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Exhibit 4.2
SUNSTONE HOTEL INVESTORS, INC.
1994 STOCK INCENTIVE PLAN
NOTICE OF ISSUANCE OF WARRANT
Notice is hereby given of the issuance to the individual named below
(the "Holder") of the following warrant (the "Warrant") to purchase shares of
the Common Stock of Sunstone Hotel Investors, Inc. (the "Corporation"):
HOLDER:
WARRANT ISSUE DATE: September 25, 1998
EXERCISE PRICE: $______ per share
NUMBER OF WARRANT SHARES: ________ shares
EXPIRATION DATE: September 24, 2003
EXERCISE DATE: The Warrant shall become exercisable for all of
the Warrant Shares on October 25, 1999 and shall remain so
exercisable until the Expiration Date. All Warrant Shares
purchased upon the exercise of the Warrant shall be fully
vested.
Holder agrees to be bound by the terms and conditions of the Warrant as
set forth in the Warrant Agreement attached hereto as Exhibit A. Holder hereby
acknowledges receipt of a copy of the Prospectus for the Warrant in the form
attached hereto as Exhibit B. Holder further understands and agrees that the
Warrant is granted subject to and in accordance with the express terms and
conditions of the Sunstone Hotel Investors, Inc. 1994 Stock Incentive Plan (the
"Plan").
NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Notice of Issuance,
the attached Warrant Agreement or the Plan shall confer upon Holder any right to
continue in the employment or other service of the Corporation, Sunstone Hotel
Properties, Inc. (the "Lessee") (or any parent or subsidiary of either such
entity) for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation or the Lessee (or any parent
or subsidiary of such entity employing or retaining Holder) or Holder, which
rights are hereby expressly reserved by each, to terminate Holder's employment
or other service at any time for any reason whatsoever, with or without cause.
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DEFINITIONS. All capitalized items in this Notice shall have the meaning
assigned to them in this Notice or in the attached Warrant Agreement.
____________________, 1998
SUNSTONE HOTEL INVESTORS, INC.
By:
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Title:
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By:
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HOLDER
ATTACHMENTS:
Exhibit A: Warrant Agreement
Exhibit B: Warrant Prospectus dated May 10, 1999
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EXHIBIT A
TO NOTICE OF
ISSUANCE OF WARRANT
FORM OF WARRANT AGREEMENT
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SUNSTONE HOTEL INVESTORS, INC.
1994 STOCK INCENTIVE PLAN
WARRANT AGREEMENT
WITNESSETH:
RECITALS
(a) The Corporation's Board of Directors (the "Board") has
adopted the Corporation's 1994 Stock Incentive Plan (the "Plan") for the purpose
of attracting and retaining the services of employees (including officers and
directors), and consultants and other advisors (and their respective employees).
(b) The Corporation previously granted to Holder a stock
option (the "Option") under the Plan to purchase shares of the Corporation's
Common Stock (the "Common Stock").
(c) Holder has surrendered the Option to the Corporation for
cancellation, and in replacement of such cancelled Option, the Compensation
Committee of the Board, acting in its capacity as Plan Administrator of the
Plan, has approved the issuance to Holder of a warrant to purchase the number of
shares of Common Stock equal to the number of shares of Common Stock subject to
such Option. The warrant shall have an exercise price per share equal to the
exercise price per share in effect under of the Option immediately prior to
cancellation, and this Agreement is executed pursuant to, and is intended to
carry out the purposes of the Plan in connection with the issuance of such
warrant.
(d) The Plan Administrator has approved the assignment of
this warrant by Holder to certain service providers of Sunstone Hotel
Properties, Inc. (the "Lessee") in consideration of the surrender by such
individuals to the Lessee of their outstanding stock appreciation rights under
the Lessee's 1996 Stock Appreciation Rights Plan (the "SAR Plan").
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NOW, THEREFORE, it is hereby agreed as follows:
I. ISSUANCE OF WARRANT. SUBJECT TO AND UPON THE TERMS AND CONDITIONS SET
FORTH IN THIS AGREEMENT, THE CORPORATION HEREBY ISSUES TO HOLDER AS OF
SEPTEMBER 25, 1998 (THE "ISSUE DATE"), A WARRANT (THE "WARRANT") TO
PURCHASE UP TO THAT NUMBER OF SHARES OF COMMON STOCK (THE "WARRANT
SHARES") AS IS SPECIFIED IN THE ACCOMPANYING NOTICE OF ISSUANCE OF
WARRANT (THE "NOTICE OF ISSUANCE") AT THE EXERCISE PRICE PER WARRANT
SHARE (THE "EXERCISE PRICE") SPECIFIED IN THE NOTICE OF ISSUANCE.
II. WARRANT EXERCISABILITY AND TERM. THE WARRANT SHALL BECOME EXERCISABLE ON
OCTOBER 25, 1999, SUBJECT TO ACCELERATION PURSUANT TO THE PROVISIONS OF
PARAGRAPH 4 OF THIS AGREEMENT, AND SHALL REMAIN EXERCISABLE UNTIL THE
CLOSE OF BUSINESS ON SEPTEMBER 24, 2003 (THE "EXPIRATION DATE") UNLESS
SOONER TERMINATED IN ACCORDANCE WITH SUCH PARAGRAPH 4.
III. LIMITED TRANSFERABILITY. THE WARRANT SHALL BE TRANSFERABLE OR ASSIGNABLE
BY HOLDER TO CERTAIN SERVICE PROVIDERS OF THE LESSEE WHO AGREE TO
SURRENDER TO THE LESSEE THEIR OUTSTANDING STOCK APPRECIATION RIGHTS
UNDER THE SAR PLAN IN EXCHANGE FOR SUCH ASSIGNMENT OF HOLDER'S INTEREST
IN THE WARRANT. THE ASSIGNED PORTION SHALL BE EXERCISABLE ONLY BY THE
PERSON OR PERSONS WHO ACQUIRE A PROPRIETARY INTEREST IN THE WARRANT
PURSUANT TO SUCH ASSIGNMENT OR THE LEGAL REPRESENTATIVES OF THEIR
ESTATE, WITH EACH SUCH PERSON THEREAFTER TO BE TREATED AS A HOLDER FOR
PURPOSES OF THIS AGREEMENT. THE TERMS APPLICABLE TO THE ASSIGNED PORTION
SHALL BE THE SAME AS THOSE IN EFFECT FOR THE WARRANT IMMEDIATELY PRIOR
TO SUCH ASSIGNMENT. TO THE EXTENT THE WARRANT IS NOT SO ASSIGNED TO
SERVICE PROVIDERS OF THE LESSEE, THE WARRANT SHALL BE TRANSFERABLE OR
ASSIGNABLE ONLY PURSUANT TO HOLDER'S WILL OR BY THE LAWS OF DESCENT AND
DISTRIBUTION FOLLOWING HOLDER'S DEATH AND MAY BE EXERCISED, DURING
HOLDER'S LIFETIME, ONLY BY HOLDER.
IV. SPECIAL ACCELERATION EVENTS.
A. In the event of any of the following stockholder-approved
transactions to which the Corporation is a party (a "Corporate
Transaction"):
1. 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,
2. 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
3. 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, the Warrant, to the extent outstanding but not otherwise fully
exercisable at the time of such Corporate Transaction, shall
automatically accelerate so that such warrant shall, immediately prior
to the effective date of such Corporate Transaction, become fully
exercisable with respect to all of the Warrant Shares and may be
exercised for any or all such Warrant Shares as fully vested shares of
Common Stock.
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B. Immediately following the consummation of the Corporate
Transaction, the Warrant shall terminate and cease to remain
outstanding, except to the extent assumed by the successor corporation
or parent thereof.
C. In the event of any of the following transactions effecting a
change in ownership of the Lessee (a "Lessee Change in Ownership"):
1. a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Lessee's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction,
2. the sale, transfer or other disposition of all or
substantially all of the Lessee's assets in complete liquidation or
dissolution of the Lessee, or
3. the sale, transfer or other disposition for value, by
one or more security holders of the Lessee, of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Lessee's outstanding securities in a single transaction or a series of
related transactions, the Warrant, to the extent outstanding but not
otherwise fully exercisable at the time of such Lessee Change in
Ownership, shall automatically accelerate so that such warrant shall,
immediately prior to the effective date of such change in ownership,
become fully exercisable with respect to all of the Warrant Shares and
may be exercised for any or all such Warrant Shares as fully vested
shares of Common Stock.
D. In the event the Lessee completes an initial public offering of
its Common Stock yielding net proceeds of at least $15 million, the
Warrant, to the extent outstanding but not otherwise fully exercisable
at the time of such offering, shall automatically accelerate so that
such warrant shall, immediately upon completion of such offering, become
fully exercisable with respect to all of the Warrant Shares and may be
exercised for any or all such Warrant Shares as fully vested shares of
Common Stock.
E. This Agreement shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
V. ADJUSTMENT IN WARRANT 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 the outstanding Common Stock as a class effected
without the Corporation's receipt of consideration, the Plan
Administrator shall make appropriate adjustments to (i) the number
and/or class of securities subject to the Warrant and (ii) the Exercise
Price payable per warrant share in order to prevent any dilution or
enlargement of rights and benefits hereunder. Such adjustments shall be
final, binding and conclusive.
B. If the Warrant is to be assumed in connection with a Corporate
Transaction under Paragraph 4, then the Warrant shall, immediately after
such Corporate Transaction, be appropriately adjusted to apply and
pertain to the number and class of securities which would have been
issued to Holder in the consummation of such Corporate Transaction had
the Warrant been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the Exercise
Price payable per share, provided the aggregate Exercise Price payable
hereunder shall remain the same.
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VI. PRIVILEGE OF STOCK OWNERSHIP. THE HOLDER OF THIS WARRANT SHALL NOT HAVE
ANY OF THE RIGHTS OF A STOCKHOLDER WITH RESPECT TO THE WARRANT SHARES
UNTIL SUCH INDIVIDUAL SHALL HAVE EXERCISED THE WARRANT, PAID THE
EXERCISE PRICE AND BECOME THE RECORD HOLDER OF THE PURCHASED WARRANT
SHARES.
VII. MANNER OF EXERCISING WARRANT.
A. In order to exercise the Warrant with respect to all or any part
of the Warrant Shares for which the Warrant is at the time exercisable,
Holder (or in the case of exercise after Holder's death, Holder's
executor, administrator, heir or legatee, as the case may be) must take
the following actions:
a. Deliver to the Secretary of the Corporation a notice of
exercise in the form attached hereto as Exhibit I (the
"Exercise Notice") for the Warrant Shares for which the
Warrant is exercised.
b. Pay the aggregate Exercise Price for the purchased
shares in one or more of the following alternative
forms:
(i) cash or check made payable to the Corporation's
order;
(ii) 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 (as such terms are defined below);
or
(iii) through a broker-dealer sale and remittance
procedure pursuant to which Holder shall provide
concurrent irrevocable 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 the purchased shares plus all
applicable Federal, state and local income and
employment taxes required to be withheld in
connection with such purchase and (ii) to the
Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm
in order to complete the sale transaction.
c. Furnish to the Corporation appropriate documentation
that the person or persons exercising the Warrant (if
other than Holder) have the right to exercise the
Warrant.
d. Execute and deliver to the Corporation such written
representations as may be requested by the Corporation
in order for it to comply with the applicable
requirements of Federal and state securities laws.
e. Make appropriate arrangements with the Corporation (or
parent or subsidiary employing or retaining Holder) for
the satisfaction of all Federal, state and local income
and employment tax withholding requirements applicable
to the warrant exercise.
B. For purposes of this Agreement, the Exercise Date shall be the
date on which the executed Notice of Exercise 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
warrant exercise, payment of the Exercise Price for the purchased shares
must accompany such Notice of Exercise.
C. 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:
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a. 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 on the Nasdaq National Market. 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.
b. 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
determined by the Plan Administrator to be 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.
D. As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Holder (or any other person or persons
exercising the Warrant in accordance herewith) a certificate or
certificates representing the purchased Warrant Shares.
E. In no event may the Warrant be exercised for any fractional
shares.
VIII. NO EMPLOYMENT/SERVICE CONTRACT. NOTHING IN THIS AGREEMENT OR IN THE PLAN
SHALL CONFER UPON HOLDER ANY RIGHT TO CONTINUE IN THE EMPLOYMENT OR
OTHER SERVICE OF THE CORPORATION OR THE LESSEE (OR ANY PARENT OR
SUBSIDIARY OF EITHER SUCH ENTITY EMPLOYING OR RETAINING HOLDER) FOR ANY
PERIOD OF SPECIFIC DURATION OR INTERFERE WITH OR OTHERWISE RESTRICT IN
ANY WAY THE RIGHTS OF ANY SUCH EMPLOYER ENTITY OR HOLDER, WHICH RIGHTS
ARE HEREBY EXPRESSLY RESERVED BY EACH PARTY, TO TERMINATE HOLDER'S
EMPLOYMENT OR OTHER SERVICE AT ANY TIME FOR ANY REASON WHATSOEVER, WITH
OR WITHOUT CAUSE.
IX. COMPLIANCE WITH LAWS AND REGULATIONS. THE EXERCISE OF THE WARRANT AND
THE ISSUANCE OF WARRANT SHARES UPON SUCH EXERCISE SHALL BE SUBJECT TO
COMPLIANCE BY THE CORPORATION AND HOLDER WITH ALL APPLICABLE
REQUIREMENTS OF LAW RELATING THERETO AND WITH ALL APPLICABLE REGULATIONS
OF ANY SECURITIES EXCHANGE (OR THE NASDAQ NATIONAL MARKET, IF
APPLICABLE) ON WHICH SHARES OF THE COMMON STOCK MAY BE LISTED AT THE
TIME OF SUCH EXERCISE AND ISSUANCE.
X. SUCCESSORS AND ASSIGNS. EXCEPT TO THE EXTENT OTHERWISE PROVIDED IN
PARAGRAPHS 3 AND 4, THE PROVISIONS OF THIS AGREEMENT SHALL INURE TO THE
BENEFIT OF, AND BE BINDING UPON, THE SUCCESSORS, ADMINISTRATORS, HEIRS
AND LEGAL REPRESENTATIVES OF HOLDER AND THE SUCCESSORS AND ASSIGNS OF
THE CORPORATION.
XI. 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 THE WARRANT 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. THE
CORPORATION, HOWEVER, SHALL USE ITS BEST EFFORTS TO OBTAIN ALL SUCH
APPROVALS.
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XII. 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 CORPORATION'S
PRINCIPAL OFFICES AT 115 CALLE DE INDUSTRIAS, SUITE 201, SAN CLEMENTE,
CALIFORNIA 92672. ANY NOTICE REQUIRED TO BE GIVEN OR DELIVERED TO HOLDER
SHALL BE IN WRITING AND ADDRESSED TO HOLDER AT THE ADDRESS INDICATED ON
THE NOTICE OF ISSUANCE. ALL NOTICES SHALL BE DEEMED TO HAVE BEEN GIVEN
OR DELIVERED UPON PERSONAL DELIVERY OR UPON DEPOSIT IN THE U.S. MAIL, BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID AND PROPERLY ADDRESSED TO
THE PARTY TO BE NOTIFIED.
XIII. CONSTRUCTION. THIS AGREEMENT AND THE WARRANT EVIDENCED HEREBY ARE MADE
AND GRANTED PURSUANT TO THE PLAN AND ARE IN ALL RESPECTS LIMITED BY AND
SUBJECT TO THE EXPRESS TERMS AND PROVISIONS OF THE PLAN. HOWEVER, SHOULD
THERE BE ANY CONFLICT BETWEEN THE PROVISIONS OR INTERPRETATION OF THE
WARRANT AGREEMENT AND THE PLAN, THE WARRANT AGREEMENT SHALL CONTROL. ALL
DECISIONS OF THE PLAN ADMINISTRATOR WITH RESPECT TO ANY QUESTION OR
ISSUE ARISING UNDER THE PLAN OR THIS AGREEMENT SHALL BE CONCLUSIVE AND
BINDING ON ALL PERSONS HAVING AN INTEREST IN THE WARRANT.
XIV. GOVERNING LAW. 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.
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EXHIBIT I TO WARRANT AGREEMENT
FORM OF NOTICE OF EXERCISE OF WARRANT
I hereby notify Sunstone Hotel Investors, Inc. (the "Corporation") that
I elect to purchase _________ shares of the Corporation's Common Stock (the
"Purchased Shares") at the warrant exercise price of $_______ per share (the
"Exercise Price") pursuant to that certain warrant (the "Warrant") granted to me
under the Corporation's 1994 Stock Incentive Plan on September 25, 1998.
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Warrant and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price.
___________________, 199__
Date
Holder
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Print name in exact manner it Address:
is to appear on the stock ----------------------------------
certificate:
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Address to which certificate from
address above: ----------------------------------
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Social Security Number:
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EXHIBIT B
WARRANT SUMMARY AND PROSPECTUS
DATED MAY __, 1999
[FINAL PROSPECTUS TO BE ATTACHED]