DiamondRock Hospitality Company had an employment agreement or letter agreement with each of our Chairman and Chief Executive Officer (William W. McCarten), President and Chief Operating Officer (John L. Williams), Executive Vice President and Chief Financial Officer (Mark W. Brugger), Executive Vice President and General Counsel (Michael D. Schecter) and Chief Accounting Officer and Controller (Sean M. Mahoney) (collectively, the “named executive officers”). The employment agreements of Messrs. Williams, Brugger and Schecter were expiring in June 2007 and Mr. McCarten's agreement was expiring in June 2008. Mr. Mahoney's had an evergreen letter agreement.

On March 9, 2007 we terminated each of the respective employment agreements and the letter agreement and replaced them with the severance agreements described below.  Prior to entering into these severance agreements, the Compensation Committee of our Board of Directors (the “Compensation Committee”) reviewed severance agreements and policies as well as employment contracts for the eight largest lodging related real estate investment trusts that were then SEC reporting companies, namely: Host Hotels & Resorts, Inc., CNL Hotels & Resorts, Inc., LaSalle Hotel Properties, Sunstone Hotel Investors, Inc., Strategic Hotels & Resorts, Inc., Felcor Lodging Trust Incorporated, Ashford Hospitality Trust, Highland Hospitality Corporation and Equity Inns, Inc.  Our Compensation Committee’s independent advisor, Frederic W. Cook & Co., Inc., reviewed the proposed severance agreement on behalf of the Compensation Committee and provided advice on current market practices and emerging best practices regarding severance agreements.  In addition, the Compensation Committee engaged its own law firm to represent it in the negotiation of the severance agreements with management. 

The severance agreements provide each named executive officer with certain severance benefits if his employment terminates under certain circumstances. We believe that the severance agreements will benefit us by helping to retain the executives and by allowing them to focus on their duties without the distraction of the concern for their personal situations in the event of a change in control of our Company.

Each named executive officer will be entitled to receive cash severance benefits under his severance agreement if we terminate such executive’s employment without cause or such executive resigns with good reason, regardless of whether or not there is a change in control.  Under either of these scenarios, each of the executives is entitled to receive a lump sum payment equal to a severance multiple multiplied by the sum of (x) his then current base salary and (y) the target annual cash incentive plan compensation. Mr. McCarten’s severance multiple is 3 and each of Messrs. Williams, Brugger, Schecter and Mahoney’s severance multiple is 2.  In addition, the executive will be entitled to a pro rata bonus for the year (using the “target” bonus percentage) in which such termination of employment occurs.  Because there is no clause granting an executive any severance payment if he or she terminates his employment for any reason during a certain period of time following a change in control, these severance agreements have a so-called “double trigger,” meaning that the executive must be either terminated without cause or have reasonable grounds to quit following a change in control in order for the executive to receive severance.

In addition, if we terminate such executive’s employment without cause or such executive resigns with good reason, or if the executive dies or becomes disabled, the executive (or his family) will be entitled to continued life, health and disability insurance coverage for himself, his spouse and dependents for eighteen months and any unvested portion of any restricted stock award and incentive award previously issued to the executive shall vest on the date of such termination.

In the event that the executive retires, the executive will be eligible to continue to vest under any outstanding unvested restricted stock awards, but the executive will not receive any cash severance or any life, health or disability coverage for himself or his spouse or dependents.

In the event that the severance benefits described above are paid in connection with a change in control of our Company, each of the named executives will be eligible to receive payments to compensate the executive for the additional taxes, if any, imposed on the executive under Section 4999 of the Code by reason of the receipt of excess parachute payments.  However, this excise tax gross up is only available to the extent that the value of the payments and benefits exceeds an executive’s so-called 280G “safe harbor” by 10% or more; in the event that the payments and benefits exceed the so-called “safe harbor” by less than 10%, the amount of the parachute payment will be reduced to an amount less than such “safe harbor” so as not to incur any excise taxes.