Exhibit 10.1
EMPLOYMENT
AGREEMENT
THIS EMPLOYMENT AGREEMENT (this
“ Agreement ”), executed as of January 17,
2007 but effective as of the Effective Date (as defined below), is
entered into by and among Sunstone Hotel Investors, Inc., a
Maryland corporation (“ Sunstone ”), Sunstone
Hotel Partnership, LLC, a Delaware limited liability company (the
“ Operating Partnership ”), and Steven R.
Goldman (the “ Executive ”).
WHEREAS, Sunstone and the Operating
Partnership (collectively, the “Company”) desire to
employ the Executive and to enter into an agreement embodying the
terms of such employment; and
WHEREAS, the Executive desires to
accept employment with the Company, subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED
AS FOLLOWS:
1. Employment Period .
Subject to the provisions for earlier termination hereinafter
provided, the Executive’s employment hereunder shall be for a
term (the “ Employment Period ”) commencing on
the Effective Date and ending on the fifth anniversary of the
Effective Date (the “ Initial Termination Date
”); provided, however , that this Agreement
shall be automatically extended for one additional year on the
Initial Termination Date and on each subsequent anniversary of the
Initial Termination Date, unless either the Executive or the
Company elects not to so extend the term of the Agreement by
notifying the other party, in writing, of such election not less
than ninety (90) days prior to the last day of the term as
then in effect. For purposes of this Agreement, “
Effective Date ” shall mean the earlier of
(i) April 1, 2007, and (ii) the expiration of two
(2) weeks following Executive’s fulfillment of his
duties to his current employer.
2. Terms of Employment
.
(a) Position and Duties
.
(i) During the Employment Period,
the Executive shall serve as Chief Executive Officer of Sunstone
and the Operating Partnership and shall perform such employment
duties as are usual and customary for such positions and such other
duties as the Board of Directors of Sunstone (the “
Board ”) shall from time to time reasonably assign to
the Executive. The Executive shall also serve as a member of the
Board during the Employment Period. The Executive shall report
directly to the Board. At the Board’s reasonable request, the
Executive shall serve the Company and/or its subsidiaries and
affiliates in other offices and capacities in addition to the
foregoing, provided that his duties and responsibilities shall be
commensurate with his position and shall be reasonably related to
the business conducted by Sunstone. In the event that the
Executive, during the Employment Period, serves in any one or more
of such additional capacities, the Executive’s compensation
shall not be increased beyond that specified in
Section 2(b) of this Agreement. In addition, in the
event the Executive’s service in one or more of such
additional capacities is subsequently terminated, the
Executive’s compensation, as specified in
Section 2(b) of this Agreement, shall not be diminished
or reduced in any manner as a result of such termination for so
long as the Executive otherwise remains employed under the terms of
this Agreement.
1
(ii) During the Employment Period,
and excluding any periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees to devote substantially
all of his business time, energy, skill and best efforts to the
performance of his duties hereunder in a manner that will
faithfully and diligently further the business and interests of the
Company. Notwithstanding the foregoing, during the Employment
Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable
boards or committees consistent with the Company’s conflicts
of interests policies and corporate governance guidelines in effect
from time to time, (B) deliver lectures and fulfill speaking
engagements or (C) manage his personal investments, so long as
such activities do not materially interfere with the performance of
the Executive’s responsibilities as an executive officer of
the Company. It is expressly understood and agreed that to the
extent that any such activities have been conducted by the
Executive prior to the Effective Date and disclosed in writing and
agreed to by the Company in writing, the continued conduct of such
activities subsequent to the Effective Date shall not thereafter be
deemed to interfere with the performance of the Executive’s
responsibilities to the Company; provided, however, that the
failure to disclose any such existing activities shall not create a
presumption that such activities are in violation of this
Agreement; and provided further, that no such activity shall be
permitted that violates any written non-competition agreement
between the Executive and the Company or prevents the Executive
from devoting substantially all of his business time to the
fulfillment of his duties hereunder.
(iii) The Executive agrees that he
will not take personal advantage of any business opportunity that
arises during his employment by the Company and which would result
in a breach of Executive’s duty of loyalty to the Company
unless all material facts regarding such opportunity are promptly
reported by the Executive to the Board for consideration by the
Company and the disinterested members of the Board determine to
reject the opportunity and to authorize the Executive’s
participation therein.
(b) Compensation .
(i) Base Salary . During the
Employment Period, the Executive shall receive a base salary (the
“ Base Salary ”) of $600,000 per annum, as the
same may be increased thereafter. The Base Salary shall be paid at
such intervals as the Company pays executive salaries generally.
During the Employment Period, the Base Salary shall be reviewed at
least annually for possible increase (but not decrease) in the
Company’s sole discretion, as determined by the
Company’s compensation committee; provided, however, that the
Executive shall be entitled to an annual increase in Base Salary
each year commencing on January 1, 2008 equal to the greater
of (i) four percent (4%) and (ii) any cost-of-living
increase granted to senior executives of the Company generally for
the same period. Any increase in Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this
Agreement. The term “Base Salary” as utilized in this
Agreement shall refer to Base Salary as so adjusted.
(ii) Intentionally Omitted
.
2
(iii) Special Expenses
.
(a) Relocation Expense . The
Company agrees to reimburse the Executive for his reasonable and
actual out-of-pocket relocation expenses incurred in moving his
family and household goods from Chicago, Illinois to Southern
California. Such reimbursement shall include reimbursement for any
moving expenses and shall include, but not be limited to, title,
escrow, legal, finance, brokerage and other reasonable closing
costs for the sale of the Executive’s home in Chicago and the
purchase of the Executive’s new home in Southern California.
The Company also agrees to reimburse the Executive for his
reasonable and actual out-of-pocket expenses incurred with regard
to: (i) either storing or moving his household goods from the
Executive’s home in Westport, Connecticut to Southern
California, (ii) real estate taxes incurred in respect of the
Executive’s homes in Westport and Chicago from the Effective
Date through the date of sale of such homes and (iii) title,
escrow, legal, finance, brokerage and other closing costs for the
sale of the Executive’s home in Westport. The Company shall
pay such reimbursement to the Executive within forty-five
(45) days of receiving from the Executive receipts evidencing
such relocation expenses.
(b) Temporary Living Expenses
. The Company agrees to reimburse the Executive up to $5,000 per
month for reasonable and actual out-of-pocket temporary living
expenses for temporary long-term housing for the Executive in
Southern California and incurred by the Executive from the period
beginning on the Effective Date and ending no later than six months
thereafter (the “ Relocation Period ”). The
Company also agrees to reimburse the Executive for the following
travel expenses incurred by the Executive’s family during the
Relocation Period: roundtrip coach airfare for up to four
(4) trips for the Executive’s spouse and children from
Chicago, Illinois to Orange County, California. Such reimbursement
shall be paid by the Company within forty-five (45) days of
receipts evidencing such temporary living and travel
expenses.
(c) Legal Expenses . Within
thirty (30) days of the receipt by the Company of detailed
invoices from the Executive, the Executive shall be entitled to
reimbursement of attorney’s fees in the amount of $9,975
previously incurred in 2004 to negotiate a prior version of this
Agreement, plus the additional reasonable attorneys’ fees
necessary to complete negotiation of this Agreement up to a maximum
of $10,000.
(d) Gross Up Payment . To the
extent any payments under this Section 2(b)(iii) are taxable
to Executive, the Company shall pay to Executive an additional cash
payment in an amount such that Executive will be in the same
position as he would have been had no taxes been imposed upon or
incurred as a result of any payments under clause (a) through
(c) of Section 2(b)(iii) or under this clause
(d).
(e) Limitation on Special
Expenses . Notwithstanding the foregoing, the aggregate amount
payable by the Company to Executive pursuant to clauses (a),
(b) and (d) of this Section 2(b)(iii) shall in no
event exceed $300,000.
(iv) Annual Bonus . In
addition to the Base Salary, the Executive shall be eligible to
earn, for each fiscal year of the Company ending during the
Employment Period, an annual cash performance bonus (an “
Annual Bonus ”) under the Company’s bonus plan
or
3
plans applicable to senior
executives. The amount of the Annual Bonus and the performance
goals applicable to the Annual Bonus for any applicable Employment
Period shall be determined in accordance with the terms and
conditions of said bonus plan as in effect from time to time
provided that any such plan shall reflect the following bonus
targets: (1) threshold target equal to 75% of Base Salary
(“ Threshold Annual Bonus ”); (2) mid-point
target equal to 150% of Base Salary (“ Target Annual
Bonus ”); and (3) maximum target equal to 200% of
Base Salary; provided, however, that no minimum bonus is guaranteed
other than for the 2007 fiscal year as provided below. The
Threshold Annual Bonus will be deemed to have been achieved if
Executive performs the duties and functions of his office with
reasonable diligence during the applicable bonus period, it being
understood and agreed that the Threshold Annual Bonus will not be
contingent on or based upon the Company’s performance or
financial results or the achievement of any financial targets.
Subject to the foregoing, the terms and conditions of any such
bonus plan shall be determined by Sunstone’s compensation
committee in its sole discretion. The Executive shall receive a
guaranteed Annual Bonus for the fiscal year ended December 31,
2007 in the amount of $450,000, which payment shall not be
pro-rated for the number of days of the year that the Executive is
employed by the Company during the 2007 fiscal year.
(v) Restricted Stock Award .
The Company shall, on the Effective Date, grant the Executive such
number of restricted shares of Sunstone common stock (the “
Restricted Stock ”) as is determined pursuant to the
next following sentence, without the payment of any monetary
consideration by the Executive. The number of restricted shares
granted to Executive shall be equal to the quotient obtained by
dividing (i) $6,000,000 by (ii) the average closing price
of the Company’s common stock on the New York Stock Exchange
(or any other securities market that then constitutes the principal
trading market for the common stock) over the twenty trading days
immediately preceding the date of grant (i.e., the date on which
the Board shall approve the grant of the Restricted Stock), which
shall be not later than February 6, 2007. The shares of
Restricted Stock shall vest equally over a five-year period
beginning as of the date of grant, such vesting to be subject to
the Executive’s continued employment with the Company.
Consistent with the foregoing, the Restricted Stock shall be
subject to the terms and conditions of Sunstone’s 2004
Long-Term Incentive Plan (the “ Incentive Plan
”) and a restricted stock agreement (the “
Restricted Stock Agreement ”) to be entered into by
Sunstone and the Executive in accordance with the provisions of the
Incentive Plan, the form of which Restricted Stock Agreement is
attached hereto as Exhibit C ; provided, however, that to
the extent Sections 4 and/or 7 of the Restricted Stock Agreement
are inconsistent with the terms of the Incentive Plan, the terms of
Sections 4 and 7 of the Restricted Stock Agreement shall control.
To enable the Executive to pay Federal, state or local taxes
imposed upon him as a result of the vesting of Restricted Stock,
the Restricted Stock Agreement shall include a provision whereby
the Executive shall have the right to require Sunstone to withhold
vested shares of Restricted Stock in exchange for the payment by
Sunstone of the amount of such taxes. The Executive shall make the
election to have the Company withhold shares of Restricted Stock at
the time of the vesting of the Restricted Stock, and for purposes
of withholding such shares, each share shall be valued at the value
assigned thereto in the Restricted Stock Agreement. Notwithstanding
anything to the contrary contained herein or in the Noncompetition
Agreement (defined below), under no circumstances shall the
Executive be required to return or refund any portion of the
Restricted Stock grant that becomes vested
4
pursuant to this paragraph, the
Incentive Plan or the Restricted Stock Agreement, nor shall such
Restricted Stock grant be subject to rescission or reduction by the
Company for any reason whatsoever, including without limitation as
a result of any breach or alleged breach by the Executive of this
Agreement or the Noncompetition Agreement. During each fiscal year
of the Employment Period commencing with the year ending
December 31, 2007, the Executive shall be eligible to earn
additional annual equity awards under the Incentive Plan, subject
to three (3) year vesting from the date the award is granted.
For the avoidance of doubt, the first such award would be granted
in 2008, to the extent earned based on performance during the
fiscal year ending December 31, 2007. Such annual equity award
shall have a minimum value between $1,400,000 and $1,600,000 and
shall be granted to the Executive if the Company meets objective
financial goals and targets consistent with the Company’s
annual plan and budget (the “Equity Targets”) set for
the applicable fiscal year by the Company’s compensation
committee; provided that the Executive shall also be eligible to
receive such annual equity awards based on his individual
performance in the event that the Equity Targets are not attained.
The Equity Targets for the fiscal year ending December 31,
2007 and each succeeding fiscal year shall be set by the
Company’s compensation committee not later than
February 15 of the applicable fiscal year.
(vi) Incentive, Savings and
Retirement Plans . During the Employment Period, the Executive
shall be eligible to participate in (on terms and conditions no
less favorable than those applicable to the Company’s other
senior executives) all other incentive plans, practices, policies
and programs, and all savings and retirement plans, policies and
programs, in each case that are applicable generally to senior
executives of the Company. The Company shall at a minimum continue
to maintain Incentive, Savings and Retirement Plans and Welfare
Benefit Plans providing benefits at least equivalent to those
provided under the corresponding plans maintained by the current
Chief Executive Officer; exclusive, however, of the New York Life
deferred compensation program. The Company has provided Executive
with full information regarding such current plans.
(vii) Welfare Benefit Plans .
During the Employment Period, the Executive and the
Executive’s eligible family members-shall be eligible for
participation in (on terms and conditions no less favorable than
those applicable to the Company’s other senior executives)
the welfare benefit plans, practices, policies and programs
(including, if applicable, medical, dental, vision, disability,
employee life, group life and accidental death insurance plans and
programs) maintained by the Company for its senior executives. In
addition, during the Employment Period, (i) the Company shall
provide the Executive with the current amount of additional term
life insurance coverage on the Executive’s life consistent
with that amount which is currently provided to the current Chief
Executive Officer, and (ii) the Company shall reimburse the
Executive the cost of continuing coverage for the Executive and his
immediate family members under the Executive’s current
medical and dental group health plans pursuant to COBRA, as well as
any coverage that Executive maintains after COBRA ceases to be
available, until such time as the Executive and his immediate
family members are eligible for full coverage under
Sunstone’s medical and dental plans.
(viii) Business Expenses .
During the Employment Period, the Executive shall be entitled to
receive prompt reimbursement for all reasonable business expenses
incurred by the Executive in accordance with the policies,
practices and procedures of the Company provided to senior
executives of the Company, including without limitation travel by
the Executive between Chicago, Illinois and the Company’s
headquarters in Orange County, California.
5
(ix) Fringe Benefits . During
the Employment Period, the Executive shall be entitled to such
fringe benefits and perquisites as are provided by the Company to
its senior executives from time to time, in accordance with the
policies, practices and procedures of the Company. The Company
shall provide Executive with fringe benefits at least equivalent to
those currently provided to the current Chief Executive
Officer.
(x) Vacation . During the
Employment Period, the Executive shall be entitled to paid vacation
of four weeks in each calendar year in accordance with the plans,
policies, programs and practices of the Company applicable to its
senior executives.
(xi) Indemnification
Agreement . On the Effective Date, Sunstone and the Executive
shall enter into an indemnification agreement in the form annexed
hereto as Exhibit E (the “Indemnification
Agreement”).
(c) Additional Agreements .
As a condition to the Company entering into this Agreement, the
Executive shall concurrently herewith enter into a
(i) Non-Disclosure Agreement with the Company (the “
Non-Disclosure Agreement ”), a form of which is set
forth as Exhibit B hereto, and (ii) a Noncompetition
Agreement with the Company (the “ Noncompetition
Agreement ”), a form of which is set forth in Exhibit
D hereto.
3. Termination of
Employment:
(a) Death or Disability . The
Executive’s employment shall terminate automatically upon the
Executive’s death or Disability during the Employment Period.
For purposes of this Agreement, “ Disability ”
means Executive’s inability by reason of physical or mental
illness to fulfill his obligations hereunder for six
(6) consecutive months which, in the reasonable opinion of an
independent physician selected by the Company or its insurers and
reasonably acceptable to the Executive or the Executive’s
legal representative, renders Executive unable to perform the
essential functions of his job, even after reasonable
accommodations are made by the Company. The Company is not,
however, required to make unreasonable accommodations for Executive
or accommodations that would create an undue hardship on the
Company.
(b) Cause . The Company may
terminate the Executive’s employment during the Employment
Period for Cause or without Cause. For purposes of this Agreement,
“ Cause ” shall mean the occurrence of any one
or more of the following events:
(i) The Executive’s continued
and willful failure to substantially perform or gross negligence in
performing his duties owed to the Company, which failure continues
uncured for at least fifteen (15) days following a written
notice being delivered to the Executive by the Board, which notice
specifies such failure or negligence;
(ii) The Executive’s
commission of an act of fraud or material dishonesty in the
performance of his duties;
6
(iii) The Executive’s
conviction of, or entry by the Executive of a guilty or no contest
plea to, (x) any felony or (y) any misdemeanor involving
moral turpitude;
(iv) Any breach by the Executive of
his fiduciary duty or duty of loyalty to the Company; or
(v) The Executive’s material
breach of any of the provisions of this Agreement or of the
Non-Competition Agreement or the Non-Disclosure Agreement, which in
each case is not cured within fifteen (15) days following
written notice thereof from the Company, specifically identifying
the manner in which the Company believes the Executive has breached
the applicable agreement.
The termination of employment of the
Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of a majority the
Board, including a majority of the independent directors, at a
meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is
given an opportunity to be heard before the Board), finding that,
in the good faith opinion of the Board, sufficient Cause exists to
terminate the Executive pursuant to this Section 3(b) ;
provided , that if the Executive is a member of the Board,
the Executive shall not participate in the deliberations regarding
such resolution, vote on such resolution, nor shall the Executive
be counted in determining a majority of the Board.
(c) Good Reason . The
Executive’s employment may be terminated by the Executive for
Good Reason or by the Executive without Good Reason. For purposes
of this Agreement, “ Good Reason ” shall mean
the occurrence of any one or more of the following events without
the Executive’s prior written consent, including as a result
of a Change in Control, unless the Company cures the circumstances
constituting Good Reason (provided such circumstances are capable
of cure) prior to the Date of Termination (as defined
below):
(i) A material reduction in the
Executive’s titles, duties, authority and responsibilities,
or the assignment to the Executive of any duties materially
inconsistent with the Executive’s position, authority, duties
or responsibilities without the written consent of the Executive,
which material reduction shall include the Executive’s
service as the Chief Executive Officer of a subsidiary entity
following a Change in Control;
(ii) The Company’s reduction
of the Executive’s annual Base Salary, as currently in effect
or as may be increased from time to time, any reduction of the
Executive’s Annual Bonus or annual equity award opportunity
including, but not limited to’ any elimination or reduction
in the Executive’s participation in the Incentive Plan for
reasons other than those specified in such plan; or
(iii) The Company’s failure to
cure a material breach of its obligations under this Agreement
within fifteen (15) days after written notice is delivered to
the Board by the Executive which specifically identifies the manner
in which the Executive believes that the Company has breached its
obligations under this Agreement;
7
(iv) The required relocation of the
Company’s principal place of business or the
Executive’s principal place of employment to a location more
than 50 miles from the Company’s location on the Effective
Date;
(v) If duties are being assigned to
Executive by, or Executive is required to report to, anyone other
than the Board;
(vi) As a result of a Change in
Control or any other circumstances, (x) neither the Company
nor a Company Affiliate (defined below) is an Ultimate Parent
Company (defined below) or (y) Executive serves as Chief
Executive Officer of any entity that is not an Ultimate Parent
Company, where the term “Ultimate Parent Company” means
an entity that (i) is part of the consolidated group that
includes the Company and (ii) directly or indirectly controls
all other entities within such consolidated group, and the term
“Company Affiliate” means any Person majority owned by
Sunstone or any corporation in which more than 50% of the voting
power is owned, directly or indirectly, by the stockholders of
Sunstone in substantially the same proportions as their ownership
of the stock of Sunstone (provided the stockholders of Sunstone did
not acquire voting power of such corporation pursuant to
transaction constituting a Change of Control as defined in
Section 5 herein); or
(vii) A material reduction is made
to any benefits provided under any employee benefit plan in which
Executive is eligible to participate, or which is otherwise
provided to Executive in connection with his employment, including
benefits under Sections 2(b)(vi), 2b(vii), 2(b)(ix) herein, except
to the extent any such benefits are reduced for all senior
executives of the Company and Executive’s reduction is
proportionate to that of other senior executives.
The Company shall not assert any
claim that Good Reason is absent unless and until there shall have
been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of a majority the Board, including a
majority of the independent directors, at a meeting of the Board
called and held for such purpose (after reasonable notice is
provided to the Executive and the Executive is given an opportunity
to be heard before the Board), finding that, in the good faith
opinion of the Board, Good Reason does not exist pursuant to this
Section 3(c)
(d) Notice of Termination .
Any termination by the Company for Cause, or by the Executive for
Good Reason, shall be communicated by Notice of Termination to the
other parties hereto given in accordance with Section 12(c) of
this Agreement. For purposes of this Agreement, a “ Notice
of Termination ” means a written notice which
(i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets
forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive’s employment
under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of
such notice, specifies the termination date (which date shall be
not more than thirty (30) days after the giving of such
notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive
any right of the Executive or the Company, respectively, hereunder
or preclude the Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing the
Executive’s or the Company’s rights
hereunder.
8
(e) Date of Termination .
“ Date of Termination ” means (i) if the
Executive’s employment is terminated by the Company for
Cause, or by the Executive for Good Reason,
