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                                                                    EXHIBIT 99.3

                         SUNSTONE HOTEL INVESTORS, INC.

                            1994 STOCK INCENTIVE PLAN

                             STOCK OPTION 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. Optionee is an individual who is to render valuable
services to the Corporation or one or more parent or subsidiary corporations,
and this Agreement is executed pursuant to, and is intended to carry out the
purposes of, the Plan in connection with the grant of a stock option to purchase
shares of the Corporation's common stock ("Common Stock") under the Plan.

                  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, the Corporation hereby grants to
Optionee, as of the grant date (the "Grant Date") specified in the accompanying
Notice of Grant of Stock Option (the "Grant Notice"), a stock option to purchase
up to that number of shares of the Corporation's 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 exercise price (the
"Exercise Price") specified in the Grant Notice.

                  2. OPTION TERM. This option shall expire at the close of
business on the expiration date (the "Expiration Date") specified in the Grant
Notice, unless sooner terminated in accordance with Paragraph 5 or Paragraph 6.

                  3. LIMITED TRANSFERABILITY. This option shall be neither
transferable or 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.
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                  4. EXERCISABILITY. This option shall become exercisable for
the Option Shares in accordance with the installment schedule specified in the
Grant Notice. As the option becomes exercisable for one or more installments,
those installments shall accumulate, and the option shall remain exercisable for
the accumulated installments until the Expiration Date or sooner termination of
the option term under Paragraph 5 or Paragraph 6. In no event shall this option
become exercisable for any additional Option Shares following Optionee's
cessation of Service.

                  5. TERMINATION OF SERVICE. The option term specified in
Paragraph 2 shall terminate (and this option shall cease to remain outstanding)
prior to the Expiration Date in accordance with the following provisions:

                     a. Upon Optionee's cessation of Service for any reason,
this option shall immediately terminate and cease to remain outstanding for any
Option Shares for which the option is not otherwise at that time exercisable.

                     b. Should Optionee cease Service for any reason other than
death or permanent disability while this option remains outstanding, then
Optionee shall have a three (3)-month period measured from the date of such
cessation of Service in which to exercise this option for any or all of the
Option Shares for which this option is exercisable at the time of such cessation
of Service. In no event, however, may this option be exercised at any time after
the specified Expiration Date of the option term. Upon the expiration of such
three (3)-month period or (if earlier) upon the specified Expiration Date of the
option term, this option shall terminate and cease to remain outstanding.

                     c. Should Optionee die while in Service or within three (3)
months after cessation of Service, then the personal representative of
Optionee's estate or the person or persons to whom this 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
Option Shares for which this option is exercisable at the time of Optionee's
cessation of Service (less any Option Shares subsequently purchased by Optionee
prior to death). Such right shall lapse, and this option shall terminate and
cease to remain outstanding, upon the earlier of (i) the first anniversary of
Optionee's death or (ii) the Expiration Date.

                     d. Should Optionee become permanently disabled and cease by
reason thereof to remain in Service at any time during the option term, then
Optionee shall have a twelve (12)-month period commencing with the date of such
cessation of Service in which to exercise this option for any or all of the
Option Shares for which this option is exercisable at the time of such cessation
of Service. In no event, however, may this option be exercised at any time after
the specified

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Expiration Date. Upon the expiration of such limited period of exercisability
or (if earlier) upon the Expiration Date, this option shall terminate and cease
to be outstanding.

                  e. During the limited period of post-Service exercisability
applicable pursuant to Paragraphs 5.b through 5.d, this option may not be
exercised in the aggregate for more than the number of Option Shares (if any)
for which this option is, at the time of Optionee's cessation of Service,
exercisable in accordance with either the normal exercise provisions specified
in the Grant Notice or the special acceleration provisions of Paragraph 6.

                     f. Should Optionee's Service be terminated for Misconduct,
then this option shall terminate immediately and cease to remain outstanding.

                     g. For purposes of this Agreement, the following
definitions shall be in effect:

                        (i) Optionee shall be deemed to remain in SERVICE for so
         long as such individual performs services on a periodic basis to the
         Corporation (or any parent or subsidiary corporation) in the capacity
         of an Employee, a non-employee member of the board of directors or an
         independent consultant or advisor.

                        (ii) Optionee shall be considered to be an EMPLOYEE for
         so long as such individual performs services while in the employ of the
         Corporation or one or more parent or subsidiary corporations, subject
         to the control and direction of the employer entity not only as to the
         work to be performed but also as to the manner and method of
         performance.

                        (iii) Optionee shall be deemed to be PERMANENTLY
         DISABLED and to have incurred a PERMANENT DISABILITY if Optionee is
         unable to engage in any substantial gainful activity by reason of any
         medically determinable physical or mental impairment expected to result
         in death or to be of continuous duration of twelve (12) months or more.

                        (iv) A corporation shall be considered to be a
         SUBSIDIARY of the Corporation if it is a member of an unbroken chain of
         corporations which begins with the Corporation, provided each such
         corporation in the unbroken chain (other than the last 


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         corporation) owns, at the time of determination, stock possessing fifty
         percent (50%) or more of the total combined voting power of all classes
         of stock in one of the other corporations in such chain.

                        (v) A corporation shall be considered to be a PARENT of
         the Corporation if it is a member of an unbroken chain of corporations
         ending with the Corporation, provided each such corporation in the
         unbroken chain (other than the Corporation) owns, at the time of
         determination, stock possessing fifty percent (50%) or more of the
         total combined voting power of all classes of stock in one of the other
         corporations in such chain.

                        (vi) Optionee's Service shall be deemed to have been
         terminated for MISCONDUCT if such termination occurs by reason of
         Optionee's commission of any act of fraud, embezzlement or dishonesty,
         any unauthorized use or disclosure by Optionee of confidential
         information or trade secrets of the Corporation or its parent or
         subsidiary corporations, or any other willful misconduct by Optionee
         adversely affecting the business or affairs of the Corporation in a
         material manner. The foregoing definition shall not be deemed to be
         inclusive of all the acts or omissions which the Corporation or any
         parent or subsidiary may consider as grounds for the dismissal or
         discharge of Optionee or any other individual in the Service of the
         Corporation.

                  6. CORPORATE TRANSACTION.

                     a. In the event of any of the following stockholder-
approved transactions to which the Corporation is a party (a "Corporate
Transaction"):

                     (i) 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,

                     (ii) 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


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                     (iii) 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, to the extent outstanding at such time but not
otherwise exercisable, shall automatically accelerate so that such option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become fully exercisable for all the Option Shares at the time subject to this
option and may be exercised for all or any portion of such shares as fully
vested shares of Common Stock. No such acceleration of this option, however,
shall occur if and to the extent: (i) this option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation or parent thereof or (ii) such
option is to be replaced with a cash incentive program of the successor
corporation which preserves the option spread existing at the time of the
Corporate Transaction (the excess of the Fair Market Value (as such term is
defined in Paragraph 9.c) of the Option Shares at the time subject to this
option over the aggregate Exercise Price payable for such shares) and provides
for subsequent pay out in accordance with the same vesting schedule in effect
for the option pursuant to the option exercise schedule set forth in the Grant
Notice. The determination of option comparability under clause (i) shall be made
by the Plan Administrator, and such determination shall be final, binding and
conclusive.

                     b. The portion of this option accelerated in connection
with any Corporate Transaction shall remain exercisable as an incentive stock
option under the Federal tax laws (if the option is designated as such in the
Grant Notice) only to the extent the applicable dollar limitation of Paragraph
17 is not exceeded in the calendar year of such Corporate Transaction.

                     c. This option, to the extent not previously exercised,
shall terminate and cease to be outstanding immediately following the
consummation of such Corporate Transaction, unless it is expressly assumed by
the successor corporation or its parent corporation.

                     d. 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.

                  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 the outstanding Common Stock as a class effected 


                                       5.
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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 this option and (ii) the Exercise Price payable per share in order to
prevent any dilution or enlargement of rights and benefits hereunder. Such
adjustments shall be final, binding and conclusive.

                     b. If this option is to be assumed in connection with a
Corporate Transaction under Paragraph 6, then this option 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 Optionee
in the consummation of such Corporate Transaction had the option 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.

                  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 the option and paid the
Exercise Price for the purchased Option Shares.

                  9. MANNER OF EXERCISING OPTION.

                     a. In order to exercise this option with respect to all or
any part of the Option Shares for which this option is at the time exercisable,
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 by check made payable to
         the Corporation's order;

                            (b) full payment in shares of Common Stock held for
         the requisite period necessary to avoid a charge to the Corporation's
         earnings for financial reporting purposes valued at Fair Market Value
         on the Exercise Date (as such terms are defined below);

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                            (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
         payable to the Corporation's order; or

                            (d) full payment 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 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.

                     (3) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if other than Optionee) have
the right to exercise this option.

                           b. For purposes of this Agreement, 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 option
exercise, payment of the Exercise Price for the purchased shares must accompany
such Purchase Agreement.

                           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:

                              (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.


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                              (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 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 Optionee (or any other person or
persons exercising this option in accordance herewith) a certificate or
certificates representing the purchased Option Shares.



                           e. In no event may this option be exercised for any
fractional shares.

                  10. NO EMPLOYMENT/SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon Optionee any right to continue in the Service
of the Corporation (or any parent or subsidiary employing or retaining Optionee)
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any such parent or subsidiary) or
Optionee, which rights are hereby expressly reserved by each party, to terminate
Optionee's Service at any time for any reason whatsoever, with or without cause.

                  11. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this
option and the issuance of 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 Corporation's 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 and
legal representatives of Optionee and the successors and assigns of the
Corporation.

                  13. LIABILITY OF CORPORATION.

                      a. If the Option Shares covered by this Agreement exceed,
as of the Grant Date, the number of shares which may without stockholder
approval be issued under the Plan, then this option shall be void with respect
to such excess shares unless stockholder approval of an amendment sufficiently
increasing the number of shares issuable under the Plan is obtained in
accordance with the provisions of Section II of Article Five of the Plan.

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                      b. 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. The Corporation, however, shall use its best efforts to
obtain all such 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
Corporation's principal offices at 300 South El Camino Real, Suite 203, San
Clemente, California 92672. Any notice required to be given or delivered to
Optionee shall be in writing and addressed to Optionee at the address indicated
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, by registered or
certified mail, postage prepaid and properly addressed to the party to be
notified.

                  15. CONSTRUCTION. This Agreement and the option 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. 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 this option.

                  16. 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.

                  17. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE STOCK OPTION.
In the event this option is designated an incentive stock option in the Grant
Notice, the following terms and conditions shall also apply to the grant:

                      a. This option shall cease to qualify for favorable tax
treatment as an incentive stock option under the Federal tax laws if (and to the
extent) this option is exercised for one or more Option Shares: more than (i)
three (3) months after the date Optionee ceases to be an Employee for any reason
other than death or permanent disability (as such term is defined in Paragraph
5.g) or (ii) one (1) year after the date Optionee ceases to be an Employee by
reason of permanent disability.

                      b. If this option is to become exercisable in a series of
installments as indicated in the Grant Notice, no such installment shall qualify
for favorable tax treatment as an incentive stock option under the Federal tax
laws if (and to the extent) the aggregate Fair Market Value (determined at the
Grant Date) of the Common Stock for which such installment first 

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becomes exercisable hereunder would, when added to the aggregate value
(determined as of the respective date or dates of grant) of the Common Stock or
other securities for which this option or one or more other incentive stock
options granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any parent or subsidiary) first
become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. Should the applicable One Hundred Thousand
Dollar ($100,000) limitation be exceeded in any calendar year, the option may
nevertheless be exercised for the excess shares in such calendar year as a
non-statutory stock option.

                      c. Should the exercisability of this option be accelerated
upon a Corporate Transaction in accordance with Paragraph 6, then this option
shall qualify for favorable tax treatment as an incentive stock option under the
Federal tax laws only to the extent the aggregate Fair Market Value (determined
at the Grant Date) of the number of shares of Common Stock for which this option
first becomes exercisable in the calendar year in which the Corporate
Transaction occurs does not, when added to the aggregate value (determined as of
the respective date or dates of grant) of the shares of Common Stock or other
securities for which this option or one or more other incentive stock options
granted to Optionee prior to the Grant Date (whether under the Plan or any other
option plan of the Corporation or any parent or subsidiary) first become
exercisable during the same calendar year, exceed One Hundred Thousand Dollars
($100,000) in the aggregate. Should the applicable One Hundred Thousand Dollar
($100,000) limitation be exceeded in the calendar year of such Corporate
Transaction, the option may nevertheless be exercised for the excess shares in
such calendar year as a non-statutory stock option.

                      d. Should Optionee hold, in addition to this option, one
or more other options to purchase shares of Common Stock which become
exercisable for the first time in the same calendar year as this option, then
the foregoing limitations on the exercisability of such options as incentive
stock options under the Federal tax laws shall be applied on the basis of the
order in which such options are granted.

                      e. To the extent this option should fail to qualify for
incentive stock option treatment under the Federal tax laws, Optionee shall
recognize compensation income at the time the option is exercised in an amount
equal to the Fair Market Value of the purchased Option Shares less the aggregate
Exercise Price paid for those shares, and Optionee must make appropriate
arrangements with the Corporation or any parent or subsidiary employing Optionee
for the satisfaction of all Federal, state or local income and employment tax
withholding requirements applicable to such compensation income.

                  18. ADDITIONAL TERMS APPLICABLE TO A NON-STATUTORY STOCK
OPTION. In the event this option is designated a non-statutory stock option in
the Grant Notice, Optionee shall make appropriate arrangements with the
Corporation or any parent or subsidiary employing 

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Optionee for the satisfaction of all Federal, state or local income and
employment tax withholding requirements applicable to the exercise of this
option.

                  19. 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, then this option shall terminate and
cease to remain outstanding without ever becoming exercisable for any of the
Option Shares.


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