Forward Sale Agreement, dated July 18, 2006



 Exhibit 10.1 
 EXECUTION VERSION 
 CONFIRMATION 
  

			
	Date:	  	July 18, 2006
		
	To:	  	Sunstone Hotel Investors, Inc.
		  	903 Calle Amanecer, Suite 100
		  	San Clemente, California 92673
		
	Telefax No.:	  	(949) 369-3102
		  	(949) 369-3179
		
	Attention:	  	Andrew W. Gross
		
	From:	  	Citibank, N.A.
		
	Telefax No.:	  	212-615-8985
	
	Transaction Reference Number: ____________________

 The purpose of this letter agreement (this “Confirmation”) is to confirm the
terms and conditions of the Transaction entered into between Sunstone Hotel Investors, Inc. (“Counterparty”) and Citibank, N.A. (“Citibank”) on the Trade Date specified below (the “Transaction”).
This Confirmation constitutes a “Confirmation” as referred to in the ISDA Agreement specified below. 
 This Confirmation evidences
a complete binding agreement between you and us as to the terms of the Transaction to which this Confirmation relates. This Confirmation shall supplement, form a part of, and be subject to an agreement in the form of the 1992 ISDA Master Agreement
(Multicurrency-Cross Border) (“ISDA Agreement”) as if we had executed an agreement in such form on the Trade Date of the first such Transaction between you and us, and such agreement shall be considered the “Agreement”
hereunder. 
 The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the “Definitions”)
as published by ISDA are incorporated into this Confirmation. 
 THIS CONFIRMATION WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE. THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK IN CONNECTION WITH ALL MATTERS RELATING HERETO AND WAIVE ANY OBJECTION TO THE LAYING OF VENUE IN, AND ANY CLAIM OF INCONVENIENT FORUM WITH RESPECT TO, THESE COURTS. 
 1. In the event of any inconsistency between this Confirmation, on the one hand, and the Definitions or the ISDA Agreement, on the other hand, this
Confirmation will govern. 
 2. Each party will make each payment specified in this Confirmation as being payable by such party, not later
than the due date for value on that date in the place of the account specified below or otherwise specified in writing, in freely transferable funds and in a manner customary for payments in the required currency. 
  

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 3. Confirmations: 
 This Confirmation and the ISDA Agreement shall constitute the written agreement between Counterparty and Citibank with respect to the Transaction.

 The terms of the particular Transaction to which this Confirmation relates are as follows: 
  

			
	Trade Date:	  	July 18, 2006
		
	Seller:	  	Counterparty
		
	Buyer:	  	Citibank
		
	Shares:	  	The common stock, $0.01 par value per share, of Counterparty (Symbol: “SHO”).
		
	Number of Shares:	  	4,000,000
		
	Initial Forward Price:	  	$27.75 per Share
		
	Forward Price:	  	On the third Scheduled Trading Day following the Trade Date, the Initial Forward Price, and on any other day the Forward Price as of the immediately preceding calendar day multiplied
by the sum of (i) 1 plus (ii) the Daily Rate for such day.
		
		  	For each Specified Amount with a Specified Amount Record Date (as defined below) occurring on or before the relevant Settlement Date or Cash Settlement Payment Date, as applicable, on the
related Specified Amount Payment Date (as defined below) such Specified Amount shall be subtracted from the Forward Price on such day.
		
	WHERE:	  	
		
		  	“Daily Rate” means, for any day, (i)(A) the Federal Funds Open Rate for such day minus (B) the Fixed Charge divided by (ii) 360.
		
		  	“Specified Amount” means (i) in the case of the first Specified Amount, USD 0.30 per Share; and (ii) in the case of all subsequent Specified Amounts, USD 0.33 per Share,
based on an expected quarterly payment date deemed to occur on every 15th day of January, April, July and October (or, if not a Business Day, the next preceding Business Day) (each a “Specified Amount Payment Date”) with a record
date deemed to occur on the last calendar day of March, June,

  

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		  	September and December (each a “Specified Amount Record Date”).
		
		  	“Federal Funds Open Rate” means with respect to any day, the opening federal funds rate quoted on Bloomberg Financial Markets as of such day (or, if that day is not a
Business Day, the next preceding Business Day); provided that if no such rate appears on such Business Day, the Calculation Agent shall determine the rate in a commercially reasonable manner from any publicly available source (including any
Federal Reserve Bank).
		
		  	“Fixed Charge” means the sum of the Spread and the Borrow Cost.
		
		  	“Spread” means 75 basis points per annum.
		
		  	“Borrow Cost” means 25 basis points per annum.
		
		  	“Business Day” means any day on which the commercial banks are open for general business (including dealings in foreign exchange and foreign currency deposits) in New York
City.
		
	Prepayment:	  	Not Applicable
		
	Variable Obligation:	  	Not Applicable
		
	Exchange:	  	New York Stock Exchange
		
	Related Exchanges:	  	All Exchanges
		
	Calculation Agent:	  	Citibank, which shall make all calculations, adjustments and determinations required pursuant to the Transaction in a commercially reasonable manner. All such calculations, adjustments and
determinations shall be binding absent manifest error. The Calculation Agent shall provide, upon request of Counterparty, a schedule of all calculations, adjustments and determinations in reasonable detail and in a timely manner, and consult with
Counterparty prior to making calculations, adjustments and determinations where reasonably practicable.

  

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 4. Valuation: 
  

			
	Initial Pricing Date:	  	Subject to “Accelerated Unwind” below, July 18, 2007.
		
	Pricing Periods:	  	Each period commencing on an Initial Pricing Date and ending on the Scheduled Trading Day on which the aggregate number of Priced Shares for all days in such Pricing Period equals the Number
of Shares.
		
		  	For any day in a Pricing Period, “Priced Shares” means (i) where Cash Settlement is applicable to such Pricing Period, the number of Shares purchased by or on behalf of
Citibank (or its agent or affiliate) to close out its hedge of the Transaction that would customarily settle on such day and (ii) where Net Share Settlement is applicable to such Pricing Period, the number of Shares purchased by or on behalf of
Citibank (or its agent or affiliate) to close out its hedge of the Transaction that would customarily settle on such day multiplied by the Settlement Price for such day divided by the Forward Price for such
day.
		
	Accelerated Unwind:	  	Subject to Section 12(b), Counterparty may, by providing Citibank at least 3 Scheduled Trading Days’ notice (a “Settlement Notice”), irrevocably elect to accelerate the
Initial Pricing Date or Settlement Date, as the case may be, for all or a portion of the Number of Shares (such portion of the Number of Shares specified in such Settlement Notice, the “Unwind Shares”) to a Scheduled Trading Day
specified by Counterparty in such Settlement Notice, which Settlement Notice shall also specify the applicable Settlement Method. Counterparty may not designate an Initial Pricing Date that occurs during a Pricing Period relating to another Initial
Pricing Date designated pursuant to this paragraph.
		
		  	Upon the acceleration of the Initial Pricing Date or Settlement Date as described above with respect to a portion but not all of the Number of Shares, the Transaction shall be treated as if
it were two transactions with terms identical to those of the Transaction, except that (i) the first such transaction shall have a Number of Shares equal to the number of Unwind Shares and an Initial Pricing Date or Settlement Date, as the case may
be, as specified in the relevant Settlement Notice and (ii) the second such transaction shall have a Number of Shares equal to the Number of Shares for the Transaction, minus the number of Unwind Shares.

  

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	Unwind Activities:	  	During each Pricing Period, Citibank (or its agent or affiliate) shall purchase Shares to close out its hedge of the portion of the Transaction subject to such Pricing Period. The times and
prices at which Citibank (or its agent or affiliate) purchases any Shares during any Pricing Period shall be at Citibank’s sole discretion (it being understood that Citibank may exercise such discretion after considering whether and in what
quantity or manner purchasing Shares would be permitted or appropriate under applicable securities laws).

 5. Settlement Terms: 
  

			
	Settlement Currency:	  	USD
		
	Settlement Method Election:	  	Applicable with respect to a Settlement Date or all Cash Settlement Payment Dates for a Pricing Period; provided that (i) for purposes of this Confirmation, Section 7.1 of the
Definitions is hereby amended by adding the phrase “, Net Share Settlement” after “Cash Settlement” in the sixth line thereof and (ii) if Counterparty elects Cash Settlement or Net Share Settlement, it shall be deemed, on the
date of notice of such election, to have repeated the representations contained in Section 11(b)(vi) and (ix) below and to represent that it does not expect a Suspension Condition to exist during the Pricing Period.
		
	Electing Party:	  	Counterparty
		
	Settlement Method Election Date:	  	The fifth Scheduled Trading Day immediately preceding the relevant Settlement Date or Initial Pricing Date, as the case may be.
		
	Default Settlement Method:	  	Physical Settlement
		
	Settlement Date:	  	Subject to “Accelerated Unwind” above, July 18, 2007.
		
	Cash Settlement Payment Date:	  	In respect of a day on which Shares are purchased by or on behalf of Citibank (or its agent or affiliate) to close out its hedge of the Transaction, the day such purchases would customarily
settle.
		
	Settlement Price:	  	In respect of a Cash Settlement Payment Date, the weighted average purchase price (including brokerage costs) for the purchases by or on behalf of Citibank (or its agent or affiliate) to
close out its hedge of the Transaction that would customarily settle on such day.

  

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	Forward Cash Settlement Amount:	  	In respect of a Cash Settlement Payment Date, an amount equal to (i) the Priced Shares for such Cash Settlement Payment Date multiplied by (ii) an amount equal to (A) the
Settlement Price for such Cash Settlement Payment Date minus (B) the Forward Price for such Cash Settlement Payment Date.
		
	Net Share Settlement:	  	If applicable, on the related Cash Settlement Payment Date, (i) if the Forward Cash Settlement Amount is a positive number, then Seller shall deliver to Buyer the Net Share Settlement Amount
and (ii) if the Forward Cash Settlement Amount is a negative number, then Buyer shall deliver to Seller the absolute value of the Net Share Settlement Amount. For these purposes, the provisions of Sections 9.8, 9.9, 9.10, 9.11 and 9.12 of the
Definitions will be applicable.
		
	Net Share Settlement Amount:	  	In respect of a Cash Settlement Payment Date, a number of Shares (rounded down to the nearest whole Share) equal to the Forward Cash Settlement Amount for such Cash Settlement Payment Date
divided by the Settlement Price for such Cash Settlement Payment Date, plus cash (at the Settlement Price) for any fractional Share.
		
	Representation and Agreement:	  	Notwithstanding Section 9.11 of the Definitions, the parties acknowledge that any Shares delivered to Counterparty will be subject to restrictions and limitations arising from Counterparty or
its affiliates or out of Counterparty’s status under applicable securities laws.

 6. Adjustments: 
  

			
	Method of Adjustment:	  	Subject to Section 12(b), Calculation Agent Adjustment

 7. Extraordinary Events: 
  

			
	New Shares:	  	In the definition of New Shares in Section 12.1(i) of the Definitions, the text in (i) shall be deleted in its entirety and replaced with “publicly quoted, traded or listed on any of the
New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market (or their respective successors)”.

  

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	Consequences of Merger Events (in each case, subject to Section 12(b)):	  	
		
	(a) Share-for-Share:	  	Alternative Obligation
		
	(b) Share-for Other:	  	Cancellation and Payment
		
	(c) Share-for-Combined:	  	Component Adjustment
		
	Tender Offer:	  	Applicable
		
	Consequences of Tender Offers (in each case, subject to Section 12(b)):	  	
		
	(a) Share-for-Share:	  	Calculation Agent Adjustment
		
	(b) Share-for-Other:	  	Calculation Agent Adjustment
		
	(c) Share-for-Combined:	  	Calculation Agent Adjustment
		
		  	provided that for all Consequences of Tender Offers where Calculation Agent Adjustment is specified, Section 12.3(c) of the Definitions is hereby amended by deleting the words
“the Issuer and the Shares will not change, but” immediately following the words “Tender Offer Date” in the first line thereof.
		
	Composition of Combined Consideration:	  	Not Applicable
		
	Nationalization, Insolvency or Delisting:	  	Subject to Section 12(b), Cancellation and Payment
		
		  	In addition to the provisions of Section 12.6(a)(iii) of the Definitions, it will also constitute a Delisting if the Exchange is located in the United States and the Shares are not
immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re-quoted on any
such exchange or quotation system, such exchange or quotation system shall be deemed to be the Exchange.
		
	Determining Party:	  	For all applicable Extraordinary Events, Citibank

 8. Additional Disruption Events (in each case, subject to Section 12(b)):

  

			
	Change in Law:	  	Applicable; provided that Section 12.9(a)(ii) of the Definitions is hereby amended by (i) replacing the phrase “the interpretation” in the third line thereof
with

  

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		  	the phrase “or public announcement of the formal or informal interpretation” and (ii) immediately following the word “Transaction” in clause (X) thereof, adding the phrase
“in the manner contemplated by the Hedging Party on the Trade Date”.
		
	Failure to Deliver:	  	Applicable
		
	Insolvency Filing:	  	Notwithstanding anything to the contrary herein, in the ISDA Agreement or in the Definitions, upon any Insolvency Filing or any Event of Default with respect to Counterparty pursuant to
Section 5(a)(vii)(4) of the ISDA Agreement as a result of any proceeding under the U.S. Bankruptcy Code in respect of the Issuer, the Transaction shall automatically terminate on the date thereof without further liability of either party to this
Confirmation to the other party (except for any liability in respect of any breach of representation or covenant by a party under this Confirmation prior to the date of such Insolvency Filing or other proceeding), it being understood that the
Transaction is a contract for the issuance of Shares by the Issuer.
		
	Hedging Disruption:	  	Applicable
		
	Increased Cost of Stock Borrow:	  	Applicable
		
	Initial Stock Loan Rate:	  	25 basis points per annum
		
	Hedging Party:	  	For all applicable Additional Disruption Events, Citibank
		
	Determining Party:	  	For all applicable Additional Disruption Events, Citibank

 9. Non-Reliance: 
  

			
	Non-Reliance:	  	Applicable
		
	Agreements and Acknowledgments Regarding Hedging Activities:	  	Applicable
		
	Additional Acknowledgments:	  	Applicable

 10. Matters relating to the Purchase of Shares and Related Matters: 
 (a) Conditions to Effectiveness. (i) The effectiveness of this Confirmation shall be subject to the satisfaction or waiver by Citibank of the
following conditions: 
 (1) the representations and warranties of Counterparty contained in the Purchase Agreement dated the
date hereof among Counterparty, Citibank and Citigroup Global Markets Inc. as Representative of the several Underwriters named therein (the “Purchase Agreement”) and any certificate delivered pursuant thereto by Counterparty shall
be true and correct at the Closing Time as if made as of the Closing Time; 
  

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 (2) Counterparty shall have performed all of the obligations required to be performed by
it under the Purchase Agreement on or prior to the Closing Time; 
 (3) all of the conditions set forth in Section 5 of
the Purchase Agreement shall have been satisfied; 
 (4) no event that constitutes a Hedging Disruption shall have occurred;

 (5) no event that constitutes an Increased Cost of Stock Borrow shall have occurred; 
 (6) all of the representations and warranties of Counterparty hereunder and under the ISDA Agreement shall be true and correct at the
Closing Time as if made as of the Closing Time; and 
 (7) Counterparty shall have performed all of the obligations required
to be performed by it hereunder and under the ISDA Agreement at or prior to the Closing Time. 
 If delivery and payment for Citibank’s Securities (as
such term is defined in the Purchase Agreement) shall not have occurred by the Closing Time, the parties shall have no further obligations in connection with the Transaction, other than in respect of breaches of representations or covenants on or
prior to such date. 
 (ii) If, for any reason, the prospectus contemplated by the Purchase Agreement ceases to be current and available for
use prior to the completion by Citibank, its affiliates or the other underwriters of the sale of the Number of Shares, Citibank may reduce the Number of Shares hereunder to the number of Shares sold prior to such time. 
 (b) Interpretive Letter. Each party intends for this Confirmation to constitute a “Contract” as described in the letter dated
October 6, 2003 submitted by Robert W. Reeder and Leslie N. Silverman to Paula Dubberly of the staff of the Securities and Exchange Commission (the “Staff”) to which the Staff responded in an interpreted letter dated
October 9, 2003 (the “Interpretive Letter”) and agrees to take all actions, and omit to take any actions, reasonably requested by the other party for this Transaction to comply with the Interpretive Letter. 
 (c) Agreements and Acknowledgments of Counterparty Regarding Shares. 
 (i) Counterparty agrees and acknowledges that, in respect of any Shares delivered to Citibank hereunder, such Shares shall be, upon such
delivery, duly and validly authorized, issued and outstanding, fully paid and nonassessable, free of any lien, charge, claim, any preemptive or similar rights or other encumbrance and shall, upon such issuance, be accepted for listing or quotation
on the Exchange; 
 (ii) Counterparty agrees and acknowledges that Citibank will hedge its exposure to the Transaction by
selling Shares borrowed from third party securities lenders or other Shares pursuant 

  

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to a registration statement, and that, pursuant to the terms of the Interpretive Letter, the Shares (up to the Number of Shares) delivered, pledged or loaned
by Counterparty to Citibank in connection with the Transaction may be used by Citibank to return to securities lenders without further registration under the Securities Act of 1933, as amended (the “Securities Act”). Accordingly,
Counterparty agrees that the Shares that it delivers, pledges or loans to Citibank on or prior to the Settlement Date or Cash Settlement Payment Date will not bear a restrictive legend and that such Shares will be deposited in, and the delivery
thereof shall be effected through the facilities of, the Clearance System; and 
 (iii) Counterparty agrees not to take any
action to reduce or decrease the number of authorized and unissued Shares below the sum of the Number of Shares plus the total number of Shares issuable upon settlement (whether by net share settlement or otherwise) of any other transaction
or agreement to which it is a party. 
 (d) Alternative Procedures. If Counterparty is unable to comply with the provisions of
sub-paragraph (ii) of “Agreements and Acknowledgments of Counterparty Regarding Shares” above because of a change in law or a change in interpretation or the policy of the Securities and Exchange Commission or its staff, or Citibank
otherwise determines that in its reasonable opinion any Shares to be delivered to Citibank by Counterparty may not be freely returned by Citibank to securities lenders as described under such sub-paragraph (ii), then Counterparty may elect that any
Shares delivered hereunder either be (x) registered pursuant to an effective registration statement covering public resale of such Shares (“Registered Shares”), in which case clause (i) of this Section 10(e) shall
apply, or (y) issued pursuant to the exemption from the registration requirements of the Securities Act provided by Section 4(2) thereof (the “Restricted Shares”) , in which case clauses (ii) and (iii) of this
Section 10(e) shall apply,. 
 (i) Delivery of Registered Shares by Counterparty to Citibank (a “Registered
Settlement”) shall be effected in accordance with customary procedures with respect to such Registered Shares reasonably acceptable to Citibank. If Counterparty has elected to deliver Registered Shares, Counterparty shall have afforded
Citibank and its counsel and other advisers a reasonable opportunity to conduct a due diligence investigation of Counterparty customary in scope for underwritten equity offerings, the results of which must have been satisfactory to Citibank, and
Counterparty and Citibank shall execute an agreement containing customary terms, covenants, conditions, representations, warranties, indemnities to Citibank, due diligence rights for Citibank, opinions and certificates, and such other documentation
as is customary for underwriting agreements, all reasonably acceptable to Citibank. In the case of a Registered Settlement, Citibank shall, in its good faith discretion, adjust the number of Registered Shares to be delivered to Citibank hereunder in
a commercially reasonable manner to reflect any additional costs, expenses and fees incurred by Citibank and its affiliates as a result of settlement of the Transaction via Registered Settlement and not by return of Shares to securities lenders as
described under such sub-paragraph (ii). 
 (ii) Delivery of Restricted Shares by Counterparty to Citibank (a “Private
Placement Settlement”) shall be effected in accordance with customary private placement procedures with respect to such Restricted Shares reasonably acceptable to Citibank. On the date of such delivery, Counterparty shall not have taken, or
caused to be taken, any action that would make unavailable either (x) the exemption pursuant to Section 4(2) of the Securities Act for the sale or deemed sale by Counterparty to Citibank (or any affiliate designated by Citibank) of the
Restricted Shares or (y) the exemption pursuant to Section 4(1) or Section 4(3) of the Securities Act for resales of the 

  

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Restricted Shares by Citibank (or any such affiliate of Citibank). Counterparty and Citibank shall execute an agreement containing customary representations,
covenants, blue sky and other governmental filings and/or registrations, indemnities to Citibank, due diligence rights (for Citibank or any designated buyer of the Restricted Shares by Citibank), opinions and certificates, and such other
documentation as is customary for private placement agreements, all reasonably acceptable to Citibank. In the case of a Private Placement Settlement, Citibank shall, in its good faith discretion, adjust the number of Restricted Shares to be
delivered to Citibank hereunder in a commercially reasonable manner to reflect the fact that such Restricted Shares may not be freely returned to securities lenders by Citibank and may only be saleable by Citibank at a discount to reflect the lack
of liquidity in Restricted Shares. Notwithstanding the ISDA Agreement or this Confirmation, the date of delivery of such Restricted Shares shall be the Clearance System Business Day following notice by Citibank to Counterparty of the number of
Restricted Shares to be delivered pursuant to this clause (i). For the avoidance of doubt, delivery of Restricted Shares shall be due as set forth in the previous sentence and not be due on the date that would otherwise be applicable. 
 (iii) If Counterparty delivers any Restricted Shares in respect of the Transaction, Counterparty agrees that (A) such Shares may be
transferred freely among Citibank and a wholly owned subsidiary of Citigroup Inc. and (B) after the minimum “holding period” within the meaning of Rule 144(d) under the Securities Act has elapsed, Counterparty shall promptly remove,
or cause the transfer agent for the Shares to remove, any legends referring to any transfer restrictions from such Shares upon delivery by Citibank (or such subsidiary of Citigroup Inc.) to Counterparty or such transfer agent of seller’s and
broker’s representation letters customarily delivered by Citibank or its affiliates in connection with resales of restricted securities pursuant to Rule 144 under the Securities Act, each without any further requirement for the delivery of any
certificate, consent, agreement, opinion of counsel, notice or any other document, any transfer tax stamps or payment of any other amount or any other action by Citibank (or such subsidiary of Citigroup Inc.). 
 (e) Indemnity. Counterparty agrees to indemnify Citibank and its affiliates and their respective directors, officers, employees, agents and
controlling persons (Citibank and each such affiliate or person being an “Indemnified Party”) from and against any and all losses, claims, damages and liabilities, joint and several, incurred by or asserted against such Indemnified
Party arising out of, in connection with, or relating to, the execution or delivery of this Confirmation, the performance by the Counterparty of its obligations under, or the exercise by the Counterparty of any of its rights to elect Cash Settlement
or Net Share Settlement of, the Transaction or to accelerate the Initial Pricing Date or Settlement Date for all or a portion of the Number of Shares, or any breach of any covenant or representation made by Counterparty in this Confirmation or the
ISDA Agreement and will reimburse any Indemnified Party for all reasonable expenses (including reasonable legal fees and expenses) as they are incurred in connection with the investigation of, preparation for, or defense of any pending or threatened
claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party thereto. Counterparty will not be liable under this Indemnity sub-paragraph to the extent that any loss, claim, damage, liability or expense is
found in a final and nonappealable judgment by a court to have resulted from Citibank’s gross negligence or willful misconduct. 
  

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 11. Representations and Covenants: 
 (a) In connection with this Confirmation and the Transaction and any other documentation relating to the ISDA Agreement, each party to this Confirmation
represents and acknowledges to the other party that: 
 (i) it is an “accredited investor” as defined in
Section 2(a)(15)(ii) of the Securities Act; and 
 (ii) it is an “eligible contract participant” as defined in
Section 1a(12) of the Commodity Exchange Act, as amended (the “CEA”), and this Confirmation and the Transaction hereunder are subject to individual negotiation by the parties and have not been executed or traded on a
“trading facility” as defined in Section 1a(33) of the CEA. 
 (b) Counterparty represents to Citibank on the Trade Date (in
the case of clauses (vi) and (ix) below, on the date that Counterparty notifies Citibank that Cash Settlement or Net Share Settlement applies to the Transaction) that: 
 (i) its financial condition is such that it has no need for liquidity with respect to its investment in the Transaction and no need to
dispose of any portion thereof to satisfy any existing or contemplated undertaking or indebtedness; 
 (ii) its investments in
and liabilities in respect of the Transaction, which it understands are not readily marketable, is not disproportionate to its net worth, and it is able to bear any loss in connection with the Transaction, including the loss of its entire investment
in the Transaction; 
 (iii) it understands that Citibank has no obligation or intention to register the Transaction under the
Securities Act or any state securities law or other applicable federal securities law; 
 (iv) it understands that no
obligations of Citibank to it hereunder will be entitled to the benefit of deposit insurance and that such obligations will not be guaranteed by any Affiliate of Citibank or any governmental agency; 
 (v) IT UNDERSTANDS THAT THE TRANSACTION IS SUBJECT TO COMPLEX RISKS WHICH MAY ARISE WITHOUT WARNING AND MAY AT TIMES BE VOLATILE AND THAT
LOSSES MAY OCCUR QUICKLY AND IN UNANTICIPATED MAGNITUDE AND IS WILLING TO ACCEPT SUCH TERMS AND CONDITIONS AND ASSUME (FINANCIALLY AND OTHERWISE) SUCH RISKS; 
 (vi) each of its filings under the Securities Act, the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
or other applicable securities laws that are required to be filed have been filed and that, as of the respective dates thereof and as of the date of this representation, there is no misstatement of material fact contained therein or omission of a
material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading; 
 (vii) it has reserved and will keep available, free from preemptive rights, out of its authorized but unissued Shares, solely for the
purpose of issuance upon settlement of the 

  

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Transaction as herein provided, the full number of Shares as shall then be issuable upon settlement of the Transaction; 
 (viii) it is not entering into this Confirmation to create actual or apparent trading activity in the Shares (or any security convertible
into or exchangeable for Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for Shares); 
 (ix) it is not in possession of any material non-public information regarding itself or the Shares; 
 (x) it is, and shall be as of the date of any payment or delivery by it hereunder, solvent and able to pay its debts as they come due,
with assets having a fair value greater than liabilities and with capital sufficient to carry on the businesses in which it engages; 
 (xi) it is not and, after giving effect to the transactions contemplated hereby, will not be required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended; 
 (xii) it is eligible to conduct a primary offering of Shares on Form S-3, the offering contemplated by the Purchase Agreement complies
with Rule 415 under the Securities Act, and the Shares are “actively traded” as defined in Rule 101(c)(1) of Regulation M (“Regulation M”) promulgated under the Exchange Act. 
 (c) In connection with this Confirmation and the Transaction, Counterparty agrees and acknowledges that: 
 (i) it shall, upon obtaining knowledge of the occurrence of any event that constitutes an Event of Default or a Potential Event of Default
in respect of it, a Termination Event in respect of which it is an Affected Party, a Potential Adjustment Event, an Extraordinary Event or an Additional Disruption Event, notify Citibank within one Scheduled Trading Day of the occurrence of
obtaining such knowledge; 
 (ii) neither it nor any of its affiliates shall take any action that would cause any purchases of
Shares by Citibank or any of its affiliates in connection with any Cash Settlement or Net Share Settlement of the Transaction not to meet the requirements of the safe harbor provided by Rule 10b-18 under the Exchange Act if such purchases were made
by it; 
 (iii) it shall not engage in any “distribution” (as defined in Regulation M) during the period starting on
the first day of any Pricing Period and ending on the first Exchange Business Day immediately following the last day of such Pricing Period (inclusive); 
 (iv) in addition to any other requirements set forth herein, it shall not have the right to elect Cash Settlement or Net Share Settlement if Citibank notifies it that, in the reasonable judgment of Citibank, such Cash
Settlement or Net Share Settlement or the related purchases of Shares by Citibank (or its agent or affiliate) may raise material risks under applicable securities laws, including without limitation because such purchases, if effected by it, would
not qualify for applicable safe harbors under applicable securities laws (including, without limitation, the safe harbor provided by Rule 10b-18 under the Exchange Act); 
  

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 (v) if it becomes aware of the existence of any Suspension Condition, it shall
immediately notify Citibank that a Suspension Condition exists without specifying the nature of such Suspension Condition; a “Suspension Condition” exists if Counterparty becomes aware at any time during any Pricing Period
that any representation or warranty set forth in clause (vi), (viii), (ix) or (x) of Section 11(b) above would be untrue if made as of such time; and 
 (vi) without limiting any of the foregoing, neither it nor any “affiliated purchaser” (as defined in Regulation M) will,
directly or indirectly, bid for, purchase or attempt to induce any person to bid for or purchase, the Shares or securities that are convertible into, or exchangeable or exercisable for, Shares during any “restricted period” (as such term
is defined in Regulation M) relating to this Transaction, including in respect of Citibank’s initial hedging activities with respect hereto. 
 12. Miscellaneous: 
 (a) Early Termination. The parties agree that, notwithstanding the definition of Settlement
Amount in the ISDA Agreement, for purposes of Section 6(e) of the ISDA Agreement, Second Method and Loss will apply to the Transaction. 
 (b) Alternative Calculations and Payment on Early Termination and on Certain Extraordinary Events. 
 (i) In
lieu of (A) designating an Early Termination Date as the result of an Event of Default or Termination Event as to which the Counterparty is the Defaulting Party or Affected Party, (B) terminating the Transaction and determining a
Cancellation Amount as the result of an Additional Disruption Event, or (C) terminating the Transaction and determining an amount payable in connection with an Extraordinary Event to which Cancellation and Payment would otherwise be applicable,
Citibank shall be entitled to designate an early settlement date (the “Citibank Early Settlement Date”), in which case the Settlement Date shall be accelerated to the Citibank Early Settlement Date and Physical Settlement shall
apply; provided that Citibank may in its sole discretion elect to permit Counterparty to elect Cash Settlement or Net Physical Settlement, in which event the Initial Pricing Date would be accelerated to the Citibank Early Settlement Date.

 For the avoidance of doubt, if the Citibank Early Settlement Date occurs during a Pricing Period, then settlement in respect of the Priced
Shares for all days in such Pricing Period occurring on or prior to the date one regular settlement cycle following the Citibank Early Settlement Date (the aggregate number of such Priced Shares, the “Number of Unwound Shares”)
shall occur as provided in Section 5 above, and the acceleration of the Settlement Date (or Initial Pricing Date) described in the immediately preceding sentence shall be in respect of a Number of Shares equal to the Number of Shares,
minus the Number of Unwound Shares. 
 (ii) If, subject to Section 12(c) below, one party owes the other party any
amount in connection with the Transaction pursuant to Section 12.7 or 12.9 of the Definitions (except in the case of an Extraordinary Event in which the consideration or proceeds to be paid to holders of Shares as a result of such event
consists solely of cash) or pursuant to Section 6(d)(ii) of the ISDA Agreement (a “Payment Obligation”), Counterparty shall have the right, in its sole discretion, to (A) if the amount is owed by Citibank, require Citibank
to satisfy any such Payment Obligation or (B) if the amount is owed by Counterparty to satisfy any such Payment 

  

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Obligation, in either case by delivery of Termination Delivery Units (as defined below) by giving irrevocable telephonic notice to Citibank, confirmed in
writing within one Scheduled Trading Day, between the hours of 9:00 a.m. and 4:00 p.m. New York time on the Closing Date or Early Termination Date, as applicable (“Notice of Termination Delivery”). Upon Notice of Termination
Delivery, the party with the Payment Obligation shall deliver to the other party a number of Termination Delivery Units having a cash value equal to the amount of such Payment Obligation (such number of Termination Delivery Units to be delivered to
be determined by the Calculation Agent acting in a commercially reasonable manner). Settlement relating to any delivery of Termination Delivery Units pursuant to this provision shall occur within three Scheduled Trading Days if Counterparty has the
Payment Obligation and within a reasonable period of time if Citibank has the Payment Obligation. 
 “Termination Delivery
Unit” means (A) in the case of a Termination Event, an Event of Default or an Extraordinary Event (other than an Insolvency, Nationalization, Merger Event or Tender Offer), one Share or (B) in the case of an Insolvency,
Nationalization, Merger Event or Tender Offer, a unit consisting of the number or amount of each type of property received by a holder of one Share (without consideration of any requirement to pay cash or other consideration in lieu of fractional
amounts of any securities) in such Insolvency, Nationalization, Merger Event or Tender Offer. If a Termination Delivery Unit consists of property other than cash or New Shares and Counterparty provides irrevocable written notice to the Calculation
Agent on or prior to the Closing Date that it elects to deliver cash, New Shares or a combination thereof (in such proportion as Counterparty designates) in lieu of such other property, the Calculation Agent will replace such property with cash, New
Shares or a combination thereof as components of a Termination Delivery Unit in such amounts, as determined by the Calculation Agent in its discretion by commercially reasonable means, as shall have a value equal to the value of the property so
replaced. If such Insolvency, Nationalization, Merger Event or Tender Offer involves a choice of consideration to be received by holders, such holder shall be deemed to have elected to receive the maximum possible amount of cash. 
 (c) Set-Off and Netting. Citibank agrees not to set-off or net amounts due from Counterparty with respect to the Transaction against amounts due
from Citibank to Counterparty under obligations other than Equity Contracts. Section 2(c) of the ISDA Agreement as it applies to payments due with respect to the Transaction shall remain in effect and is not subject to the first sentence of
this provision. In addition, upon the occurrence of an Event of Default or Termination Event with respect to either party as the Defaulting Party or the Affected Party (“X”), the other party (“Y”) will have the right (but not be
obliged) without prior notice to X or any other person to set-off or apply any obligation of X under an Equity Contract owed to Y (whether or not matured or contingent and whether or not arising under this Confirmation, and regardless of the
currency, place of payment or booking office of the obligation) against any obligation of Y under an Equity Contract owed to X (whether or not matured or contingent and whether or not arising under this Confirmation, and regardless of the currency,
place of payment or booking office of the obligation). Y will give notice to X of any set-off or application effected under this provision. “Equity Contract” shall mean for purposes of this provision any transaction relating to
Shares between X and Y that qualifies as ‘equity’ of Counterparty under applicable accounting rules. Amounts (or the relevant portion of such amounts) subject to set-off may be converted by Y into the Termination Currency at the rate of
exchange at which Y would be able, acting in a reasonable manner and in good faith, to purchase the relevant amount of such currency. If any obligation is unascertained, Y may in good faith estimate that obligation and set-off in respect of the
estimate, subject to the relevant party accounting to the other when the obligation is ascertained. Nothing in this provision shall be effective to create a charge or other security interest. This provision shall be 

  

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without prejudice and in addition to any right of set-off, combination of accounts, lien or other right to which any party is at any time otherwise entitled
(whether by operation of law, contract or otherwise). 
 (d) Maximum Share Delivery. Notwithstanding any other provision of this
Confirmation, in no event will Counterparty be required to deliver hereunder, whether pursuant to Physical Settlement, Net Share Settlement, Private Placement Settlement or otherwise, more than 9,000,000 Shares to Citibank in the aggregate.

 (e) Status of Claims in Bankruptcy. Citibank acknowledges and agrees that this Confirmation shall not convey to Citibank rights
with respect to the transactions contemplated hereby that are senior to the claims of common stockholders in any U.S. bankruptcy or other insolvency or winding up proceedings with respect to Counterparty; provided, however, that
nothing herein shall limit or shall be deemed to limit Citibank’s right to pursue remedies in the event of a breach by Counterparty of its obligations and agreements with respect to this Confirmation and the ISDA Agreement; and,
provided, further, that nothing herein shall limit or shall be deemed to limit Citibank’s rights in respect of any transaction other than the Transaction. 
 (f) No Collateral. Notwithstanding any provision of this Confirmation or the ISDA Agreement, or any other agreement between the parties, to the
contrary, none of the obligations of Counterparty under the Transaction is secured by any collateral. Without limiting the generality of the foregoing, if the ISDA Agreement or any other agreement between the parties includes an ISDA Credit Support
Annex or other agreement pursuant to which Counterparty collateralizes obligations to Citibank, then the obligations of Counterparty hereunder will not be considered to be obligations under such Credit Support Annex or other agreement pursuant to
which Counterparty collateralizes obligations to Citibank, and the Transaction shall be disregarded for purposes of calculating any Exposure or similar term thereunder. 
 (g) Additional Termination Event. The occurrence of an Increased Dividend Event (as defined below) will constitute an Additional Termination Event under Section 5(b)(v) of the ISDA Agreement, with the
Transaction as the sole Affected Transaction and Counterparty as the sole Affected Party. An “Increased Dividend Event” shall occur if 100% of the aggregate gross cash dividends per Share (including any cash Extraordinary Dividends)
declared by the Issuer at any time during the period from and including the Trade Date to but excluding the final Cash Settlement Payment Date or Settlement Date, as applicable, exceeds the Specified Amount for the relevant calendar quarter,
determined based on record date. 
 (h) Transfer. Citibank has the right to assign any or all of its rights and obligations under the
Transaction to deliver or accept delivery of Shares to any of its affiliates; provided that such assignment shall only occur in respect of the Transaction when it has become obligatory that the Transaction be settled by the transfer of
Shares; and provided, further, that Counterparty shall have recourse to Citibank in the event of failure by the assignee to perform any of such obligations hereunder. Notwithstanding the foregoing, the recourse to Citibank shall be
limited to recoupment of Counterparty’s monetary damages and Counterparty hereby waives any right to seek specific performance by Citibank of its obligations hereunder. Such failure after any applicable grace period shall be deemed to be an
Additional Termination Event, such Transaction shall be the only Affected Transaction and Citibank shall be the only Affected Party. 
 (i)
Severability; Illegality. If compliance by either party with any provision of the Transaction would be unenforceable or illegal, (i) the parties shall negotiate in good faith to resolve such 

  

 16 








 
unenforceability or illegality in a manner that preserves the economic benefits of the transactions contemplated hereby and (ii) the other provisions of
the Transaction shall not be invalidated, but shall remain in full force and effect. 
 (j) Waiver of Trial by Jury. EACH OF
COUNTERPARTY AND CITIBANK HEREBY IRREVOCABLY WAIVES (ON ITS OWN BEHALF AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ON BEHALF OF ITS STOCKHOLDERS) ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT,
TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THE TRANSACTION OR THE ACTIONS OF CITIBANK OR ITS AFFILIATES IN THE NEGOTIATION, PERFORMANCE OR ENFORCEMENT HEREOF. 
 (k) Confidentiality. Citibank and Counterparty agree that (i) Counterparty is not obligated to Citibank to keep confidential from any and all persons or otherwise limit the use of any element of
Citibank’s descriptions relating to tax aspects of the Transaction and any part of the structure necessary to understand those tax aspects, and (ii) Citibank does not assert any claim of proprietary ownership in respect of such
descriptions contained herein of the use of any entities, plans or arrangements to give rise to significant U.S. federal income tax benefits for Counterparty. 
 (l) Securities Contract. The parties hereto intend for: 
 (i) the Transaction to be a
“securities contract” and a “swap agreement” as defined in the Bankruptcy Code (Title 11 of the United States Code) (the “Bankruptcy Code”), and the parties hereto to be entitled to the protections afforded by,
among other Sections, Sections 362(b)(6), 555 and 560 of the Bankruptcy Code; 
 (ii) the rights given to Citibank hereunder
upon an Event of Default, Termination Event or Early Termination Date to constitute “contractual rights” to cause the liquidation of a “securities contract” or a “swap agreement” and to set off mutual debts and claims
in connection with a “securities contract” or a “swap agreement”, as such terms are used in Sections 555 and 362(b)(6) of the Bankruptcy Code; 
 (iii) any cash, securities or other property provided as performance assurance, credit support or collateral with respect to a Transaction
to constitute “margin payments” and “transfers” under a “securities contract” or a “swap agreement” as defined in the Bankruptcy Code; 
 (iv) all payments for, under or in connection with a Transaction, all payments for the Shares and the transfer of such Shares to
constitute “settlement payments” and “transfers” under a “securities contract” or a “swap agreement” as defined in the Bankruptcy Code; and 
 (v) any or all obligations that either party has with respect to the Transaction to constitute property held by or due from such party to
margin, guaranty or settle obligations of the other party with respect to the Transaction. 
 (m) Beneficial Ownership.
Notwithstanding anything to the contrary in the ISDA Agreement or this Confirmation, in no event shall Citibank be entitled to receive, or shall be deemed to receive, any Shares if, upon such receipt of such Shares by Citibank, (i) its
“beneficial ownership” (within the meaning of Section 13 of the Exchange Act and the rules promulgated thereunder) would be 

  

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equal to or greater than 4.9% or more of the outstanding Shares or (ii) its ownership of Shares exceeding the several ownership limitations set forth in
Counterparty’s Articles of Incorporation (as of the Trade Date). If any delivery owed to Citibank hereunder is not made, in whole or in part, as a result of this provision, Counterparty’s obligation to make such delivery shall not be
extinguished and Counterparty shall make such delivery as promptly as practicable after, but in no event later than one Exchange Business Day after, Citibank gives notice to Counterparty that such delivery would not result in Citibank directly or
indirectly so beneficially owning in excess of 4.9% of the outstanding Shares. 
 13. Addresses for Notice: 
  

			
	 If to Citibank:
	  	Citibank, N.A.
		  	390 Greenwich Street
		  	New York, NY 10013
		  	Attention:        Corporate Equity Derivatives
		  	Facsimile:       (212) 723-8328
		  	Telephone:      (212) 723-7357
		
	 with a copy to:
	  	Citibank, N.A.
		  	250 West Street, 10th Floor
		  	New York, NY 10013
		  	Attention:        GCIB Legal Group—Derivatives
		  	Facsimile:       (212) 816-7772
		  	Telephone:      (212) 816-2211
		
	 If to Counterparty:
	  	Sunstone Hotel Investors, Inc.
		  	903 Calle Amanecer, Suite 100
		  	San Clemente, California 92673
		  	Attention:        Jon Kline
		  	Facsimile:       (949) 369-3179
		  	Telephone:      (949) 369-4252

 14. Accounts for Payment: 
  

			
	 To Citibank:
	  	Citibank, N.A.
		  	ABA #021000089
		  	DDA 00167679
		  	Ref: Equity Derivatives
		
	 To Counterparty:
	  	To an account designated by Counterparty to Buyer

 15. Delivery Instructions: 
 Unless otherwise directed in writing, any Share to be delivered hereunder shall be delivered as follows: 
  

			
	 To Citibank:
	  	To be advised.
	 To Counterparty:
	  	To be advised.

  

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	Yours sincerely,
	
	CITIBANK, N.A.
		
	By:	 	 /s/ Herman Hirsch

		 	Name: Herman Hirsch
		 	Title: Authorized Representative


  

			
	 Confirmed as of the
 date first above
written:

	
	SUNSTONE HOTEL INVESTORS, INC.
		
	By:	 	 /s/ Jon D. Kline

		 	Name: Jon D. Kline
		 	Title: Executive Vice President and Chief Financial Officer