<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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): October 15, 1997
----------------
Sunburst Hospitality Corporation
--------------------------------
(Exact Name of Registrant as
Specified in Charter)
Delaware 52-1985619
--------------------------- -------------------
(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification No.)
10770 Columbia Pike
Silver Spring, Maryland 20901
------------------------------
(Address of Principal
Executive Offices)
(301) 979-5000
--------------------------
(Registrant's telephone
number, including area code)
<PAGE>
ITEM 2. Aquisitions or Dispositions of Assets
-------------------------------------
Sunburst Hospitality Corporation, (the "Company" and formerly
known as Choice Hotels International, Inc.), announced on October 16, 1997,
that on October 15, 1997, it had consummated the separation of its franchising
business from its hotel real estate business via a spin-off of its wholly owned
subsidiary, Choice Hotels Franchising, Inc. ("Franchising").
ITEM 5. Other Events
------------
On October 15, 1997, the Company changed its name to "Sunburst
Hospitality Corporation" and Franchising changed its name to "Choice Hotels
International, Inc." Also on that date, the Company effected a one-for-three
reverse stock split of the Company's common stock pursuant to which each three
shares of the Company's common stock were automatically converted into one
share of the Company's common stock.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits
------------------------------------------------------------------
(b) Pro Forma Financial Information
-------------------------------
The pro forma financial information with respect to the Company's
spin-off of Franchising was previously reported by the Company in its 1997 Proxy
Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934 filed
with the Commission on August 15, 1997.
(c) Exhibits
--------
99.01 Distribution Agreement dated as of October 15, 1997 by and
between Choice Hotels International, Inc. (renamed Sunburst Hospitality
Corporation) and Choice Hotels Franchising, Inc. (renamed Choice Hotels
International, Inc.)
99.02 Strategic Alliance Agreement dated as of October 15, 1997
by and between Choice Hotels International, Inc. (renamed Sunburst Hospitality
Corporation) and Choice Hotels Franchising, Inc. (renamed Choice Hotels
International, Inc.)
99.03 Non-Competition Agreement dated as of October 15, 1997 by
and between Choice Hotels International, Inc. (renamed Sunburst Hospitality
Corporation) and Choice Hotels Franchising, Inc. (renamed Choice Hotels
International, Inc.)
99.04 Employee Benefits Allocation Agreement dated as of October
15, 1997 by and between Choice Hotels International, Inc. (renamed Sunburst
Hospitality Corporation) and Choice Hotels Franchising, Inc. (renamed Choice
Hotels International, Inc.)
99.05 Employee Benefits Administration Agreement dated as of
October 15, 1997 by and between Choice Hotels International, Inc. (renamed
Sunburst Hospitality Corporation) and Choice Hotels Franchising, Inc. (renamed
Choice Hotels International, Inc.)
99.06 Tax Administration Agreement dated as of October 15, 1997
by and between Choice Hotels International, Inc. (renamed Sunburst Hospitality
Corporation) and Choice Hotels Franchising, Inc. (renamed Choice Hotels
International, Inc.)
99.07 Tax Sharing Agreement dated as of October 15, 1997 by and
between Choice Hotels International, Inc. (renamed Sunburst Hospitality
Corporation) and Choice Hotels Franchising, Inc. (renamed Choice Hotels
International, Inc.)
99.08 Office Sublease dated as of October 15, 1997 by and between
Choice Hotels International, Inc. (renamed Sunburst Hospitality Corporation) and
Choice Hotels Franchising, Inc. (renamed Choice Hotels International, Inc.)
99.09 Corporate Services Agreement dated as of October 15, 1997
by and between Choice Hotels International, Inc. (renamed Sunburst Hospitality
Corporation) and Choice Hotels Franchising, Inc. (renamed Choice Hotels
International, Inc.)
99.10 Assignment of Employment Agreement dated as of October 15,
1997 by and among Choice Hotels International, Inc. (renamed Sunburst
Hospitality Corporation), Choice Hotels Franchising, Inc. (renamed Choice Hotels
International, Inc.) and William R. Floyd
99.11 Assignment of Employment Agreement dated as of October 15,
1997 by and among Choice Hotels International, Inc. (renamed Sunburst
Hospitality Corporation), Choice Hotels Franchising, Inc. (renamed Choice Hotels
International, Inc.) and Thomas Mirgon
99.12 Omnibus Amendment and Guaranty dated as of October 15, 1997
by and among Choice Hotels International, Inc. (renamed Sunburst Hospitality
Corporation), Choice Hotels Franchising, Inc. (renamed Choice Hotels
International, Inc.) and Manor Care, Inc.
99.13 Pilot Services Agreement dated as of October 15, 1997 by
and between Choice Hotels International, Inc. (renamed Sunburst Hospitality
Corporation) and Manor Care, Inc.
99.14 Time Sharing Agreement dated as of October 15, 1997 by
and between Choice Hotels International, Inc. (renamed Sunburst Hospitality
Corporation) and Manor Care, Inc.
99.15 Amended and Restated Agreement dated as of October 15, 1997
by and between Choice Hotels International, Inc. (renamed Sunburst Hospitality
Corporation) and Stewart Bainum, Jr.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Sunburst Hospitality Corporation
By: /s/ James A. MacCutcheon
-------------------------
James A. MacCutcheon
Executive Vice President,
Chief Financial Officer
and Treasurer
Date: October 29, 1997
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Exhibit 99.01
DISTRIBUTION AGREEMENT
BETWEEN
CHOICE HOTELS INTERNATIONAL, INC.
(TO BE RENAMED SUNBURST HOSPITALITY CORPORATION)
AND
CHOICE HOTELS FRANCHISING, INC.
(TO BE RENAMED CHOICE HOTELS INTERNATIONAL, INC.)
DATED AS OF
OCTOBER 15, 1997
<PAGE>
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this 15th
day of October, 1997 between Choice Hotels International, Inc., a Delaware
corporation, to be renamed Sunburst Hospitality Corporation ("Choice") and
Choice Hotels Franchising, Inc., a Delaware corporation and wholly owned
subsidiary of Choice, to be renamed Choice Hotels International, Inc.
("Franchising").
RECITALS
--------
WHEREAS, Choice, directly and through subsidiaries, (i) acquires,
develops and owns hotels in the United States and engages in activities related
thereto (the "Real Estate Group Business"); (ii) owns and operates 14 hotels in
France, Germany and the United Kingdom and holds an equity ownership interest in
Friendly Hotel PLC, a corporation formed under the laws of the United Kingdom
(the "European Hotel Business") and (iii) franchises hotels under the Clarion,
Quality, Comfort, Sleep Inn, Rodeway, Econo Lodge and Mainstay brands (the
"Choice Brands") and provides various services for its franchisees to strengthen
the Choice Brands, including the operation of a national reservations system for
the Choice Brands and the conducting of advertising and marketing activities on
behalf of franchisees of the Choice Brands (the "Franchising Business").
WHEREAS, Choice conducts the Franchising Business through Franchising
and its Subsidiaries;
WHEREAS, the Board of Directors of Choice has determined that it is in
the best interest of Choice and the stockholders of Choice to separate the
Franchising Business and the European Hotel Business from the Real Estate Group
Business through the distribution (the
2
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"Distribution") to the holders of Choice Common Stock (as defined herein) all of
the outstanding shares of Franchising Common Stock (as defined herein).
WHEREAS, in order to effect such separation, Choice will transfer to
Franchising prior to the Distribution, the capital stock of the European Hotel
Subsidiary and certain other assets and liabilities relating principally to the
Franchising Business and the European Hotel Business, the Franchising Group and
the European Hotel Subsidiary not currently held by Franchising or a Franchising
Group Subsidiary and Franchising will transfer to Choice any assets and
liabilities relating principally to the Real Estate Group Business or the Real
Estate Group Subsidiaries not currently held by Choice or a Real Estate Group
Subsidiary, if any, (the "Preliminary Transfers").
WHEREAS, in connection with the Distribution, Choice and Franchising
have determined that it is necessary and desirable to set forth the
principal corporate transactions required to effect the Distribution, and to set
forth the agreements that will govern certain matters following the
Distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
I.
DEFINITIONS
Section 1.01. General.
-------
As used in this Agreement, the following terms shall have the following
meanings:
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Action: Any action, claim, suit, arbitration, inquiry, proceeding or
------
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
Affiliate: With respect to any specified Person, any other Person
---------
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, such specified Person. For purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the foregoing.
Notwithstanding the foregoing, (i) the Affiliates of Choice shall not include
Franchising, the Franchising Group Subsidiaries or any other Person which
otherwise would be an Affiliate of Choice solely by reason of Choice's ownership
of the capital stock of Franchising prior to the Distribution or the fact that
any officer or director of Choice or any of the Real Estate Subsidiaries shall
also serve as an officer or director of Franchising or any of the Franchising
Group Subsidiaries, and (ii) the Affiliates of Franchising shall not include
Choice, the Real Estate Group Subsidiaries, or any other Person which otherwise
would be an Affiliate of Franchising solely by reason of Choice's ownership of
the capital stock of Franchising prior to the Distribution or the fact that any
officer or director of Franchising or any of the Franchising Group Subsidiaries
shall also serve as an officer or director of Choice or any of the Real Estate
Group Subsidiaries.
Agent: ChaseMellon Shareholder Services, L.L.C., as distribution agent
-----
appointed by Choice to distribute the Franchising Common Stock pursuant to the
Distribution.
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Assumed Financing Obligations: The Financing Obligations of Choice
-----------------------------
and its Subsidiaries which are to be assumed by Franchising in connection with
the Distribution.
Choice Amended Certificate: The Amendment to the Restated Certificate
--------------------------
of Incorporation of Choice for the purpose of, among other things, changing the
name of Choice to "Sunburst Hospitality Corporation."
Choice Board: The Board of Directors of Choice as it is constituted
------------
prior to the Distribution Date.
Choice Common Stock: The common stock, par value $.01 per share, of
-------------------
Choice.
CMBS Properties: The properties set forth on Schedule 1.01(b) hereto.
---------------
Commission: The Securities and Exchange Commission.
----------
Conveyancing and Assumption Instruments: Collectively, the various
---------------------------------------
agreements, instruments and other documents to be entered into to effect the
Preliminary Transfers and the assignment of assets and the assumption of
Liabilities contemplated by this Agreement and the Related Agreements in the
manner contemplated herein and therein.agreements,
Distribution Date: The date determined by the Choice Board as the
-----------------
date on which the Distribution shall be effected, which Distribution Date is
contemplated by the Choice Board to occur on or about October 15, 1997.
Distribution Record Date: The date established by the Choice Board as
------------------------
the date for taking a record of the Holders of record of Choice Common Stock
entitled to participate in the Distribution, which Distribution Record Date has
been established as October 7, 1997,
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subject to the fulfillment on or before such date of certain conditions to the
Distribution as provided in Section 4.02.
Employee Benefits Administration Agreement: The Employee Benefits
------------------------------------------
Administration Agreement between Franchising and Choice, which agreement shall
be entered into on or prior to the Distribution Date in substantially the form
attached hereto as Exhibit A.
Employee Benefits Allocation Agreement: The Employee Benefits and Other
--------------------------------------
Employment Matters Allocation Agreement between Franchising and Choice, which
agreement shall be entered into on or prior to the Distribution Date in
substantially the form attached hereto as Exhibit B.
Exchange Act: The Securities Exchange Act of 1934, as amended.
------------
European Hotel Subsidiary: Quality Hotels of Europe, Inc., a Delaware
-------------------------
corporation and direct, wholly owned subsidiary of Choice.
Financing Obligations: All (i) indebtedness for borrowed money, (ii)
---------------------
obligations evidenced by bonds, notes, debentures or similar instruments, (iii)
obligations under capitalized leases and deferred purchase arrangements, (iv)
reimbursement or other obligations relating to letters of credit or similar
arrangements, and (v) obligations to guarantee, directly or indirectly, any of
the foregoing types of obligations on behalf of others.
Form 10: The Registration Statement on Form 10 under the Exchange Act
-------
with respect to the Franchising Common Stock.
Franchising Board: The Board of Directors of Franchising.
-----------------
Franchising Books and Records: The books and records (including
-----------------------------
computerized records) of Franchising and the Franchising Group Subsidiaries and
any other books and records
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of Choice's Subsidiaries which relate principally to the Franchising Group, are
necessary to conduct the Franchising Group Business, or are required by law to
be retained by Franchising or a Franchising Group Subsidiary, including, without
limitation, (i) all such books and records relating to Franchising Group
Employees, (ii) all files relating to any Action being assumed by Franchising as
part of the Franchising Group Liabilities, and (iii) original corporate minute
books, stock ledgers and certificates and corporate seals, and all licenses,
leases, agreements and filings, relating to Franchising, the Franchising Group
Subsidiaries or the Franchising Group Business (but not including the Choice
Books and Records, provided that Franchising shall have access to, and have the
right to obtain duplicate copies of, the Choice Books and Records which pertain
to the Franchising Group Business in accordance with the provisions of Article
VII).
Franchising Bylaws: The Restated Bylaws of Franchising, substantially
------------------
in the form of Exhibit C, to be in effect at the Distribution Date.
Franchising Certificate: The Restated Certificate of Incorporation of
-----------------------
Franchising, substantially in the form of Exhibit D, to be in effect at the
Distribution Date.
Franchising Common Stock: The common stock, $.01 par value per share,
------------------------
of Franchising.
Franchising Group: Franchising and the Franchising Group Subsidiaries,
-----------------
collectively.
Franchising Group Assets: (i) All outstanding capital stock of the
------------------------
Franchising Group Subsidiaries; (ii) the Franchising Books and Records; (iii)
the rights of an insured under the Shared Policies; (iv) all of the assets
expressly to be retained by, or assigned or allotted to, Franchising or any of
the Franchising Group Subsidiaries under this Agreement or the
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Related Agreements; and (v) any other assets of Choice and its Subsidiaries used
principally in the Franchising Group Business.
Franchising Group Business: The Franchising Business and the European
--------------------------
Hotel Business, each as referenced in the recitals to this Agreement.
Franchising Group Employees: The meaning specified in the Employee
---------------------------
Benefits Allocation Agreement.
Franchising Group Liabilities: (i) All of the Liabilities of the
-----------------------------
Franchising Group under, or to be retained or assumed by Franchising or any of
the Franchising Group Subsidiaries pursuant to, this Agreement or any of the
Related Agreements, including, without limitation, liabilities arising under the
securities or blue sky laws of the United States or of states or other political
subdivisions of the United States in connection with or related to, information
contained in or omitted from the Form 10 or the Proxy Statement; (ii) all
Liabilities constituting accounts payable of Choice and its Subsidiaries as of
the Distribution Date to the extent assumed by Franchising as provided in
Section 3.03; (iii) all Liabilities for payment of outstanding drafts of Choice
and its Subsidiaries existing as of the Distribution Date, other than drafts
drawn on Retained Cash Accounts; (iv) the Assumed Financing Obligations; (v) all
Liabilities of Franchising and the Franchising Group Subsidiaries, other than
Liabilities transferred to Choice or to any Real Estate Group Subsidiary in
connection with the Distribution; and (vi) all other Liabilities arising out of,
or in connection with, any of the Franchising Group Assets or the Franchising
Group Business; provided, however, that the Franchising Group Liabilities shall
-------- -------
not include (i) any Financing Obligations of Choice or the Real Estate Group
Subsidiaries other than the Assumed Financing Obligations; and (ii) all claims,
losses, damages, demands, costs,
8
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expenses or Liabilities for any Tax (which shall be governed by Sections 5.06,
6.05 and 9.02 hereof and by the Tax Sharing Agreement).
Franchising Group Subsidiaries: All Subsidiaries of Franchising and the
------------------------------
European Hotel Subsidiary.
GAAP: Generally accepted accounting principles.
----
Holders: The holders of record of Choice Common Stock as of the
-------
Distribution Record Date.
Insurance Administration: With respect to each Policy (including Self
------------------------
Insurance Programs), shall include, but not be limited to, the accounting for
premiums retrospectively rated premiums, defense costs, adjuster's fees,
indemnity payments, deductibles and retentions as appropriate under the terms
and conditions of each of the Policies; and the reporting to primary and excess
insurance carriers of any losses or claims in accordance with Policy provisions,
and the distribution of Insurance Proceeds as contemplated by this Agreement.
Insurance Proceeds: Those moneys (i) received by an insured from an
------------------
insurance carrier or (ii) paid by an insurance carrier on behalf of the insured,
in either case net of any applicable premium adjustment, retrospectively rated
premium, deductible, retention, cost or reserve paid or held by or for the
benefit of such insured.
Insured Claims: Those Liabilities that, individually or in the
--------------
aggregate, are covered within the terms and conditions of any of the Policies,
whether or not subject to deductibles, co-insurance, uncollectability or
retrospectively rated premium adjustments, but only to the extent that such
Liabilities are within applicable Policy limits, including aggregates.
IRS: The Internal Revenue Service.
---
9
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IRS Ruling: The letter ruling issued by the IRS in response to the
----------
Ruling Request.
Liabilities: Any and all debts, liabilities and obligations, absolute
-----------
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, including all costs and expenses
relating thereto, and including, without limitation, those debts, liabilities
and obligations arising under any law, rule, regulation, Action, threatened
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.
Manor Care: Manor Care, Inc., a Delaware corporation.
----------
Manor Care Agreements: Collectively, the (i) Employee Benefits and
---------------------
Other Matters Allocation Agreement dated as of November 1, 1996 between Choice
and Manor Care; (ii) Employee Benefits Administration Agreement dated as of
November 1, 1996 between Choice and Manor Care; (iii) Corporate Services
Agreement dated as of November 1, 1996 between Choice and Manor Care; (iv) Risk
Management Services Agreement dated as of November 1, 1996 between Choice and
Manor Care; and (v) Gaithersburg Lease Agreement dated as of November 1, 1996
between Choice and Manor Care.
Manor Care Distribution Agreement: The Distribution Agreement dated
---------------------------------
October 31, 1996, by and between Choice and Manor Care.
New Agreements: The Employee Benefits Allocation Agreement; Employee
--------------
Benefits Administration Agreement; Noncompetition Agreement; Strategic Alliance
Agreement; Tax Sharing Agreement; and Tax Administration Agreement.
10
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Noncompetition Agreement: The Noncompetition Agreement between
------------------------
Franchising and Choice, which agreement shall be entered into on or prior to the
Distribution Date in substantially the form attached hereto as Exhibit E.
Omnibus Amendment and Guaranty: The Omnibus Amendment and Guaranty to
------------------------------
be entered into among Manor Care, Choice and Franchising in connection with the
Distribution, substantially in the form attached hereto as Exhibit F.
Person: Any individual, corporation, partnership, association, trust,
------
estate or other entity or organization, including any governmental entity or
authority.
Policies: Insurance policies and insurance contracts of any kind
--------
relating to the Franchising Group Business or the Real Estate Group Business as
conducted prior to the Distribution Date, including without limitation primary
and excess policies, comprehensive general liability policies, automobile,
aircraft, workers' compensation, property insurance, crime insurance and boiler
and machinery insurance policies and self-insurance and captive insurance
company arrangements, together with the rights and benefits thereunder.
Privileged Information: All information as to which Choice,
----------------------
Franchising or any of their Subsidiaries are entitled to assert the protection
of a Privilege.
Privileges: All privileges that may be asserted under applicable law
----------
including, without limitation, privileges arising under or relating to the
attorney-client relationship (including but not limited to the attorney-client
and work product privileges), the accountant-client privilege, and privileges
relating to internal evaluative processes.
11
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Proxy Statement: The Proxy Statement complying with Regulation 14A
---------------
under the Exchange Act dated August 15, 1997 circulated to the stockholders of
Choice for purposes of soliciting proxies approving the Distribution and certain
related matters.
Real Estate Books and Records: The books and records (including
-----------------------------
computerized records) of Choice and the Real Estate Group Subsidiaries and any
other books and records of Choice's Subsidiaries which relate principally to the
Real Estate Group, are necessary to conduct the Real Estate Group Business or
are required by law to be retained by Choice or a Real Estate Group Subsidiary,
including, without limitation, (i) all such books and records relating to Real
Estate Group Employees, (ii) all files relating to any Action being retained or
assumed by Choice as part of the Real Estate Group Liabilities, and (iii)
original corporate minute books, stock ledgers and certificates and corporate
seals, and all licenses, leases, agreements and filings, relating to Choice, the
Real Estate Group Subsidiaries or the Real Estate Group Business (but not
including the Franchising Books and Records, provided that Choice shall have
access to, and shall have the right to obtain duplicate copies of, the
Franchising Books and Records in accordance with the provisions of Article VII).
Real Estate Group: Choice and the Real Estate Group Subsidiaries,
-----------------
collectively.
Real Estate Group Assets: The assets of Choice and the Real Estate
------------------------
Group Subsidiaries including, without limitation, (i) the capital stock of the
Real Estate Group Subsidiaries; (ii) the Choice Books and Records; (iii) the
rights of an insured under the Shared Policies; (iv) all of the assets expressly
to be retained by, or assigned or allocated to, Choice or any of the Real Estate
Group Subsidiaries under this Agreement or the Related Agreements; and (v) any
other assets of Choice and its Subsidiaries not constituting Franchising Group
Assets.
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Real Estate Group Business: The business conducted by the Real Estate
--------------------------
Group, as referenced in the recitals to this Agreement.
Real Estate Group Employees: The meaning specified in the Employee
---------------------------
Benefits Allocation Agreement.
Real Estate Group Liabilities: (i) All of the Liabilities of Choice
-----------------------------
and the Real Estate Group Subsidiaries under, or to be retained or assumed by
Choice or any of the Real Estate Group Subsidiaries pursuant to, this Agreement
or any of the Related Agreements; (ii) any Financing Obligations of Choice and
its Subsidiaries not constituting Franchising Group Liabilities; (iii) all
Liabilities transferred to Choice or the Real Estate Group Subsidiaries in
connection with the Distribution; (iv) all claims, losses, damages, demands,
costs, expenses or Liabilities for any Tax (which shall be governed by Sections
5.06, 6.05 and 9.02 hereof and by the Tax Sharing Agreement); (v) all other
Liabilities arising out of, or in connection with, any of the Real Estate Group
Assets or the Real Estate Group Business; and (vi) to the extent not otherwise
provided for, all other Liabilities of Choice and its Subsidiaries not
constituting Franchising Group Liabilities.
Real Estate Group Subsidiaries: All Subsidiaries of Choice, except
------------------------------
Franchising and the Franchising Group Subsidiaries.
Related Agreements: All of the agreements, instruments, understandings,
------------------
assignments or other arrangements set forth in writing, which are entered into
in connection with the transactions contemplated hereby, including, without
limitation: the Conveyancing and Assumption Instruments, the Omnibus Amendment
and Guaranty, and the New Agreements.
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Retained Cash Accounts: The bank accounts set forth on Schedule 2.07
----------------------
hereto, which accounts are in the name of First Choice Properties Corporation.
Ruling Request: The private letter ruling request filed by Choice
--------------
with the Internal Revenue Service on March 24, 1997, as supplemented and amended
from time to time, with respect to certain tax matters relating to the
Distribution.
Self Insurance Programs: Those self insured programs maintained by
-----------------------
Choice prior to the Distribution for the benefit of its employees, properties
and Franchising businesses, including without limitation such programs that
utilize "fronted policies."
Shared Policies: All Policies, current or past, which are owned or
---------------
maintained by or on behalf of Choice and Franchising or any of their
Subsidiaries or their respective predecessors which relate to the Real Estate
Group Business and the Franchising Group Business, including Self Insurance
Programs.
Strategic Alliance Agreement: The Strategic Alliance Agreement to be
----------------------------
entered into between Choice and Franchising substantially in the form attached
hereto as Exhibit G.
Subsidiary: With respect to any Person, (a) any corporation of which
----------
at least a majority in interest of the outstanding voting stock (having by the
terms thereof voting power under ordinary circumstances to elect a majority of
the directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned or controlled by such Person, by one or more
Subsidiaries of such Person, or by such Person and one or more of its
Subsidiaries, or (b) any corporate or non-corporate entity in which such Person,
one or more Subsidiaries of such Person, or such Person and one or more
14
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Subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, has an ownership interest and which is included in the
consolidated financial reports of such Person consistent with generally accepted
accounting principles.
Tax: The meaning set forth in the Tax Sharing Agreement.
---
Tax Administration Agreement: The Tax Administration Agreement
----------------------------
between Choice and Franchising pursuant to which such parties will provide to
the other certain tax administration services after the consummation of the
Distribution, which agreement shall be entered into on or prior to the
Distribution Date in substantially the form attached hereto as Exhibit H.
Tax Sharing Agreement: The Tax Sharing Agreement between Choice and
---------------------
Franchising pursuant to which such parties will provide for the allocation of
certain tax liabilities after the consummation of the Distribution, which
agreement shall be entered into on or prior to the Distribution Date in
substantially in the form attached hereto as Exhibit I.
Section 1.02. Terms Defined Elsewhere in Agreement.
-------------------------------------
Each of the following terms is defined in the Section set forth opposite such
term:
<TABLE>
<CAPTION>
Term Section
------------------------- --------
<S> <C>
Choice Recitals
Choice Brands Recitals
Choice Indemnitees 5.01
Choice Payables 3.03
Committee 9.14
Consents 4.01
Distribution Recitals
Dispute 9.14
Franchising Recitals
Franchising Business Recitals
Franchising Equity 3.03
Franchising Indemnities 5.01
Indemnifiable Loss 5.01
</TABLE>
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<TABLE>
<CAPTION>
Term Section
------------------------- --------
<S> <C>
Indemnifying Party 5.03
Indemnified Person 5.03
Information 7.02
Insurance Charges 8.03
Preliminary Transfers Recitals
Real Estate Group Recitals
Term Note 3.02
Third -Party Claim 5.04
Transaction Taxes 6.05
</TABLE>
II.
TRANSFER OF ASSETS
------------------
Section 2.01. Transfer of Assets to Franchising.
---------------------------------
Prior to the Distribution Date, Choice shall take or cause to be taken
all actions necessary to cause the transfer, assignment, delivery and conveyance
to Franchising or the Franchising Group Subsidiary designated by Franchising, of
all of Choice's and Real Estate Subsidiaries' right, title and interest in any
Franchising Group Assets held, on or prior to the Distribution Date, by Choice
or any Real Estate Group Subsidiary.
Section 2.02. Transfers of Assets from Franchising Group Subsidiaries
-------------------------------------------------------
to Choice or Real Estate Group Subsidiaries.
- -------------------------------------------
Prior to the Distribution Date, Franchising shall take or cause to be
taken all actions necessary to cause the transfer, assignment, delivery and
conveyance to Choice or the Real Estate Subsidiary designated by Choice, of all
of Franchising's and the Franchising Group Subsidiaries' right, title and
interest in any Real Estate Group Assets held, on or prior to the Distribution
Date, by Franchising or any of the Franchising Group Subsidiaries.
Section 2.03. Transfers Not Effected Prior to the Distribution.
------------------------------------------------
To the extent that any transfers contemplated by this Article II shall
not have been fully effected on the Distribution Date, the parties shall
cooperate to effect such transfers as
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promptly as shall be practicable following the Distribution Date. Nothing herein
shall be deemed to require the transfer of any assets or the assumption of any
Liabilities which by their terms or operation of law cannot betransferred or
assumed; provided, however, that Choice and Franchising 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
contemplated to be transferred pursuant to this Article II. In the event that
any such transfer of assets or Liabilities has not been consummated effective 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. The
parties agree that, except as set forth in this Section 2.03, 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 rights,
powers and privileges incidental thereto, and shall be deemed to have assumed in
accordance with the terms of this Agreement all of the Liabilities, and all
duties, obligations and responsibilities incidental thereto, which such party is
entitled to acquire or required to assume pursuant to the terms of this
Agreement.
17
<PAGE>
Section 2.04. Cooperation Re: Assets.
-----------------------
In the case that at any time after the Distribution Date, Franchising
reasonably determines that any of the Real Estate Group Assets are essential for
the conduct of the Franchising Group Business, or Choice reasonably determines
that any of the Franchising Group Assets are essential for the conduct of the
Real Estate Group Business, and the nature of such assets makes it impracticable
for Franchising or Choice, as the case may be, to obtain substitute assets or to
make alternative arrangements on commercially reasonable terms to conduct their
respective businesses, and reasonable provisions for the use thereof are not
already included in the Related Agreements, then Franchising (with respect to
the Franchising Group Assets) and Choice (with respect to the Real Estate Group
Assets) shall cooperate to make such assets available to the other party on
commercially reasonable terms, as may be reasonably required for such party to
maintain normal business operations. However, (i) the usage of such assets by
the other party shall not materially interfere with the use of such assets by
the party holding such assets, and (ii) such assets shall be required to be made
available only until such time as the other party may reasonably obtain
substitute assets or make alternative arrangements on commercially reasonable
terms to permit it to maintain normal business operations.
Section 2.05. No Representations or Warranties; Consents.
------------------------------------------
Each of the parties hereto understands and agrees that no party hereto
is, in this Agreement, in any Related Agreement, or otherwise, representing or
warranting in any way (i) as to the value or freedom from encumbrance of, or any
other matter concerning, any assets of such party or (ii) as to the legal
sufficiency to convey title to any asset transferred pursuant to this Agreement
or any Related Agreement. It is also agreed and understood that there are no
18
<PAGE>
warranties, express or implied, as to the merchantability or fitness of any of
the assets either transferred to or retained by the parties, as the case may be,
and all such assets shall be "as is, where is" and "with all faults" provided,
however, that the absence of warranties shall have no effect upon the allocation
of Liabilities under this Agreement. Each party hereto understands and agrees
that no party hereto is, in this Agreement, in any Related 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,
any Related Agreement or otherwise will satisfy the provisions of any or all
applicable laws or 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 which may be
reasonably required for the consummation of the transactions contemplated by
this Agreement and the Related Agreements, and shall take all such further
reasonable actions as shall be reasonably necessary to preserve for each of the
Franchising Group and the Real Estate Group, to the greatest extent feasible,
the economic and operational benefits of the allocation of assets and
liabilities 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.
Section 2.06. Conveyancing and Assumption Instruments.
---------------------------------------
In connection with the Preliminary Transfers described in Article II and
Article III hereof, and the assignment of assets and the assumption of
Liabilities contemplated by any
19
<PAGE>
Related Agreements, the parties shall execute, or cause to be executed by the
appropriate entities, the Conveyancing and Assumption Instruments in such forms
as the parties shall reasonably agree. The 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 legal
entities involved and, to the extent required by applicable law, by notation on
public registries.
Section 2.07. Cash Allocation; Cash Management.
--------------------------------
(a) Cash Allocation on the Distribution Date. The allocation between
----------------------------------------
Choice and Franchising of all domestic and international cash bank balances,
short-term investments and outstanding checks and drafts of Choice and its
Subsidiaries recorded per the books of Choice 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, depository accounts, other than the
Retained Cash Accounts, as of the close of business on the
Distribution Date shall be remitted to Franchising; and
(ii) all cash in, and deposits of cash, checks, drafts or
short-term investments made to the Retained Cash Accounts, including
deposits held with respect to any Real Estate Group Asset, as of the
close of business on the Distribution Date shall remain with Choice
and the Real Estate Group Subsidiaries.
(b) Cash Management After the Distribution Date. All petty cash,
-------------------------------------------
depository and disbursement accounts of Choice (other than the Retained Cash
Accounts) on the
20
<PAGE>
Distribution Date shall be transferred to Franchising after the allocations are
made pursuant to this Section 2.07. Choice shall retain the Retained Cash
Accounts and shall establish and maintain a separate cash management system and
accounting records with respect to the Real Estate Group 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
Franchising Group Business and the Real Estate Group Business, including, but
not limited to, the administration of accounts payable and accounts receivable,
will be conducted in the ordinary course of business and consistent with past
practice prior the Distribution Date.
(d) For purposes of this Section 2.07, any Dispute shall be resolved in
accordance with Section 9.14 hereof.
Section 2.08. Agreements Between Choice and Franchising.
-----------------------------------------
On or prior to the Distribution Date, Choice and Franchising shall
enter into the New Agreements.
Section 2.09. Agreements Between Choice and/or Franchising and
------------------------------------------------
Manor Care.
- ----------
On or prior to the Distribution Date, Choice and/or Franchising and
Manor Care, as appropriate, shall enter into the Omnibus Amendment and Guaranty.
III.
ASSUMPTION AND SATISFACTION OF LIABILITIES
------------------------------------------
Section 3.01. Assumption and Satisfaction of Liabilities.
------------------------------------------
Except as set forth in one or more of the Related Agreements, effective
as of and after the Distribution Date, (a) Franchising shall, and/or shall cause
the Franchising Group Subsidiaries to, assume, pay, perform and discharge in due
course all of the Franchising Group
21
<PAGE>
Liabilities, and (b) Choice shall, and/or shall cause the Real Estate Group
Subsidiaries to, assume, pay, perform and discharge in due course all of the
Real Estate Group Liabilities.
Section 3.02 Intercompany Indebtedness.
-------------------------
On the Distribution Date, Franchising will loan to Choice $115,000,000
which will be evidenced by a subordinated note (the "Term Note") from Choice to
Franchising with an aggregate principal amount of $115,000,000 and a maturity
date of five years. The Term Note will accrue interest at a rate equal to 500
basis points above the interest rate on a 5-year U.S. Treasury Note, with such
rate to be fixed on the Distribution Date.
Section 3.03 Allocation of Accounts Payable
------------------------------
Franchising will be responsible for assuming all Liabilities
constituting accounts payable of Choice and its Subsidiaries as of the
Distribution Date (other than those relating to the CMBS Properties) (the
"Choice Payables"), so long as such assumption would not cause the shareholders'
equity of Franchising as of the Distribution Date (as determined in accordance
with GAAP) (the "Franchising Equity") to be less than $40,000,000. In the event
that such assumption would cause the Franchising Equity to be less than
$40,000,000, Choice shall retain Choice Payables to the extent necessary to
cause the Franchising Equity to be $40,000,000. The parties recognize that it
may not be possible to determine the Choice Payables and the Franchising Equity
on the Distribution Date. Accordingly, the parties will estimate Choice Payables
and Franchising Equity as of September 30, 1997, and, within 30 days of the
Distribution Date, agree upon a final determination of Choice Payables and
Franchising Equity. In the event that, based on such determination, either
Choice or Franchising assumed more than its proper share of Choice Payables on
the Distribution Date, the excess amount assumed by such
22
<PAGE>
party shall be reflected as a receivable to such party and a payable by the
other party on the Distribution Date. Any such receivable/payable shall be paid
as soon as reasonably practicable.
IV.
THE DISTRIBUTION
----------------
Section 4.01. Cooperation Prior to the Distribution.
-------------------------------------
(a) Franchising and Choice shall cooperate in preparing, filing with the
Commission and causing to become effective any registration statements or
amendments thereof which are appropriate to reflect the establishment of, or
amendments to, any employee benefit plans and other plans contemplated by the
Employee Benefits Allocation Agreement.
(b) Franchising and Choice shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of states or
other political subdivisions of the United States in connection with the
transactions contemplated by this Agreement and the Related Agreements.
(c) Franchising and Choice shall use all reasonable efforts to obtain
any third-party consents or approvals necessary or desirable in connection with
the transactions contemplated hereby ("Consents") .
--------
(d) Franchising and Choice will use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary or desirable under applicable law, to consummate the transactions
contemplated under this Agreement and the Related Agreements.
Section 4.02. Choice Board Action; Conditions Precedent to the
------------------------------------------------
Distribution.
------------
The Choice Board shall, in its sole discretion, establish the Record
Date and the
23
<PAGE>
Distribution Date and any appropriate procedures in connection with the
Distribution. In no event shall the Distribution occur unless the following
conditions shall have been satisfied:
(i) the transactions contemplated in Article II and Article III
shall have been consummated in all material respects;
(ii) the Franchising Board, comprised as contemplated by Section
6.01, shall have been elected by Choice, as sole stockholder of
Franchising, and the Franchising Certificate and Franchising Bylaws
shall have been adopted and shall be in effect;
(iii) the Ruling Request shall have been granted in form and
substance satisfactory to the Choice Board, in its sole discretion and
the representations made to the IRS therein shall be true in all
material respects;
(iv) the Form 10 shall have been declared effective by the
Commission;
(v) Franchising and Choice shall have entered into the Related
Agreements to which they are a party and each of the transactions
contemplated by the Related Agreements to be consummated on or prior
to the Distribution Date shall have been consummated;
(vi) all necessary regulatory approvals and consents of third
parties shall have been received;
(vii) Franchising shall have obtained, or Choice shall have
obtained for Franchising, insurance (or binders therefor) providing
24
<PAGE>
coverage to Franchising similar to the coverage provided by insurance
in place prior to the Distribution Date; and,
(viii) financing arrangements with respect to Choice and
Franchising satisfactory to the Choice Board in its sole discretion
shall be in place.
provided, however, that (x) any such condition may be waived by the Choice Board
- -------- -------
in its sole discretion, and (y) the satisfaction of such conditions shall not
create any obligation on the part of Choice or any other party hereto to effect
the Distribution or in any way limit Choice's power of termination set forth in
Section 9.08 or alter the consequences of any such termination from those
specified in such Section.
Section 4.03. The Distribution.
----------------
On the Distribution Date, or as soon thereafter as practicable, subject
to the conditions and rights of termination set forth in this Agreement, Choice
shall deliver to the Agent a share certificate representing all of the then
outstanding shares of Franchising Common Stock owned by Choice, endorsed in
blank, and shall instruct the Agent to distribute to each Holder, on or as soon
as practicable following the Distribution Date, a certification, or if requested
by such Holder, a certificate, representing one share of Franchising Common
Stock for each share of Choice Common Stock so held. Franchising agrees to
provide all share certificates that the Agent shall require in order to effect
the Distribution.
25
<PAGE>
V.
INDEMNIFICATION
---------------
Section 5.01. Indemnification by Choice.
-------------------------
Except as otherwise expressly set forth in a Related Agreement, Choice
shall indemnify, defend and hold harmless Franchising and each of the
Franchising Group 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 "Franchising Indemnitees")
-----------------------
from and against any and all losses, Liabilities, damages and expenses
(including, without limitation, the reasonable costs and expenses of
investigation and reasonable attorney's fees and expenses in connection with any
or all such investigations or any and all Actions, or threatened Actions)
(collectively, "Indemnifiable Losses" and, individually, an "Indemnifiable
-------------------- -------------
Loss") incurred or suffered by any of the Franchising Indemnitees and arising
- ----
out of or due to the failure or alleged failure of Choice, any Real Estate Group
Subsidiary, or any of their Affiliates to pay, perform or otherwise discharge in
due course any of the Real Estate Group Liabilities or comply with the
provisions of Section 6.04. To the extent that counsel is provided to
Franchising under this Indemnification, such counsel shall be selected by Choice
and such counsel may include its in-house corporate counsel.
Section 5.02. Indemnification by Franchising.
------------------------------
Except as otherwise expressly set forth in a Related Agreement,
Franchising shall indemnify, defend and hold harmless Choice and each of the
Real Estate Group 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
26
<PAGE>
and arising out of or due to the failure or alleged failure of Franchising, any
Franchising Group Subsidiaries, or any of their Affiliates to pay, perform or
otherwise discharge in due course any of the Franchising Group Liabilities or
comply with the provisions of Section 6.04. To the extent that counsel is
provided to Choice under this Indemnification, such counsel shall be selected by
Franchising and such counsel may include its in-house corporate counsel.
Section 5.03. Insurance Proceeds.
------------------
The amount which any party (an "Indemnifying Party") is or may be
------------------
required to pay to any other Person (an "Indemnified Person") pursuant to
------------------
Section 5.01 or Section 5.02 shall be reduced (including, without limitation,
retroactively) by any Insurance Proceeds or other amounts actually recovered by
or on behalf of such Indemnified Person in reduction of the related
Indemnifiable Loss. If an Indemnified Person 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 Person shall pay to such Indemnifying Party a sum equal to the
amount of such Insurance Proceeds or other amounts actually received.
Section 5.04. Procedure for Indemnification.
-----------------------------
(a) Except as may be set forth in a Related Agreement, if an Indemnified
Person shall receive notice or otherwise learn of the assertion by a Person
(including, without limitation, any governmental entity) who is not a party to
this Agreement or to any of the Related Agreements of any claim or of the
commencement by any such Person or its Affiliate of any Action with respect to
which an Indemnifying Party may be obligated to provide indemnification
27
<PAGE>
pursuant to this Agreement (a "Third-Party Claim"), such Indemnified Person
-----------------
shall give such Indemnifying Party written notice thereof promptly after
becoming aware of such Third-Party Claim; provided, that the failure of any
--------
Indemnified Person to give notice as required by this Section 5.04 shall not
relieve the Indemnifying Party of its obligations under this Article V, except
to the extent that such 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 (estimated if necessary) of the Indemnifiable Loss
that has been or may be sustained by such Indemnified Person.
(b) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any Third-Party Claim, provided that the Indemnifying Party
must confirm in writing that it agrees that the Indemnified Person is entitled
to indemnification hereunder in respect of such Third-Party Claim. Within 30
days of the receipt of notice from an Indemnified Person in accordance with
Section 5.04(a) (or sooner, if the nature of such Third-Party Claim so
requires), the Indemnifying Party shall notify the Indemnified Person of its
election whether to assume responsibility for such Third-Party Claim (provided
that if the Indemnifying Party does not so notify the Indemnified Person of its
election within 30 days after receipt of such notice from the Indemnified
Person, the Indemnifying Party shall be deemed to have elected not to assume
responsibility for such Third-Party Claim), and such Indemnified Person shall
cooperate in the defense or settlement or compromise of such Third-Party Claim.
After notice from an Indemnifying Party to an Indemnified Person of its election
to assume responsibility for a Third-Party Claim, such Indemnifying Party shall
not be liable to such Indemnified Person under this
28
<PAGE>
Article V for any legal or other expenses (except expenses approved in advance
by the Indemnifying Party) subsequently incurred by such Indemnified Person in
connection with the defense thereof; provided, that if the defendants in any
--------
such claim include both the Indemnifying Party and one or more Indemnified
Persons and in such Indemnified Persons' reasonable judgment a conflict of
interest between such Indemnified Persons and such Indemnifying Party exists in
respect of such claim, such Indemnified Persons shall have the right to employ
separate counsel 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. If an
Indemnifying Party elects not to assume responsibility for a Third-Party Claim
(which election may be made only in the event of a good faith dispute that a
claim was inappropriately tendered under Section 5.01 or 5.02, as the case may
be) such Indemnified Person may defend or (subject to the following sentence)
seek to compromise or settle such Third-Party Claim. Notwithstanding the
foregoing, an Indemnified Person may not settle or compromise any claim without
prior written notice to the Indemnifying Party, which shall have the option
within ten days following the receipt of such notice (i) to disapprove the
settlement and assume all past and future responsibility for the claim,
including reimbursing the Indemnified Person for prior expenditures in
connection with the claim, or (ii) to disapprove the settlement and continue to
refrain from participation in the defense of the claim, in which event the
Indemnifying Party shall have no further right to contest the amount or
reasonableness of the settlement if the Indemnified Person elects to proceed
therewith, or (iii) to approve the amount of the settlement, reserving the
Indemnifying Party's right to contest the Indemnified Person's right to
indemnity, or (iv) to approve and agree to pay the settlement. In the event the
Indemnifying
29
<PAGE>
Party makes no response to such written notice from the Indemnity, the
Indemnifying Party shall be deemed to have elected option (ii).
(c) If an Indemnifying Party chooses to defend or to seek to compromise
any Third-Party Claim, the Indemnified Person shall make available to such
Indemnifying Party any personnel and any books, records or other documents
within its control or which it otherwise has the ability to make available that
are necessary or appropriate for such defense.
(d) Any claim on account of an Indemnifiable Loss which does not result
from a Third-Party Claim shall be asserted by written notice given by the
Indemnified Person to the applicable Indemnifying Party. Such Indemnifying Party
shall have a period of 15 days after the receipt of such notice within which to
respond thereto. If such Indemnifying Party does not respond within such 15-day
period, such Indemnifying Party shall be deemed to have refused to accept
responsibility to make payment. If such Indemnifying Party does not respond
within such 15-day period or rejects such claim in whole or in part, such
Indemnified Person shall be free to pursue such remedies as may be available to
such party under applicable law or under this Agreement.
(e) In addition to any adjustments required pursuant to Section 5.03, if
the amount of any Indemnifiable Loss shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnified Person to the
Indemnifying Party.
(f) In the event of payment by an Indemnifying Party to any Indemnified
Person in connection with any Third-Party Claim, such Indemnifying Party shall
be subrogated
30
<PAGE>
to and shall stand in the place of such Indemnified Person as to any events or
circumstances in respect of which such Indemnified Person may have any right or
claim relating to such Third-Party Claim against any claimant or plaintiff
asserting such Third-Party Claim or against any other party that may be liable.
Such Indemnified Person 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 5.05. Remedies Cumulative.
-------------------
The remedies provided in this Article V shall be cumulative and shall
not preclude assertion by any Indemnified Person of any other rights or the
seeking of any and all other remedies against any Indemnifying Party.
Section 5.06. After-Tax Indemnification Payments.
----------------------------------
Except as otherwise expressly provided herein or in a Related Agreement,
any indemnification payment made by any Indemnifying Party under this Article V
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 Losses by the
Indemnified Person attributable to receipt of the indemnification payment.
Section 5.07. Survival of Indemnities.
-----------------------
The obligations of each of Franchising and Choice under this Article V
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.
31
<PAGE>
VI.
CERTAIN ADDITIONAL MATTERS
--------------------------
Section 6.01. Franchising Board.
-----------------
Franchising and Choice shall take all as officers and directors of
Franchising those persons named in the Form 10 (as may be altered or
supplemented prior to the date hereof by the Choice Board and the Franchising
Board) to constitute, effective as of the Distribution Date, the officers and
the directors of Franchising.
Section 6.02. Resignations; Choice Board.
--------------------------
(a) Franchising shall cause all of its directors and Franchising Group
Employees to resign, effective as of the Distribution Date, from all boards of
directors or similar governing bodies of Choice or any of the Real Estate Group
Subsidiaries on which they serve, and from all positions as officers or
employees of Choice or any of the Real Estate Group Subsidiaries in which they
serve, except that (i) Stewart Bainum, Stewart Bainum Jr., and Frederick V.
Malek each shall serve as a director of both Franchising and Choice and (ii)
Stewart Bainum, Jr. shall also serve as Chairman of the board of directors of
Franchising and of Choice. Choice shall cause all of its directors and the Real
Estate Group Employees to resign from all boards of directors or similar
governing bodies of Franchising or any of the Franchising Group Subsidiaries on
which they serve, and from all positions as officers or employees of Franchising
or any of the Franchising Group Subsidiaries in which they serve, except to the
extent specified in the preceding sentence.
Section 6.03. Certificate and Bylaws.
----------------------
(a) On or prior to the Distribution Date, Franchising shall adopt the
Franchising Certificate and the Franchising Bylaws, and shall file the
Franchising Certificate
32
<PAGE>
with the Secretary of State of the State of Delaware. Choice shall provide all
necessary shareholder approvals for the Franchising Certificate prior to the
filing of the Franchising Certificate with the Secretary of State of the State
of Delaware.
(b) On or prior to the Distribution Date, Choice shall obtain all
necessary corporate approvals (including the approval by the holders of Choice
Common Stock) to the Choice Amended Certificate, and shall file the Choice
Amended Certificate with the Secretary of State of the State of Delaware.
Section 6.04. Certain Post-Distribution Transactions. Each of Choice
--------------------------------------
and Franchising 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 Choice and Franchising acting
together, from any such taxing authority with respect to any transaction
contemplated by this Agreement.
Section 6.05. Sales and Transfer Taxes.
------------------------
Choice and Franchising agree to cooperate to determine the amount of
sales, transfer or other taxes or fees, including, without limitation, all real
estate, patent, trademark and transfer taxes and recording fees payable in
connection with the transactions contemplated by the Agreement (the "Transaction
Taxes"). Choice agrees to file promptly and timely the returns for such
Transaction Taxes and Franchising 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.
33
<PAGE>
VII.
ACCESS TO INFORMATION AND SERVICES
Section 7.01. Provision of Corporate Records.
------------------------------
(a) Except as may otherwise be provided in a Related Agreement, Choice
shall arrange as soon as practicable following the Distribution Date, to the
extent not previously delivered in connection with the transactions contemplated
in Article II, for the transportation (at Franchising's cost) to Franchising of
the Franchising Books and Records in its possession, except to the extent such
items are already in the possession of Franchising or a Franchising Group
Subsidiary. The Franchising Books and Records shall be the property of
Franchising, but shall be available to Choice for review and duplication until
Choice shall notify Franchising in writing that such records are no longer of
use to Choice.
(b) Except as may otherwise be provided in a Related Agreement,
Franchising shall arrange as soon as practicable following the Distribution
Date, to the extent not previously delivered in connection with the transactions
contemplated in Article II, for the transportation (at Choice's cost) to Choice
of the Choice Books and Records in its possession, except to the extent such
items are already in the possession of Choice. The Choice Books and Records
shall be the property of Choice, but the Choice Books and Records that
reasonably relate to the Franchising Group Business shall be available to
Franchising for review and duplication until Franchising shall notify Choice in
writing that such records are no longer of use to Franchising.
Section 7.02. Access to Information.
---------------------
Except as otherwise provided in a Related Agreement, from and after the
Distribution Date, Choice shall afford to Franchising and its authorized
accountants, counsel and other designated representatives reasonable access
(including using reasonable efforts to give
34
<PAGE>
access to persons or firms possessing information) and duplicating rights during
normal business hours to all records, books, contracts, instruments, computer
data and other data and information relating to pre-Distribution operations
(collectively, "Information") within Choice's possession insofar as such
-----------
access is reasonably required by Franchising for the conduct of its business,
subject to appropriate restrictions for classified or Privileged Information.
Similarly, except as otherwise provided in a Related Agreement, Franchising
shall afford to Choice and its authorized 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 Information within Franchising's
possession, insofar as such access is reasonably required by Choice for the
conduct of its business, subject to appropriate restrictions for classified or
Privileged Information. Information may be requested under this Article VII for
the legitimate business purposes of either party, including without limitation,
audit, accounting, claims (including claims for indemnification hereunder),
litigation and tax purposes, as well as for purposes of fulfilling disclosure
and reporting obligations and for performing this Agreement and the transactions
contemplated hereby. The parties hereby agree that Franchising shall also grant
to Choice reasonable access to the computer systems maintained by Franchising
after the Distribution that contain data and other information reasonably
related to the Real Estate Group Assets or the Real Estate Group Business, for
purposes of review and retrieval of such data (including the generation of
reports containing such data).
Section 7.03. Production of Witnesses.
-----------------------
At all times from and after the Distribution Date, each of Franchising
and Choice shall use reasonable efforts to make available to the other, upon
written request, its and its
35
<PAGE>
Subsidiaries' officers, directors, employees and agents as witnesses to the
extent that such persons may reasonably be required in connection with any
Action.
Section 7.04. Reimbursement.
-------------
Except to the extent otherwise contemplated in any Related Agreement, a
party providing Information or witnesses to the other party under this Article
VII shall be entitled to receive from the recipient, upon the presentation of
invoices therefor, payments of such amounts, relating to supplies, disbursements
and other out-of-pocket expenses (at cost) and direct and indirect expenses of
employees who are witnesses or otherwise furnish assistance (at cost), as may be
reasonably incurred in providing such Information or witnesses.
Section 7.05. Retention of Records.
--------------------
Except as otherwise required by law or agreed to in a Related Agreement
or otherwise in writing, each of Franchising and Choice may destroy or otherwise
dispose of any of the Information, which is material Information and is not
contained in other Information retained by the other, only after the tenth
anniversary of this Agreement, provided that, prior to such destruction or
disposal, (a) it shall provide no less than 90 or more than 120 days prior
written notice to the other, specifying in reasonable detail the Information
proposed to be destroyed or disposed of and (b) if a 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 party requesting such Information.
36
<PAGE>
Section 7.06. Confidentiality.
---------------
Each of Choice and its Subsidiaries on the one hand, and Franchising and
its Subsidiaries on the other hand, shall hold, and shall cause its consultants
and advisors to hold, in strict confidence, all Information concerning the other
in its possession or furnished by the other or the other's representatives
pursuant to this Agreement (except to the extent that such Information has been
(i) in the public domain through no fault of such party or (ii) later lawfully
acquired from other sources by such party), and each party shall not release or
disclose such Information to any other person, except its auditors, attorneys,
financial advisors, rating agencies, bankers and other consultants and advisors,
unless compelled to disclose by judicial or administrative process or, as
reasonably advised by its counsel, by other requirements of law, or unless such
Information is reasonably required to be disclosed in connection with (x) any
litigation with any third-parties or litigation between the Real Estate Group
and the Franchising Group, (y) any contractual agreement to which the Real
Estate Group or the Franchising Group are currently parties, or (z) in exercise
of either party's rights hereunder.
Section 7.07. Privileged Matters.
------------------
Franchising and Choice recognize that legal and other professional
services that have been and will be provided prior to the Distribution Date have
been and will be rendered for the benefit of both the Real Estate Group and the
Franchising Group and that both the Real Estate Group and the Franchising Group
should be deemed to be the client for the purposes of asserting all Privileges.
To allocate the interests of each party in the Privileged Information, the
parties agree as follows:
37
<PAGE>
(a) Choice shall be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which relates
solely to the Real Estate Group, whether or not the Privileged Information is in
the possession of or under the control of Choice or Franchising. Choice shall
also be entitled, in perpetuity, to control the assertion or waiver of all
Privileges in connection with Privileged Information that relates solely to the
subject matter of any claims constituting Real Estate Group Liabilities, now
pending or which may be asserted in the future, in any lawsuits or other
proceedings initiated against or by Choice, whether or not the Privileged
Information is in the possession of or under the control of Choice or
Franchising.
(b) Franchising shall be entitled, in perpetuity, to control the
assertion or waiver of all Privileges in connection with Privileged Information
which relates solely to the Franchising Group, whether or not the Privileged
Information is in the possession of or under the control of Choice or
Franchising. Franchising shall also be entitled, in perpetuity, to control the
assertion or waiver of all Privileges in connection with Privileged Information
which relates solely to the subject matter of any claims constituting
Franchising Group Liabilities, now pending or which may be asserted in the
future, in any lawsuits or other proceedings initiated against or by
Franchising, whether or not the Privileged Information is in the possession of
or under the control of Choice or Franchising.
(c) Franchising and Choice agree that they shall have a shared
Privilege, with equal right to assert or waive, subject to the restrictions in
this Section 7.07, with respect to all Privileges not allocated pursuant to the
terms of Sections 7.07(a) and (b). All Privileges relating to any claims,
proceedings, litigation, disputes, or other matters which involve both
Franchising
38
<PAGE>
and Choice or in respect of which both Franchising and Choice retain any
responsibility or liability under this Agreement, shall be subject to a shared
Privilege .
(d) No party may waive any Privilege which could be asserted under any
applicable law, and in which the other party has a shared Privilege, without the
consent of the other party, except to the extent reasonably required in
connection with any litigation with third-parties or as provided in subsection
(e) below. Consent shall be in writing, or shall be deemed to be granted unless
written objection is made within twenty (20) days after written notice upon the
other party requesting such consent.
(e) In the event of any litigation or dispute between a member of the
Real Estate Group and a member of the Franchising Group, either party may waive
a Privilege in which the other party has a shared Privilege, without obtaining
the consent of the other party, provided that such waiver of a shared Privilege
shall be effective only as to the use of Information with respect to the
litigation or dispute between the Real Estate Group and the Franchising Group,
and shall not operate as a waiver of the shared Privilege with respect to third-
parties.
(f) If a dispute arises between the parties regarding whether a
Privilege should be waived to protect or advance the interest of either party,
each party agrees that it shall negotiate in good faith, shall endeavor to
minimize any prejudice to the rights of the other party, and shall not
unreasonably withhold consent to any request for waiver by the other party. Each
party specifically agrees that it will not withhold consent to waiver for any
purpose except to protect its own legitimate interests.
39
<PAGE>
(g) Upon receipt by any party of any subpoena, discovery or other
request which arguably calls for the production or disclosure of Information
subject to a shared Privilege or as to which the other party has the sole right
hereunder to assert a Privilege, or if any party obtains knowledge that any of
its current or former directors, officers, agents or employees have received any
subpoena, discovery or other requests which arguably calls for the production or
disclosure of such Privileged Information, such party shall promptly notify the
other party of the existence of the request and shall provide the other party a
reasonable opportunity to review the Information and to assert any rights it may
have under this Section 7.07 or otherwise to prevent the production or
disclosure of such Privileged Information.
(h) The transfer of the Franchising Books and Records and the Choice
Books and Records and other Information between Choice and its Subsidiaries and
Franchising and its Subsidiaries is made in reliance on the agreement of
Franchising and Choice, as set forth in Sections 7.06 and 7.07, to maintain the
confidentiality of Privileged Information and to assert and maintain all
applicable Privileges. The access to information being granted pursuant to
Sections 7.01 and 7.02 hereof, the agreement to provide witnesses and
individuals pursuant to Section 7.03 hereof and the transfer of Privileged
Information between Choice and its Subsidiaries and Franchising and its
Subsidiaries pursuant to this Agreement shall not be deemed a waiver of any
Privilege that has been or may be asserted under this Agreement or otherwise.
VIII.
INSURANCE
---------
Section 8.01 Policies and Rights Included Within the Franchising
---------------------------------------------------
Group Assets.
-------------
Without limiting the generality of the definition of the Franchising
Group Assets or the effect of Section 2.01, the Franchising Group Assets shall
include any and all rights of an
40
<PAGE>
insured party under each of the Shared Policies, specifically including rights
of indemnity and the right to be defended by or at the expense of the insurer,
with respect to all injuries, losses, liabilities, damages and expenses incurred
or claimed to have been incurred on or prior to the Distribution Date by any
party in or in connection with the conduct of the Franchising Group, to the
extent any claim is made against Franchising or any of its Subsidiaries and
which injuries, losses, liabilities, damages and expenses may arise out of
insured or insurable occurrences or events under one or more of the Shared
Policies; provided, however, that nothing in this clause be deemed to
-------- -------
constitute (or to reflect) the assignment of the Shared Policies, or
any of them, to Franchising.
Section 8.02. Policies and Rights Included Within the Real Estate
---------------------------------------------------
Group Assets.
------------
Without limiting the generality of the definition of the Real Estate
Group Assets or the effect of Section 2.01, the Real Estate Group Assets shall
include any and all rights of an insured party under each of the Shared
Policies, specifically including rights of indemnity and the right to be
defended by or at the expense of the insurer, with respect to all injuries,
losses, liabilities, damages and expenses incurred or claimed to have been
incurred on or prior to the Distribution Date by any party in or in connection
with the conduct of the Real Estate Group or, to the extent any claim is made
against Choice or any of its Subsidiaries and which injuries, losses,
liabilities, damages and expenses may arise out of insured or insurable
occurrences or events under one or more of the Shared Policies; provided,
--------
however, that nothing in this clause shall be deemed to constitute (or to
- -------
reflect) the assignment of the Shared Policies, or any of them, to Choice.
41
<PAGE>
Section 8.03. Administration and Reserves.
---------------------------
(a) Notwithstanding the provisions of Article III, but subject to any
contrary provisions of any Related Agreement, from and after the Distribution
Date:
(i) The parties each recognize that Manor Care shall be
responsible for (pursuant to the Amended Risk Management Services
Agreement) the insurance administration of the Shared Policies;
provided, that the administration of the Shared Policies by
--------
Manor Care is in no way intended to limit, inhibit, or preclude any
right to insurance coverage for any Insured Claim of a named insured
under the Shared Policies including, but not limited to, Franchising
or any of its Subsidiaries or Affiliates;
(ii) Franchising shall be entitled to any reserves established
by Choice or any of its Subsidiaries, or the benefit of reserves held
by any insurance carrier, with respect to the Franchising Group
Liabilities; and
(iii) Choice shall be entitled to any reserves established by
Franchising or any of its Subsidiaries, or the benefit of reserves
held by any insurance carrier, with respect to the Real Estate Group
Liabilities.
(b) Insurance Premiums.
------------------
(i) Franchising shall have the right but not the obligation to
pay the premiums, to the extent that Choice does not pay premiums with
respect to Real Estate Group Liabilities (retrospectively-rated or
otherwise), with respect to Shared Policies as required under the
terms and conditions of the respective Policies, whereupon Choice
shall forthwith
42
<PAGE>
reimburse Franchising for that portion of such premiums paid by
Franchising as are attributable to the Real Estate Group Liabilities.
(ii) Choice shall have the right but not the obligation to pay
the premiums, to the extent that Franchising does not pay premiums
with respect to Franchising Group Liabilities (retrospectively-rated
or otherwise), with respect to Shared Policies as required under the
terms and conditions of the respective Policies, whereupon Franchising
shall forthwith reimburse Choice for that portion of such premiums
paid by Choice as are attributable to the Franchising Group
Liabilities.
(c) Allocation of Insurance Proceeds. Insurance Proceeds received
--------------------------------
with respect to claims, costs and expenses under the Policies shall be paid to
Franchising with respect to the Franchising Group Liabilities and to Choice with
respect to the Real Estate Group Liabilities. Payment of the allocable portions
of indemnity costs of Insurance Proceeds resulting from the liability policies
will be made to the appropriate party upon receipt from the insurance carrier.
In the event that the aggregate limits on any Policies are exceeded, the parties
agree to provide an equitable allocation of Insurance Proceeds received after
the Distribution Date based upon their respective bona fide claims taking into
account their relative contributions towards premiums and the Insurance Proceeds
used by each party to satisfy Insured Claims. The parties agree to use their
best efforts to cooperate with respect to insurance matters.
(d) Notwithstanding anything contained herein, Franchising or an
appropriate Franchising Group Subsidiary assumes responsibility for and shall
pay to the appropriate insurance carriers or otherwise any premiums,
retrospectively rated premiums, defense costs,
43
<PAGE>
indemnity payments, deductibles, retentions or other charges as appropriate
(collectively "Insurance Charges") whenever arising, which become due and
payable upon the terms and conditions of any applicable Policy in respect of any
Insured Claims against Franchising or a Franchising Group Subsidiary for charges
which relate to the period before the Distribution Date. In the event that
Franchising or a Franchising Group 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 Choice or a Real Estate Group Subsidiary, Choice or a Real Estate
Group Subsidiary may (but shall not be required to) pay such Insurance Charges
for and on behalf of Franchising or a Franchising Group Subsidiary and
thereafter Franchising or a Franchising Group Subsidiary shall forthwith
reimburse Choice or such Real Estate Group Subsidiary for such payment.
(e) Notwithstanding anything contained herein, Choice or an appropriate
Real Estate Group Subsidiary assumes responsibility for and shall pay to the
appropriate insurance carriers or otherwise any Insurance Charges whenever
arising, which become due and payable upon the terms and conditions of any
applicable Policy in respect of any Insured Claims against Choice or a Real
Estate Group Subsidiary for charges which relate to the period before the
Distribution Date. In the event that Choice or a Real Estate Group 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 Franchising or a Franchising
Group Subsidiary, Franchising or a Franchising Group Subsidiary may (but shall
not be required to) pay such Insurance Charges for and on behalf of Choice or a
Real Estate Group Subsidiary and thereafter Choice or a Real Estate Group
Subsidiary shall forthwith reimburse Franchising or such Franchising Group
Subsidiary for such payment.
44
<PAGE>
Section 8.04. Agreement for Waiver of Conflict and Shared Defense.
---------------------------------------------------
In the event that Insured Claims of both Franchising and Choice exist
relating to the same occurrence, Franchising and Choice agree to jointly defend
and to waive any conflict of interest necessary to the conduct of that joint
defense. Nothing in this paragraph shall be construed to limit or otherwise
alter in any way the indemnity obligations of the parties to this Agreement,
including those created by this Agreement, by operation of law or otherwise.
IX.
MISCELLANEOUS
-------------
Section 9.01. Complete Agreement; Construction.
--------------------------------
This Agreement, including the Schedules and Exhibits and the Related
Agreements and other agreements and documents referred to herein, shall
constitute the entire agreement between the parties with respect to the subject
matter hereof and thereof and shall supersede all previous negotiations,
commitments and writings with respect to such subject matter. Notwithstanding
any other provisions in this Agreement to the contrary, in the event and to the
extent that there shall be a conflict between the provisions of this Agreement
and the provisions of the Related Agreements, then the Related Agreements shall
control.
Section 9.02. Tax Sharing Agreement; After-Tax Payments.
-----------------------------------------
(a) Other than as provided in this Section 9.02 and Sections 5.06 and
6.05, this Agreement shall not govern any Tax matter, 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.
45
<PAGE>
(b) If, at the time Franchising is required to make any payment to
Choice under this Agreement, Choice owes Franchising 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 Choice is
required to make any payment to Franchising under this Agreement, Franchising
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.
Section 9.03. Expenses.
--------
Except as specifically provided in this Agreement or in a Related
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. In addition, it is understood and agreed that
Franchising shall pay the legal, filing, accounting, printing and other
accountable and out-of-pocket expenditures in connection with the preparation,
printing and filing of the Form 10 and the Proxy Statement. For purpose of this
Section 9.03, any Dispute shall be resolved in accordance with Section 9.14
hereof.
Section 9.04. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland, without regard to the principles of conflicts of
laws thereof.
Section 9.05. 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
46
<PAGE>
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 Franchising:
Choice Hotels Franchising, Inc.
10770 Columbia Pike
Silver Spring, Maryland 20901
Attention: General Counsel
To Choice:
Choice Hotels International,. Inc.
10750 Columbia Pike
Silver Spring, Maryland 20901
Attention: General Counsel
Section 9.06. Amendments.
----------
This Agreement may not be modified or amended except by an agreement in
writing signed by the parties.
Section 9.07. Successors and Assigns.
----------------------
This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns.
Section 9.08. Termination.
-----------
This Agreement may be terminated and the Distribution abandoned at any
time prior to the Distribution Date by and in the sole discretion of the Choice
Board without the approval of Franchising's or of Choice's stockholders. In the
event of such termination, no party shall have any liability to any other party
pursuant to this Agreement.
47
<PAGE>
Section 9.09. Subsidiaries.
------------
Each of the parties hereto shall cause to be performed, and hereby
guarantees the performance of, all actions, agreements and obligations set forth
herein to be performed by any Subsidiary of such party which is contemplated to
be a Subsidiary of such party on and after the Distribution Date.
Section 9.10. No Third-Party Beneficiaries.
----------------------------
Except for the provisions of Article V relating to Indemnities, this
Agreement is solely for the benefit of the parties hereto and their respective
Subsidiaries and Affiliates and should not be deemed to confer upon third-
parties any remedy, claim, claim of action or other right in excess of those
existing without reference to this Agreement.
Section 9.11. Titles and Headings.
-------------------
Titles and headings to sections herein are inserted for the convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
Section 9.12. Exhibits and Schedules.
----------------------
The Exhibits and Schedules 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 9.13. 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
48
<PAGE>
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 9.14. Arbitration of Disputes.
-----------------------
(a) Any dispute, controversy or disagreement ("Dispute") between the
Parties related to the obligations of the parties under this Agreement in
respect to which an amicable resolution cannot be reached shall be submitted for
mediation to a committee made up of an equal number of non-common members of
each company's Board of Directors ("Committee"). If the parties are unable to
reach an amicable resolution of a Dispute within thirty days after submission to
the Committee, then, to the maximum extent allowed by law, the Dispute shall be
submitted and resolved by final and binding arbitration in Baltimore, Maryland
administered by JAMS-Endispute in accordance with JAMS-Endispute's rules of
practice then in effect or such other procedures as the parties may agree upon;
provided, however, that any party may seek injunctive relief and enforcement of
any award rendered pursuant to the arbitration provisions of this Section 9.14
by bringing a suit in any court of competent jurisdiction. Any award issued as a
result of such arbitration shall be final and binding between the parties
thereto and shall be enforceable by any court having jurisdiction over the party
against whom enforcement was sought and application may be made to such court
for judicial acceptance of the award and order of enforcement. The fees and
expenses of arbitration (including reasonable attorneys' fees) shall be paid by
the party that does not prevail in such arbitration.
49
<PAGE>
(b) Attorneys' Fees. If any party to this Agreement brings an action
---------------
to enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including without limitation
reasonable attorneys' fees, incurred in connection with such action,
including any appeal of such action.
(c) Nothing contained in this Section 9.14 shall limit or restrict in
any way the right or power of a party at any time to seek injunctive relief in
any court and to litigate the issues relevant to such request for injunctive
relief before such court (i) to restrain the other party from breaching this
Agreement or (ii) for specific enforcement of this Section 9.14. The parties
agree that any legal remedy available to a party with respect to a breach of
this Section 9.14 will not be adequate and that, in addition to all other legal
remedies, each party is entitled to an order specifically enforcing this Section
9.14.
(d) The Parties hereby consent to the jurisdiction of the federal
courts located in the State of Maryland for all purposes under this Agreement.
(e) Neither party nor the arbitrators may disclose the existence or
results of any arbitration under this Agreement or any evidence presented during
the course of the arbitration without the prior written consent of both parties,
except as required to fulfill applicable disclosure and reporting obligations,
or as otherwise required by law.
Section 9.15. Prompt Payment.
--------------
Where the terms of this Agreement require payment of an amount "as
promptly as possible," "as soon as practicable," or "as soon as possible,"
following a specified event, occurrences or date, such payment shall be made
within five (5) business days of such event, occurrence or date.
50
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
CHOICE HOTELS INTERNATIONAL, INC.
By: /s/ Edward A. Kubis
------------------------------
Title: Senior Vice President
---------------------------
CHOICE HOTELS FRANCHISING, INC.
By: /s/ Michael J. DeSantis
------------------------------
Title: Senior Vice President
---------------------------
51
<PAGE>
INDEX OF EXHIBITS
Exhibit A Employee Benefits Administration Agreement
Exhibit B Employee Benefits Allocation Agreement
Exhibit C Franchising Bylaws
Exhibit D Franchising Certificate
Exhibit E Noncompetition Agreement
Exhibit F Omnibus Amendment and Guaranty
Exhibit G Strategic Alliance Agreement
Exhibit H Tax Administration Agreement
Exhibit I Tax Sharing Agreement
52
<PAGE>
SCHEDULE 1.01
CMBS Properties
---------------
Clarion Hotel Comfort Inn
3101 Airport Blvd. 1901 Palm Beach Lake Blvd.
Mobile, AL 36606 West Palm Beach, FL 33409
Comfort Inn - TurfParadise Comfort Inn
1711 West Bell Road 5990 Western Hills Drive
Phoenix, AZ 85023 Norcross, GA 30071
Rodeway Inn Airport E Comfort Inn University
1550 S. 52nd Street 2445 S. Acadian
Tempe, AZ 85281 Baton Rouge, LA 70808
Econo Lodge Comfort Suites
1520 N. 84th Drive 106 Bank Road
Tolleson, AZ 85353 Haverhill, MA 01832
Quality Inn Airport Quality Inn
5249 W. Century Blvd. 40455 Ann Arbor Road
Los Angeles, CA 90045 Plymouth, MI 48170
Quality Suites Comfort Inn
1050 E. Newport Center Dr. 1492 U.S. 31 North
Deerfield Beach, FL 33442 Traverse City, MI 49684
Comfort Suites Comfort Inn Westport
1040 E. Newport Center Dr. 12031 Lackland Road
Deerfield Beach, FL 33442 St. Louis, MO 63146
Quality Inn Southpoint Quality Inn and Suites - Crown Pl.
4660 Salisbury Road 2501 Sardis Road N
Jacksonville, FL 32256 Charlotte, NC 28227
Comfort Inn & Suites Quality Suites
5301 N.W. 36th 440 Capital Blvd.
Miami Springs, FL 33166 Raleigh, NC 27604
Comfort Inn Comfort Inn
830 Lee Road 5345 Broadmoor NW
Orlando, FL 32810 Canton, OH 44709
53
<PAGE>
Comfort Inn Quality Inn Midvalley
9011 Fields Ertel Road 4465 S. Century Drive
Cincinnati, OH 45249 Salt Lake, UT 84123
Comfort Inn Quality Hotel
17550 Rosborough Drive 1190 N. Courthouse Road
Middleburg Hts, OH 44130 Arlington, VA 22201
Comfort Inn Quality Inn
1200 Mae Street 8008 West Broad Street
Hershey, PA 17036 Richmond, VA 23294
Quality Inn Comfort Inn Tysons
3509 Clemson Blvd. 1587 Springhill Road
Anderson, SC 29621 Vienna, VA 22182
Comfort Inn Airport Clarion Hotel
5055 N. Arco Lane 4453 Bonney Road
N. Charleston, SC 29418 Virginia Beach, VA 23462
Comfort Inn
499 Piney Grove Road
Columbia, SC 29210
Comfort Inn
2 Tanglewood Drive
Hilton Head, SC 29928
Comfort Inn
104 Texas Avenue South
College Station, TX 77840
Comfort Inn DFW Arpt
8205 Esters Blvd.
Irving, TX 75063
Sleep Inn
4801 E. Plano Pkwy.
Plano, TX 75093
Clarion Hotel
1981 N. Central Expwy.
Richardson, TX 75080
54
<PAGE>
SCHEDULE 2.07
RETAINED CASH ACCOUNTS
----------------------
<TABLE>
<CAPTION>
Entity Brand Location Bank Name Description
- ------ ----- -------- --------- -----------
<S> <C> <C> <C> <C>
1 Clarion Mobile, AL Compass Bank Local Hotel Depository Account
2 Comfort Inn Phoenix, AZ Bank One Arizona Local Hotel Depository Account
3 Rodeway Inn Phoenix (Tempe), AZ Wells Fargo Local Hotel Depository Account
4 Econo Lodge Phoenix (Tolleson), AZ Wells Fargo Local Hotel Depository Account
5 Quality Hotel Los Angeles, CA Bank of America Local Hotel Depository Account
6 & 7 Comfort Suites
& Quality Suites Deerfield Beach, FL Nationsbank Local Hotel Depository Account
8 Quality Inn Jacksonville, FL First Union Local Hotel Depository Account
National Bank of Florida Local Hotel Depository Account
9 Comfort Inn & Suites Miami, FL Nationsbank Local Hotel Depository Account
10 Comfort Inn Orlando, FL Nationsbank Local Hotel Depository Account
11 Comfort Inn West Palm Beach, FL Nationsbank Local Hotel Depository Account
12 Comfort Inn Atlanta (Norcross), GA Nationsbank Local Hotel Depository Account
13 Comfort Inn Baton Rouge, LA Unions Planters Local Hotel Depository Account
14 Comfort Inn Suites Boston (Haverhill), MA Fleet Bank Local Hotel Depository Account
15 Quality Inn Detroit (Plymouth), MI First of America Local Hotel Depository Account
16 Comfort Inn Traverse City, MI Old Kent Bank Local Hotel Depository Account
17 Comfort Inn St. Louis, MO Nationsbank Local Hotel Depository Account
18 Quality Inn & Suites Charlotte, NC Nationsbank Local Hotel Depository Account
19 Quality Suites Raleigh, NC Nationsbank Local Hotel Depository Account
20 Comfort Inn Canton, OH Key Bank Local Hotel Depository Account
21 Comfort Inn Cincinnati, OH First National Bank Local Hotel Depository Account
22 Comfort Inn Cleveland, OH Key Bank Local Hotel Depository Account
23 Comfort Inn Hershey, PA Fulton Bank Local Hotel Depository Account
24 Quality Inn Anderson, SC Nationsbank Local Hotel Depository Account
25 Comfort Inn Columbia, SC First Citizens Local Hotel Depository Account
26 Comfort Inn & Suites Hilton Head, SC Nationsbank Local Hotel Depository Account
27 Comfort Inn North Charleston, SC Nationsbank Local Hotel Depository Account
28 Comfort Inn College Station, TX Nationsbank Local Hotel Depository Account
29 Comfort Inn Dallas/Fort Worth (Irving), TX Nationsbank Local Hotel Depository Account
30 Sleep Inn Dallas (Plano), TX Nationsbank Local Hotel Depository Account
31 Clarion Dallas (Richardson), TX Nationsbank Local Hotel Depository Account
32 Quality Inn Salt Lake City, UT Zions Bank Local Hotel Depository Account
33 Quality Hotel Arlington, VA Nationsbank Local Hotel Depository Account
34 Quality Inn Richmond, VA Nationsbank Local Hotel Depository Account
35 Comfort Inn Tyson's Corner (Vienna), VA Nationsbank Local Hotel Depository Account
36 Clarion Virginia Beach, VA Nationsbank Local Hotel Depository Account
</TABLE>
<TABLE>
<CAPTION>
Bank Name Type of Account
--------- ---------------
<S> <C>
Nationsbank Concentration Account
Nationsbank Investment Account
</TABLE>
The additional accounts as outlined below have been established under the legal
entity of First Choice Properties Corporation, but are not currently active.
<TABLE>
<CAPTION>
Bank Name Type of Account
--------- ---------------
<S> <C>
Nationsbank Beltway Management Payables
Nationsbank Beltway Management Payroll
Nationsbank Beltway Management Quickchecks
</TABLE>
55
<PAGE>
Exhibit 99.02
STRATEGIC ALLIANCE AGREEMENT
----------------------------
This Strategic Alliance Agreement (this "Agreement") is entered into as
of the 15th day of October, 1997 (the "Effective Date") by and between Choice
Hotels Franchising, Inc., which intends to change its name to Choice Hotels
International, Inc. ("Franchising") and Choice Hotels International, Inc., which
intends to change its name to Sunburst Hospitality Corp. ("Realco")
(collectively, the "Parties"), with respect to the following:
WHEREAS, Realco is the common parent of a consolidated group that includes
as one of its subsidiaries Franchising;
WHEREAS, Realco is engaged in the buying, developing and operating of hotel
properties;
WHEREAS, Franchising is engaged in franchising and managing hotels and in
providing various services for its franchisees to strengthen particular hotel
brands, including the operation of a national reservations system for
Franchising's brands and the conducting of advertising and marketing activities
on behalf of franchisees of Franchising's brands;
WHEREAS, the Parties are concurrently entering into a Distribution
Agreement, pursuant to which Realco will distribute all of its outstanding
common stock of Franchising pro rata to Realco's shareholders (the
--- ----
"Distribution");
WHEREAS, it is mutually beneficial to Realco and Franchising to establish a
relationship whereby Realco will develop or acquire certain hotels to be
franchised by Franchising and the Parties will continue to cooperate with
respect to matters of mutual interest, including new product/concept testing for
Franchising in Realco Hotels;
WHEREAS, Realco and Franchising desire to take advantage of Franchising's
purchasing power by authorizing Franchising in certain instances to negotiate
with third party vendors on Realco's behalf for the purchase of certain hotel
items;
NOW, THEREFORE, Realco and Franchising agree as follows:
1. Definitions
-----------
1.1 Terms defined in the Distribution Agreement shall have the same
meanings when used in this Agreement.
2. Term
----
2.1 This Agreement shall go into effect on the date of the Distribution
(the "Effective Date") and shall continue in force for a period of twenty
years. This Agreement may, however, be terminated by either Party on the fifth,
tenth or fifteenth anniversary dates of the Effective
<PAGE>
Date upon at least three months prior written notice to the other Party and may
be renewed upon the mutual consent of the Parties.
3. Franchising of Realco Hotels
----------------------------
3.1 Realco currently operates approximately 71 hotels under franchise
agreements with Franchising. The terms of these agreements will remain
unchanged.
3.2 Realco hereby grants a right of first refusal to Franchising to
franchise any hotel or lodging property of any kind that Realco develops or
acquires and intends to franchise during the term of this Agreement (a "Lodging
Property"). Realco shall provide to Franchising written notice, in the form of
a completed application form (the "Realco Notice"), setting forth reasonable
detail regarding each Lodging Property that it intends to develop, acquire
and/or franchise, including information which shall include, among other things,
the name, address, number of rooms, planned physical improvements and other data
compiled by Realco with respect to its evaluation of the acquisition or
development of the Lodging Property. Once the Realco Notice is received by
Franchising, Franchising shall respond in writing within thirty days to Realco
indicating whether Franchising chooses to exercise its right of first refusal
and, if so, which brand or brands it believes would be appropriate for the
Lodging Property and the physical renovations, in the case of an existing
Lodging Property, that Realco would be required to effect, and any other
conditions beyond those set forth in Exhibit A attached hereto that Realco must
satisfy in order to obtain Franchising's approval of the Realco application (the
"Franchising Response"). If Franchising does not provide the Franchising
Response within thirty days of receipt of the Realco Notice, Franchising shall
be deemed to have elected not to exercise the right of first refusal.
3.3 If Franchising exercises the right of first refusal as set forth
above, Realco shall be obligated to brand the Lodging Property as designated by
Franchising unless it would not be feasible to do so because (a) the Lodging
Property is already under contract with another franchiser and rebranding would
be uneconomical, or (b) branding the Lodging Property as designated by
Franchising would be otherwise uneconomical. Branding pursuant to Franchising's
designation shall not be considered uneconomical if reasonable projections by
Realco demonstrate that the Lodging Property would provide a return on
investment to Realco over the term of the franchise agreement to be entered into
with Franchising that is equivalent to the hurdle rate of return established by
Realco for its investments in similar types of hotels or lodging properties.
3.4 If Realco wishes to object to a brand selected by Franchising for a
Lodging Property, it must do so in writing, providing the bases for its
objection within fifteen days after receipt of the Franchising Response.
Franchising shall within three days after receipt of such objection, provide a
written response to Realco. If the Parties are unable to reach agreement
regarding branding within three days thereafter, the branding of a Lodging
Property shall be resolved in accordance with Section 7 of this Agreement.
3.5 Prior to receiving the Franchising Response (or the expiration of
thirty days from Franchising's receipt of the Realco Notice, if a Franchising
Response has not been received by
2
<PAGE>
Realco within such time period), Realco shall not notify, correspond with, or
negotiate with, any other party, except the existing franchisor, with respect to
alternative branding of the Lodging Property.
3.6 In the event a Lodging Property is to be branded by Franchising
pursuant to this Section 3, the Parties shall enter into a franchise agreement
substantially in the form of Exhibit A attached hereto with respect to such
Lodging Property, providing for payment of fees as set forth in Schedule 1
thereto. In addition, with respect to any Lodging Property acquired by Realco
and branded by Franchising pursuant to this Section 3, Realco shall pay to
Franchising upon entering a franchise agreement a one time initial fee of
$10,000.00. No such initial fee, or initial fee associated with the selection
of any software license agreement between the Parties, shall be payable
respecting a Lodging Property newly constructed by Realco that is branded by
Franchising.
4. Development
-----------
4.1 Realco and Franchising are currently in the midst of a program under
which Realco will develop Sleep Inns and Mainstay Suite Hotels franchised by
Franchising. Realco agrees that absent (i) a material change in market
conditions that would render construction of further hotels pursuant to this
program uneconomical (meaning that reasonable projections by Realco demonstrate
that the hotel would provide a return on investment to Realco that is less than
the hurdle rate of return established by Realco for its investments in similar
types of hotels), (ii) Realco's inability to finance construction or
acquisition of such hotels, or (iii) Franchising's discontinuance of efforts to
support the Mainstay Suite Hotel brand, Realco will continue to develop Sleep
Inns and Mainstay Suite Hotels so that it will have opened no fewer than a total
of fourteen Sleep Inns and fifteen Mainstay Suite Hotels no later than forty-
eight months from the Effective Date.
4.2 With respect to any Sleep Inn or Mainstay Suite Hotel that is not
completed within forty-eight months from the Effective Date, such Lodging
Property shall pay the normal "rack rate" franchise fee then in effect for a
Sleep Inn or Mainstay Suite Hotel rather than the fees set forth in Schedule 1
of Exhibit A attached hereto.
4.3 In the event that the Mainstay Suite Hotel system, including those
hotels owned by Realco, does not total at least one hundred hotels open or under
construction on or before January 1, 2000, Realco will have an option,
exercisable for a period of sixty days following January 1, 2000, to purchase
the brand name, marks, franchise agreements, and other assets of the Mainstay
Suite Hotels system from Franchising at a price equal to nine times
Franchising's revenues attributable to royalties from the Mainstay Suite Hotels
system during the calendar year 1999.
4.4 In the event Realco desires to exercise this option, then Realco shall
provide written notice to Franchising within the sixty day period following
January 1, 2000. The Parties will then negotiate in good faith and execute
definitive agreements within forty-five days of such written notice (with
commercially reasonable terms and conditions governing such purchase, which may
include a financing contingency lasting no more than ninety days), and will
close the
3
<PAGE>
purchase transaction within thirty days after the expiration of the financing
contingency. If the Parties acting in good faith do not execute a definitive
agreement or close the transaction within the prescribed time periods, then the
option provided by Section 4.3 shall be deemed to have expired.
5. New Product/Concept Testing
---------------------------
5.1 Realco and Franchising desire to continue their relationship under
which certain new products/concepts are tested for Franchising at hotels owned
by Realco. The Parties agree to negotiate in good faith on a case by case basis
with respect to the terms of such participation by Realco in new product/concept
testing. In the event Franchising desires to test or research any new
product/concept in Realco hotels, Franchising shall deliver to Realco a written
description of the new product/concept and plans for its testing or research.
The Parties shall then evaluate appropriate compensation for Realco to receive,
which compensation shall include all direct and indirect costs associated with
the project and an opportunity cost factor, such that the capital invested by
Realco will receive a return on investment equivalent to Realco's incremental
cost of capital.
5.2 In the event Franchising franchises a new brand or concept,
Franchising agrees that no other franchisee shall receive more favorable terms
or conditions than those offered to Realco.
6. Realco Preferred Vendor Programs
--------------------------------
6.1 Except as set forth in this Section 6, Realco intends to make direct
purchases from third parties for products and services respecting its hotels.
Notwithstanding the foregoing, Realco agrees that Franchising may negotiate with
third party vendors of hotel services and products with respect to the provision
of such services and products to Realco. Once an opportunity to make a purchase
on behalf of Realco is identified by Franchising, Franchising will promptly
consult with Realco to ensure that the economic terms and services to be
provided are equal to or better than those available to Realco, and that
entering into such an agreement would not be inconsistent with any then existing
agreements to which Realco is a party. Realco shall then promptly advise
Franchising in writing whether it grants Franchising the authority to negotiate
the relevant purchase for execution by Realco.
6.2 No agreement negotiated by Franchising on behalf of Realco shall
contain a price commitment for a period greater than one year. In addition,
Realco will be entitled to receive the benefits of any other provisions
negotiated by Franchising on behalf of its other franchisees with such vendors.
7. Dispute Resolution
------------------
7.1 Any dispute, controversy or disagreement ("Dispute") between the
Parties related to the obligations of the Parties under this Agreement in
respect to which an amicable resolution cannot be reached shall be submitted for
mediation to a committee made up of an equal number of non-common members of
each company's Board of Directors ("Committee"). If the Parties
4
<PAGE>
are unable to reach an amicable resolution of a Dispute within thirty days after
submission to the Committee, then, to the maximum extent allowed by law, the
Dispute shall be submitted and resolved by final and binding arbitration in
Baltimore, Maryland administered by JAMS-Endispute in accordance with JAMS-
Endispute's rules of practice then in effect or such other procedures as the
Parties may agree upon: provided, however, that any Party may seek injunctive
relief and enforcement of any award rendered pursuant to the arbitration
provisions of this Section 7 by bringing a suit in any court of competent
jurisdiction. Any award issued as a result of such arbitration shall be final
and binding between the Parties thereto and shall be enforceable by any court
having jurisdiction over the Party against whom enforcement was sought and
application may be made to such court for judicial acceptance of the award and
order of enforcement. The fees and expenses of arbitration (including reasonable
attorneys' fees) shall be paid by the Party that does not prevail in such
arbitration.
7.2 Attorneys' Fees. If any Party to this Agreement brings an action to
----------------
enforce its rights under this Agreement, the prevailing Party shall be entitled
to recover its costs and expenses, including without limitation reasonable
attorneys' fees, incurred in connection with such action, including any appeal
of such action.
8. Modification
------------
8.1 This Agreement may only be amended, modified or supplemented in a
written agreement signed by both Parties.
9. Waiver
------
9.1 No term or condition of this Agreement shall be deemed to have been
waived nor shall there be any estoppel against the enforcement of any provision
hereof, except by written instrument of the party charged with such waiver or
estoppel.
10. Governing Law
--------------
10.1 This Agreement shall be construed in accordance with the laws of the
State of Maryland without giving effect to the principles of conflict of laws.
11. Construction
------------
11.1 In the event of a conflict between the terms of this Agreement, and
the terms of a franchise agreement executed by the Parties pursuant to this
Agreement, the terms of the franchise agreement shall control.
12. Headings
--------
12.1 The headings of the sections of this Agreement are for convenience
only and shall not affect the construction of this Agreement.
5
<PAGE>
13. Notices
-------
13.1 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:
Sunburst Hospitality Corporation
10770 Columbia Pike
Silver Spring, Maryland 20901
Attention: General Counsel
To Franchising:
Choice Hotels International, Inc.
10750 Columbia Pike
Silver Spring, Maryland 20901
Attention: General Counsel
14. Assignment
----------
14.1 Neither Party shall sell, assign, pledge or otherwise transfer its
interest in this Agreement or any part thereof without the prior written consent
of the other Party, except to an entity succeeding to substantially all of the
business and operations of such Party. The transferring Party shall remain
liable for liabilities and obligations existing at the time of such transfer.
Subject to the foregoing, this Agreement shall bind and inure to the benefit of
the Parties' respective successors and permitted assigns.
15. Counterparts
------------
15.1 This Agreement may be executed in two counterparts, each of which
shall be deemed an original, but which together shall constitute one and the
same instrument.
16. No Joint Venture Or Agency
--------------------------
16.1 This Agreement is not intended to create a joint venture, partnership
or any other similar arrangement between the Parties, and neither Party shall be
authorized to act as an agent of the other Party, except as expressly provided
herein. Notwithstanding the foregoing, each Party shall be free to designate
the other as its agent for appropriate purposes.
17. Severability
------------
17.1 If any provision of this Agreement shall to any extent be invalid or
unenforceable, the remainder of this Agreement shall not be affected thereby,
and each provision shall be valid and enforceable to the fullest extent
permitted by law.
6
<PAGE>
18. Entire Agreement
----------------
18.1 This Agreement contains the entire Agreement between the Parties
hereto. There are no representations, inducements, promises, arrangements,
agreements or undertakings, oral or written, between the Parties other than
those set forth herein respecting the matters addressed in this Agreement. In
entering this Agreement, each of the Parties agrees that it did not rely on any
promises, representations or agreements not expressly contained herein.
19. Consent to Jurisdiction
-----------------------
Subject to Section 7.1 hereof, 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. The parties hereby irrevocably designate, appoint and empower
Prentice Hall Corporation System, Inc. as its true and lawful agent and
attorney-in-fact in its name, place, and stead to receive on its behalf service
of process in any action, suit, or proceeding with respect to any matters as to
which it has submitted to jurisdiction as set forth in the immediately preceding
sentence.
IN WITNESS THEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
CHOICE HOTELS FRANCHISING, INC.
By: /s/ Michael J. DeSantis
------------------------------
Name: Michael J. DeSantis
Title: Senior Vice President
CHOICE HOTELS INTERNATIONAL, INC.
By: /s/ Edward A. Kubis
------------------------------
Name: Edward A. Kubis
Title: Senior Vice President
7
<PAGE>
EXHIBIT A
---------
[LODGING BRAND NAME]/*/
FRANCHISE AGREEMENT
-------------------
THIS AGREEMENT is made in Silver Spring, Maryland, effective on the __
day of ________________, 199_, between Choice Hotels Franchising, Inc., a
Delaware corporation ("we" or "us"), and Sunburst Hospitality Corporation.
INTRODUCTION
------------
We own a system ("System") for providing lodging accommodations with a
high standard of service, courtesy and cleanliness which uses distinctive
identification, trademarks and service marks, standards, and specifications; and
Our System includes our advance reservation system and our business
referral and credit card arrangements; and
You want to use our System at your hotel on the terms and conditions in
this Agreement; and
Our System's value and success, and the success of your hotel, depends
in large part on your operating and maintaining your hotel in accordance with
the System.
AGREEMENT
---------
We and you agree:
- -----------------
/*/ This form of agreement shall be conformed, in any particular case, in
accordance with the provisions of Schedule 1 pertaining to the applicable
brand.
A-1
<PAGE>
I. DEFINITIONS.
A. "Hotel" is the property at PROPERTY ADDRESS ("Location") and
includes the building, land and all improvements, structures,
fixtures, amenities, equipment, furniture and related rights,
privileges and properties. The Hotel will be operated only under the
name [Lodging Brand Name].
B. "Rentable Rooms" means the total number of rentable sleeping rooms in
the Hotel. The Rentable Rooms for the Hotel is ROOM COUNT.
C. "Designated Representative" is your representative for matters about
this Agreement. Until you change the Designated Representative under
section 15 below, your Designated Representative is REP NAME whose
address is REP ADDRESS.
D. "Opening Date" is the date on which you begin to rent sleeping rooms
to the public at the Hotel under this Agreement.
E. "Gross Room Revenues" are revenues from the rental, sale, use or
occupancy of sleeping rooms and meeting rooms at the Hotel, including
cash and credit transactions, whether or not collected by you. Gross
Room Revenues does not include taxes required by law, revenues from
telephone calls, vending machines, room service or food and beverages
sales.
F. "Hotel Goods" are all furniture, fixtures, equipment, signs and
supplies used in the Hotel construction and operation.
G. "Marks" are the trademarks, trade names, service marks and logos
[_____________________________________________________________________
_______________________________], and the related logo, including
designs, stylized letters, and colors that we permit you to use at the
Hotel and in advertising for the Hotel.
A-2
<PAGE>
H. "Manuals" are our published materials containing, among other things,
our standards, requirements and recommendations for constructing,.
equipping, furnishing, supplying, operating, maintaining and marketing
the Hotel.
I. Rules and Regulations" are our published materials containing, among
other things, our standards and requirements for constructing,
equipping, furnishing, supplying, operating, maintaining and marketing
the Hotel.
II. GRANT OF LICENSE. WE GRANT TO YOU A NON-EXCLUSIVE LICENSE TO USE THE SYSTEM
AND THE MARKS [________] AND [_____________] IN OPERATING THE HOTEL.
III. TERM. THE TERM OF THIS AGREEMENT ("TERM") IS FROM THE DATE THIS AGREEMENT
IS SIGNED BY BOTH PARTIES TO THE DATE [20] YEARS AFTER THE OPENING DATE.
IV. FEES AND REPORTS.
A. ROYALTY FEE. BEGINNING ON THE OPENING DATE, YOU WILL PAY US A ROYALTY
-----------
FEE OF [__%] OF YOUR GROSS ROOM REVENUES EACH MONTH DURING THE TERM AS
SET FORTH IN EXHIBIT [__] ATTACHED HERETO.
B. MARKETING FEE. BEGINNING ON THE OPENING DATE, YOU WILL PAY US A
-------------
MARKETING FEE OF [__%] OF YOUR GROSS ROOM REVENUES EACH MONTH DURING
THE TERM AS SET FORTH IN EXHIBIT [__] ATTACHED HERETO. [WE MAY
INCREASE THE MARKETING FEE FOR INCREASES IN INFLATION OR COSTS OF
ADVERTISING, PUBLICITY, PUBLIC RELATIONS, OR MARKETING SO LONG AS ANY
MARKETING FEE INCREASES APPLY TO ALL OR MOST OF THE U.S. HOTELS IN THE
SYSTEM UNLESS WE GET YOUR APPROVAL TO A GREATER AMOUNT.]
C. RESERVATION FEE. BEGINNING ON THE OPENING DATE, YOU WILL PAY US A
---------------
RESERVATION FEE OF [__%] OF YOUR GROSS ROOM REVENUES EACH MONTH DURING
THE TERM AS SET FORTH IN EXHIBIT [__] ATTACHED HERETO. [WE MAY
INCREASE THE RESERVATION FEE FOR INCREASES IN INFLATION OR OTHER COSTS
SO LONG AS ANY RESERVATION FEE INCREASES APPLY TO ALL OR MOST OF THE
U.S. HOTELS IN THE SYSTEM UNLESS WE GET YOUR APPROVAL TO A GREATER
AMOUNT.]
A-3
<PAGE>
D. PAYMENTS AND REPORTS. WITHIN 10 DAYS AFTER THE END OF EACH CALENDAR
--------------------
MONTH, YOU WILL SEND US A STATEMENT (IN A FORM THAT WE REQUIRE)
SHOWING THE HOTEL'S GROSS ROOM REVENUES, OCCUPANCY AND OTHER RELATED-
INFORMATION THAT WE REQUEST. YOU WILL CERTIFY THAT YOUR REPORTS ARE
TRUE AND ACCURATE. WE WILL BILL YOU FOR AMOUNTS DUE ON OR ABOUT THE
15TH DAY OF EACH MONTH, AND YOU WILL PAY US THOSE AMOUNTS BY THE FIRST
DAY OF THE FOLLOWING MONTH. YOU WILL PARTICIPATE IN COMPUTERIZED
INFORMATION REPORTING PROGRAMS AND ELECTRONIC FUND PAYMENT PROGRAMS
THAT WE MAY ADOPT FOR USE BY HOTELS IN THE SYSTEM. YOU MAY NEED TO BUY
COMPUTER HARDWARE AND RELATED TELEPHONE SERVICES TO PARTICIPATE IN
SUCH PROGRAMS. IF YOU DO NOT TIMELY SEND US THE REQUIRED REPORTS:
1. WE WILL ESTIMATE YOUR GROSS ROOM REVENUES FOR INTERIM BILLING
PURPOSES; AND
2. YOU WILL BE IN BREACH OF THE AGREEMENT AND MUST PAY US A LATE
CHARGE OF 1.5% OF YOUR PREVIOUS MONTH'S ROYALTY FEE, BUT NOT LESS
THAN $50.
We will consider interim bills accurate until we receive your late
monthly reports.
A-4
<PAGE>
E. ANNUAL REPORTS. IF WE REQUEST, YOU WILL SEND US A PROFIT AND LOSS
--------------
STATEMENT FOR THE HOTEL FOR THE PRIOR FISCAL YEAR IN A FORM MEETING
OUR RULES AND REGULATIONS. YOU WILL CERTIFY THAT THIS ANNUAL STATEMENT
IS ACCURATE, COMPLETE AND TRUE.
F. KEEPING RECORDS. YOU WILL KEEP AT THE HOTEL OR, IF YOU NOTIFY US IN
---------------
WRITING, YOUR PRINCIPAL PLACE OF BUSINESS, FOR AT LEAST 3 YEARS,
ACCURATE HOTEL ACCOUNTS, BOOKS, RECORDS AND DATA, INCLUDING
INFORMATION ON HOTEL ROOM RENTALS, GROSS ROOM REVENUES AND
PROFITABILITY ("HOTEL DATA"). YOU WILL ALLOW US TO EXAMINE, AUDIT, AND
COPY THE HOTEL DATA DURING YOUR NORMAL BUSINESS HOURS. IF WE REQUEST
IN WRITING, YOU WILL SEND US COPIES OF THE HOTEL DATA. IF WE FIND, BY
AN AUDIT OF THE HOTEL DATA, THAT YOU UNDERPAID ANY FEES DUE US UNDER
THIS AGREEMENT, YOU MUST PAY US ALL UNDERPAID AMOUNTS, PLUS INTEREST
AT THE RATE IN SECTION 4.G BELOW. IF YOU UNDERPAID US BY MORE THAN 5%
OF FEES PAYABLE DURING THE PERIOD OF THIS AUDIT, YOU MUST ALSO PAY THE
REASONABLE COSTS OF THE AUDIT.
G. INTEREST. YOU WILL PAY US INTEREST ON AMOUNTS NOT PAID ON TIME AT THE
--------
RATE OF 1.5% PER MONTH OR PORTION OF THAT MONTH, BUT NOT MORE THAN THE
MAXIMUM INTEREST RATE PERMITTED BY APPLICABLE LAWS.
V. OUR DUTIES. We will:
A. LOAN TO YOU ONE COPY OF THE CURRENT MANUALS AND OF THE RULES AND
REGULATIONS. THESE ARE OUR PROPERTY AND WE MAY CHANGE THEM
PERIODICALLY;
B. PROVIDE TO YOU AND UP TO TWO HOTEL EMPLOYEES AN INITIAL ORIENTATION
PROGRAM. YOU PAY THE COSTS OF TUITION, TRAVEL EXPENSES AND LIVING
EXPENSES FOR THIS PROGRAM;
C. PERIODICALLY INSPECT THE HOTEL, EVALUATE YOUR COMPLIANCE WITH THIS
AGREEMENT AND THE RULES AND REGULATIONS, AND ADVISE YOU ON CHANGES
NECESSARY TO BRING THE HOTEL INTO SYSTEM COMPLIANCE;
A-5
<PAGE>
D. USE THE MARKETING FEE RECEIVED FROM YOU AND OTHER FRANCHISEES USING
THE SAME BRAND, FOR ADVERTISING, PROMOTION, PUBLICITY, MARKETING
RESEARCH, SYSTEM PROGRAMS AND RELATED ACTIVITIES. WE WILL PUBLISH AND
DISTRIBUTE TO THE TRAVELING PUBLIC A DIRECTORY OF ALL SYSTEM HOTELS IN
GOOD STANDING;
E. USE THE RESERVATION FEE RECEIVED FROM YOU AND OTHER FRANCHISEES USING
THE SAME BRAND, FOR ADVANCE RESERVATION SERVICES FOR YOUR HOTEL AND
OTHER HOTELS WHICH BELONG TO THE SYSTEM (AND, IF WE CHOOSE TO DO SO,
FOR OTHER HOTEL SYSTEMS THAT WE OR OUR AFFILIATES OPERATE); AND
F. MAINTAIN IN CONFIDENCE ALL INFORMATION YOU PROVIDE US ABOUT THE
HOTEL'S OPERATIONS AND PROFITABILITY.
VI. YOUR DUTIES. After the Opening Date, you will:
A. OPERATE THE HOTEL ACCORDING TO THE AGREEMENT AND THE RULES AND
REGULATIONS. YOU MUST KEEP CURRENT YOUR COPY OF THE MANUALS AND OF THE
RULES AND REGULATIONS AND COMPLY WITH ANY CHANGES THAT WE MAKE IN THE
RULES AND REGULATIONS. IF A DISPUTE ARISES, OUR COPY OF THE MANUALS OR
RULES AND REGULATIONS WILL CONTROL. YOU MAY NOT SHARE THE CONFIDENTIAL
INFORMATION IN THE MANUALS OR THE RULES AND REGULATIONS EXCEPT WITH
AUTHORIZED EMPLOYEES;
B. OPERATE THE HOTEL EXCLUSIVELY UNDER THE MARKS, AS NOTED IN SECTION 7
BELOW;
C. MAINTAIN THE HOTEL INTERIOR AND EXTERIOR, INCLUDING PARKING AREAS OR
FOOD AND BEVERAGE FACILITIES LOCATED AT THE LOCATION (WHETHER OPERATED
BY YOU OR BY A THIRD PARTY UNDER A LEASE OR OTHER AGREEMENT WITH YOU),
IN A CLEAN, SOUND, AND ATTRACTIVE CONDITION AND IN GOOD REPAIR AT ALL
TIMES, REPAIRING, CLEANING, REDECORATING, REPAINTING, AND REPLACING
OBSOLETE OR OUTDATED SIGNS, EQUIPMENT, FURNISHINGS, AND FIXTURES AND
TAKING CORRECTIVE ACTION NECESSARY TO COMPLY WITH THE RULES AND
REGULATIONS;
D. MAINTAIN AND ONLY USE HOTEL GOODS DESCRIBED IN THE RULES, AND
REGULATIONS AND WHICH MEET OUR SPECIFICATIONS;
A-6
<PAGE>
E. USE IN THE HOTEL STATIONERY, BUSINESS CARDS, MARKETING MATERIALS,
ADVERTISING MATERIALS, PRINTED MATERIALS AND FORMS DESCRIBED IN THE
RULES AND REGULATIONS AND WHICH MEET OUR SPECIFICATIONS;
F. NOT PERMIT THE HOTEL TO BE USED FOR ANY PURPOSE OR ACTIVITY NOT
CONTEMPLATED IN THIS AGREEMENT WITHOUT OUR WRITTEN CONSENT;
G. SEND THE HOTEL GENERAL MANAGER(S), AT YOUR EXPENSE, TO OUR ORIENTATION
AND TRAINING PROGRAMS;
H. OBTAIN AND DISPLAY PROMINENTLY AT THE HOTEL, OUR APPROVED ILLUMINATED
EXTERIOR SIGNS. YOU MUST MAINTAIN THESE EXTERIOR SIGNS IN GOOD WORKING
ORDER AT ALL TIMES. IN DISPLAYING THE SIGNS, YOU ARE RESPONSIBLE FOR
COMPLYING WITH ALL APPLICABLE LAWS OR REGULATIONS;
I. OBTAIN, INSTALL AND MAINTAIN AT THE HOTEL OUR RECOMMENDED PROPERTY
MANAGEMENT SYSTEM;
J. ALLOW US TO ENTER THE HOTEL AT ANY REASONABLE TIME TO EVALUATE YOUR
COMPLIANCE WITH THIS AGREEMENT. DURING OUR EVALUATION, YOU WILL ASSIST
US OR OUR AGENT AND, SUBJECT TO AVAILABILITY, PROVIDE US WITH ONE FREE
HOTEL SLEEPING ROOM FOR ONE NIGHT;
K. SEND US PERIODICALLY YOUR HOTEL DESCRIPTION AND RATES THAT WE MAY
INCLUDE IN DIRECTORIES THAT WE MAY PUBLISH. IF YOU DO NOT SEND US
CHANGES BY THE DEADLINES WHICH ARE INDICATED, YOU WILL HONOR THE RATES
AND DESCRIPTIVE INFORMATION ON RECORD;
L. HONOR THE TERMS OF ANY DISCOUNT OR PROMOTIONAL PROGRAM THAT WE OFFER
TO-THE PUBLIC ON YOUR BEHALF, AND ANY ROOM RATE QUOTED TO ANY GUEST AT
THE TIME THE GUEST MAKES AN ADVANCE RESERVATION;
M. PAY REASONABLE TRAVEL AGENT COMMISSIONS AS REQUIRED BY THE RULES AND
REGULATIONS;
A-7
<PAGE>
N. USE YOUR BEST EFFORTS TO MAXIMIZE AND INCREASE HOTEL AND SYSTEM
BUSINESS. IF YOU ARE UNABLE TO ACCOMMODATE A POTENTIAL GUEST, YOU WILL
REFER THE GUEST TO OTHER SYSTEM HOTELS NEAR THE HOTEL. IF YOU REFER A
GUEST TO A NON-SYSTEM HOTEL WHERE NEARBY SYSTEM HOTELS HAVE SPACE
AVAILABLE, YOU MUST PAY US LIQUIDATED DAMAGES EQUAL TO THE AVERAGE
ROOM RATE (GROSS ROOM REVENUES DIVIDED BY THE NUMBER OF ROOMS RENTED)
FOR THE MONTH DURING WHICH THE VIOLATION OCCURRED;
O. PARTICIPATE IN OUR ADVANCE RESERVATION SYSTEM, MAKING RESERVATIONS AND
ACCEPTING RESERVATIONS USING REQUIRED EQUIPMENT, SOFTWARE AND
PROCEDURES;
P. NOT CHANGE THE HOTEL'S RENTABLE ROOMS BY MORE THAN 5% FROM THE
ORIGINAL RENTABLE ROOM COUNT IN SECTION L.B OF THIS AGREEMENT WITHOUT
RECEIVING OUR PRIOR WRITTEN CONSENT AND OBEYING OTHER RESTRICTIONS OF
THIS AGREEMENT, AND NOTIFY US IN WRITING AND OBEY OTHER RESTRICTIONS
IN THIS AGREEMENT IF YOU CHANGE THE RENTABLE ROOM COUNT BY 5% OR LESS
FROM THE NUMBER STATED IN SECTION L.B; AND
Q. ADVERTISE AND PROMOTE THE HOTEL IN A WAY THAT MEETS OUR STANDARDS AND
REQUIREMENTS.
VII. MARKS.
A. YOU WILL NOT CONTEST OUR RIGHTS TO THE CURRENT OR FUTURE SYSTEM AND
MARKS, OR OUR RIGHT TO GRANT TO OTHERS USE OF THE MARKS;
B. YOU MUST NOT INCLUDE THE MARKS OR ANY WORDS RESEMBLING THE MARKS IN
YOUR NAME OR THE NAME OF ANY OF YOUR AFFILIATES, WHETHER A
PARTNERSHIP, CORPORATION, JOINT VENTURE OR ANY OTHER TYPE OF BUSINESS
ORGANIZATION;
C. YOU UNDERSTAND THAT THE MARKS ARE AND WILL REMAIN OUR PROPERTY, AND
THAT YOUR USE OF THE MARKS INURES TO OUR BENEFIT. YOU WILL IMMEDIATELY
ASSIGN TO US ANY RIGHTS TO THE MARKS THAT YOU MAY GAIN THROUGH YOUR
USE OF THE MARKS;
D. IF YOU ARE REQUIRED BY LAW TO REGISTER THE MARKS, YOUR REGISTRATION
APPLICATION MUST SPECIFY THAT YOU USE THE MARKS:
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1. ONLY AT THE HOTEL AND IN ADVERTISING FOR THE HOTEL;
2. ONLY DURING THE TERM; AND
3. WITHOUT CLAIMING ANY PROPERTY RIGHT IN THE MARKS DURING
OR AFTER THE TERM.
E. YOU WILL NOT INTERFERE WITH OUR USE OR REGISTRATION OF THE MARKS, OR
WITH USE OF THE MARKS BY OTHER HOTELS;
F. YOU MUST PROMPTLY NOTIFY US OF ANY SUIT FILED OR DEMAND MADE AGAINST
YOU CHALLENGING THE VALIDITY OF ANY OF THE MARKS ("MARK CLAIM"). WE
AGREE TO PROTECT AND DEFEND YOU AGAINST A MARK CLAIM, AND TO DEFEND
AND INDEMNIFY YOU AGAINST YOUR LOSS, COST OR EXPENSE RELATED TO THE
MARK CLAIM. YOU MAY NOT SETTLE OR COMPROMISE A MARK CLAIM WITHOUT OUR
PRIOR WRITTEN CONSENT. WE MAY DEFEND, COMPROMISE OR SETTLE A MARK
CLAIM AT OUR EXPENSE, USING OUR ATTORNEYS, AND YOU MUST COOPERATE WITH
US WITH THE DEFENSE. WE ARE NOT OBLIGATED TO DEFEND OR INDEMNIFY YOU
IF THE MARK CLAIM AROSE BECAUSE YOU USED THE MARKS IN VIOLATION OF
THIS AGREEMENT; AND
G. YOU HAVE NO RIGHT TO SUBLICENSE ANYONE ELSE TO USE THE MARKS OR THE
SYSTEM.
VIII. FUTURE ADDITIONS. You may not begin constructing additional sleeping rooms
or make substantial alterations to the Hotel without our prior written consent,
which we are under no obligation to give. In order to apply for our consent, you
must send us your construction plans and pay us an expansion fee for each
additional sleeping room equal to the per-room charge under new franchises for
this brand, but the expansion fee will be not less than $1,000. We will add the
additional sleeping rooms to the Rentable Rooms, and include revenues from the
additional sleeping rooms and any additional meeting rooms in calculating the
Gross Room Revenues for determining fees due under this Agreement.
IX. ASSIGNMENT.
A. OUR ASSIGNMENT. WE MAY ASSIGN ALL OR PART OF OUR RIGHTS OR
--------------
OBLIGATIONS UNDER THIS AGREEMENT TO ANY PERSON OR LEGAL ENTITY. WE
ARE NOT RELIEVED OF OUR OBLIGATIONS UNDER THIS AGREEMENT BY ASSIGNING
THE AGREEMENT.
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B. YOUR ASSIGNMENT. YOUR RIGHTS AND DUTIES UNDER THIS AGREEMENT ARE
---------------
PERSONAL TO YOU. WE GRANTED THIS AGREEMENT TO YOU IN RELIANCE ON YOUR
BUSINESS SKILL, FINANCIAL CAPACITY AND PERSONAL CHARACTER. YOU MAY NOT
SELL, ASSIGN, TRANSFER, OR OTHERWISE ENCUMBER ANY DIRECT OR INDIRECT
INTEREST THAT YOU HAVE IN THE HOTEL, IN YOU, OR IN ANY RIGHTS OR
OBLIGATIONS CREATED BY THIS AGREEMENT WITHOUT GIVING US AT LEAST 15
DAYS PRIOR WRITTEN NOTICE AND OBTAINING OUR PRIOR WRITTEN CONSENT. OUR
CONSENT WILL NOT BE REQUIRED FOR A MORTGAGE, FOR A COLLATERAL
ASSIGNMENT OF THE FRANCHISE AGREEMENT AS COLLATERAL FOR A MORTGAGE, OR
FOR THE SALE OR TRANSFER BY ANY PARTY OF SECURITIES IN A PUBLICLY-
TRADED CORPORATION OR ENTITY WHICH INDIVIDUALLY, OR IN THE AGGREGATE
WITH OTHER SALES OR TRANSFERS BY A PARTY, CONSTITUTE THE SALE OR
TRANSFER OF LESS THAN 5% OF THE OUTSTANDING CAPITAL STOCK OR OTHER
EQUITY INTERESTS IN THE CORPORATION OR ENTITY. IF YOU ASSIGN OR
TRANSFER THE HOTEL OR THIS AGREEMENT WITHOUT OUR WRITTEN CONSENT, YOU
BREACH THIS AGREEMENT AND WE MAY TERMINATE THIS AGREEMENT.
C. CONDITIONS FOR ASSIGNMENT: APPROVAL. IF YOU WISH TO TRANSFER YOUR
-----------------------------------
INTEREST IN THE HOTEL OR YOUR CONTROLLING INTEREST IN YOU, OR IN THIS
AGREEMENT, ALONE OR TOGETHER WITH OTHER PREVIOUS, SIMULTANEOUS, OR
PROPOSED TRANSFERS, YOU MUST FIRST:
1. SATISFY ALL OF YOUR ACCRUED MONETARY OBLIGATIONS AND ALL OTHER
OUTSTANDING OBLIGATIONS TO US;
2. CURE ANY DEFAULT OF THIS AGREEMENT (INCLUDING ANY AMENDMENTS) OR
OF ANY OTHER AGREEMENT BETWEEN YOU AND US;
3. EXECUTE A GENERAL RELEASE, IN A FORM THAT WE APPROVE, OF ANY AND
ALL CLAIMS AGAINST US AND OUR OFFICERS, DIRECTORS, SHAREHOLDERS,
AND EMPLOYEES; AND
4. ENSURE THAT THE SUCCESSOR:
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a. EXECUTES (AND, IF THE SUCCESSOR IS A CORPORATION OR
PARTNERSHIP, THE BENEFICIAL OWNERS OF A CONTROLLING INTEREST
IN THE SUCCESSOR AS WE REQUEST) THE THEN-CURRENT FORM OF
AGREEMENT, FOR A TERM ENDING ON THE EXPIRATION DATE OF THIS
AGREEMENT, WHICH WILL REPLACE AND MAY DIFFER FROM THIS
AGREEMENT, INCLUDING A HIGHER ROYALTY FEE;
b. [PAYS US THE THEN-CURRENT AFFILIATION FEE;]
c. DEMONSTRATES, TO OUR SATISFACTION, THAT THE SUCCESSOR MEETS
OUR STANDARDS, POSSESSES A GOOD BUSINESS REPUTATION AND
CREDIT RATING, AND HAS THE ABILITY, FINANCIAL RESOURCES, AND
CAPITAL TO SUCCESSFULLY OPERATE THE HOTEL;
d. AGREES IN WRITING TO UPGRADE THE HOTEL, AT SUCCESSOR'S
EXPENSE AND WITHIN A SPECIFIED TIME, TO CONFORM TO OUR THEN-
CURRENT STANDARDS AND SPECIFICATIONS;
e. ATTENDS, ALONG WITH THE SUCCESSOR'S GENERAL MANAGER OF THE
HOTEL, OUR THEN CURRENT ORIENTATION PROGRAM; AND
f. OWNS THE ENTIRE LEASEHOLD OR FEE INTEREST IN THE HOTEL.
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D. TRANSFER ON DEATH OR MENTAL INCOMPETENCE. IF YOU OR ANY NATURAL
----------------------------------------
PERSON IN YOUR ENTITY DIES OR BECOMES MENTALLY INCOMPETENT, THE
EXECUTOR, ADMINISTRATOR, OR PERSONAL REPRESENTATIVE OF THAT
PERSON MUST TRANSFER THAT PERSON'S HOTEL INTEREST (WITHIN 6
MONTHS AFTER DEATH OR MENTAL INCOMPETENCE) TO ONE OR MORE OF THE
REMAINING PERSONS IN YOUR ENTITY (IF APPLICABLE) OR TO YOUR HEIRS
THAT WE APPROVE. THIS TRANSFER AND TRANSFERS BY DEVISE OR
INHERITANCE ARE SUBJECT TO THE SAME CONDITIONS APPLICABLE TO
OTHER TRANSFERS. IN TRANSFERRING BY DEVISE OR INHERITANCE,
HOWEVER, THE REPRESENTATIVE OR EXECUTOR MUST DISPOSE (WITHIN A
REASONABLE TIME) OF THE INTEREST, SUBJECT TO THE TERMS OF THIS
AGREEMENT, IF THE HEIRS OR BENEFICIARIES ARE UNABLE TO MEET THE
CONDITIONS OF THIS AGREEMENT. EXCEPT AS OTHERWISE PROVIDED IN
THIS AGREEMENT, WE MAY TERMINATE THIS AGREEMENT IF THE INTEREST
IS NOT DISPOSED OF WITHIN 6 MONTHS OF DEATH OR MENTAL
INCOMPETENCE.
E. NON-WAIVER OF CLAIMS. IF WE CONSENT TO YOUR TRANSFER OF ANY
--------------------
INTEREST GRANTED UNDER THIS AGREEMENT, WE DO NOT:
1. WAIVE CLAIMS THAT WE MAY HAVE AGAINST YOU, INCLUDING CLAIMS
FOR INDEMNIFICATION; OR
2. WAIVE OUR RIGHT TO DEMAND THAT YOU OR SUCCESSOR COMPLY WITH
ANY SECTION OF THIS AGREEMENT OR WITH ANY SUBSEQUENT
TRANSFER.
F. CONTROLLING INTEREST. FOR PURPOSES OF THIS AGREEMENT,
--------------------
"CONTROLLING INTEREST" INCLUDES ANY GENERAL PARTNER'S INTEREST IN
A PARTNERSHIP ENTITY, THE OWNER(S) OF 50% OR MORE OF THE VOTING
STOCK OF A CORPORATE ENTITY, AND THE OWNER(S) OF 50% OR MORE OF
THE MEMBER'S INTERESTS IN A LIMITED LIABILITY COMPANY.
X. DEFAULT AND TERMINATION.
A. TERMINATION BY YOU. IF WE DEFAULT IN OUR MATERIAL OBLIGATIONS
------------------
UNDER THIS AGREEMENT, YOU MAY TERMINATE THIS AGREEMENT ONLY IF WE
DO NOT CURE THOSE DEFAULTS WITHIN 30 DAYS FROM RECEIVING YOUR
WRITTEN NOTICE.
B. TERMINATION BY US.
-----------------
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1. TERMINATION WITH NOTICE. WE MAY TERMINATE THIS AGREEMENT,
-----------------------
EFFECTIVE ON THE DATE SPECIFIED IN OUR NOTICE (OR THE EARLIEST
DATE PERMITTED BY LAW), IF YOU:
a. DO NOT SEND US CONSTRUCTION PROGRESS REPORTS WHEN DUE OR
WITHIN 10 DAYS OF OUR NOTICE OF DEFAULT TO YOU;
b. DO NOT PAY US FEES OR OTHER AMOUNTS DUE UNDER THIS
AGREEMENT WHEN DUE OR WITHIN 10 DAYS OF OUR NOTICE OF
DEFAULT TO YOU;
c. DO NOT BEGIN CONSTRUCTION OF THE HOTEL ON TIME OR, ONCE
BEGUN, DO NOT CONTINUE WITHOUT INTERRUPTIONS THE
CONSTRUCTION OF THE HOTEL OR RENOVATIONS TO THE HOTEL;
d. DO NOT SEND US MONTHLY REPORTS WHEN DUE OR WITHIN 10 DAYS OF
OUR NOTICE OF DEFAULT TO YOU;
e. DO NOT CURE FULLY ANY OTHER BREACH OF YOUR OBLIGATIONS OR
WARRANTIES UNDER THIS AGREEMENT WITHIN 30 DAYS OF OUR NOTICE
OF DEFAULT TO YOU;
f. MATERIALLY BREACH ANY OTHER AGREEMENT WITH US OR OUR
AFFILIATES, OR ANY MORTGAGE, DEED OF TRUST OR LEASE COVERING
THE HOTEL, UNLESS CURED WITHIN ANY APPLICABLE NOTICE OR
GRACE PERIODS CONTAINED IN THOSE DOCUMENTS; OR
g. RECEIVE 2 OR MORE NOTICES OF DEFAULT UNDER THIS AGREEMENT
FOR THE SAME OR A SIMILAR CAUSE OR REASON IN ANY CONSECUTIVE
12 MONTH PERIOD, WHETHER OR NOT CURED.
If the validity of the termination of this Agreement is disputed,
either party may introduce evidence of a breach of this Agreement or evidence of
any claim associated with the Hotel, including any facilities that are managed
by others at the Hotel, even if not contained in the default notice.
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2. IMMEDIATE TERMINATION EFFECTIVE ON NOTICE. WE MAY TERMINATE THIS
-----------------------------------------
AGREEMENT IMMEDIATELY, WITHOUT GIVING YOU AN OPPORTUNITY TO CURE
THE DEFAULT, IF:
a. YOU STOP INDEFINITELY CONSTRUCTION OF THE HOTEL;
b. THERE IS AN IMMINENT THREAT OR DANGER TO PUBLIC HEALTH OR
SAFETY RESULTING FROM HOTEL CONSTRUCTION, MAINTENANCE, OR
OPERATION;
c. YOU STOP OPERATING THE HOTEL AS PART OF THE SYSTEM, YOU
ABANDON THE HOTEL OR THE LOCATION, YOU LOSE THE RIGHT TO
POSSESS THE HOTEL, OR YOU FORFEIT THE RIGHT TO DO OR
TRANSACT BUSINESS IN THE JURISDICTION IN WHICH THE HOTEL IS
LOCATED;
d. YOU (OR A BENEFICIAL OWNER OF YOU) ARE CONVICTED OF A
FELONY, A FRAUD, A CRIME INVOLVING MORAL TURPITUDE OR ANY
OTHER CRIME OR OFFENSE THAT WE BELIEVE IS LIKELY TO HAVE AN
ADVERSE EFFECT ON THE SYSTEM, THE MARKS, OUR GOODWILL, OR
OUR INTEREST IN THIS AGREEMENT;
e. YOU (OR A BENEFICIAL OWNER OF YOU) TRANSFER OR PURPORTS TO
TRANSFER ANY RIGHTS OR OBLIGATIONS UNDER THIS AGREEMENT OR
ANY CONTROLLING INTEREST IN YOU WITHOUT OUR PRIOR WRITTEN
CONSENT;
f. YOU KNOWINGLY MAINTAIN FALSE BOOKS OR RECORDS, SEND US FALSE
REPORTS, OR MAKE ANY MATERIALLY FALSE STATEMENT IN YOUR
FRANCHISE APPLICATION;
g. YOU DO NOT OPEN THE HOTEL TO THE PUBLIC AS PART OF THE
SYSTEM;
h. YOU DO NOT BUY, MAINTAIN OR SEND US EVIDENCE OF INSURANCE
REQUIRED IN THIS AGREEMENT; OR
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i. YOU BECOME INSOLVENT OR MAKE A GENERAL ASSIGNMENT FOR THE
BENEFIT OF CREDITORS; YOU FILE A PETITION IN BANKRUPTCY OR A
PETITION IS FILED AGAINST YOU AND YOU DO NOT OPPOSE IT; YOU
ARE JUDGED BANKRUPT OR INSOLVENT; YOU FILE OR CONSENT TO A
BILL IN EQUITY OR OTHER PROCEEDING FOR THE APPOINTMENT OF A
RECEIVER OR OTHER CUSTODIAN FOR YOUR BUSINESS OR ASSETS; A
RECEIVER OR OTHER CUSTODIAN (PERMANENT OR TEMPORARY) OF YOUR
ASSETS OR PROPERTY IS APPOINTED BY ANY COURT OF COMPETENT
JURISDICTION; A FINAL JUDGMENT REMAINS UNSATISFIED OR OF
RECORD FOR 30 DAYS OR LONGER (UNLESS A SUPERSEDEAS BOND IS
FILED); OR THE HOTEL REAL OR PERSONAL PROPERTY WILL BE SOLD
AFTER LEVY BY ANY SHERIFF, MARSHAL, OR CONSTABLE.
C. SUSPENSION OF FRANCHISE RIGHTS. WHEN YOU BREACH YOUR
------------------------------
MATERIAL OBLIGATIONS REQUIRED BY THIS AGREEMENT, WE MAY, WITHIN 10
DAYS OF OUR WRITTEN NOTICE (OR LONGER TIME REQUIRED BY LAW):
1. SUSPEND ANY OR ALL SERVICES TO YOU, OR
2. SUSPEND YOUR RIGHT TO USE THE MARKS.
We will reinstate this Agreement, the suspended services or the right
to use the Marks if you cure your default before the Agreement terminates and if
we determine that reinstatement would not cause a substantial loss of goodwill.
If we suspend services or your right to use the Marks, we may use other
remedies, including termination of this Agreement after the appropriate time to
cure has lapsed.
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D. OUR REMEDIES.
------------
1. WHENEVER THIS AGREEMENT IS TERMINATED, WE WILL REMOVE THE HOTEL
FROM DIRECTORIES AND ADVERTISING AND DISCONNECT THE HOTEL FROM
THE ADVANCE RESERVATIONS SYSTEM.
2. IF WE TERMINATE THIS AGREEMENT BEFORE THE OPENING DATE DUE TO
YOUR DEFAULT, YOU WILL PAY US, AS LIQUIDATED DAMAGES FOR THE
PREMATURE TERMINATION AND NOT AS A PENALTY, THE PRODUCT OF THE
RENTABLE ROOMS MULTIPLIED BY $3,000.
3. IF WE TERMINATE THIS AGREEMENT ON OR AFTER THE OPENING
DATE DUE TO YOUR DEFAULT, YOU WILL PAY US, WITHIN 30 DAYS AFTER
TERMINATION, AS LIQUIDATED DAMAGES AND NOT AS A PENALTY, THE
PRODUCT OF:
(1) THE AVERAGE MONTHLY GROSS ROOM REVENUES DURING THE
PRIOR 12 FULL CALENDAR MONTHS (OR THE SHORTER TIME
THAT THE HOTEL HAS BEEN IN THE SYSTEM), MULTIPLIED BY
(2) THE ROYALTY FEE PAYABLE IN THE REMAINING MONTHS,
MULTIPLIED BY
(3) THE NUMBER OF MONTHS UNTIL THE NEXT DATE ON WHICH YOU
COULD HAVE TERMINATED THIS AGREEMENT WITHOUT A
PENALTY ("REMAINING MONTHS"), NOT TO EXCEED 60
MONTHS.
However, the product of (i) multiplied by (ii) will not be less than
the product of $40.00 multiplied by the Rentable Rooms. We may also seek
equitable relief to collect amounts accrued before termination, or to enforce
survival of indemnification by you. You understand that the injury to us caused
by your breach is difficult or impossible to accurately estimate, and that the
above method of computation of liquidated damages constitutes a reasonable
estimate of our probable loss from your breach.
You will also pay us any applicable taxes assessed on the payment of
liquidated damages.
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XI. OBLIGATIONS ON TERMINATION. On termination of this Agreement for any
reason, you must, at your expense:
A. IMMEDIATELY DISCONTINUE ANY AND ALL USE OF THE MARKS, OR ANY WORD
OR MARK SIMILAR TO THE MARKS, AND REFRAIN FROM IDENTIFYING THE
HOTEL AS A [LODGING BRAND NAME] HOTEL OR A FORMER [LODGING BRAND
NAME] HOTEL. IF YOU DO NOT DISCONTINUE USE OF THE MARKS, WE WILL
SEEK INJUNCTIVE AND EQUITABLE RELIEF FOR YOUR INFRINGEMENT. YOU
AGREE THAT YOU WILL WAIVE, TO THE MAXIMUM EXTENT, ANY BOND REQUIRED
WITH THE ISSUANCE OF ANY INJUNCTION, AND THAT IF A BOND IS
REQUIRED, IT WILL NOT EXCEED $1,000;
B. CANCEL ANY ASSUMED NAME OR SIMILAR REGISTRATION CONTAINING THE
MARKS OR ANY VARIATION OR PORTION OF THE MARKS, AND FURNISH US WITH
EVIDENCE SHOWING THAT YOU COMPLIED WITH THIS OBLIGATION WITHIN 30
DAYS AFTER TERMINATION OR EXPIRATION OF THE AGREEMENT;
C. PROMPTLY PAY ALL SUMS OWING TO US AND OUR SUBSIDIARIES OR
AFFILIATES, AND ALL DAMAGES, COSTS, AND EXPENSES, INCLUDING
REASONABLE ATTORNEY'S FEES, THAT WE INCUR AS A RESULT OF YOUR
DEFAULT, INCLUDING OUTSTANDING ROYALTY FEES, MARKETING FEES,
RESERVATIONS FEES AND ANY LIQUIDATED DAMAGES DUE UNDER THIS
AGREEMENT;
D. PAY US ALL DAMAGES, COSTS AND EXPENSES, INCLUDING REASONABLE
ATTORNEYS' FEES, THAT WE INCUR AFTER THE TERMINATION OR EXPIRATION
OF THE TERM IN OBTAINING INJUNCTIVE OR OTHER RELIEF FOR THE
ENFORCEMENT OF ANY SECTION OF THIS AGREEMENT;
E. IMMEDIATELY SEND US ALL ORIGINALS AND COPIES OF MANUALS, THE RULES
AND REGULATIONS, RECORDS, FILES, INSTRUCTIONS, CORRESPONDENCE AND
ALL OTHER MATERIALS THAT WE PROVIDED TO YOU. EXCEPT FOR YOUR COPY
OF THIS AGREEMENT AND OTHER DOCUMENTS WHICH YOU REASONABLY NEED TO
COMPLY WITH THE LAW, YOU MAY NOT RETAIN ANY MATERIAL THAT WE GAVE
YOU DURING THE TERM; AND
F. THE OBLIGATIONS IN THIS SECTION WILL SURVIVE THE TERMINATION OF
THIS AGREEMENT.
XII. INSURANCE.
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A. BEGINNING ON THE OPENING DATE AND FOR THE REST OF THE TERM, YOU
MUST PURCHASE AND MAINTAIN, AT YOUR EXPENSE, THE FOLLOWING
INSURANCE COVERAGES:
1. ALL-RISK PHYSICAL DAMAGE COVERAGE, INSURING THE HOTEL FOR AN
AMOUNT NOT LESS THAN 80% OF ITS REPLACEMENT COST, AND FULL
COVERAGE FOR 12 MONTHS OF BUSINESS INTERRUPTION. IF THE HOTEL
IS DAMAGED OR DESTROYED, UNLESS A MORTGAGEE REQUIRES
OTHERWISE, THE PROCEEDS OF ANY INSURANCE WILL BE USED TO
REPAIR OR RESTORE THE HOTEL IN ACCORDANCE WITH YOUR PLANS THAT
WE APPROVE. YOUR INSURANCE MUST CONTAIN A WAIVER OF
SUBROGATION IN OUR FAVOR AND THE FAVOR OF THE ADDITIONAL
INSUREDS;
2. COMMERCIAL AUTOMOBILE AND COMPREHENSIVE GENERAL LIABILITY
INSURANCE POLICIES WRITTEN ON AN OCCURRENCE FORM PROTECTING
YOU AS THE NAMED INSURED AND NAMING US AND OUR AFFILIATES AND
SUBSIDIARIES THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS AND
EMPLOYEES ("ADDITIONAL INSUREDS") AS ADDITIONAL INSUREDS FROM
AND AGAINST ALL TYPES OF LIABILITIES, INCLUDING PERSONAL
INJURY AND PROPERTY DAMAGE OF ANY NATURE, TOGETHER WITH THE
COSTS AND EXPENSES OF THE DEFENSE AND/OR ADJUSTMENT OF INJURY
OR DAMAGE, WITHOUT EXCEPTION, FROM OR IN ANY WAY RELATED TO
ANY OPERATION OR ACTIVITY CONDUCTED UNDER THIS AGREEMENT
AND/OR OF THE HOTEL, INCLUDING ADJACENT AREAS LIKE PARKING
LOTS, RESTAURANTS, BARS. YOUR AUTOMOBILE LIABILITY POLICY MUST
COVER OWNED, HIRED AND NON-OWNED VEHICLES. THE POLICIES
DESCRIBED IN THIS SECTION AND SECTION 12.A. 1 MUST APPLY TO
LAWSUITS OR ACTIONS BROUGHT ANYWHERE IN THE WORLD. THESE
POLICIES MUST PROVIDE LIMITS PER LOCATION OF NOT LESS THAN
$5,000,000 ($10,000,000 IF THE HOTEL HAS 6 OR MORE STORIES)
PER OCCURRENCE AND MUST BE ACCOMPANIED BY WAIVER OF
SUBROGATION. YOU MAY MEET THE REQUIRED TOTAL MINIMUM LIMITS
THROUGH A COMBINATION OF PRIMARY AND UMBRELLA POLICIES;
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3. COMPREHENSIVE GENERAL LIABILITY WRITTEN ON AN OCCURRENCE FORM
WHICH IS PRIMARY TO ANY COVERAGE THAT WE MAINTAIN AND WHICH
INCLUDES, WITHOUT LIMITATION, BROAD FORM CONTRACTUAL, PRODUCTS
AND COMPLETED OPERATIONS, INDEPENDENT CONTRACTORS, PERSONAL
INJURY, BROAD FORM PROPERTY DAMAGE, EXTENDED BODILY INJURY AND
HOST LIQUOR LIABILITY. IN ADDITION, IF ALCOHOLIC BEVERAGES ARE
SOLD AT THE HOTEL, YOU MUST PURCHASE AND MAINTAIN DRAM
SHOP/LIQUOR LIABILITY INSURANCE WITH LIMITS OF NOT LESS THAN
$5,000,000 PER OCCURRENCE; AND
4. STATUTORY WORKERS COMPENSATION AND EMPLOYERS LIABILITY
INSURANCE WITH MINIMUM EMPLOYERS LIABILITY LIMITS OF $100,000
BY ACCIDENT AND $100,000 BY DISEASE;
B. WE MAY CHANGE THE ABOVE INSURANCE COVERAGE REQUIREMENTS DURING THE
TERM BY GIVING YOU AT LEAST 30 DAYS NOTICE OF THE CHANGE. YOU MUST
COMPLY WITH OUR DIRECTIONS, AT YOUR EXPENSE, AND DELIVER US
EVIDENCE OF YOUR COMPLIANCE WITHIN 30 DAYS OF OUR NOTICE OF THE
CHANGE;
C. YOU MUST PLACE YOUR INSURANCE WITH AN INSURANCE COMPANY OR
COMPANIES REASONABLY ACCEPTABLE TO US. ALL INSURANCE REQUIRED WILL
BE SPECIFICALLY ENDORSED TO PROVIDE THAT THE COVERAGE WILL BE
PRIMARY AND THAT ANY INSURANCE CARRIED BY ADDITIONAL INSUREDS WILL
BE EXCESS AND NON-CONTRIBUTORY. IF WE REQUEST, YOU WILL SEND US
COMPLETE COPIES OF ALL OR ANY INSURANCE POLICIES;
D. YOU MUST SEND US, AT LEAST 10 DAYS BEFORE THE OPENING DATE (OR THE
CONSTRUCTION START IF APPLICABLE), CERTIFICATES OF INSURANCE
INDICATING YOUR UNIT NUMBER, THE HOTEL NAME AND ADDRESS, THE
ADDITIONAL INSUREDS, AND EVIDENCE THAT THE INSURANCE PREMIUMS HAVE
BEEN PAID. YOU MUST ALSO PROVIDE US WITH EVIDENCE OF RENEWAL BEFORE
THE EXPIRATION DATE OF INSURANCE. EACH POLICY AND CERTIFICATE OF
INSURANCE MUST INCLUDE A STATEMENT BY THE INSURER THAT THE POLICY
WILL NOT BE CANCELLED, REDUCED IN COVERAGE, OR OTHERWISE ALTERED
WITHOUT 30 DAYS ADVANCE WRITTEN NOTICE TO US;
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E. IF YOU DO NOT COMPLY WITH THIS SECTION, WE MAY, WITHOUT NOTICE, IN
ADDITION TO OTHER RIGHTS AND REMEDIES WHICH WE MAY HAVE,
IMMEDIATELY TERMINATE THIS AGREEMENT; AND
F. YOUR PURCHASE AND MAINTENANCE OF INSURANCE AND YOUR PERFORMANCE OF
YOUR OBLIGATIONS UNDER THIS AGREEMENT WILL NOT RELIEVE YOU OF YOUR
OBLIGATION TO INDEMNIFY US. WE DO NOT REPRESENT THAT THE ABOVE
INSURANCE COVERAGE WILL INSURE YOU AGAINST ANY OR ALL INSURABLE
RISKS FROM OR WITH THE HOTEL.
XIII. INDEMNIFICATION. You must defend, indemnify and hold harmless us, our
affiliates and subsidiaries, their respective officers, directors, agents and
employees from any loss, cost, damage, expense and liability, including
reasonable attorneys' fees and any court costs, by reason of damage or loss,
including personal injury, of any nature, from or connected with the Hotel
construction, or operation, or any facilities that are managed by others in the
Hotel, or out of, or as a result of, your (or your agent's or employee's) error,
omission, act or failure, even where our own negligence is alleged, except where
the loss, costs, damage, expense or liability is proximately caused by the gross
negligence of us or our officers, directors, agents or employees. You must
reimburse us for any amounts we reasonably spend, including attorneys' fees and
court costs, to protect us or our affiliates and subsidiaries, or our officers,
directors, agents and employees of each, from or to remedy, your defaults under
this Agreement or claims arising out of your operation of the hotel.
XIV. CASUALTY. If the Hotel is damaged by fire or other casualty, you must
promptly repair the damage. If the damage or repair requires closing the Hotel,
you must immediately notify us, begin reconstruction within 4 months after
closing and in accordance with the Rules and Regulations, and reopen the Hotel
for continuous business operations as soon as practicable (but in any event
within 12 months after the Hotel closing), sending us at least 30 days prior
written notice of the date of reopening. We will extend the Term of the
Franchise Agreement by the number of days between the date of closing and the
date of reopening. If your insurance proceeds are not available to repair or
rebuild the Hotel and if you notify us within 4 months after closing, we will
terminate this Agreement without penalty to either party.
XV. NOTICES. All notices required or permitted under this Agreement must be
in writing and, until a different address has been designated by written notice
to the other party, must be personally delivered or mailed by registered or
certified mail, return receipt requested, or by a nationally recognized courier
service, to us at CHOICE HOTELS FRANCHISING, INC., 10750 COLUMBIA PIKE, SILVER
SPRING, MARYLAND 20901, ATTENTION GENERAL COUNSEL, and to you at the Designated
Representative's address above. The Designated Representative is authorized to
receive our written notices to you. Any notice by registered or certified mail
or by courier service is deemed given and received at the date and time of
mailing. You may change the Designated Representative by written notice to us.
XVI. BUSINESS RELATIONSHIP.
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A. YOU AGREE THAT:
1. THIS AGREEMENT DOES NOT CREATE A FIDUCIARY RELATIONSHIP BETWEEN
YOU AND US;
2. YOU ARE AN INDEPENDENT CONTRACTOR. NOTHING IN THIS AGREEMENT IS
INTENDED TO MAKE EITHER PARTY AN AGENT, LEGAL REPRESENTATIVE,
SUBSIDIARY, JOINT VENTURER, PARTNER, EMPLOYEE, INDEPENDENT
CONTRACTOR OR SERVANT OF THE OTHER (EXCEPT THAT WE ARE ACTING
AS YOUR AGENT WHEN MAKING RESERVATIONS FOR YOUR HOTEL);
3. YOU ARE NOT AUTHORIZED TO MAKE ANY CONTRACT, AGREEMENT,
WARRANTY, OR REPRESENTATION ON OUR BEHALF, OR TO INCUR ANY DEBT
OR OTHER OBLIGATION IN OUR NAME; AND
4. YOU WILL NOT REPRESENT IN ANY PROPOSED FINANCING AGREEMENT OR
TO ANY PROPOSED LENDER OR PARTICIPANT IN A PUBLIC OR PRIVATE
INVESTMENT OFFERING THAT WE OR ANY OF OUR AFFILIATES IS, OR
WILL BECOME, RESPONSIBLE FOR YOUR OBLIGATION UNDER THE
FINANCING AGREEMENT, NOR THAT WE ARE, OR WILL BE, PARTICIPATING
IN A PRIVATE OR PUBLIC INVESTMENT OFFERING. BEFORE YOU
DISTRIBUTE A PROSPECTUS OF YOUR INTENDED PRIVATE OR PUBLIC
OFFERING, YOU MUST SEND US A COPY FOR OUR PRIOR WRITTEN
APPROVAL, NOT TO BE UNREASONABLY WITHHELD.
B. DURING THE TERM OF THIS AGREEMENT, YOU WILL HOLD YOURSELF OUT TO
THE PUBLIC AS AN INDEPENDENT CONTRACTOR CONSTRUCTING AND OPERATING
THE HOTEL UNDER AN AGREEMENT WITH US. YOU MAY NOT USE ALL OR A
PORTION OF THE MARKS IN YOUR CORPORATE OR PARTNERSHIP NAME.
C. NEITHER PARTY ASSUMES LIABILITY FOR, OR WILL BE DEEMED LIABLE AS A
RESULT OF ACTION OR OMISSION OF THE OTHER PARTY, OR ANY CLAIM OR
JUDGMENT ARISING FROM SUCH CONTRACT, AGREEMENT, WARRANTY OR
REPRESENTATION.
XVII. ATTORNEYS' FEES. The prevailing party in any action filed to enforce the
terms and conditions of this Agreement (as determined by the Court or
arbitrator) shall recover from the other party reasonable attorneys' fees and
court costs.
XVIII. TAXES, PERMIT; COMPLIANCE WITH LAWS; NOTICE OF LEGAL ACTIONS.
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<PAGE>
A. YOU MUST PAY WHEN DUE ALL TAXES RELATED TO THE HOTEL WHICH MAY BE
LEVIED OR ASSESSED BY ANY FEDERAL, STATE, OR LOCAL TAX AUTHORITY,
AND ANY AND ALL OTHER INDEBTEDNESS RELATED TO THE HOTEL. YOU MUST
PAY SALES TAX, GROSS RECEIPTS TAX, OR SIMILAR TAX IMPOSED ON US
(BUT NOT INCLUDING OUR INCOME TAXES) ON ANY PAYMENTS THAT YOU MUST
MAKE TO US UNDER THIS AGREEMENT.
B. IF THERE IS A BONA FIDE DISPUTE AS TO LIABILITY FOR TAXES ASSESSED
OR OTHER INDEBTEDNESS, YOU MAY CONTEST THE VALIDITY OR THE AMOUNT
OF THE TAX OR INDEBTEDNESS UNDER THE PROCEDURES OF THE TAXING
AUTHORITY OR APPLICABLE LAW. YOU MAY NOT PERMIT A TAX SALE OR
SEIZURE BY LEVY OF EXECUTION OR SIMILAR WRIT OR WARRANT, OR
ATTACHMENT BY A CREDITOR TO OCCUR AGAINST THE HOTEL OR THE
LOCATION.
C. YOU MUST COMPLY WITH ALL FEDERAL, STATE, AND LOCAL LAWS, RULES AND
REGULATIONS APPLICABLE TO YOU AND TO THE HOTEL. YOU MUST TIMELY
OBTAIN ANY AND ALL PERMITS, CERTIFICATES, OR LICENSES NECESSARY FOR
THE HOTEL, INCLUDING LICENSES TO DO BUSINESS, FICTITIOUS NAME
REGISTRATION AND SALES TAX PERMITS, HEALTH AND SANITATION PERMITS,
AND RATINGS AND FIRE CLEARANCES. YOU MUST SEND US, WITHIN 10 DAYS
OF RECEIPT, COPIES OF ALL SUBSEQUENT INSPECTION REPORTS, WARNINGS,
CERTIFICATES, AND RATINGS, RECEIVED FROM ANY GOVERNMENTAL ENTITY.
D. YOU MUST NOTIFY US IN WRITING, WITHIN 5 DAYS OF RECEIPT,
INFORMATION ABOUT ANY ACTION, SUIT, PROCEEDING, OR THE ISSUANCE OF
ANY ORDER, WRIT, INJUNCTION, AWARD, OR DECREE OF ANY COURT, AGENCY,
OR OTHER GOVERNMENTAL INSTRUMENTALITY, WHICH MAY ADVERSELY AFFECT
THE OPERATION OF THE HOTEL OR YOUR FINANCIAL CONDITION.
XIX. APPROVALS AND WAIVERS.
A. OUR APPROVALS AND CONSENTS WILL NOT BE EFFECTIVE UNLESS SIGNED BY
ONE OF OUR OFFICERS. WE MAY WITHHOLD OUR CONSENT IF YOU ARE IN
BREACH OF A MATERIAL OBLIGATION UNDER THIS AGREEMENT.
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<PAGE>
B. EXCEPT AS OTHERWISE STATED IN WRITING IN THIS AGREEMENT (INCLUDING
ANY AMENDMENTS), WE MAKE NO WARRANTIES OR GUARANTEES ON WHICH YOU
MAY RELY. WE ASSUME NO LIABILITY OR OBLIGATION TO YOU BY PROVIDING
ANY WAIVER, APPROVAL, CONSENT, OR SUGGESTION TO YOU WITH THIS
AGREEMENT, OR BY REASON OF ANY DELAY OR DENIAL OF ANY REQUEST.
C. FAILURE TO EXERCISE ANY POWER OR TO INSIST ON STRICT COMPLIANCE
WITH ANY OBLIGATION OR CONDITION UNDER THIS AGREEMENT DOES NOT
CONSTITUTE A WAIVER OF ANY FUTURE RIGHT TO DEMAND EXACT COMPLIANCE
WITH ANY OF THE TERMS IN THIS AGREEMENT. WAIVER OF ANY PARTICULAR
DEFAULT WILL NOT AFFECT OR IMPAIR A PARTY'S RIGHT WITH RESPECT TO
ANY SUBSEQUENT DEFAULT OF THE SAME, SIMILAR, OR DIFFERENT NATURE.
NO DELAY, FORBEARANCE, OR OMISSION TO EXERCISE ANY POWER OR RIGHT
FROM ANY BREACH OR DEFAULT OF ANY OF THE TERMS, SECTIONS, OR
COVENANTS HEREOF, WILL AFFECT OR IMPAIR A PARTY'S RIGHT TO EXERCISE
THE SAME.
XX. SEVERABILITY AND CONSTRUCTION.
A. IF ANY SECTION OF THE AGREEMENT IS HELD TO BE ILLEGAL, INVALID, OR
UNENFORCEABLE, BOTH PARTIES AGREE THAT:
1. THE SECTION WILL BE REMOVED;
2. THIS AGREEMENT WILL BE UNDERSTOOD AND ENFORCED AS IF THE
ILLEGAL, INVALID, OR UNENFORCEABLE SECTION HAD NEVER BEEN IN
THIS AGREEMENT; AND
3. THE REMAINING SECTIONS WILL REMAIN IN FULL FORCE AND EFFECT
AND WILL NOT BE AFFECTED BY THE ILLEGAL, INVALID, OR
UNENFORCEABLE SECTION OR BY ITS REMOVAL. A SIMILAR SECTION TO
THE REMOVED SECTION, TO THE MAXIMUM EXTENT ENFORCEABLE, WILL
BE AUTOMATICALLY ADDED AS A PART OF THIS AGREEMENT.
B. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, NOTHING
IN THIS AGREEMENT IS INTENDED, NOR WILL ANYTHING IN THIS AGREEMENT
BE DEEMED, TO CONFER ON ANY PERSON OR LEGAL ENTITY OTHER THAN US OR
YOU, OR OUR RESPECTIVE SUCCESSORS AND ASSIGNS, ANY RIGHTS OR
REMEDIES UNDER OR BY REASON OF THIS AGREEMENT.
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<PAGE>
C. ALL CAPTIONS IN THIS AGREEMENT ARE INTENDED SOLELY FOR THE
CONVENIENCE OF THE PARTIES AND DO NOT AFFECT THE MEANING OR
CONSTRUCTION OF ANY SECTION.
D. ALL REFERENCES TO THE MASCULINE, NEUTER, OR SINGULAR, INCLUDE THE
MASCULINE, FEMININE, NEUTER, OR PLURAL. [IF "YOU" CONSISTS OF MORE
THAN ONE PERSON OR ENTITY, YOUR ACKNOWLEDGMENTS, PROMISES,
COVENANTS, AGREEMENTS, AND OBLIGATIONS MADE OR UNDERTAKEN IN THIS
AGREEMENT ARE JOINTLY AND SEVERALLY UNDERTAKEN BY ALL OF YOU.]
E. IF THIS AGREEMENT IS EXECUTED IN MULTIPLE COUNTERPARTS, EACH
EXECUTED COPY IS AN ORIGINAL.
F. THIS AGREEMENT BECOMES VALID ONLY WHEN WE HAVE SIGNED IT, AND IT
WILL BE INTERPRETED UNDER THE SUBSTANTIVE LAWS OF MARYLAND, NOT
INCLUDING MARYLAND'S CONFLICT OF LAWS PROVISION, WHICH LAWS WILL
PREVAIL IF THERE IS ANY CONFLICT OF LAW.
G. NO RIGHT OR REMEDY IN THIS AGREEMENT IS INTENDED TO BE, NOR WILL BE
DEEMED, EXCLUSIVE OF ANY OTHER RIGHT OR REMEDY IN THIS AGREEMENT OR
BY LAW OR EQUITY PROVIDED OR PERMITTED, BUT EACH WILL BE CUMULATIVE
OF THE OTHER RIGHT OR REMEDY.
H. NOTHING CONTAINED IN THIS AGREEMENT WILL BAR EITHER PARTY'S RIGHT
TO OBTAIN INJUNCTIVE RELIEF AGAINST THREATENED CONDUCT THAT WILL
CAUSE IT LOSS OR DAMAGES, UNDER THE USUAL EQUITY RULES, INCLUDING
THE APPLICABLE RULES FOR OBTAINING RESTRAINING ORDERS AND
PRELIMINARY INJUNCTIONS.
I. THIS AGREEMENT CONTAINS THE COMPLETE UNDERSTANDING OF THE PARTIES
AND REPLACES ANY PREVIOUS WRITTEN OR ORAL AGREEMENT. NO
REPRESENTATION, INDUCEMENT, PROMISE OR AGREEMENT, ORAL OR
OTHERWISE, NOT IN THIS AGREEMENT, WILL BE OF ANY FORCE OR EFFECT.
J. THIS AGREEMENT MAY NOT BE AMENDED EXCEPT IN WRITING SIGNED BY BOTH
PARTIES.
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<PAGE>
K. NEITHER PARTY MAY FILE A CLAIM (EXCEPT CLAIMS FOR INDEMNIFICATION)
ARISING OUT OF OR RELATED TO THIS AGREEMENT AFTER 3 YEARS FROM THE
DATE ON WHICH THE CLAIM AROSE, UNLESS APPLICABLE LAW SPECIFIES A
SHORTER STATUTE OF LIMITATIONS.
XXI. ACKNOWLEDGMENTS
A. YOU HAVE CONDUCTED AN INDEPENDENT INVESTIGATION OF THIS AGREEMENT,
AND YOU UNDERSTAND THAT THE BUSINESS VENTURE CONTEMPLATED BY THIS
AGREEMENT INVOLVES BUSINESS RISKS, AND THAT ITS SUCCESS WILL BE
LARGELY DEPENDENT ON YOUR ABILITY AS AN INDEPENDENT BUSINESS
PERSON. WE HAVE NOT MADE, AND YOU ACKNOWLEDGE THAT YOU HAVE NOT
RECEIVED FROM US OR OUR AGENTS, ANY PROJECTION, WARRANTY OR
GUARANTEE, EXPRESS OR IMPLIED, AS TO THE POTENTIAL SUCCESS OF THE
BUSINESS VENTURE CONTEMPLATED BY THIS AGREEMENT. BY SIGNING THIS
AGREEMENT, YOU REPRESENT TO US THAT YOU HAVE NEITHER RECEIVED NOR
RELIED ON REPRESENTATIONS OF ANY KIND CONCERNING THE AGREEMENT
EXCEPT AS WRITTEN IN THIS AGREEMENT.
B. YOU AGREE THAT THIS AGREEMENT RELATES TO THE HOTEL AND THE
LOCATION. WE MAY OPERATE, FRANCHISE OR LICENSE OTHER [LODGING BRAND
NAME] HOTELS UNDER THE SYSTEM, AS WELL AS USE OUR OTHER BRANDS, AT
ANY OTHER LOCATION. WE OR OUR AFFILIATES MAY NOW OR IN THE FUTURE
ENGAGE IN TRANSIENT LODGING OR RELATED BUSINESS ACTIVITIES WHICH
MAY COMPETE WITH THE SYSTEM OR WITH THE HOTEL.
C. YOU AGREE THAT THE MARKS AND THIS AGREEMENT RELATE ONLY TO THE
SYSTEM, AND THAT WE MAY DECIDE TO PROVIDE SERVICES TO THE HOTEL
SIMULTANEOUSLY TO ONE OR MORE OF OUR OTHER BRANDS, EITHER
SEPARATELY OR COMBINED.
D. YOU ARE SOLELY RESPONSIBLE FOR EXERCISING ORDINARY BUSINESS CONTROL
OVER THE HOTEL.
E. YOU WARRANT THE TRUTH AND COMPLETENESS OF ALL YOUR STATEMENTS IN
YOUR APPLICATION AND THOSE IN ALL OTHER DOCUMENTS THAT YOU SEND US
AS PART OF THE APPLICATION PROCESS. THIS WARRANTY WILL SURVIVE THE
SIGNING AND THE TERMINATION OF THIS AGREEMENT.
A-25
<PAGE>
F. YOU ACKNOWLEDGE THAT YOU RECEIVED FROM US A DISCLOSURE DOCUMENT
REQUIRED BY THE FEDERAL TRADE COMMISSION AND BY THE STATE(S) IN
WHICH YOU LIVE AND WHERE THE HOTEL IS LOCATED, EITHER DURING YOUR
FIRST PERSONAL MEETING WITH OUR REPRESENTATIVE TO DISCUSS THE
FRANCHISE SALE, OR 10 BUSINESS DAYS BEFORE YOU SIGNED THIS
AGREEMENT OR PAID TO US ANY CONSIDERATION FOR THE FRANCHISE,
WHICHEVER OF THOSE FIRST OCCURRED. YOU ALSO ACKNOWLEDGE THAT WE
GAVE TO YOU THE COMPLETED COPIES OF THIS AGREEMENT FOR YOUR
SIGNATURE AT LEAST 5 BUSINESS DAYS BEFORE YOU SIGNED THIS
AGREEMENT.
G. YOU ARE THE TRUE OWNER OF, AND RECORD HOLDER OF TITLE TO, THE
HOTEL, UNLESS YOU HAVE TOLD US IN THE APPLICATION THAT YOU LEASE
THE HOTEL UNDER A LEASE WITH AT LEAST 20 YEARS REMAINING IN ITS
TERM. IF THE HOTEL IS SUBJECT TO A MORTGAGE, YOU ARE THE MORTGAGOR
OF RECORD.
XXII. ARBITRATION. Except for claims for indemnification, actions for
collection of fees owed us under this Agreement, or actions seeking to
enjoin you from using the Marks in violation of this Agreement, any controversy
or claim relating to this Agreement, or the breach of this Agreement, including
any claim that this Agreement or any part of this Agreement is invalid, illegal,
or otherwise voidable or void, will be sent to final and binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The arbitrator will apply the substantive laws of Maryland, without
reference to Maryland's conflict of laws provision. Judgment on the arbitration
award may be entered in any court having jurisdiction. If any party fails to
appear at any properly noticed arbitration proceeding, an award may be entered
against the party, notwithstanding its failure to appear. Any arbitration will
be conducted at our headquarters office in Maryland.
XXIII. SPECIAL PROVISIONS APPLICABLE ONLY TO HOTELS TO BE CONSTRUCTED OR
COMPLETELY RENOVATED.
A. THE PHRASE "CONSTRUCTION START" MEANS THE DATE ON WHICH BONA FIDE
POURING OF FOOTINGS BEGINS AT THE LOCATION IN THE CASE OF A HOTEL
TO BE CONSTRUCTED OR THE DATE ON WHICH RENOVATIONS BEGIN IN THE
CASE OF AN EXISTING HOTEL WHICH IS TO BE COMPLETELY RENOVATED.
B. IN ADDITION TO THE OTHER PROVISIONS OF THIS AGREEMENT, YOU AGREE
THAT YOU WILL:
1. PRESENT FOR OUR APPROVAL, BEFORE CONSTRUCTION START, YOUR
PRELIMINARY DRAWINGS AND FINAL WORKING DRAWINGS FOR HOTEL
CONSTRUCTION;
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<PAGE>
2. CAUSE THE CONSTRUCTION START TO OCCUR WITHIN 12 MONTHS OF THE
DATE OF THIS AGREEMENT. IF YOU DO NOT CAUSE THE CONSTRUCTION
START TO OCCUR WITHIN 12 MONTHS OF THE DATE OF THIS AGREEMENT,
YOU MAY REQUEST, BEFORE THE END OF THE 12 MONTHS, AN
ADDITIONAL 3 MONTHS FOR CONSTRUCTION START. WE ARE NOT
OBLIGATED TO EXTEND THE TIME FOR CONSTRUCTION START. IF WE
AGREE TO EXTEND THE TIME FOR CONSTRUCTION START, YOU WILL PAY
US AN EXTENSION FEE OF $5,000 FOR EACH 3 MONTH EXTENSION;
3. CONTINUE HOTEL CONSTRUCTION IN ACCORDANCE WITH THE PLANS,
AFTER CONSTRUCTION START, WITHOUT INTERRUPTION (EXCEPT BY
EVENTS CONSTITUTING FORCE MAJEURE), UNTIL THE HOTEL IS READY
FOR OUR INSPECTION. YOU MUST COMPLETE HOTEL CONSTRUCTION,
INCLUDING FURNISHING, EQUIPPING, AND PREPARING FOR OPENING,
WITHIN 12 MONTHS AFTER CONSTRUCTION START;
4. SEND US, WHEN WE REQUEST DURING CONSTRUCTION, REPORTS SHOWING
THE PROGRESS MADE TOWARD COMPLETING HOTEL CONSTRUCTION;
5. USE THE MARKS ONLY AS ALLOWED IN SECTION 23.D OF THE
AGREEMENT;
6. COOPERATE WITH US, AND INSTRUCT YOUR ARCHITECT, ENGINEER,
CONTRACTORS AND SUBCONTRACTS TO COOPERATE WITH US, AND ALLOW
US TO INSPECT THE LOCATION AND THE HOTEL CONSTRUCTION TO
DETERMINE WHETHER CONSTRUCTION MEETS THE STANDARDS OUTLINED IN
THE RULES AND REGULATIONS AND THE PLANS;
7. ORDER, PURCHASE AND/OR LEASE AND INSTALL ALL FIXTURES,
EQUIPMENT, FURNISHINGS, SIGNS, COMPUTER TERMINALS AND RELATED
EQUIPMENT, SUPPLIES AND OTHER REQUIRED ITEMS BEFORE THE
OPENING DATE;
8. ADVERTISE THE HOTEL LOCALLY, AT YOUR EXPENSE AND IN A MANNER
MEETING OUR SPECIFICATIONS;
9. CAUSE THE GENERAL MANAGER OF THE HOTEL TO ATTEND AND COMPLETE
OUR INITIAL ORIENTATION PROGRAM;
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<PAGE>
10. NOTIFY US AT LEAST 30 DAYS BEFORE THE OPENING DATE. WE WILL
INSPECT AND, IF APPROPRIATE, AUTHORIZE YOU TO BEGIN OPERATING
THE HOTEL UNDER THIS AGREEMENT.
C. BEFORE THE OPENING DATE, YOU MAY MAKE THE FOLLOWING LIMITED USE OF
THE MARKS:
1. PLACE A SIGN AT THE LOCATION ADVISING THE GENERAL PUBLIC THAT
A [LODGING BRAND NAME] HOTEL IS UNDER CONSTRUCTION;
2. PROMOTE THE HOTEL CONSTRUCTION AND OPENING IN THE MEDIA;
3. PURCHASE OPERATING SUPPLIES AND EQUIPMENT BEARING THE MARKS
REQUIRED FOR HOTEL OPERATION; AND
4. PURCHASE AND INSTALL THE PERMANENT HOTEL SIGN REQUIRED FOR
HOTEL OPERATION.
D. YOU MUST PURCHASE BY THE CONSTRUCTION START AND MAINTAIN UNTIL THE
OPENING DATE, DIRECTLY OR THROUGH YOUR GENERAL CONTRACTOR, THE
FOLLOWING INSURANCE COVERAGES:
1. COMPREHENSIVE GENERAL LIABILITY INSURANCE (INCLUDING
AUTOMOBILE LIABILITY, PROPERTY DAMAGE) PROTECTING YOU AND
NAMING US AND OUR AFFILIATES AND SUBSIDIARIES, THEIR
RESPECTIVE OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES AS
ADDITIONAL INSUREDS ("ADDITIONAL INSUREDS") FROM AND AGAINST
ALL TYPES OF LIABILITIES, INCLUDING PERSONAL INJURY AND
PROPERTY DAMAGE, TOGETHER WITH THE COSTS OF DEFENSE AND/OR
ADJUSTMENTS ARISING OUT OF THE OPERATIONS TO CONSTRUCT THE
HOTEL. THE COVERAGES MUST PROVIDE FOR LIMITS OF NOT LESS THAT
$5,000,000 ($10,000,000 IF THE HOTEL HAS 6 OR MORE STORIES)
PER OCCURRENCE PER LOCATION AND INCLUDE COVERAGES FOR
CONTRACTUAL LIABILITY, EXPLOSION, COLLAPSE AND UNDERGROUND
PROPERTY DAMAGE HAZARD LIABILITY, PERSONAL INJURY LIABILITY,
PRODUCTS AND COMPLETED OPERATIONS LIABILITY, OWNER'S AND
CONTRACTOR'S PROTECTIVE LIABILITY, AND INDEPENDENT
CONTRACTOR'S LIABILITY.
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<PAGE>
2. ALL-RISK BUILDER'S RISK COVERAGE TO INSURE THE HOTEL BUILDINGS
UNDER CONSTRUCTION TO 100% OF THEIR REPLACEMENT COST VALUE,
PROTECTING YOU, US AND THE ADDITIONAL INSUREDS, AND A WORKERS'
COMPENSATION POLICY AS REQUIRED BY STATUTE.
This agreement is signed by you (and your principals, if a
partnership or corporation) and us, with our seals, on the date written above.
ATTEST: CHOICE HOTELS FRANCHISING, INC.
By (Seal)
- ------------------------- -----------------------
Everett F. Casey
Assistant Secretary
WITNESS/ATTEST: SUNBURST HOSPITALITY CORPORATION
By (Seal)
- ------------------------- -----------------------
Name
Date:
--------------------
By (Seal)
- ------------------------- -----------------------
Name
Date:
--------------------
By (Seal)
- ------------------------- -----------------------
Name
Date:
--------------------
By (Seal)
- ------------------------- -----------------------
Name
Date:
--------------------
NOTE: The person or business organization which is the title owner of the
location, as of the date of this agreement, must be a named signatory. The
liability of all signatories will be joint and several.
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<PAGE>
Exhibit 99.03
NONCOMPETITION AGREEMENT
------------------------
THIS NONCOMPETITION AGREEMENT ("Agreement") is made and entered
into as of October 15, 1997, by and between Choice Hotels International, Inc., a
Delaware corporation which is to be renamed Sunburst Hospitality Corporation
("Choice"), and Choice Hotels Franchising, Inc., a Delaware corporation which is
to be renamed Choice Hotels International, Inc. ("Franchising"). As used in this
Agreement, the terms "Choice" and "Franchising" shall mean Choice and
Franchising, as the case may be, and their respective Subsidiaries and
Affiliates.
WHEREAS, prior to the Distribution Date (as defined below),
Franchising was a wholly owned subsidiary of Choice; and the Franchising
Business (as defined herein) and the Hospitality Business (as defined herein)
were operated by Choice, its divisions, subsidiaries or affiliates;
WHEREAS, on October 15, 1997 (the "Distribution Date"), the
common stock of Franchising was distributed (the "Distribution") on a pro rata
basis, to the stockholders of Choice;
WHEREAS, from the Distribution Date, Franchising is to continue
the Franchising Business formerly operated by Choice through Franchising, its
divisions, subsidiaries or affiliates;
WHEREAS, from the Distribution Date, Choice is to continue the
Hospitality Business; and,
WHEREAS, in order to effect the Distribution, Choice and
Franchising entered into a Distribution Agreement (the "Distribution Agreement")
dated as of October 15, 1997, which provides, in part, that Choice and
Franchising enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and in the Distribution Agreement and in the Related
Agreements entered into pursuant to or in connection with the Distribution, and
for other valuable consideration, the receipt and sufficiency of which are
hereby mutually acknowledged, Choice and Franchising agree as follows:
ARTICLE 1.
DEFINITIONS
1.1. Definitions. The following terms when used herein shall have
-----------
the meaning set forth below:
"Choice" shall have the meaning set forth in the first paragraph
--------
of this Agreement.
"Classic Sports Business" shall mean the business of developing,
-------------------------
owning and operating bar/restaurants with a sports theme in hotel properties
under the brand name Classic Sports-Food, Drink & Memories or a similar name.
"Competing Franchising Activity" shall mean a business activity
--------------------------------
that competes with, or is substantially similar to, the Franchising Business,
provided, however, that the Classic Sports Business shall not be deemed a
Competing Franchising Activity.
"Competing Franchising Business" shall mean a business that
--------------------------------
conducts any Competing Franchising Activity.
<PAGE>
"Competing Hospitality Activity" shall mean a business activity
--------------------------------
that competes with, or is substantially similar to, the Hospitality Business;
provided, however, that the European Hotel Business shall not be deemed a
Competing Hospitality Activity.
"Competing Hospitality Business" shall mean a business that
--------------------------------
conducts any Competing Hospitality Activity.
"Effective Period" shall have the meaning set forth in Section
------------------
2.1.
"European Hotel Business" shall mean (i) the business of owning
-------------------------
and operating the fourteen [Comfort Inn] hotels set forth on Schedule A hereto,
which hotels are, on the Distribution Date, owned and operated by Franchising
and (ii) any ownership interest by Franchising in Friendly Hotels, PLC, a
corporation formed under the laws of the United Kingdom.
"Franchising Business" shall mean the business of franchising
----------------------
hotels under the Clarion, Quality, Comfort, Sleep Inn, Rodeway, Econo Lodge and
Mainstay Suites brands.
"Franchising" shall have the meaning set forth in the first
-------------
paragraph of this Agreement.
"Hospitality Business" shall mean the business of owning and
----------------------
operating hotel properties.
"Person" shall mean any person, firm, corporation, general or
--------
limited partnership, association, or other entity.
"Preceding Period" shall mean, with respect to any acquisition or
------------------
disposition, the last four completed fiscal quarters preceding the date on which
the acquisition or disposition is consummated.
"Strategic Alliance Agreement" shall mean the Strategic Alliance
------------------------------
Agreement dated of even date herewith by and between Choice and Franchising, as
amended from time to time.
"Transfer" shall mean the sale, conveyance, disposal of or other
----------
transfer of ownership, title or other interest.
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.
ARTICLE 2.
TERM
2.1. Term. This Agreement shall remain in effect for a period
----
commencing on the date hereof and automatically terminate without further
documentation on the fifth anniversary date of the Distribution Date; provided,
however, that, in the event that on the fifth anniversary date of the
Distribution Date the Strategic Alliance Agreement remains in effect, then this
Agreement shall, without further documentation, remain in effect and shall not
terminate until the date on which the Strategic Alliance Agreement ceases to be
in effect.
2
<PAGE>
ARTICLE 3.
NONCOMPETITION WITH RESPECT TO THE FRANCHISING BUSINESS
3.1. Certain Restrictions on Choice.
------------------------------
A. Except as provided in Section 3.1.B herein, during the
Effective Period, Choice shall not conduct, directly or indirectly, any
Competing Franchising Activity, anywhere in the world.
B. Notwithstanding anything herein to the contrary, but
subject to the limitation set forth in Section 3.1.C., Section 3.1.A shall not
prohibit Choice from conducting the following activities:
(i) the continued operation and development of any
business operated as of the Distribution Date by Choice (including,
without limitation, the Classic Sports Business); or
(ii) activities that Choice is permitted or required
to conduct under the Strategic Alliance Agreement; or
(iii) the ownership of capital stock of a corporation
that conducts, directly or indirectly, any Competing Franchising
Activity, if (a) such capital stock is traded on a national or regional
stock exchange in the United States or Canada or is traded on the
National Association of Securities Dealers, Inc., Automated Quotation
System, and (b) Choice, directly or indirectly, is the beneficial owner
of not more than five percent (5%) of such corporation's outstanding
capital stock; or
(iv) the acquisition of any Person that conducts,
directly or indirectly, any Competing Franchising Activity, if (x) the
consolidated gross sales of such Person (including its consolidated
Subsidiaries and Affiliates) from Competing Franchising Activities for
the Preceding Period do not constitute more than twenty percent (20%) of
the aggregate consolidated gross sales (including sales from the
Competing Franchising Activities) of such Person (including its
consolidated Subsidiaries and Affiliates), or (y) neither the fair
market value of, nor the value, if any, attributed to the Competing
Franchising Activities in the acquisition agreement, is in excess of
Five Million Dollars ($5,000,000), as increased by the percentage
increase, if any, in the Consumer Price Index, All Urban Consumers,
United States during the term hereof (using 1996 as the base year).
C. During the Effective Period, Choice shall not, directly
or indirectly:
(i) acquire from any Person (other than Franchising)
any interest in a Competing Franchising Business unless, prior to such
acquisition, Choice offers to sell the Competing Franchising Activities
to Franchising at a price equal to the lesser of (a) the fair market
value of such Competing Franchising Activities, and (b) the value, if
any, attributed to the Competing Franchising Activities in the
acquisition agreement, and otherwise on the same terms and conditions on
which the Competing Franchising Business is being acquired by Choice.
Franchising shall have thirty (30) days after receiving notice of the
acquisition of the Competing Franchising Business to elect, by notice to
Choice, to purchase the Competing Franchising Activities on the terms
and conditions set forth in the notice. If Franchising does not elect to
3
<PAGE>
purchase the Competing Franchising Activities within the 30-day period,
Choice shall be entitled to own and operate such Competing Franchising
Activities, or such interest therein, subject to the restrictions on
Transfer set forth in Section 3.1.C.(ii). Notwithstanding the foregoing,
Choice shall not have to offer to sell, or sell, to Franchising any such
Competing Franchising Activities which, in the good faith judgment of
Choice, are not readily divisible from other activities, provided that
the gross sales from such non-divisible Competing Franchising Activities
for the Preceding Period do not exceed the greater of One Million
Dollars ($1,000,000) per year or five percent (5%) of the gross sales
for the Preceding Period of the Competing Franchising Business
(including all activities that do not constitute Competing Franchising
Activities). Thereafter, in the event that the gross sales from such
non-divisible Competing Franchising Activities for any calendar year
exceed the greater of One Million Dollars ($1,000,000) per year or five
percent (5%) of the gross sales of the Competing Franchising Business,
then all non-divisible Competing Franchising Activities shall be subject
to Choice's obligation to offer them for sale to Franchising, as set
forth above, to the maximum extent that Choice and Franchising, using
their best efforts and negotiating in good faith, can make such
Competing Franchising Activities divisible and transferable to
Franchising. The amount of One Million Dollars ($1,000,000) referenced
in this Section shall be increased by the percentage increase, if any,
in the Consumer Price Index, All Urban Consumers, United States during
the term hereof (using 1996 as the base year).
(ii) Transfer to any Person (other than Franchising)
any Competing Franchising Activities unless it first offers to sell such
Competing Franchising Activities to Franchising upon substantially the
same terms and conditions offered by a bona fide prospective purchaser
which is not an Affiliate of Choice. Franchising shall have thirty (30)
days after receiving notice of the proposed Transfer to elect, by notice
to Choice, to purchase the Competing Franchising Activities on the terms
and conditions set forth in the notice. If Franchising does not elect to
purchase the Competing Franchising Activities from Choice within the 30-
day period, Choice shall be entitled to Transfer such Competing
Franchising Activities to any Person which is not an Affiliate of Choice
on substantially the same terms and conditions as set forth in the
notice to Franchising. However, if no definitive agreement to Transfer
is executed within ninety (90) days after the expiration of the 30-day
period, Choice shall not thereafter Transfer such Competing Franchising
Activities to any Person (other than Franchising) without first offering
to sell it to Franchising as provided above. Notwithstanding the
foregoing, Choice shall not have to offer to sell, or sell, to
Franchising any such Competing Franchising Activities which, in the good
faith judgment of Choice, are not readily divisible from the other
activities otherwise permitted to be transferred by Choice without
compliance with this Section 3.1.C.(ii), provided that the gross sales
from such non-divisible Competing Franchising Activities for the
Preceding Period do not exceed the greater of One Million Dollars
($1,000,000) per year or five percent (5%) of the gross sales for the
Preceding Period of the Competing Franchising Business (including all
activities that do not constitute Competing Franchising Activities). The
amount of One Million Dollars ($1,000,000) referenced in this Section
shall be increased by the percentage increase, if any, in the Consumer
Price Index, All Urban Consumers, United States during the term hereof
(using 1996 as the base year).
The restrictions set forth in this Section 3.1.C are in addition to any
restrictions set forth in Section 3.1.B.
4
<PAGE>
ARTICLE 4.
NONCOMPETITION WITH RESPECT TO THE CHOICE BUSINESS
4.1. Certain Restrictions on Franchising.
A. Except as provided in Section 4.1.B herein, during the
Effective Period, Franchising shall not conduct, directly or indirectly, any
Competing Hospitality Activity, anywhere in the world.
B. Notwithstanding anything herein to the contrary, but
subject to the limitations set forth in Section 4.1.C., Section 4.1.A shall not
prohibit Franchising from conducting the following activities:
(i) the continued operation and development of any
business operated as of the Distribution Date by Franchising (including,
without limitation, the European Hotel Business); or
(ii) activities that Franchising is permitted or
required to conduct under the Strategic Alliance Agreement; or
(iii) the ownership of capital stock of a corporation
that conducts, directly or indirectly, any Competing Hospitality
Activity, if (a) such capital stock is traded on a national or regional
stock exchange in the United States or Canada or is traded on the
National Association of Securities Dealers, Inc., Automated Quotation
System, and (b) Franchising, directly or indirectly, is the beneficial
owner of not more than five percent (5 %) of such corporation's
outstanding capital stock; or
(iv) the acquisition of any Person that conducts,
directly or indirectly, any Competing Hospitality Activity, if (x) the
consolidated gross sales of such Person (including its consolidated
Subsidiaries and Affiliates) from the Competing Hospitality Activities
for the Preceding Period do not constitute more than twenty percent
(20%) of the aggregate consolidated gross sales (including sales from
the Competing Hospitality Activities) of such Person (including its
consolidated Subsidiaries and Affiliates), or (y) neither the fair
market value of, nor the value, if any, attributed to the Competing
Hospitality Activities in the acquisition agreement, is in excess of
Five Million Dollars ($5,000,000), as increased by the percentage
increase, if any, in the Consumer Price Index, All Urban Consumers,
United States during the term hereof (using 1996 as the base year).
C. During the Effective Period, Franchising shall not,
directly or indirectly:
(i) acquire from any Person (other than Choice) any
interest in a Competing Hospitality Business unless, prior to such
acquisition, Franchising offers to sell the Competing Hospitality
Activities to Choice at a price equal to the lesser of (a) the fair
market value of such Competing Hospitality Activities, and (b) the
value, if any, attributed to the Competing Hospitality Activities in the
acquisition agreement, and otherwise on the same terms and conditions on
which the Competing Hospitality Business is being acquired by
Franchising. Choice shall have thirty (30) days after receiving notice
of the acquisition of the Competing Hospitality Business to elect, by
notice to Franchising, to purchase the Competing Hospitality Activities
on the terms and conditions set forth in the notice. If Choice does not
elect to
5
<PAGE>
purchase the Competing Hospitality Activities within the 30-day period,
Franchising shall be entitled to own and operate such Competing
Hospitality Activities, or such interest therein, subject to the
restrictions on Transfer set forth in Section 4.1.C.(ii).
Notwithstanding the foregoing, Franchising shall not have to offer to
sell, or sell, to Choice any such Competing Hospitality Activities
which, in the good faith judgment of Franchising, are not readily
divisible from other activities, provided that the gross sales of such
non-divisible Competing Hospitality Activities for the Preceding Period,
do not exceed the greater of One Million Dollars ($1,000,000) per year
or five percent (5%) of the gross sales for the Preceding Period of the
Competing Hospitality Business (including all activities that do not
constitute Competing Hospitality Activities). Thereafter, in the event
that the gross sales from such non-divisible Competing Hospitality
Activities for any calendar year exceed the greater of One Million
Dollars ($1,000,000) per year or five percent (5%) of the gross sales of
the Competing Hospitality Business, then all non-divisible Competing
Hospitality Activities shall be subject to Franchising's obligation to
offer them for sale to Choice, as set forth above, to the maximum extent
that Choice and Franchising, using their best efforts and negotiating in
good faith, can make such Competing Hospitality Activities divisible and
transferable to Choice. The amount of One Million Dollars ($1,000,000)
referenced in this Section shall be increased by the percentage
increase, if any, in the Consumer Price Index, All Urban Consumers,
United States during the term hereof (using 1996 as the base year).
(ii) Transfer to any Person (other than
Choice) any Competing Hospitality Activities unless it first offers to
sell such Competing Hospitality Activities to Hospitality upon
substantially the same terms and conditions offered by a bona fide
prospective purchaser which is not an Affiliate of Franchising. Choice
shall have thirty (30) days after receiving notice of the proposed
Transfer to elect, by notice to Franchising, to purchase the Competing
Hospitality Activities on the terms and conditions set forth in the
notice. If Choice does not elect to purchase the Competing Hospitality
Activities from Franchising within the 30-day period, Franchising shall
be entitled to Transfer such Competing Hospitality Activities to any
Person which is not an Affiliate of Franchising on substantially the
same terms and conditions as set forth in the notice to Choice. However,
if no definitive agreement to Transfer is executed within ninety (90)
days after the expiration of the 30-day period, Franchising shall not
thereafter Transfer such Competing Hospitality Activities to any Person
(other than Choice) without first offering to sell it to Choice as
provided above. Notwithstanding the foregoing, Franchising shall not
have to offer to sell, or sell, to Franchising any such Competing
Hospitality Activities which, in the good faith judgment of Franchising,
are not readily divisible from the other activities otherwise permitted
to be transferred by Franchising without compliance with this Section
4.1.C.(ii), provided that the gross sales from such non-divisible
Competing Hospitality Activities for the Preceding Period do not exceed
the greater of One Million Dollars ($1,000,000) per year or five percent
(5%) of the gross sales for the Preceding Period of the Competing
Hospitality Business (including all activities that do not constitute
Competing Hospitality Activities). The amount of One Million Dollars
($1,000,000) referenced in this Section shall be increased by the
percentage increase, if any, in the Consumer Price Index, All Urban
Consumers, United States during the term hereof (using 1996 as the base
year). The restrictions set forth in this Section 4.1.C are in addition
to any restrictions set forth in Section 4.1.B.
6
<PAGE>
ARTICLE 5.
MISCELLANEOUS
5.1. Dispute Resolution. Any dispute, controversy or
------------------
disagreement ("Dispute") between the Parties related to the obligations of the
Parties under this Agreement in respect to which an amicable resolution cannot
be reached shall be submitted for mediation to a committee made up of an equal
number of non-common members of each company's Board of Directors ("Committee").
If the Parties are unable to reach an amicable resolution of a Dispute within
thirty days after submission to the Committee, then, to the maximum extent
allowed by law, the Dispute shall be submitted and resolved by final and binding
arbitration in Baltimore, Maryland administered by JAMS-Endispute in accordance
with JAMS-Endispute's rules of practice then in effect or such other procedures
as the Parties may agree upon; provided, however, that any Party may seek
injunctive relief and enforcement of any award rendered pursuant to the
arbitration provisions of this Section 5.1 by bringing a suit in any court of
competent jurisdiction. Any award issued as a result of such arbitration shall
be final and binding between the Parties thereto and shall be enforceable by any
court having jurisdiction over the Party against whom enforcement was sought and
application may be made to such court for judicial acceptance of the award and
order of enforcement. The fees and expenses of arbitration (including reasonable
attorneys' fees) shall be paid by the Party that does not prevail in such
arbitration.
5.2. Modification. This Agreement may only be amended, modified
------------
or supplemented in a written agreement signed by both parties hereto.
5.3. Waiver. No term or condition of this Agreement shall be
------
deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision hereof, except by written instrument of the party
charged with such waiver or estoppel.
5.4. 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.
5.5. Headings. The headings of the sections of this Agreement
--------
are for convenience only and shall not affect the construction of this
Agreement.
5.6. 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:
Sunburst Hospitality Corporation
10770 Columbia Pike
Silver Spring, Maryland 20901
Attention: General Counsel
To Franchising:
Choice Hotels International, Inc.
10750 Columbia Pike
7
<PAGE>
Silver Spring, Maryland 20901
Attention: General Counsel
5.7. Assignment. Neither Party shall sell, assign, pledge or
----------
otherwise transfer its interest in this Agreement or any part thereof without
the prior written consent of the other Party, except to an entity succeeding to
substantially all of the business and operations of such Party. The transferring
Party shall remain liable for liabilities and obligations existing at the time
of such transfer. Subject to the foregoing, this Agreement shall bind and inure
to the benefit of the Parties' respective successors and permitted assigns.
5.8. Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
5.9. Severability. Choice and Franchising agree that the period
------------
of restriction and the geographical area of restriction imposed upon the parties
are fair and reasonable and are reasonably required for the protection of each
of the parties hereto. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect as though the invalid portions were not a part
hereof. If the provisions of this Agreement relating to the area of restriction
or the period of restriction shall be deemed to exceed the maximum area or
period which a court having jurisdiction over the matter would deem enforceable,
such area or period shall, for purposes of this Agreement, be deemed to be the
maximum area or period which such court would deem valid and enforceable.
5.10. Entire Agreement. This Agreement, the Distribution
----------------
Agreement, the Strategic Alliance Agreement, certain hotel franchising
agreements, and other agreements executed pursuant thereto, constitute the
entire agreement of the parties concerning the subject matter hereof.
5.11. Remedies. Choice and Franchising agree that irreparable
--------
damage would occur in the event any of the provisions of this Agreement were not
to be performed in accordance with the terms hereof, and that their remedy at
law for any breach of the other party's obligations hereunder would be
inadequate. Choice and Franchising agree and consent that temporary and
permanent injunctive relief may be granted in any proceeding which may be
brought to enforce any provision hereof without the necessity of proof of actual
damage.
5.12. Enforceability. The terms, conditions and promises
--------------
contained in this Agreement shall be binding upon and shall inure to the benefit
of each of the parties hereto, their heirs, personal representatives, or
successors and assigns. Each of the parties hereto shall cause its subsidiaries
to comply with such party's obligations hereunder. Nothing herein, expressed or
implied, shall be construed to give any other Person any legal or equitable
rights hereunder.
5.13. Consent to Jurisdiction. Subject to Section 4.1 hereof,
-----------------------
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. The parties hereby irrevocably
designate, appoint and empower Prentice Hall Corporation System, Inc. as its
true and lawful agent and attorney-in-fact in its name, place, and stead to
receive on its behalf service of process in any action, suit, or proceeding with
respect to any matters as to which it has submitted to jurisdiction as set forth
in the immediately preceding sentence.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered, all as of the day and year first above
written.
CHOICE HOTELS INTERNATIONAL, INC.
By: /s/ Edward A. Kubis
------------------------------
Name: Edward A. Kubis
----------------------------
Title: Senior Vice President
---------------------------
CHOICE HOTELS FRANCHISING, INC.
By: /s/ Michael J. DeSantis
------------------------------
Name: Michael J. DeSantis
----------------------------
Title: Senior Vice President
---------------------------
9
<PAGE>
SCHEDULE A
----------
EUROPEAN HOTELS
---------------
Property Title
Moulins, France Freehold
Perpignan, France Freehold
Lormont, France Leasehold
Montlucan, France Leasehold
Regnault, France Leasehold
Mousson, France Leasehold
Vierzon, France Leasehold
St. Catherin, France Leasehold
Reims, France Leasehold
Cherbourg, France Leasehold
Jena, Germany Leasehold
Peine, Germany Freehold
Troisdorf, Germany Freehold
Comfort Inn, Kensington, United Kingdom Freehold
10
<PAGE>
Exhibit 99.04
EMPLOYEE BENEFITS & OTHER EMPLOYMENT
MATTERS ALLOCATION AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS.................................................... 1
Section 1.01 Definitions............................................... 1
Aggregate Spread.................................................... 1
Choice Business..................................................... 2
Choice Individual................................................... 2
Code................................................................ 2
Collective Bargaining Agreement..................................... 2
Commission.......................................................... 2
Common Stock........................................................ 2
(i) Employer Common Stock................................. 2
(ii) Sunburst Common Stock................................. 2
(iii) Choice Common Stock................................... 2
Company Matching Contribution....................................... 2
Conversion Award.................................................... 2
Current Plan Year................................................... 3
Cut-off Date........................................................ 3
Distribution Agreement.............................................. 3
Distribution Date................................................... 3
Employee............................................................ 3
(i) Choice Employee....................................... 3
(ii) Terminee.............................................. 3
(iii) Retained Employee..................................... 3
ERISA............................................................... 3
HMO................................................................. 3
IRS................................................................. 3
Plan................................................................ 3
Post-Conversion Stock Price......................................... 4
Prior Plan Year..................................................... 4
Profit Sharing Plan................................................. 4
(i) Sunburst Hospitality Corporation
Retirement Savings and Investment Plan................ 4
(ii) Choice Hotels International, Inc.
Retirement Savings and Investment Plan................ 4
Qualified Beneficiary................................. 4
Qualified Beneficiary............................................... 4
(i) Sunburst Qualified Beneficiary........................ 4
(ii) Choice Qualified Beneficiary.......................... 4
Retained Individual................................................. 5
Service Credit...................................................... 5
Subsidiary.......................................................... 5
(i) Choice Subsidiary..................................... 5
(ii) Retained Subsidiary................................... 5
Sunburst............................................................ 5
Sunburst Closing Stock Price........................................ 5
Sunburst Medical Plan............................................... 5
</TABLE>
(i)
<PAGE>
<TABLE>
Page
----
<S> <C>
Sunburst Stock Option............................................... 5
Welfare Plans....................................................... 5
Section 1.02 Other Terms............................................... 6
Section 1.03 Certain Constructions..................................... 6
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 Sunburst.......................... 7
Section 2.02 Profit Sharing Plans...................................... 7
(a) Sunburst Hospitality Corporation Retirement
Savings and Investment Plan.................................... 7
(b) Sunburst Hospitality Corporation Nonqualified
Retirement Savings and Investment Plan........................ 10
Section 2.03 Retirement Plans......................................... 12
(a) Sunburst Hospitality Corporation Supplemental
Executive Retirement Plan..................................... 12
(b) Sunburst Hospitality Corporation Deferred
Compensation Plan............................................. 14
Section 2.04 Comprehensive Stock Plans................................ 16
(a) Sunburst Hospitality Corporation Non-Employee
Director Stock Option and Deferred
Compensation Stock Purchase Plan......................... 16
(b) Sunburst Hospitality Corporation Non-Employee
Director Stock Compensation Plan......................... 17
(c) Sunburst Stock Option Plans.............................. 17
(d) Sunburst Hospitality Corporation Employee
Stock Purchase Plan...................................... 18
(e) Effect of the Distribution on Awards Made
Prior to the Cut-off Date................................ 18
(f) Effect of Post-Distribution Transfer on
Conversion Awards........................................ 21
Section 2.05 Existing Sunburst Stock Purchase Plan.................... 21
</TABLE>
(ii)
<PAGE>
<TABLE>
Page
----
<S> <C>
Section 2.06 Sunburst Welfare Plans and Short-Term
Disability Plan.......................................... 22
(a) Liability for Claims..................................... 22
(b) Continuation Coverage Administration..................... 22
(c) Continuation Coverage Claims............................. 23
(d) Continuation of Sponsorship of Sunburst Welfare Plans.... 23
(e) Welfare Plan Payments by Choice to
Sunburst................................................. 23
(f) Continuation of Sponsorship of Sunburst
Hospitality Corporation Short-Term
Disability Plan.......................................... 24
Section 2.07 Choice Welfare Plans and Short-Term
Disability Plan.......................................... 24
(a) Establishment of Choice Welfare Plans.................... 24
(b) Liability for Claims..................................... 24
(c) Continuation Coverage Administration..................... 24
(d) Continuation Coverage Claims............................. 25
(e) Establishment of Choice Hotels International,
Inc. Short-Term Disability Plan.......................... 25
Section 2.08 Vacation Pay and Sick Leave Liabilities.................. 25
(a) Division of Liabilities.................................. 25
(b) Post-Distribution Transfers.............................. 26
Section 2.09 Employee Discounts....................................... 26
Section 2.10 Preservation of Right To Amend or
Terminate Plans.......................................... 26
Section 2.11 Reimbursement............................................ 27
Section 2.12 Payroll Reporting and Withholding........................ 27
(a) Form W-2 Reporting....................................... 27
(b) Forms W-4 and W-5........................................ 27
(c) Garnishments, Tax Levies, Child Support
Orders, and Wage Assignments............................. 28
(d) Authorizations for Payroll Deductions.................... 28
ARTICLE III LABOR AND EMPLOYMENT MATTERS.................................. 28
Section 3.01 Separate Employers....................................... 28
Section 3.02 Employment Policies and Practices........................ 28
Section 3.03 Collective Bargaining Agreements......................... 29
Section 3.04 Claims................................................... 29
(a) Scope.................................................... 29
(b) Employment-Related Claims................................ 29
</TABLE>
(iii)
<PAGE>
<TABLE>
Page
----
<S> <C>
(c) Obligation to Indemnify.................................. 29
(d) Pre-Distribution Claims.................................. 30
(e) Distribution and Other Joint Liability
Claims .................................................. 30
(f) Post-Distribution Employment-Related
Claims .................................................. 30
Section 3.05 Funding of Union Plans................................... 30
Section 3.06 Notice of Claims......................................... 31
Section 3.07 Assumption of Unemployment Tax Rates..................... 31
Section 3.08 Intercompany Service Charge.............................. 31
Section 3.09 WARN Claims.............................................. 31
Section 3.10 Employees on Leave of Absence............................ 31
Section 3.11 No Third Party Beneficiary Rights........................ 32
Section 3.12 Attorney-Client Privilege................................ 32
ARTICLE IV DEFAULT....................................................... 32
Section 4.01 Default.................................................. 32
Section 4.02 Force Majeure............................................ 32
ARTICLE V MISCELLANEOUS................................................. 32
Section 5.01 Relationship of Parties.................................. 32
Section 5.02 Access to Information; Cooperation....................... 32
Section 5.03 Assignment............................................... 33
Section 5.04 Headings................................................. 33
Section 5.05 Severability of Provisions............................... 33
Section 5.06 Parties Bound............................................ 33
Section 5.07 Notices.................................................. 33
Section 5.08 Further Action........................................... 34
Section 5.09 Waiver................................................... 34
Section 5.10 Governing Law............................................ 34
Section 5.11 Consent to Jurisdiction.................................. 34
Section 5.12 Entire Agreement......................................... 34
Section 5.13 Commercially Reasonable Terms and
Conditions............................................... 34
</TABLE>
(iv)
<PAGE>
EMPLOYEE BENEFITS & OTHER EMPLOYMENT MATTERS
--------------------------------------------
ALLOCATION AGREEMENT
--------------------
THIS EMPLOYEE BENEFITS & OTHER EMPLOYMENT MATTERS ALLOCATION AGREEMENT
("Agreement") is made and entered into as of October 15, 1997, by and between
CHOICE HOTELS FRANCHISING INC. (to be renamed Choice Hotels International,
Inc.), a Delaware corporation ("Choice"), and CHOICE HOTELS INTERNATIONAL, INC.
(to be renamed Sunburst Hospitality Corporation), a Delaware corporation
("Sunburst").
R E C I T A L S
WHEREAS, pursuant to a Distribution Agreement (the "Distribution
Agreement") dated as of October 15, 1997, as implemented in documents executed
or delivered by Choice and Sunburst in connection with the closing thereunder,
Choice and Sunburst 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 Sunburst 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 Sunburst on the
Distribution Date.
WHEREAS, for purposes of convenience of description, the various employee
benefit and retirement plans and programs maintained by Sunburst will be
referenced herein under a new name, which identifies the program as being
sponsored by Sunburst Hospitality Corporation, rather than the original name of
Choice Hotels International, Inc., and any program to be established by Choice
after the spinoff will be identified by reference to the name Choice Hotels
International, Inc.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Sunburst 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
----------------
Sunburst Stock Option and the aggregate Post-Conversion Stock Price, multiplied
by the number of shares
<PAGE>
covered by such Sunburst Stock Option remaining unexercised on the Cut-off Date.
Choice: Choice Hotels Franchising, Inc. (to be renamed Choice Hotels
------
International, Inc.), a Delaware corporation.
Choice Business: any business or operation of Sunburst 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).
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 Sunburst 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 Sunburst or Choice, as more
------------
specifically described below:
(i) Employer Common Stock: Sunburst Common Stock in the case
---------------------
of Retained Employees and Choice Common Stock in the case of Choice Employees;
or
(ii) Sunburst Common Stock: the common stock, par value $0.01
---------------------
per share, of Sunburst after the Distribution Date; or
(iii) Choice Common Stock: the common stock, par value $0.01
-------------------
per share, of Choice after the Distribution Date.
Company Matching Contribution: the Company Matching Contribution of
-----------------------------
Sunburst under the Sunburst Hospitality Corporation Retirement Savings and
Investment Plan (as provided in the Sunburst Retirement Savings and Investment
Plan document) and the Sunburst Hospitality Corporation Nonqualified Retirement
Savings and Investment Plan, each as may be supplemented in the sole and
absolute discretion of the Sunburst 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 Sunburst Common Stock or
Sunburst Stock Options held on the Cut-off Date, in accordance with Section
2.04.
- 2 -
<PAGE>
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.
-----------------
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 Sunburst
--------
or any Subsidiary of Sunburst who terminated such employment prior to the
Distribution Date, including but not limited to any Sunburst employee who has
retired prior to the Distribution Date; or
(iii) Retained Employee: any individual who remains an
-----------------
Employee of Sunburst 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.
---
(S)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.
----------
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
- 3 -
<PAGE>
include any contract, agreement or understanding entered into by Sunburst prior
to the Distribution Date or by Sunburst or Choice after the Distribution Date
relating to settlement of actual or potential employee related litigation
claims.
Post-Conversion Stock Price: the per share price of Choice Common
---------------------------
Stock or Sunburst Common Stock on the first day of independent trading following
the Distribution Date, based on the closing price of Sunburst Common Stock and
Choice Common Stock on the New York Stock Exchange on such 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) Sunburst Hospitality Corporation Retirement Savings and
-------------------------------------------------------
Investment Plan: the Sunburst Hospitality Corporation 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) Sunburst Qualified Beneficiary: any Retained Employee (or
------------------------------
dependent thereof) who becomes a Qualified Beneficiary on or after the
Distribution Date under any Sunburst Welfare Plan; or any Retained Employee (or
dependent thereof) who, on or before the Cut-off Date, was a Qualified
Beneficiary under any Sunburst 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, 1998 under any Sunburst Welfare
Plan; or any individual (or dependent thereof) who, on or before the Cut-off
Date, was a Qualified Beneficiary under any Sunburst Welfare Plan and who became
a Choice Employee after the Distribution Date.
- 4 -
<PAGE>
Retained Business: any business or operation of Sunburst or its
-----------------
Subsidiaries which is, pursuant to the Distribution Agreement, to be conducted,
following the Distribution Date, by Sunburst 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 Sunburst, except
-------------------
Choice and the Choice Subsidiaries.
Sunburst: Choice Hotels International, Inc. (to be renamed Sunburst
--------
Hospitality Corporation), a Delaware corporation.
Sunburst Closing Stock Price: the New York Stock Exchange closing
----------------------------
price per share for Sunburst 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.
Sunburst Medical Plan: any welfare plan maintained by Sunburst (or
---------------------
to which Sunburst makes contributions) which provides medical benefits,
including medical benefits provided through an HMO, an indemnity program or a
point of service program.
Sunburst Stock Option: an option to purchase Sunburst Common Stock
---------------------
pursuant to an option granted under the Sunburst Hospitality Corporation Non-
Employee Director Stock Option and Deferred Compensation Stock Purchase Plan or
the Sunburst Hospitality Corporation Long Term Incentive Plan.
Welfare Plans: any welfare plan providing medical, dental, life,
-------------
pre-paid legal services, accidental death & dismemberment, short-term disability
benefits, or long-term
- 5 -
<PAGE>
disability benefits as set forth in Exhibit A. The term "Welfare Plan" does not
include any salary continuation 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.
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 Sunburst 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,
Sunburst 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 Sunburst 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 Sunburst.
(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, Sunburst shall credit each Retained Employee and Choice shall
credit each Choice Employee with such Employee's original hire date as reflected
in the Sunburst payroll system records as of
- 6 -
<PAGE>
the Cut-off Date (including, if applicable, the original hire date with Manor
Care). 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, 1999), Choice may, in the case of Choice Employees,
and Sunburst 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.
(c) Funding Payment by Choice to Sunburst. Choice shall make a
-------------------------------------
payment to Sunburst in an amount equal to 1.9% 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, 1997. Such payment shall be made to
Sunburst on a monthly basis no more than ten (10) days after the end of each
month ending after the Distribution Date through December 31, 1997. In
consideration of receipt of such payments, Sunburst shall assume responsibility
for the Company Matching Contribution attributable to the Current Plan Year
under the Sunburst Hospitality Corporation Retirement Savings and Investment
Plan, the Sunburst Hospitality Corporation 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) Sunburst Hospitality Corporation Retirement Savings and
-------------------------------------------------------
Investment Plan.
- ---------------
(i) Continuation of Sponsorship of Sunburst Hospitality
---------------------------------------------------
Corporation Retirement Savings and Investment Plan. Effective as of the
- --------------------------------------------------
Distribution Date, Sunburst shall continue sponsorship of the Sunburst
Hospitality Corporation Retirement Savings and Investment Plan for all Retained
Employees and Terminees. Participants in such Plan who are Retained Employees or
Terminees shall have all Manor Care stock and Choice Common Stock credited to
their accounts converted into cash and invested pursuant to the Participants'
directions in other permitted investment vehicles or, absent such instructions,
invested in a money market-type fund. Participants in such Plan who are Choice
- 7 -
<PAGE>
Employees and who retain accounts in such Plan pending the establishment of the
Choice Hotels International, Inc. Retirement Savings and Investment Plan shall
have all Manor Care stock and Sunburst Common Stock credited to their accounts
converted into cash and invested pursuant to the Participants' directions in
other permitted investment vehicles or, absent such instructions, invested in a
money market-type fund.
(ii) Establishment of Choice Hotels International, Inc. Retirement
-------------------------------------------------------------
Savings and Investment Plan. On or before July 1, 1998, 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 Sunburst Hospitality Corporation
Retirement Savings and Investment Sharing Plan. Sunburst 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. 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, Sunburst shall cause
the trustees of the Sunburst Hospitality Corporation 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 Sunburst
Hospitality Corporation 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, Sunburst 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
- 8 -
<PAGE>
or other review establishes that additional funds should be transferred to the
Choice Hotels International, Inc. Retirement Savings and Investment Plan from
the Sunburst Hospitality Corporation Retirement Savings and Investment Plan or
that funds should be returned from the Choice Hotels International, Inc.
Retirement Savings and Investment Plan to the Sunburst Hospitality Corporation
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) Sunburst to Provide Information. Sunburst 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 Sunburst,
were participants in or otherwise entitled to benefits under the Sunburst
Hospitality Corporation 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. Sunburst shall, 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 Sunburst 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 Sunburst 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 Sunburst that the
aforesaid Plan so qualifies, or that it can be made to so qualify by retroactive
amendment, and
- 9 -
<PAGE>
that any such retroactive amendment shall not decrease the accrued benefit of
any participant in such Plan. Sunburst agrees to provide to Choice's counsel
such information in the possession of Sunburst 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. Sunburst and Choice shall each
make any necessary amendments on a retroactive basis to the Sunburst Hospitality
Corporation 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) Sunburst Hospitality Corporation Nonqualified Retirement
--------------------------------------------------------
Savings and Investment Plan.
- ---------------------------
(i) Continuation of Sponsorship of Sunburst Hospitality Corporation
---------------------------------------------------------------
Nonqualified Retirement Savings and Investment Plan. On the Distribution Date,
- ---------------------------------------------------
Sunburst shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all liabilities and obligations under the Sunburst
Hospitality Corporation Nonqualified Retirement Savings and Investment Plan,
including 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
Sunburst the Funding Payment described in Section 2.01(c), above. Participants
in such Plan who are Retained Employees or Terminees shall have all Manor Care
stock and Choice Common Stock credited to their accounts converted into cash and
invested pursuant to the Participants' directions in other permitted investment
vehicles or, absent such instructions, invested in a money market-type fund.
Participants in such Plan who are Choice Employees and who retain accounts in
such Plan pending the establishment of the Choice Hotels International, Inc.
Nonqualified Retirement Savings and Investment Plan shall have all Manor Care
stock and Sunburst Common Stock credited to their accounts converted into cash
and invested pursuant to the Participants' directions in other permitted
investment vehicles or, absent such instructions, invested in a money market-
type fund.
(ii) Establishment of Choice Hotels International, Inc. Nonqualified
---------------------------------------------------------------
Retirement Savings and Investment Plan. On or before July 1, 1998, 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
- 10 -
<PAGE>
Sunburst Hospitality Corporation. 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 Sunburst in
consideration of the payment by Choice of the Funding Payment described in
Section 2.01(c) above.
(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,
Sunburst shall cause the trustee of the "rabbi" trust relating to the Sunburst
Hospitality Corporation 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 Sunburst
Hospitality Corporation 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 Sunburst Hospitality Corporation
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 benefits accrued under the
Sunburst Hospitality Corporation 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 Sunburst 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) Sunburst to Provide Information. Sunburst 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 Sunburst Hospitality
Corporation 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. Sunburst shall,
- 11 -
<PAGE>
as soon as practicable after the Distribution Date, in accordance with Section
5.02 provide Choice with such additional information in the possession of
Sunburst 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. 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
Sunburst Hospitality Corporation Nonqualified Retirement Savings and Investment
Plan shall be the responsibility of Sunburst. However, the payment of any
benefits due under the Sunburst Hospitality Corporation 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 Sunburst. 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 Sunburst Hospitality Corporation Nonqualified Retirement
Savings and Investment Plan shall be guaranteed by Sunburst for the first thirty
(30) months following the Distribution Date, to the extent not otherwise paid by
Choice.
Section 2.03 Retirement Plans.
----------------
(a) Sunburst Hospitality Corporation Supplemental Executive
-------------------------------------------------------
Retirement Plan.
- ---------------
(i) Continuation of Sponsorship of Sunburst Hospitality
---------------------------------------------------
Corporation Supplemental Executive Retirement Plan. On the Distribution Date,
- --------------------------------------------------
Sunburst shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all liabilities and obligations under the Sunburst
Hospitality Corporation 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. Sunburst 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
Sunburst Hospitality Corporation Supplemental Executive Retirement Plan.
- 12 -
<PAGE>
(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 Sunburst Hospitality Corporation Supplemental
Executive Retirement Plan.
(iii) Transfer and Acceptance of Account Balances. As soon as
-------------------------------------------
practicable after the Distribution Date, Sunburst 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 Sunburst Hospitality Corporation
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. Sunburst and
Choice shall take such steps as may be necessary to obtain releases of Sunburst
from Choice Employees whose accrued benefits are transferred from the Sunburst
Hospitality Corporation 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 Sunburst Hospitality Corporation 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 Sunburst
Hospitality Corporation Supplemental Executive Retirement Plan through the date
immediately preceding the Distribution Date shall be assumed by Choice, except
that Sunburst 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) Sunburst to Provide Information. Sunburst 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 Sunburst Hospitality Corporation 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. Sunburst shall, as soon as
practicable after the Distribution Date, in accordance with Section 5.02 provide
Choice with such additional
- 13 -
<PAGE>
information in the possession of Sunburst 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. 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
Sunburst Hospitality Corporation Supplemental Executive Retirement Plan shall be
the responsibility of Sunburst. However, the payment of any benefits due under
the Sunburst Hospitality Corporation 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 Sunburst. 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
Sunburst Hospitality Corporation Deferred Compensation Plan shall be guaranteed
by Sunburst for the first thirty (30) months following the Distribution Date, to
the extent not otherwise paid by Choice.
(b) Sunburst Hospitality Corporation Deferred Compensation Plan.
-----------------------------------------------------------
(i) Continuation of Sponsorship of Sunburst Hospitality
---------------------------------------------------
Corporation Deferred Compensation Plan. On the Distribution Date, Sunburst
- --------------------------------------
shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all liabilities and obligations under the Sunburst
Hospitality Corporation Deferred Compensation Plan, and Choice shall have no
liability or obligation with respect thereto, except as defined in Section
2.03(c)(ii) below. Sunburst shall provide future benefits thereunder accruing
after the Cut-off Date for Retained Employees, individuals who are directors of
Sunburst, and Terminees who, on the Cut-off Date, were participants in or
otherwise entitled to benefits under the Sunburst Hospitality Corporation
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
- 14 -
<PAGE>
participants in or otherwise entitled to benefits under the Sunburst Hospitality
Corporation Deferred Compensation Plan, and for Choice directors.
(iii) Transfer and Acceptance of Account Balances. As soon as
-------------------------------------------
practicable after the Distribution Date, Sunburst 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 Sunburst Hospitality Corporation 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. Sunburst and Choice shall take such steps as may be
necessary to obtain releases of Sunburst from Choice Employees whose account
balances are transferred from the Sunburst Hospitality Corporation Deferred
Compensation Plan to the Choice Hotels International, Inc. Deferred Compensation
Plan in accordance with this Section. In addition, each Choice Individual whose
account balance under the Sunburst Hospitality Corporation 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 Sunburst Hospitality Corporation
Deferred Compensation Plan through the date immediately preceding the
Distribution Date shall be assumed by Choice, except that Sunburst 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) Sunburst to Provide Information. Sunburst 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 Sunburst, participants in or otherwise entitled
to benefits under the Sunburst Hospitality Corporation Deferred Compensation
Plan on the Cut-off Date. Sunburst 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 Sunburst 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 Sunburst director's right to receive benefits
under the Sunburst Hospitality Corporation Deferred Compensation Plan shall be
the responsibility of Sunburst. However, the payment of any benefits due under
the Sunburst Hospitality Corporation Deferred Compensation Plan for the first
thirty (30) months following the
- 15 -
<PAGE>
Distribution Date shall be guaranteed by Choice, to the extent not otherwise
paid by Sunburst. 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 Sunburst Hospitality Corporation Deferred Compensation Plan
shall be guaranteed by Sunburst for the first thirty (30) months following the
Distribution Date, to the extent not otherwise paid by Choice.
Section 2.04 Comprehensive Stock Plans.
-------------------------
(a) Sunburst Hospitality Corporation Non-Employee Director Stock
------------------------------------------------------------
Option and Deferred Compensation Stock Purchase Plan.
- ----------------------------------------------------
(i) Continuation of Sponsorship of Sunburst Hospitality
---------------------------------------------------
Corporation Non-Employee Director Stock Option and Deferred Compensation Stock
- ------------------------------------------------------------------------------
Purchase Plan. On the Distribution Date, Sunburst shall retain (or shall cause a
- -------------
Retained Subsidiary to assume) sole responsibility for all liabilities and
obligations under the Sunburst Hospitality Corporation Non-Employee Director
Stock Option and Deferred Compensation Stock Purchase Plan for all non-employee
directors of Sunburst after the Distribution Date through the issuance of
Conversion Awards, subject to the stock adjustment provisions described in
Section 2.04(e)(iii) and Section 2.04(e)(iv) below and the election procedures
described in Section 2.04(e)(v) below, and Choice shall have no liability or
obligation with respect thereto. Notwithstanding the above, on the Distribution
Date, any continuing Director of Sunburst who becomes a member of the Board of
Directors of Choice as of the Distribution Date and who holds an option to
acquire Sunburst Common Stock under the Sunburst Hospitality Corporation Non-
Employee Director Stock Option and Deferred Compensation Stock Purchase Plan
will receive a Conversion Award in exchange for such Sunburst Stock Options (i)
with respect to which the Aggregate Spread shall equal the Aggregate Spread
attributable to such Sunburst Stock Options, and (ii) with respect to which the
Aggregate Spread shall be proportionately allocated between options to acquire
Sunburst Common Stock and options to acquire Choice Common Stock based upon the
relative trading values of Sunburst 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
- 16 -
<PAGE>
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) Sunburst Hospitality Corporation Non-Employee Director Stock
------------------------------------------------------------
Compensation Plan.
- -----------------
(i) Continuation of Sponsorship of Sunburst Hospitality
---------------------------------------------------
Corporation Non-Employee Director Stock Compensation Plan. On the Distribution
- ---------------------------------------------------------
Date, Sunburst shall retain (or shall cause a Retained Subsidiary to assume)
sole responsibility for all liabilities and obligations under the Sunburst
Hospitality Corporation 1997 Non-Employee Director Stock Compensation Plan for
all non-employee directors of Sunburst after the Distribution Date through the
issuance of Conversion Awards, subject to the stock adjustment provisions
described in Section 2.04(e) 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) Sunburst Stock Option Plans.
---------------------------
Continuation of Sponsorship of Sunburst Hospitality Corporation
---------------------------------------------------------------
Long Term Incentive Plan and Establishment of Choice Hotels International, Inc.
- ------------------------------------------------------------------------------
Long Term Incentive Plan. On the Distribution Date, Sunburst shall retain (or
- ------------------------
shall cause a Retained Subsidiary to assume) sole responsibility for all
liabilities and obligations under the Sunburst Hospitality Corporation 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(e) 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(e). 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 Sunburst Common Stock are canceled in consideration of receipt of the
Conversion Award. Effective as of the Distribution Date,
- 17 -
<PAGE>
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.
(d) Sunburst Hospitality Corporation Employee Stock Purchase Plan.
-------------------------------------------------------------
(i) Continuation of Sponsorship of Sunburst Hospitality
---------------------------------------------------
Corporation Employee Stock Purchase Plan. On the Distribution Date, Sunburst
- ----------------------------------------
shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all liabilities and obligations under the Sunburst
Hospitality Corporation 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(e) 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.
(e) 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 Sunburst Common Stock awarded under the Sunburst
Hospitality Corporation Long Term Incentive Plan or under any Manor Care
restricted stock 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 Sunburst 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 Sunburst Common Stock. In the case of Choice Employees and Manor Care
employees, future service for Choice or Manor Care, respectively, will be
treated as service for Sunburst for purposes of determining satisfaction of the
restrictions attributable to the Sunburst 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 Sunburst Common Stock retained, under the terms of the
restrictions to which the grantee's initial award was subject.
- 18 -
<PAGE>
(ii) Substitution of Stock Options: Subject to the provisions of
-----------------------------
Section 2.04(e)(v), below, on the Distribution Date, each grantee of a
nonqualified award of a Sunburst Stock Option who is a Retained Employee, a
Terminee, or a non-Employee Director of Sunburst who does not become a member of
the Board of Directors of Choice on the Distribution Date shall receive for each
such award a Conversion Award, with respect to which (a) one-half of the
Aggregate Spread relates to nonvested, nonqualified options to acquire Common
Stock of Sunburst and (b) one-half of the Aggregate Spread is proportionately
allocated between nonvested, nonqualified options to acquire Sunburst Common
Stock and nonvested, nonqualified options to acquire Choice Common Stock based
on their relative Post-Conversion Stock Prices. On the Distribution Date, each
grantee of a Sunburst 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 Sunburst Common Stock equal
in number to the number of shares covered by the Sunburst Stock Option,
adjusted, however, pursuant to Section 2.04(e)(iv) below. Subject to the
provisions of Section 2.04(e)(v), below, on the Distribution Date, each grantee
of a nonqualified award of a Sunburst Stock Option who is a Choice Employee or a
non-Employee Director of Sunburst who resigns as a Director of Sunburst and who
becomes a member of the Board of Directors of Choice on the Distribution Date
shall receive for each such award a Conversion Award with respect to which (a)
one-half of the Aggregate Spread relates to nonvested, nonqualified options to
acquire Common Stock of Choice and (b) one-half of the Aggregate Spread is
proportionately allocated between nonvested, nonqualified options to acquire
Sunburst Common Stock and Choice Common Stock based on their relative Post-
Conversion Stock Prices. On the Distribution Date, each grantee of a Sunburst
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 Sunburst Stock Option, adjusted, however, pursuant to Section 2.04(e)(iv)
below. Any stock options to purchase Sunburst Common Stock which are held by a
Manor Care employee and were issued to the Manor Care employee in accordance
with Section 2.04(f) of the Employee Benefits and Other Employment Matters
Allocation Agreement entered into on November 1, 1996 between Manor Care and
Sunburst (the "1996 Agreement") shall be converted based upon an election
provided to each Manor Care employee, prior to the distribution contemplated in
the Distribution Agreement, to convert any or all of the options to purchase
Sunburst Common Stock, whether vested or nonvested, into options to purchase
Choice Common Stock based upon the conversion methodologies generally described
in Section 2.04(e)(v) below.
Notwithstanding the above, on the Distribution Date, each Sunburst Stock Option
held by Stewart Bainum, Jr., or a
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<PAGE>
continuing non-employee Director of Sunburst who also becomes a member of the
Board of Directors of Choice, 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 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 Sunburst Common Stock and
options to acquire Choice Common Stock based upon their relative Post-Conversion
Stock Prices.
(iii) Adjustment of Option Price: For purposes of determining the
--------------------------
adjusted option price of a Conversion Award replacing a Sunburst Stock Option,
the following formula shall be used to maintain the grantee's Aggregate Spread
on each outstanding grant of Sunburst 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
Sunburst 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 Sunburst Common Stock or Choice
Common Stock, as the case may be, shall be set to maintain the ratio of the
exercise price of each Sunburst 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 (Sunburst
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 Sunburst 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(e)(iii).
(v) Special Election for Employees With Respect to Vested
-----------------------------------------------------
Nonqualified Stock Options and Manor Care Employees: On or before the Cut-off
- ---------------------------------------------------
Date, each holder of a vested nonqualified stock option to acquire Sunburst
Common Stock (including Employees and non-Employee Directors) and each Manor
Care employee who holds a nonqualified stock option, whether vested or
nonvested, may make a one-time election to specify the manner in which the
Aggregate Spread attributable to such nonqualified stock option shall be
allocated between a Conversion
- 20 -
<PAGE>
Award relating to nonqualified stock options to acquire Sunburst Common Stock
and a Conversion Award relating to nonqualified stock options to acquire Choice
Common Stock. For Employees, a failure to make a timely election with respect to
such nonqualified stock options shall be deemed to constitute an election to
receive a Conversion Award of vested nonqualified options with respect to which
(i) one-half of the Aggregate Spread relates to vested nonqualified stock
options to acquire Common Stock of the entity to which such individual does
become an Employee on the Distribution Date and (b) one-half of the Aggregate
Spread is proportionately allocated between vested nonqualified stock options to
acquire Sunburst Common Stock and vested nonqualified stock options to acquire
Choice Common Stock based on the relative trading values of Sunburst and Choice
on the Distribution Date.
(f) Effect of Post-Distribution Transfer on Conversion Awards.
---------------------------------------------------------
Conversion Awards made pursuant to this Section 2.04 of shares of or options in
Sunburst 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 (Sunburst 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, 1999 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
Sunburst employment to work for Choice, or leaving Choice employment to work for
Sunburst); 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 Sunburst Stock Purchase Plan. The Sunburst 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 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
- 21 -
<PAGE>
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 Sunburst Common Stock. Retained Employees will have the right to
acquire Sunburst Common Stock in the Post-Distribution Purchase. As soon as
practicable after the Distribution Date, Sunburst will transfer to the Choice
Hotels International, Inc. Stock Purchase Plan a cash amount equal to all
contributions made to the Sunburst 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 Sunburst Welfare Plans and Salary Continuation Short-Term
---------------------------------------------------------
Disability Plan.
- ---------------
(a) Liability for Claims. Except as otherwise provided herein, as of
--------------------
the Cut-off Date, Sunburst 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, 1997 in respect of any Employee (whether such claims are
asserted before or after December 31, 1997) under any Sunburst Welfare Plan and
shall be responsible for claims incurred after December 31, 1997 in respect of
any Retained Individual or Terminee under any Sunburst Welfare Plan, and Choice
and the Choice Subsidiaries shall have no liability or obligation with respect
thereto, except to make contributions to Sunburst 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, Sunburst will retain
any funds remaining on January 1, 1998 to pay for any claims incurred under such
programs on or prior to December 31, 1997. After all such claims have been
paid, Sunburst 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, Sunburst 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 Sunburst Qualified Beneficiary, and shall be responsible for the
administration of continuation coverage requirements for Choice Individuals
through December 31, 1997, and Choice and the Choice Subsidiaries shall have no
liability or obligation with respect thereto.
- 22 -
<PAGE>
(c) Continuation Coverage Claims. As of the Distribution Date,
----------------------------
Sunburst 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, 1997, whether asserted before or after December 31,
1997, under any Sunburst Welfare Plan in respect of any Sunburst Qualified
Beneficiary or Choice Qualified Beneficiary and shall be responsible for claims
incurred or premiums owed after December 31, 1997 under any Sunburst Welfare
Plan in respect of any Sunburst Qualified Beneficiary, and Choice and the Choice
Subsidiaries shall have no liability or obligation with respect thereto.
(d) Continuation of Sponsorship of Sunburst Welfare Plans. As soon as
-----------------------------------------------------
practicable after the date hereof and effective as of the Distribution Date,
Sunburst shall take, or cause to be taken, all action necessary and appropriate
to continue to administer the Sunburst Welfare Plans and to provide benefits
thereunder for all Retained Individuals and Sunburst Qualified Beneficiaries
who, immediately prior to the Distribution Date, were participants in or
otherwise entitled to benefits under the Sunburst Welfare Plans and to provide
benefits through December 31, 1997 to Choice Individuals. Sunburst 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, 1997 under the Sunburst Welfare Plans. Choice will provide
Sunburst, as soon as practicable after the Distribution Date (with the
cooperation of Sunburst to the extent that relevant information is in the
possession of Sunburst or a Retained Subsidiary, and in accordance with Section
5.02), with a list of individuals (and dependents thereof) employed by Sunburst
or any Retained Subsidiary who were, to the best knowledge of Choice,
participants in or otherwise entitled to benefits under the existing Sunburst
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 Sunburst. Choice shall make
-------------------------------------------
monthly payments to Sunburst in an amount equal to $216 multiplied by the number
of Choice Employees who are participants in a Sunburst Medical Plan with respect
to the time period beginning on the Distribution Date and ending on December 31,
1997. Such payments shall be made to Sunburst on a monthly basis no more than
ten (10) days after the end of each month ending after the Distribution Date
through December 31, 1997. In consideration of receipt of such payments,
Sunburst shall provide the services and benefits described in Section 2.06. It
is
- 23 -
<PAGE>
understood that Choice shall not make any changes in any of the benefit
structures attributable to the Sunburst Welfare Plans and will not modify the
procedures attributable to the administration and implementation of the Sunburst
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, 1997.
(f) Continuation of Sponsorship of Sunburst Hospitality Corporation
---------------------------------------------------------------
Salary Continuation Short-Term Disability Plan. On the Distribution Date,
- ----------------------------------------------
Sunburst shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all benefit payments due under the Sunburst Hospitality
Corporation Salary Continuation 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 Salary Continuation Short-Term
-------------------------------------------------------
Disability Plan.
- ---------------
(a) Establishment of Choice Welfare Plans. As soon as practicable
-------------------------------------
after the date hereof and effective January 1, 1998, 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, 1998, were participants in or otherwise entitled
to benefits under the Sunburst 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
Sunburst Welfare Plans.
(b) Liability for Claims. As of January 1, 1998, 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, 1998 in respect of any Choice Individual, and Sunburst and the
Retained Subsidiaries shall have no liability or obligation with respect
thereto.
(c) Continuation Coverage Administration. As of January 1, 1998,
------------------------------------
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, the administration of the continuation coverage requirements
imposed by Code Section 4980B and ERISA Sections 601 through 608
- 24 -
<PAGE>
as they relate to any Choice Qualified Beneficiary after December 31, 1997, and
Sunburst and the Retained Subsidiaries shall have no liability or obligation
with respect thereto.
(d) Continuation Coverage Claims. As of the January 1, 1998, 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, 1998 under any Choice Welfare Plans (or successor thereto) in respect
of any Choice Qualified Beneficiary, and Sunburst 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. Salary
---------------------------------------------------------
Continuation 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 salary continuation short-term disability plan
named the Choice Hotels International, Inc. Salary Continuation 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 Sunburst Hospitality Corporation Salary
Continuation 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 Sunburst 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 Sunburst 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 Cut-off Date, and Sunburst 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 Sunburst 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 the
- 25 -
<PAGE>
same rate of accrual as accrued in respect of such individual by Sunburst on the
Cut-off Date.
(b) Post-Distribution Transfers. Through May 31, 1999, an Employee
---------------------------
who leaves the service of one party to immediately begin employment with the
other party (i.e., leaving Sunburst employment to work for Choice, or leaving
Choice employment to work for Sunburst) 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 Sunburst on the same terms and conditions as Sunburst employee
discounts, and employees of Sunburst 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 Sunburst 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 Sunburst or Choice or any Retained Subsidiary or
Choice Subsidiary to amend such Plan or terminate
- 26 -
<PAGE>
its participation therein which Sunburst 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. Sunburst and Choice acknowledge that
-------------
Sunburst 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, Sunburst
(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 Sunburst 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 Sunburst as the
predecessor and Choice as the successor employer for the entire year during
which the Distribution takes place. Sunburst shall provide all required Forms
W-2 to all Retained Individuals reflecting all wages and taxes paid and withheld
by Sunburst 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 Sunburst shall be assigned to either
Sunburst 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 Sunburst or Choice, as the case may be.
(b) Forms W-4 and W-5. Choice and Sunburst 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 Sunburst shall provide to
Choice as the successor employer all IRS Forms W-4 and W-5 on file with respect
to each Choice Individual, and Choice will
- 27 -
<PAGE>
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 Sunburst 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 Sunburst.
(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 Sunburst 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 Sunburst. 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 Sunburst to the contrary, Choice and Sunburst
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 Sunburst
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 2.08(b)
governing post-Distribution transfers through May 31, 1999, Choice and Sunburst
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 each may determine, in its sole discretion,
are necessary and appropriate.
- 28 -
<PAGE>
Section 3.03 Collective Bargaining Agreements. With regard to employees
--------------------------------
of Sunburst covered by a Collective Bargaining Agreement on the Cut-off Date who
become Choice Employees or Retained Employees, Choice and Sunburst 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 Sunburst will
diligently work to substitute the appropriate employer for Sunburst in
Collective Bargaining Agreements.
Section 3.04 Claims.
------
(a) Scope. This Section is intended to allocate all liabilities for
-----
employment-related claims involving Sunburst or Choice including, but not
limited to, claims against either or both Sunburst 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, arbitra tion, 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 Sunburst 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.
- 29 -
<PAGE>
(d) Pre-Distribution Claims.
-----------------------
(i) Choice shall indemnify, defend and hold harmless Sunburst
from any employment-related claims of a Choice Individual arising on or before
the Cut-off Date.
(ii) Sunburst 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 Sunburst are not separately traceable to liabilities relating
to Choice Individuals or Retained Individuals, any liability shall be
apportioned between Choice and Sunburst 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
Sunburst shall equal the ratio of (i) the total number of Sunburst 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 Sunburst 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 Sunburst with respect to Retained
Individuals), and the responsible party will
- 30 -
<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 Sunburst as of the Cut-off Date shall
be handled as follows. In the event an option exists to allocate state
unemployment tax experience of Sunburst, the Sunburst experience shall be
transferred to Choice if this results in the lowest aggregate unemployment tax
costs for both Sunburst and Choice combined, and the Sunburst experience shall
be retained by Sunburst if this results in the lowest aggregate unemployment tax
costs for Sunburst 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 Sunburst, 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"). Sunburst 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, Sunburst shall assume responsibility, if any, as employer for
all Employees returning to Sunburst or a Retained
- 31 -
<PAGE>
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 Sunburst 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 Sunburst.
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 Sunburst 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. Sunburst and Choice and
----------------------------------
their authorized agents will be given reasonable access to and may take copies
of all information relating to the
- 32 -
<PAGE>
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 Sunburst 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 Sunburst
Sunburst Hospitality Corporation
10770 Columbia Pike
Silver Spring, MD 20901
Attention: GENERAL COUNSEL
- 33 -
<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 Sunburst, Choice will give copies of all
of its notices, consents, approvals and other communications hereunder to any
lender to Sunburst or other person specified by Sunburst.
Section 5.08 Further Action. Choice and Sunburst 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 Sunburst 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 Sunburst
would grant or require of third parties for substantially similar goods and
services.
- 34 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Choice Hotels International, Inc. (to be
renamed "Sunburst Hospitality
Corporation"), a Delaware corporation
By: /s/ Edward A. Kubis
-----------------------------------------
Name: Edward A. Kubis
---------------------------------------
Title: Senior Vice President
--------------------------------------
Choice Hotels Franchising, Inc. (to be
renamed "Choice Hotels International,
Inc."), a Delaware corporation
By: /s/ Michael J. DeSantis
-----------------------------------------
Name: Michael J. DeSantis
---------------------------------------
Title: Senior Vice President
--------------------------------------
- 35 -
<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
* Hourly Employee Short-Term Disability
<PAGE>
EXHIBIT 99.05
EMPLOYEE BENEFITS ADMINISTRATION AGREEMENT
------------------------------------------
THIS AGREEMENT (this "Agreement") is made and entered into as of October 15,
1997, by and between Choice Hotels Franchising, Inc. (to be renamed Choice
Hotels International, Inc.) a Delaware corporation ("Choice") and Choice Hotels
International, Inc. (to be renamed Sunburst Hospitality Corporation) a Delaware
corporation ("Sunburst").
R E C I T A L S
WHEREAS, pursuant to a Distribution Agreement (the "Distribution Agreement")
dated as of October 15, 1997, Sunburst and Choice 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, Sunburst and Choice
also have entered into an Employee Benefits & Other Employment Matters
Allocation Agreement (the Allocation Agreement") dated as of October 15,
1997, pursuant to which Sunburst and Choice 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 Sunburst on the Distribution Date;
and
WHEREAS, the personnel and systems formerly utilized in the maintenance and
administration of the aforesaid Sunburst employee plans and programs shall be
transferred to Choice; and
WHEREAS, Sunburst desires to retain Choice in the maintenance and
administration of Sunburst's employee plans and programs, and Choice 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, Sunburst and Choice agree as follows:
1. Definitions. As used in this Agreement, the following capitalized terms
-----------
shall have the meanings indicated:
1
<PAGE>
"Accounting Services" means the services provided by Choice to or on behalf of
-------------------
Sunburst or any participant in any of the Plans, as provided under Section 2.1
and Exhibit B of this Agreement.
"Ancillary Agreement" shall have the meaning described in the Distribution
-------------------
Agreement.
"Benefit and Compensation Additional Consulting Services" means the services
-------------------------------------------------------
provided by Choice to or on behalf of Sunburst 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 Hotel Operation 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 Hotel Operation 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 Choice deferred compensation plan or a Choice 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 Choice to or on
-----------------------------
behalf of Sunburst 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 Sunburst to a Qualified Beneficiary as required by COBRA.
"Compliance Services" means the services provided by Choice to or on behalf of
-------------------
Sunburst or any participant in any of the Plans, as provided under Section 2.5
and Exhibit F of this Agreement.
2
<PAGE>
"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.
"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 Choice Care Common
------------
Stock all the outstanding shares of Sunburst 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
-----------------
Choice 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 Choice to or on behalf of
------------------
Sunburst 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).
------
"Hotel Operation Business" means any business or operation of Sunburst or its
------------------------
subsidiaries which is, pursuant to the Distribution Agreement, to be
conducted, following the Distribution, by Sunburst.
"Imprest Account(s)" means the account(s) established pursuant to Section 4.1
------------------
of this Agreement.
"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 Sunburst Medical/Dental Plans, Welfare Plans, Retirement
-----
Plans, Deferred Compensation Plans, and Stock Plans set forth in the attached
Schedule A, as it
3
<PAGE>
may be amended from time to time with the written consent of both parties to
this agreement.
"Plan Administrator" means the administrator as defined in ERISA Section
------------------
3(16)(A).
"Plan Administration Services" means the services provided by Choice to or on
----------------------------
behalf of Sunburst 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 Hotel
---------------------
Operation 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.
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.
4
<PAGE>
2.0 Duties of Choice. Upon the request of Sunburst, Choice shall:
----------------
(a) Provide the Services to Sunburst 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
Choice'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, Choice
shall exercise the standards of care set forth in Section 6.0.
It is expressly understood that in providing the Services (any other services)
to Sunburst, Choice 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 Choice shall be an independent contractor in
providing the Services (any other services) under this Agreement, and not as
employee or agent of Sunburst. Choice agrees to provide such Services only if
it reasonably believes the service will not interfere with the conduct of the
business of Choice or pose an unreasonable burden.
2.1 Accounting Services. Upon the request of Sunburst, Choice shall provide
-------------------
the Accounting Services to Sunburst, as set forth in Exhibit B, to assist
Sunburst in meeting its accounting and financial reporting obligations under the
Plans.
2.2 Benefit and Compensation Additional Consulting Services. Upon the
-------------------------------------------------------
request of Sunburst, Choice shall provide Benefit and Compensation Consulting
Services, as set forth in Exhibit C, to Sunburst to assist Sunburst in updating
employee benefit plans and establishing competitive compensation practices.
2.3 Plan Administration Services. Upon the request of Sunburst, Choice shall
----------------------------
provide the Plan Administration Services, as set forth in Exhibit D, to assist
in the administration of its Plans.
5
<PAGE>
2.4 COBRA Administration Services. Upon the request of Sunburst, Choice
-----------------------------
shall provide the COBRA Administration Services, as set forth in Exhibit E, to
assist Sunburst, the Plan Administrator and the Medical/Dental Plans in the
performance of their responsibilities under COBRA.
2.5 Compliance Services. Upon the request of Sunburst, Choice or its
-------------------
contractors shall provide the Compliance Services, as set forth in Exhibit F, to
assist Sunburst 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 Sunburst, Choice 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. Choice shall obtain and maintain
customary such fiduciary insurance coverage. Other than the fiduciary services
set forth in Exhibit G, Choice 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
Sunburst. Except as otherwise specified in this Section 2.6, Choice 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 Sunburst. Except as provided in Section 2.6, Sunburst 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, Sunburst
shall, except to the extent expressly delegated to Choice:
(a) Provide Choice with assistance or authorizations to third parties
reasonably required for Choice to perform the Services and any other
services under this Agreement;
(b) Obtain and maintain qualification for all tax-qualified, tax-exempt or
otherwise tax-favored Plans;
(c) Request from Sunburst shareholders share authorizations sufficient to
meet awards under the Stock Plans;
6
<PAGE>
(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 Sunburst'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 Choice with any and all information in its possession
necessary to enable Choice to perform the Services under this Agreement.
(i) At the request of Choice, maintain the Imprest Account(s) with
sufficient funds to satisfy expenses of the Plans as they become due and
payable. Choice 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). Sunburst will open and maintain an imprest
------------------
account(s) against which Choice 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 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. Sunburst shall pay Choice for
--------------------------------
services requested and rendered hereunder as follows:
7
<PAGE>
(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 Choice to perform the service;
(iii) usage based charges for which Sunburst 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, Sunburst shall pay any and all
additional costs and expenses which Choice may incur for the express
purpose of providing services to Sunburst.
(c) Sunburst shall pay Choice on a time and materials basis for all costs
incurred by Choice in converting Sunburst business information and records
from Choice services systems to either a third party provider or to
Sunburst.
(d) Sunburst shall pay Choice for all services provided hereunder within
thirty (30) days after receipt of an invoice therefor. Sunburst shall pay
fixed charges in advance on the first business day of the applicable
Accounting Period. Any payments not made by Sunburst to Choice 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) CHOICE 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. Choice
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."
(b) Choice's sole liability to Sunburst 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 Choice hereunder which are caused solely by Choice shall be to
furnish correct information, payment, and/or adjustment in the Services provided
hereunder provided that Sunburst promptly advises Choice thereof.
8
<PAGE>
(c) Choice's sole liability to Sunburst 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 Choice'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. Choice will maintain the same
back-up procedures for Sunburst's information that Choice has for its own
information.
(d) CHOICE SHALL NOT BE LIABLE FOR ANY ERRORS, OMISSIONS, DELAYS, OR
LOSSES UNLESS CAUSED SOLELY BY ITS CRIMINAL CONDUCT, FRAUD, BAD FAITH OR GROSS
NEGLIGENCE. SUNBURST AGREES THAT IN NO EVENT WILL CHOICE BE LIABLE FOR
INCIDENTAL, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES. SUNBURST FURTHER
AGREES THAT IN NO EVENT WILL THE TOTAL AGGREGATE LIABILITY OF CHOICE FOR ANY AND
ALL CLAIMS, LOSSES, OR DAMAGES ARISING UNDER THIS AGREEMENT AND FOR THE SERVICES
PERFORMED HEREUNDER EXCEED THE VALUE OF SUNBURST'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 Choice'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 Choice (e.g. contract, negligence or otherwise).
6.0 Indemnification: Standard of Care. Choice 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 Choice Held Harmless. Sunburst will indemnify, defend and hold
--------------------
harmless Choice and its directors, officers and employees from Losses (as
defined below) resulting from or arising out of or in connection with Choice's
actions or failure to act where such action or failure to act is required by any
Sunburst employment, compensation or benefits policy or practice, other than
Losses for which Sunburst is indemnifiable by Choice 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, Sunburst will indemnify Choice 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 Sunburst as a
9
<PAGE>
result of such participant or beneficiary recognizing income from benefits
payable under any Plan.
6.2 Sunburst Held Harmless. Choice will indemnify, defend and hold
----------------------
harmless Sunburst 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 Choice'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 Sunburst, 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, Choice will provide
all necessary information and assistance to Sunburst (at Sunburst'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 Sunburst is
primarily liable.
7.0 Access to Information: Cooperation. Subject to the requirements of
-----------------------------------
Section 24.0, Sunburst 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
Choice'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 Sunburst may terminate this Agreement or any
-------- -------
services provided hereunder at any time for any reason or no reason by sending
written notice to Choice upon sixty (60) days' prior notice to Choice and
provided, further, in the event any service herein is dependent upon any
- -------- -------
Function as defined in that certain Corporate Services Agreement 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
10
<PAGE>
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. Choice and Sunburst 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, Choice 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 Choice's reasonable control, including limitations upon the availability
of communications facilities or failures of other communications equipment or
failure of Sunburst to prepare data properly for input into the Corporate
Systems. However, nothing in this provision shall relieve Sunburst of any
liability for failure to make any payments required to be made under this
Agreement because Sunburst Employees are on strike or engaged in a lock-out,
work stoppage or slow-down, or labor disputes.
11
<PAGE>
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 Choice nor Sunburst 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:
12
<PAGE>
To Choice:
Choice Hotels International, Inc.
10750 Columbia Pike
Silver Spring, MD 20901
Attention: General Counsel
To Sunburst:
Sunburst Hospitality Corporation
10750 Columbia Pike
Silver Spring, MD 20901
Attention: General Counsel
17.0 Further Action. Choice and Sunburst 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. Choice and Sunburst 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. Notwithstanding
--------------------------------------------
anything in this Agreement to the contrary, the terms and provisions of this
Agreement reflect and shall
13
<PAGE>
reflect commercially reasonable terms and conditions (including, but not limited
to, pricing) that in the reasonable judgment of Choice are at least as favorable
and as competitive to Sunburst as the terms and conditions Choice would grant or
require of third parties for substantially similar goods and services.
23.0 Representatives. Sunburst and Choice 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. Choice and Sunburst 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.
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Choice Hotels International, Inc., a
Delaware corporation
By: /s/ Edward A. Kubis
--------------------------------------------
Name: Edward A. Kubis
-----------------------------------
Title: Senior Vice President
----------------------------------
Choice Hotels Franchising, Inc., a
Delaware corporation
By: /s/ Michael J. DeSantis
--------------------------------------------
Name: Michael J. DeSantis
-----------------------------------
Title: Senior Vice President
----------------------------------
15
<PAGE>
EXHIBIT A
REPRESENTATIVES
- Sunburst
------------------------------------------
- Choice
------------------------------------------
16
<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. Choice 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 Sunburst'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 Sunburst self-insured
Health and Welfare Plans;
(j) Beginning January 1, 1998, 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 Sunburst to accrue on its books; and
17
<PAGE>
B.2 Accounting Services for Retirement Plans. Choice 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 Sunburst'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
Sunburst to accrue on its books; and
(j) Manage the process of withholding applicable payroll taxes
otherwise payable by Sunburst, where required.
18
<PAGE>
B.3 Accounting Services for Stock Plans. Choice 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 Sunburst
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 Sunburst, where required.
19
<PAGE>
B.4 Accounting Services for Deferred Compensation Plans. Choice 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 Sunburst to accrue on its books; and
(e) Manage the process of withholding applicable payroll taxes
otherwise payable by Sunburst, where required.
20
<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
-------------------------------------------------------------------
Choice shall:
Assist Sunburst annually to identify desired Additional Consulting
services and appropriate responsibility.
C.2 Benefit Additional Consulting Services for Retirement Plans. Choice
-----------------------------------------------------------
shall:
Assist Sunburst annually to identify desired Additional Consulting
services and appropriate responsibility.
C.3. Benefit Additional Consulting Services for Stock Plans. Choice
------------------------------------------------------
shall:
Assist Sunburst annually to identify desired additional consulting
services and appropriate responsibility.
C.4 Benefit Additional Consulting Services for Deferred Compensation
----------------------------------------------------------------
Plans. Choice shall:
Assist Sunburst annually to identify desired additional consulting
services and appropriate responsibility.
C.5 Compensation Additional Consulting Services for Sunburst. Choice
--------------------------------------------------------
shall:
Assist Sunburst annually to identify desired additional consulting
services and appropriate responsibility.
21
<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. Choice
---------------------------------------------------------
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 Sunburst to negotiate contracts with insurance carriers
and HMOs;
(d) Assist Sunburst to negotiate contracts with insurance carriers
and HMOs;
(e) Assist Sunburst 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 Sunburst.
(g) Oversee Sunburst 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 Sunburst in pursuing recovery of overpayments made by
medical and dental claim administrators;
22
<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.
23
<PAGE>
D.2 Plan Administration Services for Retirement Plans. Choice 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 Sunburst;
(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.
24
<PAGE>
D.3 Plan Administration Services for Stock Plans. Choice 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 Sunburst;
(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.
25
<PAGE>
D.4 Plan Administration Services for Deferred Compensation Plans. Choice
------------------------------------------------------------
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 Sunburst.
(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.
26
<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. Choice
------------------------------------------------------
shall:
(a) Send initial COBRA notices to Sunburst employees (and the
dependents thereof), as identified by Sunburst, 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 Sunburst or Choice, 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 Sunburst.
(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 Sunburst, where
required;
27
<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 Sunburst;
(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 Sunburst 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.
28
<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. Choice shall:
------------------------------------------------
(a) Assist Sunburst 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 Sunburst 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 Sunburst to prepare for and respond to any government
audit or enforcement action with respect to the Health and
Welfare Plans.
29
<PAGE>
F.2 Compliance Services for Retirement Plans. Choice shall:
----------------------------------------
(a) Assist Sunburst 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 Sunburst in the preparation of application for tax exempt
status for its Retirement Plans;
(c) Assist Sunburst 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 Sunburst to prepare for and respond to any government
audit or enforcement action with respect to the Retirement Plans.
30
<PAGE>
F.3 Compliance Services for Stock Plans. Choice shall:
-----------------------------------
(a) Assist Sunburst 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 Sunburst 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 Sunburst to prepare for and respond to any government
audit or enforcement action with respect to the Retirement Plans.
31
<PAGE>
F.4 Compliance Services for Deferred Compensation Plans. Choice shall:
---------------------------------------------------
(a) Assist Sunburst 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 Sunburst 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 Sunburst to prepare for and respond to any government
audit or enforcement action with respect to the Deferred
Compensation Plans.
32
<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. Choice 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 Sunburst's approval.
33
<PAGE>
G.2 Fiduciary Services for Retirement Plans. Choice 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 Sunburst'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
practices and make final decisions with respect thereto, subject
to Sunburst's approval.
34
<PAGE>
G.3 Fiduciary Services for Stock Plans. Choice 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 Sunburst's approval.
35
<PAGE>
G.4 Fiduciary Services for Deferred Compensation Plans. Choice 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 Sunburst's approval.
36
<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
37
<PAGE>
RETIREMENT PLANS STOCK PLANS
---------------- -----------
Sunburst Hospitality Corporation Sunburst Hospitality Corporation
Retirement Savings and Investment Plan Employee Stock Purchase Plan
Sunburst Hospitality Corporation
Non-Qualified Retirement Savings and
Investment Plan
Sunburst Hospitality Corporation
Supplemental Executive Retirement Plan
38
<PAGE>
DEFERRED COMPENSATION PLAN
--------------------------
Sunburst Hospitality Corporation
Deferred Compensation Plan
39
<PAGE>
Exhibit 99.06
TAX ADMINISTRATION AGREEMENT
----------------------------
THIS AGREEMENT (this "Agreement") is made and entered into as of October
15, 1997 by and between CHOICE HOTELS INTERNATIONAL, INC. (to be renamed
Sunburst Hospitality Corporation, a Delaware corporation ("Sunburst"), and
CHOICE HOTELS FRANCHISING, 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 October 15, 1997, Choice and Sunburst have agreed to enter into this
agreement relating to certain tax administration matters on the terms and
conditions set forth herein; and
WHEREAS, Choice shall retain the personnel and systems formerly utilized in
the administration of the services described herein; and
WHEREAS, Sunburst desires to retain Choice as described herein, and Choice
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, Sunburst and Choice agree as follows:
1. Definitions. As used in this Agreement, the terms indicated below shall have
-----------
the following meanings:
"Distribution" means the distribution to the holders of Choice Hotels
------------
International, Inc. Common Stock of all the outstanding shares of Choice
Hotels Franchising, Inc. Common Stock.
"Distribution Date" means the date on which the Distribution shall be
-----------------
effected.
"Hotel Business" shall mean any business or operation of Sunburst and its
--------------
subsidiaries (as defined in the Distribution Agreement) which is to be conducted
following the Distribution.
"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
in the United States.
"Related Agreement" shall have the meaning described in the Distribution
-----------------
Agreement.
<PAGE>
"Tax Claim" means a claim by a Taxing Authority for sales, use,
---------
occupancy, or any other taxes (other than any income taxes), miscellaneous
licenses, permits, and fees, interest and penalties (other than penalties for
the delinquent payment of assessments) which claims arise from or relate to
the Hotel Business and which under the Distribution Agreement or any Related
Agreement is charged to Sunburst.
"Taxing Authority" means any Country, State, County, Municipality, City
----------------
or other governmental entity legally empowered to tax Sunburst properties or
operations.
2.1 Tax Claim Administration Services. Upon request of Sunburst, Choice
---------------------------------
shall provide the services described in Exhibit B specifically requested by
Sunburst. Choice will promptly notify Sunburst in writing of any Tax Claims for
which it receives notice. Sunburst shall have full authority to defend and
settle all Tax Claims. Choice will not protest, settle, compromise or pay any
Tax Claims (except under protest), without the prior written consent of
Sunburst. Choice agrees to provide such services only if it reasonably believes
the service will not interfere with the conduct of the business of Choice or
pose an unreasonable burden.
2.2 Standard of Care. All services provided hereunder shall be administered
----------------
in accordance with Choice's standard policies, procedures and practices in
effect as of the date hereof and as may be changed hereafter in the normal
course and as more particularly described below, or as otherwise specified in
accordance with the terms thereof. In so doing, Choice 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.
3. Financial Provisions.
--------------------
3.1 Reimbursement. Sunburst will reimburse Choice for any Tax Claims for
-------------
which Choice is ultimately held liable, other than Tax Claims for which Sunburst
is entitled to indemnification under Section 4(a) hereof, together with all
reasonable out-of-pocket expenses including legal fees incurred by Choice in
protesting or disputing any Tax Claim or endeavoring to obtain a refund at
Sunburst's request.
3.2 Pricing and Payment for Services. Sunburst shall pay Choice 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; (ii) fixed fee based charges,
meaning a fixed amount per accounting period for Choice to perform the
service; (iii) usage based charges for which Sunburst will pay according
to actual use of the service; (iv) time and materials charges; (v) any
out-of-
2
<PAGE>
pocket expenses, including, but not limited to, fees of consultants and
attorneys; or (vi) a variation or a combination of any of the foregoing
methods as agreed to by the parties.
(b) Sunburst shall pay any and all reasonable additional costs and
expenses which Choice may incur for the express purpose of providing
services to Sunburst hereunder.
(c) Sunburst shall pay Choice for all services provided hereunder within
thirty (30) days after receipt of an invoice therefor. Sunburst will
remit to Choice the amount of any Tax Claims payable by Choice before
Choice is required to remit such amount to any Taxing Authority, provided
that Sunburst has received prompt notification of such. If Choice
subsequently recovers any amounts paid by Sunburst hereunder or if Choice
recovers any Tax Claim previously paid, it will remit such amounts to
Sunburst within thirty (30) days of receipt. Sunburst shall pay fixed
charges in advance on the first business day of the applicable Accounting
Period. Any payments not made by Sunburst to Choice or not made by Choice
to Sunburst, when due shall bear interest, computed daily, from the date
due to the date of payment at a rate equal to the Prime Rate plus two (2)
percentage points, as same may vary from time to time.
4. Indemnification.
---------------
(a) Choice will defend, indemnify and hold harmless Sunburst, its
subsidiaries, affiliates, directors, officers, employees and agents from
Tax Claims arising from (i) Choice's failure to file a tax return
required hereunder when due or (ii) Choice's failure to pay the tax shown
as due on any tax return applicable to the Hotel Business unless in the
case of (ii), such Tax Claim is being contested by Choice or a Choice
subsidiary in good faith on the date of this Agreement.
(b) Sunburst will defend, indemnify and hold harmless Choice, its
subsidiaries, affiliates, directors, officers, employees and agents from
any Tax Claims which are not subject to indemnification by Choice
pursuant to Section 4(a) above, and any out-of-pocket expenses incurred
by Choice in protesting or disputing any Tax Claims at Sunburst's
request.
(c) Sunburst shall indemnify, defend and hold harmless Choice and its
subsidiaries, and Choice shall indemnify, defend and hold harmless
Sunburst and its subsidiaries from and against any liability, cost, or
expense, including, without limitation, any fine, penalty, interest
charge (restricted to interest in excess of the rate established under
Section 6621 of the Internal Revenue Code and interest which is in
respect of the penalty portion of an assessment), or accountants' or
attorney fees, arising out of fraudulent or negligently prepared
information, workpapers, documents, and other items used in the
preparation
3
<PAGE>
of, or presented in, any return, amended return, or claim or refund
filed, and which information, workpapers, documents, or other items
originated with and/or were prepared by such indemnifying party.
5. Access to Information. Sunburst and its authorized agents will be given
---------------------
reasonable access to and may make copies of all information relating to Tax
Claims, Choice's time and expense charges for providing the services provided
hereunder, and Choice's out-of-pocket expenses. Sunburst and its authorized
agents may, upon fourteen (14) days written notice, annually audit Choice's
claims, administration policies, procedures and practices and the Tax Claims.
The parties will cooperate with one another to minimize the disruption caused by
any such audit. Choice will retain all information relating to Tax Claims in
accordance with the retention policies in the Distribution Agreement, with
Choice's internal record retention policy and in accordance with applicable
laws.
6. 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, this Agreement shall automatically renew each Fiscal Year
thereafter for the extended term of said Fiscal Year, but shall not extend past
the last day of the 30th month following the Distribution Date; provided,
--------
however, that Sunburst 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 Choice. 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.
7. 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)
relating to any such material default. 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
4
<PAGE>
(c) (i) Filing of a voluntary bankruptcy petition by either party; (ii)
filing of any 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.
8. Force Majeure. Choice and Sunburst 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, accidents, riots, acts of God, acts of United States' enemies, laws,
orders or at the insistence or result of any governmental authority or resulting
from any actions of a governmental authority, or any other event beyond each
other's reasonable control.
9. 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.
10. 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.
11. 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.
12. Severability of Provisions. Neither Choice nor Sunburst 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.
13. 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
person any legal or equitable rights hereunder.
14. 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 to the following addresses (or at such
other addresses for a party as shall be specified by like notice):
5
<PAGE>
to Choice:
Choice Hotels International, Inc.
10750 Columbia Pike
Silver Spring, MD 20901
Attention: General Counsel
to Sunburst
Sunburst Hospitality Corporation
10770 Columbia Pike
Silver Spring, MD 20901
Attention: General Counsel
15. Further Action. Choice and Sunburst 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.
16. Waiver. Choice and Sunburst 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.
17. 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.
18. 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.
19. Commercially Reasonable Terms and Conditions. The terms and provisions
--------------------------------------------
of this Agreement are and shall reflect commercially reasonable terms and
conditions (including, but not limited to, pricing) that are at least as
favorable and as competitive to Sunburst as the terms and conditions Choice
would grant or require of third parties for substantially similar goods and
services.
20. Liaisons. Sunburst and Choice 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
6
<PAGE>
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.
21. Other Agreements. Notwithstanding anything to the contrary contained
----------------
herein, Sunburst shall not be charged under this Agreement for any services
which are required to be performed under any operating lease or other agreement
between Sunburst and Choice or their respective subsidiaries.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CHOICE HOTELS FRANCHISING, INC., a
Delaware corporation
By: /s/ Michael J. DeSantis
--------------------------------------
Name: Michael J. DeSantis
------------------------------
Title: Senior Vice President
-------------------------------
CHOICE HOTELS INTERNATIONAL, INC., a
Delaware corporation
By: /s/ Edward A. Kubis
--------------------------------------
Name: Edward A. Kubis
------------------------------
Title: Senior Vice President
-------------------------------
7
<PAGE>
EXHIBIT A
REPRESENTATIVES
[TBD] Choice Hotels International, Inc.
Terry Ingalsbe - Choice Hotels Franchising, Inc.
8
<PAGE>
EXHIBIT B
SERVICES
[ATTACHED]
9
<PAGE>
MAINTENANCE OF FIXED ASSETS
(FEDERAL, AMT & ACE)
SCHEDULE OF SERVICES
1. Review Federal status and regulations for law changes; perform research as
required.
2. Classify monthly additions by asset type and depreciation method. Submit
corrections to Asset Management department as needed.
3. Review new facility/renovation additions for Section 1245 classification.
Obtain construction cost report and analyze for details.
4. Review acquisition additions for accuracy and reasonableness. Obtain copies
of settlement sheets, purchase agreements, etc. for details to fixed asset
allocation.
5. Review monthly dispositions and retirements. Calculate tax gain or loss as
needed.
6. Obtain fixed asset information for separate companies (such as Choice foreign
operations). Review and submit entries for tax books to Asset Management
department.
7. Review PeopleSoft Asset Management System for luxury auto limitations
calculations. Submit corrections as needed.
8. Extract reports from PeopleSoft Asset Management System as needed for special
projects or projections.
10
<PAGE>
Exhibit 99.07
TAX SHARING AGREEMENT
THIS AGREEMENT, executed this 15th day of October 1997, is entered into by
and among Choice Hotels Franchising, Inc. (to be renamed Choice Hotels
International, Inc.), a Delaware corporation ("Choice"), Choice Hotels
International, Inc. (to be renamed Sunburst Hospitality Corporation ) a Delaware
corporation ("Sunburst"), and all direct and indirect subsidiaries of one or
both of Choice and Sunburst.
RECITALS
A. Choice, Sunburst, and the subsidiaries of Choice and Sunburst 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 Sunburst, Sunburst will distribute all of its stock in Choice to the
common shareholders of Sunburst 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 "Sunburst Group") of which Sunburst is the
common parent.
C. The parties hereto desire to allocate their respective federal, state,
and local income tax liabilities, assess 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 short
period commencing November 1, 1996 and ending May 31, 1997 ("Short 97"); (b) the
period commencing June 1, 1997 and ending December 31, 1997; (" Second Short
97") (c) the period commencing June 1, 1997 and ending on the Distribution Date
("Stub 97"); and (d) where relevant, the short period commencing on the date
after the Distribution Date and ending on December 31, 1997 ("Second Stub 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, among other things, audits by the Internal Revenue Service (the "Service")
and other taxing authorities and judicial determinations, 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 certain periods as provided
herein (2) the retention and maintenance of all relevant records necessary to
prepare and
1
<PAGE>
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 proceedings with appropriate governmental authorities which
could result in a redetermination of tax liabilities (for certain periods as
provided herein) 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)
(1)-(8) of the Code.
(b) "Choice" is defined in the preamble.
(c) "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.
(d) "Code" is defined in the preamble.
(e) "Common Parent" shall have the meaning attributed to that term in the
Consolidated Return Regulations
(f) "Consolidated Return Regulations" is defined in section 4 hereof.
(g) "Distribution" shall mean the distribution by Sunburst of all its stock
in Choice to its shareholders.
(h) "Distribution Date" shall mean the date on which the Distribution
occurs.
(i) "Fiscal Year 1997" shall mean the period of time between June 1, 1996
and May 31, 1997.
(j) "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 Sunburst Group and
one or more Members of the Choice Group, whether such corporations
joined in the filing of returns on a consolidated, combined, or unitary
basis or otherwise.
2
<PAGE>
(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 Choice Group or the Sunburst Group.
(q) "Sunburst 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 Sunburst is the Common Parent.
(r) "Tax Attributes" shall mean any losses, credits and other tax
attributes relating to taxes that may be carried forward or back by any
Member of the Sunburst 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.
(s) "Taxes" shall mean (i) all federal income taxes and state, local, and
foreign income and franchise (to the extent based upon or measured by
net income) 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).
(t) "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 liabilities for taxes,
------------------------
etc. of the Sunburst Group and its Members for Fiscal Year 1997, and
where relevant, Stub 97, Short 97, Second Stub 97, Second Short 97, the
computations of the tax liabilities of the Sunburst 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
Sunburst and Choice for the fiscal years ending prior to the beginning
of Fiscal Year 1997.
3
<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
Sunburst Group pursuant to the Sunburst Group's historic tax allocation
method, described in section 1552(a)(2) of the Code.
(ii) With respect to Second Short 97 if the consolidated liability for
Taxes of the Sunburst Group for Fiscal Year 1998 (the "97 Calendar
Sunburst Liability") is less than the sum of the Taxes allocated for
Second Short 97 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 Calendar Sunburst 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 Stub 97 Taxes, Short 97 Taxes, Second
Stub 97 Taxes and Second Short 97 Taxes (to be made by Sunburst for
Short Calendar Year 1997) will be made not later than 90 days following
the filing of the Federal consolidated income tax return of the
Sunburst Group for such period. With respect to the final allocations
of Stub 97 Taxes, Short 97 Taxes, Second Stub 97 Taxes, and Second
Short 97 Taxes, Choice and/or its subsidiaries shall make payments to
Sunburst and/or its subsidiaries, or receive payments from Sunburst
and/or its subsidiaries based on the following principles:
(1) the payment shall equal the amount of the net adjustments, if
any, to taxable income or loss of Members of the Choice Group
multiplied by the applicable highest federal marginal rate of
income taxation on corporations in effect for the period for
which the net 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 net adjustments, if
any, of the credits of Members of the Choice Group.
(d) Manor Care Tax Sharing Agreement.
---------------------------------
Any additional amounts required to be paid by (or amounts owing to) any
of the parties hereto pursuant to the Tax Sharing Agreement, by and
among Manor Care, Inc. and Sunburst (and their subsidiaries), dated
November 1, 1996, shall be paid by (or paid to) the appropriate party
hereto in accordance with the provisions of this section as if such
provisions applied to such payments.
4
<PAGE>
(e) Characterization of Payments.
-----------------------------
Any payment (other than interest thereon) between the parties made
hereunder shall be treated by all parties for all purposes as a
nontaxable intercompany settlement of liabilities existing immediately
before the Distribution or, to the extent appropriate, as a nontaxable
distribution or capital contribution.
SECTION 3. SEPARATE COMPANY LIABILITIES.
----------------------------
Notwithstanding the provisions of section 2 hereof, for all periods through
and including Second Short 97 Taxes 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 Sunburst Group.
SECTION 4. ALLOCATION OF TAX ATTRIBUTES.
----------------------------
All Tax Attributes of the Sunburst Group will be allocated among Sunburst,
Choice, and their respective subsidiaries in accordance with the Regulations
promulgated pursuant to Section 1502 of the Code (the "Consolidated Return
Regulations") and, to the extent applicable, other provisions of the Code and
Regulations (and analogous provisions of state, local, or foreign law).
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 realizes a
Tax Attribute which Choice or such Member of the Choice Group, is
permitted or required to carry back to a prior taxable year of the
Sunburst Group or the prior taxable year of a Member of the Sunburst
Group (either on a consolidated or separate return basis), Sunburst
(or a Member of the Sunburst Group) shall file appropriate refund
claims within a reasonable period after being requested by Choice to
do so in writing provided that Sunburst has consented to such filing (
which consent shall not be unreasonably withheld). Sunburst (or the
Member of the Sunburst 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) Sunburst Carrybacks. If for any taxable year Sunburst or a Member of
-------------------
the Sunburst Group realizes a Tax Attribute which Sunburst or such
Member of the Sunburst Group, is permitted or required to carry back
to one of its prior taxable years, Sunburst or the Member of the
Sunburst 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.
-----------------------
5
<PAGE>
(a) "Joint Contests."
--------------
(i) The conduct of Joint Contests shall be the responsibility of
Sunburst. 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
Sunburst 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
shall be notified by Sunburst of such Joint Contest and Choice and/or
its subsidiaries, as appropriate, shall be entitled to participate, at
their own expense, in contesting all relevant items that affect the tax
liability or Tax Attributes of such entities with respect to such Joint
Contest in administrative and judicial proceedings. Choice and its
subsidiaries agree to notify Sunburst of any actual or proposed Tax
Contest of a consolidated federal or state income tax return of the
Sunburst 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. Sunburst 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. Sunburst may not agree to settle such a dispute without
the consent of Choice unless Sunburst 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 the Sunburst 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 complete 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 each Member of the Choice Group) and
-----------
Sunburst (and each Member of the Sunburst Group) shall provide the
assistance reasonably requested by the other party with respect to
conducting any Tax Contest, including providing
6
<PAGE>
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 by the Service or other taxing authority and/or judicial
determinations, payments in connection therewith, if any, made or received by or
among Choice, Sunburst, and their respective subsidiaries, shall be governed by
the following principles:
(a) Upon such redetermination, 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 pursuant to
Joint Contests, any increase in liabilities shall be paid to the
relevant taxing authority by, and any decrease in liabilities received
from the relevant taxing authority shall be paid to, Sunburst 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
Sunburst and/or its subsidiaries, or receive payments from Sunburst
and/or its subsidiaries based on the following principles:
(1) the payment shall equal the amount of the net adjustments, if any,
to taxable income or loss of Members of the Choice Group multiplied
by the applicable highest federal marginal rate of income taxation
on corporations in effect for the period for which the net
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 net adjustments, if
any, of the credits 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, Sunburst 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
Sunburst Group and Choice shall make a payment to Sunburst equal to the
amount of any resulting reduction in items allocated to Members of the
Sunburst Group to the extent such reduction is attributable to income
adjustments to Members of the Choice Group.
7
<PAGE>
(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 Distribution and any
transactions related thereto shall be borne entirely by Choice.
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 schedules (along with all documents
that pertain to any such tax returns, reports or work papers) of it
and/or any of its subsidiaries which relate to a tax period ending on
or before December 31, 1997. Choice shall make such documents
available to Sunburst and/or its subsidiaries at Sunburst's request.
Choice shall not dispose of such documents without the permission of
Sunburst.
(ii) Duties of Sunburst. Sunburst shall retain all tax returns, tax
------------------
reports, related work papers and schedules (along with all documents
that pertain to any such tax returns, reports or work papers) of it
and/or any of its subsidiaries which relate to a tax period ending on
or before December 31, 1997. Sunburst shall make such documents
available to Choice and/or its subsidiaries at Choice's request.
Sunburst shall not dispose of such documents without the permission of
Choice.
(b) Access to Records.
-----------------
(i) Duties of Choice. Choice will permit Sunburst 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 members of the Choice Group furnish, to Sunburst and its
subsidiaries, as the case may be, such additional information and
documents with respect to consolidated federal and state income tax
returns filed in respect of periods ending on or before December 31,
1997, as Sunburst or any of its subsidiaries may from time to time
reasonably request.
(ii) Duties of Sunburst. Sunburst 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 Sunburst and
the other members of the Sunburst 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
8
<PAGE>
accountants of Sunburst or any of the members of the Sunburst Group
furnish, to Choice and its subsidiaries, as the case may be, such
additional information and documents with respect to consolidated
federal and state income tax returns filed in respect of periods ending
on or before December 31, 1997, as Choice or any of its subsidiaries
may from time to time reasonably request.
(c) Assistance and Cooperation. Sunburst (and Members of the Sunburst
--------------------------
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 Sunburst 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 Sunburst 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.
(d) Confidentiality. Except as required by law or with the prior written
----------------
consent of the other party, all tax returns and related information
which are written in the scope of this Agreement shall be kept
confidential by the parties hereto and their representatives shall not
be declined to any other person or entity and shall be used only for
the purposes provided herein.
SECTION 9. PREPARATION OF TAX RETURNS: ESTIMATED PAYMENTS.
-----------------------------------------------
(a) FY 1997. Sunburst and Choice shall work together to prepare the
-------
consolidated, separate, and combined returns for Fiscal Year 1997,
Short 97 and Second Short 97. It shall be the responsibility of Choice
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) Short Calendar Year 1997. Choice shall prepare and timely file the
------------------------
consolidated returns for Second Short 97 In connection with the
preceding sentence, Sunburst and its subsidiaries will, on or prior to
June 15, 1998 with respect to Second Short 97 (i) furnish to Choice all
information and documentation (with respect to Sunburst and its
subsidiaries) necessary or useful in the preparation of the
consolidated federal and state income tax returns for the Sunburst
Group for Second Short 97 (ii) permit Choice 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 Sunburst and its
subsidiaries, wherever located; and (iii) furnish to Choice such
additional information and documents in the possession 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 Choice may from time to time reasonably request.
Choice will, and shall cause
9
<PAGE>
its subsidiaries to, cooperate in connection with the preparation of
the consolidated federal and state income tax returns of the Sunburst
Group for Second Short 97. It shall be the responsibility of Sunburst
to make any payments required in connection therewith to the applicable
taxing authorities. Sunburst and its subsidiaries shall file its own
tax returns which are filed on a separate or combined basis for Second
Short 97. Choice and its subsidiaries shall prepare and file its own
tax returns which are filed on a separate or combined basis for Second
Short 97.
(c) Taxable Period Before FY 1997. All tax returns of the Sunburst Group
-----------------------------
which are filed on a consolidated or combined basis for tax periods
ending before May 31, 1997 were prepared and filed by Sunburst.
Sunburst shall be solely responsible for the payment of all Taxes for
such periods. Sunburst 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 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) Sunburst's Separate Returns. All tax returns of the Sunburst
---------------------------
Group which are filed on a consolidated, separate, or combined basis
for Sunburst and/or any of its subsidiaries for tax periods beginning
on or after the Distribution Date shall be prepared and filed by
Sunburst. Sunburst 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
Sunburst Group and its Members for FY 1997 and Second Short 97 shall be
made by Sunburst. Sunburst 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 1997 and FY 1998 liability,
as determined under the provisions of section 2 hereof. Choice shall
thereafter promptly pay such amount to Sunburst or advise Sunburst of
the basis for its disagreement. Choice must make estimated payments
for the Choice Group for periods beginning on/after the Distribution
Date.
10
<PAGE>
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, by and
between Choice and Sunburst, dated as of October 15, 1997 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 stock other than his or her employer's stock, then the
issuer of that 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, and such employer, 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 tax deductions, to the extent permitted by law the income
recognized by such employee as a result of such exercise.
(b) If an employee is employed by both Sunburst and Choice, for the purpose
of this Section 10, such employee shall be treated as an employee of
Sunburst with respect to his or her Sunburst 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 of Sunburst or Choice, whether or not employed.
SECTION 11. INDEMNIFICATION.
---------------
With respect to all consolidated federal and state income tax returns filed
by the Sunburst Group:
11
<PAGE>
(a) Choice shall indemnify, defend and hold harmless Sunburst and its
subsidiaries, and Sunburst shall indemnify, defend and hold harmless
Choice and its subsidiaries from and against any liability, cost, or
expense, including, without limitation, any 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 attorneys' fees,
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 Sunburst Group for Fiscal Year 1997, Short 1997, Stub 97, Second
Short 97 or Second Stub 97, 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 Sunburst from and
against any liability, cost, or expense incurred or paid by Sunburst in
excess of its share thereof as allocated pursuant to this Agreement
hereof, including any amount paid by Sunburst in connection with an
assessment by the Service or other taxing authority.
(c) Sunburst 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
Sunburst and Choice. The fees and expenses of such firm shall be borne equally
by Choice and Sunburst. In the event that Choice and Sunburst 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 Sunburst or Choice, Sunburst 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
12
<PAGE>
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 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 Franchising, Inc.
10750 Columbia Pike
Silver Spring, MD 20901
Attn: General Counsel
To Sunburst: Choice Hotels International, Inc.
10770 Columbia Pike
Silver Spring, MD 20901
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 exclusive 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.
13
<PAGE>
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 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 duly authorized
officers of Sunburst and Choice.
SECTION 22. EFFECTIVENESS OF AGREEMENT.
--------------------------
This Agreement shall become effective from and after the close of business
on the Distribution Date and shall continue in effect until otherwise agreed in
writing by Sunburst 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 FRANCHISING, INC.
By: /s/ Michael J. DeSantis
------------------------------------
Name: Michael J. DeSantis
----------------------------------
Title: Senior Vice President
---------------------------------
CHOICE HOTELS INTERNATIONAL, INC.
By: /s/ Edward A. Kubis
------------------------------------
Name: Edward A. Kubis
----------------------------------
Title: Senior Vice President
---------------------------------
14
<PAGE>
Exhibit 99.08
OFFICE SUBLEASE
by and between
Choice Hotels Franchising, Inc.
a Delaware corporation (to be
renamed Choice Hotels International, Inc.)
"Subtenant"
and
Choice Hotels International, Inc.
a Delaware corporation (to be
renamed Sunburst Hospitality Corporation)
"Sublessor"
at
10720, 10750, and 10770 Columbia Pike
Silver Spring, MD 20901
<PAGE>
OFFICE SUBLEASE
This Sublease is entered into this 15th day of October 1997, by and between
Choice Hotels International, Inc., a Delaware corporation (to be renamed
Sunburst Hospitality Corporation) ("Sublessor") and Choice Hotels Franchising
Inc., a Delaware corporation (to be renamed Choice Hotels International, Inc.)
("Subtenant").
RECITALS
--------
WHEREAS, Sublessor entered into a lease agreement with Manor Care, Inc.
("Manor Care") for certain office space located at 10720, 10750 and 10770
Columbia Pike, Silver Spring, Maryland 20901 (the "Property") a copy which is
attached hereto and made a part of this Sublease as Exhibit "A", and referred to
as the Master Lease.
WHEREAS, Sublessor is implementing a restructuring of itself in which,
among other things, it will is distribute to its shareholders all of the common
stock of Subtenant, pursuant to a Distribution Agreement dated as of October
1997, between Sublessor and Subtenant as a result of which Sublessor and
Subtenant will be separate publicly traded corporations.
WHEREAS, Sublessor and Subtenant occupy office space together in the
Property, pursuant to the Master Lease, and desire to provide in this Sublease
for the continuing occupancy by Subtenant, after said stock distribution, of
certain office premises.
WHEREAS, Sublessor and Subtenant each have determined that the rental and
other terms and conditions of this Sublease are commercially reasonable, based
upon market conditions in the Silver Spring, Maryland area.
WHEREAS, Sublessor desires to sublease to Subtenant and Subtenant desires
to sublease from Sublessor a portion of the Property consisting of 74,074
rentable square feet in 10750 Columbia Pike and 23,203 rentable square feet in
10770 Columbia Pike (the "Demised Premises").
WHEREAS, the parties desire to enter into this Sublease defining their
respective rights, duties, and liabilities relating to the Demised Premises.
NOW, THEREFORE, WITNESSETH, in consideration of the mutual promises and
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and SUBJECT ENTIRELY
TO THE TERMS, DEFINITIONS, AND CONDITIONS OF THE MASTER LEASE, unless
hereinafter specifically altered, Sublandlord and Subtenant hereby agree as
follows:
1. LEASE OF PREMISES: Sublessor hereby leases to Subtenant and Subtenant
------------------
hereby leases from Sublessor the Demised Premises subject to terms and
<PAGE>
conditions of this Sublease.
2. PROVISIONS CONSTITUTING SUBLEASE: This Sublease is subject to all the
---------------------------------
terms and conditions of the Master Lease, except as set forth in this
Sublease. Subtenant shall assume and perform for the benefit of
Sublessor and Manor Care the non-monetary obligations of Sublessor as
lessee in the Master Lease, to the extent the terms and conditions are
applicable to the Demised Premises (including without limitation,
insurance requirements), and pay rent as set forth in Section Four of
this Sublease. All defined terms in this Sublease shall have the same
meaning as set forth in the Master Lease, except as set forth therein.
Neither Sublessor or Subtenant shall commit or permit to be committed
on the Demised Premises any act or omission that shall violate any
term or condition of the Master Lease or breach the terms of the
Master Lease or cause the Master Lease to be terminated.
3. LEASE TERM AND POSSESSION: The term of the Sublease shall commence on
--------------------------
October 15, 1997 and shall terminate on April 30, 1999. Subtenant
shall be given possession of the Demised Premises immediately upon
execution of this Sublease.
4. RENT: Subtenant shall pay its proportionate share (as calculated
-----
below) of the Annual Base Rent (as defined in the Master Lease) in
equal monthly installments 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 Sublease; 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 Sublease was in effect in relation to the total
number of days in such month.
Subtenant's proportionate share of the Annual Base Rent shall be
determined by dividing the total rentable square feet for which
Sublessor is responsible under the Master Lease by the total rentable
square feet occupied by Subtenant and multiplying the resulting
quotient by the Annual Base Rent. Subtenant shall pay its
proportionate share directly to Manor Care.
5. USE: The Premises shall be used for general office uses and for no
---
other purposes without the prior, express, written consent of
Sublessor and Manor Care.
6. ASSIGNMENT AND SUBLETTING: Subtenant will not assign this Sublease or
--------------------------
further sublet all or any part of the Demised Premises without the
prior written consent of Sublessor (and the consent of the Manor Care,
if required under the terms of the Master Lease), which consent may be
withheld in Sublessor's sole and unfettered discretion.
<PAGE>
7. INDEMNIFICATION: Subtenant agrees to defend, indemnify, and hold
----------------
Sublessor and Manor Care harmless from and against any and all claims
arising or alleged to arise as a result of the occupancy or use of the
Demised Premises, including common areas and other areas appurtenant
to the Demised Premises, by Subtenant, its employees, agents,
contractors or subcontractors.
Sublessor agrees to defend, indemnify, and hold Subtenant harmless
from and against any and all claims arising or alleged to arise from
any act or omission of sublessor, its employees, agents, contractors,
or subcontractors.
8. ADDITIONAL RENT: Subtenant shall pay to Manor Care all charges for
----------------
additional rent or operating expenses attributable to the Demises
Premises as specified in the Master Lease. Payment shall be made in
advance on the first day of each calendar month of the term of this
Sublease without deduction, offset, prior notice, or demand in lawful
money of the United States.
9. ATTORNMENT: If the Master Lease terminates Subtenant will, if
-----------
requested, by Manor Care attorn to and recognize Manor Care as
Sublessor, provided that Manor Care shall have no liability or
responsibility for any defaults of Sublessor under this Sublease.
Sublessor hereby transfers to Manor Care all of its interest in the
Sublease, effective upon an event of default of Sublessor.
10. NOTICES: All notices, demands, or other writings in this Sublease
--------
provided to be given or made or sent, or which may be given or made or
sent, by either party to the other, shall be deemed to have been fully
given or made or sent when made in writing and hand delivered or
deposited in the United States mail, registered and postage prepaid,
and addressed as follows:
TO SUBLESSOR: 10770 Columbia Pike
2nd Floor
Silver Spring, MD 20901
Attn: General Counsel
TO SUBTENANT: 10750 Columbia Pike
Silver Spring, MD 20901
Attn: General Counsel
TO LESSOR UNDER MASTER LEASE AGREEMENT:
Manor Care, Inc.
11555 Darnestown Road
Gaithersburg, MD 20878
Attn: General Counsel (Re: Real Estate)
The address to which any notice, demand, other writing may be given or
made or
<PAGE>
sent to any party as above-provided may be changed by written notice
given by the party as above-provided.
11. GOVERNING LAWS: It is agreed that this Sublease shall be governed by,
---------------
construed, and enforced in accordance with the laws of the State of
Maryland.
12. ENTIRE AGREEMENT: This Sublease shall constitute the entire agreement
-----------------
between the parties. Any prior understanding or representation of any
kind preceding the date of this Sublease shall not be binding upon
either party except to the extent incorporated in this Sublease. This
Sublease may not be modified except by a written instrument duly
executed by the Sublessor, Subtenant and Manor Care.
13. ATTACHMENTS: The following Attachments are attached hereto and made a
------------
part hereof.
Exhibit A: Master Lease
Exhibit B: Rules and Regulations
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
properly executed and sealed the day and year first above written.
ATTEST: SUBLESSOR
CHOICE HOTELS INTERNATIONAL, INC.
(To be renamed SUNBURST HOSPITALITY
CORPORATION)
/s/ Pamela Williams By: /s/ Michael J. DeSantis
- ---------------------------- ---------------------------------
Title: Senior Vice President
------------------------------
<PAGE>
ATTEST: SUBTENANT:
CHOICE HOTELS FRANCHISING, INC.
(to be renamed CHOICE HOTELS
INTERNATIONAL, INC.)
/s/ Pamela Williams By: /s/ Michael J. DeSantis
- --------------------------- ---------------------------------
Title: Senior Vice President
------------------------------
Manor Care, Inc., lessor of the above Demised Premises held by tenant under the
Master Lease executed on November 1, 1996, hereby consents to the above
Sublease.
ATTEST: MANOR CARE, INC.
/s/ Leo H. Phillips, Jr. By: /s/ James H. Rempe
- --------------------------- ---------------------------------
Name: James H. Rempe
-------------------------------
Title: Senior Vice President
------------------------------
Dated: October 15, 1997
--------------------
<PAGE>
Exhibit 99.09
CORPORATE SERVICES AGREEMENT
----------------------------
THIS AGREEMENT (this "Agreement") is made and entered into as of October
___, 1997, by and between CHOICE HOTELS INTERNATIONAL, INC. (to be renamed
Sunburst Hospitality Corporation), a Delaware corporation ("Sunburst"), and
CHOICE HOTELS FRANCHISING, 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 October, 1996, Sunburst and Choice agreed to enter into
a corporate services agreement with the terms and conditions set forth herein;
WHEREAS, Choice shall retain the personnel and systems formerly utilized in
the administration of certain services described herein and Sunburst shall
retain the personnel and systems formerly utilized in the administration of
certain other services described herein; and
WHEREAS, each party desires to retain the other as described herein, and
each party 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, Sunburst and Choice 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 Choice Functions or
Accounts Payable Services 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 Choice Functions, or any other services which Choice may
provide Sunburst from time to time (on a transitional basis and only where
such services shall not unreasonably interfere
1
<PAGE>
with Choice's business operations and will not cause Choice to incur
additional expense without reasonable compensation therefor).
"Ancillary Agreements" shall have the meaning described in the
--------------------
Distribution Agreement.
"Choice Corporate Services" shall mean Conversion Services; Support
-------------------------
Services; Computer Services, the Choice Functions, and the Additional
Consulting Services.
"Choice Functions" shall mean Corporate Accounting Support and Property
----------------
Accounting Services for Sunburst's Real Estate Business as listed on
Exhibit A.
"Computer Services"shall mean the Silver Spring Computer Services and
-----------------
certain other services listed on Exhibit A.
"Construction Accounting Services" shall have the meaning described on
--------------------------------
Exhibit A.
"Conversion Services" shall mean the initial conversion of Sunburst's
-------------------
business data from Choice to Sunburst and archiving Sunburst'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.
"Distribution" means the distribution to the holders of Sunburst Common
------------
Stock all the outstanding shares of Choice Common Stock.
"Distribution Date" means the date determined by the Board of Directors
-----------------
of Sunburst as the date on which the Distribution shall be effected.
"Franchising Business" shall mean any business or operation of Sunburst
--------------------
or its subsidiaries which is, pursuant to the Distribution Agreement, to be
conducted, following the Distribution, by Choice.
"Fixed Asset Accounting Service" shall mean those services identified
------------------------------
on Exhibit A.
"Payroll Services" shall mean those payroll services which are provided
----------------
by a third-party vendor.
2
<PAGE>
"Payroll Support" shall mean the support services needed to maintain
---------------
the Payroll Services, including any employees hired by Sunburst who are
dedicated to Payroll Services.
"PeopleSoft System" shall mean the PeopleSoft hardware and software,
-----------------
consisting of four modules: general ledger, accounts payable, purchasing
and asset management.
"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.
"Provider Party" shall mean the party providing the services under this
--------------
Agreement (i.e., Choice with respect to the Choice Corporate Services and
Sunburst with respect to the Accounts Payable Services).
"Real Estate Business" shall mean any business or operation of
---------------------
Sunburst or the Real Estate Subsidiaries (as defined in the Distribution
Agreement) which is, pursuant to the Distribution Agreement, to be
conducted, following the Distribution, by Sunburst.
"Requesting Party" means the party requesting services under this
----------------
Agreement (i.e., Choice with respect to the Accounts Payable Services and
Sunburst with respect to the Choice Corporate Services).
"Support Services" shall mean the support services needed to perform
----------------
the Functions and Facilities Services, including but not limited to
Accounting Systems Support, PeopleSoft Systems and Systems Support.
"Systems Support" shall mean the computer hardware and software, but
---------------
excluding the PeopleSoft System, and telecommunications, including data
transmission, data distribution, report generation, and data entry
capabilities needed to process Sunburst's information for each Choice
Function and Facilities Service.
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. Choice Services. Upon the request of Sunburst, Choice shall provide
---------------
the Choice Corporate Services provided herein:
3
<PAGE>
(a) Choice shall provide Sunburst with the Choice Corporate Services,
including Support Services for the Choice Functions and Facilities Services
in substantially the same manner as such services are being provided to the
Real Estate Business on the Distribution Date. Choice reserves the right
to change the manner in which it provides Accounting Systems Support and
Systems Support related to the Choice Functions and Facilities Services
described herein, provided such change is consistent with changes made for
Choice's own business units and provided Choice gives Sunburst notice of
such change (the same notice Choice will provide its own businesses).
(b) Choice shall also provide Sunburst with Conversion Services at the
cost of Choice to provide such Services.
(c) Sunburst may request that Choice provide Additional Consulting
Services from time to time. The parties will agree, at the time such
services are requested, upon the scope and final pricing for any Additional
Consulting Services. Whenever the parties deem necessary, Choice will
draft an arrangement letter outlining the scope of Additional Consulting
Services, deliverables, cost, and schedule for Sunburst's acceptance.
(d) Choice agrees to provide such services only if it reasonably believes
the service will not interfere with the conduct of the business of Choice
or pose an unreasonable burden.
3. Sunburst Services. Upon the request of Choice, Sunburst shall provide
-----------------
Choice with Accounts Payable Services and/or Fixed Asset Accounting Services in
substantially the same manner as such services are being provided to the
Franchising Business on the Distribution Date. Sunburst reserves the right to
change the manner in which it provides Accounts Payable Services or Fixed Asset
Accounting Services, provided such change is consistent with changes made for
Sunburst's own business units and provided Sunburst gives Choice notice of such
change (the same notice Sunburst will provide its own businesses). To the extent
necessary, Sunburst will provide Payroll Support.
4. Term. The term of this Agreement shall commence on the Distribution
----
Date and shall remain in effect through December 31, 1998. 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 either party may terminate any services
-------- -------
provided hereunder by the other party at any time for any reason or no reason
upon sixty (60) days' prior written notice to the other party. 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
<PAGE>
5. Database Access. The Requesting Party will regularly enter all
---------------
required information into the appropriate computer systems to enable the
Provider Party to provide the Choice Corporate Services or the Accounts Payable
Services, as contracted for hereunder. Choice will provide access to these
computer systems, including the PeopleSoft System, to enable Sunburst to
maintain its employee, vendor, property and general ledger databases. The
Requesting Party will provide access to information and employees necessary for
the Provider Party to provide such Choice Corporate Services, Accounts Payable
Services or Fixed Asset Accounting Services, as the case may be.
6. Price and Payment. The Requesting Party shall pay the Provider Party
-----------------
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 the Provider Party to perform the service; (iii)
usage based charges for which the Requesting Party 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 Choice Corporate Service, the
Accounts Payable Service and the Payroll Support are identified on Exhibit
B. If at any time during the term of the Agreement, either Sunburst or
Choice moves its office location from 10750 or 10770 Columbia Pike, Silver
Spring, Maryland, both the availability of certain services provided by
such party and their associated rates may be subject to change.
(b) Except as provided in any Ancillary Agreement, the Requesting Party
shall pay any and all additional costs and expenses which the Provider
Party may incur for the express purpose of providing services to the
Requesting Party.
(c) Sunburst shall pay Choice on a time and materials basis for all costs
incurred by Choice in converting Sunburst business information and records
from Choice's services systems to either a third party provider or to
Sunburst.
(d) With respect to Payroll Services, Sunburst and Choice shall divide
the total cost of the third party vendor for services provided to both
companies, including the cost of any software provided by the third party
vendor, pro rata based upon the number of employees of each company.
(e) Payment for all services hereunder shall be made within thirty (30)
days of receipt of invoice for payment (with appropriate supporting
documentation for any out-of-pocket
5
<PAGE>
expenses). Each party shall pay fixed charges in advance on the first
business day of the applicable Accounting Period. Any payments not made
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 200 basis points.
7. Duty of Care.
------------
(a) Provider Party's Obligations. All services provided hereunder by the
----------------------------
Provider Party shall be administered in accordance with its 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, the Provider
Party 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) Requesting Party's Obligations. The Requesting Party 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.
8. Liaison. Sunburst and Choice 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 C.
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.
9. Confidentiality.
---------------
(a) Choice and Sunburst agree that all information regarding the Choice
---
Corporate Services and the Accounts Payable 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
6
<PAGE>
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 Requesting Party information or other information provided by the
Requesting Party to Provider Party for use with the Choice Corporate
Services or Accounts Payable Services provided hereunder and identified in
writing as confidential shall remain the exclusive and confidential
property of the Requesting Party. The Provider Party shall treat such
information as confidential and will not disclose or otherwise make
available any Requesting Party information to any person other than
employees, consultants, or auditors of the Provider Party with a need-to-
know or except as required by law or court order. The Provider Party will
instruct its employees who have access to the Requesting Party information
to keep the same confidential by using the same care and discretion that
the Provider Party uses with respect to its own confidential property and
trade secret.
(c) The Provider Party will provide reasonable security provisions to
insure that third parties do not have access to Requesting Party
information. The Provider Party reserves the right to issue and change
regulations and procedures from time to time to improve file security.
(d) The Provider Party will take reasonable precautions to prevent the
loss or alteration of Requesting Party information. The Requesting Party
will, to the extent it deems necessary, keep copies of all source documents
delivered to the Provider Party and will maintain a procedure external to
Provider Party's systems for the reconstruction of lost or altered
Requesting Party data.
(e) The Provider Party will, to the extent applicable, retain Requesting
Party's information in accordance with and to the extent provided by the
Provider Party's then prevailing records retention policies for similar
activities. The Provider Party will, in conformity with its then
prevailing records retention policies, dispose of all Requesting Party
information in any manner deemed appropriate by the Provider Party unless
the Requesting Party, prior to such disposal, furnishes to the Provider
Party written instructions for the disposition of such Requesting Party
information, at the Requesting Party's expense. At Requesting Party's
request the Providing Party will provide the Requesting Party, in a
standard Provider Party format and at the Provider Party's then standard
rates for such format, any and all Requesting Party information requested
by the Requesting Party.
(f) The Provider Party's systems used to perform the Choice Corporate
Services or the Accounts Payable Services provided hereunder, are
confidential and proprietary to the Provider Party or third parties. The
Requesting Party shall treat these systems and all related procedures as
confidential and proprietary to the Provider Party or its third party
vendors.
7
<PAGE>
The Requesting Party agrees that all software systems, procedures, and
related materials provided to the Requesting Party are for the Requesting
Party's internal use exclusively and only as related to the Choice
Corporate Services or the Accounts Payable Services or any of the
underlying systems used to provide such services hereunder. The Requesting
Party may not sell, transfer, assign, or otherwise use the services
provided hereunder, in whole or in part, for the benefit of any other
party. The Requesting Party shall not copy, modify, reverse engineer, or in
any way alter these systems without the Provider Party's express written
consent. Title to all software systems used in performing the services
provided hereunder shall remain in the Provider Party or its third party
vendors.
10. Warranties and Limitations of Liability.
---------------------------------------
(a) THE PROVIDER PARTY 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 CHOICE CORPORATE
SERVICES OR THE ACCOUNTS PAYABLE SERVICES, AS THE CASE MAY BE, PROVIDED
HEREUNDER. The Provider Party will use reasonable efforts to perform the
services provided hereunder in a professional and workmanlike manner but
the results of such services are furnished "as is."
(b) The Provider Party's sole liability to the Requesting Party 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 the Provider Party hereunder
which are caused solely by the Provider Party shall be to furnish correct
information, payment, and/or adjustment in the services provided hereunder
provided that the Requesting Party promptly advises the Provider Party
thereof.
(c) The Provider Party's sole liability to the Requesting Party 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 the
Provider Party's reasonable control shall be to use all reasonable efforts
to make such services available, and/or to resume performing such services,
as promptly as reasonably practicable. The Provider Party will maintain
the same back-up procedures for the Requesting Party's information that the
Provider Party has for its own information.
(d) THE PROVIDER PARTY SHALL NOT BE LIABLE FOR ANY ERRORS, OMISSIONS,
DELAYS, OR LOSSES UNLESS CAUSED SOLELY BY ITS CRIMINAL CONDUCT, FRAUD, BAD
FAITH OR NEGLIGENCE (WITH SUCH DUTY OF CARE AS SPECIFIED IN SECTION 7).
THE REQUESTING PARTY AGREES THAT IN NO
8
<PAGE>
EVENT WILL THE PROVIDER PARTY BE LIABLE FOR INCIDENTAL, INDIRECT, SPECIAL,
OR CONSEQUENTIAL DAMAGES. THE REQUESTING PARTY FURTHER AGREES THAT IN NO
EVENT WILL THE TOTAL AGGREGATE LIABILITY OF THE PROVIDER PARTY FOR ANY AND
ALL CLAIMS, LOSSES, OR DAMAGES ARISING UNDER THIS AGREEMENT AND FOR THE
CORPORATE SERVICES PERFORMED HEREUNDER EXCEED THE VALUE OF THE REQUESTING
PARTY'S PAYMENT FOR SAID SPECIFIC SERVICE IN DISPUTE OVER ONE FOUR-WEEK
ACCOUNTING PERIOD'S TIME.
(e) The forgoing provisions of this Section 10 set forth the full extent
of the Provider Party'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 the Provider Party (e.g. contract, negligence or
otherwise).
11. 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.
12. Modification of Procedures. The Provider Party may make changes from
--------------------------
time to time in its standards and procedures for performing the services
provided hereunder, but the Provider Party will not implement any substantial
changes, unless required by law affecting the Requesting Party until it has
furnished the Requesting Party notice (the same notice the Provider Party will
provide its own businesses) thereof and a reasonable opportunity to adapt its
operations to accommodate such changes or to reject the change. The Requesting
Party's decision whether or not
9
<PAGE>
to accept the proposed change must be made on or before the date the Provider
Party makes its decision. Otherwise, the default would be the Requesting Party's
acceptance. The Requesting Party agrees to pay any charges (a) resulting from
the Provider Party's need to maintain different versions of the same systems,
procedures, technologies, or services and (b) resulting from requirements of
third party vendors.
13. Laws and Governmental Regulations. Sunburst 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 Choice shall not have any
responsibility for Sunburst's compliance with the laws and regulations referred
to above, Choice agrees to use reasonable efforts to cause the Choice Corporate
Services to be designed in such manner that they will be able to assist Sunburst
in complying with its applicable legal and regulatory responsibilities as
related to the Choice Corporate Services. Choice will implement these normal
procedures for Sunburst's benefit. In no event, however, shall Sunburst rely
solely on its use of the Choice Corporate Services in complying with any laws
and governmental regulations.
14. Indemnification.
---------------
(a) The Requesting Party. The Requesting Party shall indemnify, defend
--------------------
and hold harmless the Provider Party and its directors, officers and
employees from Losses (as defined below), other than Losses directly and
proximately caused solely by the Provider Party'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) The Provider Party. The Provider Party shall indemnify, defend and
------------------
hold harmless the Requesting Party and its directors, officers and
employees from Losses directly and proximately caused solely by the
Provider Party'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 the Requesting Party, its subsidiaries,
employees, or agents.
15. Force Majeure. Choice and Sunburst 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, the Provider Party 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 the Provider Party's reasonable control, including
limitations upon the availability of
10
<PAGE>
communications facilities or failures of other communications equipment or
failure of the Requesting Party to prepare data properly for input into the
Provider Party's corporate systems.
16. 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.
17. 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.
18. 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.
19. Severability of Provisions: Neither Choice nor Sunburst 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.
20. 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.
21. 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 Sunburst:
Sunburst Hospitality Corporation
10770 Columbia Pike
Silver Spring, MD 20901
Attention: General Counsel
11
<PAGE>
12
<PAGE>
To Choice:
Choice Hotels International, Inc.
10750 Columbia Pike
Silver Spring, Maryland 20901
Attention: General Counsel
22. Further Action. Choice and Sunburst 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.
23. Waiver. Choice and Sunburst 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.
24. 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.
25. 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.
26. 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.
27. 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 Sunburst as the terms and conditions Choice
would grant or require of third parties for substantially similar goods and
services.
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CHOICE HOTELS INTERNATIONAL, INC.
(to be renamed Sunburst Hospitality Corporation)
Delaware corporation
By: /s/ Edward A. Kubis
---------------------------------------------
Name: Edward A. Kubis
---------------------------------------
Title: Senior Vice President
--------------------------------------
CHOICE HOTELS FRANCHISING, INC.
(to be renamed Choice Hotels International, Inc.)
Delaware corporation
By: /s/ Michael J. DeSantis
---------------------------------------------
Name: Michael J. DeSantis
---------------------------------------
Title: Senior Vice President
--------------------------------------
14
<PAGE>
EXHIBIT A
[ATTACHED]
15
<PAGE>
ACCOUNTS PAYABLE SERVICES
Accounts Payable Service. The scope of Accounts Payable Services includes:
- ------------------------
. Choice will submit paper source documents in accordance with the
established Company policies and Sunburst will process them on a timely
basis.
. Sunburst will establish new vendors on the Vendor Master File and change
basic vendor information such as remittance address and payment terms.
. Accounts payable check stubs and other forms of remittance advice, and
accounts payable checks with authorized signature facsimile.
. A variety of management control and information reports in conventional
paper format using laser and impact printing technologies, such as:
1. Bi-weekly check register
2. Schedule of bills - this report is designed to list invoices paid or
invoices to be paid in vendor alphabetical order.
3. Vendor list - lists all active lodging vendors by facility number.
4. Such other reports as Choice may reasonably request which are
customary under an accounts payable reporting system.
. Standard system interface capabilities that may be modified at Choice's
expense and with Suburst'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
. 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.
. 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.
16
<PAGE>
. Any training or support requirements outside Sunburst 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>
FIXED ASSET ACCOUNTING SERVICES
Fixed Asset Accounting Services. Beginning as of the Distribution Date,
-------------------------------
Sunburst shall provide Fixed Asset Accounting Services to Sunburst. These Fixed
Asset Accounting Services shall encompass functions to ensure system and
accounting control over capital assets belonging to Choice as may be agreed upon
by the parties on a time and materials basis.
COMPUTER SERVICES
Computer Services. Beginning as of the Distribution Date, Choice shall
-----------------
provide Computer Services to Sunburst.
Computer Services shall encompass network support and LAN administration.
CORPORATE ACCOUNTING SUPPORT
Beginning as of the Distribution Date, Choice shall provide certain
Corporate Accounting Support to Sunburst. 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:
. Maintenance of general ledger chart of accounts and company profile
information
. Consolidation of Sunburst 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
. Cash management reports and processing
Any change required by Sunburst to the accounting software shall be determined
on a time and materials basis.
18
<PAGE>
EXHIBIT B
[ATTACHED]
19
<PAGE>
CORPORATE SERVICES CHARGES
Attachment B
SERVICE CHARGE BASIS
- --------------------------------------------------------------------------------
Accounts Payable Activity Based Charges
Property Accounting Activity Based Charges
Payroll Support Activity Based Charges; except that the
salary of Sunburst employees dedicate
Fixed Asset Accounting to Payroll Support shall be divided pro
rata based upon each company's number
Corporate Accounting Support of employees
Computer Services Activity Based Charges
Additional Consulting Services Time and Materials
Activity Based Charges
Additional Consulting Services Hourly
Billing Rates
- --------------------------------------------------------------------------------
Support Services
----------------
--Accounting Systems Supports and System Support
Sunburst shall pay to Choice an annual fixed fee of $600,000 annually,
payable pro rata at the beginning of each quarter beginning on the
Distribution Date.
--PeopleSoft System
A.) Development Costs -- Sunburst shall pay to Choice $491,000 per year
for five years beginning on the Distribution Date, payable pro rata at
the beginning of each quarter. The obligation of Sunburst to pay the
Development Costs shall survive the termination of the Agreement
and/or the termination of any or all Choice Corporate Services.
20
<PAGE>
B.) Maintenance and upgrade costs -- Sunburst shall pay to Choice 50% of
any maintenance or upgrade costs incurred by Choice with respect to
the PeopleSoft System, except if upgrade or maintenance deals with
features used exclusively by Choice or Sunburst as the case may be.
Upgrade or maintenance deals to be used exclusively by either Choice
or Sunburst shall be paid 100% by the benefitting party.
21
<PAGE>
EXHIBIT C
REPRESENTATIVES
Joseph Squeri - Choice
Michael DeSantis - Choice
Charles Warczak - Sunburst
James MacCutcheon - Sunburst
22
<PAGE>
Exhibit 99.10
ASSIGNMENT OF EMPLOYMENT AGREEMENT
----------------------------------
This Assignment of Employment Agreement ("Assignment") dated this 15th day
of October, 1997 between Choice Hotels International, Inc. (to be renamed
Sunburst Hospitality Corporation)("Choice"), a Delaware corporation, Choice
Hotels Franchising, Inc. (to be renamed Choice Hotels International,
Inc.)("Franchising"), a Delaware corporation, and William R. Floyd ("Employee").
WHEREAS, Choice and Employee have entered in an Employment Agreement (the
"Agreement") dated as of September 30, 1996;
WHEREAS, Choice is in the process of spinning off its franchising business
and assets to shareholders in a tax-free distribution of the shares of
Franchising (the "Spinoff") and as part of the Spinoff, Choice desires to assign
all of its right, title and interest in the Agreement to Franchising;
NOW THEREFORE, FOR VALUE RECEIVED, THE PARTIES AGREE AS FOLLOWS:
1. Assignment & Assumption. Choice hereby assigns to Franchising all of
-----------------------
its right, title and interest in and to the Agreement and Franchising hereby
assumes all obligations of Choice under the Agreement.
2. Consent of Employee. Employee hereby consents to this Assignment,
-------------------
effective upon consummation of the Spinoff.
3. Binding Effect. Except as stated in this Assignment, all of the terms
--------------
and conditions of the Agreement shall remain in full force and effect as if
fully rewritten herein. This Assignment shall be binding upon and inure to the
benefit of all the parties to this Assignment and their successors and assigns.
4. Entire Agreement. This instrument contains the entire agreement of the
----------------
parties. This Assignment shall be governed by, and construed in accordance
with, the laws of the State of Maryland, without regard to its conflict of laws
provisions and any litigation shall be conducted in the State of Maryland.
SIGNATURES ON NEXT PAGE
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Assignment on the date
first set forth above.
CHOICE HOTELS INTERNATIONAL, INC.
By: /s/ Michael J. DeSantis
------------------------------
Michael J. DeSantis
Senior Vice President & General Counsel
CHOICE HOTELS FRANCHISING, INC.
By: /s/ Michael J. DeSantis
------------------------------
Michael J. DeSantis
Senior Vice President & General Counsel
Employee:
/s/ William R. Floyd
-----------------------------------
William R. Floyd
2
<PAGE>
Exhibit 99.11
ASSIGNMENT OF EMPLOYMENT AGREEMENT
----------------------------------
This Assignment of Employment Agreement ("Assignment") dated this 15th day
of October, 1997 between Choice Hotels International, Inc. (to be renamed
Sunburst Hospitality Corporation)("Choice"), a Delaware corporation, Choice
Hotels Franchising, Inc. (to be renamed Choice Hotels International,
Inc.)("Franchising"), a Delaware corporation, and Thomas Mirgon ("Employee").
WHEREAS, Choice and Employee have entered in an Employment Agreement (the
"Agreement") dated as of February 10, 1997;
WHEREAS, Choice is in the process of spinning off its franchising business
and assets to shareholders in a tax-free distribution of the shares of
Franchising (the "Spinoff") and as part of the Spinoff, Choice desires to assign
all of its right, title and interest in the Agreement to Franchising;
NOW THEREFORE, FOR VALUE RECEIVED, THE PARTIES AGREE AS FOLLOWS:
1. Assignment & Assumption. Choice hereby assigns to Franchising all of
-----------------------
its right, title and interest in and to the Agreement and Franchising hereby
assumes all obligations of Choice under the Agreement.
2. Consent of Employee. Employee hereby consents to this Assignment,
-------------------
effective upon consummation of the Spinoff
3. Binding Effect. Except as stated in this Assignment, all of the terms
--------------
and conditions of the Agreement shall remain in full force and effect as if
fully rewritten herein. This Assignment shall be binding upon and inure to the
benefit of all the parties to this Assignment and their successors and assigns.
4. Entire Agreement. This instrument contains the entire agreement of the
----------------
parties . This Assignment shall be governed by, and construed in accordance
with, the laws of the State of Maryland, without regard to its conflict of laws
provisions and any litigation shall be conducted in the State of Maryland.
SIGNATURES ON NEXT PAGE
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Assignment on the date
first set forth above.
CHOICE HOTELS INTERNATIONAL, INC.
By: /s/ Michael J. DeSantis
------------------------------
Michael J. DeSantis
Senior Vice President & General Counsel
CHOICE HOTELS FRANCHISING, INC.
By: /s/ Michael J. DeSantis
------------------------------
Michael J. DeSantis
Senior Vice President & General Counsel
Employee:
/s/ Thomas Mirgon
----------------------------------
Thomas Mirgon
2
<PAGE>
Exhibit 99.12
OMNIBUS AMENDMENT AND GUARANTY
THIS OMNIBUS AMENDMENT AND GUARANTY (this "Amendment") to amend certain
agreements between Manor Care, Inc., a Delaware corporation ("Manor Care") and
Choice Hotels International, Inc., a Delaware corporation (to be renamed
Sunburst Hospitality Corporation) ("Sunburst") is made and entered into as of
October 15, 1997 by and among Manor Care, Sunburst and Choice Hotels
Franchising, Inc., a Delaware corporation (to be renamed Choice Hotels
International, Inc.)("Choice").
RECITALS
1) Pursuant to a Distribution Agreement dated as of November 1, 1996 (the
"Distribution Agreement"), Manor Care and Sunburst entered into the following
agreements, all dated as of November 1, 1996:
A) Corporate Services Agreement ("Corporate Services Agreement");
B) Risk Management Consulting Services Agreement ("Risk Management
Agreement");
C) Tax Sharing Agreement ("Tax Sharing Agreement");
D) Tax Administration Agreement ("Tax Administration Agreement");
E) Employee Benefits and Other Employment Matters Allocation Agreement
("Employee Benefits Agreement");
F) Gaithersburg Lease Agreement ("Gaithersburg Lease");
G) Silver Spring Lease Agreement; and
H) Loan Note ("Note") in the principal amount of $225,772,500 by
Sunburst payable to MNR Finance Corp. ("MNR Finance").
2) Manor Care and Sunburst now desire to amend the Distribution Agreement,
the Corporate Services Agreement, the Risk Management Agreement, the Tax Sharing
Agreement, the Tax Administration Agreement and the Employee Benefits Agreement
to, among other things, add Choice as a party. Choice desires to become a party
to such agreements and to provide a guaranty for certain obligations of Sunburst
under the Corporate Services Agreement, the Gaithersburg Lease, the Silver
Spring Lease and the Note.
-1-
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the receipt and sufficiency of which are hereby acknowledged, Manor Care,
Sunburst and Choice agree as follows:
1. Amendments
----------
The Distribution Agreement, the Corporate Services Agreement, the Risk
Management Agreement, the Tax Sharing Agreement, the Tax Administration
Agreement and the Employee Benefits Agreement are hereby amended as provided in
Exhibits A, B, C, D, E and F, respectively.
2. Guaranty of Gaithersburg Lease and Silver Spring Lease
------------------------------------------------------
(A) Choice hereby irrevocably and unconditionally guarantees to Manor
Care the full and prompt payment and performance of all Lease Obligations (as
defined below). As used herein, "Lease Obligations" means all obligations and
liabilities of Sunburst to Manor Care under the Gaithersburg Lease and the
Silver Spring Lease, including any modifications or renewals thereof.
(B) This Section 2 is a guaranty of payment. If any Lease Obligation
is not satisfied when due, Choice shall forthwith satisfy such Lease Obligation
upon demand, and no such satisfaction shall discharge the obligations of Choice
hereunder until all Lease Obligations have been satisfied in full. This Section
2 shall be a continuing guaranty and shall be binding upon Choice until any and
all Lease Obligations have been performed and paid in full.
3. Guaranty of Annual Retainer Fee
-------------------------------
(A) Choice hereby irrevocably and unconditionally guarantees to Manor
Care the full and prompt payment of the Annual Retainer Fee, set forth in
Exhibit C to the Corporate Services Agreement, with respect to the Consulting
Services. The obligations of this Section 3 shall be continuing and shall be
binding upon Choice until and any and all obligations under this Section 3 have
been performed and paid in full.
(B) This Section 3 is a guaranty of payment. If any payment of the
Annual Retainer Fee is not satisfied when due, Choice shall forthwith satisfy
such obligation upon demand, and no such satisfaction shall discharge the
obligations of Choice hereunder until all payments of the Annual Retainer Fee
have been satisfied in full. This Section 3 shall be a continuing guaranty and
shall be binding upon Choice until any and all payments of the Annual Retainer
Fee have been performed and paid in full.
4. Guaranty of Note
----------------
(A) Choice hereby irrevocably and unconditionally guarantees to MNR
Finance
-2-
<PAGE>
the full and prompt payment and performance of all Note Obligations (as defined
below). As used herein, "Note Obligations" means all obligations and liabilities
of Sunburst to MNR Finance under the Note, including any modifications or
renewals thereof.
(B) This Section 4 is a guaranty of payment. If any Note Obligation
is not satisfied when due, Choice shall forthwith satisfy such Note Obligation
upon demand, and no such satisfaction shall discharge the obligations of Choice
hereunder until all Note Obligations have been satisfied in full. This Section
4 shall be a continuing guaranty and shall be binding upon Choice until any and
all Note Obligations have been performed and paid in full.
5. Binding Nature; Enforceability. The obligations of Sections 2, 3 and
------------------------------
4 shall be binding upon Choice and its successors and permitted assigns;
provided that the obligations under this Amendment shall not be assigned by
Choice or amended in any respect without the prior written consent of Manor
Care. If any term or provision of this Amendment shall be invalid or
unenforceable to any extent, the remainder of this Amendment shall not be
affected thereby.
6. Governing Law. This Amendment shall be governed by and construed in
-------------
accordance with the laws of the State of Maryland.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as
of the date first written above.
MANOR CARE, INC.
By: /s/ James H. Rempe
-------------------------------
Name: James H. Rempe
Title: Senior Vice President
CHOICE HOTELS INTERNATIONAL, INC.
By: /s/ Michael J. DeSantis
-------------------------------
Name: Michael J. DeSantis
Title: Senior Vice President
CHOICE HOTELS FRANCHISING, INC.
By: /s/ Michael J. DeSantis
-------------------------------
Name: Michael J. DeSantis
Title: Senior Vice President
-3-
<PAGE>
EXHIBIT A
DISTRIBUTION AGREEMENT
----------------------
The Distribution Agreement is hereby amended as follows:
A. All references to "Choice" in Article IV shall mean Sunburst and/or
Choice, as applicable.
B. Sunburst and Choice shall be jointly and severally liable to Manor Care
with respect to the indemnity obligations of Section 4.01.
<PAGE>
EXHIBIT B
CORPORATE SERVICES AGREEMENT
----------------------------
The Corporate Services Agreement is hereby amended as follows:
A. Definitions
-----------
All capitalized terms used in this Exhibit B and not otherwise defined in
the Amendment shall have the meaning ascribed to such term in the Corporate
Services Agreement.
B. Addition of Choice as a Party
-----------------------------
Choice is hereby added as a party to the Corporate Services Agreement under
the same terms and conditions and with the same rights and liabilities as
Sunburst, except as may be further modified in this Amendment. Choice hereby
assumes all obligations and liabilities under the Corporate Services Agreement,
except as may be further modified in this Amendment.
C. Payment for Services
--------------------
(1) Sunburst and Choice shall each pay Manor Care only for services
requested by and rendered to such party in accordance with the price and payment
provisions of Section 5 of the Corporate Services Agreement. Nothing in this
Amendment, however, shall amend or limit the obligation of Sunburst to pay to
Manor Care the Annual Retainer Fee, as set forth in Exhibit C to the Corporate
Services Agreement, with respect to the Consulting Services.
(2) Except as set forth in Section 3 of the Amendment, Choice shall have no
liability with respect to the payment to Manor Care of the Annual Retainer Fee,
set forth in Exhibit C to the Corporate Services Agreement, with respect to the
Consulting Services.
<PAGE>
EXHIBIT C
RISK MANAGEMENT AGREEMENT
-------------------------
The Risk Management Consulting Services Agreement is hereby amended as follows:
A. Definitions
-----------
All capitalized terms used in this Exhibit C and not otherwise defined in
the Amendment shall have the meaning ascribed to such term in the Risk
Management Agreement.
B. Addition of Choice as a Party
-----------------------------
Choice is hereby added as a party to the Risk Management Agreement under
the same terms and conditions and with the same rights and liabilities as
Sunburst, except as may be further modified in this Amendment. Choice hereby
assumes all obligations and liabilities under the Risk Management Agreement,
except as may be further modified in this Amendment.
C. Amendment and Restatement of First Paragraph of Section 4.
---------------------------------------------------------
The first paragraph of Section 4 of the Risk Management Agreement is hereby
amended and restated to read in its entirety as follows:
(1) Fees payable by Sunburst to Manor Care will be $394,200
(annualized) prorated through May 31, 1998, payable in equal monthly
installments.
(2) Fees payable by Choice to Manor Care will be $43,800 (annualized)
prorated through May 31, 1998, payable in equal monthly installments.
(3) Fees for the period of June 1, 1998 through December 31, 1998
shall be determined within sixty (60) days prior to June 1, 1998. Fees for
future fiscal years commencing on or after January 1, 1999 shall be
determined within sixty (60) days prior to the commencement of such fiscal
year.
<PAGE>
EXHIBIT D
TAX SHARING AGREEMENT
---------------------
The Tax Sharing Agreement shall be amended as follows:
Addition of Choice as a Party
-----------------------------
Choice is hereby added as a party to the Tax Sharing Agreement under the
same terms and conditions and with the same rights and liabilities as Sunburst.
Choice hereby assumes all obligations and liabilities under the Tax Sharing
Agreement.
<PAGE>
EXHIBIT E
TAX ADMINISTRATION AGREEMENT
----------------------------
The Tax Administration Agreement is hereby amended as follows:
Addition of Choice as a Party
-----------------------------
Choice is hereby added as a party to the Tax Administration Agreement under
the same terms and conditions and with the same rights and liabilities as
Sunburst. Choice hereby assumes all obligations and liabilities under the Tax
Administration Agreement.
<PAGE>
EXHIBIT F
EMPLOYEE BENEFITS AGREEMENT
---------------------------
The Employee Benefits & Other Employment Matters Allocation Agreement is hereby
amended as follows:
A. Definitions
-----------
All capitalized terms used in this Exhibit F and not otherwise defined in
the Amendment shall have the meaning ascribed to such term in the Employee
Benefits Agreement. For purposes of convenience of description, the various
employee benefit and retirement plans and programs maintained by Sunburst will
be referenced herein under a new name, which identifies the program as being
sponsored by Sunburst Hospitality Corporation, rather than the original name of
Choice Hotels International, Inc., and any program to be established by Choice
after the Distribution will be identified by reference to the name Choice Hotels
International, Inc.
B. Addition of Articles VI and VII
-------------------------------
The following new Articles VI and VII are hereby added to the Employee
Benefits Agreement:
ARTICLE VI
UNDERSTANDINGS WITH RESPECT TO SPIN-OFF
Section 6.01 Choice Guarantee. Choice hereby agrees to assume joint and
----------------
several liability with Sunburst for any and all obligations undertaken by
Sunburst in respect of the guarantees referred in Sections 2.02(b)(v),
2.03(a)(v) and 2.03(c)(v) of the Employee Benefits Agreement.
Section 6.02 Manor Care Guarantee. Manor Care hereby agrees that its
--------------------
guarantees of certain benefits to Sunburst employees with respect to certain
plans which were spun-off from programs originally sponsored by Manor Care, as
referenced in Section 2.02(b)(v), 2.03(a)(v) and 2.03(c)(v) of the Employee
Benefits Agreement shall also extend to benefits of Choice employees with
respect to corresponding plans which are to be spun-off from programs maintained
by Sunburst. Such guarantees shall be subject to the temporal limitations
described in Section 2.02(b)(v), 2.03(a)(v) and 2.03(c)(v) of the Employee
Benefits Agreement.
Section 6.03 Right of Contribution. In the event that either Sunburst or
---------------------
Choice incurs a liability to make payments as a result of any of the guarantees
referenced in Section 6.01, above, then Choice and Sunburst agrees that the
aggregate economic outlay resulting from such guarantees shall be shared equally
between the two of them and each will undertake to pay over to the other such
amount as will equalize the net economic outlay incurred by Choice and by
<PAGE>
Sunburst with respect to the above-referenced guarantees to be equal.
Section 6.04 Treatment of Choice Employees.
-----------------------------
(i) Stock Plans. The last sentence of Section 2.04(c)(ii) and the
-----------
last sentence of Section 2.04(c)(iii) are each hereby amended to read as
follows:
"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, Sunburst or
Choice Hotels.
(ii) Conversion Awards. Notwithstanding the language of Section
-----------------
2.04(f) and Section 2.04(g), future service for Choice shall be treated as
service for Manor Care for purposes of determining satisfaction of the
restrictions attributable to prior restricted awards of Manor Care Common Stock
and Sunburst Common Stock and employees of Choice shall be provided the same
treatment as employees of Sunburst with respect to transfers of employment with
Manor Care. Future service for Manor Care or Sunburst shall be treated as
service for Choice for purposes of determining satisfaction of the restrictions
attributable restricted awards of Choice Common Stock received as part of a
Conversion Award.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Adoption by Choice. Choice hereby adopts the Employee
------------------
Benefits Agreement, to the extent relevant to the undertakings set forth in
Article VI of this Amendment, and agrees to be bound by its terms and
conditions.
Section 7.02 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, Maryland 20878-3200
Attention: GENERAL COUNSEL
<PAGE>
(b) if to Choice
CHOICE HOTELS INTERNATIONAL, INC.
10750 Columbia Pike
Silver Spring, Maryland 20901
Attention: GENERAL COUNSEL
(c) if to Sunburst
SUNBURST HOSPITALITY CORPORATION
10770 Columbia Pike
Silver Spring, Maryland 20901
Attention: GENERAL COUNSEL
Section 7.03 Affirmation of Agreement. Except to the extent specifically
------------------------
amended by this Amendment, the terms and conditions of the Employee Benefits
Agreement are confirmed and ratified in all respects.
<PAGE>
Exhibit 99.13
PILOT SERVICES AGREEMENT
------------------------
This Agreement, made and entered into this 15th day of October, 1997, by and
between Manor Care, Inc., a Delaware corporation, with principal offices at
11555 Darnestown Road, Gaithersburg, Maryland 20878 ("Manor Care") and Choice
Hotels International, Inc., a Delaware corporation (to be renamed Sunburst
Hospitality Corporation), with principal offices at 10770 Columbia Pike, Silver
Spring, Maryland 20901 ("Choice").
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
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 sixty (60) days prior written notice to the other
party.
6. Each party shall be responsible for its own liabilities, damages or
losses with respect to any third party aircraft.
1
<PAGE>
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 INTERNATIONAL, INC.
BY: /s/ Michael J. DeSantis
------------------------------
TITLE: Senior Vice President
---------------------------
MANOR CARE, INC.
BY: /s/ James H. Rempe
------------------------------
TITLE: Senior Vice President
---------------------------
2
<PAGE>
Exhibit 99.14
TIME SHARING AGREEMENT
This agreement, made and entered into this 15th day of October, 1997 (the
"Effective Date") by and between Manor Care, Inc., a Delaware corporation with
principal offices at 11555 Darnestown Road, Gaithersburg, MD 20878, (together
with its successors and permitted assigns, "LESSOR"), and Choice Hotels
International, Inc., a Delaware corporation (to be renamed Sunburst Hospitality
Corporation) with principal offices at 10770 Columbia Pike, Silver Spring,
Maryland 20901 (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 (serial #C650-097), and United States
Registration N6885P, a Cessna Conquest I (serial #C452-0143) (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 Effective Date and shall remain in effect through the end of the
first full fiscal year of LESSEE immediately following the Effective 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 but shall not extend past the last day of the thirtieth (30th) month
following November 1, 1996; provided, however, that either party may terminate
-------- -------
this Agreement or any services provided hereunder at any time for any reason or
no reason by sending written notice to the other party upon sixty (60) days'
prior written notice.
1
<PAGE>
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.
(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 name 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.
2
<PAGE>
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.
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. LESSOR shall cause LESSEE to be named as an additional insured on
LESSOR's aircraft liability policy for damage to third parties.
11. LESSEE warrants that:
(a) It will use the AIRCRAFT for and on account of his 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.
3
<PAGE>
(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.
(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
4
<PAGE>
(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 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.
17. This Agreement constitutes the entire Agreement between the parties to
this Agreement, and supersedes all oral and written agreements entered before or
at the same time as this Agreement concerning the subject matter of the
Agreement, including the November 1, 1996 Agreement between LESSOR and LESSEE.
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) THOMAS OWEN MARTIN, CHIEF PILOT, WHOSE ADDRESS IS 11555 DARNESTOWN
ROAD, GAITHERSBURG, MARYLAND, 20878, AS AGENT FOR 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.
Signature of Thomas Martin: /s/ Thomas Martin
-------------------------------
(c) THE PARTIES UNDERSTAND THAT AN EXPLANATION OF FACTORS AND
5
<PAGE>
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.
/s/ Leo H. Phillips, Jr. BY: /s/ James H. Rempe
- --------------------------- ----------------------------
TITLE: Senior Vice President
---------------------------
WITNESS: LESSEE:
CHOICE HOTELS INTERNATIONAL,
INC. (SUNBURST HOSPITALITY CORPORATION)
/s/ Pamela Williams
- ------------------------
BY: /s/ Edward A. Kubis
-----------------------------
TITLE: Senior Vice President
---------------------------
A copy of this Agreement must be carried in the AIRCRAFT while being operated
hereunder.
6
<PAGE>
Exhibit 99.15
AMENDED AND RESTATED
AGREEMENT
---------
This Amended and Restated Agreement ("Agreement") dated this 15th day of
October, 1997 between Choice Hotels International, Inc. (to be renamed Sunburst
Hospitality Corporation) ("Employer"), a Delaware corporation with principal
offices at 10770 Columbia Pike, Silver Spring, Maryland 20901, and Stewart
Bainum, Jr. ("Employee"), amends and restates that certain Agreement dated
November 1, 1996 between Employee and Employer setting forth the terms and
conditions governing the employment relationship between Employee and Employer.
1. Employment. During the term of this Agreement, as hereinafter
----------
defined, Employer hereby employs Employee as Executive Chairman. Employee hereby
accepts such employment upon the terms and conditions hereinafter set forth and
agrees to faithfully and to the best of his ability perform such duties as may
be from time to time assigned by Employer, its Board of Directors or its
designees, such duties to be rendered at the principal office of Employer or at
such other place or places as Employer shall require. Employee also agrees to
perform his duties in accordance with policies established by Employer's Board
of Directors, which may be changed from time to time.
2. Term. Subject to the provisions for termination hereinafter provided,
----
the term of this Agreement shall begin on October 15, 1997 (the "Effective
Date") and shall terminate three (3) years thereafter. Upon expiration of said
period, the parties may extend the term if they mutually agree to do so.
Notwithstanding the aforesaid term, either party may terminate this Agreement
upon thirty days' written notice to the other on the first and second
anniversaries of the Effective Date.
3. Compensation. For all services rendered by Employee under this
------------
Agreement during the term thereof, Employer shall pay Employee the following
compensation:
(a) Salary. A base salary of Eighty-Two Thousand Seven Hundred Two
------
Dollars ($82,702) per annum payable in accordance with Employer's
standard payroll practices from time to time in effect. Such salary
shall be reviewed from time to time by the Employer's Compensation
Committee and may be increased at the discretion of Employer.
(b) Incentive Bonus. Employee shall have the opportunity to earn up
---------------
to a maximum of Sixty Percent (60%) per annum of the base salary set
forth in subparagraph 3(a) above in Employer's bonus plans as adopted
from time to time by Employer's Board of Directors.
(c) Automobile. Employer shall provide Employee with allowance for
----------
automobile expenses of $ 1,462.50 per year.
<PAGE>
(d) Club Membership. Employer shall provide Employee with an
---------------
appropriate corporate membership at a dining and/or recreational club
for the purpose of business entertainment.
(e) Stock Options. Employee shall be eligible to receive options
-------------
under the Choice Hotels International, Inc. Long Term Incentive Plan,
or similar plan, to purchase common shares of the Employer in
accordance with the policy of the Board of Directors as in effect
from time to time.
(f) Other Benefits. Employee shall, when eligible, be entitled to
--------------
participate in all other fringe benefits accorded headquarters
employees by Employer as are in effect from time to time.
4. Extent of Services. Employee shall devote twelve and one-half percent
------------------
(12-1/2%) of his professional time, attention, and energies to the business of
Employer, and shall not during the term of this Agreement be engaged in any
other business activity whether or not such business activity is pursued for
gain, profit, or other pecuniary advantage except for Employee's services as the
Chairman and Chief Executive Officer of Manor Care, Inc. ("Manor Care"), for
which he shall devote seventy-five percent (75%) of his professional time and
his services as Chairman of Choice Hotels Franchising, Inc. (to be renamed
Choice Hotels International, Inc.)("Choice"), for which he shall devote twelve
and one-half percent (12-1/2%); but the foregoing shall not be construed as
preventing Employee from investing his assets in the securities of public
companies, or the securities of private companies or limited partnerships
outside the healthcare and lodging industries. Employee warrants and represents
that he has no contracts or obligations to others which would materially inhibit
the performance of his services under this Agreement.
5. Disclosure and Use of Information. Employee recognizes and
---------------------------------
acknowledges that Employer's and affiliates' present and prospective clients,
franchises, management contracts, acquisitions and personnel, as they may exist
from time to time, are valuable, special and unique assets of Employer's
business. Throughout the term of this Agreement and for a period of two (2)
years after its termination or expiration for whatever cause or reason except as
required by applicable law, Employee shall not directly or indirectly, or cause
others to, make use of or disclose to others any information relating to the
business of Employer that has not otherwise been made public, including but not
limited to Employer's present or prospective clients, franchises, management
contracts or acquisitions. In the event of an actual or threatened breach by
Employee of the provisions of this paragraph, Employer shall be entitled to
injunctive relief restraining Employee from committing such breach or threatened
breach. Nothing herein stated shall be construed as preventing Employer from
pursuing any other remedies available to Employer for such breach or threatened
breach, including the recovery of damages from Employee.
6. Notices. Any notice, request or demand required or permitted to be
-------
given under this Agreement shall be in writing, and shall be delivered
personally to the recipient or sent by
2
<PAGE>
certified or registered mail to his residence in the case of Employee, or to its
principal office in the case of the Employer.
7. Elective Positions. Nothing contained in this Agreement is intended
------------------
to nor shall be construed to abrogate, limit or affect the powers, rights and
privileges of the Board of Directors or stockholders to remove Employee from the
positions set forth in paragraph 1, with or without just cause, during the term
of this Agreement or to elect someone other than Employee to those positions, as
provided by law and the By-Laws of Employer; provided, however, that if Employee
is so removed without cause, it is expressly understood and agreed, in the event
any one or combination of the foregoing occurs, Employee's rights under this
Agreement shall in no way be prejudiced, and Employee shall be entitled to
receive compensation referred to in paragraph above, except ungranted stock
options, provided that he is ready, willing and able to perform the duties and
responsibilities set forth above. Notwithstanding the foregoing, the election or
appointment of Employee to a different executive position shall not be
considered removal hereunder. Employee upon removal shall be entitled to pursue
other employment, and Employer shall be entitled to receive as offset and
thereby reduce its payment, the amount received by Employee from any other
active employment (other than the moneys received by Employee from Manor Care
and Choice as contemplated in paragraph 4 above). As a condition to Employee
receiving his compensation from Employer, Employee agrees to furnish Employer
annually with full information regarding such other employment and to permit
verification of his employment records and Federal income tax returns by an
independent attorney or accountant. Employer shall receive credit for
unemployment insurance benefits, social security insurance or like amounts
actually received by Employee.
8. Waiver of Breach. The waiver of either party of a breach of any
----------------
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
9. Assignment. The rights and obligations of Employer under this
----------
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of Employer. The obligations of Employee hereunder may not be
assigned or delegated.
10. Termination of Agreement. This Agreement shall terminate upon the
------------------------
following events and conditions:
(a) Upon expiration of its term;
(b) For just cause, including but not limited to refusal to carry
out duties and instructions relative to the position, dishonesty,
violation of this Agreement, and any willful acts or omissions
inimical to or contrary to policies of Employer not arbitrarily
applied in the case of Employee. In the event of termination by
Employer for just cause, vested but unexercised options granted
during the term of this Agreement shall be forfeited as a result
thereof, as of the date of notice. In the event of a willful breach
of this Agreement by Employee, Employer shall have the right to
purchase from Employee, at the price paid by Employee, such of its
3
<PAGE>
Common Stock as has been acquired by Employee by exercise of a stock
option granted during the term of this Agreement if such exercise is
within six (6) months prior to termination of this Agreement as a
result of such breach. Employee shall be entitled to fourteen (14)
days advance written notice of termination, except where the basis
for termination constitutes conduct on the part of Employee involving
dishonesty or bad faith, in which case the termination shall be
effective upon the sending of notice.
(c) Subject to state and federal laws, if Employee is unable to
perform the essential functions of the services described herein,
Employer shall have the right to terminate this Agreement by written
notice to Employee. In the event of such termination, all non-vested
obligations of Employer to Employee pursuant to this Agreement shall
terminate.
(d) In the event of Employee's death during the term of this
Agreement, the Agreement shall terminate as of the date thereof.
11. Entire Agreement. This instrument contains the entire agreement of
----------------
the parties. It may be changed only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension,
or discharge is sought. This Agreement shall be governed by the laws of the
State of Maryland, and any litigation shall be conducted in the State of
Maryland.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
Employer:
CHOICE HOTELS INTERNATIONAL, INC.
(to be renamed Sunburst Hospitality Corporation)
By: /s/ Michael J. DeSantis
-----------------------------------------
Michael J. DeSantis
Senior Vice President and Secretary
Employee:
/s/ Stewart Bainum, Jr.
--------------------------------------------
Stewart Bainum, Jr.
4
