and repositioning of primarily full service hotels located
throughout the United States.
2. Transaction Capitalization: Alter would contribute the following to the
Venture: (i) his interest in Sunstone and Sunstone OP, (ii) his shares
of Sunstone, (iii) 49% of the stock of the Lessee and rights to all
distributions and dividends and to the proceeds from any sale of the
remaining 51% of the stock of the Lessee, and (iv) would cause the
Management Company to contribute its assets to the LLC. Alter would
receive (a) $3.0 million in cash, (b) a capital account in the LLC equal
to (x) $10.5 million plus (y) 460,352 (representing the aggregate number
of Sunstone shares and OP Units owned by Alter) multiplied by the price
paid per share of Sunstone common stock in the merger and (c) the
<PAGE>
<PAGE>
profits interest in the Venture as described in paragraph 3 below. (The
amount set forth in clauses (x) and (y) above shall mean, collectively,
the "Alter Capital Amount.") The Venture would have the right to buy
Alter's 51% of the shares of the Lessee upon certain agreed upon terms
and conditions. The Lessee's Board would include a representative of
Westbrook, all significant actions of the Lessee would require Board
approval and all Board action would require the unanimous approval of
all Board members. Prior to closing, all franchisers would issue a
comfort letter permitting Venture to acquire Alter's shares in the
Lessee under the specified circumstances permitting such acquisition.
Alter and any individual investors in the Venture would hold their
interests in the Venture indirectly through S corporations or other
entities reasonably agreed to by the parties. In connection with the
Transaction and subject to the receipt of customary representations,
warranties and indemnities, the Venture would assume all disclosed
liabilities of the Lessee and Management Company as set forth on the
balance sheets of the Lessee and Management Company as well as the
obligation to pay $2.25 million to certain employees of the Lessee (as
described below) and provided that between January 1, 1999 and the
closing of the Transaction only customary dividends shall be paid by the
Lessee and Management Company to its stockholders (not to exceed
$500,000 in the aggregate). Westbrook or its co-investors would
contribute to the Venture the balance of the additional equity capital
necessary to complete the Transaction (the "Westbrook Capital Amount").
For his 20% interest in the Lessee, Charles L. Biederman ("Biederman")
would receive $1.75 million in cash and a portion of the profits
interest in the Venture that is described in paragraph 3 below. In
addition, at the closing of the Transaction, Biederman and certain other
employees of the Lessee would receive from the Lessee $2.25 million in
cash in respect of certain services provided to the Lessee. The terms
and conditions of the Transaction as well as the Venture's capital
structure (including the initial debt parameters and debt/equity ratio),
and any changes thereto prior to the consummation of the Transaction,
requires approval by both Alter and Westbrook.
3. Distributions: All distributions by the Venture would be made as
follows:
(a) First, to Westbrook and Alter, pro rata (based on the Westbrook
Capital Amount and the Alter Capital Amount), until Westbrook and
Alter receive a return of the Westbrook Capital Amount and Alter
Capital Amount with a 15% IRR;
(b) Second, to Alter until Alter receives an additional $17.5 million;
and
-2-
<PAGE>
<PAGE>
(c) Thereafter, (i) 11.5% to Alter and (ii) the remainder to Westbrook
and Alter, pro rata (calculated based on the Westbrook Capital
Amount and the Alter Capital Amount plus the amount distributed to
Alter in clause (b) above).
4. Control: An Executive Committee would be established to make all major
decisions of the Venture by majority vote (except as provided in this
letter), including asset sales, financings, capital expenditures and
annual budget approval. The Executive Committee would consist of
members appointed by Alter and members appointed by Westbrook (provided
that Westbrook would have the right to appoint all of the members of the
Executive Committee if Alter is terminated for cause or ceases to hold
an equity interest in the Venture); a majority of which will be
appointed by Westbrook. The principal place of business of the Venture
would be located at Sunstone's current principal place of business.
5. Distributions: Except to the extent necessary to fund required expenses
or specified reserves as reasonably determined in good faith by the
Executive Committee (such expenses and reserves may include amounts
attributable to required, but not discretionary, debt payments, but may
not include amounts attributable to new acquisitions or major expansions
of existing hotels) and subject to any limitations imposed by the
Venture's lenders, all cash flow from the Venture and the Lessee will be
distributed to its members in accordance with paragraph 3. All net cash
flow from operations would be distributed by the Venture on a quarterly
basis.
6. Alter Employment Arrangements: Alter would act as Chief Executive
Officer of the Venture and would receive annual compensation of $500,000
(subject to annual increases based on the increase in CPI, but not less
than 4% per annum) pursuant to a five-year employment agreement, plus a
discretionary bonus as (and to the extent) approved by Westbrook. The
employment agreement would provide that if Alter's employment is
terminated by the Venture other than for "cause" or is terminated by
Alter with "good reason," Alter would be entitled to receive a severance
payment, subject to any limitations imposed by Section 280G of the
Internal Revenue Code, equal to the product of (x) the sum of Alter's
then annual base salary and the amount of Alter's bonus for the
preceding year and (y) the lesser of (1) 2.99 or (2) a fraction, the
numerator of which is the number of days remaining during the term of
the agreement and the denominator of which is 365 (provided that such
fraction shall not be less than 1). Such severance payment shall be
payable in accordance with the Venture's customary payroll practices
over the remaining term of the contract (but not in excess of 2 years).
For purposes of the agreement "cause" would mean (i) Alter's willful and
intentional failure or refusal to perform or observe a material portion
of his material duties, responsibilities or obligations set forth in his
employment agreement or his negligence (after notice of default and
-3-
<PAGE>
<PAGE>
opportunity to cure), for reasons other than illness or incapacity
(provided that any such failure, refusal or negligence would not be
deemed "cause" unless (a) such failure, refusal or negligence results in
actual (but not consequential) damage to the Venture in excess of $1.0
million (combined with all other such uncured failures, refusals or
occurrences of negligence), and Alter fails to contribute an amount to
the Venture necessary to reduce such damage amount to below $1.0
million, and (b) such failure, refusal or negligence does not relate to
the general, over-all marketing or operating strategies of the Venture
that are implemented or supervised by Alter or any actions taken or
omitted with the knowledge of or at the direction of the Executive
Committee; (ii) any willful and intentional act of Alter involving
malfeasance, fraud, theft, misappropriation of funds, embezzlement or
dishonesty affecting the Venture; or (iii) Alter's conviction of, or
plea of guilty or nolo contendere to, an offense which is a felony in
the jurisdiction involved. The defense of any litigation relating to
whether Alter may properly be removed for cause pursuant to clause (i)
shall be funded by the Venture but shall be subject to reimbursement if
Alter is not the prevailing party. For purposes of this letter, the
term "good reason" would mean (i) the assignment to Alter of duties
materially inconsistent with Alter's position as CEO of the Venture or
any significant diminution in Alter's duties and responsibilities; (ii)
the change in the location of the Venture's executive offices or of
Alter's place of employment to a location that is greater than a 35 mile
radius from Sunstone's existing executive offices; (iii) a material
breach of the employment agreement by the Venture or (iv) a change in
control of the Venture (other than an IPO or other public offering),
unless prior to or in connection with the change in control event Alter
received from the Venture an amount of cash equal to the Alter Capital
Amount plus the amount set forth in paragraph 3(b) (whether pursuant to
paragraph 3 or otherwise). In the event of Alter's death, disability,
termination by the Venture without cause or termination by Alter with
good reason or the Venture's failure to tender to Alter a New Employment
Agreement (as defined below), Alter would have the right to put to the
Venture his interest in the Venture at a buy-out price equal to the then
fair market value of Alter's interest in the Venture (determined by
three-party appraisal and assuming the hypothetical sale of the
Venture's assets at fair market value and a liquidation of the Venture
using the priorities for capital proceeds (the "Put Right Price"). If
during the initial term of his employment agreement Alter is discharged
for cause or resigns without good reason, Alter would forfeit 86.9% of
the amount payable to Alter pursuant to clause (i) of paragraph 3(c)
(the "Promote"). If after the expiration of the initial term of Alter's
employment agreement Alter is not tendered a new employment agreement
(on the same terms and conditions as his initial 5-year employment
agreement except that the base salary shall be his most recent base
salary) (the "New Employment Agreement") the Promote shall no longer be
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subject to forfeiture. If following the expiration of the initial term
of Alter's employment agreement, Alter and the Venture enter into a New
Employment Agreement which is subsequently terminated by the Venture for
cause or by Alter without good reason, a portion of the Promote shall be
forfeited in accordance with the following schedule: during year 1 -
50%; during year 2 - 40%; during year 3 - 30%; during year 4 - 20%;
during year 5 - 10%. If after the expiration of initial term of Alter's
employment agreement, Alter is tendered a New Employment Agreement that
is not signed by him, Alter shall forfeit the Promote. If Alter's
employment agreement is terminated for any reason, Alter shall not
compete with the Venture for a period of one year following the
termination of his employment. The Venture would accrue $500,000 per
quarter (that would be cumulative and would compound at a rate of 12%)
that would be paid annually as a bonus to Alter (and other members of
senior management designated by Alter in his sole and absolute
discretion) out of available cash after Westbrook has received a 12%
compounded quarterly return on the Westbrook Capital Amount (the "Bonus
Payment"). The Executive Committee shall have the right to reduce pro
rata Bonus Payment accruals as Alter receives payments pursuant to
paragraph 3(b) and shall not otherwise reduce the payments.
7. Limited Call Rights: If Alter is no longer employed at the Venture,
Westbrook would receive a call on Alter's interest in the Venture at
the Put Right Price after giving effect to any forfeiture of the Promote
described above.
8. Required Liquidation: Subject to a right of first offer in favor of the
other party, from and after the date that is 10 years after the
Venture's formation, either Alter or Westbrook may require a sale of all
the Venture's assets or a sale of all the interests in the Venture.
9. Major Decisions: The following would require Alter's approval: (i)
transactions between the Venture and affiliates of Westbrook that are
not on market terms, (ii) except for any transferee permitted by
paragraph 16, admission of a new member, (iii) the amendment of the
Venture operating agreement, (iv) in-kind distributions to members, (v)
retention of cash flow in excess of the amounts necessary to fund
required expenses or specified reserves reasonably determined in good
faith by the Executive Committee (such expenses and reserves may include
amounts attributable to required, but not discretionary, debt payments,
but may not include amounts attributable to new acquisitions or major
expansions of existing hotels), and (vi) except as set forth in
paragraph 11, additional capital calls.
10. Budget; Reporting Requirements: Alter would prepare (or cause to be
prepared by the Venture's accountants, who shall be a "Big 5" accounting
firm selected by the members), in accordance with reasonable standards
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that would be supplied by Westbrook, and deliver to Westbrook, at
Venture expense, (i) quarterly unaudited, and annual audited, financial
statements of the Venture and (ii) a quarterly and annual budget for the
Venture's general operations. Alter would be required to operate the
Venture within 105% of the over-all budget approved by the Executive
Committee and within 110% of each line-item category within each such
approved budget, including any contingency percentages in the budget.
11. Additional Capital: If additional capital is required by the Venture to
fund "necessary expenses," then either Westbrook or Alter can notify the
other of the amount of additional capital then required (a "Capital
Requirement") and Westbrook and Alter would contribute, pro rata in
accordance with their interest in the Venture, such Capital Requirement.
Such contributions would have first priority on operating cash flow and
capital proceeds distributions, pro rata to Westbrook and Alter, until
such amounts are returned with a 15% IRR. If any party fails to
contribute his or its pro rata share of any Capital Requirement, the
entire Capital Requirement shall be loaned to the Venture by the other
party at a rate of 15% per annum compounded quarterly and such loan
amount shall be taken into account in calculating the distributions to
the party making such loan, pursuant to paragraph 3(c)(ii).
12. Rights of First Offer: During the first 4 years of the Venture,
Westbrook would not permit the Venture to sell any Venture management
company equity or assets on a stand-alone basis (i.e., without any hotel
assets of the Venture) without first granting to Alter a right of first
offer to acquire such equity interests or assets. After the first 4
years of the Venture, Alter would have a right of first offer to acquire
any Venture management company assets or equity that is sold on a
stand-alone basis but only if (i) the proceeds that would be distributed
to Westbrook as a result of such sale, (ii) all distributions made by
the Venture to Westbrook prior to such date, plus (iii) the proceeds
that would be distributed to Westbrook if all of the assets of the
Venture would be liquidated at appraised fair market value (such
liquidation value to be determined by three-party appraisal), would, in
the aggregate, result in at least a 17.5% IRR to Westbrook (including
the return of the Westbrook Capital Amount).
13. Sale of Assets: During the first 18 months of the Venture, Westbrook
would not sell or otherwise dispose of properties owned by the Venture
which, in the aggregate, include more than 30% of the aggregate number
of guest rooms in the Venture's portfolio unless the aggregate sale
price for all such properties exceeds the Venture's aggregate basis in
such properties. In addition, during the first 18 months of the
Venture, Westbrook will not liquidate the Venture or sell all or
substantially all of its assets unless such liquidation or sale results
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in proceeds that are sufficient to distribute to Alter, in addition to
the Bonus Payment, the full amount pursuant to paragraph 3(b).
14. Offices; Key Employees: The Venture will maintain and pay for suitable
offices for Alter, the Venture's key employees and its servicing staff,
subject to a budget approved by the Executive Committee. The Venture
would compensate its key employees in accordance with the compensation
parameters agreed to by Alter and Westbrook. In addition to such
amounts, Alter would have the right to grant to key employees such
portion of the Promote as Alter desires (but not less than 33%), subject
to an automatic transfer of such Promote to the Venture, to be
reallocated by Alter to other key employees, if any such employee is
terminated for cause or voluntarily resigns, all as Alter may determine.
15. Tax Matters: Subject to standard minimum gain chargeback and qualified
income offset language under the IRC Section 704(b) safe harbors,
taxable income and loss would be allocated so as to cause the capital
accounts of Westbrook and Alter to equal the amounts they would be
entitled to under the priorities set forth under "Distributions" above
(assuming a sale of Venture assets at their then adjusted tax basis).
Westbrook would be the "tax matters partner" of the Venture , subject to
Alter's reasonable approval of tax filings and IRS settlements. The
Venture's accountants will prepare the tax returns. The members would
agree to appropriate language for purposes of satisfying "fractions
rule," ERISA and "plan assets" requirements resulting from Westbrook
having tax-exempt investors. Subject to any limitations imposed by the
Venture's lenders, the Venture would make tax loans to Alter to the
extent Alter's cumulative tax liability exceeds Alter's cumulative
distributions (several liability of other members of management who
borrow). Tax depreciation will be allocated pro rata to Alter and
Westbrook in accordance with the Alter Capital Amount and the Westbrook
Capital Amount.
16. Transfer of Interests: No member of the Venture would be permitted to
pledge, hypothecate or otherwise transfer its interests in the Venture,
except that any member would be permitted to: (i) transfer its interest
in the Venture if certain (to-be-specified) principals of, respectively,
Westbrook or Alter (a) control the transferee as to all operating and
major decisions and (b) also have at least a 50% direct or indirect
economic interest in the transferee, (ii) pledge or hypothecate its
right to receive distributions from the Venture, provided that the
pledgee has no voting or other control rights with respect to the
Venture, or (iii) transfer its interest by operation of law, including
death or bankruptcy. Except as set forth below, if the Venture is
formed and Westbrook thereafter sells any portion of its interest in the
Venture Alter would also have the right to tag along in such sale upon
the same terms and conditions as those offered to Westbrook.
Notwithstanding the foregoing, Westbrook shall have the right to sell
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less than a 50% of its interest in the Venture (but in no event control
rights) during the first year of the Venture, free and clear of any tag
along rights in favor of Alter, provided that Westbrook's only profit in
such sale is represented by a promote interest in the Venture. Any tag
along rights in favor of Alter shall be subject to drag along rights in
favor of Westbrook except that no drag along shall be permitted for a
period of 18 months unless in connection with any drag along of Alter he
receives an amount equal to the sum of (x) the Alter Capital Amount,
(y) the accrued but unpaid Bonus Payment and (z) $17.5 million.
17. Indemnification: The Venture would indemnify each member, and their
respective officers, against all losses incurred in connection with
operating the Venture, unless such loss resulted from such member (or
such officer) committing fraud, gross negligence, and willful misconduct
resulting in a material breach of the Venture's operating agreement that
is not cured within the time period provided therein for such cure.
18. Exclusivity: Upon execution of this letter and until the earlier of
(i) 6 months after the date hereof and (ii) 30 days after the date upon
which Sunstone's board of directors definitively rejects the Venture's
final proposal regarding the Transaction (unless in the case of (i) or
(ii) the process implemented by Sunstone's Board relating to the
Transaction is continuing and Westbrook in good faith is continuing to
pursue the Transaction in accordance with the terms of such process),
neither Westbrook nor Alter (in their respective individual capacities
and not in any capacity they have at Sunstone) will engage in
discussions or enter into agreements or understandings with any person
or group, including Sunstone, concerning a business combination
involving, or the acquisition of a material portion of the assets or
equity of, Sunstone, or the Sunstone OP, the Lessee or the Management
Company, other than the other of them concerning the transactions
contemplated by this letter (provided, however, that the foregoing shall
not prohibit (x) Westbrook from discussing or entering into agreements
or understandings regarding the proposed Transaction with its internal
or co-investors, subject to their respective agreement to comply with
the confidentiality and other provisions set forth herein or (y) Alter
from selling his interest in the Lessee and Management Company (or their
assets) in any transaction contemplated by paragraph 19 (or any
derivative or modification thereof approved by Sunstone's Board in
connection with the proposed Transaction).
19. Tag Along/Drag Along: The proposal to Sunstone will provide that upon
the execution of a definitive agreement between Sunstone and the Venture
regarding the Transaction, any alternative transaction involving
Sunstone will (unless otherwise approved by Alter) provide the Lessee
and the Management Company with a right to tag along with Sunstone in
any such alternative transaction at a purchase price of $35 million in
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cash. In addition, Sunstone will have a right in any such alternative
transaction to drag along the Lessee and the Management Company in such
transaction at a purchase price of $35 million in cash.
20. Confidentiality: Except as otherwise required by law or in paragraph 21
below or as may be disclosed by the parties in any Schedule 13D filing,
the terms of the Transaction and this letter will be kept strictly
confidential by both parties regarding persons other than their
attorneys and accountants (under duties of confidentiality) unless both
of Alter and Westbrook release or consent to the release of any such
information.
21. Submission to Sunstone Board: Westbrook and Alter will reasonably
cooperate in determining the manner of proposing (jointly) the terms and
conditions of the Transaction to the Sunstone Board of Directors for its
approval (including, without limitation, a break-up fee of 3% of the
total transaction value, (i.e., total amount that would be paid to
Sunstone's shareholders plus all debt to be assumed or refinanced plus
all transaction fees and expenses), and would make such proposal to the
Sunstone board as soon as is reasonably practicable after the execution
of this Term Sheet.
22. Good Faith Negotiation; Costs: Each of Westbrook and Alter hereby agree
to use good faith and reasonable efforts to draft, negotiate and enter
into an operating agreement with respect to the Venture on or before
April 30, 1999. The Venture Agreement will be drafted by Simpson
Thacher & Bartlett. All costs incurred by Westbrook, Alter and their
respective affiliates in negotiating and preparing this term sheet
(including all attorneys' fees and costs relating thereto), and all
other documentation relating thereto, would be borne by the Venture;
provided, however if the Venture is not formed, all of such costs would
be paid by the party that incurred such costs. Any break-up fee or
similar payment payable to the Venture will first be used to pay the
expenses incurred by each member and the Venture in connection with the
Transaction and, thereafter, distributed pro rata to the members
(provided, if Alter participates in an alternative transaction involving
Sunstone pursuant to which the break-up fee is paid and the Management
Company or Lessee is sold to any entity not affiliated with Westbrook,
100% of the remaining portion of the break-up fee or similar payment, if
any, would be distributed to Westbrook).
23. Governing Law/Attorneys Fees. It is the intent of the parties hereto
that all questions with respect to the construction of this letter and
the rights and liabilities of the parties hereto would be determined in
accordance with the provisions of the laws of the State of New York. In
any dispute among the parties hereto concerning this letter agreement,
the prevailing party would be entitled to recover from the
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non-prevailing party the prevailing party's (and its affiliates)
reasonable attorneys' fees and costs. To the extent permitted by
applicable law, the parties hereby waive trial by jury.
Please bear in mind that this letter is intended to summarize the basic terms
under which Westbrook and Alter may be prepared to invest with each other in
the Transaction and is not a binding commitment between Westbrook and Alter
(other than the provisions of Paragraphs 18, 20, 21, 22 and 23 relating to
exclusivity, confidentiality, submission to Sunstone's Board, good faith
negotiation, the bearing of costs and governing law/attorneys fees, all of
which are intended to be binding agreements of Westbrook and Westbrook's
parent, Westbrook Real Estate Fund III, L.P. (the "Westbrook Parent"). Upon
any material breach of a binding provision of this letter by either Westbrook
or Westbrook Parent, on the one hand, or Alter on the other hand, the
non-breaching party shall have the right to immediately terminate this letter
agreement upon which all further obligations of the parties hereto shall
terminate, except that the terminating party's right to pursue all legal
remedies in respect of such breach will survive such termination unimpaired.
Moreover, this letter does not address all matters upon which agreement must
be reached in order for the Transaction to be consummated, and except with
respect to the items described in the preceding sentence, creates no rights
in favor of any party. A binding commitment between Westbrook and Alter will
only exist to the extent it is set forth in a definitive agreement mutually
agreed upon by Westbrook and Alter with respect to the Transaction.
[Signature blocks on the immediately following page]
This document has been executed in counterpart originals as
of this 5th day of April, 1999, each of which shall be considered an
original, but all of which taken together shall constitute one and the same
document.
/s/ Robert A. Alter
-----------------------
Robert A. Alter
WESTBROOK FUND III
ACQUISITIONS, L.L.C.
By: /s/ Jonathan H. Paul
---------------------
Name: Jonathan H. Paul
Title: Vice President
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Exhibit 6
April 5, 1999
Mr. Robert A. Alter
Chief Executive Officer
Sunstone Hotel Properties, Inc.
903 Calle Amanecer
San Clemente, CA 92673-6212
The undersigned, Westbrook Real Estate Fund III, L.P. (the "Fund")
on behalf of its wholly-owned subsidiary, Westbrook Fund III Acquisitions,
L.L.C. ("Acquisitions"), in exchange of good and valuable consideration, the
receipt and sufficiency of which is hereby confirmed, does hereby agree,
jointly and severally with Acquisition, to be bound by and to assume all of
the obligations and liabilities of Acquisitions under Sections 18, 21, 22 and
23 of the Term Sheet Letter, dated April 5, 1999, by and between Robert A.
Alter and Acquisitions.
WESTBROOK REAL ESTATE FUND III, L.P.
By: Westbrook Real Estate Partners
Management III, L.L.C.,
its General Partner
By: Westbrook Real Estate Partners, L.L.C.,
its sole member
By: /s/ Jonathan H. Paul
---------------------
Name: Jonathan H. Paul
Title: Managing Principal
Exhibit 7
April 5, 1999
Board of Directors
Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, CA 92673
Dear Sirs:
SHP Acquisition, L.L.C. ("SHP Acquisition") is pleased to propose
that it acquire all of the common stock of Sunstone Hotel Investors, Inc.
("Sunstone") for consideration of $9.50 to $10.00 in cash per share (the
"Cash Price"), on the terms and subject to the conditions set forth in this
letter. The average trading price of the Sunstone common stock on the New
York Stock Exchange for the period March 1, 1999 through April 1, 1999 was
$7.25. Based on this price, the consideration we are offering your
shareholders represents a premium of 31% to 38%. Under this proposal, the
holders of outstanding partnership units in Sunstone Hotel Investors, L.P.
("Sunstone OP") (other than Sunstone) would receive, at their option, either
cash in an amount per partnership unit equal to the Cash Price or redeemable
perpetual preferred units in Sunstone OP having a face value equal to the
Cash Price. Sunstone's 7.9% Class A Cumulative Convertible Preferred Stock
would be redeemed in accordance with its terms for a cash amount equal to its
liquidation preference plus accrued and unpaid dividends. SHP Acquisitions,
L.L.C. is a Delaware limited liability company newly organized by Westbrook
Fund III Acquisitions, L.L.C. ("Westbrook"), Mr. Robert A. Alter ("Mr.
Alter") and certain management personnel of Sunstone Hotel Properties, Inc.
("Lessee").
It is our view that this consideration is very fair and would be
attractive to your shareholders. We hope that you will view this proposal as
being an excellent opportunity for the shareholders of Sunstone to realize
full value for their shares to an extent not available to them in the
marketplace, and for Sunstone to continue its operations even more strongly
as a private company in experienced industry hands focused on the long-term
value of Sunstone and no longer subject to the often short-term pressures
imposed by the public financial markets and the limitations imposed by
Sunstone's REIT structure.
We presently contemplate that the acquisition would be accomplished
by the merger of a subsidiary of SHP Acquisition into Sunstone. After
consummation of the transaction, Sunstone would be wholly owned by SHP
Acquisition, which would in turn be owned by Westbrook, Mr. Alter and other
members of the Lessee's management. Prior to consummation of the merger, SHP
Acquisition would acquire all of Sunstone's interests in Sunstone OP and
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acquire or receive a contribution of certain stock and certain assets of the
Lessee and Sunstone Hotel Management, Inc. ("Management"). We and our
representatives are prepared to discuss our proposed acquisition structure
with you at your request. Attached as Annex A is a term sheet outlining the
arrangements which Westbrook and Mr. Alter intend to enter into between
themselves with respect to the ownership and operation of SHP Acquisition and
the businesses of SHP Acquisition's subsidiaries after the acquisition,
including the equity interests to be held by each such person.
We believe that the combination of Westbrook and Mr. Alter
represents a strategic match up of longstanding industry experience and
expertise with well-recognized financial and investment sophistication. Mr.
Alter, a co-founder of Sunstone, has been actively involved with Sunstone
since its formation and has been active in hotel management and ownership
since 1976. Led by Mr. Alter, management of the Lessee has a unique blend of
experience in hotel ownership and operation, particularly with acquisitions,
development and financing, combined with exceptional regional and property
level managers. Westbrook's parent, Westbrook Real Estate Fund III, L.P.
("Westbrook Fund") is a $1.25 billion equity fund that targets investments in
a broad range of real estate related assets, portfolios and companies. The
proposal contained in this letter has been approved by the investment
committee of Westbrook Fund. Westbrook Fund's investor group includes
institutional investors, primarily consisting of public and private pension
funds, endowments and foundations. Since its inception in 1994, Westbrook
Real Estate Partners L.L.C. ("Westbrook Partners"), the general partner of
Westbrook Fund, has closed over 70 investments with a total capitalization in
excess of $6 billion.
The financing used to complete the proposed transaction will be a
combination of equity and debt. Westbrook Fund is prepared to make an equity
investment in excess of $250 million in this acquisition, and we are
confident that we will be able to secure the required debt financing on an
expedited basis. In fact, we have already had extensive discussions with and
received a preliminary proposal from an affiliate of PaineWebber (which we
are currently negotiating), which has financed a number of transactions for
Westbrook Partners in the past, to provide all necessary funds to consummate
the transaction. Should you wish to discuss any aspect of the proposed debt
financing with PaineWebber, we would be happy to arrange an opportunity for
you to meet with appropriate representatives.
As with every other Westbrook Partners transaction, consummation of
this transaction is subject to the completion of the financing arrangements
described above. We believe that Westbrook Partner's record of securing the
financing necessary to complete transactions by its affiliates is well
recognized by the investment community. The magnitude of Westbrook Fund's
proposed equity investment demonstrates its commitment to a responsible
capital structure in order to facilitate Sunstone's continuing as a
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financially sound, growing company which is well positioned to meet its
ongoing responsibilities and obligations. We would like to sign a definitive
merger agreement no later than April 30, 1999, and we expect to have executed
commitment letters for all of the required financing at that time. We
anticipate that definitive documentation for the financing would be finalized
in the period prior to the vote of the Sunstone shareholders with respect to
the proposed acquisition.
This proposal is also subject to the following conditions: (i)
approval by Sunstone's Board of Directors and shareholders pursuant to the
requirements of Maryland law and the rules of the New York Stock Exchange,
(ii) any required approval by the holders of the operating partnership units
of Sunstone OP, (iii) receipt of any consents of third parties required under
material contracts of Sunstone, Lessee and Management, (iv) Sunstone having
balance sheet liabilities at the closing of the proposed acquisition not in
excess of those shown on its consolidated balance sheet dated as of March 31,
1999 and (v) the negotiation and execution of definitive agreements providing
for the merger and the transactions outlined on Annex A and the satisfaction
of customary conditions to be set forth therein, including a mutually
satisfactory definitive merger agreement which would contain customary
covenants, representations, warranties, conditions and other provisions
normal to such agreements. The merger agreement would prohibit Sunstone from
soliciting indications of interest from other persons with respect to an
acquisition of Sunstone, although it would permit the Board of Directors of
Sunstone to respond to inquiries from and provide information to bona fide
interested third parties and, subject to reimbursement of expenses and
payment of a termination fee in the amount of 3% of the total transaction
value (which value shall include the total price to be paid to Sunstone
shareholders, all debt to be assumed or refinanced and all fees and
expenses), terminate the merger agreement if it determined to accept an
alternative transaction. The merger agreement would provide Sunstone the
ability to require that the shareholders of Lessee and Management sell such
companies to any purchaser of Sunstone for a cash purchase price of $35
million and give the shareholders of such companies the option to sell such
companies to any such purchaser or its designee for a $35 million cash
purchase price. We would expect that Sunstone would continue to pay
dividends to its shareholders in the ordinary course consistent with past
practice until the consummation of this acquisition.
While we have reviewed the publically available information with
respect to Sunstone and have devoted a great deal of time and effort to
studying Sunstone, our proposal is subject to confirmatory due diligence to
be conducted by Westbrook. Given the familiarity of both Mr. Alter and
Westbrook with Sunstone, this diligence would be completed expeditiously and
should not delay the execution of a definitive merger agreement. Our offer
is based on the understanding that there are approximately 37,638,427 shares
of common stock of Sunstone currently outstanding and approximately 2,106,480
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additional shares are currently issuable upon conversion of operating
partnership units of Sunstone OP.
We have no intention of attempting to acquire Sunstone other than
in a transaction approved by Sunstone's Board of Directors. We hope that you
will view this merger proposal favorably and that you, after appropriate
consideration, will authorize further discussions with a view towards
reaching a definitive agreement. We would appreciate hearing from you
regarding our proposal by the close of business on April 19, 1999, at which
time our proposal will lapse. If you believe that you will require
additional time to consider our proposal adequately, we would be pleased to
discuss an extension.
We are prepared to move promptly in connection with this matter.
We have considered legal and other requirements with our advisors and do not
foresee any insurmountable difficulties. We are prepared to meet with you or
with your representatives to discuss our proposal and to answer any questions
you or they may have. We believe that the negotiation of a satisfactory
definitive merger agreement could be accomplished in a relatively short
period of time. Thereafter we would work with you to obtain any required
regulatory approvals and the other approvals referred to above. Please
contact Paul Kazilionis (561-545-9775), Jon Paul (212-849-8839) or Mark Mance
(415-438-3339) of Westbrook Partners, or Bob Alter (949-369-4309) of SHP
Acquisition, or Richard Capelouto (212-455-7040) or Brian Stadler (212-455-
3765) of Simpson Thacher & Bartlett, or Martin Edelman (212-856-7100) or
Steven Lichtenfeld (212-856-6996) of Battle Fowler LLP, to respond to our
offer, or if you or your counsel require any additional information with
respect to the offer. We look forward to discussing our offer with you,
entering into a definitive merger agreement promptly and consummating this
transaction on an expedited basis.
Very truly yours,
SHP Acquisition, L.L.C.
By /s/ Robert A. Alter
---------------------------------
Name: Robert A. Alter
Title: Manager
By /s/ Paul D. Kazilionis
---------------------------------
Name: Paul D. Kazilionis
Title: Manager
Attachment
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Annex A
TERM SHEET LETTER
Mr. Robert A. Alter
Chief Executive Officer
Sunstone Hotel Properties, Inc.
903 Calle Amanecer
San Clemente, CA 92673-6212
The following outlines the general terms and conditions under which Westbrook
Fund III Acquisitions, L.L.C. and/or its affiliates ("Westbrook") may
consider forming a venture with you ("Alter") and key management personnel of
Sunstone Hotel Properties, Inc. (the "Lessee") for the acquisition of the
following: (i) 100% (with the exception of the shares or OP units owned by
Alter and certain other persons -- see below) of the outstanding
common/preferred stock of Sunstone Hotel Investors, Inc. ("Sunstone") and
operating partnership interests ("OP Units") in Sunstone Hotel Investors,
L.P. ("Sunstone OP"); (ii) certain equity interests in the Lessee; and (iii)
100% of the assets of Sunstone Hotel Management, Inc. (the "Management
Company"). The acquisition of the foregoing is referred to as the
"Transaction." Pursuant to the Transaction, holders of OP Units in Sunstone
OP (other than Alter and certain key management of the Lessee participating
in the Venture) may be granted the right to receive consideration (i.e.
redeemable perpetual preferred units) that would not result in the immediate
recapture of any of their deferred tax liability.
1. Transaction Structure: Westbrook and Alter (each referred to herein as
a "Member") would form a Delaware limited liability company (the
"Venture"), or alternative ownership vehicle with similar economic
characteristics, in which Westbrook, subject to the limitations set
forth in paragraphs 4 and 9, would act as managing member. All net cash
flow from the Venture would be distributed to the Members as described
below. The Venture would focus on the ownership, acquisition,
management, and repositioning of primarily full service hotels located
throughout the United States.
2. Transaction Capitalization: Alter would contribute the following to the
Venture: (i) his interest in Sunstone and Sunstone OP, (ii) his shares
of Sunstone, (iii) 49% of the stock of the Lessee and rights to all
distributions and dividends and to the proceeds from any sale of the
remaining 51% of the stock of the Lessee, and (iv) would cause the
Management Company to contribute its assets to the LLC. Alter would
receive (a) $3.0 million in cash, (b) a capital account in the LLC equal
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to (x) $10.5 million plus (y) 460,352 (representing the aggregate number
of Sunstone shares and OP Units owned by Alter) multiplied by the price
paid per share of Sunstone common stock in the merger and (c) the
profits interest in the Venture as described in paragraph 3 below. (The
amount set forth in clauses (x) and (y) above shall mean, collectively,
the "Alter Capital Amount.") The Venture would have the right to buy
Alter's 51% of the shares of the Lessee upon certain agreed upon terms
and conditions. The Lessee's Board would include a representative of
Westbrook, all significant actions of the Lessee would require Board
approval and all Board action would require the
unanimous approval of all Board members. Prior to closing, all
franchisers would issue a comfort letter permitting Venture to acquire
Alter's shares in the Lessee under the specified circumstances
permitting such acquisition. Alter and any individual investors in the
Venture would hold their interests in the Venture indirectly through S
corporations or other entities reasonably agreed to by the parties. In
connection with the Transaction and subject to the receipt of customary
representations, warranties and indemnities, the Venture would assume
all disclosed liabilities of the Lessee and Management Company as set
forth on the balance sheets of the Lessee and Management Company as well
as the obligation to pay $2.25 million to certain employees of the
Lessee (as described below) and provided that between January 1, 1999
and the closing of the Transaction only customary dividends shall be
paid by the Lessee and Management Company to its stockholders (not to
exceed $500,000 in the aggregate). Westbrook or its co-investors would
contribute to the Venture the balance of the additional equity capital
necessary to complete the Transaction (the "Westbrook Capital Amount").
For his 20% interest in the Lessee, Charles L. Biederman ("Biederman")
would receive $1.75 million in cash and a portion of the profits
interest in the Venture that is described in paragraph 3 below. In
addition, at the closing of the Transaction, Biederman and certain other
employees of the Lessee would receive from the Lessee $2.25 million in
cash in respect of certain services provided to the Lessee. The terms
and conditions of the Transaction as well as the Venture's capital
structure (including the initial debt parameters and debt/equity ratio),
and any changes thereto prior to the consummation of the Transaction,
requires approval by both Alter and Westbrook.
3. Distributions: All distributions by the Venture would be made as
follows:
(a) First, to Westbrook and Alter, pro rata (based on the Westbrook
Capital Amount and the Alter Capital Amount), until Westbrook and
Alter receive a return of the Westbrook Capital Amount and Alter
Capital Amount with a 15% IRR;
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(b) Second, to Alter until Alter receives an additional $17.5 million;
and
(c) Thereafter, (i) 11.5% to Alter and (ii) the remainder to Westbrook
and Alter, pro rata (calculated based on the Westbrook Capital
Amount and the Alter Capital Amount plus the amount distributed to
Alter in clause (b) above).
4. Control: An Executive Committee would be established to make all major
decisions of the Venture by majority vote (except as provided in this
letter), including asset sales, financings, capital expenditures and
annual budget approval. The Executive Committee would consist of
members appointed by Alter and members appointed by Westbrook (provided
that Westbrook would have the right to appoint all of the members of the
Executive Committee if Alter is terminated for cause or ceases to hold
an equity interest in the Venture); a majority of which will be
appointed by Westbrook. The principal place of business of the Venture
would be located at Sunstone's current principal place of business.
5. Distributions: Except to the extent necessary to fund required expenses
or specified reserves as reasonably determined in good faith by the
Executive Committee (such expenses
and reserves may include amounts attributable to required, but not
discretionary, debt payments, but may not include amounts attributable
to new acquisitions or major expansions of existing hotels) and subject
to any limitations imposed by the Venture's lenders, all cash flow from
the Venture and the Lessee will be distributed to its members in
accordance with paragraph 3. All net cash flow from operations would be
distributed by the Venture on a quarterly basis.
6. Alter Employment Arrangements: Alter would act as Chief Executive
Officer of the Venture and would receive annual compensation of $500,000
(subject to annual increases based on the increase in CPI, but not less
than 4% per annum) pursuant to a five-year employment agreement, plus a
discretionary bonus as (and to the extent) approved by Westbrook. The
employment agreement would provide that if Alter's employment is
terminated by the Venture other than for "cause" or is terminated by
Alter with "good reason," Alter would be entitled to receive a severance
payment, subject to any limitations imposed by Section 280G of the
Internal Revenue Code, equal to the product of (x) the sum of Alter's
then annual base salary and the amount of Alter's bonus for the
preceding year and (y) the lesser of (1) 2.99 or (2) a fraction, the
numerator of which is the number of days remaining during the term of
the agreement and the denominator of which is 365 (provided that such
fraction shall not be less than 1). Such severance payment shall be
payable in accordance with the Venture's customary payroll practices
over the remaining term of the contract (but not in excess of 2 years).
For purposes of the agreement "cause" would mean (i) Alter's willful and
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intentional failure or refusal to perform or observe a material portion
of his material duties, responsibilities or obligations set forth in his
employment agreement or his negligence (after notice of default and
opportunity to cure), for reasons other than illness or incapacity
(provided that any such failure, refusal or negligence would not be
deemed "cause" unless (a) such failure, refusal or negligence results in
actual (but not consequential) damage to the Venture in excess of $1.0
million (combined with all other such uncured failures, refusals or
occurrences of negligence), and Alter fails to contribute an amount to
the Venture necessary to reduce such damage amount to below $1.0
million, and (b) such failure, refusal or negligence does not relate to
the general, over-all marketing or operating strategies of the Venture
that are implemented or supervised by Alter or any actions taken or
omitted with the knowledge of or at the direction of the Executive
Committee; (ii) any willful and intentional act of Alter involving
malfeasance, fraud, theft, misappropriation of funds, embezzlement or
dishonesty affecting the Venture; or (iii) Alter's conviction of, or
plea of guilty or nolo contendere to, an offense which is a felony in
the jurisdiction involved. The defense of any litigation relating to
whether Alter may properly be removed for cause pursuant to clause (i)
shall be funded by the Venture but shall be subject to reimbursement if
Alter is not the prevailing party. For purposes of this letter, the
term "good reason" would mean (i) the assignment to Alter of duties
materially inconsistent with Alter's position as CEO of the Venture or
any significant diminution in Alter's duties and responsibilities; (ii)
the change in the location of the Venture's executive offices or of
Alter's place of employment to a location that is greater than a 35 mile
radius from Sunstone's existing executive offices; (iii) a material
breach of the employment agreement by the Venture or (iv) a change in
control of the Venture (other than an IPO or other public offering),
unless prior to or in connection with the change in control event Alter
received from the Venture an amount of cash equal to the Alter Capital
Amount plus the amount set forth in paragraph 3(b) (whether pursuant to
paragraph 3 or otherwise). In the event of Alter's death, disability,
termination by the Venture without cause or termination by Alter with
good reason or the Venture's failure to tender to Alter a New Employment
Agreement (as defined below), Alter would have the right to put to the
Venture his interest in the Venture at a buy-out price equal to the then
fair market value of Alter's interest in the Venture (determined by
three-party appraisal and assuming the hypothetical sale of the
Venture's assets at fair market value and a liquidation of the Venture
using the priorities for capital proceeds (the "Put Right Price"). If
during the initial term of his employment agreement Alter is discharged
for cause or resigns without good reason, Alter would forfeit 86.9% of
the amount payable to Alter pursuant to clause (i) of paragraph 3(c)
(the "Promote"). If after the expiration of the initial term of Alter's
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employment agreement Alter is not tendered a new employment agreement
(on the same terms and conditions as his initial 5-year employment
agreement except that the base salary shall be his most recent base
salary) (the "New Employment Agreement") the Promote shall no longer be
subject to forfeiture. If following the expiration of the initial term
of Alter's employment agreement, Alter and the Venture enter into a New
Employment Agreement which is subsequently terminated by the Venture for
cause or by Alter without good reason, a portion of the Promote shall be
forfeited in accordance with the following schedule: during year 1 -
50%; during year 2 - 40%; during year 3 - 30%; during year 4 - 20%;
during year 5 - 10%. If after the expiration of initial term of Alter's
employment agreement, Alter is tendered a New Employment Agreement that
is not signed by him, Alter shall forfeit the Promote. If Alter's
employment agreement is terminated for any reason, Alter shall not
compete with the Venture for a period of one year following the
termination of his employment. The Venture would accrue $500,000 per
quarter (that would be cumulative and would compound at a rate of 12%)
that would be paid annually as a bonus to Alter (and other members of
senior management designated by Alter in his sole and absolute
discretion) out of available cash after Westbrook has received a 12%
compounded quarterly return on the Westbrook Capital Amount (the "Bonus
Payment"). The Executive Committee shall have the right to reduce pro
rata Bonus Payment accruals as Alter receives payments pursuant to
paragraph 3(b) and shall not otherwise reduce the payments.
7. Limited Call Rights: If Alter is no longer employed at the Venture,
Westbrook would receive a call on Alter's interest in the Venture at
the Put Right Price after giving effect to any forfeiture of the Promote
described above.
8. Required Liquidation: Subject to a right of first offer in favor of the
other party, from and after the date that is 10 years after the
Venture's formation, either Alter or Westbrook may require a sale of all
the Venture's assets or a sale of all the interests in the Venture.
9. Major Decisions: The following would require Alter's approval: (i)
transactions between the Venture and affiliates of Westbrook that are
not on market terms, (ii) except for any transferee permitted by
paragraph 16, admission of a new member, (iii) the amendment of the
Venture operating agreement, (iv) in-kind distributions to members, (v)
retention of cash flow in excess of the amounts necessary to fund
required expenses or specified reserves reasonably determined in good
faith by the Executive Committee (such expenses and reserves may include
amounts attributable to required, but not discretionary, debt payments,
but may not include amounts attributable to new acquisitions or major
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expansions of existing hotels), and (vi) except as set forth in paragraph
11, additional capital calls.
10. Budget; Reporting Requirements: Alter would prepare (or cause to be
prepared by the Venture's accountants, who shall be a "Big 5" accounting
firm selected by the members), in accordance with reasonable standards
that would be supplied by Westbrook, and deliver to Westbrook, at
Venture expense, (i) quarterly unaudited, and annual audited, financial
statements of the Venture and (ii) a quarterly and annual budget for the
Venture's general operations. Alter would be required to operate the
Venture within 105% of the over-all budget approved by the Executive
Committee and within 110% of each line-item category within each such
approved budget, including any contingency percentages in the budget.
11. Additional Capital: If additional capital is required by the Venture to
fund "necessary expenses," then either Westbrook or Alter can notify the
other of the amount of additional capital then required (a "Capital
Requirement") and Westbrook and Alter would contribute, pro rata in
accordance with their interest in the Venture, such Capital Requirement.
Such contributions would have first priority on operating cash flow and
capital proceeds distributions, pro rata to Westbrook and Alter, until
such amounts are returned with a 15% IRR. If any party fails to
contribute his or its pro rata share of any Capital Requirement, the
entire Capital Requirement shall be loaned to the Venture by the other
party at a rate of 15% per annum compounded quarterly and such loan
amount shall be taken into account in calculating the distributions to
the party making such loan, pursuant to paragraph 3(c)(ii).
12. Rights of First Offer: During the first 4 years of the Venture,
Westbrook would not permit the Venture to sell any Venture management
company equity or assets on a stand-alone basis (i.e., without any hotel
assets of the Venture) without first granting to Alter a right of first
offer to acquire such equity interests or assets. After the first 4
years of the Venture, Alter would have a right of first offer to acquire
any Venture management company assets or equity that is sold on a
stand-alone basis but only if (i) the proceeds that would be distributed
to Westbrook as a result of such sale, (ii) all distributions made by
the Venture to Westbrook prior to such date, plus (iii) the proceeds
that would be distributed to Westbrook if all of the assets of the
Venture would be liquidated at appraised fair market value (such
liquidation value to be determined by three-party appraisal), would, in
the aggregate, result in at least a 17.5% IRR to Westbrook (including
the return of the Westbrook Capital Amount).
13. Sale of Assets: During the first 18 months of the Venture, Westbrook
would not sell or otherwise dispose of properties owned by the Venture
which, in the aggregate, include more than 30% of the aggregate number
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of guest rooms in the Venture's portfolio unless the aggregate sale
price for all such properties exceeds the Venture's aggregate basis in
such properties. In addition, during the first 18 months of the
Venture, Westbrook will not liquidate the Venture or sell all or
substantially all of its assets unless such liquidation or sale results
in proceeds that are sufficient to distribute to Alter, in addition to
the Bonus Payment, the full amount pursuant to paragraph 3(b).
14. Offices; Key Employees: The Venture will maintain and pay for suitable
offices for Alter, the Venture's key employees and its servicing staff,
subject to a budget approved by the Executive Committee. The Venture
would compensate its key employees in accordance with the compensation
parameters agreed to by Alter and Westbrook. In addition to such
amounts, Alter would have the right to grant to key employees such
portion of the Promote as Alter desires (but not less than 33%), subject
to an automatic transfer of such Promote to the Venture, to be
reallocated by Alter to other key employees, if any such employee is
terminated for cause or voluntarily resigns, all as Alter may determine.
15. Tax Matters: Subject to standard minimum gain chargeback and qualified
income offset language under the IRC Section 704(b) safe harbors,
taxable income and loss would be allocated so as to cause the capital
accounts of Westbrook and Alter to equal the amounts they would be
entitled to under the priorities set forth under "Distributions" above
(assuming a sale of Venture assets at their then adjusted tax basis).
Westbrook would be the "tax matters partner" of the Venture , subject to
Alter's reasonable approval of tax filings and IRS settlements. The
Venture's accountants will prepare the tax returns. The members would
agree to appropriate language for purposes of satisfying "fractions
rule," ERISA and "plan assets" requirements resulting from Westbrook
having tax-exempt investors. Subject to any limitations imposed by the
Venture's lenders, the Venture would make tax loans to Alter to the
extent Alter's cumulative tax liability exceeds Alter's cumulative
distributions (several liability of other members of management who
borrow). Tax depreciation will be allocated pro rata to Alter and
Westbrook in accordance with the Alter Capital Amount and the Westbrook
Capital Amount.
16. Transfer of Interests: No member of the Venture would be permitted to
pledge, hypothecate or otherwise transfer its interests in the Venture,
except that any member would be permitted to: (i) transfer its interest
in the Venture if certain (to-be-specified) principals of, respectively,
Westbrook or Alter (a) control the transferee as to all operating and
major decisions and (b) also have at least a 50% direct or indirect
economic interest in the transferee, (ii) pledge or hypothecate its
right to receive distributions from the Venture, provided that the
pledgee has no voting or other control rights with respect to the
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Venture, or (iii) transfer its interest by operation of law, including
death or bankruptcy. Except as set forth below, if the Venture is
formed and Westbrook thereafter sells any portion of its interest in the
Venture Alter would also have the right to tag along in such sale upon
the same terms and conditions as those offered to Westbrook.
Notwithstanding the foregoing, Westbrook shall have the right to sell
less than a 50% of its interest in the Venture (but in no event control
rights) during the first year of the Venture, free and clear of any tag
along rights in favor of Alter, provided that Westbrook's only profit in
such sale is represented by a promote interest in the Venture. Any tag
along rights in favor of Alter shall be subject to drag along rights in
favor of Westbrook except that no drag along shall be permitted for a
period of 18 months unless in connection with any drag along of Alter he
receives an amount equal to the sum of (x) the Alter Capital Amount,
(y) the accrued but unpaid Bonus Payment and (z) $17.5 million.
17. Indemnification: The Venture would indemnify each member, and their
respective officers, against all losses incurred in connection with
operating the Venture, unless such loss resulted from such member (or
such officer) committing fraud, gross negligence, and willful misconduct
resulting in a material breach of the Venture's operating agreement that
is not cured within the time period provided therein for such cure.
18. Exclusivity: Upon execution of this letter and until the earlier of
(i) 6 months after the date hereof and (ii) 30 days after the date upon
which Sunstone's board of directors definitively rejects the Venture's
final proposal regarding the Transaction (unless in the case of (i) or
(ii) the process implemented by Sunstone's Board relating to the
Transaction is continuing and Westbrook in good faith is continuing to
pursue the Transaction in accordance with the terms of such process),
neither Westbrook nor Alter (in their respective individual capacities
and not in any capacity they have at Sunstone) will engage in
discussions or enter into agreements or understandings with any person
or group, including Sunstone, concerning a business combination
involving, or the acquisition of a material portion of the assets or
equity of, Sunstone, or the Sunstone OP, the Lessee or the Management
Company, other than the other of them concerning the transactions
contemplated by this letter (provided, however, that the foregoing shall
not prohibit (x) Westbrook from discussing or entering into agreements
or understandings regarding the proposed Transaction with its internal
or co-investors, subject to their respective agreement to comply with
the confidentiality and other provisions set forth herein or (y) Alter
from selling his interest in the Lessee and Management Company (or their
assets) in any transaction contemplated by paragraph 19 (or any
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derivative or modification thereof approved by Sunstone's Board in
connection with the proposed Transaction).
19. Tag Along/Drag Along: The proposal to Sunstone will provide that upon
the execution of a definitive agreement between Sunstone and the Venture
regarding the Transaction, any alternative transaction involving
Sunstone will (unless otherwise approved by Alter) provide the Lessee
and the Management Company with a right to tag along with Sunstone in
any such alternative transaction at a purchase price of $35 million in
cash. In addition, Sunstone will have a right in any such alternative
transaction to drag along the Lessee and the Management Company in such
transaction at a purchase price of $35 million in cash.
20. Confidentiality: Except as otherwise required by law or in paragraph 21
below or as may be disclosed by the parties in any Schedule 13D filing,
the terms of the Transaction and this letter will be kept strictly
confidential by both parties regarding persons other than their
attorneys and accountants (under duties of confidentiality) unless both
of Alter and Westbrook release or consent to the release of any such
information.
21. Submission to Sunstone Board: Westbrook and Alter will reasonably
cooperate in determining the manner of proposing (jointly) the terms and
conditions of the Transaction to the Sunstone Board of Directors for its
approval (including, without limitation, a break-up fee of 3% of the
total transaction value, (i.e., total amount that would be paid to
Sunstone's shareholders plus all debt to be assumed or refinanced plus
all transaction fees and expenses), and would make such proposal to the
Sunstone board as soon as is reasonably practicable after the execution
of this Term Sheet.
22. Good Faith Negotiation; Costs: Each of Westbrook and Alter hereby agree
to use good faith and reasonable efforts to draft, negotiate and enter
into an operating agreement with respect to the Venture on or before
April 30, 1999. The Venture Agreement will be drafted by Simpson
Thacher & Bartlett. All costs incurred by Westbrook, Alter and their
respective affiliates in negotiating and preparing this term sheet
(including all attorneys' fees and costs relating thereto), and all
other documentation relating thereto, would be borne by the Venture;
provided, however if the Venture is not formed, all of such costs would
be paid by the party that incurred such costs. Any break-up fee or
similar payment payable to the Venture will first be used to pay the
expenses incurred by each member and the Venture in connection with the
Transaction and, thereafter, distributed pro rata to the members
(provided, if Alter participates in an alternative transaction involving
Sunstone pursuant to which the break-up fee is paid and the Management
Company or Lessee is sold to any entity not affiliated with Westbrook,
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100% of the remaining portion of the break-up fee or similar payment, if
any, would be distributed to Westbrook).
23. Governing Law/Attorneys Fees. It is the intent of the parties hereto
that all questions with respect to the construction of this letter and
the rights and liabilities of the parties hereto would be determined in
accordance with the provisions of the laws of the State of New York. In
any dispute among the parties hereto concerning this letter agreement,
the prevailing party would be entitled to recover from the
non-prevailing party the prevailing party's (and its affiliates)
reasonable attorneys' fees and costs. To the extent permitted by
applicable law, the parties hereby waive trial by jury.
Please bear in mind that this letter is intended to summarize the basic terms
under which Westbrook and Alter may be prepared to invest with each other in
the Transaction and is not a binding commitment between Westbrook and Alter
(other than the provisions of Paragraphs 18, 20, 21, 22 and 23 relating to
exclusivity, confidentiality, submission to Sunstone's Board, good faith
negotiation, the bearing of costs and governing law/attorneys fees, all of
which are intended to be binding agreements of Westbrook and Westbrook's
parent, Westbrook Real Estate Fund III, L.P. (the "Westbrook Parent"). Upon
any material breach of a binding provision of this letter by either Westbrook
or Westbrook Parent, on the one hand, or Alter on the other hand, the
non-breaching party shall have the right to immediately terminate this letter
agreement upon which all further obligations of the parties hereto shall
terminate, except that the terminating party's right to pursue all legal
remedies in respect of such breach will survive such termination unimpaired.
Moreover, this letter does not address all matters upon which agreement must
be reached in order for the Transaction to be consummated, and except with
respect to the items described in the preceding sentence, creates no rights
in favor of any party. A binding commitment between Westbrook and Alter will
only exist to the extent it is set forth in a definitive agreement mutually
agreed upon by Westbrook and Alter with respect to the Transaction.
[Signature blocks on the immediately following page]
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This document has been executed in counterpart originals as
of this 5th day of April, 1999, each of which shall be considered an
original, but all of which taken together shall constitute one and the same
document.
-------------------
Robert A. Alter
WESTBROOK FUND III ACQUISITIONS, L.L.C.
By:
--------------------
Name: Jonathan H. Paul
Title: Vice President
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Exhibit 8
Joint Filing Agreement
We, the signatories of the statement on Schedule 13D to which this
Agreement is attached, hereby agree that such statement is, and any
amendments thereto filed by any of us will be, filed on behalf of each of us.
WESTBROOK REAL ESTATE PARTNERS, L.L.C.
By: /s/ Jonathan H. Paul
---------------------
Name: Jonathan H. Paul
Title: Managing Principal
WESTBROOK REAL ESTATE PARTNERS
MANAGEMENT I, L.L.C.
By: Westbrook Real Estate
Partners, L.L.C., its sole member
By: /s/ Jonathan H. Paul
---------------------
Name: Jonathan H. Paul
Title: Managing Principal
WESTBROOK REAL ESTATE FUND I, L.P.
By: Westbrook Real Estate Partners
Management I, L.L.C., its
General Partner
By: Westbrook Real Estate
Partners, L.L.C., its sole member
By: /s/ Jonathan H. Paul
---------------------
Name: Jonathan H. Paul
Title: Managing Principal
<PAGE>
<PAGE>
WESTBROOK REAL ESTATE
CO-INVESTMENT PARTNERSHIP I, L.P.
By: Westbrook Real Estate Partners
Management I, L.L.C., its
General Partner
By: Westbrook Real Estate
Partners, L.L.C., its sole member
By: /s/ Jonathan H. Paul
---------------------
Name: Jonathan H. Paul
Title: Managing Principal
WESTBROOK REAL ESTATE PARTNERS
MANAGEMENT III, L.L.C.
By: Westbrook Real Estate
Partners, L.L.C., its sole member
By: /s/ Jonathan H. Paul
---------------------
Name: Jonathan H. Paul
Title: Managing Principal
WESTBROOK REAL ESTATE FUND III, L.P.
By: Westbrook Real Estate Partners
Management III, L.L.C., its
General Partner
By: Westbrook Real Estate
Partners, L.L.C., its sole member
By: /s/ Jonathan H. Paul
---------------------
Name: Jonathan H. Paul
Title: Managing Principal
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<PAGE>
WESTBROOK REAL ESTATE
CO-INVESTMENT PARTNERSHIP III, L.P.
By: Westbrook Real Estate Partners
Management III, L.L.C., its
General Partner
By: Westbrook Real Estate
Partners, L.L.C., its sole member
By: /s/ Jonathan H. Paul
---------------------
Name: Jonathan H. Paul
Title: Managing Principal
WESTBROOK FUND III ACQUISITIONS, L.L.C.
By: /s/ Jonathan H. Paul
---------------------
Name: Jonathan H. Paul
Title: Vice President
SHP ACQUISITION, L.L.C.
By: /s/ Jonathan H. Paul
---------------------
Name: Jonathan H. Paul
Title: Manager
By: /s/ Robert A. Alter
---------------------
Name: Robert A. Alter
Title: Manager
GREGORY J. HARTMAN
/s/ Gregory J. Hartman
------------------------
Name: Gregory J. Hartman
PAUL D. KAZILIONIS
/s/ Paul D. Kazilionis
------------------------
Name: Paul D. Kazilionis
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<PAGE>
JONATHAN H. PAUL
/s/ Jonathan H. Paul
---------------------
Name: Jonathan H. Paul
WILLIAM H. WALTON III
/s/ William H. Walton III
---------------------------
Name: William H. Walton
Dated: April 5, 1999
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