SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported)
November 1, 1996
CHOICE HOTELS INTERNATIONAL, INC.
(formerly Choice Hotels Holdings, Inc.)
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-11915 1985619
(Commission File Number) (IRS Employer Identification No.)
10750 Columbia Pike, Silver Spring, Maryland 20901
(Address of principal executive offices) (Zip code)
Registrant's telephone number,
including area code (301) 979-5000
<PAGE>
-2-
Item 5. Other Events.
On November 1, 1996 (the "Distribution Date"), Choice Hotels
International, Inc. (formerly Choice Hotels Holdings, Inc.) (the "Company")
commenced operations of the lodging business (the "Lodging Business") formerly
conducted by Manor Care, Inc. ("Manor Care"). On the Distribution Date, Manor
Care distributed (the "Distribution") to the holders of its common stock, par
value $0.10 (the "Manor Care Common Stock"), one share of common stock, par
value $0.01 (the "Company Common Stock"), of the Company for every share of
Manor Care Common Stock held on October 10, 1996. The Company Common Stock is
now listed on the New York Stock Exchange and trades under the symbol "CHH."
For purposes of governing the ongoing relationships between the Company and
Manor Care after the Distribution, and in order to provide for an orderly
transfer of the Lodging Business to Choice and facilitate the transition to
two separate publicly-traded companies, the Company and Manor Care have
entered into various agreements that set forth the Company's and Manor
Care's on-going responsibilities regarding various matters. The agreements
are included as exhibits hereto.
In connection with the Distribution, the Company and Manor Care
entered into a Loan Agreement dated as of November 1, 1996 (attached hereto
as Exhibit 2.6), which restricts among other things, the Company's and its
subsidiaries' ability to make certain investments, incur debt, change its
line of business, dispose of assets, create liens, enter into transactions
with affiliates and pay dividends. Interest on the amount of the loan will
be payable semiannually at a rate of 9% per annum. The loan will mature on
November 1, 1999 and may be prepaid in whole or in part, together with
accrued interest, at the Companys' option. If the loan is prepaid prior to
November 1, 1997, the Company will be required to reimburse Manor Care on
demand for any actual loss incurred or to be incurred by Manor Care (for
the period up to and including November 1, 1997) in the reemployment of the
funds released by any prepayment of the loan. The final terms of the Loan
Agreement were agreed upon immediately prior to the Distribution.
In addition, the Company has entered into a revolving credit
facility (the "Credit Facility") dated as of October 30, 1996 (attached hereto
as Exhibit 10.2) with The Chase Manhattan Bank as agent for a syndicate of
banks in an aggregate principal amount of $100.0 million. The Credit
Facility will have a maturity of three years, subject to extension, at the
request of the Company with the approval of the requisite lenders, for up
to two additional periods of one year each.
<PAGE>
-3-
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
2.1 Distribution Agreement dated as of October 31,
1996 between Manor Care, Inc. and Choice Hotels
Holdings, Inc. (to be renamed Choice Hotels
International, Inc.)
2.2 Corporate Services Agreement dated as of
November 1, 1996 between Choice Hotels
International, Inc. and Manor Care, Inc.
2.3 Employee Benefits Administration Agreement dated
as of November 1, 1996 between Choice Hotels
International, Inc. and Manor Care, Inc.
2.4 Employee Benefits & Other Employment Matters
Allocation Agreement dated as of November 1,
1996 between Choice Hotels International, Inc.
and Manor Care, Inc.
2.5 Gaithersburg Lease Agreement dated as of
November 1, 1996 between Choice Hotels
International, Inc. and Manor Care, Inc.
2.6 Loan Agreement dated as of November 1, 1996
between Choice Hotels International, Inc. and
Manor Care, Inc.
2.7 Procurement Services Agreement dated as of
November 1, 1996 between Choice Hotels
International, Inc. and Manor Care, Inc.
2.8 Risk Management Consulting Services Agreement
dated as of November 1, 1996 between Choice
Hotels International, Inc. and Manor Care, Inc.
2.9 Silver Spring Lease Agreement dated as of
November 1, 1996 between Choice Hotels
International, Inc. and Manor Care, Inc.
<PAGE>
-4-
2.10 Tax Administration Agreement dated as of
November 1, 1996 between Choice Hotels
International, Inc. and Manor Care, Inc.
2.11 Tax Sharing Agreement dated as of November 1,
1996 between Choice Hotels International, Inc.
and Manor Care, Inc.
2.12 Time Sharing Agreement dated as of November 1,
1996 between Choice Hotels International, Inc.
and Manor Care, Inc.
2.13 Trademark Agreement dated as of November 1, 1996
between Choice Hotels International, Inc. and
Manor Care, Inc.
2.14 Pilot Services Agreement dated November 1, 1996
between Choice Hotels International, Inc. and
Manor Care, Inc.
2.15 Vehicle Lease Agreement dated November 1, 1996
between Choice Hotels International, Inc. and
Manor Care, Inc.
10.1 Revolving Credit Facility Agreement
between Choice Hotels Holdings, Inc. and The
Chase Manhattan Bank (formerly Chemical Bank),
as Agent, and the other Lenders named therein.
<PAGE>
-5-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
CHOICE HOTELS INTERNATIONAL, INC.
(Registrant)
By: /s/ James A. MacCutcheon
Name: James A. MacCutcheon
Title: Executive Vice President
Date: November 5, 1996
DISTRIBUTION AGREEMENT
dated as of
October 31, 1996
between
Manor Care, Inc.
and
Choice Hotels Holdings, Inc.
(to be renamed Choice Hotels International, Inc.)
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.01. Definitions..................................... 2
ARTICLE II
TRANSFER OF LODGING BUSINESS
Section 2.01. Transfer of Assets.............................. 8
Section 2.02. Assignment and Assumption of Liabilities........ 9
Section 2.03. Assisted Living Facilities...................... 9
Section 2.04. Transfers Not Effected Prior to the
Distribution Date............................. 10
Section 2.05. NO REPRESENTATIONS OR WARRANTIES; CONSENTS...... 10
Section 2.06. Conveyancing and Stock Assumption Instruments... 11
Section 2.07. Cash Allocation................................. 12
ARTICLE III
THE DISTRIBUTION
Section 3.01. Cooperation Prior to the Distribution........... 13
Section 3.02. Conduct of Lodging Business Pending
Distribution................................. 13
Section 3.03. Manor Care Board Action; Conditions Precedent
to the Distribution.......................... 14
Section 3.04. Outstanding Choice Stock....................... 15
Section 3.05. The Distribution............................... 15
ARTICLE IV
INDEMNIFICATION
Section 4.01. Choice Indemnification of Manor Care............ 16
Section 4.02. Manor Care Indemnification of Choice............ 16
Section 4.03. Notice and Payment of Claims.................... 16
Section 4.04. Notice and Defense of Third-Party Claims........ 17
Section 4.05 Insurance Proceeds.............................. 19
Section 4.06 Contribution.................................... 19
Section 4.07 Subrogation..................................... 20
-i-
<PAGE>
Page
Section 4.08 No Third-Party Beneficiaries.................... 20
Section 4.09 Remedies Cumulative............................. 20
Section 4.10 Survival of Indemnities......................... 20
Section 4.11 After-Tax Indemnification Payments.............. 20
ARTICLE V
CERTAIN ADDITIONAL MATTERS
Section 5.01. Intercompany Accounts........................... 21
Section 5.02. Manor Care Guarantees........................... 21
Section 5.03. Ancillary Agreements............................ 22
Section 5.04. Choice Officers and Board of Directors.......... 22
Section 5.05. Choice Certificate of Incorporation and
By-laws...................................... 22
Section 5.06. Credit Facilities............................... 22
Section 5.07. Sales and Transfer Taxes........................ 23
Section 5.08. Certain Post-Distribution Transactions.......... 23
Section 5.09. Non-Competition Agreement....................... 23
Section 5.10. Insurance Policies and Claims Administration.... 24
ARTICLE VI
ACCESS TO INFORMATION
Section 6.01. Delivery of Corporate Records................... 26
Section 6.02. Access to Information........................... 27
Section 6.03. Litigation Cooperation.......................... 27
Section 6.04. Reimbursement................................... 27
Section 6.05. Retention of Records............................ 27
Section 6.06. Confidentiality................................. 28
Section 6.07. Mail............................................ 28
ARTICLE VII
INTENTIONALLY OMITTED
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Termination..................................... 29
Section 8.02. Expenses........................................ 29
Section 8.03. Notices......................................... 29
Section 8.04. Amendment and Waiver............................ 30
Section 8.05. Counterparts.................................... 30
-ii-
<PAGE>
Page
Section 8.06. Governing Law; Jurisdiction; Forum.............. 30
Section 8.07. Entire Agreement................................ 31
Section 8.08. Parties in Interest............................. 31
Section 8.09. Tax Sharing Agreement; After-Tax Payments....... 31
Section 8.10. Further Assurances and Consents................. 31
Section 8.11. Exhibits and Schedules.......................... 32
Section 8.12. Legal Enforceability............................ 32
Section 8.13. Dispute Resolution.............................. 32
Section 8.14. Titles and Headings............................. 34
Schedule 1...................... Lodging Subsidiaries
Schedule 2.01(b)................ Transferred Hotels
Schedule 2.03................... Assisted Living Facilities
Schedule 5.02(a)................ Manor Care Guarantees
Schedule 5.10(a)................ Covered Claims
Exhibit A....................... Form of Corporate Services Agreement
Exhibit B....................... Form of Employee Benefits Adminis-
tration Agreement
Exhibit C....................... Form of Employee Benefits & Other
Employment Matters Allocation
Agreement
Exhibit D....................... Form of Gaithersburg Sublease Agreement
Exhibit E....................... Form of Loan Agreement
Exhibit F....................... Form of Pikesville Sublease Agreement
Exhibit G....................... Form of Procurement Services Agreement
Exhibit H....................... Form of Risk Management Consulting
Services Agreement
Exhibit I....................... Form of Silver Spring Lease Agreement
Exhibit J....................... Form of Tax Administration Agreement
Exhibit K....................... Form of Tax Sharing Agreement
Exhibit L....................... Form of Time Sharing Agreement
Exhibit M....................... Form of Trademark Agreement
-iii-
<PAGE>
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT ("Agreement") dated as of October 31, 1996 by
and between Manor Care, Inc., a Delaware corporation (together with its
successors and permitted assigns, "Manor Care"), and Choice Hotels Holdings,
Inc., a Delaware corporation (to be renamed Choice Hotels International, Inc.
and together with its successors and permitted assigns, "Choice").
RECITALS
WHEREAS, Manor Care currently conducts the business of owning,
managing and franchising hotels and conducts certain related operations (the
"Lodging Business") primarily through certain subsidiaries of Manor Care (the
"Direct Lodging Subsidiaries"), their respective subsidiaries and certain
partnerships, all as identified on Schedule 1 hereto (collectively, the "Lodging
Subsidiaries").
WHEREAS, Choice is presently a wholly-owned subsidiary of Manor Care
established for the purposes of taking title to the capital stock and associated
goodwill of the Direct Lodging Subsidiaries and certain assets associated with
the Lodging Business, and assuming the liabilities associated with the Lodging
Business and certain other liabilities, all as specified herein, such that
Choice will own substantially all of the assets, business and operations of the
Lodging Business.
WHEREAS, the Board of Directors of Manor Care has determined that it
is in the best interest of Manor Care and the stockholders of Manor Care to
distribute (the "Distribution") to the holders of Manor Care Common Stock (as
defined herein) all of the outstanding shares of Choice Common Stock (as defined
herein).
WHEREAS, it is the intention of the parties that the Distribution will
not be taxable to Manor Care or to the stockholders of Manor Care (pursuant to
Section 355 of the Code (as defined herein)).
WHEREAS, the parties have determined that it is necessary and
desirable to set forth the principal corporate transactions required to effect
the Distribution and to set forth other agreements that will govern certain
other matters following the Distribution.
<PAGE>
-2-
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements, provisions and covenants contained in this Agreement, the
parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. As used herein, the following terms have
the following meaning:
"Action" means any claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, governmental or regulatory or
administrative agency or commission or any other tribunal.
"Affiliate" of any specified person means any other person that,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with such specified person.
"Ancillary Agreements" means the Corporate Services Agreement, the
Employee Benefits Administration Agreement, the Employee Benefits and Other
Employment Matters Allocation Agreement, the Gaithersburg Sublease Agreement,
the Loan Agreement, the Pikesville Sublease Agreement, the Procurement Services
Agreement, the Risk Management Consulting Services Agreement, the Silver Spring
Lease Agreement, the Tax Administration Agreement, the Tax Sharing Agreement,
the Time Sharing Agreement and the Trademark Agreement.
"Assisted Living Liabilities" means all Liabilities arising
exclusively from the operation of the assisted living facilities described on
Schedule 2.03 or the ownership or use of assets exclusively in connection
therewith.
"Assumed Liabilities" means the Liabilities arising from the operation
of the Lodging Business or the ownership or use of assets (including the
Transferred Assets) or other activities in connection therewith, whether arising
before, on or after the Distribution Date, including but not limited to any
Liabilities arising under or in connection with or related to (i) the Choice
Liabilities that are guaranteed by Manor Care, as specified in Schedule 5.02(a),
(ii) information
<PAGE>
-3-
contained in or omitted from the Form 10 or the Information Statement, (iii) any
Liabilities set forth or referenced in the audited financial statements of
Choice included in the Form 10 or the Information Statement, (iv) hotel leases
under which Manor Care may be deemed to be liable, (v) liabilities arising from
Franchise Agreements, (vi) liabilities in connection with a Reimbursement and
Indemnification Agreement of Chemical Bank regarding a Chemical Bank-France
guarantee and (vii) liabilities under indemnification agreements between Manor
Care and certain employees and directors with respect to services rendered by
such employee or director to Choice Hotels or the Lodging Business.
Notwithstanding the foregoing, the Assumed Liabilities shall not include (i) any
debt of Manor Care for money borrowed (including but not limited to any such
debt evidenced by a note, debenture or other instrument), (ii) (X) any
third-party claims arising from the conduct or operation of the Lodging Business
or the ownership or use of assets in connection therewith prior to the
Distribution Date if such claims are Covered Claims, (Y) any self-insured
retention or deductible for such Covered Claims that would be covered but for
such retention or deductible, other than any amount payable by Choice in respect
of Shock Losses (as defined) pursuant to Section 5.10(a), (Z) any letters of
credit of Manor Care in favor of an insurance carrier relating to such retention
or deductible, (iii) the Assisted Living Liabilities, and (iv) any claims,
losses, damages, demands, costs, expenses or liabilities for any Tax (which
shall be governed by the Tax Sharing Agreement and Sections 4.11 and 5.07
hereof).
"Choice Bylaws" means the bylaws of Choice in the form filed as an
exhibit to the Form 10.
"Choice Certificate" means the restated certificate of incorporation
of Choice in the form filed as an exhibit to the Form 10.
"Choice Common Stock" means the outstanding shares of common stock,
par value $.01 per share, of Choice.
"Choice Credit Facility" means a revolving credit facility for Choice
in the amount of $100.0 million.
"Choice Hotels" means Choice Hotels International, Inc., a Delaware
corporation (to be renamed Choice Hotels Franchising, Inc.), and, prior to the
Distribution, a wholly-owned subsidiary of Manor Care.
<PAGE>
-4-
"Choice Liabilities" means all of (i) the Liabilities of Choice under
this Agreement, (ii) the Assumed Liabilities, and (iii) the Liabilities of
Choice arising after the Distribution Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Corporate Services Agreement" means the agreement to be entered into
between Manor Care and Choice, on or before the Distribution Date, providing for
certain matters relating to corporate, administrative, consulting and other
services, in substantially the form set forth as Exhibit A, as amended from time
to time.
"Covered Claims" means any claim that is of a type covered by
insurance or self insurance of Manor Care as in effect on the Distribution Date
and that is a type of claim specified as a covered claim on Schedule 5.10(a).
"Direct Lodging Subsidiaries" has the meaning specified in the first
recital of this Agreement.
"Distribution" has the meaning specified in the third recital of this
Agreement.
"Distribution Agent" means Chase-Mellon Shareholder Services, L.L.C.
"Distribution Date" means the date determined by the Board of
Directors of Manor Care as the date on which the Distribution shall be effected,
which is contemplated to occur on November 1, 1996.
"Employee Benefits Administration Agreement" means the agreement to be
entered into between Manor Care and Choice, on or before the Distribution Date,
providing for certain matters relating to the administration of employee
benefits, in substantially the form set forth as Exhibit B, as amended from time
to time.
"Employee Benefits & Other Employment Matters Allocation Agreement"
means the agreement to be entered into between Manor Care and Choice, on or
before the Distribution Date,
<PAGE>
-5-
providing for certain matters relating to the allocation of employee benefits,
the treatment of employee stock options and other employee matters, in
substantially the form set forth as Exhibit C, as amended from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Credit Facility" means the $250 million revolving credit
facility dated as of November 30, 1994, as amended June 23, 1995, among Chase
Manhattan Bank, Manor Care and the subsidiary guarantors named therein.
"Form 10" means the registration statement on Form 10 filed by Choice
with the Commission to effect the registration of the Choice Common Stock
pursuant to the Exchange Act, as such registration statement may be amended from
time to time.
"Franchise Agreements" means all franchise agreements to which Manor
Care or any Lodging Subsidiary is a party, pursuant to which Manor Care (either
directly or through any such Lodging Subsidiary) has granted franchise rights
with respect to the operation of hotel properties, and in exchange therefor,
receives franchise fees, royalties, license fees and service fees.
"Gaithersburg Sublease Agreement" means the agreement to be entered
into between Manor Care and Choice, on or before the Distribution Date with
respect to property located in Gaithersburg, Maryland, in substantially the form
set forth as Exhibit D, as amended from time to time.
"Healthcare Business" means any business conducted now or in the
future by Manor Care that is not part of the Lodging Business.
"Indemnifiable Loss" has the meaning specified in Section 4.01.
"Information Statement" means the information statement in the form
sent to each holder of Manor Care Common Stock in connection with the
Distribution.
"Insurance Charges" has the meaning specified in Section 5.10(c)(ii).
<PAGE>
-6-
"IRS Ruling" means the ruling of the Internal Revenue Service dated
January 22, 1996 that the Distribution should not be taxable to Manor Care or
the stockholders of Manor Care pursuant to Section 355 of the Code.
"Liabilities" means any and all claims, debts, liabilities and
obligations, absolute or contingent, matured or not matured, liquidated or
unliquidated, accrued or not accrued, known or unknown, whenever arising,
including all costs and expenses relating thereto, under any law, rule,
regulation, action, order or consent decree of any governmental entity or any
award of any arbitrator of any kind, and those arising under any contract,
commitment or undertaking.
"Loan Agreement" means the Loan Agreement to be entered into among MNR
and Choice, on or before the Distribution Date, providing for the
recapitalization of the Promissory Notes and repayment of certain advances made
by Manor Care to one or more of the Lodging Subsidiaries prior to the
Distribution Date, in substantially the form set forth as Exhibit E, as amended
from time to time.
"Lodging Business" has the meaning specified in the first recital of
this Agreement.
"Lodging Subsidiaries" has the meaning specified in the first recital
of this Agreement.
"Manor Care Common Stock" means the outstanding shares of common
stock, par value $.10 per share, of Manor Care.
"Manor Care Liabilities" means all of (i) the Liabilities of Manor
Care under this Agreement, (ii) the Liabilities of Manor Care (other than any
Choice Liabilities), whether arising before, on or after the Distribution Date,
(iii) (X) any third-party claims arising from the conduct or operation of the
Lodging Business or the ownership or use of assets in connection therewith prior
to the Distribution Date if such claims are Covered Claims, (Y) any self-insured
retention or deductible for such Covered Claims that would be covered but for
such retention or deductible other than any amount payable by Choice in respect
of Shock Losses pursuant to Section 5.10(a), (Z) any letters of credit of Manor
Care in favor of an insurance carrier relating to such retention or deductible,
(iv) the Assisted Living Liabilities and (v) any claims, losses, damages,
demands, costs, expenses or liabilities for
<PAGE>
-7-
any Tax (which shall be governed by the Tax Sharing Agreement and Sections 4.11
and 5.07 hereof).
"MNR" means MNR Finance Corp., a Delaware corporation.
"Pikesville Sublease Agreement" means the agreement to be entered into
between Manor Care and Choice, on or before the Distribution Date, with respect
to the Subleased Hotel, in substantially the form set forth as Exhibit F, as
amended from time to time.
"Procurement Services Agreement" means the agreement to be entered
into between Manor Care and Choice, on or before the Distribution Date,
providing for certain matters relating to procurement of products and supplies
used in the Lodging Business, in substantially the form set forth as Exhibit G,
as amended from time to time.
"Promissory Notes" means promissory notes issued by Boulevard Motel
Corp. in the aggregate principal amount of $225,722,500.
"Record Date" means the date determined by Manor Care's Board of
Directors as the date for determining the stockholders of record of Manor Care
entitled to receive the Distribution, which record date is contemplated to be
October 10, 1996, subject to fulfillment of certain conditions to the
Distribution set forth herein.
"Risk Management Consulting Services Agreement" means the agreement to
be entered into between Manor Care and Choice on or prior to the Distribution
Date relating to risk management, in substantially the form set forth as Exhibit
H, as amended from time to time.
"Securities Act" means the Securities Act of 1933, as amended.
"Silver Spring Lease Agreement" means the lease agreement to be
entered into by Manor Care and Choice, on or before the Distribution Date, with
respect to property located in Silver Spring, Maryland, in substantially the
form set forth as Exhibit I, as amended from time to time.
"Subleased Hotel" means the Comfort Inn Hotel located at 100 Wooded
Way, Pikesville, Maryland 21208, which prior to
<PAGE>
-8-
the Distribution Date was operated by Manor Care under a lease from a third
party.
"Tax" shall have the meaning given to such term in the Tax Sharing
Agreement.
"Tax Administration Agreement" means the agreement to be entered into
between Manor Care and Choice on or prior to the Distribution Date providing for
certain tax administration matters, in substantially the form set forth as
Exhibit J, as amended from time to time.
"Tax Sharing Agreement" means the agreement to be entered into between
Manor Care and Choice on or prior to the Distribution Date providing for certain
tax related matters, in substantially the form set forth as Exhibit K, as
amended from time to time.
"Time Sharing Agreement" means the agreement to be entered into
between Manor Care and Choice, on or before the Distribution Date, providing for
the use of certain aircraft, in substantially the form set forth as Exhibit L,
as amended from time to time.
"Trademark Agreement" means the agreement to be entered into between
Manor Care and Choice, on or before the Distribution Date, providing for certain
matters relating to the transfer of certain trademarks and other intellectual
property, in substantially the form set forth as Exhibit M, as amended from time
to time.
"Transferred Assets" has the meaning specified in Section 2.01.
ARTICLE II
TRANSFER OF LODGING BUSINESS
Section 2.01. Transfer of Assets. Prior to the Distribution Date,
Manor Care shall take or shall cause to be taken all actions necessary to cause
the transfer, assignment, delivery and conveyance to Choice of all of Manor
Care's and its subsidiaries' rights, title and interest in the assets listed
below (collectively, the "Transferred Assets"):
<PAGE>
-9-
(a) the shares of common stock and preferred stock, if any, and
associated goodwill, of the Direct Lodging Subsidiaries owned by Manor
Care as set forth on Schedule 1;
(b) the hotels described on Schedule 2.01(b) (the "Transferred
Hotels") and the real property on which such hotels are located and all
fixtures, furnishings, furniture, equipment, supplies and other tangible
personal property located at the Transferred Hotels and the Subleased
Hotel;
(c) all contracts, agreements (including Franchise Agreements),
arrangements or commitments of any kind and all licenses and permits of
Manor Care that relate exclusively to the Transferred Hotels and the
Subleased Hotel;
(d) the trademarks, service marks, goodwill and other
intangible properties and rights covered by the Assignment of Marks
Agreement; and
(e) all books, records and files of, or relating exclusively
to, the Lodging Business.
Section 2.02. Assignment and Assumption of Liabilities. On or prior to
the Distribution Date, Manor Care shall assign to Choice and Choice shall assume
all of the Choice Liabilities. Except as set forth in one or more of the
Ancillary Agreements, from and after the Distribution Date, (i) Choice shall,
and/or shall cause its subsidiaries to, assume, pay, perform and discharge in
due course all of the Choice Liabilities, and (ii) Manor Care shall, and/or
shall cause its subsidiaries to, pay, perform and discharge in due course all of
the Manor Care Liabilities and have assigned all of the Assumed Liabilities to
Choice.
Section 2.03. Assisted Living Facilities. (a) Prior to the transfer of
the Transferred Assets, Boulevard Motel Corp., a Direct Lodging Subsidiary,
shall transfer to Manor Care the assisted living facilities described on
Schedule 2.03, including the real property on which such facilities are located,
and all (i) fixtures, furnishings, furniture, equipment, supplies and other
tangible personal property located at such facilities, and (ii) contracts,
agreements, arrangements or commitments of any kind, and all licenses and
permits and books, records and files, in each case that relate to such
facilities.
<PAGE>
-10-
(b) Manor Care shall, and/or shall cause its subsidiaries to, assume,
pay, perform and discharge in due course all of the Assisted Living Liabilities.
Section 2.04. Transfers Not Effected Prior to the Distribution Date.
To the extent any transfers contemplated by this Article II shall not have been
fully effected prior to the Distribution Date, Manor Care and Choice shall
cooperate to effect such transfers as promptly as possible following the
Distribution Date. Nothing herein shall be deemed to require the transfer of any
assets or the assumption of any Liabilities that by their terms or by operation
of law cannot be transferred or assumed; provided, however, that Manor Care and
Choice and their respective subsidiaries and Affiliates shall cooperate in
seeking to obtain any necessary consents or approvals for the transfer of all
assets and Liabilities as contemplated by this Article II. In the event that any
such transfer of assets or Liabilities has not been consummated as of the
Distribution Date, the party retaining such asset or Liability shall thereafter
hold such asset in trust for the use and benefit of the party entitled thereto
(at the expense of the party entitled thereto) and retain such Liability for the
account of the party by whom such Liability is to be assumed pursuant hereto,
and take such other actions as may be reasonably required in order to place the
parties, insofar as reasonably possible, in the same position as would have
existed had such asset been transferred or such Liability been assumed as
contemplated hereby. As and when any such asset or Liability becomes
transferable, such transfer and assumption shall be effected forthwith. Manor
Care and Choice agree that, as of the Distribution Date, each party hereto shall
be deemed to have acquired complete and sole beneficial ownership over all of
the assets, together with all of the rights, powers and privileges incidental
thereto, that such party is entitled to acquire pursuant to the terms of this
Agreement.
Section 2.05. NO REPRESENTATIONS OR WARRANTIES; CONSENTS. EACH OF THE
PARTIES HERETO UNDERSTANDS AND AGREES THAT NO PARTY HERETO IS, IN THIS AGREEMENT
OR IN ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT OR
OTHERWISE, REPRESENTING OR WARRANTING IN ANY WAY AS TO THE VALUE OR FREEDOM FROM
ENCUMBRANCE OF, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF SUCH PARTY, OR AS
TO THE LEGAL SUFFICIENCY TO CONVEY TITLE TO ANY ASSET TRANSFERRED PURSUANT TO
THIS AGREEMENT OR ANY ANCILLARY AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY
CONVEYANCING OR ASSUMPTION INSTRUMENTS. IT IS ALSO AGREED AND UNDERSTOOD THAT
THERE ARE NO WARRANTIES WHATSOEVER, EXPRESS OR
<PAGE>
-11-
IMPLIED, GIVEN BY EITHER PARTY TO THE AGREEMENT, AS TO THE CONDITION, QUALITY,
MERCHANTABILITY OR FITNESS OF ANY OF THE ASSETS, BUSINESSES OR OTHER RIGHTS
TRANSFERRED OR RETAINED BY THE PARTIES, AS THE CASE MAY BE, AND ALL SUCH ASSETS,
BUSINESSES AND OTHER RIGHTS SHALL BE "AS IS, WHERE IS" AND "WITH ALL FAULTS"
(PROVIDED THAT THE ABSENCE OF WARRANTIES GIVEN BY THE PARTIES SHALL NOT NEGATE
THE ALLOCATION OF LIABILITIES UNDER THIS AGREEMENT AND SHALL HAVE NO EFFECT ON
ANY MANUFACTURERS, SELLERS, OR OTHER THIRD PARTY WARRANTIES THAT ARE INTENDED TO
BE TRANSFERRED WITH SUCH ASSETS). SIMILARLY, EACH PARTY HERETO UNDERSTANDS AND
AGREES THAT NO PARTY HERETO IS, IN THIS AGREEMENT OR IN ANY OTHER AGREEMENT OR
DOCUMENT CONTEMPLATED BY THIS AGREEMENT OR OTHERWISE, REPRESENTING OR WARRANTING
IN ANY WAY THAT THE OBTAINING OF ANY CONSENTS OR APPROVALS, THE EXECUTION AND
DELIVERY OF ANY AMENDATORY AGREEMENTS AND THE MAKING OF ANY FILINGS OR
APPLICATIONS CONTEMPLATED BY THIS AGREEMENT WILL SATISFY THE PROVISIONS OF ANY
OR ALL APPLICABLE LAWS OF JUDGMENTS OR OTHER INSTRUMENTS OR AGREEMENTS RELATING
TO SUCH ASSETS. Notwithstanding the foregoing, the parties shall use their good
faith efforts to obtain all consents and approvals, to enter into all reasonable
amendatory agreements and to make all filings and applications contemplated by
this Agreement, and shall take all such further actions as shall be deemed
reasonably necessary to preserve for each of Manor Care and Choice, to the
greatest extent reasonably feasible, consistent with this Agreement, the
economic and operational benefits of the allocation of assets provided for in
this Agreement. In case at any time after the Distribution Date any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall take all
such necessary or desirable action, provided, that any financial cost shall be
borne by the party receiving the benefit of the action.
Section 2.06. Conveyancing and Stock Assumption Instruments. In
connection with the asset and stock transfers and the assumptions of Liabilities
contemplated by this Agreement, the parties shall execute or cause to be
executed by the appropriate entities conveyancing and assumption instruments,
including using reasonable efforts to obtain from third-parties appropriate
releases and novations, in such forms as the parties shall reasonably agree,
including deeds as may be appropriate, the assignment of trademarks and
franchise rights, and the assignment and assumption of existing lease
agreements. Any transfer of capital stock shall be effected by means of delivery
of stock certificates and executed stock powers and notation on the stock record
books of the corporation or other
<PAGE>
-12-
legal entities involved and, to the extent required by applicable law, by
notation on public registries.
Section 2.07. Cash Allocation.
(a) Cash Allocation on the Distribution Date. The allocation between
Manor Care and Choice of all domestic and international cash bank balances,
short-term investments and outstanding checks and drafts of Manor Care and its
subsidiaries recorded per the books of Manor Care and its subsidiaries shall be
in accordance with the following:
(i) all cash received in, and deposits of cash, checks, drafts or
short-term investments made to, depositary accounts as of the close of
business on the Distribution Date shall be remitted to Manor Care; and
(ii) all petty cash of the Lodging Business shall be allocated
to Choice on the Distribution Date; and
(iii) all Liabilities for payment of outstanding checks or drafts
drawn on or prior to the Distribution Date on accounts allocated to Choice
pursuant to Section 2.07(b) shall be paid by Choice.
(b) Cash Management After the Distribution Date. The petty cash,
depositary and disbursement accounts of the Lodging Business shall be
transferred to Choice on the Distribution Date after the allocations are made
pursuant to Section 2.07(a)(i) and (ii). Choice shall establish and maintain a
separate cash management system and accounting records with respect to the
Lodging Business effective as of 12:01 a.m. New York time on the day following
the Distribution Date.
(c) For purposes of this Section 2.07, the parties contemplate that
the Lodging Business and the businesses to be retained by Manor Care after the
Distribution, including, but not limited to, the administration of accounts
payable and accounts receivable, will be conducted in the ordinary course of
business consistent with past practice prior to the Distribution Date.
(d) For purposes of this Section 2.07, any disagreement or dispute
shall be resolved by the Assistant Treasurer of Manor Care, which resolution
shall be binding and final upon each of the parties hereto and not subject to
further review.
<PAGE>
-13-
ARTICLE III
THE DISTRIBUTION
Section 3.01. Cooperation Prior to the Distribution. (a) Manor Care
and Choice have prepared, and Manor Care shall mail to the holders of Manor Care
Common Stock, the Information Statement, which sets forth disclosure concerning
Choice, the Distribution and other matters. Manor Care and Choice have also
prepared, and Choice has filed with the Commission, the Form 10, which includes
or incorporates by reference the Information Statement. Manor Care and Choice
shall use their reasonable efforts to cause the Form 10 to become effective
under the Exchange Act.
(b) Manor Care and Choice shall cooperate in preparing, filing with
the Commission and causing to become effective any registration statements or
amendments thereto that are appropriate to reflect the establishment of or
amendments to any employee benefit and other plans contemplated by the Employee
Benefits and Other Matters Allocation Agreement.
(c) Manor Care and Choice shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of the states or
other political subdivisions of the United States in connection with the
transactions contemplated by this Agreement.
(d) Choice has prepared and filed a preliminary listing application
and will pursue the approval of the application to permit listing of the Choice
Common Stock on the New York Stock Exchange.
Section 3.02. Conduct of Lodging Business Pending Distribution.
(a) Prior to the Distribution Date, the Lodging Business shall be
operated by Manor Care for the sole benefit of Manor Care and its stockholders.
(b) Prior to the Distribution Date, Choice shall have no operations or
conduct any business except in preparation for the consummation of the
transactions contemplated by this Agreement.
<PAGE>
-14-
Section 3.03. Manor Care Board Action; Conditions Precedent to the
Distribution. Manor Care's Board of Directors shall, in its sole discretion,
establish the Record Date and the Distribution Date and any appropriate
procedures in connection with the Distribution. In no event shall the
Distribution occur unless the following conditions shall, unless waived by Manor
Care in its sole discretion, have been satisfied:
(a) all necessary regulatory approvals and consents of third
parties shall have been received;
(b) the Form 10 shall have been declared effective under the
Exchange Act;
(c) a favorable response shall have been received from the Staff of
the Commission with respect to Manor Care's no-action request concerning,
among other things, whether the Distribution may be effected without
registration of the Choice Common Stock under the Securities Act;
(d) the Choice Credit Facility shall be available;
(e) Choice's Board of Directors, as named in the Form 10, shall have
been elected by Manor Care, as sole stockholder of Choice, and the Choice
Certificate and Choice Bylaws shall be in effect;
(f) the Choice Common Stock shall have been approved for listing on
the New York Stock Exchange, subject to official notice of issuance;
(g) Manor Care's Board of Directors shall have formally approved the
Distribution and shall not have abandoned, deferred or modified the
Distribution at any time prior to the Distribution Date;
(h) The IRS Ruling shall be in full force and effect and shall not
have been modified and the representations made to the IRS therein shall
be true in all material respects;
(i) the transactions contemplated by Sections 2.01 and 2.02 and
Article V shall have been consummated in all material respects and each of
the Ancillary Agreements, in form and substance satisfactory to Manor
Care, shall have been executed by the parties thereto and each of the
transactions contemplated by the Ancillary Agreements to
<PAGE>
-15-
be consummated on or prior to the Distribution Date shall have been
consummated;
(j) Choice shall have obtained, or Manor Care shall have obtained
for Choice, insurance (or binders therefor) providing coverage to Choice
similar to the coverage provided by insurance in place prior to the
Distribution Date;
(k) Manor Care shall have amended and restated the Existing
Credit Facility on terms acceptable to it in its sole discretion; and
(l) no preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a government,
regulatory or administrative agency or commission, and no statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, shall be in effect preventing the payment of the Distribution;
provided that the satisfaction of such conditions shall not create any
obligation on the part of Manor Care to effect the Distribution or in any way
limit Manor Care's power of termination set forth in Section 8.01 or alter the
consequences of any such termination from those specified in such Section.
Section 3.04. Outstanding Choice Stock. On or prior to the
Distribution Date, Manor Care and Choice shall take all steps necessary to
increase the outstanding shares of Choice Common Stock so that immediately prior
to the Distribution, Manor Care will hold a number of shares of Choice Common
Stock equal to the number of shares of Manor Care Common Stock outstanding on
the Record Date.
Section 3.05. The Distribution. On the Distribution Date, or as soon
thereafter as practicable, subject to the conditions set forth in this
Agreement, Manor Care shall deliver to the Distribution Agent a certificate or
certificates representing all of the then outstanding shares of Choice held by
Manor Care, endorsed in blank, and shall instruct the Distribution Agent to
distribute to each holder of record of Manor Care Common Stock on the Record
Date a certificate or certificates representing one share of Choice Common Stock
for each share of Manor Care Common Stock so held. Choice agrees to provide all
certificates for shares of Choice Common Stock that the Distribution Agent shall
require in order to effect the Distribution.
<PAGE>
-16-
ARTICLE IV
INDEMNIFICATION
Section 4.01. Choice Indemnification of Manor Care. Except as
otherwise expressly provided in any of the Ancillary Agreements hereof, from and
after the Distribution Date, Choice shall indemnify, defend and hold harmless
Manor Care and its subsidiaries, and each of their respective directors,
officers, employees, agents and Affiliates and each of the heirs, executors,
successors and assigns of any of the foregoing (the "Manor Care Indemnitees")
from and against any and all damage, loss, liability and expense (including,
without limitation, reasonable expenses of investigation and reasonable
attorneys' fees and expenses in connection with any or all such investigations
or any and all Actions or threatened Actions) (collectively, "Indemnifiable
Losses") incurred or suffered by any of the Manor Care Indemnitees and arising
out of or related to the failure of Choice or any of its subsidiaries to pay,
perform or otherwise discharge any of the Choice Liabilities.
Section 4.02. Manor Care Indemnification of Choice. Except as
otherwise expressly provided in any of the Ancillary Agreements, from and after
the Distribution Date, Manor Care shall indemnify, defend and hold harmless
Choice and its subsidiaries, and each of their respective directors, officers,
employees, agents and Affiliates and each of the heirs, executors, successors
and assigns of any of the foregoing (the "Choice Indemnitees") from and against
any and all Indemnifiable Losses incurred or suffered by any of the Choice
Indemnitees and arising out of or related to the failure of Manor Care or any of
its subsidiaries to pay, perform or otherwise discharge any of the Manor Care
Liabilities.
Section 4.03. Notice and Payment of Claims. If any Manor Care
Indemnitee or Choice Indemnitee (the "Indemnified Party") determines that it is
or may be entitled to indemnification by Choice or Manor Care, as the case may
be (the "Indemnifying Party"), under this Article IV (other than in connection
with any Action subject to Section 4.04), the Indemnified Party shall deliver to
the Indemnifying Party a written notice specifying, to the extent reasonably
practicable, the basis for its claim for indemnification and the amount for
which the Indemnified Party reasonably believes it is entitled to be
indemnified. After the Indemnifying Party shall have been notified of the amount
for which the Indemnified Party seeks
<PAGE>
-17-
indemnification, the Indemnifying Party shall, within 15 days after receipt of
such notice, either (i) pay the Indemnified Party such amount in cash or other
immediately available funds (or reach agreement with the Indemnified Party as to
a mutually agreeable alternative payment schedule) or (ii) object to the claim
for indemnification or the amount thereof by giving the Indemnified Party
written notice setting forth the grounds therefor. Any objection shall be
resolved in accordance with Section 8.13. If the Indemnifying Party does not
give such notice, the Indemnifying Party shall be deemed to have acknowledged
its liability for such claim and the Indemnified Party may exercise any and all
of its rights under applicable law to collect such amount.
Section 4.04. Notice and Defense of Third-Party Claims. (a) Promptly
following the earlier of (a) receipt of written notice of the commencement by a
third party of any Action against or otherwise involving any Indemnified Party,
or (b) receipt of written information from a third party alleging the existence
of a claim against an Indemnified Party, in either case, with respect to which
indemnification may be sought pursuant to this Agreement (a "Third-Party
Claim"), the Indemnified Party shall give the Indemnifying Party prompt written
notice thereof. The failure of the Indemnified Party to give notice as provided
in this Section 4.04 shall not relieve the Indemnifying Party of its obligations
under this agreement, except to the extent that the Indemnifying Party is
prejudiced by such failure to give notice. Such notice shall describe the
Third-Party Claim in reasonable detail and shall indicate the amount of the
Indemnifiable Loss that has been or will be sustained by the Indemnified Party.
(b) Within 30 days after receipt of such notice, the Indemnifying
Party may, by giving written notice thereof to the Indemnified Party, (i)
acknowledge liability for and at its option elect to assume the defense of such
Third-Party Claim at its sole cost and expense, or (ii) object to the claim of
indemnification for such Third-Party Claim setting forth the grounds therefor.
Any objection shall be resolved in accordance with Section 8.13. If the
Indemnifying Party does not within such 30-day period give the Indemnified Party
such notice, the Indemnifying Party shall be deemed to have acknowledged its
liability for such Third- Party Claim.
(c) Any defense of a Third-Party Claim as to which the Indemnifying
Party has elected to assume the defense shall be conducted by attorneys employed
by the Indemnifying Party
<PAGE>
-18-
and reasonably satisfactory to Manor Care in the case of Manor Care Indemnitees
and Choice in the case of Choice Indemnitees. The Indemnified Party shall have
the right to participate in such proceedings and to be represented by attorneys
of its own choosing at the Indemnified Party's sole cost and expense; provided
that if the defendants or parties against which relief is sought in any such
claim include both the Indemnifying Party and one or more Indemnified Parties
and, in the reasonable judgment of Manor Care in the case of Manor Care
Indemnitees and Choice in the case of Choice Indemnitees, a conflict of interest
between such Indemnified Parties and such Indemnifying Party exists in respect
of such claim, such Indemnified Parties shall have the right to employ one firm
of counsel selected by Manor Care or Choice, as the case may be, and in that
event the reasonable fees and expenses of such separate counsel (but not more
than one separate counsel reasonably satisfactory to the Indemnifying Party)
shall be paid by such Indemnifying Party.
(d) If the Indemnifying Party assumes the defense of a Third- Party
Claim, the Indemnifying Party may settle or compromise the claim without the
prior written consent of the Indemnified Party; provided that without the prior
written consent of Manor Care in the case of Manor Care Indemnitees and Choice
in the case of Choice Indemnitees, the Indemnifying Party may not agree to any
such settlement unless as a condition to such settlement the Indemnified Party
receives a written release from any and all liability relating to such
Third-Party Claim and such settlement or compromise does not include any remedy
or relief to be applied to or against the Indemnified Party, other than monetary
damages for which the Indemnifying Party shall be responsible hereunder.
(e) If the Indemnifying Party does not assume the defense of a
Third-Party Claim for which it has acknowledged liability for indemnification
under this Article IV, Manor Care in the case of Manor Care Indemnitees and
Choice in the case of Choice Indemnitees may pursue the defense of such
Third-Party Claim and choose one firm of counsel in connection therewith. The
Indemnifying Party is required to reimburse Manor Care or Choice, as the case
may be, on a current basis for its reasonable expenses of investigation,
reasonable attorney's fees and reasonable out-of-pocket expenses incurred by
Manor Care in the case of Manor Care Indemnitees and Choice in the case of
Choice Indemnitees in defending against such Third-Party Claim and the
Indemnifying Party shall be bound by the result obtained with respect thereto;
provided that the Indemnifying Party shall not be liable for any settlement
effected without the consent of
<PAGE>
-19-
Manor Care in the case of Manor Care Indemnitees and Choice in the case of
Choice Indemnitees, which consent shall not be unreasonably withheld.
(f) The Indemnifying Party shall pay to the Indemnified Party in cash
the amount for which the Indemnified Party is entitled to be indemnified (if
any) within 15 days after the final resolution of such Third-Party Claim
(whether by the final nonappealable judgment of a court of competent
jurisdiction or otherwise) or, in the case of any Third-Party Claim as to which
the Indemnifying Party has not acknowledged liability, within 15 days after such
Indemnifying Party's objection has been resolved pursuant to Section 8.13.
Section 4.05. Insurance Proceeds. The amount that any Indemnifying
Party is or may be required to pay to any Indemnified Party pursuant to this
Article IV shall be reduced (including, without limitation, retroactively) by
any insurance proceeds or other amounts actually recovered by or on behalf of
such Indemnified Parties in reduction of the related Indemnifiable Loss. If an
Indemnified Party shall have received the payment required by this Agreement
from an Indemnifying Party in respect of an Indemnifiable Loss and shall
subsequently actually receive insurance proceeds, or other amounts in respect of
such Indemnifiable Loss as specified above, then such Indemnified Party shall
pay to such Indemnifying Party a sum equal to the amount of such insurance
proceeds or other amounts actually received after deducting therefrom all of the
Indemnified Party's costs and expenses associated with the recovery of any such
amount.
Section 4.06. Contribution. If the indemnification provided for in
this Article IV is unavailable to an Indemnified Party in respect of any
Indemnifiable Loss arising out of or related to information contained in or
omitted from the Information Statement or the Form 10, then Choice, in lieu of
indemnifying the Manor Care Indemnitees, shall contribute to the amount paid or
payable by the Manor Care Indemnitees as a result of such Indemnifiable Loss in
such proportion as is appropriate to reflect the relative fault of Choice, on
the one hand, and Manor Care, on the other hand, in connection with the
statements or omissions that resulted in such Indemnifiable Loss. The relative
fault of the Choice Indemnitees on the one hand and of the Manor Care
Indemnitees on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates
<PAGE>
-20-
to information concerning Choice on the one hand or Manor Care on the other
hand.
Section 4.07. Subrogation. In the event of payment by an Indemnifying
Party to any Indemnified Party in connection with any Third-Party Claim, such
Indemnifying Party shall be subrogated to and shall stand in the place of such
Indemnified Party as to any events or circumstances in respect of which such
Indemnified Party may have any right or claim relating to such Third-Party
Claim. Such Indemnified Party shall cooperate with such Indemnifying Party in a
reasonable manner, and at the cost and expense of such Indemnifying Party, in
prosecuting any subrogated right or claim.
Section 4.08. No Third-Party Beneficiaries. This Article IV shall
inure to the benefit of, and be enforceable by, Manor Care, the Manor Care
Indemnitees, Choice and the Choice Indemnitees and their respective successors
and permitted assigns. The indemnification provided for by this Article IV shall
not inure to the benefit of any other third party or parties and shall not
relieve any insurer who would otherwise be obligated to pay any claim of the
responsibility with respect thereto or, solely by virtue of the indemnification
provisions hereof, provide any subrogation rights with respect thereto and each
party agrees to waive such rights against the other to the fullest extent
permitted.
Section 4.09. Remedies Cumulative. The remedies provided in this
Article IV shall be cumulative and shall not preclude assertion by any
Indemnified Party of any other rights or the seeking of any and all other
remedies against any Indemnifying Party. The procedures set forth in this
Article IV, however, shall be the exclusive procedures governing any indemnity
action brought under this Article IV or otherwise relating to Indemnifiable
Losses; provided, however, that nothing in this Article IV shall be deemed to
govern any indemnity action brought under Article VII relating to Indemnifiable
Claims.
Section 4.10. Survival of Indemnities. The obligations of each of
Manor Care and Choice under this Article IV shall survive the sale or other
transfer by it of any assets or businesses or the assignment by it of any
Liabilities, with respect to any Indemnifiable Loss of the other related to such
assets, businesses or Liabilities.
Section 4.11. After-Tax Indemnification Payments. Except as otherwise
expressly provided herein or in an
<PAGE>
-21-
Ancillary Agreement, any indemnification payment made by any Indemnifying Party
under this Article IV shall be computed by taking into account the value of any
and all applicable deductions, losses, credits, offsets or other items for
Federal, state or other tax purposes attributable to the payment of the
indemnified liability by the Indemnified Party and any Tax incurred by the
Indemnified Party attributable to receipt of the indemnification payment.
ARTICLE V
CERTAIN ADDITIONAL MATTERS
Section 5.01. Intercompany Accounts. On the Distribution Date, Manor
Care shall contribute to MNR the Promissory Notes and MNR and Choice shall
execute the Loan Agreement. All intercompany amounts payable or receivable by
Manor Care or Choice to the other not covered by the Loan Agreement shall be
cancelled on the Distribution Date.
Section 5.02. Manor Care Guarantees. (a) After the Distribution Date,
Manor Care shall continue and maintain, in full force and effect, the guarantees
issued by Manor Care (the "Guaranteed Obligations"), set forth on Schedule
5.02(a) hereto, with respect to certain obligations of the Lodging Business.
Choice shall use its reasonable best efforts to obtain a release of Manor Care
from its obligations under the Guaranteed Obligations if and to the extent that
such efforts are consistent with the business of Choice and do not adversely
affect the relationship between Choice and the other parties to the Guaranteed
Obligations. Choice shall provide to Manor Care, so long as the Guaranteed
Obligations have not been fully and finally discharged, such information or
certificates as Manor Care shall reasonably request regarding the financial
position of Choice and the status of the Guaranteed Obligations.
(b) Choice agrees to pay to Manor Care on the Distribution Date and on
each anniversary of the Distribution Date thereafter until the Guaranteed
Obligations are terminated a guarantee fee equal to 2% per annum of the
aggregate principal amount of obligations (including financing leases) subject
to such guarantees outstanding on the Distribution Date or the relevant
anniversary of the Distribution Date. Such fee is not subject to any refund and
shall not be prorated.
<PAGE>
-22-
(c) Neither Choice nor any subsidiary thereof shall take any action
(including, without limitation, by amendment, renewal or extensions of any
Guaranteed Obligations (or any part thereof), except for any such change in any
Guaranteed Obligation that is caused by the exercise of rights contained in the
agreements governing the underlying obligation as in effect on the Distribution
Date) that could reasonably be expected to adversely affect Manor Care's
potential liability with respect to the Guaranteed Obligations, whether by
increasing the likelihood or amount of any such liability, extending the time
during which such liability remains outstanding or otherwise.
Section 5.03. Ancillary Agreements. On or prior to the Distribution
Date, Manor Care and Choice shall execute and deliver the Ancillary Agreements.
Section 5.04. Choice Officers and Board of Directors. On or prior to
the Distribution Date, Manor Care shall take, and shall cause Choice to take,
all actions necessary to appoint as officers and directors of Choice those
persons named in the Form 10 to constitute the officers and directors of Choice
on the Distribution Date.
Section 5.05. Choice Certificate of Incorporation and By-laws. Prior
to the Distribution Date, Manor Care shall take all action necessary to cause
the certificate of incorporation and by-laws of Choice to be amended and
restated substantially in the form attached to the Form 10 as exhibits thereto.
Section 5.06. Credit Facilities. (a) Prior to the Distribution Date,
Manor Care shall take all necessary action to replace its credit facility so as
to release Choice and the Lodging Subsidiaries from any liability or obligation
with respect thereto from and after the Distribution Date.
(b) Prior to the Distribution Date, Manor Care and Choice shall take
all necessary action to obtain the Choice Credit Facility.
Section 5.07. Sales and Transfer Taxes. Manor Care and Choice agree to
cooperate to determine the amount of sales, transfer or other taxes or fees
(including, without limitation, all real estate, patent, copyright and trademark
transfer taxes and recording fees) payable in connection with the transactions
contemplated by this Agreement (the "Transaction Taxes").
<PAGE>
-23-
Manor Care agrees to file promptly and timely the returns for such Transaction
Taxes with the appropriate taxing authorities and remit payment of the
Transaction Taxes and Choice will join in the execution of any such tax returns
or other documentation. Payment of all such Transaction Taxes shall be the
responsibility of Choice and shall be reimbursed to Manor Care by Choice
promptly upon request by Manor Care.
Section 5.08. Certain Post-Distribution Transactions. Each of Manor
Care and Choice shall, and shall cause each of their respective subsidiaries to,
comply in all material respects with each representation and statement made, or
to be made, to any taxing authority in connection with the IRS Ruling or any
other ruling obtained, or to be obtained, by Manor Care and Choice acting
together, from any such taxing authority with respect to any transaction
contemplated by this Agreement.
Section 5.09. Non-Competition Agreement.
(a) Manor Care. Until five years after the Distribution Date, Manor
Care and its subsidiaries shall not, without the express written consent of
Choice, compete with the Lodging Business of Choice, provided that this covenant
shall not prevent Manor Care or any of its subsidiaries from engaging in any
line of business in which Choice is not engaged, or in which Choice is
prohibited by law or by contract from engaging, on the Distribution Date,
including, without limitation, the business conducted by the Assisted Living
Facilities, any independent living facilities and any business similar thereto.
(b) Choice. Until five years after the Distribution Date, Choice and
its subsidiaries shall not, without the express written consent of Manor Care,
compete with the Healthcare Business of Manor Care, including, without
limitation, the business conducted by the Assisted Living Facilities, any
independent living facilities or any business similar thereto.
Section 5.10. Insurance Policies and Claims Administration.
(a) Manor Care to Maintain Insurance Coverage Prior to Distribution
Date. Manor Care shall use reasonable efforts to maintain in full force and
effect at all times up to and including the Distribution Date its current
property and casualty insurance programs, including, without limitation, primary
<PAGE>
-24-
and excess general liability, automobile, workers' compensation, property and
crime insurance policies (collectively, the "Policies" and individually, a
"Policy"). Manor Care and its subsidiaries shall retain with respect to any
Covered Claims as set forth on Schedule 5.10(a) relating to periods prior to the
Distribution Date all of their respective rights, benefits and privileges, if
any, under such Policies. To the extent not already provided for by the terms of
a Policy, Manor Care shall use reasonable efforts to cause Choice and its
subsidiaries, as appropriate, to be named as additional insureds under such
Policy in respect of Covered Claims arising or relating to periods prior to the
Distribution Date; provided, however, that nothing contained herein shall be
construed to require Manor Care or any of its subsidiaries to pay any additional
premium or other charges in respect to, or waive or otherwise limit any of its
rights, benefits or privileges under, any such Policy to effect the naming of
Choice and its subsidiaries as such additional insureds; provided, further, that
with respect to any existing Covered Claim that Manor Care determines, in its
sole discretion, has a potential total out-of-pocket cost to Manor Care in
excess of $250,000 (including loss reserves and actual cash payments, if any),
as set forth on Schedule 5.10(a) (collectively, "Shock Losses"), it is
specifically understood that (x) if the amount of Insurance Charges actually
payable by Manor Care with respect to such Shock Loss shall be equal to or
exceed $250,000, the full amount of such payment shall be the responsibility of,
and shall be paid by, Choice and (y) if the amount of Insurance Charges actually
payable by Manor Care with respect to such Shock Loss shall be less than
$250,000, such amount shall be the responsibility of, and shall be paid by,
Manor Care.
(b) Choice Responsible for Establishing Insurance Coverage on and
After Distribution Date. Commencing on and as of the Distribution Date, Choice
and each of its subsidiaries shall be responsible for establishing and
maintaining its own separate insurance programs (including, without limitation,
primary and excess general liability, automobile, workers' compensation,
property, director and officer liability, fire, crime, surety and other similar
insurance policies) for activities and claims relating to any period on or after
the Distribution Date involving Choice or any of its subsidiaries.
Notwithstanding any other agreement or understanding to the contrary, except as
set forth in Section 5.10(a) with respect to Covered Claims relating to periods
prior to the Distribution Date and Section 5.10(c) with respect to claims
administration and financial administration of the Policies, neither Manor
<PAGE>
-25-
Care nor any of its subsidiaries shall have any responsibility for or obligation
to Choice or its subsidiaries relating to liability and casualty insurance
matters for any period, whether prior to, at or after the Distribution Date.
(c) Administration and Procedure. (i) Manor Care or a subsidiary of
Manor Care, as appropriate, shall be responsible for the claims administration
and financial administration of all Policies for Covered Claims relating to the
assets, ownership or operation prior to the Distribution Date of the Lodging
Business; provided, however, that such retention by Manor Care of the Policies
and the responsibility for claims administration and financial administration of
the Policies are in no way intended to limit, inhibit or preclude any right to
insurance coverage for any Covered Claims of a named insured under the Policies.
Manor Care shall be entitled to compensation for and reimbursement of expenses
incurred in connection with performing the claims administration and financial
administration of the Policies in accordance with the terms of the Corporate
Services Agreement. Except as set forth in the Risk Management Consulting
Services Agreement, Choice or a subsidiary thereof, as appropriate, shall be
responsible for all administrative and financial matters relating to insurance
policies established and maintained by Choice and its subsidiaries for claims
relating to any period on or after the Distribution Date involving Choice or any
of its subsidiaries.
(ii) Choice shall notify Manor Care of any Covered Claim relating to
Choice or a subsidiary thereof under one or more of the Policies relating to any
period prior to the Distribution Date, and Choice agrees to cooperate and
coordinate with Manor Care concerning any strategy Manor Care may reasonably
elect to pursue to secure coverage and payment for such Covered Claim by the
appropriate insurance carrier. Notwithstanding anything contained herein, in any
other agreement or applicable Policy or any understanding to the contrary,
Choice or an appropriate subsidiary thereof assumes responsibility for, and
shall pay to the appropriate insurance carriers or otherwise, any premiums,
retrospectively- rated premiums, defense costs, indemnity payments, deductibles,
retentions or other charges, as appropriate (collectively, "Insurance Charges"),
whenever arising, which shall become due and payable under the terms and
conditions of any applicable Policy in respect of any liabilities, losses,
claims, actions or occurrences, whenever arising or becoming known, involving or
relating to any of the assets, businesses, operations or liabilities of Choice
or any of its subsidiaries, which charges relate to
<PAGE>
-26-
(i) any Shock Losses to the extent set forth in Section 5.10(a) or (ii) the
period after the Distribution Date. To the extent that the terms of any
applicable Policy provide that Manor Care or a subsidiary thereof, as
appropriate, shall have an obligation to pay or guarantee the payment of any
Insurance Charges, Manor Care or such subsidiary shall be entitled to demand
that Choice or a subsidiary thereof make such payment directly to the person or
entity entitled thereto. In connection with any such demand, Manor Care shall
submit to Choice or a subsidiary thereof a copy of any invoice received by Manor
Care or a subsidiary pertaining to such Insurance Charges, together with
appropriate supporting documentation, if available. In the event that Choice or
its subsidiary fails to pay any Insurance Charges when due and payable, whether
at the request of the party entitled to payment or upon demand by Manor Care or
a subsidiary of Manor Care, Manor Care or a subsidiary of Manor Care may (but
shall not be required to) pay such Insurance Charges for and on behalf of Choice
or its subsidiary and, thereafter, Choice or its subsidiary shall forthwith
reimburse Manor Care or such subsidiary of Manor Care for such payment.
ARTICLE VI
ACCESS TO INFORMATION
Section 6.01. Delivery of Corporate Records. Each of Manor Care and
Choice shall arrange as soon as practicable following the Distribution Date for
the delivery to the other of existing corporate governance documents (e.g.
minute books, stock registers, stock certificates, documents of title, etc.) in
its possession relating to the other or to its business and affairs.
Section 6.02. Access to Information. From and after the Distribution
Date each of Manor Care and Choice shall afford the other, including its
accountants, counsel and other designated representatives, reasonable access
(including using reasonable efforts to give access to persons or firms
possessing information) and duplicating rights during normal business hours to
all records, books, contacts, instruments, computer data and other data and
information in such party's possession relating to the business and affairs of
the other (other than data and information subject to an attorney/client or
other privilege), insofar as such access is reasonably required by the other
party including, without limitation, for audit,
<PAGE>
-27-
accounting and litigation purposes, as well as for purposes of fulfilling
disclosure and reporting obligations.
Section 6.03. Litigation Cooperation. Each of Manor Care and Choice
shall use reasonable efforts to make available to the other, upon written
request, its officers, directors, employees and agents as witnesses to the
extent that such persons may reasonably be required in connection with any
legal, administrative or other proceedings arising out of the business of the
other prior to the Distribution Date in which the requesting party may from time
to time be involved.
Section 6.04. Reimbursement. Each party providing information or
witnesses under Sections 6.01, 6.02 or 6.03 to the other shall be entitled to
receive from the recipient, upon the presentation of invoices therefor, payment
for all out-of-pocket costs and expenses as may be reasonably incurred in
providing such information or witnesses.
Section 6.05. Retention of Records. Except as otherwise required by
law or agreed to in writing, each party shall, and shall cause each of its
respective subsidiaries to, retain all information relating to the other party's
business in accordance with the past practice of such party. Notwithstanding the
foregoing, except as provided in the Tax Sharing Agreement, any party may
destroy or otherwise dispose of any information at any time, providing that,
prior to such destruction or disposal, (a) such party shall provide no less than
90 days' prior written notice to the other party, specifying the information
proposed to be destroyed or disposed of, and (b) if the recipient of such notice
shall request in writing prior to the scheduled date for such destruction or
disposal that any of the information proposed to be destroyed or disposed of be
delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such of the information as
was requested at the expense of the requesting party.
Section 6.06. Confidentiality. Each party shall hold and shall cause
its directors, officers, employees, agents, consultants and advisors to hold, in
strict confidence, unless compelled to disclose by judicial or administrative
process or, in the opinion of its counsel, by other requirements of law, all
information concerning the other party (except to the extent that such
information can be shown to have been (a) in the public domain through no fault
of such party, (b) later lawfully acquired on a non-confidential basis from
<PAGE>
-28-
other sources by the party to which it was furnished or (c) information that
typically would have been disclosed by Manor Care or Choice, as the case may be,
in the ordinary course of business consistent with past practice). Neither party
shall release or disclose any such information to any other person, except its
auditors, attorneys, financial advisors, bankers and other consultants and
advisors who shall be advised of and comply with the provisions of this Section
6.06.
Section 6.07. Mail. After the Distribution Date, each of Manor Care
and Choice may receive mail, telegrams, packages and other communications
properly belonging to the other. Accordingly, at all times after the
Distribution Date, each of Manor Care and Choice authorizes the other to receive
and open all mail, telegrams, packages and other communications received by it
and not unambiguously intended for the other party or any of the other party's
officers or directors specifically in their capacities as such, and to retain
the same to the extent that they relate to the business of the receiving party
or, to the extent that they do not relate to the business of the receiving party
and do relate to the business of the other party, or to the extent that they
relate to both businesses, the receiving party shall promptly contact the other
party by telephone for delivery instructions and such mail, telegrams, packages
or other communications (or, in case the same relate to both businesses, copies
thereof) shall promptly be forwarded to the other party in accordance with its
delivery instructions. The foregoing provisions of this Section 6.07 shall
constitute full authorization to the postal authorities, all telegraph and
courier companies and all other persons to make deliveries to Manor Care or
Choice, as the case may be, addressed to either of them or to any of their
officers or directors specifically in their capacities as such. The provisions
of this Section 6.07 are not intended to and shall not be deemed to constitute
an authorization by either Manor Care or Choice to permit the other to accept
service of process on its behalf, and neither party is or shall be deemed to be
the agent of the other for service of process purposes or for any other purpose.
<PAGE>
-29-
ARTICLE VII
INTENTIONALLY OMITTED
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Termination. This Agreement may be terminated and the
Distribution deferred, modified or abandoned at any time prior to the
Distribution Date by and in the sole discretion of the Board of Directors of
Manor Care without the approval of Choice or of Manor Care's stockholders. In
the event of such termination, no party shall have any liability to any other
party pursuant to this Agreement.
Section 8.02. Expenses. Except as specifically provided in this
Agreement or in an Ancillary Agreement, all costs and expenses incurred in
connection with the preparation, execution, delivery and implementation of this
Agreement and with the consummation of the transactions contemplated by this
Agreement shall be paid by the party incurring the expense. The determination of
who has incurred an expense shall be made by the Chief Financial Officer of
Manor Care, which determination shall be binding and final upon each of the
parties hereto and not subject to further review. In addition, it is understood
and agreed that Choice shall pay the legal, filing, accounting, printing and
other accountable and out-of-pocket expenditures in connection with (i) the
preparation, printing and filing of the Form 10 and the Information Statement,
(ii) obtaining of the Choice Credit Facility and (iii) amending the Existing
Credit Facility.
Section 8.03. Notices. All notices and communications under this
Agreement shall be in writing and any communication or delivery hereunder shall
be deemed to have been duly given when received addressed as follows:
If to Manor Care, to:
Manor Care, Inc.
11555 Darnestown Rd.
Gaithersburg, Maryland 20878-3200
Attn: General Counsel
Telecopy Number: 301-979-4007
<PAGE>
-30-
If to Choice, to:
Choice Hotels International, Inc.
10750 Columbia Pike
Silver Spring, Maryland 20901
Attn: General Counsel
Telecopy Number: 301-979-4062
Any party may, by written notice so delivered to the other parties, change the
address to which delivery of any notice shall thereafter be made.
Section 8.04. Amendment and Waiver. This Agreement may not be altered
or amended, nor may rights hereunder be waived, except by an instrument in
writing executed by the parties hereto. No waiver of any terms, provision or
condition of or failure to exercise or delay in exercising any rights or
remedies under this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, provision,
condition, right or remedy or as a waiver of any other term, provision or
condition of this Agreement.
Section 8.05. Counterparts. This Agreement may be executed in one or
more counterparts each of which shall be deemed an original instrument, but all
of which together shall constitute but one and the same Agreement.
Section 8.06. Governing Law; Jurisdiction; Forum. This Agreement shall
be construed in accordance with, and governed by, the laws of the State of
Delaware, without regard to the conflicts of law rules of such state. Each party
hereto agrees that any action or proceeding to enforce, or which arises out of
or in any way relates to, directly or indirectly, this Agreement, or any of the
Ancillary Agreements, shall, subject to Section 8.13, be brought or prosecuted
in state court or courts in the State of Maryland or, in any action or
proceeding with respect to which federal courts shall have exclusive subject
matter jurisdiction, in the United States District Court for the District of
Maryland. Subject to Section 8.13, each party hereto expressly submits and
consents in advance to such jurisdiction in any action or proceeding commenced
hereunder or under any Ancillary Agreement, and hereby waives any claim that any
such state or federal court is an inconvenient or improper forum.
<PAGE>
-31-
Section 8.07. Entire Agreement. This Agreement including the schedules
and exhibits hereto, together with the Ancillary Agreements, constitute the
entire understanding of the parties hereto with respect to the subject matter
hereof, superseding all negotiations, prior discussions and prior agreements and
understandings relating to such subject matter. To the extent that the
provisions of this Agreement are inconsistent with the provisions of any
Ancillary Agreements, the provisions of such Ancillary Agreement shall prevail.
Section 8.08. Parties in Interest. Neither of the parties hereto may
assign its rights or delegate any of its duties under this Agreement without the
prior written consent of the other party. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. Nothing contained in this Agreement, express
or implied, is intended to confer any benefits, rights or remedies upon any
person or entity other than Manor Care and Choice, and the Manor Care
Indemnitees and Choice Indemnitees pursuant to Article IV and Indemnitee
pursuant to Article VII hereof. Notwithstanding the rights of Indemnified
Parties pursuant to Article IV and Indemnitee pursuant to Article VII, this
Agreement may be altered or amended, and rights hereunder may be waived, by an
instrument in writing executed only by the parties hereto.
Section 8.09. Tax Sharing Agreement; After-Tax Payments. (a) Other
than as provided in this Section 8.09 and Sections 4.11 and 5.07, this Agreement
shall not govern any Tax, and any and all claims, losses, damages, demands,
costs, expenses, liabilities, refunds, deductions, write-offs, or benefits
relating to Taxes shall be exclusively governed by the Tax Sharing Agreement or
the Tax Administration Agreement, as applicable.
(b) If, at the time Choice is required to make any payment to Manor
Care under this Agreement, Manor Care owes Choice any amount under the Tax
Sharing Agreement, then such amounts shall be offset and the excess shall be
paid by the party liable for such excess. Similarly, if, at the time Manor Care
is required to make any payment to Choice under this Agreement, Choice owes
Manor Care any amount under the Tax Sharing Agreement, then such amounts shall
be offset and the excess shall be paid by the party liable for such excess.
Section 8.10. Further Assurances and Consents. In addition to the
actions specifically provided for elsewhere in
<PAGE>
-32-
this Agreement, each of the parties hereto will use its reasonable efforts to
(i) execute and deliver such further instruments and documents and take such
other actions as any other party may reasonably request in order to effectuate
the purposes of this Agreement and to carry out the terms hereof and (ii) take,
or cause to be taken, all actions, and to do, or cause to be done, all things,
reasonably necessary, proper or advisable under applicable laws, regulations and
agreements or otherwise to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, using its
reasonable efforts to obtain any consents and approvals and to make any filings
and applications necessary or desirable in order to consummate the transactions
contemplated by this Agreement; provided that no party hereto shall be obligated
to pay any consideration therefor (except for filing fees and other similar
charges) to any third party from whom such consents, approvals and amendments
are requested or to take any action or omit to take any action if the taking of
or the omission to take such action would be unreasonably burdensome to the
party or its business.
Section 8.11. Exhibits and Schedules. The exhibits and schedules
hereto shall be construed with and as an integral part of this Agreement to the
same extent as if the same had been set forth verbatim herein.
Section 8.12. Legal Enforceability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without prejudice
to any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
Section 8.13. Dispute Resolution. (a) Except as otherwise set forth in
Section 2.07 or Section 8.02 or the Lease Agreement, resolution of any and all
disputes arising from or in connection with this Agreement or any of the
Ancillary Agreements, whether based on contract, tort, statute or otherwise,
including, but not limited to, disputes over arbitrability and disputes in
connection with claims by third
<PAGE>
-33-
parties (collectively, "Disputes") shall be exclusively governed by and settled
in accordance with the provisions of this Section 8.13; provided, however, that
nothing contained herein shall preclude either party from seeking or obtaining
(a) injunctive relief or (b) equitable or other judicial relief to enforce the
provisions hereof or to preserve the status quo pending resolution of Disputes
hereunder.
(b) Manor Care or Choice (each a "Party") may commence proceedings
hereunder by delivering a written notice to the other Party providing a
reasonable description of the Dispute to the other (the "Demand").
(c) Promptly following a Demand, the Dispute shall be referred to
representatives of the parties for decision, each party being represented by a
senior executive officer who has no direct operational responsibility for the
matters contemplated by this Agreement (the "Representatives"). The
Representatives shall promptly meet in a good faith effort to resolve the
dispute. If the Representatives do not agree upon a decision within thirty (30)
calendar days after reference of the matter to them, each of Manor Care and
Choice shall be free to exercise the remedies available to them under Section
8.13(d).
(d) The parties hereby agree to submit all Disputes not resolved by
negotiation pursuant to Section 8.13(c) to arbitration under the terms hereof,
which arbitration shall be final, conclusive and binding upon the parties, their
successors and assigns. The arbitration shall be conducted in Maryland by three
arbitrators acting by majority vote (the "Panel") selected by agreement of the
Parties not later than ten (10) days after the failure of the Representatives to
resolve the dispute as set forth in Section 8.13(c) or, failing such agreement,
appointed pursuant to the Commercial Arbitration Rules of the American
Arbitration Association, as amended from time to time (the "AAA Rules"). If an
arbitrator so selected becomes unable to serve, his or her successors shall be
similarly selected or appointed. The arbitration shall be conducted pursuant to
the United States Arbitration Act, 9 U.S.C. { 1, et seq. and such procedures as
the Parties may agree, or, in the absence of or failing such agreement, pursuant
to the AAA Rules. Notwithstanding the foregoing: (a) each Party shall have the
right to audit the books and records of the other Party that are reasonably
related to the Dispute; (b) each Party shall provide to the other, reasonably in
advance of any hearing, copies of all documents which a Party intends to
<PAGE>
-34-
present in such hearing; (c) each party shall be allowed to conduct reasonable
discovery through written requests for information, document requests, requests
for stipulation of fact and depositions, the nature and extent of which
discovery shall be determined by the Panel, taking into account the needs of the
Parties and the desirability of making discovery expeditious and cost effective.
All hearings shall be conducted on an expedited schedule, and all proceedings
shall be confidential. Either party may at its expense make a stenographic
record thereof. The Panel shall complete all hearings not later than ninety (90)
days after its selection or appointment, and shall make a final award not later
than thirty (30) days thereafter. The award shall be in writing and shall
specify the factual and legal basis for the award. The fees and expenses of the
arbitrators shall be shared equally by the Parties and advanced by them from
time to time as required; provided that at the conclusion of the arbitration,
the Panel shall allocate costs and expenses (including the costs of the
arbitration previously advanced and the fees and expenses of attorneys,
accountants and other experts) and interest as the Panel determines is
appropriate among the parties. The arbitrators shall not be empowered to award
to any Party any consequential damages, lost profits or punitive damages in
connection with any Dispute and each party hereby irrevocably waives any right
to recover such damages.
Section 8.14. Titles and Headings. Titles and headings to sections
herein are inserted for convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.
<PAGE>
-35-
THIS AGREEMENT CONTAINS BINDING ARBITRATION PROVISIONS WHICH MAY BE
ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
Manor Care, Inc.,
a Delaware corporation
By:/s/ James H. Rempe
----------------------------------
Name: James H. Rempe
Title: Senior Vice President
Choice Hotels Holdings, Inc.,
a Delaware corporation
By:/s/James A. MacCutcheon+
-----------------------------------
Name: James A. MacCutcheon
Title: Executive Vice President
<PAGE>
Schedule 1
LODGING SUBSIDIARIES*
BOULEVARD MOTEL CORP.
Biscayne Land Associates, Inc.
Biscayne Properties, Inc.
Bowling Green Inn - Brandywine, Inc.
Cardinal Beverage Corp.
Everglades Beverage Corp.
Fairways Beverage Corp.
Fairways, Inc.
K & A Corp.
MCH Baltimore Corp.
MCH Hot Springs Corp.
MCH Lincoln Corp.
MCH Management, Inc.
MCH Roanoke Corp.
MCH Shady Grove Corp.
MCH Springfield Corp.
MCH Sturgis Corp.
MCH Wichita Corp.
MCHD Cypress Creek Corp.
MCHD Ft. Lauderdale Corp.
MCHD Hampton Corp.
Raleigh Hotel Holdings, Inc.
West Montgomery Hotel Holdings, Inc.
CACTUS HOTEL CORP.
CHOICE HOTELS INTERNATIONAL, INC. (Formerly Quality Inns International,
Inc.) ("Choice Hotels")
CH Europe, Inc. (d)
Choice Capital Corp.
Choice Hotels Australia Pty. Ltd. (90%)
Choice Hotels Canada Inc. (50%)
Choice Hotels (Cayman) Ltd. (10%)
Choice Hotels International Asia Pacific Pty. Ltd.
Choice Hotels International Pty. Ltd. (Formerly Quality Inn Pty.
Ltd.) (d)
Choice Hotels (Ireland) Limited (d)
Choice Hotels Japan, Inc. (Formerly Quality Hotels Japan, Inc.)
Choice Hotels Limited
Choice Hotels of Brazil, Inc.
- -------------------------
* Direct Lodging Subsidiaries are set forth below in capital letters with
their subsidiaries immediately following. Entities are wholly owned except
where indicated.
<PAGE>
-2-
Choice Hotels Pacific Asia K.K. (Formerly Quality Hotels Pacific
Asia, Inc.) (d)
Choice Hotels Pty. Ltd. (Formerly Quality Hotels Pty. Ltd.) (d)
Choice Hotels Systems, Inc.
Choice Hotels Venezuela, C.A. (20%)
Clarion Hotel Pty. Ltd. (Formerly Royale Hotels Pty. Ltd.) (d)
Comfort Hotels Pty. Ltd. (d)
Comfort Inn Pty. Ltd. (d)
Comfort Inns New Zealand Limited (Formerly Quality Inns New Zealand
Limited) (d)
Hoteles Cono Sur S.A.
QI Capital Corp. (d)
Quality Hotels (Ireland) Limited (d)
Quality Hotels Limited (Formerly Quality Hotels (China) Limited (50%;
50% Manor Care, Inc.) (d)
Quality Hotels and Resorts, Inc. (d)
Baltimore Hotel Management. Inc. (d)
Myrtle Beach Hotel Management, Inc. (d)
Quality Inns International, Inc. (Formerly Choice Hotels
International, Inc.)
Quality Inter-Americas, Inc. (d)
Sleep Inn Pty. Ltd. (d)
COMFORT CALIFORNIA, INC.
GULF HOTEL CORP.
HEFRU FOOD SERVICES, INC.
QCM BEVERAGES, INC. (49%; 51% Texas resident)
QCM CORPORATION (d)
QI ADVERTISING AGENCY, INC.
QUALITY ARIZONA, INC. (d)
QH Europe, Inc. (d)
QUALITY HOTELS EUROPE, INC.
QUALITY INNS WORLD MARKETING CORPORATION
QUALITY INSURANCE ASSOCIATES, INC. (d)
REVERE GROUP, INC. (THE) (d)
SUNBURST HOTEL CORP.
THICKET, INC. (THE) (Non-Profit; owned by members)
<PAGE>
-3-
PARTNERSHIPS
QH Europe Partnership (80% Quality Hotels Europe, Inc. ("QHE"), 20% Choice
Hotels International, Inc.)
Choice Hotels (Deutschland) G.m.b.H. (99%; 1% Choice Hotels)
Choice Hotels (France) S.a.r.l. (99%; 1% Choice Hotels)
Choice Hotels Benelux S.A. (51%)
Manor Care Hotels (France) S.A.
Manor Care Hotels France No. 1 S.a.r.l.
Manor Care Hotels France No. 2 S.A.
Manor Care Hotels France No. 3 S.a.r.l.
Manor Care Hotels France No. 4 S.a.r.l.
Quality Hotels Limited (Formerly QI Hotels (U.K.) Limited) (99%; 1%
Choice Hotels)
Choice Hotels (UK) Limited
Quality Hotels Europe (Alsdorf) G.m.b.H. (99%; 1% QHE) (d)
Quality Hotels Europe (Herleshausen) G.m.b.H. (99%; 1% QHE) (d)
Quality Hotels Europe (Jena) G.m.b.H. (formerly Quality Hotels Europe
(Deutschland) G.m.b.H.) (99%; 1% QHE)
Quality Hotels Europe (Leipzig) G.m.b.H. (99%; 1% QHE) (d)
Quality Hotels Europe (Peine) G.m.b.H. (99%; 1% QHE)
Quality Hotels Europe (Troisdorf) G.m.b.H. (99%; 1% QHE)
(d) = dormant companies
<PAGE>
Schedule 2.01(b)
Transferred Hotels
(1) Quality Inn Midvalley
4465 Century Drive
Salt Lake City, UT 84123; and
(2) Quality Hotel
1190 N. Courthouse Road
Arlington, VA 22201
<PAGE>
Schedule 2.03
Assisted Living Facilities
Springhouse Assisted Living
26111 Telegraph Road
Southfield, Michigan 48034
<PAGE>
Schedule 5.02(a)
Manor Care Guarantees:
1. Guarantee of Industrial Revenue Bonds relating to the Phoenix
Reservations Center.
2. Guarantee pursuant to Leases for the California properties in effect
on the Distribution Date.
<PAGE>
Schedule 5.10(a)
Covered Claims
General Liability
Commercial Property
Automobile Liability
Workers' Compensation Program (Insured States) Workers' Compensation Program
(Self-Insured States OH, PA, FL, CA) Texas Salary Maintenance & Medical
Reimbursement Program Texas Stop Gap Liability Foreign Property & Liability
DIC/DIL Commerical Package Policy (Canada) Commercial Property (Germany)
Commercial Property (Australia) Commercial Property (France) Commercial Property
(UK) Commercial Property (Japan) General Liability (QH Jena) General Liability
(QH Peine) General Liability (QH Troisdorf) General Liability (France) General
Liability (UK) General Liability (Japan) Automobile Physical Damage & Liability
(UK) Automobile Physical Damage & Liability (Australia) Automobile Physical
Damage & Liability (Germany) Automobile Physical Damage & Liability (France)
Workers' Compensation & Employer's Liability (Australia) Workers' Compensation &
Employer's Liability (Canada) Employer's Liability (UK) Employer's Liability
(All Foreign Operations except UK/CAN/Australia) Sabotage & Terrorism (UK)
Juridical Protection (France) Umbrella Liability Crime Boiler & Machinery
Products Liability Aircraft Liability Director's & Officer's Liability
Shock Losses
Any potential costs associated with the matter of Frederick v. Choice
Hotels International, Inc. et. al.
CORPORATE SERVICES AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into as of
_______________, 1996, by and between MANOR CARE, INC., a Delaware corporation
("Manor"), and CHOICE HOTELS HOLDINGS, INC. (to be renamed Choice Hotels
International, Inc.), a Delaware corporation ("Choice").
RECITALS
WHEREAS, pursuant to a Distribution Agreement (the "Distribution
Agreement") dated as of ____________, 1996, Choice and Manor agreed to enter
into a corporate services agreement with the terms and conditions set forth
herein;
WHEREAS, Manor shall retain the personnel and systems formerly utilized
in the administration of the services described herein; and
WHEREAS, Choice desires to retain Manor as described herein, and Manor
desires to render such assistance on an equitable, arms length basis for a fee.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Choice and Manor agree as follows:
1. Definitions. As used in this Agreement, the following capitalized
terms shall have the meanings indicated unless the context requires otherwise:
"Accounting Period" shall be a one month period.
"Accounting Systems Support" shall mean data preparation and other
related accounting procedures required to perform the Functions in a timely
manner, consistent with current policies and procedures, and in accordance with
generally accepted accounting principles.
"Accounts Payable Services" shall have the meaning described in
Exhibit A.
"Additional Consulting Services" shall mean the additional services
related to the Functions, or any other services which Manor may provide Choice
from time to time (on a transitional basis and only where such services shall
not unreasonably interfere with Manor's business operations and will not cause
Manor to incur additional expense without reasonable compensation therefor).
1
<PAGE>
"Ancillary Agreements" shall have the meaning described in the
Distribution Agreement.
"Construction Accounting Services" shall have the meaning described on
Exhibit A.
"Consulting Services" shall have the meaning described in Exhibit C.
"Conversion Services" shall mean the initial conversion of Choice's
business data from Manor to Choice and archiving Choice's business accounting
records for certain periods prior to the Distribution Date to the extent not
already performed prior to the execution of the Distribution Agreement.
"Corporate Accounting Support" shall have the meaning described on
Exhibit A.
"Corporate Services" shall mean Conversion Services; Support Services;
Facilities Services, the Functions, the Consulting Services and the Additional
Consulting Services.
"Distribution" means the distribution to the holders of Manor Care
Common Stock all the outstanding shares of Choice Common Stock.
"Distribution Date" means the date determined by the Board of
Directors of Manor as the date on which the Distribution shall be effected.
"Facilities Services" shall mean the Silver Spring Computer Services,
Telecommunication Services, Travel Management Services, the Model Room Services,
and certain other services listed on Exhibit A.
"Functions" shall mean Payroll Services, Accounts Payable Services,
Corporate Accounting Systems Support, Property Accounting Services and
Construction Accounting Services for Choice's Lodging Business as listed on
Exhibit A.
"Lodging Business" shall mean any business or operation of Choice or
the Lodging Subsidiaries (as defined in the Distribution Agreement) which is,
pursuant to the Distribution Agreement, to be conducted, following the
Distribution, by Choice.
"Model Room Services" shall mean the provision of the model rooms, the
model food count, provision of storage areas and the maintenance of the building
in which such services are conducted at the Silver Spring location, which shall
consist of obtaining space for such model rooms and the cost of normal building
operating costs, but which does not include costs of maintaining personal
property of Choice used in connection with such model rooms, nor the cost of
constructing, maintaining or reconfiguring such model rooms. "Payroll Services"
shall have the meaning described on Exhibit A.
2
<PAGE>
"Prime Rate" shall be the rate identified from time to time in the New
York edition of the Wall Street Journal as being the Prime Rate of interest;
should such rate be shown as a spread of rates, then the highest such rate shall
be utilized.
"Property Accounting Services" shall have the meaning described on
Exhibit A.
"Support Services" shall mean the support services needed to perform
the Functions and Facilities Services, including but not limited to Accounting
Systems Support and Systems Support.
"Systems Support" shall mean the computer hardware, computer software,
and telecommunications, including data transmission, data distribution, report
generation, and data entry capabilities needed to process Choice's information
for each Function and Facilities Service.
"Travel Management Services" shall have the meaning described on
Exhibit D.
Any capitalized terms defined in the Distribution Agreement and used
herein shall have the meanings ascribed to them in the Distribution Agreement
unless otherwise defined herein.
2. Services. Upon the request of Choice, Manor shall provide the
Corporate Services provided herein:
(a) Manor shall provide Choice with Support Services for the Functions
and Facilities Services in substantially the same manner as such
services are being provided to the Lodging Business on the Distribution
Date. Manor reserves the right to change the manner in which it
provides Accounting Support and Systems Support related to the
Functions and Facilities Services described herein, provided such
change is consistent with changes made for Manor's own business units
and provided Manor give Choice notice of such change (the same notice
Manor will provide its own businesses).
(b) Manor shall also provide Choice with Conversion Services at the
cost of Manor to provide such Services.
(c) Choice may request that Manor provide Consulting Services and
Additional Consulting Services from time to time. Consulting Services
shall be provided on the terms and conditions specified on Exhibit C.
The parties will agree, at the time such services are requested, upon
the scope and final pricing for any Additional Consulting Services.
3
<PAGE>
Whenever the parties deem necessary, Manor will draft an arrangement
letter outlining the scope of Additional Consulting Services,
deliverables, cost, and schedule for Choice's acceptance.
(d) Manor agrees to provide such services only if it reasonably
believes the service will not interfere with the conduct of the
business of Manor or pose an unreasonable burden.
3. Term. The term of this Agreement shall commence on the Distribution
Date and shall remain in effect through the end of the first full Fiscal Year
immediately following the Distribution Date. Unless terminated pursuant to the
terms hereof, the Agreement shall automatically renew each Fiscal Year
thereafter for the extended term of said Fiscal Year and shall not extend past
the last day of the thirtieth (30th) month following the Distribution; provided,
however, that Choice may terminate this agreement or any services provided
hereunder (other than the Consulting Services) at any time for any reason or no
reason upon sixty (60) days' prior written notice to Manor. This Agreement may
also be terminated in the event of a default (past the expiration of any
applicable cure period provided herein) in accordance with the provisions of
this Agreement.
4. Database Access. Choice will regularly enter all required
information into the appropriate computer systems to enable Manor to provide the
Corporate Services contracted for hereunder. Manor will provide access to these
computer systems to enable Choice to maintain its employee, vendor, property and
general ledger databases. Choice will provide access to information and
employees necessary for Manor to provide such Corporate Services.
5. Price and Payment. Choice shall pay Manor for services requested
and rendered hereunder as follows:
(a) The charging mechanisms for rates or charges for each service shall
include (i) activity-based charges where the per unit price will be
multiplied by the variable number of units (for example, the number of
employees times the employee charge will determine the per Accounting
Period charge); (ii) fixed fee based charges, meaning a fixed amount
per Accounting Period for Manor to perform the service; (iii) usage
based charges for which Choice will pay according to actual use of the
service; (iv) time and materials charges; or (v) a variation or a
combination of any of the foregoing methods as agreed to by the
parties. Charging mechanisms for each Corporate Service are identified
on Exhibit B except with respect to Consulting Services which shall be
paid for in accordance with Exhibit C. If at any time during the term
of the Agreement, Choice moves its office location from 10750 Columbia
Pike, Silver Spring, Maryland, both the availability of certain
services and their associated rates may be subject to change.
4
<PAGE>
(b) Except as provided in any Ancillary Agreement, Choice shall pay any
and all additional costs and expenses which Manor may incur for the
express purpose of providing services to Choice.
(c) Choice shall pay Manor on a time and materials basis for all costs
incurred by Manor in converting Choice business information and records
from Manor's services systems to either a third party provider or to
Choice.
(d) Payment for all services hereunder (other than Consulting Services)
shall be made by Choice to Manor within thirty (30) days of receipt of
invoice for payment (with appropriate supporting documentation for any
out-of-pocket expenses). Choice shall pay fixed charges in advance on
the first business day of the applicable Accounting Period. Any
payments not made by Choice to Manor when due shall bear interest,
computed daily, from the date due to the date of payment based on the
annual percentage rate equal to the Prime Rate, as same may vary from
time to time, plus two (2) percentage points.
6. Duty of Care.
(a) Manor's Obligations. All services provided hereunder shall be
administered in accordance with Manor's standard policies, procedures
and practices in effect as of the date hereof and as may be changed,
and as more particularly described below, or as otherwise specified in
accordance with the terms thereof. In so doing, Manor shall follow
commonly accepted standards of care in the industry and exercise the
same care and skill as it exercises in performing like services for
itself.
(b) Choice's Obligations. Choice shall adopt reasonable measures to
limit its exposure with respect to any potential losses and damages,
including, but not limited to, periodic examination and confirmation of
results, provision for identification and correction of errors and
omissions, preparation and storage of backup data, replacement of lost
or mutilated documents, and reconstruction of data.
7. Liaison. Choice and Manor shall each appoint two managerial level
individuals (hereinafter "Representatives") to facilitate communications and
performance under this Agreement. Each party may treat an act of a
Representative of the other party as being authorized by such other party
without inquiring behind such act or ascertaining whether such Representative
had authority to so act. The initial Representatives are named on Exhibit E.
Each party shall have the right at any time and from time to time to replace
either or both of its Representatives by giving notice in writing to the other
party setting forth the name of (i) each Representative to be replaced and (ii)
the replacement, and certifying that the replacement Representative is
authorized to act for the party giving the notice in all matters relating to
this Agreement.
5
<PAGE>
8. Confidentiality.
(a) Manor and Choice agree that all information regarding the Corporate
Services provided hereunder, including, but not limited to, price,
methods of operation, and software, shall be maintained in confidence
and not be released to any third party for any reason whatsoever,
excluding such parties' counsel, agents, auditors or lenders. However,
one party may release this Agreement or such information to a third
party upon the prior approval of the other party (such approval not to
be unreasonably withheld, conditioned or delayed), upon court order, or
as required by any rules, regulations or laws. All confidential and
proprietary information which either party has obtained from the other
shall be returned upon the expiration or earlier termination of this
Agreement. The provisions of this paragraph shall survive expiration or
earlier termination of this Agreement.
(b) Any Choice information or other information provided by Choice to
Manor for use with the Corporate Services provided hereunder and
identified in writing as confidential shall remain the exclusive and
confidential property of Choice. Specifically, Choice's employee
database and payroll information shall be deemed confidential. Manor
shall treat such information as confidential and will not disclose or
otherwise make available any Choice information to any person other
than employees, consultants, or auditors of Manor with a need-to-know
or except as required by law or court order. Manor will instruct its
employees who have access to the Manor information to keep the same
confidential by using the same care and discretion that Manor uses with
respect to its own confidential property and trade secret.
(c) Manor will provide reasonable security provisions to insure that
third parties do not have access to Choice information. Manor reserves
the right to issue and change regulations and procedures from time to
time to improve file security.
(d) Manor will take reasonable precautions to prevent the loss or
alteration of Choice information. Choice will, to the extent it deems
necessary, keep copies of all source documents delivered to Manor and
will maintain a procedure external to Manor's systems for the
reconstruction of lost or altered Choice data.
(e) Manor will, to the extent applicable, retain Choice's information
in accordance with and to the extent provided by Manor's then
prevailing records retention policies for similar activities. Manor
will, in conformity with its then prevailing records retention
policies, dispose of all Choice information in any manner deemed
appropriate by Manor unless Choice, prior to such disposal, furnishes
to Manor written instructions for the disposition of such Choice
information, at Choice's expense. At Choice's request Manor will
provide Choice,
6
<PAGE>
in a standard Manor format and at Manor's then standard
rates for such format, any and all Choice information requested by
Choice.
(f) Manor's systems used to perform the Corporate Services provided
hereunder, including but not limited to the payroll system, are
confidential and proprietary to Manor or third parties. Choice shall
treat these systems and all related procedures as confidential and
proprietary to Manor or its third party vendors. Choice agrees that all
software systems, procedures, and related materials provided to Choice
are for Choice's internal use exclusively and only as related to the
Corporate Services or any of the underlying systems used to provide
Corporate Services hereunder. Choice may not sell, transfer, assign, or
otherwise use the Corporate Services provided hereunder, in whole or in
part, for the benefit of any other party. Choice shall not copy,
modify, reverse engineer, or in any way alter these systems without
Manor's express written consent. Title to all software systems used in
performing the Corporate Services provided hereunder shall remain in
Manor or its third party vendors.
9. Warranties and Limitations of Liability.
(a) MANOR DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT
NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE CORPORATE SERVICES
PROVIDED HEREUNDER. Manor will use reasonable efforts to perform the
Corporate Services provided hereunder in a professional and workmanlike
manner but the results of the Corporate Services are furnished "as is."
(b) Manor's sole liability to Choice or any third party for claims,
notwithstanding the form of such claims (e.g. contract, negligence or
otherwise), arising out of errors or omissions in the Corporate
Services provided or to be provided by Manor hereunder which are caused
solely by Manor shall be to furnish correct information, payment,
and/or adjustment in the Corporate Services provided hereunder provided
that Choice promptly advises Manor thereof.
(c) Manor's sole liability to Choice or any third party for claims,
notwithstanding the form of such claims (e. g. contract, negligence or
otherwise), arising out of the unavailability of the Corporate Services
provided hereunder or the interruption in or delay in performing the
Corporate Services provided hereunder for any reason beyond Manor's
reasonable control shall be to use all reasonable efforts to make such
services available, and/or to resume performing the Corporate Services,
as promptly as reasonably practicable. Manor will maintain the same
back-up procedures for Choice's information that Manor has for its own
information.
7
<PAGE>
(d) MANOR SHALL NOT BE LIABLE FOR ANY ERRORS, OMISSIONS, DELAYS, OR
LOSSES UNLESS CAUSED SOLELY BY ITS CRIMINAL CONDUCT, FRAUD, BAD FAITH
OR GROSS NEGLIGENCE. CHOICE AGREES THAT IN NO EVENT WILL MANOR BE
LIABLE FOR INCIDENTAL, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES.
CHOICE FURTHER AGREES THAT IN NO EVENT WILL THE TOTAL AGGREGATE
LIABILITY OF MANOR FOR ANY AND ALL CLAIMS, LOSSES, OR DAMAGES ARISING
UNDER THIS AGREEMENT AND FOR THE CORPORATE SERVICES PERFORMED HEREUNDER
EXCEED THE VALUE OF CHOICE'S PAYMENT FOR SAID SPECIFIC CORPORATE
SERVICE IN DISPUTE OVER ONE FOUR-WEEK ACCOUNTING PERIOD'S TIME.
(e) The forgoing provisions of this Section 9 set forth the full extent
of Manor's liability hereunder (monetary or otherwise) for any claim or
action, regardless of the form in which any such claim or action may be
asserted against Manor (e.g. contract, negligence or otherwise).
10. Default. If either party materially defaults hereunder, the
non-defaulting party may terminate this Agreement effective immediately (subject
to the cure periods set forth herein below) upon written notice to the
defaulting party. The non-defaulting party shall be entitled to all remedies
provided by law or equity (including reasonable attorneys' fees and costs of
suit incurred). The following events shall be deemed to be material defaults
hereunder:
(a) Failure by either party to make any payment required to be made to
the other hereunder, which failure is not remedied within five (5) days
after receipt of written notice thereof; or
(b) Except as otherwise provided herein, failure by either party
substantially to perform in accordance with the terms and conditions of
this Agreement, which failure is not remedied within thirty (30) days
after receipt of written notice from the other party specifying the
nature of such default; or
(c) (i) Filing of a voluntary bankruptcy petition by either party; (ii)
filing of an involuntary bankruptcy petition against either party which
is not withdrawn within sixty (60) days after filing; (iii) assignment
for the benefit of creditors made by either party; or (iv) appointment
of a receiver for either party.
11. Modification of Procedures. Manor may make changes from time to
time in its Functions and Facilities Services, standards and procedures for
performing the Corporate Services provided hereunder, but Manor will not
implement any substantial changes, unless required by law affecting Choice until
it has furnished Choice notice (the same notice Manor will provide its own
8
<PAGE>
businesses) thereof and a reasonable opportunity to adapt its operations to
accommodate such changes or to reject the change. Choice's decision whether or
not to accept the proposed change must be made on or before the date Manor makes
its decision. Otherwise, the default would be Choice's acceptance. Choice agrees
to pay any charges (a) resulting from Manor's need to maintain different
versions of the same systems, procedures, technologies, or services and (b)
resulting from requirements of third party vendors.
12. Laws and Governmental Regulations. Choice shall be responsible for
(a) compliance with all laws and governmental regulations affecting its business
and (b) any use it may make of the Corporate Services to assist it in complying
with such laws and governmental regulations. While Manor shall not have any
responsibility for Choice's compliance with the laws and regulations referred to
above, Manor agrees to use reasonable efforts to cause the Corporate Services to
be designed in such manner that they will be able to assist Choice in complying
with its applicable legal and regulatory responsibilities as related to the
Corporate Services. For example, Manor's normal procedure is to monitor and keep
current all federal, state, and local withholding information for its own
payroll processing. Manor will implement these normal procedures for Choice's
benefit. In no event, however, shall Choice rely solely on its use of the
Corporate Services in complying with any laws and governmental regulations.
13. Indemnification.
(a) Choice. Choice shall indemnify, defend and hold harmless Manor and
its directors, officers and employees from Losses (as defined below),
other than Losses directly and proximately caused solely by Manor's
criminal conduct, fraud, bad faith, or gross negligence. The term
"Losses" shall include costs of any claim, lawsuit, settlement,
judgment, penalty, or reasonable attorneys' fees.
(b) Manor. Manor shall indemnify, defend and hold harmless Choice and
its directors, officers and employees from Losses directly and
proximately caused solely by Manor's criminal conduct, fraud, bad
faith, or gross negligence, unless the actions (or inaction) causing
the Losses were taken (or not taken) at the specific direction of
Choice, its subsidiaries, employees, or agents.
14. Force Majeure. Manor and Choice shall incur no liability to each
other due to a failure to perform under the terms and conditions of this
Agreement resulting from fire, flood, war, strike, lock-out work stoppage or
slow-down, labor disturbances, power failure, major equipment breakdowns,
construction delays, accident, riots, acts of God, acts of United States'
enemies, laws, orders or at the insistence or result of any governmental
authority or any other event beyond each other's reasonable control. In
addition, Manor shall not be liable or deemed to be in default for any delay or
failure to perform hereunder resulting, directly or indirectly, from any cause
beyond Manor's
9
<PAGE>
reasonable control, including limitations upon the availability
of communications facilities or failures of other communications equipment or
failure of Choice to prepare data properly for input into the Corporate Systems.
15. Relationship of Parties. Nothing in this Agreement shall be deemed
or construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between the parties, it being
understood and agreed that no provision contained herein, and no act of the
parties, shall be deemed to create any relationship between the parties other
than the relationship of buyer and seller.
16. Assignment. Neither party shall, without the prior written consent
of the other, assign any rights or delegate any obligations under this
Agreement, such consent not to be unreasonably withheld, conditioned or delayed.
17. Headings. The headings used in this Agreement are inserted only
for the purpose of convenience and reference, and in no way define or limit the
scope or intent of any provision or part hereof.
18. Severability of Provisions: Neither Manor nor Choice intend to
violate statutory or common law by executing this Agreement. If any section,
sentence, paragraph, clause or combination of provisions in this Agreement is in
violation of any law, such sections, sentences, paragraphs, clauses or
combinations shall be inoperative and the remainder of this Agreement shall
remain in full force and effect and shall be binding upon the parties.
19. Parties Bound. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing herein, expressed or implied, shall be construed to give any
other person any legal or equitable rights hereunder.
20. Notices. All notices and other communications hereunder shall be
in writing and shall be delivered by hand or shall be deemed to have been
properly made and given one (1) business day after being deposited with a
reputable overnight courier service such as Federal Express, Airborne Express or
UPS Next Day Air for next business day delivery or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and shall be deemed given on the date on which such notice is received:
To Choice:
Choice Hotels Holdings, Inc.
10750 Columbia Pike
10
<PAGE>
Silver Spring, MD 20901
Attention: General Counsel
To Manor:
Manor Care, Inc.
11555 Darnestown Road
Gaithersburg, MD 20878-3200
Attention: General Counsel
21. Further Action. Manor and Choice each shall cooperate in good
faith and take such steps and execute such papers as may be reasonably requested
by the other party to implement the terms and provisions of this Agreement.
22. Waiver. Manor and Choice each agree that the waiver of any default
under any term or condition of this Agreement shall not constitute any waiver of
any subsequent default or rights herein or nullify the effectiveness of that
term or condition.
23. Governing Law. All controversies and disputes arising out of or
under this Agreement shall be determined pursuant to the laws of the State of
Maryland, United States of America, regardless of the laws that might be applied
under applicable principles of conflicts of laws.
24. Consent to Jurisdiction. The parties irrevocably submit to the
exclusive jurisdiction of (a) the Courts of the State of Maryland in Montgomery
County, and (b) the United States District Court for the State of Maryland for
the purposes of any suit, action or other proceeding arising out of this
Agreement.
25. Entire Agreement; Amendment. This Agreement and the Distribution
Agreement constitute the entire understanding between the parties hereto and
supersedes all prior written or oral communications, relating to the subject
matter covered in this Agreement. This Agreement shall not be amended except by
a writing executed by the parties hereto.
26. Commercially Reasonable Terms and Conditions. The terms and
provisions of this Agreement are intended to reflect commercially reasonable
terms and conditions (including, but not limited to, pricing) that are at least
as favorable and as competitive to Choice as the terms and conditions Manor
would grant or require of third parties for substantially similar goods and
services.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CHOICE HOTELS HOLDINGS, INC., a
Delaware corporation
By:/s/James A. MacCutcheon
Name:James A. MacCutcheon
Title:Executive Vice President &
Chief Financial Officer &
Treasurer
MANOR CARE, INC., a
Delaware corporation
By:/s/ James H. Rempe
Name:James H. Rempe
Title: Senior Vice President
and Secretary
12
<PAGE>
EXHIBIT A
[ATTACHED]
13
<PAGE>
PAYROLL SERVICES
Payroll Service. Beginning as of the Distribution Date, Manor shall
provide Payroll Service to Choice. Manor, as part of providing Payroll Service,
shall provide access to the Payroll System to enable Choice to maintain its
employee database (e.g., basic employee information, insurance data, retirement
plan deduction data, collective bargaining agreement data, etc.) The scope of
Payroll Services includes:
Issue
o Paychecks with authorized signature facsimile and alternatively
the capability of ACH direct deposit bank for employees who elect
that option. Paycheck stub statements and direct deposit
statements.
o Payroll check registers and other management reports currently
available on Manor's payroll system.
o Issue year-end form W-2s to all employees. Produce W-2C
(corrections) and reissue W-2s as necessary.
Payment and accrual features
o Vacation and sick leave
o Car allowance payments and imputed income for company car usage
o Relocation data/through contract with Armslong
o Employee payroll tax returns and deposits/through contract with
Ceridian STS.
o Standard systems interface capabilities which may be modified at
Choice's expense and with Manor's consent. These interfaces
include general ledger for accounting distribution, accounts
payable for wage attachment disbursements, if appropriate on the
new PeopleSoft system check reconciliation system interface,
retirement savings, employee stock purchase plan, medical
benefits administration, unemployment claims data, and ACH for
direct bank deposits.
14
<PAGE>
SERVICES NOT INCLUDED IN THE BASELINE PAYROLL SERVICES CHARGE
o Manor Payroll System for Choice's use; provided, however, that
any such additional features and functions shall be deemed
enhancements to the Payroll System and shall remain the property
of Manor. Any requested enhancements are subject to Manor's
consent. Such enhancements would be provided for under a separate
consulting arrangement and would be paid for by Choice under the
terms stipulated in a separate consulting agreement. If Manor
subsequently uses substantially all of such enhancement for its
own payroll processing, Manor will reimburse Choice for the cost
of such enhancement.
o Choice will develop any computer software necessary to
electronically transmit Choice's employee timeclock information
in batch form into Payroll System. Manor will review and approve
any electronic transmission prior to being implemented.
o Manor will accept paper submission of source documents until
Manor provides on-line or batch transmission features to Choice.
o Other services which are billed directly to Choice, such as:
- United States Postal Service, UPS, and other courier
services to deliver payroll envelopes and packages.
- Computer operations costs related to Payroll System usage.
o Any training or support requirements outside Manor Headquarters
or any support for Choice acquisitions and divestitures are
outside the scope of the fixed price. These services will be
charged on a time and materials basis.
15
<PAGE>
ACCOUNTS PAYABLE SERVICES
Accounts Payable Service. The scope of Accounts Payable Services includes:
o Choice will submit paper source documents in accordance with the
established Company policies and Manor will process them on a
timely basis.
o Manor will establish new vendors on the Vendor Master File and
change basic vendor information such as remittance address and
payment terms.
o Accounts payable check stubs and other forms of remittance
advice, and accounts payable checks with authorized signature
facsimile.
o A variety of management control and information reports in
conventional paper format using laser and impact printing
technologies, such as:
1. AP070 - weekly check register
2. AP055 - excess memo report weekly report which lists all vendors
with credit balances by company and vendor number currently in
the A/P system.
3. AP090 - schedule of bills - this weekly report is designed to
list invoices paid or invoices to be paid in vendor alphabetical
order (approximately 60 days of history).
4. AP810A - vendor list - lists all active lodging vendors by
facility number.
5. AP810B - vendor list for facility 706 only.
6. AP810C - vendor list for facilities 700 - 799
7. AP211 - executive committee large check report - this report
lists all payments greater than $5,000.00.
8. AP004 - daily vendor maintenance edit validation - records all
vendor additions, changes and deletions to a vendor's name,
address or tax ID number.
9. AP130 - purged vendor listing - lists all temporary vendors
purged from the vendor file (90 days from entry date).
10. AP120 - duplicate report - highlights through several variations,
all possible duplicate payments.
11. APM010 - manual check register - this is a list of all hand
checks on a given day.
12. AP301 - keypunch report - tabulates the number of invoices and
journal entries keyed during a day's time for each key punch
operator.
13. AP302 - processor operators list - tabulates the total of
invoices processed daily per A/P processor.
14. AAPV0 - void register - lists total of void/stop payment batches
keyed.
15. APM030 - manual checks to be printed.
16
<PAGE>
16. AP400 - daily report which shows deletions and changes of payable
invoices.
17. APBC03 - batch status
18. AAPTRAIL - AAP dupe vendor maintenance
19. GL001 - online G/L entry
20. GL002 - worksheet log
21. GL003 - deletions on G/L
22. GL2000 - transaction log - lists all transactions daily, to be
posted to the General Ledger.
o Standard system interface capabilities that may be modified at
Choice's expense and with Manor's consent. These include general
ledger for accounting distribution, drafts for check
reconciliation, and fixed assets.
SERVICES NOT INCLUDED IN THE BASELINE ACCOUNTS PAYABLE SERVICE CHARGE
o Manor Accounts Payable System features solely for Choice's use;
provided, however, that any such additional features and
functions shall be deemed enhancement to the Accounts Payable
System and shall remain the property of Manor. Such enhancements
would be provided for under a separate consulting arrangement and
would be paid for by Choice under the terms stipulated in a
separate consulting arrangement. If Manor subsequently uses
substantially all of such enhancement for its own accounts
payable processing Manor will reimburse Choice for the cost of
such enhancement.
o Choice will develop any computer software necessary to
electronically transmit invoice information from other Choice
feeder systems into the Accounts Payable System for subsequent
processing and payment.
o Other services which are billed directly to Choice, such as:
- United States Postal Service, UPS, and other courier services to
deliver accounts payable envelopes and packages from the Silver
Spring Computer Center.
o Any training or support requirements outside Manor Headquarters
or any support for Choice acquisitions and divestitures are
outside the scope of the fixed price. These services will be
charged on a time and materials basis.
17
<PAGE>
PROPERTY ACCOUNTING SERVICES
Property Accounting Services. Beginning as of the Distribution Date,
Manor shall provide Property Accounting Services to Choice. These Property
Accounting Services shall encompass functions to ensure system and accounting
control over fixed assets belonging to Choice as may be agreed upon by the
parties on a time and materials basis.
CONSTRUCTION ACCOUNTING SERVICES
Construction Accounting Services. Beginning as of the Distribution
Date, Manor shall provide Construction Accounting Services to Choice. These
Construction Accounting Services shall encompass functions to ensure system and
accounting control over acquisition improvement construction projects and new
building construction/development projects belonging to Choice as may be agreed
upon by the parties on a time and materials basis.
FACILITIES SERVICES
Facilities Services. Beginning as of the Distribution Date, Manor
shall provide Computer Services and Telecommunication Services to Choice.
Telecommunication Services shall encompass the following services:
1) Telephone and voicemail help desk support.
2) Moving, adding or changing telephones and/or programming voicemail
parameters for Choice employees.
3) Providing local and long-distance dial-tone.
4) Providing access and services of the corporate PBX switch.
Computer Services shall encompass payroll, accounts payable and
corporate accounting services. These services are further defined above in this
exhibit.
CORPORATE ACCOUNTING SUPPORT
Beginning as of the Distribution Date, Manor shall provide certain
Corporate Accounting Support to Choice. This support shall encompass functions
associated with monthly and year-end closing and financial reporting processes
as may be agreed upon by the parties on a time and material basis. Such
functions shall include, but not necessarily be limited to:
18
<PAGE>
Maintenance of general ledger chart of accounts and company profile
information
Consolidation of Choice financial information
Monthly financial reporting
Reconciliation of bank accounts
Preparation and reconciliation of debt report
Maintenance (including microfiche) of journal entries and other
financial records
Assistance with year end closing
Review of various financial reports Preparation of certain journal
entries and allocations
Any change required by Choice to the accounting software shall be determined on
a time and materials basis.
19
<PAGE>
EXHIBIT B
[ATTACHED]
20
<PAGE>
CORPORATE SERVICES CHARGES
Attachment B
- ------------------------------------------------ ---------------------------
SERVICE CHARGE BASIS
- ------------------------------------------------ ----------------------------
- ------------------------------------------------ ----------------------------
Payroll Activity Based Charges
Accounts Payable Activity Based Charges
Property Accounting Activity Based Charged
Construction Accounting Activity Based Charges
Corporate Accounting Support Time and Materials
Computer Services Activity Based Charges
Telecommunications Services Activity Based Charges
Model Room Services Fixed
Fee Based Charge of
$100,000 per year,
payable in equal
monthly installments
of $8,333.33 each.
Additional Consulting Services
Additional Consulting Services Hourly Billing Rates
- ---------------------------------------------- ------------------------------
21
<PAGE>
EXHIBIT C
CONSULTING SERVICES
A. Services to be Rendered. From and after the Distribution Date,
Manor shall provide the following consulting and advisory services to Choice;
(a) review and evaluate current operations and performance of Choice
with reference to period, quarterly and annual operating, capital
expenditure and other financial statements and reports,
(b) inspect and evaluate Choice operating facilities,
(c) review and evaluate Choice's organizational and personnel
structure,
(d) review and evaluate staffing needs and advise on performance of
key Choice operating executives,
(e) evaluate and review the compensation and benefit structure under
which Choice employees are compensated,
(f) review and evaluate Choice's proposed annual operating budget,
capital expenditures budget and business strategic review,
(g) review and evaluate new business opportunities (including renewals
and extensions of existing contracts) for Choice , including proposed
acquisitions or any capital expenditures or equity investments related
(h) review and evaluate Choice's marketing programs and assist in
their implementation, and
(i) review and evaluate Choice's accounting controls and systems.
Manor shall, upon the request of Choice, review and evaluate any other
of the operating systems, procedures, or structures of Choice as both Manor and
Choice mutually agree. In order to provide the foregoing services, Manor shall
make available to Choice the services of the Senior Vice President, Chief
Financial Officer and Treasurer; Vice President, Finance and Assistant
Treasurer; and other management personnel as appropriate.
22
<PAGE>
A policy of full cooperation shall prevail between the parties and
their authorized representatives with respect to all matters relating to
Consulting Services provided. Each party agrees in good faith to cooperate with
the other party and keep each other (through the representatives) regularly and
reasonably informed of the information, preparation and review of the matters
upon which Choice desires Manor's consultation and advice.
Timing. Any consulting services provided by Manor hereunder shall be
rendered as promptly as practicable taking into account the particular
circumstances of each request and the time reasonable necessary to provide a
report or evaluation. Choice shall provide all pertinent information relating to
each assignment as reasonably requested by Manor. Any and all recommendations,
advise or evaluations shall, at the request of Choice, be embodied in a written
report.
Services Advisory Only. It is further understood and agreed between
the parties that the services to be provided to Choice hereunder by Manor are
consultative and advisory in nature only and that under no circumstances shall
Manor be under any obligation to provide any day-to-day management services with
respect to the operations of Choice.
B. Compensation
Annual Retainer. For and in consideration of the continued agreement
of Manor to render consulting services to Choice as listed in Section A, Manor
will be entitled to an annual retainer fee in the amount of $1,000,000 payable
upon the Distribution Date and upon each annual anniversary thereof during the
term of the Agreement.
Out-of-Pocket Expenses. Choice will be responsible for the
reimbursement to Manor of its reasonable out-of-pocket expenses incurred for
travel, telephone, or like purposes. Reimbursement shall be made on a monthly
basis upon receipt of an invoice describing the nature and amount of such
expenses. Payment shall be made within ten (10) business days of receipt of an
invoice.
Limitation on Service. In no event will Manor be required to expend
more than 2,500 employee-hours per year in providing consulting services
hereunder.
C. Choice's Responsibility; Agency, Best Efforts. Notwithstanding the
consultation and advice to be rendered hereunder, it is understood that Manor
will act in an advisory capacity only. Choice shall have no obligation to
implement any recommendations or advice rendered by Manor. In performing its
services hereunder, Manor shall be an independent contractor and neither party
shall be an agent or representative of the other except as may be specifically
authorized in advance in writing. Manor shall only be required to exert its
reasonable best efforts to perform under this Agreement. In no event may any
provision of this Agreement be construed as or otherwise constitute
23
<PAGE>
a guarantee by Manor that following any advice rendered by Manor under this
Agreement will attain the stated business objective, it being recognized by the
parties that Choice shall be fully responsible for the business and operations
of Choice and that, in any event, intervening events over which neither party
has any control may preclude the realization in whole or in part of Choice's
objectives.
24
<PAGE>
EXHIBIT D
TRAVEL MANAGEMENT SERVICES
Travel Management Services. Manor shall provide Travel management services in
accordance with Choice policy and procedures to the extent that they do not
conflict with Manor procedures. Manor's preferred vendor programs shall be used
unless otherwise stated below. Choice and Manor travel volumes shall be combined
for the purpose of negotiating discounts and preferred services for air, car
rental, corporate charge cards, and ground transportation. The scope of services
includes:
Travel Policy and Procedures.
Assistance in developing, updating, and communicating Choice travel
policy and procedures.
Reservations and/or Ticketing.
Reservations and/or ticketing for airline, rail, car rental and
hotels. Availability of Manor negotiated rates and services for airlines and car
rental (and hotel if so desired). Use of Choice preferred hotels and rates for
Choice employees.
Travel Payment.
Central Billings for airline charges, including reconciliation and
downloading to the general ledger. Administration of Corporate Charge Card
program.
Management Information Reports.
Monthly Airfare Exception Report.
Monthly Air Activity by Department.
Reports on demand for air, car rental, and hotel.
SERVICES NOT INCLUDED IN THE BASELINE TRAVEL MANAGEMENT SERVICES CHARGE
Any services which are billed directly to Choice, such as, ground
transportation and courier services.
25
<PAGE>
Use and maintenance of Manor
developed or new third party software, including, but not limited to,
expense report processing, reservation processes, and management
information reporting.
Fees.
A. Usage Fees - Pass through of all third party charges
B. Activity Based Fees: percent (%) of transactions attributed to Choice
times Net Expenses (defined as total travel services expenses minus
revenue share/ rebates from preferred vendor contracts).
26
<PAGE>
EXHIBIT E
REPRESENTATIVES
__________________________ - Manor
__________________________ - Choice
27
EMPLOYEE BENEFITS ADMINISTRATION AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into as of
_______________, 1996, by and between Manor Care, Inc., a Delaware corporation
("Manor") and Choice Hotels Holdings, Inc., a Delaware corporation ("Choice").
R E C I T A L S
WHEREAS, pursuant to a Distribution Agreement (the "Distribution
Agreement") dated as of _____________, 1996, Choice and Manor have agreed to
enter into an employee benefits administration agreement with the terms and
conditions set forth herein; and
WHEREAS, in accordance with said Distribution Agreement, Choice and
Manor also have entered into an Employee Benefits & Other Employment Matters
Allocation Agreement (the Allocation Agreement") dated as of _________________,
1996, pursuant to which Choice and Manor each assumed certain liabilities and
obligations, each generally with respect to its own employees, to adopt or
continue certain employee benefit, stock and retirement plans and programs
substantially equivalent to those provided by Manor on the Distribution Date;
and
WHEREAS, Manor shall retain the personnel and systems formerly utilized
in the maintenance and administration of the aforesaid Manor employee plans and
programs; and
WHEREAS, Choice desires to retain Manor in the maintenance and
administration of Choice's employee plans and programs, and Manor desires to
render such assistance on an equitable, arms length basis for a fee;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Choice and Manor agree as follows:
1. Definitions. As used in this Agreement, the following capitalized
terms shall have the meanings indicated:
"Accounting Services" means the services provided by Manor to or on
behalf of Choice or any participant in any of the Plans, as provided
under Section 2.1 and Exhibit B of this Agreement.
1
<PAGE>
"Ancillary Agreement" shall have the meaning described in the
Distribution Agreement.
"Benefit and Compensation Additional Consulting Services" means the
services provided by Manor to or on behalf of Choice or any participant
in any of the Plans, as provided under Section 2.2 and Exhibit C of
this Agreement.
"Claims" means any claims reported on or after the Distribution Date by
any employee of the Lodging Business (and/or covered dependents) for
coverage or benefits under the Retirement Plans, Medical/Dental Plans,
Welfare Plans, Deferred Compensation or the Stock Plans. "Claims" also
includes any claims by any beneficiary of a deceased employee. For
purposes of this definition, employee of the Lodging Business includes
any active, disabled, former or retired employee (except a Retiree,
Qualified Beneficiary or an active, former or retired employee whose
account balance under the applicable Deferred Compensation Plan or the
applicable Retirement Plan has been transferred to a Manor deferred
compensation plan or a Manor retirement plan pursuant to the
Distribution).
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
"COBRA Administration Services" means the services provided by Manor to
or on behalf of Choice or any participant in any of the Medical/Dental
Plans or Qualified Beneficiary, as provided under Section 2.4 and
Exhibit E of this Agreement.
"COBRA Claims" means any claims reported on or after the Distribution
Date by any Qualified Beneficiary for coverage or benefits under any
Medical/Dental Plan (or any predecessor thereto).
"COBRA Continuation Coverage" means the coverage following a Qualifying
Event provided by Choice to a Qualified Beneficiary as required by
COBRA.
"Compliance Services" means the services provided by Manor to or on
behalf of Choice or any participant in any of the Plans, as provided
under Section 2.5 and Exhibit F of this Agreement.
"Deferred Compensation Plan(s)" means the deferred compensation plan(s)
set forth in the attached Schedule A, as it may be amended from time to
time with the written consent of both parties to this Agreement.
<PAGE>
"Determination Period" means any 12 months during which the premium for
COBRA Continuation Coverage with respect to a Qualified Beneficiary
must remain fixed and may not be increased.
"Distribution" means the distribution to the holders of Manor Care
Common Stock all the outstanding shares of Choice Common Stock.
"Distribution Agreement" mans the agreement described in the first
recital of this Agreement.
"Distribution Date" means the date determined by the Board of Directors
of Manor as the date on which the Distribution shall be effected.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Fiduciary Services" means the services provided by Manor to or on
behalf of Choice or any participant in any of the Plans, as provided
under Section 2.6 of this Agreement.
"Health and Welfare Plans" means those plans listed on Schedule A
herein.
"HMO(s)" means health maintenance organization(s).
"Imprest Account(s)" means the account(s) established pursuant to
Section 4.1 of this Agreement.
"Lodging Business" means any business or operation of Choice or its
subsidiaries which is, pursuant to the Distribution Agreement, to be
conducted, following the Distribution, by Choice.
"Medical/Dental Plan(s)" means the medical and dental plans as set
forth in the attached Schedule A, as it may be amended from time to
time with the written consent of both parties to this Agreement.
"Plans" means the Choice Medical/Dental Plans, Welfare Plans,
Retirement Plans, Deferred Compensation Plans, and Stock Plans set
forth in the attached Schedule A, as it may be amended from time to
time with the written consent of both parties to this agreement.
<PAGE>
"Plan Administrator" means the administrator as defined in ERISA
Section 3(16)(A).
"Plan Administration Services" means the services provided by Manor to
or on behalf of Choice or any participant in any of the Plans, as
provided under Section 2.3 and Exhibit D of this Agreement.
"Prime Rate" means the rate identified from time to time in the New
York edition of the Wall Street Journal as being the prime rate of
interest.
"Qualified Beneficiary" means any former or part-time employee of the
Lodging Business (or dependent thereof) who either experiences (or
experienced) a Qualifying Event while a participant in any
Medical/Dental Plan (or any predecessor thereto), or becomes (or
became) a Qualified Beneficiary, as that term is defined in Internal
Revenue Code Section 4980B(g)(a) and ERISA 607(3), under any
Medical/Dental Plan (or any predecessor thereto).
"Qualifying Event" means an event upon which a Qualified Beneficiary
must be given the opportunity to elect COBRA Continuation Coverage as
specified in Internal Revenue Code Section 4980B(f)(3) and ERISA
Section 603.
"Retirement Plans" means the retirement plans set forth in the attached
Schedule A, as it may be amended from time to time with the written
consent of both parties to this Agreement.
"Services" means the Accounting Services, the Benefit and Compensation
Additional Consulting Services, the COBRA Administration Services, the
Plan Administration Services, the Compliance Services and the Fiduciary
Services, all as described in Section 2 of this Agreement.
"Stock Plans" means the stock plans set forth in the attached Schedule
A, as it may be amended from time to time with the written consent of
both parties to this Agreement.
"Welfare Plans" means the welfare plans set forth in the attached
Schedule A, as it may be amended from time to time with the written
consent of both parties to this Agreement.
<PAGE>
Any capitalized terms defined in the Distribution Agreement and used herein
shall have the meanings ascribed to them in the Distribution Agreement unless
otherwise defined herein.
2.0 Duties of Manor. Upon the request of Choice, Manor shall:
(a) Provide the Services to Choice with respect to the Plans;
(b) Provide such other services in connection with the Plans as shall
be mutually agreed upon by the parties to this Agreement (such other
services and costs thereof to be set forth as an addendum to this
Agreement); and
(c) Arrange for the maintenance of all records used to perform the
Services (and any other services), including Claims and COBRA Claims
files and records, for six (6) calendar years following any year in
which it performs Services (or any other services) hereunder.
The Services (and any other services) shall be administered in accordance with
Manor's standard policies, procedures and practices in effect as of the date
hereof and as may be changed, and as more particularly described below; or as
otherwise specified in accordance with the terms thereof. In so doing, Manor
shall exercise the standards of care set forth in Section 5.0.
It is expressly understood that in providing the Services (any other services)
to Choice, Manor shall be a service provider and not a plan sponsor, as defined
in ERISA 3(16)(B), of any of the Plans, and shall have the right to delegate its
obligations hereunder to or contact with any other party to provide such
Services (or any other services). Furthermore, it is the intent of the parties
to this Agreement that Manor shall be an independent contractor in providing the
Services (any other services) under this Agreement, and not as employee or agent
of Choice. Manor agrees to provide such Services only if it reasonably believes
the service will not interfere with the conduct of the business of Manor or pose
an unreasonable burden.
2.1 Accounting Services. Upon the request of Choice, Manor shall
provide the Accounting Services to Choice, as set forth in Exhibit B, to assist
Choice in meeting its accounting and financial reporting obligations under the
Plans.
2.2 Benefit and Compensation Additional Consulting Services. Upon the
request of Choice, Manor shall provide Benefit and Compensation Consulting
Services, as set forth in Exhibit C, to Choice to assist Choice in designing and
updating employee benefit plans and establishing competitive compensation
practices.
<PAGE>
2.3 Plan Administration Services. Upon the request of Choice, Manor
shall provide the Plan Administration Services, as set forth in Exhibit D, to
assist in the administration of its Plans.
2.4 COBRA Administration Services. Upon the request of Choice, Manor
shall provide the COBRA Administration Services, as set forth in Exhibit E, to
assist Choice, the Plan Administrator and the Medical/Dental Plans in the
performance of their responsibilities under COBRA.
2.5 Compliance Services. Upon the request of Choice, Manor or its
contractors shall provide the Compliance Services, as set forth in Exhibit F, to
assist Choice in fulfilling its disclosure and reporting obligations under
ERISA, the Internal Revenue Code and any other applicable federal or state law.
2.6 Fiduciary Services. Upon the request of Choice, Manor shall
provide the Fiduciary Services, as set forth in Exhibit G, in its administration
of Claims for disability (including payment), retirement, stock and deferred
compensation benefits (and appeals of denied or disputed Claims with respect
thereto), and in its final review of appeals of denied or disputed Claims and
COBRA Claims under the Medical/Dental Plans. Manor shall obtain and maintain
customary such fiduciary insurance coverage. Other than the fiduciary services
set forth in Exhibit G, Manor is vested only with ministerial authority and
shall have no discretionary authority to make decisions as to policies,
interpretations, practices and procedures under any of the Plans (except to the
extent otherwise set forth in Exhibit G), but shall perform its duties and
functions under this Agreement within the framework of the terms of each of the
Plans and policies, interpretations, rules, practices and procedures made by
Choice. Except as otherwise specified in this Section 2.6, Manor is not a
fiduciary with respect to any of the Plans and shall not be considered the Plan
Administrator, fiduciary, or named fiduciary under any of the Plans, within the
meaning of those terms as defined in ERISA.
3.0 Duties of Choice. Except as provided in Section 2.6, Choice shall
have the sole and primary responsibility as sponsor of the Plans for all
discretionary decisions and actions with respect thereto, for all financial and
other obligations arising therefrom, and for all funding and employer
contribution requirements under the terms of the Plans. In addition, Choice
shall, except to the extent expressly delegated to Manor:
(a) Provide Manor with assistance or authorizations to third parties
reasonably required for Manor to perform the Services and any other
services under this Agreement;
<PAGE>
(b) Obtain and maintain qualification for all tax-qualified,
tax-exempt or otherwise tax-favored Plans;
(c) Request from Choice shareholders share authorizations sufficient
to meet awards under the Stock Plans;
(d) For active employees participating in any of the Plans, collect
payroll deductions for each pay period for the amount of employee
contributions owed for the pay period and withhold applicable payroll
taxes under Choice's payroll system with respect to the Plans;
(e) Maintain all necessary records and documentation as required by
law or as needed for efficient administration of the Plans;
(f) Perform all necessary employee communications, including sending
notices required by law, determining eligibility and conducting
enrollment under the Plans;
(g) Complete required Securities and Exchange Commission registrations
and other filings required with respect to all Plans.
(h) Furnish Manor with any and all information in its possession
necessary to enable Manor to perform the Services under this
Agreement.
(i) At the request of Manor, maintain the Imprest Account(s) with
sufficient funds to satisfy expenses of the Plans as they become due
and payable. Manor is not responsible for funding the Plans with any
contributions.
(j) Timely pay the Service Fees as they become due and payable.
4.0 Financial Provisions.
4.1 Imprest Account(s). Choice will open and maintain an imprest
account(s) against which Manor may write checks or initiate fund transfers to
cover all Claims and COBRA Claims payments and out-of-pocket expenses for
medical reports, "second opinions" obtained to evaluate claims, HMO premiums,
insurance company premiums, costs incurred for separately tracking Claims and
COBRA Claims, administrative contract fees paid to contractors for processing
Claims and COBRA Claims, toll-free phone service charged separately by claims
administrators, medical case management, hospital utilization review, claim
audits, outside legal fees and fees of other outside service providers, claim
settlement
<PAGE>
charges and expenses, and all other similar expenses that are
normally incurred in the administration of Claims and COBRA Claims.
4.2 Pricing and Payment for Services. Choice shall pay Manor for
services requested and rendered hereunder as follows:
(a) The charging mechanisms for rates or charges for each service shall
include (i) activity-based charges where the per unit price will be
multiplied by the variable number of units (for example, the number of
active associates times the per associate charge will determine the per
Accounting Period charge); (ii)fixed fee based charges, meaning a fixed
amount per Accounting Period for Manor to perform the service; (iii)
usage based charges for which Choice will pay according to actual use
of the service; (iv) time and materials charges; or (v) a variation or
a combination of any of the foregoing methods as agreed to by the
parties.
(b) Except as provided in the Distribution Agreement, the Allocation
Agreement or any Ancillary Agreement, Choice shall pay any and all
additional costs and expenses which Manor may incur for the express
purpose of providing services to Choice.
(c) Choice shall pay Manor on a time and materials basis for all costs
incurred by Manor in converting Choice business information and records
from Manor services systems to either a third party provider or to
Choice.
(d) Choice shall pay Manor for all services provided hereunder within
thirty (30) days after receipt of an invoice therefor. Choice shall pay
fixed charges in advance on the first business day of the applicable
Accounting Period. Any payments not made by Choice to Manor when due
shall bear interest, computed daily from the date due to the date of
payment based on the annual percentage rate equal to the Prime Rate
plus two (2) percentage points, as same may vary from time to time.
5.0 Warranties and Limitations of Liability.
(a) MANOR DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE SERVICES PROVIDED
HEREUNDER. Manor will use reasonable efforts to perform the Services provided
hereunder in a professional and workmanlike manner but the results of the
Services are furnished "as is."
<PAGE>
(b) Manor's sole liability to Choice or any third party for
claims, notwithstanding the form of such claims (e.g. contract, negligence or
otherwise), arising out of errors or omissions in the Services provided or to be
provided by Manor hereunder which are caused solely by Manor shall be to furnish
correct information, payment, and/or adjustment in the Services provided
hereunder provided that Choice promptly advises Manor thereof.
(c) Manor's sole liability to Choice or any third party for
claims, notwithstanding the form of such claims (e. g. contract, negligence or
otherwise), arising out of the unavailability of the Services provided hereunder
or the interruption in or delay in performing the Services provided hereunder
for any reason beyond Manor's reasonable control shall be to use all reasonable
efforts to make such services available, and/or to resume performing the
Services, as promptly as reasonably practicable. Manor will maintain the same
back-up procedures for Choice's information that Manor has for its own
information.
(d) MANOR SHALL NOT BE LIABLE FOR ANY ERRORS, OMISSIONS,
DELAYS, OR LOSSES UNLESS CAUSED SOLELY BY ITS CRIMINAL CONDUCT, FRAUD, BAD FAITH
OR GROSS NEGLIGENCE. CHOICE AGREES THAT IN NO EVENT WILL MANOR BE LIABLE FOR
INCIDENTAL, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES. CHOICE FURTHER AGREES
THAT IN NO EVENT WILL THE TOTAL AGGREGATE LIABILITY OF MANOR FOR ANY AND ALL
CLAIMS, LOSSES, OR DAMAGES ARISING UNDER THIS AGREEMENT AND FOR THE SERVICES
PERFORMED HEREUNDER EXCEED THE VALUE OF CHOICE'S PAYMENT FOR SAID SPECIFIC
SERVICE IN DISPUTE OVER ONE FOUR-WEEK ACCOUNTING PERIOD'S TIME.
(e) The forgoing provisions of this Section 5 set forth the
full extent of Manor's liability hereunder (monetary or otherwise) for any claim
or action, regardless of the form in which any such claim or action may be
asserted against Manor (e.g. contract, negligence or otherwise).
6.0 Indemnification: Standard of Care. Manor shall use the same care and skill
in the performance of its duties under this Agreement as a similarly situated
provider of like services would exercise following commonly accepted standards
of prudence in the relevant industry engaged in the provision of such services.
6.1 Manor Held Harmless. Choice will indemnify, defend and hold
harmless Manor and its directors, officers and employees from Losses (as defined
below) resulting from or arising out of or in connection with Manor's actions or
failure to act where such action or failure to act is required by any Choice
employment, compensation or benefits policy or
<PAGE>
practice, other than Losses for which Choice is indemnifiable by Manor under
Section 6.2. The term "Losses" shall include costs of any claim, lawsuit,
settlement, judgment, penalty, attorneys' fees, and other expenses in connection
with the Plans. In addition, Choice will indemnify Manor against any premium
taxes or any other fees or levies of any local, state or federal government
(including sales, use or similar taxes) assessed in connection with any of the
Plans, and against any income or payroll taxes, interest or penalties assessed
against any participant or beneficiary of any Plan or against Choice as a result
of such participant or beneficiary recognizing income from benefits payable
under any Plan.
6.2 Choice Held Harmless. Manor will indemnify, defend and hold
harmless Choice and its directors, officers and employees from Losses (other
than benefits due and payable under the terms of any Plan) resulting from or
arising out of or in connection with Manor's criminal conduct, fraud, bad faith
or gross negligence, unless the actions (or inaction) causing the Losses were
taken (or not taken) at the specific direction of Choice, its subsidiaries,
employees, or agents.
6.3 Notice and Defense. The party seeking indemnification must notify
the other party promptly in writing of any claim that may result in Losses, and
give the indemnifying party the opportunity to assist in the defense of the case
(at the indemnifying party's cost and expense), and must provide all necessary
information and assistance for such defense. In addition, Manor will provide all
necessary information and assistance to Choice (at Choice's cost and expense) in
the defense of any Claims, COBRA Claims, or other actions brought under any of
the Plans which could result in Losses for which Choice is primarily liable.
7.0 Access to Information: Cooperation. Subject to the requirements of
Section 24.0, Choice and its authorized agents will be given reasonable access
to and may take copies of all information relating to the Claims and COBRA
Claims (to the extent permitted by federal and state confidentiality laws) in
Manor's and/or its subcontractor's custody, as applicable. The parties will
cooperate with one another to minimize the disruption caused by any such access.
8.0 Term. The term of this Agreement shall commence on the Distribution
Date and shall remain in effect through the end of the first full Fiscal Year
immediately following the Distribution Date. Unless terminated pursuant to the
terms hereof, the Agreement shall automatically renew each Fiscal Year
thereafter for the extended term of said Fiscal Year and shall not extend beyond
30 months from the Distribution Date unless otherwise extended by the parties in
writing; provided, however, that Choice may terminate this Agreement or any
services provided hereunder at any time for any reason or no reason upon sixty
(60) days' prior written notice to Manor and provided, further, in the event any
service herein is dependent upon any Function as defined in that certain
Corporate Services Agreement
<PAGE>
between the parties and dated the date hereof, notice of termination shall be
determined by reference to the Corporate Services Agreement. This Agreement may
also be terminated in the event of a default (past the expiration of any
applicable cure period provided herein) in accordance with the provisions of
this Agreement or may be terminated by mutual agreement. In the event of any
termination, Articles 4,5,6 and 15 shall survive and remain in effect.
9.0 Default. If either party materially defaults hereunder, the
non-defaulting party may terminate this Agreement effective immediately (subject
to the cure periods set forth herein below) upon written notice to the
defaulting party. The non-defaulting party shall be entitled to all remedies
provided by law or equity (including reasonable attorney's fees and costs of
suit incurred). The following events shall be deemed to be material defaults
hereunder:
(a) Failure by either party to make any payment required to be made to
the other hereunder, which failure is not remedied within five (5) days
after receipt of written notice thereof; or
(b) Except as otherwise provided herein, failure by either party
substantially to perform in accordance with the terms and conditions of
this Agreement, which failure is not remedied within thirty (30) days
after receipt of written notice from the other party specifying the
nature of such default; or
(c) (i) Filing of a voluntary bankruptcy petition by either party; (ii)
filing of an involuntary bankruptcy petition against either party which
is not withdrawn within sixty (60) days after filing; (iii) assignment
for the benefit of creditors made by either party; or (iv) appointment
of a receiver for either party.
Notwithstanding the foregoing, the correction period provided for in Sections
9.0(a) and 9.0(b) shall apply only if such failure is due to reasonable cause
and not willful neglect.
10.0 Force Majeure. Manor and Choice shall incur no liability to each
other due to a failure to perform under the terms and conditions of this
Agreement resulting from fire, flood, war, strike, lock-out work stoppage or
slow-down, labor disturbances, power failure, major equipment breakdowns,
construction delays, accident, riots, acts of God, acts of United States'
enemies, laws, orders or at the insistence or result of any governmental
authority or any other event beyond each other's reasonable control. In
addition, Manor shall not be liable or deemed to be in default for any delay or
failure to perform hereunder resulting, directly or indirectly, from any cause
beyond Manor's reasonable control, including limitations upon the availability
of communications facilities or failures of other communications equipment or
failure of Choice to prepare data properly for input into the Corporate Systems.
However,
<PAGE>
nothing in this provision shall relieve Choice of any liability for
failure to make any payments required to be made under this Agreement because
Choice Employees are on strike or engaged in a lock-out, work stoppage or
slow-down, or labor disputes.
11.0. Relationship of Parties. Nothing in this Agreement shall be
deemed or construed by the parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
parties, it being understood and agreed that no provision contained herein, and
no act of the parties, shall be deemed to create any relationship between the
parties other than the relationship of independent contract administrator and
client.
12.0. Assignment. Subject to the provisions of Section 2.0, Neither
party shall, without the prior written consent of the other, assign any rights
or delegate any obligations under this Agreement, such consent not to be
unreasonably withheld, conditioned or delayed; provided, however, such consent
not to be required if the agreement is assigned to a wholly-owned subsidiary of
either party.
13.0 Headings. The headings used in this Agreement are inserted only
for the purpose of convenience and reference, and in no way define or limit the
scope or intent of any provision or part hereof.
14.0 Severability of Provisions: Neither Manor nor Choice intend to
violate statutory or common law by executing this Agreement. If any section,
sentence, paragraph, clause or combination of provisions in this Agreement is in
violation of any law, such sections, sentences, paragraphs, clauses or
combinations shall be inoperative and the remainder of this Agreement shall
remain in full force and effect and shall be binding upon the parties.
15.0 Parties Bound. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing herein, expressed or implied, shall be construed to give any
other person any legal or equitable rights hereunder.
16.0 Notices. All notices and other communications hereunder shall be
in writing and shall be delivered by hand or shall be deemed to have been
properly made and given one (1) business day after being deposited with a
reputable overnight courier service such as Federal Express, Airborne Express or
UPS Next Day Air for next business day delivery or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and shall be deemed given on the date on which such notice is received:
<PAGE>
To Choice:
Choice Hotels International, Inc.
10750 Columbia Pike
Silver Spring, MD 20901
Attention: General Counsel
To Manor:
Manor Care, Inc.
11555 Darnestown Road
Gaithersburg, MD 20878-3200
Attention: General Counsel
17.0 Further Action. Manor and Choice each shall cooperate in good
faith and take such steps and execute such papers as may be reasonably requested
by the other party to implement the terms and provisions of this Agreement.
18.0 Waiver. Manor and Choice each agree that the waiver of any default
under any term or condition of this Agreement shall not constitute any waiver of
any subsequent default or nullify the effectiveness of that term or condition.
19.0 Governing Law. All controversies and disputes arising out of or
under this Agreement shall be determined pursuant to the laws of the District of
Maryland, regardless of the laws that might be applied under applicable
principles of conflicts of laws, except to the extent preempted by ERISA or
other applicable federal laws..
20.0 Consent to Jurisdiction. The parties irrevocably submit to the
exclusive jurisdiction of (a) the Courts of the State of Maryland in Montgomery
County, and (b) the United States District Court for the State of Maryland for
the purposes of any suit, action or other proceeding arising out of this
Agreement.
21.0 Entire Agreement. This Agreement and the Distribution Agreement
constitute the entire understanding between the parties hereto, and supersede
all prior written or oral communications, relating to the subject matter covered
by said agreements. No amendment, modification, extension or failure to enforce
any condition of this Agreement by either party shall be deemed a waiver of any
of its rights herein. this Agreement shall not be amended except by a writing
executed by the parties.
22.0 Commercially Reasonable Terms and Conditions. The terms and
provisions of this Agreement are intended to reflect commercially reasonable
terms and conditions
<PAGE>
(including, but not limited to, pricing) that are at least as favorable and as
competitive to Choice as the terms and conditions Manor would grant or require
of third parties for substantially similar goods and services.
23.0 Representatives. Choice and Manor shall each appoint a managerial
level individual (hereinafter "Representatives") to facilitate communications
and performance hereunder. Each party may treat an act of the Representative of
the other party as being authorized by such other party without inquiring behind
such act or ascertaining whether such Representative had authority to so act.
The initial Representatives are named on Exhibit A. Each party shall have the
right at any time and from time to time to replace its Representative by giving
notice in writing to the other party setting forth the name of (i) the
Representative to be replaced and (ii) the replacement, and certifying that the
replacement Representative is authorized to act for the party giving the notice
in all matters relating to this Agreement.
24.0 Confidentiality. Manor and Choice agree that the terms of this
Agreement are confidential and further agree that this Agreement shall not be
released to any third parties, excluding such parties' counsel, agents or
lenders. However, one party may release this Agreement or such information to a
third party upon the prior approval of the other party (such approval not to be
unreasonably withheld, conditioned or delayed) upon court order, or as required
by any rules, regulations or laws. All confidential and proprietary information
which either party has obtained from the other shall be returned upon the
expiration or earlier termination of this Agreement. The provisions of this
paragraph shall survive expiration or earlier termination of this Agreement.
25.0 Expenses. Except as otherwise set forth in this Agreement or any
Ancillary Agreement (as defined in the Distribution Agreement), the parties
shall bear their own costs and expenses in connection with the preparation,
execution, delivery and implementation of this Agreement and the consummation of
the transactions contemplated hereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CHOICE HOTELS HOLDINGS, INC., a
Delaware corporation
By:/s/ James A. MacCutcheon
Name:James A. MacCutcheon
Title:Executive Vice President
and Chief Financial Officer
and Treasurer
MANOR CARE, INC., a
Delaware corporation
By:/s/ James H. Rempe
Name: James H. Rempe
Title: Senior Vice President &
Secretary
<PAGE>
EXHIBIT A
REPRESENTATIVES
_________________________________________ - Manor
_________________________________________ - Choice
<PAGE>
EXHIBIT B
ACCOUNTING SERVICES
B.0 General. The Accounting Services shall be limited to the following
services:
B.1 Accounting Services for Health and Welfare Plans. Manor shall:
(a) Arrange for the calculation, collection and remittance of
employee payroll deductions for each of the Health and Welfare
Plans, where required;
(b) Maintain financial records and prepare financial statements for
each of the Health and Welfare Plans, where needed;
(c) Arrange for the preparation of an independent certified public
accountant's report for each of the Health and Welfare Plans,
where needed;
(d) Prepare for Choice's review, signature and filing the Form 5500
for each of the Health and Welfare Plans, where needed;
(e) Review and reconcile bank and investment accounts for each of the
Health and Welfare Plans, where required;
(f) Reconcile billing statements and payments to HMOs and insurance
carriers with participant records;
(g) Reconcile claim reports;
(h) Initiate fund transfers in connection with the Health and Welfare
Plans;
(i) Assist in developing premium rates for Choice self-insured Health
and Welfare Plans;
(j) Beginning January 1, 1997, develop, recommend, and maintain
records showing employer contribution amounts under each of the
Health and Welfare Plans relating to the total cost of Health and
Welfare Plans for Choice to accrue on its books; and
B.2 Accounting Services for Retirement Plans. Manor shall:
(a) Establish, maintain and update a roster of participants in each
of the Retirement Plans;
(b) Maintain records of participant account balances or accrued
benefit, as applicable, for each of the Retirement Plans,
including records as to vesting;
(c) Coordinate the distribution of shares, cash and account
contributions under each of the Retirement Plans;
(d) Arrange for the calculation, collection and remittance of direct
employee contributions and employee payroll deductions for each
of the Retirement Plans, where required;
(e) Maintain financial records and prepare financial statements for
each of the Retirement Plans, where needed;
(f) Arrange for the preparation of an independent certified public
accountant's report for each of the Retirement Plans, where
needed;
(g) Prepare for Choice's review, signature, and filing of the Form
5500 for each of the Retirement Plans, where needed;
(h) Review and reconcile bank and investment accounts for each of the
Retirement Plans;
(i) Develop, recommend, and maintain records showing employer
contribution amounts under each of the Retirement Plans for
Choice to accrue on its books; and
(j) Manage the process of withholding applicable payroll taxes
otherwise payable by Choice, where required.
<PAGE>
B.3 Accounting Services for Stock Plans. Manor shall:
(a) Establish, maintain and update a roster of participants in each
of the Stock Plans;
(b) Maintain records of participant account balances for each of the
Stock Plans, including records as to vesting;
(c) Coordinate the distribution of shares (and cash, where
applicable) under each of the Stock Plans;
(d) Arrange for the calculation, collection and remittance of stock
purchase proceeds or employee payroll deductions for each of the
Stock Plans where applicable;
(e) Maintain financial records and prepare financial statements for
each of the Stock Plans, where needed;
(f) Develop, recommend and maintain records showing employee
contribution amounts under each of the Stock Plans for Choice to
accrue on its books;
(g) Maintain for each of the Stock Plans share authorization,
issuance, cancellation, and forfeiture records; and
(h) Manage the process of withholding applicable payroll taxes
otherwise payable by Choice, where required.
<PAGE>
B.4 Accounting Services for Deferred Compensation Plans. Manor shall:
(a) Establish, maintain and update a roster of participants in each
of the Deferred Compensation Plans;
(b) Maintain records of participant account balances for each of the
Deferred Compensation Plans, including records as to vesting;
(c) Coordinate the distribution of shares, cash and account
contributions under each of the Deferred Compensation Plans;
(d) Develop, recommend, and maintain records showing employer
contribution amounts under each of the deferred Compensation
Plans for Choice to accrue on its books; and
(e) Manage the process of withholding applicable payroll taxes
otherwise payable by Choice, where required.
<PAGE>
EXHIBIT C
BENEFIT AND COMPENSATION ADDITIONAL CONSULTING SERVICES
C.0 General. the Benefit and Compensation Additional Consulting Services
shall be limited to the following services:
C.1 Benefit Additional Consulting Services for Health and Welfare Plans
Manor shall:
Assist Choice annually to identify desired Additional
Consulting services and appropriate responsibility.
C.2 Benefit Additional Consulting Services for Retirement Plans. Manor
shall:
Assist Choice annually to identify desired Additional
Consulting services and appropriate responsibility.
<PAGE>
C.3. Benefit Additional Consulting Services for Stock Plans. Manor shall:
Assist Choice annually to identify desired additional
consulting services and appropriate responsibility.
<PAGE>
C.4 Benefit Additional Consulting Services for Deferred Compensation
Plans. Manor shall:
Assist Choice annually to identify desired additional
consulting services and appropriate responsibility.
<PAGE>
C.5 Compensation Additional Consulting Services for Choice. Manor shall:
Assist Choice annually to identify desired additional
consulting services and appropriate responsibility.
<PAGE>
EXHIBIT D
PLAN ADMINISTRATION SERVICES
D.0 General. the Plan Administration Services shall be limited to the
following services:
D.1 Plan Administration Services for Health and Welfare Plans. Manor
shall:
(a) Assist in the preparation of enrollment and communication
materials for each of the Health and Welfare Plans;
(b) Coordinate the production, printing and distribution of
enrollment and communication materials for each of the Health and
Welfare Plans;
(c) Assist Choice to negotiate contracts with insurance carriers and
HMOs;
(d) Assist Choice to negotiate contracts with insurance carriers and
HMOs;
(e) Assist Choice to negotiate fees for "administrative services
only" contracts and premiums for insured Health and Welfare
Plans;
(f) Coordinate the competitive bidding process among prospective
service providers and evaluate resulting bids for Choice.
(g) Oversee Choice contracts with insurance carriers and HMOs;
(h) Arrange for plan eligibility information to be provided to
insurance carriers and HMOs;
(i) Coordinate independent audits of medical and dental claim
administrators;
(j) Coordinate recovery of claims advances involving third party
liability claims;
(k) Assist Choice in pursuing recovery of overpayments made by
medical and dental claim administrators;
<PAGE>
(l) Coordinate the administration, review and evaluation of Health
and Welfare Claims in accordance with the terms of the Health and
Welfare Plans, standard policies, procedures and practices;
(m) Investigate Claims under the Health and Welfare Plans to the
extent deemed necessary in its best judgment;
(n) Arrange for the payment of Claims in accordance with the terms of
the Health and Welfare Plans, standard policies, procedures and
practices; and
(o) Obtain consents, approvals, and elections under the Health and
Welfare Plans as provided under the terms thereof.
<PAGE>
D.2 Plan Administration Services for Retirement Plans. Manor shall:
(a) Assist in the preparation of enrollment and communication
materials for each of the Retirement Plans;
(b) Coordinate the production and printing of enrollment and
communication materials for each of the Retirement Plans;
(c) Coordinate the competitive bidding process among prospective
service providers and evaluate resulting bids for Choice;
(d) Coordinate the administration, review and evaluation of Claims in
accordance with the terms of the Retirement Plans, standard
policies, procedures and practices;
(e) Investigate Claims under the Retirement Plans to the extend
deemed necessary in its best judgment;
(f) Arrange for the payment of Claims in accordance with the terms of
the Retirement Plans, standard policies, procedures and
practices; and
(g) Obtain consents, approvals, and elections under the Retirement
Plans as provided under the terms thereof.
<PAGE>
D.3 Plan Administration Services for Stock Plans. Manor shall:
(a) Assist in the preparation of enrollment (where applicable),
nomination and communication materials for each of the Stock
Plans;
(b) Coordinate the production, printing and distribution of
enrollment (where applicable), nomination and communication
materials for each of the Stock Plans;
(c) Coordinate the competitive bidding process among prospective
service providers and evaluate resulting bids for Choice;
(d) Arrange for plan eligibility information to be provided to awards
administrators;
(e) Coordinate the administration, review and evaluation of awards in
accordance with the terms of the Stock Plans, standard policies,
procedures and practices;
(f) Investigate awards under the Stock Plans to the extent deemed
necessary in its best judgment;
(g) Arrange for the distribution of shares in accordance with the
terms of the Stock Plans, standard policies, procedures and
practices;
(h) Coordinate the exercise of stock options and the distribution of
shares and payments of dividends under the Stock Plans; and
(i) Obtain consents, approvals, and elections under the Stock Plans
as provided under the terms thereof.
<PAGE>
D.4 Plan Administration Services for Deferred Compensation Plans.
Manor shall:
(a) Assist in the preparation of enrollment and communication
materials for each of the Deferred Compensation Plans;
(b) Coordinate the production, printing and distribution of
enrollment and communication materials for each of the Deferred
Compensation Plans;
(c) Coordinate the competitive bidding process among prospective
service providers and evaluate resulting bids for Choice.
(d) Arrange for plan eligibility information to be provided to claim
administrators;
(e) Coordinate the administration, review and evaluation of Claims in
accordance with the terms of the Deferred Compensation Plans,
standard policies, procedures and practices;
(f) Investigate Claims under the deferred Compensation Plans to the
extent deemed necessary in its best judgment;
(g) Arrange for the payment of Claims in accordance with the terms of
the Deferred Compensation Plans, standard policies, procedures
and practices; and
(h) Obtain consents, approvals, and elections under the Deferred
Compensation Plans as provided under the terms thereof.
<PAGE>
EXHIBIT E
COBRA ADMINISTRATION SERVICES
E.0 General. The COBRA administration Services shall be limited to
the following services:
E.1 COBRA Administration Services for Medical/Dental Plans. Manor
shall:
(a) Send initial COBRA notices to Choice employees (and the
dependents thereof), as identified by Choice, who are enrolled in
the Medical/Dental Plans after the date of this Agreement;
(b) Send COBRA notices and election forms to Qualified Beneficiaries
who are identified by Choice or Manor, as appropriate, such COBRA
notices to include, among other things:
(1) Identification of the coverage on the date before the
Qualifying Event;
(2) The date the coverage ended;
(3) The reason the coverage ended;
(4) The right to elect COBRA Continuation Coverage;
(5) The duration of the COBRA Continuation Coverage;
(6) The duration of the grace period for payment of the initial
premium payment for COBRA Continuation Coverage; and
(7) The Determination Period;
(c) Receive and process duly executed COBRA election forms received
from Qualified Beneficiaries in accordance with the procedures
established by Choice.
(d) Send payment coupons to Qualified Beneficiaries who have elected
COBRA Continuation Coverage stating the amount of the monthly
COBRA premium payment as established by Choice, where required;
<PAGE>
(e) Receive and process amounts received as monthly COBRA premium
payments from Qualified Beneficiaries;
(f) Notify Qualified Beneficiaries of the extension of COBRA
Continuation Coverage from 18 months to 29 or 36 months or
termination of their COBRA Continuation Coverage, as appropriate,
under procedures established by Choice;
(g) Respond to telephone and written inquiries concerning COBRA
Continuation Coverage;
(h) Notify Qualified Beneficiaries of their right to convert to other
coverage, if applicable;
(i) Maintain an accounting of the COBRA premium payments to be
charged Qualified Beneficiaries;
(j) Assist Choice in developing COBRA premium payments to be charged
Qualified Beneficiaries;
(k) Coordinate the administration, review and evaluation of COBRA
Claims in accordance with the terms of the Medical/Dental Plan as
applicable, and stand policies, procedures and practices;
(l) Investigate the COBRA Claims to the extent deemed necessary in
its best judgment; and
(m) Arrange for the payment of COBRA Claims in accordance with the
terms of the appropriate Medical/Dental Plan, standard policies,
procedures and practices.
<PAGE>
EXHIBIT F
COMPLIANCE SERVICES
F.0 General. the Compliance Services shall be limited to the
following services:
F.1 Compliance Services for Health and Welfare Plans. Manor shall:
(a) Assist Choice in the preparation of compliance and disclosure
documents pertaining to the Health and Welfare Plans, e.g., Plan
documents, Plan amendments, summary Plan descriptions, summaries
of material modifications, and summary annual reports;
(b) Assist Choice in the preparation of forms and disclosures
required by the Internal Revenue Service, the Department of Labor
and other regulatory agencies;
(c) Make recommendations and propose necessary amendments to Plan
documents and procedures for compliance with the Plan documents,
administrative procedures, ERISA and other applicable laws and
regulations; and
(d) Assist Choice to prepare for and respond to any government audit
or enforcement action with respect to the Health and Welfare
Plans.
<PAGE>
F.2 Compliance Services for Retirement Plans. Manor shall:
(a) Assist Choice in the preparation of compliance and disclosure
documents pertaining to the Retirement Plans, e.g., Plan
documents, Plan amendments, summary Plan descriptions, summaries
of material modifications, and summary annual reports;
(b) Assist Choice in the preparation of application for tax exempt
status for its Retirement Plans;
(c) Assist Choice in the preparation of forms and disclosures
required by the Internal Revenue Service, the Department of Labor
and other regulatory agencies;
(d) Make recommendations and propose necessary amendments to Plan
documents and procedures for compliance with the Plan documents,
administrative procedures, ERISA and other applicable laws and
regulations; and
(e) Assist Choice to prepare for and respond to any government audit
or enforcement action with respect to the Retirement Plans.
<PAGE>
F.3 Compliance Services for Stock Plans. Manor shall:
(a) Assist Choice in the preparation of compliance and disclosure
documents pertaining to the Retirement Plans, e.g., Plan
documents, Plan amendments, summary Plan descriptions, summaries
of material modifications, and summary annual reports;
(b) Assist Choice in the preparation of forms and disclosures
required by the Internal Revenue Service, the Department of Labor
and other regulatory agencies;
(c) Make recommendations and propose necessary amendments to Plan
documents and procedures for compliance with the Plan documents,
administrative procedures, ERISA and other applicable laws and
regulations; and
(d) Assist Choice to prepare for and respond to any government audit
or enforcement action with respect to the Retirement Plans.
<PAGE>
F.4 Compliance Services for Deferred Compensation Plans. Manor shall:
(a) Assist Choice in the preparation of compliance and disclosure
documents pertaining to the Deferred Compensation Plans, e.g.,
Plan documents, Plan documents, Plan amendments, summary Plan
descriptions, summaries of material modifications, and summary
annual reports;
(b) Assist Choice in the preparation of forms and disclosures
required by the Internal Revenue Service, the Department of Labor
and other regulatory agencies;
(c) Make recommendations and propose necessary amendments to Plan
documents and procedures for compliance with the Plan documents,
administrative procedures, ERISA and other applicable laws and
regulations; and
(d) Assist Choice to prepare for and respond to any government audit
or enforcement action with respect to the Deferred Compensation
Plans.
<PAGE>
EXHIBIT G
FIDUCIARY SERVICES
G.0 General. the Fiduciary Services shall be limited to the following
services:
G.1 Fiduciary Services for Health and Welfare Plans. Manor shall have
the discretionary authority to:
(a) Administer and pay claims for disability benefits; and
(b) Review final appeals of denied or disputed Claims and COBRA
Claims under the Health and Welfare Plans in accordance with the
terms of the Health and Welfare Plans, standard policies,
procedures and practices and make final decisions with respect
thereto, subject to Choice's approval.
<PAGE>
G.2 Fiduciary Services for Retirement Plans. Manor shall:
(a) Develop investment guidelines and evaluate money managers for
decision by the Retirement Committee;
(b) Review performance of each money manager selected and discuss
investment results and overall strategy with money manager;
(c) Hold periodic meetings with Choice's Retirement Committee and
prepare minutes of each meeting;
(d) Collect and implement participant direction regarding investment
selection;
(e) Arrange for the maintenance of custodial accounts for all
Retirement Plan assets;
(f) Develop procedures for and monitor asset transfers among funds;
(g) Reconcile plan assets to detailed participant accounts;
(h) arrange for the allocation of monthly earnings to participant
accounts;
(i) Prepare financial statements in accordance with generally
accepted accounting principles for Retirement Plans and obtain
annual audit;
(j) arrange for the performance of annual discrimination testing and
adjustment of participant accounts as instructed by the Plan
document;
(k) Administer Qualified Domestic Relations Orders, as defined in
Internal Revenue Code Section 414(p), plan loans, hardship
withdrawals, and beneficiary accounts;
(l) Have the discretionary authority to administer Claims for the
Retirement Plans; and
(m) Have the discretionary authority to review appeals of denied or
disputed Claims under the Retirement Plan in accordance with the
terms of the retirement plans, standard policies, procedures and
<PAGE>
practices and make final decisions with respect thereto, subject
to Choice's approval.
<PAGE>
G.3 Fiduciary Services for Stock Plans. Manor shall:
(a) Have the discretionary authority to administer awards for the
Stock Plans; and
(b) Have the discretionary authority to review appeals of denied or
disputed Claims under the Stock Plans in accordance with the
terms of the Stock Plans, standard policies, procedures and
practices and make final decisions with respect thereto, subject
to Choice's approval.
<PAGE>
G.4 Fiduciary Services for Deferred Compensation Plans. Manor shall:
(a) Have the discretionary authority to administer Claims for the
Deferred Compensation Plans; and
(b) Have the discretionary authority to review appeals of denied or
disputed Claims under the Deferred Compensation Plans in
accordance with the terms of the deferred compensation plans,
standard policies, procedures and practices and make final
decisions with respect thereto, subject to Choice's approval.
<PAGE>
SCHEDULE A
HEALTH AND WELFARE PLANS
Medical plans
Dental Plan
Group-Term Life
Pretax Spending Accounts
Hyatt Legal Services
Short-term Disability
Long-term Disability
Accidental Death & Dismemberment
Vacation Benefit
Sick Leave
<PAGE>
RETIREMENT PLANS STOCK PLANS
Choice Hotels International, Inc. Choice Hotels International, Inc.
Retirement Savings and Investment Plan Employee Stock Purchase Plan
Choice Hotels International, Inc. Non-Qualified
Retirement Savings and Investment Plan
Supplemental Executive Retirement Plan
<PAGE>
DEFERRED COMPENSATION PLANS
Deferred Compensation Plan
REVISED OCTOBER 1, 1996
<PAGE>
EMPLOYEE BENEFITS & OTHER EMPLOYMENT
MATTERS ALLOCATION AGREEMENT
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS............................................ 1
Section 1.01 Definitions............................................ 1
Aggregate Spread................................................ 1
Choice Business................................................. 1
Choice Individual............................................... 2
Code ....................................................... 2
Collective Bargaining Agreement................................. 2
Commission...................................................... 2
Common Stock.................................................... 2
(i) Employer Common Stock......................... 2
(ii) Manor Care Common Stock....................... 2
(iii) Choice Common Stock........................... 2
Company Matching Contribution................................... 2
Conversion Award................................................ 2
Current Plan Year............................................... 2
Cut-off Date.................................................... 2
Distribution Agreement.......................................... 2
Distribution Date............................................... 2
Employee ....................................................... 3
(i) Choice Employee............................... 3
(ii) Terminee...................................... 3
(iii) Retained Employee............................. 3
ERISA ....................................................... 3
HMO ....................................................... 3
IRS ....................................................... 3
Manor Care...................................................... 3
Manor Care Closing Stock Price.................................. 3
Manor Care Medical Plan......................................... 3
Manor Care Stock Option......................................... 3
Plan ....................................................... 4
Post-Conversion Stock Price..................................... 4
Prior Plan Year................................................. 4
Profit Sharing Plan............................................. 4
(i) Manor Care, Inc. Retirement Savings and
Investment Plan............................... 4
(ii) Choice Hotels International, Inc. Retirement
Savings and Investment Plan................... 4
Qualified Beneficiary........................................... 4
(i)
<PAGE>
(i) Manor Care Qualified Beneficiary.............. 4
(ii) Choice Qualified Beneficiary.................. 5
Retained Individual............................................. 5
Service Credit.................................................. 5
Subsidiary...................................................... 5
(i) Choice Subsidiary............................. 5
(ii) Retained Subsidiary........................... 5
Welfare Plans................................................... 5
Page
Section 1.02 Other Terms...................................... 5
Section 1.03 Certain Constructions............................ 5
Section 1.04 Schedules, Sections.............................. 6
Section 1.05 Survival......................................... 6
ARTICLE II EMPLOYEE BENEFITS..................................... 6
Section 2.01 Employment....................................... 6
(a) Allocation of Responsibilities on Distribution
Date............................................. 6
(b) Service Credits.................................. 6
(c) Funding Payment by Choice to Manor Care.......... 7
Section 2.02 Profit Sharing Plans............................. 7
(a) Manor Care, Inc. Retirement Savings and
Investment Plan.................................. 7
(b) Manor Care, Inc. Nonqualified Retirement
Savings and Investment Plan...................... 9
Section 2.03 Retirement Plans................................. 12
(a) Manor Care, Inc. Supplemental Executive Retirement
Plan............................................. 12
(b) Manor Care, Inc. Cash Accumulation Retirement
Plan.............................................. 13
(c) Manor Care, Inc. Deferred Compensation Plan....... 14
Section 2.04 Comprehensive Stock Plans......................... 16
(ii)
<PAGE>
(a) Manor Care, Inc. Non-Employee Director Stock
Option and Deferred Compensation Stock Purchase
Plan.............................................. 16
(b) Manor Care, Inc. 1996 Non-Employee Director Stock
Compensation Plan................................. 16
(c) Manor Care, Inc. Stock Grant Plans................ 17
(d) Manor Care Stock Option Plans..................... 18
(e) Manor Care, Inc. 1995 Employee Stock Purchase
Plan.............................................. 19
(f) Effect of the Distribution on Awards Made Prior to
the Cut-off Date.................................. 19
(g) Effect of Post-Distribution Transfer on Conversion
Awards............................................ 23
Section 2.05 Existing Manor Care Stock Purchase Plan........... 23
Page
Section 2.06 Manor Care Welfare Plans and Short-Term
Disability Plan................................... 24
(a) Liability for Claims.............................. 24
(b) Continuation Coverage Administration.............. 24
(c) Continuation Coverage Claims...................... 25
(d) Continuation of Sponsorship of Manor Care Welfare
Plans............................................. 25
(e) Welfare Plan Payments by Choice to Manor Care..... 25
(f) Continuation of Sponsorship of Manor Care, Inc.
Short-Term Disability Plan........................ 26
Section 2.07 Choice Welfare Plans and Short-Term Disability
Plan.............................................. 26
(a) Establishment of Choice Welfare Plans............. 26
(b) Liability for Claims.............................. 26
(c) Continuation Coverage Administration.............. 26
(d) Continuation Coverage Claims...................... 27
(e) Establishment of Choice Hotels International, Inc.
Short-Term Disability Plan........................ 27
Section 2.08 Vacation Pay and Sick Leave Liabilities........... 27
(a) Division of Liabilities........................... 27
(b) Post-Distribution Transfers....................... 28
(iii)
<PAGE>
Section 2.09 Employee Discounts............................... 28
Section 2.10 Preservation of Right To Amend or
Terminate Plans.................................. 28
Section 2.11 Reimbursement.................................... 29
Section 2.12 Payroll Reporting and Withholding................ 29
(a) Form W-2 Reporting............................... 29
(b) Forms W-4 and W-5................................ 29
(c) Garnishments, Tax Levies, Child Support
Orders, and Wage Assignments..................... 30
(d) Authorizations for Payroll Deductions............ 30
ARTICLE III LABOR AND EMPLOYMENT MATTERS........................... 30
Section 3.01 Separate Employers............................... 30
Section 3.02 Employment Policies and Practices................ 30
(iv)
<PAGE>
Page
Section 3.03 Collective Bargaining Agreements.................... 31
Section 3.04 Claims.............................................. 31
(a) Scope............................................... 31
(b) Employment-Related Claims........................... 31
(c) Obligation to Indemnify............................. 31
(d) Pre-Distribution Claims............................. 32
(e) Distribution and Other Joint Liability
Claims.............................................. 32
(f) Post-Distribution Employment-Related
Claims.............................................. 32
Section 3.05 Funding of Union Plans.............................. 32
Section 3.06 Notice of Claims.................................... 33
Section 3.07 Assumption of Unemployment Tax Rates................ 33
Section 3.08 Intercompany Service Charge......................... 33
Section 3.09 WARN Claims......................................... 33
Section 3.10 Employees on Leave of Absence....................... 33
Section 3.11 No Third Party Beneficiary Rights................... 34
Section 3.12 Attorney-Client Privilege........................... 34
ARTICLE IV DEFAULT................................................... 34
Section 4.01 Default............................................. 34
Section 4.02 Force Majeure....................................... 34
ARTICLE V MISCELLANEOUS.................................... 34
Section 5.01 Relationship of Parties............................. 34
Section 5.02 Access to Information; Cooperation.................. 34
Section 5.03 Assignment.......................................... 35
Section 5.04 Headings............................................ 35
Section 5.05 Severability of Provisions.......................... 35
Section 5.06 Parties Bound....................................... 35
Section 5.07 Notices............................................. 35
(v)
<PAGE>
Page
Section 5.08 Further Action...................................... 36
Section 5.09 Waiver.............................................. 36
Section 5.10 Governing Law....................................... 36
Section 5.11 Consent to Jurisdiction............................. 36
Section 5.12 Entire Agreement.................................... 36
Section 5.13 Commercially Reasonable Terms and
Conditions................................. 36
(vi)
<PAGE>
EMPLOYEE BENEFITS & OTHER EMPLOYMENT MATTERS
ALLOCATION AGREEMENT
THIS EMPLOYEE BENEFITS & OTHER EMPLOYMENT MATTERS ALLOCATION AGREEMENT
("Agreement") is made and entered into as of
, 1996, by and between CHOICE HOTELS HOLDINGS, INC., (to be
renamed Choice Hotels International, Inc.) a Delaware corporation ("Choice"),
and MANOR CARE, INC., a Delaware corporation ("Manor Care").
R E C I T A L S
WHEREAS, pursuant to a Distribution Agreement (the "Distribution
Agreement") dated as of ____________, 1996, as implemented in documents executed
or delivered by Choice and Manor Care in connection with the closing thereunder,
Choice and Manor Care have agreed to enter into an Employee Benefits & Other
Employment Matters Allocation Agreement with the terms and conditions set forth
herein pursuant to which Choice and Manor Care will each assume certain
liabilities and obligations, each generally with respect to its own employees,
to adopt or continue certain employee benefit, stock and retirement plans and
programs substantially equivalent to those provided by Manor Care on the
Distribution Date.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Manor Care and Choice agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. As used in this Agreement, the following
terms shall have the meanings indicated below:
Aggregate Spread: the difference between the exercise price of a Manor
Care Stock Option and the Manor Care Closing Stock Price, multiplied by the
number of shares covered by such Manor Care Stock Option remaining unexercised
on the Cut-off Date.
Choice Business: any business or operation of Manor Care or its
Subsidiaries which is, pursuant to the Distribution Agreement, to be conducted,
following the Distribution Date, by Choice or any Choice Subsidiary.
Choice Individual: any individual who (i) is a Choice Employee, or
(ii) is a beneficiary of any individual specified in clause (i).
<PAGE>
Code: the Internal Revenue Code of 1986, as amended, or any successor
legislation.
Collective Bargaining Agreement: any collective bargaining agreement
or other labor agreement to which Manor Care or any of its subsidiaries or
affiliates was a party on or before the Cut-off Date.
Commission: the Securities and Exchange Commission.
Common Stock: the common stock of Manor Care or Choice, as more
specifically described below:
(i) Employer Common Stock: Manor Care
Common Stock in the case of Retained Employees and Choice Common
Stock in the case of Choice Employees; or
(ii) Manor Care Common Stock: the common
stock, par value $0.10 per share, of Manor Care after the
Distribution Date; or
(iii) Choice Common Stock: the common stock,
par value [$1] per share, of Choice after the Distribution Date.
Company Matching Contribution: the Company Matching Contribution of
Manor Care under the Manor Care, Inc. Retirement Savings and Investment Plan (as
provided in the Manor Care Retirement Savings and Investment Plan document) and
the Manor Care, Inc. Nonqualified Retirement Savings and Investment Plan, each
as may be supplemented in the sole and absolute discretion of the Manor Care
Board of Directors.
Conversion Award: an award of Common Stock or of an option to acquire
Common Stock made to a Choice Individual or a Retained Individual to reflect the
effect of the Distribution on awards of Manor Care Common Stock or Manor Care
Stock Options held on the Cut-off Date, in accordance with Section 2.04.
Current Plan Year: the plan year or fiscal year, to the extent
applicable with respect to any Plan, during which the Distribution occurs.
Cut-off Date: the date immediately preceding the Distribution Date.
Distribution Agreement: the agreement described in the first recital
of this Agreement.
Distribution Date: the date on which the Distribution occurs.
- 2 -
<PAGE>
Employee: an individual who on the Distribution Date, is identified as
being in any of the following categories:
(i) Choice Employee: any individual who is
an Employee of Choice or any Choice Subsidiary on the
Distribution Date; or
(ii) Terminee: any individual formerly
employed by Manor Care or any Subsidiary of Manor Care who terminated such
employment prior to the Distribution Date, including but not limited to any
Manor Care employee who has retired prior to the Distribution Date; or
(iii) Retained Employee: any individual who
remains an Employee of Manor Care or any Retained Subsidiary on
the Distribution Date.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended, or any successor legislation.
HMO: any health maintenance organization organized under 42 U.S.C.
ss.300a-9, or a state health maintenance organization statute that provides
medical services for Retained Individuals or Choice Individuals under any Plan.
IRS: the Internal Revenue Service.
Manor Care: Manor Care, Inc., a Delaware corporation.
Manor Care Closing Stock Price: the New York Stock Exchange closing
price per share for Manor Care Common Stock on the Distribution Date, trading
regular way, with a due bill for the special dividend of Choice Common Stock to
be made in connection with the Distribution.
Manor Care Medical Plan: any welfare plan maintained by Manor Care (or
to which Manor Care makes contributions) which provides medical benefits,
including medical benefits provided through an HMO, an indemnity program or a
point of service program.
Manor Care Stock Option: an option to purchase Manor Care Common Stock
pursuant to an option granted under the Manor Care, Inc. Non-Employee Director
Stock Option and Deferred Compensation Stock Purchase Plan, the Manor Care, Inc.
1995 Long Term Incentive Plan, the Manor Care, Inc. Key Executive Stock Option
Plan, or the Manor Care, Inc. Key Executive Stock Option Plan of 1993.
- 3 -
<PAGE>
Plan: any plan, policy, arrangement, contract or agreement providing
compensation benefits for any group of Employees or former employees or any
individual Employee or former employee, or the dependents or beneficiaries of
any such Employee or former Employee, whether formal or informal or written or
unwritten, and including, without limitation, any means, whether or not legally
required, pursuant to which any benefit is provided by an employer to any
Employee or former employee or the beneficiaries of any such Employee or former
employee. The term "Plan" as used in this Agreement does not include any
contract, agreement or understanding entered into by Manor Care prior to the
Distribution Date or by Manor Care or Choice after the Distribution Date by
relating to settlement of actual or potential employee related litigation
claims.
Post-Conversion Stock Price: the per share price of Choice Common
Stock or Manor Care Common Stock on the Distribution Date, based on the Manor
Care Closing Stock Price and the when-issued closing price of Choice Common
Stock on the New York Stock Exchange on the Distribution Date.
Prior Plan Year: a plan year or fiscal year or portion thereof, to the
extent applicable with respect to any Plan, ending on or prior to the Cut-off
Date.
Profit Sharing Plan: a salary reduction contribution plan maintained
pursuant to Sections 401(a) and 401(k) of the Code for Employees and their
beneficiaries, as specifically identified using one of the categories described
below:
(i) Manor Care, Inc. Retirement Savings and
Investment Plan: the Manor Care, Inc. Retirement Savings and
Investment Plan and Trust as in effect on the Distribution Date;
or
(ii) Choice Hotels International, Inc. Retirement
Savings and Investment Plan: the Choice Hotels International,
Inc. Retirement Savings and Investment Plan and Trust as in
effect on the Distribution Date.
Qualified Beneficiary: an individual (or dependent thereof) who either
(1) experiences a "qualified event" (as that term is defined in Code Section
4980B(f)(3) and ERISA Section 603) while a participant in any Welfare Plan, or
(2) becomes a "qualified beneficiary" (as that term is defined in Code Section
4980B(g)(1) and ERISA 607(3)) under any Welfare Plan, and who is included in any
one of the following categories:
(i) Manor Care Qualified Beneficiary: any
Retained Employee (or dependent thereof) who becomes a Qualified Beneficiary on
or after the Distribution Date under any Manor Care Welfare Plan; or any
Retained Employee (or dependent
- 4 -
<PAGE>
thereof) who, on or before the Cut-off Date, was a Qualified Beneficiary under
any Manor Care Welfare Plan.
(ii) Choice Qualified Beneficiary: Any Choice
Employee (or dependent thereof) who becomes a Qualified Beneficiary on or after
the Distribution Date but before January 1, 1997 under any Manor Care Welfare
Plan; or any individual (or dependent thereof) who, on or before the Cut-off
Date, was a Qualified Beneficiary under any Manor Care Welfare Plan and who
became a Choice Employee after the Distribution Date.
Retained Business: any business or operation of Manor Care or its
Subsidiaries which is, pursuant to the Distribution Agreement, to be conducted,
following the Distribution Date, by Manor Care or any Retained Subsidiary.
Retained Individual: any individual who (i) is a Retained Employee, or
(ii) is a beneficiary of any individual described in clause (i).
Service Credit: the period taken into account under any Plan for
purposes of determining length of service to satisfy eligibility, vesting,
benefit accrual and similar requirements under such Plan.
Subsidiary: any corporation, a majority of whose capital stock with
voting power, under ordinary circumstances, to elect directors is, at the date
of determination, directly or indirectly owned by any person as to which a
determination of subsidiary status is to be made, including each of the
following categories:
(i) Choice Subsidiary: all subsidiaries of
Choice as of the Distribution Date; or
(ii) Retained Subsidiary: any subsidiary of Manor
Care, except Choice and the Choice Subsidiaries.
Welfare Plans: any welfare plan providing medical, dental, life,
pre-paid legal services, accidental death & dismemberment or long-term
disability benefits as set forth in Exhibit A. The term "Welfare Plan" does not
include any short-term disability program.
Section 1.02 Other Terms. Any capitalized terms used herein but not
defined herein shall have the meaning set forth in the Distribution Agreement.
Section 1.03 Certain Constructions. References to the singular in this
Agreement shall refer to the plural and vice-versa and references to the
masculine shall refer to the feminine and vice-versa.
- 5 -
<PAGE>
Section 1.04 Schedules, Sections. References to a "Schedule" are,
unless otherwise specified, to one of the Schedules attached to this Agreement,
and references to a "Section" are, unless otherwise specified, to one of the
Sections of this Agreement.
Section 1.05 Survival. Obligations described in this Agreement shall
remain in full force and effect and shall survive the Distribution Date.
ARTICLE II
EMPLOYEE BENEFITS
Section 2.01 Employment.
(a) Allocation of Responsibilities on Distribution Date. On
the Distribution Date, except to the extent retained or assumed by Manor Care
under this Agreement or any other agreement relating to the Distribution, Choice
shall retain or assume, as the case may be, responsibility as employer for the
Choice Employees. On the Distribution Date, except to the extent retained or
assumed by Choice under this Agreement or any other agreement relating to the
Distribution, Manor Care shall retain or assume, as the case may be,
responsibility as employer for the Retained Employees. The assumption or
retention of responsibility as employer by Manor Care or Choice described in
this Section 2.01 shall not, of itself, constitute a severance or a termination
of employment under any Plan of severance maintained by Manor Care.
(b) Service Credits. (i) Distribution Date transfers. In
connection with the Distribution and for purposes of determining Service Credits
(but excluding accrual of benefits other than vacation leave and sick leave)
under any Plans, Manor Care shall credit each Retained Employee and Choice shall
credit each Choice Employee with such Employee's original hire date as reflected
in the Manor Care payroll system records as of the Cutoff Date. Such hire date
shall continue to be maintained as described herein for as long as the Employee
does not terminate employment.
(ii) Post-Distribution Date terminations.
Subject to the provisions of ERISA and to Section 2.08(b) (governing
post-Distribution transfers through May 31, 1998), Choice may, in the case of
Choice Employees, and Manor Care may, in the case of Retained Employees, each in
its sole discretion, make such decisions as it deems appropriate with respect to
determining Service Credits and vacation and sick leave balances for such
Employees who terminate employment from the other company after the Distribution
Date.
- 6 -
<PAGE>
(c) Funding Payment by Choice to Manor Care. Choice shall make a
payment to Manor Care in an amount equal to 2.1% of Choice's aggregate payroll
for all Choice Employees with respect to the time period beginning on the
Distribution Date and ending on December 31, 1996. Such payment shall be made to
Manor Care on a monthly basis no more than ten (10) days after the end of each
month ending after the Distribution Date through December 31, 1996. In
consideration of receipt of such payments, Manor Care shall (i) assume
responsibility for all funding obligations attributable to the Manor Care, Inc.
Cash Accumulation Retirement Plan and (ii) assume responsibility for the Company
Matching Contribution attributable to the Current Plan Year under the Manor
Care, Inc. Retirement Savings and Investment Plan, the Manor Care, Inc.
Nonqualified Retirement Savings and Investment Plan, the Choice Hotels
International, Inc. Retirement Savings and Investment Plan, and the Choice
Hotels International, Inc. Nonqualified Retirement Savings and Investment Plan.
It is also agreed that Choice will be responsible for any incremental costs
associated with the establishment of the Choice Hotels International, Inc.
Retirement Savings and Investment Plan and the Choice Hotels International, Inc.
Nonqualified Retirement Savings and Investment Plan.
Section 2.02 Profit Sharing Plans.
(a) Manor Care, Inc. Retirement Savings and Investment Plan.
(i) Continuation of Sponsorship of Manor Care,
Inc. Retirement Savings and Investment Plan. Effective as of the Distribution
Date, Manor Care shall continue sponsorship of the Manor Care, Inc. Retirement
Savings and Investment Plan for all Retained Employees and Terminees.
Participants in such Plan who are Retained Employees or Terminees shall have a
one-time election to convert Choice Common Stock credited to their accounts into
cash or into Manor Care Common Stock.
(ii) Establishment of Choice Hotels International,
Inc. Retirement Savings and Investment Plan. On or before January 1, 1997,
Choice shall take, or cause to be taken, all action necessary and appropriate to
establish and administer a new Plan named the Choice Hotels International, Inc.
Retirement Savings and Investment Plan and Trust and to provide benefits
thereunder after the date of the establishment of such Plan and Trust for all
Choice Individuals who, immediately prior to the Distribution Date, were
participants in or otherwise entitled to benefits under the Manor Care, Inc.
Retirement Savings and Investment Sharing Plan. Manor Care will fund the Company
Matching Contribution required with respect to the Current Plan Year in
consideration for the payment by Choice of the Funding Payment described in
Section 2.01(c), above. Participants in such Plan shall have a one-time election
to convert transferred
- 7 -
<PAGE>
Manor Care Common Stock into cash or into Choice Common Stock. The Choice Hotels
International, Inc. Retirement Savings and Investment Plan shall be intended to
qualify for tax-favored treatment under Sections 401(a) and 401(k) of the Code
and to be in compliance with the requirements of ERISA.
(iii) Transfer and Acceptance of Account Balances.
As soon as practicable after the date of the establishment of the Choice Hotels
International, Inc. Retirement Savings and Investment Plan, Manor Care shall
cause the trustees of the Manor Care, Inc. Retirement Savings and Investment
Plan to transfer to the trustee or other funding agent of the Choice Hotels
International, Inc. Retirement Savings and Investment Plan the amounts (in cash,
securities, other property or a combination thereof) representing the account
balances of all Choice Individuals, said amounts to be established as account
balances or accrued benefits of such individuals under the Choice Hotels
International, Inc. Retirement Savings and Investment Plan. Each such transfer
shall comply with Section 414(l) of the Code and the requirements of ERISA and
the regulations promulgated thereunder. Choice agrees to cause the trustees or
other funding agent of the Choice Hotels International, Inc. Retirement Savings
and Investment Plan to accept the plan-to-plan transfer from the Manor Care,
Inc. Retirement Savings and Investment Plan trustees, and to credit the accounts
of such Choice Individuals under the Choice Hotels International, Inc.
Retirement Savings and Investment Plan with amounts transferred on their behalf.
Notwithstanding the foregoing, Manor Care and Choice agree that if, subsequent
to such transfer of account balances to the Choice Hotels International, Inc.
Retirement Savings and Investment Plan, a subsequent audit or other review
establishes that additional funds should be transferred to the Choice Hotels
International, Inc. Retirement Savings and Investment Plan from the Manor Care,
Inc. Retirement Savings and Investment Plan or that funds should be returned
from the Choice Hotels International, Inc. Retirement Savings and Investment
Plan to the Manor Care, Inc. Retirement Savings and Investment Plan, both
parties shall take all appropriate steps to effectuate the required transfer
between the trusts maintained for such plans.
(iv) Manor Care to Provide Information. Manor
Care shall provide Choice, as soon as practicable after the date of the
establishment of the Choice Hotels International, Inc. Retirement Savings and
Investment Plan (with the cooperation of Choice to the extent that relevant
information is in the possession of Choice or a Choice Subsidiary, and in
accordance with Section 5.02), with a list of Choice Individuals who, to the
best knowledge of Manor Care, were participants in or otherwise entitled to
benefits under the Manor Care, Inc. Retirement Savings and Investment Plan on
the Cut-off Date, together with a listing of each participant's Service Credits
under such Plan and a listing of each account balance thereunder. Manor Care
shall,
- 8 -
<PAGE>
as soon as practicable after the Distribution Date and in accordance with
Section 5.02, provide Choice with such additional information in the possession
of Manor Care or a Retained Subsidiary (and not already in the possession of
Choice or a Choice Subsidiary) as may be reasonably requested by Choice and
necessary for Choice or the Choice Subsidiary to establish and administer
effectively the Choice Hotels International, Inc.
Retirement Savings and Investment Plan.
(v) Regulatory Filings. Choice and Manor Care
shall, in connection with the plan-to-plan transfer described in Section
2.02(a)(iii), cooperate in making any and all appropriate filings required by
the Commission or the IRS, or required under the Code or ERISA or any applicable
securities laws and the regulations thereunder, and take all such action as may
be necessary and appropriate to cause such plan-to-plan transfer to take place
as soon as practicable after the date of the establishment of the Choice Hotels
International, Inc. Retirement Savings and Investment Plan or otherwise when
required by law. Further, Choice shall seek a favorable IRS determination letter
that the Choice Hotels International, Inc. Retirement Savings and Investment
Plan, as organized, satisfies all qualification requirements under Section
401(a) of the Code, and the transfers described in Section 2.02(a)(iii) shall
take place as soon as practicable after the receipt of such favorable IRS
determination letter. Notwithstanding the foregoing, such transfers may take
place pending issuance of such favorable determination letter, upon receipt of
an opinion of counsel for Choice reasonably satisfactory to Manor Care that the
aforesaid Plan so qualifies, or that it can be made to so qualify by retroactive
amendment, and that any such retroactive amendment shall not decrease the
accrued benefit of any participant in such Plan. Manor Care agrees to provide to
Choice's counsel such information in the possession of Manor Care or any
Retained Subsidiary as may reasonably be requested by Choice's counsel in
connection with the issuance of such opinion, in accordance with Section 5.02.
Manor Care and Choice shall each make any necessary amendments on a retroactive
basis to the Manor Care, Inc. Retirement Savings and Investment Plan or the
Choice Hotels International, Inc. Retirement Savings and Investment Plan,
respectively, as required by the IRS to issue the favorable determination letter
described above.
(b) Manor Care, Inc. Nonqualified Retirement Savings and Investment
Plan.
(i) Continuation of Sponsorship of Manor Care,
Inc. Nonqualified Retirement Savings and Investment Plan. On the
Distribution Date, Manor Care shall retain (or shall cause a
Retained Subsidiary to assume) sole responsibility for all
liabilities and obligations under the Manor Care, Inc.
Nonqualified Retirement Savings and Investment Plan, including
- 9 -
<PAGE>
the obligation to make a Company Matching Contribution for Retained Employees
and Choice Employees with respect to the Current Plan Year, and Choice shall
have no liability or obligation with respect thereto, except to pay to Manor
Care the Funding Payment described in Section 2.01(c), above. Participants in
such Plan who are Retained Employees or Terminees shall have a one-time election
to convert Choice Common Stock credited to their accounts into cash or into
Manor Care Common Stock.
(ii) Establishment of Choice Hotels International,
Inc. Nonqualified Retirement Savings and Investment Plan. On or before January
1, 1997, Choice shall take, or cause to be taken, all action necessary and
appropriate to establish and administer a new nonqualified retirement savings
and investment plan named the Choice Hotels International, Inc. Nonqualified
Retirement Savings and Investment Plan and to provide benefits thereunder after
the date of the establishment of such Plan and Trust for all Choice Employees
who immediately prior to the Distribution Date, were participants in or
otherwise entitled to benefits under the Manor Care, Inc. Nonqualified
Retirement Savings and Investment Plan. However, the obligation to make a
Matching Company Contribution for Choice Employees with respect to the Current
Plan Year shall be assumed by Manor Care in consideration of the payment by
Choice of the Funding Payment described in Section 2.01(c) above. Participants
in such Plan shall have a one-time election to convert transferred Manor Care
Common Stock into cash or into Choice Common Stock.
(iii) Transfer and Acceptance of Account Balances.
As soon as practicable after the date of the establishment of the Choice Hotels
International, Inc. Nonqualified Retirement Savings and Investment Plan, Manor
Care shall cause the trustee of the "rabbi" trust relating to the Manor Care,
Inc. Nonqualified Retirement Savings and Investment Plan to transfer to a
separate "rabbi" trust to be established by Choice with respect to the Choice
Hotels International, Inc. Nonqualified Retirement Savings and Investment Plan
the amounts (in cash, securities, other property or a combination thereof)
representing the account balances of all Choice Individuals who had account
balances in the "rabbi" trust relating to the Manor Care, Inc. Nonqualified
Retirement Savings and Investment Plan on the Cut-off Date, said amounts to be
established as account balances or accrued benefits of such individuals in the
"rabbi" trust established with respect to the Choice Hotels International, Inc.
Nonqualified Retirement Savings and Investment Plan. In addition, each Choice
Individual for whom an account balance in the rabbi trust established on behalf
of the Manor Care, Inc. Nonqualified Retirement Savings and Investment Plan is
transferred to a rabbi trust established on behalf of the Choice Hotels
International, Inc. Nonqualified Retirement Savings and Investment Plan shall be
required to execute a waiver which acknowledges that all liabilities for
- 10 -
<PAGE>
benefits accrued under the Manor Care, Inc. Nonqualified Retirement Savings and
Investment Plan through the date immediately preceding the date of the
establishment of the Choice Hotels International, Inc. Nonqualified Retirement
Savings and Investment Plan shall be assumed by Choice, except that Manor Care
shall remain liable, for a period of thirty (30) months following the
Distribution Date, for such benefits to the extent such amounts are not paid
when due by Choice.
(iv) Manor Care to Provide Information. Manor
Care agrees to provide Choice (to the extent not already in Choice's
possession), as soon as practicable after the date of the establishment of the
Choice Hotels International, Inc. Nonqualified Retirement Savings and Investment
Plan, with a list of Choice Individuals who were, to the best knowledge of
Choice, participants in or otherwise entitled to benefits under the Manor Care,
Inc. Nonqualified Retirement Savings and Investment Plan on the Cut-off Date,
together with a listing of each participant's Service Credits under such Plan
and a listing of each account balance thereunder. Manor Care shall, as soon as
practicable after the Distribution Date, in accordance with Section 5.02 provide
Choice with such additional information in the possession of Manor Care or a
Retained Subsidiary and not already in the possession of Choice or a Choice
Subsidiary as may reasonably be requested by Choice and necessary in order for
Choice or a Choice Subsidiary to administer effectively the Choice International
Hotels, Inc. Nonqualified Retirement Savings and Investment Plan.
(v) Benefit Guarantees. On and after the
Distribution Date, a Retained Employee's and Terminee's right, if any, to
receive benefits under the Manor Care, Inc. Nonqualified Retirement Savings and
Investment Plan shall be the responsibility of Manor Care. However, the payment
of any benefits due under the Manor Care, Inc. Nonqualified Retirement Savings
and Investment Plan for the first thirty (30) months following the Distribution
Date shall be guaranteed by Choice, to the extent not otherwise paid by Manor
Care. On and after the date of the establishment of the Choice Hotels
International, Inc. Nonqualified Retirement Savings and Investment Plan, a
Choice Individual's right to receive benefits under the Choice Hotels
International, Inc. Nonqualified Retirement Savings and Investment Plan shall be
the responsibility of Choice. However, the payment of any benefits due under the
Choice Hotels International, Inc. Nonqualified Retirement Savings and Investment
Plan which are attributable to the transferred accrued benefits earned under the
Manor Care, Inc. Deferred Compensation Plan shall be guaranteed by Manor Care
for the first thirty (30) months following the Distribution Date, to the extent
not otherwise paid by Choice.
- 11 -
<PAGE>
Section 2.03 Retirement Plans.
(a) Manor Care, Inc. Supplemental Executive Retirement Plan.
(i) Continuation of Sponsorship of Manor Care,
Inc. Supplemental Executive Retirement Plan. On the Distribution Date, Manor
Care shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all liabilities and obligations under the Manor Care, Inc.
Supplemental Executive Retirement Plan, and Choice shall have no liability or
obligation with respect thereto, except as defined in Section 2.03(a)(ii) below.
Manor Care shall provide future benefits thereunder accruing after the Cut-off
Date for Retained Employees and Terminees who, on the Cut-off Date, were
participants in or otherwise entitled to benefits under the Manor Care, Inc.
Supplemental Executive Retirement Plan.
(ii) Establishment of Choice Hotels International,
Inc. Supplemental Executive Retirement Plan. Effective as of the Distribution
Date, Choice shall take, or cause to be taken, all action necessary and
appropriate to establish and administer a new supplemental executive retirement
plan named the Choice Hotels International, Inc. Supplemental Executive
Retirement Plan and to provide benefits thereunder after the Distribution Date
for all Choice Employees who immediately prior to the Distribution Date, were
participants in or otherwise entitled to benefits under the Manor Care, Inc.
Supplemental Executive Retirement Plan.
(iii) Transfer and Acceptance of Account Balances.
As soon as practicable after the Distribution Date, Manor Care shall transfer to
Choice an amount (in cash, securities, other property or a combination thereof)
representing the present value of the full accrued benefit of all Choice
Employees who had earned a benefit in the Manor Care, Inc. Supplemental
Executive Retirement Plan on the Cut-off Date, said amounts to be established as
the initial accrued benefits of such individuals under the Choice Hotels
International, Inc. Supplemental Executive Retirement Plan. Manor Care and
Choice shall take such steps as may be necessary to obtain releases of Manor
Care from Choice Employees whose accrued benefits are transferred from the Manor
Care, Inc. Supplemental Executive Retirement to the Choice Hotels International,
Inc. Supplemental Executive Retirement Plan in accordance with this Section. In
addition, each Choice Individual for whom an accrued benefit under the Manor
Care, Inc. Supplemental Executive Retirement Plan has been assumed by the Choice
Hotels International, Inc. Supplemental Executive Retirement Plan shall be
required to execute a waiver which acknowledges that all liabilities for
benefits accrued under the Manor Care, Inc. Supplemental Executive Retirement
Plan through the date immediately preceding the Distribution Date shall be
- 12 -
<PAGE>
assumed by Choice, except that Manor Care shall remain liable, for a period of
thirty (30) months following the Distribution Date, for such benefits to the
extent such amounts are not paid when due by Choice.
(iv) Manor Care to Provide Information. Manor Care agrees to
provide Choice (to the extent not already in Choice's possession), as soon as
practicable after the Distribution Date, with a list of Choice Individuals who
were, to the best knowledge of Choice, participants in or otherwise entitled to
benefits under the Manor Care, Inc. Supplemental Executive Retirement Plan on
the Cut-off Date, together with a listing of each participant's Service Credits
under such Plan and a listing of such participant's accrued benefits thereunder.
Manor Care shall, as soon as practicable after the Distribution Date, in
accordance with Section 5.02 provide Choice with such additional information in
the possession of Manor Care or a Retained Subsidiary and not already in the
possession of Choice or a Choice Subsidiary as may reasonably be requested by
Choice and necessary in order for Choice or a Choice Subsidiary to administer
effectively the Choice International Hotels, Inc. Supplemental Executive
Retirement Plan.
(v) Benefit Guarantees. On and after the Distribution Date,
a Retained Employee's or a Terminee's right, if any, to receive benefits under
the Manor Care, Inc. Supplemental Executive Retirement Plan shall be the
responsibility of Manor Care. However, the payment of any benefits due under the
Manor Care, Inc. Supplemental Executive Retirement Plan for the first thirty
(30) months following the Distribution Date shall be guaranteed by Choice, to
the extent not otherwise paid by Manor Care. On and after the Distribution Date,
a Choice Individual's right to receive benefits under the Choice Hotels
International, Inc. Supplemental Executive Retirement Plan shall be the
responsibility of Choice. However, the payment of any benefits due under the
Choice Hotels International, Inc. Supplemental Executive Retirement Plan which
are attributable to the transferred accrued benefits earned under the Manor
Care, Inc. Deferred Compensation Plan shall be guaranteed by Manor Care for the
first thirty (30) months following the Distribution Date, to the extent not
otherwise paid by Choice.
(b) Manor Care, Inc. Cash Accumulation Retirement Plan. As of the
Distribution Date, Manor Care or a Retained Subsidiary shall assume or retain
sponsorship of and shall be solely responsible for all liabilities and
obligations in connection with the Manor Care, Inc. Cash Accumulation Retirement
Plan, and Choice and the Choice Subsidiaries shall have no such liability or
obligation, except for the payment to Manor Care of the Funding Payment
described in Section 2.01(c), above. Subject to the approval of the Board of
Directors of Manor Care, the
- 13 -
<PAGE>
Manor Care, Inc. Cash Accumulation Retirement Plan shall be frozen as to future
participation effective as of August 15, 1996 and shall be frozen as to future
benefit accruals as of December 31, 1996. Participants in the Manor Care, Inc.
Cash Accumulation Retirement Plan shall continue to earn Service Credits for
purposes of vesting. To the extent that additional contributions are required
for individuals who are participants in the Manor Care, Inc. Cash Accumulation
Retirement Plan on the Cut-off Date and who become Choice Employees, Manor Care
shall be solely responsible for all liabilities and obligations in connection
with such contributions.
(c) Manor Care, Inc. Deferred Compensation Plan.
(i) Continuation of Sponsorship of Manor Care,
Inc. Deferred Compensation Plan. On the Distribution Date, Manor Care shall
retain (or shall cause a Retained Subsidiary to assume) sole responsibility for
all liabilities and obligations under the Manor Care, Inc. Deferred Compensation
Plan, and Choice shall have no liability or obligation with respect thereto,
except as defined in Section 2.03(c)(ii) below. Manor Care shall provide future
benefits thereunder accruing after the Cut-off Date for Retained Employees,
individuals who are directors of Manor Care, and Terminees who, on the Cut-off
Date, were participants in or otherwise entitled to benefits under the Manor
Care, Inc. Deferred Compensation Plan.
(ii) Establishment of Choice Hotels International,
Inc. Deferred Compensation Plan. Effective as of the Distribution Date, Choice
shall take, or cause to be taken, all action necessary and appropriate to
establish and administer a new deferred compensation plan named the Choice
Hotels International, Inc. Deferred Compensation Plan and to provide benefits
thereunder after the Distribution Date for all Choice Employees who immediately
prior to the Distribution Date, were participants in or otherwise entitled to
benefits under the Manor Care, Inc. Deferred Compensation Plan, and for Choice
directors.
(iii) Transfer and Acceptance of Account Balances.
As soon as practicable after the Distribution Date, Manor Care shall transfer to
Choice the amounts (in cash, securities, other property or a combination
thereof) representing the account balances of all Choice Employees who had
account balances in the Manor Care, Inc. Deferred Compensation Plan on the
Cut-off Date, said amounts to be established as account balances or accrued
benefits of such individuals under the Choice Hotels International, Inc.
Deferred Compensation Plan. Manor Care and Choice shall take such steps as may
be necessary to obtain releases of Manor Care from Choice Employees whose
account balances are transferred from the Manor Care, Inc. Deferred Compensation
Plan to the Choice Hotels International, Inc. Deferred Compensation Plan in
accordance with this Section. In
- 14 -
<PAGE>
addition, each Choice Individual whose account balance under the Manor Care,
Inc. Deferred Compensation Plan has been transferred to the Choice Hotels
International, Inc. Deferred Compensation Plan shall be required to execute a
waiver which acknowledges that all liabilities for benefits accrued under the
Manor Care, Inc. Deferred Compensation Plan through the date immediately
preceding the Distribution Date shall be assumed by Choice, except that Manor
Care shall remain liable, for a period of thirty (30) months following the
Distribution Date, for such benefits to the extent such amounts are not paid
when due by Choice.
(iv) Manor Care to Provide Information. Manor
Care agrees to provide Choice (to the extent not already in Choice's
possession), as soon as practicable after the Distribution Date, with a list of
Choice Employees who were, to the best knowledge of Manor Care, participants in
or otherwise entitled to benefits under the Manor Care, Inc. Deferred
Compensation Plan on the Cut-off Date. Manor Care shall, as soon as practicable
after the Distribution Date, in accordance with Section 5.02 provide Choice with
such additional information in the possession of Manor Care or a Retained
Subsidiary and not already in the possession of Choice or a Choice Subsidiary as
may reasonably be requested by Choice and necessary in order for Choice or a
Choice Subsidiary to administer effectively the Choice Hotels International,
Inc. Deferred Compensation Plans.
(v) Benefit Guarantees. On and after the
Distribution Date, a Retained Employee's, Terminee's or Manor Care director's
right to receive benefits under the Manor Care, Inc. Deferred Compensation Plan
shall be the responsibility of Manor Care. However, the payment of any benefits
due under the Manor Care, Inc. Deferred Compensation Plan for the first thirty
(30) months following the Distribution Date shall be guaranteed by Choice, to
the extent not otherwise paid by Manor Care. On and after the Distribution Date,
a Choice Individual's right to receive benefits under the Choice Hotels
International, Inc. Deferred Compensation Plan shall be the responsibility of
Choice. However, the payment of any benefits due under the Choice Hotels
International, Inc. Deferred Compensation Plan which are attributable to the
transferred accrued benefits earned under the Manor Care, Inc. Deferred
Compensation Plan shall be guaranteed by Manor Care for the first thirty (30)
months following the Distribution Date, to the extent not otherwise paid by
Choice.
- 15 -
<PAGE>
Section 2.04 Comprehensive Stock Plans.
(a) Manor Care, Inc. Non-Employee Director Stock Option and Deferred
Compensation Stock Purchase Plan.
(i) Continuation of Sponsorship of Manor Care,
Inc. Non-Employee Director Stock Option and Deferred Compensation Stock Purchase
Plan. On the Distribution Date, Manor Care shall retain (or shall cause a
Retained Subsidiary to assume) sole responsibility for all liabilities and
obligations under the Manor Care, Inc. Non-Employee Director Stock Option and
Deferred Compensation Stock Purchase Plan for all non-employee directors of
Manor Care after the Distribution Date through the issuance of Conversion
Awards, subject to the stock adjustment provisions described in Section
2.04(f)(iii) and Section 2.04(f)(iv) below and the election procedures described
in Section 2.04(f)(v) and (vi) below, and Choice shall have no liability or
obligation with respect thereto. Notwithstanding the above, on the Distribution
Date, any Director of Manor Care who becomes a member of the Board of Directors
of Choice as of the Distribution Date and who holds an option to acquire Manor
Care Common Stock under the Manor Care, Inc. Non-Employee Director Stock Option
and Deferred Compensation Stock Purchase Plan will receive a Conversion Award in
exchange for such Manor Care Stock Options (i) with respect to which the
Aggregate Spread shall equal the Aggregate Spread attributable to such Manor
Care Stock Options, and (ii) with respect to which the Aggregate Spread shall be
proportionately allocated between options to acquire Manor Care Common Stock and
options to acquire Choice Common Stock based upon the relative trading values of
Manor Care and Choice on the Distribution Date.
(ii) Establishment of Choice Hotels International,
Inc. Non-Employee Director Stock Option and Deferred Compensation Stock Purchase
Plan. Effective as of the Distribution Date, Choice shall take, or cause to be
taken, all action necessary and appropriate to establish and administer a new
non-employee director stock option and deferred compensation stock purchase plan
named the Choice Hotels International, Inc. Non-Employee Director Stock Option
and Deferred Compensation Stock Purchase Plan and to provide benefits thereunder
after the Distribution Date for all non-employee Choice directors.
(b) Manor Care, Inc. 1996 Non-Employee Director Stock Compensation
Plan.
(i) Continuation of Sponsorship of Manor Care, Inc. 1996
Non-Employee Director Stock Compensation Plan. On the Distribution Date, Manor
Care shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all liabilities and obligations under the Manor Care, Inc.
1996 Non- Employee Director Stock Compensation Plan for all non-employee
directors of Manor Care after the Distribution Date through the
- 16 -
<PAGE>
issuance of Conversion Awards, subject to the stock adjustment provisions
described in Section 2.04(f) below, and Choice shall have no liability or
obligation with respect thereto.
(ii) Establishment of Choice Hotels International,
Inc. Non-Employee Director Stock Compensation Plan. Effective as of the
Distribution Date, Choice shall take, or cause to be taken, all action necessary
and appropriate to establish and administer a new non-employee director stock
compensation plan named the Choice Hotels International, Inc. Non-Employee
Director Stock Compensation Plan and to provide benefits thereunder after the
Distribution Date for all non-employee Choice directors.
(c) Manor Care, Inc. Stock Grant Plans.
(i) Continuation of Sponsorship of Manor Care,
Inc. Nursing Field Operations Stock Grant Plan for Key Management Employees. On
the Distribution Date, Manor Care shall retain (or shall cause a Retained
Subsidiary to assume) sole responsibility for all liabilities and obligations
under the Manor Care, Inc. Nursing Field Operations Stock Grant Plan for Key
Management Employees for all eligible key management employees eligible
thereunder after the Distribution Date, and Choice shall have no liability or
obligation with respect thereto.
(ii) Continuation of Sponsorship of Manor Care,
Inc. Restricted Stock Plan. On the Distribution Date, Manor Care shall retain
(or shall cause a Retained Subsidiary to assume) sole responsibility for all
liabilities and obligations under the Manor Care, Inc. Restricted Stock Plan for
Key Management Employees for all eligible key management employees eligible
thereunder after the Distribution Date, and Choice shall have no liability or
obligation with respect thereto. At such time as Manor Care stock is released
from restriction, Manor Care shall claim a compensation deduction for the
then-current value of such stock and shall cause the unrestricted shares of
Manor Care stock to be delivered directly to the Employee entitled to such
shares whether such Employee is currently employed by Manor Care or Choice.
(iii) Continuation of Sponsorship of Manor Care,
Inc. Hotel Franchise Operations Stock Grant Plan for Choice Hotels
International, Inc. Key Management Employees. On the Distribution Date, Manor
Care shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all liabilities and obligations under the Manor Care, Inc.
Hotel Franchise Operations Stock Grant Plan for Choice Hotels International,
Inc. Key Management Employees for all eligible key management employees eligible
thereunder after the Distribution Date, and Choice shall have no liability or
obligation with respect thereto. At such time as Manor Care stock is released
from restriction, Manor Care shall claim a compensation deduction
- 17 -
<PAGE>
for the then-current value of such stock and shall cause the unrestricted shares
of Manor Care stock to be delivered directly to the Employee entitled to such
shares, whether or not such Employee is employed by Manor Care or Choice.
(d) Manor Care Stock Option Plans.
(i) Continuation of Sponsorship of Manor Care,
Inc. 1995 Long Term Incentive Plan and Establishment of Choice Hotels
International, Inc. Long Term Incentive Plan. On the Distribution Date, Manor
Care shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all liabilities and obligations under the Manor Care, Inc.
1995 Long Term Incentive Plan for all Retained Employees and Terminees who are
participants in such Plan on the Distribution Date through the issuance of
Conversion Awards, subject to the stock adjustment provisions described in
Section 2.04(f) below, and Choice shall have no liability or obligation with
respect thereto. In addition, Conversion Awards shall be issued to all Choice
Employees who were participants in such Plan on the Cutoff Date in accordance
with Section 2.04(f). Issuance of a Conversion Award shall be conditioned upon
the execution of an appropriate release by the Choice Employee to whom the
Conversion Award is conveyed, which release shall acknowledge that such Choice
Employee's options to purchase Manor Care Common Stock are cancelled in
consideration of receipt of the Conversion Award. Effective as of the
Distribution Date, Choice shall take, or cause to be taken, all action necessary
and appropriate to establish and administer a new long term incentive plan named
the Choice Hotels International, Inc. Long Term Incentive Plan and to provide
benefits thereunder after the Distribution Date for all Choice officers and key
employees.
(ii) Continuation of Sponsorship of Manor Care,
Inc. Key Executive Stock Option Plan. On the Distribution Date, Manor Care shall
retain (or shall cause a Retained Subsidiary to assume) sole responsibility for
all liabilities and obligations under the Manor Care, Inc. Key Executive Stock
Option Plan for all Retained Employees and Terminees who are participants in
such Plan on the Distribution Date through the issuance of Conversion Awards,
subject to the stock adjustment provisions described in Section 2.04(f) below,
and Choice shall have no liability or obligation with respect thereto. In
addition, Conversion Awards shall be issued to all Choice Employees who were
participants in such Plan on the Cut-off Date in accordance with Section
2.04(f). Issuance of a Conversion Award shall be conditioned upon the execution
of an appropriate release by the Choice Employee to whom the Conversion Award is
conveyed, which release shall acknowledge that such Choice Employee's options to
purchase Manor Care Common Stock are cancelled in consideration of receipt of
the Conversion Award.
- 18 -
<PAGE>
(iii) Continuation of Sponsorship of Manor Care,
Inc. Key Executive Stock Option Plan of 1993. On the Distribution Date, Manor
Care shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all liabilities and obligations under the Manor Care, Inc.
Key Executive Stock Option Plan of 1993 for all Retained Employees and Terminees
who are participants in such Plan on the Distribution Date through the issuance
of Conversion Awards, subject to the stock adjustment provisions described in
Section 2.04(f) below, and Choice shall have no liability or obligation with
respect thereto. In addition, Conversion Awards shall be issued to all Choice
Employees who were participants in such Plan on the Cut-off Date in accordance
with Section 2.04(f). Issuance of a Conversion Award shall be conditioned upon
the execution of an appropriate release by the Choice Employee to whom the
Conversion Award is conveyed, which release shall acknowledge that such Choice
Employee's options to purchase Manor Care Common Stock are cancelled in
consideration of receipt of the Conversion Award.
(e) Manor Care, Inc. 1995 Employee Stock Purchase Plan.
(i) Continuation of Sponsorship of Manor Care,
Inc. 1995 Employee Stock Purchase Plan. On the Distribution Date, Manor Care
shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all liabilities and obligations under the Manor Care, Inc.
1995 Employee Stock Purchase Plan for all Retained Employees and Terminees who
are participants in such Plan on the Distribution Date, subject to the stock
adjustment provisions described in Section 2.04(f) below, and Choice shall have
no liability or obligation with respect thereto.
(ii) Establishment of Choice Hotels International,
Inc. Employee Stock Purchase Plan. Effective as of the Distribution Date, Choice
shall take, or cause to be taken, all action necessary and appropriate to
establish and administer a new stock purchase plan named the Choice Hotels
International, Inc. Employee Stock Purchase Plan and to provide benefits
thereunder after the Distribution Date for all Choice officers and key
employees.
(f) Effect of the Distribution on Awards Made Prior to the Cut-off
Date.
(i) Restricted Stock: After the Distribution
Date, the grantee of each restricted share of Manor Care Common
Stock awarded under the Manor Care, Inc. Nursing Field Operations
Stock Grant Plan for Key Management Employees, the Manor Care,
Inc. Restricted Stock Plan, the Manor Care, Inc. Hotel Franchise
- 19 -
<PAGE>
Operations Stock Grant Plan for Choice Hotels International, Inc. Key Management
Employees, or the Manor Care, Inc. 1995 Long Term Incentive Plan as of the
Cut-off Date shall retain such share, and shall receive as part of the
Distribution one restricted share of Choice Common Stock for each such
restricted share of Manor Care Common Stock. The restricted shares of Choice
Common Stock received as part of the Distribution will be subject to
restrictions identical to those applicable to the underlying restricted shares
of Manor Care Common Stock. In the case of Choice Employees, future service for
Choice will be treated as service for Manor Care for purposes of determining
satisfaction of the restrictions attributable to the Manor Care Common Stock and
Choice Common Stock. Restricted shares of Choice Common Stock awarded as part of
the Distribution shall be released from restrictions at the same time and on the
same schedule as the shares of Manor Care Common Stock retained, under the terms
of the restrictions to which the grantee's initial award was subject.
(ii) Substitution of Stock Options: Subject to
the provisions of Section 2.04(f)(v) and (vi), below, on the Distribution Date,
each grantee of a nonqualified award of a Manor Care Stock Option who is a
Retained Employee or Terminee shall receive for each such award a Conversion
Award, consisting of an option to purchase shares of Manor Care Common Stock
equal in number to the number of shares covered by the Manor Care Stock Option,
adjusted, however, pursuant to Section 2.04(f)(iv), below. On the Distribution
Date, each grantee of a Manor Care Stock Option awarded as an incentive stock
option who is a Retained Employee or Terminee shall automatically receive in its
place a Conversion Award of an option to purchase shares of Manor Care Common
Stock equal in number to the number of shares covered by the Manor Care Stock
Option, adjusted, however, pursuant to Section 2.04(f)(iv) below. Subject to the
provisions of Section 2.04(f)(v) and (vi), below, on the Distribution Date, each
grantee of a nonqualified award of a Manor Care Stock Option who is a Choice
Employee shall receive for each such award a Conversion Award, consisting of an
option to purchase shares of Choice Common Stock equal in number to the number
of shares covered by the Manor Care Stock Option, adjusted, however, pursuant to
Section 2.04(f)(iv) below. On the Distribution Date, each grantee of a Manor
Care Stock Option awarded as an incentive stock option who is a Choice Employee
shall automatically receive in its place a Conversion Award of an option to
purchase shares of Choice Common Stock equal in number to the number of shares
covered by the Manor Care Stock Option, adjusted, however, pursuant to Section
2.04(f)(iv) below. Notwithstanding the above, on the Distribution Date, each
Manor Care Stock Option held by Stewart Bainum, Jr., whether issued as an
incentive stock option or as a nonqualified stock option award, shall be
exchanged for a Conversion Award (i) with respect to which the Aggregate Spread
shall equal the Aggregate Spread attributable to
- 20 -
<PAGE>
such incentive stock option or nonqualified stock option award, as the case may
be, and (ii) with respect to which the Aggregate Spread shall be proportionately
allocated between options to acquire Manor Care Common Stock and options to
acquire Choice Common Stock based upon the relative trading values of Manor Care
and Choice on the Distribution Date.
(iii) Adjustment of Option Price: For purposes of
determining the adjusted option price of a Conversion Award replacing a Manor
Care Stock Option, the following formula shall be used to maintain the grantee's
Aggregate Spread on each outstanding grant of Manor Care Stock Options. The
Aggregate Spread on each such outstanding grant shall be maintained by setting
the adjusted option price to ensure that the difference between (1) the
aggregate total Post-Conversion Stock Price for each Conversion Award of an
option to acquire Manor Care Common Stock or Choice Common Stock, as the case
may be, and (2) the aggregate adjusted option exercise price for each such
Conversion Award, is equal to (3) the Aggregate Spread. In addition, the
adjusted option price of each Conversion Award of an option to acquire Manor
Care Common Stock or Choice Common Stock, as the case may be, shall be set to
maintain the ratio of the exercise price of each Manor Care Stock Option being
converted to the Post-Conversion Stock Price of the Common Stock purchasable
under the Conversion Award by ensuring that the aforesaid ratio shall equal the
ratio of (1) such adjusted option price for the Conversion Award to (2) the
Post-Conversion Stock Price of the Common Stock purchasable under the Conversion
Award (Manor Care Common Stock or Choice Common Stock, respectively).
(iv) Adjustment of Number of Shares Covered by
Options: In the case of Conversion Awards of nonqualified stock options or
incentive stock options to acquire shares of shares of Manor Care Common Stock
or Choice Common Stock, the total number of shares that may be acquired with
respect to each such company shall be adjusted as necessary to maintain the
Aggregate Spread and ratio described in Section 2.04(f)(iii).
(v) Special Election for Employees and Certain
Directors of Manor Care, Inc.: On or before the Cut-off Date, each holder of a
nonvested nonqualified option to acquire Manor Care Common Stock who is a direct
employee of Manor Care, Inc. or who is a non-employee Director of Manor Care who
does not become a member of the Board of Directors of Choice on the Distribution
Date shall make a one-time election with respect to such nonvested nonqualified
option, (1) to receive a Conversion Award which relates exclusively to nonvested
nonqualified options to acquire Common Stock of (i) Manor Care, in the case of a
non-employee Director and (ii) in all other cases, Common Stock of the entity
(Manor Care or Choice) of which such individual shall be an Employee on the
Distribution Date, or (2) to receive a Conversion Award with respect to which
(a) one-half of the
- 21 -
<PAGE>
Aggregate Spread relates to nonvested nonqualified options to acquire Common
Stock of (i) Manor Care, in the case of a non-employee Director and (ii) in all
other cases, Common Stock of the entity of which such individual shall be an
employee on the Distribution Date and (b) one-half of the Aggregate Spread is
proportionately allocated between nonvested nonqualified options to acquire
Manor Care Common Stock and nonvested nonqualified options to acquire Choice
Common Stock based upon the relative trading values of Manor Care and Choice on
the Distribution Date. A failure to make a timely election shall be deemed to
constitute an election to receive a Conversion Award of nonvested nonqualified
options relating solely to (i) Manor Care, in the case of a non-employee
Director and (ii) in all other cases, Common Stock of the entity of which such
individual shall become an Employee on the Distribution Date.
(vi) Special Election for Employees With Respect
to Vested Nonqualified Stock Options: On or before the Cut-off Date, each holder
of a vested nonqualified stock option to acquire Manor Care Common Stock who is
an Employeee or a non-employee Director of Manor Care who does not become a
member of the Board of Directors of Choice on the Distribution Date may make a
one-time election to specify the manner in which the Aggregate Spread
attributable to such vested nonqualified stock option shall be allocated between
a Conversion Award relating to vested nonqualified stock options to acquire
Manor Care Common Stock and a Conversion Award relating to vested nonqualified
stock options to acquire Choice Common Stock. With respect to an Employee who is
a holder of vested nonqualified stock options but who is not a direct employee
of Manor Care, Inc., such election shall relate to a selection between (1) a
Conversion Award which relates exclusively to vested nonqualified options to
acquire Common Stock of the entity for which such individual shall become an
Employee on the Distribution Date or (2) a Conversion Award pursuant to which
the Aggregate Spread is proportionately allocated between vested nonqualified
options to acquire Manor Care Common Stock and vested nonqualified options to
acquire Choice Common Stock based upon the relative trading values of Manor Care
and Choice on the Distribution Date. With respect to a holder of a vested
nonqualified stock option who is either a direct employee of Manor Care or who
is a non-employee Director of Manor Care who does not become a member of the
Board of Directors of Choice as of the Distribution Date, such election shall
relate to a selection between (1) a Conversion Award which relates exclusively
to vested nonqualified options to acquire Common Stock of (a) Manor Care, in the
case of a non-employee Director and (b) in all other cases, the entity for which
such individual shall become an Employee on the Distribution Date, (2) a
Conversion Award pursuant to which the Aggregate Spread is proportionately
allocated between vested nonqualified options to acquire Manor Care Common Stock
and vested nonqualified options to acquire Choice Common Stock based upon the
relative trading
- 22 -
<PAGE>
values of Manor Care and Choice on the Distribution Date, or (3) a Conversion
Award pursuant to which (a) no less than fifty percent (50%) of the Aggregate
Spread relates to vested nonqualified options to acquire Common Stock of (i)
Manor Care, in the case of a non-employee Director and (ii) in all other cases,
the entity of which such individual shall become an Employee on the Distribution
Date and (b) the remaining amount of the Aggregate Spread relates to vested
nonqualified options to acquire Common Stock of (i) Choice, in the case of a
non-employee Director or (ii) in all other cases, the entity (Manor Care or
Choice, as the case may be) of which such individual does not become an Employee
as of the Distribution Date. A failure to make a timely election with respect to
such vested nonqualified stock options shall be deemed to constitute an election
to receive a single Conversion Award of vested nonqualified options relating
solely to (i) Manor Care, in the case of a non-employee Director and (ii) in all
other cases, Common Stock of the entity of which such individual does become an
Employee on the Distribution Date.
(g) Effect of Post-Distribution Transfer on Conversion Awards.
Conversion Awards made pursuant to this Section 2.04 of shares of or options in
Manor Care Common Stock or Choice Common Stock shall be administered with
respect to any provisions relating to continuing employment requirements to give
Service Credit for service with the party employing the grantee as of the
Distribution Date (Manor Care in the case of Retained Employees and Choice in
the case of Choice Employees). Solely with respect to such Conversion Awards
(and not with respect to new awards made after the Cut-off Date), for purposes
of determining whether a termination of employment has occurred under the terms
of any provision requiring continued employment, termination of employment
through May 31, 1998 shall not be deemed to occur if an Employee leaves the
service of one party to immediately begin employment with the other party (i.e.,
leaving Manor Care employment to work for Choice, or leaving Choice employment
to work for Manor Care); the business operation or business unit from which such
Employee terminates employment shall promptly notify the administrator of the
Comprehensive Stock Plan of each party of the occurrence of any termination
subject to the provisions of this Section 2.04(g). Whichever party is the new
employer shall inform the former employer of any termination of employment of
such transferred Employee. Any termination of employment other than as described
in the preceding sentence shall be treated by applying the applicable provisions
of the Comprehensive Stock Plan relating to terminations of employment without
the modifications described in this paragraph.
Section 2.05 Existing Manor Care Stock Purchase Plan. The Manor Care
Stock Purchase Plan shall continue in effect after the Distribution Date and
payroll deductions for all eligible Plan participants who are Retained Employees
shall continue at the
- 23 -
<PAGE>
same levels after the Pre-Distribution Purchase Date until the earlier to occur
of: (i) final purchase of stock at the end of the Current Plan Year quarter in
which the Distribution Date occurs (the "Post-Distribution Purchase") or (ii)
the date the participant withdraws from said Plan. Choice shall assume all
obligations under said Plan with respect to Post-Distribution Purchases by
Choice Employees, who will have the right to acquire Choice Common Stock
substituted for their right to acquire Manor Care Common Stock. Retained
Employees will have the right to acquire Manor Care Common Stock in the
Post-Distribution Purchase. As soon as practicable after the Distribution Date,
Manor Care will transfer to the Choice Hotels International, Inc. Stock Purchase
Plan a cash amount equal to all contributions made to the Manor Care Stock
Purchase Plan by Choice Employees during the Current Plan Year quarter in which
the Distribution Date occurs, and such amounts will be used to purchase Choice
Common Stock on behalf of such Choice Employees after the end of the Current
Plan Year quarter in which the Distribution Date occurs.
Section 2.06 Manor Care Welfare Plans and Short-Term Disability Plan.
(a) Liability for Claims. Except as otherwise provided herein, as of
the Cut-off Date, Manor Care or a Retained Subsidiary shall assume or retain and
shall be responsible for, or cause its insurance carriers or HMOs to be
responsible for, all liabilities and obligations related to claims incurred
through December 31, 1996 in respect of any Employee (whether such claims are
asserted before or after December 31, 1996) under any Manor Care Welfare Plan
and shall be responsible for claims incurred after December 31, 1996 in respect
of any Retained Individual or Terminee under any Manor Care Welfare Plan, and
Choice and the Choice Subsidiaries shall have no liability or obligation with
respect thereto, except to make contributions to Manor Care in respect of such
coverage of Choice Individuals as provided below. Notwithstanding the foregoing,
with respect to the pre-tax medical and dependent care programs, Manor Care will
retain any funds remaining on January 1, 1997 to pay for any claims incurred
under such programs on or prior to December 31, 1996. After all such claims have
been paid, Manor Care shall be entitled to retain any remaining funds
attributable to the pre-tax medical and dependent care programs.
(b) Continuation Coverage Administration. As of the Distribution Date,
Manor Care or a Retained Subsidiary shall assume or retain and shall be solely
responsible for, or cause its insurance carriers or HMOs to be responsible for,
the administration of the continuation coverage requirements imposed by Code
Section 4980B and ERISA Sections 601 through 608 as they relate to any Manor
Care Qualified Beneficiary, and shall be responsible for the administration of
continuation coverage requirements for Choice Individuals through December 31,
1996,
- 24 -
<PAGE>
and Choice and the Choice Subsidiaries shall have no liability or obligation
with respect thereto.
(c) Continuation Coverage Claims. As of the Distribution Date, Manor
Care or a Retained Subsidiary shall assume or retain and shall be responsible
for, or cause its insurance carriers or HMOs to be responsible for, all
liabilities and obligations in connection with claims incurred or premiums owed
through December 31, 1996, whether asserted before or after December 31, 1996,
under any Manor Care Welfare Plan in respect of any Manor Care Qualified
Beneficiary or Choice Qualified Beneficiary and shall be responsible for claims
incurred or premiums owed after December 31, 1996 under any Manor Care Welfare
Plan in respect of any Manor Care Qualified Beneficiary, and Choice and the
Choice Subsidiaries shall have no liability or obligation with respect thereto.
(d) Continuation of Sponsorship of Manor Care Welfare Plans. As soon
as practicable after the date hereof and effective as of the Distribution Date,
Manor Care shall take, or cause to be taken, all action necessary and
appropriate to continue to administer the Manor Care Welfare Plans and to
provide benefits thereunder for all Retained Individuals and Manor Care
Qualified Beneficiaries who, immediately prior to the Distribution Date, were
participants in or otherwise entitled to benefits under the Manor Care Welfare
Plans and to provide benefits through December 31, 1996 to Choice Individuals.
Manor Care will assess Choice a monthly amount, described in Section 2.06(e)
below, to cover the projected costs of providing continued benefits to Choice
Individuals through December 31, 1996 under the Manor Care Welfare Plans. Choice
will provide Manor Care, as soon as practicable after the Distribution Date
(with the cooperation of Manor Care to the extent that relevant information is
in the possession of Manor Care or a Retained Subsidiary, and in accordance with
Section 5.02), with a list of individuals (and dependents thereof) employed by
Manor Care or any Retained Subsidiary who were, to the best knowledge of Choice,
participants in or otherwise entitled to benefits under the existing Manor Care
Welfare Plans immediately prior to the Distribution Date, together with a
listing of each such individual's Service Credits under such existing Plans and
a listing of each such individual's expenses incurred towards deductibles,
out-of-pocket limits, maximum benefit payments, and any benefit usage towards
plan limits thereunder.
(e) Welfare Plan Payments by Choice to Manor Care. Choice shall make
monthly payments to Manor Care in an amount equal to $216 multiplied by the
number of Choice Employees who are participants in a Manor Care Medical Plan
with respect to the time period beginning on the Distribution Date and ending on
December 31, 1996. Such payments shall be made to Manor Care on a monthly basis
no more than ten (10) days after the end of each
- 25 -
<PAGE>
month ending after the Distribution Date through December 31, 1996. In
consideration of receipt of such payments, Manor Care shall provide the services
and benefits described in Section 2.06. It is understood that Choice shall not
make any changes in any of the benefit structures attributable to the Manor Care
Welfare Plans and will not modify the procedures attributable to the
administration and implementation of the Manor Care Welfare Plans. It is also
agreed that Choice will be responsible for the funding of any costs attributable
to the design, implementation, enrollment, and administration of any Welfare
Plans established by Choice to provide coverage to Choice Employees subsequent
to December 31, 1996.
(f) Continuation of Sponsorship of Manor Care, Inc. Short-Term
Disability Plan. On the Distribution Date, Manor Care shall retain (or shall
cause a Retained Subsidiary to assume) sole responsibility for all benefit
payments due under the Manor Care, Inc. Short-Term Disability Plan with respect
to all Retained Employees and Terminees who are participants in such Plan on the
Distribution Date and Choice shall have no liability or obligation with respect
thereto.
Section 2.07 Choice Welfare Plans and Short-Term Disability Plan.
(a) Establishment of Choice Welfare Plans. As soon as practicable
after the date hereof and effective January 1, 1997, Choice shall take, or cause
to be taken, all action necessary and appropriate to establish the Choice
Welfare Plans and to provide benefits thereunder for all Choice Individuals who,
immediately prior to January 1, 1997, were participants in or otherwise entitled
to benefits under the Manor Care Welfare Plans. Each such individual shall, to
the extent applicable, for all purposes under the Plans established by Choice
(i) have coverage comparable to that provided immediately prior to the
Distribution Date and (ii) have no preexisting condition limitation imposed
other than that which is or was already imposed under the existing applicable
Manor Care Welfare Plans.
(b) Liability for Claims. As of January 1, 1997, Choice or a Choice
Subsidiary shall assume or retain and shall be responsible for, or cause its
insurance carriers or HMOs to be responsible for, all liabilities and
obligations in connection with claims incurred or premiums due on and after
January 1, 1997 in respect of any Choice Individual, and Manor Care and the
Retained Subsidiaries shall have no liability or obligation with respect
thereto.
(c) Continuation Coverage Administration. As of January 1, 1997,
Choice or a Choice Subsidiary shall assume or retain, as the case may be, and
shall be solely responsible for, or cause its insurance carriers or HMOs to be
responsible for,
- 26 -
<PAGE>
the administration of the continuation coverage requirements imposed by Code
Section 4980B and ERISA Sections 601 through 608 as they relate to any Choice
Qualified Beneficiary after December 31, 1996, and Manor Care and the Retained
Subsidiaries shall have no liability or obligation with respect thereto.
(d) Continuation Coverage Claims. As of the January 1, 1997, Choice or
a Choice Subsidiary shall be solely responsible for, or cause its insurance
carriers or HMOs to be responsible for, all liabilities and obligations
whatsoever in connection with claims incurred or premiums due on and after
January 1, 1997 under any Choice Welfare Plans (or successor thereto) in respect
of any Choice Qualified Beneficiary, and Manor Care and the Retained
Subsidiaries shall have no liability or obligation with respect thereto. Each
Choice Qualified Beneficiary shall, to the extent applicable, for all purposes
under the Plans provided by Choice (i) have coverage comparable that provided to
him or her immediately prior to the Distribution Date and (ii) have no
preexisting condition limitation imposed other than that which is or was already
imposed under the applicable existing Plan.
(e) Establishment of Choice Hotels International, Inc. Short-Term
Disability Plan. Effective as of the Distribution Date, Choice shall take, or
cause to be taken, all action necessary and appropriate to establish and
administer a new short-term disability plan named the Choice Hotels
International, Inc. Short-Term Disability Plan and to provide benefits
thereunder after the Distribution Date for all Choice Employees, including
Choice Employees who had incurred a disability prior to the Distribution Date
and who were receiving benefits prior to the Distribution Date under the Manor
Care, Inc. Short-Term Disability Plan.
Section 2.08 Vacation Pay and Sick Leave Liabilities.
(a) Division of Liabilities. Effective on the Distribution Date,
Choice shall assume, as to the Choice Employees, and Manor Care shall retain, as
to the Retained Employees, all accrued liabilities (whether vested or unvested,
and whether funded or unfunded) for vacation leave and sick leave in respect of
employees of Manor Care as of the Cut-off Date. Choice shall be solely
responsible for the payment of such vacation leave and sick leave to Choice
Employees after the Cutoff Date, and Manor Care shall be solely responsible for
the payment of such vacation leave and sick leave to Retained Employees after
the Cut-off Date. Each party shall provide to its own Employees on the
Distribution Date the same vested and unvested balances of vacation leave and
sick leave as credited to such Employee on the Manor Care payroll system on the
Cut-off Date, and shall continue to accrue vacation leave and sick leave in
respect of each such Employee from the Distribution Date at
- 27 -
<PAGE>
the same rate of accrual as accrued in respect of such individual by Manor Care
on the Cut-off Date.
(b) Post-Distribution Transfers. Through May 31, 1998, an Employee who
leaves the service of one party to immediately begin employment with the other
party (i.e., leaving Manor Care employment to work for Choice, or leaving Choice
employment to work for Manor Care) shall be provided by the new employer with
the same balance of vested and unvested vacation leave and sick leave hours as
had been accrued by the old employer through the termination date. The old
employer shall promptly notify the new employer in writing of the occurrence of
any termination subject to the provisions of this Section 2.08(b), and shall
make a payment to such new employer within thirty (30) days of the aforesaid
termination date in an amount equal to the value of the terminating Employee's
vested balance of vacation leave and sick leave accrued by the old employer
through such termination date, based on the Employee's final rate of pay with
the old employer. No payment shall be made by the old employer to the new
employer for any unvested leave balance.
Section 2.09 Employee Discounts. Employees of Choice shall be granted
discounts with Manor Care on the same terms and conditions as Manor Care
employee discounts, and employees of Manor Care shall be granted discounts with
Choice on the same terms and conditions as Choice employee discounts. Such
discounts shall be intended to qualify as a fringe benefit excludible from the
gross income of employees under Section 132(a) of the Code. This Agreement shall
constitute a reciprocal agreement between the parties within the meaning of
Section 132(h) of the Code, and the parties shall execute such further
documentation as may be required for tax purposes or as otherwise necessary to
effect such discounts. In accordance with Section 5.02, each party shall furnish
the other with such information as is necessary for the administration of the
aforesaid employee discount programs, including but not limited to information
on the utilization of the discounts by the employees of such other party. Each
party shall be solely responsible for any payroll taxes, excise taxes, corporate
income taxes or penalties attributable to the availability of discounts to or
utilization by its employees (whether or not such discounts qualify under
Section 132(a) of the Code), and the other party shall have no liability or
obligation with respect thereto.
Section 2.10 Preservation of Right To Amend or Terminate Plans. Except
as otherwise expressly provided in Article II, no provisions of this Agreement,
including, without limitation, the agreement of Manor Care or Choice, or any
Retained Subsidiary or Choice Subsidiary, to make a contribution or payment to
or under any Plan herein referred to for any period, shall be construed as a
limitation on the right of Manor Care or Choice or any Retained Subsidiary or
Choice Subsidiary to amend such Plan or terminate
- 28 -
<PAGE>
its participation therein which Manor Care or Choice or any Retained Subsidiary
or Choice Subsidiary would otherwise have under the terms of such Plan or
otherwise, and no provision of this Agreement shall be construed to create a
right in any employee or former employee, or dependent or beneficiary of such
employee or former employee under a Plan which such person would not otherwise
have under the terms of the Plan itself.
Section 2.11 Reimbursement. Manor Care and Choice acknowledge that
Manor Care and the Retained Subsidiaries, on the one hand, and Choice and the
Choice Subsidiaries, on the other hand, may incur costs and expenses, including,
but not limited to, contributions to Plans and the payment of insurance premiums
arising from or related to any of the Plans which are, as set forth in this
Agreement, the responsibility of the other party hereto. Accordingly, Manor Care
(and any Retained Subsidiary responsible therefor) and Choice (and any Choice
Subsidiary responsible therefor) shall reimburse each other, as soon as
practicable, but in any event within thirty (30) days of receipt from the other
party of appropriate verification, for all such costs and expenses.
Section 2.12 Payroll Reporting and Withholding.
(a) Form W-2 Reporting. Choice and Manor Care hereby adopt the
"alternative procedure" for preparing and filing IRS Forms W-2 (Wage and Tax
Statements), as described in Section 5 of Revenue Procedure 84-77, 1984-2 IRS
Cumulative Bulletin 753 ("Rev. Proc. 84-77"). Under this procedure Choice as the
successor employer shall provide all required Forms W-2 to all Choice
Individuals reflecting all wages paid and taxes withheld by both Manor Care as
the predecessor and Choice as the successor employer for the entire year during
which the Distribution takes place. Manor Care shall provide all required Forms
W-2 to all Retained Individuals reflecting all wages and taxes paid and withheld
by Manor Care before, on and after the Distribution Date.
In connection with the aforesaid agreement under Rev. Proc. 84-77,
each business unit or business operation of Manor Care shall be assigned to
either Manor Care or Choice, depending upon whether it is a Retained Business or
Choice Business, and each Retained Individual or Choice Individual associated
with such business unit or business operation shall be assigned for payroll
reporting purposes to Manor Care or Choice, as the case may be.
(b) Forms W-4 and W-5. Choice and Manor Care agree to adopt the
alternative procedure of Rev. Proc. 84-77 for purposes of filing IRS Forms W-4
(Employee's Withholding Allowance Certificate) and W-5 (Earned Income Credit
Advance Payment Certificate). Under this procedure Manor Care shall provide to
Choice as the successor employer all IRS Forms W-4 and W-5 on
- 29 -
<PAGE>
file with respect to each Choice Individual, and Choice will honor these forms
until such time, if any, that such Choice Individual submits a revised form.
(c) Garnishments, Tax Levies, Child Support Orders, and Wage
Assignments. With respect to Employees with garnishments, tax levies, child
support orders, and wage assignments in effect with Manor Care on the Cut-off
Date, Choice as the successor employer with respect to each Choice Individual
shall honor such payroll deduction authorizations and will continue to make
payroll deductions and payments to the authorized payee, as specified by the
court or governmental order which was filed with Manor Care.
(d) Authorizations for Payroll Deductions. Unless otherwise prohibited
by this or another agreement entered into in connection with the Distribution,
or by a Plan document, with respect to Employees with authorizations for payroll
deductions in effect with Manor Care on the Cut-off Date, Choice as the
successor employer will honor such payroll deduction authorizations relating to
each Choice Individual, and shall not require that such Choice Individual submit
a new authorization to the extent that the type of deduction by Choice does not
differ from that made by Manor Care. Such deduction types include, without
limitation, contributions to any Plan, U.S. Savings Bonds; scheduled loan
repayments to the Profit Sharing Plan; and Direct Deposit of Payroll, bonus
advances, union dues, employee relocation loans, and other types of authorized
company receivables usually collectible through payroll deductions.
ARTICLE III
LABOR AND EMPLOYMENT MATTERS
Notwithstanding any other provision of this Agreement or any other
Agreement between Choice and Manor Care to the contrary, Choice and Manor Care
understand and agree that:
Section 3.01 Separate Employers. On and after the Distribution Date
and the separation of Employees into their respective companies, Choice and
Manor Care will be separate and independent employers.
Section 3.02 Employment Policies and Practices. Subject to the
provisions of ERISA and Sections 2.01(b) on Service Credits and 2.04(e) and
2.08(b) governing post-Distribution transfers through May 31, 1998, Choice and
Manor Care may adopt, continue, modify or terminate such employment policies,
compensation practices, retirement plans, welfare benefit plans, and other
employee benefit plans of any kind or description, as
- 30 -
<PAGE>
each may determine, in its sole discretion, are necessary and
appropriate.
Section 3.03 Collective Bargaining Agreements. With regard to
employees of Manor Care covered by a Collective Bargaining Agreement on the
Cut-off Date who become Choice Employees or Retained Employees, Choice and Manor
Care promise and covenant to each other not to take any action which disrupts or
otherwise negatively impacts the labor relations of the other. Choice and Manor
Care will diligently work to substitute the appropriate employer for Manor Care
in Collective Bargaining Agreements.
Section 3.04 Claims.
(a) Scope. This Section is intended to allocate all liabilities for
employment-related claims involving Manor Care or Choice including, but not
limited to, claims against either or both Manor Care and Choice and their
officers, directors, agents and employees, or against or by their various
employee benefit plans and plan administrators and fiduciaries. In the event of
any conflicting provision of any agreement including, but not limited to,
management agreements for hotel properties, this Section 3.04 shall control the
allocation of liabilities for employment-related claims.
(b) Employment-Related Claims. An employment-related claim shall
include any actual or threatened lawsuit, arbitration, ERISA claim, or federal,
state, or local judicial or administrative proceeding of whatever kind involving
a demand by or on behalf of or relating to Retained Individuals or Choice
Individuals, or by or relating to a collective bargaining agent of Employees, or
by or relating to any federal, state or local government agency alleging
liability against Manor Care or Choice, or against any employee health, welfare,
deferred compensation or other benefit plan and their respective officers,
directors, agents, employees, administrators, trustees and fiduciaries.
(c) Obligation to Indemnify. The duty of a party to indemnify, defend
and hold harmless the other party under this Section 3.04 shall include the
following obligations of the party having such duty: to provide a legal defense
and incur all attorneys fees and litigation costs which may be associated with
such a defense; to pay all costs of settlement or judgment where the
indemnifying party has the full duty to do so or to pay the full percentage of
the party's share when the duty is only a percentage of the full settlement or
judgment; and to hold harmless from all claims and costs which may be asserted
with or arising from the duty of the indemnifying party to defend and indemnify.
- 31 -
<PAGE>
(d) Pre-Distribution Claims.
(i) Choice shall indemnify, defend and hold
harmless Manor Care from any employment-related claims of a Choice Individual
arising on or before the Cut-off Date.
(ii) Manor Care shall indemnify, defend and hold
harmless Choice from any employment-related claims of a Retained Individual
arising on or before the Cut-off Date.
(e) Distribution and Other Joint Liability Claims. Where
employment-related claims alleging or involving joint and several liability
asserted against Choice and Manor Care are not separately traceable to
liabilities relating to Choice Individuals or Retained Individuals, any
liability shall be apportioned between Choice and Manor Care in accordance with
the percentage that each party's Employees represents of the combined total
number of Employees of both parties, as described below. The percentage of the
liability assumed by Choice shall equal the ratio of (i) the total number of
Choice Employees on the Distribution Date, to (ii) the combined total number of
Choice Employees and Retained Employees on such date. The percentage of the
liability assumed by Manor Care shall equal the ratio of (i) the total number of
Manor Care Employees on the Distribution Date, to (ii) the combined total number
of Choice Employees and Retained Employees on such date. Each party will
indemnify, defend, and hold harmless the other to the extent of the indemnifying
party's apportioned percentage determined in accordance herewith.
(f) Post-Distribution Employment-Related Claims. Employment-related
claims arising after the Distribution and division of the Employees between the
parties and not relating to, arising from, or in connection with the
Distribution, will be the sole responsibility of Choice as to Choice Individuals
and of Manor Care as to Retained Individuals. Each Company will indemnify,
defend, and hold harmless the other from employment-related claims of the other
company.
Section 3.05 Funding of Union Plans. Without limitation to the scope
and application of Section 3.04, any claims by or on behalf of employees or
their collective bargaining agent or any federal, state or local governmental
agency for alleged under- funding of, or failure to make payments to, union
health, welfare and pension funds based on acts or omissions occurring on or
before the Distribution Date or arising from or in connection with the
Distribution, or resulting from actuarial recalculation by auditors of the union
plans and funds, will be the sole responsibility of each party as to its own
employees (i.e., Choice with respect to Choice Individuals, and Manor Care with
respect to Retained Individuals), and the responsible party will
- 32 -
<PAGE>
indemnify, defend, and hold harmless the other from any such
claims.
Section 3.06 Notice of Claims. Without limitation to the scope and
application to each party in the performance of its duties under Section 3.04
and 3.05 herein, each party will notify in writing and consult with the other
party prior to making any settlement of an employee claim, for the purpose of
avoiding any prejudice to such other party arising from the settlement.
Section 3.07 Assumption of Unemployment Tax Rates. Changes in state
unemployment tax experience from that of Manor Care as of the Cut-off Date shall
be handled as follows. In the event an option exists to allocate state
unemployment tax experience of Manor Care, the Manor Care experience shall be
transferred to Choice if this results in the lowest aggregate unemployment tax
costs for both Manor Care and Choice combined, and the Manor Care experience
shall be retained by Manor Care if this results in the lowest aggregate
unemployment tax costs for Manor Care and Choice combined.
Section 3.08 Intercompany Service Charge. Legal, professional,
managerial, administrative, clerical, consulting, and support or production
services provided to one party by personnel of the other party, upon the request
of the first party or when such services are otherwise required by this
Agreement between Choice and Manor Care, shall be charged to the party receiving
such services on commercially reasonable terms to be negotiated (or in
accordance with the provisions of any applicable agreement between the parties).
Section 3.09 WARN Claims. Before and after the Distribution Date, each
party shall comply in all material respects with the Worker Adjustment and
Retraining Act ("WARN"). Manor Care shall be responsible for WARN claims
relating to Retained Individuals or the Employees who prior to the Distribution
Date were employed in a Retained Business. Choice shall be responsible for WARN
Claims relating to Choice Individuals or to Employees who prior to the
Distribution Date were employed in a Choice Business. Each party shall
indemnify, defend and hold harmless the other in connection with WARN Claims for
which the indemnitor is responsible and which are brought against the
indemnitees.
Section 3.10 Employees on Leave of Absence. After the Distribution
Date, Choice shall assume responsibility, if any, as employer for all Employees
returning to Choice or a Choice Business from an approved leave of absence who
prior to the Distribution Date were employed in a Choice Business. After the
Distribution Date, Manor Care shall assume responsibility, if any, as employer
for all Employees returning to Manor Care or a
- 33 -
<PAGE>
Retained Business from an approved leave of absence who prior to the
Distribution Date were employed in a Retained Business.
Section 3.11 No Third Party Beneficiary Rights. Neither this Agreement
nor any other intercompany agreement between Choice and Manor Care is intended
to nor does it create any third party contractual or other common law rights. No
person shall be deemed a third-party beneficiary of the agreements between
Choice and Manor Care.
Section 3.12 Attorney-Client Privilege. The provisions herein
requiring either party to this Agreement to cooperate shall not be deemed to be
a waiver of the attorney/client privilege for either party nor shall it require
either party to waive its attorney/client privilege.
ARTICLE IV
DEFAULT
Section 4.01 Default. If either party materially defaults hereunder,
the non-defaulting party shall be entitled to all remedies provided by law or
equity (including reasonable attorneys' fees and costs of suit incurred).
Section 4.02 Force Majeure. Choice and Manor Care shall incur no
liability to each other due to a default under the terms and conditions of this
Agreement resulting from fire, flood, war, strike, lock-out, work stoppage or
slow-down, labor disturbances, power failure, major equipment breakdowns,
construction delays, accident, riots, acts of God, acts of United States'
enemies, laws, orders or at the insistence or result of any governmental
authority or any other delay beyond each other's reasonable control.
ARTICLE V
MISCELLANEOUS
Section 5.01 Relationship of Parties. Nothing in this Agreement shall
be deemed or construed by the parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
parties, it being understood and agreed that no provision contained herein, and
no act of the parties, shall be deemed to create any relationship between the
parties other than the relationship set forth herein.
Section 5.02 Access to Information; Cooperation. Manor Care and Choice
and their authorized agents will be given reasonable access to and may take
copies of all information
- 34 -
<PAGE>
relating to the subjects of this Agreement (to the extent permitted by federal
and state confidentiality laws) in the custody of the other party, including any
agent, contractor, subcontractor, agent or any other person or entity under the
contract of such party. The parties will provide one another with such
information within the scope of this Agreement as is reasonably necessary to
administer each party's Plans. The parties will cooperate with each other to
minimize the disruption caused by any such access and providing of information.
Section 5.03 Assignment. Neither party shall, without the prior
written consent of the other, have the right to assign any rights or delegate
any obligations under this Agreement.
Section 5.04 Headings. The headings used in this Agreement are
inserted only for the purpose of convenience and reference, and in no way define
or limit the scope or intent of any provision or part hereof.
Section 5.05 Severability of Provisions. Neither Manor Care nor Choice
intend to violate statutory or common law by executing this Agreement. If any
section, sentence, paragraph, clause or combination of provisions in this
Agreement is in violation of any law, such sections, sentences, paragraphs,
clauses or combinations shall be inoperative and the remainder of this Agreement
shall remain in full force and effect and shall be binding upon the parties.
Section 5.06 Parties Bound. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing herein, expressed or implied, shall be construed to
give any other person any legal or equitable rights hereunder.
Section 5.07 Notices. All notices, consents, approvals and other
communications given or made pursuant hereto shall be in writing and shall be
deemed to have been duly given when delivered personally or by overnight courier
or three days after being mailed by registered or certified mail (postage
prepaid, return receipt requested) to the named representatives of the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice, except that notices of changes of address shall be
effective upon receipt):
(a) if to Manor Care
MANOR CARE, INC.
11555 Darnestown Road
Gaithersburg, MD 20878-3200
Attention: GENERAL COUNSEL
- 35 -
<PAGE>
(b) if to Choice
CHOICE HOTELS INTERNATIONAL, INC.
10750 Columbia Pike
Silver Spring, MD 20901
Attention: GENERAL COUNSEL
Choice agrees that, upon the request of Manor Care, Choice will give copies of
all of its notices, consents, approvals and other communications hereunder to
any lender to Manor Care or other person specified by Manor Care.
Section 5.08 Further Action. Choice and Manor Care each shall
cooperate in good faith and take such steps and execute such papers as may be
reasonably requested by the other party to implement the terms and provisions of
this Agreement.
Section 5.09 Waiver. Choice and Manor Care each agree that the waiver
of any default under any term or condition of this Agreement shall not
constitute a waiver of any subsequent default or nullify the effectiveness of
that term or condition.
Section 5.10 Governing Law. All controversies and disputes arising out
of or under this Agreement shall be determined pursuant to the laws of the State
of Maryland, regardless of the laws that might be applied under applicable
principles of conflicts of laws.
Section 5.11 Consent to Jurisdiction. The parties irrevocably submit
to the exclusive jurisdiction of (a) the Courts of the State of Maryland,
Montgomery County, or (b) any federal district court in the State of Maryland
where there is federal jurisdiction for the purpose of any suit, action or other
Court proceeding arising out of this Agreement.
Section 5.12 Entire Agreement. This Agreement and the Distribution
Agreement constitute the entire understanding between the parties hereto, and
supersede all prior written or oral communications, relating to the subject
matter covered by said agreements. No amendment, modification, extension or
failure to enforce any condition of this Agreement by either party shall be
deemed a waiver of any of its rights herein. This Agreement shall not be amended
except by a writing executed by the parties.
Section 5.13 Commercially Reasonable Terms and Conditions. The terms
and provisions of this Agreement are intended to reflect commercially reasonable
terms and conditions (including, but not limited to, pricing) that are at least
as favorable and as competitive to Choice as the terms and conditions Manor Care
would grant or require of third parties for substantially similar goods and
services.
- 36 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MANOR CARE, INC., a
Delaware corporation
By:/s/ James H. Rempe
Name:James H. Rempe
Title:Senior Vice President
and Secretary
CHOICE HOTELS HOLDINGS, INC., a
Delaware corporation
By:/s/ James A. MacCutcheon
Name:James A. MacCutcheon
Title:Executive Vice President
and Chief Financial Officer
and Treasurer
- 37 -
<PAGE>
EXHIBIT A
HEALTH AND WELFARE PLANS
* Medical plans
* Dental Plan
* HMOs
* Group-Term Life
* Pretax Spending Accounts
* Hyatt Legal Services
* Long-term Disability
* Accidental Death & Dismemberment
OFFICE LEASE
by and between
CHOICE HOTELS HOLDINGS, INC.
a Delaware corporation (to be renamed Choice Hotels International, Inc.)
"Tenant"
and
Manor Care, Inc., a Delaware corporation
"Landlord"
at
11555 Darnestown Road
Gaithersburg, Maryland 20878-3200
<PAGE>
INDEX
Title Page #
Article I. Definitions and Certain Basic Provisions 1
Article II. Granting Clause 2
Article III. Rental 2
Article IV. Cafeteria and Fitness Center 5
Article V. Acceptance of theDemised Premises 5
Article VI. Uses and Care of Premises 5
Article VII. Landlord's Services 7
Article VIII. Alterations 8
Article IX. Landlord's Right of Access and Use 8
Article X. Signs 9
Article XI. Utilities 9
Article XII. Indemnity, Public Liability Insurance and
Fire and Extended Coverage Insurance 10
Article XIII. Tenant's Insurance 10
Article XIV. Non-Liability for Certain Damages 10
Article XV. Damage by Casualty 11
Article XVI. Eminent Domain 11
Article XVII. Assignment and Subletting 12
Article XVIII. Default by Tenant and Remedies 12
Article XIX. Holding Over 14
Article XX. Subordination and Attornment 15
Article XXI Estoppel Certificates 15
Article XXII. Notices 15
Article XXIII. Brokers 15
Article XXIV. Approval and Changes Required by Lender 16
Article XXV. Parking 16
Article XXVI. Waiver of Trial by Jury 16
Article XXVII. Furnishing of Financial Statements 16
Article XXVIII. Occupational and Environmental Compliance 16
Article XXIX. Miscellaneous 17
Article XXX. Attachments 19
Article XXXI. Status as Sublease 19
Article XXXII. Commercially Reasonable Terms and Conditions 19
<PAGE>
OFFICE LEASE
This Lease is entered into this ____ day of ______________ 1996, by and between
Manor Care, Inc., a Delaware corporation ("Landlord") and Choice Hotels
Holdings, Inc., a Delaware corporation (to be renamed Choice Hotels
International, Inc.) ("Tenant").
RECITALS:
A. Landlord is implementing a restructuring of itself in which,
among other things, it will distribute to its shareholders all
of the common stock of Tenant, pursuant to a Distribution
Agreement dated as of __________________, 1996, between
Landlord and Tenant (the "Distribution Agreement") as a result
of which Landlord and Tenant will become separate publicly
traded corporations.
B. Landlord has acquired an office building in Gaithersburg,
Maryland, as its new corporate headquarters. Landlord and
Tenant desire to provide in this Lease for the occupancy by
Tenant, after said stock distribution, of premises in said
office building.
C. Landlord and Tenant each have determined that the rental and
other terms and conditions of this Lease are commercially
reasonable, based upon market conditions in the Gaithersburg,
Maryland area.
Article I. Definitions and Certain Basic Provisions.
1.1
(a) "Landlord": Manor Care, Inc,
a Delaware corporation
(b) "Landlord's Address": 11555 Darnestown Road
Gaithersburg, Maryland 20878-3200
Attn.: General Counsel
(Re: Real Estate)
(c) "Tenant": Choice Hotels Holdings, Inc., a
Delaware corporation (to be renamed Choice
Hotels International, Inc.)
(d) "Tenant's Address": 10750 Columbia Pike
Silver Spring, Maryland 20910
Attn.: General Counsel
(Re: Real Estate)
(e) "Complex" shall refer to the complex of two buildings having an
address of 11555 Darnestown Road, Gaithersburg, Montgomery County, Maryland,
consisting of: (i) an office building with approximately 377,126 gross square
feet of space (hereinafter the "Office Building"); and (ii) a warehouse and
distribution building with approximately 200,000 gross square feet of space
(hereinafter the "Warehouse Building"). A plan of the Complex is attached hereto
as Exhibit A.
(f) "Demised Premises": approximately 100,000 gross square feet of
office space in the Office Building, more particularly shown in the plan
attached hereto as Exhibit B. Landlord and Tenant acknowledge that portions of
the Demised Premises are currently leased by Landlord to National Geographic
Society, a District of Columbia non-profit corporation ("National Geographic")
under an Office Lease Agreement dated August 30, 1995 (the "National Geographic
Lease"). The term of the National Geographic Lease expires on August 31, 1997
(the "National Geographic Termination Date," as it may be changed by mutual
agreement of Landlord and National Geographic). However, pursuant to Article 41
of the National Geographic Lease, National Geographic has the right to terminate
the National Geographic Lease as to the entire premises leased therein or
portions thereof and surrender such space to Landlord. Accordingly, Landlord and
Tenant hereby agree that
1
<PAGE>
(i) prior to the National Geographic Termination Date, the Demised Premises
shall consist of the 100,000 gross square feet of space shown on Exhibit B
hereto, less those portions of such space leased to and not surrendered by
National Geographic under the National Geographic Lease; and (ii) from and after
the National Geographic Termination Date, the Demised Premises shall consist of
the entire 100,000 gross square feet of space leased hereunder. Either party may
elect at its expense to have the rentable area of the Demised Premises measured
by Landlord's architect in accordance with the Washington Board of Realtors
Standard Floor Area Measure, and to have this Lease amended to state the
rentable area of the Demised Premises as so measured. Landlord further reserves
the right in its sole and unreviewable discretion to relocate Tenant to
comparable premises in the Office Building, upon sixty (60) days prior written
notice to Tenant.
(g) "Lease Term": The period of time commencing from the
Commencement Date, as defined below, and terminating thirty (30) months after
such Commencement Date, unless such termination date is other than the last day
of a calendar month, in which event this Lease shall terminate on the last day
of the calendar month in which such date falls. Landlord shall give Tenant prior
written notice of the proposed sale of the Complex or any building therein.
Either party may elect to terminate this Lease effective as of the date of such
sale by written notice given to the other party within thirty (30) days after
Tenant's receipt of such notice of sale.
[GRAPHIC OMITTED]
(h) "Lease Year": In the case of the first Lease Year, that period
from the Commencement Date to May 31, 1997. Thereafter, "Lease Year" shall mean
each successive twelve (12) month period from June 1 to May 31 following the
expiration of the first Lease Year, except that the last Lease Year shall be the
period from June 1 to the termination date of this Lease.
(i) "Commencement Date": the Distribution Date under the Distribution
Agreement. If the Commencement Date does not occur prior to May 31, 1997, either
Landlord or Tenant may terminate this Lease by written notice to the other
party.
(j) "Annual Base Rent": See Section 3.1
(k) "Permitted Use": General Office Use.
Article II. Granting Clause.
2.1. In consideration of the obligation of Tenant to pay rent and other
charges as provided in this Lease and in consideration of the other included
terms, covenants and conditions, Landlord Demises and Leases to Tenant, and
Tenant Leases from Landlord, the Demised Premises as described in Article I,
Section 1.1(f) TO HAVE AND TO HOLD said premises for the Lease Term specified in
Article I, Section 1.1(g), all upon the terms and conditions set forth in this
Lease. Landlord expressly reserves the right to name or change the name of the
Complex or any building therein without notice to the Tenant.
Article III. Rental
3.1 Base Rent. Tenant shall pay to Landlord monthly rental installments
in an amount equal to 1/12th of the Annual Base Rent (as hereinafter defined) in
advance, without demand, deduction, counterclaim or offset, and without relief
from valuation and appraisement laws or any other deduction for any reason
whatsoever, on or before the first day of each and every calendar month during
the term of this Lease; provided, however, that if the Commencement Date shall
be on a day other than the first day of the calendar month or the expiration
date shall be a day other than the last day of the calendar month, the monthly
rental installment for such first or last fractional month shall be prorated on
the basis of the number of days during the month this Lease was in effect in
relation to the total number of days in such month.
Annual Base Rent for each Lease Year shall be calculated in accordance
with the following formula:
Annual Base Rent =
(1- Manor Care Occupancy
Percentage) x (Operating Expenses - Third Party Rental Income)
2
<PAGE>
Capitalized terms used in said formula shall have the meanings given to them in
Section 3.2 below.
At Landlord's sole discretion, at any time and from time to time during
the term of this Lease upon written notice to Tenant, Landlord may elect that
instead of using the aforesaid formula to calculate Annual Base Rent, Annual
Base Rent shall be the number of square feet of space in the Demised Premises
times the "Alternate Rent" as hereinafter defined. The Alternate Rent shall be
the annual fair market rental value per square foot for the Demised Premises in
their "as is" condition for the remaining Lease Term as reasonably determined by
Landlord based on quoted rental rates at comparable office buildings in the
Gaithersburg, Maryland area. Should Landlord so elect, the parties will enter
into an amendment to this Lease establishing the new Annual Base Rent and
providing that Tenant shall pay its pro rata share (based on the ratio of the
number of square feet in the Demised Premises to the number of square feet of
office space in the Complex) of increases in real estate taxes and operating
expenses over a base year, with the terms "real estate taxes", "operating
expenses" and "base year" being defined consistent with the definitions of such
terms in leases of space in the Complex to tenants unrelated to Landlord.
3.2 Definitions. For the purpose of this Lease, the following
definitions shall apply:
(a) "Manor Care Occupancy Percentage" shall mean the ratio of
(i) the number of gross square feet in the Complex occupied by Manor Care, Inc.,
a Delaware corporation, or any person or entity which directly or indirectly
controls, is controlled by, or is under common control with, Manor Care, Inc.,
as of the commencement of the Lease Year in question; to (ii) the total number
of gross square feet in the Complex, as the Complex may be altered or enlarged
in Landlord's discretion from time to time. The parties agree that as of the
Commencement Date the total number of gross square feet in the Complex is
577,126, consisting of 377,126 square feet in the Office Building, and 180,000
square feet of storage space plus an additional 20,000 square feet of office
space in the Warehouse Building. For purposes of the preceding sentence, (and
also for purposes of Sections 3.2(c) and 17.1 of this Lease) in order for an
entity to control another, it must have voting control of and own greater than
fifty percent (50%) of every class of stock entitled to vote and/or other voting
equity interest of the other entity, in the case that the other entity is a
corporation; it must own greater than fifty percent (50%) of the partnership
interests in the assets, liabilities, income, loss and distributions of the
other entity, in the case that the other entity is a partnership; it must be the
sole beneficiary of the other entity, in the case that the other entity is a
trust. The parties further agree that as of the Commencement Date, Manor Care,
Inc. occupies 162,111 gross square feet in the Complex.
(b) "Operating Expenses" shall mean any and all expenses
incurred by Landlord in connection with the servicing, operation, maintenance
and repair of the Complex and related appurtenances, including, but not limited
to: (1) wages and salaries of all employees engaged in operation, maintenance,
or security of the Complex including taxes, insurance and benefits relating
thereto; (2) all supplies and materials used in operation, maintenance or
security of the Complex; (3) cost of all maintenance and service agreements for
the Complex and the equipment therein, including but not limited to security and
energy management services, window cleaning and elevator maintenance; (4) cost
of all insurance relating to the Complex including the cost of casualty and
liability insurance applicable to the Complex and Landlord's personal property
used in connection therewith; (5) cost of repairs and general maintenance,
whether structural or non-structural, but excluding repairs and general
maintenance paid with proceeds of insurance or by Tenant or third parties; (6) a
management fee for the manager of the Complex, who may be Landlord or an
affiliate of Landlord; (7) the cost of any additional services provided to the
Complex by or on behalf of the Landlord in the prudent management of the
Complex; (8) the cost of any capital improvements or alterations made to the
Complex after the Commencement Date (and the entire cost of such capital
improvements shall be included in Operating Expenses in the Lease Year in which
such cost was paid or incurred), but excluding all costs of Landlord's initial
"build-out" to prepare portions of the Office Building for Landlord's occupancy
(except for the costs of installing building security equipment and a traffic
signal on Darnestown Road, which shall be included in Operating Expenses); (9)
leasing commissions, free rent, lease takeover obligations and other
inducements, costs, disbursements and expenses incurred in connection with
leasing space at the Complex; (10) costs incurred in constructing, improving,
renovating or decorating rented space or space for tenants; (11) costs of
environmental inspection, testing or cleanup; (12) payments of principal,
interest, and other costs relating to indebtedness secured by mortgages or deeds
of trust against the Complex or any portion
3
<PAGE>
thereof; (13) costs incurred in leasing equipment, including air conditioning
systems, elevators, or other equipment ordinarily considered to be of a capital
nature; (14) depreciation and amortization of the buildings and improvements in
the Complex, in accordance with generally accepted accounting principles ;(15)
security services; (16) trash collection; (17) janitorial and cleaning services;
(18) all charges of utility companies or governmental entities for electricity,
water, sewer, gas or other utilities (excluding telephone) supplied to the
Complex; (19) taxes, assessments and governmental charges of any kind and nature
whatsoever (hereinafter collectively referred to as "Taxes") levied or assigned
against the Complex or any part thereof, and all expenses incurred by Landlord
in attempting to protest, reduce or minimize Taxes; (20) ground rents, and
payments under any financing leases of the Complex or any portion thereof
(including Landlord's existing lease agreement with the Gaithersburg Realty
Trust); (21) any operating loss resulting from Landlord's operation of a
cafeteria or fitness center in the Complex; (22)costs of the "employee store"
and other services provided by the "Employee Service Center" at the Complex; and
(23) costs of mailroom/shipping and receiving services provided by Landlord.
(c) "Third Party Rental Income" shall mean all rental income actually
received by Landlord from tenants or occupants (excluding Tenant) of space in
the Complex during the Lease Year in question (including National Geographic),
other than any person or entity which controls, is controlled by, or is under
common control with, Manor Care, Inc.
3.3 As part of the rental arrangements between Landlord and Tenant,
Tenant has specifically reviewed, approved, and agreed to pay as herein
provided, each and every item in the foregoing definition of Operating Expenses.
3.4 PAYMENT OBLIGATION:
(a) Annual Base Rent shall be paid by Tenant to Landlord in
advance, in equal monthly installments, in an estimated amount reasonably
determined by Landlord prior to the commencement of the first Lease Year and
each subsequent Lease Year . (Landlord may revise its estimate at any time
during a Lease Year). Within a reasonable time following the end of each Lease
Year, Landlord shall submit to Tenant a statement which shall include a
comparison of (i) the Annual Base Rent therefore paid by Tenant for the Lease
Year in question on the basis of Landlord's estimate, and (ii) Tenant's actual
obligation for Annual Base Rent for the Lease Year in question as determined by
Landlord. Any excess paid by Tenant, as disclosed by such comparison, shall be
credited against Tenant's next due installment(s) of Annual Base Rent, and any
additional sums disclosed by such comparison as being due to Landlord by Tenant
shall be paid to Landlord within thirty (30) days following delivery to Tenant
of such statement (including any statement delivered after the expiration or
termination of the Term). However, for the Lease Year during which the term of
this Lease ends, any excess paid by Tenant to Landlord and due to Tenant shall
be promptly refunded to Tenant.
(b) Tenant or its accountants shall have the right to inspect,
at reasonable times and in a reasonable manner and at the Landlord's offices or
such other place designated by Landlord, during the thirty (30) day period
following the delivery of Landlord's statement of the actual amount of Tenant's
Annual Base Rent for a particular Lease Year, such of Landlord's books of
account and records as pertain to and contain information concerning the
Operating Expenses, the Manor Care Occupancy Percentage and Third Party Rental
Income in order to verify the amounts thereof. In the event Tenant elects not to
inspect Landlord's books of account and records during said thirty (30) day
period, such election or failure to inspect shall constitute Tenant's
unconditional waiver of any and all rights to inspect Landlord's books of
account and records for the subject period and Tenant shall be forever [GRAPHIC
OMITTED]estopped from challenging or questioning the amount of its Annual Base
Rent for said period. In the event of any disagreement or dispute between Tenant
and Landlord concerning Landlord's statement, the decision of Landlord's Chief
Financial Officer shall be final and unreviewable.
3.5 Tenant shall be liable for all taxes levied against personal
property and trade fixtures placed by Tenant on the Complex. If any such taxes
are levied against Landlord or Landlord's property, and if Landlord elects to
pay the same or if the assessed value of Landlord's property is increased by
inclusion of personal property and trade fixtures placed by Tenant on the
property and Landlord elects to pay the taxes based on such increase, Tenant
shall pay to Landlord as additional rent hereunder, upon demand, the amount of
such taxes paid by Landlord.
4
<PAGE>
3.6 If at any time during the term of this Lease, the present method of
taxation shall be changed so that in lieu of the whole or any part of any taxes,
assessments, levies, or charges levied, assessed or imposed on the Complex there
shall be levied, assessed or imposed on Landlord a capital levy or other tax
directly on the rents received therefrom and/or a franchise tax assessment, levy
or charge measured by or based, in whole or in part, upon such rents on the
present or any future building or buildings in the Complex, then all such taxes,
assessments, levies or charges, or the part thereof so measured or based, shall
be deemed to be included within the term "Taxes" for the purposes hereof.
3.7 Late Charge. In the event Tenant fails to pay to Landlord, when
due, any installment of rental or other sum to be paid to Landlord which may
become due in this Lease, Landlord will [GRAPHIC OMITTED]incur additional
expenses in an amount not readily ascertainable and which has not been elsewhere
provided for between Landlord and Tenant. If Tenant should fail to pay to
Landlord, when due, any installment of rental or other sum to be paid hereunder,
such unpaid amount shall bear interest from the due date thereof to the date of
payment at an annual rate equal to the lesser of twelve percent (12%) or the
highest rate permitted by law. Provision for such late charge shall be in
addition to all other rights and remedies available to Landlord within this
Lease or at law or in equity and shall not be construed as liquidated damages or
limiting Landlord's remedies in any manner.
3.8 All payments to be made by Tenant to Landlord pursuant to this
Lease shall be made by check payable to Landlord, and delivered to Landlord at
Landlord's Address or to such other person and place as may be designated by
notice in writing from Landlord to Tenant from time to time.
3.9 Unless otherwise agreed in writing between Landlord and Tenant, no
payment by Tenant or receipt by Landlord of a lesser amount than the monthly
installments of rent stipulated shall be deemed to be other than on account of
the above-stipulated rent, nor shall any endorsement or statement on any check
or any letter accompanying any check or payments as rent be deemed an accord
with satisfaction, and Landlord may accept such check for payment without
prejudice to Landlord's right to recover the balance of such rent or pursue any
other remedy in this Lease provided.
Article IV. Cafeteria and Fitness Center
4.1 For as long as Landlord chooses to operate a cafeteria and/or
fitness center at the Complex, Tenant's officers and employees shall have the
right to use such facilities on a non-exclusive basis in common with Landlord's
officers and employees and others entitled thereto, upon payment of the current
fees and charges for such use. In Landlord's sole and unreviewable discretion
and without notice to Tenant, Landlord may discontinue operation of the
cafeteria and/or fitness center at any time.
Article V. Acceptance of the Demised Premises.
5.1 The Demised Premises are leased to Tenant in "AS IS" condition.
Landlord shall have no obligation to make any improvements or alterations to
prepare the Demised Premises for Tenant's use. By taking possession of the
Demised Premises, Tenant shall be deemed to have accepted the same and to have
acknowledged that the same fully comply with Landlord's covenants and
obligations under this Lease. Tenant further agrees that, if requested by
Landlord, Tenant will furnish Landlord with a written statement that Tenant has
accepted the Demised Premises and that Landlord has fully complied with
Landlord's covenants and obligations.
Article VI. Uses and Care of Premises.
6.1 The Demised Premises may be used only for the purpose or purposes
specified in Article I, Section 1.1(k) above, and for no other purpose or
purposes without the prior written consent of Landlord.
6.2 Tenant shall not use the Demised Premises for any unlawful purposes
or acts; shall not commit or permit any waste or damage to the Demised Premises;
shall use and maintain the Demised Premises in compliance with (i) all laws,
codes, ordinances, rules, regulations and orders (collectively
5
<PAGE>
"Laws") of any governmental authority or agency, including, without limitation,
those governing zoning, health, safety (including fire safety), and the
occupational hazards, pollution and environmental control, and handicapped
accessibility (including but not limited to any such laws imposing upon Landlord
or Tenant any duty respecting or triggered by any change in use or occupancy or
any alteration or improvement of, in or to the Demised Premises, and (ii) all
reasonable directions of the Landlord, including the building rules and
regulations, attached hereto as Exhibit "C", as may be modified from time to
time by Landlord on reasonable notice to Tenant. Tenant shall use his best
efforts to cause its agents, employees, customers, invitees, licensees, and
concessionaires to comply with the building rules and regulations and with the
covenants and agreements of this Section. [GRAPHIC OMITTED]
6.3 Tenant shall not, without Landlord's prior written consent, keep
anything within the Demised Premises for any purpose which increases the
insurance premium costs or invalidates any insurance policy carried on the
Demised Premises or other part of the property. Tenant shall pay as additional
rent, upon demand of Landlord, any such increased premium cost due to Tenant's
use or occupation of the property. All property kept, stored or maintained
within the property by Tenant shall be at Tenant's sole risk.
6.4 Tenant shall not conduct within the Demised Premises any fire,
auction, going out of business, liquidation or bankruptcy sales or operate
within Demised Premises a "Wholesale" or "Factory Outlet" store, a cooperative
store, a "Second Hand" store, a "Surplus" store or a store commonly refereed to
as a "Discount House." Tenant shall not advertise that it sells products or
services at "discount," "cut-price" or "cut-rate" prices. Tenant shall not
permit any objectionable or unpleasant odors to emanate from the Demised
Premises, nor place or permit any radio, television, loud-speaker, or amplifier
on the roof or outside of the Demised Premises, or where the same can be seen or
heard from outside the Demised Premises, nor place an antenna, awning, or other
projection on the exterior of the Demised Premises; nor solicit business or
distribute leaflets or other advertising material on the property outside the
Demised Premises; nor take any other action which, in the exclusive judgment of
Landlord, would constitute a nuisance or would disturb or endanger other tenants
of the Building or unreasonably interfere with their use of their respective
premises, nor do anything which would tend to injure the reputation of the
Building.
6.5 Tenant shall take good care of the Demised Premises and keep the
same free from waste at all times. Tenant shall keep the Demised Premises and
sidewalks, service-ways, and loading areas adjacent to the Demised Premises
neat, clean and free from dirt, rubbish, insects and pests at all times, and
shall store all trash and garbage within the Demised Premises, arranging for the
regular pickup of such trash and garbage at Tenant's expense. Tenant will store
all trash and garbage within the area designated by Landlord for such trash
pickup and removal and only in receptacles of the size, design and color from
time to time prescribed by Landlord. Receiving and delivery of goods and
merchandise and removal of garbage and trash shall be made only in the manner
and areas from time to time prescribed by Landlord. Landlord may, at its sole
option, arrange for collection of all trash and garbage and, should Landlord
exercise such election, the costs thereof will be part of Operating Expenses.
Tenant shall not operate an incinerator or burn trash or garbage within the
property.
6.6 Tenant shall not move any furniture or equipment into or out of the
Demised Premises except at such times as Landlord may from time to time
designate in writing to all tenants.
[GRAPHIC OMITTED] 6.7 Tenant shall include the address and identity of its
business activities in the Demised Premises in all advertisements made by Tenant
in which the address and identity of any similar local business activity of
Tenant is mentioned.
6.8 Tenant shall not allow any animals other than seeing eye dogs onto
the property whatsoever.
6.9 Tenant shall procure, at its sole expense, any permits and
licenses required for the transaction of business in the Demised Premises and
otherwise comply with all applicable laws, ordinances and governmental
regulations. Landlord makes no representation or warranty, expressed or implied,
with regard to the fitness of the Demised Premises or the property for the
Tenant's intended use or for any particular purpose. Tenant shall bear the cost
of all alterations or improvements to the property required by any applicable
laws, ordinances or governmental regulation based upon Tenant's use of the
property.
6
<PAGE>
6.10 Tenant shall not use the public address system in the Office
Building.
Article VII. Landlord's Services.
7.1 Landlord covenants and agrees that it will provide the following
services, the cost of which shall be included in Operating Expenses:
(a) keep the foundation, the exterior walls and roof of the Demised
Premises in good repair;
(b) provide heat and air conditioning to maintain the Demised Premises
at a reasonably comfortable temperature between the hours of 8:00 a.m. and 6:00
p.m., Monday through Friday of each week, and 8:00 a.m. and 1:00 p.m. on
Saturday of each week, except holidays recognized by the United States
Government. Landlord shall endeavor to provide HVAC during hours other than the
hours of full operation of the Building, upon request by Tenant at least
twenty-four (24) hours prior to the time Tenant desires such service. Tenant
agrees to cooperate fully with Landlord and to abide by all the regulations and
requirements which Landlord may reasonably prescribe for the proper functioning
and protection of the HVAC equipment and to pay the cost of any damage resulting
from Tenant's failure to comply with the foregoing provisions;
(c) provide electricity for lighting purposes and operation of ordinary
office equipment, excluding, however, computers other than personal computers,
and other equipment requiring heavier than normal office use of electricity.
Within fifteen (15) days from the date of this Lease, Tenant shall submit to
Landlord its list of office equipment. Within fifteen (15) days from receipt of
such list, Landlord shall inform Tenant whether Landlord, in its reasonable
discretion, has determined that such equipment satisfies the requirements of
this Section 7.1(c).
[GRAPHIC OMITTED] (d) provide janitor services Monday through Friday of each
week, except holidays recognized by the United States Government, it being
understood and agreed, however, that Landlord shall not be liable in any way for
any damage or inconvenience caused by the cessation or interruption of such
heating, air conditioning, electricity, elevator, janitor services occasioned by
fire, accident, strikes, necessary maintenance, alterations, or repairs, or
other causes beyond Landlord's control. It is understood that employees of
Landlord are prohibited as such from receiving any packages or other articles
delivered to the Building for Tenant and that, should any such employee receive
any such packages or articles, he or she in so doing shall be the agent of
Tenant and not of Landlord.
(e) provide hot and cold water and lavatory supplies, it being
understood and agreed that hot and cold water shall be furnished by Landlord
only at those points of supply provided for general use of other tenants in the
Building as well as to Tenant's kitchen;
(f) provide automatically operated elevator service at all times;
(g) list the Tenant's trade name on the Building directory located in
the entrance lobby.
7.2 In the event any public utility company supplying energy, water,
sewer or other utility, or governmental law, regulation, executive or
administrative order requires that Landlord or Tenant reduce or maintain at a
certain level the consumption of a utility and such requirement affects the
HVAC, light, use of or hours of operation of the premises or Building, Landlord
and Tenant shall each adhere to and abide by said laws, regulations or executive
orders without any reduction in Rent.
7.3 Failure by Landlord to any extent to furnish the above described
services, or any cessation thereof, shall not render Landlord liable for damages
to either person or property, nor be construed as an eviction of Tenant, nor
give Tenant the right to an abatement of Rent, nor relieve Tenant from the
obligation to fulfill any covenant or agreement hereof, unless such failure to
provide services is a result of the gross negligence of Landlord or Landlord's
agents. Should any of the Building equipment or machinery break down, or for any
cause cease to function properly, Landlord shall use reasonable diligence to
repair the same promptly, and Tenant shall have no claim for an abatement of
rent or damages on account of any interruptions in service occasioned thereby or
resulting therefrom.
7
<PAGE>
7.4 Landlord shall not be required to make any repairs occasioned by
the act or negligence of Tenant, its agents, employees, subtenants, licensees
and concessionaires, which repairs shall be made by Tenant. In the event that
the Demised Premises should become in need of repairs required to be made by
Landlord hereunder, Tenant shall give immediate written notice thereof to
Landlord and Landlord shall not be responsible in any way for failure to make
such repairs until a reasonable time shall [GRAPHIC OMITTED]have elapsed after
delivery of such written notice. Landlord's obligation hereunder is limited to
repairs specified in this article only, and Landlord shall have no liability for
any damages or injury arising out of any condition or occurrence causing a need
for such repairs.
The cost of such repairs and maintenance shall be included in the
Operating Expenses. There shall be no abatement of rent and no liability of
Landlord by reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or improvements in or to any
portion of the property or in or to any fixtures, appurtenances and equipment
therein or thereon.
7.5 Tenant shall furnish, maintain and replace all Building
Non-Standard electric light bulbs, tubes and tube casings.
7.6 Tenant shall keep the Demised Premises in good clean condition and
shall, at its sole cost and expense, make all needed repairs and replacements
including replacement of cracked or broken glass, except for repairs and
replacements expressly required to be made by Landlord under the provisions of
Article VII, Section 7.1, Article XI, Section 11.1 and Article XV, Section 15.3.
If any repairs required to be made by Tenant hereunder are not made within three
(3) days after written notice delivered to Tenant by Landlord, Landlord may, at
its discretion, make such repairs without liability to Tenant for any loss or
damage which may result to its stock or business by reason of such repairs, and
Tenant shall pay to Landlord immediately upon demand as additional rental
hereunder the cost of such repairs plus ten percent (10%) of the amount thereof
and failure to do so shall constitute an event of default hereunder. At the
expiration of this Lease, Tenant shall surrender the Demised Premises in good
condition, reasonable wear and tear excepted, and shall surrender all keys for
the Demised Premises to Landlord and shall inform Landlord of all combinations
on locks, safes and vaults, if any, in the Demised Premises.
Article VIII. Alterations.
8.1 Tenant shall not make any alterations, additions, or improvements
to the Demised Premises without the prior written consent of Landlord, which
Landlord may grant or deny in its sole discretion with respect to structural
alterations, except for the installation of unattached, movable trade fixtures
which may be installed without drilling, cutting or otherwise defacing the
Demised Premises. Landlord shall not unreasonably withhold or delay its consent
with respect to non-structural alterations. All alterations, additions,
improvements and fixtures, except that any Alterations, fixtures or any other
property installed in the Demised Premises at the sole expense of Tenant and
which can be removed without causing material damage to the Building, shall
remain upon and be surrendered with the Demised Premises and become the property
of Landlord at the termination of this Lease, unless Landlord requests their
removal in which event Tenant shall remove the same and restore the Demised
Premises to their original condition at Tenant's expense. Any linoleum,
carpeting or other floor covering which may be cemented or otherwise affixed to
the floor of the [GRAPHIC OMITTED]Demised Premises is a permanent fixture and
shall become the property of the Landlord without credit or compensation to
Tenant.
8.2 All construction work done by Tenant within the Demised Premises
shall be performed in a good and workmanlike manner, in compliance with all
governmental requirements, and the requirements of any contract or deed or trust
to which the Landlord may be a party and in such manner as to cause a minimum of
interference with other construction in progress and with the transaction of
business in the Building. Tenant agrees to indemnify Landlord and hold it
harmless against any loss, liability or damage resulting from such work, and
Tenant shall, if requested by Landlord, furnish bond or other security
satisfactory to Landlord against any loss, liability or damage.
Article IX. Landlord's Right of Access and Use.
9.1 Landlord shall have the right to enter upon the Demised Premises at
any reasonable time for the purpose of inspecting the same, or of making repairs
to the Demised Premises, or of
8
<PAGE>
making repairs, alterations or additions to adjacent premises, or of showing the
Demised Premises to prospective purchasers, Tenants or lenders.
9.2 Landlord may, within one hundred twenty (120) days prior to the
expiration of the term, post and maintain notices, free from hindrance or
control of Tenant.
9.3 Use of the roof above the Demised Premises is reserved to
Landlord.
9.4 In addition to the rights specified elsewhere in this Lease,
Landlord shall have the following rights regarding the use of the Demised
Premises or the property by Tenant, its employees, agents, customers and
invitees, each of which may be exercised without notice or liability to Tenant:
(a) Landlord may install such signs, advertisements or notices or
Tenant identification information on or in the Building, on the property or on
the directory board or Tenant access doors as it shall deem necessary or proper.
(b) Landlord shall approve or disapprove, prior to installation, all
types of drapes, shades and other window coverings used in the Demised Premises,
and may control all internal lighting and signage that may be visible from
outside the Demised Premises.
(c) Landlord may grant to any person the exclusive right to conduct
business or render any service in the Building, provided that such exclusive
right shall not operate to limit Tenant from using the Demised Premises for the
use permitted in Article I, Section 1.1(k).
(d) Landlord may control the use of the property in such manner as it
deems necessary or proper, including by way of illustration and not limitation:
requiring all persons entering [GRAPHIC OMITTED]or leaving any Building in the
Complex to identify themselves and their business in the Building to a security
guard; excluding or expelling any peddler, solicitor or loud or unruly person
from the Building; closing or limiting access to the Building or any part
thereof, including entrances, corridors, doors and elevators, during times of
emergency, repairs or after regular business hours.
Article X. Signs.
10.1 All signs, decorations and advertising media shall conform in all
respects to the sign criteria established by Landlord for the Complex from time
to time in the exercise of its sole discretion, and shall be subject to the
prior written approval of Landlord as to construction, method of attachment,
size, shape, height, lighting, color, location and general appearance. All signs
shall be kept in good condition and in proper operating order at all times.
Other than Building directory signage and front entrance signage to the Demised
Premises, and Tenant's signage at the Complex existing as of the Commencement
Date, no other signs, advertisements or notices shall be painted, affixed or
displayed: (I) within the Demised Premises which are visible from outside of the
Demised Premises, (ii) outside of the Demised Premises, (iii) in, about or
outside of the Building, or (iv) on the land associated with Building.
Article XI. Utilities.
11.1 Landlord agrees to cause to be provided and maintained the
necessary mains, conduits and other facilities necessary to supply water,
electricity, gas (if available), telephone service and sewerage service to the
Demised Premises, and the charges therefor shall be included in Operating
Expenses (except telephone service, which shall be paid directly by Tenant).
11.2 Landlord shall not be liable for any interruption or failure
whatsoever in utility services. Landlord does not represent or warrant the
uninterrupted availability of such utilities or building services, and any such
interruption shall not be deemed an eviction or disturbance of Tenant's right to
possession, or render Landlord liable to Tenant for damages by abatement of rent
or otherwise, or relieve Tenant from the obligation to fully and timely perform
its obligations and covenants under this Lease.
9
<PAGE>
Article X Indemnity, Public Liability Insurance and Fire and Extended Coverage
Insurance.
12.1 Landlord shall not be liable to Tenant or to Tenant's employees,
agents or visitors, or to any other person or entity, whatsoever, for any injury
to person or damage to or loss of property on or about the Demised Premises or
the property caused by the negligence or misconduct of Tenant, its employees,
subtenants, licensees or concessionaires, or of any other person entering the
Building under the express or implied invitation of Tenant or arising out of the
use of the Demised Premises by Tenant and the conduct of its business therein,
or arising out of any breach or default by Tenant in the performance of its
obligations hereunder or resulting from any other cause except Landlord's gross
negligence, and Tenant agrees to indemnify Landlord and hold Landlord harmless
from any loss, expense or claims arising out of such damage or injury.
12.2 Landlord and Tenant agree and covenant that neither shall be
liable to the other for loss arising out of damage to or destruction of the
Demised Premises or contents thereof when such loss is caused by any perils
included within standard All Risk property insurance, including flood and
earthquake insurance policies, for buildings similar to the buildings in the
Complex, in Montgomery County, Maryland. This agreement shall be binding whether
or not such damage or destruction be caused by negligence of either party or
their agents, licensees, employees or visitors.
Article XIII. Tenant's Insurance.
13.1 Tenant agrees, at its sole cost, to carry and keep in full force
and effect at all times during the term of this Lease, a comprehensive general
liability policy with a single limit of at least Ten Million Dollars
($10,000,000.00), including coverage for bodily injury, property damage,
contractual liability for this Lease and personal injury liability. Tenant's
comprehensive general liability insurance policy and certificates evidencing
such insurance shall name Landlord and its property manager of the Complex as
additional insureds and shall also contain a provision by which the insurer
agrees that such policy shall not be canceled except after sixty (60) days
written notice to Landlord. Any liability insurance carried or to be carried by
Tenant hereunder shall be primary over any policy that might be carried by
Landlord. If Tenant shall fail to obtain or maintain such insurance, Landlord
may obtain, after providing written notice to Tenant with a thirty (30) day
opportunity to cure, such insurance on Tenant's behalf and the cost shall be
deemed additional rent and shall be payable upon Landlord's demand.
13.2 Tenant shall obtain All Risk property insurance, including flood
and earthquake insurance, insuring against loss to the Demised Premises
(including any improvements thereon). Such insurance shall be in the form and
amount reasonably satisfactory to Landlord, and Tenant shall, when requested
from time to time by Landlord, provide Landlord with evidence of such insurance.
Such insurance shall contain waiver of subrogation provisions in favor of
Landlord and its agents.
[GRAPHIC OMITTED] 13.3 Tenant agrees to carry and keep in full force and effect
at all times during the term of this Lease, at its sole cost, Worker's
Compensation and Employer's Liability insurance, with a minimum Employer's
Liability limit of $1,000,000 each occurrence.
13.4 At the request of Landlord, Tenant shall obtain business
interruption insurance naming Landlord as loss payee, which insurance shall be
in an amount sufficient to pay all rent due hereunder.
Article XIV. Non-Liability for Certain Damages.
14.1 Landlord and Landlord's agents and employees shall not be liable
to Tenant or any other person or entity whomsoever for any injury to person or
damage to property caused by the Demised Premises or other portions of the
property becoming out of repair or by defect (including latent defects) in or
failure of any building equipment, pipes or wiring, or broken glass, or by the
backing up of drains, or by gas, water, steam, electricity or oil leaking,
escaping or flowing into the Demised Premises, nor shall Landlord be liable to
Tenant or any other person or entity whomsoever from any loss or damage that may
be occasioned by or through the acts or omissions of other tenants of the
Building or of any other persons or entity whomsoever. Tenant shall indemnify
and hold harmless Landlord from any loss, cost, expense or claims arising out of
such injury or damage referred to in this Article XIV, Section 14.1.
10
<PAGE>
14.2 In the event of any violation of this Lease by Landlord, Tenant's
exclusive remedy shall be an action for damages (Tenant waiving the benefit of
any laws granting it a lien upon the property of Landlord and/or upon rent due
the Landlord), but prior to any such action Tenant will give Landlord written
notice specifying such violation with particularity, and Landlord shall
thereupon have thirty (30) days in which to cure any such violation. Unless and
until Landlord fails to so cure any violation after such notice, Tenant shall
not have any remedy or cause of action by reason thereof. All obligations of
Landlord hereunder will be construed as covenants, not conditions; and all such
obligations will be binding upon Landlord only during the period of its
ownership of the property and not thereafter.
The term "Landlord" shall mean only the owner, for the time being, of
the property and in the event of the transfer by such owner of its
interest in the property such owner shall thereupon be released and
discharged from all covenants and obligations of the Landlord
thereafter accruing, but such covenants and obligations shall be
binding during the Lease term upon each new owner for the duration of
such owner's ownership.
Notwithstanding any other provision hereof, Landlord shall not have
any personal liability hereunder. In the [GRAPHIC OMITTED]event of any
breach or default by Landlord in any term or provision of this Lease,
Tenant agrees to look solely to the equity or interest then owned by
Landlord in the land and improvements which constitute the property;
however, in no event shall any deficiency judgment or any money
judgment of any kind be sought or obtained against Landlord or
affiliated companies.
Article XV. Damage by Casualty.
15.1 Tenant shall give immediate written notice to Landlord of any
damage caused to the Demised Premises by fire or other casualty.
15.2 If the Office Building shall be destroyed or damaged in excess of
$100,000 by a casualty, then Landlord may elect either to terminate this Lease
as hereinafter provided, or to proceed to rebuild and repair the Demised
Premises. Should Landlord elect to terminate this Lease, it shall give written
notice of such election to Tenant within ninety (90) days after the occurrence
of such casualty. If Landlord should not elect to terminate this Lease, Landlord
shall proceed with reasonable diligence to rebuild and repair the Demised
Premises (and the cost of such repairs in excess of insurance proceeds shall be
included in Operating Expenses).
15.3 Landlord's obligation to rebuild and repair under this Article XV
shall in any event be limited to restoration to substantially the condition in
which the Demised Premises existed prior to the casualty, and shall be further
limited to the extent of the insurance proceeds available to Landlord for such
restoration, and Tenant agrees that promptly after the completion of such work
by Landlord, it will proceed with reasonable diligence and at its sole cost and
expense to rebuild, repair and restore its signs, fixtures, equipment and
furnishings.
15.4 During the period from the occurrence of the casualty until
Landlord's repairs are substantially completed, there shall be no reduction in
the Annual Base Rent.
15.5 All damage or injury to the Demised Premises or the Building
caused by the act or omission of Tenant, its employees, agents, invitees,
licensees or contractors, shall be promptly repaired by Tenant at Tenant's sole
cost and expense, to the satisfaction of Landlord except to the extent covered
by insurance [GRAPHIC OMITTED]carried by Landlord; provided, however, Tenant
shall pay any deductible under Landlord's policy required to be paid thereunder.
Article XVI. Eminent Domain.
16.1 If the entire Demised Premises or the Complex should be taken for
any public or quasi-public use under governmental law, ordinance or regulation,
or by right of eminent domain or by private purchase in lieu thereof, 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. If less than the entire Demised Premises or Complex should be taken
as aforesaid, this Lease shall continue in full force and effect and there shall
be no abatement in Annual Base Rent.
11
<PAGE>
16.2 All compensation awarded for any taking (or the proceeds of
private sales in lieu thereof) of the Demised Premises or the property shall be
the property of Landlord, and Tenant assigns its interest in any such award to
Landlord; provided, however, Landlord shall have no interest in any award made
to Tenant for loss of business or the taking of Tenant's fixtures and other
property if a separate award for such items is made to Tenant.
Article XVII. Assignment and Subletting.
17.1 Tenant shall not assign or transfer all or any portion of its
interest in this Lease or in the Demised Premises, or sublet all or any portion
of the Demised Premises, without the prior written consent of Landlord, which
consent may be withheld at the sole and absolute discretion of the Landlord. Any
assignment or sublease without the Landlord's prior written consent shall be
voidable and, at Landlord's election, shall constitute a default of Tenant
hereunder. Consent by Landlord to one or more assignments or sublettings shall
not operate as a waiver of Landlord's rights with respect to any subsequent
assignment or subletting. The term "sublet" shall be deemed to include the
granting of licenses, concession, and any other rights of occupancy of any
portion of the Demised Premises. Notwithstanding the foregoing, Landlord's
consent shall not be required in the case of an assignment to a person or entity
which controls, is controlled by, or is under common control with, Tenant,
provided that Tenant remains primarily liable under this Lease.
17.2 In the event of the transfer and assignment by Landlord of its
interest in this Lease or in the property to a person expressly assuming
Landlord's obligations under this Lease, [GRAPHIC OMITTED]Landlord shall thereby
be released from any further obligations hereunder, and Tenant agrees to look
solely to such successor in interest of the Landlord for performance of such
obligations. Any such security given by Tenant to secure performance of Tenant's
obligations hereunder may be assigned and transferred to such successor in
interest, and Landlord shall thereby be discharged of any further obligations
relating thereto.
17.3 Tenant shall not mortgage, pledge or otherwise encumber its
interest in this Lease or in the Demised Premises.
17.4 In no case may Tenant assign any options granted to Tenant
hereunder, all such options being deemed personal to Tenant and exercisable by
Tenant only.
17.5 Any request by Tenant for approval to sell or sublet the Demised
Premises or to transfer or assign Tenant's interest in this Lease, shall be
accompanied by a processing charge in the amount of Five Hundred Dollars
($500.00) payable to Landlord.
17.6 In the event Landlord approves Tenant subletting this Lease and
the subtenant or assignee is paying to Tenant an amount in excess of that paid
by Tenant to Landlord under this Lease (which such amount shall be deemed the
aggregate sum of all payments by subtenants to Tenant), then fifty percent (50%)
of any such excess amounts shall be deemed rent under this Agreement and shall
be immediately paid by Tenant to Landlord. If any court of law should find this
provision invalid, then, in such event, Tenant shall be prohibited from
subletting or assigning this Lease for an amount in excess of the amounts paid
by Tenant to Landlord pursuant to the terms of this Lease.
Article XVIII. Default by Tenant and Remedies.
18.1 The following events shall be deemed to be events of default by
Tenant under this Lease:
(a) Tenant shall fail to pay any installment of rental or any other
expense required to be paid by Tenant hereunder when due, and such failure
continues for ten (10) days after Tenant receives written notice thereof from
Landlord.
(b) Tenant shall fail to comply with any term, provision or covenant
in this Lease, other than the payment of rental or expenses demanded by Landlord
and shall not cure such failure within thirty (30) days after receiving written
notice thereof from Landlord; provided, however, that if such failure cannot
reasonably be cured within the thirty (30) day period, Tenant shall not be
deemed to be in default if Tenant shall commence such cure within the thirty
(30) day period and thereafter diligently prosecute the same to completion.
12
<PAGE>
(c) Tenant or any guarantor of Tenant's obligations under this Lease
shall become insolvent, or shall make a transfer in fraud of creditors, or shall
make an assignment for the benefit of creditors.
(d) Tenant or any guarantor of Tenant's obligation under this Lease
shall file a petition under any section or chapter of the U.S. Bankruptcy Code,
as amended, or under any similar law or statute of the United States or any
State thereof; or Tenant or any guarantor of Tenant's obligations [GRAPHIC
OMITTED]under this Lease shall be adjudged bankrupt or insolvent in proceedings
filed against Tenant or any guarantor of Tenant's obligations under this Lease.
(e) A receiver or Trustee shall be appointed for all or substantially
all of the assets of the Tenant or any guarantor of Tenant's obligations under
this Lease.
(f) Tenant shall do or permit to be done anything which creates a lien
upon the Demised Premises.
18.2 Upon the occurrence of any such events of default, Landlord shall
have the option to pursue any one or more of the following remedies without any
notice or demand whatsoever:
(a) Terminate this Lease in which event Tenant shall immediately
surrender the Demised Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which he may have for
possession or arrearages in rental, enter upon and take possession of the
Demised Premises and expel or remove Tenant and any other person who may be
occupying said premises or any part thereof, by force if necessary, without
being liable for prosecution or any other claim of damages.
(b) Enter upon and take possession of the Demised Premises and expel
or remove Tenant and any other person who may be occupying said premises or any
part, by force if necessary, without being liable for prosecution or any claim
for damages with or without having terminated the Lease.
(c) Enter upon the Demised Premises by force, if necessary, without
being liable for prosecution or any claim for damages, and do whatever Tenant is
obligated to do under the terms of this Lease, and Tenant agrees to reimburse
Landlord on demand for any expenses which Landlord may incur in effecting
compliance with Tenant's obligations under this Lease, and Tenant further agrees
that Landlord shall not be liable for any damages resulting to the Tenant from
such action.
(d) Alter all locks and other security devices at the Demised Premises
without terminating this Lease and without notice to Tenant.
18.3 In the event Landlord elects to terminate the Lease by reason of
an event of default, then notwithstanding such [GRAPHIC OMITTED]termination,
Tenant shall be liable for, and shall pay to Landlord, at the address specified
for notice to Landlord, the sum of all rental and other indebtedness accrued to
date of such termination plus, as damage, an amount equal to the present value
(using a discount rate of five percent (5%)) of the difference between (i) the
total Annual Base Rent, as reasonably estimated by Landlord, for the remaining
portion of the Lease term (had such term not been terminated by Landlord prior
to the date of expiration stated in Article I); and (ii) the fair rental value
of the Demised Premises for such period.
18.4 In the event that Landlord elects to repossess the Demised
Premises without terminating the Lease, then Tenant shall be liable for and
shall pay to Landlord, at the address specified for notice to Landlord, all
rental and other indebtedness accrued to the date of such repossession, plus, as
damage, an amount equal to the total Annual Base Rent, as reasonably estimated
by Landlord, for the remainder of the Lease term until the date of expiration of
the term as stated in Article I diminished by any net sums thereafter received
by Landlord through reletting the Demised Premises during said period (after
deducting expenses incurred by Landlord as provided in Article XVIII, Section
18.5 hereof). In no event shall Tenant be entitled to any excess of any rental
obtained by reletting over and above the rental herein reserved. Actions to
collect amounts due from Tenant to Landlord may be brought from time to time on
one or more occasions, without the necessity of Landlord's waiting until
expiration of the Lease term.
13
<PAGE>
18.5 In case of any event of default or breach by Tenant, Tenant shall
also be liable for and shall pay to Landlord, at the address specified for
notice herein, in addition to any sum provided to be paid above, brokers fees
incurred by Landlord in connection with reletting the whole or part of the
Demised Premises; the costs of removing and storing Tenant's or other occupant's
property; the cost of repairing, altering, remodeling or otherwise putting the
Demised Premises into condition acceptable to a new Tenant or Tenants, and all
reasonable expenses incurred by Landlord in enforcing or defending Landlord's
rights and/or remedies, including reasonable attorneys' fees.
18.6 In the event of termination or repossession of the Demised
Premises for an event of default, Landlord shall not have any obligation to
relet or attempt to relet the Demised Premises, or any portion thereof, or to
collect rental after reletting; Landlord may relet the whole or any portion of
the Demised Premises for any period, to any tenant, and for any use and purpose.
18.7 If Tenant should fail to make any payment or cure any default
hereunder within the time herein permitted, Landlord, without being under any
obligations to do so and without waiving such default, may make such payment
and/or remedy such other default for the account of Tenant (and enter the
Demised Premises [GRAPHIC OMITTED]for such purpose), and thereupon Tenant shall
be obligated to, and agrees to, pay Landlord, as additional rent, upon demand,
all costs, expenses and disbursements (including reasonable attorneys' fees)
incurred by the Landlord in taking such remedial action.
18.8 In the event that Landlord shall have taken possession of the
Demised Premises pursuant to the authority herein granted, then Landlord shall
have the right to keep in place and use all of the furniture, fixtures, and
equipment at the Demised Premises, including that which is owned by or Leased to
Tenant, at all times prior to any foreclosure thereon by Landlord or
repossession thereof by any Landlord thereof or third party having a lien
thereon. Landlord shall also have the right to remove from the Demised Premises
(without the necessity of obtaining a distress warrant, writ of sequestration or
other legal process) all or any portion of such furniture, fixtures, equipment
and other property located thereon and place same in storage at any premises
within the County in which the Demised Premises is located; and in such event,
Tenant shall be liable to Landlord for costs incurred by Landlord in connection
with such removal and storage and shall indemnify and hold harmless Landlord
from all loss, damage, cost, expense and liability in connection with such
removal and storage. Landlord shall also have the right to relinquish possession
of all or any portion of such furniture, fixtures, equipment and other property
to any person ("Claimant") claiming to be entitled to possession thereof who
presents to Landlord a copy of any instrument represented to Landlord by
Claimant to have been executed by Tenant (or any predecessor of Tenant) granting
Claimant the right under various circumstances to take possession of such
furniture, fixtures, equipment or other property, without the necessity on the
part of Landlord to inquire into the authenticity of said instrument's copy of
Tenant's or Tenant's predecessor's signature thereon and without the necessity
of Landlord's making any nature of investigation or inquiry as to the validity
of the factual or legal basis upon which Claimant purports to act; and Tenant
agrees to indemnify and hold Landlord harmless from all costs, expense, loss,
damage, and liability incident to Landlord's relinquishment of possession of all
or any portion of such furniture, fixtures, equipment or other property by
Claimant. The rights of Landlord herein stated shall be in addition to any and
all other rights which Landlord has or may hereafter have at law or in equity;
and Tenant stipulates and agrees that the rights herein granted Landlord are
commercially reasonable.
Article XIX. Holding Over.
19.1 In the event Tenant remains in possession of the Demised Premises
after the expiration of this Lease and without the execution of a new Lease, it
shall be deemed to be occupying said Demised Premises as a Tenant from month to
month at a rental equal to the rental herein provided, plus fifty percent (50%)
of such amount and otherwise subject to all the conditions, provisions and
obligations of this Lease insofar as the same are applicable to a month to month
tenancy.
14
<PAGE>
Article XX. Subordination and Attornment
20.1 Tenant accepts this Lease subject and subordinate to any mortgage,
deed of trust or other lien presently existing or hereafter created upon the
property and to any renewals and extensions thereof. Landlord is irrevocably
vested with full power and authority to subordinate this Lease to any mortgage,
deed of trust or other lien hereafter placed upon the property and Tenant agrees
upon demand to execute such further instrument subordinating this Lease as
Landlord may request, and if Tenant shall fail at any time to execute, seal and
deliver any such instrument to Landlord, in addition to any other remedies
available to it in consequence thereof, Landlord may execute, seal and deliver
the same as the attorney in fact of Tenant in Tenant's name, place and stead,
and Tenant irrevocably makes, constitutes and appoints Landlord, its successors
and assigns, as such attorney in fact for that purpose.
20.2 At the option of any transferee of the Landlord's interest in the
property pursuant to a foreclosure or similar proceeding under any mortgage,
deed of trust or other lien upon the property, whether now existing or hereafter
created, Tenant shall attorn to and be bound to any such transferee under the
[GRAPHIC OMITTED]terms, covenants and conditions of this Lease for the balance
of the term hereof remaining and any extensions or renewals hereof which may be
affected in accordance with any option therefore in this Lease, with the same
force and effect as if the transferee was the Landlord, and Tenant does hereby
agree to attorn to such transferee, at the transferee's option, the attornment
to be effective and self operative without the execution of any further
instruments on the part of Tenant, immediately upon the transferee succeeding to
the interest of the Landlord, provided said transferee provides written notice
to the Tenant of its election to accept such attornment within sixty (60) days
of the subject transfer.
In the event any such transferee does elect to accept such attornment,
the Tenant hereby agrees that said transferee shall not be (a) liable for any
act or admission of Landlord under the Lease prior to the subject transfer or
(b) subject to any offsets or defenses which Tenant might have against Landlord
arising from events or circumstances existing prior to the subject transfer, or
(c) bound by any rent or additional rent which Tenant might have paid in advance
for more than the month of the subject transfer, or (d) bound by any amendment
or modification of this Lease made without the foreclosing party's prior written
consent.
Article XXI. Estoppel Certificates.
21.1 Tenant agrees to furnish from time to time, when requested by
Landlord, the holder of any deed of trust or mortgage or the Landlord under any
ground Lease covering all or any part of the property or any interest of
Landlord therein, an estoppel certificate signed by Tenant confirming and
containing such factual certifications and representations deemed appropriate by
Landlord. The holder of any such deed of trust or mortgage or the Landlord under
any such ground Lease and Tenant shall, within ten (10) days following receipt
of said proposed estoppel certificate from Landlord, return a fully-executed
copy of said certificate to Landlord. In the event Tenant fails to return a
fully-executed copy of such certificate to Landlord within the foregoing ten-day
period, then Tenant shall be deemed to have approved and confirmed all of the
terms, certifications and representations contained in such certificate.
Article XXII. Notices.
22.1 Wherever any notice is required or permitted hereunder, such
notice shall be in writing. Any notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered, whether actually received
or not when deposited in the United States mail, postage prepaid, certified or
registered mail, return receipt requested, addressed to the parties hereto at
the respective addresses set out in Article I, Section 1.1b & 1.1d above or such
other address as they may have hereafter specified by written notice.
Article XXIII. Brokers.
[GRAPHIC OMITTED] 23.1 Landlord and Tenant represent and warrant to each other
that it has not employed a broker in carrying on the negotiations relating to
this Lease. Tenant further warrants and covenants that is has not relied and
will not rely upon any oral representation about the property, other tenants'
15
<PAGE>
occupancy, uses or related matters made by any real estate agent, real estate
broker, agent or employee of Landlord, or any other party. Tenant shall
indemnify and hold Landlord harmless, from and against any cost, liability or
expense (including attorney's fees and disbursements) incurred as a result of
the assertion(s) or claim(s) by any person, firm or entity for brokerage or
other commissions or finder's fees based upon the claiming person's alleged
dealings with Tenant or any of its employees, agents or representatives.
Article XXIV. Approval and Changes Required by Lender.
24.1 Any mortgagee of the property, or of Landlord's interest therein,
may have the right to approve this Lease, and in the event such approval is not
granted, Landlord shall have the right to terminate this Lease as hereinafter
set forth. In the event that any mortgagee of the property, or of Landlord's
interest therein, requires, as a condition of such financing, modifications to
this Lease which (i) do not materially and adversely affect Tenant's use of the
Demised Premises as herein permitted; and (ii) do not increase the rent or other
sums required to be paid by Tenant hereunder; then Landlord may submit to Tenant
a written amendment of this Lease incorporating such required changes. Tenant
shall execute such amendment within ten (10) days after the same has been
submitted to Tenant. If Tenant fails to so execute and deliver such amendment,
then Landlord shall thereafter have the right, at its sole option, to (a)
execute such amendment on Tenant's behalf, Tenant appointing Landlord its
irrevocable attorney-in-fact, said power being coupled with an interest to
execute such amendment; or (b) to cancel this Lease. Such cancellation option
shall be exercisable by Landlord's giving Tenant written notice of such
termination; immediately whereupon this Lease shall be canceled and terminated
and, upon relinquishment of possession of the Demised Premises by Tenant in the
condition required pursuant to the terms hereof, both Landlord and Tenant shall
thereupon be relieved from any and all further liability or obligation
hereunder.
Article XXV. Parking.
25.1 During the Term of this Lease, Tenant and its employees and guests
shall have use of all parking areas in the Complex, without charge, for parking
purposes only, on an unreserved, non-exclusive basis in common with others
entitled to use of said parking areas. Landlord shall have general possession,
management and control of the parking areas, and may from time to time adopt
reasonable rules and regulations pertaining to the use thereof. Landlord
reserves the right to designate reserved parking in the parking areas. [GRAPHIC
OMITTED] Article XXVI. Waiver of Trial by Jury and Right to Redeem.
26.1 Landlord and Tenant each agree to and they waive trial by jury in
any action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of said premises and/or any claim of injury or damage, and
statutory remedy. Tenant also hereby agrees that the provisions of Section
8-401(e) of the Maryland Real Property Code shall not apply to this Lease and
Tenant hereby waives its rights thereunder.
Article XXVII. Furnishing of Financial Statements.
27.1 Within ten (10) days of the execution of this Lease, Tenant shall
furnish Landlord financial statements outlining Tenant's current financial
condition if applicable, as of the last annual audit or the last regularly
prepared report including tax returns. Over the term of this Lease and any
extensions, within ten (10) days of Landlord's written request, Tenant shall
furnish financial statements outlining Tenant's current financial condition. The
foregoing requirements shall not apply during any period of time in which
Tenant's stock is listed on a national stock exchange.
Article XXVIII. Occupational and Environmental Compliance.
28.1 Tenant shall not in any manner use, maintain or allow the use or
maintenance of the property in violation of any law, ordinance, statute,
regulation, rule or order (collectively "Laws") of any governmental authority,
including but not limited to Laws governing zoning, health, safety (including
fire safety), occupational hazards, and pollution and environmental control.
Tenant shall not use, maintain or allow the use or maintenance of the property
or any part thereof to treat, store, dispose of, transfer, release, convey or
recover hazardous materials nor shall Tenant otherwise, in any
16
<PAGE>
manner, possess or allow the possession of any hazardous, materials on or about
the property; provided, however, any hazardous material lawfully permitted and
generally recognized as necessary and appropriate for general office use may be
stored and used in the Demised Premises, so long as (i) such storage and use is
in the ordinary course of Tenant's business permitted under this Lease; (ii)
such storage and use is performed in compliance with all applicable laws and
regulations and in compliance with the highest standards prevailing in the
industry for the storage and use of such materials; and (iii) Tenant delivers
prior written notice to Landlord of the identity of and information regarding
such materials as Landlord may require. Tenant shall immediately notify Landlord
of the presence or suspected presence of any hazardous material on or about the
property and shall deliver to Landlord any notice received by Tenant relating
thereto.
Landlord and its agents shall have the right, but not the duty, to
inspect the Demised Premises and conduct tests thereon at any time to determine
whether or the extent to which there is hazardous materials on the Demised
Premises. Landlord shall have [GRAPHIC OMITTED]the right to immediately enter
upon the Demised Premises to remedy any contamination found thereon. In
exercising its rights herein, Landlord shall use reasonable efforts to minimize
interference with Tenant's business but such entry shall not constitute an
eviction of Tenant, in whole or in part, and Landlord shall not be liable for
any interference, loss, or damage to Tenant's property or business caused
thereby. If any lender or governmental agency shall ever require testing to
ascertain whether there has been a release of hazardous materials, then the
reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand
as additional rent if such requirement arose in whole or in part because of
Tenant's use of the Demised Premises. Tenant shall execute affidavits,
representations and the like from time to time, at Landlord's request,
concerning Tenant's best knowledge and belief regarding the presence of any
hazardous materials on the property or Tenant's intent to store or use hazardous
materials on the property. Tenant shall indemnify and hold harmless Landlord
from any and all claims, loss, liability, costs, expenses or damage, including
attorneys' fees and costs of remediation and compliance, incurred by Landlord in
connection with any breach by Tenant of its obligations under this section. The
covenants and obligations of Tenant hereunder shall survive the expiration or
earlier termination of this Lease.
28.2 For the purposes of this Article XXVIII, the term "hazardous
materials" shall mean (i) any and all hazardous waste, toxic chemicals,
materials or substances occurring in the air, water, soil or ground water at the
property by reason of which the Tenant or Landlord would be subject to an
injunction action and/or any damages, penalties, clean up costs or other
liability under the provisions of the Comprehensive Environmental Response,
Compensation and Liability Act 42 U.S.C. ss. 9601 et seq., the Superfund
Amendments and Reauthorization Act of 1986, 42 U.S.C. ss. 9601 (20D), the
Resource Conservation and Recovery Act (the Solid Waste Disposal Act), 42 U.S.C.
ss. 9601 et seq., the Federal Water Pollution Control Act, as amended by the
Clean Water Act of 1977, 33 U.S.C. ss. 1251 et seq., the Clean Air Act of 1966,
42 U.S.C. ss. 7401 et seq., and the Toxic Substances Control Act, 15 U.S.C. ss.
2601, et seq.; (ii) any "oil, petroleum products and their by-products" as
defined by the Maryland Environmental Code Annotated ss. 4-411(a)(3); as amended
from time to time and regulations promulgated thereunder; (iii) any "hazardous
substance" as defined by the Maryland Environmental Code Annotated, Title 7,
Subtitle 2, as amended from time to time and regulations promulgated thereunder;
and (iv) any substance the presence of which is prohibited or controlled by any
other federal, state or local laws, regulations, statutes, or ordinances now in
a force or hereafter enacted relating to waste disposal or environmental
protection with respect to hazardous, toxic or other substances generated,
produced, leaked, released, spilled, stored or disposed of at or from the
property. Hazardous material shall also include any other substance which by law
requires special handling in its collection, storage, treatment or disposal, but
not including small quantities of materials present on the property in retail
containers, which [GRAPHIC OMITTED]would not be prohibited, regulated or
controlled under applicable environmental laws.
Article XXIX Miscellaneous.
29.1 Nothing herein contained shall be deemed or construed by the
parties hereto, nor by any third party, as creating the relationship of
principal and agent or of partnership or a joint venture between parties hereof,
it being understood and agreed that neither the method of computation of rental,
nor any other provisions contained herein, nor the acts of the parties hereto,
shall be deemed to create any relationship between the parties hereto other than
the relationship of Landlord and Tenant. Whenever herein the singular number is
used, the same shall include the plural, and words of gender shall include each
other gender.
17
<PAGE>
29.2 The captions used herein are for convenience only and do not
limit or amplify the provisions hereof.
29.3 One or more waivers of any covenant, term or condition of this
Lease by Landlord shall not be construed as a waiver of a subsequent breach of
the same covenant, term or condition. The consent or approval by Landlord shall
not be construed as a waiver of a subsequent breach of the same covenant, term
or condition. The consent or approval by Landlord to or of any act by the Tenant
shall not be deemed to waive or render unnecessary consent to or approval of any
subsequent similar act.
29.4 Whenever a period of time is herein prescribed for action to be
taken by the Landlord, Landlord shall not be liable or responsible for, and
there shall be excluded from the computation of any such period of time, any
delays due to strikes, riots, acts of God, shortages of labor or materials, war,
government laws, regulations or restrictions or any other cause of any kind
whatsoever which is beyond the reasonable control of Landlord. At any time when
there is outstanding a mortgage, deed of trust or similar security instrument
covering Landlord's interest in the Demised Premises, Tenant may not exercise
any remedies for default by Landlord hereunder unless and until the holder of
the indebtedness secured by such mortgage, deed of trust or similar instrument
shall have received written notice of such default and a reasonable time for
such default shall thereafter have elapsed.
29.5 This Lease contains the entire agreement between the parties, and
no agreement shall be effective to change, modify or terminate this Lease in
whole or in part unless such agreement is in writing and duly signed by the
party against whom enforcement of such change, modification or termination is
sought.
29.6 The laws of the State of Maryland, without reference to its
conflicts of laws principles, shall govern the interpretation, validity,
performance and enforcement of this Lease. If any provision of this Lease should
be held to be invalid or unenforceable, the validity and enforceability of the
remaining provisions of this Lease shall not be affected thereby. [GRAPHIC
OMITTED
29.7 The terms, provisions and covenants contained in this Lease shall
inure to the benefit of and be binding upon the parties hereto and their
respective heirs, successors in interest and legal representatives except as
otherwise herein expressly provided.
29.8 Tenant shall not record this Lease or any memorandum or other
document referring to this Lease without the express written permission of
Landlord. Landlord, however, may record this Lease or any related document
without the consent or jointer of Tenant.
29.9 Tenant shall pay before delinquency all costs for work done or
caused to be done by Tenant in the Demised Premises which could result in any
lien or encumbrance in respect of such work and shall indemnify, defend and hold
harmless Landlord against any claim, loss, cost, demand and legal or other
expenses, whether in respect of any lien or otherwise, arising out of the supply
of material, services or labor for such work. Tenant shall immediately notify
Landlord of any such lien, claim of lien or other action of which it has or
reasonably should have knowledge and which affect the title to the Complex or
any part thereof, and shall cause the same to be removed within fifteen (15)
days (or such additional time as Landlord may consent to in writing) after its
filing, creation or assertion, whichever shall first occur, failing which
Landlord may declare Tenant in default hereunder and take such action as
Landlord deems necessary to remove the same and the entire cost thereof shall be
immediately due and payable by Tenant to Landlord as additional rent hereunder.
29.10 The submission of this Lease for examination does not constitute
a reservation of or an option for the Demised Premises nor does it constitute an
offer to lease the Demised Premises until signed by Landlord and this Lease
becomes effective as a Lease only upon execution and delivery thereof by both
Landlord and Tenant.
29.11 Time shall be of the essence for this Lease.
29.12 If any term, covenant or condition of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term, covenant or condition to persons or circumstances other than those
18
<PAGE>
as to which it is held invalid or unenforceable, shall not be affected thereby
and each term, covenant or condition of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
[GRAPHIC OMITTED] 29.13 It is agreed that, for the purpose of any suit brought
or based on this Lease, this Lease shall be construed to be a divisible
contract, to the end that successive actions may be maintained thereon as
successive periodic sums shall mature or be due hereunder, and it is further
agreed that failure to include in any suit or action any sum or sums then
matured or due shall not be a bar to the maintenance of any suit or action for
the recovery of said sum or sums so omitted; and Tenant agrees that it will not,
in any suit or suits brought or arising under this Lease for a matured sum for
which judgment has not previously been obtained or entered, plead, rely on or
interpose the defenses of res judicata, former recovery, extinguishment, merger,
election or remedies or other similar defense as a defense to said suit or
suits.
Article XXX. Attachments.
The Following Attachments are attached hereto and made a part hereof:
Exhibit A - Plan of the Complex
Exhibit B - Demising Plan
Exhibit C - Rules and Regulations
Article XXXI. Status as Sublease.
31.1 It is understood that this Lease is a sublease of a portion of the
Project leased to Landlord pursuant to a Lease dated August 30, 1995, between
the Gaithersburg Realty Trust, as Landlord, and Landlord, as Tenant (the "Master
Lease"). This Lease is fully subject and subordinate to all terms and conditions
of the Master Lease, and to the rights of the Gaithersburg Realty Trust
thereunder. In no event shall the Lease Term hereunder extend beyond the
Expiration Date or earlier termination of the Master Lease (unless the Property
is conveyed to Landlord). After termination or expiration of the Master Lease
(unless the Property is conveyed to Landlord), Tenant shall promptly surrender
all its interest in the Property. (The terms "Expiration Date" and "Property"
shall have the respective meanings given to them in the Master Lease).
Article XXXII. Commercially Reasonable Terms and Conditions.
32.1 The terms and provisions of this Agreement are intended to reflect
commercially reasonable terms and conditions (including, but not limited to,
pricing) that are at least as favorable and as competitive to Tenant as the
terms and conditions Landlord would grant or require of third parties for
substantially similar goods and services.
IN WITNESS HEREOF, the parties hereunto signed their names, as their
free act and deed on the day and year first above written, and do hereby
acknowledge and accept this Lease agreement.
ATTEST: Landlord: MANOR CARE, INC.
_____________________ By: /s/ James H. Rempe
James H. Rempe
Title: Senior Vice President and Secretary
ATTEST: Tenant: CHOICE HOTELS HOLDINGS, INC.
(to be renamed Choice Hotels
International, Inc.)
_____________________ By: /s/ James A. MacCutcheon
James A. MacCutcheon
Title: Executive Vice President, Chief
Financial Officer and Treasurer
19
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls or other parts of the Building not occupied by any
Tenant shall not be obstructed or encumbered by any Tenant or used for any
purpose other than ingress and egress to and from the Demised Premises. Landlord
shall have the right to control and operate the public portions of the Building,
and the facilities furnished for the common use of the Tenants, in such manner
as Landlord deems best for the benefit of the Tenants generally. No Tenant shall
permit the visit to the Demised Premises of persons in such numbers or under
such conditions as to interfere with the use and enjoyment by other Tenants of
the entrances, corridors, elevators and other public portions or facilities of
the Building.
2. No awnings or other projections shall be attached to the outside
walls of the Building without the prior written consent of the Landlord. No
drapes, blinds, shades, or screens shall be attached to or hung in, or used in
connection with any window or door of the Demised Premises, without the prior
written consent of the Landlord. Such awnings, projections, curtains, blinds,
shades, screens, or other fixtures must be of a quality, type, design, and
color, and attached in the manner approved by Landlord. Landlord agrees that it
will not unreasonably withhold its consent to any such request by Tenant.
3. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted, or affixed by any Tenant on any part of the
outside or inside of the Demised Premises or building without the prior written
consent of the Landlord. In the event of the violation of the foregoing by any
Tenant, Landlord may remove same without any liability, and may charge expense
incurred by such removal to the Tenant or Tenants violating this rule. Interior
signs on doors and directory tablet shall be inscribed, painted or affixed for
each Tenant by the Landlord at the expense of such Tenant, and shall be of a
size, color and style acceptable to the Landlord.
4. No show cases or other articles shall be put in front of or affixed
to any part of the exterior of the Building, nor placed in the halls, corridors
or vestibules, without the prior written consent of the Landlord.
5. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures shall be borne by the Tenant
who, or whose servants, employees, agents, visitors or licensees, shall have
caused the same.
6. There shall be no unnecessary marking, painting, drilling into or in
any way defacing any part of the Demised Premises or the Building. No boring,
cutting or stringing of [GRAPHIC OMITTED]wires shall be permitted. Tenant shall
not construct, maintain, use or operate within the Demised Premises or elsewhere
within or on the outside of the Building, any electric device, wiring or
apparatus in connection with a loud speaker system or other sound system.
7. No bicycles, vehicles or animals, birds or pets of any kind shall be
brought into or kept in or about the Demised Premises except seeing eye dogs. No
Tenant shall cause or permit any unusual or objectionable odors to be produced
upon or permeate from the Demised Premises, except as may be permitted in
accordance with the Use and Occupancy permit.
8. No space in the Building shall be used for manufacturing, for the
storage of merchandise, or for the sale of merchandise, goods or property of any
kind at auction.
9. No Tenant shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this or neighboring
buildings or premises or those having business with them, whether by the use of
any musical instrument, radio, talking machine, unmusical noise, whistling,
singing, or in any other way. No Tenant shall throw anything out of the doors or
windows or down the corridors or stairs.
20
<PAGE>
10. No inflammable, combustible or explosive fluid, chemical or
substance as defined by the Environmental Protection Agency shall be brought or
kept upon the Demised Premises.
11. No additional locks or bolts of any kind shall be placed upon any
of the doors, or windows by any Tenant, nor shall any changes be made in
existing locks or the mechanism thereof, except as may be required by Tenant as
a financial institution. The doors leading to the corridors or main halls shall
be kept closed during business hours except as they may be used for ingress or
egress. Each Tenant shall, upon the termination of his tenancy, restore to
Landlord all keys of stores, offices, storage, and toilet rooms either furnished
to, or otherwise procured by, such Tenant, and in the event of the loss of any
keys, so furnished, such Tenant shall pay to the Landlord the cost thereof.
12. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the hours
which the Landlord or its Agent may determine from time-to-time. The Landlord
reserves the right to inspect all freight to be brought into the Building and to
exclude from the Building all freight which violates any of these Rules and
Regulations or the Lease of which these Rules and Regulations are a part.
13. Any person employed by any Tenant to do janitor work within the
Demised Premises must obtain Landlord's consent and such person shall, while in
the Building and outside of said Demised Premises, comply with all instructions
issued by the Superintendent of the Building. No Tenant shall engage or pay any
employees on the Demised Premises, except those actually working for such Tenant
on said premises. [GRAPHIC OMITTED] 14. Landlord shall have the right to
prohibit any advertising by any Tenant which, in Landlord's reasonable opinion,
tends to impair the reputation of the Building or its desirability as a building
for offices, and upon written notice from Landlord, Tenant shall refrain from or
discontinue such advertising.
15. The premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
16. Each Tenant, before closing and leaving the Demised Premises at
any time, shall see that all windows are closed.
17. The requirements of Tenants will be attended to only upon
application of the office of the Building. Employees shall not perform any work
or do anything outside of the regular duties, unless under special instruction
from the management of the Building.
18. Access plates to under floor conduits shall be left exposed. Where
carpet is installed, carpet shall be cut around access plates.
19. Mats, trash and other objects shall not be placed in the public
corridors.
20. The Landlord does not maintain suite finishes which are
non-standard, such as kitchens, bathrooms, wallpaper, special lights, etc.
However, should the need for repairs arise, the Landlord will arrange for the
work to be done at the Tenant's expense.
21. Violation of these rules and regulations, or any amendments
thereto, shall be sufficient cause for termination of this Lease at the option
of the Landlord.
22. Smoking in the Demised Premises or anywhere else in the Building
is prohibited.
21
LOAN AGREEMENT
Dated as of November 1, 1996
among
CHOICE HOTELS HOLDINGS, INC.,
(to be renamed CHOICE HOTELS INTERNATIONAL, INC.)
as Borrower,
and
MNR FINANCE CORP.,
as Lender
<PAGE>
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS....................................................1
SECTION 1.01. Defined Terms. ....................................1
SECTION 1.02. Terms Generally...................................10
ARTICLE II. .............................................................11
SECTION 2.01. Amount of the Loan................................11
SECTION 2.02. The Note..........................................11
SECTION 2.03. Optional Prepayments..............................11
SECTION 2.04. Interest Rate and Payment Dates...................12
SECTION 2.05 Payments...........................................12
SECTION 2.06. Indemnity.........................................12
SECTION 2.07. Taxes.............................................12
ARTICLE III. REPRESENTATIONS AND WARRANTIES..............................14
SECTION 3.01. Authorization; No Violations......................14
SECTION 3.02. Enforceability....................................14
SECTION 3.03. No Material Misstatements. .......................14
ARTICLE IV. AFFIRMATIVE COVENANTS........................................15
SECTION 4.01. Existence; Businesses and Properties..............15
SECTION 4.02. Insurance.........................................15
SECTION 4.03. Obligations and Taxes.............................15
SECTION 4.04. Financial Statements, Reports, etc................16
SECTION 4.05. Litigation and Other Notices......................17
SECTION 4.06. ERISA.............................................17
SECTION 4.07. Maintaining Records; Access to Properties and
Inspections.......................................18
SECTION 4.08. Ownership.........................................18
ARTICLE V. NEGATIVE COVENANTS............................................18
SECTION 5.01. Indebtedness......................................18
SECTION 5.02. Liens.............................................20
SECTION 5.03. Sale and Lease-Back Transactions..................22
SECTION 5.04. Investments, Loans and Advances...................23
SECTION 5.05. Mergers and Consolidations........................23
SECTION 5.06. Asset Sales.......................................24
SECTION 5.07. Transactions with Affiliates......................24
SECTION 5.08. Business of Borrower and Subsidiaries.............24
SECTION 5.09. Subsidiary Indebtedness...........................24
SECTION 5.10. Agreements........................................25
SECTION 5.11. Fiscal Year and Accounting Practices..............25
SECTION 5.12. No Further Negative Pledges.......................25
SECTION 5.13. Minimum Consolidated Net Worth....................26
SECTION 5.14. Consolidated Leverage Ratio. .....................26
SECTION 5.15. Consolidated Interest Coverage Ratio..............26
SECTION 5.16. Dividends and Distributions.......................26
ARTICLE VII. MISCELLANEOUS...............................................30
SECTION 7.01. Notices...........................................30
SECTION 7.02. Survival of Agreement.............................30
SECTION 7.03. Binding Effect....................................31
SECTION 7.04. Successors and Assigns............................31
SECTION 7.05. Expenses; Indemnity...............................31
SECTION 7.06. Right of Setoff...................................33
SECTION 7.07. Applicable Law....................................33
SECTION 7.08. Waivers; Amendment................................33
SECTION 7.09. Interest Rate Limitation..........................34
SECTION 7.10. Entire Agreement..................................34
SECTION 7.11. Waiver of Jury Trial; Punitive Damages............34
SECTION 7.12. Severability......................................34
SECTION 7.13. Counterparts......................................35
SECTION 7.14. Headings..........................................35
SECTION 7.15. Jurisdiction; Consent to Service of Process;
Judgment Currency. ...............................35
SECTION 7.16. Confidentiality. .................................35
Exhibit A......... Note
Schedule A........ List of Capital Contributions by Manor Care, Inc.
<PAGE>
LOAN AGREEMENT dated as of November 1, 1996,
among MNR Finance Corp., a Delaware corporation (the
"Lender") and CHOICE HOTELS INTERNATIONAL, INC., a
Delaware corporation (the "Borrower" or the
"Company").
WHEREAS, Borrower and Lender are presently wholly-owned subsidiaries
of Manor Care, Inc., a Delaware corporation ("Manor Care");
WHEREAS, the Board of Directors of Manor Care has determined that it
is in the best interest of Manor Care and the stockholders of Manor Care to
distribute to the holders of Manor Care's common stock all of the outstanding
shares of Borrower's common stock;
WHEREAS, Manor Care, Inc. has previously made a capital contribution
to Lender of those certain promissory notes set forth on Schedule A herein (the
promissory notes referred to collectively, the "Promissory Notes");
WHEREAS, Lender has previously extended credit to Borrower in the form
of cash advances in the aggregate amount of $225,722,500 (the "Advances"); and
WHEREAS, Borrower and Lender wish to formalize the repayment terms of
such previous Advances by Lender to Borrower and to amend the terms of those
certain Promissory Notes and Lender and Borrower have agreed that Borrower will
repay such Advances and the obligations owing under those certain Promissory
Notes over a three year period, subject to the terms and conditions of this
Agreement;
NOW THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrower and Lender agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. Defined Terms. As used in this Agreement,
the following terms shall have the meanings specified below:
"Affiliate" shall mean, when used with respect to a specified person,
another person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the person
specified. Following the Distribution, the Borrower and the Subsidiaries shall
not be deemed to be Affiliates of Manor Care or its subsidiaries merely by
virtue of such companies' having common shareholders or directors as a result of
the Distribution.
<PAGE>
"Agreement" shall mean this Loan Agreement, as the same may be amended,
restated, modified, supplemented, renewed or replaced from time to time.
"Asset Sale" shall mean, with respect to the Borrower or any
Subsidiary, any sale, transfer or other disposition of any assets or other
properties (including individual business assets, patents, trademarks and other
intangibles) of the Borrower or such Subsidiary, including the sale, transfer or
disposition of any capital stock of or any merger or consolidation involving any
Subsidiary and any issuance or sale by any Subsidiary of shares of its capital
stock, other than (i) sales of inventory and used equipment in the ordinary
course of business of the person (whether the Borrower or a Subsidiary) owning
and selling such inventory or used equipment; (ii) sales, transfers and other
dispositions of any tangible assets by the Borrower or any Subsidiary if the
Borrower or such Subsidiary enters into an agreement to replace such assets with
a comparable asset as soon as practicable (and in no event later than three
months) after the disposition and, pending such replacement, diligently pursues
the replacement thereof, and the fair market value of the replacement asset is
substantially equivalent to or exceeds that of the asset so disposed of; (iii)
sales, transfers and other dispositions of any assets to the Borrower or any
Subsidiary; (iv) Sale and Lease-Back Transactions; (v) sales by the Borrower or
Subsidiaries of assets acquired from persons other than the Borrower or other
Subsidiaries, which sales occur not more than 12 months after the respective
dates on which such assets were acquired and (vi) the Distribution and
transactions contemplated in the Form 10.
"Business Day" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York City.
"Capital Lease Obligations" of any person shall mean the obligations
of such person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under GAAP
applied on a consistent basis and, for the purposes of this Agreement, the
amount of such obligations at any time shall be the capitalized amount thereof
at such time determined in accordance with GAAP applied on a consistent basis.
A "Change in Control" shall be deemed to have occurred if (a) any
person or group (within the meaning of Rule 13d-5 of the Securities and Exchange
Commission as in effect on the date hereof) other than Stewart Bainum and his
family shall own directly or indirectly, beneficially or of record, shares
representing more than 15% of the aggregate ordinary voting power represented by
the issued and outstanding capital stock of the Borrower, except that such a
person or group may own directly or indirectly, beneficially or of record,
shares representing not more than 20% of the aggregate voting power represented
by the issued and outstanding capital stock of the Borrower if such person or
group reports and continues to report such ownership on Schedule 13G (filed
pursuant to Rule 13d-1(b), Rule 13d-1(c), or, in the case of amendments, Rule
13d-2(b), of the Securities and Exchange Commission as in effect on the date
hereof); (b) a majority of the seats (other than vacant seats) on the board of
directors of the Borrower shall at any time have been occupied by persons who
were neither (i) nominated by the management of the Borrower or by the
Nominating Committee of the Borrower's board of directors in connection with an
annual meeting of the stockholders of the Borrower, nor (ii) appointed by
directors so nominated; or (c) any person or group other than Stewart Bainum and
his family shall otherwise directly or indirectly Control the Borrower.
Notwithstanding the foregoing, if a trust or foundation or other entity
established by Stewart Bainum or his family holds shares representing in excess
of 15% of the aggregate ordinary voting power represented by the issued and
outstanding capital stock of the Borrower and Stewart Bainum or his family
Controls such trust or foundation or such other entity and the vote of such
shares held by such trust or foundation or such other entity and Stewart Bainum
and his family remain in Control of the Borrower, there shall be no Change in
Control for purposes of this Agreement; provided, however, that any transfer of
such shares by Stewart Bainum, such trust or such foundation or such other
entity shall stand on its own merits for purposes of this Agreement.
"Choice Hotels Franchising" shall mean Choice Hotels International,
Inc., a Delaware corporation, to be renamed Choice Hotels Franchising, Inc.
following the Distribution.
"Closing Date" shall mean the Distribution Date.
"Code" shall mean the Internal Revenue Code of 1986, as the same may
be amended from time to time.
"Consolidated EBITDA" shall mean, for any period, without duplication,
the sum for such period of (a) Consolidated Net Income, (b) depreciation and
amortization expense, (c) Consolidated Interest Expense, (d) provisions for
income tax expense, (e) restructuring charges incurred in connection with the
Distribution and (f) non-cash charges related to the impairment of assets
(pursuant to FAS 121), all as determined in accordance with GAAP consistently
applied.
"Consolidated Funded Indebtedness" means, as of any date of
determination, all obligations accounted for as indebtedness on a consolidated
balance sheet of the Borrower on such date, in accordance with GAAP consistently
applied, whether such obligations are classified as long-term or short-term.
"Consolidated Interest Coverage Ratio" shall mean, for any period, the
ratio of (a) Consolidated EBITDA for such period to (b) Consolidated Interest
Expense for such period.
"Consolidated Interest Expense" shall mean, for any period, gross
total expenses of the Borrower and its consolidated Subsidiaries accounted for
as interest expense (including capitalized interest determined in accordance
with GAAP consistently applied) for such period, including (i) the portion of
rental payments under Capital Lease Obligations deemed to represent interest in
accordance with GAAP consistently applied, (ii) the amortization of debt
discounts, (iii) the amortization of all fees (including fees with respect to
interest rate protection agreements) payable in connection with the incurrence
of Indebtedness to the extent included in interest expense, all as determined on
a consolidated basis in accordance with GAAP consistently applied. For purposes
of the foregoing, gross interest expense shall be determined after giving effect
to any net payments made or received with respect to interest rate protection
agreements entered in to as a hedge against interest rate exposure.
"Consolidated Leverage Ratio" shall mean the ratio of Consolidated
Funded Indebtedness to Consolidated EBITDA. In the event the Borrower shall
complete, directly or through a Subsidiary, an acquisition or divestiture of any
Person or business unit during any period, the Consolidated Leverage Ratio as of
the end of and for such period shall thereafter be determined on a pro forma
basis as if such acquisition or divestiture had been completed on the first day
of such period.
"Consolidated Net Income" shall mean, for any period, the net income
(or loss) of the Borrower and its consolidated Subsidiaries for such period, as
determined on a consolidated basis in accordance with GAAP consistently applied.
"Consolidated Net Worth" shall mean, as at any date of determination,
the consolidated stockholders' equity of the Borrower and its consolidated
Subsidiaries, as determined on a consolidated basis in accordance with GAAP
consistently applied.
"Consolidated Total Assets" shall mean, as at any date of
determination, the total assets of the Borrower and its consolidated
Subsidiaries at such time, as determined on a consolidated basis in accordance
with GAAP consistently applied.
"Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings correlative
thereto; provided, however, the existence of a management contract by the
Borrower or one of its Affiliates to manage another entity shall not be deemed
to be Control. "Default" shall mean any event or condition which upon notice,
lapse of time or both would constitute an Event of Default.
"Distribution" shall mean the distribution by Manor Care to its
shareholders of all the capital stock of Borrower in the manner, on the terms
and with the results set forth in the Form 10.
"Distribution Date" shall mean the date determined by the Board of
Directors of Manor Care as the date of which the Distribution shall be effected.
"dollars" or "$" shall mean dollars in lawful currency of the United
States of America.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that is a member of a group of which the Borrower is a member and
which is treated as a single employer under Section 414 of the Code.
"Event of Default" shall have the meaning assigned to such term in
Article VI.
"Financial Officer" of any corporation shall mean the chief financial
officer, principal accounting officer, Treasurer or Controller of such
corporation.
"Form 10" shall mean the registration statement on Form 10 under the
Securities Exchange Act of 1934 of the Borrower filed with the Securities and
Exchange Commission on July 11, 1996, as amended and distributed to the Lenders
prior to the date hereof.
"GAAP" shall mean generally accepted accounting principles as in
effect from time to time in the United States of America.
"Governmental Authority" shall mean any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or regulatory
body.
"Guarantee" of or by any person shall mean any obligation, contingent
or otherwise, of such person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other person (the "primary obligor") in any
manner, whether directly or indirectly, and including any obligation of such
person, direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of such
Indebtedness, (b) to purchase property, securities or services for the purpose
of assuring the owner of such Indebtedness of the payment of such Indebtedness
or (c) to maintain working capital, equity capital or other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness; provided, however, that the term Guarantee
shall not include endorsements for collection or deposit, in either case in the
ordinary course of business.
"Hotel Properties" shall mean the properties set forth on Schedule
1.01, including fixtures and personalty associated therewith.
"Indebtedness" of any person shall mean, without duplication, (a) all
obligations of such person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such person
upon which interest charges are customarily paid, (d) all obligations of such
person under conditional sale or other title retention agreements relating to
property or assets purchased by such person, (e) all obligations of such person
issued or assumed as the deferred purchase price of property or services, (f)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such person, whether or not the
obligations secured thereby have been assumed, (g) all Guarantees by such person
of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i)
all obligations of such person in respect of interest rate protection
agreements, foreign currency exchange agreements or other interest or exchange
rate hedging arrangements and (j) all obligations of such person as an account
party in respect of letters of credit (other than (x) documentary letters of
credit (including commercial and trade letters of credit) issued to secure
payment obligations in respect of goods and services in the ordinary course of
business and (y) letters of credit and surety bonds with respect to obligations
of such person that are fully accounted for as liabilities in the financial
records of such person) and bankers' acceptances. The Indebtedness of any person
shall include the Indebtedness of any partnership in which such person is a
general partner.
"Interest Payment Date" shall mean, with respect to the Loan, the last
Business Day of each November, February, May, and August, commencing on the
first of such days to occur after the date hereof.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed
of trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relating to such asset and
(c) in the case of securities, any purchase option, call or similar right of a
third party (excluding rights of first refusal) with respect to such securities.
"Loan" shall mean the Loan hereunder as defined in Section 2.01.
"Loan Documents" shall mean this Agreement and the Note. "Manor Care
Note" shall mean (a) Indebtedness of the Borrower to MNR Finance Corp., a
subsidiary of Manor Care, in an aggregate principal amount not in excess of
$225,722,500 having a three year term and bearing interest at a rate equal to 9%
per annum, and (b) any Indebtedness that renews, extends, refinances or replaces
the Manor Care Note; provided, however, that the Indebtedness that extends,
renews, refinances or replaces the Manor Care Note has (i) a maturity and
schedule of principal or redemption payments no earlier than that of the Manor
Care Note and (ii) an aggregate principal amount that is equal to or less than
the aggregate principal amount then outstanding (plus fees and expenses,
including any premium and defeasance costs) of the Manor Care Note.
"Material Adverse Effect" shall mean a materially adverse effect on
the business, assets, property or condition, financial or otherwise, of the
Borrower and the Subsidiaries taken as a whole.
"Maturity Date" shall mean the third anniversary of the date hereof.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code) is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"Non-Recourse Hotel Indebtedness" shall mean Indebtedness, incurred
solely in respect of a Hotel Property, (i) as to which neither the Borrower nor
any Subsidiary (x) provides credit support (including any undertaking, agreement
or instrument which would constitute Indebtedness) or has given or made other
assurances regarding repayment, (y) is directly or indirectly personally liable
or (z) constitutes the lender and (ii) the obligees of which will have recourse
solely against the assets comprising such Hotel Property for repayment of the
principal of and interest on such Indebtedness and any fees, indemnities,
expense reimbursements or other amounts of whatever nature accrued or payable in
connection with such Indebtedness.
"Note" shall mean the promissory note of Borrower, substantially in
the form of Exhibit A hereto, evidencing the obligation of Borrower to repay the
Loan.
"Obligations" shall mean (a) the Borrowers' obligations in respect of
the due and punctual payment of principal of and interest on the Loan when and
as due whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise, (b) all expenses, indemnities, reimbursements and other
obligations, monetary or otherwise, of the Borrower under this Agreement or any
other Loan Document and (c) all obligations, monetary or otherwise, of each
Subsidiary under each Loan Document to which it is a party. "PBGC" shall mean
the Pension Benefit Guaranty Corporation referred to and defined in ERISA.
"Permitted Investments" shall mean:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States
of America (or by any agency thereof to the extent such obligations
are backed by the full faith and credit of the United States of
America);
(b) investments in commercial paper having credit ratings of at
least A-1 from S&P and P-1 from Moody's;
(c) investments in certificates of deposit, banker's acceptances
and time deposits issued or guaranteed by or placed with, and money
market deposit accounts issued or offered by, any domestic office of
any commercial bank organized under the laws of the United States of
America or any State thereof which has a combined capital and surplus
and undivided profits of not less than $200,000,000;
(d) investments in the ordinary course of business in customary
repurchase agreements with respect to freely marketable, short-term
securities of the type customarily subject to repurchase agreements;
and
(e) other readily marketable debt and equity securities traded on
national securities exchanges or on other nationally recognized
markets, including over-the-counter markets.
"person" shall mean an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture or
other entity or a government or any agency or political subdivision thereof.
"Plan" shall mean any pension plan (other than a Multiemployer Plan)
subject to the provisions of Title IV of ERISA or Section 412 of the Code which
is maintained for employees of the Company or any ERISA Affiliate.
"Prime Rate" shall mean the rate published by Chase Manhattan Bank,
N.A. as its prime rate from time to time.
"Proceeds" shall mean, with respect to any Asset Sale, (a) the gross
amount of consideration or other amounts payable to or receivable by the
Borrower or a Subsidiary in respect of such Asset Sale, less (b) the amount, if
any, of all estimated taxes payable with respect to such Asset Sale whether or
not payable during the taxable year in which such Asset Sale shall have
occurred, and less (c) reasonable and customary fees, commissions, costs and
other expenses (other than those payable to the Borrower or a Subsidiary or
Affiliate of the Borrower) which are incurred in connection with such Asset Sale
and are payable by the seller or the transferor of the assets or property to
which such Asset Sale relates, but only to the extent not already deducted in
arriving at the amount referred to in clause (a) above. For purposes of
determining Proceeds, the value of all noncash consideration payable or
receivable by the Borrower or any Subsidiary, as the case may be, shall be the
fair market value of such noncash consideration as determined in good faith by
the Borrower and the Borrower shall provide to the Agent a certificate of a
Financial Officer of the Borrower with respect to the fair market value of such
consideration, in form and substance reasonably satisfactory to the Agent.
"Promissory Notes" shall have the meaning set forth in the preamble to
this Agreement.
"Quality Hotels" shall mean Quality Hotels Europe, Inc., a Subsidiary.
"Reportable Event" shall mean any reportable event as defined in
Section 4043(b) of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate which is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the
Code).
"Responsible Officer" of any corporation shall mean any executive
officer or Financial Officer of such corporation and any other officer or
similar official thereof responsible for the administration of the obligations
of such corporation in respect of this Agreement.
"Sale and Lease-Back Transaction" shall mean any arrangement, directly
or indirectly, with any person whereby such person shall sell or transfer any
property, real or personal, used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property or other property
which it intends to use for substantially the same purpose or purposes as the
property being sold or transferred.
"Significant Subsidiary" shall mean at any time (a) Choice Hotels
Franchising, (b) any Subsidiary of the Borrower with revenues during the fiscal
year of the Borrower most recently ended greater than or equal to 5% of the
total revenues of the Borrower and its Subsidiaries during such year, computed
and consolidated in accordance with GAAP consistently applied ("Consolidated
Revenues"), (c) any Subsidiary of the Borrower with assets as of the last day of
the Borrower's most recently ended fiscal year greater than or equal to 5% of
the total assets of the Borrower and its Subsidiaries at such date, computed and
consolidated in accordance with GAAP consistently applied ("Consolidated
Assets"), (d) any Subsidiary with stockholder's equity as of the last day of the
Borrower's most recently ended fiscal year greater than or equal to 5% of the
stockholder's equity of the Borrower and the Subsidiaries at such date, computed
and consolidated in accordance with GAAP consistently applied ("Net
Stockholders' Equity"), (e) any Subsidiary designated in writing by the Borrower
as a Significant Subsidiary, (f) any Subsidiary created or acquired by the
Borrower after the date hereof that falls within or that comes to meet one of
clauses (a) through (e) or (g) any Subsidiary in existence on the date hereof
which comes to meet one of clauses (a) through (e) after the date hereof;
provided, however, that if at any time (x) the aggregate revenues of all
Subsidiaries that are Significant Subsidiaries during any fiscal year of the
Borrower shall not equal or exceed 90% of Consolidated Revenues for such fiscal
year, (y) the aggregate assets of all Subsidiaries that are Significant
Subsidiaries as of the last day of any fiscal year of the Borrower shall not
equal or exceed 90% of Consolidated Assets at such date, or (z) the aggregate
stockholders' equity of all Subsidiaries that are Significant Subsidiaries as of
the last day of any fiscal year of the Borrower shall not equal or exceed 90% of
Net Stockholders' Equity at such date, then the term Significant Subsidiary
shall be deemed to include such Subsidiaries (as determined pursuant to the next
following sentence) of the Borrower as may be required so that none of clauses
(x), (y) and (z) above shall continue to be true. For purposes of the proviso to
the next preceding sentence, the Subsidiaries which shall be deemed to be
Significant Subsidiaries shall be determined based on the percentage that the
assets of each such Subsidiary are of Consolidated Assets, with the Subsidiary
with the highest such percentage being selected first, and each other Subsidiary
required to satisfy the requirements set forth in such proviso being selected in
descending order of such percentage.
"SPC" shall mean a special purpose corporation formed by the Borrower
as a wholly owned Subsidiary and possessing only Hotel Properties as assets.
"subsidiary" shall mean, with respect to any person (herein referred
to as the "parent"), any corporation, partnership, association or other business
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or more
than 50% of the general partnership interests are, at the time any determination
is being made, owned, controlled or held, or (b) which is, at the time any
determination is made, otherwise Controlled by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"Subsidiary" shall mean any subsidiary of the Borrower.
"Transactions" shall have the meaning assigned to such term in Section
3.02.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally.SECTION 1.02. Terms Generally. The
definitions in Section 1.01 shall apply equally to both the singular and plural
forms of the terms defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation". All references herein to Articles, Sections,
Exhibits and Schedules shall be deemed references to Articles and Sections of,
and Exhibits and Schedules to, this Agreement unless the context shall otherwise
require. Except as otherwise expressly provided herein, all terms of an
accounting or financial nature shall be construed in accordance with GAAP
consistently applied, as in effect from time to time; provided, however, that,
for purposes of determining compliance with any covenant set forth in Article V,
such terms shall be construed in accordance with GAAP as in effect on the date
of this Agreement applied on a basis consistent with the application used in
preparing the Company's audited financial statements referred to in Section
3.05.
ARTICLE II. AMOUNT AND TERMS OF THE LOAN
SECTION 2.01. Amount of the Loan.Amount of the Loan. Subject to the
terms and conditions hereof, Lender and Borrower agree to (a) refinance all
obligations owed by Borrower to Lender pursuant to those certain Promissory
Notes of Borrower held by Lender and (b) formalize the repayment obligations of
Borrower for the Advances previously made by Lender to Borrower in the form of a
term loan to Borrower in an aggregate principal amount of $225,722,500 (the
"Loan"). Upon execution of this Agreement and the Note, the Lender shall
surrender the Promissory Notes to Borrower for cancellation.
SECTION 2.02. The Note.The Note. Borrower shall execute and deliver to
Lender a Note in the form of Exhibit A to evidence the Loan, such Note to be in
the principal amount of the Loan. The Note shall be held by Lender or its
designee. The Note shall (a) be dated as of the date hereof, (b) be stated to
mature on the Maturity Date and (c) bear interest for the period from the date
hereof to the Maturity Date on the unpaid principal amount thereof from time to
time outstanding as provided in subsection 2.4(a). Interest on the Note shall be
payable as specified in subsection 2.4(b).
SECTION 2.03. Optional Prepayments.Optional Prepayments. Borrower may
repay at any time the Loan made hereunder, in whole or in part, upon irrevocable
notice to Lender by 12:00 P.M. at least five business days prior to the date of
prepayment, specifying the date and amount of prepayment. If such prepayment is
made at any time on or prior to November 1, 1997, the Borrower shall reimburse
the Lender on demand for any actual loss incurred or to be incurred by the
Lender (for the period up to and including November 1, 1997) in the reemployment
of the funds released by any prepayment of the Loan, such Loss to be equal to
any product resulting from the following calculation (the "Penalty"): the
difference between (i) the interest rate specified in Section 2.04 hereunder,
and (ii) the annualized interest rate on a U.S. Treasury Note or Bill having a
maturity date which is closest to the period of time from the date of the
prepayment until November 1, 1997, multiplied by the principal amount being
prepaid with the resulting product being multiplied by the fraction of a 365-day
year remaining from the date of the prepayment until November 1, 1997. The
Penalty shall be payable in installments on the first calendar day of each
month, in arrears, up to and including November 1, 1997. After November 1, 1997,
the Borrower may repay at any time the Loan made hereunder without premium or
penalty. If such notice is given, Borrower shall make such prepayment and the
payment amount specified in such notice shall be due and payable on the date
specified therein, together with accrued interest to such date on the amount
prepaid. Partial prepayments shall be in aggregate principal amount of
$1,000,000 (or a whole multiple thereof) or if a lesser amount of the Loan
remains outstanding, then prepayment shall be made in the full aggregate amount
of the Loan outstanding, unless such prepayment is being paid pursuant to
Section 5.06.
SECTION 2.04. Interest Rate and Payment Dates.Interest Rate and
Payment Dates. (a) The Loan shall bear interest on the outstanding principal
amount, for each day from the date the Loan is made until it becomes due, at a
rate per annum equal to 9% for such day. Interest shall be calculated on the
basis of a 360 day year.
(b) Interest shall be payable in arrears on each Interest Payment
Date.
(c) Any overdue interest on the Loan shall bear interest, payable on
demand, for each day until paid at a rate per annum equal to the
greater of (i) the Prime Rate plus 200 basis points for such day or
(ii) 11%.
SECTION 2.05 Payments.Payments. All payments (including prepayments)
to be made by Borrower on account of principal and interest shall be made to the
Lender without set-off, deduction or counterclaim in lawful money of the United
States of America and in immediately available funds. If any payment hereunder
becomes due and payable on a day other than a Business Day, such payment shall
be extended to the next succeeding Business Day and, with respect to payments of
principal, interest thereon shall be payable at the interest rate set forth in
Section 2.4(a) during such extension.
SECTION 2.06. Indemnity.SECTION 2.06. Indemnity. The Borrower shall
indemnify the Lender against any loss or expense which such Lender may sustain
or incur as a consequence of any default in payment or prepayment of the
principal amount of any Loan or any part thereof or interest accrued thereon, as
and when due and payable at the due date thereof (whether by scheduled maturity,
acceleration, irrevocable notice of prepayment or otherwise).
SECTION 2.07. Taxes.SECTION 2.07. Taxes. (a) Any and all payments by
any Borrower hereunder shall be made, in accordance with Section 2.5, free and
clear of and without deduction for any and all present or future taxes, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding (i) estimated taxes deducted to arrive at Proceeds, (ii) taxes imposed
on the Lender's (or any transferee's or assignee's, (any such entity a
"Transferee")) net income and (iii) franchise taxes imposed on the Lender (or
Transferee) by any jurisdiction or any political subdivision thereof (all such
nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Lender (or any Transferee), (i) the sum payable shall be
increased by the amount necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section)
Lender (or Transferee, as the case may be) shall receive an amount equal to the
sum it would have received had no such deductions been made, (ii) Borrower shall
make such deductions and (iii) Borrower shall pay the full amount deducted to
the relevant taxing authority or other Governmental Authority in accordance with
applicable law.
(b) In addition, Borrower shall pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to,
this Agreement or any other Loan Document (hereinafter referred to as
"Other Taxes").
(c) Borrower shall indemnify Lender (or Transferee) for the full amount
of Taxes and Other Taxes (including any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable under this Section) paid by Lender
(or Transferee) and any liability (including penalties, interest and
reasonable out-of-pocket expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted by the relevant taxing authority or other Governmental
Authority. Such indemnification shall be made within 30 days after the
date Lender (or Transferee) makes written demand therefor, which demand
may be made after Lender (or Transferee) in its sole discretion
(reasonably exercised) and at the sole expense of the applicable
Borrower, determines to challenge or contest such assertion of Taxes or
Other Taxes. After the Borrower makes full payment to the Lender (or
Transferee) with respect to such indemnification for Taxes or Other
Taxes asserted, if Lender (or Transferee) believes in its sole
discretion that reasonable grounds exist to challenge or contest the
Taxes or Other Taxes imposed, then Lender (or Transferee) shall so
contest or challenge in good faith the Taxes or Other Taxes asserted,
which contest or challenge shall be at the sole expense of Borrower. If
Lender (or Transferee) shall become aware that it is entitled to
receive a refund in respect of Taxes or Other Taxes, it shall promptly
notify the Borrower of the availability of such refund and shall,
within 30 days after receipt of a request by Borrower, apply for such
refund at the Borrower's reasonable out-of-pocket expense. If Lender
(or Transferee) receives a refund in respect of any Taxes or Other
Taxes for which Lender (or Transferee) has received payment from
Borrower hereunder it shall promptly notify Borrower of such refund and
shall promptly upon receipt repay such refund to Borrower, net of all
out-of-pocket expenses of Lender and without interest; provided,
however, that Borrower, upon the request of Lender (or Transferee),
agrees to return such refund (plus penalties, interest or other
charges) to Lender (or Transferee) in the event Lender (or Transferee)
is required to repay such refund.
(d) Within 30 days after the date of any payment of Taxes or Other
Taxes withheld by Borrower in respect of any payment to Lender (or
Transferee), Borrower will furnish to Lender, at its address referred
to in Section 8.01, the original or a certified copy of a receipt
evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section shall
survive the payment in full of the principal of and interest on all
Loans made hereunder.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Lender that:
SECTION 3.01. Authorization; No Violations.Authorization; No
Violations. The execution, delivery and performance by the Borrower of each of
the Loan Documents to which it is a party and the borrowings hereunder by the
Borrower (collectively, the "Transactions") (a) have been duly authorized by all
requisite action, including, if required, stockholder action on the part of the
Borrower, and (b) will not (i) violate (A) any provision of law, statute, rule
or regulation, or of the certificate or articles of incorporation or other
constitutive documents or by-laws of the Borrower or any Subsidiary, (B) any
order of any Governmental Authority or (C) any provision of any indenture,
agreement or other instrument to which the Borrower or any Subsidiary is a party
or by which any of them or any of their property is or may be bound, (ii) be in
conflict with, result in a breach of or constitute (alone or with notice or
lapse of time or both) a default under any such indenture, agreement or other
instrument or (iii) result in the creation or imposition of any Lien upon or
with respect to any property or assets now owned or hereafter acquired by the
Borrower or any Subsidiary.
SECTION 3.02. Enforceability.SECTION 3.02. Enforceability. This
Agreement has been duly executed and delivered by the Borrower and constitutes,
and each other Loan Document when executed and delivered by the Borrower will
constitute, a legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms.
SECTION 3.03. No Material Misstatements. No Material Misstatements. No
information, report, financial statement, exhibit or schedule furnished by or on
behalf of Borrower to the Lender in connection with any Loan Document will
contain any material misstatement of fact or will omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
under which they will be made, not misleading.
ARTICLE IV. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with each Lender that, so long as
this Agreement shall remain in effect or the principal of or interest on any
Loan, any Fees or any other expenses or amounts payable under any Loan Document
shall be unpaid, unless the Lender shall otherwise consent in writing, the
Borrower shall, and shall cause each of the Subsidiaries to:
SECTION 4.01. Existence; Businesses and Properties.Existence;
Businesses and Properties. (a) Do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its legal existence, except as
otherwise expressly permitted under Section 5.05.
(b) Do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; maintain and operate such business in
substantially the manner in which it is presently conducted and operated (except
for the Distribution); comply in all material respects with all applicable laws,
rules, regulations and orders of any Governmental Authority, whether now in
effect or hereafter enacted; and at all times maintain and preserve all property
material to the conduct of such business and keep such property in good repair,
working order and condition and from time to time make, or cause to be made, all
needful and proper repairs, renewals, additions, improvements and replacements
thereto necessary in order that the business carried on in connection therewith
may be properly conducted at all times.
SECTION 4.02. Insurance.SECTION 4.02. Insurance. Keep its insurable
properties adequately insured at all times by financially sound and reputable
insurers; maintain such other insurance, to such extent and against such risks,
including fire and other risks insured against by extended coverage, as is
customary with companies in the same or similar businesses, including public
liability insurance against claims for personal injury or death or property
damage occurring upon, in, about or in connection with the use of any properties
owned, occupied or controlled by it; and maintain such other insurance as may be
required by law.
SECTION 4.03. Obligations and Taxes.SECTION 4.03. Obligations and
Taxes. Pay its Indebtedness and other obligations promptly and in accordance
with their terms and pay and discharge promptly when due all taxes, assessments
and governmental charges or levies imposed upon it or upon its income or profits
or in respect of its property, before the same shall become delinquent or in
default, as well as all lawful and valid claims for labor, materials and
supplies or otherwise which, if unpaid, might give rise to a Lien upon such
properties or any part thereof; provided, however, that such payment and
discharge shall not be required with respect to any such tax, assessment,
charge, levy or claim so long as the validity or amount thereof shall be
contested in good faith by appropriate proceedings and the Borrower or such
Subsidiary shall have set aside on its books adequate reserves with respect
thereto.
SECTION 4.04. Financial Statements, Reports, etc.SECTION 4.04.
Financial Statements, Reports, etc. In the case of the Borrower, furnish to the
Lender:
(a) within 100 days after the end of each fiscal year, its
audited consolidated balance sheets and related statements of income
and cash flow, showing the financial condition of the Borrower and its
consolidated subsidiaries as of the close of such fiscal year and the
results of its operations and the operations of such subsidiaries
during such year, all audited by Arthur Andersen & Co. or other
independent public accountants of recognized national standing
acceptable to the Lender and accompanied by an opinion of such
accountants (which shall not be qualified in any material respect) to
the effect that such consolidated financial statements fairly present
the financial condition and results of operations of the Borrower on a
consolidated basis in accordance with GAAP consistently applied;
(b) within 50 days after the end of each of the first three
fiscal quarters of each fiscal year, its unaudited consolidated balance
sheets and related statements of income and cash flow, showing the
financial condition of the Borrower and its consolidated subsidiaries
as of the close of such fiscal quarter and the results of its
operations and the operations of such subsidiaries during such fiscal
quarter and the then elapsed portion of the fiscal year, all certified
by one of the Financial Officers of the Borrowers as fairly presenting
the financial condition and results of operations of the Borrower on a
consolidated basis in accordance with GAAP consistently applied,
subject to normal year-end audit adjustments;
(c) concurrently with any delivery of financial statements
under clause (a) or (b) above, a certificate of the accounting firm or
Financial Officer of the Borrower opining on or certifying such
statements (which certificate, when furnished by an accounting firm,
may be limited to accounting matters and disclaim responsibility for
legal interpretations) (i) certifying that no Event of Default or
Default has occurred or, if such an Event of Default or Default has
occurred, specifying the nature and extent thereof and any corrective
action taken or proposed to be taken with respect thereto and (ii)
setting forth computations in reasonable detail satisfactory to the
Lender demonstrating compliance with the covenants contained in
Sections 5.06, 5.13, 5.14 and 5.15;
(d) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials
filed by it with the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of or all the functions of
said Commission, or with any national securities exchange, or
distributed to its shareholders, as the case may be; and
(e) promptly, from time to time, such other information
regarding the operations, business affairs and financial condition of
the Borrower or any Subsidiary, or compliance with the terms of any
Loan Document, as the Lender may reasonably request.
SECTION 4.05. Litigation and Other Notices.SECTION 4.05. Litigation
and Other Notices. Furnish to the Lender prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and
extent thereof and the corrective action (if any) proposed to be taken
with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any
Governmental Authority, against the Borrower or any Affiliate thereof
as to which there is a reasonable probability of an adverse
determination and which, if such probable adverse determination
occurred, could reasonably be anticipated to result in a Material
Adverse Effect; and
(c) any development that has resulted in, or could reasonably
be anticipated to result in, a Material Adverse Effect.
SECTION 4.06. ERISA.SECTION 4.06. ERISA. (a) Comply in all material
respects with the applicable provisions of ERISA and (b) furnish to the Lender
(i) as soon as possible, and in any event within 30 days after any Responsible
Officer of the Borrower or any ERISA Affiliate either knows or has reason to
know that any Reportable Event has occurred that alone or together with any
other Reportable Event could reasonably be expected to result in liability of
the Borrower or any ERISA Affiliate to the PBGC in an aggregate amount exceeding
$5,000,000, a statement of a Financial Officer of the Borrower setting forth
details as to such Reportable Event and the action proposed to be taken with
respect thereto, together with a copy of the notice, if any, of such Reportable
Event given to the PBGC, (ii) promptly after receipt thereof, a copy of any
notice the Borrower or any ERISA Affiliate may receive from the PBGC relating to
the intention of the PBGC to terminate any Plan or Plans (other than a Plan
maintained by an ERISA Affiliate which is considered an ERISA Affiliate only
pursuant to subsection (m) or (o) of Section 414 of the Code) or to appoint a
trustee to administer any Plan or Plans, (iii) within 10 days after the due date
for filing with the PBGC pursuant to Section 412(n) of the Code of a notice of
failure to make a required installment or other payment with respect to a Plan,
a statement of a Financial Officer of the Borrower setting forth details as to
such failure and the action proposed to be taken with respect thereto, together
with a copy of such notice given to the PBGC and (iv) promptly and in any event
within 30 days after receipt thereof by the Borrower or any ERISA Affiliate from
the sponsor of a Multiemployer Plan, a copy of each notice received by the
Borrower or any ERISA Affiliate concerning (A) the imposition of Withdrawal
Liability in excess of $500,000 or (B) a determination that a Multiemployer Plan
is, or is expected to be, terminated or in reorganization, in each case within
the meaning of Title IV of ERISA.
SECTION 4.07. Maintaining Records; Access to Properties and
Inspections.SECTION 4.07. Maintaining Records; Access to Properties and
Inspections. Maintain all financial records in accordance with GAAP consistently
applied and upon reasonable notice by any Lender permit any representatives
designated by such Lender, subject to Section 7.16 of this Agreement, to visit
and inspect the financial records and the properties of the Borrower or any
Subsidiary at reasonable times and as often as requested and to make extracts
from and copies of such financial records, and permit any representatives
designated by any Lender to discuss the affairs, finances and condition of the
Borrower or any Subsidiary with the officers thereof and independent accountants
therefor.
SECTION 4.08. Ownership.Ownership. Subject to 5.05, maintain Quality
Hotels as a wholly owned Subsidiary, except that shares representing up to 10%
of the shares of any class of the capital stock of Quality Hotels (but not
representing more than 10% of the aggregate ordinary voting power represented by
the issued and outstanding capital stock of Quality Hotels) may be sold to
certain members of management, and maintain Choice Hotels Franchising as a
Subsidiary in which the Borrower owns shares representing not less than 88.9% of
the aggregate ordinary voting power represented by the issued and outstanding
capital stock of Choice Hotels Franchising. Continue to own, directly or
indirectly, the operations of Choice Hotels Franchising substantially as they
exist on the date hereof.
ARTICLE V. NEGATIVE COVENANTS
The Borrower covenants and agrees with each Lender that, so long as
this Agreement shall remain in effect or the principal of or interest on any
Loan, any Fees or any other expenses or amounts payable under any Loan Document
shall be unpaid unless the Lender shall otherwise consent in writing, the
Borrower shall not, and shall not cause or permit any of the Subsidiaries to:
SECTION 5.01. Indebtedness.Indebtedness. Incur, create, assume or
permit to exist any Indebtedness, except (without duplication):
(a) Indebtedness existing on the date hereof and set forth in
Schedule 5.01(a) and any extensions, renewals or replacements of
existing mortgages and Capital Lease Obligations; provided, however,
that (i) the principal amount of any such extension, renewal or
replacement shall not exceed the principal amount of the mortgage or
Capital Lease Obligation so extended, renewed or replaced, (ii) the
mortgage or Capital Lease Obligation so extended, renewed or replaced
shall not be secured by any property or asset that was not already
pledged to secure the existing mortgage or Capital Lease Obligation,
and (iii) such extension, renewal or replacement is not on terms
materially more restrictive to the Borrower or its Subsidiaries or
materially less favorable to the Lenders than the mortgage or Capital
Lease Obligation so extended, renewed or replaced;
(b) Indebtedness represented by the Loan Documents; provided,
however, that Indebtedness consisting of commercial paper of the
Borrower may also be incurred pursuant to this clause (b) to the
extent the sum of such Indebtedness and the aggregate principal amount
of Loans then outstanding do not exceed the Advances at such time
(subject to Section 5.01(n) to the extent in excess of $100,000,000).
(c) Indebtedness incurred upon the acquisition of any property or
asset secured by Liens on such property or asset in accordance with
5.02(b); provided, however, that the amount of such Indebtedness shall
not exceed the purchase price of any such property or asset;
(d) Indebtedness secured by Liens permitted under 5.02(i),
5.02(j) or 5.02(m);
(e) Indebtedness of Subsidiaries existing at the time they are
acquired by the Borrower and not incurred in contemplation of such
acquisition;
(f) other Indebtedness of Subsidiaries not prohibited by Section
5.09;
(g) Indebtedness of (i) the Borrower to any wholly owned
Subsidiary, Choice Hotels Franchising or Quality Hotels; (ii) any
wholly owned Subsidiary, Choice Hotels Franchising or Quality Hotels
to the Borrower; and (iii) any Subsidiary, Choice Hotels Franchising
or Quality Hotels to any wholly owned Subsidiary (or to Choice Hotels
Franchising or Quality Hotels)(for the purposes of this clause (g),
"wholly owned Subsidiary" includes any wholly owned subsidiary of
Choice Hotels Franchising and/or Quality Hotels, any Subsidiary that
would otherwise constitute a wholly owned Subsidiary but for
directors' qualifying shares or similar matters, and any Subsidiary
the only direct shareholders, members or participants in which are
wholly owned Subsidiaries, Choice Hotels Franchising or Quality
Hotels);
(h) Indebtedness represented by notes or letters of credit issued
for the account of the Borrower or any Subsidiary in connection with
insurance policies and in a form substantially similar to the notes or
letters of credit issued for the account of the Borrower or any
Subsidiary set forth in Schedule 5.01(h) issued in connection with
existing insurance policies of the Borrower or such Subsidiary;
(i) Indebtedness represented by utility bonds, performance bonds,
state self insurance bonds and miscellaneous other bonds other than
those existing on the date hereof and listed in Schedule 5.01(a)
(including any extensions, renewals and replacements), the aggregate
principal amount of such Indebtedness at any one time not to exceed
$20,000,000 (subject to Section 5.01(n) to the extent in excess of
$20,000,000);
(j) Indebtedness of the Borrower consisting of Guarantees in
connection with pension and deferred compensation arrangements arising
in connection with the Distribution; provided, however, that the
aggregate amount of such Indebtedness shall not exceed $40,000,000;
(k) Indebtedness consisting of the Manor Care Note;
(l) Non-Recourse Hotel Indebtedness; provided, that, so long as
the Manor Care Note remains in effect or any principal, interest or
any other expenses or amounts payable thereunder shall be unpaid, the
proceeds of the incurrence of such Non-Recourse Hotel Indebtedness
shall be applied solely to prepay amounts outstanding under the Manor
Care Note;
(m) Indebtedness consisting of Sale and Lease-back Transactions
permitted under Section 5.03; and
(n) other unsecured Indebtedness of the Borrower in an aggregate
principal amount at any one time outstanding not to exceed
$100,000,000; provided, however, that the covenants and events of
default contained in any such Indebtedness with an aggregate principal
amount in excess of $10,000,000 shall not be more restrictive of the
Borrower and its Subsidiaries than those in this Agreement; and
provided further, that the aggregate amount of Guarantees by the
Borrower may not exceed $50,000,000.
SECTION 5.02. Liens.SECTION 5.02. Liens. Create, incur, assume or
permit to exist any Lien on any property or assets (including stock or other
securities of any person, including any Subsidiary) now owned or hereafter
acquired by it or on any income or revenues or rights (excluding rights of first
refusal) in respect of any thereof, except (without duplication):
(a) Liens on property or assets of the Borrower and its
Subsidiaries existing on the date hereof and set forth in Schedule
5.02; provided, however, that such Liens shall secure only those
obligations which they secure on the date hereof except as otherwise
permitted hereunder;
(b) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary; provided,
however, that (i) such Lien is not created in contemplation of or in
connection with such acquisition and (ii) such Lien does not apply to
any other property or assets of the Borrower or any Subsidiary;
(c) Liens for taxes not yet due or which are being contested in
compliance with Section 4.03;
(d) carriers', warehousemen's, mechanic's, materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business and securing obligations that are not due or which are being
contested in compliance with Section 4.03;
(e) statutory liens of landlords in respect of property leased by
the Borrower or any Subsidiary;
(f) pledges and deposits made in the ordinary course of business
in compliance with workmen's compensation, unemployment insurance and
other social security laws or regulations;
(g) deposits to secure the performance of bids, trade contracts
(other than for Indebtedness), leases (other than Capital Lease
Obligations), statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(h) zoning restrictions, easements, rights-of-way, restrictions
on use of real property and other similar encumbrances incurred in the
ordinary course of business which, in the aggregate, are not
substantial in amount and do not materially detract from the value of
the property subject thereto or interfere with the ordinary conduct of
the business of the Borrower or any of its Subsidiaries;
(i) purchase money security interests in real property,
improvements thereto or equipment hereafter acquired (or, in the case
of improvements, constructed) by the Borrower or any Subsidiary and
liens securing refinancings of existing mortgages; provided, however,
that the aggregate principal amount of the Indebtedness secured by
such security interests does not exceed $50,000,000; and provided
further, that (i) such security interests are incurred, and the
Indebtedness secured thereby is created, within 120 days after such
acquisition, or construction or refinancing, (ii) the Indebtedness
secured thereby does not exceed 80% of the fair market value of the
subject real property, improvements or equipment at the time of such
acquisition, construction or refinancing, and (iii) such security
interests do not apply to the subject property or assets of the
Borrower or any Subsidiary other than the purchased property or assets
or the property or assets subject to the mortgage being refinanced, as
the case may be;
(j) mortgages on properties listed on Schedule 5.02(j); provided,
however, that (i) such mortgages do not apply to the property or
assets of the Borrower or any Subsidiary other than the scheduled
properties and (ii) the aggregate principal amount of the Indebtedness
secured by such security interests does not exceed $100,000,000;
(k) Liens created in favor of the Lenders;
(l) Liens securing Indebtedness incurred pursuant to Sections
5.01(l) or 5.09(ii); and
(m) other Liens to secure Indebtedness of the Borrower or any
Subsidiary; provided, however, that the aggregate principal amount of
the Indebtedness so secured at any time, when added to the net book
value of all property the subject of Sale and Lease-Back Transactions
(other than Sale and Lease-back Transactions referred to in the
proviso to Section 5.03) at such time, does not exceed 15% of
Consolidated Total Assets at such time.
SECTION 5.03. Sale and Lease-Back Transactions.Sale and Lease-Back
Transactions. Enter into any Sale and Lease-Back Transaction unless immediately
thereafter the net book value of all property the subject of Sale and Lease-Back
Transactions, when added to the aggregate principal amount of Indebtedness of
the Borrower or any Subsidiary secured at such time by Liens permitted only
under Section 5.02(m), does not exceed 10% of Consolidated Total Assets at such
time; provided, however, that this Section 5.03 shall be deemed not to apply to
any Sale and Lease-back Transaction entered into by an SPC so long as (i)
neither the Borrower nor any other Subsidiary (x) provides credit support
(including any undertaking, agreement or instrument which would constitute
Indebtedness) or has given or made other assurances regarding repayment, (y) is
directly or indirectly personally liable or (z) is the lessor and (ii) the
obligees will have recourse solely against the assets of such SPC for repayment
of the amounts owed in connection with such Sale and Lease-back Transaction and
any fees, indemnities, expense reimbursements or other amounts of whatever
nature accrued or payable in connection with such Sale and Lease-back
Transaction; and provided further, that, so long as the Manor Care Note remains
in effect or any principal, interest or any other expenses or amounts payable
thereunder shall be unpaid, the proceeds of such Sale and Lease-back Transaction
shall be applied solely to prepay amounts outstanding under the Manor Care Note.
SECTION 5.04. Investments, Loans and Advances.Investments, Loans and
Advances. Purchase, hold or acquire any capital stock, comparable ownership
interests, evidences of indebtedness or other securities of, make or permit to
exist any loans or advances to, or make or permit to exist any investment or any
other interest in, any other person, except:
(a) the investments and guarantees existing on the date hereof
set forth on Schedule 5.04 and investments by the Borrower or any
Subsidiary in the capital stock or comparable ownership interests of
the Subsidiaries, including by means of contributions by any
Subsidiary of Hotel Properties to the Borrower or a Subsidiary;
(b) loans or advances by the Borrower to Subsidiaries or by
Subsidiaries to the Borrower or other Subsidiaries;
(c) purchases by the Borrower of the capital stock of Quality
Hotels held by Alain Ammar pursuant to rights held by Alain Ammar as
of the date hereof;
(d) Guarantees permitted under Section 5.01(j);
(e) Permitted Investments; and
(f) other investments, capital contributions, loans and advances
not to exceed at any time 15% of Consolidated Total Assets at such
time.
SECTION 5.05. Mergers and Consolidations.SECTION 5.05. Mergers and
Consolidations. Merge into or consolidate with any other person, or permit any
other person to merge into or consolidate with it, or sell, transfer, lease or
otherwise dispose of (in one transaction or in a series of transactions) all or
substantially all its assets whether now owned or hereafter acquired, except
that:
(a) (i) the Borrower may merge or consolidate with a Subsidiary
or (ii) a Subsidiary may merge or consolidate with the Borrower so
long as the Borrower is the surviving entity;
(b) any Subsidiary may merge or consolidate with any Subsidiary;
(c) the Borrower or any Subsidiary may merge or consolidate with
another person; provided, however, that:
(i) the Borrower or such Subsidiary is the surviving entity;
(ii) no Event of Default or event which, with notice or the
passage of time or both, would constitute an Event of Default
exists after giving effect to such merger or consolidation; and
(iii) the Lender shall receive a certificate signed by a
Financial Officer of the Borrower, confirming compliance with
clause (ii) above;
(e) the Borrower and the Subsidiaries may consummate the
Distribution.
SECTION 5.06. Asset Sales.SECTION 5.06. Asset Sales.
Consummate any Asset Sale, other than (i) sales of receivables for collection
(and not for financing or factoring purposes) in the ordinary course of
business, (ii) Asset Sales which, when added to the Proceeds from all other
Asset Sales previously consummated in the same fiscal year, would not exceed 10%
of Consolidated Total Assets as of the end of the preceding fiscal year, and
(iii) Asset Sales, in a single transaction or series of transactions, of Hotel
Properties or the SPC; provided that no Asset Sale referenced in clause (iii)
above shall be permitted if (a) a Default has occurred or would occur after
giving effect to such Asset Sale, or (b) so long as the Manor Care Note remains
in effect or any principal, interest or any other expenses or amounts payable
thereunder shall be unpaid, the net proceeds of such Asset Sale are used other
than to prepay (x) amounts outstanding under the Manor Care Note or (y)
Indebtedness secured by Liens on the Hotel Properties that are the subject of
such Asset Sale.
SECTION 5.07. Transactions with Affiliates.Transactions with
Affiliates. Sell or transfer any property or assets to, or purchase or acquire
any property or assets from, or otherwise engage in any other transactions with,
any of its Affiliates, except that as long as no Default or Event of Default
shall have occurred and be continuing, the Borrower or any Subsidiary may (a)
consummate the Distribution or (b) engage in any of the foregoing transactions
(i) in the ordinary course of business at prices and on terms and conditions not
less favorable to the Borrower or such Subsidiary than could be obtained on an
arm's-length basis from unrelated third parties or (ii) between or among the
Borrower and its wholly owned Subsidiaries.
SECTION 5.08. Business of Borrower and Subsidiaries.SECTION 5.08.
Business of Borrower and Subsidiaries. Engage at any time in any business or
business activity other than the business currently conducted by it or related
or collateral activities in the hospitality, travel or franchise-related
industries.
SECTION 5.09. Subsidiary Indebtedness.Subsidiary Indebtedness. Permit
any Subsidiary to create, incur, assume or permit to exist any Indebtedness
except:
(i) any Indebtedness permitted by Section 5.01;
(ii) Indebtedness of any SPC in the form of collateralized
mortgage obligations or obligations under a real estate
investment trust; provided, however, that, in respect of such
Indebtedness, (i) neither the Borrower nor any other Subsidiary
(x) provides credit support (including any undertaking, agreement
or instrument which would constitute Indebtedness) or has given
or made other assurances regarding repayment, (y) is directly or
indirectly personally liable or (z) is the lender and (ii) the
obligees will have recourse solely against the assets of SPC for
repayment of the principal of and interest on such Indebtedness
and any fees, indemnities, expense reimbursements or other
amounts of whatever nature accrued or payable in connection with
such Indebtedness; and provided further, that, so long as the
Manor Care Note remains in effect or any principal, interest or
any other expenses or amounts payable thereunder shall be unpaid,
the proceeds of the incurrence of such Indebtedness shall be
applied solely to prepay amounts outstanding under the Manor Care
Note; and
(iii) other Indebtedness of any Subsidiary; provided,
however, that the aggregate principal amount (the "Subsidiary
Debt Amount") outstanding of all such other Indebtedness of all
Subsidiaries (excluding amounts permitted under clause (i) above)
may not exceed 15% of Consolidated Total Assets at such time;
provided further, however, that, at any time during which the
Manor Care Note remains in effect or any principal, interest or
any other expenses or amounts payable thereunder shall be unpaid,
the Subsidiary Debt Amount may not exceed 5% of Consolidated
Total Assets at such time.
SECTION 5.10. Agreements.SECTION 5.10. Agreements. Permit any
Subsidiary to enter into any agreement or incur any obligation the terms of
which would impair the ability of any Subsidiary to pay dividends, to make
intercompany loans or advances or to make distributions (it being agreed that
this Section shall not be breached by any such agreement or obligation binding
upon a Subsidiary at the time it becomes a Subsidiary and not incurred in
contemplation of its becoming a Subsidiary).
SECTION 5.11. Fiscal Year and Accounting Practices.Fiscal Year and
Accounting Practices. Change its fiscal year end or accounting practices from
those in effect at May 31, 1996, other than as required by GAAP.
SECTION 5.12. No Further Negative PledgesNo Further Negative Pledges.
Except with respect to prohibitions against other encumbrances on specific
property encumbered to secure payment of particular Indebtedness (which
Indebtedness relates solely to such specific property, and improvements and
accretions thereto, and is otherwise permitted hereby), enter into any agreement
prohibiting the creation or assumption of any Lien upon the properties or assets
of the Borrower or any Subsidiary, whether now owned or hereafter acquired, or
requiring an obligation to be secured if some other obligation is secured.
SECTION 5.13. Minimum Consolidated Net Worth.Minimum Consolidated Net
Worth. In the case of the Borrower, permit its Consolidated Net Worth at any
time to be less than the greater of (i) the sum of (x) $75,000,000, (y) 50% of
the Borrower's Consolidated Net Income accrued during the period (treated as one
accounting period) commencing on the date of the Distribution and ending on the
last day of the most recent fiscal quarter for which financial statements have
been delivered pursuant to Section 4.04 (which amount shall not include
Consolidated Net Income for any fiscal quarter in which the Borrower's
Consolidated Net Income is negative) and (z) the aggregate net cash proceeds
received by the Borrower from the issuance or sale of its capital stock since
the date hereof, and (ii) the sum of (W) the amount that is equal to 75% of the
Borrower's Consolidated Net Worth as of the last day of the month in which the
Distribution occurs plus (X) 50% of the Borrower's Consolidated Net Income
accrued during the period (treated as one accounting period) commencing on the
date on which the Distribution occurs, and ending on the last day of the most
recent fiscal quarter for which financial statements have been delivered
pursuant to Section 4.04 (which amount shall not include Consolidated Net Income
for any fiscal quarter in which the Borrower's Consolidated Net Income is
negative), plus (Y) the aggregate net cash proceeds received by the Borrower
from the issuance or sale of its capital stock since the date hereof, minus (Z)
an amount equal to the decrease, if any, in the Borrower's Consolidated Net
Worth (as measured at the date of the Distribution) resulting from the sale,
transfer or other disposition of Hotel Properties or an SPC.
SECTION 5.14. Consolidated Leverage Ratio. Consolidated Leverage Ratio.
In the case of the Borrower, permit the Consolidated Leverage Ratio as of the
last day of and for any period of four fiscal quarters ending during the period
from and including the date hereof through the Maturity Date to exceed (i) 3.75
to 1.0, at any time during which the Manor Care Note remains in effect or any
principal, interest or any other expenses or amounts payable thereunder shall be
unpaid, and (ii) 3.25 to 1.0, at any other time. The Consolidated Leverage Ratio
shall be calculated as of the end of each fiscal quarter based on the period of
the four consecutive fiscal quarters ending on such date.
SECTION 5.15. Consolidated Interest Coverage Ratio.Consolidated
Interest Coverage Ratio. In the case of the Borrower, permit its Consolidated
Interest Coverage Ratio at any time during the period from and including the
date hereof through the Maturity Date to be less than (i) 3.25 to 1.0, at any
time during which the Manor Care Note remains in effect or any principal,
interest or any other expenses or amounts payable thereunder shall be unpaid,
and (ii) 3.75 to 1.0, at any other time. The Consolidated Interest Coverage
Ratio shall be calculated as of the end of each fiscal quarter based on the
period of the four consecutive fiscal quarters ending on such date.
SECTION 5.16. Dividends and Distributions.Dividends and Distributions.
Declare or pay, directly or indirectly, any dividend or make any other
distribution (by reduction of capital or otherwise), whether in cash, property,
securities or a combination thereof, with respect to any shares of its capital
stock or directly or indirectly redeem, purchase, retire or otherwise acquire
for value (or permit any Subsidiary to purchase or acquire) any shares of any
class of its capital stock or set aside any amount for any such purpose;
provided, however, that any Subsidiary may declare and pay dividends or make
other distributions to the Borrower or another Subsidiary; and provided,
further, that nothing contained in this Section 5.16 shall prevent the transfer
of assets to an SPC if such transfer is otherwise permitted by this Agreement.
ARTICLE VI. EVENTS OF DEFAULT
In case of the happening of any of the following events ("Events of
Default"):
(a) any representation or warranty made or deemed made (such
representation or warranty being deemed made as provided in Section
3.01) in or in connection with any Loan Document or the borrowings
hereunder, or any representation, warranty, statement or information
contained in any report, certificate, financial statement or other
instrument furnished in connection with or pursuant to any Loan
Document, shall prove to have been false or misleading in any material
respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of the Loan
when and as the same shall become due and payable, whether at the due
date thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on the Loan or
any Fee or any other amount (other than an amount referred to in clause
(b) above) due under any Loan Document, when and as the same shall
become due and payable, and such default shall continue unremedied for
a period of five Business Days;
(d) default shall be made in the due observance or performance by
the Borrower or any Subsidiary of any covenant, condition or agreement
contained in Section 4.01(a) or 4.05 or in Article V;
(e) default shall be made in the due observance or performance by the
Borrower or any Subsidiary of any covenant, condition or agreement
contained in any Loan Document (other than those specified in clauses
(b), (c) and (d) above) and such default shall continue unremedied for
a period of five Business Days after notice thereof from the Lender to
the Borrower; (f) the Borrower or any Subsidiary shall (i) fail to pay
any principal or interest, regardless of amount, due in respect of any
Indebtedness in an aggregate principal amount in excess of $10,000,000,
when and as the same shall become due and payable, or (ii) fail to
observe or perform any other term, covenant, condition or agreement
contained in any agreement or instrument evidencing or governing any
Indebtedness in an aggregate principal amount in excess of $10,000,000
if the effect of any failure referred to in this clause (ii) is to
cause, or to permit the holder or holders of such Indebtedness or a
trustee on its or their behalf (with or without the giving of notice,
the lapse of time or both) to cause, such Indebtedness to become due
prior to its stated maturity;
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking
(i) relief in respect of the Borrower or any Subsidiary, or of a
substantial part of the property or assets of the Borrower or a
Subsidiary, under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other Federal, state or
foreign bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Subsidiary or
for a substantial part of the property or assets of the Borrower or a
Subsidiary or (iii) the winding-up or liquidation of the Borrower or
any Subsidiary; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any
of the foregoing shall be entered;
(h) the Borrower or any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking relief under Title 11 of the
United States Code, as now constituted or hereafter amended, or any
other Federal, state or foreign bankruptcy, insolvency, receivership or
similar law, (ii) consent to the institution of, or fail to contest in
a timely and appropriate manner, any proceeding or the filing of any
petition described in clause (g) above, (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Subsidiary or
for a substantial part of the property or assets of the Borrower or any
Subsidiary, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors, (vi) become unable, admit in
writing its inability or fail generally to pay its debts as they become
due or (vii) take any action for the purpose of effecting any of the
foregoing;
(i) one or more judgments for the payment of money in an aggregate
amount in excess of $5,000,000 shall be rendered against the Borrower,
any Subsidiary or any combination thereof and the same shall remain
undischarged for a period of 60 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken
by a judgment creditor to levy upon assets or properties of the
Borrower or any Subsidiary to enforce any such judgment;
(j) a Reportable Event or Reportable Events, or a failure to make a
required installment or other payment (within the meaning of Section
412(n)(l) of the Code), shall have occurred with respect to any Plan or
Plans that reasonably could be expected to result in liability of the
Borrower to the PBGC or to a Plan in an aggregate amount exceeding
$5,000,000 and, within 30 days after the reporting of any such
Reportable Event to the Lender or after the receipt by the Lender of
the statement required pursuant to Section 4.06, the Lender shall have
notified the Borrower in writing that (i) it has made a determination
that, on the basis of such Reportable Event or Reportable Events or the
failure to make a required payment, there are reasonable grounds (A)
for the termination of such Plan or Plans by the PBGC, (B) for the
appointment by the appropriate United States District Court of a
trustee to administer such Plan or Plans or (C) for the imposition of a
lien in favor of a Plan and (ii) as a result thereof an Event of
Default exists hereunder; or a trustee shall be appointed by a United
States District Court to administer any such Plan or Plans; or the PBGC
shall institute proceedings to terminate any Plan or Plans;
(k) (i) the Borrower or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that it has incurred Withdrawal
Liability to such Multiemployer Plan, (ii) the Borrower or such ERISA
Affiliate does not have reasonable grounds for contesting such
Withdrawal Liability or is not in fact contesting such Withdrawal
Liability in a timely and appropriate manner and (iii) the amount of
the Withdrawal Liability specified in such notice, when aggregated with
all other amounts required to be paid to Multiemployer Plans in
connection with Withdrawal Liabilities (determined as of the date or
dates of such notification), exceeds $1,000,000 or requires payments
exceeding $1,000,000 in any year;
(l) the Borrower or any ERISA Affiliate shall have been notified by the
sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV
of ERISA, if solely as a result of such reorganization or termination
the aggregate annual contributions of the Borrower and its ERISA
Affiliates to all Multiemployer Plans that are then in reorganization
or have been or are being terminated have been or will be increased
over the amounts required to be contributed to such Multiemployer Plans
for their most recently completed plan years by an amount exceeding
$1,000,000; or
(m) there shall have occurred a Change in Control;
then, and in every such event (other than an event with respect to Borrower
described in clause (g) or (h) above), and at any time thereafter during the
continuance of such event, the Lender shall, by notice to the Borrower, declare
the Loan then outstanding to be forthwith due and payable in whole or in part,
whereupon the principal of the Loan so declared to be due and payable, together
with accrued interest thereon and all other liabilities of the Borrower accrued
hereunder and under any other Loan Document, shall become forthwith due and
payable, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived by the Borrower, anything contained
herein or in any other Loan Document to the contrary notwithstanding; and in any
event with respect to any Borrower described in clause (g) or (h) above, the
principal of the Loan then outstanding, together with accrued interest thereon
and all other liabilities of the Borrower accrued hereunder and under any other
Loan Document, shall automatically become due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived by the Borrower, anything contained herein or in any other Loan
Document to the contrary notwithstanding.
ARTICLE VII. MISCELLANEOUS
SECTION 7.01. Notices.Notices. Notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed or sent by telex, graphic scanning or other
telegraphic communications equipment of the sending party, as follows:
(a) if to the Borrower at 10750 Columbia Pike, Silver Spring, Maryland
20901, Attention of General Counsel; and
(b) if to the Lender, at 11555 Darnestown Road, Gaithersburg,
Maryland, 20878-3200, Attention of General Counsel.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt, in each case delivered, sent or mailed (properly addressed) to
such party as provided in this Section 7.01 or in accordance with the latest
unrevoked direction from such party given in accordance with this Section 7.01.
SECTION 7.02. Survival of Agreement.SECTION 7.02. Survival of
Agreement. All covenants, agreements, representations and warranties made by the
Borrower and Guarantors herein and in the certificates or other instruments
prepared or delivered in connection with or pursuant to this Agreement or any
other Loan Document shall be considered to have been relied upon by the Lender
and shall survive the making by the Lender of the Loans, and the execution and
delivery to the Lender of the Notes evidencing such Loans, regardless of any
investigation made by the Lender or on their behalf, and shall continue in full
force and effect as long as the principal of or any accrued interest on any Loan
or any other amount payable under this Agreement or any other Loan Document is
outstanding and unpaid and so long as the Commitments have not been terminated.
SECTION 7.03. Binding Effect.SECTION 7.03. Binding Effect. This
Agreement shall become effective on the Distribution Date, and thereafter shall
be binding upon and inure to the benefit of the Borrower, the Lender and their
respective successors and assigns, except that Borrower may not assign or
delegate its rights or obligations hereunder or any interest herein without the
prior consent of the Lender.
SECTION 7.04. Successors and Assigns.SECTION 7.04. Successors and
Assigns. Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and assigns of such
party; and all covenants, promises and agreements by or on behalf of the
Borrower, or the Lender that are contained in this Agreement shall bind and
inure to the benefit of their respective successors and assigns.
SECTION 7.05. Expenses; Indemnity.SECTION 7.05. Expenses; Indemnity.
(a) Borrower agrees to pay all reasonable out-of-pocket expenses incurred by
Lender and its Affiliates in connection with the preparation of this Agreement
and the other Loan Documents and the syndication of the facilities provided for
herein or in connection with any amendments, modifications or waivers of the
provisions hereof or thereof (whether or not the transactions hereby
contemplated shall be consummated) or incurred by the Lender in connection with
the enforcement or protection of their rights (as such rights may relate to any
Borrower or any Subsidiary) in connection with this Agreement and the other Loan
Documents or in connection with the Loan made or the Notes issued hereunder,
including counsel for Lender, including the allocated costs of in-house counsel.
(b) The Borrower agrees to indemnify the Lender and its respective
directors, officers, employees, agents and Affiliates (each such person
being called an "Indemnitee") against, and to hold each Indemnitee
harmless from, any and all losses, claims, damages, liabilities and
related expenses, including reasonable counsel fees and expenses,
incurred by or asserted against any Indemnitee arising out of, in any
way connected with, or as a result of (i) the execution or delivery of
this Agreement or any other Loan Document or any agreement or
instrument contemplated thereby, the performance by the parties thereto
of their respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby, (ii) the
use of the proceeds of the Loan or (iii) any claim, litigation,
investigation or proceeding relating to any of the foregoing, whether
or not any Indemnitee is a party thereto; provided, however, that such
indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and
nonappealable judgment to have resulted from the negligence or
misconduct of such Indemnitee. Promptly after receipt by an Indemnitee
of notice of any complaint or the commencement of any action or
proceeding with respect to which indemnification is being sought
hereunder, such person shall notify the Borrower of such complaint or
of the commencement of such action or proceeding, but failure so to
notify the Borrower will relieve Borrower from any liability which
Borrower may have hereunder only if, and to the extent that such
failure results in the forfeiture by Borrower of substantial rights and
defenses, and shall not in any event relieve Borrower from any other
obligation or liability that Borrower may have to any Indemnitee
otherwise than under this Agreement. If Borrower so elects or is
requested by such Indemnitee, Borrower shall assume the defense of such
action or proceeding, including the employment of counsel reasonably
satisfactory to the Indemnitee and the payment of the reasonable fees
and disbursements of such counsel. In the event, however, such
Indemnitee reasonably determines in its judgment that having common
counsel would present such counsel with a conflict of interest or if
the defendant in, or targets of, any such action or proceeding include
both the Indemnitee and Borrower, and such Indemnitee reasonably
concludes that there may be legal defenses available to it or other
Indemnitees that are different from or in addition to those available
to Borrower or if Borrower fails to assume the defense of the action or
proceeding or to employ counsel reasonably satisfactory to such
Indemnitee, in either case in a timely manner, then the Indemnitee may
employ separate counsel to represent or defend it in any such action or
proceeding and Borrower shall pay the reasonable fees and disbursements
of such counsel. In any action or proceeding the defense of which
Borrower assumes, the Indemnitee shall have the right to participate in
such litigation and to retain its own counsel at the Indemnitee's own
expense. Borrower further agrees that it shall not, without the prior
written consent of the Indemnitee, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not an Indemnitee is an actual or potential party
to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes (i) an unconditional release of each
Indemnitee hereunder from all liability arising out of such claim,
action, suit or proceeding or (ii) a covenant not to sue each
Indemnitee, or another similar alternative which is consented to by
each Indemnitee party to such claim, action, suit or proceeding, which
covenant not to sue or other approved alternative has the effect of an
unconditional release of each Indemnitee hereunder from all liability
arising out of such claim, action, suit or proceeding.
(c) The provisions of this Section shall remain operative and in full
force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby,
the repayment of any of the Loans, the invalidity or unenforceability
of any term or provision of this Agreement or any other Loan Document,
or any investigation made by or on behalf of the Agent or any Lender.
All amounts due under this Section shall be payable on written demand
therefor.
SECTION 7.06. Right of Setoff.SECTION 7.06. Right of Setoff. If an
Event of Default shall have occurred and be continuing, Lender is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by Lender to or for the credit or the account of Borrower against any
of and all the obligations of Borrower now or hereafter existing under this
Agreement and other Loan Documents held by Lender, irrespective of whether or
not Lender shall have made any demand under this Agreement or such other Loan
Document and although such obligations may be unmatured. The rights of Lender
under this Section are in addition to other rights and remedies (including other
rights of setoff) which Lender may have.
SECTION 7.07. Applicable Law.SECTION 7.07. Applicable Law. THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF MARYLAND WITHOUT REFERENCE TO ITS CONFLICTS
OF LAWS PRINCIPLES OR PROVISIONS.
SECTION 7.08. Waivers; Amendment.Waivers; Amendment. (a) No failure or
delay of the Lender in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Lender hereunder and under
the other Loan Documents are cumulative and are not exclusive of any rights or
remedies which they would otherwise have. No waiver of any provision of this
Agreement or any other Loan Document or consent to any departure by Borrower
therefrom shall in any event be effective unless the same shall be permitted by
Section 8.08(b), and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice or demand on
Borrower in any case shall entitle Borrower to any other or further notice or
demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Lender; provided, however,
that no such agreement shall (i) decrease the principal amount of, or
extend the maturity of or any scheduled principal payment date or date
for the payment of any interest on the Loan, or waive or excuse any
such payment or any part thereof, or decrease the rate of interest on
the Loan, without the prior written consent of each holder of a Note
affected thereby, or (ii) amend or modify the provisions of this
Section without the prior written consent of Lender. Lender and each
holder of a Note shall be bound by any waiver, amendment or
modification authorized by this Section regardless of whether its Note
shall have been marked to make reference thereto, and any consent by
Lender or holder of a Note pursuant to this Section shall bind any
person subsequently acquiring a Note from it, whether or not such Note
shall have been so marked.
SECTION 7.09. Interest Rate Limitation.SECTION 7.09. Interest Rate
Limitation. Notwithstanding anything herein or in the Notes to the contrary, if
at any time the applicable interest rate, together with all fees and charges
which are treated as interest under applicable law (collectively the "Charges"),
as provided for herein or in any other document executed in connection herewith,
or otherwise contracted for, charged, received, taken or reserved by Lender,
shall exceed the maximum lawful rate (the "Maximum Rate") which may be
contracted for, charged, taken, received or reserved by Lender in accordance
with applicable law, the rate of interest payable under the Note held by Lender,
together with all Charges payable to Lender, shall be limited to the Maximum
Rate.
SECTION 7.10. Entire Agreement.SECTION 7.10. Entire Agreement. This
Agreement and the other Loan Documents constitute the entire contract between
the parties relative to the subject matter hereof. Any previous agreement among
the parties with respect to the subject matter hereof is superseded by this
Agreement and the other Loan Documents. Nothing in this Agreement or in the
other Loan Documents, expressed or implied, is intended to confer upon any party
other than the parties hereto and thereto any rights, remedies, obligations or
liabilities under or by reason of this Agreement or the other Loan Documents.
SECTION 7.11. Waiver of Jury Trial; Punitive Damages.Waiver of Jury
Trial; Punitive Damages. Each party hereto hereby waives, to the fullest extent
permitted by applicable law, (a) any right it may have to a trial by jury in
respect of any litigation directly or indirectly arising out of, under or in
connection with this Agreement or any of the other Loan Documents and (b) any
claims for punitive damages (to the extent such claims arise from the use of
proceeds of the Loans for the purpose of acquisitions). Each party hereto (i)
certifies that no representative, agent or attorney of any other party has
represented, expressly or otherwise, that such other party would not, in the
event of litigation, seek to enforce the foregoing waiver and (ii) acknowledges
that it and the other parties hereto have been induced to enter into this
Agreement and the other Loan Documents, as applicable, by, among other things,
the mutual waivers and certifications in this Section.
SECTION 7.12. Severability.Severability. In the event any one or more
of the provisions contained in this Agreement or in any other Loan Document
should be held invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein and
therein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 7.13. Counterparts.SECTION 7.13. Counterparts. This Agreement
may be executed in two or more counterparts, each of which shall constitute an
original but all of which when taken together shall constitute but one contract,
and shall become effective as provided in Section 7.03.
SECTION 7.14. Headings.Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and are not to affect the construction of, or to be taken
into consideration in interpreting, this Agreement.
SECTION 7.15. Jurisdiction; Consent to Service of Process; Judgment
Currency. Jurisdiction; Consent to Service of Process; Judgment Currency. (a)
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any Maryland State court or
Federal court of the United States of America sitting in Maryland, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such Maryland court or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that any
Lender may otherwise have to bring any action or proceeding relating to this
Agreement or the other Loan Documents against any Borrower or its properties in
the courts of any jurisdiction.
(b) Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection
which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this agreement or
the other Loan Documents in any Maryland or Federal court. Each of the
parties hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
<PAGE>
SECTION 7.16. Confidentiality. Confidentiality. Unless otherwise agreed
to in writing by the Company, Lender hereby agrees to keep all Proprietary
Information (as defined below) confidential and not to disclose or reveal any
Proprietary Information to any person other than the Lender's directors,
officers, employees, Affiliates and agents and to actual, and then only on a
confidential basis; provided, however, that Lender may disclose Proprietary
Information (a) as required by law, rule, regulation or judicial process, (b) to
its attorneys and accountants, (c) as requested or required by any state or
Federal or foreign authority or examiner regulating banks or banking or (d)
subject to appropriate confidentiality projections, in any legal proceedings
between Lender and Borrower arising out of this Agreement. For purposes of this
Agreement, the term "Proprietary Information" shall include all information
about the Borrower or any of their Affiliates which has been furnished by
Borrower or any of its Affiliates, whether furnished before or after the date
hereof, and regardless of the manner in which it is furnished; provided,
however, that Proprietary Information does not include information which (x) is
or becomes generally available to the public other than as a result of a
disclosure by Lender not permitted by this Agreement, (y) was obtained or
otherwise became available Lender on a nonconfidential basis prior to its
disclosure to Lender by Borrower or any of its Affiliates or (z) becomes
available to Lender on a nonconfidential basis from a person other than Borrower
or its Affiliates who, to the best knowledge of Lender, as the case may be, is
not otherwise bound by a confidentiality agreement with Borrower or any of its
Affiliates, or is not otherwise prohibited from transmitting the information to
Lender. If the foregoing provision is inconsistent with the undertakings of the
Borrower and the Lender and their respective Affiliates in agreements executed
in connection with the Distribution, the confidentiality provisions of each
agreement shall also govern herein.
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
CHOICE HOTELS INTERNATIONAL, INC.,
as Borrower,
By: /s/James A. MacCutcheon
Name:James A. MacCutcheon
Title:Executive Vice President
and Chief Financial Officer
and Treasurer
MNR FINANCE CORP., as Lender
By: ___________________________________
Name:
Title:
<PAGE>
EXHIBIT A
NOTE
$225,722,500 NEW YORK, NEW YORK
November 1, 1996
FOR VALUE RECEIVED, the undersigned CHOICE HOTELS INTERNATIONAL, INC.,
a Delaware corporation ("Borrower"), hereby unconditionally promises to pay to
the order of MNR Finance Corp. (the "Lender"), the principal amount of Two
Hundred Twenty-five Million Seven Hundred Twenty-two Thousand Five Hundred
dollars ($225,722,500) on the Maturity Date pursuant to the terms of the Loan
Agreement referred to below. The undersigned further promises to pay interest on
the unpaid principal amount hereof a rate of 9% per annum on the dates set forth
in the Loan Agreement.
This Note is the Note referred to in the Loan Agreement dated as of
November 1, 1996 between the Borrower and the Lender (as the same may be amended
from time to time, the "Loan Agreement"). Terms used herein and not defined
shall have the meaning ascribed to such terms in the Loan Agreement. Reference
is made to the Loan Agreement for provisions for the prepayment hereof and the
acceleration of the maturity hereof.
This Note shall be governed by and construed and interpreted in
accordance with the New York law.
CHOICE HOTELS INTERNATIONAL, INC.
By: /s/ James A. MacCutcheon
Name: James A. MacCutcheon
Title: Executive Vice President and
Chief Financial Officer and
Treasurer
<PAGE>
G:\FILES\SPINOFF\LOAN5.DOC
SCHEDULE TO NOTE
of
CHOICE HOTELS INTERNATIONAL, INC.
Dated November 1, 1996
Amount Amount of Notation
Date of Loan Principal Repaid Date Made By
<PAGE>
SCHEDULE A
List of Capital Contributions by Manor Care, Inc.
PROCUREMENT SERVICES AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into as of
___________, 1996, by and between MANOR CARE, INC., a Delaware corporation
("Manor"), and CHOICE HOTELS HOLDINGS, INC., (to be renamed Choice Hotels
International, Inc.) a Delaware corporation ("Choice").
R E C I T A L S
WHEREAS, Choice desires to have Manor provide certain procurement
services to Choice upon request;
WHEREAS, pursuant to a Distribution Agreement (the "Distribution
Agreement") dated as of ___________, 1996, Choice and Manor have agreed to enter
into procurement services agreement with the terms and conditions set forth
herein; and
WHEREAS, Manor shall retain the Corporate Procurement Department
personnel and systems formerly utilized in the administration of the services
described herein; and
WHEREAS, Choice desires to retain Manor as described herein, and Manor
desires to render such assistance on an equitable, arms length basis for a fee;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Choice and Manor agree as follows:
1. Definitions. As used in this Agreement, the following capitalized
terms shall have the meanings indicated unless the context requires otherwise:
"Confidential Information" shall have the meaning specified in
paragraph 6.
"Choice Locations" shall mean the facilities operated in connection
with the Lodging Business as of the Distribution Date, as such facilities may be
increased, decreased, or expanded during the term of this Agreement by
development of new or expansion or disposition of existing facilities by Choice.
<PAGE>
"Distribution" means the distribution to the holders of Manor Care
Common Stock all the outstanding shares of Choice Common Stock.
"Distribution Date" means the date determined by the Board of
Directors of Manor as the date on which the Distribution shall be effected.
"Fee" shall have the meaning specified in paragraph 5.
"Fiscal Year" shall mean Choice's fiscal year.
"Lodging Business" shall mean any business or operation of Choice or
the Lodging Subsidiaries (as defined in the Distribution Agreement) which is,
pursuant to the Distribution Agreement, to be conducted, following the
Distribution.
"Products" shall mean goods within the categories of food, beverages,
and other supplies described on Exhibit A and such additional categories of
goods and such services (i.e., travel agency, car rental) as the parties may
agree in writing to add.
"Prime Rate" shall be the rate identified from time to time in the New
York edition of the Wall Street Journal as being the Prime Rate of interest.
"Service Area" shall mean the areas throughout the world within which
Manor provides procurement services to Choice Locations on the Distribution
Date, and such additional areas within which Manor now or in the future provides
procurement services to Manor business operations.
Any capitalized terms defined in the Distribution Agreement and used
herein shall have the meanings ascribed to them in the Distribution Agreement
unless otherwise defined herein.
2. Procurement Services.
a. Upon the request of Choice, Manor shall provide Choice within the
Service Area, and Choice shall purchase from Manor, the following services:
(i) Assisting Choice to develop Product specifications;
(ii) Assisting Choice to select local and national vendors and
distributors for Proprietary Items, and contracting with such vendors and
distributors on Choice's behalf and in Choice's name; and
(iii) Assisting Choice to purchase Products from local and
national vendors and distributors with which Manor has agreements, on terms and
conditions negotiated by Manor on
<PAGE>
behalf of and subject to Choice approved requirements, to the extent permitted
under the terms of Manor's agreements with such vendors and distributors;
provided however, Manor shall not provide Choice any credit support in
connection therewith.
b. Standard of Care and Modifications. All services provided
hereunder shall be administered in accordance with Manor's standard policies,
procedures and practices in effect as of the date hereof and as may be changed,
and as more particularly described below, or as otherwise specified in
accordance with the terms thereof. In so doing, Manor shall follow commonly
accepted standards of care in the industry and exercise the same care and skill
as it exercises in performing like services for itself. Manor agrees to provide
such services only if it reasonably believes the service will not interfere with
the conduct of the business of Manor or pose an unreasonable burden.
c. Liaisons. Choice and Manor shall each appoint a managerial
level individual (hereinafter "Representative") to facilitate communications and
performance under this Agreement. Each party may treat an act of a
Representative of the other party as being authorized by such other party
without inquiring behind such act or ascertaining whether such Representative
had authority to so act. The initial Representatives are named on Exhibit B.
Each party shall have the right at any time and from time to time to replace its
Representative by giving notice in writing to the other party setting forth the
name of (i) the Representative to be replaced and (ii) the replacement, and
certifying that the replacement Representative is authorized to act for the
other party giving the notice in all matters relating to this Agreement.
Choice's Representative shall be responsible for authorizing Manor to enter into
arrangements on behalf of Choice, as hereinafter provided.
d. Limitation of Responsibility. Manor shall have no obligation to
train Choice employees to perform procurement functions or to convey procurement
know-how to Choice.
3. Contracting and Purchasing Procedures.
Upon the request of Choice, Manor shall provide the following
services:
a. Manor shall advise Choice of arrangements in effect during the term
of this Agreement between Manor and its vendors and distributors, under which
Choice may purchase Products, provided that such purchases by Choice do not
result in an increased cost of goods for Manor and only for so long as Choice
complies with all the terms, conditions, and performance requirements for such
agreements.
b. Choice shall, at all times, have sole responsibility for placing
orders with vendors and distributors for Products required at Choice Locations.
<PAGE>
4. Relationships with Vendors and Distributors.
a. Except as otherwise provided herein, Choice shall be responsible to
the appropriate vendor or distributor for payment for all Products sold to it
pursuant to this Agreement, it being understood that Manor shall not be
responsible for payment for such Products. Choice shall be responsible for
establishing its own creditworthiness with each vendor and distributor, and
Manor may so advise each vendor and distributor in a manner acceptable to Manor
and Choice.
b. Manor shall monitor, account for and pass on to Choice, all
discounts, allowances and other promotional payments or credits Manor receives
for purchases of Products for Choice, provided that with respect to Products for
which Choice made a commitment to purchase, Choice has satisfied such commitment
to the extent necessary to earn the applicable discount, allowance or other
promotional payment or credit. Manor shall provide Choice with its proportionate
share of tiered or bracketed volume incentive rebates and allowances based upon
the average value of the rebate or allowance received by Manor for the total
quantity to which the rebate or allowance was applicable. Choice agrees to be
responsible for any performance requirements associated with any rebates or
allowances it receives and to refund to Manor any rebates and allowances paid or
credited to Choice by Manor for which Choice does not purchase the requisite
Products.
5. Compensation for Services.
a. As compensation to Manor for services performed hereunder, Choice
shall pay Manor for each full Fiscal Year during the term of this Agreement, an
amount (hereinafter the "Fee") determined by multiplying the total dollar amount
of the Manor Care Procurement Department (#88) expenses by an agreed upon
percentage estimate of time spent each quarter by the Procurement staff
providing goods and consulting services to Choice. Choice shall furnish Manor
with such information as Manor may reasonably request for the purpose of
calculating the Fee. Choice shall be entitled to review Manor's calculations and
allocations. Any such review by Choice shall be subject to such reasonable
requirements to preserve the confidentiality of Manor's proprietary methods,
systems and data as Manor may require. Choice shall pay the Fee in four (4)
quarterly payments. Manor shall invoice Choice for each payment at least ten
(10) days prior to the end of each of Manor's quarterly Accounting Periods, and
Choice's payment shall be due on the last day of the accounting period for which
Choice is being invoiced. In the case of the first accounting period of each
Fiscal Year, Manor shall invoice Choice as soon as the required information is
available and Choice's payment shall be due within thirty (30) days after
receipt of the invoice. If this Agreement begins or ends on a day other than the
first or last day of one of Manor's quarterly Accounting Periods, the period
payment shall be prorated for the portion of the Accounting Period that this
Agreement was in effect.
b. Any payments not made by Choice to Manor when due shall bear
interest from the date due to the date of payment at the rate per annum equal to
the Prime Rate, as may vary from time to time.
<PAGE>
c. Compensation to be paid to Manor for services performed for Choice
hereunder shall be paid by Choice, and not by any vendor.
6. Confidentiality. The parties acknowledge that they will be
exchanging Confidential Information (as defined below) during the term of this
Agreement and each party shall retain the Confidential Information of the other
in strictest confidence, unless and until it becomes part of the public domain
or disclosure is required by law. "Confidential Information" is all information
which is not known by the party's competitors and which is communicated to the
other party, including, but not limited to, information regarding new product
introductions, source and price of Products, procurement systems and methods of
operation, quality assurance techniques, and cost and marketing data, which is
identified as "confidential". All confidential and proprietary information which
either party has obtained from the other shall be returned upon request, to the
extent practicable, upon the expiration or earlier termination of this
Agreement. The provisions of this paragraph shall survive expiration or earlier
termination of this Agreement.
7. Term. The term of this Agreement shall commence on the Distribution
Date and shall remain in effect through the end of the first full Fiscal Year
immediately following the Distribution Date. Unless terminated pursuant to the
terms hereof, the Agreement shall automatically renew each Fiscal Year
thereafter for the extended term of said Fiscal Year and shall not extend beyond
thirty (30) months from the Distribution Date; provided, however, that Choice
may terminate this Agreement or any services provided hereunder at any time for
any reason or no reason upon sixty (60) days' prior written notice to Manor.
This Agreement may also be terminated in the event of a default (past the
expiration of any applicable cure period provided herein) in accordance with the
provisions of this Agreement.
8. Relationship of Parties. It is understood and agreed that nothing
in this Agreement shall be deemed or construed by the parties or any third party
as creating an employer-employee, partnership or joint venture relationship
between the parties. Manor shall have the right to enter into supply contracts,
commitments or arrangements in the name of, or on behalf of, Choice, as provided
in this Agreement. Except to the extent that Manor may enter into such
contracts, commitments or arrangements on behalf of Choice, neither party will
be deemed or construed to be an agent of the other for any purpose.
9. Disclaimers.
a. Manor does not guarantee performance of any vendor or distributor
recommended to Choice or contracted with on behalf of Choice. Manor shall not be
liable to Choice, or deemed to be in default of any obligation arising from this
Agreement, for any vendor or distributor delay or failure to deliver Products
for any cause whatsoever except a Manor default.
<PAGE>
Choice's exclusive remedy in
case of such a delay or failure of delivery shall be solely against the vendor
or distributor and Manor's only obligation shall be to assist Choice in locating
an alternative source of supply.
b. MANOR DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT
NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, WITH RESPECT TO FOOD, BEVERAGES OR OTHER SUPPLIES DELIVERED
TO CHOICE BY A VENDOR OR DISTRIBUTOR PURSUANT TO THIS AGREEMENT. Choice
acknowledges that its exclusive remedy in case of any defective Product
delivered to it pursuant to this Agreement lies solely against the vendor or
distributor, and not against Manor. Manor shall assign to Choice any express
warranties or indemnifications covering Products delivered to Choice, to the
extent they are assignable by Manor excluding claims or costs relating to
Manor's bad faith, gross negligence or fraud. Manor agrees to cooperate with
Choice, at Choice's sole cost and expense, in the enforcement of any such
warranties or indemnifications against vendors or distributors.
10. Default. If either party materially defaults hereunder, the
non-defaulting party may terminate this Agreement effective immediately (subject
to the cure periods set forth herein below) upon written notice to the
defaulting party. The non-defaulting party shall be entitled to all remedies
provided by law or equity (including reasonable attorney's fees and costs of
suit incurred). The following events shall be deemed to be material defaults
hereunder:
a. Failure by either party to make any payment required to be made to
the other hereunder, which failure is not remedied within five (5) days after
receipt of written notice thereof; or
b. Except as otherwise provided herein, failure by either party
substantially to perform in accordance with the terms and conditions of this
Agreement, which failure is not remedied within thirty (30) days after receipt
of written notice from the other party specifying the nature of such default; or
c. (i) Filing of a voluntary bankruptcy petition by either party; (ii)
filing of an involuntary bankruptcy petition against either party which is not
withdrawn within sixty (60) days after filing; (iii) assignment for the benefit
of creditors made by either party; or (iv) appointment of a receiver for either
party.
11. Indemnification. Choice shall indemnify, defend and hold harmless
Manor and its directors, officers and employees from Losses (as defined below),
other than Losses directly and proximately caused solely by Manor's criminal
conduct, fraud, bad faith or gross negligence. The term "Losses" shall include
costs of any claim, lawsuit, settlement, judgment, penalty, or reasonable
attorneys' fees. Manor shall indemnify, defend and hold harmless Choice and its
directors, officers and employees from Losses directly and proximately caused
solely by Manor's criminal conduct, fraud, bad faith or gross negligence, unless
the actions (or inaction) causing the Losses were taken (or not taken) at the
specific direction of Choice, its subsidiaries, employees, or agents.
12. Assignment. Neither party shall, without the prior written consent
of the other, assign any rights or delegate any obligations under this
Agreement, such consent not to be unreasonably withheld, conditioned or delayed.
13. Headings. The headings used in this Agreement are inserted only
for the purpose of convenience and reference, and in no way define or limit the
scope or intent of any provision of part hereof.
14. Severability of Provisions. Neither Manor nor Choice intends to
violate statutory or common law by executing this Agreement. If any section,
sentence, paragraph, clause or combination of provisions in this Agreement is in
violation of any law, such sections, sentences, paragraphs, clauses or
combinations shall be inoperative and the remainder of this Agreement shall
remain in full force and effect and shall be binding upon the parties except to
the extent it would result in an interpretation which would completely frustrate
the purpose of entering into the agreement.
15. Parties Bound. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective permitted successors and
assigns. Nothing herein, expressed or implied, shall be construed to give any
other person any legal or equitable rights hereunder.
16. Notices. All notices and other communications hereunder shall be
in writing and shall be delivered by hand or mailed by registered or certified
mail (return receipt requested) to the parties at the following addresses (or at
such other addresses for a party as shall be specified by like notice) and shall
be deemed given on the date on which such notice is received:
To Choice: Choice Hotels Holdings, Inc.
10750 Columbia Pike
Silver Spring, MD 20901
Attention: General Counsel
To Manor: Manor Care, Inc.
11555 Darnestown Road
Gaithersburg, MD 20878-3200
Attention: General Counsel
17. Further Action. Manor and Choice each shall cooperate in good
faith and take such steps and execute such papers as may be reasonably requested
by the other party to implement the terms and provisions of this Agreement.
18. Waiver. Manor and Choice each agree that the waiver of any default
under any term or condition of this Agreement shall not constitute any waiver of
any subsequent default or nullify the effectiveness of that term or condition.
19. Governing Law. All controversies and disputes arising out of or
under this Agreement shall be determined pursuant to the laws of the State of
Maryland, United States of America, regardless of the laws that might be applied
under applicable principles of conflicts of laws.
20. Consent to Jurisdiction. The parties irrevocably submit to the
exclusive jurisdiction of (a) the Courts of the State of Maryland in Montgomery
County, and (b) the United States District Court for the State of Maryland for
the purposes of any suit, action or other proceeding arising out of this
Agreement.
21. Entire Agreement. This Agreement constitutes the entire
understanding between the parties hereto, and supersede all prior written or
oral communications, relating to the subject matter covered by said agreements.
No amendment, modification, extension or failure to enforce any condition of
this Agreement by either party shall be deemed a waiver of any of its rights
herein. This Agreement shall not be amended except by a writing executed by both
parties hereto.
22. Commercially Reasonable Terms and Conditions. Notwithstanding
anything in this Agreement to the contrary, the terms and provisions of this
Agreement reflect and shall reflect commercially reasonable terms and conditions
(including, but not limited to, pricing) that are at least as favorable and as
competitive to Choice as the terms and conditions Manor would grant third
parties for substantially similar goods and services.
23. Force Majeure. Manor and Choice shall incur no liability (except
for payments for Products actually delivered hereunder) to each other due to a
failure to perform under the terms and conditions of this Agreement resulting
from fire, flood, war, strike, lock-out, work-stoppage or slow-down, labor
disturbances, power failure, major equipment breakdowns, construction delays,
accident, riots, acts of God, acts of United States' enemies, laws, orders or at
the insistence or result of any governmental authority or any other delay beyond
each other's reasonable control.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CHOICE HOTELS HOLDINGS, INC.,
a Delaware corporation
By:_/s/ James A. MacCutcheon
Name: James A. MacCutcheon
Title: Executive Vice President, Chief
Financial Officer and Treasurer
MANOR CARE, INC., a Delaware
corporation
By:/s/ James H. Rempe
Name: James H. Rempe
Title: Senior Vice President and Secretary
<PAGE>
EXHIBIT A
PRODUCTS
Kitchen and Foodservice supplies and equipment
Office/Administration supplies and equipment
Housekeeping, laundry and maintenance supplies and equipment
Medical supplies and equipment
Furniture, furnishings, and design items.
<PAGE>
EXHIBIT B
REPRESENTATIVES
R. Michael Ferguson - Manor
Joseph Kristofik, Jr. - Choice
RISK MANAGEMENT CONSULTING SERVICES AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into as of
____________, 1996 by and between MANOR CARE, INC., a Delaware corporation
("Manor", and CHOICE HOTELS HOLDINGS, INC., a Delaware corporation ("Choice").
In consideration of the mutual covenants contained herein, and other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Choice and Manor agree as follows:
1. Definitions. As used in this Agreement, the following capitalized
terms shall have the meanings indicated unless the context requires otherwise:
"Distribution" means the distribution to the holders of Manor Care
Common Stock all the outstanding shares of Choice Common Stock.
"Distribution Date" means the date determined by the Board of
Directors of Manor as the date on which the Distribution shall be effected.
"Prime Rate" shall be the rate identified from time to time in the New
York edition of the Wall Street Journal as being the Prime Rate of interest.
2. Description of Services
Manor agrees to provide the following risk management consulting
services:
Insurance Renewals - Domestic and International: Negotiate the renewal
and placement of property and casualty insurance including property, boiler,
crime, auto liability, general liability, workers' compensation, umbrella
liability and directors and officers liability. This includes assembling
historical loss information and renewal information, calculation of values,
evaluation and negotiation of proposals, premiums and coverages with brokers and
underwriters on behalf of Choice.
Contract Review: Review insurance, indemnity and bond provisions of
proposed contracts as requested. Assist attorneys or others to negotiate
acceptable terms.
Surety Bond Procurement: Assist Choice managers with bond applications
and procedures, request bonds from broker, have bonds executed and delivered to
requesting party. Maintain bond log and schedule. Obtain renewals or releases of
expired bonds, review and approve accuracy of premium invoices.
Certificate Tracking: Monitor licensee certificate tracking program.
Financial and Regulatory Support: Provide the following accounting
services:
<PAGE>
- Annual/quarterly state compliance reports on outstanding
self-insurance liabilities incurred.
- Provide internal reporting associated with outstanding losses,
accounts receivable, LOC and Surety Bond requirements.
Premium and Claims Payment Processing and Reimbursement: Manor shall
process payments on behalf of Choice for Choice's financial obligations under
policies and self-insurance plans with an effective date on or after the
Distribution Date. Reimbursement for all such policies and self-insurance plans
shall be as follows:
(1) Invoices for premiums and services related to such policies and
plans shall be paid within five (5) days of receipt by Choice;
(2) An escrow account shall be established for the payment of claims.
This account will be structured to allow for three (3) months average
claims payments. The replenishment in whole or in part, shall be due
to Manor on the first day of each month, unless the account is in
negative balance, thereby requiring replenishment within forty-eight
(48) hours.
Risk Management Resource: Provide research, advice and counsel to
Choice as requested on insurance and risk management related issues, both
domestically and internationally. Review insurance coverage, policies and
provide risk management services listed below:
Certificates of Insurance Review (contractors)
Certificates of Insurance Issuance
Administration of prior programs
Actuarial Review of liabilities
Self Administer Workers' Compensation claims in PA
Monitor Claims (Set reserves, settle claims)
Handle first party claims (Property, Crime, etc.)
Oversee Auto Claims against others
Oversee claims against contractors and/or subcontractors
Self Insurance Filings and Assessment
Oversee Franchise Property and Casualty and Group Insurance Programs
Contract Review and Development
Negotiate and contract with outside services as needed (Brokers,
Claims Adjusters, Managed Care)
Safety and Loss prevention Budgeting and Allocation of premiums
IOC Policies (Crime and Directors and Officers) and contractual issues
Potential development of International Franchise insurance program
Review Franchise Agreements and recommend appropriate wording
Determine loss estimates for future years
Any other Risk Management related duties as deemed applicable
<PAGE>
All services provided hereunder shall be administered in accordance
with Manor's standard policies, procedures and practices in effect as of the
Distribution Date and as the same may be changed from time to time. In providing
such services, Manor shall follow commonly accepted standards of care in the
industry and exercise the same care and skill as it exercises in performing like
services for itself. Choice shall adopt reasonable measures to limit its
exposure with respect to any potential Losses (defined below).
Manor agrees to provide such services only if it reasonably believes
the service will not interfere with the conduct of the business of Manor or pose
an unreasonable burden.
3. Term. The term of this Agreement shall commence on the Distribution
Date and shall remain in effect through the end of the first full Fiscal Year
immediately following the Distribution Date. Unless terminated pursuant to the
terms hereof, the Agreement shall automatically renew each Fiscal Year
thereafter for the extended term of said Fiscal Year and shall not extend past
the last day of the thirtieth (30th) month following the Distribution; provided,
however, that Choice may terminate this agreement or any services provided
hereunder at any time for any reason or no reason by sending 60 days prior
written notice to Manor. This Agreement may also be terminated in the event of a
default (past the expiration of any applicable cure period provided herein) in
accordance with the provisions of this Agreement.
4. Fees; Premiums.
Fees will be $438,000 prorated through May 31, 1997, payable in equal
monthly installments. Future Fiscal Year fees will be determined within sixty
(60) days prior to the commencement of the subsequent Fiscal Year. Fees for
services rendered in addition to those specified hereunder shall be mutually
agreed upon by Manor and Choice based upon appropriate supporting documentation.
In addition, Choice shall pay Manor for all insurance premiums, self-insurance
and administrative costs.
Payments hereunder shall be made by Choice to Manor within 30 days of
receipt of invoice for payment (with appropriate supporting documentation, if
requested). Any payments not made by Choice to Manor when due shall bear
interest, computed daily, from the date due to the date of payment based on the
annual percentage rate equal to the Prime Rate, as same may vary from time to
time, plus two (2) percentage points.
The parties agree that the terms and provisions of this Agreement
reflect and shall reflect commercially reasonable terms and conditions
(including, but not limited to, pricing) that are at least as favorable and as
competitive to Choice as the terms and conditions Manor would grant or require
of third parties for substantially similar goods and services.
Payment for all policies and self insurance plans with an effective
date on or after Distribution Date shall be payable as follows:
<PAGE>
1) Invoices for premiums and services related to such policies and
plans shall be paid within 5 days of receipt by Choice.
2) An escrow account shall be established for the payment of claims.
This account will be structured to allow for three (3) months average
claims payments, and the replenishment, in whole or in part, shall be
due to Manor on the first of each month, unless the account is in
negative balance, requiring replenishment within 48 hours.
5. Termination.
If either party materially defaults hereunder, the non-defaulting party
may terminate this Agreement effective immediately (subject to the cure periods
set forth herein below) upon written notice to the defaulting party. The
non-defaulting party shall be entitled to all remedies provided by law or equity
(including reasonable attorneys' fees and costs of suit incurred). The following
events shall be deemed to be material defaults hereunder:
(a) Failure by either party to make any payment required to be made to
the other hereunder, which failure is not remedied within five (5) days
after receipt of written notice thereof; or
(b) Except as otherwise provided herein, failure by either party
substantially to perform in accordance with the terms and conditions of
this Agreement, which failure is not remedied within thirty (30) days
after receipt of written notice from the other party specifying the
nature of such default; or
(c) (i) Filing of a voluntary bankruptcy petition by either party; (ii)
filing of an involuntary bankruptcy petition against either party which
is not timely controverted and results in the entry of an order for
relief; (iii) assignment for the benefit of creditors made by either
party; or (iv) appointment of a receiver for either party.
6. Disclaimers; Limitation of Liability; Indemnification.
The following disclaimers, limitation of liability and indemnification
provisions shall apply during the term of this Agreement:
(a) MANOR DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT
NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE SERVICES. Manor shall use
reasonable efforts to perform the services in a professional and
workmanlike manner and in accordance with the standard of care set
forth herein but the results of the services are furnished "as is."
<PAGE>
(b) With regard to Losses arising out of errors or omissions in the
provision of services which are caused by Manor, Manor's sole liability
to Choice for such Losses shall be to furnish correct information,
payment and/or adjustment in the services, at no additional cost or
expense to Choice; provided, Choice must promptly advise Manor of any
such error or omission of which it becomes aware after having used
reasonable efforts to detect any such errors or omissions in accordance
with the standard of care set forth herein. If it is determined that
Manor is not guilty of any errors or omissions, it will be the
responsibility of Choice to reimburse Manor for any costs and expenses
incurred.
(c) With regard to Losses arising out of the unavailability, delay or
interruption of any services for any reason beyond Manor's reasonable
control, Manor's sole liability to Choice for such Losses shall be to
use reasonable efforts to make the services available and/or to resume
performing the services as promptly as reasonably practicable and at no
additional charge to Choice.
(d) EXCEPT FOR ITS OBLIGATION TO COMPLY WITH SUBPARAGRAPHS (a), (b),
and (c),
(i) MANOR SHALL NOT BE LIABLE FOR ANY ERRORS, OMISSIONS,
DELAYS, OR LOSSES UNLESS CAUSED SOLELY BY ITS CRIMINAL
CONDUCT, FRAUD, BAD FAITH OR GROSS NEGLIGENCE. CHOICE AGREES
THAT IN NO EVENT WILL MANOR BE LIABLE FOR INCIDENTAL,
INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES.
(ii) CHOICE FURTHER AGREES THAT IN NO EVENT WILL THE TOTAL
AGGREGATE LIABILITY OF MANOR FOR ANY AND ALL CLAIMS, LOSSES,
OR DAMAGES ARISING UNDER THIS AGREEMENT AND FOR THE SERVICES
PERFORMED HEREUNDER EXCEED THE VALUE OF CHOICE'S PAYMENT FOR
SAID SPECIFIC SERVICE OVER ONE FOUR-WEEK ACCOUNTING PERIOD'S
TIME.
(e) CHOICE AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS MANOR (ITS
DIRECTORS, OFFICERS, EMPLOYEES AND ATTORNEYS) FROM ALL LOSSES (AS
DEFINED) ASSERTED BY OR ON BEHALF OF THIRD PARTIES OR WHICH RESULT FROM
GOVERNMENTAL ACTION OTHER THAN ANY SUCH LOSSES CAUSED BY MANOR'S SOLE
CRIMINAL CONDUCT, FRAUD, BAD FAITH OR GROSS NEGLIGENCE. THE PROVISIONS
OF THIS INDEMNITY SHALL APPLY ONLY TO LOSSES (AS DEFINED) WHICH RELATE
DIRECTLY TO THE PROVISION OF THE SERVICES.
(f) With regard to either parties' indemnification, the party required
to indemnify pursuant to this Section (the "Indemnitor"), upon demand
by the other party ("Indemnitee"), at its sole cost and expense, shall
resist or defend such claim, action or proceeding (in the Indemnitee's
<PAGE>
name, if necessary), using such attorneys as the Indemnitee shall
approve, which approval shall not be unreasonably withheld. If, in the
Indemnitee's reasonable opinion, there exists a conflict of interest
which would make it inadvisable to be represented by counsel for the
Indemnitor, the Indemnitor and the Indemnitee shall jointly select
acceptable attorneys, and the Indemnitor shall pay the reasonable fees
and disbursements of such attorneys.
(g) The foregoing provisions of this Section set forth the full extend
of the parties' liability (monetary or otherwise) under the Agreement
for any and all Losses.
For purposes of this Agreement, "Losses" shall mean any and all suits,
debts, causes of action, losses, liabilities, claims or demands (whether at law
or in equity), and any damages, settlement, judgment, penalty or other
disposition of the same, and all costs and expense of the same (including,
without limitation, attorneys' fees but in no situation whatsoever shall Manor
be liable to Choice for incidental, indirect, special or consequential damages),
which arise from or are related to the services of this Agreement.
7. Representatives.
Choice and Manor hereby appoint the two managerial level
Representatives to facilitate communications and performance hereunder. Each
party may treat an act of a Representative of the other party as being
authorized by such other party without inquiring behind such act or ascertaining
whether such Representative had authority to so act. The initial Representatives
are named below and either party may change its Representative by providing the
other party notice.
INITIAL REPRESENTATIVES
Alan C. Marsh - Manor
James A. MacCutcheon - Choice
8. Governing Law.
This Agreement shall be governed by Maryland law, without reference to
its conflict of laws principles.
9. Commercially Reasonable Terms and Conditions.
The terms and provisions of this Agreement are intended to reflect
commercially reasonable terms and conditions (including, but not limited to,
pricing) that are at least as favorable and as competitive to Choice as the
terms and conditions Manor would grant or require of third parties for
substantially similar goods and services.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CHOICE HOTELS HOLDINGS, INC., a
Delaware corporation
By: /s/ James A. MacCutcheon
Name: James A. MacCutcheon
Title: Executive Vice President, Chief
Financial Officer and Treasurer
MANOR CARE, INC., a
Delaware corporation
By:/s/ James H. Rempe
Name: James H. Rempe
Title: Senior Vice President and Secretary
OFFICE LEASE
by and between
CHOICE HOTELS HOLDINGS, INC.
a Delaware corporation (to be renamed Choice Hotels International, Inc.)
"Tenant"
and
Manor Care, Inc., a Delaware corporation
"Landlord"
at
10720, 10750, and 10770 Columbia Pike
Silver Spring, Maryland 20901
<PAGE>
INDEX
Title Page #
Article I. Definitions and Certain Basic Provisions 1
Article II. Granting Clause 2
Article III. Rental 2
Article IV. Cafeteria and Fitness Center 5
Article V. Acceptance of the Demised Premises 5
Article VI. Uses and Care of Premises 5
Article VII. Landlord's Services 6
Article VIII. Alterations 8
Article IX. Landlord's Right of Access and Use 8
Article X. Signs 9
Article XI. Utilities 9
Article XII. Indemnity, Public Liability Insurance and
Fire and Extended Coverage Insurance 9
Article XIII. Tenant's Insurance 10
Article XIV. Non-Liability for Certain Damages 10
Article XV. Damage by Casualty 11
Article XVI. Eminent Domain 11
Article XVII. Assignment and Subletting 11
Article XVIII. Default by Tenant and Remedies 12
Article XIX. Holding Over 14
Article XX. Subordination and Attornment 14
Article XXI Estoppel Certificate 15
Article XXII. Notices 15
Article XXIII. Brokers 15
Article XXIV. Approval and Changes Required by Lender 15
Article XXV. Parking 16
Article XXVI. Waiver of Trial by Jury 16
Article XXVII. Furnishing of Financial Statements 16
Article XXVIII. Occupational and Environmental Compliance 16
Article XXIX. Miscellaneous 19
Article XXX. Attachments 19
Article XXXI Commercially Reasonable Terms
and Conditions 19
<PAGE>
OFFICE LEASE
This Lease is entered into this ____ day of ______________ 1996, by and between
Manor Care, Inc. a Delaware corporation ("Landlord") and Choice Hotels Holdings,
Inc., a Delaware corporation (to be renamed Choice Hotels International, Inc.)
("Tenant").
RECITALS:
A. Landlord is implementing a restructuring of itself in which,
among other things, it will distribute to its shareholders all
of the common stock of Tenant, pursuant to a Distribution
Agreement dated as of ____________________, 1996, between
Landlord and Tenant (the "Distribution Agreement") as a result
of which Landlord and Tenant will become separate publicly
traded corporations.
B. Landlord and Tenant occupy space together in an office complex
in Silver Spring, Maryland, owned by Landlord, and desire to
provide in this Lease for the continuing occupancy by Tenant,
after said stock distribution, of premises in said office
complex.
C. Landlord and Tenant each have determined that the rental and
other terms and conditions of this Lease are commercially
reasonable, based upon market conditions in the Silver Spring,
Maryland area.
Article I. Definitions and Certain Basic Provisions.
1.1
(a) "Landlord": Manor Care, Inc,
a Delaware corporation
(b) "Landlord's Address": 11555 Darnestown Road
Gaithersburg, Maryland 20878-3200
Attn.: General Counsel
(Re: Real Estate)
(c) "Tenant": Choice Hotels Holdings, Inc., a
Delaware corporation (to be renamed Choice
Hotels International, Inc.)
(d) "Tenant's Address": 10750 Columbia Pike
Silver Spring, Maryland 20910
Attn.: General Counsel
(Re: Real Estate)
(e) "Complex" shall refer to the complex of three office
buildings on the western side of Columbia Pike, Silver Spring, Montgomery
County, Maryland, known as 10720 Columbia Pike (hereinafter the "10720
Building"), 10750 Columbia Pike (hereinafter the "10750 Building"), and 10770
Columbia Pike (hereinafter the ("10770 Building"). A plan of the Complex is
attached hereto as Exhibit A.
(f) "Demised Premises": (i) approximately 87,969 rentable
square feet of office space, consisting of 13,895 rentable square feet on the
first and second floors of the 10720 Building and the entire 10750 Building with
74,074 rentable square feet. The Demised Premises are more particularly shown in
the plan attached hereto as Exhibit B. If Tenant desires to add to the Demised
Premises any vacant space in the 10720 Building, Tenant shall notify Landlord
and such space shall be added to the Demised Premises unless (i) Landlord
requires such space or any part thereof for Landlord's own use, or (ii) Landlord
has committed to lease such space or any portion thereof to a tenant unrelated
to Landlord.
1
<PAGE>
(g) "Lease Term": The period of time commencing from the Commencement
Date, as defined below, and terminating thirty (30) months after such
Commencement Date, unless such termination date is other than the last day of a
calendar month, in which event this Lease shall terminate on the last day of the
calendar month in which such date falls. Landlord shall give Tenant prior
written notice of the proposed sale of the Complex or any building therein.
Either party may elect to terminate this Lease effective as of the date of such
sale by written notice given to the other party within thirty (30) days after
Tenant's receipt of such notice of sale.
[GRAPHIC OMITTED]
(h) "Lease Year": In the case of the first Lease Year, that period
from the Commencement Date to May 31, 1997. Thereafter, "Lease Year" shall mean
each successive twelve (12) month period from June 1 to May 31 following the
expiration of the first Lease Year, except that the last Lease Year shall be the
period from June 1 to the termination date of this Lease.
(i) "Commencement Date": the Distribution Date under the Distribution
Agreement. If the Commencement Date does not occur prior to May 31, 1997, either
Landlord or Tenant may terminate this Lease by written notice to the other
party.
(j) "Annual Base Rent": See Section 3.1
(k) "Permitted Use": General Office Use. Warehouse and storage use
shall be permitted in the Warehouse Building.
Article II. Granting Clause.
2.1. In consideration of the obligation of Tenant to pay rent and other
charges as provided in this Lease and in consideration of the other included
terms, covenants and conditions, Landlord Demises and Leases to Tenant, and
Tenant Leases from Landlord, the Demised Premises as described in Article I,
Section 1.1(f) TO HAVE AND TO HOLD said premises for the Lease Term specified in
Article I, Section 1.1(g), all upon the terms and conditions set forth in this
Lease. Landlord expressly reserves the right to name or change the name of the
Complex or any building therein without notice to the Tenant.
Article III. Rental
3.1 Base Rent. Tenant shall pay to Landlord monthly rental installments
in an amount equal to 1/12th of the Annual Base Rent (as hereinafter defined) in
advance, without demand, deduction, counterclaim or offset, and without relief
from valuation and appraisement laws or any other deduction for any reason
whatsoever, on or before the first day of each and every calendar month during
the term of this Lease; provided, however, that if the Commencement Date shall
be on a day other than the first day of the calendar month or the expiration
date shall be a day other than the last day of the calendar month, the monthly
rental installment for such first or last fractional month shall be prorated on
the basis of the number of days during the month this Lease was in effect in
relation to the total number of days in such month.
Annual Base Rent for each Lease Year shall be calculated in accordance
with the following formula:
Annual Base Rent =
(1- Manor Care Occupancy
Percentage) x (Operating Expenses - Third Party Rental Income)
Capitalized terms used in said formula shall have the meanings given to them in
Section 3.2 below.
At Landlord's sole discretion, at any time and from time to time during
the term of this Lease upon written notice to Tenant, Landlord may elect that
instead of using the aforesaid formula to calculate Annual Base Rent, Annual
Base Rent shall be the number of square feet of space in the Demised Premises
times the "Alternate Rent" as hereinafter defined. The Alternate Rent shall be
the annual fair market rental value per square foot for the Demised Premises in
their "as is" condition for the remaining Lease Term, as reasonably determined
by Landlord based on quoted rental rates at comparable office buildings in the
Silver Spring, Maryland area. Should Landlord so elect, the parties will enter
into an amendment to this Lease establishing the new Annual Base Rent and
providing that
2
<PAGE>
Tenant shall pay its pro rata share (based on the ratio of the number of square
feet in the Demised Premises to the number of square feet in the Complex) of
increases in real estate taxes and operating expenses over a base year, with the
terms "real estate taxes", "operating expenses" and "base year" being defined
consistent with the definitions of such terms in leases of space in the Complex
to tenants unrelated to Landlord.
3.2 Definitions. For the purpose of this Lease, the following
definitions shall apply:
(a) "Manor Care Occupancy Percentage" shall mean the ratio of
(i) the number of rentable square feet in the Complex occupied by Manor Care,
Inc., a Delaware corporation, or any person or entity which directly or
indirectly controls, is controlled by, or is under common control with, Manor
Care, Inc., as of the commencement of the Lease Year in question; to (ii) the
total number of rentable square feet in the Complex, as the Complex may be
altered or enlarged in Landlord's discretion from time to time. The parties
agree that as of the Commencement Date the total number of rentable square feet
in the Complex is 226,010, consisting of 66,855 square feet in the 10720
Building, 74,074 square feet in the 10750 Building, and 85,081 square feet in
the 10770 Building. For the purposes of the preceding sentence (and also for
purposes of Section 3.2(c) and 17.1 of this Lease), in order for an entity to
control another, it must have voting control of and own greater than fifty
percent (50%) of every class of stock entitled to vote and/or other voting
equity interest of the other entity, in the case that the other entity is a
corporation; it must own greater than fifty percent (50%) of the partnership
interests in the assets, liabilities, income, loss and distributions of the
other entity, in the case that the other entity is a partnership; it must be the
sole beneficiary of the other entity, in the case that the other entity is a
trust. The parties further agree that as of the Commencement Date, Manor Care,
Inc. occupies 69,750 rentable square feet in the Complex.
(b) "Operating Expenses" shall mean any and all expenses
incurred by Landlord in connection with the servicing, operation, maintenance
and repair of the Complex and related appurtenances, including, but not limited
to: (1) wages and salaries of all employees engaged in operation, maintenance,
or security of the Complex including taxes, insurance and benefits relating
thereto; (2) all supplies and materials used in operation, maintenance or
security of the Complex; (3) cost of all maintenance and service agreements for
the Complex and the equipment therein, including but not limited to security and
energy management services, window cleaning and elevator maintenance; (4) cost
of all insurance relating to the Complex including the cost of casualty and
liability insurance applicable to the Complex and Landlord's personal property
used in connection therewith; (5) cost of repairs and general maintenance,
whether structural or non-structural, but excluding repairs and general
maintenance paid with proceeds of insurance or by Tenant or third parties; (6) a
management fee for the manager of the Complex, who may be Landlord or an
affiliate of Landlord; (7) the cost of any additional services provided to the
Complex by or on behalf of the Landlord in the prudent management of the
Complex; (8) the cost of any capital improvements or alterations made to the
Complex after the Commencement Date (and the entire cost of such capital
improvements shall be included in Operating Expenses in the Lease Year in which
such cost was paid or incurred); (9) leasing commissions, free rent, lease
takeover obligations and other inducements, costs, disbursements and expenses
incurred in connection with leasing space at the Complex; (10) costs incurred in
constructing, improving, renovating or decorating rented space or space for
tenants; (11) costs of environmental inspection, testing or cleanup; (12)
payments of principal, interest, and other costs relating to indebtedness
secured by mortgages or deeds of trust against the Complex or any portion
thereof; (13) costs incurred in leasing equipment, including air conditioning
systems, elevators, or other equipment ordinarily considered to be of a capital
nature; (14) depreciation and amortization of the buildings and improvements in
the Complex, in accordance with generally accepted accounting principles (15)
security services; (16) trash collection; (17) janitorial and cleaning services;
(18) all charges of utility companies or governmental entities for electricity,
water, sewer, gas or other utilities (excluding telephone) supplied to the
Complex; (19) taxes, assessments and governmental charges of any kind and nature
whatsoever (hereinafter collectively referred to as "Taxes") levied or assigned
against the Complex or any part thereof, and all expenses incurred by Landlord
in attempting to protest, reduce or minimize Taxes; (20) ground rents, and
payments under any financing leases of the Complex or any portion thereof; (21)
any operating loss resulting from Landlord's operation of a cafeteria or fitness
center in the Complex; (22) costs of the "employee store" and other services
provided by the "Employee Service Center"at the Complex; and (23) costs of
mailroom/shipping and receiving services provided by Landlord.
3
<PAGE>
(c) "Third Party Rental Income" shall mean all rental income
actually received by Landlord from tenants or occupants (excluding Tenant) of
space in the Complex during the Lease Year in question, other than any person or
entity which controls, is controlled by, or is under common control with, Manor
Care, Inc.
3.3 As part of the rental arrangements between Landlord and Tenant,
Tenant has specifically reviewed, approved, and agreed to pay as herein
provided, each and every item in the foregoing definition of Operating Expenses.
3.4 PAYMENT OBLIGATION:
(a) Annual Base Rent shall be paid by Tenant to Landlord in
advance, in equal monthly installments, in an estimated amount reasonably
determined by Landlord prior to the commencement of the first Lease Year and
each subsequent Lease Year . (Landlord may revise its estimate at any time
during a Lease Year). Within a reasonable time following the end of each Lease
Year, Landlord shall submit to Tenant a statement which shall include a
comparison of (i) the Annual Base Rent therefore paid by Tenant for the Lease
Year in question on the basis of Landlord's estimate, and (ii) Tenant's actual
obligation for Annual Base Rent for the Lease Year in question as determined by
Landlord. Any excess paid by Tenant, as disclosed by such comparison, shall be
credited against Tenant's next due installment(s) of Annual Base Rent, and any
additional sums disclosed by such comparison as being due to Landlord by Tenant
shall be paid to Landlord within thirty (30) days following delivery to Tenant
of such statement (including any statement delivered after the expiration or
termination of the Term). However, for the Lease Year during which the term of
this Lease ends, any excess paid by Tenant to Landlord and due to Tenant shall
be promptly refunded to Tenant.
(b) Tenant or its accountants shall have the right to inspect,
at reasonable times and in a reasonable manner and at the Landlord's offices or
such other place designated by Landlord, during the thirty (30) day period
following the delivery of Landlord's statement of the actual amount of Tenant's
Annual Base Rent for a particular Lease Year, such of Landlord's books of
account and records as pertain to and contain information concerning the
Operating Expenses, the Manor Care Occupancy Percentage and Third Party Rental
Income in order to verify the amounts thereof. In the event Tenant elects not to
inspect Landlord's books of account and records during said thirty (30) day
period, such election or failure to inspect shall constitute Tenant's
unconditional waiver of any and all rights to inspect Landlord's books of
account and records for the subject period and Tenant shall be forever [GRAPHIC
OMITTED]estopped from challenging or questioning the amount of its Annual Base
Rent for said period. In the event of any disagreement or dispute between Tenant
and Landlord concerning Landlord's statement, the decision of Landlord's Chief
Financial Officer shall be final and unreviewable.
3.5 Tenant shall be liable for all taxes levied against personal
property and trade fixtures placed by Tenant on the Complex. If any such taxes
are levied against Landlord or Landlord's property, and if Landlord elects to
pay the same or if the assessed value of Landlord's property is increased by
inclusion of personal property and trade fixtures placed by Tenant on the
property and Landlord elects to pay the taxes based on such increase, Tenant
shall pay to Landlord as additional rent hereunder, upon demand, the amount of
such taxes paid by Landlord.
3.6 If at any time during the term of this Lease, the present method of
taxation shall be changed so that in lieu of the whole or any part of any taxes,
assessments, levies, or charges levied, assessed or imposed on the Complex there
shall be levied, assessed or imposed on Landlord a capital levy or other tax
directly on the rents received therefrom and/or a franchise tax assessment, levy
or charge measured by or based, in whole or in part, upon such rents on the
present or any future building or buildings in the Complex, then all such taxes,
assessments, levies or charges, or the part thereof so measured or based, shall
be deemed to be included within the term "Taxes" for the purposes hereof.
3.7 Late Charge. In the event Tenant fails to pay to Landlord, when
due, any installment of rental or other sum to be paid to Landlord which may
become due in this Lease, Landlord will [GRAPHIC OMITTED]incur additional
expenses in an amount not readily ascertainable and which has not been elsewhere
provided for between Landlord and Tenant. If Tenant should fail to pay to
Landlord, when due, any installment of rental or other sum to be paid hereunder,
such unpaid amount shall bear interest from
4
<PAGE>
the due date thereof to the date of payment at an annual rate equal to the
lesser of twelve percent (12%) or the highest rate permitted by law. Provision
for such late charge shall be in addition to all other rights and remedies
available to Landlord within this Lease or at law or in equity and shall not be
construed as liquidated damages or limiting Landlord's remedies in any manner.
3.8 All payments to be made by Tenant to Landlord pursuant to this
Lease shall be made by check payable to Landlord, and delivered to Landlord at
Landlord's Address or to such other person and place as may be designated by
notice in writing from Landlord to Tenant from time to time.
3.9 Unless otherwise agreed in writing between Landlord and Tenant, no
payment by Tenant or receipt by Landlord of a lesser amount than the monthly
installments of rent stipulated shall be deemed to be other than on account of
the above-stipulated rent, nor shall any endorsement or statement on any check
or any letter accompanying any check or payments as rent be deemed an accord
with satisfaction, and Landlord may accept such check for payment without
prejudice to Landlord's right to recover the balance of such rent or pursue any
other remedy in this Lease provided.
Article IV. Cafeteria and Fitness Center
4.1 For as long as Landlord chooses to operate a cafeteria and/or
fitness center at the Complex, Tenant's officers and employees shall have the
right to use such facilities on a non-exclusive basis in common with Landlord's
officers and employees and others entitled thereto, upon payment of the current
fees and charges for such use. In Landlord's sole and unreviewable discretion
and without notice to Tenant, Landlord may discontinue operation of the
cafeteria and/or fitness center at any time.
Article V. Acceptance of the Demised Premises.
5.1 The Demised Premises are leased to Tenant in "AS IS" condition.
Landlord shall have no obligation to make any improvements or alterations to
prepare the Demised Premises for Tenant's use. By taking possession of the
Demised Premises, Tenant shall be deemed to have accepted the same and to have
acknowledged that the same fully comply with Landlord's covenants and
obligations under this Lease. Tenant further agrees that, if requested by
Landlord, Tenant will furnish Landlord with a written statement that Tenant has
accepted the Demised Premises and that Landlord has fully complied with
Landlord's covenants and obligations.
Article VI. Uses and Care of Premises.
6.1 The Demised Premises may be used only for the purpose or purposes
specified in Article I, Section 1.1(k) above, and for no other purpose or
purposes without the prior written consent of Landlord.
6.2 Tenant shall not use the Demised Premises for any unlawful purposes
or acts; shall not commit or permit any waste or damage to the Demised Premises;
shall use and maintain the Demised Premises in compliance with (i) all laws,
codes, ordinances, rules, regulations and orders (collectively "Laws") of any
governmental authority or agency, including, without limitation, those governing
zoning, health, safety (including fire safety), and the occupational hazards,
pollution and environmental control, and handicapped accessibility (including
but not limited to any such laws imposing upon Landlord or Tenant any duty
respecting or triggered by any change in use or occupancy or any alteration or
improvement of, in or to the Demised Premises, and (ii) all reasonable
directions of the Landlord, including the building rules and regulations,
attached hereto as Exhibit "C", as may be modified from time to time by Landlord
on reasonable notice to Tenant. Tenant shall use his best efforts to cause its
agents, employees, customers, invitees, licensees, and concessionaires to comply
with the building rules and regulations and with the covenants and agreements of
this Section. [GRAPHIC OMITTED]
6.3 Tenant shall not, without Landlord's prior written consent, keep
anything within the Demised Premises for any purpose which increases the
insurance premium costs or invalidates any insurance policy carried on the
Demised Premises or other part of the property. Tenant shall pay as additional
rent, upon demand of Landlord, any such increased premium cost due to Tenant's
use or
5
<PAGE>
occupation of the property. All property kept, stored or maintained within the
property by Tenant shall be at Tenant's sole risk.
6.4 Tenant shall not conduct within the Demised Premises any fire,
auction, going out of business, liquidation or bankruptcy sales or operate
within Demised Premises a "Wholesale" or "Factory Outlet" store, a cooperative
store, a "Second Hand" store, a "Surplus" store or a store commonly refereed to
as a "Discount House." Tenant shall not advertise that it sells products or
services at "discount," "cut-price" or "cut-rate" prices. Tenant shall not
permit any objectionable or unpleasant odors to emanate from the Demised
Premises, nor place or permit any radio, television, loud-speaker, or amplifier
on the roof or outside of the Demised Premises, or where the same can be seen or
heard from outside the Demised Premises, nor place an antenna, awning, or other
projection on the exterior of the Demised Premises; nor solicit business or
distribute leaflets or other advertising material on the property outside the
Demised Premises; nor take any other action which, in the exclusive judgment of
Landlord, would constitute a nuisance or would disturb or endanger other tenants
of the Building or unreasonably interfere with their use of their respective
premises, nor do anything which would tend to injure the reputation of the
Building.
6.5 Tenant shall take good care of the Demised Premises and keep the
same free from waste at all times. Tenant shall keep the Demised Premises and
sidewalks, service-ways, and loading areas adjacent to the Demised Premises
neat, clean and free from dirt, rubbish, insects and pests at all times, and
shall store all trash and garbage within the Demised Premises, arranging for the
regular pickup of such trash and garbage at Tenant's expense. Tenant will store
all trash and garbage within the area designated by Landlord for such trash
pickup and removal and only in receptacles of the size, design and color from
time to time prescribed by Landlord. Receiving and delivery of goods and
merchandise and removal of garbage and trash shall be made only in the manner
and areas from time to time prescribed by Landlord. Landlord may, at its sole
option, arrange for collection of all trash and garbage and, should Landlord
exercise such election, the costs thereof will be part of Operating Expenses.
Tenant shall not operate an incinerator or burn trash or garbage within the
property.
6.6 Tenant shall not move any furniture or equipment into or out of the
Demised Premises except at such times as Landlord may from time to time
designate in writing to all tenants.
[GRAPHIC OMITTED] 6.7 Tenant shall include the address and identity of its
business activities in the Demised Premises in all advertisements made by Tenant
in which the address and identity of any similar local business activity of
Tenant is mentioned.
6.8 Tenant shall not allow any animals other than seeing eye dogs onto
the property whatsoever.
6.9 Tenant shall procure, at its sole expense, any permits and licenses
required for the transaction of business in the Demised Premises and otherwise
comply with all applicable laws, ordinances and governmental regulations.
Landlord makes no representation or warranty, expressed or implied, with regard
to the fitness of the Demised Premises or the property for the Tenant's intended
use or for any particular purpose. Tenant shall bear the cost of all alterations
or improvements to the property required by any applicable laws, ordinances or
governmental regulation based upon Tenant's use of the property.
Article VII. Landlord's Services.
7.1 Landlord covenants and agrees that it will provide the following
services, the cost of which shall be included in Operating Expenses:
(a) keep the foundation, the exterior walls and roof of the Demised
Premises in good repair;
(b) provide heat and air conditioning to maintain the Demised Premises
at a reasonably comfortable temperature between the hours of 8:00 a.m. and 6:00
p.m., Monday through Friday of each week, and 8:00 a.m. and 1:00 p.m. on
Saturday of each week, except holidays recognized by the United States
Government. Landlord shall endeavor to provide HVAC during hours other than the
hours of full operation of the Building, upon request by Tenant at least
twenty-four (24) hours prior to the time Tenant desires such service. Tenant
agrees to cooperate fully with Landlord and to abide by all the regulations and
requirements which Landlord may reasonably prescribe for the
6
<PAGE>
proper functioning and protection of the HVAC equipment and to pay the cost of
any damage resulting from Tenant's failure to comply with the foregoing
provisions;
(c) provide electricity for lighting purposes and operation of ordinary
office equipment, excluding, however, computers other than personal computers,
and other equipment requiring heavier than normal office use of electricity.
Within fifteen (15) days from the date of this Lease, Tenant shall submit to
Landlord its list of office equipment. Within fifteen (15) days from receipt of
such list, Landlord shall inform Tenant whether Landlord, in its reasonable
discretion, has determined that such equipment satisfies the requirements of
this Section 7.1(c).
[GRAPHIC OMITTED] (d) provide janitor services Monday through Friday of each
week, except holidays recognized by the United States Government, it being
understood and agreed, however, that Landlord shall not be liable in any way for
any damage or inconvenience caused by the cessation or interruption of such
heating, air conditioning, electricity, elevator, janitor services occasioned by
fire, accident, strikes, necessary maintenance, alterations, or repairs, or
other causes beyond Landlord's control. It is understood that employees of
Landlord are prohibited as such from receiving any packages or other articles
delivered to the Building for Tenant and that, should any such employee receive
any such packages or articles, he or she in so doing shall be the agent of
Tenant and not of Landlord.
(e) provide hot and cold water and lavatory supplies, it being
understood and agreed that hot and cold water shall be furnished by Landlord
only at those points of supply provided for general use of other tenants in the
Building as well as to Tenant's kitchen;
(f) provide automatically operated elevator service at all times;
(g) list the Tenant's trade name on the Building directory located in
the entrance lobby.
7.2 In the event any public utility company supplying energy, water,
sewer or other utility, or governmental law, regulation, executive or
administrative order requires that Landlord or Tenant reduce or maintain at a
certain level the consumption of a utility and such requirement affects the
HVAC, light, use of or hours of operation of the premises or Building, Landlord
and Tenant shall each adhere to and abide by said laws, regulations or executive
orders without any reduction in Rent.
7.3 Failure by Landlord to any extent to furnish the above described
services, or any cessation thereof, shall not render Landlord liable for damages
to either person or property, nor be construed as an eviction of Tenant, nor
give Tenant the right to an abatement of Rent, nor relieve Tenant from the
obligation to fulfill any covenant or agreement hereof, unless such failure to
provide services is a result of the gross negligence of Landlord or Landlord's
agents. Should any of the Building equipment or machinery break down, or for any
cause cease to function properly, Landlord shall use reasonable diligence to
repair the same promptly, and Tenant shall have no claim for an abatement of
rent or damages on account of any interruptions in service occasioned thereby or
resulting therefrom.
7.4 Landlord shall not be required to make any repairs occasioned by
the act or negligence of Tenant, its agents, employees, subtenants, licensees
and concessionaires, which repairs shall be made by Tenant. In the event that
the Demised Premises should become in need of repairs required to be made by
Landlord hereunder, Tenant shall give immediate written notice thereof to
Landlord and Landlord shall not be responsible in any way for failure to make
such repairs until a reasonable time shall [GRAPHIC OMITTED]have elapsed after
delivery of such written notice. Landlord's obligation hereunder is limited to
repairs specified in this article only, and Landlord shall have no liability for
any damages or injury arising out of any condition or occurrence causing a need
for such repairs.
The cost of such repairs and maintenance shall be included in the
Operating Expenses. There shall be no abatement of rent and no liability of
Landlord by reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or improvements in or to any
portion of the property or in or to any fixtures, appurtenances and equipment
therein or thereon.
7.5 Tenant shall furnish, maintain and replace all Building
Non-Standard electric light bulbs, tubes and tube casings.
7
<PAGE>
7.6 Tenant shall keep the Demised Premises in good clean condition and
shall, at its sole cost and expense, make all needed repairs and replacements
including replacement of cracked or broken glass, except for repairs and
replacements expressly required to be made by Landlord under the provisions of
Article VII, Section 7.1, Article XI, Section 11.1 and Article XV, Section 15.3.
If any repairs required to be made by Tenant hereunder are not made within three
(3) days after written notice delivered to Tenant by Landlord, Landlord may, at
its discretion, make such repairs without liability to Tenant for any loss or
damage which may result to its stock or business by reason of such repairs, and
Tenant shall pay to Landlord immediately upon demand as additional rental
hereunder the cost of such repairs plus ten percent (10%) of the amount thereof
and failure to do so shall constitute an event of default hereunder. At the
expiration of this Lease, Tenant shall surrender the Demised Premises in good
condition, reasonable wear and tear excepted, and shall surrender all keys for
the Demised Premises to Landlord and shall inform Landlord of all combinations
on locks, safes and vaults, if any, in the Demised Premises.
Article VIII. Alterations.
8.1 Tenant shall not make any alterations, additions, or improvements
to the Demised Premises without the prior written consent of Landlord, which
Landlord may grant or deny in its sole discretion with respect to structural
alterations, except for the installation of unattached, movable trade fixtures
which may be installed without drilling, cutting or otherwise defacing the
Demised Premises. Landlord shall not unreasonably withhold or delay its consent
with respect to non-structural alterations. All alterations, additions,
improvements and fixtures, except that any Alterations, fixtures or any other
property installed in the Demised Premises at the sole expense of Tenant and
which can be removed without causing material damage to the Building, shall
remain upon and be surrendered with the Demised Premises and become the property
of Landlord at the termination of this Lease, unless Landlord requests their
removal in which event Tenant shall remove the same and restore the Demised
Premises to their original condition at Tenant's expense. Any linoleum,
carpeting or other floor covering which may be cemented or otherwise affixed to
the floor of the [GRAPHIC OMITTED]Demised Premises is a permanent fixture and
shall become the property of the Landlord without credit or compensation to
Tenant.
8.2 All construction work done by Tenant within the Demised Premises
shall be performed in a good and workmanlike manner, in compliance with all
governmental requirements, and the requirements of any contract or deed or trust
to which the Landlord may be a party and in such manner as to cause a minimum of
interference with other construction in progress and with the transaction of
business in the Building. Tenant agrees to indemnify Landlord and hold it
harmless against any loss, liability or damage resulting from such work, and
Tenant shall, if requested by Landlord, furnish bond or other security
satisfactory to Landlord against any loss, liability or damage.
Article IX. Landlord's Right of Access and Use.
9.1 Landlord shall have the right to enter upon the Demised Premises at
any reasonable time for the purpose of inspecting the same, or of making repairs
to the Demised Premises, or of making repairs, alterations or additions to
adjacent premises, or of showing the Demised Premises to prospective purchasers,
Tenants or lenders.
9.2 Landlord may, within one hundred twenty (120) days prior to the
expiration of the term, post and maintain notices, free from hindrance or
control of Tenant.
9.3 Use of the roof above the Demised Premises is reserved to
Landlord.
9.4 In addition to the rights specified elsewhere in this Lease,
Landlord shall have the following rights regarding the use of the Demised
Premises or the property by Tenant, its employees, agents, customers and
invitees, each of which may be exercised without notice or liability to Tenant:
(a) Landlord may install such signs, advertisements or notices or
Tenant identification information on or in the Building, on the property or on
the directory board or Tenant access doors as it shall deem necessary or proper.
8
<PAGE>
(b) Landlord shall approve or disapprove, prior to installation, all
types of drapes, shades and other window coverings used in the Demised Premises,
and may control all internal lighting and signage that may be visible from
outside the Demised Premises.
(c) Landlord may grant to any person the exclusive right to conduct
business or render any service in the Building, provided that such exclusive
right shall not operate to limit Tenant from using the Demised Premises for the
use permitted in Article I, Section 1.1(k).
(d) Landlord may control the use of the property in such manner as it
deems necessary or proper, including by way of illustration and not limitation:
requiring all persons entering [GRAPHIC OMITTED]or leaving any Building in the
Complex to identify themselves and their business in the Building to a security
guard; excluding or expelling any peddler, solicitor or loud or unruly person
from the Building; closing or limiting access to the Building or any part
thereof, including entrances, corridors, doors and elevators, during times of
emergency, repairs or after regular business hours.
Article X. Signs.
10.1 All signs, decorations and advertising media shall conform in all
respects to the sign criteria established by Landlord for the Complex from time
to time in the exercise of its sole discretion, and shall be subject to the
prior written approval of Landlord as to construction, method of attachment,
size, shape, height, lighting, color, location and general appearance. All signs
shall be kept in good condition and in proper operating order at all times.
Other than Building directory signage and front entrance signage to the Demised
Premises, and Tenant's signage at the Complex existing as of the Commencement
Date, no other signs, advertisements or notices shall be painted, affixed or
displayed: (I) within the Demised Premises which are visible from outside of the
Demised Premises, (ii) outside of the Demised Premises, (iii) in, about or
outside of the Building, or (iv) on the land associated with Building.
Article XI. Utilities.
11.1 Landlord agrees to cause to be provided and maintained the
necessary mains, conduits and other facilities necessary to supply water,
electricity, gas (if available), telephone service and sewerage service to the
Demised Premises, and the charges therefor shall be included in Operating
Expenses (except telephone service, which shall be paid directly by Tenant).
11.2 Landlord shall not be liable for any interruption or failure
whatsoever in utility services. Landlord does not represent or warrant the
uninterrupted availability of such utilities or building services, and any such
interruption shall not be deemed an eviction or disturbance of Tenant's right to
possession, or render Landlord liable to Tenant for damages by abatement of rent
or otherwise, or relieve Tenant from the obligation to fully and timely perform
its obligations and covenants under this Lease.
Article X Indemnity, Public Liability Insurance and Fire and Extended Coverage
Insurance.
12.1 Landlord shall not be liable to Tenant or to Tenant's employees,
agents or visitors, or to any other person or entity, whatsoever, for any injury
to person or damage to or loss of property on or about the Demised Premises or
the property caused by the negligence or misconduct of Tenant, its employees,
subtenants, licensees or concessionaires, or of any other person entering the
Building under the express or implied invitation of Tenant or arising out of the
use of the Demised Premises by Tenant and the conduct of its business therein,
or arising out of any breach or default by Tenant in the performance of its
obligations hereunder or resulting from any other cause except Landlord's gross
negligence, and Tenant agrees to indemnify Landlord and hold Landlord harmless
from any loss, expense or claims arising out of such damage or injury.
12.2 Landlord and Tenant agree and covenant that neither shall be
liable to the other for loss arising out of damage to or destruction of the
Demised Premises or contents thereof when such loss is caused by any perils
included within standard All Risk property insurance, including flood and
earthquake policies for buildings similar to the buildings in the Complex, in
Montgomery County, Maryland. This agreement shall be binding whether or not such
damage or destruction be caused by negligence of either party or their agents,
licensees, employees or visitors.
9
<PAGE>
Article XIII. Tenant's Insurance.
13.1 Tenant agrees, at its sole cost, to carry and keep in full force
and effect at all times during the term of this Lease, a comprehensive general
liability policy with a single limit of at least Ten Million Dollars
($10,000,000.00), including coverage for bodily injury, property damage,
contractual liability for this Lease and personal injury liability. Tenant's
comprehensive general liability insurance policy and certificates evidencing
such insurance shall name Landlord and its property manager of the Complex as
additional insureds and shall also contain a provision by which the insurer
agrees that such policy shall not be canceled except after sixty (60) days
written notice to Landlord. Any liability insurance carried or to be carried by
Tenant hereunder shall be primary over any policy that might be carried by
Landlord. If Tenant shall fail to obtain or maintain such insurance, Landlord
may obtain, after providing written notice to Tenant with a thirty (30) day
opportunity to cure, such insurance on Tenant's behalf and the cost shall be
deemed additional rent and shall be payable upon Landlord's demand.
13.2 Tenant shall obtain All Risk property insurance, including flood
and earthquake insurance, insuring against loss to the Demised Premises
(including any improvements thereon). Such insurance shall be in the form and
amount reasonably satisfactory to Landlord, and Tenant shall, when requested
from time to time by Landlord, provide Landlord with evidence of such insurance.
Such insurance shall contain waiver of subrogation provisions in favor of
Landlord and its agents.
[GRAPHIC OMITTED] 13.3 Tenant agrees to carry and keep in full force and effect
at all times during the term of this Lease, at its sole cost, Worker's
Compensation and Employer's Liability insurance, with a minimum Employer's
Liability limit of $1,000,000 each occurrence.
13.4 At the request of Landlord, Tenant shall obtain business
interruption insurance naming Landlord as loss payee, which insurance shall be
in an amount sufficient to pay all rent due hereunder.
Article XIV. Non-Liability for Certain Damages.
14.1 Landlord and Landlord's agents and employees shall not be liable
to Tenant or any other person or entity whomsoever for any injury to person or
damage to property caused by the Demised Premises or other portions of the
property becoming out of repair or by defect (including latent defects) in or
failure of any building equipment, pipes or wiring, or broken glass, or by the
backing up of drains, or by gas, water, steam, electricity or oil leaking,
escaping or flowing into the Demised Premises, nor shall Landlord be liable to
Tenant or any other person or entity whomsoever from any loss or damage that may
be occasioned by or through the acts or omissions of other tenants of the
Building or of any other persons or entity whomsoever. Tenant shall indemnify
and hold harmless Landlord from any loss, cost, expense or claims arising out of
such injury or damage referred to in this Article XIV, Section 14.1.
14.2 In the event of any violation of this Lease by Landlord, Tenant's
exclusive remedy shall be an action for damages (Tenant waiving the benefit of
any laws granting it a lien upon the property of Landlord and/or upon rent due
the Landlord), but prior to any such action Tenant will give Landlord written
notice specifying such violation with particularity, and Landlord shall
thereupon have thirty (30) days in which to cure any such violation. Unless and
until Landlord fails to so cure any violation after such notice, Tenant shall
not have any remedy or cause of action by reason thereof. All obligations of
Landlord hereunder will be construed as covenants, not conditions; and all such
obligations will be binding upon Landlord only during the period of its
ownership of the property and not thereafter.
The term "Landlord" shall mean only the owner, for the time being, of
the property and in the event of the transfer by such owner of its
interest in the property such owner shall thereupon be released and
discharged from all covenants and obligations of the Landlord
thereafter accruing, but such covenants and obligations shall be
binding during the Lease term upon each new owner for the duration of
such owner's ownership.
Notwithstanding any other provision hereof, Landlord shall not have
any personal liability hereunder. In the [GRAPHIC OMITTED]event of any
breach or default by Landlord in any term or provision of this Lease,
Tenant agrees to look solely to the equity or interest then owned by
Landlord in the land and improvements which constitute the property;
however, in no event shall any
10
<PAGE>
deficiency judgment or any money judgment of any kind be sought or
obtained against Landlord or affiliated companies.
Article XV. Damage by Casualty.
15.1 Tenant shall give immediate written notice to Landlord of any
damage caused to the Demised Premises by fire or other casualty.
15.2 If a Building shall be destroyed or damaged in excess of $100,000
by a casualty, then Landlord may elect either to terminate this Lease as
hereinafter provided with respect to so much of the Demised Premises as may be
located in said Building, or to proceed to rebuild and repair the Demised
Premises. Should Landlord elect to terminate this Lease, it shall give written
notice of such election to Tenant within ninety (90) days after the occurrence
of such casualty. If Landlord should not elect to terminate this Lease, Landlord
shall proceed with reasonable diligence to rebuild and repair the Demised
Premises (and the cost of such repairs in excess of insurance proceeds shall be
included in Operating Expenses).
15.3 Landlord's obligation to rebuild and repair under this Article XV
shall in any event be limited to restoration to substantially the condition in
which the Demised Premises existed prior to the casualty, and shall be further
limited to the extent of the insurance proceeds available to Landlord for such
restoration, and Tenant agrees that promptly after the completion of such work
by Landlord, it will proceed with reasonable diligence and at its sole cost and
expense to rebuild, repair and restore its signs, fixtures, equipment and
furnishings.
15.4 During the period from the occurrence of the casualty until
Landlord's repairs are substantially completed, there shall be no reduction in
the Annual Base Rent.
15.5 All damage or injury to the Demised Premises or the Building
caused by the act or omission of Tenant, its employees, agents, invitees,
licensees or contractors, shall be promptly repaired by Tenant at Tenant's sole
cost and expense, to the satisfaction of Landlord except to the extent covered
by insurance [GRAPHIC OMITTED]carried by Landlord; provided, however, Tenant
shall pay any deductible under Landlord's policy required to be paid thereunder.
Article XVI. Eminent Domain.
16.1 If the entire Demised Premises or the Complex should be taken for
any public or quasi-public use under governmental law, ordinance or regulation,
or by right of eminent domain or by private purchase in lieu thereof, 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. If less than the entire Demised Premises or Complex should be taken
as aforesaid, this Lease shall continue in full force and effect and there shall
be no abatement in Annual Base Rent.
16.2 All compensation awarded for any taking (or the proceeds of
private sales in lieu thereof) of the Demised Premises or the property shall be
the property of Landlord, and Tenant assigns its interest in any such award to
Landlord; provided, however, Landlord shall have no interest in any award made
to Tenant for loss of business or the taking of Tenant's fixtures and other
property if a separate award for such items is made to Tenant.
Article XVII. Assignment and Subletting.
17.1 Tenant shall not assign or transfer all or any portion of its
interest in this Lease or in the Demised Premises, or sublet all or any portion
of the Demised Premises, without the prior written consent of Landlord, which
consent may be withheld at the sole and absolute discretion of the Landlord. Any
assignment or sublease without the Landlord's prior written consent shall be
voidable and, at Landlord's election, shall constitute a default of Tenant
hereunder. Consent by Landlord to one or more assignments or sublettings shall
not operate as a waiver of Landlord's rights with respect to any subsequent
assignment or subletting. The term "sublet" shall be deemed to include the
granting of licenses, concession, and any other rights of occupancy of any
portion of the Demised Premises. Notwithstanding the foregoing, Landlord's
consent shall not be required in the case of an assignment to a person or entity
which controls, is controlled by, or is under common control with, Tenant,
provided that Tenant remains primarily liable under this Lease.
11
<PAGE>
17.2 In the event of the transfer and assignment by Landlord of its
interest in this Lease or in the property to a person expressly assuming
Landlord's obligations under this Lease, [GRAPHIC OMITTED]Landlord shall thereby
be released from any further obligations hereunder, and Tenant agrees to look
solely to such successor in interest of the Landlord for performance of such
obligations. Any such security given by Tenant to secure performance of Tenant's
obligations hereunder may be assigned and transferred to such successor in
interest, and Landlord shall thereby be discharged of any further obligations
relating thereto.
17.3 Tenant shall not mortgage, pledge or otherwise encumber its
interest in this Lease or in the Demised Premises.
17.4 In no case may Tenant assign any options granted to Tenant
hereunder, all such options being deemed personal to Tenant and exercisable by
Tenant only.
17.5 Any request by Tenant for approval to sell or sublet the Demised
Premises or to transfer or assign Tenant's interest in this Lease, shall be
accompanied by a processing charge in the amount of Five Hundred Dollars
($500.00) payable to Landlord.
17.6 In the event Landlord approves Tenant subletting this Lease and
the subtenant or assignee is paying to Tenant an amount in excess of that paid
by Tenant to Landlord under this Lease (which such amount shall be deemed the
aggregate sum of all payments by subtenants to Tenant), then fifty percent (50%)
of any such excess amounts shall be deemed rent under this Agreement and shall
be immediately paid by Tenant to Landlord. If any court of law should find this
provision invalid, then, in such event, Tenant shall be prohibited from
subletting or assigning this Lease for an amount in excess of the amounts paid
by Tenant to Landlord pursuant to the terms of this Lease.
Article XVIII. Default by Tenant and Remedies.
18.1 The following events shall be deemed to be events of default by
Tenant under this Lease:
(a) Tenant shall fail to pay any installment of rental or any
other expense required to be paid by Tenant hereunder when due, and such failure
continues for ten (10) days after Tenant receives written notice thereof from
Landlord.
(b) Tenant shall fail to comply with any term, provision or
covenant in this Lease, other than the payment of rental or expenses demanded by
Landlord and shall not cure such failure within thirty (30) days after receiving
written notice thereof from Landlord; provided, however, that if such failure
cannot reasonably be cured within the thirty (30) day period, Tenant shall not
be deemed to be in default if Tenant shall commence such cure within the thirty
(30) day period and thereafter diligently prosecute the same to completion.
(c) Tenant or any guarantor of Tenant's obligations under this
Lease shall become insolvent, or shall make a transfer in fraud of creditors, or
shall make an assignment for the benefit of creditors.
(d) Tenant or any guarantor of Tenant's obligation under this
Lease shall file a petition under any section or chapter of the U.S. Bankruptcy
Code, as amended, or under any similar law or statute of the United States or
any State thereof; or Tenant or any guarantor of Tenant's obligations [GRAPHIC
OMITTED]under this Lease shall be adjudged bankrupt or insolvent in proceedings
filed against Tenant or any guarantor of Tenant's obligations under this Lease.
(e) A receiver or Trustee shall be appointed for all or
substantially all of the assets of the Tenant or any guarantor of Tenant's
obligations under this Lease.
(f) Tenant shall do or permit to be done anything which
creates a lien upon the Demised Premises.
18.2 Upon the occurrence of any such events of default, Landlord shall
have the option to pursue any one or more of the following remedies without any
notice or demand whatsoever:
12
<PAGE>
(a) Terminate this Lease in which event Tenant shall
immediately surrender the Demised Premises to Landlord, and if Tenant fails to
do so, Landlord may, without prejudice to any other remedy which he may have for
possession or arrearages in rental, enter upon and take possession of the
Demised Premises and expel or remove Tenant and any other person who may be
occupying said premises or any part thereof, by force if necessary, without
being liable for prosecution or any other claim of damages.
(b) Enter upon and take possession of the Demised Premises and
expel or remove Tenant and any other person who may be occupying said premises
or any part, by force if necessary, without being liable for prosecution or any
claim for damages with or without having terminated the Lease.
(c) Enter upon the Demised Premises by force, if necessary,
without being liable for prosecution or any claim for damages, and do whatever
Tenant is obligated to do under the terms of this Lease, and Tenant agrees to
reimburse Landlord on demand for any expenses which Landlord may incur in
effecting compliance with Tenant's obligations under this Lease, and Tenant
further agrees that Landlord shall not be liable for any damages resulting to
the Tenant from such action.
(d) Alter all locks and other security devices at the Demised
Premises without terminating this Lease and without notice to Tenant.
18.3 In the event Landlord elects to terminate the Lease by reason of
an event of default, then notwithstanding such [GRAPHIC OMITTED]termination,
Tenant shall be liable for, and shall pay to Landlord, at the address specified
for notice to Landlord, the sum of all rental and other indebtedness accrued to
date of such termination plus, as damage, an amount equal to the present value
(using a discount rate of five percent (5%)) of the difference between (i) the
total Annual Base Rent, as reasonably estimated by Landlord, for the remaining
portion of the Lease term (had such term not been terminated by Landlord prior
to the date of expiration stated in Article I); and (ii) the fair rental value
of the Demised Premises for such period.
18.4 In the event that Landlord elects to repossess the Demised
Premises without terminating the Lease, then Tenant shall be liable for and
shall pay to Landlord, at the address specified for notice to Landlord, all
rental and other indebtedness accrued to the date of such repossession, plus, as
damage, an amount equal to the total Annual Base Rent, as reasonably estimated
by Landlord, for the remainder of the Lease term until the date of expiration of
the term as stated in Article I diminished by any net sums thereafter received
by Landlord through reletting the Demised Premises during said period (after
deducting expenses incurred by Landlord as provided in Article XVIII, Section
18.5 hereof). In no event shall Tenant be entitled to any excess of any rental
obtained by reletting over and above the rental herein reserved. Actions to
collect amounts due from Tenant to Landlord may be brought from time to time on
one or more occasions, without the necessity of Landlord's waiting until
expiration of the Lease term.
18.5 In case of any event of default or breach by Tenant, Tenant shall
also be liable for and shall pay to Landlord, at the address specified for
notice herein, in addition to any sum provided to be paid above, brokers fees
incurred by Landlord in connection with reletting the whole or part of the
Demised Premises; the costs of removing and storing Tenant's or other occupant's
property; the cost of repairing, altering, remodeling or otherwise putting the
Demised Premises into condition acceptable to a new Tenant or Tenants, and all
reasonable expenses incurred by Landlord in enforcing or defending Landlord's
rights and/or remedies, including reasonable attorneys' fees.
18.6 In the event of termination or repossession of the Demised
Premises for an event of default, Landlord shall not have any obligation to
relet or attempt to relet the Demised Premises, or any portion thereof, or to
collect rental after reletting; Landlord may relet the whole or any portion of
the Demised Premises for any period, to any tenant, and for any use and purpose.
18.7 If Tenant should fail to make any payment or cure any default
hereunder within the time herein permitted, Landlord, without being under any
obligations to do so and without waiving such default, may make such payment
and/or remedy such other default for the account of Tenant (and enter the
Demised Premises [GRAPHIC OMITTED]for such purpose), and thereupon Tenant shall
be obligated to, and
13
<PAGE>
agrees to, pay Landlord, as additional rent, upon demand, all costs, expenses
and disbursements (including reasonable attorneys' fees) incurred by the
Landlord in taking such remedial action.
18.8 In the event that Landlord shall have taken possession of the
Demised Premises pursuant to the authority herein granted, then Landlord shall
have the right to keep in place and use all of the furniture, fixtures, and
equipment at the Demised Premises, including that which is owned by or Leased to
Tenant, at all times prior to any foreclosure thereon by Landlord or
repossession thereof by any Landlord thereof or third party having a lien
thereon. Landlord shall also have the right to remove from the Demised Premises
(without the necessity of obtaining a distress warrant, writ of sequestration or
other legal process) all or any portion of such furniture, fixtures, equipment
and other property located thereon and place same in storage at any premises
within the County in which the Demised Premises is located; and in such event,
Tenant shall be liable to Landlord for costs incurred by Landlord in connection
with such removal and storage and shall indemnify and hold harmless Landlord
from all loss, damage, cost, expense and liability in connection with such
removal and storage. Landlord shall also have the right to relinquish possession
of all or any portion of such furniture, fixtures, equipment and other property
to any person ("Claimant") claiming to be entitled to possession thereof who
presents to Landlord a copy of any instrument represented to Landlord by
Claimant to have been executed by Tenant (or any predecessor of Tenant) granting
Claimant the right under various circumstances to take possession of such
furniture, fixtures, equipment or other property, without the necessity on the
part of Landlord to inquire into the authenticity of said instrument's copy of
Tenant's or Tenant's predecessor's signature thereon and without the necessity
of Landlord's making any nature of investigation or inquiry as to the validity
of the factual or legal basis upon which Claimant purports to act; and Tenant
agrees to indemnify and hold Landlord harmless from all costs, expense, loss,
damage, and liability incident to Landlord's relinquishment of possession of all
or any portion of such furniture, fixtures, equipment or other property by
Claimant. The rights of Landlord herein stated shall be in addition to any and
all other rights which Landlord has or may hereafter have at law or in equity;
and Tenant stipulates and agrees that the rights herein granted Landlord are
commercially reasonable.
Article XIX. Holding Over.
19.1 In the event Tenant remains in possession of the Demised Premises
after the expiration of this Lease and without the execution of a new Lease, it
shall be deemed to be occupying said Demised Premises as a Tenant from month to
month at a rental equal to the rental herein provided, plus fifty percent (50%)
of such amount and otherwise subject to all the conditions, provisions and
obligations of this Lease insofar as the same are applicable to a month to month
tenancy.
Article XX. Subordination and Attornment
20.1 Tenant accepts this Lease subject and subordinate to any mortgage,
deed of trust or other lien presently existing or hereafter created upon the
property and to any renewals and extensions thereof. Landlord is irrevocably
vested with full power and authority to subordinate this Lease to any mortgage,
deed of trust or other lien hereafter placed upon the property and Tenant agrees
upon demand to execute such further instrument subordinating this Lease as
Landlord may request, and if Tenant shall fail at any time to execute, seal and
deliver any such instrument to Landlord, in addition to any other remedies
available to it in consequence thereof, Landlord may execute, seal and deliver
the same as the attorney in fact of Tenant in Tenant's name, place and stead,
and Tenant irrevocably makes, constitutes and appoints Landlord, its successors
and assigns, as such attorney in fact for that purpose.
20.2 At the option of any transferee of the Landlord's interest in the
property pursuant to a foreclosure or similar proceeding under any mortgage,
deed of trust or other lien upon the property, whether now existing or hereafter
created, Tenant shall attorn to and be bound to any such transferee under the
[GRAPHIC OMITTED]terms, covenants and conditions of this Lease for the balance
of the term hereof remaining and any extensions or renewals hereof which may be
affected in accordance with any option therefore in this Lease, with the same
force and effect as if the transferee was the Landlord, and Tenant does hereby
agree to attorn to such transferee, at the transferee's option, the attornment
to be effective and self operative without the execution of any further
instruments on the part of Tenant, immediately upon the transferee succeeding to
the interest of the Landlord, provided said transferee provides written notice
to the Tenant of its election to accept such attornment within sixty (60) days
of the subject transfer.
14
<PAGE>
In the event any such transferee does elect to accept such attornment,
the Tenant hereby agrees that said transferee shall not be (a) liable for any
act or admission of Landlord under the Lease prior to the subject transfer or
(b) subject to any offsets or defenses which Tenant might have against Landlord
arising from events or circumstances existing prior to the subject transfer, or
(c) bound by any rent or additional rent which Tenant might have paid in advance
for more than the month of the subject transfer, or, (d) bound by any amendment
or modification of this Lease made without the foreclosing party's prior written
consent.
Article XXI. Estoppel Certificates.
21.1 Tenant agrees to furnish from time to time, when requested by
Landlord, the holder of any deed of trust or mortgage or the Landlord under any
ground Lease covering all or any part of the property or any interest of
Landlord therein, an estoppel certificate signed by Tenant confirming and
containing such factual certifications and representations deemed appropriate by
Landlord. The holder of any such deed of trust or mortgage or the Landlord under
any such ground Lease and Tenant shall, within ten (10) days following receipt
of said proposed estoppel certificate from Landlord, return a fully-executed
copy of said certificate to Landlord. In the event Tenant fails to return a
fully-executed copy of such certificate to Landlord within the foregoing ten-day
period, then Tenant shall be deemed to have approved and confirmed all of the
terms, certifications and representations contained in such certificate.
Article XXII. Notices.
22.1 Wherever any notice is required or permitted hereunder, such
notice shall be in writing. Any notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered, whether actually received
or not when deposited in the United States mail, postage prepaid, certified or
registered mail, return receipt requested, addressed to the parties hereto at
the respective addresses set out in Article I, Section 1.1b & 1.1d above or such
other address as they may have hereafter specified by written notice.
Article XXIII. Brokers.
[GRAPHIC OMITTED] 23.1 Landlord and Tenant represent and warrant to each other
that it has not employed a broker in carrying on the negotiations relating to
this Lease. Tenant further warrants and covenants that is has not relied and
will not rely upon any oral representation about the property, other tenants'
occupancy, uses or related matters made by any real estate agent, real estate
broker, agent or employee of Landlord, or any other party. Tenant shall
indemnify and hold Landlord harmless, from and against any cost, liability or
expense (including attorney's fees and disbursements) incurred as a result of
the assertion(s) or claim(s) by any person, firm or entity for brokerage or
other commissions or finder's fees based upon the claiming person's alleged
dealings with Tenant or any of its employees, agents or representatives.
Article XXIV. Approval and Changes Required by Lender.
24.1 Any mortgagee of the property, or of Landlord's interest therein,
may have the right to approve this Lease, and in the event such approval is not
granted, Landlord shall have the right to terminate this Lease as hereinafter
set forth. In the event that any mortgagee of the property, or of Landlord's
interest therein, requires, as a condition of such financing, modifications to
this Lease which (i) do not materially and adversely affect Tenant's use of the
Demised Premises as herein permitted; and (ii) do not increase the rent or other
sums required to be paid by Tenant hereunder; then Landlord may submit to Tenant
a written amendment of this Lease incorporating such required changes. Tenant
shall execute such amendment within ten (10) days after the same has been
submitted to Tenant. If Tenant fails to so execute and deliver such amendment,
then Landlord shall thereafter have the right, at its sole option, to (a)
execute such amendment on Tenant's behalf, Tenant appointing Landlord its
irrevocable attorney-in-fact, said power being coupled with an interest to
execute such amendment; or (b) to cancel this Lease. Such cancellation option
shall be exercisable by Landlord's giving Tenant written notice of such
termination; immediately whereupon this Lease shall be canceled and terminated
and, upon relinquishment of possession of the Demised Premises by Tenant in the
condition required pursuant to the terms hereof, both Landlord and Tenant shall
thereupon be relieved from any and all further liability or obligation
hereunder.
15
<PAGE>
Article XXV. Parking.
25.1 During the Term of this Lease, Tenant and its employees and guests
shall have use of all parking areas in the Complex, without charge, for parking
purposes only, on an unreserved, non-exclusive basis in common with others
entitled to use of said parking areas. Landlord shall have general possession,
management and control of the parking areas, and may from time to time adopt
reasonable rules and regulations pertaining to the use thereof. Landlord
reserves the right to designate reserved parking in the parking areas. [GRAPHIC
OMITTED] Article XXVI. Waiver of Trial by Jury and Right to Redeem.
26.1 Landlord and Tenant each agree to and they waive trial by jury in
any action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of said premises and/or any claim of injury or damage, and
statutory remedy. Tenant also hereby agrees that the provisions of Section
8-401(e) of the Maryland Real Property Code shall not apply to this Lease and
Tenant hereby waives its rights thereunder.
Article XXVII. Furnishing of Financial Statements.
27.1 Within ten (10) days of the execution of this Lease, Tenant shall
furnish Landlord financial statements outlining Tenant's current financial
condition if applicable, as of the last annual audit or the last regularly
prepared report including tax returns. Over the term of this Lease and any
extensions, within ten (10) days of Landlord's written request, Tenant shall
furnish financial statements outlining Tenant's current financial condition. The
foregoing requirements shall not apply during any period of time in which
Tenant's stock is listed on a national stock exchange.
Article XXVIII. Occupational and Environmental Compliance.
28.1 Tenant shall not in any manner use, maintain or allow the use or
maintenance of the property in violation of any law, ordinance, statute,
regulation, rule or order (collectively "Laws") of any governmental authority,
including but not limited to Laws governing zoning, health, safety (including
fire safety), occupational hazards, and pollution and environmental control.
Tenant shall not use, maintain or allow the use or maintenance of the property
or any part thereof to treat, store, dispose of, transfer, release, convey or
recover hazardous materials nor shall Tenant otherwise, in any manner, possess
or allow the possession of any hazardous, materials on or about the property;
provided, however, any hazardous material lawfully permitted and generally
recognized as necessary and appropriate for general office use may be stored and
used in the Demised Premises, so long as (i) such storage and use is in the
ordinary course of Tenant's business permitted under this Lease; (ii) such
storage and use is performed in compliance with all applicable laws and
regulations and in compliance with the highest standards prevailing in the
industry for the storage and use of such materials; and (iii) Tenant delivers
prior written notice to Landlord of the identity of and information regarding
such materials as Landlord may require. Tenant shall immediately notify Landlord
of the presence or suspected presence of any hazardous material on or about the
property and shall deliver to Landlord any notice received by Tenant relating
thereto.
Landlord and its agents shall have the right, but not the duty, to
inspect the Demised Premises and conduct tests thereon at any time to determine
whether or the extent to which there is hazardous materials on the Demised
Premises. Landlord shall have [GRAPHIC OMITTED]the right to immediately enter
upon the Demised Premises to remedy any contamination found thereon. In
exercising its rights herein, Landlord shall use reasonable efforts to minimize
interference with Tenant's business but such entry shall not constitute an
eviction of Tenant, in whole or in part, and Landlord shall not be liable for
any interference, loss, or damage to Tenant's property or business caused
thereby. If any lender or governmental agency shall ever require testing to
ascertain whether there has been a release of hazardous materials, then the
reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand
as additional rent if such requirement arose in whole or in part because of
Tenant's use of the Demised Premises. Tenant shall execute affidavits,
representations and the like from time to time, at Landlord's request,
concerning Tenant's best knowledge and belief regarding the presence of any
hazardous materials on the property or Tenant's intent to store or use hazardous
materials on the property. Tenant shall indemnify and hold harmless Landlord
from any and all claims, loss,
16
<PAGE>
liability, costs, expenses or damage, including attorneys' fees and costs of
remediation and compliance, incurred by Landlord in connection with any breach
by Tenant of its obligations under this section. The covenants and obligations
of Tenant hereunder shall survive the expiration or earlier termination of this
Lease.
28.2 For the purposes of this Article XXVIII, the term "hazardous
materials" shall mean (i) any and all hazardous waste, toxic chemicals,
materials or substances occurring in the air, water, soil or ground water at the
property by reason of which the Tenant or Landlord would be subject to an
injunction action and/or any damages, penalties, clean up costs or other
liability under the provisions of the Comprehensive Environmental Response,
Compensation and Liability Act 42 U.S.C. ss. 9601 et seq., the Superfund
Amendments and Reauthorization Act of 1986, 42 U.S.C. ss. 9601 (20D), the
Resource Conservation and Recovery Act (the Solid Waste Disposal Act), 42 U.S.C.
ss. 9601 et seq., the Federal Water Pollution Control Act, as amended by the
Clean Water Act of 1977, 33 U.S.C. ss. 1251 et seq., the Clean Air Act of 1966,
42 U.S.C. ss. 7401 et seq., and the Toxic Substances Control Act, 15 U.S.C. ss.
2601, et seq.; (ii) any "oil, petroleum products and their by-products" as
defined by the Maryland Environmental Code Annotated ss. 4-411(a)(3); as amended
from time to time and regulations promulgated thereunder; (iii) any "hazardous
substance" as defined by the Maryland Environmental Code Annotated, Title 7,
Subtitle 2, as amended from time to time and regulations promulgated thereunder;
and (iv) any substance the presence of which is prohibited or controlled by any
other federal, state or local laws, regulations, statutes, or ordinances now in
a force or hereafter enacted relating to waste disposal or environmental
protection with respect to hazardous, toxic or other substances generated,
produced, leaked, released, spilled, stored or disposed of at or from the
property. Hazardous material shall also include any other substance which by law
requires special handling in its collection, storage, treatment or disposal, but
not including small quantities of materials present on the property in retail
containers, which [GRAPHIC OMITTED]would not be prohibited, regulated or
controlled under applicable environmental laws.
Article XXIX Miscellaneous.
29.1 Nothing herein contained shall be deemed or construed by the
parties hereto, nor by any third party, as creating the relationship of
principal and agent or of partnership or a joint venture between parties hereof,
it being understood and agreed that neither the method of computation of rental,
nor any other provisions contained herein, nor the acts of the parties hereto,
shall be deemed to create any relationship between the parties hereto other than
the relationship of Landlord and Tenant. Whenever herein the singular number is
used, the same shall include the plural, and words of gender shall include each
other gender.
29.2 The captions used herein are for convenience only and do not
limit or amplify the provisions hereof.
29.3 One or more waivers of any covenant, term or condition of this
Lease by Landlord shall not be construed as a waiver of a subsequent breach of
the same covenant, term or condition. The consent or approval by Landlord shall
not be construed as a waiver of a subsequent breach of the same covenant, term
or condition. The consent or approval by Landlord to or of any act by the Tenant
shall not be deemed to waive or render unnecessary consent to or approval of any
subsequent similar act.
29.4 Whenever a period of time is herein prescribed for action to be
taken by the Landlord, Landlord shall not be liable or responsible for, and
there shall be excluded from the computation of any such period of time, any
delays due to strikes, riots, acts of God, shortages of labor or materials, war,
government laws, regulations or restrictions or any other cause of any kind
whatsoever which is beyond the reasonable control of Landlord. At any time when
there is outstanding a mortgage, deed of trust or similar security instrument
covering Landlord's interest in the Demised Premises, Tenant may not exercise
any remedies for default by Landlord hereunder unless and until the holder of
the indebtedness secured by such mortgage, deed of trust or similar instrument
shall have received written notice of such default and a reasonable time for
such default shall thereafter have elapsed.
29.5 This Lease contains the entire agreement between the parties, and
no agreement shall be effective to change, modify or terminate this Lease in
whole or in part unless such agreement is in writing and duly signed by the
party against whom enforcement of such change, modification or termination is
sought.
17
<PAGE>
29.6 The laws of the State of Maryland, without reference to its
conflicts of laws principles, shall govern the interpretation, validity,
performance and enforcement of this Lease. If any provision of this Lease should
be held to be invalid or unenforceable, the validity and enforceability of the
remaining provisions of this Lease shall not be affected thereby. [GRAPHIC
OMITTED]
29.7 The terms, provisions and covenants contained in this Lease shall
inure to the benefit of and be binding upon the parties hereto and their
respective heirs, successors in interest and legal representatives except as
otherwise herein expressly provided.
29.8 Tenant shall not record this Lease or any memorandum or other
document referring to this Lease without the express written permission of
Landlord. Landlord, however, may record this Lease or any related document
without the consent or jointer of Tenant.
29.9 Tenant shall pay before delinquency all costs for work done or
caused to be done by Tenant in the Demised Premises which could result in any
lien or encumbrance in respect of such work and shall indemnify, defend and hold
harmless Landlord against any claim, loss, cost, demand and legal or other
expenses, whether in respect of any lien or otherwise, arising out of the supply
of material, services or labor for such work. Tenant shall immediately notify
Landlord of any such lien, claim of lien or other action of which it has or
reasonably should have knowledge and which affect the title to the Complex or
any part thereof, and shall cause the same to be removed within fifteen (15)
days (or such additional time as Landlord may consent to in writing) after its
filing, creation or assertion, whichever shall first occur, failing which
Landlord may declare Tenant in default hereunder and take such action as
Landlord deems necessary to remove the same and the entire cost thereof shall be
immediately due and payable by Tenant to Landlord as additional rent hereunder.
29.10 The submission of this Lease for examination does not constitute
a reservation of or an option for the Demised Premises nor does it constitute an
offer to lease the Demised Premises until signed by Landlord and this Lease
becomes effective as a Lease only upon execution and delivery thereof by both
Landlord and Tenant.
29.11 Time shall be of the essence for this Lease.
29.12 If any term, covenant or condition of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term, covenant or condition to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby and
each term, covenant or condition of this Lease shall be valid and be enforced to
the fullest extent permitted by law.
[GRAPHIC OMITTED] 29.13 It is agreed that, for the purpose of any suit brought
or based on this Lease, this Lease shall be construed to be a divisible
contract, to the end that successive actions may be maintained thereon as
successive periodic sums shall mature or be due hereunder, and it is further
agreed that failure to include in any suit or action any sum or sums then
matured or due shall not be a bar to the maintenance of any suit or action for
the recovery of said sum or sums so omitted; and Tenant agrees that it will not,
in any suit or suits brought or arising under this Lease for a matured sum for
which judgment has not previously been obtained or entered, plead, rely on or
interpose the defenses of res judicata, former recovery, extinguishment, merger,
election or remedies or other similar defense as a defense to said suit or
suits.
18
<PAGE>
Article XXX. Attachments.
The Following Attachments are attached hereto and made a part hereof:
Exhibit A - Plan of the Complex
Exhibit B - Demising Plan
Exhibit C - Rules and Regulations
Article XXXI. Commercially Reasonable Terms and Conditions.
32.1 The terms and provisions of this Agreement are intended to reflect
commercially reasonable terms and conditions (including, but not limited to,
pricing) that are at least as favorable and as competitive to Tenant as the
terms and conditions Landlord would grant or require of third parties for
substantially similar goods and services.
IN WITNESS HEREOF, the parties hereunto signed their names, as their
free act and deed on the day and year first above written, and do hereby
acknowledge and accept this Lease agreement.
ATTEST: Landlord: MANOR CARE, INC.
____________________ By: /s/ James H. Rempe
James H. Rempe
Title: Senior Vice President & Secretary
ATTEST: Tenant: CHOICE HOTELS HOLDINGS, INC.
(to be renamed Choice Hotels
International, Inc.)
____________________ By: /s/ James A. MacCutcheon
James A. MacCutcheon
Title: Executive Vice President,
Chief Financial Officer & Treasurer
19
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls or other parts of the Building not occupied by any
Tenant shall not be obstructed or encumbered by any Tenant or used for any
purpose other than ingress and egress to and from the Demised Premises. Landlord
shall have the right to control and operate the public portions of the Building,
and the facilities furnished for the common use of the Tenants, in such manner
as Landlord deems best for the benefit of the Tenants generally. No Tenant shall
permit the visit to the Demised Premises of persons in such numbers or under
such conditions as to interfere with the use and enjoyment by other Tenants of
the entrances, corridors, elevators and other public portions or facilities of
the Building.
2. No awnings or other projections shall be attached to the outside
walls of the Building without the prior written consent of the Landlord. No
drapes, blinds, shades, or screens shall be attached to or hung in, or used in
connection with any window or door of the Demised Premises, without the prior
written consent of the Landlord. Such awnings, projections, curtains, blinds,
shades, screens, or other fixtures must be of a quality, type, design, and
color, and attached in the manner approved by Landlord. Landlord agrees that it
will not unreasonably withhold its consent to any such request by Tenant.
3. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted, or affixed by any Tenant on any part of the
outside or inside of the Demised Premises or building without the prior written
consent of the Landlord. In the event of the violation of the foregoing by any
Tenant, Landlord may remove same without any liability, and may charge expense
incurred by such removal to the Tenant or Tenants violating this rule. Interior
signs on doors and directory tablet shall be inscribed, painted or affixed for
each Tenant by the Landlord at the expense of such Tenant, and shall be of a
size, color and style acceptable to the Landlord.
4. No show cases or other articles shall be put in front of or affixed
to any part of the exterior of the Building, nor placed in the halls, corridors
or vestibules, without the prior written consent of the Landlord.
5. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures shall be borne by the Tenant
who, or whose servants, employees, agents, visitors or licensees, shall have
caused the same.
6. There shall be no unnecessary marking, painting, drilling into or in
any way defacing any part of the Demised Premises or the Building. No boring,
cutting or stringing of [GRAPHIC OMITTED]wires shall be permitted. Tenant shall
not construct, maintain, use or operate within the Demised Premises or elsewhere
within or on the outside of the Building, any electric device, wiring or
apparatus in connection with a loud speaker system or other sound system.
7. No bicycles, vehicles or animals, birds or pets of any kind shall be
brought into or kept in or about the Demised Premises except seeing eye dogs. No
Tenant shall cause or permit any unusual or objectionable odors to be produced
upon or permeate from the Demised Premises, except as may be permitted in
accordance with the Use and Occupancy permit.
8. No space in the Building shall be used for manufacturing, for the
storage of merchandise, or for the sale of merchandise, goods or property of any
kind at auction.
9. No Tenant shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this or neighboring
buildings or premises or those having business with them, whether by the use of
any musical instrument, radio, talking machine, unmusical noise, whistling,
singing, or in any other way. No Tenant shall throw anything out of the doors or
windows or down the corridors or stairs.
3
<PAGE>
10. No inflammable, combustible or explosive fluid, chemical or
substance as defined by the Environmental Protection Agency shall be brought or
kept upon the Demised Premises.
11. No additional locks or bolts of any kind shall be placed upon any
of the doors, or windows by any Tenant, nor shall any changes be made in
existing locks or the mechanism thereof, except as may be required by Tenant as
a financial institution. The doors leading to the corridors or main halls shall
be kept closed during business hours except as they may be used for ingress or
egress. Each Tenant shall, upon the termination of his tenancy, restore to
Landlord all keys of stores, offices, storage, and toilet rooms either furnished
to, or otherwise procured by, such Tenant, and in the event of the loss of any
keys, so furnished, such Tenant shall pay to the Landlord the cost thereof.
12. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the hours
which the Landlord or its Agent may determine from time-to-time. The Landlord
reserves the right to inspect all freight to be brought into the Building and to
exclude from the Building all freight which violates any of these Rules and
Regulations or the Lease of which these Rules and Regulations are a part.
13. Any person employed by any Tenant to do janitor work within the
Demised Premises must obtain Landlord's consent and such person shall, while in
the Building and outside of said Demised Premises, comply with all instructions
issued by the Superintendent of the Building. No Tenant shall engage or pay any
employees on the Demised Premises, except those actually working for such Tenant
on said premises. [GRAPHIC OMITTED]
14. Landlord shall have the right to prohibit any advertising by any
Tenant which, in Landlord's reasonable opinion, tends to impair the reputation
of the Building or its desirability as a building for offices, and upon written
notice from Landlord, Tenant shall refrain from or discontinue such advertising.
15. The premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
16. Each Tenant, before closing and leaving the Demised Premises at
any time, shall see that all windows are closed.
17. The requirements of Tenants will be attended to only upon
application of the office of the Building. Employees shall not perform any work
or do anything outside of the regular duties, unless under special instruction
from the management of the Building.
18. Access plates to under floor conduits shall be left exposed. Where
carpet is installed, carpet shall be cut around access plates.
19. Mats, trash and other objects shall not be placed in the public
corridors.
20. The Landlord does not maintain suite finishes which are
non-standard, such as kitchens, bathrooms, wallpaper, special lights, etc.
However, should the need for repairs arise, the Landlord will arrange for the
work to be done at the Tenant's expense.
21. Violation of these rules and regulations, or any amendments
thereto, shall be sufficient cause for termination of this Lease at the option
of the Landlord.
22. Smoking in the Demised Premises or anywhere else in the Building
is prohibited.
3
TAX SHARING AGREEMENT
THIS AGREEMENT, executed this ____ day of ________________, 1996, is
entered into by and among Choice Hotels Holdings, Inc. (to be renamed Choice
Hotels International, Inc.), a Delaware corporation ("Choice"), Manor Care,
Inc., a Delaware corporation, ("Manor"), and all direct and indirect
subsidiaries of one or both of Choice and Manor.
RECITALS
A. Choice, Manor, and the subsidiaries of Choice and Manor have
heretofore joined in filing consolidated federal income tax returns under the
Internal Revenue Code of 1986, as amended (the "Code"), and the applicable
Treasury Regulations promulgated thereunder by the Treasury Department (the
"Regulations") and have heretofore joined in filing certain consolidated,
combined, and unitary state income tax returns.
B. Pursuant to the Distribution Agreement of even date herewith between
Choice and Manor, Manor will distribute all of its stock in Choice to the common
shareholders of Manor in a transaction intended to qualify for tax free
treatment under Section 355 of the Code, and Choice and its subsidiaries will
therefore leave the affiliated group (within the meaning of Section 1504(a) of
the Code) of corporations (the "Manor Group") of which Manor is the common
parent.
C. The parties hereto desire to allocate their respective federal,
state, and local income tax liabilities, assessed in connection with the filing
of returns, including but not limited to consolidated, unitary, combined, or
separate returns, among themselves for the following fiscal years: (a) the
fiscal year ending May 31, 1996 ("FY 1996"); (b) the fiscal year commencing on
June 1, 1996 and ending on May 31, 1997 ("FY 1997"); (c) where relevant, the
fiscal year ending on the Distribution Date ("Stub 97"); and (d) where relevant,
the fiscal year commencing on the day after the Distribution Date and ending on
May 31, 1997 ("Short 97").
D. The parties hereto desire to provide for the compensation and
reimbursement of each other for federal and state income tax deficiencies paid,
by one party hereto although allocated pursuant to this Agreement to the other,
(plus interest and penalties) or refunds received (plus interest) as a result of
audits by the Internal Revenue Service (the "Service") and other taxing
authorities and judicial determination, if any, involving consolidated federal
and state income tax returns ("Joint Return Deficiencies/Refunds").
E. The parties hereto desire to provide and fix the responsibilities
for: (1) the preparation and filing of tax returns along with the payments of
taxes shown to be due and payable thereon (as well as estimated or advance
payments required prior to the filing of said returns) for all periods prior and
subsequent to the Distribution Date; (2) the retention and maintenance of all
relevant records necessary to prepare and file appropriate tax returns, as well
as providing for appropriate access to those records for all parties to this
Agreement; (3) the conduct of audits, examinations, and
<PAGE>
proceedings by appropriate governmental authorities which could result in a
redetermination of tax liabilities (for all periods prior to or subsequent to
the Distribution Date) of any party to this Agreement; and (4) the cooperation
of all parties with one another in order to fulfill their duties and
responsibilities under this Agreement and under applicable law.
NOW THEREFORE, the parties agree as follows:
SECTION 1. DEFINITIONS.
As used herein, the following terms shall have the following meanings:
(a) "Affiliated Group" shall have the meaning attributed to that term
in Section 1504 of the Code, determined without regard to Section
1504(b) of the Code.
(b) "Manor Group" shall mean the group of corporations at any given
time (either prior to, or subsequent to, the Distribution)
consisting of the Affiliated Group of which Manor is the Common
Parent.
(c) "Code" is defined in the preamble.
(d) "Common Parent" shall have the meaning attributed to that term in
the Consolidated Return Regulations (Treas. Reg. Section 1.1502-1
et seg.) promulgated pursuant to Section 1502 of the Code.
(e) "Consolidated Return Regulations" is defined in section 4 hereof.
(f) "Distribution" shall mean the distribution by Manor of all its
stock in Choice to its shareholders.
(g) "Distribution Date" shall mean the date on which the Distribution
occurs.
(h) "Choice" is defined in the preamble.
(i) "Choice Group" shall mean the group of corporations immediately
after the Distribution Date consisting of the Affiliated Group of
which Choice is the Common Parent, as well as all other
corporations which would be included in such group subsequent to
the Distribution.
(j) "I.R.S." or "Service" shall mean the Internal Revenue Service.
(k) "Joint Contest" shall mean a Tax Contest seeking a
redetermination of Taxes involving one or more Members
(determined by reference to the time period for which such return
was filed) of the Manor Group and one or more Members of the
Choice Group,
<PAGE>
whether such corporations joined in the filing of
returns on a consolidated, combined, or unitary basis or
otherwise.
(l) "Joint Return Deficiencies/Refunds" is defined in the preamble.
(m) "Member" shall have the meaning attributed to that term in
Section 1.1502-1(b) of the Regulations, but without regard to
whether a corporation qualifies to be a Member of an Affiliated
Group under Section 1504(b) of the Code.
(n) "Minimum Tax Credit" is defined in section 5 hereof.
(o) "Regulations" is defined in the preamble.
(p) "Separate Contest" shall mean a Tax Contest involving only
Members of either the Manor Group or the Choice Group.
(q) "Tax Attributes" shall mean any losses, credits and other tax
attributes that may be carried forward or back by any Member of
the Manor Group or the Choice Group on a separate return or
consolidated basis to a taxable year other than the taxable year
in which such attribute is recognized, including, but not limited
to, net operating losses, alternative minimum tax credits,
targeted jobs tax credits, investment tax credits, foreign tax
credits, research and development credits, and similar credits
under state or local law.
(r) "Taxes" shall mean (i) all federal income taxes and state, local,
and foreign income and franchise taxes (or taxes in lieu thereof)
plus (ii) any penalties, fines or additions to tax with respect
thereto, plus (iii) any interest with respect to the items
contained in (i) and (ii).
(s) "Tax Contest" shall mean an audit, review, examination or the
like, inclusive of litigation, with the purpose of redetermining
taxes of any corporation (without regard to whether such matter
was initiated by an appropriate taxing authority or in response
to a claim for refund by one or more corporations).
SECTION 2. COMPUTATION OF TAX; ALLOCATION OF CERTAIN YEARS' TAXES
(a) Computations & Elections. In determining the federal and state
income tax liabilities of the Manor Group and its Members for FY
1996, FY 1997, and where relevant, Stub 97 and Short 97, the
computations of the tax liabilities of the Manor Group and its
Members shall, to the extent permitted by law, be made in
accordance with the methods used in the consolidated returns
which include Manor and Choice for the fiscal years ending prior
to the beginning of FY 1996.
<PAGE>
(b) Allocation of Tax (i) The taxes assessed pursuant to the returns
described in the preceding subsection will be allocated among the
Members of the Manor Group pursuant to the Manor Group's historic
tax allocation method, described in section 1552(a)(2) of the
Code and section 1502-33(d)(2)(ii) of the Regulations. (ii) With
respect to FY 1997, if the consolidated tax liability of the
Manor Group for FY 1997 (the "97 Manor Liability") is less than
the sum of the taxes allocated for FY 1997 to Choice and its
subsidiaries pursuant to section 2(b)(i) hereof (the "Choice
Separate Allocations"), the amounts allocated pursuant to section
2(b)(i) to Choice and its subsidiaries will be reduced by an
amount equal to the excess of the Choice Separate Allocations
over the 97 Manor Liability. (iii) With respect to the state and
local taxes which are determined on a combined or unitary basis,
similar principles as those described in section 2(b)(i) and (ii)
shall govern the allocation of such tax liabilities among the
parties hereto.
(c) Post-Distribution Date Allocations and Payments. (i) The final
allocations of FY 1996 Taxes and FY 1997 Taxes (to be made by
Manor for FY 1996 and FY 1997) will be made not later than 90
days following the filing of the Federal consolidated income tax
return of the Manor Group for such period. With respect to the
final allocations of FY 1996 and FY 1997 Taxes, Choice and/or its
subsidiaries shall make payments to Manor and/or its
subsidiaries, or receive payments from Manor and/or its
subsidiaries based on the following principles:
(1) the payment shall equal the amount of the adjustments, if
any, to taxable income or loss of Members of the Choice
Group multiplied by the applicable highest marginal rate
of taxation in effect for the period for which the
adjustment is made; or
(2) in the case of adjustments to credits, the payments made
or received shall be in an amount equal to the
adjustments, if any, of the credit of Members of the
Choice Group.
SECTION 3. SEPARATE COMPANY LIABILITIES.
Notwithstanding the provisions of section 2 hereof, for all years
through and including FY 1997, Taxes (including income taxes imposed by state or
foreign jurisdictions or political subdivisions thereof) imposed upon Choice or
any of its direct and indirect subsidiaries and which are determined or assessed
on a separate company basis will be the separate liability of Choice or such
subsidiary and not subject to allocation or sharing among other Members of the
Manor Group.
<PAGE>
SECTION 4. ALLOCATION OF TAX ATTRIBUTES.
All Tax Attributes of the Manor Group will be allocated among Manor,
Choice, and their respective subsidiaries in accordance with the Regulations
promulgated pursuant to Section 1502 of the Code or analogous provisions of
state, local, or foreign law (the "Consolidated Return Regulations").
SECTION 5. CARRYBACKS OF TAX ATTRIBUTES.
(a) Choice Carrybacks. If for any taxable year beginning on or after
the Distribution Date, Choice or any Member of the Choice Group
recognizes a Tax Attribute which Choice or such Member of the
Choice Group, under the applicable provisions of the Code and
Treasury Regulations promulgated under Section 1502 thereof, is
permitted or required to carry back to a prior Taxable year of
the Manor Group or the prior Taxable year of a Member of the
Manor Group (either on a consolidated or separate return basis)
Manor (or a Member of the Manor Group) shall file appropriate
refund claims within a reasonable period after being requested by
Choice with the consent of Manor, which consent shall not be
unreasonably withheld. Manor (or the Member of the Manor Group
receiving such refund) shall promptly remit to Choice any refund
of Taxes it receives with respect to any Tax Attribute so carried
back.
(b) Manor Carrybacks. If for any taxable year Manor or a Member of
the Manor Group recognizes a Tax Attribute which Manor or the
Member of the Manor Group, under the applicable provision of the
Code and Consolidated Return Regulations is permitted or required
to carry back to one of its prior taxable years, Manor or the
Member of the Manor Group may file appropriate refund claims and
shall be entitled to any refund of Taxes resulting from such
claims.
SECTION 6. CONDUCT OF TAX CONTESTS.
(a) "Joint Contests."
(i) The conduct of Joint Contests shall be the responsibility of
Manor. Choice, as the common parent of the Choice Group or
otherwise, agrees to take all such actions and to cause its
subsidiaries to take all such actions as may be necessary to
permit Manor to conduct such contests.
(ii) In the case of a Joint Contest of a consolidated federal or
state income tax return which included Choice and/or its
subsidiaries, Choice and/or its subsidiaries as appropriate,
shall be notified by Manor of such Tax Contest and shall be
entitled to participate, at their own expense, in contesting all
relevant items that affect the tax liability
<PAGE>
or tax attributes of such entities with respect to such Tax
Contest in administrative and judicial proceedings. Choice and
its subsidiaries agree to notify Manor of any actual or proposed
Tax Contest of a consolidated federal or state income tax return
of the Manor Group for any period ending on or before May 31,
1997. Choice will, and shall cause any of its subsidiaries to
cooperate in connection with any such Tax Contest. Manor and
Choice shall share jointly in any decisions involved in
connection with settlements of tax disputes to the extent that
items are involved that affect the tax, penalty, or interest
liability or tax attributes of Choice or its subsidiaries. Manor
may not agree to settle such a dispute without the consent of
Choice unless Manor releases Choice from its liability to pay its
share of the disputed amount hereunder. If both parties agree to
contest a tax matter, then the costs of contesting the matter
shall be borne equally by each party. If only one party requests
the contest of a tax matter, the party requesting the contest
shall bear its expenses associated with such contest; provided
however, that the other party will agree to cooperate with the
contesting party, and further provided that the non-contesting
party shall bear its own costs and expenses, if any, and shall
not be entitled to reimbursement for the fair cost of its own
employees related to its participation in, or cooperation with
the contesting party in such contest.
(b) Separate Contests. Any Separate Contests with respect to tax
returns filed by any Member of either the Choice Group or Manor
Group on a separate company basis shall be conducted by the
entity which filed such tax return (or the Common Parent of the
Affiliated Group of which such entity is a Member at the time of
such contest), and such entity shall have sole and compete
authority to conduct such contest, including the authority to
negotiate with and enter into settlements with any Taxing
authority. If at any point of the proceedings of a "Separate
Contest," it becomes a Joint Contest, then it shall thereafter be
conducted as a Joint Contest.
(c) Cooperation. Choice (and the Member of the Choice Group) and
Manor (and the Members of the Manor Group) shall each provide the
assistance reasonably requested by other with respect to
conducting any Tax Contest, including providing access to books,
records, tax returns and supporting work papers and providing any
powers of attorney required to conduct any Tax Contest.
SECTION 7. REDETERMINED TAX LIABILITIES.
In the event of a redetermination of federal, state or local income tax
liabilities as a result of audits by the Service or other taxing authority
and/or judicial determinations, payments in connection therewith, if any, made
or received by or among Choice, Manor, and their respective subsidiaries, shall
be governed by the following principles:
<PAGE>
(a) Upon the redetermination of any tax liability upon audit,
examination, etc. the redetermined liability will be borne by
(that is, any increases in liability will be paid by, and any
decreases in liability will be received by) the applicable
entities in the case of matters arising out of Separate Contests.
(b) In the case of liabilities redetermined with respect to
consolidated, combined, or unitary returns, which
redeterminations are Joint Contests, the increase to the
liabilities shall be paid to the relevant taxing authority by,
and the decreases received from the relevant taxing authority
shall be paid to, Manor and/or its subsidiaries. Whether or not a
payment is required to or from a relevant taxing jurisdiction and
subject to the provisions of section 7(c) hereof, Choice and/or
its subsidiaries shall make payments to Manor and/or its
subsidiaries, or receive payments from Manor and/or its
subsidiaries based on the following principles:
(1) the payment shall equal the amount of the adjustments, if
any, to taxable income or loss of Members of the Choice
Group multiplied by the applicable highest marginal rate
of taxation in effect for the period for which the
adjustment is made; or
(2) in the case of adjustments to credits, the payments made
or received shall be in an amount equal to the
adjustments, if any, of the credit of Members of the
Choice Group.
(c) If there is a redetermination of tax liabilities in connection
with either a Joint Contest or a Separate Contest, and as a
result thereof there is an adjustment to credits or attributes
allocated among the parties hereto pursuant to section 4 hereof,
Manor shall make a payment to Choice equal to the amount of any
resulting reduction in items allocated to Members of the Choice
Group to the extent such reduction is attributable to income
adjustments to Members of the Manor Group and Choice shall make a
payment to Manor equal to the amount of any resulting reduction
in items allocated to Members of the Manor Group to the extent
such reduction is attributable to income adjustments to Members
of the Choice Group.
(d) Any liability arising from adjustments to income made by (1)
treating the Distribution as a taxable distribution of property
or (2) recognizing "boot" in connection with the reorganization
of, and the transfer of assets and liabilities to, Choice
precedent to the Distribution shall be borne entirely by Choice.
<PAGE>
SECTION 8.RETENTION OF RECORDS: ACCESS TO RECORDS; COOPERATION AND ASSISTANCE.
(a) Retention of Records.
(i) Duties of Choice. Choice shall retain all tax returns, tax
reports, related work papers and all schedules (along with all
documents that pertain to any such tax returns, reports or work
papers) which relate to a tax period ending on or before May 31,
1997. Choice shall make such documents available to Manor and/or
its subsidiaries at Manor's request. Choice shall not dispose of
such documents without the permission of Manor.
(ii) Duties of Manor. Manor shall retain all tax returns, tax
reports, related work papers and all schedules (along with all
documents that pertain to any such tax returns, reports or work
papers) which relate to a tax period ending on or before May 31,
1997. Manor shall make such documents available to Choice and/or
its subsidiaries at Choice's request. Manor shall not dispose of
such documents without the permission of Choice.
(b) Access to Records.
(i) Duties of Choice. Choice will permit Manor or its
subsidiaries, or their designated representative, to have access
at any reasonable time and from time to time, after the
Distribution Date, to all relevant tax returns and supporting
papers therefor of Choice and the other members of the Choice
Group (as they were constituted immediately prior to the
Distribution Date) in respect of periods ending on or before the
Distribution Date, wherever located, and furnish, and request
that the independent accountants of Choice or any of the member
of the Choice Group furnish, to Manor and its subsidiaries, as
the case may be, such additional tax and other information and
documents with respect to consolidated federal and state income
tax returns filed in respect of periods ending on or before May
31, 1997, as Manor or any of its subsidiaries may from time to
time reasonably request.
(ii) Duties of Manor. Manor will permit Choice or its
subsidiaries, or their designated representative, to have access
at any reasonable time and from time to time, after the
Distribution Date, to all relevant tax returns and supporting
papers therefor of Manor and the other members of the Manor
Group (as they were constituted immediately prior to the
Distribution Date) in respect of periods ending on or before the
Distribution Date, wherever located, and furnish, and request
that the independent accountants of Manor or any of the member
of the Manor Group furnish, to Choice and its subsidiaries, as
the case may be, such additional tax and other information and
documents with respect to consolidated federal and state income
tax returns filed in respect of periods ending on or before May
31, 1997, as Choice or any of its subsidiaries may from time to
time reasonably request.
<PAGE>
(c) Assistance and Cooperation. Manor (and Members of the Manor
Group) and Choice (and Members of the Choice Group) will provide
each other with such cooperation, assistance and information as
either of them reasonably may request of the other with respect
to the filing of any tax return amended return, claim for refund
or other document with any taxing authority. With respect to the
federal consolidated tax return or any combined state tax return
filed by Manor for tax periods which begin before the
Distribution Date and end after the Distribution Date, such
assistance shall include the timely submission by Choice to Manor
of pro forma tax returns for Choice and each Member of the Choice
Group, prepared on the basis that each such Member's tax period
ended on the Distribution Date.
SECTION 9. PREPARATION OF TAX RETURNS: ESTIMATED PAYMENTS.
(a) FY 1996. Manor and Choice shall work together to prepare the
consolidated, separate, and combined returns for FY 1996. It
shall be the responsibility of Manor to timely file such returns
and to make any payments required in connection with the
consolidated and combined returns to the applicable taxing
authorities.
(b) FY 1997. Manor shall prepare and timely file the consolidated
returns for FY 1997. In connection with the preceding sentence,
Choice and its subsidiaries will, on or prior to December 15,
1997 with respect to the Stub 97: (1) furnish to Manor all
information and documentation (with respect to Choice and its
subsidiaries) necessary or useful in the preparation of the
consolidated federal and state income tax returns for the Manor
Group for FY 1997; (2) permit Manor to have access at any
reasonable time and from time to time, after the Distribution
Date, to all tax returns and supporting papers therefor of Choice
and its subsidiaries, wherever located; and (3) furnish to Manor
such additional tax and other information and documents in the
possessions of such companies, with respect to consolidated
federal and state income tax returns filed in respect of periods
including or ending before the Distribution Date, as Manor may
from time to time reasonably request. Choice will, and shall
cause its subsidiaries to, cooperate in connection with the
preparation of the consolidated federal and state income tax
returns of the Manor Group for FY 1997. It shall be the
responsibility of Manor to make any payments required in
connection therewith to the applicable taxing authorities. Choice
and its subsidiaries shall file its own tax returns which are
filed on a separate or combined basis for FY 1997. Manor and its
subsidiaries shall prepare and file its own tax returns which are
filed on a separate or combined basis for FY 1997.
(c) Taxable Period Before FY 1996. All tax returns of the Manor Group
which are filed on a consolidated or combined basis for tax
periods ending before May 31, 1996 were prepared and filed by
Manor. Manor shall be solely responsible for the payment of all
Taxes for such periods. Manor shall not file or amend such
consolidated or combined tax returns without affording Choice the
opportunity to review and comment on such tax returns to the
extent that the tax liabilities relating to such returns are, or
<PAGE>
could be allocated, assessed or charged to Choice and/or any of
its subsidiaries, whether such allocation, assessment, or charge
is by law or by contract or agreement.
(d) Post-Distribution Date Taxable Years.
(i) Choice's Separate Returns. All tax returns of the Choice
Group which are filed on a consolidated, separate or combined
basis for Choice and/or any of its subsidiaries for tax periods
beginning on or after the Distribution Date shall be prepared
and filed by Choice. Choice shall be solely responsible for the
payment of all Taxes due with respect to such tax returns for
such tax periods.
(ii) Manor's Separate Returns. All tax returns of the Manor
Group which are filed on a consolidated, separate, or combined
basis for Manor and/or any of its subsidiaries for tax periods
beginning on or after the Distribution Date shall be prepared
and filed by Manor. Manor shall be solely responsible for the
payment of all Taxes due with respect to such tax returns for
such tax periods.
(e) Estimated Payments. All payments (including estimated payments or
payments made in connection with requests for extensions of time
to file such returns) made subsequent to the date hereof with
respect to consolidated, combined, or unitary income tax
liabilities of the Manor Group and its Members for FY 1996 and FY
1997 shall be made by Manor. Manor shall promptly thereafter
notify Choice of the portion, if any, of such payment which it in
good faith believes to be attributable to Choice's share of the
FY 1996 and FY 1997 liability, as determined under the provisions
of section 2 hereof. Choice shall thereafter promptly pay such
amount to Manor or advise Manor of the basis for its
disagreement. Choice must make estimated payments for its Group
for periods beginning on/after the Distribution Date.
SECTION 10. PAYROLL TAX REPORTING AND WITHHOLDING IN STOCK OPTIONS.
(a) Upon the exercise of any nonqualified stock option covered by
Employee Benefits and Other Employment Matters Allocation
Agreement, the employer of the employee exercising such option
shall be responsible for collecting from the employee and timely
remitting to the applicable taxing authority any required income,
employment, payroll, or other tax withholding with respect to the
income to be recognized by such employee as a result of such
exercise, and shall include on such employee's annual wage
statement or other payroll tax reporting form for the calendar
year in which the option is exercised, the amount of such income
and withholdings. In addition, upon the exercise of any
nonqualified stock option covered by the Employee Benefits and
Other Employee Matters Allocation Agreement, the employer of the
employee exercising such option shall be responsible for paying
to any applicable taxing authority any taxes imposed on an
employer in connection with such exercise. If an employee
exercises an option with respect to, other than his or her
employer's stock, then the issuer of that
<PAGE>
stock shall be required to provide the employer with information
sufficient to allow the employer to satisfy its withholding and
reporting obligations, including, without limitation, the number
of option shares exercised, the fair market value of the issuer's
stock on the date of exercise and the option price paid for the
stock. The issuer of such stock shall retain the stock to be
issued upon the exercise of an option by a person who is not an
employee of such issuer until such time as both the exercise
price for the stock has been paid and any required withholding
with respect to the income to be recognized by such person has
been remitted to his or her employer. The employer, if the
employer is not the issuer of the stock shall promptly notify the
issuer when such required withholding has been remitted. The
employer of an employee exercising a stock option, covered by the
Employee Benefits and Other Employee Matters Allocation Agreement
shall be entitled to claim any and all deductions, to the extent
permitted, on any tax return for the income recognized by such
employee as a result of such exercise.
(b) If an employee is employed by both Manor and Choice, for the
purpose of this Section 10, such employee shall be treated as an
employee of Manor with respect to his or or her Manor stock
options and as an employee of Choice with respect to his or her
Choice stock options.
(c) For purposes of this Section 10, the term "employee" shall
include Directors, whether or not employed.
SECTION 11. INDEMNIFICATION.
With respect to all consolidated federal and state income tax returns
filed by the Manor Group:
(a) Choice shall indemnify, defend and hold harmless Manor and its
subsidiaries, and Manor shall indemnify, defend and hold harmless
Choice and its subsidiaries from and against any liability, cost,
or expense, including, without limitation, and fine, penalty,
interest charge (restricted to interest in excess of the rate
established under Section 6621 of the Code and interest which is
in respect of the penalty portion of an assessment), or
accountants' or attorney's fee, arising out of fraudulent or
negligently prepared information, workpapers, documents, and
other items used in the preparation of, or presented in, any
return, amended return, or claim or refund filed for the Manor
Group for the FY 1996, Stub 97, Short 97, or FY 1997, and which
information, workpapers, documents, or other items originated
with and/or were prepared by such indemnifying party.
(b) Choice shall indemnify, defend and hold harmless Manor from and
against any liability, cost, or expense incurred or paid by Manor
in excess of its share thereof as allocated
<PAGE>
pursuant to this Agreement hereof, including any amount paid by
Manor in connection with an assessment by the Service or other
taxing authority.
(c) Manor shall indemnify, defend and hold harmless Choice from and
against any liability, cost, or expense incurred or paid by
Choice in excess of its share thereof as allocated pursuant to
this Agreement hereof, including any amount paid by Choice in
connection with an assessment by the Service or other taxing
authority.
SECTION 12. RESOLUTION OF DISPUTES.
Any disputes among the parties with respect to this Agreement shall be
resolved by a public accounting firm or a law firm reasonably satisfactory to
Manor and Choice. The fees and expenses of such firm shall be borne equally by
Choice and Manor. In the event that Choice and Manor are unable to appoint such
a firm, then all disputes arising under this Agreement shall be resolved under
the terms of the Distribution Agreement.
SECTION 13. SUBSIDIARIES.
Any reference herein to a subsidiary or subsidiaries does not include
any corporation that is or was, in the relevant tax year, not permitted to join
in the filing of a consolidated federal income tax return pursuant to Section
1504 of the Code. To the extent that the provisions of the Agreement pertain to
a subsidiary or subsidiaries of Manor or Choice, Manor and Choice respectively
agree that it will cause the respective subsidiary or subsidiaries to carry out
the terms of this Agreement.
SECTION 14. SURVIVABILITY.
This Agreement and each of its provisions shall be binding upon and
inure to the benefit of the parties and their respective heirs and successors.
This Agreement shall be effective only from and after the close of business on
the Distribution Date. Nothing in this Agreement is intended or shall be
construed to give any person or entity other than the parties and their
respective heirs or successors any rights or remedies under or by reason of the
Agreement.
SECTION 15. NOTICES.
All notices and other communications required or permitted under this
Agreement shall be in writing, shall be deemed delivered upon receipt by hand or
shall be deemed to have been properly made and given one (1) business day after
being deposited with a reputable overnight courier service such as Federal
Express, Airborne Express or UPS Next Day Air for next business day delivery to
the parties at their respective addresses set forth below, or as to any party at
such other address as
<PAGE>
shall be designated by such party in a written notice to
the other party complying as to delivery with the terms of this paragraph:
To Choice: Choice Hotels Holdings, Inc.
10750 Columbia Pike
Silver Spring, MD 20901
Attn: General Counsel
To Manor: Manor Care, Inc.
11555 Darnestown Road
Gaithersburg, MD 20878-3200
Attn: General Counsel
SECTION 16. GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance with,
the laws of the state of Maryland, without reference to its conflict of laws
principles.
SECTION 17. COSTS AND EXPENSES.
In any action brought to enforce or interpret this Agreement, each
party shall pay its own costs and expenses of maintaining or defending such
action.
SECTION 18. REMEDIES CUMULATIVE.
The remedies provided in this Agreement are cumulative and not
excluding of any remedies provided by law.
SECTION 19. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute but one and the same Agreement.
SECTION 20. SEVERABILITY.
In the event that any portion of this Agreement shall be declared
invalid by order, decree or judgment of a court, or governmental agency having
jurisdiction, this Agreement shall be construed as if such portion had not been
inserted herein, except when such construction would operate as an
<PAGE>
undue hardship on any party to this Agreement or constitute a substantial
deviation from the general intent and purpose of said parties as reflected in
this Agreement
SECTION 21. AMENDMENTS; WAIVER.
This Agreement may be amended, and the observance of any term of this
Agreement may be waived, in a written document signed by Manor and Choice.
SECTION 22. EFFECTIVENESS OF AGREEMENT.
This Agreement shall become effective on the Distribution Date and
shall continue in effect until otherwise agreed in writing by Manor and Choice,
or their successors.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
CHOICE HOTELS HOLDINGS, INC.
By: /s/ James A. MacCutcheon
Name:James A. MacCutcheon
Title:Executive Vice President, Chief
Financial Officer and Treasurer
MANOR CARE, INC.
By: /s/ James H. Rempe
Name:James H. Rempe
Title:Senior Vice President and Secretary
TAX SHARING AGREEMENT
THIS AGREEMENT, executed this ____ day of ________________, 1996, is
entered into by and among Choice Hotels Holdings, Inc. (to be renamed Choice
Hotels International, Inc.), a Delaware corporation ("Choice"), Manor Care,
Inc., a Delaware corporation, ("Manor"), and all direct and indirect
subsidiaries of one or both of Choice and Manor.
RECITALS
A. Choice, Manor, and the subsidiaries of Choice and Manor have
heretofore joined in filing consolidated federal income tax returns under the
Internal Revenue Code of 1986, as amended (the "Code"), and the applicable
Treasury Regulations promulgated thereunder by the Treasury Department (the
"Regulations") and have heretofore joined in filing certain consolidated,
combined, and unitary state income tax returns.
B. Pursuant to the Distribution Agreement of even date herewith between
Choice and Manor, Manor will distribute all of its stock in Choice to the common
shareholders of Manor in a transaction intended to qualify for tax free
treatment under Section 355 of the Code, and Choice and its subsidiaries will
therefore leave the affiliated group (within the meaning of Section 1504(a) of
the Code) of corporations (the "Manor Group") of which Manor is the common
parent.
C. The parties hereto desire to allocate their respective federal,
state, and local income tax liabilities, assessed in connection with the filing
of returns, including but not limited to consolidated, unitary, combined, or
separate returns, among themselves for the following fiscal years: (a) the
fiscal year ending May 31, 1996 ("FY 1996"); (b) the fiscal year commencing on
June 1, 1996 and ending on May 31, 1997 ("FY 1997"); (c) where relevant, the
fiscal year ending on the Distribution Date ("Stub 97"); and (d) where relevant,
the fiscal year commencing on the day after the Distribution Date and ending on
May 31, 1997 ("Short 97").
D. The parties hereto desire to provide for the compensation and
reimbursement of each other for federal and state income tax deficiencies paid,
by one party hereto although allocated pursuant to this Agreement to the other,
(plus interest and penalties) or refunds received (plus interest) as a result of
audits by the Internal Revenue Service (the "Service") and other taxing
authorities and judicial determination, if any, involving consolidated federal
and state income tax returns ("Joint Return Deficiencies/Refunds").
E. The parties hereto desire to provide and fix the responsibilities
for: (1) the preparation and filing of tax returns along with the payments of
taxes shown to be due and payable thereon (as well as estimated or advance
payments required prior to the filing of said returns) for all periods prior and
subsequent to the Distribution Date; (2) the retention and maintenance of all
relevant records necessary to prepare and file appropriate tax returns, as well
as providing for appropriate access to those records for all parties to this
Agreement; (3) the conduct of audits, examinations, and
<PAGE>
proceedings by appropriate governmental authorities which could result in a
redetermination of tax liabilities (for all periods prior to or subsequent to
the Distribution Date) of any party to this Agreement; and (4) the cooperation
of all parties with one another in order to fulfill their duties and
responsibilities under this Agreement and under applicable law.
NOW THEREFORE, the parties agree as follows:
SECTION 1. DEFINITIONS.
As used herein, the following terms shall have the following meanings:
(a) "Affiliated Group" shall have the meaning attributed to that term
in Section 1504 of the Code, determined without regard to Section
1504(b) of the Code.
(b) "Manor Group" shall mean the group of corporations at any given
time (either prior to, or subsequent to, the Distribution)
consisting of the Affiliated Group of which Manor is the Common
Parent.
(c) "Code" is defined in the preamble.
(d) "Common Parent" shall have the meaning attributed to that term in
the Consolidated Return Regulations (Treas. Reg. Section 1.1502-1
et seg.) promulgated pursuant to Section 1502 of the Code.
(e) "Consolidated Return Regulations" is defined in section 4 hereof.
(f) "Distribution" shall mean the distribution by Manor of all its
stock in Choice to its shareholders.
(g) "Distribution Date" shall mean the date on which the Distribution
occurs.
(h) "Choice" is defined in the preamble.
(i) "Choice Group" shall mean the group of corporations immediately
after the Distribution Date consisting of the Affiliated Group of
which Choice is the Common Parent, as well as all other
corporations which would be included in such group subsequent to
the Distribution.
(j) "I.R.S." or "Service" shall mean the Internal Revenue Service.
(k) "Joint Contest" shall mean a Tax Contest seeking a
redetermination of Taxes involving one or more Members
(determined by reference to the time period for which such return
was filed) of the Manor Group and one or more Members of the
Choice Group,
<PAGE>
whether such corporations joined in the filing of
returns on a consolidated, combined, or unitary basis or
otherwise.
(l) "Joint Return Deficiencies/Refunds" is defined in the preamble.
(m) "Member" shall have the meaning attributed to that term in
Section 1.1502-1(b) of the Regulations, but without regard to
whether a corporation qualifies to be a Member of an Affiliated
Group under Section 1504(b) of the Code.
(n) "Minimum Tax Credit" is defined in section 5 hereof.
(o) "Regulations" is defined in the preamble.
(p) "Separate Contest" shall mean a Tax Contest involving only
Members of either the Manor Group or the Choice Group.
(q) "Tax Attributes" shall mean any losses, credits and other tax
attributes that may be carried forward or back by any Member of
the Manor Group or the Choice Group on a separate return or
consolidated basis to a taxable year other than the taxable year
in which such attribute is recognized, including, but not limited
to, net operating losses, alternative minimum tax credits,
targeted jobs tax credits, investment tax credits, foreign tax
credits, research and development credits, and similar credits
under state or local law.
(r) "Taxes" shall mean (i) all federal income taxes and state, local,
and foreign income and franchise taxes (or taxes in lieu thereof)
plus (ii) any penalties, fines or additions to tax with respect
thereto, plus (iii) any interest with respect to the items
contained in (i) and (ii).
(s) "Tax Contest" shall mean an audit, review, examination or the
like, inclusive of litigation, with the purpose of redetermining
taxes of any corporation (without regard to whether such matter
was initiated by an appropriate taxing authority or in response
to a claim for refund by one or more corporations).
SECTION 2. COMPUTATION OF TAX; ALLOCATION OF CERTAIN YEARS' TAXES
(a) Computations & Elections. In determining the federal and state
income tax liabilities of the Manor Group and its Members for FY
1996, FY 1997, and where relevant, Stub 97 and Short 97, the
computations of the tax liabilities of the Manor Group and its
Members shall, to the extent permitted by law, be made in
accordance with the methods used in the consolidated returns
which include Manor and Choice for the fiscal years ending prior
to the beginning of FY 1996.
<PAGE>
(b) Allocation of Tax (i) The taxes assessed pursuant to the returns
described in the preceding subsection will be allocated among the
Members of the Manor Group pursuant to the Manor Group's historic
tax allocation method, described in section 1552(a)(2) of the
Code and section 1502-33(d)(2)(ii) of the Regulations. (ii) With
respect to FY 1997, if the consolidated tax liability of the
Manor Group for FY 1997 (the "97 Manor Liability") is less than
the sum of the taxes allocated for FY 1997 to Choice and its
subsidiaries pursuant to section 2(b)(i) hereof (the "Choice
Separate Allocations"), the amounts allocated pursuant to section
2(b)(i) to Choice and its subsidiaries will be reduced by an
amount equal to the excess of the Choice Separate Allocations
over the 97 Manor Liability. (iii) With respect to the state and
local taxes which are determined on a combined or unitary basis,
similar principles as those described in section 2(b)(i) and (ii)
shall govern the allocation of such tax liabilities among the
parties hereto.
(c) Post-Distribution Date Allocations and Payments. (i) The final
allocations of FY 1996 Taxes and FY 1997 Taxes (to be made by
Manor for FY 1996 and FY 1997) will be made not later than 90
days following the filing of the Federal consolidated income tax
return of the Manor Group for such period. With respect to the
final allocations of FY 1996 and FY 1997 Taxes, Choice and/or its
subsidiaries shall make payments to Manor and/or its
subsidiaries, or receive payments from Manor and/or its
subsidiaries based on the following principles:
(1) the payment shall equal the amount of the adjustments, if
any, to taxable income or loss of Members of the Choice
Group multiplied by the applicable highest marginal rate
of taxation in effect for the period for which the
adjustment is made; or
(2) in the case of adjustments to credits, the payments made
or received shall be in an amount equal to the
adjustments, if any, of the credit of Members of the
Choice Group.
SECTION 3. SEPARATE COMPANY LIABILITIES.
Notwithstanding the provisions of section 2 hereof, for all years
through and including FY 1997, Taxes (including income taxes imposed by state or
foreign jurisdictions or political subdivisions thereof) imposed upon Choice or
any of its direct and indirect subsidiaries and which are determined or assessed
on a separate company basis will be the separate liability of Choice or such
subsidiary and not subject to allocation or sharing among other Members of the
Manor Group.
<PAGE>
SECTION 4. ALLOCATION OF TAX ATTRIBUTES.
All Tax Attributes of the Manor Group will be allocated among Manor,
Choice, and their respective subsidiaries in accordance with the Regulations
promulgated pursuant to Section 1502 of the Code or analogous provisions of
state, local, or foreign law (the "Consolidated Return Regulations").
SECTION 5. CARRYBACKS OF TAX ATTRIBUTES.
(a) Choice Carrybacks. If for any taxable year beginning on or after
the Distribution Date, Choice or any Member of the Choice Group
recognizes a Tax Attribute which Choice or such Member of the
Choice Group, under the applicable provisions of the Code and
Treasury Regulations promulgated under Section 1502 thereof, is
permitted or required to carry back to a prior Taxable year of
the Manor Group or the prior Taxable year of a Member of the
Manor Group (either on a consolidated or separate return basis)
Manor (or a Member of the Manor Group) shall file appropriate
refund claims within a reasonable period after being requested by
Choice with the consent of Manor, which consent shall not be
unreasonably withheld. Manor (or the Member of the Manor Group
receiving such refund) shall promptly remit to Choice any refund
of Taxes it receives with respect to any Tax Attribute so carried
back.
(b) Manor Carrybacks. If for any taxable year Manor or a Member of
the Manor Group recognizes a Tax Attribute which Manor or the
Member of the Manor Group, under the applicable provision of the
Code and Consolidated Return Regulations is permitted or required
to carry back to one of its prior taxable years, Manor or the
Member of the Manor Group may file appropriate refund claims and
shall be entitled to any refund of Taxes resulting from such
claims.
SECTION 6. CONDUCT OF TAX CONTESTS.
(a) "Joint Contests."
(i) The conduct of Joint Contests shall be the responsibility of
Manor. Choice, as the common parent of the Choice Group or
otherwise, agrees to take all such actions and to cause its
subsidiaries to take all such actions as may be necessary to
permit Manor to conduct such contests.
(ii) In the case of a Joint Contest of a consolidated federal or
state income tax return which included Choice and/or its
subsidiaries, Choice and/or its subsidiaries as appropriate,
shall be notified by Manor of such Tax Contest and shall be
entitled to participate, at their own expense, in contesting all
relevant items that affect the tax liability
<PAGE>
or tax attributes of such entities with respect to such Tax
Contest in administrative and judicial proceedings. Choice and
its subsidiaries agree to notify Manor of any actual or proposed
Tax Contest of a consolidated federal or state income tax return
of the Manor Group for any period ending on or before May 31,
1997. Choice will, and shall cause any of its subsidiaries to
cooperate in connection with any such Tax Contest. Manor and
Choice shall share jointly in any decisions involved in
connection with settlements of tax disputes to the extent that
items are involved that affect the tax, penalty, or interest
liability or tax attributes of Choice or its subsidiaries. Manor
may not agree to settle such a dispute without the consent of
Choice unless Manor releases Choice from its liability to pay its
share of the disputed amount hereunder. If both parties agree to
contest a tax matter, then the costs of contesting the matter
shall be borne equally by each party. If only one party requests
the contest of a tax matter, the party requesting the contest
shall bear its expenses associated with such contest; provided
however, that the other party will agree to cooperate with the
contesting party, and further provided that the non-contesting
party shall bear its own costs and expenses, if any, and shall
not be entitled to reimbursement for the fair cost of its own
employees related to its participation in, or cooperation with
the contesting party in such contest.
(b) Separate Contests. Any Separate Contests with respect to tax
returns filed by any Member of either the Choice Group or Manor
Group on a separate company basis shall be conducted by the
entity which filed such tax return (or the Common Parent of the
Affiliated Group of which such entity is a Member at the time of
such contest), and such entity shall have sole and compete
authority to conduct such contest, including the authority to
negotiate with and enter into settlements with any Taxing
authority. If at any point of the proceedings of a "Separate
Contest," it becomes a Joint Contest, then it shall thereafter be
conducted as a Joint Contest.
(c) Cooperation. Choice (and the Member of the Choice Group) and
Manor (and the Members of the Manor Group) shall each provide the
assistance reasonably requested by other with respect to
conducting any Tax Contest, including providing access to books,
records, tax returns and supporting work papers and providing any
powers of attorney required to conduct any Tax Contest.
SECTION 7. REDETERMINED TAX LIABILITIES.
In the event of a redetermination of federal, state or local income tax
liabilities as a result of audits by the Service or other taxing authority
and/or judicial determinations, payments in connection therewith, if any, made
or received by or among Choice, Manor, and their respective subsidiaries, shall
be governed by the following principles:
<PAGE>
(a) Upon the redetermination of any tax liability upon audit,
examination, etc. the redetermined liability will be borne by
(that is, any increases in liability will be paid by, and any
decreases in liability will be received by) the applicable
entities in the case of matters arising out of Separate Contests.
(b) In the case of liabilities redetermined with respect to
consolidated, combined, or unitary returns, which
redeterminations are Joint Contests, the increase to the
liabilities shall be paid to the relevant taxing authority by,
and the decreases received from the relevant taxing authority
shall be paid to, Manor and/or its subsidiaries. Whether or not a
payment is required to or from a relevant taxing jurisdiction and
subject to the provisions of section 7(c) hereof, Choice and/or
its subsidiaries shall make payments to Manor and/or its
subsidiaries, or receive payments from Manor and/or its
subsidiaries based on the following principles:
(1) the payment shall equal the amount of the adjustments, if
any, to taxable income or loss of Members of the Choice
Group multiplied by the applicable highest marginal rate
of taxation in effect for the period for which the
adjustment is made; or
(2) in the case of adjustments to credits, the payments made
or received shall be in an amount equal to the
adjustments, if any, of the credit of Members of the
Choice Group.
(c) If there is a redetermination of tax liabilities in connection
with either a Joint Contest or a Separate Contest, and as a
result thereof there is an adjustment to credits or attributes
allocated among the parties hereto pursuant to section 4 hereof,
Manor shall make a payment to Choice equal to the amount of any
resulting reduction in items allocated to Members of the Choice
Group to the extent such reduction is attributable to income
adjustments to Members of the Manor Group and Choice shall make a
payment to Manor equal to the amount of any resulting reduction
in items allocated to Members of the Manor Group to the extent
such reduction is attributable to income adjustments to Members
of the Choice Group.
(d) Any liability arising from adjustments to income made by (1)
treating the Distribution as a taxable distribution of property
or (2) recognizing "boot" in connection with the reorganization
of, and the transfer of assets and liabilities to, Choice
precedent to the Distribution shall be borne entirely by Choice.
<PAGE>
SECTION 8.RETENTION OF RECORDS: ACCESS TO RECORDS; COOPERATION AND ASSISTANCE.
(a) Retention of Records.
(i) Duties of Choice. Choice shall retain all tax returns, tax
reports, related work papers and all schedules (along with all
documents that pertain to any such tax returns, reports or work
papers) which relate to a tax period ending on or before May 31,
1997. Choice shall make such documents available to Manor and/or
its subsidiaries at Manor's request. Choice shall not dispose of
such documents without the permission of Manor.
(ii) Duties of Manor. Manor shall retain all tax returns, tax
reports, related work papers and all schedules (along with all
documents that pertain to any such tax returns, reports or work
papers) which relate to a tax period ending on or before May 31,
1997. Manor shall make such documents available to Choice and/or
its subsidiaries at Choice's request. Manor shall not dispose of
such documents without the permission of Choice.
(b) Access to Records.
(i) Duties of Choice. Choice will permit Manor or its
subsidiaries, or their designated representative, to have access
at any reasonable time and from time to time, after the
Distribution Date, to all relevant tax returns and supporting
papers therefor of Choice and the other members of the Choice
Group (as they were constituted immediately prior to the
Distribution Date) in respect of periods ending on or before the
Distribution Date, wherever located, and furnish, and request
that the independent accountants of Choice or any of the member
of the Choice Group furnish, to Manor and its subsidiaries, as
the case may be, such additional tax and other information and
documents with respect to consolidated federal and state income
tax returns filed in respect of periods ending on or before May
31, 1997, as Manor or any of its subsidiaries may from time to
time reasonably request.
(ii) Duties of Manor. Manor will permit Choice or its
subsidiaries, or their designated representative, to have access
at any reasonable time and from time to time, after the
Distribution Date, to all relevant tax returns and supporting
papers therefor of Manor and the other members of the Manor
Group (as they were constituted immediately prior to the
Distribution Date) in respect of periods ending on or before the
Distribution Date, wherever located, and furnish, and request
that the independent accountants of Manor or any of the member
of the Manor Group furnish, to Choice and its subsidiaries, as
the case may be, such additional tax and other information and
documents with respect to consolidated federal and state income
tax returns filed in respect of periods ending on or before May
31, 1997, as Choice or any of its subsidiaries may from time to
time reasonably request.
<PAGE>
(c) Assistance and Cooperation. Manor (and Members of the Manor
Group) and Choice (and Members of the Choice Group) will provide
each other with such cooperation, assistance and information as
either of them reasonably may request of the other with respect
to the filing of any tax return amended return, claim for refund
or other document with any taxing authority. With respect to the
federal consolidated tax return or any combined state tax return
filed by Manor for tax periods which begin before the
Distribution Date and end after the Distribution Date, such
assistance shall include the timely submission by Choice to Manor
of pro forma tax returns for Choice and each Member of the Choice
Group, prepared on the basis that each such Member's tax period
ended on the Distribution Date.
SECTION 9. PREPARATION OF TAX RETURNS: ESTIMATED PAYMENTS.
(a) FY 1996. Manor and Choice shall work together to prepare the
consolidated, separate, and combined returns for FY 1996. It
shall be the responsibility of Manor to timely file such returns
and to make any payments required in connection with the
consolidated and combined returns to the applicable taxing
authorities.
(b) FY 1997. Manor shall prepare and timely file the consolidated
returns for FY 1997. In connection with the preceding sentence,
Choice and its subsidiaries will, on or prior to December 15,
1997 with respect to the Stub 97: (1) furnish to Manor all
information and documentation (with respect to Choice and its
subsidiaries) necessary or useful in the preparation of the
consolidated federal and state income tax returns for the Manor
Group for FY 1997; (2) permit Manor to have access at any
reasonable time and from time to time, after the Distribution
Date, to all tax returns and supporting papers therefor of Choice
and its subsidiaries, wherever located; and (3) furnish to Manor
such additional tax and other information and documents in the
possessions of such companies, with respect to consolidated
federal and state income tax returns filed in respect of periods
including or ending before the Distribution Date, as Manor may
from time to time reasonably request. Choice will, and shall
cause its subsidiaries to, cooperate in connection with the
preparation of the consolidated federal and state income tax
returns of the Manor Group for FY 1997. It shall be the
responsibility of Manor to make any payments required in
connection therewith to the applicable taxing authorities. Choice
and its subsidiaries shall file its own tax returns which are
filed on a separate or combined basis for FY 1997. Manor and its
subsidiaries shall prepare and file its own tax returns which are
filed on a separate or combined basis for FY 1997.
(c) Taxable Period Before FY 1996. All tax returns of the Manor Group
which are filed on a consolidated or combined basis for tax
periods ending before May 31, 1996 were prepared and filed by
Manor. Manor shall be solely responsible for the payment of all
Taxes for such periods. Manor shall not file or amend such
consolidated or combined tax returns without affording Choice the
opportunity to review and comment on such tax returns to the
extent that the tax liabilities relating to such returns are, or
<PAGE>
could be allocated, assessed or charged to Choice and/or any of
its subsidiaries, whether such allocation, assessment, or charge
is by law or by contract or agreement.
(d) Post-Distribution Date Taxable Years.
(i) Choice's Separate Returns. All tax returns of the Choice
Group which are filed on a consolidated, separate or combined
basis for Choice and/or any of its subsidiaries for tax periods
beginning on or after the Distribution Date shall be prepared
and filed by Choice. Choice shall be solely responsible for the
payment of all Taxes due with respect to such tax returns for
such tax periods.
(ii) Manor's Separate Returns. All tax returns of the Manor
Group which are filed on a consolidated, separate, or combined
basis for Manor and/or any of its subsidiaries for tax periods
beginning on or after the Distribution Date shall be prepared
and filed by Manor. Manor shall be solely responsible for the
payment of all Taxes due with respect to such tax returns for
such tax periods.
(e) Estimated Payments. All payments (including estimated payments or
payments made in connection with requests for extensions of time
to file such returns) made subsequent to the date hereof with
respect to consolidated, combined, or unitary income tax
liabilities of the Manor Group and its Members for FY 1996 and FY
1997 shall be made by Manor. Manor shall promptly thereafter
notify Choice of the portion, if any, of such payment which it in
good faith believes to be attributable to Choice's share of the
FY 1996 and FY 1997 liability, as determined under the provisions
of section 2 hereof. Choice shall thereafter promptly pay such
amount to Manor or advise Manor of the basis for its
disagreement. Choice must make estimated payments for its Group
for periods beginning on/after the Distribution Date.
SECTION 10. PAYROLL TAX REPORTING AND WITHHOLDING IN STOCK OPTIONS.
(a) Upon the exercise of any nonqualified stock option covered by
Employee Benefits and Other Employment Matters Allocation
Agreement, the employer of the employee exercising such option
shall be responsible for collecting from the employee and timely
remitting to the applicable taxing authority any required income,
employment, payroll, or other tax withholding with respect to the
income to be recognized by such employee as a result of such
exercise, and shall include on such employee's annual wage
statement or other payroll tax reporting form for the calendar
year in which the option is exercised, the amount of such income
and withholdings. In addition, upon the exercise of any
nonqualified stock option covered by the Employee Benefits and
Other Employee Matters Allocation Agreement, the employer of the
employee exercising such option shall be responsible for paying
to any applicable taxing authority any taxes imposed on an
employer in connection with such exercise. If an employee
exercises an option with respect to, other than his or her
employer's stock, then the issuer of that
<PAGE>
stock shall be required to provide the employer with information
sufficient to allow the employer to satisfy its withholding and
reporting obligations, including, without limitation, the number
of option shares exercised, the fair market value of the issuer's
stock on the date of exercise and the option price paid for the
stock. The issuer of such stock shall retain the stock to be
issued upon the exercise of an option by a person who is not an
employee of such issuer until such time as both the exercise
price for the stock has been paid and any required withholding
with respect to the income to be recognized by such person has
been remitted to his or her employer. The employer, if the
employer is not the issuer of the stock shall promptly notify the
issuer when such required withholding has been remitted. The
employer of an employee exercising a stock option, covered by the
Employee Benefits and Other Employee Matters Allocation Agreement
shall be entitled to claim any and all deductions, to the extent
permitted, on any tax return for the income recognized by such
employee as a result of such exercise.
(b) If an employee is employed by both Manor and Choice, for the
purpose of this Section 10, such employee shall be treated as an
employee of Manor with respect to his or or her Manor stock
options and as an employee of Choice with respect to his or her
Choice stock options.
(c) For purposes of this Section 10, the term "employee" shall
include Directors, whether or not employed.
SECTION 11. INDEMNIFICATION.
With respect to all consolidated federal and state income tax returns
filed by the Manor Group:
(a) Choice shall indemnify, defend and hold harmless Manor and its
subsidiaries, and Manor shall indemnify, defend and hold harmless
Choice and its subsidiaries from and against any liability, cost,
or expense, including, without limitation, and fine, penalty,
interest charge (restricted to interest in excess of the rate
established under Section 6621 of the Code and interest which is
in respect of the penalty portion of an assessment), or
accountants' or attorney's fee, arising out of fraudulent or
negligently prepared information, workpapers, documents, and
other items used in the preparation of, or presented in, any
return, amended return, or claim or refund filed for the Manor
Group for the FY 1996, Stub 97, Short 97, or FY 1997, and which
information, workpapers, documents, or other items originated
with and/or were prepared by such indemnifying party.
(b) Choice shall indemnify, defend and hold harmless Manor from and
against any liability, cost, or expense incurred or paid by Manor
in excess of its share thereof as allocated
<PAGE>
pursuant to this Agreement hereof, including any amount paid by
Manor in connection with an assessment by the Service or other
taxing authority.
(c) Manor shall indemnify, defend and hold harmless Choice from and
against any liability, cost, or expense incurred or paid by
Choice in excess of its share thereof as allocated pursuant to
this Agreement hereof, including any amount paid by Choice in
connection with an assessment by the Service or other taxing
authority.
SECTION 12. RESOLUTION OF DISPUTES.
Any disputes among the parties with respect to this Agreement shall be
resolved by a public accounting firm or a law firm reasonably satisfactory to
Manor and Choice. The fees and expenses of such firm shall be borne equally by
Choice and Manor. In the event that Choice and Manor are unable to appoint such
a firm, then all disputes arising under this Agreement shall be resolved under
the terms of the Distribution Agreement.
SECTION 13. SUBSIDIARIES.
Any reference herein to a subsidiary or subsidiaries does not include
any corporation that is or was, in the relevant tax year, not permitted to join
in the filing of a consolidated federal income tax return pursuant to Section
1504 of the Code. To the extent that the provisions of the Agreement pertain to
a subsidiary or subsidiaries of Manor or Choice, Manor and Choice respectively
agree that it will cause the respective subsidiary or subsidiaries to carry out
the terms of this Agreement.
SECTION 14. SURVIVABILITY.
This Agreement and each of its provisions shall be binding upon and
inure to the benefit of the parties and their respective heirs and successors.
This Agreement shall be effective only from and after the close of business on
the Distribution Date. Nothing in this Agreement is intended or shall be
construed to give any person or entity other than the parties and their
respective heirs or successors any rights or remedies under or by reason of the
Agreement.
SECTION 15. NOTICES.
All notices and other communications required or permitted under this
Agreement shall be in writing, shall be deemed delivered upon receipt by hand or
shall be deemed to have been properly made and given one (1) business day after
being deposited with a reputable overnight courier service such as Federal
Express, Airborne Express or UPS Next Day Air for next business day delivery to
the parties at their respective addresses set forth below, or as to any party at
such other address as
<PAGE>
shall be designated by such party in a written notice to
the other party complying as to delivery with the terms of this paragraph:
To Choice: Choice Hotels Holdings, Inc.
10750 Columbia Pike
Silver Spring, MD 20901
Attn: General Counsel
To Manor: Manor Care, Inc.
11555 Darnestown Road
Gaithersburg, MD 20878-3200
Attn: General Counsel
SECTION 16. GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance with,
the laws of the state of Maryland, without reference to its conflict of laws
principles.
SECTION 17. COSTS AND EXPENSES.
In any action brought to enforce or interpret this Agreement, each
party shall pay its own costs and expenses of maintaining or defending such
action.
SECTION 18. REMEDIES CUMULATIVE.
The remedies provided in this Agreement are cumulative and not
excluding of any remedies provided by law.
SECTION 19. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute but one and the same Agreement.
SECTION 20. SEVERABILITY.
In the event that any portion of this Agreement shall be declared
invalid by order, decree or judgment of a court, or governmental agency having
jurisdiction, this Agreement shall be construed as if such portion had not been
inserted herein, except when such construction would operate as an
<PAGE>
undue hardship on any party to this Agreement or constitute a substantial
deviation from the general intent and purpose of said parties as reflected in
this Agreement
SECTION 21. AMENDMENTS; WAIVER.
This Agreement may be amended, and the observance of any term of this
Agreement may be waived, in a written document signed by Manor and Choice.
SECTION 22. EFFECTIVENESS OF AGREEMENT.
This Agreement shall become effective on the Distribution Date and
shall continue in effect until otherwise agreed in writing by Manor and Choice,
or their successors.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
CHOICE HOTELS HOLDINGS, INC.
By: /s/ James A. MacCutcheon
Name:James A. MacCutcheon
Title:Executive Vice President, Chief
Financial Officer and Treasurer
MANOR CARE, INC.
By: /s/ James H. Rempe
Name:James H. Rempe
Title:Senior Vice President and Secretary
TIME SHARING AGREEMENT
This agreement, made and entered into this ___ day of ______________,
19___, by and between Manor Care, Inc., a corporation incorporated under the
laws of the State of Delaware, with principal offices at 10750 Columbia Pike,
Silver Spring, MD 20901, (together with its successors and permitted assigns,
"LESSOR"), and Choice Hotels Holdings, Inc., a corporation incorporated under
the laws of the State of Delaware (to be renamed Choice Hotels International,
Inc.), 10750 Columbia Pike, Silver Spring, Maryland 20910, (together with its
successors and permitted assigns, "LESSEE").
W I T N E S S E T H
WHEREAS, LESSOR leases two civil AIRCRAFT bearing the United States
Registration Number N697MC, a Cessna Citation III, and United States
Registration N6885P, a Cessna Conquest I (hereinafter collectively referred to
as "AIRCRAFT"); and
WHEREAS, LESSOR employs a fully qualified flight crew to operate the
AIRCRAFT; and
WHEREAS, LESSOR and LESSEE desire to lease said AIRCRAFT and flight
crew on a TIME SHARING basis as defined in Section 91.501(c)(1) of the Federal
Aviation Regulations (FAR); and
WHEREAS, LESSOR is a member of the National Business Aircraft
Association and is authorized to operate the AIRCRAFT under the provisions of
Exemption 1637, as amended.
NOW THEREFORE, LESSOR AND LESSEE, declaring their intention to enter
into and be bound by this TIME SHARING AGREEMENT, and for the good and valuable
consideration set forth below, hereby covenant and agree as follows:
1. LESSOR agrees to lease the AIRCRAFT to LESSEE from time to time as
LESSEE shall require, pursuant to the provisions of FAR 91.501 9 (c)(1) and to
provide a fully qualified flight crew for all operations, subject to the LESSOR
maintaining its ownership of AIRCRAFT. The term of this Agreement shall commence
on the date of execution hereof and shall terminate thirty (30) months
thereafter.
2. For each flight conducted under this Agreement LESSEE shall pay
LESSOR the actual expenses for each such flight as authorized by FAR Part 91.501
(d). These expenses are the following:
(a) Fuel, oil, lubricants, and other additives.
(b) Travel expenses of the crew, including food, lodging and ground
transportation.
(c) Hangar and tie down costs away from the AIRCRAFT's base of
operation.
(d) Insurance obtained for the specific flight.
(e) Landing fees, airport taxes, and similar assessments.
<PAGE>
(f) Customs, foreign permit, and similar fees directly related to the
flight.
(g) In-flight food and beverages.
(h) Passenger ground transportation.
(i) Flight planning and weather contract services.
(j) An additional charge equal to 100% of the expenses listed in
subparagraph (a) of this paragraph.
3. In addition to the flight expenses described above in paragraph 2,
LESSEE shall be fully responsible for the payment of all IRC 4261 excise taxes.
4. LESSOR will pay all expenses related to the operation of the
AIRCRAFT when incurred, and will provide an invoice and bill LESSEE for the
expenses enumerated in paragraph 2 and the excise taxes referred to in paragraph
3 above on the last day of the month in which any flight or flights for the
account of LESSEE occur LESSEE shall pay LESSOR for said expenses within 30 days
of receipt of the invoice and bill thereof.
5. LESSEE will provide LESSOR with requests for flight time and
proposed flight schedule as far in advance of any given flight as possible.
Requests for flight time shall be in a form, whether oral or written, mutually
convenient to, and agreed upon by the parties. In addition to proposed schedules
and flight times LESSEE shall provide at least the following information for
each proposed flight at some time prior to scheduled departure as required by
the LESSOR's flight crew:
a) proposed departure point;
b) destination;
c) date and time of flight;
d) the names of anticipated passengers;
e) the nature and extent of luggage and/or cargo to be carried;
f) the date and time of return flight, if any; and
g) any other information concerning the proposed flight that may be
pertinent or required by LESSOR or LESSOR's flight crew.
6. LESSOR shall have final authority over the scheduling of the
AIRCRAFT, provided however, that LESSOR will use its best efforts to accommodate
LESSEE's needs to avoid conflicts in scheduling.
7. LESSOR shall be solely responsible for securing maintenance,
preventative maintenance and required or otherwise necessary inspections on the
AIRCRAFT, and shall take such requirements into account in scheduling the
AIRCRAFT. No period of maintenance, preventive maintenance or inspection shall
be delayed or postponed for the purpose of scheduling the AIRCRAFT, unless said
maintenance or inspection can be safely conducted at a later time in compliance
with all applicable laws and regulations, and within the sound discretion of the
Pilot in Command. The Chief Pilot and Pilot in Command shall have final and
complete authority to cancel any flight for any reason or condition which in his
judgment would comprise the safety of the flight.
<PAGE>
8. LESSOR shall employ, pay for and provide for LESSEE a qualified
flight crew for each flight undertaken under this Agreement.
9. In accordance with applicable Federal Aviation Regulations, the
qualified flight crew provided by LESSOR will exercise all of its duties and
responsibilities in regard to the safety of each flight conducted hereunder.
LESSEE specifically agrees that the flight crew, in its sole discretion, may
terminate any flight, refuse to commence any flight, or take other action which
in the considered judgment of the Pilot in Command is necessitated by
considerations of safety. No such action of the Pilot in Command shall create or
support any liability for loss, injury, damage or delay to LESSEE or any other
person. The parties further agree that LESSOR shall not be liable for delay or
failure to furnish the AIRCRAFT and crew pursuant to this Agreement when such
failure is caused by government regulation or authority, mechanical difficulty,
war, civil commotion, strikes or labor disputes, weather conditions, or acts of
God.
10. LESSEE shall carry its own comprehensive general liability
insurance at its expense, and shall cause LESSOR to be named as an additional
insured on all such policies. LESSEE shall be fully responsible for any damage
to the AIRCRAFT caused by LESSEE's passengers or cargo. LESSEE agrees that it
shall indemnify and hold LESSOR harmless from and against any and all claims,
liabilities, damages, costs or expenses (including reasonable attorney's fees)
arising or resulting in any manner from the acts or omissions of LESSEE, its
officers, employees, agents and passengers on the AIRCRAFT, in connection with
this Agreement.
11. LESSEE warrants that:
(a) It will use the AIRCRAFT for and on account of its own
business only, and will not use the AIRCRAFT for the purposes
of providing transportation of passengers or cargo in air
commerce for compensation or hire. The AIRCRAFT shall carry
for LESSEE only such passengers and cargo as may be legally
carried under FAR Part 91. The number of passengers carried
for LESSEE shall not exceed the number of seats legally
available on the AIRCRAFT, and the AIRCRAFT shall not be
loaded beyond its certified capacity.
(b) It shall refrain from incurring any mechanics or other
liens in connection with inspection, preventative maintenance,
maintenance or storage of the AIRCRAFT, whether permissible or
impermissible under this Agreement, nor shall there be any
attempt by any party hereto to convey, mortgage, assign, lease
or any way alienate the AIRCRAFT or create any kind of lien or
security interest involving the AIRCRAFT or do anything to
take any action that might mature into such lien.
(c) During the term of this Agreement, it will abide by and
conform to all such laws, governmental and airport orders,
rules and regulations, as shall from time to time be in effect
relating in any way to the operation and use of the AIRCRAFT
by a TIME SHARING Lessee. LESSEE will not allow carriage of
any contraband or illegal controlled substance.
<PAGE>
(d) Smoking shall be prohibited in the Aircraft; the Pilot in
command shall have authority to enforce this requirement.
12. For the purposes of this Agreement, the permanent base of
operation of the AIRCRAFT shall be Baltimore Washington International Airport.
Lessor shall have the right to change the permanent base of operation at its
sole discretion.
13. Neither this Agreement nor any party's interest herein shall be
assignable to any other party whatsoever. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, their heirs, representatives
and successors.
14. CONTROL OF AIRCRAFT. It is expressly agreed and understood by the
parties that, for all flights for Lessee under this Agreement, Lessor shall have
possession, command, and control of the Aircraft, and shall maintain and
exercise operational control over the Aircraft, all pilots, all servicing and
loading of the Aircraft, and all Maintenance performed on the Aircraft.
For the purpose of this Agreement, operational control shall include,
without limitation, exclusive control over:
(a) all pilots;
(b) determinations whether any particular flight may be safely
operated;
(c) initiation and termination of flights
(d) directions to pilots to conduct flights;
(e) dispatch or release of flights;
(f) servicing the Aircraft; and
(g) airworthiness and performance of maintenance.
15. The laws of the State of Maryland, without reference to its
conflicts of laws, principles, shall govern the interpretation, validity,
performance and enforcement of this Agreement.
16. The term of this Agreement shall commence on the Distribution Date
and shall remain in effect through the end of the first full Fiscal Year
immediately following the Distribution Date. Unless terminated pursuant to the
terms hereof, the Agreement shall automatically renew each Fiscal Year
thereafter for the extended term of said Fiscal Year and shall not extend past
the last day of the thirtieth (30th) month following the Distribution; provided,
however, that Choice may terminate this Agreement or any services provided
hereunder at any time for any reason or no reason by sending written notice to
Manor upon sixty (60) days' prior notice to Manor. For purposes of this
Agreement, "Distribution Date" means the date determined by the Board of
Directors of Manor as
<PAGE>
the date on which the Distribution shall be effected and
"Distribution" means the distribution to the holders of Manor Care Common Stock
of all the outstanding shares of Choice Common Stock.
17. The terms and provisions of this Agreement are intended to reflect
commercially reasonable terms and conditions (including, but not limited to,
pricing) that are at least as favorable and as competitive to Choice as the
terms and conditions Manor would grant or require of third parties for
substantially similar goods and services.
IN WITNESS WHEREOF, the parties hereto have caused the signature of
their authorized representatives to be affixed below on the day and year first
above written. The persons signing below warrant their authority to sign.
TRUTH IN LEASING STATEMENTS UNDER SECTION 91.23 (FORMERLY 91.54) OF THE
FEDERAL AVIATION REGULATIONS.
(a) MANOR CARE, INC. (LESSOR), HEREBY CERTIFIES THAT THE AIRCRAFT HAS
BEEN INSPECTED AND MAINTAINED WITHIN THE 12 MONTH PERIOD PRECEDING THE
DATE OF THIS AGREEMENT IN ACCORDANCE WITH THE PROVISIONS OF FAR PART 91
AND ALL APPLICABLE REQUIREMENTS FOR THE MAINTENANCE AND INSPECTION
THEREUNDER HAVE BEEN MET.
(b) MANOR CARE, INC., (LESSOR), AGREES, CERTIFIES AND KNOWINGLY
ACKNOWLEDGES THAT WHEN THE AIRCRAFT IS OPERATED UNDER THIS AGREEMENT,
LESSOR SHALL BE KNOWN AS, CONSIDERED, AND SHALL IN FACT BE THE OPERATOR
OF THE AIRCRAFT AND IS CONSIDERED RESPONSIBLE FOR THE OPERATIONAL
CONTROL OF THE AIRCRAFT AND FURTHER CERTIFIES THAT LESSOR WILL OPERATE
THE AIRCRAFT IN COMPLIANCE WITH ALL APPLICABLE FEDERAL AVIATION
REGULATIONS.
(c) THE PARTIES UNDERSTAND THAT AN EXPLANATION OF FACTORS AND PERTINENT
FEDERAL AVIATION REGULATIONS BEARING ON OPERATIONAL CONTROL CAN BE
OBTAINED FROM THE GLEN BURNIE/BWI FAA FLIGHT STANDARDS DISTRICT OFFICE
OR FROM ANY OTHER FAA FLIGHT STANDARD DISTRICT OFFICE, GADO OR ACDO.
LESSEE AND LESSOR ACKNOWLEDGE THAT A TRUE COPY OF THIS EXECUTED
AGREEMENT MUST BE SENT TO: FLIGHT STANDARDS TECHNICAL DIVISION, P.O.
BOX 25724, OKLAHOMA CITY, OKLAHOMA 73125, WITHIN 24 HOURS OF ITS
EXECUTION, AS PROVIDED BY FAR 91.23(c)(1).
WITNESS: LESSOR:
MANOR CARE, INC.
__________________________ BY: /s/ James H. Rempe
James H. Rempe
TITLE:Senior Vice President &
Secretary
<PAGE>
WITNESS: LESSEE:
CHOICE HOTELS HOLDINGS, INC.
__________________________ BY: /s/ James A. MacCutcheon
James A. MacCutcheon
TITLE: Executive Vice President,
Chief Financial Officer
& Treasurer
A copy of this Agreement must be carried in the AIRCRAFT while being operated
hereunder.
TRADEMARK AGREEMENT
THIS AGREEMENT is made and entered into as of this _____ day of _____,
1996 by and among MANOR CARE, INC., a Delaware corporation ("Manor Care"), and
CHOICE HOTELS HOLDINGS, INC. (to be renamed CHOICE HOTELS INTERNATIONAL,
INC.)("CHH"), a Delaware corporation.
RECITALS
Manor Care, directly and through certain subsidiaries ("Lodging
Subsidiaries") develops, owns and conducts the business of operating lodging
facilities (the "Lodging Business") and, directly and through its other
subsidiaries, develops, owns and conducts the business of operating health care
and senior living facilities;
CHH, directly and through its subsidiaries, engages in the business of
operating and franchising lodging facilities, resorts, food facilities, other
products procurement and distribution and other contract services businesses
pertaining to lodging;
Manor Care and CHH have entered into a distribution agreement dated as
of __________, 1996, whereby, inter alia, Manor Care and the Lodging
Subsidiaries transfer to CHH the stock of the Lodging Subsidiaries and certain
other assets relating principally to the Lodging Business, and whereby CHH will
conduct the Lodging Business formerly conducted by the Lodging Subsidiaries;
Manor Care and the Lodging Subsidiaries desire to assign and transfer
to CHH, and CHH desires to acquire, all of the right, title and interest of
Manor Care and the Lodging Subsidiaries in and to all the registered and pending
trademarks and service marks that are owned by Manor Care, Inc., and that are
used exclusively in the Lodging Business (marks in Schedules A and C,
collectively "Assigned Marks").
<PAGE>
AGREEMENT
NOW THEREFORE, in consideration of the foregoing, the mutual promises
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Manor Care and CHH
agree as follows:
1. Assignment. Without representation or warranty of any kind, express or
implied, and subject to all existing licenses, Manor Care hereby grants and
assign to CHH all of its right, title and interest in and to:
a. The Assigned Marks;
b. All federal, state and foreign registrations related to the
Assigned Marks and all pending applications for the Assigned Marks;
c. All statutory, common law, equitable and civil law rights (whether
arising under federal, state or foreign law) related to the Assigned Marks;
d. All of the goodwill of the Lodging Business connected with and
symbolized by the Assigned Marks;
e. All rights to income, royalties, license and franchise fees and any
other payments now or hereafter due or payable with respect to the Assigned
Marks, including without limitation, all damages and payments for past, present
and future infringements of the Assigned Marks;
f. All right to sue for, and all rights of recovery with respect to,
all past, present and future infringements of the Assigned Marks;
g. All rights of Manor Care under all license agreements with respect
to the Assigned Marks;
<PAGE>
and
h. All other rights and privileges pertaining to or associated with
the Assigned Marks throughout the world, the same to be held and enjoyed by CHH
as fully as the same would have been held and enjoyed by Manor Care had this
Agreement not been made. These rights in sections a. through h. above are
collectively the "Assigned Mark Rights."
2. Assumption. CHH agrees to assume all obligations of Manor Care and the
Lodging Subsidiaries arising after the date of this Agreement under any license
agreements to which Manor Care or any of the Lodging Subsidiaries is a party
that are being assigned to CHH under this Agreement.
3. Manor Care Obligations. Within a reasonable time of the execution of this
Agreement, not to exceed 3 months, Manor Care and the Lodging Subsidiaries agree
to:
a. Cease all use of the Assigned Marks or any mark that is confusingly
similar to, or a colorable imitation of, the Assigned Marks, and dispose of all
current inventory and supplies marked with the Assigned Marks;
b. Prepare and file with proper authorities an assignment of rights,
registrations and obligations associated with all trademarks, service marks and
trade names, listed in Schedule A, of Manor Care, Inc. to CHH;
c. Prepare and file with proper authorities all corporate resolutions
and forms necessary to change the corporate name, and trademark registrant
status of the marks listed in Schedule B, of the Lodging Subsidiary Manor Care
Hotels France, S.A. to Choice Hotels France, S.A.;
d. . Prepare and file with proper authorities all
forms necessary to effect a change in each Manor Care business and corporate,
except as otherwise provided in this Agreement, name to a name which does not
include the words "Hotels ";
<PAGE>
e. Execute all internal resolutions or other forms necessary to change
the business or company's name under the applicable corporations law or other
corporations legislation, together with an appointment, by each party's officers
and employees as the corporation's agent to complete and lodge the form; and
f. Deliver to the CHH copies of the documents referenced above.
4. Acknowledgement and Recordation.
a. Manor Care acknowledges, without representation, warranty or inquiry
that, by virtue of the assignment made in this Agreement, CHH is the exclusive
owner of the Assigned Mark Rights, and that Manor Care and the Lodging
Subsidiaries do not have any right, title or interest in or to any of the
Assigned Mark Rights from and after the date of this Agreement, except as
otherwise provided in this Agreement.
b. Manor Care and the Lodging Subsidiaries agree to cooperate fully
with CHH in filing for the recordation of appropriate assignment and other
documents in the appropriate foreign, state, and/or local jurisdictions
evidencing CHH's acquisition and ownership of the Assigned Marks and the
Assigned Mark Rights, and evidencing name changes and other assignments
contemplated by this Agreement. Neither Manor Care nor the Lodging Subsidiaries
will take action inconsistent with CHH's ownership of and interest in the
Assigned Mark Rights.
c. Manor Care and the Lodging Subsidiaries may not attack the validity
of any of the Assigned Mark Rights, CHH's ownership of the Assigned Mark Rights,
or any of the terms of this Agreement, or assist any third party in doing any of
the same, and Manor Care and the Lodging Subsidiaries waive any right to contest
the validity of the Assigned Mark Rights.
5. Relationship of the Parties. Nothing in this Agreement shall be construed to
create any relationship between the parties of agency, partnership or joint
venturer or render any party liable for
<PAGE>
any debts or obligations incurred by any
other party to this Agreement. No party is authorized to enter into agreements
for or on behalf of any other party to this Agreement, to collect any obligation
due or owed to any such party, or to bind any other party in any manner
whatsoever.
6. General.
a. Entire Agreement. This Agreement constitutes the entire Agreement
between Manor Care and the Lodging Subsidiaries and CHH regarding the subjects
of this Agreement and supersedes all oral and written agreements, entered before
or at the same time as this Agreement, concerning the subjects of this
Agreement. This Agreement may be executed in one or more counterparts, each of
which shall be deemed original, and all such counterparts together shall
constitute but one and the same instrument.
b. Modification. This Agreement may be modified only by written
agreement signed by both parties to this Agreement.
c. Waiver. No waiver of any obligation under this Agreement will be
effective unless in writing, and will then be effective only for the specific
instance for which such waiver was given.
d. Assignment of Agreement. Neither party to this Agreement may
transfer or assign its rights under this Agreement; provided, however, that this
provision will not limit CHH from assigning rights to the Assigned Marks or the
Assigned Mark Rights to any party.
e. Governing Law. This Agreement will be governed by the laws of the
State of Maryland, without regard to Maryland conflicts of laws principles.
Parties to this Agreement consent to the exclusive personal jurisdiction of the
federal and state courts sitting in Maryland with respect to any action
concerning their respective obligations under this Agreement.
f. Severability. If any provision of this Agreement is held by a court
of competent jurisdiction to be unenforceable, then such provision may be
rewritten by that court with the least
<PAGE>
modification necessary to render the
provision valid, and the remaining provisions of this Agreement will remain in
full force and effect.
g. Headings. The headings in this Agreement are for convenience only
and are not intended to affect the interpretation of this Agreement.
h. Binding Effect. This Agreement shall be binding on and inure to the
benefit of the parties to this Agreement and their respective transferees and
successors.
i. Geographic Scope. This Agreement shall be effective within the
United States and in any country in which the Lodging Subsidiaries do business
or intend to do business, including, but not limited to, Belgium, France,
Germany, Great Britain, Italy, Luxembourg, the Netherlands, Portugal, Spain, and
Switzerland.
7. Commercially Reasonable Terms and Conditions. The terms and
provisions of this Agreement are intended to reflect commercially reasonable
terms and conditions (including, but not limited to, pricing) that are at least
as favorable and as competitive to CHH as the terms and conditions Manor Care
would grant or require of third parties for substantially similar goods and
services.
SIGNATURES ON NEXT PAGE
IN WITNESS WHEREOF, a duly authorized representative of each party has
executed this Agreement as of the date first above written.
MANOR CARE, INC.
By: /s/ James H. Rempe
James H. Rempe
Title:Senior Vice President and Secretary
Date: November 1, 1996
<PAGE>
CHOICE HOTELS HOLDINGS, INC.
By: /s/ James A. MacCutcheon
James A. MacCutcheon
Title Executive Vice President, Chief Financial Officer and Treasurer
Date: November 1, 1996
STATE OF MARYLAND )
) ss:
COUNTY OF MONTGOMERY )
Before me, a Notary Public, in and for said County and State, on this
day personally appeared James H. Rempe, the Sr. VP and Secretary of Manor Care,
Inc., and James A. MacCutcheon, the Ex. VP, CFO & Treasurer of Choice Hotels
Holdings, Inc., each known to me as those persons whose names are subscribed to
the foregoing instrument.
Given under my hand and seal this 1st day of November, 1996.
----------------------------------
Notary Public
My Commission Expires: _______________________________________
<PAGE>
SCHEDULE A
MANOR CARE, INC.
Applications/Registrations: Pending and Registered
U.S. Application
Mark App.. No.
FREQUENT SLEEPER 75/028437
U.K. Registration
Mark Reg. No.
FOUR SEASONS 1493169
<PAGE>
SCHEDULE B
MANOR CARE HOTELS FRANCE, S.A.
International Applications/Registrations: Pending and Registered
WIPO Registrations
Mark App./Reg. No.
PRIMEVERE and Design 563843
RESTHOTEL PRIMEVERE and Design 545399
SAPHIR and Design 562038
RESTHOTEL SAPHIR and Design 546480
UK Applications/Registrations
Mark App./Reg. No.
PRIMEVERE 1538745
SAPHIR App. No.
1538744
RESTHOTEL SAPHIR App. No.
15387453
RESTHOTEL PRIMEVERE 1538742
RESTHOTEL PRIMEROSE B1538740
DORDINE HOTEL 1538741
Other European Registrations
Mark Reg. No. Country
PRIMEVERE 555138 Benelux
PRIMEVERE 94506010 France
PRIMEVERE GE 94C 000242 Italy
PRIMEVERE and Design 302688 Portugal
PRIMEVERE 302688 Portugal
PRIMEVERE 1918022 Spain
PRIMEVERE 423869 Switzerland
<PAGE>
SCHEDULE C
MANOR CARE HOTELS INTERNATIONAL, INC.
International Applications/Registrations
France Registrations
Mark Reg. No.
PRIMA PIZZA 1688145
PRIMEVERE and Design 1354090
RESTHOTEL PRIMEVERE and Design 1426424
SAPHIR and Design 1593020
RESTHOTEL SAPHIR and Design 1456476
DORDINN HOTEL 1562819
PILOT SERVICES AGREEMENT
This Agreement made and entered into this day of November 1, 1996 , by
and between Choice Hotels Holdings, Inc. (to be named Choice Hotels
International, Inc.), a corporation incorporated under the laws of the State of
Delaware, with principal offices at 10750 Columbia Pike, Silver Spring, Maryland
20901 (hereinafter referred to as "Choice") and Manor Care, Inc., a corporation
incorporated under the laws of the State of Delaware, with principal offices at
11555 Darnestown Road, Gaithersburg, Maryland 20878 (hereinafter referred to as
"Manor Care");
WITNESSETH, that
WHEREAS, Manor Care has five (5) full-time pilots, and three (3)
contract pilots.
NOW THEREFORE, each party declaring their mutual intention to enter
into and be bound by this PILOT SERVICES AGREEMENT, and for the good and
valuable consideration set forth below, hereby covenant and agree as follows:
1. Manor Care agrees to provide two fully qualified pilot(s)
(hereinafter referred to as "leased pilot(s)") to Choice in exchange for the
good and valuable consideration detailed herein.
2. Choice agrees to pay all reasonable expenses (i.e., meals, hotels,
phone, etc.) of the leased pilot(s). Manor Care shall document the total number
of pilot-days leased and shall submit an invoice to Choice on a monthly basis.
Choice shall pay to Manor Care $275.00 for each pilot-day, due thirty (30) days
after receipt of the invoice.
3. Choice will request the leased pilot as far in advance as possible
and in any case, at least 24-hours in advance of planned departure. Requests for
use of leased pilot(s) shall be in the form mutually convenient to and agreed
upon by the parties. Manor Care shall have final authority over the scheduling
of its pilots and shall use its best efforts to accommodate the needs of Choice.
4. Manor Care is solely responsible for salary and benefits of its
pilot(s).
5. The term of this Agreement shall commence on the date hereof and
shall remain in effect through the end of the first full Fiscal Year immediately
following the date hereof. Unless terminated pursuant to the terms hereof, the
Agreement shall automatically renew each Fiscal Year thereafter for the extended
<PAGE>
-2-
term of said Fiscal Year and shall not extend past the last day of the
thirtieth (30th) month following the date hereof; provided, however, that either
party may terminate this Agreement upon 30 days prior written notice.
6. Choice shall defend and indemnify Manor Care against any
liabilities, damages or losses by reason of personal injury, death or property
damage arising from use of Manor Care aircraft, except where such liabilities,
damages or losses are proximately caused by the sole negligence of the leased
pilot(s).
7. The terms and provisions of this Agreement are intended to reflect
commercially reasonable terms and conditions (including, but not limited to,
pricing) that are at least as favorable and as competitive to Choice as the
terms and conditions Manor Care would grant or require of third parties for
substantially similar goods and services.
CHOICE HOTELS HOLDINGS, INC.
BY: /s/ James A. MacCutcheon
James A. MacCutcheon
TITLE: Executive Vice President, Chief
Financial Officer & Treasurer
MANOR CARE, INC.
BY: /s/ James H. Rempe
James H. Rempe
TITLE: Senior Vice President & Secretary
VEHICLE LEASE AGREEMENT
THIS VEHICLE LEASE AGREEMENT (hereinafter the "Agreement") is made as
of the 1st day of November, 1996, by and between MANOR CARE, INC. (hereinafter
"Lessor"), a Delaware corporation, and CHOICE HOTELS HOLDINGS, INC. (hereinafter
"Lessee"), a Delaware corporation (to be renamed Choice Hotels International,
Inc.).
NOW, THEREFORE, in consideration of the mutual covenants and provisions
herein contained, Ten Dollars ($10.00) in hand paid by Lessee to Lessor, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:
1. Lease. Lessor hereby leases to Lessee, and Lessee leases from
Lessor, those certain Vehicles (the "Vehicles") listed on Schedule 1 which
schedule is attached hereto and is a part hereof. Lessor shall have no
responsibility for replacing any Vehicles nor for furnishing any substitute
Vehicles.
2. Use of Vehicles. The Lessee shall maintain each of the Vehicles in
good condition and repair, ordinary wear and tear excepted. The Lessee shall use
the Vehicles in the trade and business of the Lessee and the Lessee's wholly
owned subsidiaries and affiliates and only for lawful purposes within the United
States. In no event shall any Vehicle be used (i) for towing any property other
than in accordance with the Vehicle manufacturer's specifications, or (ii) for
transporting explosive, radioactive, flammable, or hazardous materials. The
Lessee shall comply with (i) all applicable requirements of law relating to the
registration, leasing, insurance, use, and operation of the Vehicles, including
operators' licensing requirements, and (ii) all conditions of the policies of
insurance on the Vehicle. The Lessor shall not be responsible for loss or damage
to any goods or other property placed or carried in any Vehicle arising from any
cause whatsoever. Each Vehicle shall be operated by a safe, competent and duly
licensed driver, selected, employed and under the supervision of Lessee.
3. Sublease or Assignment. The Lessee shall not sublease or assign any
Vehicle.
4. Disclaimer of Warranties. The Lessor hereby assigns, and will
otherwise make available to the Lessee, all of the Lessor's rights, if any,
under the manufacturers' and vendors' warranties on each Vehicle. Acceptance of
delivery of the Vehicles by the Lessee shall constitute the Lessee's
acknowledgment that the Lessee has inspected each Vehicle and is satisfied
therewith. THE LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND
WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE VEHICLES, AND THERE IS NO
IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE. IN
NO EVENT SHALL LESSOR BE LIABLE FOR CONSEQUENTIAL, SPECIAL, INDIRECT OR
INCIDENTAL DAMAGES. THE VEHICLES ARE LEASED ON AN AS IS WHERE IS BASIS WITH ALL
FAULTS.
5. Term. The term of this Agreement shall commence on November 1, 1996
(the "Distribution Date") and shall remain in effect through the end of the
first full Fiscal Year immediately following the Distribution Date. Unless
terminated pursuant to the terms hereof, the Agreement shall automatically renew
each Fiscal Year thereafter for the extended term of said Fiscal Year and shall
not extend past the last day of the thirtieth (30th) month following the
Distribution Date; provided, however, that either party may terminate this
Agreement at any time for any reason or no reason upon thirty (30) days' prior
written notice to the other party. This Agreement may also be terminated in the
event of a
1
<PAGE>
default (past the expiration of any applicable cure period provided herein) in
accordance with the provisions of this Agreement.
6. Expenses, Fees, and Taxes. The Lessee shall pay all costs, expenses,
fees, and charges whatsoever incurred in connection with the titling and
registration of the Vehicles and the ownership, use and operation of the
Vehicles during the lease term, including, but not limited to, fuel, lubricants,
replacement parts and accessories, repairs, maintenance, storage, parking,
tolls, fines, registration fees, license fees, tags, and all taxes whatsoever by
whomsoever payable (except any tax measured by the net income of the Lessor) on
or relating to each of the Vehicles and their purchase, sale, rental, use, or
operation. Without limiting the generality of the foregoing, the Lessee shall be
solely responsible for fines and penalties arising out of the use or operation
of the Vehicles. Lessee shall also pay any and all additional costs and expenses
which Lessor may incur for the express purpose of providing services to Lessee.
The Lessee shall reimburse the Lessor the amount of any such costs, expenses,
fees, fines, penalties, charges, and taxes paid by the Lessor on account of the
Vehicles.
7. Insurance. The Lessee shall comply with the insurance requirements
set forth in Schedule 2, which schedule is attached hereto and is a part hereof.
If at any time the Lessee is unable to or fails to provide required insurance
coverages, Lessor shall have the right, but not the obligation, to secure such
insurance and Lessee shall reimburse Lessor, upon demand, for all fees, costs,
expenses, and charges associated therewith.
8. Termination. Upon any termination of this Agreement, title to all
Vehicles shall pass to Lessee. Lessee shall be responsible for promptly
transferring all Vehicle titles and all Vehicle registrations. Should Lessee
desire to sell any Vehicle, title to such Vehicle shall be first transferred to
Lessee. The provisions of the Disclaimer of Warranties section of this Agreement
shall apply to all such sales or transfers. The Lessee shall not be entitled to
return any Vehicle to Lessor for any reason whatsoever.
9. Loss of or Damage to Vehicles. All risk of loss or damage to the
Vehicles from whatever cause shall be assumed by the Lessee.
10. Indemnification. In addition to the obligations of Lessee to
indemnify, defend and hold Lessor harmless contained in the Distribution
Agreement (hereinafter defined), the following shall also apply. The Lessee
shall at all times be liable to defend, indemnify, and hold harmless the Lessor,
its affiliates and their officers, directors, employees and agents, against all
claims, damages and liabilities of whatever kind or nature and all costs and
expenses, including attorneys' fees, incurred in connection with, relating to,
or arising out of the possession, use, or operation of the Vehicles during the
period from and after the date hereof. This indemnification obligation shall
survive the termination of this Agreement.
11. Default.
(a) In the event (i) the Lessee defaults in the payment of any rental
or other amounts payable under this Agreement, or defaults in the performance of
the covenants or obligations of the Lessee hereunder, and should such default
continue for a period of ten (10) days following receipt by the Lessee of
written notice of a default, (ii) there shall be filed by or against the Lessee
any action under any provision of any state or federal law relating to
insolvency or bankruptcy, and such action is not dismissed within sixty (60)
days of the filing, (iii) a receiver or trustee is appointed for the Lessee's
property, and such appointment is not withdrawn within sixty (60) days of the
date of appointment, or (iv) the Lessee makes an assignment
2
<PAGE>
for the benefit of creditors, the Lessor may terminate this Agreement, and
thereupon, all of the rights of the Lessee under this Agreement and with respect
to the Vehicles shall immediately terminate.
(b) Any and all remedies available to Lessor under this Agreement: (i)
shall be in addition to any and all other remedies Lessor may have at law or in
equity, (ii) shall be cumulative, and (iii) may be pursued successively or
concurrently as Lessor may elect. The exercise or any remedy by Lessor shall not
be deemed an election of remedies or preclude Lessor from exercising any other
remedies in the future.
12. Notices. All notices and other communications hereunder shall be in
writing and shall be delivered by hand or shall be deemed to have been properly
made and given one (1) business day after being deposited with a reputable
overnight courier service such as Federal Express, Airborne Express or UPS Next
Day Air for next business day delivery or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other addresses for a party as shall be specified by like notice) and shall be
deemed given on the date on which such notice is received:
To Lessor: To Lessee:
Manor Care, Inc. Choice Hotels Holdings, Inc.
Attn: General Counsel Attn: General Counsel
11555 Darnestown Road 10750 Columbia Pike
Gaithersburg, MD 20878 Silver Spring, MD 20901
13. The Distribution Agreement. This Agreement is subject to the
terms, covenants, conditions and obligations contained in the Distribution
Agreement between the parties dated the date hereof (the "Distribution
Agreement"), including without limitation, the indemnities contained therein.
14. Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes all prior oral or written agreements and understandings related
thereto.
15. Waivers, Modifications, Severability. No waiver or modification of
any of the provisions of this Agreement shall be binding unless made in writing
and signed by the parties hereto. Failure of either party at any time to require
performance of any provision of this Agreement shall not affect the right at a
later time to enforce the provision. In the event that any provision of this
Agreement shall be held invalid, illegal, or unenforceable, such invalidity,
illegality, or unenforceability shall not affect any other provisions of this
Agreement.
16. Binding Effect. This agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective permitted
heirs, executors, successors, and assigns.
17. Headings. The headings of the sections of this Agreement are
inserted for the convenience of the reference only and shall not be deemed to
constitute a part hereof.
18. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Maryland, regardless of the laws
that might be applied under applicable principles of conflicts of laws.
3
<PAGE>
19. Consent to Jurisdiction. The parties irrevocably submit to the
exclusive jurisdiction of (a) the Courts of the State of Maryland in Montgomery
County, and (b) the United States District Court for the State of Maryland for
the purposes of any suit, action or other proceeding arising out of this
Agreement.
20. Counterparts. The agreement may be executed in counterparts each
of which shall be an original and all of which together shall constitute one and
the same Agreement.
21. Commercially Reasonable Terms and Conditions. The terms and
provisions of this Agreement are intended to reflect commercially reasonable
terms and conditions (including, but not limited to, pricing) that are at least
as favorable and as competitive to Lessee as the terms and conditions Lessor
would grant or require of third parties for substantially similar goods and
services.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ATTEST: LESSOR:
MANOR CARE, INC.
By: /s/ James H. Rempe
James H. Rempe
Assistant Secretary Title: Senior Vice President
ATTEST: LESSEE:
CHOICE HOTELS HOLDINGS, INC.
(To be renamed Choice Hotels
International, Inc.)
By: /s/ James A. MacCutcheon
James A. MacCutcheon
Assistant Secretary Title: Senior Vice President
4
<PAGE>
SCHEDULE 1
List of Vehicles
[To be produced by Alice Owens]
<PAGE>
SCHEDULE 2
Insurance Requirements
[To be produced by Sherry Terao]
EXECUTION COPY
COMPETITIVE ADVANCE AND MULTI-CURRENCY
REVOLVING CREDIT FACILITY AGREEMENT dated as of
October 30, 1996, among CHOICE HOTELS HOLDINGS, INC.,
a Delaware corporation (the "Borrower"), the lenders
listed in Schedule 2.01 (the "Lenders"), NATIONSBANK,
N.A., as co-agent, and THE CHASE MANHATTAN BANK, a
New York banking corporation, as agent for the
Lenders (in such capacity, the "Agent").
The Borrower has requested the Lenders to extend credit to the
Borrower in order to enable it to borrow on a standby revolving credit basis on
and after the date hereof and at any time and from time to time prior to the
Maturity Date (as herein defined) a principal amount not in excess of
$100,000,000 at any time outstanding. The Borrower has requested that up to
$75,000,000 of such principal amount be available to the Borrower in Alternative
Currencies (as herein defined). The Borrower has also requested the Lenders to
provide a procedure pursuant to which the Borrower may invite the Lenders to bid
on an uncommitted basis on short-term borrowings by the Borrower. The Borrower
has requested the Issuing Bank (as herein defined) to issue letters of credit,
in an aggregate face amount at any time outstanding not in excess of
$25,000,000, to support payment obligations incurred in the ordinary course of
business by the Borrower and its Subsidiaries (as herein defined). The proceeds
of the borrowings hereunder shall be used for general corporate purposes of the
Borrower and its Subsidiaries, including working capital, capital expenditures,
acquisitions and equity investments. The Lenders are willing to extend such
credit to the Borrower and the Issuing Bank is willing to issue letters of
credit for the account of the Borrower on the terms and subject to the
conditions herein set forth. Accordingly, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
<PAGE>
2
"ABR Loan" shall mean any Loan denominated in dollars bearing interest
at a rate determined by reference to the Alternate Base Rate in accordance with
the provisions of Article II.
"ABR Standby Loan" shall mean any Standby Loan denominated in dollars
bearing interest at a rate determined by reference to the Alternate Base Rate in
accordance with the provisions of Article II.
"Adjusted CD Rate" shall mean, with respect to any CD Borrowing for
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/100 of 1%) equal to the sum of (a) a rate per annum equal to the
product of (i) the Fixed CD Rate in effect for such Interest Period and (ii)
Statutory Reserves, plus (b) the Assessment Rate. For purposes hereof, the term
"Fixed CD Rate" shall mean the arithmetic average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the prevailing rates per annum bid at or
about 10:00 a.m., New York City time, to the Agent on the first Business Day of
the Interest Period applicable to such CD Borrowing by three New York City
negotiable certificate of deposit dealers of recognized national standing
selected by the Agent for the purchase at face value of negotiable certificates
of deposit of major United States money center banks in a principal amount
approximately equal to the Reference Bank's portion of such CD Borrowing and
with a maturity comparable to such Interest Period.
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in the form of Exhibit B.
"Affiliate" shall mean, when used with respect to a specified person,
another person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the person
specified. Following the Distribution, the Borrower and the Subsidiaries shall
not be deemed to be Affiliates of Manor Care or its subsidiaries merely by
virtue of such companies' having common shareholders or directors as a result of
the Distribution.
"Agent and Administrative Fees" shall have the meaning assigned to
such term in Section 2.06(b).
"Aggregate Principal Amount Outstanding" shall mean, at any time, the
sum of (i) the aggregate principal
<PAGE>
3
amount at such time of all outstanding Loans denominated in dollars and (ii) the
aggregate Equivalent Dollar Amount at such time of the principal amounts of all
outstanding Eurocurrency Loans.
"Aggregate Revolving Credit Exposure" shall mean the aggregate amount
of the Lenders' Revolving Credit Exposures.
"Alternate Base Rate" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of
(a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such
day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%. For purposes hereof, "Prime Rate" shall mean the rate of interest per
annum publicly announced from time to time by the Agent as its prime rate in
effect at its principal office in New York City; each change in the Prime Rate
shall be effective on the date such change is publicly announced as effective.
"Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month
Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment Rate.
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary market
rate for three-month certificates of deposit reported as being in effect on such
day (or, if such day shall not be a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on such day
or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Agent from the New York City negotiable certificate of
deposit dealers of recognized national standing selected by it. "Federal Funds
Effective Rate" shall mean, for any day, the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Agent from
<PAGE>
4
three Federal funds brokers of recognized national standing selected by it. If
for any reason the Agent shall have determined that it is unable to ascertain
the Base CD Rate or the Federal Funds Effective Rate or both for any reason,
including the inability or failure of the Agent to obtain sufficient quotations
in accordance with the terms thereof, the Alternate Base Rate shall be
determined without regard to clauses (b) or (c) of the first sentence of this
definition, as appropriate, until the circumstances giving rise to such
inability no longer exist. Any change in the Alternate Base Rate due to a change
in the Prime Rate, the Three Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective on the effective date of such change in the
Prime Rate, the Three Month Secondary CD Rate or the Federal Funds Effective
Rate, respectively.
"Alternative Currency" shall mean Sterling, French Francs, Deutsche
Marks and any other freely available currency (other than ECUs) that is freely
transferable and freely convertible into dollars and in which dealings in
deposits are carried on in the London interbank market, which shall be requested
by the Borrower and approved by the Lenders.
"Applicable Percentage" shall mean, with respect to any CD Loan or
Eurodollar Standby Loan or with respect to the Facility Fees, as the case may
be, the applicable percentage set forth in the table below under the caption
"Eurodollar Spread", "CD Spread" or "Facility Fee Percentage", as the case may
be, based upon the Consolidated Leverage Ratio as of the end of and for the most
recent period of four consecutive fiscal quarters for which financial statements
of the Borrower are required to have been delivered under Section 5.04(a) or
(b), whether or not
<PAGE>
5
financial statements in respect of any subsequent period
shall have been delivered:
============================================================================
Consolidated Facility Fee Euro- CD
Leverage Ratio Percentage dollar Spread
Spread
- ----------------------------------------------------------------------------
Category 1 Less than or
equal to 0.50 to
1.00 .100% .200% .325%
- ----------------------------------------------------------------------------
Category 2 Greater than
0.50 to 1.00,
but less than or
equal to 1.50 to
1.00 .125% .225% .350%
- ----------------------------------------------------------------------------
Category 3 Greater than
1.50 to 1.00,
but less than or
equal to 2.50 to
1.00 .175% .275% .400%
- ----------------------------------------------------------------------------
Category 4 Greater than
2.50 to 1.00,
but less than or
equal to 3.00 to
1.00 .200% .350% .475%
- ----------------------------------------------------------------------------
Category 5 Greater than
3.00 to 1.00 .250% .500% .625%
============================================================================
;provided that the Applicable Percentage for the period commencing on the date
hereof and ending on November 30, 1996, shall be determined by reference to
Category 4; provided further that at any time when financial statements required
to have been delivered under Section 5.04(a) or (b) have not been delivered, the
Applicable Percentage shall be determined by reference to Category 5.
"Assessment Rate" shall mean for any date the annual rate (rounded
upwards, if necessary, to the next 1/100 of 1%) identified by the Agent (or, if
need be, reasonably estimated by the Agent) as the then current net annual
assessment rate that will be employed in determining amounts payable by the
Agent to the Federal Deposit Insurance Corporation (or any successor) for
insurance by
<PAGE>
6
such Corporation (or such successor) of time deposits made in dollars at the
Agent's domestic offices.
"Asset Sale" shall mean, with respect to the Borrower or any
Subsidiary, any sale, transfer or other disposition of any assets or other
properties (including individual business assets, patents, trademarks and other
intangibles) of the Borrower or such Subsidiary, including the sale, transfer or
disposition of any capital stock of or any merger or consolidation involving any
Subsidiary and any issuance or sale by any Subsidiary of shares of its capital
stock, other than (i) sales of inventory and used equipment in the ordinary
course of business of the person (whether the Borrower or a Subsidiary) owning
and selling such inventory or used equipment; (ii) sales, transfers and other
dispositions of any tangible assets by the Borrower or any Subsidiary if the
Borrower or such Subsidiary enters into an agreement to replace such assets with
a comparable asset as soon as practicable (and in no event later than three
months) after the disposition and, pending such replacement, diligently pursues
the replacement thereof, and the fair market value of the replacement asset is
substantially equivalent to or exceeds that of the asset so disposed of; (iii)
sales, transfers and other dispositions of any assets to the Borrower or any
Subsidiary; (iv) Sale and Lease-Back Transactions; (v) sales by the Borrower or
Subsidiaries of assets acquired from persons other than the Borrower or other
Subsidiaries, which sales occur not more than 12 months after the respective
dates on which such assets were acquired and (vii) the Distribution and the
transactions related thereto set forth in the Form 10.
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and an assignee, and accepted by the Agent, in the form
of Exhibit C.
"Board" shall mean the Board of Governors of the Federal Reserve
System of the United States.
"Borrowing" shall mean a group of Loans of a single Type made by the
Lenders (or, in the case of a Competitive Borrowing, by the Lender or Lenders
whose Competitive Bids have been accepted pursuant to Section 2.03) on a single
date and as to which a single Interest Period is in effect.
<PAGE>
7
"Borrowing Request" shall mean a request by the Borrower in accordance
with the terms of Section 2.04.
"Business Day" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York City; provided, however, that (i) when used in
connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits in the
London interbank market and (ii) when used in connection with a Eurocurrency
Loan, "Business Day" shall also exclude any day on which commercial banks are
not open for foreign exchange business in London or, if such reference relates
to the date on which any amount is to be paid or made available in an
Alternative Currency, in the principal financial center in the country of such
Alternative Currency.
"Capital Lease Obligations" of any person shall mean the obligations
of such person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under GAAP
applied on a consistent basis and, for the purposes of this Agreement, the
amount of such obligations at any time shall be the capitalized amount thereof
at such time determined in accordance with GAAP applied on a consistent basis.
"CD Borrowing" shall mean a Borrowing comprised of CD Loans.
"CD Loan" shall mean any Loan bearing interest at a rate determined by
reference to the Adjusted CD Rate in accordance with the provisions of Article
II.
"CD Standby Borrowing" shall mean a Borrowing composed of CD Standby
Loans.
"CD Standby Loan" shall mean any Standby Loan bearing interest at a
rate determined by reference to the Adjusted CD Rate in accordance with the
provisions of Article II.
A "Change in Control" shall be deemed to have occurred if (a) any
person or group (within the meaning of Rule 13d-5 of the Securities and Exchange
Commission as in
<PAGE>
8
effect on the date hereof) other than Stewart Bainum and his family shall own
directly or indirectly, beneficially or of record, shares representing more than
15% of the aggregate ordinary voting power represented by the issued and
outstanding capital stock of the Borrower, except that such a person or group
may own directly or indirectly, beneficially or of record, shares representing
not more than 20% of the aggregate voting power represented by the issued and
outstanding capital stock of the Borrower if such person or group reports and
continues to report such ownership on Schedule 13G (filed pursuant to Rule
13d-1(b), Rule 13d- 1(c), or, in the case of amendments, Rule 13d-2(b), of the
Securities and Exchange Commission as in effect on the date hereof); (b) a
majority of the seats (other than vacant seats) on the board of directors of the
Borrower shall at any time have been occupied by persons who were neither (i)
nominated by the management of the Borrower or by the Nominating Committee of
the Borrower's board of directors in connection with an annual meeting of the
stockholders of the Borrower, nor (ii) appointed by directors so nominated; or
(c) any person or group other than Stewart Bainum and his family shall otherwise
directly or indirectly Control the Borrower. Notwithstanding the foregoing, if a
trust or foundation or other entity established by Stewart Bainum or his family
holds shares representing in excess of 15% of the aggregate ordinary voting
power represented by the issued and outstanding capital stock of the Borrower
and Stewart Bainum or his family Controls such trust or foundation or such other
entity and the vote of such shares held by such trust or foundation or such
other entity and Stewart Bainum and his family remain in Control of the
Borrower, there shall be no Change in Control for purposes of this Agreement;
provided, however, that any transfer of such shares by Stewart Bainum, such
trust or such foundation or such other entity shall stand on its own merits for
purposes of this Agreement.
"Choice Hotels Franchising" shall mean Choice Hotels International,
Inc., a Delaware corporation, to be renamed Choice Hotels Franchising, Inc.
following the Distribution.
"Code" shall mean the Internal Revenue Code of 1986, as the same may
be amended from time to time.
"Commitment" shall mean, with respect to each Lender, the commitment
of such Lender hereunder as set forth in Schedule 2.01, as such Lender's
Commitment may be
<PAGE>
9
permanently terminated or reduced from time to time pursuant to Section 2.11.
The Commitments shall automatically and permanently terminate on the Maturity
Date.
"Competitive Bid" shall mean an offer by a Lender to make a
Competitive Loan pursuant to Section 2.03.
"Competitive Bid Accept/Reject Letter" shall mean a notification made
by the Borrower pursuant to Section 2.03(d) in the form of Exhibit A-4.
"Competitive Bid Rate" shall mean, as to any Competitive Bid made by a
Lender pursuant to Section 2.03(b), (i) in the case of a Eurodollar Competitive
Loan, the Competitive Margin, and (ii) in the case of a Fixed Rate Loan, the
fixed rate of interest offered by the Lender making such Competitive Bid.
"Competitive Bid Request" shall mean a request made pursuant to
Section 2.03 in the form of Exhibit A-1.
"Competitive Borrowing" shall mean a borrowing consisting of a
Competitive Loan or concurrent Competitive Loans from the Lender or Lenders
whose Competitive Bids for such Borrowing have been accepted by the Borrower
under the bidding procedure described in Section 2.03.
"Competitive Loan" shall mean a Loan from a Lender to the Borrower
pursuant to the bidding procedure described in Section 2.03. Each Competitive
Loan shall be a Eurodollar Competitive Loan or a Fixed Rate Loan.
"Competitive Margin" shall mean, as to any Eurodollar Competitive
Loan, the margin (expressed as a percentage rate per annum in the form of a
decimal to no more than four decimal places) to be added to or subtracted from
the LIBO Rate in order to determine the interest rate applicable to such Loan,
as specified in the Competitive Bid relating to such Loan.
"Consolidated EBITDA" shall mean, for any period, without duplication,
the sum for such period of (a) Consolidated Net Income, (b) depreciation and
amortization expense, (c) Consolidated Interest Expense, (d) provisions for
income tax expense, (e) restructuring charges incurred in connection with the
Distribution and (f) non-cash charges related to the impairment of assets
<PAGE>
10
(pursuant to FAS 121), all as determined in accordance with
GAAP consistently applied.
"Consolidated Funded Indebtedness" means, as of any date of
determination, all obligations accounted for as indebtedness on a consolidated
balance sheet of the Borrower on such date, in accordance with GAAP consistently
applied, whether such obligations are classified as long-term or short-term.
"Consolidated Interest Coverage Ratio" shall mean, for any period, the
ratio of (a) Consolidated EBITDA for such period to (b) Consolidated Interest
Expense for such period.
"Consolidated Interest Expense" shall mean, for any period, gross
total expenses of the Borrower and its consolidated Subsidiaries accounted for
as interest expense (including capitalized interest determined in accordance
with GAAP consistently applied) for such period, including (i) the portion of
rental payments under Capital Lease Obligations deemed to represent interest in
accordance with GAAP consistently applied, (ii) the amortization of debt
discounts, (iii) the amortization of all fees (including fees with respect to
interest rate protection agreements) payable in connection with the incurrence
of Indebtedness to the extent included in interest expense, all as determined on
a consolidated basis in accordance with GAAP consistently applied. For purposes
of the foregoing, gross interest expense shall be determined after giving effect
to any net payments made or received with respect to interest rate protection
agreements entered in to as a hedge against interest rate exposure.
"Consolidated Leverage Ratio" shall mean the ratio of Consolidated
Funded Indebtedness to Consolidated EBITDA. In the event the Borrower shall
complete, directly or through a Subsidiary, an acquisition or divestiture of any
Person or business unit during any period, the Consolidated Leverage Ratio as of
the end of and for such period shall thereafter be determined on a pro forma
basis as if such acquisition or divestiture had been completed on the first day
of such period.
"Consolidated Net Income" shall mean, for any period, the net income
(or loss) of the Borrower and its consolidated Subsidiaries for such period, as
determined on
<PAGE>
11
a consolidated basis in accordance with GAAP consistently
applied.
"Consolidated Net Worth" shall mean, as at any date of determination,
the consolidated stockholders' equity of the Borrower and its consolidated
Subsidiaries, as determined on a consolidated basis in accordance with GAAP
consistently applied.
"Consolidated Total Assets" shall mean, as at any date of
determination, the total assets of the Borrower and its consolidated
Subsidiaries at such time, as determined on a consolidated basis in accordance
with GAAP consistently applied.
"Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings correlative
thereto; provided, however, the existence of a management contract by the
Borrower or one of its Affiliates to manage another entity shall not be deemed
to be Control.
"Credit Event" shall have the meaning assigned to such term in Section
4.01.
"Default" shall mean any event or condition which upon notice, lapse
of time or both would constitute an Event of Default.
"Denomination Date" shall mean, in relation to any Eurocurrency
Borrowing, the date that is three Business Days before the date of such
Borrowing.
"Deutsche Marks" shall mean the lawful money of the Federal Republic
of Germany.
"Distribution" shall mean the distribution by Manor Care to its
shareholders of all the capital stock of the Borrower in the manner, on the
terms and with the results set forth in the Form 10.
"Distribution Agreement" shall mean the Distribution Agreement dated
as of [ ], 1996, by and between Manor Care and the Borrower.
<PAGE>
12
"dollars" or "$" shall mean lawful money of the United States of
America.
"Effective Date" shall mean the date on which this Agreement becomes
effective in accordance with Section 4.02.
"Equivalent Dollar Amount" shall mean, with respect to an amount of
any Alternative Currency on any date, the amount of dollars that may be
purchased with such amount of such Alternative Currency at the Spot Exchange
Rate on such date.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that is a member of a group of which the Borrower is a member and
which is treated as a single employer under Section 414 of the Code.
"Eurocurrency Borrowing" shall mean a Borrowing comprised of
Eurocurrency Loans.
"Eurocurrency Loan" shall mean any Loan denominated in an Alternative
Currency and bearing interest at a rate determined by reference to the LIBO Rate
in accordance with the provisions of Article II.
"Eurocurrency Sublimit" shall mean $75,000,000.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.
"Eurodollar Competitive Loan" shall mean any Competitive Loan
denominated in dollars and bearing interest at a rate determined by reference to
the LIBO Rate in accordance with the provisions of Article II.
"Eurodollar Loan" shall mean any Eurodollar Competitive Loan or
Eurodollar Standby Loan.
"Eurodollar Standby Borrowing" shall mean a Borrowing comprised of
Eurodollar Standby Loans.
"Eurodollar Standby Loan" shall mean any Standby Loan denominated in
dollars and bearing interest at a rate
<PAGE>
13
determined by reference to the LIBO Rate in accordance with
the provisions of Article II.
"Event of Default" shall have the meaning assigned to such term in
Article VII.
"Facility Fee" shall have the meaning assigned to such term in Section
2.06(a).
"Fees" shall mean the Facility Fee and the Agent and Administrative
Fees, the L/C Participation Fees and the Issuing Bank Fees.
"Financial Officer of the Borrower" of any corporation shall mean the
chief financial officer, principal accounting officer, Treasurer or Controller
of such corporation.
"Fixed Rate Borrowing" shall mean a Borrowing comprised of Fixed Rate
Loans.
"Fixed Rate Loan" shall mean any Competitive Loan bearing interest at
a fixed percentage rate per annum (expressed in the form of a decimal to no more
than four decimal places) specified by the Lender making such Loan in its
Competitive Bid.
"Form 10" shall mean the registration statement on Form 10 under the
Securities Exchange Act of 1934 of the Borrower filed with the Securities and
Exchange Commission on July 11, 1996, as amended and distributed to the Lenders
prior to the date hereof.
"French Francs" shall mean the lawful money of the Republic of France.
"GAAP" shall mean generally accepted accounting principles.
"Governmental Authority" shall mean any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or regulatory
body.
"Guarantee" of or by any person shall mean any obligation, contingent
or otherwise, of such person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other person (the "primary obligor") in any
manner, whether directly or indirectly, and including
<PAGE>
14
any obligation of such person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or to
purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Indebtedness, (b) to purchase property, securities or
services for the purpose of assuring the owner of such Indebtedness of the
payment of such Indebtedness or (c) to maintain working capital, equity capital
or other financial statement condition or liquidity of the primary obligor so as
to enable the primary obligor to pay such Indebtedness; provided, however, that
the term Guarantee shall not include endorsements for collection or deposit, in
either case in the ordinary course of business.
"Hotel Properties" shall mean the properties set forth on Schedule
1.01, including fixtures and personalty associated therewith.
"Indebtedness" of any person shall mean, without duplication, (a) all
obligations of such person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such person
upon which interest charges are customarily paid, (d) all obligations of such
person under conditional sale or other title retention agreements relating to
property or assets purchased by such person, (e) all obligations of such person
issued or assumed as the deferred purchase price of property or services, (f)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such person, whether or not the
obligations secured thereby have been assumed, (g) all Guarantees by such person
of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i)
all obligations of such person in respect of interest rate protection
agreements, foreign currency exchange agreements or other interest or exchange
rate hedging arrangements and (j) all obligations of such person as an account
party in respect of letters of credit (other than (x) documentary letters of
credit (including commercial and trade letters of credit) issued to secure
payment obligations in respect of goods and services in the ordinary course of
business and (y) letters of credit and surety bonds with respect to obligations
of such person that are fully accounted for as liabilities in the financial
records of such person) and bankers' acceptances. The
<PAGE>
15
Indebtedness of any person shall include the Indebtedness of any partnership in
which such person is a general partner.
"Interest Payment Date" shall mean, with respect to any Loan, the last
day of the Interest Period applicable thereto and, in the case of a Eurocurrency
Loan or Eurodollar Loan with an Interest Period of more than three months'
duration or a Fixed Rate Loan or a CD Loan with an Interest Period of more than
90 days' duration, each day that would have been an Interest Payment Date for
such Loan had successive Interest Periods of three months' duration or 90 days'
duration, as the case may be, been applicable to such Loan and, in addition, the
date of any refinancing or conversion of such Loan with or to a Loan of a
different Type.
"Interest Period" shall mean (a) as to any Eurocurrency Borrowing or
Eurodollar Borrowing, the period commencing on the date of such Borrowing and
ending on the numerically corresponding day (or, if there is no numerically
corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6
months thereafter, as the applicable Borrower may elect, (b) as to any CD
Borrowing, a period of 30, 60, 90 or 180 days' duration, as the Borrower may
elect, commencing on the date of such Borrowing, (c) as to any ABR Borrowing,
the period commencing on the date of such Borrowing and ending on the date 90
days thereafter or, if earlier, on the Maturity Date or the date of prepayment
of such Borrowing and (d) as to any Fixed Rate Borrowing, the period commencing
on the date of such Borrowing and ending on the date specified in the
Competitive Bids in which the offer to make the Fixed Rate Loans comprising such
Borrowing were extended, which shall not be earlier than seven days after the
date of such Borrowing or later than 360 days after the date of such Borrowing;
provided, however, that if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless, in the case of Eurocurrency Loans and Eurodollar Loans
only, such next succeeding Business Day would fall in the next calendar month,
in which case such Interest Period shall end on the next preceding Business Day.
Interest shall accrue from and including the first day of an Interest Period to
but excluding the last day of such Interest Period.
"Interest Rate Determination Date" shall mean, with respect to a
Eurocurrency Borrowing or Eurodollar
<PAGE>
16
Borrowing, the date which is two Business Days prior to the commencement of any
Interest Period for such Borrowing.
"Issuing Bank" shall mean, as the context may require, (a) The Chase
Manhattan Bank, or (b) any other Lender that may become an Issuing Bank pursuant
to Section 2.20(i), with respect to Letters of Credit issued by such Lender.
"Issuing Bank Agreement" shall mean an agreement in substantially the
form of Exhibit E.
"Issuing Bank Fees" shall have the meaning assigned to such term in
Section 2.06(c).
"L/C Commitment" shall mean, with respect to any Issuing Bank, the
commitment of such Issuing Bank to issue Letters of Credit pursuant to Section
2.20.
"L/C Disbursement" shall mean a payment or disbursement made by an
Issuing Bank pursuant to a Letter of Credit.
"L/C Exposure" shall mean at any time the sum of (a) the aggregate
undrawn amount of all outstanding Letters of Credit at such time, plus (b) the
aggregate principal amount of all L/C Disbursements that have not yet been
reimbursed at such time. The L/C Exposure of any Lender at any time shall mean
its Pro Rata Percentage of the aggregate L/C Exposure at such time.
"L/C Participation Fee" shall have the meaning assigned to such term
in Section 2.06(c)(i).
"Letter of Credit" shall mean any letter of credit issued pursuant to
Section 2.20, as permitted hereby.
"LIBO Rate" shall mean, (a) with respect to any Eurocurrency Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the rate at which deposits in the
currency in which such Loan is denominated approximately equal in principal
amount to the Reference Bank's portion of such Eurocurrency Borrowing and for a
maturity comparable to such Interest Period are offered to the principal London
office of the Agent, in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, on the relevant Interest Rate
Determination Date, and
<PAGE>
17
(b) with respect to any Eurodollar Borrowing for any Interest Period, an
interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%)
equal to the rate at which dollar deposits approximately equal in principal
amount to (i) in the case of a Standby Borrowing, the Reference Bank's portion
of such Standby Borrowing and (ii) in the case of a Competitive Borrowing, a
principal amount that would have been the Reference Bank's portion of such
Competitive Borrowing had such Competitive Borrowing been a Standby Borrowing,
and for a maturity comparable to such Interest Period are offered to the
principal London office of the Agent, in immediately available funds in the
London interbank market at approximately 11:00 a.m., London time, on the
applicable Interest Rate Determination Date.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed
of trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relating to such asset and
(c) in the case of securities, any purchase option, call or similar right of a
third party (excluding rights of first refusal) with respect to such securities.
"Loan" shall mean a Competitive Loan or a Standby Loan, whether made
as a Eurocurrency Loan, a Eurodollar Loan, a CD Loan, an ABR Loan or a Fixed
Rate Loan, as permitted hereby.
"Loan Documents" shall mean this Agreement, the Letters of Credit,
each Issuing Bank Agreement and, if requested by a Lender pursuant to Section
2.07(e), each Note.
"Manor Care" shall mean Manor Care, Inc., a Delaware corporation.
"Manor Care Note" shall mean (a) Indebtedness of the Borrower to MNR
Finance Corp., a subsidiary of Manor Care, in an aggregate principal amount not
in excess of $225,722,500 having a maturity no earlier than the Maturity Date,
bearing interest at a rate equal to 9% per annum and having no scheduled
principal or redemption payments, except as expressly contemplated hereby (the
"Note"), and (b) any Indebtedness that renews, extends, refinances or replaces
the Note; provided, however, that the Indebtedness that extends, renews,
refinances or replaces the Note has (i) a
<PAGE>
18
maturity and schedule of principal or redemption payments no earlier than that
of the Note and (ii) an aggregate principal amount that is equal to or less than
the aggregate principal amount then outstanding (plus fees and expenses,
including any premium and defeasance costs) of the Note.
"Margin Stock" shall have the meaning given such term under Regulation
U.
"Material Adverse Effect" shall mean a materially adverse effect on
the business, assets, property or condition, financial or otherwise, of the
Borrower and the Subsidiaries taken as a whole.
"Maturity Date" shall mean the third anniversary of the date hereof.
"Moody's" shall mean Moody's Investors Service, Inc.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code) is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"Non-Recourse Hotel Indebtedness" shall mean Indebtedness, incurred
solely in respect of a Hotel Property, (i) as to which neither the Borrower nor
any Subsidiary (x) provides credit support (including any undertaking, agreement
or instrument which would constitute Indebtedness) or has given or made other
assurances regarding repayment, (y) is directly or indirectly personally liable
or (z) constitutes the lender and (ii) the obligees of which will have recourse
solely against the assets comprising such Hotel Property for repayment of the
principal of and interest on such Indebtedness and any fees, indemnities,
expense reimbursements or other amounts of whatever nature accrued or payable in
connection with such Indebtedness.
"Obligations" shall mean (a) the Borrower's obligations in respect of
the due and punctual payment of principal of and interest on the Loans and
reimbursement of the Letters of Credit, in each case when and as due whether
<PAGE>
19
at maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, (b) all Fees, expenses, indemnities, reimbursements and other
obligations, monetary or otherwise, of the Borrower under this Agreement or any
other Loan Document and (c) all obligations, monetary or otherwise, of each
Subsidiary under each Loan Document to which it is a party.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
and defined in ERISA.
"Permitted Investments" shall mean:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States
of America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America);
(b) investments in commercial paper having credit
ratings of at least A-2 from S&P and P-2 from Moody's;
(c) investments in certificates of deposit, banker's
acceptances and time deposits issued or guaranteed by or placed with,
and money market deposit accounts issued or offered by, any domestic
office of any commercial bank organized under the laws of the United
States of America or any State thereof which has a combined capital and
surplus and undivided profits of not less than $200,000,000;
(d) investments in the ordinary course of business in
customary repurchase agreements with respect to freely marketable,
short-term securities of the type customarily subject to repurchase
agreements; and
(e) other readily marketable debt and equity securities traded
on national securities exchanges or on other nationally recognized
markets, including over-the-counter markets.
"person" shall mean any natural person, corporation, business trust,
joint venture, association, company, limited liability company, partnership or
government, or any agency or political subdivision thereof.
<PAGE>
20
"Plan" shall mean any pension plan (other than a Multiemployer Plan)
subject to the provisions of Title IV of ERISA or Section 412 of the Code which
is maintained for employees of the Borrower or any ERISA Affiliate.
"Proceeds" shall mean, with respect to any Asset Sale, (a) the gross
amount of consideration or other amounts payable to or receivable by the
Borrower or a Subsidiary in respect of such Asset Sale, less (b) the amount, if
any, of all estimated taxes payable with respect to such Asset Sale whether or
not payable during the taxable year in which such Asset Sale shall have
occurred, and less (c) reasonable and customary fees, commissions, costs and
other expenses (other than those payable to the Borrower or a Subsidiary or
Affiliate of the Borrower or to Manor Care or a subsidiary or affiliate of Manor
Care) which are incurred in connection with such Asset Sale and are payable by
the seller or the transferor of the assets or property to which such Asset Sale
relates, but only to the extent not already deducted in arriving at the amount
referred to in clause (a) above. For purposes of determining Proceeds, the value
of all noncash consideration payable or receivable by the Borrower or any
Subsidiary, as the case may be, shall be the fair market value of such noncash
consideration as determined in good faith by the Borrower and the Borrower shall
provide to the Agent a certificate of a Financial Officer of the Borrower with
respect to the fair market value of such consideration, in form and substance
reasonably satisfactory to the Agent.
"Pro Rata Percentage" of any Lender at any time shall mean the
percentage of the Total Commitment represented by such Lender's Commitment. In
the event the Commitments shall have expired or been terminated, the Pro Rata
Percentages shall be determined on the basis of the Commitments most recently in
effect (giving effect to any assignments under Section 9.04).
"Quality Hotels" shall mean Quality Hotels Europe, Inc., a Subsidiary.
"Reference Bank" shall mean the Agent or, in the case where the
Agent's Commitment is not the largest of the Lenders' Commitments, the Lender
possessing the largest Commitment.
"Register" shall have the meaning given such term in Section 9.04(d).
<PAGE>
21
"Regulation D" shall mean Regulation D of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation G" shall mean Regulation G of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation U" shall mean Regulation U of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" shall mean Regulation X of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Reportable Event" shall mean any reportable event as defined in
Section 4043(b) of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate which is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the
Code).
"Required Lenders" shall mean, at any time, Lenders having Commitments
representing at least a majority of the Total Commitment or, if the Commitments
have been terminated, Lenders holding Loans and L/C Exposures representing at
least a majority of the sum of the aggregate amount of L/C Exposures and
aggregate principal amount of the Loans then outstanding.
"Responsible Officer" of any corporation shall mean any executive
officer or Financial Officer of such corporation and any other officer or
similar official thereof responsible for the administration of the obligations
of such corporation in respect of this Agreement.
"Revolving Credit Exposure" shall mean, with respect to any Lender at
any time, the aggregate principal amount at such time of all outstanding Standby
Loans of such Lender denominated in dollars, plus the Equivalent Dollar Amount
at such time of the aggregate principal amount at such time of all outstanding
Standby Loans of such Lender that are Alternative Currency Loans, plus the
aggregate amount at such time of such Lender's L/C Exposure.
<PAGE>
22
"Sale and Lease-Back Transaction" shall mean any arrangement, directly
or indirectly, with any person whereby such person shall sell or transfer any
property, real or personal, used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property or other property
which it intends to use for substantially the same purpose or purposes as the
property being sold or transferred.
"Significant Subsidiary" shall mean at any time (a) Choice Hotels
Franchising, (b) any Subsidiary of the Borrower with revenues during the fiscal
year of the Borrower most recently ended greater than or equal to 5% of the
total revenues of the Borrower and its Subsidiaries during such year, computed
and consolidated in accordance with GAAP consistently applied ("Consolidated
Revenues"), (c) any Subsidiary of the Borrower with assets as of the last day of
the Borrower's most recently ended fiscal year greater than or equal to 5% of
the total assets of the Borrower and its Subsidiaries at such date, computed and
consolidated in accordance with GAAP consistently applied ("Consolidated
Assets"), (d) any Subsidiary with stockholder's equity as of the last day of the
Borrower's most recently ended fiscal year greater than or equal to 5% of the
stockholder's equity of the Borrower and the Subsidiaries at such date, computed
and consolidated in accordance with GAAP consistently applied ("Net
Stockholders' Equity"), (e) any Subsidiary designated in writing by the Borrower
as a Significant Subsidiary, (f) any Subsidiary created or acquired by the
Borrower after the date hereof that falls within or that comes to meet one of
clauses (a) through (e) or (g) any Subsidiary in existence on the date hereof
which comes to meet one of clauses (a) through (e) after the date hereof;
provided, however, that if at any time (x) the aggregate revenues of all
Subsidiaries that are Significant Subsidiaries during any fiscal year of the
Borrower shall not equal or exceed 90% of Consolidated Revenues for such fiscal
year, (y) the aggregate assets of all Subsidiaries that are Significant
Subsidiaries as of the last day of any fiscal year of the Borrower shall not
equal or exceed 90% of Consolidated Assets at such date, or (z) the aggregate
stockholders' equity of all Subsidiaries that are Significant Subsidiaries as of
the last day of any fiscal year of the Borrower shall not equal or exceed 90% of
Net Stockholders' Equity at such date, then the term Significant Subsidiary
shall be deemed to include such Subsidiaries (as determined pursuant to the next
following sentence) of the Borrower as may be required
<PAGE>
23
so that none of clauses (x), (y) and (z) above shall continue to be true. For
purposes of the proviso to the next preceding sentence, the Subsidiaries which
shall be deemed to be Significant Subsidiaries shall be determined based on the
percentage that the assets of each such Subsidiary are of Consolidated Assets,
with the Subsidiary with the highest such percentage being selected first, and
each other Subsidiary required to satisfy the requirements set forth in such
proviso being selected in descending order of such percentage.
"S&P" shall mean Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc.
"SPC" shall mean a special purpose corporation formed by the Borrower
as a wholly owned Subsidiary and possessing only Hotel Properties as assets.
"Spot Exchange Rate" shall mean, on any day, with respect to any
Alternative Currency, the spot rate at which dollars are offered on such day by
The Chase Manhattan Bank in London for such Alternative Currency at
approximately 11:00 A.M. (London time).
"Standby Borrowing" shall mean a borrowing consisting of simultaneous
Standby Loans from each of the Lenders.
"Standby Borrowing Request" shall mean a request made pursuant to
Section 2.04 in the form of Exhibit A-5.
"Standby Loans" shall mean the revolving loans made by the Lenders to
the Borrower pursuant to Section 2.04. Each Standby Loan shall be a Eurocurrency
Loan, a Eurodollar Standby Loan, a CD Loan or an ABR Loan.
"Statutory Reserves" shall mean a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority to which the Agent is
subject for new negotiable nonpersonal time deposits in dollars of over $100,000
with maturities approximately equal to the applicable Interest Period. Statutory
Reserves shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage.
<PAGE>
24
"Sterling" or "(pound)" shall mean the lawful money of the United
Kingdom.
"Subordinated Indebtedness" shall mean Indebtedness of the Borrower
that is subordinated in right of payment to any of the Obligations.
"subsidiary" shall mean, with respect to any person (herein referred
to as the "parent"), any corporation, partnership, association or other business
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or more
than 50% of the general partnership interests are, at the time any determination
is being made, owned, controlled or held, or (b) which is, at the time any
determination is made, otherwise Controlled by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"Subsidiary" shall mean any subsidiary of the Borrower.
"Total Commitment" shall mean at any time the aggregate amount of the
Lenders' Commitments, as in effect at such time.
"Transactions" shall have the meaning assigned to such term in Section
3.02.
"Type", when used in respect of any Loan or Borrowing, shall refer to
the Rate by reference to which interest on such Loan or on the Loans comprising
such Borrowing is determined and the currency in which such Loan or the Loans
comprising such Borrowing are denominated. For purposes hereof, "Rate" shall
include the LIBO Rate, the Adjusted CD Rate, the Alternate Base Rate and the
Fixed Rate, and "currency" shall include Dollars, French Francs, Deutsche Marks,
Sterling and any other Alternative Currency permitted hereunder.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may
<PAGE>
25
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes" and "including" shall be deemed to
be followed by the phrase "without limitation". All references herein to
Articles, Sections, Exhibits and Schedules shall be deemed references to
Articles and Sections of, and Exhibits and Schedules to, this Agreement unless
the context shall otherwise require. Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be construed in
accordance with GAAP consistently applied, as in effect from time to time;
provided, however, that, for purposes of determining compliance with any
covenant set forth in Article VI, such terms shall be construed in accordance
with GAAP as in effect on the date of this Agreement applied on a basis
consistent with the application used in preparing the Borrower's audited
financial statements referred to in Section 3.05.
ARTICLE II. THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions and
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, to make Standby Loans (including Eurocurrency
Loans) to the Borrower, at any time and from time to time on and after the date
hereof and until the earlier of the Maturity Date and the termination of the
Commitment of such Lender, in an aggregate principal amount at any time
outstanding that will not result in such Lender's Revolving Credit Exposure
exceeding such Lender's Commitment minus the amount by which the Competitive
Loans outstanding at such time shall be deemed to have used such Commitment
pursuant to Section 2.16, subject, however, to the conditions that (a) at no
time shall any Loan be made if, immediately after giving effect thereto and to
the application of the proceeds thereof, the Aggregate Principal Amount
Outstanding would exceed the Total Commitment minus the L/C Exposure, (b) at no
time shall any Loan be made if, immediately after giving effect thereto and to
the application of the proceeds thereof, the aggregate Equivalent Dollar Amount
of all outstanding Eurocurrency Loans would exceed the Eurocurrency Sublimit and
(c) at all times the outstanding aggregate principal amount of all Standby Loans
made by each Lender shall equal the product of (i) the percentage which its
Commitment represents of the Total Commitment times (ii) the outstanding
aggregate principal amount of all Standby Loans made pursuant to
<PAGE>
26
Section 2.04. Each Lender's Commitment is set forth opposite its respective name
in Schedule 2.01. Such Commitments may be terminated or reduced from time to
time pursuant to Section 2.11. Within the foregoing limits, the Borrower may
borrow, pay or prepay and reborrow hereunder, on and after the Effective Date
and prior to the Maturity Date, subject to the terms, conditions and limitations
set forth herein.
SECTION 2.02. Loans. (a) Each Standby Loan shall be made as part of a
Borrowing consisting of Loans made by the Lenders ratably in accordance with
their Commitments; provided, however, that the failure of any Lender to make any
Standby Loan shall not in itself relieve any other Lender of its obligation to
lend hereunder (it being understood, however, that no Lender shall be
responsible for the failure of any other Lender to make any Loan required to be
made by such other Lender). Each Competitive Loan shall be made in accordance
with the procedures set forth in Section 2.03. Except for Loans deemed made
pursuant to Section 2.02(e), the Standby Loans or Competitive Loans comprising
any Borrowing shall be (i) in the case of Competitive Loans, in an aggregate
principal amount which is an integral multiple of $1,000,000 and not less than
$5,000,000 and (ii) in the case of Standby Loans, in an aggregate principal
amount which is an integral multiple of $1,000,000 and not less than $5,000,000
(or an aggregate principal amount equal to the remaining balance of the
available Commitments); provided, however, that if the Equivalent Dollar Amount
of any Eurocurrency Loan at the end of the Interest Period applicable thereto
does not exceed by more than 5%, and is not less than 95% of, the Equivalent
Dollar Amount of such Loan on the relevant Denomination Date, then the
applicable Borrower may (notwithstanding clauses (i) and (ii) above) refinance
such Loan with a new Loan denominated in the same Alternative Currency and with
the same principal amount (in such Alternative Currency) at the end of such
Interest Period, notwithstanding that the Equivalent Dollar Amount of the new
Loan is not an integral multiple of $1,000,000. For purposes of this Section,
any Eurocurrency Borrowing shall be deemed to be in an amount equal to the
Equivalent Dollar Amount of such Eurocurrency Borrowing determined as of its
Denomination Date.
(b) Each Standby Borrowing shall be comprised entirely of Eurocurrency
Loans, Eurodollar Standby Loans, CD Loans or ABR Loans and each Competitive
Borrowing shall be comprised entirely of Eurodollar Competitive Loans or
<PAGE>
27
Fixed Rate Loans as the Borrower may request pursuant to Section 2.03 or 2.04,
as applicable. Each Lender may at its option make any Eurocurrency Loan or
Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such
Lender to make such Loan; provided, however, that (i) any exercise of such
option shall not affect the obligation of the Borrower to repay such Loan in
accordance with the terms of this Agreement and (ii) in exercising such option,
the Lender shall use its reasonable efforts to minimize any increased costs to
the Borrower resulting therefrom (which obligation of the Lender shall not
require it to take, or refrain from taking, actions that it determines would
result in increased costs for which it will not be compensated hereunder or that
it determines would be otherwise disadvantageous to it and in the event of such
request for costs for which compensation is provided under this Agreement, the
provisions of Section 2.13(c) shall apply). Borrowings of more than one Type may
be outstanding at the same time; provided, however, that the Borrower shall not
be entitled to request any Borrowing which, if made, would result in (A) an
aggregate of more than fifteen separate Standby Loans of any Lender being
outstanding hereunder at any one time, (B) there being Loans outstanding in an
aggregate of more than six currencies or (C) there being more than 30
Eurocurrency Borrowings having an Interest Period of one month during any
twelve-month period. For purposes of the foregoing, Loans having different
Interest Periods, regardless of whether they commence on the same date, shall be
considered separate Loans.
(c) Subject to Section 2.05 and except with respect to Loans made
pursuant to Section 2.02(e), each Lender shall make each Loan to be made by it
hereunder on the proposed date thereof by wire transfer of immediately available
funds to such account as the Agent may designate, not later than 12:00 noon, New
York City time, or, in the case of funds in an Alternative Currency, 12:00 noon,
London time, and the Agent shall by 3:00 p.m., New York City time, or, in the
case of funds in an Alternative Currency, 3:00 p.m., London time, credit the
amounts so received to an account designated by the Borrower with the Agent or,
if a Borrowing shall not occur on such date because any condition precedent
herein specified shall not have been met, return the amounts so received to the
respective Lenders. Competitive Loans shall be made by the Lender or Lenders
whose Competitive Bids therefor are accepted pursuant to Section 2.03 in the
amounts so accepted and Standby Loans shall be made by the Lenders pro rata in
accordance with
<PAGE>
28
Section 2.16. Unless the Agent shall have received notice from a Lender prior to
(or, in the case of an ABR Borrowing, on) the date of any Borrowing that such
Lender shall not make available to the Agent such Lender's portion of such
Borrowing, the Agent may assume that such Lender has made such portion available
to the Agent on the date of such Borrowing in accordance with this Section
2.02(c) and the Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If the Agent shall have so
made funds available then, to the extent that such Lender shall not have made
such portion available to the Agent, such Lender and the Borrower severally
agree to repay to the Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the Agent at
(i) in the case of the Borrower, the interest rate applicable at the time to the
Loans comprising such Borrowing and (ii) in the case of such Lender, a rate
determined by the Agent to represent its cost of overnight or short-term funds
in the relevant currency (which determination shall be conclusive absent
manifest error). If such Lender shall repay to the Agent such corresponding
amount, such amount shall constitute such Lender's Loan as part of such
Borrowing for purposes of this Agreement.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request any Borrowing if the Interest Period
requested with respect thereto would end after the Maturity Date.
(e) If the Issuing Bank shall not have received from the Borrower the
payment required to be made by Section 2.20(e) within the time specified in such
Section, the Issuing Bank will promptly notify the Agent of the L/C Disbursement
and the Agent will promptly notify each Lender of such L/C Disbursement and its
Pro Rata Percentage thereof. Each Lender shall pay by wire transfer of
immediately available funds to the Agent not later than 2:00 p.m., New York City
time, on such date (or, if such Lender shall have received such notice later
than 12:00 (noon), New York City time, on any day, not later than 10:00 a.m.,
New York City time, on the immediately following Business Day), an amount equal
to such Lender's Pro Rata Percentage of such L/C Disbursement (it being
understood that such amount shall be deemed to constitute an ABR Loan of such
Lender and such payment shall be deemed to have reduced the L/C Exposure), and
the Agent will promptly pay
<PAGE>
29
to the Issuing Bank amounts so received by it from the Lenders. The Agent will
promptly pay to the Issuing Bank any amounts received by it from the Borrower
pursuant to Section 2.20(e) prior to the time that any Lender makes any payment
pursuant to this paragraph (e); any such amounts received by the Agent
thereafter will be promptly remitted by the Agent to the Lenders that shall have
made such payments and to the Issuing Bank, as their interests may appear. If
any Lender shall not have made its Pro Rata Percentage of such L/C Disbursement
available to the Agent as provided above, such Lender and the Borrower severally
agree to pay interest on such amount, for each day from and including the date
such amount is required to be paid in accordance with this paragraph to but
excluding the date such amount is paid, to the Agent for the account of the
Issuing Bank at (i) in the case of the Borrower, the Alternate Base Rate, and
(ii) in the case of such Lender, for the first such day, the Federal Funds
Effective Rate, and for each day thereafter, the Alternate Base Rate.
SECTION 2.03. Competitive Bid Procedure. (a) In order to request
Competitive Bids, the Borrower shall hand deliver, telex or telecopy to the
Agent a duly completed Competitive Bid Request in the form of Exhibit A-1, to be
received by the Agent (i) in the case of a Eurodollar Competitive Borrowing, not
later than 10:00 a.m., New York City time, four Business Days before a proposed
Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later
than 10:00 a.m., New York City time, one Business Day before a proposed
Competitive Borrowing. No Eurocurrency Loan, CD Loan or ABR Loan shall be
requested in, or made pursuant to, a Competitive Bid Request. A Competitive Bid
Request that does not conform substantially to the format of Exhibit A-1 may be
rejected in the Agent's sole discretion, and the Agent shall promptly notify the
Borrower of such rejection by telex or telecopier. Such request shall in each
case refer to this Agreement and specify (x) whether the Borrowing then being
requested is to be a Eurodollar Borrowing or a Fixed Rate Borrowing, (y) the
date of such Borrowing (which shall be a Business Day) and the aggregate
principal amount thereof which shall be in a minimum principal amount of
$5,000,000 and in an integral multiple of $1,000,000, and (z) the Interest
Period with respect thereto (which may not end after the Maturity Date).
Promptly after its receipt of a Competitive Bid Request that is not rejected as
aforesaid, the Agent shall invite by telex or telecopier (in the form of Exhibit
A-2) the Lenders to bid, on the terms and conditions of this Agreement, to
<PAGE>
30
make Competitive Loans pursuant to such Competitive Bid
Request.
(b) Each Lender may, in its sole discretion, make one or more
Competitive Bids to the Borrower responsive to a Competitive Bid Request. Each
Competitive Bid by a Lender must be received by the Agent via telex or
telecopier, in the form of Exhibit A-3, (i) in the case of a Eurodollar
Competitive Borrowing, not later than 9:30 a.m., New York City time, three
Business Days before a proposed Competitive Borrowing and (ii) in the case of a
Fixed Rate Borrowing, not later than 9:30 a.m., New York City time, on the day
of a proposed Competitive Borrowing. Multiple bids shall be accepted by the
Agent. Competitive Bids that do not conform substantially to the format of
Exhibit A-3 may be rejected by the Agent after conferring with, and upon the
instruction of, the Borrower, and the Agent shall notify the Lender making such
nonconforming bid of such rejection as soon as practicable. Each Competitive Bid
shall refer to this Agreement and specify (x) the principal amount (which shall
be in a minimum principal amount of $5,000,000 and in an integral multiple of
$1,000,000 and which may equal the entire principal amount of the Competitive
Borrowing requested by the Borrower) of the Competitive Loan or Loans that the
Lender is willing to make to the Borrower, (y) the Competitive Bid Rate or Rates
at which the Lender is prepared to make the Competitive Loan or Loans and (z)
the Interest Period and the last day thereof. If any Lender shall elect not to
make a Competitive Bid, such Lender shall so notify the Agent via telex or
telecopier (I) in the case of Eurodollar Competitive Loans, not later than 9:30
a.m., New York City time, three Business Days before a proposed Competitive
Borrowing and (II) in the case of Fixed Rate Loans, not later than 9:30 a.m.,
New York City time, on the day of a proposed Competitive Borrowing; provided,
however, that failure by any Lender to give such notice shall not cause such
Lender to be obligated to make any Competitive Loan as part of such Competitive
Borrowing. A Competitive Bid submitted by a Lender pursuant to this Section
2.03(b) shall be irrevocable.
(c) The Agent shall promptly notify the Borrower by telex or
telecopier of all the Competitive Bids made, the Competitive Bid Rate and the
principal amount of each Competitive Loan in respect of which a Competitive Bid
was made and the identity of the Lender that made each bid. The Agent shall send
a copy of all Competitive Bids to the
<PAGE>
31
Borrower for its records as soon as practicable after completion of the bidding
process set forth in this Section.
(d) The Borrower may in its sole and absolute discretion, subject only
to the provisions of this Section 2.03(d), accept or reject any Competitive Bid
referred to in Section 2.03(c). The Borrower shall notify the Agent by
telephone, confirmed by telex or telecopier in the form of a Competitive Bid
Accept/Reject Letter substantially in the form set forth in Exhibit A-4, whether
and to what extent it has decided to accept or reject any of or all the bids
referred to in Section 2.03(c), (y) in the case of a Eurodollar Competitive
Borrowing, not later than 10:30 a.m., New York City time, three Business Days
before a proposed Competitive Borrowing and (z) in the case of a Fixed Rate
Borrowing, not later than 10:30 a.m., New York City time, on the day of a
proposed Competitive Borrowing; provided, however, that (i) the failure by the
Borrower to give such notice shall be deemed to be a rejection of all the bids
referred to in Section 2.03(c), (ii) the Borrower shall not accept a bid made at
a particular Competitive Bid Rate if the Borrower has decided to reject a bid
made at a lower Competitive Bid Rate, (iii) the aggregate amount of the
Competitive Bids accepted by the Borrower shall not exceed the principal amount
specified in the Competitive Bid Request, (iv) if the Borrower shall accept a
bid or bids made at a particular Competitive Bid Rate but the amount of such bid
or bids shall cause the total amount of bids to be accepted by the Borrower to
exceed the amount specified in the Competitive Bid Request, then the Borrower
shall accept a portion of such bid or bids in an amount equal to the amount
specified in the Competitive Bid Request less the amount of all other
Competitive Bids accepted with respect to such Competitive Bid Request, which
acceptance, in the case of multiple bids at such Competitive Bid Rate, shall be
made pro rata in accordance with the amount of each such bid at such Competitive
Bid Rate, and (v) except pursuant to clause (iv) above, no bid shall be accepted
for a Competitive Loan unless such Competitive Loan is in a minimum principal
amount of $5,000,000 and an integral multiple of $1,000,000; provided further,
however, that if a Competitive Loan must be in an amount less than $5,000,000
because of the provisions of clause (iv) above, such Competitive Loan may be for
a minimum of $1,000,000 or any integral multiple thereof, and in calculating the
pro rata allocation of acceptances of portions of multiple bids at a particular
Competitive Bid Rate pursuant to clause (iv) above the amounts shall be rounded
to integral multiples of
<PAGE>
32
$1,000,000 in a manner which shall be in the discretion of the Borrower. A
notice given by the Borrower pursuant to this Section 2.03(d) shall be
irrevocable.
(e) The Agent shall promptly notify each bidding Lender whether or not
its Competitive Bid has been accepted (and if so, in what amount and at what
Competitive Bid Rate) by telex or telecopier sent by the Agent, and each
successful bidder shall thereupon become bound, subject to the other applicable
conditions hereof, to make the Competitive Loan in respect of which its bid has
been accepted.
(f) A Competitive Bid Request shall not be made within three Business
Days after the date of any previous Competitive Bid Request.
(g) If the Agent shall elect to submit a Competitive Bid in its
capacity as a Lender, it shall submit such bid directly to the Borrower one
quarter of an hour earlier than the latest time at which the other Lenders are
required to submit their bids to the Agent pursuant to Section 2.03(b).
(h) All Notices required by this Section shall be given in accordance
with Section 9.01.
SECTION 2.04. Standby Borrowing Procedure. In order to request a
Borrowing (other than a Competitive Borrowing or a deemed Borrowing pursuant to
Section 2.02(e), as to which this Section 2.04 shall not apply), the Borrower
shall hand deliver, telex or telecopy to the Agent a duly completed Standby
Borrowing Request in the form of Exhibit A-5 (a) in the case of a Eurocurrency
Borrowing, not later than 10:30 a.m., London time, three Business Days before a
proposed borrowing, (b) in the case of a Eurodollar Borrowing, not later than
10:30 a.m., New York City time, three Business Days before a proposed borrowing,
(c) in the case of a CD Borrowing, not later than 10:30 a.m., New York City
time, one Business Day before a proposed borrowing and (d) in the case of an ABR
Borrowing, not later than 10:30 a.m., New York City time, on the day of a
proposed borrowing. No Fixed Rate Loan shall be requested or made pursuant to a
Borrowing Request. Such notice shall be irrevocable and shall in each case
specify (i) whether the Borrowing then being requested is to be a Eurocurrency
Borrowing, a Eurodollar Borrowing, a CD Borrowing or an ABR Borrowing; (ii) the
date of such Borrowing (which shall be a
<PAGE>
33
Business Day) and the amount thereof, which, in the case of a Eurocurrency
Borrowing, shall be expressed in the Equivalent Dollar Amount; (iii) if such
Borrowing is to be a Eurocurrency Borrowing, the Alternative Currency in which
such Borrowing is to be denominated and the number and location of the account
to which funds are to be disbursed; and (iv) if such Borrowing is to be a
Eurocurrency Borrowing, Eurodollar Borrowing or CD Borrowing, the Interest
Period with respect thereto. If no election as to the Type of Borrowing is
specified in any such notice, then the requested Borrowing shall be an ABR
Borrowing. If no Interest Period with respect to any Eurocurrency Borrowing,
Eurodollar Borrowing or CD Borrowing is specified in any such notice, then the
applicable Borrower shall be deemed to have selected an Interest Period of one
month's duration, in the case of a Eurocurrency Borrowing or a Eurodollar
Borrowing, or 30 days' duration, in the case of a CD Borrowing. If the Borrower
shall not have given notice in accordance with this Section of its election to
refinance a Borrowing prior to the end of the Interest Period in effect for such
Borrowing, then the Borrower shall (unless such Borrowing is repaid at the end
of such Interest Period) be deemed to have given notice of an election to
refinance such Borrowing with an ABR Borrowing. The Agent shall promptly advise
the Lenders of any notice given pursuant to this Section and of each Lender's
portion of the requested Borrowing.
SECTION 2.05. Refinancings. The Borrower may refinance all or any part
of any Borrowing with a Borrowing of the same or a different Type made pursuant
to Section 2.03 or Section 2.04, subject to the conditions and limitations set
forth herein and elsewhere in this Agreement, including refinancings of
Competitive Borrowings with Standby Borrowings and Standby Borrowings with
Competitive Borrowings. Any Borrowing or part thereof so refinanced with a
Borrowing denominated in the same currency shall be deemed to be repaid in
accordance with Section 2.07 with the proceeds of a new Borrowing hereunder and
the proceeds of the new Borrowing, to the extent they do not exceed the
principal amount of the Borrowing being refinanced, shall not be paid by the
Lenders to the Agent or by the Agent to the applicable Borrower pursuant to
Section 2.02(c); provided, however, that (i) if the principal amount extended by
a Lender in a refinancing is greater than the principal amount extended by such
Lender in the Borrowing being refinanced, then such Lender shall pay such
difference to the Agent for distribution to the Lenders
<PAGE>
34
described in (ii) below, (ii) if the principal amount extended by a Lender in
the Borrowing being refinanced is greater than the principal amount being
extended by such Lender in the refinancing, the Agent shall return the
difference to such Lender out of amounts received pursuant to (i) above, and
(iii) to the extent any Lender fails to pay the Agent amounts due from it
pursuant to (i) above, any Loan or portion thereof being refinanced shall not be
deemed repaid in accordance with Section 2.07 and shall be payable by the
applicable Borrower.
SECTION 2.06. Fees. (a) The Borrower agrees to pay to each Lender,
through the Agent, on each March 31, June 30, September 30 and December 31, on
the date on which the Commitment of such Lender shall be terminated as provided
herein and on the Maturity Date, a facility fee (a "Facility Fee") equal to the
Applicable Percentage per annum in effect from time to time on the amount of the
Commitment of such Lender, whether used or unused, in effect from time to time
during the preceding quarter (or shorter period commencing with the date hereof
or ending with the Maturity Date or any date on which the Commitment of such
Lender shall be terminated). The Facility Fees shall be computed on the basis of
the actual number of days elapsed in a year of 360 days. The Facility Fee due to
each Lender shall commence to accrue on the date hereof and shall cease to
accrue on the earlier of (i) the termination of the Commitment of such Lender
and (ii) the Maturity Date.
(b) The Borrower shall pay to the Agent, for its own account, agent
and administrative fees (the "Agent and Administrative Fees") at the times and
in the amounts agreed upon in the letter agreement dated August 20, 1996,
between the Borrower and the Agent.
(c) The Borrower agrees to pay (i) to each Lender, through the Agent,
on the last day of March, June, September and December of each year and on the
date on which the Commitment of such Lender shall be terminated as provided
herein, a fee (an "L/C Participation Fee") calculated on such Lender's Pro Rata
Percentage of the average daily aggregate L/C Exposure (excluding the portion
thereof attributable to unreimbursed L/C Disbursements) during the preceding
quarter (or shorter period commencing with the date hereof or ending with the
Maturity Date or the date on which all Letters of Credit have been canceled or
have expired and the Commitments of all Lenders shall have been terminated) at a
rate equal to the Applicable
<PAGE>
35
Percentage from time to time used to determine the interest rate on Standby
Borrowings comprised of Eurodollar Standby Loans pursuant to Section 2.08, and
(ii) to the Issuing Bank with respect to each Letter of Credit the standard
fronting, issuance and drawing fees, if any, as may be specified in the Issuing
Bank Agreement (the "Issuing Bank Fees"). All L/C Participation Fees and Issuing
Bank Fees shall be computed on the basis of the actual number of days elapsed in
a year of 360 days.
(d) All Fees shall be paid on the dates due, in immediately available
funds, to the Agent for distribution, if and as appropriate, among the Lenders
except that the Issuing Bank Fees shall be paid directly to the Issuing Bank.
Once paid, none of the Fees shall be refundable under any circumstances unless
such Fees were paid in error.
SECTION 2.07. Evidence of Indebtedness; Repayment of Loans. (a) The
Borrower hereby unconditionally promises to pay to the Agent for the account of
each Lender the then unpaid principal amount of each Loan on the Maturity Date.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower to such
Lender resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Agent shall maintain accounts in which it shall record (i) the
amount of each Loan made hereunder, the Type thereof and the Interest Period
applicable thereto, (ii) the amount of any principal or interest due and payable
or to become due and payable from the Borrower to each Lender hereunder and
(iii) the amount of any sum received by the Agent hereunder for the account of
the Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraphs
(b) and (c) of this Section shall be prima facie evidence of the existence and
amounts of the obligations recorded therein; provided that the failure of any
Lender or the Agent to maintain such accounts or any error therein shall not in
any manner affect the obligation of the Borrower to properly repay the Loans in
accordance with the terms of this Agreement.
<PAGE>
36
(e) Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, the Borrower shall prepare, execute and deliver
to such Lender a promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered assigns) and in a
form approved by the Agent.
SECTION 2.08. Interest on Loans. (a) Subject to the provisions of
Section 2.09, the Loans comprising each Eurocurrency Borrowing and Eurodollar
Borrowing shall bear interest (computed on the basis of the actual number of
days elapsed over a year of 360 days) at a rate per annum equal to (i) in the
case of each Eurocurrency Loan or Eurodollar Standby Loan, the LIBO Rate for the
Interest Period in effect for such Borrowing plus the Applicable Percentage, and
(ii) in the case of each Eurodollar Competitive Loan, the LIBO Rate for the
Interest Period in effect for such Borrowing plus the Competitive Margin offered
by the Lender making such Loan and accepted by the Borrower pursuant to Section
2.03. Interest on each Eurocurrency Borrowing and Eurodollar Borrowing shall be
payable on each applicable Interest Payment Date. The LIBO Rate for each
Interest Period shall be determined by the Agent in accordance with the
definition of LIBO Rate herein. The Agent shall promptly advise the applicable
Borrower and each Lender, as appropriate, of such determination.
(b) Subject to the provisions of Section 2.09, the Loans comprising
each CD Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum equal to the
Adjusted CD Rate for the Interest Period in effect for such Borrowing plus the
Applicable Percentage. Interest on each CD Borrowing shall be payable on each
applicable Interest Payment Date. The Adjusted CD Rate for each Interest Period
shall be determined by the Agent in accordance with the definition of Adjusted
CD Rate herein. The Agent shall promptly advise the Borrower and each Lender of
such determination.
(c) Subject to the provisions of Section 2.09, the Loans comprising
each ABR Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of (i) 365 or 366 days, as the case may be,
during any period in which the Alternate Base Rate is based on the Prime Rate,
and (ii) 360 days, during any period in which the Alternate Base Rate is based
on the Base CD Rate or the Federal Funds Effective Rate) at a rate per annum
<PAGE>
37
equal to the Alternate Base Rate. Interest on each ABR Borrowing shall be
payable on each applicable Interest Payment Date. The Alternate Base Rate shall
be determined by the Agent in accordance with the definition of Alternate Base
Rate herein.
(d) Subject to the provisions of Section 2.09, each Fixed Rate Loan
shall bear interest at a rate per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) equal to the fixed rate of
interest offered by the Lender making such Loan and accepted by the Borrower
pursuant to Section 2.03. Interest on each Fixed Rate Loan shall be payable on
the Interest Payment Dates applicable to such Loan except as otherwise provided
in this Agreement.
SECTION 2.09. Default Interest. If the Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, whether by scheduled maturity, notice of prepayment, acceleration
or otherwise, the Borrower shall on demand from time to time from the Agent pay
interest, to the extent permitted by law, on such defaulted amount up to (but
not including) the date of actual payment (after as well as before judgment) at
a rate per annum (computed on the basis of the actual number of days elapsed
over a year of 360 days) equal to the Alternate Base Rate plus 2%.
SECTION 2.10. Alternate Rate of Interest. (a) In the event, and on
each occasion, that on the day two Business Days prior to the commencement of
any Interest Period for a Eurocurrency Borrowing or a Eurodollar Borrowing the
Agent shall have determined (i) that deposits in the principal amounts of the
Loans comprising such Borrowing and in the currency in which such Loan is to be
denominated are not generally available in the relevant market, or that the
rates at which such deposits are being offered will not adequately and fairly
reflect the cost to any Lender of making or maintaining its Eurocurrency Loan or
Eurodollar Loan, as applicable, during such Interest Period, or that reasonable
means do not exist for ascertaining the LIBO Rate, or (ii) in the case of a
Eurocurrency Borrowing, that there shall have occurred any change in national or
international financial, political or economic conditions (including the
imposition of or any change in exchange controls) or currency exchange rates
which would make it impracticable to make Loans denominated in the applicable
Alternative Currency, the Agent shall, as promptly as
<PAGE>
38
practicable, give written, telex or telecopy notice of such determination to the
Borrower and the Lenders. In the event of any such determination, until the
Agent shall have advised the Borrower and the Lenders that the circumstances
giving rise to such notice no longer exist, (A) any request by the Borrower for
a Eurodollar Competitive Borrowing pursuant to Section 2.03 shall be of no force
and effect and shall be denied by the Agent, (B) any request by the Borrower for
a Eurodollar Standby Borrowing pursuant to Section 2.04 shall be deemed to be a
request for an ABR Borrowing and (C) any request by the Borrower for a
Eurocurrency Borrowing pursuant to Section 2.04 shall be deemed to be a request
by the Borrower for an ABR Borrowing.
(b) In the event, and on each occasion, that on or before the day on
which the Adjusted CD Rate for a CD Borrowing is to be determined the Agent
shall have determined that such Adjusted CD Rate cannot be determined for any
reason, including the inability of the Agent to obtain sufficient bids in
accordance with the terms of the definition of Fixed CD Rate, or the Agent shall
determine that the Adjusted CD Rate for such CD Borrowing will not adequately
and fairly reflect the cost to any Lender of making or maintaining its CD Loan
during such Interest Period, the Agent shall, in a timely manner, give written
or telex notice of such determination to the Borrower and the Lenders. In the
event of any such determination, any request by the Borrower for a CD Borrowing
pursuant to Section 2.04 shall, until the Agent shall have advised the Borrower
and the Lenders that the circumstances giving rise to such notice no longer
exist, be deemed to be a request for an ABR Borrowing.
SECTION 2.11. Termination and Reduction of Commitments. (a) The
Commitments and the L/C Commitments shall be automatically terminated on the
Maturity Date.
(b) Upon at least five Business Days' prior irrevocable written or
telex notice to the Agent, the Borrower may at any time in whole permanently
terminate, or from time to time in part permanently reduce, the Total
Commitment; provided, however, that (i) each partial reduction of the Total
Commitment shall be in an integral multiple of $1,000,000 and in a minimum
principal amount of $10,000,000 and (ii) no such termination or reduction shall
be made which would reduce the Total Commitment to an amount less than the
aggregate outstanding principal amount of the Competitive Loans. If, following
any partial reduction of
<PAGE>
39
the Total Commitment, the Total Commitment (as so reduced) shall be less than
the Eurocurrency Sublimit, the Eurocurrency Sublimit shall be automatically
reduced so as to equal the Total Commitment.
(c) In the event that the aggregate Proceeds from all Asset Sales
after the date of this Agreement shall exceed 30% of Consolidated Total Assets
as of the end of the preceding fiscal year, then at the time of each Asset Sale
(including the Asset Sale that results in the aggregate Proceeds from Asset
Sales exceeding 30% of Consolidated Total Assets as of the end of the preceding
fiscal year) the Commitments shall be automatically and permanently reduced by
an amount equal to 50% of the Proceeds of such Asset Sale in excess of 30% of
Consolidated Total Assets as of the end of the preceding fiscal year aggregate
amount. If any reduction of the Commitments required by this paragraph would
result in the Total Commitment being less than the aggregate principal amount of
the outstanding Competitive Loans, such reduction shall be deferred for the
minimum period necessary to avoid such result.
(d) Each reduction in the Total Commitment hereunder shall be made
ratably among the Lenders in accordance with their respective Commitments. The
Borrower shall pay to the Agent for the accounts of the Lenders, on the date of
each termination or reduction, the Facility Fees on the amount of the
Commitments so terminated or reduced accrued through the date of such
termination or reduction.
SECTION 2.12. Prepayment. (a) The Borrower shall have the right at any
time and from time to time to prepay any Standby Borrowing, in whole or in part,
upon giving written or telex notice (or telephone notice promptly confirmed by
written or telex notice) to the Agent before 10:00 a.m., New York City time (or,
in the case of any Eurocurrency Borrowing, 10:00 a.m., London time), three
Business Days prior to prepayment; provided, however, that each partial
prepayment shall be in an amount which is (or the Equivalent Dollar Amount of
which is) an integral multiple of $1,000,000 and not less than $5,000,000. The
Borrower shall not have the right to prepay any Competitive Borrowing.
(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.11, the Borrower shall pay or prepay so much of the
Standby Borrowings as shall be necessary in order that the Aggregate Revolving
<PAGE>
40
Credit Exposure shall not exceed the Total Commitment after giving effect to
such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment date and
the principal amount of each Borrowing (or portion thereof) to be prepaid, shall
be irrevocable and shall commit the applicable Borrower to prepay such Borrowing
(or portion thereof) by the amount stated therein on the date stated therein.
All prepayments under this Section shall be subject to Section 2.15 but
otherwise without premium or penalty. All prepayments under this Section shall
be accompanied by accrued interest on the principal amount being prepaid to the
date of payment.
SECTION 2.13. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision herein, if after the date of this Agreement
any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender or Issuing
Bank of the principal of or interest on any Eurocurrency Loan, Eurodollar Loan,
CD Loan or Fixed Rate Loan made by such Lender or any Fees or other amounts
payable hereunder (other than changes in respect of taxes imposed on the overall
net income of such Lender or Issuing Bank by any jurisdiction or any political
subdivision thereof) or shall impose, modify or deem applicable any reserve,
special deposit or similar requirement against assets of, deposits with or for
the account of or credit extended by such Lender or such Issuing Bank (except
any such reserve requirement which is already reflected in the definition of the
applicable Rate), or shall impose on such Lender or such Issuing Bank or the
London interbank market any other condition affecting this Agreement or any
Eurocurrency Loan, Eurodollar Loan, CD Loan or Fixed Rate Loan made by such
Lender or any Letter of Credit or participation therein, and the result of any
of the foregoing shall be to increase the cost to such Lender or Issuing Bank of
making or maintaining any Eurocurrency Loan, Eurodollar Loan, CD Loan or Fixed
Rate Loan or increase the cost to any Lender of issuing or maintaining any
Letter of Credit or purchasing or maintaining a participation therein or to
reduce the amount of any sum received or receivable by such Lender or such
Issuing Bank hereunder (whether of principal, interest or otherwise) by an
amount deemed by such Lender or such Issuing Bank to be material, then the
applicable Borrower shall pay to such
<PAGE>
41
Lender or such Issuing Bank, as the case may be, upon demand such additional
amount or amounts as will compensate such Lender or such Issuing Bank, as the
case may be, for such additional costs incurred or reduction suffered.
Notwithstanding the foregoing, no Lender shall be entitled to request
compensation under this paragraph with respect to any Competitive Loan if it
should have been aware of the change giving rise to such request at the time of
submission of the Competitive Bid pursuant to which such Competitive Loan shall
have been made.
(b) If any Lender or Issuing Bank shall have determined that the
applicability of any law, rule, regulation or guideline adopted pursuant to or
arising out of the July 1988 report of the Basle Committee on Banking
Regulations and Supervisory Practices entitled "International Convergence of
Capital Measurement and Capital Standards", or the adoption after the date
hereof of any other law, rule, regulation or guideline regarding capital
adequacy, or any change in any of the foregoing or in the interpretation or
administration of any of the foregoing by any Governmental Authority charged
with the interpretation or administration thereof, or compliance by any Lender
(or any lending office of such Lender) or any Issuing Bank or any Lender's or
Issuing Bank's holding company with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such Governmental
Authority, has or would have the effect of reducing the rate of return on such
Lender's or Issuing Bank's capital or on the capital of such Lender's or Issuing
Bank's holding company, if any, as a consequence of this Agreement or the Loans
made or participations in Letters of Credit purchased by such Lender pursuant
hereto or the Letters of Credit issued by such Issuing Bank pursuant hereto to a
level below that which such Lender or Issuing Bank or such Lender's or Issuing
Bank's holding company could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or Issuing Bank's policies
and the policies of such Lender's or Issuing Bank's holding company with respect
to capital adequacy) by an amount deemed by such Lender or Issuing Bank to be
material, then from time to time the Borrower shall pay to such Lender or
Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or Issuing Bank or such Lender's or Issuing Bank's
holding company for any such reduction suffered.
<PAGE>
42
(c) A certificate of a Lender or Issuing Bank setting forth such
amount or amounts as shall be necessary to compensate such Lender or Issuing
Bank, as applicable, as specified in paragraph (a) or (b) above, as the case may
be, shall be delivered to the Borrower. The Borrower shall pay each Lender or
Issuing Bank the amount shown as due on any such certificate delivered by it
within 10 days after the receipt of the same. In the event any Lender delivers
such a certificate, the Borrower may, at its sole expense and effort, require
such Lender to transfer and assign, without recourse (in accordance with Section
9.04) all its interests, rights and obligations under this Agreement to an
assignee which shall assume such assigned obligations (which assignee may be
another Lender, if a Lender accepts such assignment); provided, however, that
(i) such assignment shall not conflict with any law, rule or regulation or order
of any Governmental Authority, (ii) the Borrower shall have received a written
consent of the Agent in the case of an assignee that is not a Lender, which
consent shall not unreasonably be withheld, and (iii) the Borrower or such
assignee shall have paid to the assigning Lender in immediately available funds
the principal of and interest accrued to the date of such payment on the Loans
made by it hereunder and all other amounts owed to it hereunder.
(d) Failure on the part of any Lender or the Issuing Bank to demand
compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital with respect to any period shall
not constitute a waiver of such Lender's or Issuing Bank's right to demand
compensation with respect to such period or any other period.
(e) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section shall survive
the payment in full of the principal of and interest on all Loans made
hereunder.
SECTION 2.14. Change in Legality. (a) Notwithstanding any other
provision herein, if any change in any law or regulation or in the
interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurocurrency Loan or Eurodollar Loan or to give effect
to its obligations as contemplated hereby with respect to any Eurocurrency Loan
<PAGE>
43
or Eurodollar Loan, then, by written notice to the Borrower and to the Agent,
such Lender may:
(i) declare that Eurocurrency Loans or Eurodollar Loans, as
the case may be, shall not thereafter be made by such Lender hereunder,
whereupon such Lender shall not submit a Competitive Bid in response to
a request for Eurodollar Competitive Loans and any request by the
Borrower for a Eurocurrency Loan or Eurodollar Standby Borrowing, as
the case may be, shall, as to such Lender only, be deemed a request for
an ABR Loan to the Borrower unless such declaration shall be
subsequently withdrawn; and
(ii) require that all outstanding Eurocurrency Loans or
Eurodollar Loans, as the case may be, made by it be converted to ABR
Loans, in which event all such Eurocurrency Loans or Eurodollar Loans,
as the case may be, shall be automatically converted to ABR Loans as of
the effective date of such notice as provided in paragraph (b) below
(such conversion to be made, in the case of a Eurocurrency Loan, into
dollars at the applicable Spot Exchange Rate).
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied to
repay the Eurocurrency Loans or Eurodollar Loans, as the case may be, that would
have been made by such Lender or the converted Eurocurrency Loans or Eurodollar
Loans of such Lender shall instead be applied to repay the ABR Loans made by
such Lender in lieu of, or resulting from the conversion of, such Eurocurrency
Loans or Eurodollar Loans.
(b) For purposes of this Section, a notice to the Borrower by any
Lender shall be effective as to each Eurocurrency Loan or Eurodollar Loan, as
the case may be, if lawful, on the last day of the Interest Period then
applicable to such Eurocurrency Loan or Eurodollar Loan; in all other cases such
notice shall be effective on the date of receipt by the Borrower.
SECTION 2.15. Indemnity. The Borrower shall indemnify each Lender
against any loss or expense which such Lender may sustain or incur as a
consequence of (a) any failure by the Borrower to fulfill on the date of any
borrowing hereunder the applicable conditions set forth in Article IV, (b) any
failure by the Borrower to borrow or to
<PAGE>
44
refinance any Loan hereunder after irrevocable notice of such borrowing or
refinancing has been given pursuant to Section 2.03 or 2.04, (c) any payment,
prepayment, assignment pursuant to Section 2.13(c), conversion of a Eurocurrency
Loan or Eurodollar Loan pursuant to Section 2.14(a) or conversion of a
Eurocurrency Loan, Eurodollar Loan, CD Loan or Fixed Rate Loan required by any
other provision of this Agreement or otherwise made or deemed made on a date
other than the last day of the Interest Period applicable thereto, (d) any
default in payment or prepayment of the principal amount of any Loan or any part
thereof or interest accrued thereon, as and when due and payable at the due date
thereof (whether by scheduled maturity, acceleration, irrevocable notice of
prepayment or otherwise) or (e) the occurrence of any Event of Default,
including, in each such case, any loss or reasonable expense sustained or
incurred or to be sustained or incurred in liquidating or employing deposits
from third parties acquired to effect or maintain such Loan or any part thereof
as a Eurocurrency Loan, Eurodollar Loan, CD Loan or Fixed Rate Loan. Such loss
or reasonable expense shall include an amount equal to the excess, if any, as
reasonably determined by such Lender, of (i) its cost of obtaining the funds for
the Loan being paid, prepaid, assigned, converted or not borrowed (based on the
LIBO Rate or Adjusted CD Rate or, in the case of a Fixed Rate Loan, the fixed
rate of interest applicable thereto) for the period from the date of such
payment, prepayment, assignment, conversion or failure to borrow to the last day
of the Interest Period for such Loan (or, in the case of a failure to borrow,
the Interest Period for such Loan which would have commenced on the date of such
failure) over (ii) the amount of interest (as reasonably determined by such
Lender) that would be realized by such Lender in reemploying the funds so paid,
prepaid, assigned, converted or not borrowed for such period or Interest Period,
as the case may be. A certificate of any Lender setting forth any amount or
amounts which such Lender is entitled to receive pursuant to this Section and
evidencing a loss suffered by such Lender of such amount or amounts shall be
delivered to the Borrower.
SECTION 2.16. Pro Rata Treatment. Except as required under Section
2.14, each Standby Borrowing, each payment or prepayment of principal of any
Standby Borrowing, each payment of interest on the Standby Loans, each payment
of the Facility Fees and L/C Participation Fees, each reduction of the
Commitments and each refinancing of any Borrowing with a Standby Borrowing of
any Type, shall be
<PAGE>
45
allocated pro rata among the Lenders in accordance with their respective
Commitments (or, if such Commitments shall have expired or been terminated, in
accordance with the respective principal amounts of their outstanding Standby
Loans). Each payment of principal of any Competitive Borrowing shall be
allocated pro rata among the Lenders participating in such Borrowing in
accordance with the respective principal amounts of their outstanding
Competitive Loans comprising such Borrowing. Each payment of interest on any
Competitive Borrowing shall be allocated pro rata among the Lenders
participating in such Borrowing in accordance with the respective amounts of
accrued and unpaid interest on their outstanding Competitive Loans comprising
such Borrowing. For purposes of determining the available Commitments of the
Lenders at any time, each outstanding Competitive Borrowing shall be deemed to
have utilized the Commitments of the Lenders (including those Lenders which
shall not have made Loans as part of such Competitive Borrowing) pro rata in
accordance with such respective Commitments. Each Lender agrees that in
computing such Lender's portion of any Borrowing to be made hereunder, the Agent
may, in its discretion, round each Lender's percentage of such Borrowing to the
next higher or lower whole dollar amount.
SECTION 2.17. Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
the Borrower , or pursuant to a secured claim under Section 506 of Title 11 of
the United States Code or other security or interest arising from, or in lieu
of, such secured claim, received by such Lender under any applicable bankruptcy,
insolvency or other similar law or otherwise, or by any other means (other than
an assignment pursuant to Section 2.13(c) or 10.04), obtain payment (voluntary
or involuntary) in respect of any Standby Loan or L/C Disbursement as a result
of which the unpaid principal portion of its Standby Loans and participations in
L/C Disbursements shall be proportionately less than the unpaid principal
portion of the Standby Loans and participations in L/C Disbursements of any
other Lender, it shall be deemed simultaneously to have purchased from such
other Lender at face value, and shall promptly pay to such other Lender the
purchase price for, a participation in the Standby Loans and L/C Exposure of
such other Lender, so that the aggregate unpaid principal amount of the Standby
Loans and L/C Exposure and participations in the Standby Loans and L/C Exposure
held by each Lender shall be in the same proportion to the aggregate unpaid
principal amount of
<PAGE>
46
all Standby Loans and L/C Exposure then outstanding as the principal amount of
its Standby Loans and L/C Exposure prior to such exercise of banker's lien,
setoff or counterclaim or other event was to the principal amount of all Standby
Loans outstanding prior to such exercise of banker's lien, setoff or
counterclaim or other event; provided, however, that, if any such purchase or
purchases or adjustments shall be made pursuant to this Section and the payment
giving rise thereto shall thereafter be recovered, such purchase or purchases or
adjustments shall be rescinded to the extent of such recovery and the purchase
price or prices or adjustment restored without interest. The Borrower expressly
consents to the foregoing arrangements and agrees that any Lender holding a
participation in a Standby Loan or L/C Disbursement deemed to have been so
purchased may exercise any and all rights of banker's lien, setoff or
counterclaim with respect to any and all moneys owing by such Borrower to such
Lender by reason thereof as fully as if such Lender had made a Standby Loan
directly to such Borrower in the amount of such participation.
SECTION 2.18. Payments. (a) The Borrower shall make each payment
(including principal of or interest on the Loans or any L/C Disbursement or any
Fees or other amounts) hereunder and under any other Loan Document to such
account of the Agent as the Agent shall have specified, not later than 10:30
a.m., local time, at the place of payment, on the date when due, in the currency
in which such Loan was made and in federal funds or such other immediately
available funds as may then be customary for the settlement of international
transactions in the relevant currency at such place. The Borrower shall make
each payment of Fees not later than 12:00 noon, New York time, on the date when
due in dollars in immediately available funds to the Agent at its address
referred to in Section 9.01.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may (except as otherwise provided in the definition
of "Interest Period") be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of interest
or Fees, if applicable.
SECTION 2.19. Taxes. (a) Any and all payments by the Borrower
hereunder shall be made, in accordance with
<PAGE>
47
Section 2.18, free and clear of and without deduction for any and all present or
future taxes, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding taxes imposed on the Agent's or any Lender's or
any Issuing Bank's (or any transferee's or assignee's, including a participation
holder's (any such entity a "Transferee")) net income and franchise taxes
imposed on the Agent or any Lender or any Issuing Bank (or Transferee) by any
jurisdiction or any political subdivision thereof (all such nonexcluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder to the Lenders
or any Issuing Bank (or any Transferee) or the Agent, (i) the sum payable shall
be increased by the amount necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section) such Lender or such Issuing Bank (or Transferee) or the Agent (as
the case may be) shall receive an amount equal to the sum it would have received
had no such deductions been made, (ii) such Borrower shall make such deductions
and (iii) such Borrower shall pay the full amount deducted to the relevant
taxing authority or other Governmental Authority in accordance with applicable
law.
(b) In addition, the Borrower shall pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
other Loan Document (hereinafter referred to as "Other Taxes").
(c) The Borrower shall indemnify each Lender, Issuing Bank (or
Transferee) and the Agent for the full amount of Taxes and Other Taxes
(including any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section) paid by such Lender or such Issuing Bank (or
Transferee) or the Agent, as the case may be, and any liability (including
penalties, interest and reasonable out-of-pocket expenses) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted by the relevant taxing authority or other Governmental
Authority. Such indemnification shall be made within 30 days after the date any
Lender or Issuing Bank (or Transferee) or the Agent, as the case may be, makes
written demand therefor, which demand
<PAGE>
48
may be made after such Lender, Issuing Bank (or Transferee) or the Agent, in its
sole discretion (reasonably exercised) and at the sole expense of the applicable
Borrower, determines to challenge or contest such assertion of Taxes or Other
Taxes. After the Borrower makes full payment to the Lender, Issuing Bank (or
Transferee) or the Agent with respect to such indemnification for Taxes or Other
Taxes asserted, if such Lender, Issuing Bank (or Transferee) or the Agent
believes in its sole discretion that reasonable grounds exist to challenge or
contest the Taxes or Other Taxes imposed, then such Lender, Issuing Bank (or
Transferee) or the Agent, as the case may be, shall so contest or challenge in
good faith the Taxes or Other Taxes asserted, which contest or challenge shall
be at the sole expense of such Borrower. If a Lender, Issuing Bank (or
Transferee) or the Agent shall become aware that it is entitled to receive a
refund in respect of Taxes or Other Taxes, it shall promptly notify the Borrower
of the availability of such refund and shall, within 30 days after receipt of a
request by such Borrower, apply for such refund at the Borrower's reasonable
out-of-pocket expense. If any Lender, Issuing Bank (or Transferee) or the Agent
receives a refund in respect of any Taxes or Other Taxes for which such Lender,
Issuing Bank (or Transferee) or the Agent has received payment from the Borrower
hereunder it shall promptly notify such Borrower of such refund and shall
promptly upon receipt repay such refund to the Borrower, net of all
out-of-pocket expenses of such Lender or Issuing Bank and without interest;
provided, however, that the Borrower, upon the request of such Lender, Issuing
Bank (or Transferee) or the Agent, agrees to return such refund (plus penalties,
interest or other charges) to such Lender, Issuing Bank (or Transferee) or the
Agent in the event such Lender, Issuing Bank (or Transferee) or the Agent is
required to repay such refund.
(d) Within 30 days after the date of any payment of Taxes or Other
Taxes withheld by the Borrower in respect of any payment to any Lender, Issuing
Bank (or Transferee) or the Agent, the Borrower will furnish to the Agent, at
its address referred to in Section 9.01, the original or a certified copy of a
receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section shall survive
the payment in full of the principal of and interest on all Loans made
hereunder.
<PAGE>
49
(f) On or before the date it becomes a party to this Agreement and
from time to time thereafter as renewals are due and upon any change in status
rendering any certificate or documents previously delivered pursuant to this
Section 2.19(f) invalid or inaccurate, each Lender, Issuing Bank or Transferee
that is organized outside the United States or Germany shall (but (x) in the
case of a Transferee or (y) in the case of a Lender or Issuing Bank with respect
to any renewal or change in status, only if legally able to do so) upon written
request of the Borrower, deliver to the Borrower such certificates, documents or
other evidence, as specified by the Borrower and, as the case may be, required
by, in the case of a Borrower organized in the United States and a non-United
States Lender or Issuing Bank, the Code or Treasury Regulations issued pursuant
thereto, including Internal Revenue Service Form 1001 or Form 4224 and any other
certificate or statement of exemption required by Treasury Regulation Section
1.1441-1(a) or Section 1.1441-6(c) or any subsequent version thereof, properly
completed and duly executed by such Lender (or Transferee) establishing that
such payment is, as the case may be, (i) not subject to withholding under the
Code because such payment is effectively connected with the conduct by such
Lender, Issuing Bank or Transferee of a trade or business in the United States
or (ii) totally exempt from United States tax under a provision of an applicable
tax treaty. Unless the Borrower and the Agent have received forms or other
documents satisfactory to them indicating that payments hereunder are not
subject to United States withholding tax, as the case may be, or are subject to
such tax at a rate reduced by an applicable tax treaty, the Borrower or the
Agent shall withhold taxes from such payments at the applicable statutory rate
in the case of payments to or for any Lender, Issuing Bank or Transferee or
assignee organized under the laws of a jurisdiction outside the United States or
Germany, as the case may be.
(g) A Borrower shall not be required to pay any additional amounts to
any Lender, Issuing Bank or Transferee in respect of United States withholding
tax pursuant to Section 2.19(a) if the obligation to pay such additional amounts
would not have arisen but for a failure by such Lender, Issuing Bank or
Transferee to comply with the provisions of Section 2.19(f) unless such failure
results from (i) a change in applicable law, regulation or official
interpretation thereof or (ii) an amendment, modification or revocation of any
applicable tax treaty or a change in official position regarding the application
or
<PAGE>
50
interpretation thereof, in each case after the Effective Date (and, in the case
of a Transferee, after the date of assignment or transfer); provided, however,
that the Borrower shall be required to pay those amounts to any Lender, Issuing
Bank or Transferee that it was required to pay hereunder prior to the failure of
such Lender, Issuing Bank or Transferee to comply with the provisions of Section
2.19(f).
(h) Any Lender, Issuing Bank or Transferee claiming any additional
amounts payable pursuant to this Section shall use reasonable efforts
(consistent with legal and regulatory restrictions) to file any certificate or
document in a timely manner requested by the Borrower or to change the
jurisdiction of its applicable lending office if the making of such a filing or
change would avoid the need for or reduce the amount of any such additional
amounts which may thereafter accrue and would not, in the sole and reasonable
determination of such Lender, Issuing Bank or Transferee be otherwise
disadvantageous to such Lender, Issuing Bank or Transferee.
SECTION 2.20. Letters of Credit. (a) General. The Borrower may request
the issuance of a Letter of Credit for its own account, in a form reasonably
acceptable to the Agent and the Issuing Bank, at any time and from time to time
while the Commitments remain in effect. Each Letter of Credit shall be
denominated in dollars. This Section shall not be construed to impose an
obligation upon the Issuing Bank to issue any Letter of Credit that is
inconsistent with the terms and conditions of this Agreement.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. In order to request the issuance of a Letter of Credit (or to amend,
renew or extend an existing Letter of Credit), the Borrower shall hand deliver
or telecopy to the Issuing Bank and the Agent (reasonably in advance of the
requested date of issuance, amendment, renewal or extension) a notice requesting
the issuance of a Letter of Credit, or identifying the Letter of Credit to be
amended, renewed or extended, the date of issuance, amendment, renewal or
extension, the date on which such Letter of Credit is to expire (which shall
comply with paragraph (c) below), the amount of such Letter of Credit, the name
and address of the beneficiary thereof and such other information as shall be
necessary to prepare such Letter of Credit. Following receipt of such notice and
prior to the issuance of the requested Letter of Credit or
<PAGE>
51
the applicable amendment, renewal or extension, the Agent shall notify the
Borrower and the Issuing Bank of the amount of the Aggregate Revolving Credit
Exposure and the aggregate principal amount of the outstanding Competitive
Borrowings after giving effect to (i) the issuance, amendment, renewal or
extension of such Letter of Credit, (ii) the issuance or expiration of any other
Letter of Credit that is to be issued or will expire prior to the requested date
of issuance of such Letter of Credit and (iii) the borrowing or repayment of any
Standby Loans or Competitive Loans that (based upon notices delivered to the
Agent by the Borrower) are to be borrowed or repaid prior to the requested date
of issuance of such Letter of Credit. A Letter of Credit shall be issued,
amended, renewed or extended only if, and upon issuance, amendment, renewal or
extension of each Letter of Credit the Borrower shall be deemed to represent and
warrant that, after giving effect to such issuance, amendment, renewal or
extension (A) the L/C Exposure shall not exceed $25,000,000 and (B) the sum of
the Aggregate Revolving Credit Exposure and the aggregate principal amount of
outstanding Competitive Borrowings shall not exceed the Total Commitment.
(c) Expiration Date. Each Letter of Credit shall expire at the close
of business on the earlier of the date one year after the date of the issuance
of such Letter of Credit and the date that is five Business Days prior to the
Maturity Date, unless such Letter of Credit expires by its terms on an earlier
date.
(d) Participations. By the issuance of a Letter of Credit and without
any further action on the part of the Issuing Bank or the Lenders, the Issuing
Bank hereby grants to each Lender, and each such Lender hereby acquires from the
Issuing Bank, a participation in such Letter of Credit equal to such Lender's
Pro Rata Percentage of the aggregate amount available to be drawn under such
Letter of Credit, effective upon the issuance of such Letter of Credit. In
consideration and in furtherance of the foregoing, each Lender hereby absolutely
and unconditionally agrees to pay to the Agent, for the account of the Issuing
Bank, such Lender's Pro Rata Percentage of each L/C Disbursement made by such
Issuing Bank and not reimbursed by the Borrower forthwith on the date due as
provided in Section 2.02(e). Each Lender acknowledges and agrees that its
obligation to acquire participations pursuant to this paragraph in respect of
Letters of Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including
<PAGE>
52
the occurrence and continuance of a Default or an Event of Default or the
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If an Issuing Bank shall make any L/C Disbursement
in respect of a Letter of Credit, the Borrower shall pay to the Agent an amount
equal to such L/C Disbursement not later than two hours after the Borrower shall
have received notice from such Issuing Bank that payment of such draft will be
made, or, if the Borrower shall have received such notice later than 10:00 a.m.,
New York City time, on any Business Day, not later than 10:00 a.m., New York
City time, on the immediately following Business Day.
(f) Obligations Absolute. The Borrower's obligations to reimburse L/C
Disbursements as provided in paragraph (e) above shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement, under any and all circumstances whatsoever,
and irrespective of:
(i) any lack of validity or enforceability of any
Letter of Credit or this Agreement, or any term or
provision therein;
(ii) any amendment or waiver of or any consent to
departure from all or any of the provisions of any
Letter of Credit or this Agreement;
(iii) the existence of any claim, setoff, defense or other right
that the Borrower, any other party guaranteeing, or otherwise obligated
with, the Borrower, any Subsidiary or other Affiliate thereof or any
other person may at any time have against the beneficiary under any
Letter of Credit, any Issuing Bank, the Agent or any Lender or any
other person, whether in connection with this Agreement or any other
related or unrelated agreement or transaction;
(iv) any draft or other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any
respect;
(v) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other
<PAGE>
53
document that does not comply with the terms of such
Letter of Credit; and
(vi) any other act or omission to act or delay of any kind of
any Issuing Bank, the Lenders, the Agent or any other person or any
other event or circumstance whatsoever, whether or not similar to any
of the foregoing, that might, but for the provisions of this Section,
constitute a legal or equitable discharge of the Borrower's obligations
hereunder.
Without limiting the generality of the foregoing, it is expressly
understood and agreed that the absolute and unconditional obligation of the
Borrower hereunder to reimburse L/C Disbursements will not be excused by the
gross negligence or wilful misconduct of any Issuing Bank. However, the
foregoing shall not be construed to excuse any Issuing Bank from liability to
the Borrower to the extent of any damages (as opposed to consequential damages,
claims in respect of which are hereby waived by the Borrower to the extent
permitted by applicable law) suffered by the Borrower that are caused by such
Issuing Bank's negligence or misconduct in determining whether drafts and other
documents presented under a Letter of Credit comply with the terms thereof; it
is understood that each Issuing Bank may accept documents that appear on their
face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary and, in making any
payment under any Letter of Credit (i) an Issuing Bank's exclusive reliance on
the documents presented to it under such Letter of Credit as to any and all
matters set forth therein, including reliance on the amount of any draft
presented under such Letter of Credit, whether or not the amount due to the
beneficiary thereunder equals the amount of such draft and whether or not any
document presented pursuant to such Letter of Credit proves to be insufficient
in any respect, if such document on its face appears to be in order, and whether
or not any other statement or any other document presented pursuant to such
Letter of Credit proves to be forged or invalid or any statement therein proves
to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance
in any immaterial respect of the documents presented under such Letter of Credit
with the terms thereof shall, in each case, be deemed not to constitute
misconduct or negligence of an Issuing Bank.
(g) Disbursement Procedures. The Issuing Bank shall, promptly
following its receipt thereof, examine all
<PAGE>
54
documents purporting to represent a demand for payment under a Letter of Credit.
Such Issuing Bank shall as promptly as possible give telephonic notification,
confirmed by telecopy, to the Agent and the Borrower of such demand for payment
and whether such Issuing Bank has made or will make an L/C Disbursement
thereunder; provided that any failure to give or delay in giving such notice
shall not relieve the Borrower of its obligation to reimburse the Issuing Bank
and the Lenders with respect to any such L/C Disbursement. The Agent shall
promptly give each Lender notice thereof.
(h) Interim Interest. If an Issuing Bank shall make any L/C
Disbursement in respect of a Letter of Credit, then, unless the Borrower shall
reimburse such L/C Disbursement in full on such date, the unpaid amount thereof
shall bear interest for the account of such Issuing Bank, for each day from and
including the date of such L/C Disbursement, to but excluding the earlier of the
date of payment by the Borrower or the date on which interest shall commence to
accrue thereon as provided in Section 2.02(e), at the rate per annum that would
apply to such amount if such amount were an ABR Loan.
(i) Resignation or Removal of an Issuing Bank. An Issuing Bank may
resign at any time by giving 180 days' prior written notice to the Agent, the
Lenders and the Borrower, and may be removed at any time by the Borrower by
notice to the Issuing Bank, the Agent and the Lenders. Subject to the next
succeeding paragraph, upon the acceptance of any appointment as an Issuing Bank
hereunder by a Lender that shall agree to serve as successor Issuing Bank, such
successor shall succeed to and become vested with all the interests, rights and
obligations of the retiring Issuing Bank and the retiring Issuing Bank shall be
discharged from its obligations to issue additional Letters of Credit hereunder.
At the time such removal or resignation shall become effective, the Borrower
shall pay all accrued and unpaid fees pursuant to Section 2.06(c)(ii). The
acceptance of any appointment as an Issuing Bank hereunder by a successor Lender
shall be evidenced by an agreement entered into by such successor, in a form
satisfactory to the Borrower and the Agent, and, from and after the effective
date of such agreement, (i) such successor Lender shall have all the rights and
obligations of the previous Issuing Bank under this Agreement and (ii)
references herein to the term "Issuing Bank" shall be deemed to refer to such
successor or to any previous Issuing Bank, or to such successor and all previous
Issuing Banks,
<PAGE>
55
as the context shall require. After the resignation or removal of an Issuing
Bank hereunder, the retiring Issuing Bank shall remain a party hereto and shall
continue to have all the rights and obligations of an Issuing Bank under this
Agreement with respect to Letters of Credit issued by it prior to such
resignation or removal, but shall not be required to issue additional Letters of
Credit.
(j) Cash Collateralization. If any Event of Default (other than an
Event of Default described in clause (g) or (h) of Article VII) shall occur and
be continuing, the Borrower shall, on the Business Day it receives notice from
the Agent or the Required Lenders (or, if the maturity of the Loans has been
accelerated, Lenders holding participations in outstanding Letters of Credit
representing greater than 50% of the aggregate undrawn amount of all outstanding
Letters of Credit) thereof and of the amount to be deposited, or, if an Event of
Default described in clause (g) or (h) of Article VII shall occur, on the
Business Day of such occurrence, deposit in an account with the Agent, for the
benefit of the Lenders, an amount in cash equal to the L/C Exposure as of such
date. Such deposit shall be held by the Agent as collateral for the payment and
performance of the obligations of the Borrower under this Agreement. The Agent
shall have exclusive dominion and control, including the exclusive right of
withdrawal, over such account. Other than any interest earned on the investment
of such deposits in Permitted Investments, which investments shall be made at
the option and sole discretion of the Agent, such deposits shall not bear
interest. Interest or profits, if any, on such investments shall accumulate in
such account. Moneys in such account shall (i) automatically be applied by the
Agent to reimburse the Issuing Bank for L/C Disbursements for which they have
not been reimbursed, (ii) be held for the satisfaction of the reimbursement
obligations of the Borrower for the L/C Exposure at such time and (iii) if the
maturity of the Loans has been accelerated (but subject to the consent of
Lenders holding participations in outstanding Letters of Credit representing
greater than 50% of the aggregate undrawn amount of all outstanding Letters of
Credit), be applied to satisfy other obligations of the Borrower under this
Agreement. If the Borrower is required to provide an amount of cash collateral
hereunder as a result of the occurrence of an Event of Default, such amount (to
the extent not applied as aforesaid) shall be returned to the Borrower within
three Business Days after all Events of Default have been cured or waived.
<PAGE>
56
SECTION 2.21 Extension of Maturity Date. (a) The Borrower may, by
notice to the Agent (which shall promptly deliver a copy to each of the Lenders)
given not more than 60 days prior to any anniversary of the date hereof while
the Commitments remain in effect, request that the Lenders extend the Maturity
Date for an additional one year period (but in no event beyond the fifth
anniversary of the Closing Date) from the Maturity Date then in effect (the
"Existing Maturity Date"). Each Lender shall, by notice to the Borrower and the
Agent given not later than the 10th Business Day after the date of the
Borrower's notice, advise the Borrower whether or not such Lender agrees to such
extension (and any Lender that does not so advise the Borrower on or before such
day shall be deemed to have advised the Borrower that it will not agree to such
extension).
(b) If (and only if) Lenders holding Commitments that represent at
least 60% of the total Commitments on the 60th day prior to the applicable
anniversary of the date hereof shall have agreed to extend the Existing Maturity
Date (such Lenders being called the "Continuing Lenders"), then (i) the Maturity
Date shall be extended to the first anniversary of the Existing Maturity Date
(provided, that if such date is not a Business Day, then the Maturity Date as so
extended shall be the next following Business Day), and (ii) the Commitment of
each Lender that is not a Continuing Lender shall terminate on the Existing
Maturity Date (with the result that the total Commitments will decrease by the
amount of such Commitment), and all Loans of each such Lender shall become due
and payable, together with all interest accrued thereon and all other amounts
owed to such Lender hereunder, on the Existing Maturity Date.
Notwithstanding the foregoing, no extension of the Maturity Date shall
be effective with respect to any Lender unless, on and as of the Existing
Maturity Date, the conditions set forth in paragraphs (b) and (c) of Section
4.01 shall be satisfied (with all references to a Borrowing being deemed to be
references to such extension) and the Agent shall have received a certificate to
that effect dated the Existing Maturity Date and executed by a Financial Officer
of the Borrower.
<PAGE>
57
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to each of the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrower and the
Subsidiaries (a) is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, (b) has all requisite power
and authority to own its property and assets and to carry on its business as now
conducted and as proposed to be conducted, (c) is qualified to do business in
every jurisdiction where such qualification is required, except where the
failure so to qualify would not result in a Material Adverse Effect, and (d) in
the case of the Borrower, has the power and authority to execute, deliver and
perform its obligations under this Agreement and each other agreement or
instrument contemplated hereby and to borrow and incur other obligations
hereunder.
SECTION 3.02. Authorization. The execution, delivery and performance
by the Borrower of this Agreement and the borrowings and other obligations
hereunder by the Borrower (collectively, the "Transactions") (a) have been duly
authorized by all requisite action, including, if required, stockholder action
on the part of the Borrower, and (b) will not (i) violate (A) any provision of
law, statute, rule or regulation, or of the certificate or articles of
incorporation or other constitutive documents or by-laws of the Borrower or any
Subsidiary, (B) any order of any Governmental Authority or (C) any provision of
any indenture, agreement or other instrument to which the Borrower or any
Subsidiary is a party or by which any of them or any of their property is or may
be bound, (ii) be in conflict with, result in a breach of or constitute (alone
or with notice or lapse of time or both) a default under any such indenture,
agreement or other instrument or (iii) result in the creation or imposition of
any Lien upon or with respect to any property or assets now owned or hereafter
acquired by the Borrower or any Subsidiary.
SECTION 3.03. Enforceability. This Agreement has been duly executed
and delivered by the Borrower and constitutes, and each other Loan Document when
executed and delivered by the Borrower will constitute, a legal, valid and
binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms.
<PAGE>
58
SECTION 3.04. Governmental Approvals. No action, consent or approval
of, registration or filing with or any other action by any Governmental
Authority is or will be required in connection with the Transactions, except
such as have been made or obtained and are in full force and effect.
SECTION 3.05. Financial Statements. The Borrower has heretofore
furnished to the Lenders the combined balance sheets and statements of income
and cash flow of the Borrower and its combined Subsidiaries as of and for the
fiscal year ended May 31, 1996, audited by and accompanied by the opinion of
Arthur Andersen & Co., independent public accountants, and the unaudited
combined balance sheets and statements of income and cash flow of the Borrower
as of and for the fiscal quarter ended August 31, 1996, each certified by the
chief financial officer (or, in the absence of such a position, comptroller) of
the Borrower or Manor Care. Such financial statements present fairly the
financial condition and results of operations of the Borrower and its combined
Subsidiaries as of such dates and for such periods. Such balance sheets and the
notes thereto disclose all material liabilities, direct or contingent, of the
Borrower and its combined subsidiaries as of the dates thereof. Such financial
statements and monthly summaries of pretax income or loss were prepared in
accordance with GAAP applied on a consistent basis.
SECTION 3.06. No Material Adverse Change. As of the date hereof, there
has been no material adverse change in the business, assets, property or
condition, financial or otherwise, of the Borrower and the Subsidiaries, taken
as a whole, since May 31, 1996 (it being understood that changes in general
economic conditions shall not be deemed to constitute such a material adverse
change).
SECTION 3.07. Title to Properties; Possession Under Leases. (a) Each
of the Borrower and the Subsidiaries has good and marketable title to, or valid
leasehold interests in, all its material properties and assets, except for minor
defects in title that do not interfere with its ability to conduct its business
as currently conducted or to utilize such properties and assets for their
intended purposes. All such material properties and assets are free and clear of
Liens, other than Liens expressly permitted by Section 6.02.
(b) Each of the Borrower and the Subsidiaries has complied with all
material obligations under all material
<PAGE>
59
leases to which it is a party and all such leases are in full force and effect.
Each of the Borrower and the Subsidiaries enjoys peaceful and undisturbed
possession under all such material leases.
(c) On and as of the date of the initial Credit Event under this
Agreement, the Borrower will own, or have a valid leasehold interest in, all of
the assets, business and operations currently conducted by the Lodging Business
(as defined in the Distribution Agreement), (other than assets since disposed of
prior to the date of such Borrowing in the ordinary course of business and
assets described on Schedule 3.07).
SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of the date
hereof a list of all Subsidiaries of the Borrower and the percentage ownership
interest of the Borrower therein.
SECTION 3.09. Litigation; Compliance with Laws. (a) There are not any
actions, suits or proceedings at law or in equity or by or before any
Governmental Authority now pending or, to the knowledge of the Borrower,
threatened against or affecting the Borrower or any Subsidiary or any business,
property or rights of any such person (i) which involve any Loan Document or the
Transactions (excluding any such actions, suits or proceedings threatened by the
Lenders or the Agent) or (ii) as to which there is a reasonable probability of
an adverse determination and which, if such probable adverse determination
occurred, could, individually or in the aggregate, reasonably be anticipated to
result in a Material Adverse Effect.
(b) To the best knowledge of the Borrower, neither the Borrower nor
any of the Subsidiaries is in violation of any law, rule or regulation, or in
default with respect to any judgment, writ, injunction or decree of any
Governmental Authority, where such violation or default could reasonably be
anticipated to result in a Material Adverse Effect.
SECTION 3.10. Agreements. (a) Neither the Borrower nor any of the
Subsidiaries is a party to any agreement or instrument or subject to any
corporate or other restriction that has resulted or could reasonably be
anticipated to result in a Material Adverse Effect.
<PAGE>
60
(b) Neither the Borrower nor any of its Subsidiaries is in default in
any manner under any provision of any indenture or other agreement or instrument
evidencing Indebtedness, or any other material agreement or instrument to which
it is a party or by which it or any of its properties or assets are or may be
bound, where such default could reasonably be anticipated to result in a
Material Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. (a) Neither the Borrower
nor any of the Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying Margin Stock.
(b) No part of the proceeds of any Loan or any Letter of Credit will
be used, whether directly or indirectly, and whether immediately, incidentally
or ultimately, (i) to purchase or carry Margin Stock or to extend credit to
others for the purpose of purchasing or carrying Margin Stock or to refund
indebtedness originally incurred for such purpose, or (ii) for any purpose which
entails a violation of, or which is inconsistent with, the provisions of the
Regulations of the Board, including Regulation G, U or X.
SECTION 3.12. Investment Company Act; Public Utility Holding Company
Act. Neither the Borrower nor any Subsidiary is (a) an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940
or (b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935.
SECTION 3.13. Use of Proceeds. The Borrower will use the proceeds of
the Loans and will request the issuance of Letters of Credit only for the
purposes specified in the preamble to this Agreement.
SECTION 3.14. Tax Returns. Each of the Borrower and the Subsidiaries
has filed or caused to be filed all Federal, state, local and foreign tax
returns required to have been filed by it and has paid or caused to be paid all
taxes shown to be due and payable on such returns or on any assessments received
by it, except taxes that are being contested in good faith by appropriate
proceedings and for which the Borrower or such Subsidiary shall have set aside
on its books adequate reserves.
<PAGE>
61
SECTION 3.15. No Material Misstatements. No information, report,
financial statement, exhibit or schedule furnished by or on behalf of the
Borrower to the Agent or any Lender in connection with the negotiation of any
Loan Document or included therein or delivered pursuant thereto contained,
contains or will contain any material misstatement of fact or omitted, omits or
will omit to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were, are or will be made,
not misleading.
SECTION 3.16. Employee Benefit Plans. Each of the Borrower and its
ERISA Affiliates is in compliance in all material respects with the applicable
provisions of ERISA and the regulations and published interpretations
thereunder. No Reportable Event has occurred as to which the Borrower or any
ERISA Affiliate was required to file a report with the PBGC, and the present
value of all benefit liabilities under each Plan (based on those assumptions
used to fund such Plan) did not, as of the last annual valuation date applicable
thereto, exceed by more than $5,000,000 the value of the assets of such Plan.
Neither the Borrower nor any ERISA Affiliate has incurred any Withdrawal
Liability which remains unpaid and that could result in a Material Adverse
Effect. Neither the Borrower nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated within the meaning of Title IV of ERISA, and to the best knowledge of
the Borrower no Multiemployer Plan is reasonably expected to be in
reorganization or to be terminated, where such reorganization or termination has
resulted or could reasonably be expected to result, through increases in the
contributions required to be made to such Plan or otherwise, in a Material
Adverse Effect.
SECTION 3.17. Environmental Matters. The Borrower and each Subsidiary
has complied in all material respects with all Federal, state, local and other
statutes, ordinances, orders, judgments, rulings and regulations relating to
environmental pollution or to environmental regulation or control or to employee
health or safety. Neither the Borrower nor any Subsidiary has received notice of
any failure so to comply. The Borrower's and the Subsid- iaries' facilities do
not manage any hazardous wastes, hazardous substances, hazardous materials,
toxic substances, toxic pollutants or substances similarly denominated, as those
terms or similar terms are used in the Resource Conservation and Recovery Act,
the Comprehensive Environ-
<PAGE>
62
mental Response Compensation and Liability Act, the Hazardous Materials
Transportation Act, the Toxic Substance Control Act, the Clean Air Act, the
Clean Water Act or any other applicable law, in material violation of any such
law or any regulations promulgated pursuant thereto.
SECTION 3.18. Solvency. As of the Effective Date and after giving
effect to the Distribution:
(a) The fair salable value of the assets of the Borrower and
each Significant Subsidiary will exceed the amount that will be
required to be paid on or in respect of the existing debts and other
liabilities of such Borrower or Significant Subsidiary as such debts
and liabilities become absolute and mature.
(b) The assets of the Borrower and each Significant Subsidiary
will not constitute unreasonably small capital for such Borrower or
Significant Subsidiary to carry out its businesses as now conducted and
as proposed to be conducted including the capital needs of such
Borrower or Significant Subsidiary, taking into account the particular
capital requirements of the business conducted by such Borrower or
Significant Subsidiary and projected capital requirements and capital
availability thereof.
(c) Neither the Borrower nor any Significant Subsidiaries
intends to incur debts or liabilities beyond its ability to pay such
debts and liabilities as they mature, taking into account the timing
and amounts of cash to be received by it, and of amounts to be payable
on or in respect of its debts and liabilities. The cash flow of the
Borrower and each Significant Subsidiary, after taking into account all
anticipated uses of the cash of such Borrower or such Significant
Subsidiary, will at all times be sufficient to pay all such amounts on
or in respect of debt and liabilities of such Borrower or such
Significant Subsidiary when such amounts are required to be paid.
SECTION 3.19. Distribution. As of the Effective Date, the Distribution
will have been effected in a manner that is not materially different from the
description thereof in the Form 10 (including but not limited to the tax
consequences of the Distribution) and that will not materially adversely affect
the rights or interests of the Lenders or the creditworthiness of the Borrower.
<PAGE>
63
ARTICLE IV. CONDITIONS OF LENDING
The effectiveness of this Agreement and the obligations of the Lenders
to make Loans and of the Issuing Bank to issue, extend or renew Letters of
Credit hereunder are subject to the satisfaction of the following conditions:
SECTION 4.01. All Credit Events. On the date of each Borrowing,
including on the date of each issuance, extension or renewal of a Letter of
Credit (each event being called a "Credit Event"):
(a) The Agent shall have received a notice of such Borrowing
as required by Section 2.03 or Section 2.04, as applicable (or such
notice shall have been deemed given in accordance with Section 2.04)
including on the date of each issuance, extension or renewal of a
Letter of Credit.
(b) The representations and warranties set forth in Article
III hereof (except (i) in the case of a refinancing of a Standby
Borrowing with a new Standby Borrowing that does not increase the
aggregate principal amount of the Loans of any Lender outstanding, the
representation set forth in Section 3.09(a), and (ii) in the case of a
refinancing of a Competitive Borrowing with a Standby Borrowing that
does not increase the aggregate principal amount of the Loans
outstanding, the representation set forth in Section 3.09(a), provided
that the exception contained in this clause (ii) shall be applicable
only if, on the date of the applicable Competitive Borrowing, the
Borrower satisfied all conditions for the making of a new Standby
Borrowing that did not refinance an existing Standby Borrowing) shall
be true and correct in all material respects on and as of the date of
such Credit Event with the same effect as though made on and as of such
date, except to the extent such representations and warranties
expressly relate to an earlier date.
(c) The Borrower shall be in compliance with all the terms and
provisions set forth herein and in each other Loan Document on its part
to be observed or performed, and at the time of and immediately after
such Credit Event, no Event of Default or Default shall have occurred
and be continuing.
<PAGE>
64
Each Credit Event shall be deemed to constitute a representation and warranty by
the Borrower on the date of such Credit Event as to the matters specified in
paragraphs (b) and (c) of this Section 4.01.
SECTION 4.02. First Credit Event. On the Effective Date:
(a) All legal matters incident to this Agreement and the
borrowings hereunder shall be satisfactory to the Lenders and their
counsel and to the Issuing Bank and to Cravath, Swaine & Moore, counsel
for the Agent.
(b) The Agent shall have received (i) a copy of the
certificate or articles of incorporation (or analogous documents) and
all amendments thereto of the Borrower, certified as of a recent date
by the Secretary of State (or other appropriate Governmental Authority)
of the state (or country) of its organization or such other evidence as
is reasonably satisfactory to the Agent; (ii) a certificate as to the
good standing (or other analogous certification to the extent
available) of the Borrower as of a recent date, from the appropriate
Secretary of State (or other appropriate Governmental Authority) or
such other evidence as is reasonably satisfactory to the Agent; (iii) a
certificate of the Secretary or Assistant Secretary of the Borrower
dated the Effective Date and certifying (A) that attached thereto is a
true and complete copy of the by-laws (or such other analogous
documents to the extent available) of the Borrower as in effect on the
Effective Date and at all times since a date prior to the date of the
resolutions described in clause (B) below, (B) that attached thereto is
a true and complete copy of resolutions duly adopted by the Board of
Directors of the Borrower authorizing the execution, delivery and
performance of the Loan Documents and the borrowings hereunder, and
that such resolutions have not been modified, rescinded or amended and
are in full force and effect, (C) that the certificate or articles of
incorporation (or analogous documents) of the Borrower have not been
amended since the date of the last amendment thereto shown on the
certificate of good standing (or other analogous certification or such
other evidence reasonably satisfactory to the Agent) furnished pursuant
to clause (i) or (ii) above, and (D) as to the incumbency and specimen
signature of each officer executing any
<PAGE>
65
Loan Document or any other document delivered in connection herewith on
behalf of the Borrower; (iv) a certificate of another officer as to the
incumbency and specimen signature of the Secretary or Assistant
Secretary executing the certificate pursuant to (iii) above; and (v)
such other documents as the Lenders or their counsel, the Issuing Bank
or Cravath, Swaine & Moore, counsel for the Agent, may reasonably
request.
(c) The Agent shall have received a certificate of the
Borrower, dated the Effective Date and signed by a Financial Officer of
the Borrower confirming compliance with the conditions precedent set
forth in paragraphs (b) and (c) of Section 4.01.
(d) The Agent shall have received all Fees and other amounts
due and payable on or prior to the Effective Date.
(e) The Agent shall have received a favorable written opinion
of the General Counsel for Manor Care, dated the Effective Date and
addressed to the Lenders and the Issuing Bank, to the effect set forth
in Exhibit D, and the Borrower hereby instructs such counsel to deliver
such opinion to the Agent.
(f) The Agent shall have received evidence of the receipt by
the Borrower of all governmental and third party approvals necessary or
advisable, if any, in connection with the transactions contemplated by
this Agreement.
(g) The Lenders shall have received copies of the
Form 10 (including the Distribution Agreement attached
as an exhibit thereto).
(h) The Distribution shall have been effected and regular way
trading in the common stock of the Borrower shall have commenced on
The New York Stock Exchange.
ARTICLE V. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with each Lender that, so long as
this Agreement shall remain in effect or the principal of or interest on any
Loan, any Fees or any other expenses or amounts payable under any Loan Document
shall be unpaid, and until all Letters of Credit have been
<PAGE>
66
canceled or have expired and all amounts drawn thereunder have been reimbursed
in full, unless the Required Lenders shall otherwise consent in writing, the
Borrower shall, and shall cause each of the Subsidiaries to:
SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause to
be done all things necessary to preserve, renew and keep in full force and
effect its legal existence, except as otherwise expressly permitted under
Section 6.05.
(b) Do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; maintain and operate such business in
substantially the manner in which it is presently conducted and operated (except
for the Distribution); comply in all material respects with all applicable laws,
rules, regulations and orders of any Governmental Authority, whether now in
effect or hereafter enacted; and at all times maintain and preserve all property
material to the conduct of such business and keep such property in good repair,
working order and condition and from time to time make, or cause to be made, all
needful and proper repairs, renewals, additions, improvements and replacements
thereto necessary in order that the business carried on in connection therewith
may be properly conducted at all times.
SECTION 5.02. Insurance. Keep its insurable properties adequately
insured at all times by financially sound and reputable insurers; maintain such
other insurance, to such extent and against such risks, including fire and other
risks insured against by extended coverage, as is customary with companies in
the same or similar businesses, including public liability insurance against
claims for personal injury or death or property damage occurring upon, in, about
or in connection with the use of any properties owned, occupied or controlled by
it; and maintain such other insurance as may be required by law.
SECTION 5.03. Obligations and Taxes. Pay its Indebtedness and other
obligations promptly and in accordance with their terms and pay and discharge
promptly when due all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or in respect of its property,
before the same shall become
<PAGE>
67
delinquent or in default, as well as all lawful and valid claims for labor,
materials and supplies or otherwise which, if unpaid, might give rise to a Lien
upon such properties or any part thereof; provided, however, that such payment
and discharge shall not be required with respect to any such tax, assessment,
charge, levy or claim so long as the validity or amount thereof shall be
contested in good faith by appropriate proceedings and the Borrower or such
Subsidiary shall have set aside on its books adequate reserves with respect
thereto.
SECTION 5.04. Financial Statements, Reports, etc. In the case of the
Borrower, furnish to the Agent and each Lender:
(a) within 100 days after the end of each fiscal year, its
audited consolidated balance sheets and related statements of income
and cash flow, showing the financial condition of the Borrower and its
consolidated subsidiaries as of the close of such fiscal year and the
results of its operations and the operations of such subsidiaries
during such year, all audited by Arthur Andersen & Co. or other
independent public accountants of recognized national standing
acceptable to the Required Lenders and accompanied by an opinion of
such accountants (which shall not be qualified in any material respect)
to the effect that such consolidated financial statements fairly
present the financial condition and results of operations of the
Borrower on a consolidated basis in accordance with GAAP consistently
applied;
(b) within 50 days after the end of each of the first three
fiscal quarters of each fiscal year, its unaudited consolidated balance
sheets and related statements of income and cash flow, showing the
financial condition of the Borrower and its consolidated subsidiaries
as of the close of such fiscal quarter and the results of its
operations and the operations of such subsidiaries during such fiscal
quarter and the then elapsed portion of the fiscal year, all certified
by one of the Financial Officers of the Borrower as fairly presenting
the financial condition and results of operations of the Borrower on a
consolidated basis in accordance with GAAP consistently applied,
subject to normal year-end audit adjustments;
<PAGE>
68
(c) concurrently with any delivery of financial statements
under clause (a) or (b) above, a certificate of the accounting firm or
Financial Officer of the Borrower opining on or certifying such
statements (which certificate, when furnished by an accounting firm,
may be limited to accounting matters and disclaim responsibility for
legal interpretations) (i) certifying that no Event of Default or
Default has occurred or, if such an Event of Default or Default has
occurred, specifying the nature and extent thereof and any corrective
action taken or proposed to be taken with respect thereto and (ii)
setting forth computations in reasonable detail satisfactory to the
Agent demonstrating compliance with the covenants contained in Sections
6.06, 6.13, 6.14 and 6.15;
(d) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials
filed by it with the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of or all the functions of
said Commission, or with any national securities exchange, or
distributed to its shareholders, as the case may be; and
(e) promptly, from time to time, such other information
regarding the operations, business affairs and financial condition of
the Borrower or any Subsidiary, or compliance with the terms of any
Loan Document, as the Agent or any Lender may reasonably request.
SECTION 5.05. Litigation and Other Notices. Furnish to the Agent, the
Issuing Bank and each Lender prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and
extent thereof and the corrective action (if any) proposed to be taken
with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any
Governmental Authority, against the Borrower or any Affiliate thereof
as to which there is a reasonable probability of an adverse
determination and which, if such probable
<PAGE>
69
adverse determination occurred, could reasonably be
anticipated to result in a Material Adverse Effect; and
(c) any development that has resulted in, or could reasonably
be anticipated to result in, a Material Adverse Effect.
SECTION 5.06. ERISA. (a) Comply in all material respects with the
applicable provisions of ERISA and (b) furnish to the Agent and each Lender (i)
as soon as possible, and in any event within 30 days after any Responsible
Officer of the Borrower or any ERISA Affiliate either knows or has reason to
know that any Reportable Event has occurred that alone or together with any
other Reportable Event could reasonably be expected to result in liability of
the Borrower or any ERISA Affiliate to the PBGC in an aggregate amount exceeding
$5,000,000, a statement of a Financial Officer of the Borrower setting forth
details as to such Reportable Event and the action proposed to be taken with
respect thereto, together with a copy of the notice, if any, of such Reportable
Event given to the PBGC, (ii) promptly after receipt thereof, a copy of any
notice the Borrower or any ERISA Affiliate may receive from the PBGC relating to
the intention of the PBGC to terminate any Plan or Plans (other than a Plan
maintained by an ERISA Affiliate which is considered an ERISA Affiliate only
pursuant to subsection (m) or (o) of Section 414 of the Code) or to appoint a
trustee to administer any Plan or Plans, (iii) within 10 days after the due date
for filing with the PBGC pursuant to Section 412(n) of the Code of a notice of
failure to make a required installment or other payment with respect to a Plan,
a statement of a Financial Officer of the Borrower setting forth details as to
such failure and the action proposed to be taken with respect thereto, together
with a copy of such notice given to the PBGC and (iv) promptly and in any event
within 30 days after receipt thereof by the Borrower or any ERISA Affiliate from
the sponsor of a Multiemployer Plan, a copy of each notice received by the
Borrower or any ERISA Affiliate concerning (A) the imposition of Withdrawal
Liability in excess of $500,000 or (B) a determination that a Multiemployer Plan
is, or is expected to be, terminated or in reorganization, in each case within
the meaning of Title IV of ERISA.
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections. Maintain all financial records in accordance with GAAP consistently
applied and upon reasonable notice by any Lender permit any representatives
<PAGE>
70
designated by such Lender, subject to Section 9.17 of this Agreement, to visit
and inspect the financial records and the properties of the Borrower or any
Subsidiary at reasonable times and as often as requested and to make extracts
from and copies of such financial records, and permit any representatives
designated by any Lender to discuss the affairs, finances and condition of the
Borrower or any Subsidiary with the officers thereof and independent accountants
therefor.
SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans and
request the issuance of Letters of Credit only for the purposes set forth in the
preamble to this Agreement.
SECTION 5.09. Ownership. Subject to Section 6.05, maintain Quality
Hotels as a wholly owned Subsidiary, except that shares representing up to 10%
of the shares of any class of the capital stock of Quality Hotels (but not
representing more than 10% of the aggregate ordinary voting power represented by
the issued and outstanding capital stock of Quality Hotels) may be sold to
certain members of management, and maintain Choice Hotels Franchising as a
Subsidiary in which the Borrower owns shares representing not less than 88.9% of
the aggregate ordinary voting power represented by the issued and outstanding
capital stock of Choice Hotels Franchising. Continue to own, directly or
indirectly, the operations of Choice Hotels Franchising substantially as they
exist on the date hereof.
ARTICLE VI. NEGATIVE COVENANTS
The Borrower covenants and agrees with each Lender, the Issuing Bank
and the Agent that, so long as this Agreement shall remain in effect or the
principal of or interest on any Loan, any Fees or any other expenses or amounts
payable under any Loan Document shall be unpaid, and until all Letters of Credit
have been cancelled or have expired and all amounts drawn thereunder have been
reimbursed in full, unless the Required Lenders shall
<PAGE>
71
otherwise consent in writing, the Borrower shall not, and shall not cause or
permit any of the Subsidiaries to:
SECTION 6.01. Indebtedness. Incur, create, assume or permit to exist
any Indebtedness, except (without duplication):
(a) Indebtedness existing on the date hereof and set forth in
Schedule 6.01(a) and any extensions, renewals or replacements of
existing mortgages and Capital Lease Obligations; provided, however,
that (i) the principal amount of any such extension, renewal or
replacement shall not exceed the principal amount of the mortgage or
Capital Lease Obligation so extended, renewed or replaced, (ii) the
mortgage or Capital Lease Obligation so extended, renewed or replaced
shall not be secured by any property or asset that was not already
pledged to secure the existing mortgage or Capital Lease Obligation,
and (iii) such extension, renewal or replacement is not on terms
materially more restrictive to the Borrower or its Subsidiaries or
materially less favorable to the Lenders than the mortgage or Capital
Lease Obligation so extended, renewed or replaced;
(b) Indebtedness represented by the Loan Documents; provided,
however, that Indebtedness consisting of commercial paper of the
Borrower may also be incurred pursuant to this clause (b) to the extent
the sum of such Indebtedness and the aggregate principal amount of
Loans then outstanding do not exceed the Total Commitment at such time
(subject to Section 6.01(n) to the extent such sum is in excess of
$100,000,000).
(c) Indebtedness incurred upon the acquisition of any property
or asset secured by Liens on such property or asset in accordance with
Section 6.02(b); provided, however, that the amount of such
Indebtedness shall not exceed the purchase price of any such property
or asset;
(d) Indebtedness secured by Liens permitted under
Section 6.02(i), 6.02(j) or 6.02(m);
(e) Indebtedness of Subsidiaries existing at the
time they are acquired by the Borrower and not incurred
in contemplation of such acquisition;
<PAGE>
72
(f) other Indebtedness of Subsidiaries not
prohibited by Section 6.09;
(g) Indebtedness of (i) the Borrower to any wholly owned
Subsidiary, Choice Hotels Franchising or Quality Hotels; (ii) any
wholly owned Subsidiary, Choice Hotels Franchising or Quality Hotels to
the Borrower; and (iii) any Subsidiary, Choice Hotels Franchising or
Quality Hotels to any wholly owned Subsidiary (or to Choice Hotels
Franchising or Quality Hotels)(for the purposes of this clause (g),
"wholly owned Subsidiary" includes any wholly owned subsidiary of
Choice Hotels Franchising and/or Quality Hotels, any Subsidiary that
would otherwise constitute a wholly owned Subsidiary but for directors'
qualifying shares or similar matters, and any Subsidiary the only
direct shareholders, members or participants in which are wholly owned
Subsidiaries, Choice Hotels Franchising or Quality Hotels);
(h) Indebtedness represented by notes or letters of credit
issued for the account of the Borrower or any Subsidiary in connection
with insurance policies and in a form substantially similar to the
notes or letters of credit issued for the account of the Borrower or
any Subsidiary set forth in Schedule 6.01(h) issued in connection with
existing insurance policies of the Borrower or such Subsidiary;
(i) Indebtedness represented by utility bonds, performance
bonds, state self insurance bonds and miscellaneous other bonds other
than those existing on the date hereof and listed in Schedule 6.01(a)
(including any extensions, renewals and replacements), the aggregate
principal amount of such Indebtedness at any one time not to exceed
$20,000,000 (subject to Section 6.01(n) to the extent in excess of
$20,000,000);
(j) Indebtedness of the Borrower consisting of Guarantees in
connection with pension and deferred compensation arrangements arising
in connection with the Distribution; provided, however, that the
aggregate amount of such Indebtedness shall not exceed $40,000,000;
(k) Indebtedness consisting of the Manor Care
Note;
<PAGE>
73
(l) Non-Recourse Hotel Indebtedness; provided, that, so long
as the Manor Care Note remains in effect or any principal, interest or
any other expenses or amounts payable thereunder shall be unpaid, the
proceeds of the incurrence of such Non-Recourse Hotel Indebtedness
shall be applied solely to prepay amounts outstanding under the Manor
Care Note;
(m) Indebtedness consisting of Sale and Lease-back
Transactions permitted under Section 6.03; and
(n) other unsecured Indebtedness of the Borrower in an
aggregate principal amount at any one time outstanding not to exceed
$100,000,000; provided, however, that the covenants and events of
default contained in any such Indebtedness with an aggregate principal
amount in excess of $10,000,000 shall not be more restrictive of the
Borrower and its Subsidiaries than those in this Agreement; and
provided further, that the aggregate amount of Guarantees by the
Borrower may not exceed $50,000,000.
SECTION 6.02. Liens. Create, incur, assume or permit to exist any Lien
on any property or assets (including stock or other securities of any person,
including any Subsidiary) now owned or hereafter acquired by it or on any income
or revenues or rights (excluding rights of first refusal) in respect of any
thereof, except (without duplication):
(a) Liens on property or assets of the Borrower and its
Subsidiaries existing on the date hereof and set forth in Schedule
6.02; provided, however, that such Liens shall secure only those
obligations which they secure on the date hereof except as otherwise
permitted hereunder;
(b) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary; provided,
however, that (i) such Lien is not created in contemplation of or in
connection with such acquisition and (ii) such Lien does not apply to
any other property or assets of the Borrower or any Subsidiary;
(c) Liens for taxes not yet due or which are being
contested in compliance with Section 5.03;
<PAGE>
74
(d) carriers', warehousemen's, mechanic's, materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business and securing obligations that are not due or which are being
contested in compliance with Section 5.03;
(e) statutory liens of landlords in respect of
property leased by the Borrower or any Subsidiary;
(f) pledges and deposits made in the ordinary course of
business in compliance with workmen's compensation, unemployment
insurance and other social security laws or regulations;
(g) deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases (other than Capital
Lease Obligations), statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(h) zoning restrictions, easements, rights-of-way,
restrictions on use of real property and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate,
are not substantial in amount and do not materially detract from the
value of the property subject thereto or interfere with the ordinary
conduct of the business of the Borrower or any of its Subsidiaries;
(i) purchase money security interests in real property,
improvements thereto or equipment hereafter acquired (or, in the case
of improvements, constructed) by the Borrower or any Subsidiary and
liens securing refinancings of existing mortgages; provided, however,
that the aggregate principal amount of the Indebtedness secured by such
security interests does not exceed $50,000,000; and provided further,
that (i) such security interests are incurred, and the Indebtedness
secured thereby is created, within 120 days after such acquisition, or
construction or refinancing, (ii) the Indebtedness secured thereby does
not exceed 80% of the fair market value of the subject real property,
improvements or equipment at the time of such acquisition, construction
or refinancing, and (iii) such security interests do not apply to the
subject property or assets of the Borrower or any Subsidiary other than
the purchased property or assets
<PAGE>
75
or the property or assets subject to the mortgage being
refinanced, as the case may be;
(j) mortgages on properties listed on Schedule 6.02(j);
provided, however, that (i) such mortgages do not apply to the property
or assets of the Borrower or any Subsidiary other than the scheduled
properties and (ii) the aggregate principal amount of the Indebtedness
secured by such security interests does not exceed $100,000,000;
(k) Liens created in favor of the Lenders;
(l) Liens securing Indebtedness incurred pursuant
to Sections 6.01(l) or 6.09(ii); and
(m) other Liens to secure Indebtedness of the Borrower or any
Subsidiary; provided, however, that the aggregate principal amount of
the Indebtedness so secured at any time, when added to the net book
value of all property the subject of Sale and Lease-Back Transactions
(other than Sale and Lease-back Transactions referred to in the proviso
to Section 6.03) at such time, does not exceed 15% of Consolidated
Total Assets at such time.
SECTION 6.03. Sale and Lease-Back Transactions. Enter into any Sale
and Lease-Back Transaction unless immediately thereafter the net book value of
all property the subject of Sale and Lease-Back Transactions, when added to the
aggregate principal amount of Indebtedness of the Borrower or any Subsidiary
secured at such time by Liens permitted only under Section 6.02(m), does not
exceed 10% of Consolidated Total Assets at such time; provided, however, that
this Section 6.03 shall be deemed not to apply to any Sale and Lease-back
Transaction entered into by an SPC so long as (i) neither the Borrower nor any
other Subsidiary (x) provides credit support (including any undertaking,
agreement or instrument which would constitute Indebtedness) or has given or
made other assurances regarding repayment, (y) is directly or indirectly
personally liable or (z) is the lessor and (ii) the obligees will have recourse
solely against the assets of such SPC for repayment of the amounts owed in
connection with such Sale and Lease-back Transaction and any fees, indemnities,
expense reimbursements or other amounts of whatever nature accrued or payable in
connection with such Sale and Lease-back Transaction; and provided further,
that, so long as the Manor Care Note remains in
<PAGE>
76
effect or any principal, interest or any other expenses or amounts payable
thereunder shall be unpaid, the proceeds of such Sale and Lease-back Transaction
shall be applied solely to prepay amounts outstanding under the Manor Care Note.
SECTION 6.04. Investments, Loans and Advances. Purchase, hold or
acquire any capital stock, comparable ownership interests, evidences of
indebtedness or other securities of, make or permit to exist any loans or
advances to, or make or permit to exist any investment or any other interest in,
any other person, except:
(a) the investments and guarantees existing on the date hereof
set forth on Schedule 6.04 and investments by the Borrower or any
Subsidiary in the capital stock or comparable ownership interests of
the Subsidiaries, including by means of contributions by any Subsidiary
of Hotel Properties to the Borrower or a Subsidiary;
(b) loans or advances by the Borrower to Subsidiaries or by
Subsidiaries to the Borrower or other Subsidiaries, in each case to the
extent permitted under Section 6.01;
(c) purchases by the Borrower of the capital stock of Quality
Hotels held by Alain Ammar; provided, however, that such purchases
shall not exceed $1,000,000 in the aggregate;
(d) Guarantees permitted under Section 6.01(j);
(e) Permitted Investments; and
(f) other investments, capital contributions, loans and
advances not to exceed at any time 15% of Consolidated Total Assets at
such time.
SECTION 6.05. Mergers and Consolidations. Merge into or consolidate
with any other person, or permit any other person to merge into or consolidate
with it, or sell, transfer, lease or otherwise dispose of (in one transaction or
in a series of transactions) all or substantially all its assets whether now
owned or hereafter acquired, except that:
(a) (i) the Borrower may merge or consolidate with a
Subsidiary or (ii) a Subsidiary may merge or consolidate with the
Borrower so long as the Borrower is the surviving entity;
<PAGE>
77
(b) any Subsidiary may merge or consolidate with
any Subsidiary;
(c) the Borrower or any Subsidiary may merge or consolidate
with another person; provided, however, that:
(i) the Borrower or such Subsidiary is the
surviving entity;
(ii) no Event of Default or event which, with notice or
the passage of time or both, would constitute an Event of
Default exists after giving effect to such merger or
consolidation; and
(iii) the Agent shall receive a certificate signed by a
Financial Officer of the Borrower of the Borrower, confirming
compliance with clause (ii) above;
(d) the Borrower and the Subsidiaries may
consummate the Distribution.
SECTION 6.06. Asset Sales. Consummate any Asset Sale, other than (i)
sales of receivables for collection (and not for financing or factoring
purposes) in the ordinary course of business, (ii) Asset Sales which, when added
to the Proceeds from all other Asset Sales previously consummated in the same
fiscal year, would not exceed 10% of Consolidated Total Assets as of the end of
the preceding fiscal year, and (iii) Asset Sales, in a single transaction or
series of transactions, of Hotel Properties or the SPC; provided that no Asset
Sale referenced in clause (iii) above shall be permitted if (a) a Default has
occurred or would occur after giving effect to such Asset Sale, or (b) so long
as the Manor Care Note remains in effect or any principal, interest or any other
expenses or amounts payable thereunder shall be unpaid, the net proceeds of such
Asset Sale are used other than to prepay (x) amounts outstanding under the Manor
Care Note or (y) Indebtedness secured by Liens on the Hotel Properties that are
the subject of such Asset Sale.
SECTION 6.07. Transactions with Affiliates. Sell or transfer any
property or assets to, or purchase or acquire any property or assets from, or
otherwise engage in any other transactions with, any of its Affiliates, except
that as long as no Default or Event of Default shall have
<PAGE>
78
occurred and be continuing, the Borrower or any Subsidiary may (a) consummate
the Distribution or (b) engage in any of the foregoing transactions (i) in the
ordinary course of business at prices and on terms and conditions not less
favorable to the Borrower or such Subsidiary than could be obtained on an
arm's-length basis from unrelated third parties or (ii) between or among the
Borrower and its wholly owned Subsidiaries.
SECTION 6.08. Business of Borrower and Subsidiaries. Engage at any
time in any business or business activity other than the business currently
conducted by it or related or collateral activities in the hospitality, travel
or franchise-related industries.
SECTION 6.09. Subsidiary Indebtedness. Permit any Subsidiary to
create, incur, assume or permit to exist any Indebtedness except:
(i) any Indebtedness permitted by Section 6.01;
(ii) Indebtedness of any SPC in the form of collateralized
mortgage obligations or obligations under a real estate investment
trust; provided, however, that, in respect of such Indebtedness, (i)
neither the Borrower nor any other Subsidiary (x) provides credit
support (including any undertaking, agreement or instrument which would
constitute Indebtedness) or has given or made other assurances
regarding repayment, (y) is directly or indirectly personally liable or
(z) is the lender and (ii) the obligees will have recourse solely
against the assets of SPC for repayment of the principal of and
interest on such Indebtedness and any fees, indemnities, expense
reimbursements or other amounts of whatever nature accrued or payable
in connection with such Indebtedness; and provided further, that, so
long as the Manor Care Note remains in effect or any principal,
interest or any other expenses or amounts payable thereunder shall be
unpaid, the proceeds of the incurrence of such Indebtedness shall be
applied solely to prepay amounts outstanding under the Manor Care Note;
and
(iii) other Indebtedness of any Subsidiary; provided, however,
that the aggregate principal amount (the "Subsidiary Debt Amount")
outstanding of all such other Indebtedness of all Subsidiaries
(excluding
<PAGE>
79
amounts permitted under clause (i) above) may not exceed 15% of
Consolidated Total Assets at such time; provided further, however,
that, at any time during which the Manor Care Note remains in effect or
any principal, interest or any other expenses or amounts payable
thereunder shall be unpaid, the Subsidiary Debt Amount may not exceed
5% of Consolidated Total Assets at such time.
SECTION 6.10. Agreements. Permit any Subsidiary to enter into any
agreement or incur any obligation the terms of which would impair the ability of
any Subsidiary to pay dividends, to make intercompany loans or advances or to
make distributions (it being agreed that this Section shall not be breached by
any such agreement or obligation binding upon a Subsidiary at the time it
becomes a Subsidiary and not incurred in contemplation of its becoming a
Subsidiary).
SECTION 6.11. Fiscal Year and Accounting Practices. Change its fiscal
year end or accounting practices from those in effect at May 31, 1996, other
than as required by GAAP.
SECTION 6.12. No Further Negative Pledges. Except with respect to
prohibitions against other encumbrances on specific property encumbered to
secure payment of particular Indebtedness (which Indebtedness relates solely to
such specific property, and improvements and accretions thereto, and is
otherwise permitted hereby), enter into any agreement prohibiting the creation
or assumption of any Lien upon the properties or assets of the Borrower or any
Subsidiary, whether now owned or hereafter acquired, or requiring an obligation
to be secured if some other obligation is secured.
SECTION 6.13. Minimum Consolidated Net Worth. In the case of the
Borrower, permit its Consolidated Net Worth at any time to be less than the
greater of (i) the sum of (x) $75,000,000, (y) 50% of the Borrower's
Consolidated Net Income accrued during the period (treated as one accounting
period) commencing on the date of the Distribution and ending on the last day of
the most recent fiscal quarter for which financial statements have been
delivered pursuant to Section 5.04 (which amount shall not include Consolidated
Net Income for any fiscal quarter in which the Borrower's Consolidated Net
Income is negative) and (z) the aggregate net cash proceeds received by the
Borrower from the issuance or sale of its capital stock since the date hereof,
and (ii)
<PAGE>
80
the sum of (W) the amount that is equal to 75% of the Borrower's Consolidated
Net Worth as of the last day of the month in which the Distribution occurs plus
(X) 50% of the Borrower's Consolidated Net Income accrued during the period
(treated as one accounting period) commencing on the date on which the
Distribution occurs, and ending on the last day of the most recent fiscal
quarter for which financial statements have been delivered pursuant to Section
5.04 (which amount shall not include Consolidated Net Income for any fiscal
quarter in which the Borrower's Consolidated Net Income is negative), plus (Y)
the aggregate net cash proceeds received by the Borrower from the issuance or
sale of its capital stock since the date hereof, minus (Z) an amount equal to
the decrease, if any, in the Borrower's Consolidated Net Worth (as measured at
the date of the Distribution) resulting from the sale, transfer or other
disposition of Hotel Properties or an SPC.
SECTION 6.14. Consolidated Leverage Ratio. In the case of the
Borrower, permit the Consolidated Leverage Ratio as of the last day of and for
any period of four fiscal quarters ending during the period from and including
the date hereof through the Maturity Date to exceed (i) 3.75 to 1.0, at any time
during which the Manor Care Note remains in effect or any principal, interest or
any other expenses or amounts payable thereunder shall be unpaid, and (ii) 3.25
to 1.0, at any other time. The Consolidated Leverage Ratio shall be calculated
as of the end of each fiscal quarter based on the period of the four consecutive
fiscal quarters ending on such date.
SECTION 6.15. Consolidated Interest Coverage Ratio. In the case of the
Borrower, permit its Consolidated Interest Coverage Ratio at any time during the
period from and including the date hereof through the Maturity Date to be less
than (i) 3.25 to 1.0, at any time during which the Manor Care Note remains in
effect or any principal, interest or any other expenses or amounts payable
thereunder shall be unpaid, and (ii) 3.75 to 1.0, at any other time. The
Consolidated Interest Coverage Ratio shall be calculated as of the end of each
fiscal quarter based on the period of the four consecutive fiscal quarters
ending on such date.
<PAGE>
81
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening of any of the following events ("Events of
Default"):
(a) any representation or warranty made or deemed made (such
representation or warranty being deemed made as provided in Section
2.20(b) and Section 4.01) in or in connection with any Loan Document or
the borrowings or issuances of Letter of Credit hereunder, or any
representation, warranty, statement or information contained in any
report, certificate, financial statement or other instrument furnished
in connection with or pursuant to any Loan Document, shall prove to
have been false or misleading in any material respect when so made,
deemed made or furnished;
(b) default shall be made in the payment of any principal of
any Loan or the reimbursement with respect to any L/C Disbursement when
and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or by acceleration
thereof or otherwise;
(c) default shall be made in the payment of any interest on
any Loan or any Fee or L/C Disbursement or any other amount (other than
an amount referred to in clause (b) above) due under any Loan Document,
when and as the same shall become due and payable, and such default
shall continue unremedied for a period of five Business Days;
(d) default shall be made in the due observance or
performance by the Borrower of any covenant, condition
or agreement contained in Section 5.01(a) or 5.05 or in
Article VI;
(e) default shall be made in the due observance or performance
by the Borrower of any covenant, condition or agreement contained in
any Loan Document (other than those specified in clauses (b), (c) and
(d) above) and such default shall continue unremedied for a period of
five Business Days after notice thereof from the Agent or any Lender to
the Borrower;
(f) the Borrower or any Subsidiary shall (i) fail
to pay any principal or interest, regardless of amount,
due in respect of any Indebtedness in an aggregate
<PAGE>
82
principal amount in excess of $10,000,000, when and as the same shall
become due and payable, or (ii) fail to observe or perform any other
term, covenant, condition or agreement contained in any agreement or
instrument evidencing or governing any Indebtedness in an aggregate
principal amount in excess of $10,000,000 if the effect of any failure
referred to in this clause (ii) is to cause, or to permit the holder or
holders of such Indebtedness or a trustee on its or their behalf (with
or without the giving of notice, the lapse of time or both) to cause,
such Indebtedness to become due prior to its stated maturity;
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Borrower or any
Subsidiary, or of a substantial part of the property or assets of the
Borrower or a Subsidiary, under Title 11 of the United States Code, as
now constituted or hereafter amended, or any other Federal, state or
foreign bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Subsidiary or
for a substantial part of the property or assets of the Borrower or a
Subsidiary or (iii) the winding-up or liquidation of the Borrower or
any Subsidiary; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any
of the foregoing shall be entered;
(h) the Borrower or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title
11 of the United States Code, as now constituted or hereafter amended,
or any other Federal, state or foreign bankruptcy, insolvency,
receivership or similar law, (ii) consent to the institution of, or
fail to contest in a timely and appropriate manner, any proceeding or
the filing of any petition described in clause (g) above, (iii) apply
for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any
Subsidiary or for a substantial part of the property or assets of the
Borrower or any Subsidiary, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v)
make a general assignment for the benefit of creditors, (vi) become
<PAGE>
83
unable, admit in writing its inability or fail generally to pay its
debts as they become due or (vii) take any action for the purpose of
effecting any of the foregoing;
(i) one or more judgments for the payment of money in an
aggregate amount in excess of $5,000,000 shall be rendered against the
Borrower, any Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 60 consecutive days during which
execution shall not be effectively stayed, or any action shall be
legally taken by a judgment creditor to levy upon assets or properties
of the Borrower or any Subsidiary to enforce any such judgment;
(j) a Reportable Event or Reportable Events, or a failure to
make a required installment or other payment (within the meaning of
Section 412(n)(l) of the Code), shall have occurred with respect to any
Plan or Plans that reasonably could be expected to result in liability
of the Borrower to the PBGC or to a Plan in an aggregate amount
exceeding $5,000,000 and, within 30 days after the reporting of any
such Reportable Event to the Agent or after the receipt by the Agent of
the statement required pursuant to Section 5.06, the Agent shall have
notified the Borrower in writing that (i) the Required Lenders have
made a determination that, on the basis of such Reportable Event or
Reportable Events or the failure to make a required payment, there are
reasonable grounds (A) for the termination of such Plan or Plans by the
PBGC, (B) for the appointment by the appropriate United States District
Court of a trustee to administer such Plan or Plans or (C) for the
imposition of a lien in favor of a Plan and (ii) as a result thereof an
Event of Default exists hereunder; or a trustee shall be appointed by a
United States District Court to administer any such Plan or Plans; or
the PBGC shall institute proceedings to terminate any Plan or Plans;
(k) (i) the Borrower or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan, (ii) the Borrower or
such ERISA Affiliate does not have reasonable grounds for contesting
such Withdrawal Liability or is not in fact contesting such Withdrawal
Liability in a timely and appropriate manner and (iii) the amount of
the
<PAGE>
84
Withdrawal Liability specified in such notice, when aggregated with all
other amounts required to be paid to Multiemployer Plans in connection
with Withdrawal Liabilities (determined as of the date or dates of such
notification), exceeds $5,000,000 or requires payments exceeding
$1,000,000 in any year;
(l) the Borrower or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or is being terminated, within the meaning of
Title IV of ERISA, if solely as a result of such reorganization or
termination the aggregate annual contributions of the Borrower and its
ERISA Affiliates to all Multiemployer Plans that are then in
reorganization or have been or are being terminated have been or will
be increased over the amounts required to be contributed to such
Multiemployer Plans for their most recently completed plan years by an
amount exceeding $1,000,000; or
(m) there shall have occurred a Change in Control;
then, and in every such event (other than an event with respect to the Borrower
described in clause (g) or (h) above), and at any time thereafter during the
continuance of such event, the Agent, at the request of the Required Lenders,
shall, by notice to the Borrower, take any or all of the following actions, at
the same or different times: (i) terminate forthwith the Commitments or L/C
Commitments, (ii) declare the Loans then outstanding to be forthwith due and
payable in whole or in part, whereupon the principal of the Loans so declared to
be due and payable, together with accrued interest thereon and any unpaid
accrued Fees and all other liabilities of the Borrower accrued hereunder and
under any other Loan Document, shall become forthwith due and payable, without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived by the Borrower, anything contained herein or in any
other Loan Document to the contrary notwithstanding and (iii) require cash
collateral as contemplated by Section 2.20(j); and in any event with respect to
the Borrower described in clause (g) or (h) above, the Commitments and L/C
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and any unpaid accrued Fees
and all other liabilities of the Borrower accrued hereunder and under any other
Loan Document, shall automatically become due and payable, and the Borrower
shall automatically be
<PAGE>
85
required to provide cash collateral in respect of outstanding Letters of Credit,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Borrower, anything contained herein or
in any other Loan Document to the contrary notwithstanding.
ARTICLE VIII. THE AGENT
In order to expedite the transactions contemplated by this Agreement,
The Chase Manhattan Bank is hereby appointed to act as Agent on behalf of the
Lenders and the Issuing Bank. Each of the Lenders hereby irrevocably authorizes
the Agent to take such actions on behalf of such Lender or Issuing Bank and to
exercise such powers as are specifically delegated to the Agent by the terms and
provisions hereof, together with such actions and powers as are reasonably
incidental thereto. The Agent is hereby expressly authorized by the Lenders and
the Issuing Bank, without hereby limiting any implied authority, (a) to receive
on behalf of the Lenders and the Issuing Bank all payments of principal of and
interest on the Loans, all payments in respect of L/C Disbursements and all
other amounts due to the Lenders hereunder, and promptly to distribute to each
Lender or Issuing Bank its proper share of each payment so received; (b) to give
notice on behalf of each of the Lenders to the Borrower of any Event of Default
specified in this Agreement of which the Agent has actual knowledge acquired in
connection with its agency hereunder; and (c) to distribute to each Lender
copies of all notices, financial statements and other materials delivered
pursuant to this Agreement as received by the Agent.
Neither the Agent nor any of its directors, officers, employees or
agents shall be liable to the Lenders as such for any action taken or omitted by
any of them except for its or his own gross negligence or wilful misconduct, or
be responsible for any statement, warranty or representation herein or the
contents of any document delivered in connection herewith (other than any
statement, representation or warranty relating to the Agent or relating to the
functions of the Agent hereunder), or be required to ascertain or to make any
inquiry concerning the performance or observance by the Borrower of any of the
terms, conditions, covenants or agreements contained in any Loan Document. The
Agent shall not be responsible to the Lenders for the due execution,
genuineness, validity, enforceability or effectiveness of
<PAGE>
86
this Agreement or any other Loan Documents or other instruments or agreements.
The Agent may deem and treat the payee of any note referred to in Section 2.07
as the owner thereof for all purposes hereof until it shall have received from
the payee of such note notice, given as provided herein, of the transfer
thereof. The Agent shall in all cases be fully protected in acting, or
refraining from acting, in accordance with written instructions signed by the
Required Lenders and, except as otherwise specifically provided herein, such
instructions and any action or inac- tion pursuant thereto shall be binding on
all the Lenders. The Agent shall, in the absence of knowledge to the contrary,
be entitled to rely on any instrument or document believed by it in good faith
to be genuine and correct and to have been signed or sent by the proper person
or persons. Neither the Agent nor any of its directors, officers, employees or
agents shall have any responsibility to the Borrower on account of the failure
of or delay in performance or breach by any Lender or Issuing Bank of any of its
obligations hereunder or to any Lender or Issuing Bank on account of the failure
of or delay in performance or breach by any other Lender or Issuing Bank or the
Borrower of any of their respective obligations hereunder or under any other
Loan Document or in connection herewith or therewith. The Agent may execute any
and all duties hereunder by or through agents or employees and shall be entitled
to rely upon the advice of legal counsel selected by it with respect to all
matters arising hereunder and shall not be liable for any action taken or
suffered in good faith by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Agent shall be under no duty
to take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement unless it shall be requested in writing to do so by
the Required Lenders.
Subject to the appointment and acceptance of a successor Agent as
provided below, the Agent may resign at any time by notifying the Lenders and
the Borrower. Upon any such resignation, the Required Lenders shall have the
right to appoint a successor subject to the written consent of the Borrower to
such successor (which consent will not be unreasonably withheld). If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Agent gives notice
of its resignation, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent
<PAGE>
87
which shall be a bank with offices in New York, New York and London, England,
having a combined capital and surplus of at least $500,000,000 or an Affiliate
of any such bank. Upon the acceptance of any appointment as Agent hereunder by a
successor bank, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent and the retiring
Agent shall be discharged from its duties and obligations hereunder. After the
Agent's resignation hereunder, the provisions of this Article and Section 9.05
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Agent.
With respect to the Loans made by it hereunder, the Agent in its
individual capacity and not as Agent shall have the same rights and powers as
any other Lender and may exercise the same as though it were not the Agent, and
the Agent and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not the Agent.
Each Lender agrees (i) to reimburse the Agent, on demand, in the
amount of its pro rata share (based on its Commitment hereunder or, if the
Commitments shall have been terminated, on its Commitment most recently in
effect) of any expenses incurred for the benefit of the Lenders by the Agent,
including counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Lenders, which the Borrower shall be
obligated to reimburse under Section 9.05 but which shall not have been
reimbursed by the Borrower and (ii) to indemnify and hold harmless the Agent and
any of its directors, officers, employees or agents, on demand, in the amount of
such pro rata share, from and against any and all liabilities, taxes,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against it in its capacity as the Agent or any of
them in any way relating to or arising out of the Agent's role under this
Agreement or any other Loan Document or any action taken or omitted by it or any
of them under this Agreement or any other Loan Document, to the extent the same
shall not have been reimbursed by the Borrower; provided, however, that no
Lender shall be liable to the Agent for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the gross negligence or wilful
<PAGE>
88
misconduct of the Agent or any of its directors, officers,
employees or agents.
Each Lender acknowledges that it has, independently and without
reliance upon the Agent or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agent or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement or any other Loan Document, any related
agreement or any document furnished hereunder or thereunder.
The Co-Agent shall not have any responsibilities or obligations as
Co-Agent under any of the Loan Documents.
ARTICLE IX. MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed or sent by telex, graphic scanning or other telegraphic
communications equipment of the sending party, as follows:
(a) if to the Borrower, at 10750 Columbia Pike, Silver Spring,
MD 20901, Attention of General Counsel, with a copy to the Chief
Financial Officer of the Borrower (Telecopy No. 301-979-4007);
(b) if to the Agent, to it at The Chase Manhattan
Bank, Agent Bank Services Group, Grand Central Tower,
140 East 45th Street, New York, NY 10017. Attention of
Janet Belden, (Telecopy No. (212) 270-0002), with a
copy to The Chase Manhattan Bank, 270 Park Avenue, New
York, New York 10017, Attention of [James S. Ely, III],
(Telecopy No. 212-270-3279) and Chase Manhattan
International Limited, Trinity Tower, 9 Thomas More
Street, London, England E19YT, Attention of Steven
Hurford (Telecopy No. 011 44 71 777 2360); and
(c) if to a Lender, to it at its address (or telecopy number)
set forth in Schedule 2.01 or in the Assignment and Acceptance pursuant
to which such Lender became a party hereto.
<PAGE>
89
Except as otherwise provided in Section 9.15(c), all notices and other
communications given to any party hereto in accordance with the provisions of
this Agreement shall be deemed to have been given on the date of receipt, in
each case delivered, sent or mailed (properly addressed) to such party as
provided in this Section 9.01 or in accordance with the latest unrevoked
direction from such party given in accordance with this Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and the Issuing Bank and shall survive the
making by the Lenders of the Loans and the issuance of Letters of Credit by the
Issuing Bank, regardless of any investigation made by the Lenders or the Issuing
Bank or on their behalf, and shall continue in full force and effect as long as
the principal of or any accrued interest on any Loan or any Fee or any other
amount payable under this Agreement or any other Loan Document is outstanding
and unpaid or any Letter of Credit is outstanding and so long as the Commitments
have not been terminated.
SECTION 9.03. Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower and the Agent and when the
Agent shall have received copies hereof which, when taken together, bear the
signatures of each Lender, and thereafter shall be binding upon and inure to the
benefit of the Borrower, the Agent and each Lender and their respective
successors and assigns, except that the Borrower may not assign or delegate its
rights or obligations hereunder or any interest herein without the prior consent
of all the Lenders.
SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of the Borrower, the Agent, the Issuing Bank or
the Lenders that are contained in this Agreement shall bind and inure to the
benefit of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion
of its interests, rights and
<PAGE>
90
obligations under this Agreement (including all or a portion of its Commitment
and the Loans at the time owing to it); provided, however, that (i) except in
the case of an assignment to a Lender or an Affiliate of such Lender, the
Borrower and the Agent (and, in the case of any assignment of a Commitment, the
Issuing Bank) must give their prior written consent to such assignment (which
consent shall not be unreasonably withheld), (ii) the amount of the Commitment
of the assigning Lender subject to each such assignment (determined as of the
date the Assignment and Acceptance with respect to such assignment is delivered
to the Agent) shall not be less than $5,000,000 and the amount of the Commitment
of such Lender remaining after such assignment shall not be less than $5,000,000
or shall be zero, (iii) the parties to each such assignment shall execute and
deliver to the Agent an Assignment and Acceptance, together with a processing
and recordation fee of $2,000 and (iv) the assignee, if it shall not be a
Lender, shall deliver to the Agent an Administrative Questionnaire. Upon
acceptance and recording pursuant to Section 9.04(e), from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five Business Days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement and (B) the assigning Lender thereunder shall, to
the extent of the interest assigned by such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto (but shall continue to be entitled to the benefits of Sections
2.13, 2.15, 2.19 and 10.05, as well as to any Fees accrued for its account
hereunder and not yet paid)).
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Commitment, and the outstanding balances of its Loans, in each case without
giving effect to assignments thereof which have not become effective, are as set
forth in such Assignment and Acceptance, (ii) except as set forth in (i) above,
such
<PAGE>
91
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement,
any other Loan Document or any other instrument or document furnished pursuant
hereto or the financial condition of the Borrower or any Subsidiary or the
performance or observance by the Borrower or any Subsidiary of any of its
obligations under this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto; (iii) such assignee represents
and warrants that it is legally authorized to enter into such Assignment and
Acceptance; (iv) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 5.04 and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance; (v) such assignee will independently and
without reliance upon the Agent, such assigning Lender or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement; (vi) such assignee appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vii) such assignee agrees that
it will perform in accordance with their terms all the obligations which by the
terms of this Agreement are required to be performed by it as a Lender.
(d) The Agent shall maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Commitment
of, and principal amount of the Loans owing to, each Lender pursuant to the
terms hereof from time to time (the "Register"). The entries in the Register
shall be conclusive in the absence of manifest error and the Borrower, the
Agent, the Issuing Bank and the Lenders may treat each person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement. The Register shall be available for inspection
by the Borrower, the Issuing Bank and any Lender, at any reasonable time and
from time to time upon reasonable prior notice.
<PAGE>
92
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee together with an Administrative
Questionnaire completed in respect of the assignee (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in Section 9.04(b) and, if required, the written consent of the Borrower, the
Issuing Bank and the Agent to such assignment, the Agent shall (i) accept such
Assignment and Acceptance, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the Lenders and the Issuing
Bank.
(f) Each Lender may without the consent of the Borrower, the Issuing
Bank or the Agent sell participations to one or more banks or other entities in
all or a portion of its rights and obligations under this Agreement (including
all or a portion of its Commitment and the Loans owing to it); provided,
however, that (i) such Lender's obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) the participating banks or
other entities shall be entitled to the benefit of the cost protection
provisions contained in Sections 2.13, 2.15 and 2.19 to the same extent as if
they were Lenders but not in excess of those cost protections to which the
Lender from which it purchased its participation would be entitled to under
Sections 2.13, 2.15 and 2.19 and (iv) the Borrower, the Agent, the Issuing Bank
and the other Lenders shall continue to deal solely and directly with such
Lender (and shall not be required to deal with any participating bank or other
entity, notwithstanding any other provision contained herein) in connection with
such Lender's rights and obligations under this Agreement, and such Lender shall
retain the sole right to enforce the obligations of the Borrower relating to the
Loans or L/C Disbursements and to approve any amendment, modification or waiver
of any provision of this Agreement (other than amendments, modifications or
waivers decreasing any fees payable hereunder, increasing the Commitment of such
Lender or decreasing the amount of principal of or the rate at which interest is
payable on the Loans, or extending any scheduled principal payment date or date
fixed for the payment of interest on the Loans).
(g) Any Lender or participant may, in connection with any assignment
or participation or proposed assignment
<PAGE>
93
or participation pursuant to this Section 9.04, disclose to the assignee or
participant or proposed assignee or participant any information relating to the
Borrower furnished to such Lender by or on behalf of the Borrower; provided,
however, that, prior to any such disclosure of information designated by the
Borrower as confidential, each such assignee or participant or proposed assignee
or participant shall execute an agreement whereby such assignee or participant
shall agree to preserve the confidentiality of such confidential information
(subject to those exceptions set forth in Section 9.17). It is understood that
confidential information relating to the Borrower would not ordinarily be
provided in connection with assignments or participations of Competitive Loans.
(h) Any Lender may at any time assign all or any portion of its rights
under this Agreement to a Federal Reserve Bank; provided, however, that no such
assignment shall release a Lender from any of its obligations hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower agrees to pay all
reasonable out-of-pocket expenses incurred by each of the Agent and the Issuing
Bank and its Affiliates in connection with the preparation of this Agreement and
the other Loan Documents and the syndication of the facilities provided for
herein or in connection with any amendments, modifications or waivers of the
provisions hereof or thereof (whether or not the transactions hereby
contemplated shall be consummated) or incurred by the Agent or any Lender in
connection with the enforcement or protection of their rights (as such rights
may relate to the Borrower or any Subsidiary) in connection with this Agreement
and the other Loan Documents or in connection with the Loans made or Letters of
Credit issued hereunder and under the Issuing Bank Agreements, as applicable,
including the reasonable fees and disbursements of Cravath, Swaine & Moore,
counsel for the Agent, any other counsel for the Agent and counsel for any
Lender, including the allocated costs of in-house counsel.
(b) The Borrower agrees to indemnify the Agent, each Lender, and the
Issuing Bank, and their respective directors, officers, employees, agents and
Affiliates (each such person being called an "Indemnitee") against, and to hold
each Indemnitee harmless from, any and all losses, claims, damages, liabilities
and related expenses, including reasonable counsel fees and expenses, incurred
by or
<PAGE>
94
asserted against any Indemnitee arising out of, in any way connected with, or as
a result of (i) the execution or delivery of this Agreement or any other Loan
Document or any agreement or instrument contemplated thereby, the performance by
the parties thereto of their respective obligations thereunder or the
consummation of the Transactions and the other transactions contemplated
thereby, (ii) the use of the proceeds of the Loans or issuance of Letters of
Credit, or (iii) any claim, litigation, investigation or proceeding relating to
any of the foregoing, whether or not any Indem- nitee is a party thereto;
provided, however, that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages, liabilities or
related expenses are determined by a court of competent jurisdiction by final
and nonappealable judgment to have resulted from the negligence or misconduct of
such Indemnitee. Promptly after receipt by an Indemnitee of notice of any
complaint or the commencement of any action or proceeding with respect to which
indemnification is being sought hereunder, such person shall notify the Borrower
of such complaint or of the commencement of such action or proceeding, but
failure so to notify the Borrower will relieve the Borrower from any liability
which such Borrower may have hereunder only if, and to the extent that such
failure results in the forfeiture by such Borrower of substantial rights and
defenses, and shall not in any event relieve such Borrower from any other
obligation or liability that such Borrower may have to any Indemnitee otherwise
than under this Agreement. If the Borrower so elects or is requested by such
Indemnitee, such Borrower shall assume the defense of such action or proceeding,
including the employment of counsel reasonably satisfactory to the Indemnitee
and the payment of the reasonable fees and disbursements of such counsel. In the
event, however, such Indemnitee reasonably determines in its judgment that
having common counsel would present such counsel with a conflict of interest or
if the defendant in, or targets of, any such action or proceeding include both
the Indemnitee and such Borrower, and such Indemnitee reasonably concludes that
there may be legal defenses available to it or other Indemnitees that are
different from or in addition to those available to such Borrower or if such
Borrower fails to assume the defense of the action or proceeding or to employ
counsel reasonably satisfactory to such Indemnitee, in either case in a timely
manner, then the Indemnitee may employ separate counsel to represent or defend
it in any such action or proceeding and such Borrower shall pay the reasonable
fees and disbursements of such counsel. In any action or proceeding
<PAGE>
95
the defense of which the Borrower assumes, the Indemnitee shall have the right
to participate in such litigation and to retain its own counsel at the
Indemnitee's own expense. The Borrower further agrees that it shall not, without
the prior written consent of the Indemnitee, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not an Indemnitee is an actual or potential party to such claim, action, suit
or proceeding) unless such settlement, compromise or consent includes (i) an
unconditional release of each Indemnitee hereunder from all liability arising
out of such claim, action, suit or proceeding or (ii) a covenant not to sue each
Indemnitee, or another similar alternative which is consented to by each
Indemnitee party to such claim, action, suit or proceeding, which covenant not
to sue or other approved alternative has the effect of an unconditional release
of each Indemnitee hereunder from all liability arising out of such claim,
action, suit or proceeding.
(c) The provisions of this Section shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the expiration of any Letter of Credit, the invalidity or
unenforceability of any term or provision of this Agreement or any other Loan
Document, or any investigation made by or on behalf of the Agent or any Lender
or any Issuing Bank. All amounts due under this Section shall be payable on
written demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement held
by such Lender, irrespective of whether or not such Lender shall have made any
demand under this Agreement and although such obligations may be unmatured. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Lender may have.
<PAGE>
96
SECTION 9.07. Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO ITS CONFLICTS OF LAWS PRINCIPLES OR PROVISIONS. EACH LETTER OF
CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS
OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO SUCH LAWS OR RULES ARE
DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993
REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM
CUSTOMS") AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF
THE STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the Agent
or any Lender or any Issuing Bank in exercising any power or right hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies of the Agent,
the Issuing Bank and the Lenders hereunder and under the other Loan Documents
are cumulative and are not exclusive of any rights or remedies which they would
otherwise have. No waiver of any provision of this Agreement or any other Loan
Document or consent to any departure by the Borrower therefrom shall in any
event be effective unless the same shall be permitted by Section 9.08(b), and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. No notice or demand on the Borrower in any case
shall entitle such Borrower to any other or further notice or demand in similar
or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders; provided, however, that
no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal payment date or date for the payment of
any interest on any Loan or any date for reimbursement of an L/C Disbursement,
or Fees, or waive or excuse any such payment or any part thereof, or decrease
the rate of interest on any Loan or L/C Disbursement, without the prior written
consent of each Lender affected thereby, (ii) increase the Commitment or change
the Facility Fees of any Lender without the prior written consent of such
Lender, or (iii) amend or modify the
<PAGE>
97
provisions of Section 2.16, the provisions of this Section, the definition of
the "Required Lenders" or the provisions of Section 9.03, without the prior
written consent of each affected Lender; provided further that no such agreement
shall amend, modify or otherwise affect the rights or duties of the Agent or any
Issuing Bank hereunder without the prior written consent of the Agent or such
Issuing Bank.
(c) Notwithstanding the foregoing, any Issuing Bank Agreement may be
waived, amended or modified by the parties thereto with the written approval of
the Agent if and to the extent that such waiver, amendment or modification would
be permitted in connection with the execution and delivery of a replacement of
such agreement.
SECTION 9.09. Interest Rate Limitation. Notwithstanding anything
herein to the contrary, if at any time the applicable interest rate on any Loan
or participation in any L/C Disbursement, together with all fees and charges
which are treated as interest or such Loan or participation in any L/C
Disbursement under applicable law (collectively the "Charges"), as provided for
herein or in any other document executed in connection herewith, or otherwise
contracted for, charged, received, taken or reserved by any Lender, shall exceed
the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged, taken, received or reserved by such Lender in accordance with
applicable law, together with all Charges payable to such Lender, shall be
limited to the Maximum Rate.
SECTION 9.10. Entire Agreement. This Agreement and the other Loan
Documents and the letter agreement referred to in Section 2.06(b) constitute the
entire contract between the parties relative to the subject matter hereof. Any
previous agreement among the parties with respect to the subject matter hereof
is superseded by this Agreement and the other Loan Documents. Nothing in this
Agreement or in the other Loan Documents, expressed or implied, is intended to
confer upon any party other than the parties hereto and thereto any rights,
remedies, obligations or liabilities under or by reason of this Agreement or the
other Loan Documents.
SECTION 9.11. Waiver of Jury Trial; Punitive Damages. Each party
hereto hereby waives, to the fullest extent permitted by applicable law, (a) any
right it may have to a trial by jury in respect of any litigation directly or
indirectly arising out of, under or in connection with
<PAGE>
98
this Agreement or any of the other Loan Documents and (b) any claims for
punitive damages (to the extent such claims arise from the use of proceeds of
the Loans for the purpose of acquisitions). Each party hereto (i) certifies that
no representative, agent or attorney of any other party has represented,
expressly or otherwise, that such other party would not, in the event of
litigation, seek to enforce the foregoing waiver and (ii) acknowledges that it
and the other parties hereto have been induced to enter into this Agreement and
the other Loan Documents, as applicable, by, among other things, the mutual
waivers and certifications in this Section.
SECTION 9.12. Severability. In the event any one or more of the
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The parties shall endeavor
in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
SECTION 9.13. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 9.03.
SECTION 9.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.15. Jurisdiction; Consent to Service of Process; Judgment
Currency. (a) The Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of any New York State
court or Federal court of the United States of America sitting in New York City,
and any appellate court from any thereof, in any action or proceeding arising
out of or relating to this Agreement or the other Loan Documents, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or
<PAGE>
99
proceeding may be heard and determined in such New York State court or, to the
extent permitted by law, in such Federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that the Agent, any Issuing Bank, or any Lender may otherwise have to
bring any action or proceeding relating to this Agreement or the other Loan
Documents against the Borrower or its properties in the courts of any
jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) The Borrower and each other party hereto consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
(d) If for the purpose of obtaining judgment in any court it is
necessary to convert a sum due hereunder in one currency into another currency,
the parties hereto agree, to the fullest extent that they may effectively do so
under applicable law, that the rate of exchange used shall be the spot rate at
which in accordance with normal banking procedures the first currency could be
purchased in New York City with such other currency by the person obtaining such
judgment on the Business Day preceding that on which final judgment is given.
(e) The parties agree, to the fullest extent that they may effectively
do so under applicable law, that the obligations of the Borrower to make
payments in any currency of the principal of and interest on the Loans of such
Borrower and any other amounts due from such Borrower hereunder to the Agent as
provided in Section 2.16 (i) shall not be discharged or satisfied by any tender,
or any recovery pursuant to any judgment (whether or not entered in
<PAGE>
100
accordance with Section 9.15(d)), in any currency other than the relevant
currency, except to the extent that such tender or recovery shall result in the
actual receipt by the Agent at its relevant office as provided in Section 2.16
on behalf of the Lenders of the full amount of the relevant currency expressed
to be payable in respect of the principal of and interest on the Loans and all
other amounts due hereunder (it being assumed for purposes of this clause (i)
that the Agent will convert any amount tendered or recovered into the relevant
currency on the date of such tender or recovery), (ii) shall be enforceable as
an alternative or additional cause of action for the purpose of recovering in
the relevant currency the amount, if any, by which such actual receipt shall
fall short of the full amount of the relevant currency so expressed to be
payable and (iii) shall not be affected by an unrelated judgment being obtained
for any other sum due under this Agreement.
SECTION 9.16. Confidentiality. Unless otherwise agreed to in writing
by the Borrower, the Issuing Bank, the Agent and each Lender hereby agree to
keep all Proprietary Information (as defined below) confidential and not to
disclose or reveal any Proprietary Information to any person other than the
Agent's or such Lender's directors, officers, employees, Affiliates and agents
and to actual or potential assignees and participants, and then only on a
confidential basis; provided, however, that the Agent, the Issuing Bank or any
Lender may disclose Proprietary Information (a) as required by law, rule,
regulation or judicial process, (b) to its attorneys and accountants, (c) as
requested or required by any state or Federal or foreign authority or examiner
regulating banks or banking or (d) subject to appropriate confidentiality
protections, in any legal proceedings between the Agent, the Issuing Bank or
such Lender and the Borrower arising out of this Agreement. For purposes of this
Agreement, the term "Proprietary Information" shall include all information
about the Borrower or any of their Affiliates which has been furnished by the
Borrower or any of its Affiliates, whether furnished before or after the date
hereof, and regardless of the manner in which it is furnished; provided,
however, that Proprietary Information does not include information which (x) is
or becomes generally available to the public other than as a result of a
disclosure by the Agent, the Issuing Bank or any Lender not permitted by this
Agreement, (y) was obtained or otherwise became available to the Agent, the
Issuing Bank or any Lender on a nonconfidential basis prior to its disclosure to
the Agent, the Issuing Bank or such
<PAGE>
101
Lender by the Borrower or any of its Affiliates or (z) becomes available to the
Agent, the Issuing Bank or any Lender on a nonconfidential basis from a person
other than the Borrower or its Affiliates who, to the best knowledge of the
Agent, the Issuing Bank or such Lender, as the case may be, is not otherwise
bound by a confidentiality agreement with the Borrower or any of its Affiliates,
or is not
<PAGE>
otherwise prohibited from transmitting the information to the Agent, the Issuing
Bank or such Lender.
IN WITNESS WHEREOF, the Borrower, the Agent, the Issuing Bank and the
Lenders have caused this Agreement to be duly executed by their respective
authorized officers as of the day and year first above written.
CHOICE HOTELS HOLDINGS, INC., as a
Borrower,
by
-------------------------------
Name:
Title:
by
-------------------------------
Name:
Title:
<PAGE>
THE CHASE MANHATTAN BANK, individually
and as Issuing Bank and Agent,
by
---------------------------------
Name:
Title:
<PAGE>
NATIONSBANK,
by
---------------------------------
Name:
Title:
<PAGE>
FIRST NATIONAL BANK OF MARYLAND,
by
------------------------------
Name:
Title:
<PAGE>
SANWA BANK,
by
-------------------------------
Name:
Title:
<PAGE>
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES,
by
-----------------------------
Name:
Title:
<PAGE>
CRESTAR BANK,
by
----------------------------
Name:
Title:
<PAGE>
THE BANK OF NOVA SCOTIA,
by
------------------------------
Name:
Title:
<PAGE>
EXHIBIT A-1
FORM OF COMPETITIVE BID REQUEST
The Chase Manhattan Bank, as Agent for
the Lenders referred to below,
140 East 45th Street, 29th Floor
New York, NY 10017-3162
Attention of Ms. Janet Belden
[Date]
Dear Sirs:
The undersigned, Choice Hotels International, Inc. (the "Borrower"),
refers to the Competitive Advance and Multi-Currency Revolving Credit Facility
Agreement dated as of October 30, 1996, among Choice Hotels Holdings, Inc.
(subsequently renamed Choice Hotels International Inc.), the lenders listed in
Schedule 2.01 thereto, Nationsbank, N.A., as co-agent, and The Chase Manhattan
Bank, as agent for the lenders (the "Credit Agreement"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to such
terms in the Credit Agreement. The Borrower hereby gives you notice pursuant to
Section 2.03(a) of the Credit Agreement that it requests a Competitive Borrowing
under the Credit Agreement, and in that connection sets forth below the terms on
which such Competitive Borrowing is requested to be made:
(A) Date of Competitive Borrowing
(which is a Business Day) ______________________
(B) Principal Amount of
Competitive Borrowing(1) ______________________
(C) Interest rate basis(2) ______________________
- --------
1 In Dollars not less than $5,000,000 (and in integral multiples of
$1,000,000) or greater than the Total Commitment then available.
2 Eurodollar Loan or Fixed Rate Loan.
<PAGE>
2
(D) Interest Period and the last
day thereof(3) ______________________
Upon acceptance of any or all of the Loans offered by the Lenders in
response to this request, the Borrower shall be deemed to have represented and
warranted that the conditions to lending specified in Section 4.01(b) and (c) of
the Credit Agreement have been satisfied.
Very truly yours,
by
-------------------------------
Title: [Responsible Officer]
Copy to:
Chase Manhattan International Limited (London),
on behalf of the Agent for the
Lenders referred to below
Trinity Tower
9 Thomas More Street
London, England E19YT
Attention of Mr. Steve Hurford
- --------
3 Which shall be subject to the definition of "Interest Period" and end not
later than the Maturity Date.
<PAGE>
EXHIBIT A-2
FORM OF NOTICE OF COMPETITIVE BID REQUEST
[Name of Bank]
[Address]
New York, NY
Attention:
[Date]
Dear Sirs:
Reference is made to the Competitive Advance and Multi-Currency
Revolving Credit Facility Agreement dated as of October 30, 1996, among Choice
Hotels Holdings, Inc., a Delaware corporation (the "Borrower"), the lenders
listed in Schedule 2.01 thereto, Nationsbank, N.A., as co-agent, and The Chase
Manhattan Bank, as agent for the lenders (the "Credit Agreement"). Capitalized
terms used herein and not otherwise defined herein shall have the meanings
assigned to such terms in the Credit Agreement. The Borrower made a Competitive
Bid Request on , 19 , pursuant to Section 2.03(a) of the Credit Agreement, and
in that connection you are invited to submit a Competitive Bid by
[Date]/[Time].4 Your Competitive Bid must comply with Section 2.03(b) of the
Credit Agreement and the terms set forth below on which the Competitive Bid
Request was made:
(A) Date of Competitive Borrowing ____________________
(B) Principal amount of
Competitive Borrowing ____________________
(C) Interest rate basis ____________________
- --------
4 The Competitive Bid must be received by the Agent (i) in the case of
Eurodollar Loans, not later than 9:30 a.m., New York City time, three
Business Days before a proposed Competitive Borrowing and (ii) in the case
of Fixed Rate Loans, not later than 9:30 a.m., New York City time, on the
Business Day of a proposed Competitive Borrowing.
<PAGE>
2
(D) Interest Period and the
last day thereof ____________________
Very truly yours,
THE CHASE MANHATTAN BANK,
as Agent,
by
---------------------------
Title:
<PAGE>
EXHIBIT A-3
FORM OF COMPETITIVE BID
The Chase Manhattan Bank, as Agent for
the Lenders referred to below,
140 East 45th Street, 29th Floor
New York, NY 10017-3162
Attention of Ms. Janet Belden
[Date]
Dear Sirs:
The undersigned, [Name of Bank], refers to the Competitive Advance and
Multi-Currency Revolving Credit Facility Agreement dated as of October 30, 1996,
among Choice Hotels Holdings, Inc., a Delaware corporation (the "Borrower"), the
lenders listed in Schedule 2.01 thereto, Nationsbank, N.A., as co-agent, and The
Chase Manhattan Bank, as agent for the lenders (the "Credit Agreement").
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement. The undersigned hereby
makes a Competitive Bid pursuant to Section 2.03(b) of the Credit Agreement, in
response to the Competitive Bid Request made by the Borrower on , 19 , and in
that connection sets forth below the terms on which such Competitive Bid is
made:
(A) Principal Amount5 ____________________
(B) Competitive Bid Rate6 ____________________
(C) Interest Period and last
day thereof ____________________
- --------
5 In Dollars not less than $5,000,000 or greater than the requested
Competitive Borrowing and in integral multiples of $1,000,000. Multiple
bids will be accepted by the Agent. 6I.e., LIBO Rate + or - %, in the case
of Eurodollar Loans or %, in the case of Fixed Rate Loans.
<PAGE>
2
The undersigned hereby confirms that it is prepared, subject to the
conditions set forth in the Credit Agreement, to extend credit to the Borrower
upon acceptance by the Borrower of this bid in accordance with Section 2.03(d)
of the Credit Agreement.
Very truly yours,
[NAME OF LENDER,]
by
-----------------------
Title:
Copy to:
Chase Manhattan International Limited (London),
on behalf of the Agent for the
Lenders referred to below
Trinity Tower
9 Thomas More Street
London, England E19YT
Attention of Mr. Steve Hurford
<PAGE>
EXHIBIT A-4
FORM OF COMPETITIVE BID ACCEPT/REJECT LETTER
The Chase Manhattan Bank, as Agent for
the Lenders referred to below,
140 East 45th Street, 29th Floor
New York, NY 10017-3162
Attention of Ms. Janet Belden
[Date]
Dear Sirs:
The undersigned, Choice Hotels International, Inc. (the "Borrower"),
refers to the Competitive Advance and Multi-Currency Revolving Credit Facility
Agreement dated as of October 30, 1996, among Choice Hotels Holdings, Inc. (as
subsequently renamed Choice Hotels International, Inc.), a Delaware corporation
(the "Borrower"), the lenders listed in Schedule 2.01 thereto, Nationsbank,
N.A., as co-agent, and The Chase Manhattan Bank, as agent for the lenders (the
"Credit Agreement").
In accordance with Section 2.03(c) of the Credit Agreement, we have
received a summary of bids in connection with our Competitive Bid Request dated
and in accordance with Section 2.03(d) of the Credit Agreement, we hereby accept
the following bids for maturity on [date]:
Principal Amount Fixed Rate/Margin Lender
$ [%]/[+/-. %]
$
We hereby reject the following bids:
Principal Amount Fixed Rate/Margin Lender
$ [%]/[+/-. %]
$
<PAGE>
2
The $ should be deposited in The Chase Manhattan Bank account number [
] on [date].
Very truly yours,
CHOICE HOTELS INTERNATIONAL,
INC.
by
------------------------
Name:
Title:
Copy to:
Chase Manhattan International Limited (London),
on behalf of the Agent for the
Lenders referred to below
Trinity Tower
9 Thomas More Street
London, England E19YT
Attention of Mr. Steve Hurford
<PAGE>
EXHIBIT A-5
FORM OF STANDBY BORROWING REQUEST
The Chase Manhattan Bank, as Agent for
the Lenders referred to below,
140 East 45th Street, 29th Floor
New York, NY 10017-3162
Attention of Ms. Janet Belden
[Date]
Dear Sirs:
The undersigned, Choice Hotels International, Inc. (the "Borrower"),
refers to the Competitive Advance and Multi-Currency Revolving Credit Facility
Agreement dated as of October 30, 1996, among Choice Hotels Holdings, Inc.
(subsequently renamed Choice Hotels International, Inc.), a Delaware corporation
(the "Borrower"), the lenders listed in Schedule 2.01 thereto, Nationsbank,
N.A., as co-agent, and The Chase Manhattan Bank, as agent for the lenders (the
"Credit Agreement"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
The Borrower hereby gives you notice pursuant to Section 2.04 of the Credit
Agreement that it requests a Standby Borrowing under the Credit Agreement, and
in that connection sets forth below the terms on which such Standby Borrowing is
requested to be made:
(A) Date of Standby Borrowing
(which is a Business Day) ____________________
(B) Principal Amount of
Standby Borrowing(7) ____________________
(C) Interest rate basis(8) ____________________
- --------
7 Not less than $5,000,000 (and in integral multiples of $1,000,000) or
greater than the Total Commitment then available. For Eurocurrency
Borrowings, express in Equivalent Dollar Amount.
8 Eurocurrency Loan, Eurodollar Loan, CD Loan or ABR Loan.
<PAGE>
2
(D) Interest Period and the last
day thereof(9) ____________________
(E) For Eurocurrency Borrowings:
(1) Type of Alternative Currency
(2) Funds are requested to be
disbursed to the following:
Bank Name:
Bank Address:
For Credit to:
Account Name:
Account Number:
Upon acceptance of any or all of the Loans made by the Lenders in
response to this request, the Borrower shall be deemed to have represented and
warranted that the conditions to lending specified in Section 4.01(b) and (c) of
the Credit Agreement have been satisfied.
Very truly yours,
by
--------------------------------
Title: [Responsible Officer]
Copy to:
Chase Manhattan International Limited (London),
on behalf of the Agent for the
Lenders referred to below
Trinity Tower
9 Thomas More Street
London, England E19YT
Attention of Mr. Steve Hurford
- --------
9 Which shall be subject to the definition of "Interest Period" and end not
later than the Maturity Date.
<PAGE>
EXHIBIT B
ADMINISTRATIVE QUESTIONNAIRE
MANOR CARE, INC.
ADMINISTRATIVE QUESTIONNAIRE
Please accurately complete the following information and return via FAX to the
attention of Katherine Wolf at The Chase Manhattan Bank as soon as possible.
Fax Number: 212-622-0122
LEGAL NAME TO APPEAR IN DOCUMENTATION:
- -----------------------------------------------------------------------------
GENERAL INFORMATION - DOMESTIC LENDING OFFICE:
Institution Name:
-----------------------------------------------------
Street Address:
-----------------------------------------------------
City, State, Zip Code:
-----------------------------------------------------
GENERAL INFORMATION - EURODOLLAR LENDING OFFICE:
Institution Name:
-----------------------------------------------------
Street Address:
-----------------------------------------------------
City, State, Zip Code:
-----------------------------------------------------
CONTACTS/NOTIFICATION METHODS:
CREDIT CONTACTS:
Primary Contact:
-----------------------------------------------------
<PAGE>
2
Street Address:
-----------------------------------------------------
City, State, Zip Code:
-----------------------------------------------------
Phone Number:
-----------------------------------------------------
FAX Number:
-----------------------------------------------------
Backup Contact:
-----------------------------------------------------
Street Address:
-----------------------------------------------------
City, State, Zip Code:
-----------------------------------------------------
Phone Number:
-----------------------------------------------------
FAX Number:
-----------------------------------------------------
TAX WITHHOLDING:
Non Resident Alien _____________________Y* _____________________N
*Form 4224 Enclosed
Tax ID Number _____________________________________________________
CONTACTS/NOTIFICATION METHODS:
ADMINISTRATIVE CONTACTS - BORROWINGS, PAYDOWNS, INTEREST, FEES, ETC.
Contact:
-----------------------------------------------------
Street Address:
-----------------------------------------------------
City, State, Zip Code:
-----------------------------------------------------
<PAGE>
3
Phone Number:
----------------------------------------------------------
FAX Number:
----------------------------------------------------------
BID LOAN NOTIFICATION:
ADMINISTRATIVE CONTACTS - BORROWINGS, PAYDOWNS, INTEREST, FEES, ETC.
Contact:
----------------------------------------------------------
Street Address:
----------------------------------------------------------
City, State, Zip Code:
----------------------------------------------------------
Phone Number:
----------------------------------------------------------
FAX Number:
----------------------------------------------------------
PAYMENT INSTRUCTIONS:
Name of Bank where funds are to be transferred:
----------------------------------------------------------------------------
Routing Transit/ABA number of Bank where funds are to be transferred:
----------------------------------------------------------------------------
Name of Account, if applicable:
----------------------------------------------------------------------------
Account Number:
-----------------------------------------------------------------
Additional Information:_____________________________________________________
MAILINGS:
Please specify who should receive financial information:
<PAGE>
4
Name:
------------------------------------------------------------
Street Address:
------------------------------------------------------------
City, State, Zip Code:
------------------------------------------------------------
It is very important that all of the above information is accurately filled in
and returned promptly. If there is someone other than yourself who should
receive this questionnaire, please notify us of their name and FAX number and we
will FAX them a copy of the questionnaire. If you have any questions, please
call me on 212-622-9360.
<PAGE>
EXHIBIT C
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Competitive Advance and Multi-Currency
Revolving Credit Facility Agreement dated as of October 30, 1996, among Choice
Hotels Holdings, Inc., a Delaware corporation (the "Borrower"), the lenders
listed in Schedule 2.01, Nationsbank, N.A., as co-agent, and The Chase Manhattan
Bank, a New York banking corporation, as agent for the Lenders (the "Credit
Agreement"). Terms defined in the Credit Agreement are used herein with the same
meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse, from
the Assignor, effective as of the Effective Date set forth on the reverse
hereof, the interests set forth on the reverse hereof (the "Assigned Interest")
in the Assignor's rights and obligations under the Credit Agreement, including,
without limitation, the interests set forth on the reverse hereof in the
Commitment of the Assignor on the Effective Date and the Competitive Loans and
Standby Loans owing to the Assignor which are outstanding on the Effective Date.
Each of the Assignor and the Assignee hereby makes and agrees to be bound by all
the representations, warranties and agreements set forth in Section 9.04(c) of
the Credit Agreement, a copy of which has been received by each such party. From
and after the Effective Date (i) the Assignee shall be a party to and be bound
by the provisions of the Credit Agreement and, to the extent of the interests
assigned by this Assignment and Acceptance, have the rights and obligations of a
Lender thereunder and under the Loan Documents and (ii) the Assignor shall, to
the extent of the interests assigned by this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
2. This Assignment and Acceptance is being delivered to the Agent
together with (i) if the Assignee is organized under the laws of a jurisdiction
outside the United States, the forms specified in Section 2.19(f) of the Credit
Agreement, duly completed and executed by such Assignee, (ii) if the Assignee is
not already a Lender under the Credit Agreement, an Administrative Questionnaire
in the form of Exhibit B to the Credit Agreement and (iv) a processing and
recordation fee of $2,000.
3. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of New York without reference to its
conflicts of laws principles or provisions.
<PAGE>
2
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment (may not be fewer than 5 Business Days after the
Date of Assignment):
Facility
Principal Amount Assigned Percentage Assigned of Facility and Commitment
Thereunder (as set forth, to at least 8 decimals, as a percentage of the
Facility and the aggregate Commitments of all Lenders thereunder)
ABR Loans:
CD Loans:
Eurocurrency Loans:
Eurodollar Competitive
Loans:
Eurodollar Standby Loans:
Fixed Rate Competitive
Loans:
The terms set forth above and on
the reverse side hereof are hereby
agreed to: Accepted:
, as Assignor THE CHASE MANHATTAN BANK, as agent
- ----------------------------
By: By:
- ---------------------------- -----------------------------
Name: Name:
Title: Title:
, as Assignee [Name of Borrower]
- ----------------------------
By: By:
- ---------------------------- -----------------------------
Name: Name:
Title: Title:
<PAGE>
EXHIBIT D
FORM OF OPINION
OF [ ], ESQ.
GENERAL COUNSEL FOR THE BORROWER
1. The Borrower (a) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, (b)
has all requisite power and authority to own its property and assets and to
carry on its business as now conducted and as proposed to be conducted, (c) is
qualified to do business in every jurisdiction where such qualification is
required, except where the failure so to qualify would not result in a Material
Adverse Effect, and (d) has the power and authority to execute, deliver and
perform its obligations under each of the Loan Documents and each other
agreement or instrument contemplated thereby to which it is or will be a party
and to borrow under the Loan Documents.
2. The execution, delivery and performance by the Borrower of each of
the Loan Documents and the borrowings under the Loan Documents by the Borrower
(collectively, the "Transactions") (a) have been duly authorized by all
requisite action, including, if required, stockholder action on the part of the
Borrower and (b) will not (i) violate (A) to my best knowledge after due
inquiry, any provision of law, statute, rule or regulation, (B) any provision of
the certificate or articles of incorporation or other constitutive documents or
by-laws of the Borrower, (C) to my best knowledge after due inquiry, any order
of any Governmental Authority or (D) to my best knowledge after due inquiry, any
provision of any indenture, agreement or other instrument to which the Borrower
is a party or by which any of them or any of their property is or may be bound,
(ii) to my best knowledge after due inquiry, be in conflict with, result in a
breach of or constitute (alone or with notice or lapse of time or both) a
default under any such indenture, agreement or other instrument or (iii) result
in the creation or imposition of any Lien upon or with respect to any property
or assets now owned or hereafter acquired by the Borrower.
3. The Credit Agreement has been duly executed and delivered by the
Borrower and constitutes, and each of the other Loan Documents when executed and
delivered by the Borrower will constitute, a legal, valid and binding obligation
of the Borrower enforceable against the Borrower in accordance with its terms.
<PAGE>
2
4. No action, consent or approval of, registration or filing with or
any other action by any Governmental Authority is or will be required in
connection with the Transactions, except such as have been made or obtained and
are in full force and effect.
5. (a) There are not any actions, suits or proceedings at law or in
equity or by or before any Governmental Authority now pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or any
business, property or rights of any such person (i) which involve any Loan
Document or the Transactions (excluding any such actions, suits or proceedings
threatened by the Lenders or the Agent) or (ii) as to which there is a
reasonable probability of any adverse determination and which, if such probable
adverse determination occurred, could reasonably be anticipated to result in a
Material Adverse Effect.
(b) The Borrower is not in violation of any law, rule or regulation, or
in default with respect to any judgment, writ, injunction or decree of any
Governmental Authority, where such violation or default could reasonably be
anticipated to result in a Material Adverse Effect.
6. The Borrower is not (a) an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
<PAGE>
EXHIBIT E
[FORM OF ISSUING BANK AGREEMENT]
ISSUING BANK AGREEMENT dated as of [ ] between CHOICE HOTELS
HOLDINGS, INC., a Delaware corporation (the "Borrower"), and the
financial institution identified on Schedule I hereto as the Issuing
Bank (the "Issuing Bank").
Reference is made to the Competitive Advance and Multi-Currency
Revolving Credit Facility Agreement dated as of October 30, 1996 (as amended,
modified, extended or restated from time to time, the "Credit Agreement"), among
the Borrower, the Lenders named therein and The Chase Manhattan Bank, as Agent.
The Borrower and the Issuing Bank desire to enter into this Agreement in order
to provide for Letters of Credit to be issued by the Issuing Bank as
contemplated by the Credit Agreement. Accordingly, the parties hereto agree as
follows:
SECTION 1. Defined Terms. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings specified in the
Credit Agreement. The provisions of Section 1.02 of the Credit Agreement shall
apply to this Agreement as though set forth herein.
SECTION 2. Letter of Credit Commitment. The Issuing Bank hereby agrees
to be an "Issuing Bank" under, and, subject to the terms and conditions hereof
and of the Credit Agreement, to issue Letters of Credit under, the Credit
Agreement; provided, however, that Letters of Credit issued by the Issuing Bank
hereunder shall be subject to the limitations, if any, set forth on Schedule I
hereto, in addition to the limitations set forth in the Credit Agreement.
SECTION 3. Issuance Procedure. In order to request the issuance of a
Letter of Credit hereunder, the Borrower shall hand deliver or telecopy a notice
(specifying the information required by Section 2.20(b) of the Credit Agreement)
to the Issuing Bank, as its address or telecopy number specified on Schedule I
hereto (or such other address or telecopy number as the Issuing Bank may specify
by notice to the Borrower), not later than the time of day (local time at such
address) specified on Schedule I hereto prior to the proposed date of issuance
of such Letter of Credit. A copy of such notice shall be sent, concurrently, by
the Borrower
<PAGE>
2
to the Agent in the manner specified for borrowing requests under the Credit
Agreement. Upon receipt of such notice, the Issuing Bank shall consult the Agent
by telephone in order to determine (i) whether the conditions specified in the
last sentence of Section 2.20(b) of the Credit Agreement will be satisfied in
connection with the issuance of such Letter of Credit and (ii) whether the
requested expiration date for such Letter of Credit complies with Section
2.20(c) of the Credit Agreement.
SECTION 4. Issuing Bank Fees, Interest and Payments. The Issuing Bank
Fees payable to the Issuing Bank in respect of Letters of Credit issued
hereunder are specified on Schedule I hereto (and such fees shall be in addition
to the Issuing Bank's customary documentary and processing charges in connection
with the issuance, amendment or transfer of any Letter of Credit issued
hereunder). Each payment of Issuing Bank Fees payable hereunder shall be made
not later than 12:00 (noon), local time at the place of payment, on the date
when due, in immediately available funds, to the account of the Issuing Bank
specified on Schedule I hereto or to such other Lender specified on Schedule I
hereto (or to such other account of the Issuing Bank as it may specify by notice
to the Borrower).
SECTION 5. Credit Agreement Terms. Notwithstanding any provision hereof
which may be construed to the contrary, it is expressly understood and agreed
that (a) this Agreement is supplemental to the Credit Agreement and is intended
to constitute an Issuing Bank Agreement, as defined therein (and, as such,
constitutes an integral part of the Credit Agreement as though the terms of this
Agreement were set forth in the Credit Agreement), (b) each Letter of Credit
issued hereunder and each and L/C Disbursement made under any such Letter of
Credit shall constitute a "Letter of Credit" and an "L/C Disbursement",
respectively, for all purposes of the Credit Agreement, (c) the Issuing Bank's
commitment to issue Letters of Credit hereunder, and each and every Letter of
Credit requested or issued hereunder, shall in each case be subject to the terms
and conditions and entitled to the benefits of the Credit Agreement and (d) the
terms and conditions of the Credit Agreement are hereby incorporated herein as
though set forth herein in full and shall supersede any contrary provisions
hereof.
SECTION 6. Assignment. The Issuing Bank may not
assign its commitment to issue Letters of Credit hereunder
without the consent of the Borrower and prior notice to the
<PAGE>
3
Agent. In the event of an assignment by the Issuing Bank of all its other
interests, rights and obligations under the Credit Agreement, then the Issuing
Bank's commitment to issue Letters of Credit hereunder shall terminate unless
the Issuing Bank, the Borrower and the Agent otherwise agree.
SECTION 7. Effectiveness. This Agreement shall not be
effective until counterparts hereof executed on behalf of
each of the Borrower and the Issuing Bank have been
delivered to and accepted by the Agent.
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Agreement to be duly executed and delivered as of the date first above
written.
CHOICE HOTELS HOLDINGS, INC.,
by
---------------------
Name:
Title:
[ISSUING BANK],
by
--------------------
Name:
Title:
Accepted:
THE CHASE MANHATTAN BANK, as Agent,
by
---------------------
Name:
Title:
<PAGE>
Schedule I to the
Issuing Bank Agreement
Issuing Bank:
Letters of Credit:
Issuing Bank's Address
and Telecopy Number for
Notice:
Time of Day by which
Notices must be received: A notice requesting the issuance of a Letter of Credit
must be received by the Issuing Bank by 11:00 a.m. not less than three Business
Days prior to the proposed date of issuance.
Issuing Bank Fees: [ ]% per annum on the average daily undrawn amount of each
Letter of Credit issued hereunder, payable on the dates that L/C Participation
Fees are payable pursuant to Section 2.06 of the Credit Agreement.
Issuing Bank's Account
for Payment of Issuing
Bank Fees:
<PAGE>
SCHEDULE 2.01
- ------------------------------------------------------------------------------
Contact Person
and Telephone
Name and Address of Lender and Telecopy Numbers Commitment
- ------------------------------------------------------------------------------
THE CHASE MANHATTAN BANK William J. Caggiano $20,000,000
270 Park Avenue Tel: 212-270-1338
New York, NY 10017 Fax: 212-972-0009
- ------------------------------------------------------------------------------
NATIONSBANK Michael R. Heredia $18,000,000
6610 Rockledge Drive, 6th Floor Tel: 301-571-0724
Bethesda, MD 20817-1876 Fax: 301-571-0719
- ------------------------------------------------------------------------------
CRESTAR BANK Greg Wheeless $14,000,000
1445 New York Avenue, NW Tel: 202-879-6128
Washington, DC 20005 Fax: 202-879-6137
- ------------------------------------------------------------------------------
THE BANK OF NOVA SCOTIA Emily Kaufman $14,000,000
One Liberty Place, 26th Floor Tel: 212-225-5016
New York, NY 10006 Fax: 212-225-5090
- ------------------------------------------------------------------------------
THE SANWA BANK LIMITED Dominic Sorresso $14,000,000
Park Avenue Plaza Tel: 212-339-6194
55 East 52nd Street Fax: 212-754-1304
New York, NY 10055
- ------------------------------------------------------------------------------
DEUTSCHE BANK A.G. Iain P. Stewart $10,000,000
31 West 52nd Street Tel: 212-474-8279
New York, NY 10019 Fax: 212-474-8701
- ------------------------------------------------------------------------------
FIRST NATIONAL BANK OF Michael Stueck $10,000,000
MARYLAND Tel: 410-244-4102
25 South Charles Street, Fax: 410-244-4746
Banc 101-570
Baltimore, MD 21201
==============================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I
Definitions
Page
SECTION 1.01. Defined Terms......................................... 1
SECTION 1.02. Terms Generally....................................... 24
ARTICLE II
The Credits
SECTION 2.01. Commitments........................................... 25
SECTION 2.02. Loans................................................. 26
SECTION 2.03. Competitive Bid Procedure............................. 29
SECTION 2.04. Standby Borrowing Procedure........................... 32
SECTION 2.05. Refinancings.......................................... 33
SECTION 2.06. Fees.................................................. 34
SECTION 2.07. Evidence of Indebtedness;
Repayment of Loans................................ 35
SECTION 2.08. Interest on Loans..................................... 36
SECTION 2.09. Default Interest...................................... 37
SECTION 2.10. Alternate Rate of Interest............................ 37
SECTION 2.11. Termination and Reduction of
Commitments....................................... 38
SECTION 2.12. Prepayment............................................ 39
SECTION 2.13. Reserve Requirements;
Change in Circumstances........................... 40
SECTION 2.14. Change in Legality.................................... 42
SECTION 2.15. Indemnity............................................. 43
SECTION 2.16. Pro Rata Treatment.................................... 44
SECTION 2.17. Sharing of Setoffs.................................... 45
SECTION 2.18. Payments.............................................. 46
SECTION 2.19. Taxes................................................. 46
SECTION 2.20. Letters of Credit..................................... 50
SECTION 2.21. Extension of Maturity Date............................ 56
ARTICLE III
Representations And Warranties
SECTION 3.01. Organization; Powers.................................. 57
SECTION 3.02. Authorization......................................... 57
SECTION 3.03. Enforceability........................................ 57
SECTION 3.04. Governmental Approvals................................ 58
i
<PAGE>
SECTION 3.05. Financial Statements.................................. 58
SECTION 3.06. No Material Adverse Change............................ 58
SECTION 3.07. Title to Properties; .................................
Possession Under Leases............................... 58
SECTION 3.08. Subsidiaries.......................................... 59
SECTION 3.09. Litigation; Compliance with Laws...................... 59
SECTION 3.10. Agreements............................................ 59
SECTION 3.11. Federal Reserve Regulations........................... 60
SECTION 3.12. Investment Borrower Act;
Public Utility Holding Borrower Act............... 60
SECTION 3.13. Use of Proceeds....................................... 60
SECTION 3.14. Tax Returns........................................... 60
SECTION 3.15. No Material Misstatements............................. 61
SECTION 3.16. Employee Benefit Plans................................ 61
SECTION 3.17. Environmental Matters................................. 61
SECTION 3.18. Solvency.............................................. 62
SECTION 3.19. Distribution.......................................... 62
ARTICLE IV
Conditions Of Lending
SECTION 4.01. All Credit Events..................................... 63
SECTION 4.02. First Credit Event.................................... 64
ARTICLE V
Affirmative Covenants
SECTION 5.01. Existence; Businesses and Properties.................. 66
SECTION 5.02. Insurance............................................. 66
SECTION 5.03. Obligations and Taxes................................. 66
SECTION 5.04. Financial Statements, Reports, etc. .................. 67
SECTION 5.05. Litigation and Other Notices.......................... 68
SECTION 5.06. ERISA................................................. 69
SECTION 5.07. Maintaining Records;
Access to Properties
and Inspections................................... 69
SECTION 5.08. Use of Proceeds....................................... 70
SECTION 5.09. Ownership............................................. 70
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness.......................................... 71
SECTION 6.02. Liens................................................. 73
ii
<PAGE>
SECTION 6.03. Sale and Lease-Back Transactions...................... 75
SECTION 6.04. Investments, Loans and Advances....................... 76
SECTION 6.05. Mergers and Consolidations............................ 76
SECTION 6.06. Asset Sales........................................... 77
SECTION 6.07. Transactions with Affiliates.......................... 77
SECTION 6.08. Business of Borrower and Subsidiaries................. 78
SECTION 6.09. Subsidiary Indebtedness............................... 79
SECTION 6.10. Agreements............................................ 79
SECTION 6.11. Fiscal Year Accounting Practices...................... 79
SECTION 6.12. No Further Negative Pledges........................... 79
SECTION 6.11. Minimum Consolidated Net Worth........................ 80
SECTION 6.12. Consolidated Leverage Ratio........................... 80
SECTION 6.13. Consolidated Interest Coverage Ratio.................. 80
ARTICLE VII
Events of Default
ARTICLE VIII
The Agent
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices............................................... 88
SECTION 9.02. Survival of Agreement................................. 89
SECTION 9.03. Binding Effect........................................ 89
SECTION 9.04. Successors and Assigns................................ 89
SECTION 9.05. Expenses; Indemnity................................... 93
SECTION 9.06. Right of Setoff....................................... 95
SECTION 9.07. Applicable Law........................................ 96
SECTION 9.08. Waivers; Amendment.................................... 96
SECTION 9.09. Interest Rate Limitation.............................. 97
SECTION 9.10. Entire Agreement...................................... 97
SECTION 9.11. Waiver of Jury Trial;
Punitive Damages.................................. 97
SECTION 9.12. Severability.......................................... 98
SECTION 9.13. Counterparts.......................................... 98
SECTION 9.14. Headings.............................................. 98
SECTION 9.15. Jurisdiction; Consent to Service
of Process; Judgment Currency..................... 98
SECTION 9.16. Confidentiality....................................... 100
iii
<PAGE>
Exhibit A-1 Form of Competitive Bid Request
Exhibit A-2 Form of Notice of Competitive Bid Request
Exhibit A-3 Form of Competitive Bid
Exhibit A-4 Form of Competitive Bid
Accept/Reject Letter
Exhibit A-5 Form of Standby Borrowing Request
Exhibit B Form of Administrative Questionnaire
Exhibit C Form of Assignment and Acceptance
Exhibit D Form of Opinion of Counsel
Exhibit E Form of Issuing Bank Agreement
Schedule 1.01 Hotel Properties
Schedule 2.01 Commitments
Schedule 3.07 Leased Hotel Properties
Schedule 3.08 Subsidiaries
Schedule 6.01(a Indebtedness
Schedule 6.01(h) Insurance Related Letters of Credit
Promissory Notes Associated with Insurance
Programs
Schedule 6.01(I) Existing Bonds
Schedule 6.02 Liens
Schedule 6.02(j) Permitted Mortgages
Schedule 6.04 Permitted Investments
iv
