Document:

Second Letter Amendment, dated as of May 23, 2007

 Exhibit 10.3 
 EXECUTION COPY 
 SECOND LETTER AMENDMENT 
 Dated as of May 23, 2007 
 Citicorp
North America, Inc., 
 as Administrative Agent 
 Two Penns Way,
Suite 110 
 New Castle, Delaware 19720 
 Re:         Sunstone Hotel Partnership, LLC Revolving Credit Agreement 
 Ladies and
Gentlemen: 
 Reference is made to that certain $200,000,000 Revolving Credit Agreement dated as of July 17, 2006 (as amended by that
certain First Letter Amendment dated as of August 14, 2006, the “Credit Agreement”) among Sunstone Hotel Partnership, LLC, as borrower (the “Borrower”), Sunstone Hotel Investors, Inc., the
Subsidiary Guarantors identified therein, the initial lenders identified therein (the “Lenders”), the Initial Issuing Bank and Swing Line Bank identified therein, Citicorp North America, Inc., as the administrative agent (in
such capacity, the “Administrative Agent”) for the Lenders Parties (as defined therein), Wachovia Capital Markets, LLC, as syndication agent, Calyon New York Branch, as co-syndication agent, Keybank National Association, as
documentation agent, and Citigroup Global Markets Inc. and Wachovia Capital Markets, LLC, as joint lead arrangers and joint book running managers. Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the
Credit Agreement. 
 It is hereby agreed by you and us as follows: 
 1. Amendments to Credit Agreement. Effective as of the Amendment Effective Date (defined below), the Credit Agreement is, hereby amended as
follows: 
 (a) The definition of “Applicable Margin” set forth in Section 1.01 of the Credit Agreement is
hereby amended by deleting the pricing grid set forth therein and substituting therefor the following: 
  

									
	 Pricing
Level
	  	 Leverage Ratio
	  	Applicable Margin
for Base Rate
Advances	 	 	Applicable Margin
for Eurodollar Rate
Advances	 
	 I
	  	> 60%	  	0.50	%	 	1.50	%
	 II
	  	> 55% but < 60%	  	0.25	%	 	1.25	%
	 III
	  	> 50% but < 55%	  	0.05	%	 	1.05	%
	 IV
	  	< 50%	  	0.00	%	 	0.90	%

 (b) The definition of “Debt” set forth in Section 1.01 of the
Credit Agreement is hereby amended by deleting the proviso at the end thereof and substituting therefor the following: 
 “provided, however, that in the case of the Parent and its Subsidiaries, “Debt” shall include, without duplication, (i) the JV Pro Rata Share of Debt of any Joint Venture if at such time both (A) the
aggregate amount of outstanding Investments by the Loan Parties and their Subsidiaries in Joint Ventures exceeds 10% of Total Asset Value and (B) the Total JV Leverage Ratio exceeds 70%; and (ii) any Debt of any Joint Venture that is
recourse (other than in respect of Customary Carve-Out Agreements) to the Parent or any of its Subsidiaries, including by reason of any such Person being a general partner in such Joint Venture; and except to the extent described in the foregoing
clauses (i) and (ii), the Debt of any Joint Venture shall be excluded from “Debt” of the Parent and its Subsidiaries.” 

 (c) The following definitions set forth in Section 1.01 of the Credit Agreement are
hereby amended and restated in their entirety to read as follows: 
 “Capitalized Value” means, in the
case of any Unencumbered Pool Asset that is a Hotel Asset, the Adjusted Net Operating Income of such Hotel Asset divided by the applicable Capitalization Rate. 
 “EBITDA” means , for any measurement period, the sum of (i) net income (or net loss) from continuing
operations (excluding gains (or losses) from extraordinary and unusual items), (ii) interest expense, (iii) income tax expense, (iv) depreciation expense, (v) amortization expense, (vi) gains (or losses) from sales of assets
and (vii) to the extent subtracted in computing net income, (A) impairment charges and (B) income attributable to minority interests, in each case of the Parent and its Subsidiaries determined on a Consolidated basis and in accordance
with GAAP for such period; provided, however, that for purposes of this definition, (1) in the case of any acquisition or disposition of any direct or indirect interest in any Asset (including through the acquisition of Equity Interests)
by the Parent or any of its Subsidiaries during such period, EBITDA will be adjusted (y) in the case of an acquisition, by adding thereto an amount equal to the acquired Asset’s actual EBITDA (computed as if such Asset was owned by the
Parent or one of its Subsidiaries for the entire period) generated during the portion of such period that such Asset was not owned by the Parent or such Subsidiary, and (z) in the case of a disposition, by subtracting therefrom an amount equal
to the actual EBITDA generated by the Asset so disposed of for such period, (2) the EBITDA attributable to any Redevelopment Asset for any measurement period shall not be less than zero, (3) any portion of EBITDA attributable to Equity
Interests in Joint Ventures shall be disregarded (provided, however, that JV Fee Income shall be included in EBITDA), and (4) EBITDA shall be adjusted to remove any impact from (x) non-cash amortization of stock grants to
members of the Parent’s management, (y) straight line rent leveling adjustments required under GAAP, and (z) amortization of intangibles pursuant to Statement of Financial Accounting Standards number 141. 
 “Leverage Ratio” means, at any date of determination, the ratio of (a)(i) Total Debt minus (ii) the
amount, if any, all restricted and unrestricted cash and Cash Equivalents on hand of the Parent and its Subsidiaries to (b) Total Asset Value at such date. 
 “Termination Date” means the earlier of (a) the fifth anniversary of the Closing Date, subject to the
extension thereof pursuant to Section 2.16 and (b) the date of termination in whole of the Revolving Credit Commitments, the Letter of Credit Commitments and the Swing Line Commitment pursuant to Section 2.05 or 6.01. 
  

 2 

 (d) The following new definitions are hereby inserted into Section 1.01 of the
Credit Agreement in their proper alphabetical order: 
 “Capitalization Rate” means, with respect to
any Hotel Asset or Joint Venture Asset, (a) 8.50% for Assets categorized “Upscale” or below by Smith Travel Research (provided that all such Assets located in San Diego, California shall be treated for purposes of this
definition as if the same were categorized “Upper Upscale” by Smith Travel Research), (b) 8.00% for Assets categorized “Upper Upscale” by Smith Travel Research, and (c) 7.50% for Assets categorized “Luxury” or
“Resort” by Smith Travel Research; provided, however, that (i) a 7.00% Capitalization Rate shall apply to the Hilton Times Square Hotel Asset, the Marriott Long Wharf Hotel Asset and the Hyatt Regency Century Plaza Hotel
Asset, and (ii) the Capitalization Rate determined in accordance with the foregoing methodology for each Hotel Asset in the respective metropolitan markets listed on Schedule IV shall be reduced by the correlative “Cap Rate
Adjustment” shown on Schedule IV for such metropolitan market. For purposes of this definition, “Smith Travel Research” shall mean Smith Travel Research or a substitute lodging industry research company proposed by the Borrower and
approved by the Administrative Agent and the Required Lenders. 
 “JV Equity Value” means, with
respect to any Joint Venture, (a) the JV Pro Rata Share of (i) an amount equal to the Adjusted EBITDA of the applicable Joint Venture Asset (calculated for this purpose as if such Joint Venture Asset were a Hotel Asset and without
reference to any JV Fee Income) divided by (ii) the applicable Capitalization Rate, less (b) the JV Pro Rata Share of all Debt of such Joint Venture; provided, however, that for each New Acquisition JV, the
Borrower shall have a one-time option (exercised by notice to the Administrative Agent) to elect to compute the “JV Equity Value” of such New Acquisition JV as either (A) the sum of all contributions (whether in the form of debt or
equity) made by the Loan Parties and their Subsidiaries to such New Acquisition JV, or (B)(1) the JV Pro Rata Share of the purchase price paid for the Joint Venture Asset owned by such New Acquisition JV less (2) the JV Pro Rata Share of
all Debt of such New Acquisition JV. 
 “JV Fee Income” means, for any measurement period, all income
of the Parent and any of its Subsidiaries from asset management fees, financing fees, renovation fees or other fees received from Joint Ventures during such period. 
 “New Acquisition Asset” means, at any date of determination, any Hotel Asset that has been owned by the Borrower
or any of its Subsidiaries for a period of less than 18 months at such date. 
 “New Acquisition JV”
means, at any date of determination, any Joint Venture in which the Borrower or any of its Subsidiaries has held an Equity Interest for a period of less than 18 months at such date. 
 “Total Asset Value” means the sum, without duplication, of all of the following: (a) for each Hotel Asset
other than a New Acquisition Asset, the Adjusted EBITDA of such Hotel Asset divided by the applicable Capitalization Rate, plus (b) for each New Acquisition Asset, at the Borrower’s one-time option (exercised by notice to the 

  

 3 

 
Administrative Agent), either (i) the value of such New Acquisition Asset determined in accordance with clause (a) above or (ii) the purchase
price of such New Acquisition Asset, plus (c) for each Redevelopment Asset, at the Borrower’s one-time option (exercised by notice to the Administrative Agent), either (i) the Adjusted EBITDA of such Redevelopment Asset for the four
fiscal quarters ending immediately prior to the commencement of renovation work on such Redevelopment Asset divided by the applicable Capitalization Rate or (ii) the undepreciated book value of such Redevelopment Asset in accordance with GAAP
(provided that the value attributable to Redevelopment Assets shall be limited to 20% of Total Asset Value), plus (d) for each Development Asset or Real Property comprised of vacant land, the book value of such Development Asset or
vacant land in accordance with GAAP, plus (e) for the office building adjacent to the Hotel Asset in Troy, Michigan, the undepreciated book value of such office building in accordance with GAAP, plus (f) for the laundry facilities in Salt
Lake City, Utah and Rochester, New York, the undepreciated book value of such laundry facilities in accordance with GAAP, plus (g) an amount equal to 10 times the EBITDA attributable to the Borrower’s Equity Interest in Buy
Efficient, L.L.C. for the four fiscal quarters of the Parent most recently ended (provided that the aggregate value attributable to the items described in clauses (d), (e), (f) and (g) shall be limited to 5% of Total Asset Value),
plus (h) receivables attributable to mortgage debt Investments, plus (i) for each Joint Venture, the JV Equity Value of such Joint Venture; provided, however, that at all times through and including December 31, 2008
(1) the Fairmont Newport Beach Hotel Asset shall be valued for purposes of determining Total Asset Value at the greater of the value determined in accordance with clause (a) above or $133,000,000, and (2) the Marriott Boston Long
Wharf Hotel Asset shall be valued for purposes of determining Total Asset Value at the greater of the value determined in accordance with clause (a) above or $231,000,000; provided further that so long as the Facility shall remain
outstanding, the Hyatt Century Plaza Hotel Asset shall be valued for purposes of determining Total Asset Value at the greater of the value determined in accordance with clause (a) above or $325,000,000. 
 “Total JV Leverage Ratio” means the quotient, expressed as a percentage, obtained by dividing (a) the
aggregate amount of the outstanding Debt of all Joint Ventures as of the date of such calculation by (b) the value of all Joint Venture Assets as of the date of such calculation that would be obtained if such Joint Venture Assets were valued in
the same manner as Unencumbered Pool Assets pursuant to the definition of “Unencumbered Pool Asset Value”, mutatis mutandis. It being understood that for the purposes of the foregoing calculation, the words “(other than any
Joint Venture Asset)” in the definition of Hotel Asset shall be disregarded. 
 (e) Section 2.08(a) of the Credit
Agreement is hereby amended by deleting the reference therein to “0.20%” in clause (ii) thereof and replacing it with “0.175%”. 
 (f) Section 5.02(e)(v) is hereby amended by amending and restating: (i) clause (v) thereof to read as follows: 
 “(v) Investments consisting of the following items so long as the aggregate amount outstanding, without duplication, of all
Investments described in this subsection does not exceed, at any time, 25% of Consolidated Total Assets at such time:” 
 and
(ii) clauses (A), (B), (C) and (D) thereof to read as follows: 
 “(A) loans, advances and extensions of
credit to any Person, 
  

 4 

 (B) Development Assets that are being constructed or developed as Hotel Assets, but are
not yet completed (including such assets that such Person has contracted to purchase for development with or without options to terminate the purchase agreement), 
 (C) additional Investments after the date hereof in Subsidiaries that are not Controlled Subsidiaries of any Loan Party, and 

(D) Investments in Joint Ventures;” 
 (g) Section 5.02(f) of the Credit Agreement is hereby amended by deleting the reference to “Section 5.04(a)(iv)” therein and replacing it with “Section 5.04(a)”. 
 (h) Section 5.03(e) of the Credit Agreement is hereby amended by deleting the words “each calendar month” on the second
line thereof and replacing them with “each fiscal quarter of the Parent”. 
 (i) The text of Section 5.03(f) of
the Credit Agreement is hereby deleted and the following is substituted therefor: “[Intentionally omitted.]” 
 (j) Section 5.04(a)(i) of the Credit Agreement is amended and restated in its entirety to read as follows: 
 “(i) Maximum Leverage Ratio: Maintain (A) at the end of each fiscal quarter of the Parent and (B) on the date of each Advance and the issuance or renewal of any Letter of Credit occurring during any of the periods
indicated below (both before and after giving effect to such Advance), a Leverage Ratio of less than or equal to 65%.” 
 (k) The chart under Section 5.04(a)(i) of the Credit Agreement is hereby deleted in its entirety. 
 (l)
Section 5.04(a)(iv) of the Credit Agreement is hereby deleted in its entirety. 
 (m) A new Schedule IV entitled
“Metropolitan Markets — Capitalization Rate Adjustments” is hereby added to the Credit Agreement in the form of Schedule IV attached hereto. 
 2. Effectiveness of Amendment. This letter amendment (this “Amendment”) shall become effective as of the date first above written (the “Amendment Effective Date”)
when, and only when, each of the following conditions precedent shall have been satisfied: 
 (a) The Administrative Agent
shall have received (i) counterparts of this Amendment executed by the Borrower, the Parent, the Administrative Agent, the Lenders or, as to any Lender, advice satisfactory to the Administrative Agent that such Lender has executed this
Amendment, and (ii) the consent attached hereto executed by each of the Subsidiary Guarantors. 
 (b) The representations
and warranties set forth in each of the Loan Documents shall be correct in all material respects on and as of the Amendment Effective Date, both before and on a pro forma basis after giving effect to this Amendment, as though made on and as
of such date (except for any such representation and warranty that, by its terms, refers to a specific date other than the Amendment Effective Date, in which case as of such specific date). 
  

 5 

 (c) No event shall have occurred and be continuing, or shall result from the
effectiveness of this Amendment, that constitutes a Default or Event of Default. 
 (d) The Administrative Agent shall have
received a certificate signed by a Responsible Officer of the Borrower dated the Amendment Effective Date confirming (i) the truth and accuracy of the matters set forth in Sections 2(b) and 2(c) above and (ii) that before and on a pro
forma basis after giving effect to this Amendment, the Loan Parties shall be in compliance with the covenants contained in Section 5.04, together with supporting information in form satisfactory to the Administrative Agent showing the
computations used in determining compliance with such covenants. 
 (e) The Administrative Agent shall have received payment
in full of an amendment fee equal to 0.10% of the sum of the Revolving Credit Commitments of those Lenders that have executed and delivered to the Administrative Agent a signature page to this Amendment, which fee shall be for the ratable benefit of
such Lenders. 
 3. Costs and Expenses. The Borrower agrees to pay on demand all reasonable out-of-pocket costs and expenses of the
Administrative Agent in connection with the preparation, execution and delivery hereof (including, without limitation, the reasonable fees and expenses of counsel for the Administrative Agent) in accordance with the terms of Section 9.04 of the
Credit Agreement. 
 4. Certain Definitions. This Amendment shall constitute a Loan Document. Following the effectiveness of this
Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to “the Credit
Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as previously amended and as amended by this Amendment. 
 5. Ratification. The Credit Agreement (as amended by this Amendment) and each of the other Loan Documents are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this Amendment shall not, except to the extent expressly provided herein, operate as a waiver of any right, power or remedy of any
Lender Party or the Administrative Agent under the Credit Agreement or any of the other Loan Documents, nor constitute a waiver of any provision of the Credit Agreement or any of the other Loan Documents. 
 6. Execution Instructions. If you agree to the terms and provisions hereof, please evidence such agreement by executing and returning a
counterpart of this Amendment to Malcolm K. Montgomery of Shearman & Sterling LLP by facsimile (646.848.7587), with four duplicate originals by overnight courier. 
 7. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as
delivery of a manually executed counterpart of this Amendment. 
  

 6 

 This Amendment shall be governed by, and construed in accordance with, the laws of the State of
New York. 
  

			
	Very truly yours,
	
	BORROWER:
	
	SUNSTONE HOTEL PARTNERSHIP, LLC
		
	By:	 	  

	Name:	 	
	Title:	 	
	
	PARENT:
	
	SUNSTONE HOTEL INVESTORS, INC.
		
	By:	 	  

	Name:	 	
	Title:	 	

  

 S-1 

			
	Agreed as of the date first above written:
	
	 CITICORP NORTH AMERICA, INC.,
 as
Administrative Agent and a Lender

		
	By:	 	  

	Name:	 	
	Title:	 	

  

 S-2 

			
	MERRILL LYNCH CAPITAL CORPORATION,
	as a Lender
		
	By:	 	  

	Name:	 	
	Title:	 	

  

 S-3 

			
	 WACHOVIA BANK, NATIONAL
 ASSOCIATION, as a
Lender

		
	By:	 	  

	Name:	 	
	Title:	 	

  

 S-4 

			
	CALYON NEW YORK BRANCH,
	as a Lender
		
	By:	 	  

	Name:	 	
	Title:	 	
		
	By:	 	  

	Name:	 	
	Title:	 	

  

 S-5 

			
	DEUTSCHE BANK TRUST COMPANY AMERICAS,
	as a Lender
		
	By:	 	  

	Name:	 	
	Title:	 	
		
	By:	 	  

	Name:	 	
	Title:	 	

  

 S-6 

			
	UBS LOAN FINANCE LLC,
	as a Lender
		
	By:	 	  

	Name:	 	
	Title:	 	
		
	By:	 	  

	Name:	 	
	Title:	 	

  

 S-7 

			
	BEAR STEARNS CORPORATE LENDING INC.,
	 as a Lender

		
	By:	 	  

	Name:	 	
	Title:	 	

  

 S-8 

			
	KEYBANK NATIONAL ASSOCIATION,
	as a Lender
		
	By:	 	  

	Name:	 	
	Title:	 	

  

 S-9 

			
	BANK OF AMERICA, N.A.,
	as a Lender
		
	By:	 	  

	Name:	 	
	Title:	 	

  

 S-10 

 SCHEDULE IV 
 METROPOLITAN MARKETS — CAPITALIZATION RATE ADJUSTMENTS 
 [See attached page.] 

 

 Sch. IV 

 CONSENT 
 Dated as of May 23, 2007 
 Each of the undersigned, as a Subsidiary Guarantor under the Guaranty set forth in Article VII of
the Credit Agreement (as defined in the Second Letter Amendment to which this Consent is attached), hereby consents to such Second Letter Amendment and hereby confirms and agrees that notwithstanding the effectiveness of such Second Letter
Amendment, the Guaranty is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that, on and after the effectiveness of such Second Letter Amendment, each reference in the Article VII of
the Credit Agreement to the “Credit Agreement”, “thereunder”, “thereof” or words of like import shall mean and be a reference to the Credit Agreement, as amended and modified by that certain First Letter Amendment dated
as of August 14, 2006 and by this Second Letter Amendment. 
  

			
	WB SUNSTONE- LAKE OSWEGO, LLC
		
	By:	 	  

	Name:	 	
	Title:	 	
	
	WB SUNSTONE- PORTLAND, LLC
		
	By:	 	  

	Name:	 	
	Title:	 	
	
	WB SUNSTONE- RIVERSIDE, LLC
		
	By:	 	  

	Name:	 	
	Title:	 	
	
	SUNSTONE WINDY HILL, L.L.C.
		
	By:	 	  

	Name:	 	
	Title:	 	

  

 C-1 

			
	SUNSTONE NAPA, L.L.C.
		
	By:	 	  

	Name:	 	
	Title:	 	
	
	SUNSTONE JAMBOREE, LLC
		
	By:	 	  

	Name:	 	
	Title:	 	
	
	SUNSTONE MACARTHUR, LLC
		
	By:	 	  

	Name:	 	
	Title:	 	
	
	SUNSTONE HOTELS ROCHESTER, L.L.C.
		
	By:	 	  

	Name:	 	
	Title:	 	

  

 C-2Agreement, dated May 24, 2007 - Jon D. Kline

 Exhibit 10.4 
 SEPARATION AGREEMENT 
 This agreement (this “Agreement”) is entered into as of May 24,
2007 (the “Effective Date”), by and between Sunstone Hotel Investors, Inc. (the “Company”) and Jon D. Kline (the “Executive”) on the terms and conditions set forth below. 
 1. Consideration; Potential Payment; Consulting Services 
 (a) In consideration of the payment described in Section 1(b) and the Executive’s continued compliance with his obligations under the Related Agreements (defined below) until October 1, 2008, and other good and valuable
consideration, the sufficiency of which the parties hereby acknowledge, the parties make the agreements set forth below. The Executive acknowledges and agrees that (i) this Agreement extends the term of his obligations not to compete with and
not to solicit employees of the Company and its affiliates under that certain Non-Competition Agreement, dated as of October 26, 2004, between the Company and the Executive (the “Non-Competition Agreement”) until October 1, 2008,
(ii) the following consideration is in addition to anything of value to which he is or may become entitled to receive under any other plan, program policy or agreement of, or with, the Company and (iii) the agreements and obligations
provided for herein are in addition to any other agreements and obligations the Executive may have with, or to, the Company (including without limitation that certain Non-Disclosure Agreement, dated as of October 26, 2004, between the Company
and the Executive (the “Non-Disclosure Agreement”; and collectively with this Agreement and the Non-Competition Agreement, the “Related Agreements”), which agreements shall continue in full force and effect in accordance with
their terms, other than as extended and supplemented hereby. 
 (b) In the event that on or prior to October 1, 2008, the Executive has
not breached any of the obligations set forth in the Related Agreements (as extended by this Agreement), and subject to the provisions of Sections 1(c) and (d) below, the Executive shall be entitled to receive a single lump sum cash payment in
the amount of $665,000, less applicable withholdings and deductions, within five business days after October 1, 2008. The parties agree that this Agreement shall not affect any right to receive the severance payment described on Exhibit A to
the Release set forth in Exhibit 1 hereto. 
 (c) Notwithstanding anything herein to the contrary, receipt by the Executive of any payment
under Section 1(b) of this Agreement is contingent upon the Executive executing the Release of claims set forth in Exhibit 1 hereto on or after October 1, 2008, and failing to revoke such Release during the applicable revocation period.

 (d) The Executive hereby agrees he will be available for the period from the Effective Date through October 1, 2008, to provide
consulting services to the Company as reasonably requested by the Company. Such consulting services will be provided by the Executive for no additional consideration. 
 (e) The Company and the Executive agree that notwithstanding the obligations in the Non-Competition Agreement, the Executive may, directly or indirectly, acquire, own, operate or dispose of hotel properties. The
foregoing, however, shall in no way change the Executive’s other obligations under the Related Agreements, including, but not limited to, refraining from disclosing and using the Company’s confidential information, non-disparagement of the
Company and non-solicitation of employees. 

 2. Restrictions 
 The Executive hereby agrees that until October 1, 2008, the Executive or any Affiliate (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and regardless of whether such person is an Affiliate on the date hereof) will not, and will not cause any of his Affiliates, directly or indirectly, to (a) acquire or offer to acquire or agree to acquire from any person, directly
or indirectly, by purchase or merger, through the acquisition of control of another person, by joining a partnership, limited partnership or other “group” (within the meaning of Section 13(d)(3) of the Exchange Act) or otherwise,
beneficial ownership of any equity securities of the Company, or direct or indirect rights (including convertible securities) or options to acquire such beneficial ownership (or otherwise act in concert with respect to any such securities, rights or
options with any person that so acquires, offers to acquire or agrees to acquire); provided, however, that no such acquisition, offer to acquire or agreement to acquire shall be deemed to occur solely due to (i) a stock split, reverse stock
split, reclassification, reorganization or other transaction by the Company affecting any class of the outstanding capital stock of the Company generally, (ii) a stock dividend or other pro rata distribution by the Company to holders of its
outstanding capital stock or (iii) an issuance of shares by the Company upon the exercise of options; or (b) make, or in any way participate in, directly or indirectly, any “solicitation” of “proxies” to vote (as such
terms are used in the Regulation 14A promulgated under the Exchange Act), become a “participant” in any “election contest” (as such terms are defined in Rule 14a-11 promulgated under the Exchange Act) or initiate, propose or
otherwise solicit stockholders of the Company for the approval of any stockholder proposals, in each case with respect to the Company; or (c) form, join, in any way participate in, or encourage the formation of, a group (within the meaning of
Section 13(d)(3) of the Exchange Act) with respect to any voting securities of the Company; or (d) deposit any securities of the Company into a voting trust, or subject any securities of the Company to any agreement or arrangement with
respect to the voting of such securities, or other agreement or arrangement having similar effect; or (e) alone or in concert with others, seek, or encourage or support any effort, to influence or control the management, board of directors,
business, policies, affairs or actions of the Company, including through the acquisition of securities of the Company; or (f) request the Company (or any directors, officers, employees or agents of the Company), directly or indirectly, to
amend, waive or modify any provision of this Agreement; or (g) make any public disclosure, or take any action which could require the Company to make any public disclosure, with respect to any of the matters set forth in this Agreement.

 3. Non-disparagement 
 As of the
Effective Date and thereafter, the Executive agrees for himself and all others acting on his behalf, that he shall not, in any manner, directly or indirectly, make or publish, or assist, support, instigate or participate in the making or publication
of any statement (orally or in writing) or take, assist, support, instigate or participate in any action or attempted action that would libel, slander, disparage, denigrate, ridicule or criticize the Company, any of its affiliates or any of their
past or present employees, officers or directors or that would otherwise harm the reputation, goodwill or commercial interest of the Company or any of its affiliates. 
  

 -2- 

 4. Miscellaneous 
 (a) For purposes of this Agreement, (i) a “person” shall mean any individual, firm, partnership, association, corporation or other entity or group of such persons; (ii) a person shall have
“beneficial ownership” of any securities as to which such person may be deemed the beneficial owner pursuant to Rule 13d-3 under the Exchange Act and shall include, without limitation, any securities such person has the right to
become the beneficial owner of (whether or not such right is immediately exercisable) pursuant to any agreement, arrangement or understanding or upon the exercise of any exchange right, conversion right, option, warrant or other right; and
(iii) a “share” in the Company shall mean a share of capital stock. 
 (b) The Executive acknowledges and agrees that
irreparable damage to the Company would occur in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached and that such damage would not be compensable in money damages.
It is accordingly agreed that the Company shall be entitled to, and the Executive agrees not to take action, directly or indirectly, in opposition to the Company’s seeking, specific enforcement of, and injunctive relief to prevent any violation
of, the terms hereof, in addition to any other remedy or relief available at law or in equity. 
 (c) This Agreement shall be construed in
accordance with and governed by the laws of the State of California (without regard to the principles of conflict of laws thereof). 
 (d)
This Agreement may be amended, modified or supplemented only by written agreement of the parties hereto. 
 (e) Any failure of any party to
comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefit of such obligation, covenant, agreement or condition only by a written instrument signed by such party, but such waiver or failure
to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be effective only if given in writing in a manner consistent with the requirements for a waiver of compliance as set forth in this Section. 
 (f) This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. 
 (g) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. 
 (h) If any provision of this Agreement shall be deemed or declared to be
unenforceable, invalid or void, the same shall not impair any of the other provisions of this Agreement. 
  

 -3- 

 (i) To the extent that the Executive is determined to be a “specified employee” within the
meaning of Section 409A(a)(2)(B) of the Internal Revenue Code of 1986, as amended, and the payment of any amount under this Agreement is subject to a six-month delay in payment, the parties hereto agree that any such payment shall be so
delayed. 
  

 -4- 

 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above
written. 
  

			
	SUNSTONE HOTEL INVESTORS, INC.
		
	By:	 	  

	Name:	 	
	Title:	 	
	
	EXECUTIVE
		
	By:	 	  

		 	 Jon D. Kline

  

 -5- 

 EXHIBIT 1  
 GENERAL RELEASE  
 For a valuable consideration, the receipt and adequacy of which are hereby
acknowledged, except as otherwise expressly provided herein, the undersigned does hereby release and forever discharge the “Releasees” hereunder, consisting of Sunstone Hotel Investors, Inc., a Maryland corporation, Sunstone Hotel
Partnership, LLC, a Delaware limited liability company and each of their partners, subsidiaries, associates, affiliates, successors, heirs, assigns, agents, directors, officers, employees, representatives, lawyers, insurers, and all persons acting
by, through, under or in concert with them, or any of them, of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liability, claims, demands,
damages, losses, costs, attorneys’ fees or expenses, of any nature whatsoever, known or unknown, fixed or contingent (hereinafter called “Claims”), which the undersigned now has or may hereafter have against the Releasees, or
any of them, by reason of any matter, cause, or thing whatsoever from the beginning of time to the date hereof. The Claims released herein include, without limiting the generality of the foregoing, any Claims in any way arising out of, based upon,
or related to the employment or termination of employment of the undersigned by the Releasees, or any of them; any alleged breach of any express or implied contract of employment; any alleged torts or other alleged legal restrictions on
Releasee’s right to terminate the employment of the undersigned; and any alleged violation of any federal, state or local statute or ordinance including, without limitation, Title VII of the Civil Rights Act of 1964, the Age Discrimination In
Employment Act, the Americans With Disabilities Act, and the California Fair Employment and Housing Act. 
 THE UNDERSIGNED ACKNOWLEDGES THAT
HE HAS BEEN ADVISED BY LEGAL COUNSEL AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS: 
 “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER
SETTLEMENT WITH THE DEBTOR.” 
 THE UNDERSIGNED, BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS HE MAY HAVE
THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT. 
 IN ACCORDANCE WITH THE OLDER WORKERS BENEFIT
PROTECTION ACT OF 1990, THE UNDERSIGNED IS HEREBY ADVISED AS FOLLOWS: 
 (A) HE HAS THE RIGHT TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS
RELEASE; 
  

 -6- 

 (B) HE HAS TWENTY-ONE (21) DAYS TO CONSIDER THIS RELEASE BEFORE SIGNING IT; AND 
 (C) HE HAS SEVEN (7) DAYS AFTER SIGNING THIS RELEASE TO REVOKE THIS RELEASE, AND THIS RELEASE WILL BECOME EFFECTIVE UPON THE EXPIRATION OF THAT
REVOCATION PERIOD. 
 The undersigned represents and warrants that there has been no assignment or other transfer of any interest in any
Claim which he may have against Releasees, or any of them, and the undersigned agrees to indemnify and hold Releasees, and each of them, harmless from any liability, Claims, demands, damages, costs, expenses and attorneys’ fees incurred by
Releasees, or any of them, as the result of any such assignment or transfer or any rights or Claims under any such assignment or transfer. It is the intention of the parties that this indemnity does not require payment as a condition precedent to
recovery by the Releasees against the undersigned under this indemnity. 
 The undersigned agrees that if he hereafter commences any suit
arising out of, based upon, or relating to any of the Claims released hereunder or in any manner asserts against Releasees, or any of them, any of the Claims released hereunder, then the undersigned agrees to pay to Releasees, and each of them, in
addition to any other damages caused to Releasees thereby, all attorneys’ fees incurred by Releasees in defending or otherwise responding to said suit or Claim. 
 The undersigned further understands and agrees that neither the payment of any sum of money nor the execution of this Release shall constitute or be construed as an admission of any liability whatsoever by the
Releasees, or any of them, who have consistently taken the position that they have no liability whatsoever to the undersigned. 
 Notwithstanding any provision contained herein, this Release does not release any rights which the undersigned has (A) to receive payments and benefits (i) under the Separation Agreement entered into as of May 24, 2007,
between Sunstone Hotel Investors, Inc. and the undersigned or (ii) which are described in Exhibit A hereto or (B) under the Indemnification Agreement entered into as of October 26, 2004, between Sunstone Hotel Investors, Inc. and the
undersigned. 
 IN WITNESS WHEREOF, the undersigned has executed this Release this      day of
                    , 2008. 
  

	
	  

	Jon D. Kline

  

 -7- 

 Exhibit A 
 Payments under Section 4(a) of Employment Agreement 
 (Jon Kline) 
  

	I.	Two Lump Sum Cash Payments: 

  

						
	 1. Accrued Obligations: (a) earned but unpaid Base Salary, (b) Accrued Vacation and (c) Accrued Bonus as
described
under Section 4(a)(i) of the Employment Agreement. Base salary and vacation pay that is accrued but unpaid as of the date
of termination of the Executive’s employment will be paid in accordance with California law.
  

	 2. Severance Amount
 Severance Amount= 1x
(Base Salary + Bonus Severance Amount)
 Bonus Severance Amount = Lesser of:
 - Target Annual Bonus of 2007, or
 - Previous year actual bonus
	  			 	
			
	Target Annual Bonus:	  			 	
	Estimated 2007 Earnings**	  	461,923.06	 	 	
	Target Bonus Accrual Rate =	  	100	%	 	
		  	 	 	 	
	Target Annual Bonus =	  	461,923.06	 	 	
		  	 	 	 	
	**Projected earnings based on 26 pay periods and March 2007 pay increase.	  			 	
	Prior Year Bonus Paid	  	363,461.55	 	 	
		  	 	 	 	
	Lesser of the 2 =	  	363,461.55	 	 	
	Base Salary =	  	475,000.00	 	 	
		  	 	 	 	
		  	838,461.55	 	 	
		  	 	 	 	
	Multiple =	  	1.00	 	 	
		  	 	 	 	
	Severance Amount =	  	838,461.55	 	 	838,461.55
		  	 	 	 	 
	Total Severance Amount Lump Sum Payment	  			 	838,461.55
		  			 	 

  

	II.	18 Months of Group Health Coverage: In accordance with Section 4(a)(ii) of the Employment Agreement. 

  

	III.	One Year’s Vesting: 

  

											
	 Grants
	  	Grant Date	  	Grant
Number	  	Unvested
Remaining
Shares	  	 Next
 Vesting
 Date
 Within One
 Year
	  	Number of
Shares
Vesting
Within One
Year
	 2004 Grant
	  	10/26/2004	  	118,421	  	71,053	  	10/26/2007	  	23,684
	 2006 Grant
	  	2/9/2006	  	35,168	  	23,445	  	2/9/2008	  	11,723
	 2007 Grant
	  	2/7/2007	  	39,215	  	39,215	  	2/7/2008	  	13,072
		  		  		  	 	  		  	 
	 Total Shares Vesting Within One Year
	  		  		  		  		  	48,479
		  		  		  		  		  	 

  

	IV.	Other Benefits: In accordance with Section 4(a)(iv) of the Employment Agreement. 

 EXHIBIT B  
 GENERAL RELEASE  
 For a valuable consideration, the receipt and adequacy of which are hereby
acknowledged, except as otherwise expressly provided herein, the undersigned does hereby release and forever discharge the “Releasees” hereunder, consisting of Sunstone Hotel Investors, Inc., a Maryland corporation, Sunstone Operating
Partnership, LLC, a Delaware limited liability company and each of their partners, subsidiaries, associates, affiliates, successors, heirs, assigns, agents, directors, officers, employees, representatives, lawyers, insurers, and all persons acting
by, through, under or in concert with them, or any of them, of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liability, claims, demands,
damages, losses, costs, attorneys’ fees or expenses, of any nature whatsoever, known or unknown, fixed or contingent (hereinafter called “Claims”), which the undersigned now has or may hereafter have against the Releasees, or
any of them, by reason of any matter, cause, or thing whatsoever from the beginning of time to the date hereof. The Claims released herein include, without limiting the generality of the foregoing, any Claims in any way arising out of, based upon,
or related to the employment or termination of employment of the undersigned by the Releasees, or any of them; any alleged breach of any express or implied contract of employment; any alleged torts or other alleged legal restrictions on
Releasee’s right to terminate the employment of the undersigned; and any alleged violation of any federal, state or local statute or ordinance including, without limitation, Title VII of the Civil Rights Act of 1964, the Age Discrimination In
Employment Act, the Americans With Disabilities Act, and the California Fair Employment and Housing Act. 
 THE UNDERSIGNED ACKNOWLEDGES THAT
HE HAS BEEN ADVISED BY LEGAL COUNSEL AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS: 
 “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER
SETTLEMENT WITH THE DEBTOR.” 
 THE UNDERSIGNED, BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS HE MAY HAVE
THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT. 
 IN ACCORDANCE WITH THE OLDER WORKERS BENEFIT
PROTECTION ACT OF 1990, THE UNDERSIGNED IS HEREBY ADVISED AS FOLLOWS: 
 (A) HE HAS THE RIGHT TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS
RELEASE; 

 (B) HE HAS TWENTY-ONE (21) DAYS TO CONSIDER THIS RELEASE BEFORE SIGNING IT; AND 
 (C) HE HAS SEVEN (7) DAYS AFTER SIGNING THIS RELEASE TO REVOKE THIS RELEASE, AND THIS RELEASE WILL BECOME EFFECTIVE UPON THE EXPIRATION OF THAT
REVOCATION PERIOD. 
 The undersigned represents and warrants that there has been no assignment or other transfer of any interest in any
Claim which he may have against Releasees, or any of them, and the undersigned agrees to indemnify and hold Releasees, and each of them, harmless from any liability, Claims, demands, damages, costs, expenses and attorneys’ fees incurred by
Releasees, or any of them, as the result of any such assignment or transfer or any rights or Claims under any such assignment or transfer. It is the intention of the parties that this indemnity does not require payment as a condition precedent to
recovery by the Releasees against the undersigned under this indemnity. 
 The undersigned agrees that if he hereafter commences any suit
arising out of, based upon, or relating to any of the Claims released hereunder or in any manner asserts against Releasees, or any of them, any of the Claims released hereunder, then the undersigned agrees to pay to Releasees, and each of them, in
addition to any other damages caused to Releasees thereby, all attorneys’ fees incurred by Releasees in defending or otherwise responding to said suit or Claim. 
 The undersigned further understands and agrees that neither the payment of any sum of money nor the execution of this Release shall constitute or be construed as an admission of any liability whatsoever by the
Releasees, or any of them, who have consistently taken the position that they have no liability whatsoever to the undersigned. 
 Notwithstanding any provision contained herein, this Release does not release any rights which the undersigned has (A) to receive payments and benefits (i) under the Separation Agreement entered into as of May 24, 2007,
between Sunstone Hotel Investors, Inc. and the undersigned or (ii) which are described in Exhibit A hereto or (B) under the Indemnification Agreement entered into as of October 26, 2004, between Sunstone Hotel Investors, Inc. and the
undersigned. 
 IN WITNESS WHEREOF, the undersigned has executed this Release this      day
of                    , 2007. 
  

	
	  

	Jon D. Kline

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