-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uru7CRrn8sQIf6G7kjV5wxAuqcajKSA2JA1ck1v5y3s9m1nieVyfe21sgxvxOVV1 jjsDe856XgxiHBSvDZEZcA== 0000892569-98-000271.txt : 19980210 0000892569-98-000271.hdr.sgml : 19980210 ACCESSION NUMBER: 0000892569-98-000271 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980206 ITEM INFORMATION: FILED AS OF DATE: 19980209 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUNSTONE HOTEL INVESTORS INC CENTRAL INDEX KEY: 0000930600 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 521891908 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-26304 FILM NUMBER: 98524724 BUSINESS ADDRESS: STREET 1: 115 CALLE DE INDUSTRIAS SUITE 201 CITY: SAN CLEMENTE STATE: CA ZIP: 92672 BUSINESS PHONE: 7143613900 MAIL ADDRESS: STREET 1: 115 CALLE DE INDUSTRIAS STREET 2: SUITE 201 CITY: SAN CLEMENTE STATE: CA ZIP: 92672 8-K 1 FORM 8-K DATED FEBRUARY 6, 1998 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT ---------------- PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): February 6, 1998 ----------------- COMMISSION FILE NUMBER 0-26304 SUNSTONE HOTEL INVESTORS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) ---------------- MARYLAND ------------------------------- (State or Other Jurisdiction of Incorporation or Organization) 0-26304 52-1891908 - -------------------------- -------------------------- (Commission File No. ) (I.R.S. Employer Identification No.) 115 CALLE DE INDUSTRIAS, SUITE 201, SAN CLEMENTE, CA 92672 - ---------------------------------------------------- -------------- (Address of Principal Executive Offices) (Zip Code) (714) 361-3900 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) NOT APPLICABLE - -------------------------------------------------------------------------------- (former name or former address, if changed since last report) ================================================================================ 2 This Current Report is being filed for the sole purpose of incorporating the exhibits filed herewith by reference into the Registration Statement on Form S-3 (File No. 333-34377) of Sunstone Hotel Investors, Inc. These exhibits include the Underwriting Agreement (Exhibit 1.1 to the Registration Statement) and the Opinion of Brobeck, Phleger & Harrison LLP as to tax matters (Exhibit 8.1 to the Registration Statement). These exhibits are deemed incorporated into the Registration Statement as of the date hereof. Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (c) Exhibits 1.1 Underwriting Agreement 8.1 Opinion of Brobeck, Phleger & Harrison LLP as to tax matters SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SUNSTONE HOTEL INVESTORS, INC. Date: February 6, 1998 By: /s/ KENNETH J. BIEHL, Chief Financial Officer ------------------------------ Kenneth J. Biehl, Chief Financial Officer EX-1.1 2 UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SUNSTONE HOTEL INVESTORS, INC. (a Maryland corporation) 4,500,000 Shares of Common Stock PURCHASE AGREEMENT Dated: February 5, 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2 SUNSTONE HOTEL INVESTORS, INC. (a Maryland corporation) 4,500,000 Shares of Common Stock (Par Value $.01 Per Share) PURCHASE AGREEMENT ------------------ February 5, 1998 MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED BEAR, STEARNS & CO. INC. GOLDMAN, SACHS & CO. A.G. EDWARDS & SONS, INC. NATIONSBANC MONTGOMERY SECURITIES LLC as Representatives of several Underwriters c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, NY 10281-1209 Ladies and Gentlemen: Sunstone Hotel Investors, Inc., a Maryland corporation (the "Company") and Sunstone Hotel Investors, L.P., a Delaware limited partnership (the "Partnership"), confirm their respective agreements with Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Bear, Stearns & Co. Inc., Goldman, Sachs & Co., A.G. Edwards & Sons, Inc., NationsBanc Montgomery Securities LLC and each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters", which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch, Bear, Stearns & Co. Inc., Goldman, Sachs & Co., A.G. Edwards & Sons, Inc. and NationsBanc Montgomery Securities LLC are acting as representatives (in such capacity, the "Representatives"), with respect to the issue and sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of Common Stock, par value $.01 per share, of the Company ("Common Stock") set forth in said Schedule A, and with respect to the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of 675,000 additional shares of Common Stock to cover over-allotments, if any. The aforesaid 4,500,000 shares of Common Stock (the "Initial Securities") to be purchased by the Underwriters and all or any part of the 675,000 shares of Common Stock subject to the option described in Section 2(b) hereof (the "Option Securities") are hereinafter called, collectively, the "Securities." The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered. 3 The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 dated August 26, 1997 (No. 333-34377) covering the registration of the Securities under the Securities Act of 1933, as amended (the "1933 Act"), and the offering thereof from time to time in accordance with Rule 415 of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations"), including the related preliminary prospectus or prospectuses. Promptly after execution and delivery of this Agreement, the Company will either (i) prepare and file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A") of the 1933 Act Regulations and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The information included in any such prospectus or in any such Term Sheet, as the case may be, that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434 Information." Each Prospectus used before such registration statement became effective, and any prospectus that omitted, as applicable, the Rule 430A Information or the Rule 434 Information, that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a "preliminary prospectus." The registration statements described above, including the exhibits thereto, schedules thereto, if any, and the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it became effective and including the Rule 430A Information and the Rule 434 Information, as applicable, is herein called the "Registration Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b) Registration Statement," and after such filing the term "Registration Statement" shall include the Rule 462(b) Registration Statement. The final prospectus, including the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, in the form first furnished to the Underwriters for use in connection with confirmation of the offering of the Securities is herein called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to the preliminary Prospectus dated January 30, 1998, together with the applicable Term Sheet and all references in this Agreement to the date of the Prospectus shall mean the date of the applicable Term Sheet. For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any Term Sheet or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement, any preliminary prospectus or the Prospectus (or other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is incorporated by reference in the Registration Statement, any preliminary prospectus or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to mean and include the filing of any of any document under the Securities Exchange Act of 1934, as amended (the "1934 Act") which is incorporated by reference in the Registration Statement, such preliminary prospectus or the Prospectus, as the case may be. 2 4 For purposes of this Agreement, the term "Subsidiary," with respect to the Company, refers to each of the entities listed on Schedule C and all other corporations, partnerships, associations, limited liability companies, joint ventures or other business entities of which 50% or more of the total voting power of shares of stock or other ownership interest entitled (without regard to the occurrence of any contingency) to vote in the election of the person or persons (whether directors, managers, partners, trustees or other persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by the Company or one or more of the other Subsidiaries of the Company or a combination thereof. SECTION 1. REPRESENTATIONS AND WARRANTIES. (a) Representations and Warranties by the Company and the Partnership. The Company and the Partnership, jointly and severally, represent and warrant to each Underwriter as of the date hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b) hereof, and agree with each Underwriter, as follows: (i) Compliance and Registration Requirements. The Company meets the requirements for use of Form S-3 under the 1933 Act. Each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated by the Commission, and any request on the part of the Commission for additional information has been complied with. At the respective times the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto became effective and at the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery referred to below), the Registration Statement, the Rule 462(b) Registration Statement and any amendments and supplements thereto complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. On the date hereof and at the Closing Time (and, if any Option Securities are purchased, at such Date of Delivery) neither the Prospectus nor any amendments or supplements thereto contained or will contain an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If Rule 434 is used, the Company will comply with the requirements of Rule 434. The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any Underwriter through Merrill Lynch expressly for use in the Registration Statement or Prospectus. Each preliminary prospectus and the Prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to 3 5 Rule 424 under the 1933 Act, complied when so filed in all material respects with the 1933 Act Regulations and each preliminary prospectus and the Prospectus delivered to the Underwriters for use in connection with this offering was substantially identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (ii) Incorporated Documents. The documents incorporated or deemed to be incorporated by reference in the Registration Statement and the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder (the "1934 Act Regulations"), and, when read together with the other information in the Prospectus, at the date of the Prospectus and at the Closing Time, (and, if any Option Securities are purchased, at the Date of Delivery) will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (iii) Independent Accountants. The accountants who certified the financial statements and supporting schedules incorporated by reference in the Registration Statement are independent public accountants as required by the 1933 Act and the 1933 Act Regulations. (iv) Financial Statements. The financial statements incorporated by reference in the Registration Statement and the Prospectus, together with the related schedules and notes, present fairly the financial position of the Company and its consolidated subsidiaries and of Sunstone Hotel Properties, Inc. (the "Lessee") and of Kahler Realty Corporation and its consolidated subsidiaries at the dates indicated and the statements of operations, changes in stockholders' equity and cash flows of the Company and its consolidated subsidiaries and of the Lessee and of Kahler Realty Corporation and its consolidated subsidiaries for the periods specified; said financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved. The supporting schedules, if any, incorporated by reference in the Registration Statement present fairly in accordance with GAAP the information required to be stated therein. The financial and operating information incorporated by reference in the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the last audited financial statements incorporated by reference in the Registration Statement. The pro forma financial statements and the related notes thereto incorporated by reference in the Registration Statement and the Prospectus present fairly the information shown therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and have been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. (v) No Material Adverse Change in Business. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the 4 6 condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company, the Partnership, considered as a whole, or the Lessee, whether or not arising in the ordinary course of business (a "Material Adverse Effect"), (B) there have been no transactions entered into by the Company, other than those in the ordinary course of business, which are material with respect to the Company, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (vi) Good Standing of the Company, the Lessee and the Manager; Power and Authority of Company. Each of the Company, the Lessee and Sunstone Hotel Management, Inc. (the "Manager") has been duly organized and is validly existing as a corporation in good standing under the laws of its state of incorporation and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus. The Company has the corporate power and authority to enter into and perform its obligations under this Agreement. Each of the Company, the Lessee and the Manager is, and after consummation of the offering will be, duly qualified as a foreign corporation to transact business and in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or to be in good standing would not result in a Material Adverse Effect, and no proceeding has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. Except as disclosed in the Registration Statement neither the Company nor the Partnership owns or controls, directly or indirectly, any corporation, partnership, association or other entity. (vii) Good Standing, Power and Authority of the Partnership. The Partnership has been duly formed and is validly existing as a limited partnership under the laws of the State of Delaware with full power and authority (partnership and other) to own and lease its properties, to conduct its business as currently conducted or as described in the Prospectus, and to enter into and perform its obligations under this Agreement. The Company is the sole general partner of the Partnership. Upon the consummation of the offering, the Company will own the units of partnership interest in the Partnership ("Units") it holds free and clear of all liens, encumbrances, equities, claims, security interests, voting trusts or charges. The Partnership is, and after the consummation of the offering will be, duly qualified to do business and in good standing as a foreign partnership in each other jurisdiction in which the ownership or leasing of properties or the conduct of its business requires such qualification, except for jurisdictions in which the failure to so qualify would not have a Material Adverse Effect, and no proceeding has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. (viii) Good Standing of the Subsidiaries. Each Subsidiary of the Company is duly organized, validly existing and in good standing under the laws of its state of formation, with full power and authority to own and lease its properties, to conduct its business as currently conducted or as described in the Prospectus. Each Subsidiary is, and after the consummation of the offering will be, duly qualified to do business and in good standing as a foreign corporation, partnership or limited liability company, as the 5 7 case may be, in each other jurisdiction in which the ownership or leasing of properties or the conduct of its business requires such qualification, except for jurisdictions in which the failure to so qualify would not have a Material Adverse Effect, and no proceeding has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. (ix) Qualification as a REIT. The Company is organized in accordance with the requirements for qualification as a real estate investment trust (a "REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") and the rules and regulations thereunder. The contemplated method of operation of the Company's business as described in the Registration Statement will allow the Company to satisfy the operational requirements for qualification as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code, and the rules and regulations thereunder. Less than 15% of the aggregate adjusted tax bases of both the personal property and the real property (the "Total Bases") to be leased pursuant to any lease to the Lessee (a "Percentage Lease") shall consist of the adjusted tax bases of the personal property (the "Personal Property Bases"), except in each instance where the failure to maintain such ratios will not disqualify the Company's election as a REIT or otherwise have a Material Adverse Effect; in each succeeding year the Personal Property Bases in connection with each Percentage Lease will not exceed 15% of the Total Bases for such lease, except in each instance where the failure to maintain such ratios will not cause the Company to fail to qualify as a REIT or otherwise have a Material Adverse Effect; and the Company has received a segmentation study from its independent accountants stating that based on its projections, during the first five years of the term of each Percentage Lease less than 15% of the Total Bases of each such Percentage Lease is expected to consist of Personal Property Bases, except in each instance where the failure to maintain such ratios will not cause the Company to fail to qualify as a REIT or otherwise have a Material Adverse Effect. Except as described in the Prospectus, the Company does not know of any event which would cause or is likely to cause the Company to fail to qualify as a REIT at any time. All of the assets, liabilities and items of income, deduction and credit of the Partnership are treated as assets, liabilities and items of income, deduction and credit of the Company under the provisions of the Internal Revenue Code and the Partnership is not, nor will it be, treated as a separate corporation under the provisions of the Internal Revenue Code. The Partnership is treated for federal income tax purposes as a partnership and not as an association taxable as a corporation. (x) Capitalization. The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to this Agreement, pursuant to reservations, agreements or employee benefit plans referred to in the Prospectus or pursuant to the exercise of options referred to in the Prospectus) and except for warrants to acquire Partnership Units (the "Warrants"). The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; none of the outstanding shares of capital stock of the Company was issued in violation of any preemptive or other similar rights of any security holder of the Company. 6 8 (xi) Company's Interest in Partnership. The Company is the sole general partner of the Partnership. At Closing Time, all of the outstanding partnership interests in the Partnership ("Units") held by the Company will be validly issued, will be owned by the Company in the percentage amounts set forth and in the manner described in the Prospectus and will be owned by the Company free and clear of all liens, encumbrances, equities, claims, security interests, voting trusts or charges. Except as described in the Prospectus, there are no outstanding options, warrants or other rights calling for the issuance of, or any commitment, plan or arrangement to issue, any partnership interests in the Partnership or any security convertible into or exchangeable or exercisable for, any partnership interests in the Partnership. (xii) Company's Interest in Subsidiaries. Except for such cases as would not cause a Material Adverse Effect, the ownership interests of each of the Subsidiaries (A) have been duly authorized and validly issued, (B) are fully paid and nonassessable, (C) have been issued in reliance on exemptions from all applicable federal and state securities laws, as reported in the unofficial compilations of such laws, and, (D) except as otherwise set forth in the Prospectus, are beneficially owned, directly or indirectly, by the Company and/or the Partnership free and clear of any security interests, liens, encumbrances, equities or claims. (xiii) Authorization of Agreement. This Agreement has been duly authorized, executed and delivered by the Company and the Partnership. (xiv) Authorization and Description of Securities. The Securities to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement, and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued and fully paid and non-assessable; the Common Stock conforms to all statements relating thereto contained in the Prospectus and such description conforms to the rights set forth in the instruments defining the same, no holder of the Securities will be subject to personal liability by reason of being such a holder; and the issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Company. As of the Closing Time, the Securities will have been approved for listing on the New York Stock Exchange, subject only to official notice of issuance. (xv) Absence of Defaults and Conflicts. None of the Company, the Partnership or any Subsidiary is in violation of its charter or by-laws, partnership agreement or other formation document, as applicable, or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which it is a party or by which it may be bound, or to which any of its property or assets is subject (collectively, for purposes of this paragraph "Agreements and Instruments") except for such defaults that would not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated in this Agreement and in the Registration Statement (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Prospectus under the 7 9 caption "Use of Proceeds") and compliance by the Company and the Partnership with their respective obligations under this Agreement have been duly authorized by all necessary corporate or partnership action, as applicable, and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company, the Partnership or any Subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Company or the partnership agreement of the Partnership or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign having jurisdiction over the Company or the Partnership or any of their respective assets, properties or operations. As used in this Agreement, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or the Partnership. (xvi) Absence of Labor Dispute. To the Company's knowledge, no general labor problem exists or is imminent with the employees of any of the Current Hotels (as defined in the Prospectus), the Company, the Partnership, the Subsidiaries, the Manager or the Lessee. (xvii) Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign now pending, or, to the knowledge of the Company or the Partnership, threatened, against or affecting the Company, the Partnership or any Subsidiary, which is required to be disclosed in the Registration Statement (other than as disclosed therein), or which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected materially and adversely to affect the consummation of the transactions contemplated in this Agreement or the performance by the Company or the Partnership of their respective obligations hereunder; the aggregate of all pending legal or governmental proceedings to which the Company, the Partnership or any Subsidiary is a party or of which any of their assets or any property is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, are reasonably expected not to result in a Material Adverse Effect. (xviii) Accuracy of Exhibits. There are no contracts or documents required to be described in the Registration Statement or the Prospectus or to be filed as exhibits thereto which have not been so described and filed as required other than a copy of this Agreement and the tax opinion to be rendered in connection with this offering, all of which will be filed on Form 8-K on or before February 9, 1998. (xix) Possession of Intellectual Property. The Company, the Partnership and the Subsidiaries own, possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and 8 10 other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names or other intellectual property (collectively, "Intellectual Property") necessary to carry on their business as contemplated in the Prospectus, and each of the Company, the Partnership and each Subsidiary has not received any notice and is not otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Company, the Partnership or any Subsidiary therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Material Adverse Effect. (xx) Absence of Further Requirements. No filing with or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company or the Partnership of its respective obligations under this Agreement or otherwise in connection with the offering, including the issuance or sale of the Securities under this Agreement and the consummation of the transactions contemplated by this Agreement, except such as have been already obtained or as may be required under the 1933 Act or the 1933 Act Regulations and foreign or state securities or blue sky laws and the listing of the Securities with the New York Stock Exchange. (xxi) Possession of Licenses and Permits. Each of the Company, the Partnership, the Subsidiaries, the Lessee and the Manager is and, after the consummation of the offering and use of proceeds as described in the Prospectus, will be in possession of all permits, licenses, approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct its business as currently conducted and as contemplated in the Prospectus; each of the Company, the Partnership, the Subsidiaries, the Lessee and the Manager is in compliance with the terms and conditions of all such Governmental Licenses, except where the failure to so comply would not, singly or in the aggregate, have a Material Adverse Effect; and none of them has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, rating or finding, would result in a Material Adverse Effect. (xxii) Investment Company Act. The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds from the sale of the Securities substantially as described in the Prospectus will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). (xxiii) Accounting Controls. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (A) transactions are executed in accordance with management's general or specific authorization and (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets. 9 11 (xxiv) Registration Rights. There are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the 1933 Act, except as set forth in the amended and restated partnership agreement of the Partnership, a true and current copy of which has been delivered to the Underwriters and except those registration rights granted in connection with the Kahler Acquisition (as defined in the Prospectus). (xxv) Good and Marketable Title. The Partnership, either directly or through Subsidiaries, owns good and marketable title to the Current Hotels, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those reflected in the financial statements (or described elsewhere in the Prospectus) or (ii) those which are not material in amount and do not adversely affect the use made and proposed to be made of such property by the Company and the Partnership. The Partnership and the Subsidiaries hold their leased properties under valid and binding leases, with such exceptions as are not or will not be materially significant in relation to the business of the Partnership and the Subsidiaries, taken as a whole. The Company does not own or lease any real property. The Partnership and the Subsidiaries own or lease all such real and personal properties (except for items of inventory, vehicles, liquor licenses and franchise agreements to be held by the Lessee) as are necessary to operate their properties as now operated or as proposed to be operated. (xxvi) No Defaults. To the knowledge of the Company, the Partnership or any Subsidiary (i) no lessee, licensee, concessionaire or vendor of any portion of any of the Current Hotels is in default under any of the leases or licenses governing such properties and there is no event which, but for the passage of time or the giving of notice, or both, would constitute a default under any of such leases or licenses, except such defaults that would not have a Material Adverse Effect; (ii) all such material leases or licenses are assignable without consent or approval or if such consent or approval is required the applicable consent or approval has been obtained to assign any such lease or license, to the Partnership or the Lessee, as applicable except where the failure to obtain such consents would not have a Material Adverse Effect; (iii) the current and intended use and occupancy of each of the Current Hotels complies with all applicable codes and zoning laws and regulations, if any, except for such failures to comply which would not, individually or in the aggregate, have a Material Adverse Effect; and (iv) there is no pending or, threatened condemnation, zoning change, environmental or other proceeding or action that will in any material respect affect the size of, use of, improvements on, construction on, or access to any of the Current Hotels or actions that would reasonably be expected to have a Material Adverse Effect. (xxvii) No Material Change. Since September 30, 1997 and except as described in or specifically contemplated by the Prospectus: (i) none of the Company, the Partnership, any Subsidiary, the Manager or the Lessee has incurred any material liabilities or obligations, indirect, direct or contingent, or entered into any material verbal or written agreement or other transaction which is not in the ordinary course of business or which could result in a material reduction in the future earnings of the Company, the Partnership, any Subsidiary, the Manager or the Lessee; (ii) none of the Company, the Partnership, any Subsidiary, the Manager or the Lessee has sustained any material loss 10 12 or interference with its respective businesses or properties from fire, flood, windstorm, accident or other calamity, whether or not covered by insurance; (iii) none of the Company, the Partnership, any Subsidiary or the Lessee has paid or declared any dividends or other distributions with respect to its capital stock and none of the Company, the Partnership, any Subsidiary, the Manager or the Lessee is in default in the payment of principal or interest on any outstanding material debt obligations; (iv) there has not been any change in the number of outstanding Shares (other than upon the sale of the Common Stock or purchase of shares pursuant to the Company's dividend reinvestment program) of the Company, the ownership interests in the Partnership or any of the Subsidiaries or the common stock of the Lessee or indebtedness material to the Company, the Partnership, any Subsidiary, the Manager or the Lessee (other than in the ordinary course of business); and (v) there has not been any material adverse change in the condition (financial or otherwise), business, properties, results of operations or prospects of the Company, the Partnership, any Subsidiary, the Manager or the Lessee. (xxviii) No Violation of Law. None of the Company, the Partnership or any Subsidiary has been advised, or has reason to believe, that the Company, the Partnership, the Subsidiaries, the Manager and the Lessee are not conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which any of them is conducting business, including, without limitation, all applicable local, state and federal environmental laws and regulations; except where failure to be in compliance would not have a Material Adverse Effect. (xxix) Tax Returns. The Company, the Partnership, the Subsidiaries, the Manager and the Lessee each has filed all necessary federal, state and foreign income and franchise tax returns and has paid all taxes shown as due thereon; and to the Company's knowledge, there is no tax deficiency which has been or might be asserted or threatened against which could materially and adversely affect the business, operations or properties of, the Company, the Partnership, any Subsidiary, the Manager or the Lessee, as the case may be. (xxx) Distribution of Offering Materials. None of the Company, the Partnership or any Subsidiary has distributed or will distribute prior to the Closing Time any offering material in connection with the offering and sale of the Common Stock other than the Prospectus, the Registration Statement and the other materials permitted by the Act (including press releases permitted by the Act). (xxxi) Unlawful Contributions. None of the Company, the Partnership, any Subsidiary, the Manager or the Lessee has at any time during the last five years (i) made any unlawful contribution to any candidate for foreign office or failed to disclose fully any contribution in violation of law or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof. (xxxii) Price Manipulation. Neither the Company nor any of its affiliates has taken or will take, directly or indirectly, any action designed to or that might be 11 13 reasonably expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Common Stock. (xxxiii) Maintenance of Insurance. The Company, the Partnership, the Subsidiaries, the Manager or the Lessee, as applicable, have and maintains liability, property and casualty insurance (insured by insurers of recognized financial responsibility) in favor of the Partnership and the Subsidiaries, and in the case of liability insurance, the Lessee, the Partnership, the Subsidiaries and the Manager, with respect to each of the Current Hotels, in an amount and on such terms as is reasonable and customary for businesses of the type proposed to be conducted by the Partnership, the Subsidiaries, the Manager and the Lessee, including, among other things, insurance against theft, damage, destruction and acts of vandalism. None of the Company, the Partnership or any Subsidiary has received from any insurance company written notice of any material defects or deficiencies affecting the insurability of any Current Hotel. (xxxiv) Title Insurance. Title insurance in favor of the Partnership or the applicable Subsidiary is in force with respect to each of the Hotels. (xxxv) Mortgages. The mortgages and deeds of trust encumbering the Current Hotels are not convertible, nor does the Company, the Partnership or any Subsidiary hold a participating interest therein, and such mortgages and deeds of trust are not cross-defaulted or cross-collateralized to any property not to be owned directly or indirectly by the Company, the Partnership or any Subsidiary. (xxxvi) Compliance With Environmental Laws. Each of the Company, the Partnership, each Subsidiary, the Manager and the Lessee (i) is in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or any Hazardous Material (as hereinafter defined) ("Environmental Laws"), (ii) has received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses, and (iii) is in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals are otherwise disclosed in the Prospectus or would not, singly or in the aggregate, have a Material Adverse Effect. As used herein, "Hazardous Material" shall mean (a) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA"), (b) any "hazardous waste" as defined by the Resource Conservation and Recovery Act, as amended, (c) any petroleum or petroleum product, (d) any polychlorinated biphenyl, and (e) any pollutant or contaminant or hazardous, dangerous, or toxic chemical, material, waste or substance regulated under or within the meaning of any other Environmental Laws. (xxxvii) Environmental Laws. To the knowledge of the Company, the Partnership and the Subsidiaries, there is no liability, alleged liability or potential liability (including, without limitation, liability, alleged liability or potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or penalties), of the Company, the 12 14 Partnership, any Subsidiary, the Manager or the Lessee arising out of, based on or resulting from (a) the presence or release into the environment of any Hazardous Material at any location, whether or not owned by the Company or the Lessee or (b) any violation or alleged violation of any Environmental Laws, which liability, alleged liability or potential liability is required to be disclosed in the Registration Statement, other than as disclosed therein, or which liability, alleged liability or potential liability, singly or in the aggregate, would have a Material Adverse Effect or have a material and adverse effect on the respective business, prospects, properties, condition (financial or otherwise) or results of operations of any of the Current Hotels. (b) Officers' Certificates. Any certificate signed by any officer of the Company, the Partnership or any Subsidiary and delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company and the Partnership to each Underwriter as to the matters covered thereby. SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING. (a) Initial Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in Schedule B, the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof. (b) Option Securities. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional 675,000 shares of Common Stock at the price per share set forth in Schedule B, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Securities upon notice by Merrill Lynch to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a "Date of Delivery") shall be determined by Merrill Lynch, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time, as hereinafter defined. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject in each case to such adjustments as Merrill Lynch in its discretion shall make to eliminate any sales or purchases of fractional shares. (c) Payment. Transfer of the Initial Securities to be purchased by the Underwriters and payment therefor shall be made at 10:00 A.M. (Eastern time) at such place and in the manner 13 15 set forth below on the third (or, if the Initial Securities are priced, as contemplated by Rule 15c6- 1(c) of the 1934 Act Regulations, after 4:30 P.M. Washington, D.C. Time, the fourth) full business day following the first date that any of the Securities are released by you for sale to the public, as you shall designate by at least 48 hours' prior notice to the Company (or at such other time and date, not later than one week after such third (or fourth) full business day as may be agreed upon by the Company and the Representatives) (the "Closing Time"); provided, however, that if the Prospectus is at any time prior to the Closing Time recirculated to the public, the Closing Time shall occur upon the later of the third or fourth, as the case may be, full business day following the first date that any of the Securities are released by you for sale to the public or the date that is 48 hours after the date that the Prospectus has been so recirculated. Transfer of the Initial Securities shall be made by or on behalf of the Company to you, through the FAST system of The Depository Trust Company, for the respective accounts of the Underwriters, in New York, New York, against payment by you, for the accounts of the several Underwriters, of the purchase price therefor by wire transfer of same day funds to the order of the Company for the purposes set forth in the Prospectus. Time shall be of the essence, and delivery in the manner specified in this Agreement is a further condition to the obligations of the Underwriters. In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of such Option Securities shall be made in the above-mentioned manner, or at such over place as shall be agreed upon by the Representatives and the Company, on each Date of Delivery as specified in the notice from the Representatives to the Company. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Merrill Lynch, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder. (d) Denominations; Registration. At your option, certificates for the Initial Securities and the Option Securities, if any, shall be in such denominations and registered in such names as the Representatives may request in writing at least one full business day before the Closing Time or the relevant Date of Delivery, as the case may be. The certificates for the Initial Securities and the Option Securities, if any, will be made available for examination and packaging by the Representatives in the City of New York not later than 10:00 A.M. (Eastern Time) on the business day prior to the Closing Time or the relevant Date of Delivery, as the case may be. SECTION 3. COVENANTS OF THE COMPANY AND THE PARTNERSHIP. The Company and the Partnership covenant with each Underwriter as follows: (a) Compliance with Securities Regulations and Commission Requests. The Company, subject to Section 3(b), will comply with the requirements of Rule 430A or Rule 434, 14 16 as applicable, and will notify the Representatives immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement, shall become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threat of any proceedings for any of such purposes. The Company will promptly effect the filings necessary pursuant to Rule 424(b) and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) Filing of Amendments. The Company will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)), any Term Sheet or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to the Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the Representatives with a reasonable number of copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and, unless required to do so by law, will not file or use any such document to which the Representatives or counsel for the Underwriters shall reasonably object. (c) Delivery of Registration Statements. The Company has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives, without charge, a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (d) Delivery of Prospectus. The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (e) Continued Compliance with Securities Laws. The Company will comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act Regulations so 15 17 as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Prospectus. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. (f) Blue Sky Qualifications. The Company will use its best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as Merrill Lynch may designate and to maintain such qualifications in effect for a period of not less than one year from the later of the effective date of the Registration Statement and any Rule 462(b) Registration Statement; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. In each jurisdiction in which the Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for a period of not less than one year from the effective date of the Registration Statement and any Rule 462(b) Registration Statement. (g) Rule 158. The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act. (h) Use of Proceeds. The Company will use the net proceeds received by it from the sale of the Securities substantially in the manner specified in the Prospectus under "Use of Proceeds." (i) Restriction on Sale of Securities. During a period of 90 days from the date of the Prospectus, the Company will not, without the prior written consent of Merrill Lynch, (A) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any share of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (B) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described 16 18 in clause (A) or (B) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Securities to be sold under this Agreement, (B) any shares of Common Stock issued by the Company upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and referred to in the Prospectus, (C) any shares of Common Stock issued or options to purchase Common Stock granted pursuant to existing employee benefit plans of the Company referred to in the Prospectus, (D) any shares of Common Stock issued pursuant to any non-employee director stock plan or dividend reinvestment plan, (E) the filing of a registration statement for the benefit of any limited partner who elects to redeem his Units for Common Stock and the sale by any such limited partner of such shares of registered Common Stock, (F) any shares of Common Stock issued by the Company pursuant to the existing Stock Purchase and Dividend Reinvestment Plan, (G) any Units issued by the Partnership in connection with any purchase of any hotel or other asset, or (H) any shares of Common Stock or preferred stock issued in connection with any purchase of any hotel or other assets, including any merger or other business combinations. (j) Reporting Requirements. The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the 1934 Act Regulations. (k) REIT Requirements. The Company will continue to meet the requirements to qualify as a REIT under the Internal Revenue Code, unless the Company's Board of Directors determines to revoke the Company's REIT election because of circumstances or changes in the Internal Revenue Code (or the Treasury regulations). (l) Lock-Up Agreements with Respect to the Kahler Transaction. The Company will not amend the terms and conditions of the transfer restrictions imposed on the shares issued in connection with the Kahler Acquisition as provided in Section 4.10 of the Stock Purchase Agreement among the Company, Westbrook Real Estate Fund I, L.P., Westbrook Real Estate Co-Investment Partnership I, L.P. and Kahler Realty Corporation. SECTION 4. PAYMENT OF EXPENSES. (a) Expenses. The Company and the Partnership will pay all expenses incident to the performance of their obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each 17 19 preliminary prospectus, any Term Sheets and of the Prospectus and any amendments or supplements thereto, (vii) the preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of any transfer agent or registrar for the Securities, (ix) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the National Association of Securities Dealers, Inc. or its subsidiary NASD Regulation, Inc. (collectively, the "NASD") of the terms of the sale of the Securities (other than counsel fees incurred relating to compensation issues), and (x) the fees and expenses incurred in connection with the listing of the Securities on the New York Stock Exchange. (b) Termination of Agreement. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 (other than Section 5(g)) or Section 9(a)(i) hereof, the Company or the Partnership shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several Underwriters under this Agreement are subject to the accuracy of the representations and warranties of the Company and the Partnership contained in Section 1 hereof or in certificates of any officer of the Company, the Partnership, any Subsidiary, the Lessee or the Manager delivered pursuant to the provisions hereof, to the performance by each of the Company and the Partnership, of its respective covenants and other obligations under this Agreement, and to the following further conditions; (a) Effectiveness of Registration Statement. The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters. A prospectus containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 424(b) (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434, a Term Sheet shall have been filed with the Commission in accordance with Rule 424(b). (b) Opinion of Counsel for the Company, the Partnership and the Lessee. At Closing Time, the Representatives shall have received the favorable opinion, dated as of Closing Time, of counsel for the Company, the Partnership and the Lessee, Brobeck Phleger & Harrison LLP, or as to matters of Maryland law, from Ballard Spahr Andrews & Ingersoll, opining as to the substance (but not necessarily the form) set forth in Exhibit A and to such further effect as counsel to the Underwriters may reasonably request, together with signed or reproduced copies of such letters for each of the other Underwriters. (c) Opinion of Counsel for Underwriters. At Closing Time, the Representatives shall have received the favorable opinion, dated as of Closing Time, of O'Melveny & Myers LLP, counsel for the Underwriters, together with signed or reproduced copies of such letter for each 18 20 of the other Underwriters, in form satisfactory to the Underwriters. In giving such opinion O'Melveny & Myers LLP may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of California, the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinions of counsel satisfactory to the Representatives. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company, the Lessee, the Partnership, any Subsidiary and the Manager and certificates of public officials. (d) Officers' Certificates. At Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company, the Partnership and the Subsidiaries, taken as a whole, whether or not arising in the ordinary course of business, and the Representatives and their counsel shall have received certificates from (A) the President or a Vice President of the Company on the Company's behalf and (B) the President or a Vice President of the Company as general partner of the Partnership on the Partnership's behalf, dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1(a) hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) such entity has complied in all material respects with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or, to such officers' knowledge, are contemplated by the Commission. (e) Accountants' Comfort Letter. At the time of the execution of this Agreement, the Representatives shall have received from Ernst & Young LLP (the "Accountants") a letter dated such date, in form and substance satisfactory to the Representatives, together with signed or reproduced copies of such letter for each of the other Underwriters containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. In the event that the letter referred to above describe, for the period subsequent to the date of the most recent balance sheet and income statement of the Company incorporated by reference in the Registration Statement, any changes in the capital stock, increases in long-term debt, or decreases in the consolidated assets or stockholders' equity of the Company and its consolidated subsidiaries, as compared with amounts shown on the most recent balance sheet of the Company incorporated by reference in the Registration Statement, or any decreases, as compared with the corresponding period in the preceding year, in consolidated net revenues or net income per share of the Company and its consolidated Subsidiaries, except in each case for such changes, increases or decreases that the Registration Statement discloses have occurred or may occur, it shall be a further condition to the obligations of the Underwriters that (A) such letters shall be accompanied by the written explanation of the Company as to the significance thereof, unless the Representatives deem such explanation unnecessary, and (B) such changes or decreases do not, in the sole judgment of the Representatives, make it impractical or inadvisable to proceed with the purchase and delivery of the Securities as contemplated by this Agreement. 19 21 (f) Bring-down Comfort Letter. At Closing Time, the Representatives shall have received from the Accountants a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (e) of this Section, except that the specified date referred to shall be a date not more than three business days prior to Closing Time. (g) No Objection. The NASD shall not have raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements. (h) Lock-up Agreements. At the date of this Agreement the Representatives shall have received an agreement substantially in the form of Exhibit B hereto signed by the persons listed on Schedule D hereto. (i) Conditions to Purchase of Option Securities. In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company and the Partnership contained herein and the statements in any certificates finished by the Company, the Partnership, the Lessee or the Manager under this Agreement shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received: (i) Officers' Certificate. Certificates, dated such Date of Delivery, from (A) the President or a Vice President of the Company on the Company's behalf and (B) the President or a Vice President of the Company as general partner of the Partnership on the Partnership's behalf, confirming that the certificates delivered at the Closing Time pursuant to Section 5(d) hereof remain true and correct in all material respects as of such Date of Delivery. (ii) Opinion of Counsel for the Partnership and the Lessee. The favorable opinion of Brobeck, Phleger & Harrison LLP, and Ballard Spahr Andrews & Ingersoll, as applicable, counsel for the Company, the Partnership and the Lessee, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b) hereof. (iii) Opinion of Counsel for Underwriters. The favorable opinion of O'Melveny & Myers LLP, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(c) hereof. (iv) Bring-down Comfort Letter. One or more letters from the Accountants, in form and substance satisfactory to the Representatives and dated such Date of Delivery, substantially in the same form and substance as the letter furnished to the Representatives pursuant to Section 5(f) hereof, except that the "specified date" in the letter furnished pursuant to this paragraph shall be a date not more than five days prior to such Date of Delivery. (j) Additional Documents. At Closing Time and at each Date of Delivery, counsel for the Underwriters shall have been furnished with such documents and opinions as they may 20 22 require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company, the Partnership, the Subsidiaries and the Lessee in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters. (k) Termination of Agreement. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of Option Securities, on a Date of Delivery which is after the Closing Time, the obligations of the several Underwriters to purchase the relevant Option Securities, may be terminated by the Representatives by notice to the Company at any time at or prior to Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such termination and remain in full force and effect. SECTION 6. INDEMNIFICATION. (a) Indemnification of Underwriters. The Company and the Partnership, jointly and severally, agree to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included or incorporated by reference in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Merrill Lynch), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim 21 23 whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (b) Indemnification of the Company, the Partnership and their Respective Directors and Officers. Each Underwriter severally agrees to indemnify and hold harmless the Company, the Partnership and their respective directors, each of the Company's officers who signed the Registration Statement, and each person, if any, who controls the Company or the Partnership within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Underwriter through Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) Actions against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a) above, counsel to the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, 22 24 investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) Settlement without Consent if Failure to Reimburse. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. SECTION 7. CONTRIBUTION. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Partnership on the one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Partnership on the one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Partnership on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the total underwriting discount received by the Underwriters, in each case as set forth on the cover of the Prospectus, or, if Rule 434 is used, the corresponding location on the Term Sheet, bear to the aggregate initial public offering price of the Securities as set forth on such cover. The relative fault of the Company and the Partnership, on the one hand, and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, or the Partnership, on the one hand, or by the Underwriters on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Partnership and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method 23 25 of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person, if any, who controls a Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Underwriter, and each director of the Company, the Partnership, and each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company or the Partnership within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company and the Partnership respectively. The Underwriters' respective obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial Securities set forth opposite their respective names in Schedule A hereto and not joint. SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or the Partnership submitted pursuant to this Agreement, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Company or the Partnership, and shall survive delivery of the Securities to the Underwriters. SECTION 9. TERMINATION OF AGREEMENT. (a) Termination; General. The Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company, whether or not arising in the ordinary course of business, or any such adverse change with respect to the Partnership, the Manager, or the Lessee which is material in the context of the transactions contemplated by this Agreement, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation 24 26 thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the New York Stock Exchange, or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the NASD or any other governmental authority, or (iv) if a banking moratorium has been declared by either Federal or New York authorities. (b) Liabilities. If this Agreement is terminated pursuant to this Section 9, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided, further, that Sections 1, 6, 7 and 8 shall survive such termination and remain in full force and effect. SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one or more of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations under this Agreement bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the Underwriters to purchase and of the Company to sell the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section 10 shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell the relevant Option Securities, as the case may be, either the Representatives or the Company shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the 25 27 Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term " Underwriter" includes any person substituted for a Underwriter under this Section 10. SECTION 11. NOTICES. All notices and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representatives at North Tower, World Financial Center, 250 Vesey Street, New York, New York 10281-1201, Attention: Corporate and Institutional Client Group, and at 101 California Street, Suite 1420, San Francisco, California 94111, with a copy to O'Melveny & Myers LLP, 275 Battery Street, 26th Floor, San Francisco, California 94111, Attention: Peter T. Healy, Esq.; and notices to the Company shall be directed to it at 115 Calle de Industrias, Suite 201, San Clemente, California 92672, Attention: Mr. Robert A. Alter, with a copy to Brobeck, Phleger & Harrison LLP, 4675 MacArthur Court, Suite 1000, Newport Beach, California 92660, Attention: Laura B. Hunter, Esq. SECTION 12. PARTIES. This Agreement shall inure to the benefit of and be binding upon the Underwriters, the Company, the Partnership and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters, the Company and the Partnership and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters, the Company and the Partnership and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Except as otherwise set forth herein, specified times of day refer to New York City time. SECTION 14. EFFECT OF HEADINGS. The Article and Section headings herein and any Table of Contents are for convenience only and shall not affect the construction hereof. [signature page follows] 26 28 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriters, the Company and the Partnership, in accordance with its terms. Very truly yours, SUNSTONE HOTEL INVESTORS, INC. By: ------------------------------------- Robert A. Alter President SUNSTONE HOTEL INVESTORS, L.P. By: SUNSTONE HOTEL INVESTORS, INC. Its: General Partner By: ------------------------------------- Robert A. Alter President CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED BEAR, STEARNS & CO. INC. GOLDMAN, SACHS & CO. A.G. EDWARDS & SONS, INC. NATIONSBANC MONTGOMERY SECURITIES LLC By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By ------------------------------- Brian Maier Authorized Signatory For themselves and as Representatives of the other Underwriters named in Schedule A hereto. S-1 29 SCHEDULE A UNDERWRITERS
Number of Initial Securities Underwriter to be Purchased - ------------------------------------------------------------------- --------------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated...................................... 900,000 Bear, Stearns & Co. Inc.......................................... 900,000 Goldman, Sachs & Co.............................................. 900,000 A.G. Edwards & Sons, Inc......................................... 900,000 NationsBanc Montgomery Securities LLC............................ 900,000 --------- Total............................................. 4,500,000 =========
Schedule A-1 30 SCHEDULE B PRICING INFORMATION SUNSTONE HOTEL INVESTORS, INC. 4,500,000 Shares of Common Stock (Par Value $.01 Per Share) 1. The initial public offering price per share for the Securities, determined as provided in said Section 2, shall be $16.375. 2. The purchase price per share for the Securities to be paid by the several Underwriters shall be $15.535, being an amount equal to the initial public offering price set forth above less $0.84 per share; provided that the purchase price per share for any Option Securities purchased upon the exercise of the over-allotment option described in Section 2(b) shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. Schedule B-1 31 SCHEDULE C SUBSIDIARIES OF THE COMPANY AND/OR THE PARTNERSHIP Kent Hotel Investors, Inc. (CA) Sunstone/Kent Associates, L.P. (CA) Sunstone Hotels, LLC (DE) Park Hotels L.C. (UT) University Inn Associates (UT) Ogden Hotel Associates (UT) SSI E&P Corp I (DE) SSI E&P Corp II (DE) Kahler E&P Partners L.P. I (DE) Kahler E&P Partners L.P. II (DE) Schedule C-1 32 SCHEDULE D PERSONS SUBJECT TO LOCK-UP AGREEMENTS Robert A. Alter Charles L. Biederman Schedule D-1 33 EXHIBIT A FORM OF OPINION OF COMPANY COUNSEL TO BE DELIVERED PURSUANT TO SECTION 5(B) (a) The Company has been duly formed and is validly existing as a corporation, is in good standing under the laws of the State of Maryland, and is duly qualified to do business as a foreign corporation and is in good standing in all other jurisdictions where the ownership or leasing of properties or the conduct of its business requires such qualification, except for jurisdictions in which the failure to so qualify would not reasonably be expected to have a Material Adverse Effect, and has the requisite power to own its properties and conduct its business substantially as described in the Registration Statement; and, to such counsel's knowledge, other than the Partnership and the Subsidiaries, the Company does not own or control, directly or indirectly, any corporation, association, partnership or other entity. (b) Each of the Lessee and Manager has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Colorado, and is duly qualified to do business as a foreign corporation and is in good standing in each of the states in which it leases real property from the Partnership or the Subsidiaries and has the requisite corporate power and authority to own its properties and conduct its business as described in the Registration Statement. (c) The Partnership has been duly formed and is validly existing as a limited partnership under the laws of the State of Delaware, is duly qualified to do business as a foreign limited partnership and is in good standing in each of the states in which it owns real property, has the requisite partnership power and authority to own and lease its properties and conduct its business as currently conducted as described in the Prospectus. The Company is the sole general partner of the Partnership, which Units, to such counsel's knowledge are held free and clear of all liens, encumbrances, equities, claims, security interests, voting trusts or charges. The Partnership is the sole limited partner of Sunstone/Kent Associates. (d) The Sunstone Hotel Investors, LLC (the "LLC") has been duly formed and is validly existing as a limited liability company in good standing under the laws of the State of Delaware. The LLC is duly qualified to do business a foreign limited liability company in all other jurisdictions where the ownership or leasing of properties or the conduct of its business requires such qualification, except for jurisdictions in which the failure to so qualify would not reasonably be expected to have a material adverse effect on the LLC, and has the requisite power to own its properties and conduct its business substantially as described in the Registration Statement. The Partnership is the sole member of the LLC. (e) Each Subsidiary (other than the LLC, Center Plaza Association and Improvement Limited Partnership) is in good standing as a corporation, limited partnership or limited liability company, as the case may be, under the laws of its jurisdiction of formation and is duly qualified to do business as a foreign corporation, limited partnership or limited liability company, as the case may be, and is in good standing in each of the states in which it owns real property, except where the failure to be so qualified, individually or in the aggregate, would not cause a Material Adverse Effect. A-1 34 (f) All of the issued and outstanding shares of the Company's Common Stock ("Shares") have been duly authorized and validly issued; all outstanding Shares were duly registered under the Act or were issued in transactions exempt from the registration requirements of the Act and were duly registered or subject to an available exemption from the registration requirements of the applicable state securities or blue sky laws, are fully paid and nonassessable, were not issued in violation of or subject to any statutory, or to such counsel's knowledge, other preemptive rights or other rights to subscribe for or purchase any securities and conform in all material respects to the description thereof incorporated by reference in the Registration Statement; provided, however, that such counsel need not express any opinion with respect to the registration or availability of an exemption under applicable state securities or blue sky laws for Common Stock issued pursuant to an underwritten public offering. (g) The Company has given proper authorization to ChaseMellon Shareholder Service, L.L.C. (the "Transfer Agent") to issue the Initial Securities to the Underwriters at the Closing Time by electronic transfer through the FAST system of The Depository Trust Company, upon receipt of telephonic notification from you and the Company to issue such shares. Upon your payment of the agreed consideration for the Initial Securities in accordance with the provisions of the Purchase Agreement, and the electronic transfer to you of the Initial Securities by the Transfer Agent, the Initial Securities will be duly authorized and validly issued, fully paid and nonassessable, and will not have been issued in violation of or subject to any preemptive rights or (to our knowledge) other rights to subscribe for or purchase securities from the Company. (h) Except as disclosed in or specifically contemplated by the Prospectus, the Company's Annual Report on Form 10-K for the year ended December 31, 1996 or the Company's Proxy Statement prepared in connection with its 1997 annual shareholders' meeting, to such counsel's knowledge, there are no outstanding options, warrants or other rights calling for the issuance of, and no commitments, plans or arrangements to issue, any shares of capital stock of the Company or any security convertible into or exchangeable for capital stock of the Company. (i) (i) To such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement or preventing the use of the Prospectus has been issued and no proceedings for that purpose have been instituted or are pending or contemplated by the Commission and any required filing of the Prospectus and any supplement thereto pursuant to Rule 424(b) of the Rules and Regulations has been made in the manner and within the time period required by such Rule 424(b); (ii) The Registration Statement, the Prospectus and any amendment or supplement thereto (except for the financial statements and schedules and other financial and statistical information included therein as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the Rules and Regulations; and (iii) To such counsel's knowledge, there are no legal or governmental actions, suits or proceedings pending (in which service or notice of process has been received by the Company) or threatened against the Company which are required to be described in the Prospectus which are not described as required. A-2 35 (j) The Company has the corporate power and authority to enter into this Agreement, to sell and deliver the Securities to be sold by it to the several Underwriters and to consummate the other transactions contemplated herein; the Partnership has the partnership power and authority to enter into this Agreement and to consummate the transactions contemplated herein; this Agreement has been duly and validly authorized by all necessary partnership action by each of the Company and the Partnership, respectively, has been duly and validly executed and delivered by and on behalf of each of the Company and the Partnership; and no approval, authorization, order, consent, registration, filing, qualification, license or permit of or with any court, regulatory, administrative or other governmental body is required for the execution and delivery of this Agreement by each of the Company and the Partnership or the consummation of the transactions contemplated by this Agreement, except such as have been obtained and are in full force and effect under the Act and such as may be required under applicable Blue Sky or Canadian securities laws in connection with the purchase and distribution of the Securities by the Underwriters and the clearance of such offering with the NASD. (k) The execution and delivery of the Purchase Agreement and the issuance of the Securities contemplated therein will not conflict with, result in the material breach of, or constitute, either by itself or upon notice or the passage of time or both, a material default under, any agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument listed on Schedule 1 to any of the Backup Officers' Certificates; or violate any of the provisions of the partnership certificate, partnership agreement, articles of incorporation or bylaws, or other organizational documents, as applicable, of the Company or the Partnership; or to our knowledge, violate any California statute, judgment, decree, order, rule or regulation of any court or California governmental body having jurisdiction over the Company or the Partnership, or any of their property; (l) Such counsel has not received written notice and has no reason to believe that the Company, the Partnership, the LLC or the Lessee is in violation of its respective declaration of trust, partnership certificate, partnership agreement, certificate of incorporation or bylaws, or other organizational documents, as applicable, or is in breach of or default with respect to any provision of any agreements, mortgages, deeds of trust, leases, franchises, licenses, indentures, permits or other instruments listed in Schedule 1 to any of the Officers' Certificates delivered to back-up such counsel's opinion to which the Company, the Partnership, the LLC or the Lessee is a party or by which they or any of their properties may be bound or affected, except where such default would not materially adversely affect the Company, the Partnership, the LLC or the Lessee, as the case may be. (m) To such counsel's knowledge, no holders of securities of the Company or the Partnership have rights to register Shares, Units or other securities because of the filing of the Registration Statement by the Company or the offering. (n) No transfer taxes are required to be paid to the states of Maryland and New York in connection with the sale and delivery of the Securities to the Underwriters hereunder. (o) Neither the Company nor the Partnership is or will be an "investment company" within the meaning of the 1940 Act. A-3 36 (p) The Securities have been duly authorized for listing by the New York Stock Exchange upon official notice of issuance. (q) Since the inception of its taxable year ended on December 31, 1995, the Company has been organized and operated in conformity with the requirements for qualification as a REIT pursuant to Sections 856 through 860 of the Internal Revenue Code, and the Company's organization and contemplated method of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT under the code in 1998 and subsequent years. (r) The description of law and legal conclusions contained in the Registration Statement and the Prospectus Supplement under the caption "United States Federal Income Tax Considerations" are correct in all material respects, and the discussion therein fairly summarizes the federal income tax considerations and tax risks that are material to a holder of the Securities. (s) The Partnership will be treated for federal income tax purposes as a partnership and not as an association taxable as a corporation. In rendering such opinion, such counsel may rely as to matters of local law, on opinions of local counsel, and as to matters of fact, to the extent they deem proper, on certificates of officers of the Company, the Partnership, the Subsidiaries, or the Lessee, as applicable, and certificates and verbal advice of governmental officials, in which case their opinion is to state that they are so doing and that the Underwriters are justified in relying on such opinions or certificates and copies of said opinions or certificates are to be attached to the opinion. Such counsel shall also include a statement to the effect that although such counsel is not passing upon and does not assume responsibility for the accuracy, completeness or fairness of the statements contained therein, nothing has come to such counsel's attention that would lead such counsel to believe that either at the effective date of the Registration Statement or at the applicable Closing Time the Registration Statement or the Prospectus, or any amendment or supplement thereto, contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading (other than with respect to the financial statements, the notes thereto and the related financial schedules and other financial data as to which such counsel need express no opinion). A-4 37 EXHIBIT B FORM OF LOCK-UP AGREEMENT [pricing date] MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED BEAR, STEARNS & CO. INC. GOLDMAN, SACHS & CO. A.G. EDWARDS & SONS, INC. NATIONSBANC MONTGOMERY SECURITIES LLC as Representatives of the several Underwriters to be named in the within-mentioned Purchase Agreement c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281-1209 Re: Proposed Public Offering by Sunstone Hotel Investors, Inc. Ladies and Gentlemen: The undersigned, a stockholder of Sunstone Hotel Investors, Inc., a Maryland corporation (the "Company"), understands that Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Bear, Stearns & Co. Inc., Goldman, Sachs & Co., A.G. Edwards & Sons, Inc. and NationsBanc Montgomery Securities LLC propose to enter into a purchase agreement (the "Purchase Agreement") with the Company providing for the public offering of shares (the "Securities") of the Company's common stock, par value $.01 per share (the "Common Stock"). In recognition of the benefit that such offerings will confer upon the undersigned as a stockholder of the Company, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with each underwriter to be named in the Purchase Agreement that, during a period of 90 days from the date of the such Purchase Agreements, the undersigned will not, without the prior written consent of Merrill Lynch, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of the Company's Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, or file any registration statement under the Securities Act of 1933, as amended, with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction B-1 38 is to be settled by delivery of Common Stock or other securities, in cash or otherwise. Notwithstanding the foregoing, the undersigned shall be allowed to effect (A) the conversion of Partnership Units (as defined in the Purchase Agreement) owned by the undersigned for shares of Common Stock, (B) the exercise of warrants to purchase Partnership Units, (C) the exercise of any stock option or warrant to purchase securities of the Company, and (D) the enrollment in, and purchase of any shares of Common Stock issued pursuant to, any stock plan or dividend reinvestment plan of the Company, including, without limitation, the existing Stock Purchase and Dividend Reinvestment Plan. Very truly yours, Signature: ----------------------------- Print Name: ----------------------------- B-2 EX-8.1 3 OPINION OF BROBECK, PHLEGER & HARRISON LLP 1 EXHIBIT 8.1 February 11, 1998 Sunstone Hotel Investors, Inc. 115 Calle De Industrias, Suite 201 San Clemente, CA 92672 RE: SUNSTONE HOTEL INVESTORS, INC./TAX OPINION Gentlemen: We have acted as counsel to Sunstone Hotel Investors, Inc., a Maryland corporation (the "Company"), in connection with the preparation of the Registration Statement on Form S-3 filed with the Securities and Exchange Commission (as amended, the "Registration Statement") and the Prospectus Supplement, with respect to the offering and sale (the "Offering") of up to 5,175,000 shares of the Company's common stock (the "Common Shares"). The Company currently owns approximately a general partner interest in Sunstone Hotel Investors, L.P., a Delaware limited partnership (the "Partnership"). The Partnership currently owns several hotels and associated personal property. In addition, the Partnership has an indirect ownership interest in hotels owned by a limited liability company and by a limited partnerships between the Partnership (or the limited liability company) and qualified REIT subsidiaries of the Company. (All of the foregoing hotels are referred to herein as the "Hotels.") Each of the Hotels is leased to Sunstone Hotel Properties, Inc., a Colorado corporation (the "Lessee"), pursuant to a percentage lease (the "Leases"). Sunstone Hotel Management, Inc. (the "Management Company") is managing the Hotels. Robert A. Alter and Charles L. Biederman are 80% and 20% shareholders, respectively, of the Lessee and Mr. Alter is the sole shareholder of the Management Company. Mr. Alter is the Chairman of the Board of Directors and President of the Company. In October of 1997, the Company acquired all of the stock of Kahler Realty Corporation ("Kahler"). (This transaction is referred to herein as the "Acquisition".) Kahler adopted a plan of liquidation immediately after the Acquisition and all of its assets, subject to all of its outstanding liabilities, were transferred to the Company pursuant to that plan. The Company then transferred all of the assets, subject to such liabilities, received in the Kahler liquidation to the Partnership in exchange for additional Units. All of the hotels previously owned by Kahler or its subsidiaries (in whole or in part and directly or indirectly) have been since immediately after the Acquisition, and will be, leased to the Lessee pursuant to Leases. 2 Sunstone Hotel Investors, Inc. February 11, 1998 Page 2 Terms not defined in this letter have the meaning ascribed to them in the Registration Statement and the Prospectus Supplement. The Company has requested our opinion as to: A. Whether, since the inception of its taxable year ended on December 31, 1995, the Company has been organized and operated in conformity with the requirements for qualification as a real estate investment trust (a "REIT") pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), and whether the Company's organization and contemplated method of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code in 1998 and subsequent years. B. Whether the description of law and legal conclusions contained in the Registration Statement with respect to the Offering under the caption "United States Federal Income Tax Considerations" are correct in all material respects, and whether the discussion therein fairly summarizes the federal income tax considerations that are material to a holder of Common Shares. C. Whether the Partnership has been and will continue to be treated for federal income tax purposes as a partnership and not as an association taxable as a corporation. In connection with the opinions rendered below, we have examined the following: 1. The Amended Articles of Incorporation of the Company. 2. The Company's By-Laws. 3. The Registration Statement of the Company filed in connection with the Offering. 4. The Prospectus Supplement of the Company filed in connection with the Offering. 5. The form of Second Amended and Restated Limited Partnership Agreement of the Partnership (the "Partnership Agreement"). 6. The Leases. 7. The cost segmentation analysis dated August 15, 1995, the cost segmentation analysis as of December 31, 1995, the cost segmentation analysis as of May 31, 3 Sunstone Hotel Investors, Inc. February 11, 1998 Page 3 1996, and the cost segmentation analysis as of December 31, 1996, prepared by Coopers & Lybrand L.L.P., and the cost segmentation analysis prepared by Ernst & Young LLP ("Ernst & Young") in connection with the offering the Company's stock incident to the Acquisition. (The foregoing analyses and information are referred to herein as the "Cost Segmentation Analyses.") 8. Projections as to the expected financial performance of the Company, the Lessee and the Management Company prepared in connection with the Acquisition. 9. The analysis of Kahler's pre-Acquisition earnings and profits prepared by KPMG Peat Marwick LLP in connection with the Acquisition (the "KPMG E&P Analysis"). 10. The review of the KPMG E&P Analysis prepared by Ernst & Young in connection with the Acquisition (the "Ernst & Young E&P Review"). 11. A representation certificate as to factual matters from the Company. 12. Such other documents and data as we have deemed necessary or appropriate for purposes of this opinion. In connection with the opinions rendered below, we have assumed generally that: a. Each of the documents referred to above has been duly authorized, executed, and delivered, is authentic, if an original, or accurate, if a copy, and has not been amended. b. Commencing with its 1995 taxable year and in all subsequent years, the Company has been operated and will operate in such a manner that will make the representations set forth below true for all such years. c. The Company will not make any amendments to its organizational documents after the date of this opinion that would affect its qualification as a REIT for any taxable year. d. No actions will be taken by the Company, the shareholders of the Company, the Partnership, the Partners or any other entity in which the Company owns an interest after the date hereof that would have the effect of materially altering the facts upon which the opinions set forth below are based. e. The Cost Segmentation Analyses are accurate in all material respects and there have been no material changes in the information reflected in the Ernst & Young cost segmentation analysis since the date thereof. 4 Sunstone Hotel Investors, Inc. February 11, 1998 Page 4 f. The information and conclusions reflected in the KPMG E&P analysis and the Ernst & Young E&P Review are accurate in all material respects. g. The accumulated earnings and profits of Kahler and its subsidiaries at the time of the Acquisition and liquidation of Kahler were no more than $28.5 million, taking into account (among other things) any earnings and profits generated as a result of asset dispositions and the triggering of any excess loss accounts and deferred intercompany gains upon the liquidation, but not taking into account the pre-Acquisition $28.75 million extraordinary distribution to the Kahler shareholders. We have also relied upon the correctness of the following representations of the Company and its authorized representatives on behalf of itself and the Partnership in a representation certificate delivered to us by the Company: (1) The following requirements have been and will be met by the Lessee, the Management Company and any other person who leases, manages, or operates the Hotels, other hotel properties ("Other Hotel Properties") or non-hotel properties ("Non-Hotel Properties") in which the Company owns, or may in the future own, an interest, either directly, through a qualified REIT subsidiary (a "QRS") within the meaning of Section 856(i) of the Code or through a limited liability company or a partnership: (a) Such person will not own, directly or indirectly (within the meaning of Section 856(d)(5) of the Code), more than 35% of the shares of the Company. (b) If such person is a corporation, not more than 35% of its stock, measured by voting power or number of shares, or, if such person is a noncorporate entity, not more than 35% of the interest in its assets or net profits will be owned, directly or indirectly (within the meaning of Section 856(d)(5) of the Code), by one or more persons who own 35% or more of the shares of the Company. (c) The Company and any QRS of the Company will not derive or receive any income, directly or indirectly, from such person, other than rents from the Hotels, Other Hotel Properties or Non-Hotel Properties. (d) Such person will be adequately compensated for its services. (e) If such person is an individual, he or she will not be an officer or employee of the Company. 5 Sunstone Hotel Investors, Inc. February 11, 1998 Page 5 (f) If such person is a corporation, none of its officers or employees will be officers or employees of the Company. (g) If an individual serves as both (i) one of such person's directors and (ii) a director and officer or employee of the Company, that individual will not receive any compensation for serving as one of such person's directors. (h) If an individual serves as both (i) one of such person's directors and officers (or employees) and (ii) a director of the Company, that individual will not receive any compensation for serving as a director of the Company. (i) If an individual serves as a director, officer or employee of the Company, such person will not be engaged in the day-to-day management of the Hotels, Other Hotel Properties or Non-Hotel Properties and will confine his or her activities as a shareholder or director of any corporate entity which leases or manages the Hotels, Other Hotel Properties or Non-Hotel Properties to such activities as are consistent with his or her status as a shareholder and/or director (as opposed to an officer or employee) of such entity. (2) The Company (and any QRS of the Company and any partnership or limited liability company in which the Company owns an interest) will not furnish or render, or bear the cost of furnishing or rendering, any services to tenants (including the Lessee) of the Hotels or Other Hotel Properties, other than the payment of real and personal property taxes, ground lease rent (where applicable), insurance (other than workers' compensation insurance), capital improvements, and the cost of repairing, replacing or refurbishing furniture, fixtures and equipment with respect to such hotel property (to the extent prescribed in the Leases). The costs and services described in the preceding sentences are usually or customarily borne or provided by lessors of hotel properties in the geographic areas in which the Hotels or Other Hotel Properties are located. The Company (and any QRS of the Company and any partnership or limited liability company in which the Company owns an interest) will not render, or bear the cost of furnishing or rendering, any services to tenants (including the Lessee) of any Non-Hotel Properties. (3) The following requirements will be met by the Lessee, the Management Company and any other person who furnishes or renders services ("Noncustomary Services") to the tenants of the Hotels or Other Hotel Properties, other than services that are usually or customarily rendered in connection with the rental of space for occupancy only and are not otherwise considered rendered to the occupant: (a) The Lessee, the Management Company and each such other person will satisfy the requirements described in paragraph (1) above. 6 Sunstone Hotel Investors, Inc. February 11, 1998 Page 6 (b) The cost of the Noncustomary Services will be borne by the Lessee, the Management Company or such other person. (c) Any charge for such Noncustomary Services will be made, received and retained by the Lessee, the Management Company or such other person. (4) The Company is not chartered or supervised as a bank, savings and loan, or similar association under state or federal law. (5) The Company will not operate as a small business investment company under the Small Business Investment Act of 1958. (6) The Company was not created by or pursuant to an act of a state legislature for the purpose of promoting, maintaining, and assisting the economy within the state by making loans that generally would not be made by banks. (7) The Company will not engage in the business of issuing life insurance, annuity contracts, or contracts of health or accident insurance. (8) Beginning with the Company's 1996 taxable year, beneficial ownership of the Company has been and will be held by 100 or more persons for at least 335 days of each taxable year. During the entire 1995 through 1997 taxable years as well as the 1998 taxable year to date, the Company has been managed by one or more directors and the beneficial ownership of the Company has been represented by transferable shares. (9) At all times during the last half of each taxable year beginning with the Company's 1996 taxable year no more than 50% in value of the Company's outstanding shares has been or will be owned, directly or indirectly (within the meaning of Section 544 of the Code, as modified by Section 856(h)(i)(B) of the Code), by or for five or fewer individuals. For this purpose, a qualified stock bonus, pension, or profit-sharing plan (as described in Section 401(a) of the Code), a supplemental unemployment compensation benefits plan (as described in Section 501(c)(17) of the Code), a private foundation (as described in Section 509(a) of the Code), or a portion of a trust permanently set aside or to be used exclusively for charitable purposes (as described in Section 642(c) of the Code) generally is considered an individual. However, stock held by a trust described in Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code (a "Qualified Trust") generally is treated as held directly by the Qualified Trust's beneficiaries in proportion to their actuarial interests in the Qualified Trust. (10) The Company was organized on September 23, 1994. The Company has not at any time been a party to a tax-free reorganization with another corporation and, except for the assets received upon the liquidation of Kahler, has not held any asset the disposition of which 7 Sunstone Hotel Investors, Inc. February 11, 1998 Page 7 could be subject to Section 1374 of the Code. The assets received upon the liquidation of Kahler are assets subject to Section 1374 of the Code. (11) The Company elected to be a REIT for its taxable year ended December 31, 1995, by computing its taxable income as a REIT on its federal income tax return for that taxable year (i.e., I.R.S. Form 1120-REIT). The Company also computed and reported its taxable income as a REIT for the taxable year ended December 31, 1996, and will continue to so compute and report its income in its 1997 tax return and in subsequent years. The Company will not terminate or revoke its REIT election. (12) The Company has not had, and will not have, at the end of any taxable year, and will not succeed to, any earnings and profits accumulated during a non-REIT year of the Company or any other corporation. (13) During 1995 and each subsequent taxable year, at least 95% of the Company's gross income, including any gross income of any QRS of the Company and excluding gross income from the sale of property held as inventory or held primarily for sale to customers in the ordinary course of the Company's (or any QRS's) trade or business ("Prohibited Income"), has been and will be derived from: (a) Dividends. (b) Interest. (c) "Rents from real property," within the meaning of Section 856(d) of the Code. (d) Gain from the sale or other disposition of stock, securities, and real property (including interests in real property and interests in mortgages on real property) that is not Prohibited Income. (e) Abatements and refunds of taxes on real property. (f) Income and gain derived from real property acquired directly by foreclosure or deed in lieu thereof ("Foreclosure Property"), not including property acquired as a result of indebtedness arising from the sale of property held as inventory or primarily for sale to customers in the ordinary course of the Company's business. (g) Amounts (other than amounts based on the income or profits of any person within the meaning of Section 856 of the Code) received or accrued as consideration for entering into agreements (i) to make loans secured by mortgages on real 8 Sunstone Hotel Investors, Inc. February 11, 1998 Page 8 property or on interests in real property or (ii) to purchase or lease real property (including interests in real property and interests in mortgages on real property). (h) Gain from the sale or other disposition of real estate assets that is not Prohibited Income. (i) Payments under bona fide interest rate swap or cap agreements, options, futures contracts, forward rate agreement, or any similar financial instrument, entered into by the Company (or any QRS of the Company) in a transaction to reduce the interest rate risks with respect to any indebtedness incurred or to be incurred by the Company to acquire or carry real estate assets ("Qualified Hedging Contracts"). (j) Gain from the sale or other disposition of Qualified Hedging Contracts. (14) During 1995 and each subsequent taxable year, at least 75% of the Company's gross income (including any gross income of any QRS of the Company, but excluding Prohibited Income) has been and will be derived from: (a) "Rents from real property" as defined in Section 856(d) of the Code. (b) Interest (as defined in Section 856(f) of the Code) on obligations secured by mortgages on real property or on interests in real property. (c) Gain from the sale or other disposition of real property (including interests in real property and interests in mortgages on real property) that is not Prohibited Income. (d) Dividends or other distributions on, and gain (other than Prohibited Income) from the sale or other disposition of, transferable shares in other REITs. (e) Abatements and refunds of taxes on real property. (f) Income and gain (other than Prohibited Income) derived from Foreclosure Property. (g) Amounts (other than amounts based on the income or profits of any person) received or accrued as consideration for entering into agreements (i) to make loans secured by mortgages on real property or on interests in real property or (ii) to purchase or lease real property (including interests in real property and interests in mortgages on real property). 9 Sunstone Hotel Investors, Inc. February 11, 1998 Page 9 (h) Income that was (i) attributable to stock or a debt instrument (with a maturity date of at least five years), (ii) attributable to the temporary investment of new capital, and (iii) received or accrued during the one-year period beginning on the date on which the Company received such capital. (15) For purposes of this representation, the term "Adjusted Basis Ratio" means the ratio of (i) the average of the adjusted bases of the personal property contained in the Hotel (or other property) at the beginning and at the end of such taxable year to (ii) the average of the aggregate adjusted bases of both the real property and personal property comprising the Hotel (or other property) at the beginning and at the end of such taxable year. The Adjusted Basis Ratio for any Hotel, Other Hotel Property or Non-Hotel Property of the Partnership (or any partnership or limited liability company in which the Partnership, the Company or a QRS of the Company owns an interest) has not exceeded and will not exceed 15% for any taxable year or, to the extent (if any) that the Adjusted Basis Ratio for any such property exceeds 15%, the percentage-of-gross-income tests set forth in the two immediately preceding representations will be satisfied notwithstanding that the gross income of the Company properly attributable to the subject personal property is disqualified income not constituting "rents from real property." (16) The Leases provide that rent is the greater of a fixed amount or a percentage amount that is calculated by multiplying specified percentages by the gross room revenues for each of the Hotels in excess of certain levels (the "Percentage Rent"). The lease terms, base rent and percentages used to compute the Percentage Rent (i) have not been and will not be renegotiated during the term of the Leases in a manner that bases the Percentage Rent on income or profits of any person and (ii) have and will at all times conform with normal business practices. (17) The Company believes that the Lessee presently has substantial value based on projections as to the Lessee's future financial performance. The Company anticipates that the Lessee will have sufficient future revenue to enable the Lessee to satisfy all of its liabilities (including payments under the Leases and payments to the Management Company) and generate a reasonable profit to the Lessee. (18) The Company will lease any Non-Hotel Properties to the Lessee (or another lessee) for fixed rental payments on commercially reasonable terms or for rental payments which comply with the requirements in the immediately following representation and conform with normal business practices. (19) The Company has not received and will not receive or accrue, directly or indirectly (including through any QRS of the Company, the Partnership or any other partnership or limited liability company), any rent, interest, contingency fees, or other amounts that were determined in whole or in part with reference to the income or profits derived by any person 10 Sunstone Hotel Investors, Inc. February 11, 1998 Page 10 (excluding amounts received (i) as rents from Hotels (including under the Leases and any subsequent leases) that are (A) based solely on a percentage or percentages of receipts or sales and the percentage or percentages are fixed at the time the leases are entered into, are not renegotiated during the term of the leases in a manner that has the effect of basing rent on income or profits, and conform with normal business practices or (B) attributable to qualified rents from subtenants as provided by Section 856(d)(6) of the Code and (ii) as interest that was (A) based solely on a fixed percentage or percentages of receipts or sales or (B) attributable to qualified rents received or accrued by debtors as provided by Section 856(f)(2) of the Code). (20) The Company (and any QRS of the Company) has not owned and will not own, directly or indirectly (within the meaning of Section 856(d)(5) of the Code), 10% or more of the stock, by voting power or number of shares, of the Lessee, any other lessee of its properties, the Management Company or any other manager of its properties. The Company (and any QRS of the Company) will not receive or accrue, directly or indirectly, any rents from any of the following parties: (a) A corporation of which the Company (or any QRS of the Company) owns, directly or indirectly (within the meaning of Section 856(d)(5) of the Code), 10% or more of the stock, by voting power or number of shares. (b) A noncorporate entity in which the Company (or any QRS of the Company) owns, directly or indirectly (within the meaning of Section 856(d)(5) of the Code), an interest of 10% or more of the assets or net profits. (21) During each taxable year through 1997, less than 30% of the Company's gross income (including any gross income of any QRS of the Company) was derived from the sale or other disposition of: (a) Stock, Qualified Hedging Contracts or other securities held for less than one year. (b) Property in a transaction that generates Prohibited income. (c) Real property (including interests in real property interests in mortgages on real property) held for less than four years other than (i) property compulsorily or involuntarily converted to another form as a result of its destruction (in whole or in part), seizure, requisition, or condemnation (or the threat or imminence thereof) and (ii) Foreclosure Property. (22) At the close of each quarter of each taxable year (including the taxable year commencing January 1, 1995), (i) at least 75% of the value of the Company's total assets 11 Sunstone Hotel Investors, Inc. February 11, 1998 Page 11 (including the assets of any QRS of the Company) have and will be represented by real estate assets, cash and cash items, and government securities (the "75% Basket") and (ii) with respect to securities not included in the 75% Basket, (A) not more than 5% of the value of the Company's total assets have or will consist of the securities of any one issuer (excluding QRS's of the Company) and (B) the Company has not and will not hold more than 10% of the outstanding voting securities of any one issuer (excluding QRS's of the Company). For purposes of this representation, (i) the term "securities" does not include the Company's interest in the Partnership (or any other partnership or limited liability company in which the Company or the Partnership owns an interest if such entity is not taxable as a corporation), (ii) the Company's proportionate share of the assets of the Partnership (and any other partnership or limited liability company in which the Company or the Partnership owns an interest if such entity is not taxable as a corporation) are treated as assets of the Company, and (iii) the term "value" means (A) fair value as determined in good faith by the Board of Directors of the Company or (B) in the case of securities for which market quotations are readily available, the market value of such securities. (23) The Company has and will maintain sufficient records as to its investments to be able to show that it complies with the diversification requirements described in the preceding paragraph. (24) For each taxable year, the deduction for dividends paid by the Company (as defined in Section 561 of the Code, but without regard to capital gain dividends, as defined in Section 857(b)(3)(C) of the Code) has and will equal or exceed (i) the sum of (A) 95% of the Company's real estate investment trust taxable income (as defined in Section 857(b)(2) of the Code, but without regard to the deduction for dividends paid and excluding any net capital gain) and (B) 95% of the excess of its net income from Foreclosure Property over the tax imposed on such income by Section 857(b)(4)(A) of the Code, minus (ii) any excess noncash income (as defined in Section 857(e) of the Code). (25) The dividends paid by the Company (including dividends deemed paid under any dividend reinvestment plan) have been and will be made pro rata, with no preference to any share as compared with other shares of the same class. (26) Within 30 days after the end of each of the 1995, 1996 and 1997 taxable years the Company demanded, and within 30 days after the end of each subsequent taxable year the Company will demand, written statements from its shareholders that, at any time during the last six months of the taxable year, owned 5% or more of its shares (or if the Company has less than 2,000 and more than 200 shareholders of record of its shares on any dividend record date, 1% or more of its shares, or if the Company has 200 or less shareholders of record on any dividend record date, one-half of 1% or more of its shares) setting forth the following information: 12 Sunstone Hotel Investors, Inc. February 11, 1998 Page 12 (a) The actual owners of the Company's stock (i.e., the persons who are required to include in gross income in their returns the dividends received on the stock). (b) The maximum number of shares of the Company (including the number and face value of securities convertible into shares of the Company) that were considered owned, directly or indirectly (within the meaning of Section 544 of the Code, as modified by Section 856 (h)(1)(B) of the Code), by each of the actual owners of any of the Company's shares at any time during the last half of the Company's taxable year. (27) The Company has maintained and will maintain the written statements described in the preceding paragraph (and other information required by Section 1.857-8(d) of the Regulations) in its principal office, and the statements (and such other information) will be available for inspection by the Internal Revenue Service (the "Service"). (28) The Company has and will use the calendar year as its taxable year. (29) The Partnership has been duly formed as a limited partnership under Delaware law and has been and will be operated in accordance with applicable Delaware law and the Partnership Agreement. (30) The Partnership Agreement will remain in substantially the same form as its current form and will not be amended in any material respect (except upon the substitution of partners in accordance with the terms of the Partnership Agreement). (31) No Limited Partner (nor any affiliate of any Limited Partner) has owned or will own at any time, directly, indirectly or by attribution (as defined in Section 856(d)(5) of the Code), 10% or more of the Company. For purposes of this representation, beneficial ownership of the interests in the Partnership is taken into account. (32) A majority of the Company's Board of Directors at all times will be independent directors. (33) The Partnership has since its formation satisfied the private placement "safe harbor" from publicly traded partnership status under Notice 88-75 issued by the Service (including the requirement that the Partnership not have more than 500 partners). If the Partnership should fail to satisfy at least one of the safe harbors set forth in Notice 88-75, or the Regulations under Section 7704 of the Code, whichever is applicable, in any taxable year, the Partnership will satisfy the gross income test to avoid corporate treatment, as set forth in Section 7704(c)(2) of the Code, for such taxable year and all taxable years thereafter. 13 Sunstone Hotel Investors, Inc. February 11, 1998 Page 13 (34) The interests in the Partnership have not been and will not be traded on an established securities market. (35) The Partnership has not issued and will not issue any Units in a transaction required to be registered under the Securities Act of 1933 (the "1933 Act"). (36) The Partnership has not elected and will not elect to be taxable as a corporation under the Code. (37) No partnership or limited liability company in which the Company, the Partnership or a QRS of the Company owns an interest has elected or will elect to be treated as a corporation for tax purposes. (38) The Company has owned all of the stock of its corporate subsidiaries at all times since the incorporation of those subsidiaries and will continue to own all such stock. (39) Immediately after the Acquisition, the Company caused Kahler to be liquidated and dissolved pursuant to applicable Minnesota corporate dissolution provisions (and not pursuant to any statutory merger provisions). The Company received all of Kahler's assets, subject to all of its liabilities, in the liquidation. The plan of liquidation of Kahler was adopted by Kahler's board of directors (and approved by the Company) after the closing of the Acquisition, and no plan of liquidation was adopted prior to the Acquisition. The dissolution of Kahler was completed in all respects (including the filing of all necessary forms and certificates under state law) prior to December 31, 1997. (40) Before the Acquisition, most of Kahler's directly and indirectly wholly owned subsidiaries were merged into their immediate parent corporations or, in the case of first-tier subsidiaries, into a single-member limited liability company wholly owned wholly by Kahler (the "Pre-Acquisition Mergers"). All of the Pre-Acquisition Mergers were completed in all respects prior to the adoption of the plan of liquidation by Kahler. The Kahler subsidiaries that were not merged out of existence in the Pre-Acquisition Mergers were merged into the Company or otherwise disposed of to third parties after the liquidation of Kahler and prior to December 31, 1997. (41) After the liquidation of Kahler and its subsidiaries, the Company contributed all of Kahler's and its subsidiaries' assets, subject to all of such entities' liabilities, to the Partnership. (42) The Company has and will treat the Acquisition as a taxable purchase of Kahler's stock. 14 Sunstone Hotel Investors, Inc. February 11, 1998 Page 14 (43) The Company has not made, will not make, an election under Section 338 of the Code and will instead take a carryover basis in Kahler's and its subsidiaries' assets. (44) The Company will elect pursuant to Notice 88-19, 1988-1 C.B. 486, to be subject to rules similar to those in Section 1374 of the Code with respect to the net built-in gain in properties acquired from Kahler and its subsidiaries. (45) On the date of the adoption of the plan of liquidation of Kahler and at all times until the final liquidating distribution was made by Kahler, the Company was the owner of all of Kahler's stock. (46) All distributions by Kahler pursuant to its plan of liquidation were completed prior to December 31, 1997. Kahler retained no assets after December 30, 1997, and was formally dissolved under Minnesota law before that date. As soon as the first liquidating distribution by Kahler was made, Kahler ceased to be a going concern and its activities were limited to winding up its affairs, paying its debts and distributing its assets to the Company. (47) The liquidation of Kahler was not, will not be, preceded or followed by the reincorporation in, or transfer or sale to, a recipient corporation of any of the businesses or assets of Kahler, if persons holding, directly or indirectly, more than 20% in value of the Kahler stock also hold, directly or indirectly, more than 20% in value of the stock of the recipient. For purposes of this representation, ownership will be determined by application of the constructive ownership rules of Section 318(a) of the Code as modified by Section 304(c)(3). In cases where the representations set forth above involve matters of law, we have explained to the Company's representatives the relevant and material sections of the Code, the Regulations thereunder, published rulings of the Service, and other relevant authority to which such representations relate and are satisfied that the Company's representatives understand such provisions and are capable of making such representations. Based on the documents, assumptions and representations set forth above, the discussion in the Registration Statement and Prospectus Supplement under the caption "United States Federal Income Tax Considerations" (which is incorporated herein by reference) and the discussion set forth below, we are of the opinion that: (a) Since the inception of its taxable year ended on December 31, 1995, the Company has been organized and operated in conformity with the requirements for qualification as a REIT pursuant to Sections 856 through 860 of the Code, and the Company's organization and contemplated method of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code in 1998 and subsequent years. 15 Sunstone Hotel Investors, Inc. February 11, 1998 Page 15 (b) The description of law and legal conclusions contained in the Registration Statement and the Prospectus Supplement under the caption "United States Federal Income Tax Considerations" are correct in all material respects, and the discussion therein fairly summarizes the federal income tax considerations and tax risks that are material to a holder of Common Shares. (c) The Partnership has been and will continue to be treated for federal income tax purposes as a partnership and not as an association taxable as a corporation. We are assuming that each of the representations set forth in this letter is accurate as of the date hereof. We will not review the Company's compliance with the documents, assumptions, and representations set forth above on a continuing basis. Accordingly, we can provide no assurance that the Company's or Partnership's operations for any given taxable year will satisfy the requirements for qualification and taxation as a REIT or partnership, respectively. With regard to the opinion set forth in subparagraph (c) above, Section 7704 of the Code generally provides that a "publicly traded partnership" will be taxed as a corporation unless at least 90% of its gross income in each year consists of "qualifying income" within the meaning of Section 7704(c)(2) of the Code. Section 7704(b) defines a "publicly traded partnership" as any partnership whose interests are traded on an established securities market or are readily tradable on a secondary market (or the substantial equivalent thereof). The Treasury Department has issued Regulations providing rules governing the meaning of the term "publicly traded partnership." Prior to the issuance of those Regulations, the Service issued a notice providing limited safe harbors from the definition of a "publicly traded partnership." I.R.S. Notice 88-75, 1988-2 C.B. 386. Pursuant to one of the safe harbors provided in Notice 88-75 (a "private placement" safe harbor), interests in a partnership will not be treated as readily tradable on a secondary market or the substantial equivalent thereof if (i) all of the partnership interests are issued in transactions that are not required to be registered under the 1933 Act and (ii) the partnership does not have more than 500 partners (as calculated in the manner specified in Notice 88-75). Since the General Partner has represented that (i) the Partnership has not and will not offer any Units in a transaction required to be registered under the 1933 Act, (ii) the Partnership does not currently have more than 500 Partners, and (iii) the interests in the Partnership are not traded on an established securities market, we are of the opinion that the Partnership is not a publicly traded partnership at present. The Regulations under Section 7704 provide that Notice 88-75 will continue to apply to the Partnership through the year 2005 unless the Partnership enters into a "substantial new line of business" prior to that date. Commencing in the year 2006 (or in such earlier taxable year in which the Partnership enters a substantial new line of business), the Partnership 16 Sunstone Hotel Investors, Inc. February 11, 1998 Page 16 would be required to have less than 100 partners in order to fall under the private placement safe harbor. There is no assurance that the Partnership will continue to satisfy either the 500-partner safe harbor provided in Notice 88-75 or that the Partnership will satisfy the 100-partner safe harbor provided in the Regulations. However, the Partnership has represented that, if in any taxable year the Partnership falls outside of an applicable safe harbor from publicly traded partnership status, it will satisfy the gross income test set forth in Section 7704(c)(2) of the Code in that taxable year and each subsequent taxable year. (Among other things, this will require that Mr. Alter (or any other substantial shareholder of the Lessee) own less than a 5% interest in the Partnership in the particular taxable year. Mr. Alter currently owns less than a 5% interest in the Partnership.) Our opinion as to the classification of the Partnership is based on an assumption that the Partnership will either (i) continue to fall within a safe harbor from publicly traded partnership status, or (ii) if the Partnership is ever treated as a publicly traded partnership, it will satisfy the qualifying income test of Section 7704(c)(2) of the Code in the taxable year in which such treatment commences and all years thereafter. If future events prove to be inconsistent with our assumptions, our opinion would be altered. Because the continuing treatment of the Partnership as a partnership is based on subsequent events, we can provide no absolute assurance that the Partnership will not be treated as a corporation at some time in the future. # # # The foregoing opinions are based on current provisions of the Code and the Regulations, published administrative interpretations thereof, and published court decisions. The Service has not issued Regulations or administrative interpretations with respect to various provisions of the Code relating to REIT qualification. The foregoing opinions are not binding on the Internal Revenue Service, and no assurance can be given that the Service will not successfully challenge our opinions upon audit. Furthermore, no assurance can be given that the law will not change in a way that will prevent the Company from qualifying as a REIT or the Partnership from being classified as a partnership for federal income tax purposes. Our opinion is conditioned and based upon the accuracy of substantial factual information, representations and conclusions provided to us by various parties, including (without limitation) the representation certificate provided by the Company, the Cost Segmentation Analyses, the KPMG E&P Analysis and the Ernst & Young E&P Review. We have not rendered an opinion as to any factual matters, including (without limitation) the accuracy of the information, representations and conclusions referred to in the preceding sentence. In particular, we have rendered no opinion as to such factual matters as the amount of Kahler's pre-Acquisition earnings and profits, the conformity of the Leases with normal business practices or the accuracy of the Cost Segmentation Analyses. If any such information, representations or conclusions as to factual matters is inaccurate in any material respect, our 17 Sunstone Hotel Investors, Inc. February 11, 1998 Page 17 opinion would be different. Furthermore, we will not monitor compliance by the Company with the ongoing requirements for qualification as a REIT and, therefore, cannot assure that the Company will satisfy each of those requirements. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. We also consent to the references to Brobeck, Phleger & Harrison LLP under the captions "United States Federal Income Tax Considerations" and "Legal Matters" in the Registration Statement and the Prospectus Supplement. The foregoing opinions are limited to the federal income tax matters specifically addressed herein, and no other opinions are rendered with respect to other federal tax matters or to any issues arising under the tax laws of any state or locality. We undertake no obligation to update the opinions expressed herein after the date of this letter. This opinion letter is solely for the information and use of the addressee and the purchasers of the Common Shares in the Offering, and may not be relied upon for any purpose by any other person without our express written consent. Very truly yours, BROBECK, PHLEGER & HARRISON LLP -----END PRIVACY-ENHANCED MESSAGE-----