<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
--
X Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998 Commission File Number 01-12073
EQUITY INNS, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Tennessee 62-1550848
- ------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
7700 Wolf River Boulevard, Germantown, Tennessee 38138
---------------------------------------------------------------
(Address of Registrant's Principal Executive Office) (Zip Code)
( 901) 754-7774
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
9 1/2% Series A Cumulative Preferred Stock, $.01 par value
----------------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in the definitive proxy statement or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of voting stock and non-voting stock held by
nonaffiliates of the Registrant as of March 10, 1999: $316,240,785.
Number of shares of Common Stock, $.01 par value, outstanding as of March 10,
1999: 36,663,715
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1999 Annual Meeting of
Shareholders to be held May 7, 1999 (the "Proxy Statement") are incorporated by
reference into Part III of this Report.
Exhibit Index beginning on Page 60.
Page 1 of 65
<PAGE>
EQUITY INNS, INC
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 1998
TABLE OF CONTENTS
PART I
Page
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 18
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 27
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 51
Part III
Item 10. Directors and Executive Officers of the Registrant 51
Item 11. Executive Compensation 51
Item 12. Security Ownership of Certain Beneficial Owners and
Management 51
Item 13. Certain Relationships and Related Transactions 51
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports
on Form 8-K 52
2
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THIS REPORT CONTAINS AND INCORPORATES BY REFERENCE FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING,
WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS "BELIEVES," "ANTICIPATES,"
"EXPECTS" AND SIMILAR WORDS. SUCH FORWARD-LOOKING STATEMENTS RELATE TO FUTURE
EVENTS AND THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY, AND INVOLVE KNOWN
AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT
FROM THE RESULTS OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. ATTENTION SHOULD BE PAID TO THE VARIOUS FACTORS IDENTIFIED OR
INCORPORATED BY REFERENCE IN THIS REPORT WHICH COULD CAUSE ACTUAL RESULTS TO
DIFFER, INCLUDING BUT NOT LIMITED TO THOSE DISCUSSED IN THE SECTIONS ENTITLED
"INTERNAL GROWTH STRATEGY," "ACQUISITION STRATEGY," "COMPETITION," "LEVERAGE,"
"ENVIRONMENTAL MATTERS," "TAX STATUS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." THE COMPANY IS NOT OBLIGATED
TO UPDATE ANY SUCH FACTORS OR TO REFLECT THE IMPACT OF ACTUAL FUTURE EVENTS OR
DEVELOPMENTS ON SUCH FORWARD-LOOKING STATEMENTS.
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Equity Inns, Inc. (the "Company") is in the business of acquiring equity
interests in hotel properties. The Company commenced operations in March 1994
and is a real estate investment trust ("REIT") for federal income tax purposes.
The Company, through its wholly-owned subsidiary, Equity Inns Trust (the
"Trust"), is the sole general partner of Equity Inns Partnership, L.P. (the
"Partnership") and, at December 31, 1998, owned an approximate 95.0% interest in
the Partnership. The Company conducts its business through the Partnership and
its subsidiaries.
(b) Financial Information About Industry Segment
The Company is in the business of acquiring equity interests in hotel
properties. See the Consolidated Financial Statements and notes thereto included
in Item 8 of this Annual Report on Form 10-K for certain financial information
required in Item 1.
(c) Narrative Description of Business
In order to qualify as a REIT, neither the Company nor the Partnership can
operate hotels. The Company has implemented a strategy of utilizing multiple
lessees and hotel management companies for its hotel properties. At December 31,
1998, the Partnership leased 80 of the current hotels to subsidiaries or
affiliates of Patriot American Hospitality, Inc. (collectively, the "Patriot
Lessee"), successor by merger to Interstate Hotels Company ("Patriot"). All
payments due under these Percentage Leases are guaranteed by Patriot and by
Interstate Hotels, LLC ("Interstate"), successor by merger to Interstate Hotels
Corporation and an indirect subsidiary of Patriot. The Partnership leased 19
hotels to a wholly-owned subsidiary of Prime Hospitality Corporation (the "Prime
Lessee").
3
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Ninety-nine hotels owned by the Company are leased to the Patriot Lessee and the
Prime Lessee (collectively, the "Lessees" and individually, a "Lessee") pursuant
to percentage leases ("Percentage Leases") which provide for rent payments equal
to the greater of (i) a fixed base rent ("Base Rent") or (ii) percentage rent
based on the revenue of the hotels ("Percentage Rent"). The Percentage Leases
allow the Company to participate in increased revenue from the hotels by
providing for the payment of Percentage Rent. The remaining three hotels are
operated by third parties under management agreements.
At December 31, 1998, the Partnership owned 102 hotel properties with a total of
12,640 rooms in 36 states (the "Hotels"). The diversity of the portfolio is such
that, at December 31, 1998, no individual hotel exceeded 2% of the total rooms
in the portfolio. This geographical distribution and franchise diversity is
further illustrated by the following charts.
Franchise Diversity
<TABLE>
<CAPTION>
# of Hotel # of Rooms/
Franchise Affiliation Properties Suites
--------------------- ---------- -----------
<S> <C> <C>
Premium Limited Service Hotels:
Hampton Inn 55 6,856
Hampton Inn & Suites 1 125
Comfort Inn 2 182
--- ------
Sub-total 58 7,163
--- ------
All-Suite Hotels:
AmeriSuites 19 2,403
Premium Extended Stay Hotels:
Residence Inn 12 1,431
Homewood Suites 7 808
--- ------
Sub-total 19 2,239
--- ------
Full Service Hotels:
Holiday Inn 3 397
Comfort Inn 1 177
--- ------
Sub-total 4 574
--- ------
Independent Hotels: 2 261
--- ------
Total 102 12,640
=== ======
</TABLE>
4
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Geographical Diversity
<TABLE>
<CAPTION>
Number of Number of Percentage of
State Hotels Suites/Rooms Suites/Rooms
- ----- --------- ------------ -------------
<S> <C> <C> <C>
Alabama 4 460 3.6%
Arizona 4 495 3.9%
Arkansas 1 123 1.0%
Colorado 3 356 2.8%
Connecticut 3 405 3.2%
Florida 8 931 7.4%
Georgia 4 443 3.5%
Idaho 1 104 0.8%
Illinois 2 264 2.1%
Indiana 2 255 2.0%
Kansas 2 260 2.1%
Kentucky 1 119 0.9%
Louisiana 1 128 1.0%
Maryland 2 244 1.9%
Michigan 4 526 4.2%
Minnesota 2 248 2.0%
Mississippi 1 86 0.7%
Missouri 2 242 1.9%
Nebraska 1 80 0.6%
Nevada 1 202 1.6%
New Jersey 3 424 3.4%
New Mexico 1 128 1.0%
New York 1 154 1.2%
North Carolina 5 614 4.9%
Ohio 6 736 5.8%
Oklahoma 1 135 1.1%
Oregon 1 168 1.3%
Pennsylvania 2 249 2.0%
South Carolina 3 404 3.2%
Tennessee 11 1,286 10.2%
Texas 9 1,230 9.7%
Vermont 2 200 1.6%
Virginia 2 245 1.9%
Washington 1 161 1.3%
West Virginia 4 455 3.6%
Wisconsin 1 80 0.6%
--- ------ -----
102 12,640 100.0%
=== ====== =====
</TABLE>
In 1998, the Company agreed to purchase, upon their completion, a 252-room
Homewood Suites hotel in Orlando, Florida for $22.8 million, a 235-room Homewood
Suites hotel in downtown Chicago, Illinois for $30.4 million and a 300-room
Hawthorn Suites hotel in Chicago-Rosemont, Illinois for $33.0 million. Each of
these hotels is currently under construction with completion dates expected in
May 1999, June 1999 and September 1999, respectively. The Company also purchased
land in Salt Lake City, Utah at a cost of $2.4 million, to be held for possible
construction of an Embassy Suites hotel at a later date.
5
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BUSINESS STRATEGY
The Company's primary objective is to increase funds from operations and enhance
shareholder value by participating in increased revenues from the Hotels through
leases which provide for rent payments based on the revenues from the Hotels and
by acquiring equity interests in additional hotels that meet the Company's
investment criteria.
ACQUISITION STRATEGY
The Company intends to acquire additional existing hotel properties that meet
its investment criteria, primarily premier upscale limited service,
extended-stay, all-suite and underperforming hotels that can be renovated and/or
converted to premium franchise brands. In particular, the Company has
increasingly emphasized the acquisition of hotel portfolios in order to
capitalize on the Company's efficiency and experience in acquisition analysis
and transaction structuring and to enable the Company to more rapidly expand its
hotel portfolio.
The Company has entered into alliances with two major franchisors of all-suite
hotels, Prime Hospitality Corporation and U.S. Franchise Systems. These
alliances allow the Company the right of first offer through the year 2000 to
purchase up to thirty-two hotels per year. These alliances provide the Company
with a distinct advantage by avoiding the necessity to bid against competition
for new acquisitions.
The Company considers investment in hotel properties which meet some or all of
the following criteria:
Particular emphasis is given to premium extended stay and all-suite
properties in the upscale and mid-price segment, such as AmeriSuites(R),
Homewood Suites(R), Residence Inn(R), Hampton Inn & Suites(R), Embassy
Suites(R) and Hawthorn Suites(R) and premium limited service hotels, such
as Hampton Inn(R) and Marriott Courtyard(R), with major franchisors such as
Promus Hotel Corporation, Marriott Corporation, Prime Hospitality
Corporation and U.S. Franchise Systems;
Properties in attractive locations that the Company believes could benefit
significantly by changing franchise affiliations to a brand the Company
believes will strengthen the acquired hotel's competitive position. In
general, the Company focuses on acquisitions in markets with the following
characteristics:
o high barriers to entry, such as the scarcity or high cost of land for
additional development, restrictive zoning, stringent local
development laws, extended permit-approval processes, and a relatively
low supply of competing hotels;
o historically stable demand generators, such as major corporate office
or retail complexes, airports, major universities and medical centers
with convenient access to major thoroughfares and airports;
Properties with relatively stable operating histories; and
Properties with purchase prices which, coupled with the elimination or
significant reduction of debt, may allow the Company to realize a favorable
return on its investment.
6
<PAGE>
The Company continually evaluates its hotel portfolio with respect to the
potential sale of certain of its hotel properties that no longer meet its
investment criteria. Proceeds from the sale of its hotels will be used to repay
indebtedness or re-invested in hotels meeting the Company's investment criteria.
DEVELOPMENT STRATEGY
The Company may consider selective internal development of hotel properties,
principally in the premium extended stay, all-suite and limited service segment
of the market. At December 31, 1998, the Company held land in Salt Lake City,
Utah for possible construction of an Embassy Suites hotel.
The Company may also seek to obtain certain of the benefits of development
without incurring certain of the risks of development, by (a) acquiring
newly-developed hotels or (b) contracting with developers to build hotels that
the Company will buy upon completion. The Company has established and is
pursuing relationships with developers who have established good relationships
with the franchisors of the Company's preferred hotel brands. The Company seeks
established developers who have demonstrated, among other things, the ability to
(a) find attractive sites which, when developed, would meet the Company's
acquisition criteria and (b) manage the franchise brand approval and development
processes.
INTERNAL GROWTH STRATEGY
The Percentage Leases are designed to allow the Company to participate in any
growth in room revenues at the Hotels and to a lesser extent, food and beverage
revenue, if any. The Percentage Leases provide for rent equal to the greater of
(i) a fixed Base Rent or (ii) Percentage Rent. The Percentage Leases provide
that the Base Rent and the thresholds for the payment of Percentage Rent will be
adjusted annually (subject to an annual cap of 7%) based on changes in the
United States Consumer Price Index ("CPI").
EMPLOYEES
At March 1, 1999, the Company employed, through a wholly-owned subsidiary, 16
employees.
COMPETITION
The hotel industry is highly competitive. Each of the Hotels is located in a
developed area that includes other hotel properties. The number of competitive
hotel properties in a particular area could have a material adverse effect on
occupancy, Average Daily Rate ("ADR") and Revenue Per Available Room ("REVPAR")
of the Hotels or at hotel properties acquired in the future. The Company
believes that brand recognition, location, the quality of the hotel and
consistency of services provided, and price are the principal competitive
factors affecting the Company's hotels.
The Company may be competing for investment opportunities with entities which
have substantially greater financial resources than the Company. These entities
generally may be able to accept more risk than the Company prudently can manage.
Competition generally may reduce the number of suitable investment opportunities
available to the Company and increase the bargaining power of property owners
seeking to sell. Further, the Company believes that competition from entities
organized for purposes substantially similar to the Company's objectives will
increase significantly.
7
<PAGE>
FRANCHISE AGREEMENTS
One hundred of the Hotels operate under franchise licenses. Two of the Hotels
are operated as independent hotels without any franchise affiliation. The
Company anticipates that most of the additional hotel properties in which it
invests will be operated under franchise licenses. The Company believes that the
public's perception of quality associated with a franchisor is an important
feature in the operation of a hotel. Franchisors provide a variety of benefits
for franchisees which include national advertising, publicity and other
marketing programs designed to increase brand awareness, training of personnel,
continuous review of quality standards and centralized reservation systems.
The Lessees hold the franchise licenses for the leased hotels. The franchise
licenses generally specify certain management, operational, recordkeeping,
accounting, reporting and marketing standards and procedures with which the
applicable Lessee must comply. The franchise licenses obligate the Lessee to
comply with the franchisors' standards and requirements with respect to training
of operation personnel, safety, maintaining specified insurance, the types of
services and products ancillary to guest room services that may be provided by
the Lessee, display of signage, and the type, quality and age of furniture,
fixtures and equipment included in guest rooms, lobbies and other common areas.
Each franchise license generally gives the Lessee the right to operate the
particular Hotel under a franchise license for periods ranging up to 20 years.
The franchise agreements provide for termination at the franchisor's option upon
the occurrence of certain events, including the Lessee's failure to pay
royalties and fees or perform its other covenants under the license agreement,
bankruptcy, abandonment of the franchise, commission of a felony, assignment of
the license without the consent of the franchisor, or failure to comply with
applicable law in the operation of the relevant Hotel. The Lessee will be
entitled to terminate the franchise license only by giving at least 12 months'
notice and paying a specific amount of liquidated damages. The Percentage Leases
require the Company's consent to any change or termination in the franchise
brand. The license agreements will not renew automatically upon expiration. The
Partnership made franchise transfer payments to franchisors aggregating
approximately $200,000 in 1998. The Partnership is also committed to franchisors
to fund certain capital improvements to hotel properties, which are funded from
borrowings, working capital, or the room renovation accounts. The Partnership
made capital improvements of approximately $26 million to its hotel properties
in 1998, including approximately $11.4 million in renovations required by
franchisors. In 1999, the Partnership expects to fund approximately $23 million
of capital improvements, approximately $8.6 million of which is renovation
required by franchisors, for the hotel properties owned and contracted to own at
December 31, 1998. The Lessee is responsible for making royalty payments under
the franchise agreements to the franchisors. Under the franchise agreements, the
Lessee pays a franchise fee ranging from 6.5% to 8.05% of room revenue (plus
additional fees). A portion of these fees may be designated for a marketing and
reservation fund for the benefit of franchised hotels systemwide.
SEASONALITY
The Hotels' operations historically have been seasonal in nature, generally
reflecting higher occupancy rates during the second and third quarters. This
seasonality can be expected to cause fluctuations in the Company's quarterly
lease revenue to the extent that it receives Percentage Rent.
8
<PAGE>
TAX STATUS
The Company intends to operate so as to be taxed as a REIT under Sections
856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). As long
as the Company qualifies for taxation as a REIT, with certain exceptions, the
Company will not be taxed at the corporate level on its taxable income that is
distributed to its shareholders. A REIT is subject to a number of organizational
and operational requirements, including a requirement that it distribute
annually at least 95% of its taxable income. Failure to qualify as a REIT will
render the Company subject to tax (including any applicable minimum tax) on its
taxable income at regular corporate rates and distributions to the shareholders
in any such year will not be deductible by the Company. Even if the Company
qualifies for taxation as a REIT, the Company may be subject to certain state
and local taxes on its income and property. In connection with the Company's
election to be taxed as a REIT, the Company's Charter imposes certain
restrictions on the transfer of shares of Common Stock. The Company has adopted
the calendar year as its taxable year.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation of
certain hazardous or toxic substances on such property. Such laws often impose
such liability without regard to whether the owner knew of, or was responsible
for, the presence of hazardous or toxic substances. Furthermore, a person that
arranges for the disposal or transports for disposal or treatment a hazardous
substance at a property owned by another may be liable for the costs of removal
or remediation of hazardous substances released into the environment at that
property. The costs of remediation or removal of such substances may be
substantial and the presence of such substances, or the failure to promptly
remediate such substances, may adversely affect the owner's ability to sell such
real estate or to use such real estate as collateral for borrowings. In
connection with the ownership and operation of the Hotels, the Company, the
Partnership or the Lessee, as the case may be, may be potentially liable for any
such costs.
In connection with the Partnership's acquisition of the Hotels, Phase I
environmental site assessments ("ESAs") were obtained on all of the Hotels from
various independent environmental engineers. The Phase I ESAs were intended to
identify potential environmental contamination for which the Hotels may be
responsible and the potential for environmental regulatory compliance
liabilities. The Phase I ESAs included historical review of the Hotels, reviews
of certain public records, preliminary investigations of the sites and
surrounding properties, screening for the presence of hazardous substances,
toxic substances and underground storage tanks, and the preparation and issuance
of a written report. The Phase I ESAs did not include invasive procedures, such
as soil sampling or ground water analysis to detect contaminants from former
operations on the Current Hotels or migrating from neighbors or caused by third
parties.
The Phase I ESAs have not revealed any environmental liability that the Company
believes would have a material adverse effect on the Company's business, assets,
results of operations or liquidity, nor is the Company aware of any such
liability or that there are material environmental liabilities of which the
Company is unaware. Nevertheless, no assurances can be given that (i) future
laws, ordinances or regulations will not impose any material environmental
liability or (ii) the current environmental condition of the Hotels will not be
affected by the condition of the properties in the vicinity of Hotels (such as
the presence of leaking underground storage tanks) or by third parties unrelated
to the Partnership or the Company.
9
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, listed below, serve in their respective
capacities for approximate one year terms and are subject to re-election
annually by the Board of Directors, normally in May of each year.
<TABLE>
<CAPTION>
NAME POSITION
----------------------- -----------------------------------------------
<S> <C>
Phillip H. McNeill, Sr. Chairman of the Board, Chief Executive Officer
and Director
Howard A. Silver President, Chief Operating Officer and Director
Donald H. Dempsey Executive Vice President, Secretary, Treasurer,
Chief Financial Officer and Director
Phillip H. McNeill, Jr. Executive Vice President of Development
J. Ronald Cooper Vice President, Assistant Secretary, Assistant
Treasurer and Controller
</TABLE>
Phillip H. McNeill, Sr. (age 60) is Chairman and Chief Executive Officer of the
Company and has been Chairman of McNeill Hospitality Corporation since 1984.
From 1963 to 1977, he served in various capacities, including President and
Chief Executive Officer, with Schumacher Mortgage Company, Inc., a mortgage
banking firm and subsidiary of Time, Inc. Mr. McNeill has served as President
and Director of the Memphis Mortgage Bankers Association and the Tennessee State
Mortgage Bankers Association. He has served as a member of the Board of
Trustees of the University of Memphis Foundation and as a Director of First
Commercial Bank of Memphis. He is currently serving as a member of the Board of
Directors of National Commerce Bancorporation. Mr. McNeill holds both a B.S.
and a J.D. degree from the University of Memphis and is a graduate of the
Northwestern School of Mortgage Banking.
Howard A. Silver (age 44) is President and Chief Operating Officer of the
Company and has been a certified public accountant since 1980. Mr. Silver joined
the Company in May 1994 and has served as Executive Vice President of Finance,
Secretary, Treasurer and Chief Financial Officer of the Company until June 1998.
From 1992 until joining the Company, Mr. Silver served as Chief Financial
Officer of Alabaster Originals, L.P., Memphis, Tennessee, a fashion jewelry
wholesaler. From 1978 to 1985, Mr. Silver was a certified public accountant with
the national accounting firm of Coopers & Lybrand L.L.P., and from 1987 to 1992
Mr. Silver was employed as a certified public accountant with the national
accounting firm of Ernst & Young. Mr. Silver holds a B.S. in Accounting from the
University of Memphis.
Donald H. Dempsey (age 54) is Executive Vice President, Secretary, Treasurer and
Chief Financial Officer of the Company. Prior to joining the Company in July
1998, Mr. Dempsey served as Executive Vice President and Chief Financial Officer
of Choice Hotels International, Inc. from January 1998 to July 1998. From April
1995 to December 1997, Mr. Dempsey served as Senior Vice President and Chief
Financial Officer of Promus Hotel Corporation, from October 1993 to April 1995
as Senior Vice President of Finance and Administration of the Hotel Division of
The Promus Companies Incorporated, and from December 1991 to October 1993 as
Vice President, Finance of the Hampton Inn/Homewood Suites Hotel Division of The
Promus Companies Incorporated. Mr. Dempsey served in various other senior
financial and development officer positions within the Hotel Division of The
Promus Companies Incorporated and its predecessor companies from 1983 to 1991.
From 1969 to 1983, Mr. Dempsey held various corporate and division financial
management and administration positions with Holiday Inns, Inc. Mr. Dempsey was
10
<PAGE>
first appointed to the Board of Directors in December 1998. Mr. Dempsey holds a
B.S. in Accounting from Mississippi State University.
Phillip H. McNeill, Jr. (age 37) is Executive Vice President of Development of
the Company. From 1994 to 1996, he served as President of Trust Leasing, Inc.,
formerly McNeill Hotel Co., Inc., the Company's former lessee (the "Former
Lessee"), and from 1984 to 1996 served as Vice President of Trust Management,
Inc., formerly McNeill Hospitality Corporation, which was an affiliate of the
Former Lessee. Mr. McNeill is the son of Phillip H. McNeill, Sr. and holds a
B.B.A. from the University of Memphis and is a graduate of the Northwestern
School of Mortgage Banking.
J. Ronald Cooper (age 50) is Vice President, Assistant Secretary, Assistant
Treasurer and Controller of the Company. From 1994 to 1996, he was Controller
and Director of Financial Reporting for the Former Lessee and joined the Former
Lessee in October 1994. Mr. Cooper has been a certified public accountant since
1972. From 1978 until joining the Former Lessee, Mr. Cooper was employed as
Secretary, Treasurer and Controller of Wall Street Deli, Inc., a publicly-owned
delicatessen company. Prior to that, Mr. Cooper was a certified public
accountant with the national accounting firm of Coopers & Lybrand L.L.P. from
1970 to 1976. Mr. Cooper holds a B.S. degree in accounting from Murray State
University.
11
<PAGE>
ITEM 2. PROPERTIES
The following table sets forth certain information for the year ended December
31, 1998 with respect to the Hotels on a pro forma basis:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
Revenue
Number Pro Forma Pro Forma Average Per
Date Of Room Lease Daily Available
Opened Rooms Revenue(3) Payment (1)(3) Occupancy Rate Room (2)
------ ------- ---------- -------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Hampton Inn:
Albany, New York 1986 154 $ 3,334 $ 1,612 70.5% $84.13 $59.31
Ann Arbor, Michigan 1986 150 2,854 1,337 70.6% $73.80 $52.12
Atlanta (Northlake),
Georgia 1988 130 1,860 874 62.9% $62.28 $39.19
Austin, Texas 1987 122 2,240 1,080 73.8% $68.76 $50.72
Baltimore (Glen Burnie),
Maryland 1989 116 2,396 1,090 79.6% $71.73 $57.08
Beckley, West Virginia 1992 108 1,987 1,036 76.1% $66.22 $50.40
Birmingham (Mountain
Brook), Alabama 1987 131 2,251 1,181 67.8% $69.40 $47.07
Birmingham (Vestavia),
Alabama 1986 123 1,977 866 67.8% $64.94 $44.04
Chapel Hill, North
Carolina 1986 122 2,474 1,321 76.7% $72.43 $55.56
Charleston, South
Carolina 1985 125 2,168 1,022 71.5% $66.48 $47.52
Chattanooga, Tennessee 1988 168 2,372 1,003 60.5% $63.95 $38.67
Chicago (Gurnee),
Illinois 1988 134 2,238 980 63.2% $72.40 $45.76
Chicago (Naperville),
Illinois 1987 130 2,349 1,065 73.4% $67.46 $49.50
Cleveland, Ohio 1987 123 2,191 1,118 70.8% $68.95 $48.80
College Station, Texas 1986 135 2,226 1,043 70.5% $64.02 $45.17
Colorado Springs,
Colorado 1985 128 2,111 985 68.4% $66.09 $45.19
Columbia, South Carolina 1985 121 1,704 774 60.9% $63.34 $38.59
Columbus, Georgia 1986 119 2,072 1,007 78.3% $60.90 $47.69
Columbus (Dublin), Ohio 1988 123 1.983 921 63.0% $70.17 $44.18
Dallas (Addison), Texas 1985 160 2,793 1,472 67.0% $71.37 $47.83
Dallas (Arlington),
Texas 1985 141 1,540 600 50.4% $59.41 $29.92
Dallas (Garland), Texas 1987 125 1,225 422 51.9% $51.70 $26.85
Dallas (Richardson),
Texas 1987 130 1,846 839 62.3% $62.49 $38.91
Denver (Aurora),
Colorado 1985 132 1,975 860 66.0% $62.13 $40.99
Destin, Florida 1994 104 1,802 957 55.9% $84.87 $47.46
Detroit (Madison
Heieghts), Michigan 1987 124 2,234 1,054 71.6% $68.92 $49.37
Detroit (Northfield),
Michigan 1989 125 2,629 1,336 78.7% $73.21 $57.63
Fayetteville, North
Carolina 1986 122 1,437 547 60.1% $53.73 $32.27
Ft. Worth, Texas 1987 125 1,658 615 59.9% $60.69 $36.34
Gastonia, North Carolina 1989 109 1,812 927 71.3% $63.89 $45.55
Indianapolis, Indiana 1987 129 2,453 1,175 69.1% $75.36 $52.09
Jacksonville, Florida 1986 122 1,842 736 70.0% $59.08 $41.36
Kansas City (Overland
Park), Kansas 1991 134 2,460 1,189 68.1% $73.87 $50.30
Kansas City, Missouri 1987 120 2,261 1,090 69.5% $74.31 $51.62
Knoxville, Tennessee 1991 118 1,924 817 72.5% $61.64 $44.66
Little Rock (North),
Arkansas 1985 123 1,568 653 61.1% $57.16 $34.92
Louisville, Kentucky 1986 119 1,933 886 64.9% $68.57 $44.50
Memphis (Poplar),
Tennessee 1985 126 2,754 1,440 79.2% $75.63 $59.88
Memphis (Sycamore View),
Tennessee 1984 117 1,762 693 68.6% $60.12 $41.26
Meriden, Connecticut 1988 125 2,087 1,004 67.8% $67.51 $45.75
Milford, Connecticut 1986 148 3,102 1,537 79.9% $71.84 $57.42
Morgantown, West
Virginia 1991 108 2,045 1,035 71.5% $72.54 $51.88
Nashville (Brentwood),
Tennessee 1985 114 2,028 887 64.5% $75.56 $48.74
Nashville (Briley
Parkway), Tennessee 1987 120 2,340 1,081 71.4% $74.83 $53.42
Norfolk, Virginia 1990 119 2,079 1,014 70.1% $68.26 $47.87
Pickwick, Tennessee 1994 50 756 252 61.3% $67.59 $41.43
San Antonio (Bowie),
Texas 1995 169 3,657 2,023 70.2% $84.46 $59.29
Sarasota, Florida 1987 97 1,401 504 60.4% $65.56 $39.58
Savannah, Georgia 1986 129 1,992 951 70.5% $60.03 $42.31
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
Revenue
Number Pro Forma Pro Forma Average Per
Date Of Room Lease Daily Available
Opened Rooms Revenue (3) Payment (1)(3) Occupancy Rate Room (2)
------ ------- ----------- -------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Hampton Inn (Continued):
Scottsdale, Arizona 1996 126 2,063 967 50.2% $89.33 $44.86
Scranton, Pennsylvania 1994 129 2,396 1,070 73.2% $69.50 $50.88
Southaven (Memphis),
Mississippi 1995 86 1,588 724 80.0% $63.21 $50.59
St. Louis (Westport),
Missouri 1987 122 1,690 663 55.9% $67.84 $37.95
State College,
Pennsylvania 1987 120 2,279 1,118 71.3% $72.93 $52.05
Traverse City, Michigan 1987 127 2,165 1,023 59.6% $78.36 $46.70
Hampton Inn & Suites:
Memphis (Bartlett),
Tennessee (4) 1998 125 875
Comfort Inn:
Enterprise, Alabama 1987 78 959 393 66.9% $50.38 $33.69
Jacksonville Beach,
Florida 1973 177 3,403 1,471 62.0% $85.04 $52.68
Rutland, Vermont 1985 104 1,713 719 72.3% $62.41 $45.12
Residence Inn:
Boise, Idaho (5) 1986 104 2,527 1,213 83.8% $79.47 $66.56
Burlington, Vermont 1988 96 2,633 1,303 83.1% $90.40 $75.13
Colorado Springs,
Colorado 1984 96 2,345 1,204 76.4% $87.61 $66.92
Madison, Wisconsin 1988 80 1,529 495 70.2% $74.53 $52.35
Minneapolis (Eagan),
Minnesota 1988 120 3,372 1,715 84.3% $91.33 $77.00
Oklahoma City, Oklahoma 1982 135 3,057 1,474 79.9% $77.67 $62.04
Omaha, Nebraska 1981 80 1,986 800 78.5% $86.68 $68.01
Portland, Oregon (5) 1990 168 5,551 2,664 82.9% $108.86 $90.27
Princeton, New Jersey 1988 208 6,172 3,270 74.3% $109.47 $81.30
Somers Point,
New Jersey (5) 1988 120 3,291 1,580 80.0% $94.66 $75.77
Tinton Falls, New Jersey 1988 96 3,010 1,439 82.5% $104.13 $85.91
Tucson, Arizona 1985 128 3,214 1,576 83.0% $82.86 $68.80
Holiday Inn:
Bluefield, West Virginia 1980 120 1,953 893 64.0% $69.75 $44.60
Charleston (Mt. Pleasant),
South Carolina 1988 158 3,134 1,589 70.7% $76.89 $54.35
Oak Hill, West Virginia 1983 119 1,252 599 48.4% $59.55 $28.82
Independents:
Wilkesboro, North
Carolina 1985 101 1,400 728 59.5% $63.87 $37.98
Winston-Salem, North
Carolina 1969 160 1,736 495 50.9% $58.37 $29.72
Homewood Suites:
Augusta, Georgia 1997 65 1,393 659 64.7% $90.72 $58.73
Cincinnati
Sharonville), Ohio 1990 111 2,327 1,086 74.4% $77.19 $57.43
Hartford, Connecticut 1990 132 3,777 1,862 82.5% $95.06 $78.40
Memphis (Germantown),
Tennessee 1996 92 2,104 1,032 69.7% $89.92 $62.67
Phoenix, Arizona 1996 124 3,698 1,742 78.9% $103.68 $81.76
San Antonio, Texas 1996 123 2,865 1,273 77.7% $82.10 $63.78
Seattle, Washington (4) 1998 161 2,216
AmeriSuites:
Albuquerque, New Mexico 1997 128 2,377 1,190 73.6% $69.16 $50.88
Baltimore, Maryland 1996 128 2,740 1,378 73.5% $79.78 $58.64
Baton Rouge, Louisiana 1997 128 2,498 1,306 71.9% $74.40 $53.46
Birmingham, Alabama 1997 128 1,787 764 52.3% $73.18 $38.25
Cincinnati (Blue Ash),
Ohio 1990 127 2,087 971 60.4% $74.53 $45.03
Cincinnati (Forest
Park), Ohio 1992 126 2,413 1,167 70.0% $75.00 $52.48
Columbus, Ohio 1994 126 2,692 1,347 72.3% $80.93 $58.53
Flagstaff, Arizona 1993 117 1,799 774 64.4% $65.40 $42.14
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
Revenue
Number Pro Forma Pro Forma Average Per
Date Of Room Lease Daily Available
Opened Rooms Revenue(3) Payment (1)(3) Occupancy Rate Room (2)
------ ------- ---------- -------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AmeriSuites (Continued):
Indianapolis, Indiana 1992 126 2,555 1,330 68.4% $81.28 $55.56
Jacksonville, Florida 1996 112 1,842 853 65.7% $68.57 $45.06
Las Vegas, Nevada (4) 1998 202 2,230
Kansas City (Overland
Park), Kansas 1994 126 2,628 1,317 70.4% $81.18 $57.14
Memphis (Wolfchase),
Tennessee 1996 128 2,534 1,208 67.6% $80.27 $54.24
Miami, Florida 1996 126 3,146 1,805 83.0% $82.44 $68.41
Miami (Kendall),
Florida 1996 67 2,122 1,293 89.5% $96.93 $86.78
Minneapolis, Minnesota 1997 128 2,666 1,302 73.5% $77.64 $57.07
Nashville, Tennessee 1997 128 2,321 1,166 65.4% $75.98 $49.68
Richmond, Virginia 1992 126 3,036 1,671 73.5% $89.75 $66.01
Tampa, Florida 1994 126 3,093 1,761 75.3% $89.30 $67.25
------ -------- -------- ---- ------ ------
Consolidated Totals/Weighted
Average for all Hotels 12,640 $231,100 $115,674 69.5% $74.18 $52.08
====== ======== ======== ==== ====== ======
</TABLE>
- ------------------------
(1) Represents lease payments calculated on a pro forma basis by applying the
rent provisions in the Percentage Leases using historical room revenues of
the hotels as if January 1, 1998 was the beginning of the lease year.
(2) Determined by multiplying occupancy and the average daily rate.
(3) Amounts in thousands.
(4) Hotel was not open for the entire period; therefore, pro forma results are
not available, minimum rent has been assumed.
(5) Hotel operated under a management contract; lease payment amount
represents operating income
THE PERCENTAGE LEASES
All but three of the Hotels owned by the Partnership are separately leased to
the Lessees under a Percentage Lease. All Percentage Leases with the Lessees
have a non-cancelable initial term of ten to fifteen years, subject to earlier
termination upon the occurrence of certain contingencies described in the
Percentage Leases. During the term of each Percentage Lease, the Lessees are
obligated to pay (i) the greater of Base Rent or Percentage Rent and (ii)
certain other amounts, including interest accrued on any late payments or
charges. Base Rent accrues and is required to be paid monthly. Percentage Rent
is based on percentages of room revenues and to a lesser extent, food and
beverage revenues, if any, for each of the Hotels. Both the Base Rent and the
threshold room revenue amount in each Percentage Rent formula will be adjusted
annually for changes in the CPI. The adjustment is calculated at the beginning
of each lease year after a holding period of a full calendar year based upon the
average change in the CPI during the prior 24 months. The adjustment in any
lease year may not exceed 7% of the Base Rent and threshold room revenue amounts
for the prior fiscal year. Percentage Rent is payable quarterly, on or before
the 30th day following the end of each of the calendar quarters in each fiscal
year.
14
<PAGE>
The following table summarizes the percentages of room revenues in excess of
certain levels payable as Percentage Rent under the Percentage Leases as of
January 1, 1999.
<TABLE>
<CAPTION>
Range of Percentages of Room Revenue
------------------------------------
First Tier Top Tier
---------- --------
<S> <C> <C>
Full Service (1) 28% to 38% 65% to 77%
Extended Stay 27% to 38.0% 65% to 75%
All-Suite 35.7% to 59.7% 71.3% to 76.1%
Limited Service 22% to 37% 62% to 74%
</TABLE>
(1) Percentage Rent formula also includes 15%-30% of beverage revenue and 5%-15%
of food revenue.
Three of the Hotels are operated pursuant to management agreements between a
subsidiary of the Company and third party management companies, with fees
ranging from 3% to 5% of total hotel revenues.
Other than real estate and personal property taxes and maintenance of
underground utilities and structural elements, which are obligations of the
Partnership, the Percentage Leases require the Lessees to pay insurance,
utilities and all other costs and expenses incurred in the operation of the
Hotels. The Percentage Leases also provide for rent reductions and abatements in
the event of damage or destruction or a partial taking of any Hotel.
Maintenance and Modifications. Under the Percentage Leases, the Partnership is
required to maintain the underground utilities and the structural elements of
the improvements, including exterior and interior load bearing walls (excluding
plate glass) and the roof of each Hotel. In addition, the Percentage Leases
obligate the Partnership to fund certain capital expenditures at the Hotels
pursuant to the capital budgets approved by the Partnership, when and as deemed
necessary by the Lessees, up to an amount equal to 4% of annual room revenue,
net of amounts actually expended for capital expenditures for each Hotel during
any fiscal year. The Partnership's obligation will be carried forward to the
extent that the Lessees have not expended such amount, and any unexpended
amounts will remain the property of the Partnership upon termination of the
Percentage Leases. Otherwise, the Lessees are required, at their expense, to
maintain the Hotels in good order and repair, except for ordinary wear and tear,
and to make non-structural, foreseen and unforeseen, and ordinary and
extraordinary, repairs which may be necessary and appropriate to keep the Hotels
in good order and repair.
Insurance and Property Taxes. The Partnership is responsible for paying real
estate and personal property taxes on the Hotels (except to the extent that
personal property associated with the Hotels is owned by the Lessee). The
Lessees are required to keep in force and pay or reimburse the Partnership for
all insurance on the Hotels, with extended coverage, including casualty,
comprehensive general public liability, workers' compensation, earthquake, flood
and other insurance appropriate and customary for properties similar to the
Hotels and is required to name the Partnership as an additional named insured.
Indemnification. Under each of the Percentage Leases, the Lessees are obligated
to indemnify, and are obligated to hold harmless, the Partnership from and
against liabilities, costs and expenses (including reasonable attorneys' fees
and expenses) incurred by, imposed upon or asserted against the Partnership on
account of, among other things, (i) any accident or injury to person or property
on or about the Hotels, (ii) any misuse by the Lessees or any of their agents of
the leased property, (iii) any environmental liability resulting from any action
or negligence of the Lessees, (iv) taxes and
15
<PAGE>
assessments in respect of the Hotels (other than real estate and personal
property taxes and income taxes of the Partnership on income attributable to the
Hotels), (v) the sale or consumption of alcoholic beverages on or in the real
property or improvements thereon, or (vi) any breach of the Percentage Leases by
Lessees; provided, however, that such indemnification will not be construed to
require the Lessees to indemnify the Partnership against the Partnership's own
grossly negligent acts or omissions or willful misconduct or third-party
contractual liabilities arising from termination of the Percentage Leases due to
an event of default by the Partnership thereunder.
Damage to Hotels. In the event of damage to or destruction of any Hotel covered
by insurance which renders the Hotel unsuitable for the Lessee's use and
occupancy, the Lessee, at its option, will be obligated to (i) repair, rebuild,
or restore the Hotel or (ii) offer to acquire the Hotel on the terms set forth
in the applicable Percentage Lease. If a Lessee rebuilds the Hotel, the
Partnership is obligated to disburse to the Lessee, from time to time and upon
satisfaction of certain conditions, any insurance proceeds actually received by
the Partnership as a result of such damage or destruction, and any excess costs
of repair or restoration will be paid by the Lessee. If the Lessee decides not
to rebuild and the Partnership exercises its right to reject the Lessee's
mandatory offer to purchase the Hotel on the terms set forth in the Percentage
Lease, the Percentage Lease will terminate and the insurance proceeds will be
retained by the Partnership. If the Partnership accepts the Lessee's offer to
purchase the Hotel, the Percentage Lease will terminate and the Lessee will be
entitled to the insurance proceeds. In the event that damage to or destruction
of a Hotel which is covered by insurance does not render the Hotel wholly
unsuitable for the Lessee's use and occupancy, the Lessee generally will be
obligated to repair or restore the Hotel. In the event of damage to or
destruction of any Hotel which is not covered by insurance, the Lessee will be
obligated to either repair, rebuild, or restore the Hotel or offer to purchase
the Hotel on the terms and conditions set forth in the Percentage Lease. The
Percentage Lease shall remain in full force and effect during the period
required for repair or restoration of any damaged or destroyed Hotel, with the
Lessee to receive a credit against rental payments and other charges in an
amount equal to any loss-of-income insurance proceeds actually received by the
Partnership.
Condemnation of Hotel. In the event of a total condemnation of a Hotel, the
relevant Percentage Lease will terminate with respect to such Hotel as of the
date of taking, and the Partnership and the Lessee will be entitled to their
shares of the condemnation award in accordance with the provisions of the
Percentage Lease. In the event of a partial taking which does not render the
Hotel unsuitable for the Lessee's use, the Lessee shall restore the untaken
portion of the Hotel to a complete architectural unit and the Partnership shall
contribute to the cost of such restoration that part of the condemnation award
specified for restoration, provided that if the condemnation awards are
inadequate to restore the affected Hotel to a complete architectural unit,
either the Partnership or the Lessee shall have the right to terminate the
applicable Percentage Lease.
Events of Default. Events of Default under the existing Percentage Leases
include the following:
(i) the occurrence of an Event of Default under any other lease between
the Partnership and a Lessee or any Affiliate of a Lessee;
(ii) the failure by a Lessee to pay Base Rent, Percentage Rent or any
additional charges within 10 days after written notice from the Partnership that
such has become due and payable;
(iii) the failure by a Lessee to observe or perform any other term of a
Percentage Lease and the continuation of such failure for a period of 30 days
after receipt by the Lessee of notice from the Partnership thereof, unless such
failure cannot be cured within such period and the Lessee commences appropriate
action to cure such failure within said 30 days and thereafter acts, with
diligence, to correct such failure within such time as is necessary;
16
<PAGE>
(iv) if a Lessee or a guarantor of the Percentage Leases shall file a
petition in bankruptcy or reorganization pursuant to any federal or state
bankruptcy law or any similar federal or state law, or shall be adjudicated a
bankrupt or shall make an assignment for the benefit of creditors or shall admit
in writing its inability to pay its debts generally as they become due, or if a
petition or answer proposing the adjudication of the Lessee or a guarantor of
the Percentage Leases as bankrupt or its reorganization pursuant to any federal
or state bankruptcy law or any similar federal or state law shall be filed in
any court and the Lessee or a guarantor of the Percentage Leases shall be
adjudicated a bankrupt and such adjudication shall not be vacated or set aside
or stayed within 60 days after the entry of an order in respect thereof, or if a
receiver of the Lessee or a guarantor of the Percentage Leases or of the whole
or substantially all of the assets of the Lessee shall be appointed in any
proceeding brought by the Lessee or a guarantor of the Percentage Leases or if
any such receiver, trustee or liquidator shall be appointed in any proceeding
brought against the Lessee or any guarantor of the Percentage Leases and shall
not be vacated or set aside or stayed within 60 days after such appointment;
(v) if the Lessee voluntarily discontinues operations of a Hotel for
more than 30 days, except as a result of damage, destruction, or condemnation;
(vi) if the franchise agreement with respect to a Hotel is terminated
as a result of any action or failure to act by the Lessee or its agents (other
than a failure to complete a capital improvement required by the franchisor
resulting from the Partnership's failure to fund such capital improvements); or
(vii) the occurrence of an event of default under the Lease Guaranties
with respect to the hotels leased to the Patriot Lessee.
If an Event of Default occurs and continues beyond any curative period, the
Partnership will have the option of terminating the Percentage Lease or any or
all other Percentage Leases between the Partnership and the Lessee and the
Consolidated Lease Amendment and the Percentage Leases shall terminate and the
Lessee will be required to surrender possession of the affected Hotels.
Right of First Offer. In the event that the Partnership desires to sell its
interest in a Hotel, the Partnership shall first offer to the Lessee by written
notice the opportunity to acquire the Hotel at the price at which the
Partnership intends to offer the Hotel (the "Offer Price"). In the event that
the Lessee elects within 15 days after receipt of such notice to acquire the
Hotel at the Offer Price, the Partnership will be obligated to sell the Hotel to
the Lessee or its nominee at the Offer Price, and upon such sale, the applicable
Percentage Lease shall terminate with respect to the Hotel. Such provisions
shall not apply to any sale, transfer or conveyance by the Partnership of any
interest in the Hotels to any affiliate of the Partnership.
Termination of Percentage Leases on Disposition of the Hotels. In the event the
Partnership enters into an agreement to sell or otherwise transfer a Hotel and
the Lessee does not elect to acquire the Hotel in accordance with the right of
first offer described above, the Partnership shall be permitted to sell the
Hotel to a third party at a price equal to or greater than 95% of the Offer
Price. As compensation for the early termination of the Lessee's leasehold
estate, the Partnership will have the right to terminate the Percentage Lease
with respect to such Hotel upon either (i) paying the Lessee the net present
value of the Lessee's leasehold interest in the remaining term of the Percentage
Lease to be terminated as set forth in the lease agreement or (ii) offering to
lease to the Lessee one or more substitute hotels on terms that would create a
leasehold interest in such hotels with a fair market value equal to or exceeding
the fair market value of the Lessee's remaining leasehold interest under the
Percentage Lease to be terminated.
17
<PAGE>
Termination of Percentage Leases on Company's Termination of REIT Status. In the
event that the Company terminates its REIT status or the Code provisions are
amended so that REITs are permitted to operate hotels, the Partnership may elect
to terminate the Percentage Leases. In such event, the Partnership shall be
obligated to pay to the Lessees the termination payment described in the
preceding paragraph.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Partnership currently is involved in any material
litigation nor, to the Company's knowledge, is any material litigation currently
threatened against the Company or the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of 1998, through the solicitation of proxies or otherwise.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock, $.01 par value (the "Common Stock") is traded on the
New York Stock Exchange (the "NYSE") under the symbol "ENN." The following table
sets forth for the indicated periods the high and low closing prices for the
Common Stock as traded through the facilities of the NYSE and the cash
distributions declared per share:
<TABLE>
<CAPTION>
Distributions
Declared
Price Range Per Share Record
High Low and Unit Date
---- --- -------------- -------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
First Quarter $14-1/2 $12-1/2 $0.28 March 31, 1997
Second Quarter $14-1/8 $12-7/8 $0.28 June 30, 1997
Third Quarter $15-13/16 $13-1/4 $0.29 September 30, 1997
Fourth Quarter $16-9/16 $14-1/8 $0.29 December 30, 1997
Year Ended December 31, 1998:
First Quarter $16 $14-1/4 $0.31 March 27, 1998
Second Quarter $16-1/16 $13-3/16 $0.31 June 30, 1998
Third Quarter $14-1/8 $9-7/8 $0.31 September 30, 1998
Fourth Quarter $11-13/16 $8-3/4 $0.31 December 31, 1998
</TABLE>
(b) Stockholder Information
On March 10, 1999, there were 1,134 record holders of the Company's Common
Stock, including shares held in "street name" by nominees who are record
holders, and approximately 28,100 beneficial owners.
18
<PAGE>
(c) Distributions
The Company intends to make regular quarterly distributions to its shareholders.
The Company's ability to make distributions is dependent on the receipt of
distributions from the Partnership. In order to qualify as a REIT for federal
income tax purposes, the Company must distribute to shareholders annually at
least 95% of its taxable income. The Company, as general partner of the
Partnership through the Trust, intends to cause the Partnership to distribute to
its partners sufficient amounts to permit the Company to make regular quarterly
distributions to its shareholders. The Partnership's primary source of revenue
consists of rent payments from the Lessees under the Percentage Leases.
A portion of the distribution to shareholders is expected to represent a return
of capital for federal income tax purposes which generally will not be subject
to federal income tax under current law. The Company's distributions made in
1998 and 1997 are considered to be approximately 26% and 10% return of capital,
respectively, for federal income tax purposes.
Future distributions paid by the Company will be at the discretion of the Board
of Directors of the Company and will depend on the actual cash flow of the
Company, its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Code and such other factors as the
directors of the Company deem relevant.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth (i) selected historical operating and other
financial information for the years ended December 31, 1998, 1997, 1996 and 1995
and the period from March 1, 1994 (inception of operations) through December 31,
1994, and (ii) selected historical balance sheet data as of December 31, 1998,
1997, 1996, 1995 and 1994. The selected historical financial information has
been derived from the historical financial statements of the Company audited by
PricewaterhouseCoopers LLP, independent accountants.
The following selected financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and all of the financial statements and notes thereto included
elsewhere in this report.
19
<PAGE>
EQUITY INNS, INC
SELECTED FINANCIAL DATA
(in thousands, Except Per Share Data)
<TABLE>
<CAPTION>
March 1, 1994
(inception of
operations)
Year Ended December 31, through
1998 1997 1996 1995 December 31, 1994
-------- -------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenue $106,731 $71,761 $38,430 $24,145 $9,798
Net income 31,595 23,543 14,473 8,511 4,620
Preferred stock dividends 3,374
Net income applicable to common
shareholders 28,221 23,543 14,473 8,511 4,620
Income before extraordinary
item per common share .78 .88 .69 .70 .60
Net income per common share,
basic and diluted .78 .82 .69 .70 .60
Distributions declared per
common share and Unit 1.24 1.14 1.12 1.00 .70
Funds from operations (1) 64,985 45,748 26,397 15,804 7,611
Funds from operations per
common share and Unit 1.71 1.53 1.22 1.22 .89
Weighted average number of
common shares and Units
outstanding-diluted 38,001 29,963 21,681 12,920 8,551
Balance Sheet Data:
Investments in hotel properties,
net $790,132 $617,072 $309,202 $218,429 $140,970
Total assets 807,023 635,525 317,880 225,067 145,555
Debt 331,394 233,206 77,399 74,939 45,838
Minority interest in Partnership 19,070 19,035 7,728 6,073 6,081
Shareholders' Equity 431,264 360,172 222,951 137,493 89,802
</TABLE>
(1) Represents Funds from Operations of the Company on a consolidated basis.
Industry analysts generally consider Funds from Operations to be an
appropriate measure of the performance of an equity REIT. In accordance
with the resolution adopted by the Board of Governors of the National
Association of Real Estate Investment Trusts ("NAREIT"), Funds from
Operations represents net income (loss) (computed in accordance with
generally accepted accounting principles), excluding gains (or losses)
from debt restructuring or sales of property, plus depreciation, and
after adjustments for unconsolidated partnerships and joint ventures. For
the periods presented, depreciation, gain (loss) on the sale of hotel
properties, non-recurring merger expenses, minority interest and the 1997
extraordinary charge from write-off of deferred financing fees were the
only adjustments. Funds from Operations should not be considered an
alternative to net income or other measurements under generally accepted
accounting principles as an indicator of operating performance or to cash
flows from operating, investing or financing activities as a measure of
liquidity. Funds from Operations does not reflect working capital
changes, cash expenditures for capital improvements or principal payments
with respect to indebtedness on the hotels.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company
Equity Inns, Inc. (the "Company") is a self-advised real estate investment trust
("REIT") which commenced operations on March 1, 1994. The Company, through its
wholly-owned subsidiary, Equity Inns Trust (the "Trust"), is the sole general
partner of Equity Inns Partnership, L.P. (the "Partnership") and at December 31,
1998 owned an approximate 95.0% interest in the Partnership.
In order to qualify as a REIT, neither the Company nor the Partnership can
operate hotels. Therefore, the Partnership leases 80 hotels collectively to
subsidiaries or affiliates of Patriot American Hospitality, Inc.(collectively,
the "Patriot Lessee"), successor by merger to Interstate Hotels Company
("Patriot"). Patriot has managed hotel properties since 1961, and as of December
31, 1998, owned, managed, leased or performed related services for 474 hotels
with approximately 101,000 rooms. The Partnership leases 19 hotels to a
wholly-owned subsidiary of Prime Hospitality Corporation (the "Prime Lessee").
Prime has managed hotel properties since 1992, and as of December 31, 1998,
managed 180 hotels with 24,516 rooms in 31 states, including 19 of the Hotels.
The lessees are required to perform all operational and management functions
necessary to operate the Hotels. Ninety-nine hotels owned by the Partnership are
leased to the Patriot Lessee and the Prime Lessee, collectively, as the lessees
(the "Lessees"), and individually as the lessee (a "Lessee") pursuant to the
Percentage Leases (the "Percentage Leases") which provide for the greater of (i)
fixed annual Base Rent ("Base Rent") or (ii) rent based, in part, on the revenue
of the hotels ("Percentage Rent"). The remaining three hotels are operated
pursuant to management agreements, two of which are operated by an affiliate of
Patriot, and one of which is operated by MeriStar Management Company, L.L.C, a
wholly-owned subsidiary of MeriStar Hotels & Resorts, Inc. The Partnership's,
and therefore the Company's, principal sources of revenue are lease payments
made by the Lessees under the Percentage Leases. Percentage Rent is based
primarily upon the hotels' room revenues and, to a lesser extent, food and
beverage revenues.
Recent Highlights
Since its inception, the Company has taken steps to position itself for growth
and stability. Several changes have occurred since December 31, 1997 which add
significantly to these efforts. These events are as follows:
Acquisitions and Disposition of Hotels
Since the IPO, the Company has actively implemented its acquisition
strategy. During 1998 and 1997, the Company acquired the following
types of hotels at advantageous capitalization rates for the
approximate amounts indicated:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
No. of Purchase No. of Purchase
Hotels Price Hotels Price
------ -------- ------ --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Premium Limited Service 2 $ 20,100 34 $198,574
Premium Extended Stay 5 68,350 6 61,650
All-Suite 9 96,996 10 86,966
-- -------- -- --------
16 $185,446 50 $347,190
== ======== == ========
</TABLE>
21
<PAGE>
During 1998, the Partnership sold three hotels which did not meet its
growth strategy (Hampton Inn, Little Rock, Arkansas; Hampton Inn,
Shelby, North Carolina; Hampton Inn, Cleveland, Tennessee) to third
parties for an aggregate sales price of approximately $8.0 million. The
sales price was paid with cash.
Formation of Strategic Alliance US Franchise Systems, Inc.
On January 20, 1998, the Company entered into a strategic alliance with
US Franchise Systems, Inc., ("USFS"), the exclusive franchisor of
Hawthorn Suites. Under the agreement, the Company will have the right
of first offer to purchase from USFS up to twelve Hawthorn Suites per
year for three years in certain parts of the Eastern United States. No
hotels were purchased during 1998 under this alliance.
Equity Offerings
On February 18, 1998, the Company sold 641,556 shares of common stock,
$.01 par value ("Common Stock") to Prudential Securities Incorporated.
The offering price was $15.81 per share, resulting in gross proceeds of
approximately $10.1 million. On March 30, 1998, the Company sold
645,162 shares of Common Stock to J.C. Bradford & Co. The offering
price was $15.50 per share, resulting in gross proceeds of
approximately $10 million. The Company received approximately $19.1
million after underwriters' discounts and offering expenses from the
combined offerings.
On June 25, 1998, the Company completed its first offering of preferred
stock ("Preferred Stock"), selling 2,750,000 shares of its 9 1/2%
Series A Cumulative Preferred Stock, $.01 par value ("Series A
Preferred Stock"). The offering price was $25 per share, resulting in
gross proceeds of $68.8 million. The Company received approximately
$66.3 million after underwriters' discounts and offering expenses from
the offering.
Development
In May 1998, the Company completed its first development property, a
125-room Hampton Inn & Suites located in Bartlett (Memphis), Tennessee,
at a cost of approximately $7.5 million.
In July 1998, the Company purchased land in Salt Lake City, Utah at a
cost of approximately $2.4 million, to be held for possible
construction of a hotel at a later date.
22
<PAGE>
Results of Operations
Comparison of the Company's operating results for the year ended December 31,
1998 with the year ended December 31, 1997.
For the year ended December 31, 1998, the Company had total revenues of $106.7
million, consisting substantially of Percentage Lease revenue. This compares
with total revenue of $71.8 million for the year ended December 31, 1997.
Increases in revenue from hotel operations for the year ended December 31, 1998
as compared to 1997 are due to (i) an increased number of hotels being owned and
leased by the Partnership throughout 1998, (ii) increases in ADR and/or
occupancy at many of the hotels leased during both years, and (iii) a full year
of operation in 1998 of hotels acquired in 1997. Assuming all hotels which were
in operation a full year in both 1998 and 1997 had been owned and leased as of
January 1, 1997, revenue per available room ("REVPAR") on a pro forma basis
would have increased .7% over 1997.
Real estate and personal property taxes and general and administration expenses
in the aggregate remained fairly constant in 1998 as compared to 1997 as a
percentage of total revenue. Interest expense increased to $21.6 million from
$12.6 in 1997 due primarily to borrowings incurred to finance the Company's
acquisitions. The Company's weighted average interest rates on outstanding
borrowings during the years ended December 31, 1998 and 1997, were 7.46% and
7.53%, respectively. Net income applicable to common shareholders for 1998 was
$28.2 million or $0.78 per share, compared to $23.5 million or $0.82 per share
for 1997. Funds from Operations ("FFO"), as defined below, for 1998 was $65.0
million or $1.71 per share and Unit, compared to $45.7 million or $1.53 per
share and Unit for 1997, an increase of 12%.
Comparison of the Company's operating results for the year ended December 31,
1997 with the year ended December 31, 1996.
For the year ended December 31, 1997, the Company had total revenues of $71.8
million, consisting substantially of Percentage Lease revenue. This compares
with total revenues of $38.4 million for the year ended December 31, 1996.
Increases in revenue from hotel operations for the year ended December 31, 1997
as compared to 1996 are due to (i) an increased number of hotels being owned and
leased by the Partnership throughout 1997, (ii) increases in ADR and/or
occupancy at many of the hotels leased during both years, and (iii) a full year
of operation in 1997 of hotels acquired in 1996. Assuming all hotels which were
in operation a full year in both 1997 and 1996 had been owned and leased as of
January 1, 1996, REVPAR on a pro forma basis would have increased 5.7% over
1996.
Real estate and personal property taxes and general and administrative expenses
in the aggregate remained fairly constant in 1997 as compared to 1996 as a
percentage of total revenue. Interest expense increased to $12.6 million from
$4.4 million in 1996 due primarily to borrowings incurred to finance the
Company's acquisitions. The Company's weighted average interest rate on
outstanding borrowings during the years ended December 31, 1997 and 1996, was
7.53% for both years. Net income applicable to common shareholders for 1997 was
$23.5 million or $0.82 per share, compared to $14.5 million or $0.69 per share
for 1996. FFO, as defined below, for 1997 was $45.7 million or $1.53 per share
and Unit, compared to $26.4 million or $1.22 per share and Unit for 1996, an
increase of 25%. The increase in FFO/share is attributable to (i) an increase in
REVPAR and (ii) acquisition of fifty hotels in 1997, acquired at accretive
capitalization rates.
23
<PAGE>
Funds from Operations
Industry analysts generally consider Funds from Operations ("FFO") to be an
appropriate measure of the performance of an equity REIT. In accordance with the
resolution adopted by the Board of Governors of the National Association of Real
Estate Investment Trusts ("NAREIT"), FFO represents net income (loss) (computed
in accordance with generally accepted accounting principles), excluding gains
(or losses) from debt restructuring or sales of property, plus depreciation, and
after adjustments for unconsolidated partnerships and joint ventures. For the
periods presented, depreciation, gain (loss) on the sale of hotel properties,
non-recurring merger expenses, minority interest and the 1997 extraordinary
charge from write-off of deferred financing fees were the only adjustments. FFO
should not be considered an alternative to net income or other measurements
under generally accepted accounting principles as an indicator of operating
performance or to cash flows from operating, investing or financing activities
as a measure of liquidity. FFO does not reflect working capital changes, cash
expenditures for capital improvements or principal payments with respect to
indebtedness on the hotels.
The following reconciliation of income before minority interest to FFO
illustrates the difference in the two measures of operating performance:
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997
------- -------
(in thousands, except per share and Unit data)
<S> <C> <C>
Income before extraordinary item
and minority interest $33,087 $26,445
Less:
Gain on sale of hotel properties (666)
Preferred stock dividends (3,374)
Add:
Depreciation of buildings,
furniture and fixtures 32,370 19,969
Loss on sale of hotel properties 705
Non-recurring merger expenses 2,197
------- -------
Funds from Operations $64,985 $45,748
======= =======
Weighted average number of
common shares and Units
outstanding 38,001 29,963
======= =======
Funds from Operations per common share
and Unit $ 1.71 $ 1.53
======= =======
</TABLE>
Liquidity and Capital Resources
The Company's principal source of cash to meet its cash requirements, including
distributions to its shareholders, is its cash distributions from the
Partnership. The Partnership receives cash payments from the Lessees pursuant to
the Percentage Leases. The Company's liquidity, including its ability to make
distributions to shareholders, is dependent upon the Lessees' ability to make
payments under the Percentage Leases. All of the Patriot Lessee's lease
obligations are guaranteed by Patriot and by Interstate. The Prime Lessee is
required, under the terms of its master lease agreement, to maintain 20% of its
expected annual percentage rents generated from the Percentage Leases in cash or
marketable securities.
24
<PAGE>
Cash and cash equivalents were $400,000 at December 31, 1998, compared to
$190,000 at December 31, 1997. Excess cash balances are used to reduce the
Company's outstanding debt. For the year ended December 31, 1998, cash flow
provided by operating activities, consisting primarily of Percentage Lease
revenue, was $67.1 million.
The Company intends to make additional investments in hotel properties and may
incur, or cause the Partnership to incur, indebtedness to make such investments
or to meet distribution requirements imposed on a REIT under the Code to the
extent that working capital and cash flow from the Company's investments are
insufficient to make such distributions. Prior to its latest annual meeting, the
Company's Charter limited aggregate indebtedness to 45% of the Company's
investment in hotel properties, at cost, after giving effect to the Company's
use of proceeds from any indebtedness. This limitation was deleted by
shareholder vote on May 14, 1998. The Company's Board of Directors subsequently
adopted a debt limitation policy currently imposing the same limitations
previously imposed by the Charter.
At December 31, 1998, the Company had outstanding debt of approximately $331.4
million, including $235.4 million under the $250 million Unsecured Line of
Credit, $84.1 million under the Commercial Mortgage Bonds (the "Bonds"), and
$1.2 million under an additional line of credit (the "NBC Credit Line"), leaving
approximately $4.0 million available under the Unsecured Line of Credit after
consideration of outstanding letters of credit and $8.8 million available under
the NBC Credit Line. Additionally, the Company had $10.6 million of mortgage
notes payable assumed in connection with the purchase of two hotels in 1998. The
Company's consolidated indebtedness was 38.6% of its investments in hotels, at
cost, at December 31, 1998.
In December 1997, the Company arranged an interest rate swap on a notional
amount of $75 million with The First National Bank of Chicago as a hedge against
the floating rate. At December 31, 1998, the swap resulted in a fixed interest
rate of 7.65% on the notional amount. The swap agreement will expire in October
2000.
During the first quarter of 1999, the Company is planning to refinance $100
million of borrowings outstanding under the Unsecured Line of Credit with a new
10-year term loan (the "Term Loan"). In addition, the Company plans to complete
a $25 million unsecured line of credit, expiring in October 2000.
During 1998, the Company invested $26 million, including $11.4 million for
renovations required by franchisors, to fund capital improvements to its hotels,
including replacement of carpets, drapes, renovation of common areas and
improvements of hotel exteriors. In addition, the Company has committed to fund
approximately $19 million in 1999 for capital improvements, $5.7 million of
which is renovations required by franchisors.
The Company intends to fund such improvements out of future cash from
operations, present cash balances and borrowings under its Unsecured Line of
Credit and the NBC Credit Line. Under the Unsecured Line of Credit, and the
Bonds, the Partnership is obligated to fund 4% of room revenues per quarter on a
cumulative basis, to a separate room renovation account for the ongoing
replacement or refurbishment of furniture, fixtures and equipment at the hotels.
During 1998 and 1997, non-recurring enhancements for capital expenditures
exceeded this threshold, which based upon 4% of room revenue, were $8.6 million
and $6.1 million, respectively.
25
<PAGE>
The Company has entered into agreements to purchase three hotels at a total cost
of approximately $86 million. The hotels are currently in various stages of
development, with projected openings between May 1999 and September 1999.
Additionally, the Company is currently holding land for possible use in the
development of an Embassy Suites hotel in Salt Lake City, Utah. Funds needed to
complete these projects will be obtained from borrowings under the Unsecured
Line of Credit and other sources of debt or equity financing.
The Company elected to be taxed as a REIT commencing with its taxable year ended
December 31, 1994, and expects to continue to be taxed as a REIT under Sections
856 through 860 of the Internal Revenue Code of 1986. Accordingly, no provision
for federal income taxes has been reflected in the financial statements.
REITs are subject to a number of organizational and operational requirements.
For example, for federal income tax purposes, a REIT, and therefore the Company,
is required to pay distributions of at least 95% of its taxable income to its
shareholders. The Company intends to pay these distributions from operating cash
flows. During 1998, the Partnership distributed an aggregate of $47.2 million to
its partners, or $1.24 per Unit (including $44.9 million of distributions to the
Company to fund distributions to shareholders of $1.24 per share in 1998).
During 1997, the Partnership distributed an aggregate of $36.4 million to its
partners, or $1.14 per Unit (including $34.9 million of distributions to the
Company to fund distributions to shareholders of $1.14 per share in 1997). For
federal income tax purposes, 26% of 1998 distributions represented a return of
capital, compared with 10% for 1997.
The Company expects to meet its short-term liquidity requirements generally
through net cash provided by operations, existing cash balances and, if
necessary, short-term borrowings under the Unsecured Line of Credit and the NBC
Credit Line. The Company believes that its net cash provided by operations will
be adequate to fund both operating requirements and payment of distributions by
the Company in accordance with REIT requirements.
The Company expects to meet its long-term liquidity requirements, such as
scheduled debt maturities and property acquisitions, through long-term secured
and unsecured borrowings, the issuance of additional equity securities of the
Company or, in connection with acquisitions of hotel properties, the issuance of
Partnership Units. Pursuant to the Partnership Agreement for the Partnership,
subject to certain holding period requirements, holders of Units have the right
to require the Partnership to redeem their Units. During the year ended December
31, 1998, 49,074 Units were tendered for redemption. Pursuant to the Partnership
agreement, the Company has the option to redeem Units tendered for redemption on
a one-for-one basis for shares of Common Stock or for an equivalent amount of
cash. The Company anticipates that it will acquire any Units tendered for
redemption in the foreseeable future in exchange for shares of Common Stock and
has agreed to register such shares so as to be freely tradeable by the
recipient.
Inflation
Operators of hotels in general have the ability to adjust room rates quickly.
However, competitive pressures may limit the Lessees' ability to raise room
rates in the face of inflation.
Seasonality
Hotel operations historically are seasonal in nature, generally reflecting
higher occupancy rates during the second and third quarters. This seasonality
can be expected to cause fluctuations in the Company's quarterly lease revenues
to the extent that it receives Percentage Rent.
26
<PAGE>
Forward Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities Act
of 1934, as amended, including, without limitation, statements containing the
words "believes," "anticipates," "expects" and words of similar import. Such
forward-looking statements relate to future events and the future financial
performance of the Company, and involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from the results or
achievement expressed or implied by such forward-looking statements. The Company
is not obligated to update any such factors.
Year 2000 Compliance
Many existing computer programs have been designed to use only two digits to
identify a year in the date field, without considering the impact of the
upcoming change in the century. If not corrected, many computer applications
could fail or create erroneous results by or at the Year 2000. The Company's
assessment of its Year 2000 compliance is not complete. The Company has used its
hardware and software contractors to implement a compliance program to address
the challenges the Year 2000 may present to the Company's systems and
applications. This program includes an analysis of computer systems and
applications operated by the Company and computer systems of third parties upon
whose data or services the Company relies (including the Lessees).
The Company's management, as a result of discussions with its hardware and
software contractors, has modified its systems, and is scheduled to complete
remaining software conversions by mid- 1999. As part of its compliance program,
the Company has also surveyed its customers, franchisors, vendors, and the
Lessees, whose failure to timely convert their systems could have an impact on
the Company's operations. Although the Company does not believe the Year 2000
issue will materially affect its business, financial conditions and results of
operations, there can be no assurance that its Year 2000 remediation efforts
will be fully effective to prevent problems that could affect the Company's
business. In addition, although the Company has no reason to believe that the
Lessees will not be in compliance by the Year 2000, the Company is unable to
determine the extent to which the Year 2000 issue will affect the operations of
the hotels. The Company continues to discuss with the Lessees the need for
implementing adequate procedures, including contingency plans, to address this
issue and has been assured that each Lessee is on schedule to complete these
compliance issues by mid-1999.
Management does not consider the incurred or estimated costs of the Company's
compliance program to be material.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to the general instructions to Rule 305 of SEC Regulation S-K, the
quantitative and qualitative disclosures called for by this Item 7a and by Rule
305 of SEC Regulation S-K are inapplicable to the Company at this time.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) Financial Statements:
The following financial statements are located in this report on the pages
indicated.
Equity Inns, Inc. Page
Report of Independent Accountants 29
Consolidated Balance Sheets as of December 31, 1998
and 1997 30
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 31
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1998, 1997 and 1996 32
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 34
Notes to Consolidated Financial Statements 35
(b) Supplementary Data:
Quarterly Financial Information
Unaudited quarterly results for 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter (1) Quarter (1) Quarter (1) Quarter (1)
----------- ----------- ------------- -----------
1998 (in thousands, except per share data)
----
<S> <C> <C> <C> <C>
Revenue $21,577 $28,237 $32,481 $24,436
Net income applicable to
common shareholders 6,004 10,491 8,590 3,136
Net income per common
share, basic and diluted .17 .29 .24 .09
1997
----
Revenue $11,795 $16,039 $24,745 $19,182
Net income applicable to
common shareholders 3,167 5,746 11,235 3,395
Income before extraordinary
item per common share .13 .22 .35 .16
Net income per common share,
basic and diluted .13 .22 .35 .10
</TABLE>
- ------------------------
(1) Acquisitions of hotel properties throughout both years, coupled with the
seasonality of the hotels, have impacted the trend of quarterly results for the
periods shown.
28
<PAGE>
Report of Independent Accountants
To the Board of Directors
and Shareholders of Equity Inns, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a) present fairly, in all material respects, the
financial position of Equity Inns, Inc. at December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule listed
in the index appearing under Item 14(a) presents fairly in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Memphis, Tennessee
January 22, 1999
29
<PAGE>
EQUITY INNS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets:
Investment in hotel properties, net $790,132 $617,072
Cash and cash equivalents 400 190
Due from Lessees 6,288 5,925
Note receivable 2,884 3,884
Deferred expenses, net 6,313 7,276
Deposits and other assets 1,006 1,178
-------- --------
Total Assets $807,023 $635,525
======== ========
Liabilities and Shareholders' Equity:
Debt $331,394 $233,206
Accounts payable and accrued expenses 12,316 12,467
Distributions payable 12,979 10,645
Minority interest in Partnership 19,070 19,035
-------- --------
Total Liabilities 375,759 275,353
-------- --------
Commitments and contingencies (Note 5)
Shareholders' Equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized,
2,750,000 and -0- shares issued
and outstanding at December 31,
1998 and 1997, respectively 68,750
Common stock, $.01 par value,
50,000,000 shares authorized,
36,438,535 and 34,865,578 shares
issued and outstanding at December
31, 1998 and 1997, respectively 364 349
Additional paid-in capital 407,833 387,134
Unearned directors' and officers'
compensation (2,006) (274)
Predecessor basis assumed (1,264) (1,264)
Distributions in excess of net earnings (42,413) (25,773)
-------- --------
Total Shareholders' Equity 431,264 360,172
-------- --------
Total Liabilities and Shareholders' Equity $807,023 $635,525
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
30
<PAGE>
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Revenue:
Percentage lease revenues $106,661 $70,478 $38,314
Gain (loss) on sale of hotel properties (705) 666
Other income 775 617 116
-------- ------- -------
Total Revenue 106,731 71,761 38,430
-------- -------- -------
Expenses:
Real estate and personal property taxes 10,411 6,688 3,693
Depreciation and amortization 32,665 20,214 11,631
Interest 21,587 12,601 4,382
Amortization of loan costs 834 1,013 1,565
General and administrative 4,650 4,142 1,975
Amortization of unearned directors' and
officers' compensation 331 92 33
Rental expense 969 566 218
Merger expense 2,197
-------- ------- -------
Total Expenses 73,644 45,316 23,497
-------- ------- -------
Income before extraordinary item
and minority interest 33,087 26,445 14,933
Extraordinary charge from write-off of
deferred financing fees 1,984
-------- ------- -------
Income before minority interest 33,087 24,461 14,933
Minority interest 1,492 918 460
-------- ------- -------
Net income 31,595 23,543 14,473
Preferred stock dividends 3,374
-------- ------- -------
Net income applicable to common
shareholders $ 28,221 $23,543 $14,473
======== ======= =======
Net income per common share, basic and diluted:
Income before extraordinary item $ .78 $ .88 $ .69
Extraordinary charge .06
-------- ------- -------
Net income $ .78 $ .82 $ .69
======== ======= =======
Weighted average number of common
shares and units outstanding - diluted 38,001 29,963 21,681
======== ======= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
31
<PAGE>
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Unearned
Additional Directors' Predecessor Distributions
Preferred Stock Common Stock Paid-In and Officers' Basis In Excess of
Shares Dollars Shares Dollars Capital Compensation Assumed Net Earnings Total
------ ------- ------ ------- ------- ------------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 14,907,231 $149 $143,576 $ (93) $(1,264) $(4,875) $137,493
Issuance of common
shares, net of
offering expenses
and allocation to
minority interest 7,947,000 80 85,787 85,867
Issuance of common
shares to officers
in lieu of cash
bonus 25,000 294 294
Issuance of restricted
common shares
to officers 25,000 306 (306)
Issuance of common
shares in private
placements 606,232 6 7,082 7,088
Issuance of common
shares upon
redemption of Units 182,815 2 1,703 1,705
Amortization of
unearned officers'
and directors'
compensation 33 33
Net income
applicable to
common shareholders 14,473 14,473
Distributions ($1.12
per share) (24,002) (24,002)
----- ------- ---------- --- ------- ----- ------- ------- -------
Balance at
December 31, 1996 23,693,278 237 238,748 (366) (1,264) (14,404) 222,951
------ ------- ---------- --- ------- ----- ------- ------- -------
Issuance of common
shares, net of
offering expenses 11,082,300 111 144,428 144,539
Issuance of common
shares to officers
and directors
through exercise
of stock options 90,000 1 1,124 1,125
Amortization of
unearned officers'
and directors'
compensation 92 92
Net income
applicable to
common shareholders 23,543 23,543
Distributions ($1.14
per share) (34,912) (34,912)
Adjustments to
minority interest
from issuance of
common shares and
partnership units 2,834 2,834
------ ------- ---------- --- ------- ----- ------- ------- -------
Balance at
December 31, 1997 34,865,578 349 387,134 (274) (1,264) (25,773) 360,172
</TABLE>
32
<PAGE>
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, CONTINUED
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Unearned
Additional Directors' Predecessor Distributions
Preferred Stock Common Stock Paid-In and Officers' Basis In Excess of
Shares Dollars Shares Dollars Capital Compensation Assumed Net Earnings Total
------ ------- ------ ------- ---------- ------------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
shares, net of
offering expenses 1,286,718 13 18,795 18,808
Issuance of preferred
shares, net of
offering expenses 2,750,000 $68,750 (2,408) 66,342
Issuance of common
shares to officers
in lieu of cash
bonus 69,123 1 1,062 1,063
Issuance of common
shares to directors
in lieu of cash
compensation 4,042 55 55
Issuance of
restricted common
shares to officers
and directors 161,000 1 2,135 (2,136) 0
Issuance of common
shares to officers
through exercise
of stock options 9,000 112 112
Forfeitures of
unvested shares
by an officer,
upon resignation (6,000) (73) 73 0
Amortization of
unearned officers'
and directors'
compensation 331 331
Issuance of common
shares upon
redemption of Units 49,074 525 525
Net income
applicable to
common shareholders 28,221 28,221
Distributions ($1.24
per share) (44,861) (44,861)
Adjustments to
minority interest
from issuance of
common shares and
partnership units 496 496
--------- ------- ---------- ---- ------- ------- ------- -------- -------
Balance at
December 31, 1998 2,750,000 $68,750 36,438,535 $364 $407,833 $(2,006) $(1,264) $(42,413) $431,264
========= ======= ========== ==== ======== ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
33
<PAGE>
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income applicable to common shareholders $28,221 $23,543 $14,473
Adjustment to reconcile net income to net cash
provided by operating activities:
(Gain) loss on sale of hotel properties 705 (666)
Depreciation and amortization 32,665 20,214 11,631
Amortization of loan costs 834 1,013 1,565
Write-off of debt costs 1,984
Amortization of unearned directors' and
officers' compensation 331 92 33
Directors' compensation 55
Minority interest 1,492 918 460
Changes in assets and liabilities:
Due from Lessees (363) (2,548) (1,078)
Note receivable 1,000 (3,884)
Deferred expenses (11) (8) (225)
Deposits and other assets 172 215 (1,376)
Accounts payable and accrued expenses 911 9,529 717
Preferred dividends payable 1,088
--------- --------- ---------
Net cash flow provided by operating
activities 67,100 50,402 26,200
--------- --------- ---------
Cash flows from investing activities:
Acquisitions of hotel properties (175,576) (337,069) (81,395)
Improvements and additions to hotel properties (25,998) (18,083) (19,440)
Cash paid for franchise applications (215) (2,144) (340)
Proceeds from sale of hotel properties 8,250 43,207
--------- --------- ---------
Net cash flow used in investing activities (193,539) (314,089) (101,175)
--------- --------- ---------
Cash flows from financing activities:
Gross proceeds from public offering of common stock 20,145 153,388 91,390
Gross proceeds from public offering of preferred stock 68,750
Payment of offering expenses (3,745) (8,849) (5,653)
Proceeds from exercise of stock options 112 1,125
Distributions paid (45,976) (32,656) (21,962)
Borrowings under revolving credit facility 179,475 326,411 102,890
Payments on revolving credit facility (89,725) (256,885) (100,724)
Borrowings under CMBS credit facility 88,000
Payments under CMBS credit facility (2,195) (1,717)
Payments on debt assumed (160)
Proceeds from issuance of common stock 7,087
Proceeds from sale of Units 2,875
Cash paid for loan costs (28) (5,067) (926)
Payments on capital lease obligations (4) (2) (6)
--------- --------- ---------
Net cash flow provided by financing
activities 126,649 263,748 74,971
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 210 61 (4)
Cash and cash equivalents at beginning of year 190 129 133
--------- --------- ---------
Cash and cash equivalents at end of year $ 400 $ 190 $ 129
========= ========= =========
Supplemental disclosure of cash flow information --
Interest paid $ 20,947 $ 12,226 $ 4,399
========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
34
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Equity Inns, Inc. (the "Company") is in the business of acquiring equity
interests in hotel properties. The Company is a real estate investment trust
("REIT") for federal income tax purposes. The Company, through its wholly owned
subsidiary, Equity Inns Trust (the "Trust"), is the sole general partner of
Equity Inns Partnership, L.P. (the "Partnership") and at December 31, 1998 owned
an approximate 95.0% interest in the Partnership.
As of December 31, 1998, the Partnership owned 102 hotel properties, with a
total of 12,640 rooms in 36 states. The Partnership, under operating leases
providing for the payment of percentage rent (the "Percentage Leases"), leased
80 of the current hotels to affiliates of Patriot American Hospitality, Inc.
(collectively, the "Patriot Lessee"), successor by merger to Interstate Hotels
Company ("Patriot"). All payments due under these Percentage Leases are
guaranteed by Patriot and by Interstate Hotels, LLC ("Interstate"), successor by
merger to Interstate Hotels Corporation and an indirect subsidiary of Patriot.
The Partnership leased 19 hotels to a wholly-owned subsidiary of Prime
Hospitality Corporation (the "Prime Lessee"). The Prime Lessee is required,
under the terms of its master lease agreement, to maintain capitalization of 20%
of the expected annual percentage rents. The Patriot Lessee and the Prime Lessee
are referred to herein collectively as the "Lessees" and individually, as a
"Lessee". The Lessees operate and lease hotels owned by the Partnership pursuant
to separate Percentage Leases which provide for rent payments equal to the
greater of (i) a fixed base rent ("Base Rent") or (ii) percentage rent based on
the revenues of the hotels ("Percentage Rent"). The remaining three hotels are
operated pursuant to management agreements, two of which are operated by a
subsidiary of Interstate, and one of which is operated by MeriStar Hotel Company
L.L.C., a wholly owned subsidiary of MeriStar Hotels & Resorts, Inc.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the
Trust and the Partnership. All significant intercompany balances and
transactions have been eliminated.
Investment in Hotel Properties
The hotel properties are recorded at cost. Depreciation is computed using the
straight-line method over estimated useful lives of the assets which range from
31 to 40 years for buildings and 5 to 7 years for furniture and equipment.
Maintenance and repairs are the responsibility of the Lessees; major renewals
and improvements are capitalized. Upon disposition, both the asset and
accumulated depreciation accounts are relieved, and the related gain or loss is
credited or charged to the income statement.
The Company reviews the carrying value of each hotel property to determine if
circumstances exist indicating an impairment in the carrying value of the
investment in the hotel property or that depreciation periods should be
modified. If impairment is indicated, the carrying value of the hotel
35
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies, Continued
property is adjusted based on the discounted future cash flows. The Company does
not believe that there are any current facts or circumstances indicating
impairment of any of its investment in hotel properties.
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents.
Deferred Expenses
Deferred expenses are recorded at cost and consist of the following at December
31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------ ------
(in thousands)
<S> <C> <C>
Initial franchise fees $3,712 $3,615
Loan costs 4,413 4,380
Other 260 254
------ ------
8,385 8,249
Accumulated amortization (2,072) (973)
------ ------
$6,313 $7,276
====== ======
</TABLE>
Amortization of franchise fees is computed using the straight-line method over
the remaining lives of the franchise agreements which range up to 20 years and
is included in depreciation and amortization expense. Amortization of loan costs
is computed using the straight-line method over the term of the related debt. In
1997, the Company expensed approximately $2.0 million of unamortized loan costs
relating to debt that was replaced in 1997.
Deposits and Other Assets
Deposits include escrow deposits and other prepayments relating to the potential
acquisitions of hotel properties.
Interest Rate Swap Agreements
The Company enters into interest rate swap agreements to reduce the impact of
changes in interest rates on its floating rate debt. The agreements are
contracts to exchange floating rate interest payments for fixed rate interest
payments periodically over the life of the agreements without the exchange of
the underlying notional amounts. The notional amounts of interest rate
agreements are used to measure the interest to be received or paid and do not
represent the amount of exposure to credit loss. The differential paid or
received on interest rate agreements is recognized as an adjustment to interest
expense.
36
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies, Continued
Revenue Recognition
Percentage Lease revenue is recognized when earned from the Lessees under the
Percentage Leases from the date of acquisition of each hotel property (Note 5).
Net Income Per Common Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128), which
changed the computation and presentation of earnings per share. SFAS 128
requires the presentation of basic and diluted earnings per share, replacing
primary and fully diluted earnings per share previously required. Earnings per
share for all prior years presented have been presented in accordance with SFAS
128.
A reconciliation of the numerator and denominator used in the basic earnings per
share computation to the numerator and denominator used in the diluted earnings
per share computation is presented below for the years ended December 31, 1998,
1997 and 1996, respectively.
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------------- ----------------------------------- -----------------------------------
Income Shares Per Share Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- --------- ----------- ------------- ---------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income applicable to
common shareholders-
basic $28,221 36,073 $.78 $23,543 28,773 $.82 $14,473 20,957 $.69
Diliutive effect of
potential conversion
of partnership units
and elimination of
minority interest 1,492 1,907 918 1,129 460 700
Dilutive effect of stock
options outstanding
using the treasury
stock method 21 61 24
------- ------ ---- ------- ------ ---- ------- ------ ----
Net income applicable to
common shareholders-
diluted $29,713 38,001 $.78 $24,461 29,963 $.82 $14,933 21,681 $.69
======= ======= ==== === ======= ====== ==== ======= ====== ====
</TABLE>
Distributions
The Company pays regular quarterly cash distributions to shareholders which are
dependent upon receipt of distributions from the Partnership.
Minority Interest
Minority interest in the Partnership represents the limited partners'
proportionate share of the equity of the Partnership. Income is allocated to
minority interest based on weighted average percentage ownership throughout the
year.
37
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies, Continued
Stock-Based Compensation Plans
The Company applies APB Opinion No. 25 and related interpretations in its
accounting for Stock Based Compensation Plans. Accordingly, the Company has
adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-
Based Compensation."
Income Taxes
The Company has qualified as a REIT under Sections 856 through 860 of the
Internal Revenue Code, as amended. Accordingly, no provision for federal income
taxes has been reflected in the financial statements.
Earnings and profits, which will determine the taxability of distributions to
shareholders, will differ from net income reported for financial reporting
purposes primarily due to the differences for federal tax purposes in the
estimated useful lives and methods used to compute depreciation. Distributions
made to shareholders in 1998 and 1997 are considered to be approximately 26% and
10% return of capital, respectively, for federal income tax purposes.
Concentration of Credit Risk
The Company maintains cash balances with financial institutions with high
ratings. The Company has not experienced any losses with respect to bank
balances in excess of government-provided insurance.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. Investment in Hotel Properties
Hotel properties consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Land $102,897 $ 76,730
Buildings and improvements 655,300 505,715
Furniture and equipment 97,556 72,878
Construction in progress 2,854 5,568
-------- --------
858,607 660,891
Less accumulated depreciation (68,475) (43,819)
-------- --------
$790,132 $617,072
======== ========
</TABLE>
38
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Investment in Hotel Properties, Continued
Fifty-nine of the hotel properties are premium limited service hotels, five are
full service hotels, nineteen are premium extended stay hotels, and nineteen are
all-suite hotels.
During 1998 and 1997, the Company acquired the following types of hotels for the
approximate amounts indicated:
<TABLE>
<CAPTION>
1998 1997
----------------------------- -----------------------------
No. of Hotels Purchase Price No. of Hotels Purchase Price
------------- -------------- ------------- --------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Mid-scale Limited Service 2 $ 20,100 34 $198,574
Upscale Extended Stay 5 68,350 6 61,650
Upscale All-Suite 9 96,996 10 86,966
-- -------- -- --------
16 $185,446 50 $347,190
== ======== == ========
</TABLE>
The above acquisitions were accounted for as purchases, and the results of such
acquisitions are included in the Company's consolidated statements of operations
from the dates of acquisition.
During 1998, the Partnership sold three hotels (Hampton Inn, Little Rock,
Arkansas; Hampton Inn, Shelby, North Carolina; Hampton Inn, Cleveland,
Tennessee) to third parties for an aggregate sales price of approximately $8.0
million. The Company realized a loss of approximately $705,000 as a result of
these sales. The sales price was paid in cash.
4. Debt
Debt is comprised of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Revolving credit facilities $236,600 $146,850
Commercial Mortgage Bonds 84,088 86,283
Mortgage notes payable 10,637
Other 69 73
-------- --------
$331,394 $233,206
======== ========
</TABLE>
39
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Debt, Continued
In February 1997, the Company, through a subsidiary, issued $88 million of rated
Commercial Mortgage Bonds (the "Bonds") in a private placement transaction as
follows:
<TABLE>
<CAPTION>
Initial
Principal Interest Stated
Class Amount Rate Maturity Rating
----- ------------- -------- -----------------
<S> <C> <C> <C>
A $27.4 million 6.825% November 20, 2006 AA
B $50.6 million 7.370% December 20, 2015 A
C $10.0 million 7.580% February 20, 2017 BBB
</TABLE>
The initial combined interest rate for all three issues of Bonds was fixed at
7.22%. The combined interest rate on the outstanding balances on all three
issues of Bonds at December 31, 1998 is 7.24%. Principal payments are to be
applied to each class of Bonds in order of their respective maturities with no
principal payment on any Bond until all Bonds in a bond class with an earlier
stated maturity have been paid in full. The Company expects to repay these Bonds
in full within 10 years. Twenty-three hotel properties with a carrying value of
approximately $129.9 million at December 31, 1998 and their respective leases
collateralize the Bonds.
Aggregate annual principal payments for the next five years at December 31, 1998
for the Bonds are as follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1999 2,351
2000 2,518
2001 2,698
2002 2,890
2003 3,096
</TABLE>
The Company's $250 million unsecured line of credit (the "Unsecured Line of
Credit") bears interest at a variable rate of LIBOR plus 1.4%, 1.5%, 1.625%, or
1.75% as determined by the Company's percentage of total debt to the total value
of the Company's investment in hotel properties, as defined in the loan
agreement (the "Percentage"). The Percentage is reviewed quarterly, and the
interest rate is adjusted as necessary. At December 31, 1998, the interest rate
on the Unsecured Line of Credit was LIBOR (5.28% at December 31, 1998) plus
1.75%. The Unsecured Line of Credit has a three-year term, expiring in October
2000, plus a one-year renewal option.
In December 1997, the Company entered into an interest rate swap agreement with
a financial institution. The agreement effectively fixes the interest rate on
floating rate debt at a rate of 5.90% plus the Percentage for a notional
principal amount of $75 million. The swap agreement will expire in October 2000.
The Company's $10,000,000 line of credit with the National Bank of Commerce (the
"NBC Credit Line") bears interest at the bank's prime rate (7.75% at December
31, 1998) and is unsecured. The NBC Credit Line has a three-year term, expiring
in September 2000.
40
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Debt, Continued
In connection with the purchase of a Hampton Inn hotel in San Antonio, Texas in
April 1998, the Partnership assumed a mortgage note payable with a principal
balance of approximately $6.5 million. The note bears interest at 10% and is due
in monthly principal and interest installments of approximately $66,000. The
note is due September 1, 2015. The hotel securing this note has a carrying value
of $12.5 million at December 31, 1998.
In connection with the purchase of a Residence Inn hotel in Boise, Idaho in
April 1998, the Partnership assumed a mortgage note payable with a principal
balance of approximately $4.3 million. The note bears interest at a variable
rate which, as of December 31, 1998, was approximately 8.6% and is due in
monthly principal and interest installments of approximately $39,000. The note
is due December 1, 2016 and contains a prepayment penalty. The hotel securing
this note has a carrying value of approximately $7.6 million at December 31,
1998.
Aggregate principal payments at December 31, 1998 for the next five years for
the mortgage notes payable described above are as follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1999 $260
2000 286
2001 314
2002 345
2003 379
</TABLE>
The weighted average interest rate on the Company's outstanding borrowings
during 1998 and 1997 was 7.46% and 7.53%, respectively. Fees of .30% and .20%
are paid quarterly on the unused portion of the Unsecured Line of Credit and the
NBC Credit Line, respectively. The carrying amount of the Company's borrowings
on its revolving credit facilities approximates fair value due to the Company's
ability to obtain such borrowings at comparable interest rates.
Prior to its 1998 annual shareholders meeting, the Company's Charter limited
aggregate indebtedness to 45% of the Company's investment in hotel properties,
at cost, after giving effect to the Company's use of proceeds from any
indebtedness. This limitation was deleted by shareholder vote on May 14, 1998.
The Company's Board of Directors has subsequently adopted a policy currently
imposing the same limitations previously imposed by the Charter.
The Unsecured Line of Credit agreement requires the Company to maintain certain
debt coverage ratios and certain levels of cash flow, with which the Company was
in compliance at December 31, 1998. Additionally, the agreement requires a
quarterly deposit into a separate room renovation account for the amount by
which 4% of room revenues at the Company's hotels exceeds the amount expended by
the Company during the quarter for replacement of furniture, fixtures and
equipment and capital improvements for the hotels. For the years ended December
31, 1998 and 1997, actual expenditures exceeded the amounts required.
41
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Commitments and Related Party Transactions
One hundred of the hotels are operated under franchise agreements and are
licensed as Hampton Inn hotels (55), AmeriSuites hotels (19), Residence Inn
hotels (12), Homewood Suites hotels (7), Holiday Inn hotels (3), Comfort Inn
hotels (3), and Hampton Inn & Suites hotels (1). Two of the hotels are operated
as independent hotels. The franchisors approve the transfer of the franchise
licenses to the Lessee when the Partnership acquires each hotel property. The
franchise agreements require the payment of fees based on a percentage of hotel
room revenue which are paid by the Lessee.
The Lessees have future lease commitments to the Company under the Percentage
Leases for various terms extending through 2013. Minimum future rental income
(Base Rents) under these non-cancelable operating leases is as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
(in thousands)
<S> <C>
1999 $ 70,282
2000 69,741
2001 69,741
2002 69,741
2003 69,741
2004 and thereafter 502,020
--------
$851,266
========
</TABLE>
The Company earned Base Rents of $65.9 million, $38.3 million and $20.1 million
and Percentage Rents in excess of Base Rents of $40.8 million, $32.2 million and
$18.2 million, respectively, for the years ended December 31, 1998, 1997 and
1996. The Percentage Lease revenue is based on a percentage of gross room
revenue, and food and beverage revenue, if applicable, of the hotels. The
Percentage Leases range in terms from ten to fifteen years. Rental rates on all
fifteen-year leases are required to be re-negotiated after ten years. Both the
Base Rent and the threshold room revenue amount in each Percentage Rent formula
are adjusted annually for changes in the U.S. Consumer Price Index ("CPI"). The
adjustment is calculated on January 1 of each year, provided the lease has been
in effect for a complete calendar year and is based upon the average change in
the CPI during the prior 24 months. The adjustment in any lease year may not
exceed 7%. Effective January 1, 1999, eighty-six of the Percentage Leases were
adjusted, resulting in a 1.63% increase in both Base Rent and threshold room
revenue.
At December 31, 1998, the Lessees owed the Company $6,288,000 representing
fourth quarter Percentage Rent. All of the amounts due were collected prior to
January 31, 1999.
Under the Percentage Leases, the Partnership is obligated to pay the costs of
real estate and personal property taxes and to maintain underground utilities
and structural elements of the Hotels. In addition, the Percentage Leases
obligate the Partnership to fund the cost of periodic repair, replacement and
refurbishment of furniture, fixtures and equipment in the Hotels.
42
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Commitments and Related Party Transactions, Continued
The Company also may be required by franchisors to fund certain capital
improvements to hotel properties, which are funded from borrowings, working
capital, or the room renovation account (Note 4). Capital improvements of $26.0
million, $18.1 million, and $19.4 million in 1998, 1997, and 1996, respectively,
were made to the hotel properties, including those required by the franchisors
at the acquisition of the property. In 1999, the Company expects to fund
approximately $19 million of capital improvements for the hotel properties owned
at December 31, 1998, of which $5.7 million is required by the franchisors.
The Company has commitments under operating land leases through December 31,
2062, at nine hotel properties for payments as follows: 1999 -- $736,429; 2000
- -- $766,138; 2001 -- $777,861; 2002 -- $804,288; 2003 -- $806,788; thereafter --
$11.9 million.
The Company has commitments under a lease to an affiliate of Phillip H. McNeill,
Sr., the Company's Chairman of the Board, for its office space through December
2008 at monthly payments of $13,238.
In February 1998, the Company advanced loans to its officers in the amount of
$330,508 for taxes withheld from 1997 bonuses taken in Company stock in lieu of
cash. In February 1999, $100,764 of these loans were repaid. The remaining loans
were extended for one year. In February 1999, the Company also advanced
additional loans to its officers in the amount of $308,803 for taxes withheld
from 1998 bonuses taken in Company stock in lieu of cash. All loans are due in
January 2000 and bear no interest.
In 1998, the Company agreed to purchase, upon completion, a 252-room Homewood
Suites hotel in Orlando, Florida for $22.8 million, a 235-room Homewood Suites
hotel in Downtown Chicago for $30.4 million and a 300-room Hawthorn Suites hotel
in Chicago-Rosemont for $33.0 million. These hotels are currently under
construction with completion dates expected in May 1999, June 1999 and September
1999, respectively. In connection with these acquisitions, the Company has
issued letters of credit in the amount of $10.6 million under the Unsecured Line
of Credit. The Company also purchased land in Salt Lake City, Utah at a cost of
$2.4 million, to be held for possible construction of an Embassy Suites hotel at
a later date. Total costs incurred relating to these developments at December
31, 1998 were approximately $2.9 million, of which $78,000 represents related
interest costs.
6. Supplemental Disclosure of Noncash Investing and Financing Activities
In 1998, the Company issued 69,123 shares of common stock valued at $15.38 per
share to its officers in lieu of cash to satisfy bonus compensation accrued at
December 31, 1997; 49,074 Units were exchanged for shares of common stock by
certain limited partners; 123,457 Units valued at $1.9 million and an assumption
of a $6.5 million note payable were issued as part of the total acquisition cost
of a hotel property; a $4.3 million note payable was assumed as part of the
acquisition cost of a hotel property; 141,000 shares of restricted common stock
valued from $13.50 to $13.56 per share were issued to the Company's officers;
20,000 shares of restricted common stock valued from $9.63 to $12.31 per share
were issued to the Company's independent directors; 4,042 shares of common stock
at prices ranging from $9.63 to $15.50 were issued to independent directors of
the Company in lieu of cash as directors compensation; 9,000 shares of common
stock were issued to an officer upon exercise of options; and $11.9 million in
distributions to common shareholders and limited partners had been declared but
not paid at December 31, 1998.
43
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Supplemental Disclosure of Noncash Investing and Financing Activities,
Continued
In 1997, the Company issued 90,000 shares of common stock to an officer upon
exercise of options; 1,021,062 Units valued at $14.7 million were issued as part
of the total acquisition cost of six hotel properties; and $10.6 million in
distributions to common shareholders and limited partners had been declared but
not paid at December 31, 1997.
In 1996, the Company issued 25,000 shares of common stock valued at $11.75 per
share to its officers in lieu of cash to satisfy bonus compensation accrued at
December 31, 1995; 182,815 Units were exchanged for shares of common stock by
certain limited partners; 96,303 Units valued at $1.1 million and an assumption
of a $300,000 note payable were issued as part of the total acquisition cost of
a hotel property; 25,000 shares of restricted common stock valued at $12.25 per
share were issued to the Company's officers; $297,000 of the net proceeds of the
Company's public offering was allocated to minority interest with the remainder
of the net proceeds increasing common stock and additional paid-in capital; and
$6.9 million in distributions to common shareholders and limited partners had
been declared but not paid at December 31, 1996.
7. Capital Stock
The Board of Directors is authorized to provide for the issuance of ten million
shares of preferred stock in one or more series, to establish the number of
shares in each series and to fix the designation, powers, preferences, and
rights of each such series and the qualifications, limitations or restriction
thereof. On June 25, 1998, the Company issued 2,750,000 shares of its 9 1/2%
Series A Cumulative Preferred Stock, $.01 par value ("Series A Preferred
Stock"). The offering price was $25 per share, resulting in gross proceeds of
$68.8 million. The Company received approximately $66.3 million after
underwriters' discounts and offering expenses.
The outstanding Units in the Partnership are redeemable at the option of the
holder for a like number of shares of common stock, or at the option of the
Company, the cash equivalent thereof. Total Units outstanding at December 31,
1998 and 1997 were 1,916,903 and 1,842,520, respectively. The total market value
of these Units at December 31, 1998, based on the last reported sales price of
the common stock on the NYSE of $9.63, was approximately $18.5 million.
8. Stock Based Compensation Plans
The Company is authorized, under the 1994 Stock Incentive Plan (the "1994 Plan")
and the Company's Non-Employee Directors Stock Option Plan (the "Directors
Plan"), collectively ("the Plans"), to issue a total of 2,350,000 shares of
common stock to directors, officers and key employees of the Company in the form
of stock options, restricted stock, or performance stock. Under the 1994 Plan,
the total shares available for grant is 2,300,000, of which not more than
350,000 shares may be grants of restricted stock or performance stock. Under the
Directors Plan, the total shares available for grant is 50,000, which may only
be awarded in the form of stock options. An amendment to the Directors Plan to
authorize grants of restricted stock will be submitted to the Company's
shareholders at the annual shareholders meeting in May 1999.
44
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stock Based Compensation Plans, Continued
Stock Options
All options have 8 to 10 year contractual terms and vest ratably over 5 years,
with the exception of 100,000 stock options granted in 1998, of which 20,000
vested immediately with the remainder to vest ratably over 4 years. A summary of
the Company's stock options as of December 31, 1998, 1997 and 1996 and the
changes during the years are presented below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -----------------------
Weighted Weighted Weighted
# of shares average # of shares average # of shares average
of underlying exercise of underlying exercise of underlying exercise
options price options price options price
------------- -------- ------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 519,000 $12.49 606,000 $12.49 603,000 $12.49
Granted 118,000 $13.40 3,000 $13.50 3,000 $11.75
Exercised (9,000) $12.50 (90,000) $12.50
Forfeited (60,000) $12.50
------- ------ ------- ------ ------- ------
Outstanding at end of year 568,000 $12.68 519,000 $12.49 606,000 $12.49
Exercisable at end of year 383,000 $12.56 279,000 $12.49 246,000 $12.49
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- ----------------------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
# Outstanding Remaining Exercise # Exercisable Remaining Exercise
Range of Exercise Prices at 12/31/98 Life Price at 12/31/98 Life Price
- ------------------------ ------------- --------- -------- ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
$11.25 -- $13.69 568,000 4.46 $12.68 383,000 3.84 $12.56
</TABLE>
Restricted Stock
In 1998, the Company issued 20,000 shares of restricted stock to the independent
directors of the Company subject to the approval of an amendment to the
Directors' Plan by the Company's shareholders at the annual shareholder's
meeting in May 1999. Unvested shares are subject to forfeiture if the grantee
does not remain an officer or director of the Company for the specified vesting
period. A summary of the status of the Company's restricted stock grants to
officers and directors as of December 31, 1998, 1997 and 1996 and the changes
during the years are presented below:
45
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stock Based Compensation Plans, Continued
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Fair Market Fair Market Fair Market
Value at Value at Value at
# of Shares Grant # of Shares Grant # of Shares Grant
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 40,000 $11.41 40,000 $11.41 15,000 $10.00
Granted:
With 5 year pro rata vesting 99,000 $13.12 25,000 $12.25
With 4 year pro rata vesting 16,000 $13.56
With 3 year pro rata vesting 42,000 $13.50
Vest 100% at grant date 4,000 $13.56
------- ------ ------ ------ ------
Total granted 161,000 $13.27 25,000 $12.25
Forfeited (6,000) $12.25
------- ------ ----- ------ ------ ------
Outstanding at end of year 195,000 $12.92 40,000 $11.41 40,000 $11.41
Vested at end of year 29,000 $11.27 17,000 $10.67 9,000 $10.00
</TABLE>
In January 1999, 124,800 shares of restricted stock were issued to officers of
the Company at a price of $9.75 per share, to vest ratably over 3 to 5 years.
9. Pro Forma Financial Information (Unaudited)
The following unaudited pro forma consolidated statements of operations for the
year ended December 31, 1998 and 1997 are presented as if the acquisition of all
102 hotels owned at December 31, 1998, and the consummation of the offerings and
the application of the net proceeds therefrom had occurred on January 1, 1997,
and all of the hotels had been leased to the Lessees pursuant to the Percentage
Leases. Additionally, the pro forma consolidated statement of operations for the
year ended December 31, 1998 includes approximately $2.2 million of merger
expenses relating to the terminated merger agreement between the Company and RFS
Hotel Investors and approximately $705,000 in losses from the sale of hotel
properties, both of which collectively reduced pro forma net income applicable
to common shareholders by $.07. The pro forma consolidated statement of
operations for the year ended December 31, 1997 includes approximately $666,000
in gains from the sale of hotel properties and does not include approximately
$2.0 million for the extraordinary charge from the write-off of deferred
financing fees, both of which collectively increased pro forma net income
applicable to common shareholders by $.07.
46
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Pro Forma Financial Information (Unaudited), Continued
The pro forma consolidated statements of operations do not purport to present
what actual results of operations would have been if the acquisitions and the
consummation of the offerings had occurred on such date or to project results
for any future period.
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1998 1997
-------- --------
(in thousands, except per share data)
<S> <C> <C>
Revenue:
Percentage lease revenues $116,471 $118,276
Gain (loss) on sale of hotel properties (705) 666
Other income 774 617
-------- --------
Total Revenue 116,540 119,559
Expenses:
Real estate and personal property taxes 11,359 11,381
Depreciation and amortization 35,691 33,671
Compensation 2,564 2,099
Interest 24,960 26,310
Amortization of loan costs 834 1,040
General and administration 2,086 2,086
Amortization of unearned directors' and
officers' compensation 331 92
Rental expense 969 814
Merger expense 2,197
-------- --------
Total Expenses 80,991 77,493
-------- --------
Income before minority interest 35,549 42,066
Minority interest 1,457 1,784
-------- --------
Net income 34,092 40,282
Preferred stock dividends 6,531 6,531
-------- --------
Net income applicable to common shareholders $ 27,561 $ 33,751
======== ========
Net income per common share, basic and diluted $ .76 $ .93
======== ========
Weighted average number of common shares
outstanding - basic 36,439 36,439
======== ========
Weighted average number of common shares
and units outstanding - diluted 38,377 38,415
======== ========
</TABLE>
47
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Significant Lessee Information
As discussed in Note 1, the Percentage Leases relating to hotels accounting for
more than 20% of the Company's assets are guaranteed by Patriot and its
wholly-owned subsidiary, Interstate. At December 31, 1998, Patriot owned,
managed, leased or performed related services for a portfolio of 474 hotels
totaling approximately 101,000 rooms.
Summarized unaudited financial information for Patriot is as follows (in
thousands):
<TABLE>
<CAPTION>
Balance Sheet Data - As of September 30, 1998
(December 31, 1998 data not available)
<S> <C>
Investment in hotel real estate $5,661,769
Cash and short-term investments 147,397
Total assets 7,499,989
Total debt 3,803,808
Shareholders' equity 2,680,458
<CAPTION>
Income Statement Data - For the year ended December 31, 1998
<S> <C>
Total revenue $2,056,341
Net loss (158,223)
</TABLE>
48
<PAGE>
EQUITY INNS, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
Cost Capitalized Subsequent Gross Amount at Which
Initial Cost to Acquisition Carried at Close of Period
------------------------------- ----------------------------- --------------------------------
Furniture Buildings Furniture Buildings Furniture
and and and and and
Description of Property Land Improvements Fixtures Land Improvements Fixtures Land Improvements Fixtures
- ----------------------- ------- ------------ --------- ------ ------------ --------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hampton Inn- Albany, New York $ 953 $ 9,897 $ 802 $ 262 $ 432 $ 953 $ 10,159 $ 1,234
Hampton Inn-Cleveland, Ohio 820 4,428 217 338 446 820 4,766 663
Hampton Inn-College Station,
Texas 656 4,655 671 221 524 656 4,876 1,195
Hampton Inn-Columbus, Georgia 603 2,591 1,073 486 (98) 603 3,077 975
Hampton Inn-Ft. Worth, Texas 385 1,754 896 353 385 385 2,107 1,281
Hampton Inn-Louisville, Kentucky 395 2,406 919 237 177 395 2,643 1,096
Hampton Inn-Sarasota, Florida 553 3,389 753 350 209 553 3,739 962
Hampton Inn-Ann Arbor, Michigan 565 4,499 506 428 603 565 4,927 1,109
Comfort Inn-Enterprise, Alabama 544 2,398 112 139 394 544 2,537 506
Hampton Inn-Gurnee, Illinois 630 3,397 277 527 981 630 3,924 1,258
Hampton Inn-Traverse City,
Michigan 526 6,153 335 188 613 526 6,341 948
Hampton Inn-Arlington, Texas 425 6,387 582 337 482 425 6,724 1,064
Residence Inn-Eagan, Minnesota 540 8,130 652 652 844 540 8,782 1,496
Residence Inn-Tinton Falls,
New Jersey 7,711 419 484 297 8,195 716 8,911 1,324
Hampton Inn-Milford, Connecticut 759 5,689 467 267 656 759 5,956 1,123
Hampton Inn-Meriden, Connecticut 648 3,226 435 191 423 648 3,417 858
Hampton Inn-Beckley, West
Virginia 1,876 5,557 402 227 237 1,876 5,784 639
Holiday Inn-Bluefield, West
Virginia 1,661 6,141 342 725 825 1,661 6,866 1,167
Hampton Inn-Gastonia, North
Carolina 1,835 4,741 358 172 444 1,835 4,913 802
Hampton Inn-Morgantown, West
Virginia 1,573 4,311 324 4 139 410 1,577 4,450 734
Holiday Inn-Oak Hill, West
Virginia 269 3,727 85 1,271 830 269 4,998 915
Holiday Inn Express-Wilkesboro,
North Carolina 269 2,778 177 344 412 269 3,122 589
Hampton Inn-Naperville, Illinois 678 6,455 396 366 794 678 6,821 1,190
Hampton Inn-State College,
Pennsylvania 718 7,310 525 223 309 718 7,533 834
Comfort Inn-Rutland, Vermont 359 3,683 354 311 289 359 3,994 643
Hampton Inn-Scranton,
Pennsylvania 403 7,017 720 99 169 403 7,116 889
Residence Inn-Omaha, Nebraska 953 2,650 162 6 869 394 959 3,519 556
Hampton Inn-Fayetteville, North
Carolina 403 5,043 148 18 531 756 421 5,574 904
Hampton Inn-Indianapolis,
Indiana 1,207 6,513 126 418 1,036 1,207 6,931 1,162
Hampton Inn-Jacksonville
Florida 403 4,793 126 332 1,176 403 5,125 1,302
Holiday Inn-Mt. Pleasant,
South Carolina 1,205 7,874 247 484 697 1,205 8,358 944
Comfort Inn-Jacksonville Beach,
Florida 849 7,307 371 2 1,739 1,096 851 9,046 1,467
Hampton Inn-Austin, Texa 500 6,659 375 6 310 609 506 6,969 984
Hampton Inn-Garland, Texas 375 4,959 450 3 195 519 378 5,154 969
Hampton Inn-Knoxville, Tennessee 617 3,871 232 264 507 617 4,135 739
Hampton Inn-Glen Burnie,
Maryland 5,075 322 341 477 5,416 799
Hampton Inn-Detroit, Michigan 1,207 5,785 526 265 299 1,207 6,050 825
Homewood Suites-Hartford,
Connecticut 2,866 7,660 915 295 373 2,866 7,955 1,288
Residence Inn-Madison,
Wisconsin 700 2,879 356 206 363 700 3,085 719
Holiday Inn-Winston-Salem,
North Carolina 1,350 3,124 639 598 420 1,350 3,722 1,059
Hampton Inn-Scottsdale, Arizona 2,227 6,566 723 206 17 2,227 6,772 740
Hampton Inn-Chattanooga,
Tennessee 1,475 6,824 752 331 317 1,475 7,155 1,069
Homewood Suites-San Antonio,
Texas 907 6,661 1,029 54 24 907 6,715 1,053
Residence Inn-Burlington, Vermont 679 6,677 342 607 438 679 7,284 780
Homewood Suites-Phoenix, Arizona 7,086 902 1,633 8,719 902
Residence Inn-Colorado Springs,
Colorado 1,350 7,638 740 312 385 1,350 7,950 1,125
Residence Inn-Oklahoma City,
Oklahoma 1,450 8,921 850 354 388 1,450 9,275 1,238
Residence Inn-Tucson, Arizona 832 7,078 705 72 65 832 7,150 770
Hampton Inn-Savannah, Georgia 705 4,186 334 197 619 705 4,383 953
Hampton Inn-Norfolk, Virginia 5,092 520 221 492 5,313 1,012
Hampton Inn-Pickwick, Tennessee 370 1,484 263 82 89 370 1,566 352
Hampton Inn-Southaven,
Mississippi 698 3,138 522 90 79 698 3,228 601
Hampton Inn-Overland Park,
Kansas 906 5,931 330 395 453 906 6,326 783
Hampton Inn-Addison, Texas 2,981 6,336 810 354 295 2,981 6,690 1,105
Hampton Inn-Atlanta-Northlake,
Georgia 6,905 600 209 570 7,114 1,170
Hampton Inn-Birmingham (Mountain
Brook), Alabama 7,988 687 655 566 8,643 1,253
Hampton Inn-Birmingham
(Vestavia), Alabama 1,057 5,162 541 315 605 1,057 5,477 1,146
Hampton Inn-Chapel Hill, North
Carolina 1,834 6,504 725 398 664 1,834 6,902 1,389
Hampton Inn-Charleston, South
Carolina 712 5,219 516 272 227 712 5,491 743
<CAPTION>
Accumulated Net Book
Depreciation Value Life Upon
Buildings and Buildings and Which
Improvements; Improvements; Depreciation
Furniture & Furniture & Date of In Statement
Description of Property Total Fixtures Fixtures Construction Is Computed
- ----------------------- ------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Hampton Inn- Albany, New York $12,346 $ 2,252 $10,094 1986 5-40 Yrs.
Hampton Inn-Cleveland, Ohio 6,249 1,098 5,151 1987 5-40 Yrs.
Hampton Inn-College Station,
Texas 6,727 1,295 5,432 1986 5-40 Yrs.
Hampton Inn-Columbus, Georgia 4,655 1,310 3,345 1986 5-40 Yrs.
Hampton Inn-Ft. Worth, Texas 3,773 865 2,908 1987 5-40 Yrs.
Hampton Inn-Louisville, Kentucky 4,134 1,593 2,541 1986 5-40 Yrs.
Hampton Inn-Sarasota, Florida 5,254 1,141 4,113 1987 5-40 Yrs.
Hampton Inn-Ann Arbor, Michigan 6,601 1,251 5,350 1986 5-31 Yrs.
Comfort Inn-Enterprise, Alabama 3,587 568 3,019 1987 5-31 Yrs.
Hampton Inn-Gurnee, Illinois 5,812 1,043 4,769 1988 5-31 Yrs.
Hampton Inn-Traverse City,
Michigan 7,815 1,513 6,302 1987 5-31 Yrs.
Hampton Inn-Arlington, Texas 8,213 1,490 6,723 1985 7-31 Yrs.
Residence Inn-Eagan, Minnesota 10,818 1,742 9,076 1988 7-31 Yrs.
Residence Inn-Tinton Falls,
New Jersey 8,911 1,324 7,587 1988 7-31 Yrs.
Hampton Inn-Milford, Connecticut 7,838 1,329 6,509 1986 7-31 Yrs.
Hampton Inn-Meriden, Connecticut 4,923 839 4,084 1988 7-31 Yrs.
Hampton Inn-Beckley, West
Virginia 8,298 1,035 7,263 1992 7-31 Yrs.
Holiday Inn-Bluefield, West
Virginia 9,694 1,271 8,423 1980 7-31 Yrs.
Hampton Inn-Gastonia, North
Carolina 7,550 975 6,575 1989 7-31 Yrs.
Hampton Inn-Morgantown, West
Virginia 6,761 859 5,902 1991 7-31 Yrs.
Holiday Inn-Oak Hill, West
Virginia 6,182 902 5,280 1983 7-31 Yrs.
Holiday Inn Express-Wilkesboro,
North Carolina 3,980 639 3,341 1985 7-31 Yrs.
Hampton Inn-Naperville, Illinois 8,689 1,298 7,391 1987 7-31 Yrs.
Hampton Inn-State College,
Pennsylvania 9,085 1,280 7,805 1987 7-31 Yrs.
Comfort Inn-Rutland, Vermont 4,996 720 4,276 1985 7-31 Yrs.
Hampton Inn-Scranton,
Pennsylvania 8,408 1,118 7,290 1994 7-31 Yrs.
Residence Inn-Omaha, Nebraska 5,034 466 4,568 1985 7-31 Yrs.
Hampton Inn-Fayetteville, North
Carolina 6,899 921 5,978 1986 7-31 Yrs.
Hampton Inn-Indianapolis,
Indiana 9,300 1,150 8,150 1987 7-31 Yrs.
Hampton Inn-Jacksonville
Florida 6,830 919 5,911 1986 7-31 Yrs.
Holiday Inn-Mt. Pleasant,
South Carolina 10,507 1,213 9,294 1988 7-31 Yrs.
Comfort Inn-Jacksonville Beach,
Florida 11,364 1,155 10,209 1990 7-31 Yrs.
Hampton Inn-Austin, Texas 8,459 1,009 7,450 1987 7-31 Yrs.
Hampton Inn-Garland, Texas 6,501 850 5,651 1986 7-31 Yrs.
Hampton Inn-Knoxville, Tennessee 5,492 621 4,871 1988 7-31 Yrs.
Hampton Inn-Glen Burnie,
Maryland 6,215 707 5,508 1989 7-31 Yrs.
Hampton Inn-Detroit, Michigan 8,082 718 7,364 1989 7-31 Yrs.
Homewood Suites-Hartford,
Connecticut 12,109 1,023 11,087 1990 7-31 Yrs.
Residence Inn-Madison,
Wisconsin 4,504 420 4,084 1988 7-31 Yrs.
Holiday Inn-Winston-Salem,
North Carolina 6,131 520 5,611 1969 7-31 Yrs.
Hampton Inn-Scottsdale, Arizona 9,739 785 8,954 1996 7-31 Yrs.
Hampton Inn-Chattanooga,
Tennessee 9,699 896 8,803 1988 7-31 Yrs.
Homewood Suites-San Antonio,
Texas 8,675 823 7,852 1996 7-31 Yrs.
Residence Inn-Burlington, Vermont 8,743 679 8,064 1988 7-31 Yrs.
Homewood Suites-Phoenix, Arizona 9,621 886 8,735 1996 7-31 Yrs.
Residence Inn-Colorado Springs,
Colorado 10,425 750 9,675 1984 7-31 Yrs.
Residence Inn-Oklahoma City,
Oklahoma 11,963 858 11,105 1982 7-31 Yrs.
Residence Inn-Tucson, Arizona 8,752 667 8,085 1985 7-31 Yrs.
Hampton Inn-Savannah, Georgia 6,041 454 5,587 1968 7-31 Yrs.
Hampton Inn-Norfolk, Virginia 6,325 527 5,798 1990 7-31 Yrs.
Hampton Inn-Pickwick, Tennessee 2,288 167 2,121 1994 7-31 Yrs.
Hampton Inn-Southaven,
Mississippi 4,527 334 4,193 1995 7-31 Yrs.
Hampton Inn-Overland Park,
Kansas 8,015 467 7,548 1991 7-31 Yrs.
Hampton Inn-Addison, Texas 10,776 542 10,233 1985 7-31 yrs.
Hampton Inn-Atlanta-Northlake,
Georgia 8,284 517 7,767 1988 7-31 Yrs.
Hampton Inn-Birmingham (Mountain
Brook), Alabama 9,896 569 9,327 1987 7-31 Yrs.
Hampton Inn-Birmingham
(Vestavia), Alabama 7,680 428 7,252 1986 7-31 Yrs.
Hampton Inn-Chapel Hill, North
Carolina 10,125 562 9,563 1986 7-31 Yrs.
Hampton Inn-Charleston, South
Carolina 6,946 405 6,541 1985 7-31 Yrs.
</TABLE>
49
<PAGE>
EQUITY INNS, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
AS OF DECEMBER 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
Cost Capitalized Subsequent Gross Amount at Which
Initial Cost to Acquisition Carried at Close of Period
------------------------------- ----------------------------- --------------------------------
Furniture Buildings Furniture Building Furniture
and and and and and
Description of Property Land Improvements Fixtures Land Improvements Fixtures Land Improvements Fixtures
- ----------------------- ------- ------------ --------- ------ ------------ --------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hampton Inn-Colorado Springs,
Colorado 803 3,925 411 207 143 803 4,132 554
Hampton Inn-Columbia, South
Carolina 650 6,572 628 365 262 650 6,937 890
Hampton Inn-Aurora, Colorado 784 3,344 359 345 176 784 3,689 535
Hampton Inn-Detroit (Madison
Heights), Michigan 881 4,304 451 446 167 881 4,750 618
Hampton Inn-Dublin, Ohio 944 3,612 483 573 514 944 4,185 997
Hampton Inn-Kansas City, Kansas 585 4,294 425 304 226 585 4,598 651
Hampton Inn-Little Rock, Arkansas 898 5,520 558 273 473 898 5,793 1,031
Hampton Inn-Memphis (Poplar),
Tennessee 1,955 6,547 739 451 576 1,955 6,998 1,315
Hampton Inn-Memphis (Sycamore),
Tennessee 2,751 239 307 365 3,058 604 3,662 239
Hampton Inn-Nashville
(Brentwood), Tennessee 928 5,705 577 305 246 928 6,010 823
Hampton Inn-Nashville (Briley),
Tennessee 6,550 569 270 302 6,820 871 7,691 472
Hampton Inn-Richardson, Texas 1,750 5,252 609 343 325 1,750 5,595 934
Hampton Inn-St. Louis, Missouri 665 3,775 386 647 554 665 4,422 940
Hampton Inn-Destin, Florida 952 5,166 680 140 104 952 5,306 784
Homewood Suites-Germantown,
Tennessee 1,011 5,760 1,011 56 73 1,011 5,816 1,084
Homewood Suites-Augusta, Georgia 330 4,164 516 101 24 330 4,265 540
Residence Inn-Princeton,
New Jersey 1,920 15,875 1,500 585 538 1,920 16,460 2,038
AmeriSuites-Cincinnati (Blue
Ash), Ohio 900 6,241 466 233 137 900 6,474 603
AmeriSuites-Cincinnati (Forest
Park), Ohio 800 5,616 569 144 143 800 5,760 712
AmeriSuites-Columbus, Ohio 903 6,774 856 136 60 903 6,910 916
AmeriSuites-Flagstaff, Arizona 600 3,832 737 81 53 600 3,913 790
AmeriSuites-Jacksonville,
Florida 1,168 5,734 436 211 229 1,168 5,945 665
AmeriSuites-Indianapolis,
Indiana 700 4,775 800 117 51 700 4,892 851
AmeriSuites-Miami, Florida 1,500 9,387 900 137 12 1,500 9,524 912
AmeriSuites-Overland Park,
Kansas 1,300 7,030 900 254 96 1,300 7,284 996
AmeriSuites-Richmond, Virginia 1,772 9,640 921 119 52 1,772 9,759 973
AmeriSuites-Tampa, Florida 1,400 9,786 523 119 29 1,400 9,905 552
Hampton Inn-San Antonio, Texas 3,749 7,539 1,317 132 109 3,749 7,671 1,426
Homewood Suites-Sharonville,
Ohio 863 6,194 746 505 199 863 6,699 945
Residence Inn-Boise, Idaho 950 5,758 350 294 367 950 6,052 717
Residence Inn-Portland, Oregon 2,400 20,735 500 244 413 2,400 20,979 913
Hampton Inn & Suites-Memphis
(Bartlett), Tennessee 860 5,721 1,052 7 22 860 5,728 1,074
Residence Inn-Somers Point,
New Jersey 1,094 6,372 729 333 344 1,094 6,705 1,073
AmeriSuites-Albuquerque, New
Mexico 1,776 6,871 918 32 1,776 6,903 918
AmeriSuites-Baltimore, Maryland 659 8,514 898 35 659 8,549 898
AmeriSuites-Baton Rouge,
Louisiana 649 9,085 1,157 37 649 9,122 1,157
AmeriSuites-Birmingham, Alabama 1,066 5,871 758 31 1,066 5,902 758
AmeriSuites-Las Vegas, Nevada 4,126 13,056 1,965 30 4,126 13,086 1,965
AmeriSuites-Memphis (Wolfchase),
Tennessee 1,108 6,433 900 43 1,108 6,476 900
AmeriSuites-Miami (Kendall),
Florida 2,426 7,394 802 35 2,426 7,429 802
AmeriSuites-Minneapolis,
Minnesota 1,312 7,421 873 22 1,312 7,443 873
AmeriSuites-Nashville,
Tennessee 1,622 8,452 1,198 25 1,622 8,476 1,198
Homewood Suites-Seattle,
Washington 2,639 17,769 1,760 149 84 2,639 17,919 1,844
Construction in Progress 2,854 2,854
Corporate Office--Memphis, TN 0 130 130
-------- -------- ------- ------ ------- ------- -------- -------- -------
$102,859 $623,134 $62,857 $2,893 $32,164 $34,700 $105,752 $655,298 $97,557
======== ======== ======= ====== ======= ======= ======== ======== =======
<CAPTION>
Accumulated Net Book
Depreciation Value Life Upon
Buildings and Buildings and Which
Improvements; Improvements; Depreciation
Furniture & Furniture & Date of In Statement
Description of Property Total Fixtures Fixtures Construction Is Computed
- ----------------------- ------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Hampton Inn-Colorado Springs,
Colorado 5,489 304 5,185 1985 7-31 Yrs.
Hampton Inn-Columbia, South
Carolina 8,477 496 7,981 1985 7-31 Yrs.
Hampton Inn-Aurora, Colorado 5,008 287 4,721 1985 7-31 Yrs.
Hampton Inn-Detroit (Madison
Heights), Michigan 6,249 334 5,915 1987 7-31 Yrs.
Hampton Inn-Dublin, Ohio 6,126 360 5,766 1988 7-31 Yrs.
Hampton Inn-Kansas City, Kansas 5,834 345 5,489 1987 7-31 Yrs.
Hampton Inn-Little Rock, Arkansas 7,722 469 7,253 1985 7-31 yrs.
Hampton Inn-Memphis (Poplar),
Tennessee 10,268 548 9,720 1985 7-31 Yrs.
Hampton Inn-Memphis (Sycamore),
Tennessee 3,662 239 3,423 1984 7-31 Yrs.
Hampton Inn-Nashville
(Brentwood), Tennessee 7,761 446 7,315 1985 7-31 Yrs.
Hampton Inn-Nashville (Briley),
Tennessee 7,691 472 7,219 1987 7-31 Yrs.
Hampton Inn-Richardson, Tex 8,279 445 7,834 1987 7-31 Yrs.
Hampton Inn-St. Louis, Missouri 6,027 338 5,689 1987 7-31 Yrs.
Hampton Inn-Destin, Florida 7,042 418 6,624 1994 7-31 Yrs.
Homewood Suites-Germantown,
Tennessee 7,911 506 7,405 1986 7-31 Yrs.
Homewood Suites-Augusta, Georgia 5,135 309 4,825 1997 7-31 Yrs.
Residence Inn-Princeton,
New Jersey 20,418 966 19,452 1988 7-31 Yrs.
AmeriSuites-Cincinnati (Blue
Ash), Ohio 7,977 299 7,678 1990 7-31 Yrs.
AmeriSuites-Cincinnati (Forest
Park), Ohio 7,272 294 6,978 1992 7-31 Yrs.
AmeriSuites-Columbus, Ohio 8,729 371 8,358 1994 7-31 Yrs.
AmeriSuites-Flagstaff, Arizona 5,303 251 5,052 1993 7-31 Yrs.
AmeriSuites-Jacksonville,
Florida 7,778 283 7,495 1996 7-31 yrs.
AmeriSuites-Indianapolis,
Indiana 6,443 294 6,149 1992 7-31 Yrs.
AmeriSuites-Miami, Florida 11,936 465 11,471 1996 7-31 Yrs.
AmeriSuites-Overland Park,
Kansas 9,580 390 9,190 1994 7-31 Yrs.
AmeriSuites-Richmond, Virginia 12,504 485 12,019 1992 7-31 Yrs.
AmeriSuites-Tampa, Florida 11,857 427 11,430 1994 7-31 Yrs.
Hampton Inn-San Antonio, Texas 12,846 316 12,530 1995 7-31 Yrs.
Homewood Suites-Sharonville,
Ohio 8,507 226 8,281 1990 7-31 Yrs.
Residence Inn-Boise, Idaho 7,719 166 7,553 1986 7-31 Yrs.
Residence Inn-Portland, Oregon 24,292 503 23,789 1990 7-31 Yrs.
Hampton Inn & Suites-Memphis
(Bartlett), Tennessee 7,662 224 7,438 1998 7-31 Yrs.
Residence Inn-Somers Point,
New Jersey 8,872 215 8,657 1998 7-31 Yrs.
AmeriSuites-Albuquerque, New
Mexico 9,957 177 9,421 1997 7-31 Yrs.
AmeriSuites-Baltimore, Maryland 10,106 202 9,904 1996 7-31 Yrs.
AmeriSuites-Baton Rouge,
Louisiana 10,928 229 10,699 1997 7-31 Yrs.
AmeriSuites-Birmingham, Alabama 7,726 149 7,577 1997 7-31 Yrs.
AmeriSuites-Las Vegas, Nevada 19,177 351 18,826 1998 7-31 Yrs.
AmeriSuites-Memphis (Wolfchase),
Tennessee 8,484 168 8,316 1996 7-31 Yrs.
AmeriSuites-Miami (Kendall),
Florida 10,657 177 10,480 1996 7-31 Yrs.
AmeriSuites-Minneapolis,
Minnesota 9,628 182 9,446 1997 7-31 Yrs.
AmeriSuites-Nashville,
Tennessee 11,296 222 11,074 1997 7-31 Yrs.
Homewood Suites-Seattle,
Washington 22,402 346 22,056 1998 7-31 Yrs.
Construction in Progress 2,854 2,854 7-31 Yrs.
Corporate Office--Memphis, TN 130 23 107 7 Yrs
-------- ------- ---------
$858,607 $68,475 $ 790,132
======== ======= =========
</TABLE>
<TABLE>
<S> <C>
(a) Reconciliation of Real Estate:
Balance at December 31, 1996 $333,561
Additions during the period 368,840
Sales during the period (39,510)
Balance at December 31, 1997 660,891
Additions during the period 208,374
Sales during the period (10,658)
Balance at December 31, 1998 $858,607
========
(b) Reconciliation of Accumulated Depreciation:
Balance At December 31, 1996 $24,359
Depreciation expense during the period 19,969
Depreciation on sales during the period (509)
Balance at December 31, 1997 43,819
Depreciation expense during the period 26,447
Depreciation on sales during the period (1,791)
Balance at December 31, 1998 $68,475
=======
</TABLE>
50
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During the fiscal year ended December 31, 1998 and through the date of this
report, there has been no change in the Company's independent accountants, nor
have any disagreements with such accountants or reportable events occurred.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated by reference from the section
entitled "Proposal One - Election of Directors" in the Proxy Statement as to the
Company's directors. See also Item 1 -- "Business-Executive Officers of the
Company."
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from the section
entitled "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from the sections
entitled "Ownership of the Company's Common Stock" and "Proposal One - Election
of Directors" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from the section
entitled "Certain Relationships and Related Transactions" in the Proxy
Statement.
51
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) Financial Statements:
The following financial statements and financial statement schedules are located
in this report on the pages indicated:
<TABLE>
<CAPTION>
Equity Inns, Inc. Page
<S> <C>
Report of Independent Accountants 29
Consolidated Balance Sheets at December 31, 1998 and 1997 30
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 31
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1998, 1997 and 1996 32
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 34
Notes to Consolidated Financial Statements 35
Schedule III - Real Estate and Accumulated Depreciation
as of December 31, 1998 49
</TABLE>
All other schedules to the consolidated financial statements required by Article
7 of Regulation S-X are not required under the related instructions or are
inapplicable and therefore have been omitted.
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed during the last quarter of the period
covered by this Annual Report on Form 10-K.
(c) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1(a) -- Charter of the Registrant (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form
S-11 (Registration No. 33-73304)
3.1(b) -- Articles of Amendment to the Charter of the Registrant
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on April 27, 1995)
3.1(c) -- Articles of Amendment to the Charter of the Registrant
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on May 31, 1996)
3.1(d) -- Second Amended and Restated Charter of the Registrant
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed
with the Securities and Exchange Commission on October 23,
1997)
</TABLE>
52
<PAGE>
<TABLE>
<S> <C>
3.1(e) -- Articles of Amendment to the Second Amended and Restated
Charter of the Registrant (incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form 8-K
(Registration No. 01-12-73) filed with the Securities and
Exchange Commission on May 28, 1998)
3.1(f) -- Articles of Amendment to the Second Amended and Restated
Charter of the Registrant (incorporated by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K
(Registration No. 01-12073) filed with the Securities and
Exchange Commission on June 24, 1998)
3.2 -- By-Laws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form
S-11 (Registration No. 33-73304)
4.1(a) -- Form of Share Certificate for the Company's Common Stock, $.01
par value (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-11 (Registration
No. 33-73304))
4.1(b) -- Form of Share Certificate for the Company's 9 1/2% Series A
Cumulative Preferred Stock, $.01 par value (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-11 (Registration No. 33-73304))
4.2(a) -- Second Amended and Restated Agreement of Limited Partnership
of Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form
S-3 (Registration No. 33-90364))
4.2(b) -- Third Amended and Restated Agreement of Limited Partnership of
Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated
June 24, 1997 (Registration No. 01-12073) filed with the
Securities and Exchange Commission on July 10, 1997)
4.2(c) -- Amendment No. 1 to Third Amended and Restated Agreement of
Limited Partnership of Equity Inns Partnership, L.P.
(incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed
with the Securities and Exchange Commission on June 24, 1998)
4.3, 10.1 -- Indenture dated as of February 6, 1997 among EQI
Financing Partnership I, L.P., as Issuer, LaSalle National
Bank, as Trustee, and ABN AMBRO Bank N.V., as Fiscal Agent
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q (Registration No. 01-12073) for
the quarter ended March 31, 1997 and filed with the Securities
and Exchange Commission on April 30, 1997)
10.2(a) -- Form of Percentage Lease Agreement (incorporated by reference
to Exhibit 10.3 to the Company's Registration Statement on
Form S-11 (Registration No. 33-73304))
10.2(b) -- Consolidated Lease Amendment dated as of November 15, 1996
between Equity Inns Partnership, L.P. and Crossroads/Memphis
Partnership, L.P. (incorporated by reference to Exhibit
10.1(a) to the Company's Current Report on Form 8-K
(Registration No. 01-12073) filed with the Securities and
Exchange Commission on December 13, 1996)
</TABLE>
53
<PAGE>
<TABLE>
<S> <C>
10.2(c) -- Form of Percentage Lease Amendment between Equity Inns
Partnership, L.P. and Crossroads/Future Company, L.L.C.
(incorporated by reference to Exhibit 10.1(b) to the Company's
Amended Current Report on Form 8-K (Registration No. 01-12073)
filed with the Securities and Exchange Commission on July 22,
1997)
10.2(d) -- Form of Percentage Lease Amendment between Equity Inns
Partnership, L.P. and Caldwell Holding Corp. (incorporated by
reference to Exhibit 10.5 to the Company's Current Report on
Form 8-K (Registration No. 01-12073) filed with the Securities
and Exchange Commission on December 24, 1997)
10.3(a) -- Equity Inns, Inc. 1994 Stock Incentive Plan (incorporated by
reference to Exhibit 10.29(a) to the Company's Registration
Statement on Form S-11 (Registration No. 33-80318))
10.3(b) -- Equity Inns, Inc. Non-Employee Directors' Stock Option Plan
(incorporated by reference to Exhibit 10.29(b) to the
Company's Registration Statement on Form S-11 (Registration
No. 33-80318))
10.4 -- Right of First Refusal Agreement between Wolf River Hotel,
L.P. and Equity Inns Partnership, L.P. (incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-3 (Registration No. 33-93158))
10.5 -- Right of First Refusal Agreement between SAHI I L.P. and
Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form
S-3 (Registration No. 33-93158))
10.6 -- Credit Agreement between Equity Inns, Inc., Equity Inns Trust,
Equity Inns Partnership, L.P., Smith Barney Mortgage Capital
Group, Inc., National Bank of Commerce, First National Bank of
Chicago, Leader Federal Bank for Savings, AmSouth Bank, First
National Bank of Commerce, Bank of Mississippi, Mercantile
Bank of St. Louis, First National Bank of Chicago and Smith
Barney Mortgage Capital Group, Inc. as collateral agent
(incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K/A for the year ended December 31,
1995 (Registration No. 0-23290) filed with the Securities and
Exchange Commission on March 20, 1996)
10.6(a)* -- 1st Amendment to Revolving Credit Agreement, dated August 10,
1998, between Equity Inns Partnership, L.P., Equity Inns/West
Virginia Partnership, L.P., Equity Inns, Inc., Equity Inns
Trust and National Bank of Commerce
10.6(b)* -- 2nd Amendment to Revolving Credit Agreement, dated December
18, 1998, between Equity Inns Partnership, L.P., Equity Inns/
West Virginia Partnership, L.P., Equity Inns, Inc., Equity
Inns Trust and National Bank of Commerce
10.7 -- Unsecured Revolving Credit Agreement dated as of October 10,
1997, by and among Equity Inns Partnership, L.P. and Equity
Inns/West Virginia Partnership, L.P. as Borrower and The First
National Bank of Chicago, Credit Lyonnais New York Branch, and
AmSouth Bank as Lenders, Credit Lyonnais New York Branch, as
Syndication Agent and The First National Bank of Chicago as
Administrative Agent (incorporated by reference to Exhibit
10.3 to the Company's Current Report on Form 8-K (Registration
No. 0-23290) filed with the Securities and Exchange Commission
on November 24, 1997)
</TABLE>
54
<PAGE>
<TABLE>
<S> <C>
10.7(a)* -- First Amendment to Unsecured Revolving Credit Agreement dated
as of November 24, 1997, by and among Equity Inns Partnership,
L.P., Equity Inns/West Virginia Partnership, L.P., The First
National Bank of Chicago and Credit Lyonnais New York Branch.
10.7(b)* -- Second Amendment to Unsecured Revolving Credit Agreement dated
as of September 28, 1998, by and among Equity Inns
Partnership, L.P., Equity Inns/West Virginia Partnership,
L.P., The First National Bank of Chicago and Credit Lyonnais
New York Branch.
10.8 -- Memorandum of Understanding between Promus Hotels, Inc.,
Equity Inns, Inc. and McNeill Hotel Co., Inc. (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K (Registration No. 0-23290) filed with the Securities
and Exchange Commission on March 20, 1996)
10.9 -- Agreement of Phillip H. McNeill, Sr. concerning investments of
the income of McNeill Hotel Co., Inc. (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K (Registration No. 0-23290) filed with the Securities
and Exchange Commission on March 20, 1996)
10.10 -- Agreement of Phillip H. McNeill, Sr. concerning purchase of
250,000 units of limited partnership interest in Equity Inns
Partnership, L.P. (incorporated by reference to Exhibit 10.3
to the Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
March 20, 1996)
10.11 -- Agreement of Phillip H. McNeill, Sr. concerning development
activities (incorporated by reference to Exhibit 10.4 to the
Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
March 20, 1996)
10.12 -- Amendment to Agreement of Phillip H. McNeill, Sr. concerning
the purchase of 250,000 units of limited partnership interest
in Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K
(Registration No. 0-23290) filed with the Securities and
Exchange Commission on March 22, 1996)
10.13 -- Stock Purchase Agreement dated as of May 31, 1996 by and among
Equity Inns, Inc., Equity Inns Partnership, L.P. and Promus
Hotels, Inc. (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
June 13, 1996)
10.14 -- Development Agreement dated as of May 31, 1996 between Equity
Inns Partnership, L.P., Trust Leasing, Inc. and Promus Hotels,
Inc. (incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K (Registration No. 0-
23290) filed with the Securities and Exchange Commission on
June 13, 1996)
10.15 -- Form of Management Agreement between Equity Inns Partnership,
L.P., Trust Leasing, Inc. and Promus Hotels, Inc.
(incorporated by reference to Exhibit 10.3 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on June 13, 1996)
</TABLE>
55
<PAGE>
<TABLE>
<S> <C>
10.16 -- Guaranty of Leases dated November 15, 1996 by Interstate
Hotels Company (incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the Securities and Exchange Commission on
December 13, 1996)
10.17 -- Guaranty of Leases dated November 15, 1996 by Interstate
Hotels Corporation (incorporated by reference to Exhibit 10.3
to the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the Securities and Exchange Commission on
December 13, 1996)
10.18 -- Master Agreement dated as of November 4, 1996 among Equity
Inns, Inc., Equity Inns Partnership, L.P., Interstate Hotels
Corporation, Crossroads/Memphis Partnership, L.P. and
Crossroads Future Company, L.L.C. (incorporated by reference
to Exhibit 10.4 to the Company's Current Report on Form 8-K
(Registration No. 01-12073) filed with the Securities and
Exchange Commission on December 13, 1996)
10.19 -- First Amendment to Master Agreement dated as of November 15,
1996 among Equity Inns, Inc., Equity Inns Partnership, L.P.,
Interstate Hotels Corporation, Crossroads/Memphis Partnership,
L.P. and Crossroads Future Company, L.L.C. (incorporated by
reference to Exhibit 10.5 to the Company's Current Report on
Form 8-K (Registration No. 01-12073) filed with the Securities
and Exchange Commission on December 13, 1996)
10.20 -- Second Amendment to Master Agreement dated as of February 6,
1997 by Equity Inns, Inc., Equity Inns Partnership, L.P., EQI
Financing Partnership 1, L.P., Interstate Hotels Corporation,
Crossroads/Memphis Partnership, L.P., Crossroads/Memphis
Financing Company, L.L.C., and Crossroads Future Company,
L.L.C. (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q (Registration No.
01-12073) for the quarter ended March 31, 1997 and filed with
the Securities and Exchange Commission on April 30, 1997)
10.21 -- Form of Deed of Trust dated as of February 6, 1997 by EQI
Financing Partnership 1, L.P. in favor of LaSalle National
Bank, as Trustee (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q (Registration No.
01-12073) for the quarter ended March 31, 1997 and filed with
the Securities and Exchange Commission on April 30, 1997)
10.22 -- Credit Agreement dated June 25, 1997, by and among Equity Inns
Partnership, L.P. and Equity Inns Trust, The First National
Bank of Chicago, Credit Lyonnais, New York Branch and AmSouth
Bank of Alabama, as Lenders, Credit Lyonnais, New York Branch,
as Documentation Agent and The First National Bank of Chicago,
as Administrative Agent and Syndication Agent (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K (Registration No. 01-12073) filed with the Securities
and Exchange Commission on July 10, 1997)
10.23 -- Hotel Asset Purchase Agreement by and between Hudson Hotels
Corporation, Hudson Hotels Properties Corp. and Equity Inns
Partnership, L.P. (incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the Securities and Exchange Commission on
November 24, 1997)
</TABLE>
56
<PAGE>
<TABLE>
<S> <C>
10.24 -- Amendment No. 1 to Hotel Asset Purchase Agreement by and
between Hudson Hotels Corporation, Hudson Hotels Properties
Corp. and Equity Inns Partnership, L.P. (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K (Registration No. 01-12073) filed with the Securities
and Exchange Commission on November 24, 1997)
10.25 -- Amended and Restated Purchase and Sale Agreement between Prime
Hospitality Corp. and Equity Inns Partnership, L.P. dated
December 2, 1997 (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the Securities and Exchange Commission on
December 24, 1997)
10.26 -- Second Purchase and Sale Agreement between Prime Hospitality
Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
(incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed
with the Securities and Exchange Commission on December 24,
1997)
10.27 -- Third Purchase and Sale Agreement between Prime Hospitality
Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
(incorporated by reference to Exhibit 10.3 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed
with the Securities and Exchange Commission on December 24,
1997)
10.28 -- Fourth Purchase and Sale Agreement between Prime Hospitality
Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
(incorporated by reference to Exhibit 10.4 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed
with the Securities and Exchange Commission on December 24,
1997)
10.29 -- Revolving Credit Loan Agreement dated as of November 14, 1997
by and among Equity Inns Partnership, L.P., Equity Inns/West
Virginia Partnership, L.P., Equity Inns, Inc., Equity Inns
Trust and National Bank of Commerce
10.30 -- Alliance Agreement dated as of January 20, 1998 between U. S.
Franchise Systems, Inc. and Equity Inns Partnership, L.P.
(incorporated by reference to Exhibit 10.0 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed
with the Securities and Exchange Commission on February 6,
1998)
10.31(a) -- Asset Sale Agreement and Plans of Mergers among RFS Hotel
Investors, Inc., RHI Acquisition, Inc., Equity Inns, Inc., RFS
Partnership, L.P. and Equity Inns Partnership, L.P. dated
April 21, 1998 (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the Securities and Exchange Commission on
May 21, 1998)
10.31(b) -- Termination Agreement, dated as of September 8, 1998, as to
Asset Sale Agreement and Plans of Mergers, by and among RFS
Hotel Investors, Inc., Equity Inns, Inc., RHI Acquisition,
Inc., Equity Inns Partnership, L.P. and RFS Partnership, L.P.
(incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed
with the Securities and Exchange Commission on September 14,
1998)
10.32* -- Commercial Lease dated as of December 17, 1998 between 64 LTD,
LLC and Equity Inns Services, Inc.
</TABLE>
57
<PAGE>
<TABLE>
<S> <C>
10.33* -- Change in Control and Termination Agreement between Equity
Inns, Inc. and Phillip H. McNeill, Sr.
10.34* -- Change in Control and Termination Agreement between Equity
Inns Services, Inc., Equity Inns, Inc. and Howard A. Silver
10.35* -- Change in Control and Termination Agreement between Equity
Inns Services, Inc., Equity Inns, Inc. and Donald H. Dempsey
10.36* -- Change in Control and Termination Agreement between Equity
Inns Services, Inc., Equity Inns, Inc. and Phillip H. McNeill,
Jr.
10.37* -- Change in Control and Termination Agreement between Equity
Inns Services, Inc., Equity Inns, Inc. and J. Ronald Cooper
10.38* -- Change in Control and Termination Agreement between Equity
Inns Services, Inc., Equity Inns, Inc. and Richard F. Mitchell
10.39* -- Employment Agreement between Equity Inns Services, Inc.,
Equity Inns, Inc. and Donald H. Dempsey
21.1* -- List of subsidiaries of Equity Inns, Inc.
23.1* -- Consent of PricewaterhouseCoopers LLP
27.1* -- Financial Data Schedule (filed electronically with the
Securities and Exchange Commission)
</TABLE>
- --------------
* Filed herewith.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this Annual Report on Form 10-K. See Item 14 (a).
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized on the 23rd day of March,
1999.
EQUITY INNS, INC.
By: /s/Phillip H. McNeill, Sr.
--------------------------
Phillip H. McNeill, Sr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 23rd day of March, 1999.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Phillip H. McNeill, Sr. Chairman of the Board and March 23, 1999
- ---------------------------
Phillip H. McNeill, Sr. Chief Executive Officer
(Principal Executive Officer)
and Director
/s/ Howard A. Silver President, Chief Operating March 23, 1999
- --------------------
Howard A. Silver Officer and Director
/s/ Donald H. Dempsey Executive Vice President, March 23, 1999
- ---------------------
Donald H. Dempsey Secretary, Treasurer,
Financial Officer (Principal
Financial and Accounting
Officer) and Director
/s/ William A. Deupree, Jr. Director March 23, 1999
- ---------------------------
William A. Deupree, Jr.
/s/ James A. Thomas III Director March 23, 1999
- ----------------------
James A. Thomas III
/s/ Joseph W. McLeary Director March 23, 1999
- ---------------------
Joseph W. McLeary
/s/ Raymond E. Schultz Director March 23, 1999
- ----------------------
Raymond E. Schultz
</TABLE>
59
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1(a) -- Charter of the Registrant (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form
S-11 (Registration No. 33-73304)
3.1(b) -- Articles of Amendment to the Charter of the Registrant
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on April 27, 1995)
3.1(c) -- Articles of Amendment to the Charter of the Registrant
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on May 31, 1996)
3.1(d) -- Second Amended and Restated Charter of the Registrant
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed
with the Securities and Exchange Commission on October 23,
1997)
3.1(e) -- Articles of Amendment to the Second Amended and Restated
Charter of the Registrant (incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form 8-K
(Registration No. 01-12-73) filed with the Securities and
Exchange Commission on May 28, 1998)
3.1(f) -- Articles of Amendment to the Second Amended and Restated
Charter of the Registrant (incorporated by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K
(Registration No. 01-12073) filed with the Securities and
Exchange Commission on June 24, 1998)
3.2 -- By-Laws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form
S-11 (Registration No. 33-73304)
4.1(a) -- Form of Share Certificate for the Company's Common Stock, $.01
par value (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-11 (Registration
No. 33-73304))
4.1(b) -- Form of Share Certificate for the Company's 9 1/2% Series A
Cumulative Preferred Stock, $.01 par value (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-11 (Registration No. 33-73304))
4.2(a) -- Second Amended and Restated Agreement of Limited Partnership
of Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form
S-3 (Registration No. 33-90364))
4.2(b) -- Third Amended and Restated Agreement of Limited Partnership of
Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated
June 24, 1997 (Registration No. 01-12073) filed with the
Securities and Exchange Commission on July 10, 1997)
4.2(c) -- Amendment No. 1 to Third Amended and Restated Agreement of
Limited Partnership of Equity Inns Partnership, L.P.
(incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed
with the Securities and Exchange Commission on June 24, 1998)
</TABLE>
60
<PAGE>
<TABLE>
<S> <C>
4.3, 10.1 -- Indenture dated as of February 6, 1997 among EQI
Financing Partnership I, L.P., as Issuer, LaSalle National
Bank, as Trustee, and ABN AMBRO Bank N.V., as Fiscal Agent
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q (Registration No. 01-12073) for
the quarter ended March 31, 1997 and filed with the Securities
and Exchange Commission on April 30, 1997)
10.2(a) -- Form of Percentage Lease Agreement (incorporated by reference
to Exhibit 10.3 to the Company's Registration Statement on
Form S-11 (Registration No. 33-73304))
10.2(b) -- Consolidated Lease Amendment dated as of November 15, 1996
between Equity Inns Partnership, L.P. and Crossroads/Memphis
Partnership, L.P. (incorporated by reference to Exhibit
10.1(a) to the Company's Current Report on Form 8-K
(Registration No. 01-12073) filed with the Securities and
Exchange Commission on December 13, 1996)
10.2(c) -- Form of Percentage Lease Amendment between Equity Inns
Partnership, L.P. and Crossroads/Future Company, L.L.C.
(incorporated by reference to Exhibit 10.1(b) to the Company's
Amended Current Report on Form 8-K (Registration No. 01-12073)
filed with the Securities and Exchange Commission on July 22,
1997)
10.2(d) -- Form of Percentage Lease Amendment between Equity Inns
Partnership, L.P. and Caldwell Holding Corp. (incorporated by
reference to Exhibit 10.5 to the Company's Current Report on
Form 8-K (Registration No. 01-12073) filed with the Securities
and Exchange Commission on December 24, 1997)
10.3(a) -- Equity Inns, Inc. 1994 Stock Incentive Plan (incorporated by
reference to Exhibit 10.29(a) to the Company's Registration
Statement on Form S-11 (Registration No. 33-80318))
10.3(b) -- Equity Inns, Inc. Non-Employee Directors' Stock Option Plan
(incorporated by reference to Exhibit 10.29(b) to the
Company's Registration Statement on Form S-11 (Registration
No. 33-80318))
10.4 -- Right of First Refusal Agreement between Wolf River Hotel,
L.P. and Equity Inns Partnership, L.P. (incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-3 (Registration No. 33-93158))
10.5 -- Right of First Refusal Agreement between SAHI I L.P. and
Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form
S-3 (Registration No. 33-93158))
10.6 -- Credit Agreement between Equity Inns, Inc., Equity Inns Trust,
Equity Inns Partnership, L.P., Smith Barney Mortgage Capital
Group, Inc., National Bank of Commerce, First National Bank of
Chicago, Leader Federal Bank for Savings, AmSouth Bank, First
National Bank of Commerce, Bank of Mississippi, Mercantile
Bank of St. Louis, First National Bank of Chicago and Smith
Barney Mortgage Capital Group, Inc. as collateral agent
(incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K/A for the year ended December 31,
1995 (Registration No. 0-23290) filed with the Securities and
Exchange Commission on March 20, 1996)
</TABLE>
61
<PAGE>
<TABLE>
<S> <C>
10.6(a)* -- 1st Amendment to Revolving Credit Agreement, dated August 10,
1998, between Equity Inns Partnership, L.P., Equity Inns/West
Virginia Partnership, L.P., Equity Inns, Inc., Equity Inns
Trust and National Bank of Commerce
10.6(b)* -- 2nd Amendment to Revolving Credit Agreement, dated December
18, 1998, between Equity Inns Partnership, L.P., Equity Inns/
West Virginia Partnership, L.P., Equity Inns, Inc., Equity
Inns Trust and National Bank of Commerce
10.7 -- Unsecured Revolving Credit Agreement dated as of October 10,
1997, by and among Equity Inns Partnership, L.P. and Equity
Inns/West Virginia Partnership, L.P. as Borrower and The First
National Bank of Chicago, Credit Lyonnais New York Branch, and
AmSouth Bank as Lenders, Credit Lyonnais New York Branch, as
Syndication Agent and The First National Bank of Chicago as
Administrative Agent (incorporated by reference to Exhibit
10.3 to the Company's Current Report on Form 8-K (Registration
No. 0-23290) filed with the Securities and Exchange Commission
on November 24, 1997)
10.7(a)* -- First Amendment to Unsecured Revolving Credit Agreement dated
as of November 24, 1997, by and among Equity Inns Partnership,
L.P., Equity Inns/West Virginia Partnership, L.P., The First
National Bank of Chicago and Credit Lyonnais New York Branch.
10.7(b)* -- Second Amendment to Unsecured Revolving Credit Agreement dated
as of September 28, 1998, by and among Equity Inns
Partnership, L.P., Equity Inns/West Virginia Partnership,
L.P., The First National Bank of Chicago and Credit Lyonnais
New York Branch.
10.8 -- Memorandum of Understanding between Promus Hotels, Inc.,
Equity Inns, Inc. and McNeill Hotel Co., Inc. (incorporated
by reference to Exhibit 10.1 to the Company's Current Report
on Form 8-K (Registration No. 0-23290) filed with the
Securities and Exchange Commission on March 20, 1996)
10.9 -- Agreement of Phillip H. McNeill, Sr. concerning investments of
the income of McNeill Hotel Co., Inc. (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K (Registration No. 0-23290) filed with the Securities
and Exchange Commission on March 20, 1996)
10.10 -- Agreement of Phillip H. McNeill, Sr. concerning purchase of
250,000 units of limited partnership interest in Equity Inns
Partnership, L.P. (incorporated by reference to Exhibit 10.3
to the Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
March 20, 1996)
10.11 -- Agreement of Phillip H. McNeill, Sr. concerning development
activities (incorporated by reference to Exhibit 10.4 to the
Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
March 20, 1996)
10.12 -- Amendment to Agreement of Phillip H. McNeill, Sr. concerning
the purchase of 250,000 units of limited partnership interest
in Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K
(Registration No. 0-23290) filed with the Securities and
Exchange Commission on March 22, 1996)
</TABLE>
62
<PAGE>
<TABLE>
<S> <C>
10.13 -- Stock Purchase Agreement dated as of May 31, 1996 by and among
Equity Inns, Inc., Equity Inns Partnership, L.P. and Promus
Hotels, Inc. (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
June 13, 1996)
10.14 -- Development Agreement dated as of May 31, 1996 between Equity
Inns Partnership, L.P., Trust Leasing, Inc. and Promus Hotels,
Inc. (incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
June 13, 1996)
10.15 -- Form of Management Agreement between Equity Inns Partnership,
L.P., Trust Leasing, Inc. and Promus Hotels, Inc.
(incorporated by reference to Exhibit 10.3 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on June 13, 1996)
10.16 -- Guaranty of Leases dated November 15, 1996 by Interstate
Hotels Company (incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the Securities and Exchange Commission
on December 13, 1996)
10.17 -- Guaranty of Leases dated November 15, 1996 by Interstate
Hotels Corporation (incorporated by reference to Exhibit 10.3
to the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the Securities and Exchange Commission
on December 13, 1996)
10.18 -- Master Agreement dated as of November 4, 1996 among Equity
Inns, Inc., Equity Inns Partnership, L.P., Interstate Hotels
Corporation, Crossroads/Memphis Partnership, L.P. and
Crossroads Future Company, L.L.C. (incorporated by reference
to Exhibit 10.4 to the Company's Current Report on Form 8-K
(Registration No. 01-12073) filed with the Securities and
Exchange Commission on December 13, 1996)
10.19 -- First Amendment to Master Agreement dated as of November 15,
1996 among Equity Inns, Inc., Equity Inns Partnership, L.P.,
Interstate Hotels Corporation, Crossroads/Memphis Partnership,
L.P. and Crossroads Future Company, L.L.C. (incorporated by
reference to Exhibit 10.5 to the Company's Current Report on
Form 8-K (Registration No. 01-12073) filed with the Securities
and Exchange Commission on December 13, 1996)
10.20 -- Second Amendment to Master Agreement dated as of February 6,
1997 by Equity Inns, Inc., Equity Inns Partnership, L.P., EQI
Financing Partnership 1, L.P., Interstate Hotels Corporation,
Crossroads/Memphis Partnership, L.P., Crossroads/Memphis
Financing Company, L.L.C., and Crossroads Future Company,
L.L.C. (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q (Registration No.
01-12073) for the quarter ended March 31, 1997 and filed with
the Securities and Exchange Commission on April 30, 1997)
10.21 -- Form of Deed of Trust dated as of February 6, 1997 by EQI
Financing Partnership 1, L.P. in favor of LaSalle National
Bank, as Trustee (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q (Registration No.
01-12073) for the quarter ended March 31, 1997 and filed with
the Securities and Exchange Commission on April 30, 1997)
</TABLE>
63
<PAGE>
<TABLE>
<S> <C>
10.22 -- Credit Agreement dated June 25, 1997, by and among Equity Inns
Partnership, L.P. and Equity Inns Trust, The First National
Bank of Chicago, Credit Lyonnais, New York Branch and AmSouth
Bank of Alabama, as Lenders, Credit Lyonnais, New York Branch,
as Documentation Agent and The First National Bank of Chicago,
as Administrative Agent and Syndication Agent (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K (Registration No. 01-12073) filed with the Securities
and Exchange Commission on July 10, 1997)
10.23 -- Hotel Asset Purchase Agreement by and between Hudson Hotels
Corporation, Hudson Hotels Properties Corp. and Equity Inns
Partnership, L.P. (incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the Securities and Exchange Commission on
November 24, 1997)
10.24 -- Amendment No. 1 to Hotel Asset Purchase Agreement by and
between Hudson Hotels Corporation, Hudson Hotels Properties
Corp. and Equity Inns Partnership, L.P. (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K (Registration No. 01-12073) filed with the Securities
and Exchange Commission on November 24, 1997)
10.25 -- Amended and Restated Purchase and Sale Agreement between Prime
Hospitality Corp. and Equity Inns Partnership, L.P. dated
December 2, 1997 (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the Securities and Exchange Commission on
December 24, 1997)
10.26 -- Second Purchase and Sale Agreement between Prime Hospitality
Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
(incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed
with the Securities and Exchange Commission on December 24,
1997)
10.27 -- Third Purchase and Sale Agreement between Prime Hospitality
Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
(incorporated by reference to Exhibit 10.3 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed
with the Securities and Exchange Commission on December 24,
1997)
10.28 -- Fourth Purchase and Sale Agreement between Prime Hospitality
Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
(incorporated by reference to Exhibit 10.4 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed
with the Securities and Exchange Commission on December 24,
1997)
10.29 -- Revolving Credit Loan Agreement dated as of November 14, 1997
by and among Equity Inns Partnership, L.P., Equity Inns/West
Virginia Partnership, L.P., Equity Inns, Inc., Equity Inns
Trust and National Bank of Commerce
10.30 -- Alliance Agreement dated as of January 20, 1998 between U. S.
Franchise Systems, Inc. and Equity Inns Partnership, L.P.
(incorporated by reference to Exhibit 10.0 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed
with the Securities and Exchange Commission on February 6,
1998)
</TABLE>
64
<PAGE>
<TABLE>
<S> <C>
10.31(a) -- Asset Sale Agreement and Plans of Mergers among RFS Hotel
Investors, Inc., RHI Acquisition, Inc., Equity Inns, Inc., RFS
Partnership, L.P. and Equity Inns Partnership, L.P. dated
April 21, 1998 (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the Securities and Exchange Commission on
May 21, 1998)
10.31(b) -- Termination Agreement, dated as of September 8, 1998, as to
Asset Sale Agreement and Plans of Mergers, by and among RFS
Hotel Investors, Inc., Equity Inns, Inc., RHI Acquisition,
Inc., Equity Inns Partnership, L.P. and RFS Partnership, L.P.
(incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed
with the Securities and Exchange Commission on September 14,
1998)
10.32* -- Commercial Lease dated as of December 17, 1998 between 64 LTD,
LLC and Equity Inns Services, Inc.
10.33* -- Change in Control and Termination Agreement between Equity
Inns Services, Inc., Equity Inns, Inc. and Phillip H. McNeill,
Sr.
10.34* -- Change in Control and Termination Agreement between Equity
Inns Services, Inc., Equity Inns, Inc. and Howard A. Silver
10.35* -- Change in Control and Termination Agreement between Equity
Inns Services, Inc., Equity Inns, Inc. and Donald H. Dempsey
10.36* -- Change in Control and Termination Agreement between Equity
Inns Services, Inc., Equity Inns, Inc. and Phillip H. McNeill,
Jr.
10.37* -- Change in Control and Termination Agreement between Equity
Inns Services, Inc., Equity Inns, Inc. and J. Ronald Cooper
10.38* -- Change in Control and Termination Agreement between Equity
Inns Services, Inc., Equity Inns, Inc. and Richard F. Mitchell
10.39* -- Employment Agreement between Equity Inns Services, Inc.,
Equity Inns, Inc. and Donald H. Dempsey
21.1* -- List of subsidiaries of Equity Inns, Inc.
23.1* -- Consent of PricewaterhouseCoopers LLP
27.1* -- Financial Data Schedule (filed electronically with the
Securities and Exchange Commission)
</TABLE>
- --------------
* Filed herewith.
65
EXHIBIT 10.6(a)
FIRST AMENDMENT
REVOLVING CREDIT LOAN AGREEMENT
THIS FIRST AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT is made and
entered into as of the 10th day of August, 1998, by EQUITY INNS PARTNERSHIP,
L.P., a Tennessee limited partnership, and EQUITY INNS/WEST VIRGINIA
PARTNERSHIP, L.P., a Tennessee limited partnership (together herein called
"Borrower"), EQUITY INNS, INC., a Tennessee corporation, and EQUITY INNS TRUST,
a Maryland real estate investment trust (together herein called "Guarantor"),
and NATIONAL BANK OF COMMERCE, Memphis, Tennessee ("Bank").
WHEREAS, the parties executed that Revolving Credit Loan Agreement (the
"Loan Agreement"), dated as of November 14, 1997, which Loan Agreement was
executed simultaneously with a Revolving Credit Promissory Note (the "Note") in
the principal amount of $5,000,000.00, payable to Bank.
WHEREAS, the parties desire to increase the principal amount of the
Note to $10,000,000.00, amend the maturity date of the Note and make
corresponding amendments to the Loan Agreement.
W I T N E S S E T H :
For mutual considerations, receipt and sufficiency of which are hereby
acknowledged, it is agreed as follows:
The definition of "Termination Date" in Section 1.01 is modified to
change the Termination Date to December 31, 1998.
Section 2.01 is deleted in its entirety and replaced with the following
paragraph:
SECTION 2.01 Revolving Credit. Bank agrees on the terms and conditions
hereinafter set forth, to make advances ("Revolving Credit Loans") to Borrower
from time to time during the period from the date of this Agreement up to but
not including the Termination Date in an aggregate amount not to exceed at any
time outstanding TEN MILLION and No/100 DOLLARS ($10,000,000.00). Within the
limits of the Commitment, Borrower may borrow, prepay pursuant to Section 2.06,
and reborrow under this Section 2.01
Section 2.05 is deleted in its entirety and replaced with the following
paragraph:
SECTION 2.05 Revolving Credit Note. All revolving Credit Loans made by
Bank under this Agreement shall be evidenced by, and repaid with interest in
accordance with, a single promissory note of Borrower in substantially the form
of Exhibit B attached hereto duly completed in the principal amount of TEN
MILLION and No/100 DOLLARS ($10,000,000.00), payable to Bank, and maturing as to
principal on the Termination Date (the "Revolving Credit Note"). The amounts
reflected on Bank's internal records shall be deemed conclusive as to the
outstanding balance of principal and interest of the Revolving Credit Loans from
time to time absent Borrower furnishing to Bank conclusive and irrefutable
evidence of an error made by Bank with respect to such records.
<PAGE>
Section 5.02 is Amended to change the address at the Bank to:
77770 Poplar Avenue
P.O. Box 381197
Germantown, TN 38138-1197
Attention: Kim Hamner
Fax Number: (901) 757-4883
<PAGE>
GUARANTOR:
EQUITY INNS, INC.,
a Tennessee corporation
By: /s/ Howard A. Silver
---------------------
Title: President
---------------------
EQUITY INNS TRUST, a
Maryland real estate investment trust
By: /s/ Howard A. Silver
---------------------
Title: President
---------------------
BANK:
NATIONAL BANK OF COMMERCE
By: /s/ Billy Frank
---------------
Title: Vice President
---------------
EXHIBIT 10.6(b)
SECOND AMENDMENT
REVOLVING CREDIT LOAN AGREEMENT
THIS SECOND AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT is made and
entered into as of the 18th day of December, 1998, by EQUITY INNS PARTNERSHIP,
L.P., a Tennessee limited partnership, and EQUITY INNS/WEST VIRGINIA
PARTNERSHIP, L.P., a Tennessee limited partnership (together herein called
"Borrower"), EQUITY INNS, INC., a Tennessee corporation, and EQUITY INNS TRUST,
a Maryland real estate investment trust (together herein called "Guarantor"),
and NATIONAL BANK OF COMMERCE, Memphis, Tennessee ("Bank").
WHEREAS, the parties executed that Revolving Credit Loan Agreement (the
"Loan Agreement"), dated as of November 14 1997, which Loan Agreement was
executed simultaneously with a Revolving Credit Promissory Note (the "Note") in
the principal amount of $5,000,000.00, payable to Bank.
WHEREAS, as of the 10th day of August, 1998 the parties modified the
Loan Agreement and Note inter alia to increase the principal amount of the note
to $10,000,000.00 and to change the Termination Date to December 31, 1998.
WHEREAS, the parties by means of this Agreement desire to further
modify the terms of the Loan Agreement;
W I T N E S S E T H :
NOW, THEREFORE, for mutual considerations, receipt and sufficiency of
which are hereby acknowledged, it is agreed as follows:
The definition of "Termination Date" in Section 1.01 is modified to
change the Termination Date to December 31, 1999.
<PAGE>
BORROWER:
EQUITY INNS PARTNERSHIP, L.P.,
a Tennessee limited partnership
By: Equity Inns Trust, a Maryland
real estate investment trust,
its sole general partner
By: /s/ Donald H. Dempsey
---------------------
Name: Donald H. Dempsey
---------------------
Title: Executive VP, Secretary &
Treasurer, CFO
-------------------------
EQUITY INNS/WEST VIRGINIA PARTNERSHIP, L.P.,
a Tennessee limited partnership
By: Equity Inns Services, Inc.,
a Tennessee corporation,
its sole general partner
By: /s/ Donald H. Dempsey
---------------------
Name: Donald H. Dempsey
---------------------
Title: Executive VP, Secretary &
Treasurer, CFO
-------------------------
<PAGE>
GUARANTOR:
EQUITY INNS, INC.,
a Tennessee corporation
By: /s/ Donald H. Dempsey
---------------------
Title: Executive VP, Secretary &
Treasurer, CFO
-------------------------
EQUITY INNS TRUST, a
Maryland real estate investment trust
By: /s/ Donald H. Dempsey
---------------------
Title: Executive VP, Secretary &
Treasurer, CFO
-------------------------
BANK:
NATIONAL BANK OF COMMERCE
By: /s/ Billy Frank
---------------
Title: Vice President
---------------
EXHIBIT 10.7(a)
FIRST AMENDMENT TO
UNSECURED REVOLVING CREDIT AGREEMENT
This First Amendment to Unsecured Revolving Credit Agreement (the
"Amendment") is made as of November 24, 1997 by and among Equity Inns
Partnership, L.P. and Equity Inns/West Virginia Partnership, L.P. (collectively,
"Borrower"), The First National Bank of Chicago, individually and as
"Administrative Agent", Credit Lyonnais New York Branch, individually and as
"Syndication Agent" and certain other lenders shown on the signature pages
hereof.
Borrower, Administrative Agent, Syndication Agent and AmSouth Bank have
entered into an Unsecured Revolving Credit Agreement dated as of October 10,
1997 (the "Credit Agreement"). All capitalized terms used herein and not
otherwise defined shall have the meanings given to them in the Credit Agreement.
The other Lenders party to this Amendment are becoming parties to the
Credit Agreement as of the date of this Amendment by various assignment
agreements from the initial Lenders. To induce such new Lenders to join in the
Credit Agreement, the Borrower and the Lenders now desire to make certain minor
corrections and clarifications to the provisions of the Credit Agreement as
provided herein.
Therefore, the Borrower, the Administrative Agent, the Syndication
Agent and the Lenders agree as follows:
1. Modifications. The parties agree that the following Sections of the
Credit Agreement are hereby amended as follows:
(a) The definition of "Unencumbered Assets" in Section 1.1 is
hereby amended by adding the words "100% of which, in the
aggregate, are" in the first line thereof after "Properties" and
before "owned".
(b) Section 2.10(b) is hereby amended by deleting the second
sentence thereof and replacing it with the following:
Interest accrued on each Adjusted Alternate Base Rate Advance,
LIBOR Advance and Swingline Loan shall be payable in arrears
from time to time on each of (i) the first day of each
calendar month, (ii) the Maturity Date, and (iii) the
effective date of any termination of the Aggregate Commitment
in full pursuant to Section 2.17.
(c) Section 14.13(a)(i) is hereby amended by adding the words
"modifies the provisions of Section 2.6 regarding the calculation
of such interest and fees; or" at the end thereof.
(d) Section 14.13(a)(iii) is hereby amended by adding the words "a
voluntary reduction of the Aggregate Commitment under Section
2.17 or" after the words "pursuant to" in line 2 thereof.
(e) Section 15.1 and the Recitals are hereby amended by correcting
the reference to Borrower's suite number to Suite 102.
(f) Exhibit H to the Credit Agreement, the form of Compliance
Certificate, is hereby replaced by corrected Exhibit H
attached hereto.
(g) The Borrower hereby confirms that the Scope of Work for
Environmental Investigations attached hereto as Exhibit I is
the same document that was attached as Exhibit I to the Credit
Agreement.
<PAGE>
(h) The Borrower hereby confirms that the word "None" should
appear on Schedule 6.19 to the Credit Agreement and that
Schedule 7.8 to the Credit Agreement should be identical to
Schedule 6.9 thereof.
(i) The Borrower hereby represents and warrants that the
Unencumbered Assets listed on Schedule 6.26 are all owned by
the Operating Partnership except for the Properties located in
West Virginia, which are owned by EIP/WV.
2. Guarantors' Joinder. The Borrower has caused the Guarantors to execute
and return a copy of this Amendment as indicated below.
3. Continued Effect. As expressly modified as provided herein, the Credit
Agreement shall continue in full force and effect.
4. Counterparts. This Amendment may be executed in counterparts, which
shall constitute a single effective and binding document once
the Administrative Agent has received a counterpart executed by each
party hereto.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment as of the date first written above.
BORROWER: EQUITY INNS PARTNERSHIP, L.P.
By: Equity Inns Trust,
its general partner
By: /s/ Donald H. Dempsey
---------------------
Title: CFO
---------------------
EQUITY INNS/WEST VIRGINIA
PARTNERSHIP, L.P.
By: Equity Inns Services, Inc.,
its general partner
By: /s/ Donald H. Dempsey
---------------------
Title: CFO
---------------------
<PAGE>
The undersigned, as Guarantors under the Credit Agreement, hereby
consent to and join in this Amendment and agree that the Guaranty shall continue
in full force and effect.
EQUITY INNS TRUST
By: /s/ Donald H. Dempsey
---------------------
Title: CFO
---------------------
EQUITY SERVICES, INC.
By: /s/ Donald H. Dempsey
---------------------
Title: CFO
---------------------
EQUITY INNS, INC.
By: /s/ Donald H. Dempsey
---------------------
Title: CFO
---------------------
LENDERS: THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Michael A. Parisi
---------------------
Title: Michael A. Parisi
---------------------
Corporate Banking Officer
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Roderick Rohrbach
---------------------
Title: Senior Vice President
---------------------
NATIONSBANK, N.A.
By: /s/ Kevin M. Brown
------------------
Title: Vice President
------------------
PNC BANK, KENTUCKY, INC.
By: /s/ Lee Zoller
--------------
Title: AVP
--------------
FIRST NATIONAL BANK OF COMMERCE
By: /s/ Felix Banton
----------------
Title: EVP
----------------
<PAGE>
NATIONAL BANK OF COMMERCE
By: /s/ Edward L. Simpson
---------------------
Title: First Vice President
---------------------
CRESTAR BANK
By: /s/ Eric A. Lawrence
---------------------
Title: Senior Vice President
---------------------
UNION PLANTERS NATIONAL BANK
By: /s/ Elizabeth Kause
-------------------
Title: Vice President
-------------------
BANK HAPOALIM
By: /s/John M. Orpen /s/ Michael J. Byrn
-------------------------------------
Title: John M. Orpen Michael J. Byrn
-------------------------------------
Vice President VP-Sr. Lending
-------------------------------------
Officer
-------------------------------------
CHANG HWA COMMERCIAL BANK, LTD.,
NEW YORK BRANCH
/s/ Wan-Tu Yeh
By: WAN-TU YEH
--------------------
Title: VP & General Manager
--------------------
FIRST TENNESSEE BANK
By: /s/ Bob Nieman
--------------
Title: Vice President
--------------
ADMINISTRATIVE AGENT: THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Michael A. Parisi
---------------------
Title: Michael A. Parisi
---------------------
Corporate Banking Officer
<PAGE>
SYNDICATION AGENT: CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Roderick Rohrbach
---------------------
Title:
---------------------
AMSOUTH BANK
By: /s/ Lawrence Clark
------------------
Title: VP
------------------
EXHIBIT 10.7(b)
SECOND AMENDMENT TO
UNSECURED REVOLVING CREDIT AGREEMENT
This Second Amendment to Unsecured Revolving Credit Agreement (the
"Amendment") is made as of September 28, 1998 by and among Equity Inns
Partnership, L.P. and Equity Inns/West Virginia Partnership, L.P. (collectively,
"Borrower"), The First National Bank of Chicago, individually and as
"Administrative Agent", Credit Lyonnais New York Branch, individually and as
"Syndication Agent" and certain other lenders shown on the signature pages
hereof.
Borrower, Administrative Agent, Syndication Agent and such other
lenders have entered into an Unsecured Revolving Credit Agreement dated as of
October 10, 1997, as amended by a First Amendment thereto dated as of November
24, 1997 (as amended, the "Credit Agreement"). All capitalized terms used herein
and not otherwise defined shall have the meanings given to them in the Credit
Agreement.
Borrower and the Lenders now desire to make a modification to one of
the provisions of the Credit Agreement as provided herein.
Therefore, the Borrower, the Administrative Agent, the Syndication
Agent and the Lenders agree as follows:
1. Modification. The parties agree that the definition of "GAAP" in
Section 1.1 of the Credit Agreement is amended, effective as of
October 10, 1997, by adding the following words at the end thereof:
", provided however that, for purposes of calculating the Borrower's
compliance with the terms of Article IX hereof, there shall be excluded
from the quarterly determinations of Borrower's financial results for
the first three fiscal quarters of any fiscal year (but not from
Borrower's annual financial results for such fiscal year) the deferred
revenue/recognition of deferred revenue adjustments associated with the
application of Issue No. 98-9 titled "Accounting for Contingent Rent in
Interim Financial Periods" and issued by the Emerging Issues Task Force
of the Financial Accounting Standards Board".
2. Guarantors' Joinder. The Borrower has caused the Guarantors to execute
and return a copy of this Amendment as indicated below.
3. Continued Effect. As expressly modified as provided herein, the Credit
Agreement shall continue in full force and effect.
4. Counterparts. This Amendment may be executed in counterparts, which
shall constitute a single effective and binding document once
the Administrative Agent has received a counterpart executed by
the Borrower, the Administrative Agent and the Required Lenders.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment as of the date first written above.
BORROWER: EQUITY INNS PARTNERSHIP, L.P.
By: Equity Inns Trust,
its general partner
By: /s/ Howard A. Silver
--------------------
Title: President
--------------------
EQUITY INNS/WEST VIRGINIA PARTNERSHIP, L.P.
By: Equity Inns Services, Inc.,
its general partner
By: /s/ Howard A. Silver
--------------------
Title: President
--------------------
The undersigned, as Guarantors under the Credit Agreement, hereby
consent to and join in this Amendment and agree that the Guaranty shall continue
in full force and effect.
EQUITY INNS TRUST
By: /s/ Howard A. Silver
--------------------
Title: President
--------------------
EQUITY SERVICES, INC.
By: /s/ Howard A. Silver
--------------------
Title: President
--------------------
EQUITY INNS, INC.
By: /s/ Howard A. Silver
--------------------
Title: President
--------------------
<PAGE>
LENDERS: THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Rebecca McCloskey
---------------------
Title: Rebecca McCloskey
---------------------
First Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Joseph A. Asciolia
----------------------
Title: Joseph A. Asciolia
----------------------
Vice President
AMSOUTH BANK
By: /s/ Lawrence Clark
------------------
Title: VP
------------------
NATIONSBANK, N.A.
By: /s/ Kevin M. Brown
------------------
Title: Vice President
------------------
PNC BANK, KENTUCKY, INC.
By: /s/ Wayne Robertson
-------------------
Title: Vice President
-------------------
FIRST NATIONAL BANK OF COMMERCE
By: /s/ Debora Connelly
---------------------
Title: Senior Vice President
---------------------
<PAGE>
NATIONAL BANK OF COMMERCE
By: /s/ Billy Frank
---------------
Title: AVP
---------------
CRESTAR BANK
By:
-----------------
Title:
-----------------
UNION PLANTERS NATIONAL BANK
By: /s/ Elizabeth Rause
-------------------
Title: Vice President
-------------------
BANK HAPOALIM
By:
--------------------
Title:
--------------------
CHANG HWA COMMERCIAL BANK, LTD.,
NEW YORK BRANCH
/s/ Wan-Tu Yeh
By: WAN-TU YEH
--------------------
Title: VP & General Manager
--------------------
FIRST TENNESSEE BANK
By: /s/ Bob Nieman
--------------
Title: Vice President
--------------
<PAGE>
ADMINISTRATIVE AGENT: THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Rebecca McCloskey
---------------------
Title: Rebecca McCloskey
---------------------
First Vice President
SYNDICATION AGENT: CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Joseph A. Asciolla
----------------------
Joseph A. Asciolla
Title: Vice President
----------------------
AMSOUTH BANK
By: /s/ Lawrence Clark
------------------
Title: VP
------------------
EXHIBIT 10.32
COMMERCIAL LEASE
ARTICLE 1.00 BASIC LEASE TERMS
1.01. Parties. This lease agreement ("Lease") is entered into by
and between the following Lessor and Lessee:
64 LTD, LLC ("Lessor)
--------------------------
Equity Inns Services, Inc. ("Lessee")
--------------------------
1.02. Leased Premises. In consideration of the rents, terms, provisions
and covenants of this Lease, Lessor hereby leases, lets and demises to Lessee
the following described premises ("Leased Premises"):
Street: 7700 Wolf River Suite:
----------------------------- -----------------
City: Germantown State: TN Zip: 38138
----------------------------- ------ ------------
Approximate Square Feet: 9,428 Project Name: River Center
----------- -------------------
Lessee shall have a non-exclusive easement and right to use the common areas of
the project of which the Leased Premises is a part; including, without
limitation, not less than 45 parking spaces in the paved parking lot adjacent to
the Leased Premises and the right of ingress and egress from the adjacent public
right of way to such parking lot and from such parking lot to the Leased
Premises.
1.03. Term. Subject to and upon the conditions set forth herein,
the term of this Lease shall commence on December 17, 1998 (the "Commencement
Date") and shall terminate 120 months thereafter.
1.04. Base Rent & Security Deposit. Base Rent is $13,238.48 per
month. Security Deposit is $0.
1.05. Addresses.
LESSOR'S ADDRESS LESSEE'S ADDRESS
7700 Wolf River Blvd. 7700 Wolf River Blvd.
Germantown, TN 38138 Germantown, TN 38138
ARTICLE 2.00 RENT
2.01. Base Rent. Lessee agrees to pay monthly as base rent during the
term of this Lease the sum of money set forth in Section 1.04 of this Lease,
which amount shall be payable to Lessor at the address shown above, or other
address as instructed by Lessor to Lessee. One monthly installment shall be due
and payable on the date of execution of this Lease by Lessee for the (1st) first
month's rent and a like monthly installment shall be due and payable on or
before the (1st) first day of each calendar month succeeding the commencement
date or completion date during the term of this Lease; provided, if the
commencement date or the completion date should be a date other than the (1st)
first day of a calendar month, the monthly rental set forth above shall be
prorated to the end of that calendar month, and all succeeding installments of
rent shall be payable on or before the (1st) first day of each succeeding
calendar month during the term of this Lease.
2.02. Operating Expenses. Lessee agrees to pay within (30) thirty
days of Lessor's invoice date the operating expenses for the property known as
7700 Wolf River Boulevard, Germantown, TN. Lessor may invoice Lessee monthly
for the estimated operating expenses for each calendar year, which amount shall
be adjusted each year based upon reasonably anticipated operating expenses.
<PAGE>
Lessor shall provide Lessee, within (3) three months following the close of
each calendar year, an accounting statement showing in reasonable detail all
computations of additional rent under this section. In the event the total of
Lessee's estimated monthly payments exceed the actual operating expenses,
Lessee shall receive a refund with the accounting statement. In the event the
total of Lessee's estimated monthly payments are less than the actual operating
expenses, Lessee shall receive a invoice for the balance due.
2.03. Definition of Operating Expenses. The term "operating expenses"
includes all expenses incurred by Lessor with respect to the maintenance and
operation of the building of which the Leased Premises are a part, including,
but not limited to the following: maintenance and repair and replacement
(excluding structural and roof replacement) costs, electricity, gas, fuel,
water, sewer, and other utility charges; security (if any), window washing and
janitorial services, trash and snow removal, landscaping and pest control,
management fees, wages and benefits payable to employees or personnel whose
duties are directly connected with the operation and maintenance of the
building; all services and supplies required in maintaining and operating the
building or project including parking and common areas; taxes assessed upon the
buildings, land, improvements, and rents and the total cost of insurance on the
buildings and improvements, including liability coverage for Lessor and loss of
rents coverage. The term "operating expenses" does not include the following:
Lessor overhead, items that are capitalized under General Accepted Accounting
Principles salaries for anyone above property management level, capital
improvements, depreciation allowance on the buildings or equipment, interest and
principal payments on any mortgage or other indebtedness of Lessor, leasing
commissions, income taxes of Lessor, repairs or restoration work caused by fire,
wind or other casualty, advertising expenses or space renovation expenses for
new lessee's.
2.04. Late Payment Charge. Other remedies for nonpayment of rent
withstanding, if the monthly rental payment is not received by Lessor on or
before the (5th) fifth day of the month for which the rent is due, or if any
other payments due Lessor by Lessee is not received by Lessor on or before the
(5th) fifth day of the month next following the month in which Lessee was
invoiced. Lessee shall have (10) ten days from the date Lessee receives express
written notice from the Lessor that the Lessee has not made a timely payment in
order to make the payment and if not made to Lessor with (10) ten days of
notice, a late payment charge of (5) five percent of such past due amount shall
become due and payable in addition to such amounts owed under this Lease.
Additionally, Lessee shall pay Citicorp prime plus 2%, not in excess of 18% per
annum interest on any sums due Lessor under the terms and conditions of this
Lease from and after their due date.
2.05. Holding Over. In the event that Lessee does not vacate the Leased
Premises upon the expiration or termination of this Lease, Lessee shall be a
month to month tenant for the holdover period and all of the terms and
provisions of this Lease shall be applicable during that period, and Lessee
shall pay Lessor as base rental for the period of such holdover an amount equal
to the base rent which would have been payable by Lessee had the holdover period
been a part of the original term of this Lease. Lessee agrees to vacate and
deliver the Leased Premises to Lessor upon (30) thirty days notice from Lessor
to vacate. The rental payable during the holdover period shall be payable to
Lessor on or before the (5th) fifth day of the month. No holding over by Lessee
without consent of Lessor, shall operate to extend the term of this Lease.
ARTICLE 3.00 OCCUPANCY AND USE
3.01. Use. The Leased Premises shall be used and occupied by Lessee as
general office space, ancillary uses to general office or other reasonable use.
Lessee shall conduct its business and control its agents, employees, invitees
and visitors in such a manner as is lawful, reputable and will not create a
nuisance. Lessee shall not permit any operation which emits any odor or matter
which intrudes into other portions of the building or common areas, use any
apparatus or machine which makes undue noise or causes vibration in any portion
of the building. Lessee shall neither permit any waste on the Leased Premises
and Lessee shall not store any trash outside a receptacle or dumpster approved
by Lessor. Lessee shall not allow the Leased Premises to be used in any way
which would be extra hazardous on account of fire or which would in any way
increase or render void the fire insurance on the building.
3.02. Signs. No sign (temporary or permanent) of any type shall be
erected, placed or painted in, on or about the Leased Premises or prject except
those signs in uniform locations and uniform style reasonably designated and
fixed by the Lessor, which signs are in conformance with Lessor's reasonable
sign criteria eestablished for the project.
<PAGE>
3.03. Compliance with Laws, Rules and Regulations. Lessor, at its
expense, warrants that the building and improvements were constructed to comply
with and do comply with all applicable local, state, and federal building codes.
Any expenses required by Lessor's mortgage or financing shall be Lessor's
responsibility and not included as part of the Operating Expenses in Section
2.03. Lessee, at Lessee's sole cost and expense, shall comply with all laws,
ordinances, orders, rules and regulations of state, federal, municipal or other
agencies or bodies having jurisdiction over use of the Leased Premises. Lessee
will comply with all such laws, ordinances and the like applicable to its use of
the Leased Premises and the operations of its businesses therein, and with the
Rules and Regulations of the building adopted by the Lessor which are set forth
on a schedule attached to this Lease. Lessor shall have the right at all times
to change and amend the Rules and Regulations in any reasonable manner as may be
deemed advisable for the safety, care, cleanliness, preservation of good order
and operation or use of the building or the Leased Premises. All changes and
amendments to the Rules and Regulations of the building will be sent by Lessor
to Lessee in writing and shall thereafter be carried out and observed by Lessee.
3.04. Warranty of Possession. Lessor warrants that is has the right and
authority to execute this Lease, and Lessee, upon payment of the required rents
and subject to the terms, conditions, covenants, and agreements contained in
this Lease, shall have possession of the Leased Premises during the full term of
this Lease as well as any extension or renewal thereof. Lessor shall not be
responsible for the acts or omissions of any other lessee or third party that
may interfere with Lessee's use and enjoyment of the Leased Premises.
3.05. Inspection. Lessor or its authorized agents shall at any and all
reasonable times have the right to enter the Leased Premises to inspect the
same, to show the Leased Premises to prospective purchasers or lessees, and to
alter, improve or repair the Leased Premises or any other portion of the
building. Lessor shall at all times have and retain a key with which to unlock
all of the doors in, upon and about the Leased Premises. Lessee shall not change
Lessor's lock system unless Lessor's lock system used, add any additional locks
or in any manner prohibit Lessor from entering the Leased Premises. Lessor shall
have the right to use any and all means which Lessor may deem proper to open any
door in an emergency without liability therefore.
ARTICLE 4.00 UTILITIES AND SERVICE
4.01. Building Services. Lessor shall provide the following services as
specified:
YES NO
[ ] [ ] Water
[ ] [ ] Janitorial Service _____ days a week (excluding
service to kitchens or break rooms)
[ ] [ ] Electricity/Gas
Lessor shall provide routine maintenance, painting and electric
lighting service for all public areas to maintain the building as a Class A
Office Building. Should any of the equipment or machinery break down, or for any
cause, cease to function properly, Lessor shall use reasonable diligence to
repair the same properly.
4.02. Theft of Burglary. Lessor shall not be responsible for providing
security, guard or any other protective services of any kind for Lessee and its
employees, agents, customers or invitees. Lessor shall not be liable to Lessee
for losses to Lessee's property or personal injury caused by criminal acts or
entry by unauthorized persons into the Leased Premises, the building, or
exterior property.
4.03. Window Coverings. Lessor shall furnish and install window
coverings on all exterior windows to maintain a uniform exterior appearance.
Lessee shall not remove, modify, or replace these window coverings
<PAGE>
or install any other window covering which would affect the exterior appearance
of the building. Lessee may install lined or unlined draperies on the interior
sides of the Lessor furnished window coverings for interior appearance or to
reduce light transmission, provided such draperies do not affect the exterior
appearance of the building or affect the operation of the buildings heating and
air conditioning system.
ARTICLE 5.00 REPAIRS AND MAINTENANCE
5.01. Lessor Repairs. Lessor shall maintain the roof, foundation,
parking and common areas, plumbing, electrical, heating and air conditioning
systems, doors, corridors, windows, and structural soundness of the exterior
walls. Lessor shall not be liable to Lessee, except as expressly provided in
this Lease, for any damage or inconvenience, and Lessee shall not be entitled to
any abatement or reduction of rent by reason of any repairs, alterations or
additions made by Lessor under this Lease, provided Lessor has used reasonable
diligence to make such repairs within (15) fifteen days.
5.02. Lessee Repairs. Lessee shall, at its own cost and expense, repair
or replace any damage or injury to all or any part of the Leased Premises or
building caused by any act or omission of Lessee or Lessee's agents, employees,
invitees, licensees or visitors. If Lessee fails to make the repairs or
replacements promptly as required herein, Lessor may, at its option, make the
repairs and replacements and the cost of such repairs and replacements shall be
charged to Lessee as additional rent and shall become due and payable by Lessee
within (10) ten days from receipt of Lessor's invoice.
5.03. Request for Repairs. All request for repairs or maintenance that
are the responsibility of Lessor pursuant to any provision of this Lease must be
made in writing to Lessor at the address in Section 1.05.
5.04. Lessee Damages. Lessee shall not intentionally cause any damage
to the Leased Premises or building, and at the termination of this Lease, by
lapse of time or otherwise. Lessee shall deliver the Leased Premises to Lessor
in as good condition as existed at the commencement date of this Lease, ordinary
wear and tear excepted. The cost and expense of any repairs necessary to restore
the condition of the Leased Premises, other than normal wear and tear, shall be
borne by Lessee.
5.05. Mechanic's Lien. Lessee will cause any mechanic's or
materialman's lien or other lien to be placed upon the Leased Premises or the
building and nothing in this Lease shall be deemed or construed in any way as
constituting the consent or request of Lessor, express or implied, by inference
or otherwise, to any person for the performance of any labor or the furnishing
of any materials to the Leased Premises, or any part thereof, nor as giving
Lessee any right, power, or authority to contract for or permit the rendering of
any services or the furnishing of any materials that would give rise to any
mechanic's, materialman's or other lien against the Leased Premises. In the
event Lessor obtains the release of such lien, the amount paid by Lessor shall
be due and payable by the Lessee within (10) ten days of Lessor's notice.
ARTICLE 6.00 ALTERATIONS AND IMPROVEMENTS
6.01. Lessor Improvements. Lessor agrees to construct the interior
improvements to the Leased Premises as per the attached plans labeled Exhibit A
at Lessor's expense.
6.02. Lessee Improvements. Lessee shall not make or allow to be made
any material alterations in or to the Leased Premises without first obtaining
the written consent of the Lessor, which consent may in the sole and absolute
discretion of Lessor be denied. Any alterations, physical additions or
improvements to the Leased Premises made by Lessee shall be surrendered to
Lessor upon the termination of this Lease; provided, however, if Lessor, at its
option, may require Lessee to remove any physical additions and/or repair any
alterations in order to restore the Leased Premises to the condition existing at
the time Lessee took possession, all cost of removal and/or alterations to be
borne by Lessee. This clause shall not apply to non-structural alterations,
fixtures, moveable equipment or furniture owned by Lessee, which may be removed
by Lessee at the end of this Lease if Lessee is not then in default and if such
equipment and furniture are not then subject to any other rights, liens, and
interest of Lessor.
<PAGE>
ARTICLE 7.00 CASUALTY AND INSURANCE
7.01. Substantial Destruction. If the Leased Premises should be totally
destroyed by fire or other casualty, or the Leased Premises should be damaged so
that rebuilding cannot reasonably be completed within (90) ninety working days
after the date of written notification by Lessee to Lessor of the destruction,
this Lease shall terminate and rent shall be abated for the unexpired portion of
the Lease, effective as of the date of written notification.
7.02. Partial Destruction. If the Leased Premises should be partially
damaged by fire or other casualty, and rebuilding or repairs can reasonably be
completed within (90) ninety working days from the date of written notification
by Lessee to Lessor of the destruction, this Lease shall not terminate, and
Lessor shall at its risk and expense proceed with reasonable diligence to
rebuild or repair the building or other improvements to substantially the same
condition in which they were delivered to the Lessee at the commencement date of
the Lease. If the Leased Premises are to be rebuilt or repaired and are
untenantable in whole or in part following the damage, and the damage or
destruction was not caused or contributed by the gross negligence of Lessee, its
agents, employees, invitees or those for whom Lessee is responsible, the rent
payable under this Lease during the period for which the Leased Premises are
untenantable shall be abated during that period. In the event that Lessor fails
to complete the necessary repairs or rebuilding within (90) ninety working days
from the date of written notification by Lessee to Lessor of the destruction,
Lessee may at its option terminate this Lease by delivering written notice of
termination to Lessor, whereupon all rights and future obligations under this
Lease shall cease to exist.
7.03. Property Insurance. Lessor shall at all times during the term of
this Lease maintain a policy or policies of insurance with the premiums paid in
advance, issued by and binding upon some solvent insurance company, insuring the
buildings and improvements made by Lessor against all risk of direct physical
loss in an amount equal to at least (90) ninety percent of the full replacement
cost of the building structure and its improvements made by Lessor as of the
date of the loss; provided, Lessor shall not be obligated in any way or manner
to insure, protect, or replace any personal property (including, but not limited
to, any furniture, equipment, machinery, goods, fixtures, inventory, supplies,
records or leasehold improvements made by Lessee) of Lessee upon or within the
Leased Premised. Lessee shall have no right in or claim to the proceeds of any
policy of insurance maintained by Lessor even if the cost of such insurance is
borne by Lessee as set forth in Section 2.02.
7.04. Waiver of Subrogation. Anything in this Lease to the contrary
notwithstanding, Lessor and Lessee hereby waive and release each other of and
from any and all right of recovery, claim, action or cause of action, against
each other, their agents, officers and employees, for any loss or damage that
may occur to the Leased Premises, improvements to the building of which the
Leased premises are a part, or personal property within the building, by reason
of fire or elements, regardless of cause or origin, including negligence of
Lessor or Lessee and their agents, officers and employees. Lessor and Lessee
agree immediately to give their respective insurance companies which have issued
policies of insurance covering all risk of direct physical loss, written notice
of the terms of the mutual waivers contained in this section, and to have the
insurance policies properly endorsed, if necessary, to prevent the invalidation
of the insurance coverages by reason for the mutual waivers.
7.05. Hold Harmless. Lessor shall not be liable to Lessee's employees,
agents, invitees, licensees or visitors, or to any other person, for any injury
to person or damage to property on or about the Leased Premises caused by any
act or omission of Lessee, its agents, servants or employees, or any other
person entering upon the Leased Premises under express or implied invitation by
Lessee. Lessee agrees to indemnify and hold harmless Lessor of and from any
loss, attorney's fees, expenses or claims arising out of any such damage or
injury.
ARTICLE 8.00 CONDEMNATION
8.01. Substantial Taking. If all or a part of the Leased Premises are
taken for any public or quasi-public use under any governmental law, ordinance
or regulation, or by right of eminent domain or by purchase in lieu thereof, and
the taking would prevent or materially interfere with the use of the Leased
Premises for the purpose as defined in Section 3.01, this Lease shall terminate
and the rent shall be abated during the unexpired portion of this Lease
effective on the date physical possession is taken by the condemning authority.
Lessee shall have no claim to the condemnation award or proceeds in lieu
thereof.
<PAGE>
8.02. Partial Taking. If a portion of the Leased Premises shall be
taken for any public or quasi-public use under any governmental law, ordinance
or regulation, or by right of eminent domain or by purchase in lieu thereof, and
this Lease is not terminated as provided in Section 8.01 above, Lessor shall at
Lessor's sole risk and expense, restore and reconstruct the building and other
improvements on the Leased Premises (as delivered by Lessor) to the extent
necessary to make it reasonably tenantable. The rent payable under this Lease
during the unexpired portion of the term shall be adjusted to such an extent as
may be fair and reasonable under the circumstance. Lessee shall have no claim to
the condemnation award of proceeds in lieu thereof.
ARTICLE 9.00 ASSIGNMENT OR SUBLEASE
9.01. Lessor Assignment. Lessor shall have the right to sell, transfer
or assign, in whole or in part, its rights and obligations under this Lease and
in the building to a party that assumes the obligations of Lessor under this
Agreement. Any such sale, transfer or assignment shall operate to release Lessor
from any and all liabilities under this Lease arising as of the date of such
sale, assignment or transfer.
9.02. Lessee Assignment. Lessee shall not assign, in whole or in part,
this Lease, or allow it to be assigned, in whole or in part, by operation of law
or by transfer (100% stock transfer, merger or consolidation shall not be deemed
an assignment) or mortgage or pledge the same, or sublet the Leased Premises, in
whole or in part, without the prior written consent of Lessor, which consent
shall not be unreasonably withheld, and in no event shall any such assignment or
sublease ever release Lessee or any guarantor from any obligation or liability
hereunder. No assignee or sublessee of the Leased Premises or any portion
thereof may assign or sublet the Leased Premises or any portion thereof.
9.03. Conditions of Assignment. If Lessee desires to assign or sublet
all or any part of the Leased Premises, it shall notify Lessor at least (30)
thirty days in advance of the date on which Lessee desires to make such
assignment or sublease. Lessee shall provide Lessor with a copy of the proposed
sublease or assignment and such information as Lessor might request concerning
the proposed sublessee or assignee to allow Lessor to make informed judgments as
to the financial condition, reputation, operations, and general desirability of
the proposed sublessee or assignee. Within (15) fifteen days after Lessor's
receipt of Lessee's proposed assignment or sublessee and all required
information concerning the proposed sublessee or assignee, Lessor shall have the
following options: 1) consent to the proposed assignment or sublease or 2)
refuse, but only for good cause which shall be expressed in writing, with the
failure to give notice within (20) twenty business days being deemed a consent
to the proposed assignment or sublease.
9.04. Rights of Mortgagee. Lessee accepts this Lease subject and
subordinate to any recorded mortgage or deed of trust lien presently or
hereafter created upon the building or project and to all existing recorded
restrictions, covenants, easements and agreements with respect to the building
or project, provided such mortgage or other document provides that the Lessee
shall not be disturbed in its possession of the Leased Premises in accordance
with this Lease provided Lessee is not in default under this Lease. Lessor is
hereby irrevocably vested with full power and authority to subordinate Lessee's
interest under this Lease to any mortgagor deed of trust hereafter placed on the
Leased Premises, and Lessee agrees upon demand to execute additional instruments
subordinating this Lease as Lessor may require, provided such mortgage or other
document provides that the Lessee shall not be disturbed in its possession of
the Leased Premises in accordance with this Lease provided Lessee is not in
default under this Lease. If the interest of Lessor under this Lease shall be
transferred by reason of foreclosure or other proceedings for enforcement of any
first mortgage or deed of trust on the Leased Premises, Lessee shall be bound to
the transferee (sometimes called the "Purchaser") at the option of the
Purchaser, under the terms, covenants and conditions of this Lease for the
balance of the term remaining, including any extensions or renewals, with the
same force and effect as if the Purchaser were Lessor under this Lease, and, if
requested by Purchaser, Lessee agrees to attorn to the Purchaser, including the
first mortgage under any such mortgage if it be the Purchaser, as its Lessor.
9.05. Estoppel Certificates. Lessee agrees to furnish, from time to
time, within (10) ten days after receipt of a request from Lessor Lessor's
mortgagee, a statement certifying the following (to the extent true and
correct): Lessee is in possession of the Leased Premises; the Leased Premises
are acceptable; the Lease is in full force and effect; the Lease is unmodified;
Lessee claims no present charge, lien, or claim of offset against rent;
<PAGE>
the rent is paid for the current month, but is not prepaid for more than (1) one
month and will not be prepaid for more than (1) one month in advance; there is
no existing default by reason of some act or omission by Lessor; and such other
matters as may be reasonably be required by Lessor or Lessor's mortgagee.
Lessee's failure to deliver such statement, in addition to being in default
under this Lease, shall be deemed to establish conclusively that this Lease is
in full force and effect except as declared by Lessor, that Lessor is not in
default of any of its obligations under this Lease, and that Lessor has not
received more than (1) one month rent in advance. To the extent requested by
Lessee, the Lessor shall issue estoppel certificates reasonably requested by the
Lessee.
ARTICLE 10.00 DEFAULT AND REMEDIES
10.01. Default by Lessee. The following shall be deemed to be events of
default by Lessee under this Lease: (1) Lessee shall fail to pay when due any
installment of rent or any other payment required pursuant to this Lease and
such failure is not cured within ten days after express written notice of such
failure from the Lessor to the Lessee; ;(2) Lessee shall fail to comply with any
term, provision or covenant of this Lease, other than the payment of rent, and
the failure is not cured within (3) thirty days after written notice to Lessee
or such additional reasonable period of time needed to cure such default
provided the Lessee is diligently pursuing such a cure; (4) Lessee shall file a
petition or be adjudged bankrupt or insolvent under any applicable federal or
state bankruptcy or insolvency law or admit that it cannot meet its financial
obligations as they become due; or a receiver or trustee shall be appointed for
all or substantially all of the assets of Lessee; or Lessee shall make a
transfer in fraud of creditors or shall make an assignment for the benefit of
creditors; or (5) Lessee shall do or permit to be done any act which results in
a lien being filed against the Leased Premises or the building and/or project of
which the Leased Premises are a part and Lessee fails to pay, bond off, provide
security or contest such lien.
10.02. Remedies for Lessee's Default. Upon the occurrence of any event
of default set forth in this Lease, Lessor shall have the option to pursue any
one or more of the remedies set forth herein without any notice or demand. (1)
Lessor may enter upon and take possession of the Leased Premises, by picking or
changing locks if necessary, and lock out, expel or remove Lessee and any other
person who may be occupying all or any part of the Leased Premises without being
liable for any claim for damages of any kind, and relet the Leased Premises on
behalf of Lessee and receive the rent directly by reason of the reletting.
Lessee agrees to pay Lessor on demand any deficiency that may arise by reason of
any reletting of the Leased Premises; further, Lessee agrees to reimburse Lessor
for any expenditures made by it in order to relet the Leased Premises,
including, but not limited to, remodeling and repair costs. (2) Lessor may enter
upon the Leased Premises, by picking or changing the locks if necessary, without
being liable for any claim for damages, and do whatever Lessee is obligated to
under the terms of this Lease. Lessee agrees to reimburse Lessor on demand for
any expenses which Lessor may incur in effecting compliance with Lessee's
obligations under this Lease; further, Lessee agrees that Lessor shall not be
liable for any damages resulting to Lessee from effecting compliance with
Lessee's obligations under this Lease caused by the negligence of Lessor or
otherwise. (3) Lessor may terminate this Lease, in which event Lessee shall
immediately surrender the Leased Premises to Lessor, and if Lessee fails to
surrender the Leased Premises, Lessor may, without prejudice to any other remedy
which it may have for possession or arrearages in rent, enter upon and take
possession of the Leased Premises, by picking or changing locks, if necessary,
and lock out, expel or remove Lessee and any other person who may be occupying
all or any part of the Leased Premises without being liable for any claim for
damages. Lessee agrees to pay on demand the amount of all loss and damage which
Lessor may suffer by reason of the termination of the Lease under this section,
whether through inability to relet the Leased Premises on satisfactory terms or
otherwise. Notwithstanding any other remedy set forth in this Lease, in the
event Lessor has made rent concessions of any type or character, or waived any
base rent, and Lessee fails to take possession of the Leased Premises on the
commencement date or otherwise defaults at any time during the terms of this
Lease, the rent concessions, including any waived base rent, shall be canceled
and the amount of the base rent or other rent concessions shall be due and
payable immediately as if no rent concessions or waiver of any base rent had
ever been granted. A rent concession or waiver of the base rent shall not
relieve Lessee of any obligation to pay any other charge due and payable under
this Lease, including, without limitation, any sum due under Section 2.02.
Notwithstanding anything contained in this Lease to the contrary, this Lease may
be terminated by Lessor only by mailing or delivering written notice of such
termination to Lessee, and no other act or omission of Lessor shall be construed
to be a termination of this Lease. The Lessor shall take reasonable steps to
mitigate damages from any default.
<PAGE>
ARTICLE 11.00 DEFINITIONS
11.01. Abandon. "Abandon" means the vacating of all or a substantial
portion of the Leased Premises by Lessee, whether or not Lessee is in default of
the rental payments due under this Lease.
11.02. Act of God or Force Majeure. An "act of God" or "force majeure"
is defined for purposes of this Lease as strikes, lockouts, sit-downs, material
or labor restrictions by any governmental authority, unusual transportation
delays, riots, floods, washouts, explosions, earthquakes, fire, storms, weather
(including wet weather or inclement weather which prevents construction), acts
of the public enemy, wars, insurrections and any other cause not reasonably
within the control of Lessor and which by the exercise of due diligence Lessor
is unable, wholly or in part, to prevent or overcome.
11.03. Building or Project. "Building" or "project" as used in this
Lease means the building and/or project described in Section 1.02, including the
Leased Premises and the land upon which the building or project is situated.
11.04. Commencement Date. "Commencement date" shall be the date set
forth in Section 1.03.
11.05. Proportionate Share. "Proportionate Share" shall be defined as
being a fraction, the numerator of which is the gross square feet in the
premises (as defined in Section 1.02) and the denominator of which is the total
square feet of area within the project in which the premises are located.
11.06. Square Feet. "Square feet" or "square foot" as used in this
Lease includes the area contained within the Leased Premises together with a
common area percentage factor of the Leased Premises proportionate to the total
building area.
ARTICLE 12.00 MISCELLANEOUS
12.01. Waiver. Failure of Lessor to declare an event of default
immediately upon its occurrence, or delay in taking any action in connection
with an event of default, shall not constitute a waiver of the default, but
Lessor shall have the right to declare the default at any time and take such
action as is lawful or authorized under this Lease. Pursuit of any one or more
of the remedies set forth in article 10.00 above shall not preclude pursuit of
any one or more or the other remedies provided elsewhere in this Lease or
provided by law, nor shall pursuit of any remedy constitute forfeiture or waiver
of any rent or damages accruing to Lessor by reason of the violation of any of
the terms, provisions or covenants of this Lease. Failure by Lessor to enforce
one or more of the remedies provided upon an event of default shall not be
deemed or construed to constitute a waiver of the default or of any other
violation or breach of any of the terms, provisions and covenants contained in
this Lease.
12.02. Act of God. Lessor or Lessee shall not be required to perform
any covenant or obligation in this Lease, or be liable in damages, so long as
the performance or non-performance of the covenant or obligation is delayed,
caused or prevented by any act of God, force majeure or by the other party.
12.03. Attorney's Fees. In the event Lessee/Lessor defaults in the
performance of any of the terms, covenants, agreements or conditions contained
in this Lease and Lessor/Lessee places in the hands of an attorney the
enforcement of all or any part of this Lease, the prevailing parties cost of
collection, including reasonable attorneys fees and litigation cost, whether
suit is actually filed or not, shall be paid by the losing party.
12.04. Successors. This Lease shall be binding upon and inure to the
benefit of Lessor and Lessee and their respective heirs, personal
representatives, successors and assigns. It is hereby covenanted and agreed that
should Lessor's interest in the Leased Premises cease to exist for any reason
during the term of this Lease, then notwithstanding the happening of such event
this Lease nevertheless shall remain unimpaired and in full force and effect,
and Lessee hereunder agrees to attorn to the then owner of the Leased Premises,
provided such owner assumes in writing the obligations of the Lessor under this
Agreement.
<PAGE>
12.05. Captions. The captions appearing in the Lease are inserted only
as a matter of convenience and in no way define, limit, construe or describe the
scope or intent of any section.
12.06. Notice. All rent and other payments to be made by Lessee shall
be payable to Lessor at the address set forth in Section 1.05 or at any other
address within the United States as Lessor may specify from item to time by
written notice. Any notice or document required or permitted to be delivered by
the terms of this Lease shall be deemed to be delivered (whether or not actually
received) when deposited in the United States Mail, postage prepaid, certified
mail, return receipt requested, addressed to the parties at the respective
addresses set forth in Section 1.05.
12.07. Severability. If any provision of this Lease or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Lease and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent of the law.
12.08. Lessor's Liability. If Lessor shall be in default under this
Lease and, if as a consequence of such default, Lessee shall recover a money
judgment against Lessor, such judgment shall be satisfied only out of the right,
title and interest of Lessor in the building as the same may then be encumbered
and neither Lessor nor any person or entity comprising Lessor shall be liable
for any deficiency. In no event shall Lessee have the right to levy execution
against any property of Lessor nor any person or entity comprising Lessor other
than its interest in the building as herein expressly provided.
ARTICLE 13.00 AMENDMENT AND LIMITATION OF WARRANTIES
13.01. Entire Agreement. IT IS EXPRESSLY AGREED BY LESSEE, AS A
MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH
THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT
OF THE PARTIES; A THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS,
WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO
THIS LEASE OR TO THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT
INCORPORATED IN WRITING IN THIS LEASE.
13.02. Amendment. THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR
EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LESSOR AND LESSEE.
13.03. Limitation of Warranties. LESSOR AND LESSEE EXPRESSLY AGREE THAT
THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OR MERCHANTABILITY, HABITABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR ANY KIND ARISING OUT OF THIS LEASE, AND
THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS
LEASE.
<PAGE>
ARTICLE 14.00 OTHER PROVISIONS
14.01. Insurance. Lessee shall at all times during the terms of this
Lease maintain commercial general liability coverage with single combined limits
not less than $1,000,000 with the premiums paid no fewer than (10) ten days in
advance, issued by and binding upon an reputable insurance company, protecting
and naming the Lessor, Lessor's Agents and Lessor's mortgage as additional
insured. Lessee shall obtain a written provision in the subject policy whereby
the insurance company is required to notify Lessor in writing no fewer than (20)
twenty days prior to the cancellation of such insurance.
14.02. Waste. Lessee and its employees, agents and invitees shall not
store, place, dispose, stack, assemble (temporary or permanent) any
items/materials of any nature outside of the actual Leased Premises under any
condition other than the approved trash dumpster as provided by the Lessor, in
the event any items are in violation of this lease provision. Lessor shall have
the undisputed right to have the items/materials removed and disposed of at
Lessee's sole expense and Lessee shall not have any recourse against Lessor.
14.03. Lease Signs. Lessee shall not place any signs advertising the
premises "For Lease" on or about the premises at any time in order to sublease
the premises.
14.04. Hazardous Waste. Lessee, its assigns, and sublessees shall not
receive, store, dispose of or handle any "red label" substances or hazardous
substances defined as "hazardous waste," "extremely hazardous waste" or
"hazardous substance," as defined by state, federal and local government law.
Strictly prohibited in any form or quantity is asbestos, corrosives,
polychlorabiphenyls ("PCB s"), and petroleum. Lessee shall not causes the Leased
Premises to become contaminated in any manner for which the Lessee is legally
liable, and Lessee shall indemnify and hold harmless Lessor from any and all
claims, damages, fines, judgments, penalties, costs, liabilities, or losses due
to contamination, spills or leakage on or about the Leased Premises caused by
the Lessee.
14.05. Early Possession. In the event Lessee is permitted by Lessor to
enter, perform work on or to occupy the Leased Premises, either exclusively or
otherwise, prior to the commencement date, it is agreed that all of Lessee's
undertakings and obligations set forth in this Lease, other than Lessee's
obligations to pay rent, shall be effective from and after the date of Lessee's
entry, work commencement or occupancy.
ARTICLE 15.00 SIGNATURES
SIGNED THIS 11TH DAY OF JANUARY, 1999.
LESSOR LESSEE
SIGNED: /s/ M. Spence Ray SIGNED: /s/ Phillip H. McNeill, Sr.
----------------- ---------------------------
TITLE: Managing Member TITLE: CEO
----------------- ---------------------------
President-Equity Inns Services, Inc.
<PAGE>
RULES AND REGULATIONS
1) Lessee shall refer all contractors, servicemen, repairmen, and installation
technicians rendering any service to Lessee, to Lessor for Lessor's
consultations before any work or contractual service is performed. This
provision shall apply to all work of any and every kind in or about the Leased
Premises or property, including, but not limited to, telephones, telegraph
equipment, electrical devices and attachments, and installations of any nature
affecting floors, walls, woodwork, trim, ceilings, glass, windows, frames,
plumbing or any other physical portion of the building. Under no circumstances
shall Lessee or any employee, agent or repairman working for the Lessee go on
the roof of the Leased Premises or building without first obtaining written
consent from the Lessor.
2) Lessee shall not at any time occupy the Leased Premises or project as
sleeping or lodging quarters.
3) No dogs, cats, fowl or any other animals, insects, etc. shall be brought
upon, into or about the project or Leased Premises
4) No person shall use any radio, record player, tape recorded, stereo, musical
instrument, loudspeaker or other apparatus that emits noise or disturbs the
other Lessees in the building or project. No antennas, receiving dishes or any
other device of a similar nature shall be placed in, on or about the Leased
Premises or project.
5) None of the parking areas, walks, entries or doors shall be blocked or
obstructed in any way.
6) Lessee shall be solely responsible for any damage caused by the building,
property or Leased Premises by moving or taking out property, furniture,
inventory, fixtures, etc. by Lessee, Lessee's employees, or contractors.
7) No draperies, shutters, window coverings or reflective film/tape of any kind
or nature shall be installed on exterior windows or doors without Lessor's
written consent.
8) Lessor reserves the right to make such other reasonable rules and regulations
as in its judgment may from time to time be necessary for the safety, care,
operation and cleanliness of the Leased Premises and project.
9) Lessee agrees to cooperate and assist Lessor in the prevention of canvassing,
soliciting and peddling on or about the Leased Premises or project.
10) Lessee shall furnish Lessor on demand the license numbers of Lessee's and
Lessee's employees vehicles and shall notify Lessor within (5) five days after
such change of any changes that occur. Lessee shall not park any vehicle in a
state of disrepair (including, without limitation, flat tires, dripping oil or
fluids, out of date inspection stickers or license plates) on the Leased
Premises or the project, and Lessor has the full right and authority to tow and
store any such vehicle at Lessee's expense if done so. Lessee and its employees,
agents and invitees shall not wash, repair, or perform maintenance on any
vehicle under any circumstances on or about the project or Leased Premises.
12) Lessor shall have reasonable control over all common areas throughout the
term of this Lease.
13) Movement in or out of the building of major furniture of office equipment
shall be restricted to hours designated by Lessor. All such movement shall be
under the supervisions of Lessor and carried out in the manner instructed by
Lessor before the movement takes place. Such prearrangement will include
determination by Lessor of time, method, and routing of movement and limitations
imposed by safety or other concerns which may prohibit any article, equipment,
or any other item from being brought into the building. Lessee assumes and shall
indemnify Lessor against all risks and claims of damage to persons and
properties arising in connection with any said movement.
14) Lessee shall not throw any articles of any kind or nature out of the windows
of the building or down the stairways or other passages.
15) Lessor shall not be liable for any damages from the stoppage of elevators
for necessary or desirable repairs or improvements or delays of any nature or
duration in connection with the elevator service.
16) Lessee shall not lay or install any floor covering within the Leased
Premises without the written consent of the Lessor. The use of cement or other
similar adhesive materials not easily removed with water is expressly
prohibited.
EXHIBIT 10.33
CHANGE IN CONTROL AND TERMINATION AGREEMENT
THIS CHANGE IN CONTROL AND TERMINATION AGREEMENT (the
"Agreement"), to be effective as of the 9th day of November, 1998, 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 Phillip H. McNeill, Sr. (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
<PAGE>
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. Notwithstanding the
foregoing, for purposes of calculating Base Period Income
under section 2.5, the figure used as a Bonus (or projected
Bonus, for purposes of section 2.5(b)(ii)) for any fiscal year
shall be the greater of (i) the actual Bonus paid (or
projected, for purposes of section 2.5(b)(ii)) for that year,
or (ii) the Bonus that would have been paid if (A) reductions
that would permit a termination with Good Reason had not
occurred, and (B) the discretionary portion of the Bonus was
paid at the higher of "target" or actual levels.
(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
<PAGE>
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.
<PAGE>
(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
Chairman of the Board and Chief Executive Officer of the
Company/Chairman of the Board and Chief Executive Officer of
the Parent without his consent within six (6) months of such
diminution of duties, responsibilities or functions; or
(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; or (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
<PAGE>
by the Parent's Board in good faith. For purposes of section
1.2(vi)(C), awards under the 1994 Plan, and other compensatory
awards granted with respect to the Parent's capital stock
under any other plan or outside of a plan, shall not be
considered "employee benefits" and shall be subject to
reduction except to the extent those awards are otherwise
subject to restrictions on reductions in Bonus levels under
section 1.2(vi)(B); or
(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
<PAGE>
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 three (3) 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. 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"). Notwithstanding the foregoing, 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:
<PAGE>
(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) the sum of the Bonuses paid to or earned by the
Executive for the three fiscal years immediately
preceding the year in which the Executive's
employment with the Company terminates, divided by
the number of such fiscal years for which a Bonus was
paid to or earned by the Executive; 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 earned no Bonus for any fiscal year
prior to the year in which his employment with the
Company terminates, 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.
All Bonuses shall be determined in accordance with
section 1.2(d), including provisions that specify an
amount to be used in lieu of the Bonus actually paid
or projected for a fiscal year. The provisions of
this section 2.5(b) and section 1.2(d) are
illustrated by the following examples:
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
<PAGE>
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).
Example. Assume the same "target" Bonus levels for
1998 as set forth above. Further assume that (i) a
Potential Change in Control occurs (and, thus, the
Employment Period begins) in January, 1999; (ii) each
of the Bonus projections subsequently established by
the Compensation Committee for the 1999 fiscal year
are set at a level lower than the corresponding Bonus
level projections for 1998; and (iii) Executive's
employment is terminated without Cause in January,
1999. Finally, assume that (i) corporate performance
for fiscal 1999 met "target" levels of achievement;
and (ii) the Compensation Committee determined that
the individual component of the Bonus for 1999 would
be paid at "target" levels. Executive's average
Bonus, for purposes of calculating his Base Period
Income would be $268,333.34 ([$255,000 for 1997 +
$275,000 for 1998 + $275,000 for 1999]). Note that
"target" levels for both the corporate and individual
component as established for 1998 are used to
calculate the average Bonus, because the "target"
levels established for 1999 were lower than "target"
levels established for 1998 - and would have
permitted a termination for Good Reason.
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
<PAGE>
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.
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
<PAGE>
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
<PAGE>
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.
<PAGE>
(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,
<PAGE>
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) Acknowledgment. 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.
<PAGE>
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 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.
<PAGE>
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:
<PAGE>
(a) If to the Executive:
Phillip H. McNeill, Sr.
4735 Spottswood
Suite 102
Memphis, TN 38117
(b) If to the Company
Equity Inns Services, Inc.
4735 Spottswood
Suite 102
Memphis, TN 38117
(c) If to the Parent:
Equity Inns, Inc.
4735 Spottswood
Suite 102
Memphis, TN 38117
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.
<PAGE>
EXECUTIVE:
By: /s/ Phillip H. McNeill, Sr.
---------------------------
[Name of Executive]
EQUITY INNS SERVICES, INC.:
By: /s/ Phillip H. McNeill, Sr.
---------------------------
Title: CEO
---------------------------
EQUITY INNS, INC.:
By: /s/ Phillip H. McNeill, Sr.
---------------------------
Title: CEO
---------------------------
EXHIBIT 10.34
CHANGE IN CONTROL AND TERMINATION AGREEMENT
THIS CHANGE IN CONTROL AND TERMINATION AGREEMENT (the
"Agreement"), to be effective as of the 9th day of November, 1998, 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 Howard A. Silver (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
<PAGE>
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. Notwithstanding the
foregoing, for purposes of calculating Base Period Income
under section 2.5, the figure used as a Bonus (or projected
Bonus, for purposes of section 2.5(b)(ii)) for any fiscal year
shall be the greater of (i) the actual Bonus paid (or
projected, for purposes of section 2.5(b)(ii)) for that year,
or (ii) the Bonus that would have been paid if (A) reductions
that would permit a termination with Good Reason had not
occurred, and (B) the discretionary portion of the Bonus was
paid at the higher of "target" or actual levels.
(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
<PAGE>
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
<PAGE>
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
President and Chief Operating Officer of the Company/President
and Chief Operating Officer of the Parent without his consent
within six (6) months of such diminution of duties,
responsibilities or functions; or
(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; or (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
<PAGE>
by the Parent's Board in good faith. For purposes of section
1.2(vi)(C), awards under the 1994 Plan, and other compensatory
awards granted with respect to the Parent's capital stock
under any other plan or outside of a plan, shall not be
considered "employee benefits" and shall be subject to
reduction except to the extent those awards are otherwise
subject to restrictions on reductions in Bonus levels under
section 1.2(vi)(B); or
(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
<PAGE>
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 three (3) 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. 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"). Notwithstanding the foregoing, 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:
<PAGE>
(a) Average Annual Base Salary, determined as followsw:
(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) the sum of the Bonuses paid to or earned by the
Executive for the three fiscal years immediately
preceding the year in which the Executive's
employment with the Company terminates, divided by
the number of such fiscal years for which a Bonus was
paid to or earned by the Executive; 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 earned no Bonus for any fiscal year
prior to the year in which his employment with the
Company terminates, 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.
All Bonuses shall be determined in accordance with
section 1.2(d), including provisions that specify an
amount to be used in lieu of the Bonus actually paid
or projected for a fiscal year. The provisions of
this section 2.5(b) and section 1.2(d) are
illustrated by the following examples:
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
<PAGE>
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).
Example. Assume the same "target" Bonus levels for
1998 as set forth above. Further assume that (i) a
Potential Change in Control occurs (and, thus, the
Employment Period begins) in January, 1999; (ii) each
of the Bonus projections subsequently established by
the Compensation Committee for the 1999 fiscal year
are set at a level lower than the corresponding Bonus
level projections for 1998; and (iii) Executive's
employment is terminated without Cause in January,
1999. Finally, assume that (i) corporate performance
for fiscal 1999 met "target" levels of achievement;
and (ii) the Compensation Committee determined that
the individual component of the Bonus for 1999 would
be paid at "target" levels. Executive's average
Bonus, for purposes of calculating his Base Period
Income would be $268,333.34 ([$255,000 for 1997 +
$275,000 for 1998 + $275,000 for 1999]). Note that
"target" levels for both the corporate and individual
component as established for 1998 are used to
calculate the average Bonus, because the "target"
levels established for 1999 were lower than "target"
levels established for 1998 - and would have
permitted a termination for Good Reason.
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
<PAGE>
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.
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
<PAGE>
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
<PAGE>
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.
<PAGE>
(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,
<PAGE>
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) Acknowledgment. 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.
<PAGE>
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.
<PAGE>
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:
<PAGE>
(a) If to the Executive:
Howard A. Silver
4735 Spottswood
Suite 102
Memphis, TN 38117
(b) If to the Company
Equity Inns Services, Inc.
4735 Spottswood
Suite 102
Memphis, TN 38117
(c) If to the Parent:
Equity Inns, Inc.
4735 Spottswood
Suite 102
Memphis, TN 38117
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.
<PAGE>
EXECUTIVE:
By: /s/ Howard A. Silver
--------------------
[Name of Executive]
EQUITY INNS SERVICES, INC.:
By: /s/ Phillip H. McNeill, Sr.
---------------------------
Title: CEO
---------------------------
EQUITY INNS, INC.:
By: /s/ Phillip H. McNeill, Sr.
---------------------------
Title: CEO
---------------------------
EXHIBIT 10.35
CHANGE IN CONTROL AND TERMINATION AGREEMENT
THIS CHANGE IN CONTROL AND TERMINATION AGREEMENT (the
"Agreement"), to be effective as of the 9th day of November, 1998, 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 Donald H. Dempsey (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
<PAGE>
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. Notwithstanding the
foregoing, for purposes of calculating Base Period Income
under section 2.5, the figure used as a Bonus (or projected
Bonus, for purposes of section 2.5(b)(ii)) for any fiscal year
shall be the greater of (i) the actual Bonus paid (or
projected, for purposes of section 2.5(b)(ii)) for that year,
or (ii) the Bonus that would have been paid if (A) reductions
that would permit a termination with Good Reason had not
occurred, and (B) the discretionary portion of the Bonus was
paid at the higher of "target" or actual levels.
(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
<PAGE>
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
<PAGE>
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
Executive Vice President of Finance, Secretary, Treasurer and
Chief Financial Officer of the Company/Executive Vice
President of Finance, Secretary, Treasurer and Chief Financial
Officer of the Parent without his consent within six (6)
months of such diminution of duties, responsibilities or
functions; or
(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; or (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. For purposes of section 1.2(vi)(C), awards
under the 1994 Plan, and other compensatory awards granted
with respect to the Parent's capital stock under any other
plan or outside of a plan, shall not be considered "employee
benefits" and shall be subject to reduction except to the
extent those awards are otherwise subject to restrictions on
reductions in Bonus levels under section 1.2(vi)(B); or
(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
<PAGE>
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 three (3) 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. 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"). Notwithstanding the foregoing, 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:
<PAGE>
(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) the sum of the Bonuses paid to or earned by the
Executive for the three fiscal years immediately
preceding the year in which the Executive's
employment with the Company terminates, divided by
the number of such fiscal years for which a Bonus was
paid to or earned by the Executive; 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 earned no Bonus for any fiscal year
prior to the year in which his employment with the
Company terminates, 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.
All Bonuses shall be determined in accordance with
section 1.2(d), including provisions that specify an
amount to be used in lieu of the Bonus actually paid
or projected for a fiscal year. The provisions of
this section 2.5(b) and section 1.2(d) are
illustrated by the following examples:
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
<PAGE>
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).
Example. Assume the same "target" Bonus levels for
1998 as set forth above. Further assume that (i) a
Potential Change in Control occurs (and, thus, the
Employment Period begins) in January, 1999; (ii) each
of the Bonus projections subsequently established by
the Compensation Committee for the 1999 fiscal year
are set at a level lower than the corresponding Bonus
level projections for 1998; and (iii) Executive's
employment is terminated without Cause in January,
1999. Finally, assume that (i) corporate performance
for fiscal 1999 met "target" levels of achievement;
and (ii) the Compensation Committee determined that
the individual component of the Bonus for 1999 would
be paid at "target" levels. Executive's average
Bonus, for purposes of calculating his Base Period
Income would be $268,333.34 ([$255,000 for 1997 +
$275,000 for 1998 + $275,000 for 1999]). Note that
"target" levels for both the corporate and individual
component as established for 1998 are used to
calculate the average Bonus, because the "target"
levels established for 1999 were lower than "target"
levels established for 1998 - and would have
permitted a termination for Good Reason.
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
<PAGE>
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.
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
(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,
<PAGE>
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) Acknowledgment. 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.
<PAGE>
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.
<PAGE>
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:
<PAGE>
(a) If to the Executive:
Donald H. Dempsey
4735 Spottswood
Suite 102
Memphis, TN 38117
(b) If to the Company
Equity Inns Services, Inc.
4735 Spottswood
Suite 102
Memphis, TN 38117
(c) If to the Parent:
Equity Inns, Inc.
4735 Spottswood
Suite 102
Memphis, TN 38117
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.
<PAGE>
EXECUTIVE:
By: /s/ Donald H. Dempsey
---------------------
[Name of Executive]
EQUITY INNS SERVICES, INC.:
By: /s/ Phillip H. McNeill, Sr.
---------------------------
Title: CEO
---------------------------
EQUITY INNS, INC.:
By: /s/ Phillip H. McNeill, Sr.
---------------------------
Title: CEO
---------------------------
EXHIBIT 10.36
CHANGE IN CONTROL AND TERMINATION AGREEMENT
THIS CHANGE IN CONTROL AND TERMINATION AGREEMENT (the
"Agreement"), to be effective as of the 9th day of November, 1998, 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 Phillip H. McNeill, Jr. (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
<PAGE>
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. Notwithstanding the
foregoing, for purposes of calculating Base Period Income
under section 2.5, the figure used as a Bonus (or projected
Bonus, for purposes of section 2.5(b)(ii)) for any fiscal year
shall be the greater of (i) the actual Bonus paid (or
projected, for purposes of section 2.5(b)(ii)) for that year,
or (ii) the Bonus that would have been paid if (A) reductions
that would permit a termination with Good Reason had not
occurred, and (B) the discretionary portion of the Bonus was
paid at the higher of "target" or actual levels.
(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
<PAGE>
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
<PAGE>
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
Executive Vice President-Development of the Company/Executive
Vice President-Development of the Parent without his consent
within six (6) months of such diminution of duties,
responsibilities or functions; or
(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; or (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
<PAGE>
by the Parent's Board in good faith. For purposes of section
1.2(vi)(C), awards under the 1994 Plan, and other compensatory
awards granted with respect to the Parent's capital stock
under any other plan or outside of a plan, shall not be
considered "employee benefits" and shall be subject to
reduction except to the extent those awards are otherwise
subject to restrictions on reductions in Bonus levels under
section 1.2(vi)(B); or
(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
<PAGE>
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. 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"). Notwithstanding the foregoing, 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:
<PAGE>
(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) the sum of the Bonuses paid to or earned by the
Executive for the three fiscal years immediately
preceding the year in which the Executive's
employment with the Company terminates, divided by
the number of such fiscal years for which a Bonus was
paid to or earned by the Executive; 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 earned no Bonus for any fiscal year
prior to the year in which his employment with the
Company terminates, 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.
All Bonuses shall be determined in accordance with
section 1.2(d), including provisions that specify an
amount to be used in lieu of the Bonus actually paid
or projected for a fiscal year. The provisions of
this section 2.5(b) and section 1.2(d) are
illustrated by the following examples:
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
<PAGE>
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).
Example. Assume the same "target" Bonus levels for
1998 as set forth above. Further assume that (i) a
Potential Change in Control occurs (and, thus, the
Employment Period begins) in January, 1999; (ii) each
of the Bonus projections subsequently established by
the Compensation Committee for the 1999 fiscal year
are set at a level lower than the corresponding Bonus
level projections for 1998; and (iii) Executive's
employment is terminated without Cause in January,
1999. Finally, assume that (i) corporate performance
for fiscal 1999 met "target" levels of achievement;
and (ii) the Compensation Committee determined that
the individual component of the Bonus for 1999 would
be paid at "target" levels. Executive's average
Bonus, for purposes of calculating his Base Period
Income would be $268,333.34 ([$255,000 for 1997 +
$275,000 for 1998 + $275,000 for 1999]). Note that
"target" levels for both the corporate and individual
component as established for 1998 are used to
calculate the average Bonus, because the "target"
levels established for 1999 were lower than "target"
levels established for 1998 - and would have
permitted a termination for Good Reason.
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
<PAGE>
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.
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
(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,
<PAGE>
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) Acknowledgment. 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.
<PAGE>
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 of special proceeding may be instituted.
<PAGE>
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:
<PAGE>
(a) If to the Executive:
Phillip H. McNeill, Jr.
4735 Spottswood
Suite 102
Memphis, TN 38117
(b) If to the Company
Equity Inns Services, Inc.
4735 Spottswood
Suite 102
Memphis, TN 38117
(c) If to the Parent:
Equity Inns, Inc.
4735 Spottswood
Suite 102
Memphis, TN 38117
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.
<PAGE>
EXECUTIVE:
By: /s/ Phillip H. McNeill, Jr.
---------------------------
[Name of Executive]
EQUITY INNS SERVICES, INC.:
By: /s/ Phillip H. McNeill, Sr.
---------------------------
Title: CEO
---------------------------
EQUITY INNS, INC.:
By: /s/ Phillip H. McNeill, Sr.
---------------------------
Title: CEO
---------------------------
EXHIBIT 10.37
CHANGE IN CONTROL AND TERMINATION AGREEMENT
THIS CHANGE IN CONTROL AND TERMINATION AGREEMENT (the
"Agreement"), to be effective as of the 9th day of November, 1998, 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. Ronald Cooper (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
<PAGE>
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. Notwithstanding the
foregoing, for purposes of calculating Base Period Income
under section 2.5, the figure used as a Bonus (or projected
Bonus, for purposes of section 2.5(b)(ii)) for any fiscal year
shall be the greater of (i) the actual Bonus paid (or
projected, for purposes of section 2.5(b)(ii)) for that year,
or (ii) the Bonus that would have been paid if (A) reductions
that would permit a termination with Good Reason had not
occurred, and (B) the discretionary portion of the Bonus was
paid at the higher of "target" or actual levels.
(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
<PAGE>
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
<PAGE>
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 Vice
President- Asset Management of the Company/Vice
President-Asset Management of the Parent without his consent
within six (6) months of such diminution of duties,
responsibilities or functions; or
(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; or (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. For purposes of section 1.2(vi)(C), awards
under the 1994
<PAGE>
Plan, and other compensatory awards granted with respect to
the Parent's capital stock under any other plan or outside of
a plan, shall not be considered "employee benefits" and shall
be subject to reduction except to the extent those awards are
otherwise subject to restrictions on reductions in Bonus
levels under section 1.2(vi)(B); or
(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
<PAGE>
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 one and one half (1 1/2) 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. 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"). Notwithstanding the foregoing, 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:
<PAGE>
(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) the sum of the Bonuses paid to or earned by the
Executive for the three fiscal years immediately
preceding the year in which the Executive's
employment with the Company terminates, divided by
the number of such fiscal years for which a Bonus was
paid to or earned by the Executive; 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 earned no Bonus for any fiscal year
prior to the year in which his employment with the
Company terminates, 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.
All Bonuses shall be determined in accordance with
section 1.2(d), including provisions that specify an
amount to be used in lieu of the Bonus actually paid
or projected for a fiscal year. The provisions of
this section 2.5(b) and section 1.2(d) are
illustrated by the following examples:
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
<PAGE>
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).
Example. Assume the same "target" Bonus levels for
1998 as set forth above. Further assume that (i) a
Potential Change in Control occurs (and, thus, the
Employment Period begins) in January, 1999; (ii) each
of the Bonus projections subsequently established by
the Compensation Committee for the 1999 fiscal year
are set at a level lower than the corresponding Bonus
level projections for 1998; and (iii) Executive's
employment is terminated without Cause in January,
1999. Finally, assume that (i) corporate performance
for fiscal 1999 met "target" levels of achievement;
and (ii) the Compensation Committee determined that
the individual component of the Bonus for 1999 would
be paid at "target" levels. Executive's average
Bonus, for purposes of calculating his Base Period
Income would be $268,333.34 ([$255,000 for 1997 +
$275,000 for 1998 + $275,000 for 1999]). Note that
"target" levels for both the corporate and individual
component as established for 1998 are used to
calculate the average Bonus, because the "target"
levels established for 1999 were lower than "target"
levels established for 1998 - and would have
permitted a termination for Good Reason.
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
<PAGE>
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.
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
(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,
<PAGE>
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) Acknowledgment. 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.
<PAGE>
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
<PAGE>
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:
<PAGE>
(a) If to the Executive:
Richard F. Mitchell
4735 Spottswood
Suite 102
Memphis, TN 38117
(b) If to the Company
Equity Inns Services, Inc.
4735 Spottswood
Suite 102
Memphis, TN 38117
(c) If to the Parent:
Equity Inns, Inc.
4735 Spottswood
Suite 102
Memphis, TN 38117
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.
<PAGE>
EXECUTIVE:
By: /s/ J. Ronald Cooper
--------------------
[Name of Executive]
EQUITY INNS SERVICES, INC.:
By: /s/ Phillip H. McNeill, Sr.
---------------------------
Title: CEO
EQUITY INNS, INC.:
By: /s/ Phillip H. McNeill, Sr.
---------------------------
Title: CEO
EXHIBIT 10.38
CHANGE IN CONTROL AND TERMINATION AGREEMENT
THIS CHANGE IN CONTROL AND TERMINATION AGREEMENT (the
"Agreement"), to be effective as of the 9th day of November, 1998, 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 Richard F. Mitchell (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
<PAGE>
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. Notwithstanding the
foregoing, for purposes of calculating Base Period Income
under section 2.5, the figure used as a Bonus (or projected
Bonus, for purposes of section 2.5(b)(ii)) for any fiscal year
shall be the greater of (i) the actual Bonus paid (or
projected, for purposes of section 2.5(b)(ii)) for that year,
or (ii) the Bonus that would have been paid if (A) reductions
that would permit a termination with Good Reason had not
occurred, and (B) the discretionary portion of the Bonus was
paid at the higher of "target" or actual levels.
(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
<PAGE>
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
<PAGE>
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 Vice
President- Asset Management of the Company/Vice
President-Asset Management of the Parent without his consent
within six (6) months of such diminution of duties,
responsibilities or functions; or
(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; or (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. For purposes of section 1.2(vi)(C), awards
under the 1994
<PAGE>
Plan, and other compensatory awards granted with respect to
the Parent's capital stock under any other plan or outside of
a plan, shall not be considered "employee benefits" and shall
be subject to reduction except to the extent those awards are
otherwise subject to restrictions on reductions in Bonus
levels under section 1.2(vi)(B); or
(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
<PAGE>
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 one and one half (1 1/2) 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. 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"). Notwithstanding the foregoing, 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:
<PAGE>
(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) the sum of the Bonuses paid to or earned by the
Executive for the three fiscal years immediately
preceding the year in which the Executive's
employment with the Company terminates, divided by
the number of such fiscal years for which a Bonus was
paid to or earned by the Executive; 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 earned no Bonus for any fiscal year
prior to the year in which his employment with the
Company terminates, 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.
All Bonuses shall be determined in accordance with
section 1.2(d), including provisions that specify an
amount to be used in lieu of the Bonus actually paid
or projected for a fiscal year. The provisions of
this section 2.5(b) and section 1.2(d) are
illustrated by the following examples:
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
<PAGE>
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).
Example. Assume the same "target" Bonus levels for
1998 as set forth above. Further assume that (i) a
Potential Change in Control occurs (and, thus, the
Employment Period begins) in January, 1999; (ii) each
of the Bonus projections subsequently established by
the Compensation Committee for the 1999 fiscal year
are set at a level lower than the corresponding Bonus
level projections for 1998; and (iii) Executive's
employment is terminated without Cause in January,
1999. Finally, assume that (i) corporate performance
for fiscal 1999 met "target" levels of achievement;
and (ii) the Compensation Committee determined that
the individual component of the Bonus for 1999 would
be paid at "target" levels. Executive's average
Bonus, for purposes of calculating his Base Period
Income would be $268,333.34 ([$255,000 for 1997 +
$275,000 for 1998 + $275,000 for 1999]). Note that
"target" levels for both the corporate and individual
component as established for 1998 are used to
calculate the average Bonus, because the "target"
levels established for 1999 were lower than "target"
levels established for 1998 - and would have
permitted a termination for Good Reason.
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
<PAGE>
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.
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
(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,
<PAGE>
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) Acknowledgment. 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.
<PAGE>
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.
<PAGE>
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:
<PAGE>
(a) If to the Executive:
Richard F. Mitchell
4735 Spottswood
Suite 102
Memphis, TN 38117
(b) If to the Company
Equity Inns Services, Inc.
4735 Spottswood
Suite 102
Memphis, TN 38117
(c) If to the Parent:
Equity Inns, Inc.
4735 Spottswood
Suite 102
Memphis, TN 38117
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.
<PAGE>
EXECUTIVE:
By: /s/ Richard F. Mitchell
-----------------------
(Name of Executive]
EQUITY INNS SERVICES, INC.:
By: /s/ Phillip H. McNeill, Sr.
---------------------------
Title: CEO
---------------------------
EQUITY INNS, INC.:
By: /s/ Phillip H. McNeill, Sr.
---------------------------
Title: CEO
---------------------------
EXHIBIT 10.39
EMPLOYMENT AGREEMENT
AMONG EQUITY INNS SERVICES, INC ., EQUITY INNS, INC.
AND DONALD H. DEMPSEY
THIS EMPLOYMENT AGREEMENT (this "Agreement"), effective as of July 20,
1998, is by and among EQUITY INNS SERVICES, INC., a Tennessee corporation (the
"Company"), EQUITY INNS, INC., a Tennessee corporation (the "Parent") and DONALD
H. DEMPSEY (the "Executive").
R E C I T A L S :
The Company is a Tennessee corporation which provides management
services to the Parent pursuant to a management services agreement dated as of
December 30, 1994.
The Parent is a Tennessee corporation which is organized as a
self-advised equity real estate investment trust.
Each of the Parent and the Company desire to employ the Executive to
serve as the Executive Vice President, Secretary, Treasurer and Chief Financial
Officer of each of the Parent and the Company.
The Executive desires to be so employed on the terms and subject to the
conditions hereinafter stated.
NOW, THEREFORE, in consideration of the premises and mutual obligations
hereinafter set forth the parties agree as follows:
1. Employment. Each of the Parent and the Company shall employ the
Executive, and the Executive agrees to be so employed in the capacity of
Executive Vice President, Secretary, Treasurer and Chief Financial Officer of
each of the Parent and the Company, to serve for the Term, as defined
hereinbelow, subject to earlier termination as hereinafter provided.
2. Term. The term of the Executive's employment hereunder (the "Term")
shall be for a period commencing on the date of this Agreement and continuing
for a period of two (2) years until July 20, 2000, unless terminated earlier as
provided herein.
3. Services. The Executive shall devote such amount of his time and
attention to the Parent's and the Company's affairs as are necessary to perform
his duties hereunder. Specifically, the Executive shall have complete senior
management authority and responsibility with respect to
<PAGE>
the day-to-day operations of each of the Parent's and the Company's financial
staff and personnel, as well as implementation of the financial strategy of each
of the Parent and the Company, consistent with directions from the respective
Board of Directors. He shall have full authority and responsibility, subject to
the general direction, approval and control of each of the Parent's and the
Company's Board of Directors for formulating policies and administering the
Parent and its financial policies and strategies in all respects and to
negotiate for and cause the Parent and the Company to undertake other
activities, agreements and programs at the direction of the respective Board of
Directors.
4. Compensation. (a) During the Term, the Company shall pay the
Executive for his services an annual base salary ("Base Salary") of Two Hundred
Seventy Thousand Dollars ($270,000.00), to be paid in equal payments bi-weekly,
subject to any increases in base compensation as may be approved by the joint
Compensation Committee of the Parent's and the Company's Board of Directors (the
"Compensation Committee").
(b) In addition to the annual base salary described in Section (a)
above, the Executive (i) will be eligible for a guaranteed bonus in the amount
of at least Fifty Thousand Dollars ($50,000) for the Company's fiscal year ended
December 31, 1998, subject to approval of the bonus program under consideration
as of the date of this Agreement by the Board of Directors, at the rate of 25%
if the minimum performance goals are attained, 50% if the targeted performance
goals are attained, and 100% if the maximum performance goals are attained, and
(ii) may be eligible for annual bonuses for all subsequent fiscal years in
accordance with such policies, rules and criteria as may be established by the
Compensation Committee, in its sole discretion.
(c) The Executive shall receive, as a condition of his employment,
(i) 20,000 restricted shares of the Company's common stock, $.01 par value (the"
Common Stock"), with a date of grant of July 20, 1998 (the "Date of Grant") and
with such restricted shares vesting at the rate of 4,000 shares per year, with
the first increment being immediately vested as of the Date of Grant and each
subsequent increment becoming vested on the first through fourth anniversaries
of the Date of Grant; and (ii) stock options for an aggregate of 100,000 shares
of Common Stock, at an exercise price of $13 9/16 per share, and with such
options becoming exercisable at the rate of 20,000 shares per year, with the
first increment being immediately exercisable as of the Date of Grant and each
subsequent increment becoming exercisable on the first through fourth
anniversaries of the Date of Grant.
(d) The Executive shall also be eligible to participate in the
Company's Executive Deferred Compensation Plan, under which the Executive
shall be entitled to defer up to twenty-five percent (25%) of his base salary,
bonus or both and the Company shall credit a matching contribution equal to ten
percent (10%) of the Executive's base salary to the Executive's account.
(e) The Executive shall be eligible to receive, subject to the
oversight and approval of the Compensation Committee, annual stock options for
shares of Common Stock, up to an aggregate of 200,000 shares for attainment
of the maximum performance goals then applicable, for the Company's 1998
fiscal year to be paid in early 1999, which may be paid in the alternative on
the attainment of such maximum performance goals as an aggregate of 40,000
restricted shares of Common Stock.
<PAGE>
(f) In addition, the Company's Board of Directors or the Compensation
Committee may from time to time authorize the payment to the Executive of other
incentive compensation, in accordance with rules and criteria established by the
Compensation Committee, in its sole discretion.
5. Medical and 401(k) Plans; Eligibility for Other Benefits. The
Executive shall be eligible for participation in the Company's (a) medical plan
commensurate with the benefits offered to all other executives and employees of
the Company and (b) the Company's 401(k) Plan. Additionally, this Agreement
shall not be in lieu of any rights, benefits and privileges to which the
Executive may be entitled as a management level employee of the Company,
including but not limited to any other retirement, pension, profit-sharing,
insurance, dental, hospital or other plans which may now be in effect or which
may hereafter be adopted by the Company. The Executive shall have the same
rights and privileges to participate in such plans and benefits offered by the
Company as any other management level employee during the Term.
6. Vacation Benefits; Expenses. The Executive shall be entitled to full
vacation benefits as of the date of this Agreement. Further, the Company
recognizes that the Executive will have to incur certain out-of-pocket expenses,
including but not limited to travel expenses, related to his services and the
Company's business and the Company agrees to reimburse the Executive for all
reasonable expenses necessarily incurred by him in the performance of his duties
upon presentation of a voucher or documentation indicating the amount and
business purposes of any such expenses.
7. Change of Control. In the event of the Executive's termination
resulting from a change of control of the Parent, for a term of three (3) years,
the Executive shall be entitled to receive, in addition to any compensation
earned but not paid through the date of the Executive's termination resulting
from such a change of control, a change-of-control payment in an amount and on
terms and conditions to be subsequently approved by the Parent's and the
Company's Boards of Directors after the date of this Agreement.
8. Termination in Case of Death or Disability. In case of the
Executive's death or permanent disability (defined to mean the Executive's
inability, by reason of physical or mental disability of the Executive,
confirmed by a licensed physician, to perform the services described in Section
3 above, which inability continues for a period of one hundred twenty (120)
consecutive days within any one (1) year period), the Company may terminate this
Agreement, subject to the terms of Section 9.
<PAGE>
9. Definitions. For purposes of this Agreement, the
following terms shall have the following definitions:
(a) "Voluntary Termination" means the Executive's voluntary
termination of his employment hereunder, which may be effected by the Executive
giving the Company's and the Parent's Boards of Directors 30 days written notice
of the Executive's desire to terminate his employment or the Executive's failure
to provide substantially all the services described in Section 3 hereof for a
period greater than four (4) consecutive weeks by reason of the Executive's
voluntary refusal to perform such services. Notwithstanding the foregoing, if
the Executive gives notice of Voluntary Termination and, prior to the expiration
of the 30-day notice period, the Executive voluntarily refuses or fails to
provide substantially all the services described in Section 3 hereof for a
period of eight or more business days, the Voluntary Termination shall be deemed
to be effective as of the date on which the Executive so ceases to carry out his
duties. For purposes of this Section 9, voluntary refusal to perform services
shall not include the Executive's failure to perform services on account of his
illness (except as described in Section 8 hereof), or the illness of a member of
his immediate family, provided such illness is adequately substantiated at the
reasonable request of the Company and the Parent, authorized vacation or any
other absence from service with the written consent of the Company's and the
Parent's Boards of Directors. For purposes of this Section 9(a), immediate
family shall constitute the Executive's spouse and children, if applicable.
(b) "Termination Without Cause" means the termination of the
Executive's employment by the Company for any reason other than Voluntary
Termination or Termination With Cause.
(c) "Termination With Cause" means the termination of the
Executive's employment by act of the Company's or the Parent's Board of
Directors for any of the following reasons:
(i) the Executive's conviction of a crime involving
some act of dishonesty or moral turpitude
(specifically excepting simple misdemeanors not
involving acts of dishonesty and all traffic
violations);
(ii) the Executive's theft, embezzlement,
misappropriation of or intentional and malicious
infliction of damage to the Company's or the Parent's
property or a business opportunity;
(iii) the Executive's continuous neglect of his
duties with the Company or the Parent or his
continuous failure or refusal to follow any
reasonable, unambiguous duly adopted written
direction of the respective Board of Directors or any
duly constituted committee thereof; and
<PAGE>
(iv) the Executive's abuse of alcohol, drugs or other
substances, or his engaging in other personal
activities in a manner that, in the reasonable
judgment of the respective Board of Directors,
adversely affects the reputation, goodwill or
business position of the Company or the Parent.
(d) "Involuntary Termination" means conduct on the part of the
Company or the Parent that constitutes continuous and material interference by
the Company or the Parent with the Executive's performance of his duties as set
forth in Section 3 hereof or the intentional or material breach by the Company
or the Parent of this Agreement.
10. Voluntary Termination; Termination With Cause. If the Executive
shall cease being an employee of the Company or the Parent on account of a
Voluntary Termination or shall suffer a Termination With Cause, then the
Executive shall not be entitled to any compensation after the effective date of
such Voluntary Termination or Termination With Cause (except compensation
accrued but unpaid on the date of such event).
11. Death or Disability; Termination Without Cause; or Involuntary
Termination. If the Executive shall suffer a death, disability, Involuntary
Termination or a Termination Without Cause, then (a) the Company shall pay the
Executive his Base Salary (prorated for the remainder of the Term), all bonuses
to which the Employee would otherwise be entitled, medical insurance and other
benefits for the remainder for the Term, and (b) all stock options and shares of
restricted stock previously granted to the Employee shall neither be terminated
or canceled nor shall their vesting periods be altered due to such death,
disability, Involuntary Termination or Termination Without Cause.
12. Notices. All notices or deliveries authorized or required pursuant
to this Agreement shall be deemed to have been given when in writing and
personally delivered or when deposited in the U.S. mail, certified, return
receipt requested, postage prepaid, addressed to the parties at the following
addresses or to such other addresses as either may designate in writing to the
other party:
To the Company: Equity Inns Services, Inc.
7700 Wolf River Boulevard
Germantown, Tennessee 38138
Attn: Board of Directors
To the Parent: Equity Inns, Inc.
7700 Wolf River Boulevard
Germantown, Tennessee 38138
To the Executive: Donald H. Dempsey
c/o Equity Inns, Inc.
7700 Wolf River Boulevard
Germantown, Tennessee 38138
<PAGE>
13. Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof and shall
not be modified in any manner except by instrument in writing signed, by or on
behalf of, the parties hereto. This Agreement shall be binding upon and inure to
the benefit of the heirs, successors and assigns of the parties hereto.
14. Applicable Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Tennessee. Should any provision of this
Agreement be declared or determined by any court to be illegal or invalid, the
validity of the remaining parts, terms or provisions shall not be affected
thereby and said illegal or invalid part, term or provision shall be deemed not
to be a part of this Agreement.
15. Assignment. The Executive acknowledges that his services are unique
and personal. Accordingly, the Executive may not assign his rights or delegate
his duties or obligations under this Agreement. Either the Company or the Parent
may assign its rights and obligations under this Agreement in connection with a
merger or sale of substantially all of either such corporation's assets. The
Executive's rights and obligations under this Agreement shall inure to the
benefit of and shall be binding upon the Executive, and the Company's and the
Parent's rights and obligations under this Agreement shall inure to the benefit
of and shall be binding upon the Company's and the Parent's corporate
successors, assigns, and legal representatives. As used herein, the Company or
the Parent shall include any assignee, successor in interest or legal
representative of the Company or the Parent.
16. Headings. Headings in this Agreement are provided for the sake of
convenience only and shall not be used to interpret or construe its provisions.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the above-written date.
EQUITY INNS SERVICES, INC.
By: /s/ Phillip H. McNeill
----------------------
Name: Phillip H. McNeill, Sr.
-----------------------
Title: CEO
-----------------------
EQUITY INNS, INC.
By: /s/ Phillip H. McNeill
--------------------------
Name: Phillip H. McNeill, Sr.
-----------------------------
Title: CEO
----------
EXECUTIVE:
/s/ Donald H. Dempsey
---------------------
Donald H. Dempsey
Exhibit 21.1
SUBSIDIARIES OF EQUITY INNS, INC.
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation/Organization
- ---- --------------------------
<S> <C>
Equity Inns Trust Maryland
Equity Inns Services, Inc. Tennessee
Equity Inns Partnership, L.P. Tennessee
Equity Inns Partnership II, L.P. Tennessee
Equity Inns/West Virginia Partnership, L.P. Tennessee
EQI Financing Corporation Tennessee
EQI Financing Partnership I, L.P. Tennessee
ENN Company, Inc. Tennessee
</TABLE>
Exhibit 23.1
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statements of
Equity Inns, Inc. on Form S-3 (Files Nos. 333-26559, 33-99480, 33-90364, 333-
48169, 333-47761 and 333-63253) of our report dated January 22, 1999 on our
audits of the consolidated financial statements and financial statement schedule
of Equity Inns, Inc. as of December 31, 1998 and 1997 and for each of the three
years in the period ended December 31, 1998, which report is included in this
Annual Report on Form 10-K.
PricewaterhouseCoopers, LLP
Memphis, Tennessee
March 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EQUITY INNS, INC FOR THE YEAR ENDED DECEMBER 31,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<EXCHANGE-RATE> 1
<CASH> 400
<SECURITIES> 0
<RECEIVABLES> 9,172
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 790,132
<DEPRECIATION> 0
<TOTAL-ASSETS> 807,023
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 364
<OTHER-SE> 430,900
<TOTAL-LIABILITY-AND-EQUITY> 807,023
<SALES> 106,731
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 73,644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,587
<INCOME-PRETAX> 33,087
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,221
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
</TABLE>
