CHANGE IN CONTROL AND TERMINATION AGREEMENT
Exhibit
10.20
THIS
AMENDED AND RESTATED CHANGE IN CONTROL AND TERMINATION
AGREEMENT
(the
“Agreement”), to be effective as of the 1st
day of
January 2007, is made and entered into by and between EQUITY INNS SERVICES,
INC.
(the “Company”), a corporation organized and existing under the laws of the
State of Tennessee, EQUITY INNS, INC. (the “Parent”), a corporation organized
and existing under the laws of the State of Tennessee, and J. Xxxxxx Xxxxxx,
(the “Executive”). This amended and restated agreement supersedes all previous
employment agreements with the Executive.
R
E C
I T A L S:
The
Company provides management services to the Parent pursuant to a management
services agreement dated as of December 30, 1994.
The
Company and the Parent acknowledge that Executive’s contributions to the past
and future growth and success of the Company and the Parent have been and will
continue to be substantial. As a wholly-owned subsidiary of a publicly held
corporation, the Company recognizes that there exists a possibility of a Change
in Control (as defined herein) of the Company or its Parent. The Company and
the
Parent also recognize that the possibility of such a Change in Control may
contribute to uncertainty on the part of senior management and may result in
the
departure or distraction of senior management from their operating
responsibilities.
Outstanding
management of the Company is always essential to advancing the best interests
of
the Company’s and the Parent’s shareholders. In the event of a threat or
occurrence of a bid to acquire or change control of the Parent or to effect
a
business combination, it is particularly important that the Company’s and the
Parent’s businesses be continued with a minimum of disruption. The Company and
the Parent believe that the objective of securing and retaining outstanding
management will be achieved if the Company’s key management employees are given
assurances of employment security so they will not be distracted by personal
uncertainties and risks created by such circumstances.
NOW,
THEREFORE, in consideration of the mutual covenants and obligations herein
and
the compensation the Parent and the Company, jointly and severally, agree herein
to pay to the Executive, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parent, the
Company and the Executive agree as follows:
ARTICLE
1. TERM;
CERTAIN DEFINITIONS.
1.1 Term.
This
Agreement is effective from the date of its execution by the Company (“Effective
Date”) for a term of three years (the “Initial Term”). This Agreement
automatically continues in effect from year to year after expiration of the
Initial Term unless the Company notifies the Executive in writing ninety (90)
days before any anniversary of the Effective Date following the Initial Term
that the Agreement will terminate as of that anniversary date. Notwithstanding
the foregoing, no notice of termination of this Agreement
under
the
preceding sentence shall be effective during an Employment Period as defined
in
section 2.1 below.
1.2 Certain
Definitions.
As used
in this Agreement:
(a) Acquiring
Person
means
that a Person, considered alone or together with all Control Affiliates and
Associates of that Person, is or becomes directly or indirectly the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act) of securities
representing at least twenty percent (20%) of (i) the Parent’s then outstanding
securities entitled to vote generally in the election of the Parent’s Board; or
(ii) the Company’s then outstanding securities entitled to vote generally in the
election of the Company’s Board.
(b) Annual
Base Salary
means
the Executive’s gross annual salary before any taxes, deductions, exclusions or
any deferrals or contributions under any plan or program of the Company or
the
Parent, but excluding bonuses, incentive compensation, employee benefits or
any
non-salary form of compensation (determined without regard to any reduction
in
Annual Base Salary that results in Executive’s voluntary termination with Good
Reason, under sections 1.2(n) and 2.3).
(c) Associate,
with
respect to any Person, is defined in Rule 12b-2 under the Exchange Act;
provided,
however,
that an
Associate shall not include the Parent or a majority-owned subsidiary of the
Parent.
(d) Bonus
means
the Executive’s bonus or other similar payment from the Company or the Parent,
whether paid in cash or shares of the Parent’s common stock or otherwise, that
is based on the performance of the Company, the Parent, or the Executive during
a fiscal year or years, even if paid after the close of the fiscal year. The
term “Bonus” shall include, without limitation, for 1996, restricted stock
awards granted in 1996 in lieu of amounts paid under the bonus pool (which
awards shall be deemed to have a value, solely for this purpose, equal to the
Fair Market Value on the date of grant of all shares subject to the award,
whether or not such shares were vested on the date of grant); and for 1997,
amounts paid under the Company’s annual bonus pool.
(e) “Cause,”
means (i) willful, deliberate and continued failure by the Executive (other
than
for reason of mental or physical illness or Disability) to perform his duties
as
established by the Company’s Board, or fraud or dishonesty in connection with
such duties, in either case, if such conduct has a materially detrimental effect
on the business operations of the Company; (ii) a material breach by the
Executive of his fiduciary duties of loyalty or care to the Company or the
Parent; (iii) conviction of any crime (or upon entering a plea of guilty or
nolo
contendere to a charge of any crime) constituting a felony; (iv)
misappropriation of funds or property; or (v) willful, flagrant, deliberate
and
repeated infractions of material published policies and regulations of the
Company of which the Executive has actual knowledge.
(f) Change
in Control
means
(i) a Person is or becomes an Acquiring Person; (ii) holders of the securities
of the Parent entitled to vote thereon approve any agreement with a Person
(or,
if such approval is not required by applicable law and is not solicited by
the
Parent, the closing of such an agreement) that involves the transfer of at
least
fifty percent (50%) of the Parent’s and its subsidiaries’ total assets on a
consolidated basis, as reported in the Parent’s consolidated financial
statements filed with the Securities and Exchange Commission; (iii) holders
of
the securities of the Parent entitled to vote thereon approve a transaction
(or,
if such approval is not required by applicable law and is not solicited by
the
Parent, the closing of such a transaction) pursuant to which the Parent will
undergo a merger, consolidation, or statutory share exchange with a Person,
regardless of whether the Parent is intended to be the surviving or resulting
entity after the merger, consolidation, or statutory share exchange,
other than
a
transaction that results in the voting securities of the Parent carrying the
right to vote in elections of persons to the Parent’s Board outstanding
immediately prior to the closing of the transaction continuing to represent
(either by remaining outstanding or by being converted into voting securities
of
the surviving entity) at least 66 2/3% (sixty-six and two-thirds percent) of
the
Parent’s voting securities carrying the right to vote in elections of persons to
the Parent’s Board, or such securities of such surviving entity, outstanding
immediately after the closing of such transaction; (iv) the Continuing Directors
cease for any reason to constitute a majority of the Parent’s Board; (v) holders
of the securities of the Parent entitled to vote thereon approve a plan of
complete liquidation of the Parent or an agreement for the sale or liquidation
by the Parent or its subsidiaries of substantially all of the assets of the
Parent and its subsidiaries (or, if such approval is not required by applicable
law and is not solicited by the Parent, the commencement of actions constituting
such a plan or the closing of such an agreement); or (vi) the Parent’s Board
adopts a resolution to the effect that, in its judgment, as a consequence of
any
one or more transactions or events or series of transactions or events, a Change
in Control of the Company or the Parent has effectively occurred. The Parent’s
Board shall be entitled to exercise its sole and absolute discretion in adopting
any such resolution pursuant to subparagraph (vi) above and in determining
whether or not any such transaction(s) or event(s) might be deemed, individually
or collectively, to constitute a Change in Control of the Company or the
Parent.
(g) Company’s
Board
means
the Board of Directors of the Company.
(h) Continuing
Director
means
any member of the Parent’s Board, while a member of the Parent’s Board and (i)
who was a member of the Parent’s Board on the date hereof or (ii) whose
nomination for or election to the Parent’s Board was recommended or approved by
a majority of the Continuing Directors.
(i) Control
Affiliate,
with
respect to any Person, means an affiliate as defined in Rule 12b-2 under the
Exchange Act.
(j) Control
Change Date
means
the date on which a Change in Control occurs. If a Change in Control occurs
on
account of a series of transactions, the “Control Change Date” is the date of
the last of such transactions.
(k) Disability
means a
complete physical or mental inability, confirmed by an independent licensed
physician, to perform substantially all of the services required of an employee
in Executive’s position with the Company immediately before Executive first
became unable to perform those services, that continues for a period of two
hundred forty (240) consecutive days, provided that the Company has given
advance written notice to Executive of its determination of such Disability,
and
Executive has not resumed performance of such services within thirty (30) days
of such notice.
(l) Exchange
Act
means
the Securities Exchange Act of 1934, as amended.
(m) Fair
Market Value
has the
same meaning given that term in the Parent’s 1994 Stock Incentive Plan, as
amended and in effect from time to time.
(n) Good
Reason
means
the Executive’s resignation from the Company’s employment on account of one or
more of the following events:
(i) the
failure by the Parent’s Board or the Company’s Board (as applicable) to reelect
the Executive to Executive’s current position with the Company and the Parent
(as of the Control Change Date), provided the Executive elects to leave the
Company’s or Parent’s employment within six (6) months of such failure to so
reelect or reappoint the Executive;
(ii)
a
material diminution by the Parent’s Board or the Company’s Board (as applicable)
of the duties, functions and responsibilities of the Executive as the
Controller, Assistant Secretary and Assistant Treasurer of the Parent without
his consent within six (6) months of such diminution of duties, responsibilities
or functions; provided, however, that the Parent, the Company and the Executive
agree that Good Reason will exist under this section 1.2(ii) solely because
the
Executive continues to have the same duties, functions and responsibilities
as
in effect immediately before the Change in Control but for an entity that does
not have common stock or shares that are publicly traded.
(iii)
the
failure of the Company or the Parent to permit the Executive to exercise such
responsibilities as are consistent with the Executive’s position and are of such
a nature as are usually associated with such offices of a corporation engaged
in
substantially the same business as the Company or the Parent;
(iv) the
Company’s or the Parent’s causing the Executive to relocate his employment more
than fifty (50) miles from Memphis, Tennessee, without the consent of the
Executive;
(v) the
Parent’s or the Company’s failure to make (or the Parent’s failure to cause the
Company to make) a payment when due to the Executive;
(vi) the
Company’s reduction, during the Employment Period, of the Executive’s (A) Annual
Base Salary, as such may be increased from time to time after the date of this
Agreement; (B) Bonus, such that the aggregate threshold, target, or maximum
Bonus projected for Executive for a fiscal year are lower than the greater
of
(1) the aggregate threshold, target, or maximum Bonus, respectively, projected
for the Executive for the immediately preceding fiscal year or (2) the aggregate
threshold, target, or maximum Bonus, respectively, projected most recently
prior
to the Employment Period for the Executive; (C) employee welfare, fringe or
pension benefits, other than reductions determined to be necessary to comply
with the Employee Retirement Income Security Act of 1974, as amended, or to
retain the tax-qualified or tax-favored status of the benefit under the Code,
which determination shall be made by the Parent’s Board in good faith or (D)
incentive compensation (other than Bonus levels that are subject to restrictions
on reductions under section 1.2(n)(vi)(B)) such that the aggregate threshold,
target or maximum value is less than the average incentive compensation
(including any restricted stock, options and similar awards) for the two year
period preceding the Control Change Date.
(vii) the
Company, the Company’s Board, the Parent or the Parent’s Board directs Executive
to engage in unlawful or unethical conduct or conduct contrary to the Company’s
or the Parent’s good business practices.
(o) Parent’s
Board
means
the Board of Directors of the Parent.
(p) Person
means
any human being, firm, corporation, partnership, or other entity. “Person” also
includes any human being, firm, corporation, partnership, or other entity as
defined in sections 13(d)(3) and 14(d)(2) of the Exchange Act. The term “Person”
does not include the Company, the Parent or any Related Entity, and the term
Person does not include any employee-benefit plan maintained by the Parent,
the
Company or any Related Entity, and any person or entity organized, appointed,
or
established by the Parent, the Company or any Related Entity for or pursuant
to
the terms of any such employee-benefit plan, unless the Parent’s Board or the
Company’s Board determines that such an employee-benefit plan or such person or
entity is a “Person”.
(q) Potential
Change in Control
means
that (i) the Parent’s Board approves a transaction or series of transactions
that, if consummated, would result in a Change in Control; (ii) any Person,
the
Company, or the Parent makes a public announcement of its intention to take
or
consider taking actions that would result in a Change in Control; (iii) any
Person initiates a tender offer which, if consummated, would result in a Change
in Control; or (iv) the Parent’s Board adopts a resolution to the effect that,
in its judgment, as a consequence of any one or more transactions or events
or
series of transactions or events, a Potential
Change
in
Control of the Company or the Parent has effectively occurred. The Parent’s
Board shall be entitled to exercise its sole and absolute discretion in adopting
any such resolution pursuant to subparagraph (iv) above and in determining
whether or not any such transaction(s) or event(s) might be deemed, individually
or collectively, to constitute a Potential Change in Control of the Company
or
the Parent.
(r) Related
Entity
means
any entity that is part of a controlled group of corporations or is under common
control with the Parent within the meaning of section 1563(a), 414(b) or 414(c)
of the Internal Revenue Code of 1986, as amended (the “Code”).
ARTICLE
2. TERMINATION
OF EMPLOYMENT.
2.1 General.
Executive is entitled to receive a Termination Payment according to the
remaining provisions of this Article 2 if Executive’s employment with the
Company terminates during the term of this Agreement and during an Employment
Period (as defined below) because of an event described in either section 2.2
or
2.3. An Employment Period begins on the occurrence of any Potential Change
in
Control. An Employment Period also begins on the occurrence of a Control Change
Date if, with respect to the Change in Control to which such Control Change
Date
relates, no Potential Change in Control occurred (or a Potential Change in
Control did occur, but it was determined by the Parent’s Board to have been
unwound, reversed or concluded (as provided in the following sentence)). If
an
Employment Period begins on the occurrence of a Potential Change in Control,
it
will end on the earlier of (i) the date (if any) that the events constituting
the Potential Change in Control have been unwound, reversed or concluded such
that the events are no longer expected to result in a Change in Control, as
determined by the Parent’s Board in good faith, or (ii) eighteen (18) months
following the Control Change Date to which the Potential Change of Control
relates. If an Employment Period begins on a Control Change Date, it will end
eighteen (18) months following the Control Change Date. If Executive’s
employment terminates during an Employment Period and an event described in
section 2.2 or 2.3 has not occurred, or Executive’s employment terminates as a
result of his death or Disability, this Agreement terminates.
2.2 Termination
by the Company.
Executive is entitled to receive a Termination Payment if Executive’s employment
is terminated by the Company during an Employment Period without Cause. If
the
Company desires to discharge the Executive for Cause (the “Cause Exception”), it
shall give notice to the Executive as provided in section 2.7 and the Executive
shall have thirty (30) days after notice has been given to him in which to
cure
the reason for the Company’s exercise of the Cause Exception. If the reason for
the Company’s exercise of the Cause Exception is timely cured by the Executive
(as determined by a majority of the members of the Company’s Board following a
hearing), the Company’s notice of discharge shall become null and
void.
2.3 Voluntary
Termination.
Executive is entitled to receive a Termination Payment if Executive voluntarily
terminates employment during an Employment Period with Good Reason.
2.4 Termination
Payment.
The
Parent shall pay or shall cause the Company to pay a Termination Payment equal
to two (2) times Executive’s Base Period Income (as determined under section
2.5) in a single sum payment, net of any required tax withholding, in cash.
Except as provided in the two following sentences, the Termination Payment
to
Executive shall be made not later than the thirtieth (30th)
business day after Executive’s employment termination in accordance with section
2.2 or 2.3 (the “Payment Date”). If Executive is a “specified employee” (as
defined in section 409A of the Code), any portion of the Termination Payment
that is subject to section 409A of the Code shall be paid in a single sum
payment on the first business day of the seventh month beginning after the
day
of Executive’s employment termination in accordance with section 2.2 or 2.3. If
the amount of the Termination Payment cannot be finally determined on or before
the Payment Date, the Parent shall pay or shall cause the Company to pay on
the
Payment Date an estimate, as determined in good faith by the Company, of the
minimum amount of the Termination Payment. Any portion of the Termination
Payment that is not made on the Payment Date shall bear interest at a rate
equal
to one-hundred twenty (120) percent of the monthly compounded applicable federal
rate, as in effect under section 1274(d) of the Code for the month in which
the
Payment Date occurs. In the event that the amount of the estimated payment
exceeds the amount subsequently determined to have been due, such excess shall
constitute a loan by the payor, payable on the fifth day after demand by the
Parent or the Company, as applicable, with interest at the rate provided under
section 1274(d) of the Code until paid.
2.5 Base
Period Income.
Base
Period Income for the Executive equals the sum of (a) and (b), as determined
below:
|
(a)
|
Average
Annual Base Salary, determined as
follows:
|
(i)
twelve times: (A) the monthly rate of Annual Base Salary to which the Executive
is entitled on the day prior to his termination (the “Salary Measurement Date”);
plus (B) the monthly rate of Annual Base Salary to which the Executive was
entitled twelve months prior to the Salary Measurement Date, if Executive was
employed by the Company or the Parent on that date; plus (C) the monthly rate
of
Annual Base Salary to which the Executive was entitled twenty-four months prior
to the Salary Measurement Date, if Executive was employed by the Company or
the
Parent on that date (with Annual Base Salary determined in each case in
accordance with section 1.2(b));
(ii)
divided by: (A) one, if Executive was not employed by the Company or the Parent
twelve months prior to the Salary Measurement Date; (B) two, if Executive was
employed by the Company or the Parent twelve months (but not twenty-four months)
prior to the Salary Measurement Date; or (C) three, if Executive was employed
by
the Company twenty-four months prior to the Salary Measurement
Date;
plus
|
(b)
|
Average
Bonus, determined as either (i) or (ii), as
applicable:
|
(i)
if
Executive was employed by the Company for at least one entire fiscal year,
the
sum of the Bonuses paid to or earned by the Executive for the three fiscal
years
(or, if less than three years, the fiscal years of the Executive’s employment
with the Company), immediately preceding the year in which the Executive’s
employment with the Company terminates, divided by the number of such fiscal
years; provided that if the Executive was paid or earned a Bonus for any fiscal
year that was pro rated based on partial year’s employment, such Bonus shall be
annualized for purposes of calculating Base Period Income; or
(ii)
if
Executive was employed by the Company for less than one entire fiscal year,
his
“target” Bonus for the fiscal year in which his employment with the Company
terminates shall be his Average Bonus for purposes of calculating Base Period
Income; provided that if the “target” Bonus is pro rated based on a partial
year’s employment, such “target” Bonus shall be annualized for purposes of
calculating Base Period Income.
Example.
Assume a
Potential Change in Control occurs (and thus an Employment Period begins) in
December, 1998, and Executive’s employment is terminated without Cause in
January, 1999. For purposes of calculating Executive’s Base Period Income,
Executive’s Bonuses for the years 1996, 1997 and 1998 would be averaged. Assume
that Executive received 7,500 shares of restricted stock in December, 1996
in
lieu of a payment under the bonus pool, and that the Fair Market Value of the
shares on date the shares were issued was $13.50. Further assume that Executive
received a payment under the bonus pool for 1997, taken part in cash ($150,000)
and part in shares of Common Stock (7,500 shares, with a Fair Market Value
on
the date the shares were issued of $14.00 per share). Finally, assume that
(i)
Executive’s 1998 Bonus performance measures, as established by the Compensation
Committee of the Parent’s Board, had a “corporate” and an “individual”
component, (ii) Executive’s Bonus would be $275,000, if the “target” Bonus was
paid for both the corporate and individual components of the award, and (iii)
the target Bonus was earned for both components of the award.
Executive’s
average Bonus, for purposes of calculating his Base Period Income would be
$210,416.67 ([$101,250 for 1996 + $255,000 ($150,000 + $105,000) for 1997 +
$275,000 for 1998] / 3).
2.6 Other
Severance Benefits.
In the
event Executive is entitled to a Termination Payment under section 2.4, he
shall
also be entitled to the following benefits and other rights:
(a) Accrued
but unpaid Annual Base Salary through the date that Executive’s employment
terminates, which the Parent shall pay or cause the Company to pay no later
than
the Payment Date (as defined in section 2.4);
(b) Payment
of a Bonus for the fiscal year in which Executive’s employment terminates, pro
rated based on the number of days of such year prior to the date of Executive’s
termination, with such Bonus being calculated as a pro rated portion of the
“target” Bonus projected for Executive for that year (determined without regard
to any reduction that results in Executive’s termination with Good Reason),
which the Parent shall pay or cause the Company to pay no later than the Payment
Date;
(c) Payment
of any unpaid Bonus for any fiscal year prior to the year in which Executive’s
employment terminates with any discretionary portion of the Bonus being paid
at
“target” levels or higher for such year and any non-discretionary portion of the
Bonus being paid based on actual levels of corporate achievement (each
determined without regard to any reduction that results in Executive’s
termination with Good Reason), which the Parent shall pay or cause the Company
to pay no later than the Payment Date;
(d) Forgiveness
of all loans made to Executive by the Company or the Parent and outstanding
as
of the date of Executive’s termination of employment with the Company (other
than the loan deemed made by the Company to Executive in accordance with the
last sentence of section 2.4 or section 3.3);
(e) Accelerated
vesting, settlement, or exercisability of (i) awards outstanding under the
Parent’s 1994 Stock Incentive Plan; (ii) compensatory awards granted with
respect to the Parent’s capital stock under any other plan or outside of a plan
(in each case, including without limitation restricted stock awards, performance
shares and stock options); (iii) Executive’s balance under the Parent’s Deferred
Compensation Plan; and (iv) benefits under any other non-tax-qualified plan
of
the Company or the Parent in which a portion of an award or benefit would be
lost through termination of employment; provided that,
in each
case, such acceleration shall occur as of the date of Executive’s termination of
employment (if such acceleration has not previously occurred);
(f) A
payment
equal to the portion of Executive’s account balance under any defined
contribution tax-qualified pension plan of the Company or the Parent forfeited
as a result of failure to satisfy vesting requirements due to Executive’s
termination of employment, which the Parent shall pay or cause the Company
to
pay no later than the Payment Date;
(g) Continuation,
for the longer of eighteen (18) months following the date of termination of
employment, or the period mandated, in the case of group health plan coverage,
by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
of
all of Executive’s insurance benefits (including without limitation medical,
dental, and vision insurance benefits) and any other medical, dental or vision
benefits (if not insured) on the same terms as in effect immediately prior
to
Executive’s termination (determined without regard to any reduction that results
in Executive’s termination with Good Reason); provided that
any such
benefits in effect immediately prior to Executive’s termination shall
be
made
available to the Executive for the period stated above even if they must be
secured by the Company or the Parent outside of any plan or group insurance
policy; and
(h) Any
other
benefits accrued by the Executive as of the date of his termination of
employment, including without limitation accrued vacation, in accordance with
the terms of the plan, agreement or other arrangement under which the benefit
was established, which the Parent shall pay or cause the Company to pay no
later
than the Payment Date.
If
Executive is a “specified employee” (as defined in section 409A of the Code),
any benefit payable under this section 2.6 that is subject to section 409A
of
the Code shall be paid on the first business day of the seventh month beginning
after the date of Executive’s termination in accordance with section 2.2 or
2.3.
2.7 Notice
of Termination.
Any
termination by the Company under the Cause Exception or by the Executive for
Good Reason shall be communicated by Notice of Termination to the other party
hereto. For purposes of sections 2.2, 2.3 and 2.4, a “Notice of Termination”
means a written notice which (i) indicates the specific termination provision
in
this Agreement relied upon, (ii) 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 termination date
is
other than the date of receipt of such notice, specifies the effective date
of
termination.
ARTICLE
3. TAX
MATTERS.
3.1 Indemnification.
If the
excise tax on “excess parachute payments,” as defined in section 280G of the
Code, will be imposed on the Executive under Code section 4999 as a result
of
the Executive’s receipt of the Termination Payment or any other payment, benefit
or compensation (without regard to the “Additional Amount” described below)
which the Executive receives or has the right to receive from the Company or
the
Parent or any of their affiliates (the “Change in Control Benefits”), the
Company and the Parent shall indemnify the Executive and hold him harmless
against all claims, losses, damages, penalties, expenses, and excise taxes.
To
effect this indemnification, the Parent shall pay or cause the Company to pay
to
the Executive the “Additional Amount” described in this section 3.1. The
Additional Amount shall be the amount that is sufficient to indemnify and hold
the Executive harmless from the application of Code sections 280G and 4999,
including the amount of (i) the excise tax that will be imposed on the Executive
under section 4999 of the Code with respect to the Change in Control Benefits;
(ii) the additional (A) excise tax under section 4999 of the Code, (B) hospital
insurance tax under section 3111(b) of the Code and (C) federal, state and
local
income taxes for which the Executive is or will be liable on account of the
payment of the amount described in item (i); and (iii) the further excise,
hospital insurance and income taxes for which the Executive is or will be liable
on account of the payment of the amount described in item (ii) and this item
(iii) and any other indemnification payment under this section 3.1. The
Additional Amount shall be calculated and paid to the Executive at the time
that
the Termination Payment is paid to the Executive. In calculating the Additional
Amount, the highest marginal rates of federal and applicable state and local
income taxes applicable to individuals and in effect for the year in
which
the
Change in Control occurs shall be used. Nothing in this paragraph shall give
the
Executive the right to receive indemnification from the Company or the Parent
for federal, state or local income taxes or hospital insurance taxes payable
solely as a result of the Executive’s receipt of (a) the Termination Payment, or
(b) any additional payment, benefit or compensation other
than
additional compensation in the form of the excise tax payment specified in
item
(i), above. As specified in items (ii) and (iii), above, all income, hospital
insurance and additional excise taxes resulting from additional compensation
in
the form of the excise tax payment specified in item (i), above, shall
be paid
to the Executive.
3.2 Example.
The
provisions of section 3.1 are illustrated by the following example:
Assume
that the Termination Payment and all other Change in Control Benefits result
in
a total federal, state and local income tax and hospital insurance tax liability
of $180,000; and an excise tax liability under Code section 4999 of $70,000.
Under such circumstances, the Executive is solely responsible for the $180,000
income and hospital insurance tax liability; and the Parent must pay or cause
the Company to pay to the Executive $70,000, plus an amount necessary to
indemnify the Executive for all federal, state and local income taxes, hospital
insurance taxes, and excise taxes that will result from the $70,000 payment
to
the Executive and from all further indemnification to the Executive of taxes
attributable to the initial $70,000 payment.
3.3 Estimated
Payment.
Notwithstanding the foregoing, if the Additional Amount cannot be finally
determined on or before the Payment Date (as defined in section 2.4), the Parent
shall pay or cause the Company to pay on the Payment Date an estimate, as
determined in good faith by the Company, of the minimum amount of the Additional
Amount. Any portion of the Additional Amount that is not made on the Payment
Date shall bear interest at a rate equal to one-hundred twenty (120) percent
of
the monthly compounded applicable federal rate, as in effect under section
1274(d) of the Code for the month in which the Payment Date occurs. In the
event
that the amount of the estimated payment exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the payor,
payable on the fifth day after demand by the Parent or the Company, as
applicable, with interest at the rate provided under section 1274(d) of the
Code
until paid.
ARTICLE
4. MITIGATION.
The
Executive shall not be required to mitigate damages or the amount of any payment
provided for under this Agreement by seeking or accepting other employment
or
otherwise, and compensation earned from such employment or otherwise shall
not
reduce the amounts otherwise payable under this Agreement.
ARTICLE
5. RESTRICTION
ON CONDUCT OF EXECUTIVE.
5.1 General.
The
Executive and the Company understand and agree that the purpose of the
provisions of this Article 5 is to protect legitimate business interests of
the
Company and Parent, as more fully described below, and is not intended to impair
or infringe upon the Executive’s right to work, earn a living, or acquire and
possess property from the fruits of his labor. The Executive hereby acknowledges
that the post-employment restrictions set forth in this Article 5 are reasonable
and that they do not, and will not, unduly impair his ability to
earn
a
living after the termination of his employment with the Company. Therefore,
subject to the limitations of reasonableness imposed by law upon restrictions
set forth herein, Executive shall be subject to the restrictions set forth
in
this Article 5.
5.2 Definitions.
The
following capitalized terms used in this Article 5 shall have the meanings
assigned to them below, which definitions shall apply to both the singular
and
the plural forms of such terms:
(a) Confidential
Information
means
any confidential or proprietary information possessed by the Company, the Parent
or a Related Entity, including without limitation, any confidential “know-how”,
customer lists, details of client or consultant contracts, current and
anticipated customer requirements, pricing policies, price lists, market
studies, business plans, operational methods, marketing plans or strategies,
product development techniques or plans, computer software programs (including
object code and source code), data and documentation, data base technologies,
systems, structures and architectures, inventions and ideas, past, current
and
planned research and development, acquisition plans, new personnel acquisition
plans and any other information that would constitute a trade secret under
common law or the laws of the State of Tennessee.
(b) Determination
Date
means
the date of termination of Executive’s employment with the Company for any
reason whatsoever or any earlier date (during the Restricted Period) of an
alleged breach of the Restrictive Covenants by the Executive.
(c) Principal
or Representative
means a
principal, owner, partner, shareholder, joint venturer, member, trustee,
director, officer, manager, employee, agent, representative or
consultant.
(d) Protected
Employees
means
employees of the Company, the Parent, or a Related Entity who were employed
by
the Company, the Parent or a Related Entity at any time within six (6) months
prior to the Determination Date.
(e) Restricted
Period
means
the period of Executive’s employment with the Company plus a period extending
two (2) years from the date of termination of employment.
(f) Restrictive
Covenants
means
the restrictive covenants contained in sections 5.3, 5.4, and 5.5
hereof.
5.3 Restriction
on Disclosure and Use of Confidential Information.
Executive understands and agrees that the Confidential Information constitutes
a
valuable asset of the Company and the Parent, and may not be converted to
Executive’s own use. Accordingly, Executive hereby agrees that Executive shall
not, directly or indirectly, at any time during the Restricted Period reveal,
divulge or disclose to any Person not expressly authorized by the Company or
the
Parent any Confidential Information, and Executive shall not, directly or
indirectly,
at any time during the Restricted Period use or make use of any Confidential
Information in connection with any business activity other than that of the
Company, the Parent or a Related Entity and, upon request by the Company or
the
Parent, shall return all copies of any Confidential Information then in the
Executive’s possession as of the date of termination of his employment. The
parties acknowledge and agree that this Agreement is not intended to be, and
does not, alter either the Company’s rights or the Executive’s obligations under
any state or federal statutory or common law regarding trade secrets and unfair
trade practices.
5.4 Nonsolicitation
of Protected Employees.
Executive understands and agrees that the relationship between the Company,
the
Parent, or a Related Entity and each of the Protected Employees constitutes
a
valuable asset of the Company or the Parent and may not be converted for
Executive’s own use. Accordingly, Executive hereby agrees that during the
Restricted Period, Executive shall not directly or indirectly on Executive’s own
behalf or as a Principal or Representative of any Person solicit any Protected
Employee to terminate his or her employment with the Company, the Parent, or
a
Related Entity.
5.5 Noninterference
with Company and Parent Opportunities.
Executive understands and agrees that all hotel development opportunities with
which he is involved during his employment with the Company constitute valuable
assets of the Company and the Parent and may not be converted to Executive’s own
use. Accordingly, Executive hereby agrees that during the Restricted Period,
Executive shall not directly or indirectly on Executive’s own behalf or as a
Principal or Representative of any Person, interfere with, solicit, pursue,
or
in any way make use of the Company’s or the Parent’s hotel development
opportunities.
5.6 Exceptions
from Disclosure Restrictions.
Anything herein to the contrary notwithstanding, Executive shall not be
restricted from disclosing or using Confidential Information that: (i) is or
becomes generally available to the public other than as a result of an
unauthorized disclosure by Executive or his agent; (ii) becomes available to
Executive other than through his employment by the Company and the Parent and
in
a manner that is not in contravention of applicable law from a source (other
than the Company, the Parent, or a Related Entity or one of their officers,
employees, agents or representatives) that is not bound by a confidential
relationship with the Company, the Parent or a Related Entity or by a
confidentiality or similar agreement; (iii) was known to the Executive on a
non-confidential basis and not in contravention of applicable law or a
confidentiality or other similar agreement before its disclosure to Executive
by
the Company, the Parent, or a Related Entity or one of their officers,
employees, agents or representatives; or (iv) is required to be disclosed by
law, court order or other legal process; provided, however, that in the event
disclosure is required by law, Executive shall provide the Company with prompt
notice of such requirement so that the Company or the Parent may seek an
appropriate protective order prior to such required disclosure by
Executive.
5.7 Enforcement
of Covenants.
(a) Rights
and Remedies upon Breach.
In the
event Executive breaches, or threatens to commit a breach of, any of the
provisions of the Restrictive Covenants, the Company and the Parent shall each
have the right and remedy to enjoin, preliminarily and permanently, Executive
from violating or threatening to violate the Restrictive Covenants and to have
the Restrictive
Covenants
specifically enforced by any court of competent jurisdiction, it being agreed
that any breach or threatened breach of the Restrictive Covenants would cause
irreparable injury to the Company and the Parent and that money damages would
not provide an adequate remedy to the Company or the Parent. The rights referred
to in the preceding sentence shall be independent of any others and severally
enforceable, and shall be in addition to, and not in lieu of, any other rights
and remedies available to the Company or the Parent at law or in
equity.
(b) Acknowledgement.
The
Executive acknowledges and agrees that the Restrictive Covenants are reasonable
and valid in time and space and in all other respects, and that they will be
interpreted in accordance with Article 10.
ARTICLE
6. ATTORNEYS’
FEES.
In the
event that the Executive incurs any attorneys’ fees in protecting or enforcing
his rights under this Agreement, the Parent shall reimburse or cause the Company
to reimburse the Executive for such reasonable attorneys’ fees and for any other
reasonable expenses related thereto. Such reimbursement shall be made within
thirty (30) days following final resolution of the dispute or occurrence giving
rise to such fees and expenses.
ARTICLE
7. DECISIONS
BY COMPANY OR PARENT; FACILITY OF PAYMENT.
Any
powers granted to the Company’s Board or the Parent’s Board (as applicable)
hereunder may be exercised by a committee, appointed by either such Board,
and
such committee, if appointed, shall have general responsibility for the
administration and interpretation of this Agreement. If such Board or committee
shall find that any person to whom any amount is or was payable hereunder is
unable to care for his affairs because of illness or accident, or has died,
then
such Board or committee, if it so elects, may direct that any payment due him
or
his estate (unless a prior claim therefore has been made by a duly appointed
legal representative) or any part thereof be paid or applied for the benefit
of
such person or to or for the benefit of his spouse, children or other
dependents, an institution maintaining or having custody of such person, any
other person deemed by such Board or committee to be a proper recipient on
behalf of such person otherwise entitled to payment, or any of them, in such
manner and proportion as such Board or committee may deem proper. Any such
payment shall be in complete discharge of the liability of the Company and
the
Parent therefor.
ARTICLE
8. INDEMNIFICATION.
The
Company shall indemnify the Executive during his employment and thereafter
to
the maximum extent permitted by applicable law for any and all liability of
the
Executive arising out of, or in connection with, his employment by the Company
or the Parent or membership on the Company’s Board or the Parent’s Board (as
applicable); provided, that in no event shall such indemnity of the Executive
at
any time during the period of his employment by the Company be less than the
maximum indemnity provided by the Company or the Parent at any time during
such
period to any other officer or director under an indemnification insurance
policy or the bylaws or charter of the Company or the Parent or by
agreement.
ARTICLE
9. SOURCE
OF PAYMENTS; NO TRUST.
The
obligations of the Parent and the Company to make payments hereunder shall
constitute a joint and several liability of the Parent and the Company to the
Executive. Such payments shall be made from the general
funds
of
the Parent or the Company or both, and neither the Parent nor the Company shall
be required to establish or maintain any special or separate fund, or otherwise
to segregate assets to assure that such payments shall be made, and neither
the
Executive nor his designated beneficiary shall have any interest in any
particular asset of the Parent or the Company by reason of either entity’s
obligations hereunder. Nothing contained in this Agreement shall create or
be
construed as creating a trust of any kind or any other fiduciary relationship
between the Parent or the Company and the Executive or any other person. To
the
extent that any person acquires a right to receive payments from the Parent
and
the Company hereunder, such right shall be no greater than the right of an
unsecured creditor of the Parent and the Company.
ARTICLE
10. SEVERABILITY.
All
agreements and covenants contained herein, including the Restrictive Covenants,
as defined in Article V, are severable, and in the event any of them (or any
portion thereof) shall be held to be invalid or unenforceable by any competent
court, the remainder of this Agreement (including the remainder of the
Restrictive Covenants if only a portion thereof is held invalid or
unenforceable) shall not thereby be affected, shall be given full effect, and
shall be interpreted as if such invalid agreements, Restrictive Covenants or
other covenants (or portion or portions thereof) were not contained herein.
ARTICLE
11. ASSIGNMENT
PROHIBITED.
This
Agreement is personal to each of the parties hereto, and none of the parties
may
assign nor delegate any of his or its rights or obligations
hereunder.
ARTICLE
12. NO
ATTACHMENT.
Except
as otherwise provided in this Agreement or required by applicable law, no right
to receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge or
hypothecation or to execution, attachment, levy, or similar process or
assignment by operation of law and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect.
ARTICLE
13. HEADINGS.
The
headings of articles, paragraphs and sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of
any of the provisions of this Agreement.
ARTICLE
14. GOVERNING
LAW.
The
parties intend that this Agreement and the performance hereunder and all suits
and special proceedings hereunder shall be construed in accordance with and
under and pursuant to the laws of the State of Tennessee and that in any action,
special proceeding or other proceeding that may be brought arising out of,
in
connection with, or by reason of this Agreement, the laws of the State of
Tennessee shall be applicable and shall govern to the exclusion of the law
of
any other forum, without regard to the jurisdiction in which any action or
special proceeding may be instituted.
ARTICLE
15. SUCCESSORS;
BINDING AGREEMENT.
15.1 Successors.
The
Company and the Parent will require any successor of all or substantially all
of
the business and/or assets of either of them (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to expressly assume and agree
to
perform this Agreement in the same manner and to the same extent that the
Company or Parent would be
required
to perform it if no such succession had taken place. Failure of the Company
or
Parent to obtain such assumption and agreement prior to the effectiveness of
any
such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company or the Parent in the same amount
and
on the same terms as the Executive would be entitled to hereunder if he
terminated his employment for Good Reason following a Change in Control, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the date of Executive’s
termination. As used in this Agreement, “Company” and “Parent” shall mean the
Company and the Parent as herein before defined and any successor to the
respective entity’s business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise.
15.2 Binding
Agreement.
This
agreement shall inure to the benefit of and be enforceable by the Executive’s
personal or legal representative, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amount remains payable to him hereunder, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement
to
the Executive’s devisee, legatee or other designee or, if there is none, to the
Executive’s estate.
ARTICLE
16. NO
RESTRICTION ON EMPLOYMENT RIGHTS.
Nothing
in this Agreement shall confer on the Executive any right to continue in the
employ of the Company or the Parent or shall interfere with or restrict in
any
way the rights of the Company or the Parent, which are hereby expressly
reserved, to discharge the Executive at any time for any reason whatsoever,
with
or without Cause, subject to the requirements of this Agreement. Nothing in
this
Agreement shall restrict the right of the Executive to terminate his employment
with the Company or the Parent at any time for any reason whatsoever, with
or
without Good Reason.
ARTICLE
17. COUNTERPARTS.
This
Agreement may be executed simultaneously in one or more counterparts, each
of
which shall be deemed an original but all of which together shall constitute
one
and the same instrument.
ARTICLE
18. ENTIRE
AGREEMENT.
This
Agreement expresses the whole and entire agreement between the parties with
reference to the employment of the Executive and, as of the effective date
hereof, supersedes and replaces any prior employment agreement, understanding
or
arrangement (whether written or oral) between the Company or the Parent and
the
Executive. Each of the parties hereto has relied on his or its own judgment
in
entering into this Agreement.
ARTICLE
19. NOTICES.
All
notices, requests and other communications to any party under this Agreement
shall be in writing and shall be given to such party at its address set forth
below or such other address as such party may hereafter specify for the purpose
by notice to the other party:
(a) If
to the
Executive:
J.
Xxxxxx
Xxxxxx
0000
Xxxx
Xxxxx Xxxxxxxxx
Xxxxxxxxxx,
XX 00000
(b) If
to the
Company
Equity
Inns Services, Inc.
0000
Xxxx
Xxxxx Xxxxxxxxx
Xxxxxxxxxx,
XX 00000
(c) If
to the
Parent:
Equity
Inns, Inc.
0000
Xxxx
Xxxxx Xxxxxxxxx
Xxxxxxxxxx,
XX 00000
Each
such
notice, request or other communication shall be effective (i) if given by mail,
72 hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (ii) if given by any other means,
when delivered at the address specified in this Article 19.
ARTICLE
20. MODIFICATION
OF AGREEMENT.
No
waiver or modification of this Agreement or of any covenant, condition, or
limitation herein contained shall be valid unless in writing and duly executed
by the party to be charged therewith. No evidence of any waiver or modification
shall be offered or received in evidence at any proceeding, arbitration, or
litigation between the parties hereto arising out of or affecting this
Agreement, or the rights or obligations of the parties hereunder, unless such
waiver or modification is in writing, duly executed as aforesaid. The parties
further agree that the provisions of this Article 20 may not be waived except
as
herein set forth.
ARTICLE
21. TAXES.
To the
extent required by applicable law, the Company or the Parent shall deduct and
withhold all necessary Social Security and Hospital Insurance taxes and all
necessary federal and state withholding taxes and any other similar sums
required by law to be withheld from any payments made pursuant to the terms
of
this Agreement.
ARTICLE
22. RECITALS.
The
Recitals to this Agreement are incorporated herein and shall constitute an
integral part of this Agreement.
IN
WITNESS WHEREOF, the parties have executed this Agreement on the day and year
first above written.
EXECUTIVE:
By:
/s/
J.
Xxxxxx Xxxxxx
[Name
of
Executive]
EQUITY
INNS SERVICES, INC.:
By:
/s/
Xxxxxx X. Silver
Title:
Chief
Executive Officer
EQUITY
INNS, INC.:
By:
/s/
Xxxxxx X. Silver
Title:
Chief
Executive Officer
