1
EXHIBIT 99.7
SUNSTONE HOTEL INVESTORS, INC.
1994 DIRECTORS PLAN
AUTOMATIC STOCK OPTION AGREEMENT
RECITALS
A. The Corporation has approved an automatic option grant
program under Article Two of the 1994 Directors Plan (the "Plan"), pursuant to
which special option grants are to be made to eligible non-employee members of
the Corporation's Board of Directors (the "Board") at periodic intervals over
their period of Board service in order to encourage such individuals to remain
in the Corporation's service.
B. Optionee is an eligible non-employee Board member and this
Agreement is executed pursuant to, and is intended to carry out the purposes of,
the Plan in connection with the automatic grant of a stock option to purchase
shares of the Corporation's common stock ("Common Stock") under the Plan.
C. The granted option is intended to be a non-statutory option
which does not meet the requirements of Section 422 of the Internal Revenue Code
and is designed to provide Optionee with a meaningful incentive to continue to
serve as a member of the Board.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and
conditions set forth in this Agreement, there is hereby granted to Optionee, as
of the grant date (the "Grant Date") specified in the accompanying Notice of
Grant of Automatic Stock Option (the "Grant Notice"), a stock option to purchase
up to that number of shares of Common Stock (the "Option Shares") as is
specified in the Grant Notice. Such Option Shares shall be purchasable from time
to time during the option term at the price per share (the "Exercise Price")
specified in the Grant Notice.
2. OPTION TERM. This option shall have a maximum term of ten
(10) years measured from the Grant Date and shall expire at the close of
business on the Expiration Date specified in the Grant Notice, unless sooner
terminated in accordance with Paragraph 6.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee, other than a transfer of this option
effected by will or by the laws of descent and distribution following Optionee's
death, and may be exercised, during Optionee's lifetime, only by Optionee.
2
4. EXERCISABILITY. This option shall be immediately
exercisable for any or all of the Option Shares and shall remain so exercisable
until the Expiration Date specified in the Grant Notice, whether or not Optionee
continues to serve as a Board member, unless sooner terminated in accordance
with the provisions of Paragraph 6.
5. DEATH OF OPTIONEE. Should Optionee die while this option is
outstanding, then the personal representative of Optionee's estate or the person
or persons to whom the option is transferred pursuant to Optionee's will or in
accordance with the laws of descent and distribution shall have the right to
exercise the option for any or all of the outstanding Option Shares. Such right
shall lapse, and this option shall terminate and cease to remain outstanding,
upon the Expiration Date specified in the Grant Notice unless sooner terminated
in accordance with the provisions of Paragraph 6.
6. CORPORATE TRANSACTION. In the event of any of the following
stockholder-approved transactions to which the Corporation is a party (a
"Corporate Transaction"):
a. a merger or consolidation in which the Corporation
is not the surviving entity, except for a transaction the principal
purpose of which is to change the state in which the Corporation is
incorporated,
b. the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
c. any reverse merger in which the Corporation is the
surviving entity but in which securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
merger,
this option shall terminate and cease to be outstanding
immediately following the consummation of such Corporate Transaction, except to
the extent assumed by the successor corporation or its parent company.
7. ADJUSTMENT IN OPTION SHARES.
a. In the event any change is made to the Common
Stock issuable under the Plan by reason of any stock split, stock
dividend, recapitalization, combination of shares, exchange of shares
or other change affecting such Common Stock as a class without the
Corporation's receipt of consideration, then the number and class of
securities purchasable under this option and the Exercise Price payable
per share shall be appropriately adjusted to prevent the
2.
3
dilution or enlargement of Optionee's rights hereunder; provided,
however, the aggregate Exercise Price shall remain the same.
b. If this option is to be assumed in connection with
a Corporate Transaction, then this option shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply and pertain to the number
and class of securities which would have been issuable to Optionee in the
consummation of such Corporate Transaction had the option been exercised
immediately prior to such Corporate Transaction, and appropriate adjustments
shall also be made to the Exercise Price payable per share, provided the
aggregate Exercise Price payable hereunder shall remain the same.
8. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option
shall not have any of the rights of a stockholder with respect to the Option
Shares until such individual shall have exercised this option and paid the
Exercise Price for the purchased shares.
9. MANNER OF EXERCISING OPTION.
a. In order to exercise this option for all or any
part of the Option Shares, Optionee (or in the case of exercise after Optionee's
death, Optionee's executor, administrator, heir or legatee, as the case may be)
must take the following actions:
(1) Deliver to the Secretary of the Corporation a
stock purchase agreement (the "Purchase Agreement") in substantially
the form of Exhibit B to the Grant Notice.
(2) Pay the aggregate Exercise Price for the
purchased shares in one of the following alternative forms:
(a) full payment in cash or check made payable
to the Corporation's order;
(b) full payment in shares of Common Stock held
by Optionee for the requisite period necessary to avoid a
charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date
(as defined below);
(c) full payment in a combination of shares of
Common Stock held for the requisite period necessary to avoid
a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date
and cash or check made payable to the Corporation's order; or
3.
4
(d) full payment effected through a broker-
dealer sale and remittance procedure pursuant to which
Optionee shall provide concurrent irrevocable written
instructions (i) to a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate
Exercise Price payable for those shares and (ii) to the
Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete
the sale.
(3) Furnish to the Corporation appropriate documentation
evidencing that the person or persons exercising the option (if other
than Optionee) have the right to exercise this Option.
b. For all valuation purposes under this Agreement, the Fair
Market Value per share of Common Stock on any relevant date shall be determined
in accordance with the following provisions:
(1) If the Common Stock is at the time traded on the
Nasdaq National Market, the Fair Market Value shall be the closing
selling price per share on the date in question, as such price is
reported by the National Association of Securities Dealers through the
Nasdaq National Market or any successor system. If there is no reported
closing selling price for the Common Stock on the date in question,
then the closing selling price on the last preceding date for which
such quotation exists shall be determinative of Fair Market Value.
(2) If the Common Stock is at the time listed or
admitted to trading on any national securities exchange, then the Fair
Market Value shall be the closing selling price per share on the date
in question on the securities exchange serving as the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
reported sale of Common Stock on such exchange on the date in question,
then the Fair Market Value shall be the closing selling price on the
exchange on the last preceding date for which such quotation exists.
c. The Exercise Date shall be the date on which the executed
Purchase Agreement shall have been delivered to the Secretary of the
Corporation. Except to the extent the sale and remittance procedure specified
above is utilized in connection with the exercise of the option, payment of the
Exercise Price for the purchased shares must accompany the Purchase Agreement.
4.
5
d. As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or other person or persons
exercising this option) a certificate or certificates representing the purchased
Option Shares.
e. In no event may this option be exercised for any
fractional share.
10. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. Nor shall this Agreement in any way be construed or
interpreted so as to affect adversely or otherwise impair the right of the
Corporation or the stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.
11. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this
option and the issuance of the Option Shares upon such exercise shall be subject
to compliance by the Corporation and Optionee with all applicable requirements
of law relating thereto and with all applicable regulations of any securities
exchange on which shares of the Common Stock may be listed at the time of such
exercise and issuance.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
provided in Paragraph 3 or 6, the provisions of this Agreement shall inure to
the benefit of, and be binding upon, the successors, administrators, heirs,
legal representatives and assigns of Optionee and the Corporation's successors
and assigns.
13. LIABILITY OF CORPORATION. The inability of the Corporation to
obtain approval from any regulatory body having authority deemed by the
Corporation to be necessary to the lawful issuance and sale of any Common Stock
pursuant to this option shall relieve the Corporation of any liability with
respect to the non-issuance or sale of the Common Stock as to which such
approval shall not have been obtained. However, the Corporation shall use its
best efforts to obtain all such applicable approvals.
14. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of the Corporate Secretary at the Corporate Offices
at 000 Xxxxx Xx Xxxxxx Xxxx, Xxxxx 000, Xxx Xxxxxxxx, Xxxxxxxxxx 00000. Any
notice required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated below Optionee's signature line
on the Grant Notice. All notices shall be deemed to have been given or delivered
upon personal delivery or upon deposit in the U.S. mail, postage prepaid and
properly addressed to the party to be notified.
15. CONSTRUCTION/GOVERNING LAW. This Agreement and the option
evidenced hereby are made and granted pursuant to the Plan and are in all
respects limited by and subject
5.
6
to the express terms and provisions of the Plan, including the automatic option
grant provisions of Article Two of the Plan. The interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California, as such laws are applied to contracts entered into and performed in
such State, without resort to that State's conflict-of-laws rules.
16. STOCKHOLDER APPROVAL. Notwithstanding any provision to the
contrary in this Agreement, this option may not be exercised in whole or in part
at any time prior to the approval of the Plan by the Corporation's stockholders.
Should such stockholder approval not be obtained within twelve (12) months after
the date the Plan was adopted by the Board, this option shall terminate and
cease to remain outstanding without ever becoming exercisable for any of the
Option Shares.
6.
