<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000 COMMISSION FILE NO. 1-11915
SUNBURST HOSPITALITY CORPORATION
10770 COLUMBIA PIKE
SILVER SPRING, MD. 20901
(301) 592-3000
Delaware 53-1985619
---------- ----------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
-------------------------------------------
(Former name, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
___ ___
SHARES OUTSTANDING
CLASS AT MAY 5, 2000
------ --------------
Common Stock, $0.01
par value per share 15,359,000
----------
================================================================================
<PAGE>
SUNBURST HOSPITALITY CORPORATION
INDEX
-----
<TABLE>
<CAPTION>
PAGE NO.
-------
<S> <C>
PART I. FINANCIAL INFORMATION:
Condensed Consolidated Balance Sheets -
March 31, 2000 (Unaudited) and December 31, 1999 3
Condensed Consolidated Statements of Income -
Three months ended March 31, 2000 and March 31, 1999
(Unaudited) 4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 2000 and March 31, 1999
(Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Management's Discussion and Analysis of Results of Operations
and Financial Condition 8
PART II. OTHER INFORMATION 11
</TABLE>
<PAGE>
SUNBURST HOSPITALITY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
As of
-----------------------------
March 31, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate, net $ 353,990 $ 359,258
Real estate held for sale 35,595 34,498
Receivables (net of allowance for doubtful
accounts of $525 and $500, respectively) 12,417 7,851
Other assets 7,464 8,617
Cash and cash equivalents 2,894 2,965
------------- ------------
Total assets $ 412,360 $ 413,189
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Debt
Senior debt and capital leases $ 150,893 $ 151,807
Subordinated debt 145,645 141,856
------------- ------------
296,538 293,663
Accounts payable and accrued expenses 26,074 30,096
Deferred income taxes ($5,695 and $5,368, respectively) and other
liabilities 5,925 6,383
------------- ------------
Total liabilities 328,537 330,142
Total stockholders' equity 83,823 83,047
------------- ------------
Total liabilities and stockholders' equity $ 412,360 $ 413,189
============= ============
</TABLE>
<PAGE>
SUNBURST HOSPITALITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
----------------------------
2000 1999
----------- ------------
<S> <C> <C>
REVENUES
Rooms $ 43,636 $ 44,152
Food and beverage 4,238 4,067
Other 2,106 2,053
----------- ------------
Total revenues 49,980 50,272
OPERATING EXPENSES
Departmental expenses 16,162 15,910
Undistributed operating expenses 16,687 16,864
Depreciation and amortization 6,432 6,221
Corporate 3,159 2,667
Net gains on property dispositions (238) -
----------- ------------
Total operating expenses 42,202 41,662
----------- ------------
OPERATING INCOME 7,778 8,610
----------- ------------
INTERST EXPENSE 6,497 6,097
----------- ------------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE 1,281 2,513
Income taxes 520 1,005
----------- ------------
INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 761 1,508
EXTRAORDINARY ITEM - Loss from early extinguishment of debt
(net of $42 tax benefit) - 98
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE -
(net of $421 tax benefit) - 599
----------- ------------
NET INCOME $ 761 $ 811
=========== ============
Basic earnings per share
- -----------------------
Income before extraordinary item and
cumulative effect of a change in accounting principle $ 0.05 $ 0.08
Extraordinary item - (0.01)
Cumulative effect of a change in accounting principle - (0.03)
Net income $ 0.05 $ 0.04
=========== ============
Diluted earnings per share
- --------------------------
Income before extraordinary item and
cumulative effect of a change in accounting principle $ 0.05 $ 0.08
Extraordinary item - (0.01)
Cumulative effect of a change in accounting principle - (0.03)
Net income $ 0.05 $ 0.04
=========== ============
</TABLE>
The accompanying notes are an integral part of these Condensed Consolidated
Statements of Income.
<PAGE>
SUNBURST HOSPITALITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
--------------------------------------
<S> <C> <C>
2000 1999
-------- --------
Operating Cash Flows
Income before extraordinary item and cumulative effect
of change in accounting principle $ 761 $ 1,508
Non-cash items 10,583 9,835
Changes in assets and liabilities (7,954) (5,920)
-------- --------
Net cash provided by operating activities 3,390 5,423
Net cash utilized in investing activities (2,261) (12,631)
Net cash (utilized in) provided by financing activities (1,200) 8,701
-------- --------
Net change in cash and equivalents (71) 1,493
Cash and equivalent at beginning of period 2,965 4,113
-------- --------
Cash and equivalents at end of period $ 2,894 $ 5,606
======== ========
</TABLE>
The accompanying notes are an integral part of these Condensed Consolidated
Statements of Cash Flows.
<PAGE>
SUNBURST HOSPITALITY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
The accompanying condensed consolidated financial statements of Sunburst
Hospitality Corporation and subsidiaries (the "Company") have been prepared by
the Company without audit. Certain information and footnote disclosures normally
included in financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. The Company believes the
disclosures made are adequate to make the information presented not misleading.
The condensed consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements for the year ended December
31, 1999 and notes thereto included in the Company's Form 10-K, dated March 30,
2000. Certain reclassifications have been made to the prior year amounts to
conform to current period presentation.
In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of the
Company as of March 31, 2000, the results of operations and cash flows for the
three months ended March 31, 2000 and 1999, respectively. Interim results are
not necessarily indicative of full year performance because of the impact of
seasonal and short-term variations.
The following table illustrates the reconciliation of net income and number of
shares used in the basic and diluted earnings per share ("EPS") calculations (in
thousands, except per share data).
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
<S> <C> <C>
2000 1999
--------- ---------
Income before extraordinary item and cumulative effect of a change in
accounting principle $ 761 $ 1,508
Weighted average shares 15,046 19,416
------- -------
Basic EPS before extraordinary item and cumulative effect of a change in
accounting principle $ 0.05 $ 0.08
======= =======
Shares for basic EPS 15,046 19,416
Effect of dilutive employee stock options 148 160
------- -------
Shares for diluted EPS 15,194 19,576
------- -------
Diluted EPS before extraordinary item and cumulative effect of a change in
accounting principle $ 0.05 $ 0.08
======= =======
</TABLE>
The effect of dilutive securities is computed using the treasury stock method
and average market prices during the period. Certain options to purchase common
stock were not included in the computation of diluted earnings per share because
the exercise price of the options exceeded the average market price of the
common shares for the period. In February, 2000, the Board of Directors
authorized the Company, through March 16, 2000, to offer current employees the
opportunity to terminate stock options with a strike price of $5.25 (the then
current fair market price) or higher, and replace the terminated options with an
award of restricted stock based upon a Black-Scholes valuation of the stock
options terminated. At the expiration of the offer, 1,300,994 shares under
option with an average strike price of $7.00, were, accordingly, terminated and
638,355 shares of restricted stock were issued.
As of April 1, 2000, the Company owned and managed 83 hotels with 11,365 rooms
in 27 states under the following brand names: Comfort, Clarion, Sleep, Quality
and MainStay.
At March 31, 2000, the Company has seven hotels that are currently being
marketed for sale with a carrying value of $35.6 million. In accordance with
Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," the Company has discontinued depreciating these assets while
they are held for sale. In addition, SFAS No. 121 requires that assets held for
sale be reported at the lower of the carrying amount or fair value less costs to
sell. At
<PAGE>
March 31, 2000, the assets held for sale are reported at the lower of the
carrying amount or the fair value less cost to sell. The seven hotels held for
sale reported total revenues of $6.6 million and $6.8 million for the three
months ended March 31, 2000 and 1999, respectively. Income from operations
before interest, taxes, depreciation and amortization and allocations for
corporate expenses of the seven hotels was $1.8 million and $2.1 million for the
three months ended March 31, 2000 and 1999, respectively.
At the time of the Choice Spin-off and as subsequently amended, Choice and the
Company entered into a Strategic Alliance Agreement pursuant to which: (i)
requires the Company to give Choice two weeks notice of the filing of a hotel
franchise application with any competitor of Choice; (ii) the Company has also
agreed, barring a material change in market conditions, to continue to develop
MainStay Suites hotels so that it will have opened a total of 25 MainStay Suites
hotels by October 15, 2001; (iii) Choice will provide certain credits against
MainStay Suites franchise fees otherwise payable by the Company if certain
financial performance goals for those hotels are not achieved; (iv) provides a
put/call option for Choice to acquire three of Sunburst's MainStay Suites hotels
in 2000 at a price equal to Sunburst's original cost, with the proceeds used to
reduce the balance of Sunburst's term note to Choice; (v) Choice and the Company
have agreed to continue to cooperate with respect to matters of mutual interest,
including new product and concept testing for Choice in hotels owned by the
Company; and (vi) the Company has authorized Choice, on a non-exclusive basis,
to negotiate with third-party vendors on the Company's behalf for the purchase
of certain items. The Strategic Alliance Agreement expires on October 15, 2002.
<PAGE>
SUNBURST HOSPITALITY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
March 31, 2000
The Company is a national owner and operator of hotel properties with a
portfolio at April 30, 2000 of 83 hotels (11,365 rooms) in a total of 27 states.
The Company operates its hotels under the following brands: MainStay, Comfort,
Quality, Clarion and Sleep. The Company's continuing business consists primarily
of guest room revenue, meeting room revenue, and food and beverage revenue from
owned and operated hotels.
COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999:
- -------------------------------------------------------------------------
Total revenues for the three months ended March 31, 2000 were $50.0 million
compared to $50.3 million in 1999. The slight decrease in revenue is primarily
due to the decrease in the number of rooms from 12,125 at March 31, 1999 to
11,365 at March 31, 2000 as a result of the Company's program to sell mature
properties to reduce debt and to reallocate capital to newly developed,
extended-stay hotels. Offsetting this decrease is an increase in extended-stay
revenue which increased to $7.8 million for the three months ended March 31,
2000 from $4.5 million for the same period in the prior year. At March 31,
2000, extended-stay revenue represented approximately 15.7% of total revenue
compared to 8.9% in the prior year.
During the first quarter, occupancy rates increased to 65.3% from 63.0% in the
prior year and average daily rates increased to $64.91 from $64.49. This
resulted in an increase in revenue per available room ("RevPAR") of 4.4%.
Facility operating margins decreased slightly to 34.3% in the first quarter of
2000 from 34.8% in the prior year. Notwithstanding the tight labor markets
within which the Company operates, various cost control measures enabled the
Company to hold most operating cost increases below the rate of total revenue
increases. Net royalty and related franchise fees increased to $1.3 million
from $614,000 in the prior quarter, which contributed to a decreased facility
operating margin. The Company sold its four hotels in Phoenix in September
1999. Since the properties report seasonally high operating margins in the
first quarter, their sale negatively impacted margin comparison with the prior
year. In addition, consolidated operating margins benefit as the Company opens
and ramps-up newly developed, mid-priced extended-stay MainStay Suites hotels,
which operate at higher margins than the Company's traditional hotels.
Earnings before interest, taxes, depreciation and amortization ("EBITDA") was
$14.2 million compared to $14.8 million in the first quarter of the prior year
as a result of the sale of eleven properties over the last twelve months. The
Company considers EBITDA to be an indicative measure of operating performance
for its business. Such information should not be considered an alternative to
net income, operating income, cash flow from operations or any other operating
or liquidity performance measure defined by generally accepted accounting
principles. EBITDA presented by the Company may not necessarily be comparable
to EBITDA defined and presented by other companies.
Interest expense increased 6.6% to $6.5 million in the current year from $6.1
million in the first quarter of the prior year. The increase is principally the
result of additional borrowings.
Depreciation expense increased 3.4% to $6.4 million during the three months
ended March 31, 2000 from $6.2 million for the same period in the prior year.
Depreciation expense increased as a result of newly developed hotels, however,
was offset by a decline in depreciation expense relative to hotels held for
sale. In accordance with Statement of Financial Accounting Standards No. 121,
the Company discontinued depreciating those assets while they are held for sale.
The seven hotels held for sale at March 31, 2000, have been reported at the
lower of the carrying amount or fair value less cost of sale. The seven hotels
held for sale have a combined book value of $35.6 million.
During the first quarter of 2000, the Company reported net income of $761,000
compared to $811,000 in the prior year. During the first quarter of 1999, the
Company reported an extraordinary loss from the early extinguishment of debt of
$98,000 (net of $42,000 tax benefit) related to the early retirement of debt
collateralized by a property sold. On January 1, 1999, the Company adopted the
AICPA Accounting Standards Executive Committee's Statement of Position 98-5,
"Reporting on the Cost of Start-Up Activities" ("SOP 98-5"). In accordance with
that new
<PAGE>
accounting pronouncement, the Company wrote off the unamortized balance of
deferred pre-opening costs on its balance sheet at January 1, 1999 and recorded
an after-tax charge of $599,000 (net of $421,000 tax benefit) for the cumulative
effect of that change in accounting principle. Beginning January 1, 1999, pre-
opening costs associated with properties under construction are expensed as
incurred.
Liquidity and Capital Resources:
- -------------------------------
The Company maintains an $80 million committed line of credit with a group of
four banks to support on-going operations and to fulfill capital requirements.
The Credit Facility expires in October 2000. Availability under that line of
credit is a function of trailing cash flow, but amounted to the full $80.0
million during the quarter ended March 31, 2000. Borrowings under the line
amounted to $51 million at December 31, 1999 and March 31, 2000. The Company is
currently exploring refinancing options, but expects that planned asset sales
will result in the outstanding balance under the Credit Facility being
significantly reduced prior to its expiration.
At March 31, 2000, the Company has $296.5 million of long-term debt outstanding.
The $145.6 million of subordinated debt payable to Choice Hotels International,
Inc. matures in October, 2002. The Choice note provides additional financial
flexibility as interest is not payable until maturity.
The Company has been a developer of MainStay Suites, a mid-priced extended-stay
hotel product. At March 31, 2000, twenty-one Sunburst-owned MainStay Suites
were open and operating with another three hotels under development. The cost
of developing a MainStay Suites approximates $6.0 million. At March 31, 2000,
costs incurred to date on the three hotels under development amounted to $5.2
million. Accordingly, the estimated cost to complete is approximately $17.1
million. In order for the Company to continue the MainStay Suites development
program, additional capital will be required.
The Company's objective is to reduce its overall leverage while continuing to
grow through development. The Company continuously evaluates its existing
portfolio and seeks to sell hotels that have limited upside potential or that
are projected to under-perform in order to redeploy capital in higher yielding
assets. The Company has identified seven such properties that as of March 31,
2000, are being marketed for sale in 2000. During the quarter ended March 31,
2000, the Company sold one hotel for total proceeds of $2.1 million.
The Company's Board of Directors authorized a Treasury share purchase program
aggregating six million shares. The program was completed in January, 2000 and
six million shares have been purchased at an aggregate cost of $30 million, or
$5.00 per share. The Company does not anticipate expanding the Treasury share
purchase program, at least until such time as additional financing is arranged.
At March 31, 2000, the Company's debt to book capitalization amounted to 78.0%
and debt to market capitalization was 79.6%.
While operating cash flow, credit available under the Company's bank facility
and proceeds from the sale of hotels are expected to be adequate to fund
operations and committed construction projects, accessing additional capital is
imperative in order for the Company to expand its development and growth plans.
Also, given the relatively short maturities of the note payable to Choice and
the near term expiration of the bank facility, refinancing or extending
maturities is an imperative. If the Company is unsuccessful in completing
planned asset sales or otherwise arranging for an extension of its bank facility
which otherwise expires October 15, 2000, alternative sources of capital will
have to be identified and accessed during 2000.
FORWARD-LOOKING STATEMENTS
- ---------------------------
The statements contained in this document that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995.
A number of important factors could cause the Company's actual results for
future periods to differ materially from those expressed in any forward-looking
statements made by, or on behalf of the Company.
Certain statements contained in this Form 10-Q, including those in the
section entitled "Management's Discussion and Analysis of Operating Results and
Financial Condition," contain forward-looking information that involves risk and
uncertainties. Actual future results and trends may differ materially depending
on a variety of
<PAGE>
factors discussed in the "Risk Factors" section included in the
Company's SEC filings, including (a) the Company's success in implementing its
business strategy, including its success in arranging financing where required
and (b) the nature and extent of future competition, and political, economic and
demographic developments in regions where the Company does business or in the
future may do business.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to revise or update these forward-looking statements.
<PAGE>
PART II OTHER INFORMATION
-------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
The Company is not party to any litigation, other than routine litigation
incidental to the business of the Company. None of such litigation, either
individually or in the aggregate, is expected to be material to the business,
financial condition or results of operations of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
Exhibit 10.26 - Put/Call Agreement dated as of March 27, 2000 by and between
Registrant and Choice Hotels International, Inc.
Exhibit 27.01 - Financial Data Schedule - March 31, 2000
(b) The following reports were filed pertaining to the quarter ended March 31,
2000.
None
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
SUNBURST HOSPITALITY CORPORATION
Date: May 9, 2000 /s/ James A. MacCutcheon
----------- --------------------------
By: James A. MacCutcheon
Executive Vice President,
Chief Financial Officer and
Treasurer
<PAGE>
EXHIBIT 10.26
PUT/CALL AGREEMENT
------------------
PUT/CALL AGREEMENT (the "Agreement"), dated as of March 27, 2000, by and between
SUNBURST HOSPITALITY CORPORATION, a Delaware corporation ("Sunburst") and CHOICE
HOTELS INTERNATIONAL, INC., a Delaware corporation ("Choice").
R E C I T A L S:
- - - - - - - -
A. Sunburst or its subsidiaries (collectively, "Sunburst") is the
owner of the Assets (as hereinafter defined).
B. Contemporaneously with the execution and delivery of this
Agreement, Sunburst and Choice are entering into a certain second omnibus
amendment agreement (the "Omnibus Amendment") dated February 29, 2000, pursuant
to which Sunburst and Choice are amending certain provisions of the Transaction
Documents (as defined in the Omnibus Amendment).
C. In connection with the execution and delivery of the Omnibus
Amendment, Sunburst desires to grant to Choice the Call Option (as hereinafter
defined), Choice desires to grant to Sunburst the Put Option (as hereinafter
defined) and Choice and Sunburst desire to acquire the Call Option and Put
Option, respectively, in each case upon the terms and conditions set forth
herein.
A G R E E M E N T:
- - - - - - - - -
NOW THEREFORE, in consideration of the mutual agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
PUT/CALL OPTIONS
Section 1.1 Grant of Call Option; Exercise. (a) Upon all of the
------------------------------
terms, covenants and conditions set forth herein, Sunburst hereby grants to
Choice the exclusive option to purchase (the "Call Option") the following Assets
(collectively, the "Assets"):
(i) all right, title and interest of Sunburst in and to that certain
parcel of real property located in Pittsburgh, Pennsylvania and
more particularly described in Schedule A-1 to this Agreement
------------
(such parcel, together with all buildings, improvements and other
structures constituting real
1
<PAGE>
property or fixtures now or from time to time hereafter
located on such parcel and all easements, rights and
appurtenances belonging or appertaining thereto, the
"Pennsylvania Property");
(ii) all right, title and interest of Sunburst in and to that
certain parcel of real property located in Greer, South
Carolina and more particularly described in Schedule A-2
------------
to this Agreement (such parcel, together with all
buildings, improvements and other structures constituting
real property or fixtures now or from time to time
hereafter located on such parcel and all easements, rights
and appurtenances belonging or appertaining thereto, the
"South Carolina Property");
(iii) all right, title and interest of Sunburst in and to that
certain parcel of real property located in Brentwood,
Tennessee and more particularly described in Schedule A-3
------------
to this Agreement (such parcel, together with all
buildings, improvements and other structures constituting
real property or fixtures now or from time to time
hereafter located on such parcel and all easements, rights
and appurtenances belonging or appertaining thereto, the
"Tennessee Property"; together with the Pennsylvania
Property and the South Carolina Property, collectively,
the "Properties");
(iv) all right, title and interest of Sunburst in and to all
tangible and intangible assets of any kind or nature
(other than those certain assets set forth in Schedule B-1
------------
to this Agreement (such assets, the "Pennsylvania Excluded
Assets")) relating to or used in connection with the
Pennsylvania Property (such assets, the "Pennsylvania
Other Assets"; together with the Pennsylvania Property,
the "Pennsylvania Assets");
(v) all right, title and interest of Sunburst in and to all
tangible and intangible assets of any kind or nature
(other than those certain assets set forth in Schedule B-2
------------
to this Agreement (such assets, the "South Carolina
Excluded Assets")) relating to or used in connection with
the South Carolina Property (such assets, the "South
Carolina Other Assets"; together with the South Carolina
Property, the "South Carolina Assets");
(vi) all right, title and interest of Sunburst in and to all
tangible and intangible assets of any kind or nature
(other than those certain assets set forth in Schedule B-3
------------
to this Agreement (such assets, the "Tennessee Excluded
Assets"; together with the Pennsylvania Excluded Assets
and the South Carolina Excluded Assets, collectively, the
"Excluded As-
2
<PAGE>
sets")) relating to or used in connection with the Tennessee
Property (such assets, the "Tennessee Other Assets"; together
with the Tennessee property, the "Tennessee Assets");
(b) The Call Option may be exercised by Choice within the Call Option
Period (as hereinafter defined) with respect to any or all of the Pennsylvania
Assets, the South Carolina Assets and the Tennessee Assets, in each case, taken
as a whole. The Call Option shall be exercisable by Choice at any time during
the period (the "Call Option Period") commencing on March 24, 2000 and expiring
at 12:00 midnight New York time on June 30, 2000 by written notice delivered by
Choice to Sunburst in the manner set forth in Section 10.9 hereof prior to the
------------
expiration of the Call Option Period. Such notice shall specifically state that
Choice is exercising its Call Option with respect to the Pennsylvania Assets,
the South Carolina Assets and/or the Tennessee Assets, in each case, taken as a
whole (the Assets specifically described in such notice, the "Call Option
Assets"). In the event Choice shall fail to exercise the Call Option on or
before the expiration of the Call Option Period, the Call Option shall be null
and void and of no further force or effect.
Section 1.2. Grant of Put Option; Exercise. (a) Upon all of the
-----------------------------
terms, covenants and conditions set forth herein, Choice hereby grants to
Sunburst the exclusive option to require Choice to purchase (the "Put Option")
the Pennsylvania Assets, the South Carolina Assets and/or the Tennessee Assets
solely to the extent that Choice shall fail to exercise its Call Option with
respect to any thereof.
(b) The Put Option may be exercised by Sunburst within the Put Option
Period (as hereinafter defined) with respect to any or all of the Pennsylvania
Assets, the South Carolina Assets and the Tennessee Assets, in each case taken
as a whole, solely to the extent that Choice shall fail to exercise its Call
Option with respect to any thereof. The Put Option shall be exercisable by
Sunburst at any time during the period (the "Put Option Period") commencing on
July 1, 2000 and expiring at 12:00 midnight New York time on July 31, 2000, by
written notice delivered by Sunburst to Choice in the manner set forth in
Section 10.9 hereof prior to the expiration of the Put Option Period. Such
- ------------
notice shall specifically state that Sunburst is exercising its Put Option with
respect to the Pennsylvania Assets, the South Carolina Assets and/or the
Tennessee Assets, in each case, taken as a whole (the Assets specifically
described in such notice, the "Put Option Assets"; together with the Call Option
Assets, as applicable, the "Purchased Assets"). In the event Sunburst shall fail
to exercise the Put Option on or before the expiration of the Put Option Period,
the Put Option and this Agreement shall be null and void and of no further force
or effect. Such Put Option is subject to extension pursuant to Section 6.6
hereof.
3
<PAGE>
ARTICLE II
PURCHASE PRICE
Subject to the prorations provided for in Section 6.5 of this
-----------
Agreement, the purchase price (the "Purchase Price") to be paid by Choice to
Sunburst for the Pennsylvania Assets, the South Carolina Assets and/or the
Tennessee Assets, as applicable, shall be the amount set forth in Schedule C
----------
hereto with respect to such Purchased Assets, in each case payable by wire
transfer of immediately available funds at closing to an account designed by
Sunburst prior to closing.
ARTICLE III
TITLE MATTERS
Section 3.1. Title Commitments. Attached hereto as Schedules D-1,
----------------- -------------
D-2 and D-3 are the title insurance commitments (the "Title Commitments") issued
- --- ---
by Commonwealth Title Insurance Company and First American Title Insurance
Company (collectively, the "Title Insurer"), showing the current state of title
of the Pennsylvania Property, the South Carolina Property and the Tennessee
Property, respectively. Choice hereby approves the state of title as shown in
the Title Commitments, as such Title Commitments have been marked by Choice,
except for any material matters which would be disclosed by a survey. The title
exceptions shown in the Title Commitments, excluding the exceptions marked out
thereon by Choice and any material matters which would be disclosed by a survey,
are hereinafter called the "Approved Title Exceptions."
Section 3.2. Title Insurance. Choice's fee title to each of the
---------------
Properties being transferred pursuant to the exercise of either the Put Option
or the Call Option (each such Property, a "Purchased Property", collectively,
the "Purchased Properties") shall be insured at closing by an American Land
Title Association ("ALTA") owner's extended coverage policy of title insurance
to be issued by the Title Insurer in the amount and containing such endorsements
as Choice may require (but such amounts not to exceed those specified in
Schedule C) (collectively, the "Title Policy"), showing title vested Choice
-
subject only to the following exceptions (collectively, the "Permitted Title
Exceptions"):
(i) Liens for real property taxes and special assessments, if any,
to the extent not delinquent; and
(ii) Approved Title Exceptions.
4
<PAGE>
Section 3.3. Liens. Sunburst agrees that it shall not create any
-----
encumbrance, lien, charge or other matter which would affect or encumber title
to any Property during the term of this Agreement. In the event that any matter
other than any Permitted Title Exception affects title to any Property prior to
closing and Choice objects thereto, Sunburst shall either: (i) promptly
discharge such matter or otherwise cause such matter to be removed as an
exception to the Title Policy issued on the Closing Date (as hereinafter
defined) with respect to such Property or (ii) pay to the Title Insurer, in
escrow, an amount sufficient to satisfy such matter and Sunburst shall proceed
with resolving such matter.
Section 3.4. Survey. Within thirty (30) days after the date of this
------
Agreement, Sunburst shall provide Choice with a survey for each Property (and
all improvements thereon). Each survey shall:
(i) Be prepared by a surveyor or engineer licensed to perform
surveys in the state in which the applicable Property is
located;
(ii) indicate all improvements on the applicable Property;
(iii) be certified by the surveyor to Choice (or its designee);
and
(iv) be sufficiently detailed for the Title Insurer to delete
the so-called standard survey exceptions from, and issue
a comprehensive endorsement (or its equivalent) to the
applicable Title Policy.
Section 3.5. UCC Search. Sunburst, at is expense, shall provide
----------
Choice with a current Uniform Commerical Code search conducted in the
appropriate state and local jurisdictions against each Property and against
Sunburst, prepared by a reputable search firm.
ARTICLE IV
INSPECTIONS
For a period of 45 days after Choice's written notice of the exercise
of the Call Option, Choice shall have the right at Choice's sole cost and
expense to enter onto any Property (either through its employees or designated
agents and representatives) at reasonable times and in a reasonable manner
after giving reasonable notice to Sunburst's Vice President, Extended Stay Hotel
Operations for the purpose of making such inspections as Choice deems necessary
or appropriate in connection with this Agreement. Sunburst shall give Choice
full and free access to all its books, contracts, leases, commitments,
documents, records and other information relating to the Assets and during such
period Sunburst shall furnish Choice
5
<PAGE>
promptly with all financial and operating data and working papers and other
information of Sunburst relating to the Assets.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 5.1. Choice's Representations, Warranties and Covenants. As
--------------------------------------------------
an inducement to Sunburst to enter into this Agreement, Choice represents,
warrants and covenants that:
(i) Choice is a corporation duly organized, validly existing
and in good standing under the laws of the State of
Delaware;
(ii) Choice has full corporate right, power and authority to
enter into and perform its obligations under this Agreement
and the other instruments and documents contemplated herein
to be executed and performed by it; and
(iii) The execution and delivery of this Agreement and such other
instruments and documents and the consummation of the
transactions contemplated hereby and thereby (a) have been
duly authorized by all necessary action on the part of
Choice, (b) do not require any consent or approval of or
notice to any government authority or any other person, (c)
will not result in the breach of the certificate of
incorporation or by-laws of Choice or any material
agreement or other material instrument to which Choice is a
party or to which Choice or its assets are bound and (d)
will not conflict with or result in the breach of any law,
statute, regulation or requirement of any government
authority or any judgment, writ, injunction or decree of
any court or governmental agency to which Choice or its
assets are subject.
Section 5.2. Sunburst's Representations, Warranties and Covenants.
----------------------------------------------------
As an inducement to Choice to enter into this Agreement, Sunburst represents,
warrants and covenants as follows:
(i) Sunburst is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware;
6
<PAGE>
(ii) Sunburst has full corporate right, power and authority to
enter into and perform its obligations under this Agreement
and the other instruments and documents contemplated herein
to be executed and performed by it including, without
limitation, those conveying its right, title and interest
in the Assets.
(iii) The execution and delivery of this Agreement and such other
instruments and documents and the consummation of the
transactions contemplated hereby and thereby (a) have been
duly authorized by all necessary action on the part of
Sunburst, (b) do not require any consent or approval of or
notice to any governmental authority or any other person,
(c) will not result in the breach of the certificate of
incorporation or by-laws of Sunburst or any material
agreement or other material instrument to which Sunburst is
a party or to which Sunburst or its assets are bound and
(d) will not conflict with or result in the breach of any
law, statute, regulation or requirement of any government
authority or any judgment, writ, injunction or decree of
any court or governmental agency to which Sunburst or its
assets are subject;
(iv) Sunburst has not made an assignment for the benefit of
creditors, nor has Sunburst filed, or had filed against it,
any petition in bankruptcy or insolvency;
(v) Sunburst is not a "foreign person" within the meaning of
section 1445 of the United States Internal Revenue Code of
1986, as amended, and the regulations issued thereunder;
(vi) As of the Closing Date, Sunburst will have the right, power
and authority to sell and convey the Assets to Choice and,
other than this Agreement, Sunburst has not entered into
any agreement granting to any person any option, right of
first refusal or similar right with respect to the right,
title and interests in the Assets held by Sunburst;
(vii) Except as set forth in Exhibit A hereto: (a) there are no
---------
litigation or governmental, administrative or arbitration
proceedings or investigations pending or, to Sunburst's
knowledge, threatened against Sunburst (solely as such
affects the Assets) or any of the Assets, (b) there are no
unsatisfied judgments, arbitration awards or judicial
orders against Sunburst or any of the Assets and (c) there
are no pending or, to Sunburst's knowledge, threatened
complaints, charges, petitions or claims against Sunburst
(solely as such affects the Assets) or any of the Assets;
7
<PAGE>
(viii) Except as disclosed in Exhibit A, Sunburst has not
---------
received any written notice from any governmental
authority with respect to any actual or threatened
taking of any of the Assets or any portion thereof by
the exercise of the right of condemnation or eminent
domain;
(ix) There is in full force and effect extended coverage
casualty insurance insuring the Assets, for full
replacement cost; Sunburst shall maintain such
insurance coverage;
(x) The Assets are in good working condition, order and
repair, except reasonable wear and tear, and Sunburst
shall preserve, protect and maintain its respective
business and the Assets, and shall operate all aspects
of its business consistently with established prior
practice and in the ordinary course of its respective
business and shall refrain from engaging in
transactions, making alterations or additions, entering
into agreements (whether written or oral) or selling,
transferring or otherwise disposing of any of the
Assets otherwise than in a manner consistent with
established practice in the ordinary course of its
respective business; and
(xi) Sunburst, to the best of its knowledge, is in material
compliance with each, and is not in material violation
of any law, ordinance or governmental rule or
regulation (including, without limitation, any and all
applicable Environmental Laws (as hereinafter defined),
and building and zoning ordinances) to which Sunburst's
business (solely as it affects the Assets) or the
Assets are subject; Sunburst has not failed to obtain
any license, permit, certificate or other governmental
authorization or inspection necessary to the ownership
or use of the Assets or the conduct of Sunburst's
business (solely as it affects the Assets); and
Sunburst has not received any written communication
that alleges that Sunburst is not in compliance with
any Environmental Laws or other law, ordinance or
governmental rule or regulation; it being understood
that for the purposes of this Agreement, the term
"Environmental Law" shall mean all applicable laws and
regulations of any governmental authority applicable to
the Assets and relating to (a) pollution or (b) the
protection of employee health or (c) the environment
(including ambient air, surface water, ground water,
land surface, or subsurface strata), including laws and
regulations relating to emissions, discharges, releases
or threatened releases of any chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous
substances, petroleum and pretoleum products.
8
<PAGE>
Section 5.3. Survival Indemnity. The truth, accuracy, and
------------------
completeness of each of the representations, warranties and covenants of Choice
and of Sunburst herein set forth shall constitute a condition precedent to the
obligations of Sunburst and Choice, respectively, hereunder. The parties hereto
each agree to indemnify, defend and hold harmless the other from any claim,
demand, liability, loss or cost (including reasonable attorney's fees and costs)
which the other may sustain because of any material breach of or inaccuracy in
the respective representations, warranties and covenants of such party set forth
in this Agreement. At closing, Choice and Sunburst shall deliver to each other a
certificate which shall confirm that their respective warranties and
representations contained in this Agreement are in all material respects true
and correct as of the Closing Date. Such representations, warranties and
covenants herein set forth shall survive the Closing Date for the period of the
applicable statute of limitations.
ARTICLE VI
CLOSING
Section 6.1. Closing Date. In the event the Call Option or the Put
------------
Option shall be exercised, the sale of the Purchased Assets shall be consummated
on the date (the "Closing Date") which is 60 days after either (i) the date of
the exercise of the Call Option by Choice or (ii) the date of the exercise of
the Put Option by Sunburst; provided, however, that if such 60th day shall fall
-------- -------
on a day which shall not constitute a Business Day (as hereinafter defined) then
the Closing Date shall occur on the immediately succeeding Business Day. The
closing of the sale of the Purchased Assets will take place at the offices of
the escrow agent, with the exact time for closing to be designated by Choice by
written notice to Sunburst.
Section 6.2. Sunburst's Deliveries and Instruments. On the Closing
-------------------------------------
Date, Sunburst shall deliver or cause to be delivered to Choice the following
items (all documents shall be duly executed and, to the extent necessary,
acknowledged by Sunburst):
(i) Deed. With respect to each Purchased Property, a deed in
----
substantially the form attached as Exhibit B hereto executed by
---------
Sunburst conveying such Purchased Property to Choice (each a
"Deed", collectively, the "Deeds"), subject only to Permitted
Title Exceptions along with transfer tax forms or affidavits with
respect to each such Deed in the appropriate jurisdiction;
(ii) Bill of Sale. A duly executed bill of sale in substantially the
------------
form as attached as Exhibit C hereto (the "Bill of Sale")
---------
conveying all tangible personal property relating to the
Purchased Properties.
9
<PAGE>
(iii) Assignment. An assignment agreement executed by
----------
Sunburst assigning to Choice all of Sunburst's rights
and obligations under any contracts or other
intangibles relating to the Purchased Properties,
together with copies of documentation relating thereto;
(iv) Title Insurance. A Title Policy for each Purchased
---------------
Property in such form as described in Article III
-----------
hereof, the cost of which will be shared equally by
Sunburst and Choice;
(v) Title Affidavits. Such affidavits and other documents
----------------
as may be reasonably requested by the Title Insurer to
issue each Title Policy in accordance with the terms of
the Title Commitments, as marked by Choice, with
respect to each Purchased Property.
(vi) Survey. To the extent not previously delivered to
------
Choice, the Surveys in such form as described in
Article III hereof;
-----------
(vii) Nonforeign Affidavit. An affidavit executed by Sunburst
--------------------
confirming that Sunburst is not a foreign person within
the purview of 26 U.S.C. (S) 1445 and the regulations
issued thereunder.
(viii) Evidencing Authority. Such resolutions, certificates of
--------------------
good standing and incumbency certificates and other
evidence of authority with respect to Sunburst as may
be reasonably requested by Choice or the Title Insurer;
(ix) Certificate. A certificate of Sunburst confirming the
-----------
continued accuracy of the warranties and representation
made by it in this Agreement in accordance with Section
-------
5.2 hereof; and
---
(x) Additional Documents. Such additional documents as may
--------------------
be reasonably requested by Choice or the Title Insurer
to consummate the sale of the Purchased Assets.
Delivery of each of the foregoing shall be a condition precedent to Choice's
obligation to consummate the purchase of the Purchased Asset.
Section 6.3. Choice's Deliveries and Instruments. On the
-----------------------------------
Closing Date, Choice shall deliver or cause to be delivered to Sunburst the
following items (all documents shall be duly executed and, to the extent
necessary, acknowledged by Choice):
10
<PAGE>
(i) Payment. The payment of the Purchase Price as contemplated
-------
in Article II hereof with respect to the Purchased Assets;
----------
(ii) Assumption Agreement. An assumption agreement executed by
--------------------
Choice assuming Sunburst's obligations and duties,
prospectively from and after the Closing Date, under the
contracts and intangibles, if any, which are the subject
of Section 6.2(iii) hereof;
----------------
(iii) Title Affidavits. Such affidavits and other documents as
----------------
may be reasonably requested by the Title Insurer to issue
each Title Policy in accordance with the terms of the
Title Commitment, as marked by Choice, with respect to
each Purchased Property;
(iv) Evidence of Authority. Such resolutions, certificates of
---------------------
good standing and incumbency certificates and other
evidence of authority with respect to Choice, any nominee
of Choice acting under this Agreement and the person or
persons acting on behalf of Choice or Choice's nominee as
might be reasonably requested by Sunburst or the Title
Insurer;
(v) Certificate. A certificate of Choice confirming the
-----------
continued accuracy of the warranties and representations
made by it in this Agreement in accordance with Section
-------
5.3 hereof; and
---
(vi) Additional Documents. Such additional documents as may be
--------------------
reasonably requested by Sunburst or the Title Insurer to
consummate the sale of the Purchased Assets to Choice.
Section 6.4. Possession. Subject to Choice's fulfillment of its
----------
obligations under (S)6.3, Possession of the Purchased Assets shall be delivered
by Sunburst to Choice on or before the close of business on the Closing Date
free from all parties claiming rights to possession of or having claims against
the Purchased Assets other than pursuant to contractual obligations approved or
to be assumed by Choice or pursuant to this Agreement and the other documents
relating thereto. If Sunburst shall fail so to deliver possession on the Closing
Date, Sunburst shall be subject to eviction and shall be additionally liable to
Choice for damages.
Section 6.5. Prorations. All real estate taxes, assessments,
----------
utility charges, water and sewer charges, and other items reasonably subject to
proration shall be prorated as of the Closing Date.
Section 6.6. Extension of Put Option Period. If the Call
------------------------------
Option has been exercised and Choice or its assignee fails to close on the
Purchase Asset on the Closing Date for any reason other than Sunburst's breach
of or failure to comply with its obligations under
11
<PAGE>
this Agreement, then the Put Option Period for such Purchased Asset shall be
extended to the later of thirty days from the Closing Date or October 31, 2000.
ARTICLE VII
ASSIGNMENT
Neither this Agreement nor any of the rights hereunder may be assigned for any
purpose whatsoever without the written consent of the parties hereto (which
consent shall not be unreasonably withheld or delayed); provided, however, that
-------- -------
if the Put Option or Call Option has been exercised with respect to a Purchased
Asset(s), then Choice, upon notice to Sunburst prior to the Closing Date, may
assign its right, title and interest under the following sections of this
Agreement solely with respect to such Purchased Asset(s): Article II, Article
III, Article IV, Article V, Article VI, Article VIII, Article IX and Article X;
and assignee shall assume Choice's obligations under such sections.
ARTICLE VIII
CASUALTY AND CONDEMNATION
Section 8.1. Waiver. Sunburst and Choice waive the provisions of
------
all applicable laws relating to the occurrence of a casualty or condemnation
between the date hereof and the Closing Date, and Sunburst and Choice agree that
notwithstanding the occurrence of any casualty or condemnation, the transactions
contemplated by this Agreement shall be fully consummated in accordance with the
terms hereof.
Section 8.2. Obligation to Rebuild. In the event of any such
---------------------
casualty or condemnation, on or prior to the Closing Date, then the Closing Date
shall be delayed until such time as Sunburst has rebuilt or restored such
affected Assets to substantially the same condition of such Assets prior to the
casualty or condemnation.
ARTICLE IX
DEFAULT
Section 9.1. Choice's Default. Choice agrees that any default by
----------------
Choice hereunder or any misrepresentation by Choice hereunder, which default or
misrepresentation materially adversely affects the ability of Choice to perform
its obligations under this Agree-
12
<PAGE>
ment or any of the other documents or instruments contemplated herein to be
executed or performed by Choice, shall each constitute a default by Choice.
Sunburst hereby agrees that the failure of Choice to consummate the transactions
contemplated hereunder as a result of any court or governmental action, law,
order or decree taken, enacted or declared after the date hereof and not
initiated or consented to by Choice prohibiting or staying the consummation of
the transaction contemplated hereunder shall not constitute a default by Choice
hereunder. If any such action is brought against Choice, Choice shall use
commercially reasonable efforts to defend such action and if any such order or
decree is declared against Choice, Choice shall use commercially reasonable
efforts to vacate or lift such order or decree.
Section 9.2. Sunburst's Default. Sunburst agrees that any default by
------------------
Sunburst hereunder or a misrepresentation by Sunburst hereunder, which default
or misrepresentation materially adversely affects the ability of Sunburst to
perform its obligations under this Agreement or any of the other documents or
instruments contemplated herein to be executed or performed by Sunburst, shall
each constitute a default by Sunburst. Choice hereby agrees that the failure of
Sunburst to consummate the transactions contemplated hereunder as a result of
any court or governmental action, law, order or decree taken, enacted or
declared after the date hereof and not initiated or consented to by Sunburst
prohibiting or staying the consummation of the transaction contemplated
hereunder shall not constitute a default by Sunburst hereunder. If any such
action is brought against Sunburst, Sunburst shall use commercially reasonable
efforts to defend such action and if any such order or decree is declared
against Sunburst, Sunburst shall use commercially reasonable efforts to vacate
or lift such order or decree.
Section 9.03. Dispute Resolution. In the event either party shall
------------------
default under this Agreement or any other dispute or claim shall arise
hereunder, such matter shall be resolved in accordance with the applicable
provisions of Section 1.5 of the Omnibus Amendment.
-----------
ARTICLE X
MISCELLANEOUS
Section 10.1 Entire Agreement. This Agreement, the Schedules and
----------------
Exhibits annexed hereto and the Omnibus Amendment contain the entire
understanding of the parties hereto with respect to the subject matter hereof,
and no prior or contemporaneous written or oral agreement or understanding
pertaining to any such matter shall be effective for any purpose.
13
<PAGE>
Section 10.2. Time of Essence. Time is of the essence with respect to
---------------
each provision of the Agreement.
Section 10.3. Certain Fees and Expenses. Choice and Sunburst shall
-------------------------
pay, in good funds, their respective closing costs and all other items required
to be paid at closing, except as otherwise provided herein. The local transfer
tax, if any, shall be paid at closing by Choice. Any sales and use tax that may
accrue because of this transaction shall be paid when due by Sunburst.
Section 10.4. Binding Effect. The provisions of this Agreement shall
--------------
inure to the benefit of and be binding upon Sunburst and Choice and their
respective successors and permitted assigns.
Section 10.5. No Waiver. No waiver of any of the provisions of this
---------
Agreement shall be deemed or shall constitute a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver. No
waiver shall be binding unless executed in writing by the party making the
waiver.
Section 10.6. Assurance of Cooperation. The parties hereby covenant
------------------------
and agree that they shall at any time prior to and after the Closing Date and
from time to time, execute, knowledge and deliver, or shall cause to be done,
executed, acknowledged and delivered all such further acts, documents and any
other items as may reasonably be required by the other party in order to carry
out fully and effectuate the transactions herein contemplated in accordance with
the provisions of this Agreement.
Section 10.7. Duplicate Original; Counterparts. This Agreement may be
--------------------------------
executed in any number of duplicate originals and each duplicate original shall
be deemed to be an original. This Agreement may be executed in several
counterparts, each of which counterpart shall be deemed an original instrument
and all of which together shall constitute a single Agreement.
Section 10.8. Modification in Writing. This Agreement may not be
-----------------------
altered, amended, modified or changed except by an agreement in writing signed
by the parties hereto or their respective successors in interest or permitted
assigns.
Section 10.9. Notices. All notices or other written communications
-------
hereunder shall be deemed to have been properly given (i) upon delivery, if
delivered in person with receipt acknowledged by the recipient thereof, (ii)
one (1) Business Day after having been deposited for overnight delivery with any
reputable overnight courier service, or (iii) three (3) Business Days after
having been deposited in any post office or mail depositary regularly maintained
by the United States Postal Service and sent by registered or certified mail,
post-
14
<PAGE>
age prepaid, return receipt requested, addressed to the receiving party at its
address set forth below or addressed as such party may from time to time
designate by written notice to the other parties. For purposes of this
Agreement, the term "Business Day" shall mean any day other than Saturday,
Sunday or any other day on which banks are required or authorized to close in
New York, New York. Any notice should be directed to the following addresses
and either party by notice to the other may designate additional or different
addresses for subsequent notices or communications:
To Sunburst: Pam Williams, Esq.
Sunburst Hospitality Corp.
10770 Columbia Pike
Silver Spring, MD 20901
With a copy to: Kevin Hanley, Vice President
Sunburst Hospitality Corp.
10770 Columbia Pike
Silver Spring, MD 20901
To Choice: 10750 Columbia Pike
Silver Spring, MD 20901
Attn: General Counsel
Section 10.10. Appurtenant Agreement. The terms, covenants,
---------------------
conditions and agreements contained herein shall be a burden and appurtenant to
the Properties and shall run with the Properties.
Section 10.11. Headings. The headings and captions contained in
--------
this Agreement are solely for convenience of reference and shall not control or
affect the meaning or construction of any provision hereof.
Section 10.12. Governing Law; Severability. This Agreement shall
---------------------------
be governed by, and shall be construed and enforced in accordance with, the laws
of the state of Maryland without regard to principles of conflicts of laws. Any
provision hereof 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 or
effecting the validity or enforceability of such provision in any other
jurisdiction.
15
<PAGE>
Section 10.13. Recording. A memorandum of this Agreement ("Memorandum
---------
of Put/Call Agreement") in the form attached hereto as Exhibit D shall be
---------
recorded in the office of the official records of the county or counties in
which the Assets are located ("Recorder's Office"), as appropriate,
contemporaneously with the execution of this Agreement. After the expiration of
the Put Option Period, Choice shall record a release in the Recorder's Office.
Section 10.14. Management of Purchased Assets. In the event Choice
------------------------------
shall exercise its Call Option or Sunburst shall exercise its Put Option,
Sunburst and Choice hereby agree that Sunburst shall operate and manage the
Purchased Assets pursuant to the provisions of a Management Agreement
substantially in the form of Exhibit E annexed hereto.
---------
Section 10.15. Brokerage. Sunburst and Choice each hereby represent
---------
and warrant to the other that it has not dealt with any broker or finder or any
other person who might be entitled to a fee in connection with the purchase and
sale of the Assets and that no fee or commission is due to any broker, finder or
other person in connection with this Agreement or the sale contemplated hereby.
Sunburst and Choice each hereby indemnify the other and agree to hold the other
harmless from and against any and all claims, demands, liabilities, losses,
judgments, costs and expenses (including, without limitation, reasonable
attorneys' fees) arising directly or indirectly out of any claim for a fee or
commission due to any broker or finder arising out of facts which contravene the
warranties stated in this Section 10.15. The representations, warranties and
agreements contained in this Section 10.15 shall survive closing.
<PAGE>
IN WITNESS WHEREOF, Sunburst and Choice have caused this Agreement to
be duly executed as of the day and year first above written.
CHOICE HOTELS INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ Michael J. DeSantis
----------------------------
Name: Michael J. DeSantis
Title: Senior Vice President
SUNBURST HOSPITALITY CORPORATION,
a Delaware corporation
By: /s/ Donald J. Landry
-----------------------------
Name: Donald J. Landry
Title: Chief Executive Officer,
President & Vice Chairman
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5 Exhibit 27
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets, the consolidated statements of income and the
consolidated statements of cash flows and is qualified by its entirety by
reference to such financial statements and the notes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,894
<SECURITIES> 0
<RECEIVABLES> 12,942
<ALLOWANCES> 525
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 505,563
<DEPRECIATION> 115,978
<TOTAL-ASSETS> 412,360
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 245
<OTHER-SE> 83,578
<TOTAL-LIABILITY-AND-EQUITY> 412,360
<SALES> 49,980
<TOTAL-REVENUES> 49,980
<CGS> 0
<TOTAL-COSTS> 42,202
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,497
<INCOME-PRETAX> 1,281
<INCOME-TAX> 520
<INCOME-CONTINUING> 761
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 761
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
