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EXHIBIT 10.4(a)
EMPLOYMENT AGREEMENT
AGREEMENT effective September 27, 1999, by and between RFS Managers,
Inc., a Tennessee corporation (the "Company"), and Randall L. Churchey (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company provides management services to RFS Hotel
Investors, Inc. (the "Parent") pursuant to a Management Services Agreement dated
December 30, 1994 (the "Management Agreement"); and
WHEREAS, the Company desires to employ the Executive to serve as the
President and Chief Operating Officer of the Company; and
WHEREAS, the parties desire to enter into this Employment Agreement
effective as of November 1, 1999 as set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual obligations
hereinafter set forth the parties agree as follows:
1. EMPLOYMENT. The Company shall employ the Executive, and the
Executive agrees to be so employed, in the capacity of President of the Company
to serve for the Term hereof, subject to earlier termination as hereinafter
provided.
2. TERM. The term of the Executive's employment hereunder shall
commence on November 1, 1999 and shall continue until December 31, 2002 and
shall be extended automatically, for so long as the Executive remains employed
by the Company hereunder, each January 1 beginning January 1, 2001 for an
additional twelve-month period (such period, as it may be extended from time to
time, being herein referred to as the "Term"), unless terminated earlier in
accordance with the terms of this Agreement, to the effect that on each January
1, the remaining term of this Agreement and the Executive's employment hereunder
shall be three years.
3. SERVICES. The Executive shall devote such amount of his time and
attention to the Company's affairs as are necessary to perform his duties to the
Company and to allow the Company to perform its duties specified in the
Management Agreement. Pursuant to the Management Agreement, the Executive shall
have authority and responsibility with respect to the day to day operations and
management of the Parent and RFS Partnership, L.P. (the "Partnership"), for
which the Parent currently serves as sole general partner, as well as
implementation of the long range growth strategy of the Parent and the
Partnership, consistent with direction from the Parent's Board of Directors (the
"Board").
4. COMPENSATION. (a) During the Term, the Company shall pay the
Executive for his
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services an annual base salary of $225,000 (the "Base Salary"), to be paid in
semi-monthly payments of $9,375, such Base Salary being subject to any increases
approved by the Compensation Committee of the Board (the "Compensation
Committee").
(b) In addition to the Base Salary described in Section 4(a)
above, the Executive shall be entitled to a cash bonus ("Base Salary Bonus") for
1999 payable on or before February 15, 2000 in the amount of $80,000.
(c) Effective November 1, 1999, the Executive shall be granted
an aggregate of 25,000 shares of common stock of the Parent pursuant to a
Restricted Stock Agreement in the form of Exhibit A hereto and shall be granted
options to purchase an aggregate of 100,000 shares of common stock of the
Company at a price equal to the fair market value of the common stock on
November 1, 1999 pursuant to a Stock Option Agreement in the form of Exhibit B
hereto.
(d) In addition to the Base Salary Bonus, the Executive may be
entitled to receive other incentive compensation, including but not limited to,
additional grants of stock options or shares of stock of the Parent, which
awards shall be made (if at all) in consideration of and as an incentive for
services performed solely for the Company, in accordance with rules and criteria
established by the Compensation Committee. Such criteria may include, but not be
limited to, the growth in the Parent's net income per share, funds from
operations per share or other performance goals.
5. BENEFITS. The Company agrees to provide the Executive with the
following benefits:
(a) Vacation. The Executive shall be entitled each calendar year
to a vacation, during which time his compensation shall be paid in full. The
time allotted for such vacation shall be three (3) weeks.
(b) Employee Benefits. 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
retirement, pension, profit-sharing, insurance, hospital or other plans which
may now be in effect or which may hereafter be adopted. The Executive shall have
the same rights and privileges to participate in such plans and benefits as any
other management level employee during the Term.
6. EXPENSES. 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 and the Parent'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.
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7. TERMINATION IN CASE OF DEATH OR DISABILITY. In the event of the
Executive's death or a complete physical or mental inability, confirmed by a
licensed physician, to perform the services described in Section 3 above that
continues for a period of one hundred twenty (120) consecutive days) ("Permanent
Disability"), the Company may elect to terminate this Agreement, subject to
continuation of the payments described in Section 10.
8. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following definitions:
(a) "Voluntary Termination" means, subject to the provisions of
Section 11 hereof, the Executive's voluntary termination of his employment
hereunder, which may be effected by the Executive giving the Board not less than
90 days' prior 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 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 90-day notice period, the
Executive voluntarily refuses or fails to provide substantially all the services
described in Section 3 hereof for a period greater than two consecutive weeks,
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 8, voluntary refusal to perform services shall not include taking
vacation otherwise permitted in accordance with Section 5(a) hereof, the
Executive's failure to perform services on account of his illness or the illness
of a member of his immediate family, provided such illness is adequately
substantiated at the reasonable request of the Company, or any other absence
from service with the written consent of the Board.
(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 Board for any of the following reasons:
(i) the Executive's conviction for a felony;
(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 business opportunity;
(iii) the Executive's intentional and material breach of the
noncompetition covenant in Section 11 hereof;
(iv) the Executive's continuous neglect of his duties hereunder
or his
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continuous failure or refusal to follow any reasonable,
unambiguous duly adopted written direction of the Board or any
duly constituted committee thereof that is not inconsistent with
the description of the Executive's duties set forth in Section 3
above; and
(v) the Executive's abuse of alcohol, drugs or other substances,
or his engaging in other deviant personal activities in a manner
that, in the reasonable judgment of the Board, adversely affects
the reputation, goodwill or business position of the Company.
(d) "Involuntary Termination" means conduct on the part of the
Company that constitutes continuous and material interference by the Company
with the Executive's performance of his duties as set forth in Section 3 hereof
or the intentional or material breach by the Company of this Agreement.
9. VOLUNTARY TERMINATION; TERMINATION WITH CAUSE. If (i) the Executive
shall cease being an employee of the Company on account of a Voluntary
Termination or (ii) there shall be a Termination With Cause, the Executive shall
not be entitled to any compensation after the effective date of such Voluntary
Termination or Termination With Cause (except Base Salary and vacation accrued
but unpaid on the effective date of such event). In the event of a Voluntary
Termination or Termination With Cause, the Executive shall continue to be
subject to the noncompetition covenant contained in Section 11 hereof for the
remainder of the Term.
10. DEATH OR DISABILITY; TERMINATION WITHOUT CAUSE; OR INVOLUNTARY
TERMINATION. Following (i) the death of the Executive, (ii) Permanent Disability
of the Executive, (iii) an Involuntary Termination, or (iv) a Termination
Without Cause, the Company shall continue to pay the Executive or his heirs,
devisees, executors, legatees or personal representatives, as appropriate, the
semi-monthly payments of the Base Salary then in effect for three years from the
date of the termination of the Executive's employment.
11. CHANGE OF CONTROL COMPENSATION.
(a) Compensation. In the event of the termination of the
Executive's employment or the Executive's resignation for Good Reason (as
defined below) on or after a Change of Control (as defined below), the Company
shall, on the date of such termination or resignation, pay the Executive, in
addition to any Base Salary earned but not paid through the date of termination
or resignation, a cash amount (the "Termination Payment") equal to three (3)
times average annual base salary and cash bonus paid to or earned by the
Executive, under this Agreement or otherwise, for the fiscal year in which the
Change of Control occurs and the two preceding fiscal years or, if the Executive
has been employed by the Company for less than this period of time, then the
Termination Payment shall be based on the average annual base salary and cash
bonus paid or earned during the term of the Executive's employment (including
the fiscal year in which the Change of Control occurs). For purposes of
calculating sums hereunder: (i) if the
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salary and cash bonus are paid or earned for any period of employment of less
than twelve months (including the fiscal year in which the Change of Control
occurs) such sums shall be annualized and in the case of a cash bonus, it shall
be assumed that the bonus shall be the same as the preceding year, and (ii) no
fiscal year for which no base salary or cash bonus is earned or paid shall be
considered. Notwithstanding the first sentence of this Section 11(a), the
Termination Payment shall be calculated and paid immediately prior to the
closing of the transactions constituting a Change of Control if (i) the
Executive receives notice prior to the Change of Control that his employment
will be terminated on or after the Change of Control, or (ii) regardless of
whether the Executive is terminated or receives notice that his employment will
be terminated on or after the Change of Control, the Parent or any of its
affiliates enter into an agreement to effect a transaction substantially similar
to that described in Section 11(b)(v) below. In addition, the Company or the
Parent shall cause the Executive's insurance benefits, as in effect immediately
prior to the Change of Control, to remain in effect for at least one year
following the date of termination of Executive's employment by the Company or
the Executive's resignation for Good Reason.
(b) A "Change of Control", for purposes of this Agreement,
shall be deemed to have occurred if, at any time during the Term, any of the
following events occurs:
(i) any "person", as that term is used in Section 13(d) and
Section 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), becomes, is discovered to be, or
files a report on Schedule 13D or 14D-1 (or any successor
schedule, form or report) disclosing that such person is, a
beneficial owner (as defined in Rule 13d-3 under the Exchange Act
or any successor rule or regulation), directly or indirectly, of
securities of the Parent representing 50% or more of the combined
voting power of the Parent's then outstanding securities entitled
to vote generally in the election of directors;
(ii) individuals who, as of the Effective Date, constitute
the Board of Directors of the Parent cease for any reason to
constitute at least a majority of the Board of Directors of the
Parent, unless any such change is approved by the vote of at
least 80% of the members of the Board of Directors of the Parent
in office immediately prior to such cessation;
(iii) the Parent is merged, consolidated or reorganized into
or with another corporation or other legal person, or securities
of the Parent are exchanged for securities of another corporation
or other legal person, and immediately after such merger,
consolidation, reorganization or exchange less than a majority of
the combined voting power of the then-outstanding securities of
such corporation or person immediately after such transaction are
held, directly or indirectly, in the aggregate by the holders of
securities entitled to vote generally in the election of
directors of the Parent immediately prior to such transaction;
(iv) the Parent in any transaction or series of related
transactions, sells all
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or substantially all of its assets to any other corporation or
other legal person and less than a majority of the combined
voting power of the then-outstanding securities of such
corporation or person immediately after such sale or sales are
held, directly or indirectly, in the aggregate by the holders of
securities entitled to vote generally in the election of
directors of the Parent immediately prior to such sale;
(v) the Parent and its affiliates shall sell or transfer of
(in a single transaction or series of related transactions) to a
non-affiliate business operations or assets that generated at
least two-thirds of the consolidated revenues (determined on the
basis of the Parent's four most recently completed fiscal
quarters for which reports have been filed under the Exchange
Act) of the Parent and its subsidiaries immediately prior
thereto;
(vi) the Parent files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Form 8-K (or any successor, form or
report or item therein) that a change in control of the Parent
has occurred; or
(vii) any other transaction or series of related
transactions occur that have substantially the effect of the
transactions specified in any of the preceding clauses in this
sentence.
(c) Certain Transactions. Notwithstanding the provisions of
Section 11(b)(i) or 11(b)(vi) hereof, unless otherwise determined in a specific
case by majority vote of the Board of Directors of the Parent, a Change in
Control shall not be deemed to have occurred for purposes of this Agreement
solely because (i) the Parent, (ii) an entity in which the Parent directly or
indirectly beneficially owns 50% or more of the voting securities or (iii) any
Parent-sponsored employee stock ownership plan, or any other employee benefit
plan of the Parent, either files or becomes obligated to file a report or a
proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K
or Schedule 14A (or any successor schedule, form or report or item thereon)
under the Exchange Act, disclosing beneficial ownership by it of shares of stock
of the Parent, or because the Parent reports that a Change in Control of the
Parent has or any have occurred or will or may occur in the future by reason of
such beneficial ownership.
(d) Good Reason. "Good Reason," for purposes of this Agreement,
shall be deemed to mean any of the following:
(i) a change in the Executive's status, position or
responsibilities (including reporting responsibilities) which, in
the Executive's reasonable judgment, does not represent a
promotion from the Executive's status, position or
responsibilities as in effect immediately prior to a Change in
Control; the assignment to the Executive of any duties or
responsibilities which, in the Executive's reasonable judgment,
are inconsistent with such status, position or
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responsibilities; or any removal of the Executive from or failure
to reappoint or reelect the Executive to any of such positions,
except in connection with a Termination with Cause as defined in
Section 8(c), as a result of the Executive's death or Permanent
Disability, or by Voluntary Termination;
(ii) a reduction in the Executive's Base Salary and Base
Salary Bonus as in effect on the date hereof or as the same may
be increased from time to time;
(iii) the relocation of the Company's or the Parent's
principal executive offices to a location outside a thirty-mile
radius of Memphis, Tennessee or the Company's or the Parent's
requiring the Executive to be based at any place other than a
location within a thirty-mile radius of Memphis, Tennessee,
except for reasonably required travel on the Company's or the
Parent's business which is not materially greater than such
travel requirements prior to the Change in Control;
(iv) the failure by the Company or the Parent to continue to
provide the Executive with compensation and benefits provided for
under this agreement or benefits substantially similar to those
provided to the Executive under any of the employee benefit plans
in which the Executive is or becomes a participant, or the taking
of any action by the Company or the Parent which would directly
or indirectly materially reduce any of such benefits or deprive
the Executive of any material fringe benefit enjoyed by the
Executive at the time of the Change in Control;
(v) any material breach by the Company of any provision of
this Agreement; and
(vi) the failure of the Company to obtain a satisfactory
agreement from any successor or assign of the Company to assume
and agree to perform this Agreement.
(e) Tax Matters. If the excise tax on "excess parachute payments,"
as defined in section 280G of the Internal Revenue Code of 1986, as amended (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 of Control Benefits"), the
Company shall indemnify the Executive and hold him harmless against all claims,
losses, damages, penalties, expenses, and excise taxes. To effect this
indemnification, the Company shall pay to the Executive the "Additional Amount"
described in this Section 11(e). The Additional Amount shall be the amount that
is sufficient to indemnify and hold the Executive harmless from the application
or 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 of Control Benefits; (ii) the additional (A) excise tax under section
4999 of the Code, (B) hospital insurance tax under
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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 11(e). 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 of 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.
The provisions of this Section 11(e) are illustrated by the following
example:
Assume that the Termination Payment and all other Change of
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 Company or the Parent must 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.
12. NONCOMPETITION. During the Term and for a period of two (2) years
thereafter, the Executive shall not, other than through the Parent or affiliates
of the Parent, own more than a 10% interest in any hotel property (other than
hotels owned by the Parent and the Partnership), as partner, shareholder or
otherwise, or directly or indirectly, for his own account or for the account of
others, either as an officer, director, shareholder, owner, partner, promoter,
employee, consultant, advisor, agent, manager, or in any other capacity engage
in the acquisition, development, operation or management of any hotel property
located within 20 miles of any hotel property owned by the Parent or the
Partnership at the time of termination of employment. The foregoing sentence
shall not restrict the Executive from owning up to 10% of the outstanding
securities of any entity, including any entity whose securities are traded in
public securities markets.
The Executive agrees that damages at law for violation of the
restrictive covenant contained herein would not be an adequate or proper remedy
to the Company, and that should the Executive violate or threaten to violate any
of the provisions of such covenant, the Company, its successors or assigns,
shall be entitled to obtain a temporary or permanent injunction against the
Executive in any
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court having jurisdiction over the person and the subject matter, prohibiting
any further violation of any such covenants. The injunctive relief provided
herein shall be in addition to any award of damages, compensatory, exemplary or
otherwise, payable by reason of such violation.
Furthermore, the Executive acknowledges that this Agreement has been
negotiated at arms' length by the parties, neither being under any compulsion to
enter into this Agreement, and that the foregoing restrictive covenant does not
in any respect inhibit his ability to earn a livelihood in his chosen profession
without violating the restrictive covenant contained herein. The Company by
these presents has attempted to limit the Executive's right to compete only to
the extent necessary to protect the Company from unfair competition. The Company
recognizes, however, that reasonable people may differ in making such a
determination. Consequently, the Company agrees that if the scope or
enforceability of the restricted covenant contained herein is in any way
disputed at any time, a court or other trier of fact may modify and enforce the
covenant to the extent that it believes to be reasonable under the circumstances
existing at the time.
13. RELOCATION EXPENSES. The Company shall pay, or shall reimburse the
Executive for, the Executive's direct costs of relocating from Dallas, Texas to
Memphis, Tennessee, including moving expenses and reimbursement for the real
estate commission on the Executive's current home in Dallas, Texas.
14. 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: RFS Managers, Inc.
850 Ridge Lake Boulevard
Suite 220
Memphis, TN 38120
To the Executive: Randall L. Churchey
850 Ridge Lake Boulevard
Suite 220
Memphis, TN 38120
15. 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; provided, however, that any amendment or
termination of the covenant of noncompetition in Section 12 must be approved by
a majority of the Directors of the Parent other than the Executive, if the
Executive is then a director of the Parent. This Agreement shall be binding upon
and inure to the benefit of the heirs, successors and assigns of the parties
hereto.
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16. ARBITRATION. Any claim or controversy arising out of, or relating
to, this Agreement or its breach, shall be settled by arbitration in accordance
with the governing rules of the American Arbitration Association. Judgment upon
the award rendered may be entered in any court of competent jurisdiction.
17. APPLICABLE LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Tennessee.
18. 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, except with respect to certain
rights to receive payments as described in Section 10. The Company's rights and
obligations under this Agreement shall inure to the benefit of and shall be
binding upon the Company's successors and assigns.
19. HEADINGS. Headings in this Agreement are for convenience only and
shall not be used to interpret or construe its provisions.
20. AMENDED AGREEMENT. This Agreement amends and restates the Amended
Agreement in its entirety as of the effective date of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
RFS MANAGERS, INC.
By:
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Name:
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Title:
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EXECUTIVE:
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Randall L. Churchey
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