Comfort Inn 2007 Annual Report Download - page 91

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
In March 2006, the Company guaranteed $1 million of a bank loan funding a franchisee’ s construction of a Cambria
Suites in Green Bay, Wisconsin. The guaranty was scheduled to expire in September 2010. In February 2007, the
Company was released from its obligations under the March 2006 guaranty, and subsequently, on May 3, 2007, issued
a new $1 million guaranty for a bank loan funding the construction for the same franchisee’ s Cambria Suites in Green
Bay, Wisconsin. The guaranty expires in August 2010. The Company has received personal guarantees from several of
the franchisee’ s principal owners related to the repayment of any amounts paid by the Company under this guaranty.
In the ordinary course of business, the Company enters into numerous agreements that contain standard guarantees
and indemnities whereby the Company indemnifies another party for breaches of representations and warranties. Such
guarantees or indemnifications are granted under various agreements, including those governing (i) purchases or sales of
assets or businesses, (ii) leases of real estate, (iii) licensing of trademarks, (iv) access to credit facilities, (v) issuances of
debt or equity securities, and (vi) other operating agreements. The guarantees or indemnifications issued are for the
benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords in lease contracts,
(iii) franchisees in licensing agreements, (iv) financial institutions in credit facility arrangements, and (v) underwriters in
debt or equity security issuances. In addition, these parties are also indemnified against any third party claim resulting
from the transaction that is contemplated in the underlying agreement. While some of these guarantees extend only for the
duration of the underlying agreement, many survive the expiration of the term of the agreement or extend into perpetuity
(unless subject to a legal statute of limitations). There are no specific limitations on the maximum potential amount of
future payments that the Company could be required to make under these guarantees, nor is the Company able to develop
an estimate of the maximum potential amount of future payments to be made under these guarantees as the triggering
events are not subject to predictability. With respect to certain of the aforementioned guarantees, such as indemnifications
of landlords against third party claims for the use of real estate property leased by the Company, the Company maintains
insurance coverage that mitigates any potential payments to be made.
24. Fair Value of Financial Instruments
The balance sheet carrying amount of cash and cash equivalents and receivables approximates fair value due to the
short-term nature of these items. Long-term debt consists of bank loans and senior notes. Interest rates on the Company’ s
bank loans adjust frequently based on current market rates; accordingly, the carrying amount of the Company’ s bank
loans approximates fair value. The $100 million unsecured senior notes have an approximate fair value at December 31,
2007 and 2006 of $100.6 million and $101.7 million, respectively, based on quoted market prices.
25. Related Party Transactions
The Company paid approximately $462,997 to and received approximately $44,000 from corporations owned or
controlled by family members of the Company’ s largest shareholder related to the lease of personal and real property
during 2007. During 2006, the Company paid approximately $133,231 and received approximately $176,318. During
2005, the Company paid approximately $315,409 and received approximately $166,954.
On October 30, 2007, the Company entered into a lease agreement commencing in January 2008 on behalf of a
family member of the Company’ s largest shareholder for 1,950 square feet of office space located in Chevy Chase,
Maryland. The lease has a 5 year term with annual lease payments totaling approximately $70,000.
During 2005, the Company purchased 0.1 million shares of its common stock at a total cost of $6.0 million from
members of the family of the Company’ s largest shareholder. No shares were repurchased from related parties during
2007 and 2006.
26. Termination Charges
During the first quarter of 2007, the Company recorded a $3.7 million charge in selling, general and administrative
expenses for employee termination benefits relating to the termination of certain executive officers. Termination benefits
include salary continuation of approximately $2.5 million, SERP curtailment expenses of $0.2 million and $1.0 million of
accelerated share based compensation. Termination benefits payable to the executives were accounted for under SFAS
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