<PAGE>
As filed with the Securities and Exchange Commission on December 2, 1997.
___________________________________________________________________
REGISTRATION STATEMENT NO. 333-
********************************************************************************
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
CHOICE HOTELS INTERNATIONAL, INC.
(formerly Choice Hotels Franchising, Inc.)
------------------------------------------
(Exact name of issuer as specified in its charter)
Delaware 52-1209792
--------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10750 Columbia Pike
Silver Spring, Maryland 20901
----------------------- -----
(Address of Principal (Zip Code)
Executive Offices)
CHOICE HOTELS INTERNATIONAL, INC. RETIREMENT SAVINGS & INVESTMENT PLAN,
and NONQUALIFIED RETIREMENT SAVINGS & INVESTMENT PLAN
-----------------------------------------------------
(Full title of the plans)
Michael J. DeSantis, Esq.
Senior Vice President, General Counsel and Secretary
10750 Columbia Pike
Silver Spring, MD 20901
------------------------
(Name and address of agent for service)
(301) 979-6237
--------------
(Telephone number, including area code, of agent for service)
CALCULATION OF REGISTRATION FEE
********************************************************************************
<TABLE>
<CAPTION>
Proposed Proposed
Title of Maximum Maximum Amount
Each Class of Amount Offering Aggregate Of
Securities To Be Price Per Offering Registration
To Be Registered Registered Share* Price* Fee*
- ---------------- ---------- ------ ------ ----
<S> <C> <C> <C> <C>
Common Stock, 1,000,000 Shs. $17.1563 $17,156,300 $5,916
par value of $.10
per share
</TABLE>
********************************************************************************
(*) Estimated pursuant to Rule 457 solely for the purpose of calculating the
registration fee. Estimate based on the average of the high and low share
prices reported on the New York Stock Exchange for November 25, 1997.
In addition, pursuant to Rule 416(c) under the Securities Act of 1933, this
registration statement also covers an indeterminate amount of interests to be
offered or sold pursuant to the employee benefit plan described herein.
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation by Reference.
- ------ ---------------------------
The following documents filed with the Securities and Exchange Commission
(the "Commission") by Choice Hotels International, Inc., a Delaware corporation
(the "Company") are incorporated as of their respective dates in this
Registration Statement on form S-8 (the "Registration Statement") by reference:
1. The Company's Registration Statement on Form 10, filed on September 18,
1997.
2. The Company's Report on Form 10-Q for the quarter ended August 31, 1997.
All documents subsequently filed by the Plan or the Registrant with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), prior to the filing of a
post-effective amendment which indicates that all securities offered have been
sold or which deregisters all securities then remaining unsold, shall be deemed
to be incorporated by reference in this Registration Statement and to be a part
hereof from the date of filing such documents. Any statement contained in a
documents incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Registration Statement
to the extent that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Registration Statement.
Item 4. Description of Securities.
- ------- --------------------------
Not Applicable.
Item 5. Interests of Named Experts and Counsel.
- ------- ---------------------------------------
Not Applicable
Item 6. Indemnification of Officers and Directors.
- ------- ------------------------------------------
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides, in summary, that directors and officers of Delaware
corporations such as the Registrant are entitled, under certain circumstances,
to be indemnified against all expenses and liabilities (including attorneys'
fees) incurred by them as a
2
<PAGE>
result of suits brought against them in their capacity as a director or officer,
if they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, if they had no reasonable cause to believe their
conduct was unlawful; provided, that no indemnification may be made against
expenses in respect of any claim, issue or matter as to which they shall have
been adjudged to be liable to the corporation, unless and only to the extent
that the court in which such action or suit was brought shall determine upon
application that despite the adjudication of liability but in view of all the
circumstances of the case, they are fairly and reasonably entitled to indemnity
for such expenses which such court shall deem proper. Any such indemnification
may be made by the corporation only as authorized in each specific case upon a
determination by the stockholders or disinterested directors that
indemnification is proper because the indemnitee has met the applicable standard
of conduct. Article VII of the Registrant's By-Laws entitles officers, directors
and controlling persons of the Registrant to indemnification to the full extent
permitted by Section 145 of DGCL, as the same may be supplemented or amended
from time to time.
Article VII of the Bylaws of Choice Hotels International, Inc. provides:
INDEMNIFICATION OF
OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
Section 1. Action, Other Than by or in the Right of the Corporation. The
---------------------------------------------------------
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding or investigation, whether civil, criminal or administrative, and
whether external or internal to the Corporation (other than a judicial action or
suit brought by or in the right of the Corporation) by reason of the fact that
he is or was a director, officer, employee or trustee of the Corporation, or
that, being or having been such a director, officer, employee or trustee, he is
or was serving at the request of the Corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise (all such persons being referred to hereafter as an
"Agent"), against expenses (including attorneys' fees), judgements, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, or any appeal therein, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding -- whether by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent --
---- ----------
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, that he had reasonable cause to believe that his conduct was
unlawful.
3
<PAGE>
Section 2. Action, by or in the Right of the Corporation. The Corporation
----------------------------------------------
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed judicial action or suit brought by
or in the right of the Corporation to procure a judgement in its favor by reason
of the fact that he is or was an Agent (as defined above) against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense, settlement or appeal of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for gross negligence or misconduct in the
performance of the duty of the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or other such court shall deem proper.
Section 3. Determination of Right of Indemnification. Any indemnification
------------------------------------------
under Section 1 or 2 (unless ordered by a court) shall be made by the
Corporation unless a determination is reasonably and promptly made (i) by the
Board by a majority vote or a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (ii) if such a quorum is not
obtainable, or, even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders, that such person acted in bad faith and in a manner that such
person did not believe to be in or not opposed to the best interests of the
Corporation, or, with respect to any criminal proceeding, that such person
believed or had reasonable cause to believe that his conduct was unlawful.
Section 4. Indemnification Against Expenses of Successful Party.
-----------------------------------------------------
Notwithstanding the other provisions of this Article, to the extent that an
Agent has been successful on the merits or otherwise, including the dismissal of
an action without admission of liability, in defense of any proceeding or in
defense of any claim, issue or matter therein, or on appeal from any such
proceeding, action, claim or matter, such Agent shall be indemnified against all
expenses incurred in connection therewith.
Section 5. Advances of Expenses. Except as limited by Section 6 of this
---------------------
Article, expenses incurred in any action, suit, proceeding or investigation or
any appeal therein shall be paid by the Corporation in advance of the final
disposition of such matter, if the Agent shall undertake to repay such amount in
the event that it is ultimately determined, as provided herein, that such person
is not entitled to indemnification. Notwithstanding the foregoing, no advance
shall be made by the Corporation if a determination is reasonably and promptly
made by the Board of Directors by a majority vote of a quorum of disinterested
directors, or (if such a quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs) by independent legal counsel in a
written opinion, that, based upon the facts known to the Board or counsel at the
time such determination is made, such person acted in bad faith and in a manner
that such
4
<PAGE>
person did not believe to be in or not opposed to the best interests of the
Corporation, or, with respect to any criminal proceeding, that such person
believed or had reasonable cause to believe his conduct was unlawful. In no
event shall any advance be made in instances where the Board or independent
legal counsel reasonably determines that such person deliberately breached his
duty to the Corporation or its shareholders.
Section 6. Right of Agent to Indemnification Upon Application; Procedure
-------------------------------------------------------------
Upon Application. Any indemnification under Sections 1, 2, and 4, or advance
- -----------------
under Section 5 of this Article, shall be made promptly, and in any event within
ninety days, upon the written request of the Agent, unless with respect to
applications under Sections 1, 2, and 5, a determination is reasonably and
promptly made by the Board of Directors by a majority vote of a quorum of
disinterested directors that such Agent acted in a manner set forth in such
Sections as to justify the Corporation's not indemnifying or making an advance
to the Agent. In the event no quorum of disinterested directors is obtainable,
the Board of Directors shall promptly direct that independent legal counsel
shall decide whether the Agent acted in the manner set forth in such Sections as
to justify the Corporation's not indemnifying or making an advance to the Agent.
The right to indemnification or advances as granted by this Article shall be
enforceable by the Agent in any court of competent jurisdiction, if the Board or
independent legal counsel denies the claim, in whole or in part, or if no
disposition of such claim is made within ninety days. The Agent's expenses
incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
Section 7. Contribution. In order to provide for just and equitable
-------------
contribution in circumstances in which the indemnification provided for in this
Article is held by a court of competent jurisdiction to be unavailable to an
indemnitee in whole or in part, the Corporation shall, in such an event, after
taking into account, among other things, contributions by other directors and
officers of the Corporation pursuant to indemnification agreements or otherwise,
and in the absence of personal enrichment, acts of intentional fraud or
dishonesty or criminal conduct on the part of the agent, contribute to the
payment of Agent's losses to the extent that, after other contributions are
taken into account, such losses exceed: (i) in the case of a director of the
Corporation or any of its subsidiaries who is not an officer of the Corporation
or any of such subsidiaries, the amount of fees paid to him for serving as a
director during the 12 months preceding the commencement of the suit, proceeding
or investigation; or (ii) in the case of a director of the Corporation or any of
its subsidiaries who is also an officer of the Corporation or any of such
subsidiaries, the amount set forth in clause (i) plus 5% of the aggregate cash
compensation paid to said director for service in such office(s) during the 12
months preceding the commencement of the suit, proceeding or investigation; or
(iii) in the case of an officer of the Corporation or any of the subsidiaries,
5% of the aggregate cash compensation paid to such officer for service in such
office(s) during the 12 months preceding the commencement of such suit,
proceeding or investigation.
5
<PAGE>
Section 8. Other Rights and Remedies. The indemnification provided by
--------------------------
this Article shall not be deemed exclusive of, and shall not affect, any other
rights to which an Agent seeking indemnification may be entitled under any
Bylaws, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be an Agent and shall inure to the benefit of the heirs, executors and
administrators of such a person. All rights to indemnification under this
Article shall be deemed to be provided by a contract between the Corporation and
the Agent who serves in such capacity at any time while these bylaws and other
relevant provisions of the general corporation law and other modification
thereof shall not affect any rights or obligations then existing.
Section 9. Insurance. Upon resolution passed by the Board, the
----------
Corporation may purchase and maintain insurance on behalf of any person who is
or was an Agent against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article. The Corporation may create a trust fund, grant
a security interest or use other means (including, without limitation, a letter
of credit) to ensure the payment of such sums as may become necessary to effect
indemnification as provided herein.
Section 10. Constituent Corporations. For the purposes of this Article,
-------------------------
references to "the Corporation" include all constituent corporations absorbed in
a consolidation or merger as well as the resulting or surviving corporation, so
that any person who is or was a director, officer, employees, or trustee of such
a constituent corporation or who, being or having been such a director, officer
employee or trustee, is or was serving at the request of such constituent
corporation as a director, officer, employee, trustee of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would if he had served the resulting or surviving
corporation in the same capacity.
Section 11. Other Enterprises, Fines, and Serving at Corporation's
------------------------------------------------------
Request. For purposes of this Article, references to "other enterprises" in
- --------
Sections 1 and 7 shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service by Agent as director, officer, employee, trustee or
agent of the Corporation which imposes duties on, or involves services by, such
Agent with respect to any employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interests of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
Section 12. Savings Clause. If this Article or any portion hereof shall
---------------
be
6
<PAGE>
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Agent as to expenses (including
attorneys' fees), judgements, fines and amounts paid in settlement with respect
to any action, suit, appeal, proceeding or investigation, whether civil,
criminal or administrative, and whether internal or external, including a grand
jury proceeding and an action or suit brought by or in the right of the
Corporation, to the full extent permitted by any applicable portion of this
Article that shall not have been invalidated, or by any other applicable law.
The Registrant has entered into separate indemnification agreements with
directors and officers of the Registrant, pursuant to which the Registrant will
indemnify such directors and officers to the fullest extent permitted by
Delaware law, as the same may be amended from time to time.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Item 7. Exemptions from Registration Claimed. None.
- ------- -------------------------------------
Item 8. Exhibits.
- ------- ---------
4.1 Choice Hotels International, Inc. Retirement Savings & Investment
Plan.
4.2 Choice Hotels International, Inc. Nonqualified Retirement Savings &
Investment Plan.
5 Opinion regarding legality of shares to be offered.
23(i) Consent of Arthur Andersen LLP.
23(ii) Consent of Michael J. DeSantis, Esq. (included in Exhibit 5)
24 Powers of Attorney authorizing execution of registration statement of
Form S-8 on behalf of certain directors of Registrant.
Item 9. Undertaking.
- ------- ------------
(a) Rule 415 Offering.
------------------
The undersigned Registrant hereby undertakes:
7
<PAGE>
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a) (1) (i) and (a) (1) (ii) do not
-------- -------
apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) Filings incorporating subsequent Exchange Act documents by reference.
--------------------------------------------------------------------
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13 (a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Request for acceleration of effectiveness or filing of registration
-------------------------------------------------------------------
statement on Form S-8.
---------------------
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that
8
<PAGE>
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
----------
The Registrant. Pursuant to the requirements of the Securities Act of
---------------
1933, the Registrant certifies that it meets all of the requirements for filing
on Form S-8, and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Silver
Spring, State of Maryland, on this 1st day of December, 1997.
CHOICE HOTELS INTERNATIONAL, INC.
By: /s/ Michael J. DeSantis
----------------------------------
Michael J. DeSantis
Secretary
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
* Chairman and Director December 1, 1997
- --------------------
Stewart Bainum, Jr.
* Director December 1, 1997
- --------------------
Stewart Bainum
* Vice Chairman, CEO December 1, 1997
- --------------------
William R. Floyd & Director
9
<PAGE>
* Director December 1, 1997
- --------------------
Barbara Bainum
* Director December 1, 1997
- --------------------
James H. Rempe
* Director December 1, 1997
- --------------------
Frederick V. Malek
* Director December 1, 1997
- --------------------
Jerry E. Robertson
* Vice President and December 1, 1997
- --------------------
Joseph M. Squeri Controller (Principal
Financial Officer &
Principal Accounting
Officer)
* By: /s/ Michael J. DeSantis
-------------------------------------
Michael J. DeSantis
Attorney-in-fact
10
<PAGE>
The Plans. Pursuant to the requirements of the Securities Act of 1933, the
- ---------
trustee (or other persons who administer the employee benefit plan) have duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on December 1, 1997.
CHOICE HOTELS INTERNATIONAL, INC.
RETIREMENT SAVINGS & INVESTMENT PLAN and
CHOICE HOTELS INTERNATIONAL, INC.
NONQUALIFIED RETIREMENT SAVINGS &
INVESTMENT PLAN
By: CHASE MANHATTAN BANK
By: Catherine Platt
------------------------------
Assistant Vice President
------------------------------
<PAGE>
EXHIBIT 4.1
-----------
CHOICE HOTELS INTERNATIONAL, INC. RETIREMENT
SAVINGS & INVESTMENT PLAN
<PAGE>
THE CHOICE HOTELS INTERNATIONAL, INC.
RETIREMENT SAVINGS AND INVESTMENT PLAN
--------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION ONE PURPOSE OF PLAN................................ 1
A. Purpose............................................. 1
B. Voluntary Participation............................. 1
SECTION TWO DEFINITIONS.................................... 2
SECTION THREE REQUIREMENTS FOR ELIGIBILITY................... 21
SECTION FOUR PARTICIPATION IN THE PLAN...................... 23
A. Participation in the Cash or Deferred Arrangement... 23
B. Information to Participants......................... 23
C. Rollover Amount..................................... 24
SECTION FIVE ADMINISTRATION OF THE PLAN..................... 25
A. Responsibility for Administration of the Plan....... 25
B. Appointment of Administrative Committee............. 25
C. Responsibility for Administration of the Trust Fund. 25
D. Delegation of Powers................................ 25
E. Records............................................. 26
F. General Administrative Powers....................... 26
G. Appointment of Professional Assistance and
Investment Manager.................................. 26
H. Actions by the Administrative Committee............. 27
I. Directives of the Administrative Committee.......... 27
J. Discretionary Acts.................................. 28
K. Payment of Fees and Expenses........................ 28
L. Plan Administrator.................................. 29
M. Allocation and Delegation of Administrative
Committee Responsibilities.......................... 29
SECTION SIX CONTRIBUTIONS.................................. 30
A. Salary Reduction Contributions...................... 30
B. Company Matching Contributions...................... 32
C. Nondiscrimination Rules Applicable to Salary
Reduction Contributions............................. 34
D. Nondiscrimination Rules Applicable to Company
Matching Contributions.............................. 37
E. Additional Adjustments.............................. 40
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION SEVEN ALLOCATION TO PARTICIPANTS' ACCOUNTS........... 40
A. Maintenance of Accounts............................. 40
B. Method of Allocating Salary Reduction
Contributions....................................... 41
C. Method of Allocating Company Matching Contribu-
tions............................................... 41
D. Limitation on Annual Additions...................... 42
E. Limitations on Annual Additions Due to
Participation in Other Defined Contribution Plans... 44
F. Limitations on Annual Additions Due to
Participation in Defined Benefit Plans.............. 44
G. Definitions Relating to Annual Additions
Limitations......................................... 45
H. Change of Employee Status........................... 47
SECTION EIGHT EVALUATION OF TRUST FUND....................... 48
SECTION NINE PARTICIPANTS' ACCOUNTS......................... 49
A. Separate Accounts................................... 49
B. Accounts of Participants Transferred to an
Affiliated Company.................................. 49
C. Annual Adjustment of Participant's Accounts......... 50
D. Investment of Contributions......................... 50
E. Special Rules Regarding Sunburst, Inc. Stock......... 52
SECTION TEN COMMON TRUST FUND.............................. 53
SECTION ELEVEN DISABILITY BENEFITS............................ 53
A. Disability Retirement Benefits...................... 53
B. Determination of Disability......................... 54
SECTION TWELVE RETIREMENT BENEFITS.......................... 54
SECTION THIRTEEN DEATH BENEFITS............................ 55
A. Death Benefits...................................... 55
B. Designation of Beneficiaries........................ 55
C. Failure of Participant to Designate................. 56
D. Beneficiaries' Rights............................... 57
SECTION FOURTEEN EMPLOYMENT TERMINATION BENEFITS........... 57
A. Vesting Upon Termination of Employment.............. 57
B. Counting Years of Service........................... 57
C. Forfeiture of Non-Vested Amount..................... 58
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION FIFTEEN PAYMENT OF BENEFITS....................... 60
A. Retirement, Disability and Death Benefits........... 60
B. Employment Termination Benefits..................... 61
C. Methods of Payment of Benefits...................... 64
D. Required Distributions.............................. 67
E. Distribution of Small Account Balances.............. 68
F. Loans to Participants............................... 69
G. Benefits of Persons Who Cannot Be Located........... 72
H. Pre-Retirement Distributions........................ 73
I. Post-Age 59 1/2 Withdrawals......................... 73
J. Distribution for Minor Beneficiary.................. 74
K. Hardship Withdrawals................................ 74
L. Eligible Rollover Distributions..................... 75
SECTION SIXTEEN RIGHT OF FIRST REFUSAL.................... 77
SECTION SEVENTEEN STOCK CERTIFICATE LEGEND.................. 79
SECTION EIGHTEEN BENEFIT CLAIMS PROCEDURE................. 79
A. Claims for Benefits................................. 79
B. Request for Review of Denial........................ 80
C. Decision on Review of Denial........................ 80
SECTION NINETEEN INALIENABILITY OF BENEFITS................ 81
A. In General.......................................... 81
B. Qualified Domestic Relations Orders................. 81
SECTION TWENTY INVESTMENT OF TRUST FUND.................. 83
SECTION TWENTY-ONE AMENDMENT OF THE PLAN..................... 83
SECTION TWENTY-TWO PERMANENCY OF THE PLAN.................... 85
A. Right to Terminate Plan............................. 85
B. Merger or Consolidation of Plan..................... 85
SECTION TWENTY-THREE DISCONTINUANCE OF CONTRIBUTIONS AND
TERMINATION.......................... 85
A. Discontinuance of Contributions..................... 85
B. Termination of Plan and Trust....................... 86
C. Rights to Benefits Upon Termination of Plan or
Complete Discontinuance of Contributions............ 87
SECTION TWENTY-FOUR STATUS OF EMPLOYMENT RELATIONS....... 87
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION TWENTY-FIVE BENEFITS PAYABLE BY TRUST............ 88
SECTION TWENTY-SIX EXCLUSIVE BENEFIT OF TRUST FUND...... 88
A. Limitation Upon Reversions.......................... 88
B. Mistake of Fact..................................... 88
SECTION TWENTY-SEVEN APPLICABLE LAW....................... 89
SECTION TWENTY-EIGHT INTERPRETATION OF THE PLAN AND
TRUST................................ 89
SECTION TWENTY-NINE ADOPTION OF PLAN BY AFFILIATED
COMPANIES............................ 89
SECTION THIRTY TOP-HEAVY CONTINGENCY PROVISIONS..... 90
A. Application......................................... 90
B. Definition of Top-Heavy Plan........................ 90
C. Consideration of Multiple Plans in Determining
Top-Heavy Status of Plan............................ 92
D. Minimum Benefits.................................... 94
E. Special Vesting Rules............................... 95
F. Adjustment of Section 415 Limitations in Plan
Years in Which the Plan Is a Top-Heavy Plan......... 96
</TABLE>
-iv-
<PAGE>
THE CHOICE HOTELS INTERNATIONAL, INC.
RETIREMENT SAVINGS AND INVESTMENT PLAN
--------------------------------------
Effective November 15, 1997, CHOICE HOTELS INTERNATIONAL, INC. (formerly
Choice Hotels Franchising, Inc.)(the "Sponsoring Company") hereby establishes
the Choice Hotels International, Inc. Retirement Plan in accordance with the
terms and conditions set forth below. It is anticipated that the Trust shall
receive an infusion of assets from the trust associated with the Sunburst
Hospitality Corporation (formerly Choice Hotels International, Inc.) Plan (the
"Sunburst Plan") equal to the value of the accounts in the Sunburst Plan
attributable to all individuals who are employed by the Sponsoring Company on or
about November 15, 1997.
SECTION ONE
PURPOSE OF PLAN
---------------
Designation. The Plan is designated the Choice Hotels International,
-----------
Inc. Retirement Savings and Investment Plan."
A. Purpose. The purpose of the Plan is to provide retirement,
-------
disability, death and employment termination benefits for the Participating
Companies' eligible employees and their beneficiaries. To provide such benefits,
the Participating Companies propose to make contributions to a trust established
in accordance with the requirements of law. Such contributions and any income
derived therefrom shall be for the exclusive benefit of the Participating
Companies' employees and their beneficiaries and shall not be used for, or
diverted to, any other purpose.
<PAGE>
B. Voluntary Participation. An Employee who completes the eligibility
-----------------------
requirements set forth in Section Three of the Plan may voluntarily elect to
participate in the Plan by notifying the Administrative Committee as described
in subparagraph (i) of Paragraph A of Section Six.
SECTION TWO
DEFINITIONS
-----------
As used in the Plan:
A. "Accounts" shall mean a Participant's Company Contribution Account,
his Salary Reduction Contribution Account, and, if applicable, his Company Stock
Account, his Voluntary Account and/or his Rollover Account. The term "Accounts"
shall also include any additional accounts established by the Administrative
Committee, in its sole discretion.
B. "Administrative Committee" shall mean the person or persons or entity
appointed to administer the Plan in accordance with the provisions of Section
Five of the Plan. Notwithstanding the foregoing, "Administrative Committee" may
also include any individual or committee to which the Administrative Committee
has delegated authority to act with respect to a specific activity. The
Administrative Committee shall be the "named fiduciary," as referred to in
Section 402(a) of ERISA, with respect to the management, operation and
administration of the Plan.
-2-
<PAGE>
C. "Affiliated Company" shall mean (i) a member of a controlled group of
corporations of which the Sponsoring Company is a member, as determined in
accordance with Section 414(b) of the Internal Revenue Code and the regulations
issued thereunder, (ii) a trade or business which is under common control with
the Sponsoring Company, as determined in accordance with Section 414(c) of the
Internal Revenue Code and the regulations issued thereunder, or (iii) a member
of an affiliated service group of which the Sponsoring Company is a member, as
determined in accordance with Section 414(m) of the Internal Revenue Code. For
this purpose, a "controlled group of corporations" shall mean a controlled group
of corporations as defined in Section 1563(a) of the Internal Revenue Code,
determined without regard to subsections 1563(a)(4) and 1563(e)(3)(C), except
that, with respect to the limitations set forth in Paragraphs D, E and F of
Section Seven of the Plan and the definitions set forth in Paragraph G of
Section Seven of the Plan, the phrase "more than 50%" shall be substituted for
the phrase "at least 80%" whenever such percentage appears in Section 1563(a)(1)
of the Internal Revenue Code. In addition, "Affiliated Company" shall also
include any other entity designated by the Board of Directors, in its sole
discretion, in which any Participating Company owns an equity interest which
exceeds fifty percent (50%).
D. "Average Contribution Percentage" shall mean the average of the
ratios, calculated separately for each applicable Employee, by which the amount
of the Company Matching
-3-
<PAGE>
Contributions allocated to such Employee with respect to such Plan Year bears to
the amount of such Employee's compensation (as defined in Section 414(s) of the
Internal Revenue Code) for such Plan Year or, at the election of the
Administrative Committee, that portion of the Plan Year during which the
Employee was eligible to participate in the cash or deferred arrangement under
the Plan.
E. "Average Deferral Percentage" shall mean the average of the ratios,
calculated separately for each applicable Employee, by which the amount of the
Salary Reduction Contributions contributed to the Trust on behalf of such
Employee for a given Plan Year bears to the amount of such Employee's
compensation (as defined in Section 414(s) of the Internal Revenue Code) for
such Plan Year, or, at the election of the Administrative Committee, for the
portion of the Plan Year during which the Employee was eligible to participate
in the cash or deferred arrangement under the Plan.
F. "Beneficiary" shall mean any person entitled to receive benefits which
are payable upon or after a Participant's death pursuant to Section Thirteen of
the Plan.
G. "Board of Directors" shall mean the Board of Directors of the
Sponsoring Company or any individual or committee to which the Board of
Directors has delegated authority to act with respect to a specific activity.
H. "Company Contribution Account" shall mean the separate account
maintained for a Participant reflecting Company Matching
-4-
<PAGE>
Contributions allocated to such Participant pursuant to Paragraph B of Section
Six of the Plan as adjusted for earnings or losses thereon in accordance with
the provisions of Section Nine of the Plan. In addition, a Participant's Company
Contribution Account shall include all amounts transferred on behalf of such
Participant from the Participant's corresponding company contribution account,
if any, in the Sunburst Plan.
I. "Company Matching Contributions" shall mean the contributions made by
the Participating Company to each Participant's Company Contribution Account
pursuant to Paragraph B of Section Six of the Plan. With respect to the Plan
Year beginning November 15, 1997, each Participant eligible to receive an
allocation of Company Matching Contributions shall receive one hundred percent
(100%) of such allocation of Company Matching Contributions in the form of
shares of Company Stock.
J. "Company Stock" shall mean common stock issued by the Sponsoring
Company.
K. "Company Stock Account" shall mean the separate account maintained on
behalf of a Participant reflecting the Company Stock allocated to such
Participant's Company Stock Account, together with any cash or stock dividends
on such Company Stock. In addition, a Participant's Company Stock Account shall
include all amounts transferred on behalf of such Participant from the
Participant's corresponding company stock account, if any, in the Sunburst Plan.
-5-
<PAGE>
L. "Compensation" shall mean basic cash compensation, before any payroll
deductions for taxes or any other purposes, including regular commissions paid
by the Participating Companies to an Employee in respect of such Employee's
service to the Participating Companies during the Plan Year increased by any
amounts by which the Employee has elected to reduce his base salary with respect
to such Plan Year under any qualified "cash or deferred arrangement" (as
described in Section 401(k) of the Internal Revenue Code) contained in this Plan
or any other qualified retirement plan maintained by the Participating Companies
or under any "cafeteria plan" (as described in Section 125 of the Internal
Revenue Code) maintained by the Participating Companies. Compensation shall not
include any amounts paid to the Employee as (i) bonuses, (ii) overtime pay,
(iii) except as otherwise provided in the preceding sentence, any amounts paid
during that Plan Year on account of the Employee under this Plan or under any
other employee pension benefit plan (as defined in Section 3(2) of ERISA), and
(iv) except as otherwise provided in the preceding sentence, any amounts which
are not includible in the Employee's income for federal income tax purposes.
In determining the Compensation of an Employee for a Plan Year, if the
Employee is either a Five-Percent Owner or one of the ten (10) Highly
Compensated Employees paid the greatest Compensation during the Plan Year, then
any Compensation paid by the Participating Companies during such Plan Year to
the spouse of such Employee or to any lineal descendants of such Employee
-6-
<PAGE>
who have not attained age nineteen (19) prior to the close of the Plan Year
shall be treated as Compensation paid to such Employee for such Plan Year.
For purposes of determining the Plan contributions or benefits for a Plan
Year and for purposes of applying the various nondiscrimination rules under the
Internal Revenue Code, Compensation in any Plan Year shall not include any
amounts in excess of One Hundred and Fifty Thousand Dollars ($150,000), as
adjusted for increases in the cost of living pursuant to Section 401(a)(17) of
the Internal Revenue Code. In 1996, the One Hundred and Fifty Thousand Dollars
($150,000) limitation, as adjusted for increases in the cost of living, is One
Hundred and Fifty-Five Thousand Dollars ($155,000).
M. "Effective Date" of this Plan shall mean November 15, 1997.
N. "Eligibility Computation Period" for each Employee shall mean a twelve
(12) consecutive month period beginning on the date such Employee first performs
an Hour of Service with a Participating Company or an Affiliated Company;
provided, however, that if the Employee does not complete one thousand (1,000)
or more Hours of Service during such twelve (12) month period, the Eligibility
Computation Period shall be the Plan Year, beginning with the Plan Year
immediately following the Plan Year within which the Employee first performs an
Hour of Service with a Participating Company or an Affiliated Company. If the
Employee has a One-Year Break in Service prior to becoming
-7-
<PAGE>
eligible to participate in the Plan and is subsequently rehired, his Eligibility
Computation Period shall be determined pursuant to this Paragraph beginning on
the date the Employee first completes an Hour of Service with the Participating
Company or the Affiliated Company immediately following his rehire.
O. "Eligibility Year of Service" shall mean an Eligibility Computation
Period during which an Employee completes one thousand (1,000) or more Hours of
Service.
P. "Eligible Participant" shall mean any Participant who (i) completed at
least one thousand (1,000) Hours of Service with the Participating Companies
during such Plan Year, (ii) was employed by a Participating Company or an
Affiliated Company on the last day of the Plan Year, and (iii) elected, pursuant
to Paragraph A of Section Six, to reduce his Compensation during such Plan Year.
Q. "Employee" shall mean any person who is employed by a Participating
Company; provided, however, that the term "Employee" shall not include (i) any
person included in a unit of employees covered by a collective bargaining
agreement (as so determined by the Secretary of Labor) between employee
representatives and a Participating Company if retirement benefits were the
subject of good faith bargaining between such employee representatives and the
Participating Company unless such collective bargaining agreement expressly
provides for the inclusion of such persons as Participants in the Plan and (ii)
nonresident aliens who receive no earned income (within the
-8-
<PAGE>
meaning of section 911(d)(2) of the Internal Revenue Code) from the
Participating Companies which constitutes income from sources within the United
States (within the meaning of section 861(a)(3) of the Internal Revenue Code).
Leased Employees shall be considered Employees for purposes of the provisions of
this Plan, but shall not be eligible to participate in the Plan.
R. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time. References in the Plan to any Section of
ERISA shall include any successor provision thereto.
S. "Excess Aggregate Contributions" shall mean, with respect to any Plan
Year, the excess of (i) the sum of all Company Matching Contributions made to
the Trust on behalf of the Highly Compensated Employees for such Plan Year over
(ii) the maximum amount of such Company Matching Contributions for such Plan
Year permitted under the Average Contribution Percentage Test.
T. "Family Member" shall mean, with respect to an Employee, such
Employee's spouse, his lineal ascendants and descendants, and the spouses of
such lineal ascendants and descendants.
U. "Fiscal Year" shall mean the customary fiscal year of a Participating
Company.
V. "Five-Percent Owner" shall mean an individual who (i) owns (or is
considered as owning within the meaning of Section 318 of the Internal Revenue
Code) more than five percent (5%) of
-9-
<PAGE>
the outstanding stock of a Participating Company or an Affiliated Company or
stock possessing more than five percent (5%) of the total combined voting power
of all stock of a Participating Company or an Affiliated Company provided such
entity is a corporation or (ii) owns more than five percent (5%) of the capital
or profits interest in a Participating Company or an Affiliated Company if such
entity is not a corporation.
W. "Highly Compensated Employee" shall mean an Employee who at any time
during the current Plan Year or the immediately preceding Plan Year (i) was a
Five-Percent Owner, (ii) received more than $75,000 in compensation from the
Participating Companies and the Affiliated Companies, (iii) received more than
$50,000 in compensation from the Participating Companies and the Affiliated
Companies and was one of the top twenty percent (20%) highest paid employees
during the Plan Year, or (iv) was an officer of a Participating Company or an
Affiliated Company and received compensation from the Participating Companies
and the Affiliated Companies of more than $45,000 during the Plan Year (or such
larger amount as may then constitute fifty percent (50%) of the amount in effect
under Section 415(b)(1)(A) of the Internal Revenue Code in respect of the Plan
Year); provided, however, that an Employee not falling within clause (ii), (iii)
or (iv) above for the preceding Plan Year shall not be treated as falling within
clause (ii), (iii) or (iv) above for the current Plan Year unless he is a member
of the group consisting of the one hundred (100) employees of the Participating
Companies and
-10-
<PAGE>
the Affiliated Companies paid the greatest compensation by the Participating
Companies and the Affiliated Companies during the current Plan Year. For
purposes of this paragraph, the term "compensation" shall mean "compensation" as
defined in Section 414(q)(7) of the Internal Revenue Code.
The $75,000 and $50,000 amounts in clauses (ii) and (iii) above shall be
adjusted annually in accordance with the pronouncements of the Secretary of the
Treasury or his delegate. For purposes of clause (iv) above, no more than fifty
(50) employees (or, if lesser, the greater of three (3) employees or ten percent
(10%) of all employees) shall be treated as officers, and if for any Plan Year
no officer of a Participating Company or any Affiliated Company is described in
clause (iv) above, then the highest paid officer of the Participating Companies
or the Affiliated Companies for such Plan Year shall be treated as described in
clause (iv) above.
Any former Employee who was a Highly Compensated Employee when he separated
from service or was a Highly Compensated Employee at any time after attaining
age fifty-five (55) shall at all times thereafter be treated as a Highly
Compensated Employee under the Plan.
X. "Hour of Service" shall be determined from records maintained by the
Participating Companies and the Affiliated Companies and shall include the
following:
(i) Performance of Duties. Each hour for which an Employee is
---------------------
directly or indirectly paid, or entitled to payment,
-11-
<PAGE>
by a Participating Company or an Affiliated Company for the performance of
duties. Each such Hour of Service shall be credited to the Eligibility
Computation Period or the Plan Year, as the case may be, in which the duties
were performed.
(ii) Back Pay. Each hour for which back pay (irrespective of
--------
mitigation of damages) has been either awarded or agreed to by a Participating
Company or an Affiliated Company. Each such Hour of Service shall be credited
to the Eligibility Computation Period or the Plan Year, as the case may be, to
which the agreement or award for back pay pertains rather than to the
Eligibility Computation Period or Plan Year, as the case may be, in which the
award, agreement or payment is made.
(iii) Non-Working Time Pay. Each hour for which an Employee is
--------------------
directly or indirectly paid, or entitled to payment, by a Participating Company
or an Affiliated Company on account of a period of time during which no duties
are performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), lay-off, jury duty or lease of absence. Each such Hour of Service
shall be computed and credited in accordance with Department of Labor Regulation
Section 2530.200b.
(iv) No Duplication. An Employee shall not be credited with any Hour
--------------
of Service under both clause (ii) above and clause (i) or (iii) above (as the
case may be) with respect to the same item.
-12-
<PAGE>
(v) Maternity and Paternity Leave. Solely for purposes of
-----------------------------
determining whether an Employee has incurred a One-Year Break in Service, such
Employee shall be credited for up to five hundred and one (501) Hours of Service
in respect of any period of absence attributable to a maternity or paternity
leave, based upon the number of Hours of Service which otherwise normally would
have been credited to such Employee but for such absence or, in any case in
which the Plan is unable to determine the number of Hours of Service which would
have normally been so credited, then such Employee shall be credited with eight
(8) Hours of Service per day of absence. Any such Hours of Service attributable
to a maternity or paternity leave shall be credited in the Eligibility
Computation Period or the Plan Year, as the case may be, in which the maternity
or paternity absence begins if such crediting will prevent the Employee from
incurring a One-Year Break in Service in such Eligibility Computation Period or
Plan Year. Otherwise, such Hours of Service shall be credited in the Eligibility
Computation Period or the Plan Year, as the case may be, following the
Eligibility Computation Period or Plan Year in which the maternity or paternity
leave begins. For these purposes, a maternity or paternity leave of absence
shall include any time during which an Employee is absent from work for any
period: (a) by reason of the pregnancy of the Employee; (b) by reason of the
birth of a child of the Employee; (c) by reason of the placement of a child with
the Employee in connection with the adoption of such child by such individual;
or (d) for purposes of
-13-
<PAGE>
caring for such child for a period beginning immediately following such birth or
placement.
Y. "Ineligible Participant" shall mean any Participant who (i) has not
completed at least one thousand (1,000) Hours of Service with the Participating
Companies during the Plan Year, (ii) was not employed by a Participating Company
or an Affiliated Company on the last day of the Plan Year, or (iii) did not
elect, pursuant to Paragraph A of Section Six, to reduce his Compensation.
Z. "Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time. References in the Plan to any Section of the
Internal Revenue Code shall include any successor provision thereto.
AA. "Investment Election" shall mean the form, filed with the
Administrative Committee or its delegate, or such other procedure as may be
specified by the Administrative Committee at any time, and from time to time,
through which a Participant may designate the manner in which his Accounts
(other than his Company Stock Account) shall be allocated among the Investment
Funds.
BB. "Investment Election Date" shall mean the first business day of each
month.
CC. "Investment Fund" shall mean each fund, contract, or other arrangement
designated by the Administrative Committee as an Investment Fund in which
Participants may direct their Accounts to be invested.
-14-
<PAGE>
DD. "Investment Manager" shall mean any party that (i) is either (a)
registered as an investment adviser under the Investment Advisers Act of 1940,
(b) a bank (as defined in the Investment Advisers Act of 1940), or (c) an
insurance company qualified to manage, acquire and dispose of Plan assets under
the laws of more than one State, (ii) acknowledges in writing that it is a
fiduciary with respect to the Plan, and (iii) is granted the power to manage,
acquire or dispose of any asset of the Plan pursuant to Paragraph G of Section
Five hereof.
EE. "Leased Employee" shall mean any individual who performs services for
a Participating Company or an Affiliated Company in a capacity other than as a
common-law employee if (i) the services are provided pursuant to one or more
agreements between the Participating Company or the Affiliated Company and one
or more leasing organizations, (ii) the individual has performed services for
the Participating Company or the Affiliated Company on a substantially full-time
basis for a period of at least one year, and (iii) such services are of a type
historically performed, in the business field of the Participating Company or
the Affiliated Company, by employees. This paragraph shall be interpreted in
accordance with the provisions of Section 414(n) of the Internal Revenue Code
and the regulations thereunder.
FF. "Maximum Reduction Amount" shall mean Seven Thousand Dollars ($7,000)
per calendar year, as adjusted for increases in the cost of living pursuant to
Section 402(g)(5) of the Internal
-15-
<PAGE>
Revenue Code. In 1996, the Maximum Deduction Amount is Nine Thousand and Five
Hundred Dollars ($9,500).
GG. "Net Profits" shall mean, with respect to any Fiscal Year that ends
within a Plan year with respect to which a determination of Net Profits is made,
the Sponsoring Company's consolidated net income or profit for such Fiscal Year
determined upon the basis of the Sponsoring Company's books of account in
accordance with generally accepted accounting principles, without any reduction
for taxes based upon income, or for contributions made by the Sponsoring Company
to this Plan. "Net Profit" shall not include capital gains or losses or income
or loss which is determined to be of a nonrecurring nature. Such determination
shall be made solely by the Administrative Committee.
HH. "One-Year Break in Service" shall mean an Eligibility Computation
Period or a Plan Year, as the case may be, during which an Employee does not
complete more than five hundred (500) Hours of Service.
II. "Participant" shall mean an eligible Employee who becomes a
Participant in the Plan as provided in Section Four of the Plan.
JJ. "Participating Company" shall mean the Sponsoring Company or any
Affiliated Company which adopts the Plan and Trust pursuant to the provisions of
Section Thirty of the Plan.
KK. "Plan" shall mean the Choice Hotels International, Inc. Retirement
Savings and Investment Plan as set forth in this document, and as hereafter
amended.
-16-
<PAGE>
LL. "Plan Year" shall mean the twelve (12)-consecutive month period ending
on December 31.
MM. "Retirement Date" of a Participant shall mean the Participant's sixty-
fifth (65th) birthday.
NN. "Rollover Account" shall mean the separate account maintained for a
Participant reflecting any rollover made by such Participant pursuant to
Paragraph D of Section Four, as adjusted by earnings or losses thereon pursuant
to the provisions of Section Nine of the Plan. In addition, a Participant
Rollover Account shall include all amounts transferred on behalf of such
Participant from one Participant's corresponding rollover account if any, in the
Sunburst Plan.
OO. "Rollover Amount" shall mean any rollover amount or rollover
contribution defined in (i) Section 402(a)(5) or Section 403(a)(4) of the
Internal Revenue Code (relating to certain distributions from an employees'
trust or employee annuity described in Section 401(a) or 403(a) of the Internal
Revenue Code), (ii) Section 408(d)(3) of the Internal Revenue Code (relating to
certain distributions from an individual retirement account or an individual
retirement annuity), or (iii) former Section 409(b)(3)(C) of the Internal
Revenue Code (relating to certain distributions from a retirement bond).
PP. "Salary Reduction Contribution" shall mean the cumulative amount the
Participating Company contributes to the Trust each Plan Year equal to the
amount by which a Participant
-17-
<PAGE>
elected to reduce his Compensation for such Plan Year pursuant to Section Six.
QQ. "Salary Reduction Contribution Account" shall mean the account
maintained for a Participant reflecting the Salary Reduction Contributions (if
any) made on behalf of such Participant pursuant to the "cash or deferred
arrangement" set forth in Paragraph A of Section Six as adjusted by earnings or
losses thereon in accordance with the provisions of Section Nine of the Plan.
In addition, a Participant's Salary Reduction Contribution Account shall include
all amounts transferred on behalf of such Participant from the Participant's
corresponding salary reduction contribution account, if any, in the Sunburst
Plan. All amounts held in a Participant's Salary Reduction Contribution Account
shall not be distributable to such Participant (or to his Beneficiary) before
the earliest of:
(a) His attainment of age fifty-nine and one-half (59- 1/2), his
Termination of Employment, his death, or his retirement after attaining
Retirement Date or after sustaining a Total and Permanent Disability;
(b) The termination of the Plan without the establishment or
maintenance of another defined contribution plan (other than an employee stock
ownership plan as defined in Section 4975(e)(7) of the Internal Revenue Code);
(c) The sale or other disposition by a corporate Participating
Company of substantially all of the assets (within the meaning of Section
409(d)(2) of the Internal Revenue Code)
-18-
<PAGE>
used by the Participating Company in a trade or business, but only with respect
to a Participant who continues employment with the corporation acquiring such
assets; or
(d) The sale or other disposition by a corporate Participating
Company of its interests in a subsidiary (within the meaning of Section
409(d)(3) of the Internal Revenue Code), but only with respect to a Participant
who continues employment with such subsidiary.
RR. "Sponsoring Company" shall mean Choice Hotels International, Inc.
(formerly Choice Hotels Franchising, Inc.)
SS. "Termination of Employment" shall mean termination of employment with
all Participating Companies and all Affiliated Companies, whether voluntarily or
involuntarily, other than by reason of a Participant's death or his retirement
after attaining his Retirement Date or after sustaining a Total and Permanent
Disability.
TT. "Total and Permanent Disability" shall mean physical and/or mental
incapacity of such a nature that it prevents a Participant from engaging in or
performing the principal duties of his customary employment or occupation on a
continuing or sustained basis.
UU. "Trust" shall mean the legal entity resulting from the Trust Agreement
between the Sponsoring Company and the Trustee, which entity receives the
Participating Companies' and the Participants' contributions, and holds, invests
and disburses
-19-
<PAGE>
funds pursuant to the instructions of and to or for the benefit of Participants
and their Beneficiaries.
VV. "Trust Agreement" shall mean the Choice Hotels International, Inc.
Retirement Savings and Investment Trust Agreement executed by the Sponsoring
Company and the Trustee as amended from time to time.
WW. "Trust Fund" shall mean the total of contributions made by the
Participating Companies and the Participants to the Trust pursuant to the Plan
together with the assets of the Prior Plan and the assets of the Manor
Healthcare Plan and the Quality Inns Plan transferred to the Plan upon the
merger of those plans into this Plan, increased by profits, gains, income and
recoveries received, and decreased by losses, depreciation, benefits paid and
expenses incurred in the administration of the Trust. The Trust Fund shall
include all assets acquired by investment and reinvestment which are held in the
Trust by the Trustee.
XX. "Trustee" shall mean the party or parties, individual or corporate,
named in the Trust Agreement and any duly appointed additional or successor
Trustee acting thereunder. The Trustee and the Investment Managers, if any,
shall be the "named fiduciaries" referred to in Section 402(a) of ERISA with
respect to the control, management and disposition of the assets of the Trust.
YY. "Valuation Date" shall mean the last day of each month or any other
date the Administrative Committee, in its sole discretion, shall select as a
Valuation Date.
-20-
<PAGE>
ZZ. "Voluntary Account" shall mean the total amount in a Participant's
Voluntary Account as adjusted for earnings or losses thereon in accordance with
the provisions of Section Nine of the Plan. In addition, a Participant's
Voluntary Account shall include all amounts transferred on behalf of such
Participant from the Participant's corresponding voluntary account, if any, in
the Sunburst Plan.
AAA. "Year of Service" shall mean a Plan Year during which an Employee
completes one thousand (1,000) or more Hours of Service. In addition, the Board
of Directors, in its sole discretion, may elect to grant Years of Service in
connection with a stock or asset acquisition to reflect employment periods prior
to the date of such stock or asset acquisition. 'Years of Service,' in the case
of an individual who transfers from the employment of Sunburst to the employment
of a Participating Company prior to June 1, 1998, shall also include all Years
of Service earned with respect to service performed on behalf of Sunburst.
BBB. Wherever appropriate, words used in the Plan in the singular may mean
the plural, the plural may mean the singular, and the masculine may mean the
feminine.
SECTION THREE
REQUIREMENTS FOR ELIGIBILITY
----------------------------
Any Employee (other than a Leased Employee) who was a participant in the
Sunburst Retirement Savings and Investment
-21-
<PAGE>
Plan on October 31, 1996 and who is employed by the Sponsoring Company on
November 15, 1997 shall automatically become a Participant in this Plan on
November 15, 1997. Any other Employee (other than a Leased Employee) shall be
eligible to elect to have Salary Reduction Contributions made on his behalf
under the Plan and to share in the allocations of Company Matching Contributions
under the Plan as of the first day of the first full pay period of the month
following the date upon which such Employee has (i) completed an Eligibility
Year of Service and (ii) attained age twenty-one (21), provided such Employee is
employed by a Participating Company on such date. Any Employee who does not
elect to have Salary Reduction Contributions made on his behalf under the Plan
as of the first day of the first full pay period of the first month on which he
is first eligible shall be allowed to make a subsequent election to have Salary
Reduction Contributions made on his behalf as of the first business day of any
subsequent month, provided that such individual notifies the Administrative
Committee no later than the twentieth (20th) day of the month preceding the
first applicable payroll period as of which such election is intended to become
effective, pursuant to such notification procedures as the Administrative
Committee may establish, from time to time. Leased Employees shall not be
eligible to participate in the Plan.
Any Participant who otherwise meets the requirements of this Section Three,
who suffers a Termination of Employment, and who is subsequently rehired by a
Participating Company, shall become
-22-
<PAGE>
eligible to elect to have Salary Reduction Contributions made on his behalf
under the Plan effective as of the date of his rehire and to share in the
allocations of the Company Matching Contributions under the Plan provided the
individual meets the criteria of an Eligible Participant for such Plan Year and
provided further that the period of time between the individual's initial date
of Termination of Employment and the individual's date of rehire does not exceed
the greater of (a) five (5) years or (b) the period of the individual's
employment performed prior to the date of his initial Termination of Employment.
Notwithstanding the foregoing, a Participant who suffers a Termination of
Employment with vested Accounts in the Plan and who is not subsequently rehired
until the occurrence of a period of absence greater than (a) or (b) above shall
be treated as a new Employee for purposes of determining such individual's
eligibility to participate in the Plan.
SECTION FOUR
PARTICIPATION IN THE PLAN
-------------------------
A. Participation in the Cash or Deferred Arrangement. Upon meeting the
-------------------------------------------------
eligibility requirements set forth in Section Three, each eligible Employee
shall be notified that he is so eligible.
B. Information to Participants. Each Participant shall be provided with
---------------------------
such information as is required by ERISA within the time prescribed for
providing such information. In addition,
-23-
<PAGE>
each Participant shall be provided with a designation of beneficiary form with
which he may designate one or more Beneficiaries to receive benefits in the
event of his death. The designation of beneficiary form shall include an
explanation of the spousal death benefit rules of Section Thirteen.
C. Rollover Amount. Any Employee (other than a Leased Employee) may file
---------------
a written petition with the Administrative Committee requesting that it direct
the Trustee to accept a Rollover Amount from such Employee. An Employee may
make such election prior to satisfaction of the age and service requirements
described in Section Three. The Administrative Committee, in its sole
discretion, shall determine whether or not such Employee shall be permitted to
contribute a Rollover Amount to the Trust. Any written petition filed pursuant
to this Paragraph D shall set forth the amount of such Rollover Amount and a
statement, satisfactory to the Administrative Committee, that such contribution
constitutes a Rollover Amount.
Any Rollover Amount contributed to the Trust shall be maintained in a
separate, fully-vested Rollover Account on behalf of the Employee. The Employee
may direct the investment of such Rollover Account in accordance with the
provisions of Section Nine of the Plan. The Rollover Account shall be
distributed to an Employee or, where applicable, his Beneficiary at the same
time and in the same manner as provided in the Plan for the distribution of
other Accounts in the Plan.
-24-
<PAGE>
SECTION FIVE
ADMINISTRATION OF THE PLAN
--------------------------
A. Responsibility for Administration of the Plan. The Administrative
---------------------------------------------
Committee shall be responsible for the management, operation and administration
of the Plan.
B. Appointment of Administrative Committee. The Board of Directors of
---------------------------------------
the Sponsoring Company shall appoint an Administrative Committee consisting of
at least one (1) but not more than seven (7) persons. The Administrative
Committee shall be responsible for the management, operation and administration
of the Plan. Any member of the Administrative Committee may resign upon ten
(10) days prior written notice to the Board of Directors of the Sponsoring
Company. The Board of Directors of the Sponsoring Company shall be authorized
to remove any member of the Administrative Committee at any time and in its sole
discretion to appoint a successor whenever a vacancy on the Administrative
Committee occurs.
C. Responsibility for Administration of the Trust Fund. The Trustee
---------------------------------------------------
shall be responsible for the administration of the Trust Fund in accordance with
the provisions of the Trust Agreement.
D. Delegation of Powers. The Administrative Committee may appoint such
--------------------
assistants or representatives as it deems necessary for the effective exercise
of its duties in administering the Plan and Trust. The Administrative Committee
may delegate to
-25-
<PAGE>
such assistants and representatives any powers and duties, both ministerial and
discretionary, as it deems expedient or appropriate.
E. Records. All acts and determinations with respect to the
-------
administration of the Plan made by the Administrative Committee and any
assistants or representatives appointed by it shall be duly recorded by the
Administrative Committee or by the assistant or representative appointed by it
to keep such records. All records, together with such other documents as may be
necessary for the administration of the Plan, shall be preserved in the custody
of the Administrative Committee or the assistants or representatives appointed
by it.
F. General Administrative Powers. The Administrative Committee shall
-----------------------------
have all powers necessary to administer the Plan in accordance with its terms,
including the power to construe the Plan and to determine all questions that may
arise thereunder. In the exercise of such powers under the Plan, the
Administrative Committee shall have discretionary authority to interpret the
terms of the Plan and to determine eligibility for and entitlement to Plan
benefits in accordance with the terms of the Plan. Any interpretation or
determination made pursuant to such discretionary authority shall be given full
force and effect, unless it can be shown that the interpretation or
determination was arbitrary and capricious.
G. Appointment of Professional Assistance and Investment Manager. The
-------------------------------------------------------------
Administrative Committee may engage accountants,
-26-
<PAGE>
attorneys, physicians and such other personnel as it deems necessary or
advisable. The Administrative Committee, in its sole discretion, may appoint one
or more Investment Managers to manage (including the power to acquire or dispose
of) all or any of the assets of the Trust provided that such appointment is
approved by the Board of Directors of the Sponsoring Company. The functions of
any such persons engaged by the Administrative Committee shall be limited to the
specific services and duties for which they are engaged, and such persons shall
have no other duties, obligations or responsibilities under the Plan or Trust.
Such persons shall exercise no discretionary authority or discretionary control
respecting the management of the Plan, and, unless engaged specifically as
Investment Manager, shall exercise no authority or control respecting management
or disposition of the assets of the Trust. The fees and costs of such services
shall be an administrative expense of the Plan to be paid out of the Trust Fund,
except to the extent that such fees and costs are paid by the Participating
Companies.
H. Actions by the Administrative Committee. All actions of the
---------------------------------------
Administrative Committee shall be taken pursuant to the decision of a majority
of the then members of the Administrative Committee.
I. Directives of the Administrative Committee. Directives of the
------------------------------------------
Administrative Committee to the Trustee shall be delivered in writing, signed by
an appropriate member of the Administrative Committee.
-27-
<PAGE>
J. Discretionary Acts. Any discretionary actions of the Administrative
------------------
Committee or the Sponsoring Company with respect to the administration of the
Plan shall be made in a manner which does not discriminate in favor of
stockholders, officers and Highly Compensated Employees. In the event the
Administrative Committee exercises any discretionary authority under the Plan
with respect to a Participant who is a member of the Administrative Committee,
such discretionary authority shall be exercised solely and exclusively by those
members of the Administrative Committee other than such Participant, or, if such
Participant is the sole member of the Administrative Committee, such
discretionary authority shall be exercised solely and exclusively by the Board
of Directors of the Sponsoring Company.
K. Payment of Fees and Expenses. The members of the Administrative
----------------------------
Committee and their assistants and representatives shall be entitled to payment
from the Trust Fund for all reasonable costs, charges and expenses incurred in
the administration of the Plan and Trust, including, but not limited to,
reasonable fees for accounting, legal and other services rendered, to the extent
incurred by the members of the Administrative Committee or their assistants and
representatives in the course of performance of their duties under the Plan and
the Trust, except to the extent that such fees and costs are paid by the
Participating Companies. Notwithstanding any other provision of the Plan or
Trust, no person who receives full-time pay from the Participating Companies
shall receive compensation
-28-
<PAGE>
from the Trust Fund, except for reimbursement of expenses properly and actually
incurred.
L. Plan Administrator. The Sponsoring Company shall be the
------------------
"administrator" (as defined in Section 3(16)(A) of ERISA) of the Plan, and shall
be responsible for the performance of all reporting and disclosure obligations
under ERISA and all other obligations required or permitted to be performed by
the Plan administrator under ERISA. The Vice President of Human Resources of
the Sponsoring Company shall be the designated agent for service of legal
process. The Trustee may also receive service of legal process for the Plan.
M. Allocation and Delegation of Administrative Committee
-----------------------------------------------------
Responsibilities. The Administrative Committee may upon approval of a majority
- ----------------
of the members of the Administrative Committee, (i) allocate among any of the
members of the Administrative Committee any of the responsibilities of the
Administrative Committee under the Plan or (ii) designate any person, firm or
corporation that is not a member of the Administrative Committee to carry out
any of the responsibilities of the Administrative Committee under the Plan. Any
such allocation or designation shall be made pursuant to a written instrument
executed by a majority of the members of the Administrative Committee.
-29-
<PAGE>
SECTION SIX
CONTRIBUTIONS
-------------
A. Salary Reduction Contributions. On behalf of each Participant who has
------------------------------
elected to reduce his Compensation pursuant to subparagraph (i) of this
Paragraph A, the Participating Company employing such Participant shall
contribute to the Trust each Plan Year the Salary Reduction Contributions as
elected by such Participant.
(i) Compensation Reduction Election. A Participant may elect to
-------------------------------
reduce his Compensation through regular payroll deductions by notifying the
Administrative Committee, no later than the twentieth (20th) day of the month
preceding the first applicable payroll period as of which such election is
intended to become effective, pursuant to such notification procedures as the
Administrative Committee may establish, from time to time. Such election shall
remain in effect for subsequent Plan Years until suspended or revoked pursuant
to subparagraph (iii) of this Paragraph A.
The aggregate amount by which a Participant may elect to reduce his
Compensation under this Plan and under the Choice Hotels International, Inc.
Nonqualified Retirement Savings and Investment Plan, shall be in whole
percentages of his Compensation determined without regard to the One Hundred
Fifty Thousand Dollar ($150,000) limitation described in Paragraph L of Section
Two and shall not exceed fifteen percent (15%) of his Compensation for any Plan
Year. In no event may the total amount
-30-
<PAGE>
by which a Participant elects to reduce his Compensation under this Plan with
respect to a Plan Year exceed the Maximum Reduction Amount.
(ii) Maximum Reduction Amount. If the amount of the Salary Reduction
------------------------
Contributions made to the Plan for any calendar year (together with any other
salary reduction contributions made during the calendar year to any other plans
which contain qualified "cash or deferred arrangements" as described in Section
401(k) of the Internal Revenue Code) with respect to any Participant exceeds the
Maximum Reduction Amount, the full amount of such excess (the "Excess
Deferrals") shall be returned to the Participant (together with any earnings
attributable thereto for the calendar year) by no later than the April 15
following the end of such calendar year; provided, however, that the amount of
Excess Deferrals that shall be distributed to such Participant for such calendar
year shall be reduced by the amount of any Excess Contributions (as defined in
Paragraph C of this Section Six) previously distributed to such Participant for
the Plan Year beginning with such calendar year.
(iii) Suspension of Reductions. A Participant may elect to
------------------------
suspend his Compensation reductions by notifying the Administrative Committee no
later than the twentieth (20th) day of the month preceding the first applicable
payroll period as of which such election is intended to become effective,
pursuant to such notification procedures as the Administrative Committee may
establish, from time to time. Any such suspension shall remain in effect until
the following month, at which time the
-31-
<PAGE>
Participant may recommence such Compensation reductions. During such period of
suspension, the Salary Reduction Contributions made on behalf of such
Participant shall be suspended. A Participant may not make up suspended
Compensation reductions. The Compensation reductions of a Participant and the
Salary Reduction Contributions made on behalf of such Participant shall be
suspended automatically for any payroll period in which such Participant does
not receive any Compensation.
B. Company Matching Contributions.
------------------------------
(i) Amount of Contributions. On behalf of each Eligible Participant,
-----------------------
the Participating Company employing such Eligible Participant shall contribute
to the Trust out of its Net Profits each Plan Year an amount (the "Company
Matching Contribution") equal to a percentage of the amount of Salary Reduction
Contributions made on behalf of such Eligible Participant during such Plan Year.
The aggregate amount of the Company Matching Contribution which may be allocated
to each Eligible Participant's Company Contribution Account for such Plan Year
under this Plan and under the Choice Hotels International, Inc. Nonqualified
Retirement Savings and Investment Plan shall not exceed six percent (6%) of his
Compensation, determined without regard to the One Hundred and Fifty Thousand
Dollar ($150,000) limitation described in Paragraph L of Section Two. For these
purposes, Compensation shall be determined after increasing such Eligible
Participant's Compensation, as defined in Paragraph L of Section Two, by any
basic cash compensation which such Eligible Participant has elected to defer
through any nonqualified
-32-
<PAGE>
deferred compensation program established by the Sponsoring Company. This
percentage shall be based upon the Eligible Participant's Years of Service in
accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Service Matching Percentage
---------------- -------------------
<S> <C>
1 to 5 years 25%
6 to 9 years 75%
10 or more years 100%
</TABLE>
Notwithstanding the above, however, the combination of the Company Matching
Contribution made to this Plan for any Plan Year when combined with Company
Matching Contribution made with respect to such Plan Year under the Choice
Hotels International, Inc. Nonqualified Retirement Savings and Investment Plan
shall not exceed six percent (6%) of the Net Profits of the Sponsoring Company
determined with respect to the fiscal year that ends within such Plan Year. If
the combined Company Matching Contributions would otherwise exceed the six
percent (6%) limitation, then the amount of available Company Matching
Contributions shall be pro-rated among the two plans based upon the relative
Company Matching Contributions otherwise due to both programs.
(ii) Remittance of Company Matching Contributions. Each Participating
--------------------------------------------
Company shall make its Company Matching Contributions to the Trust by no later
than the last date, including any extensions thereof, for filing its federal
income tax return for its Fiscal Year ending with or after the last day
-33-
<PAGE>
of such Plan Year. With respect to the Plan Year beginning November 15, 1997,
each Participant eligible to receive an allocation of Company Matching
Contributions shall receive one hundred percent (100%) of such allocation of
Company Matching Contributions in the form of shares of Company Stock.
(iii) Inclusion of Ineligible Participant. If, in any Plan Year, any
-----------------------------------
person who should not have been included as a Participant in the Plan is
erroneously included and discovery of such incorrect inclusion is not made until
after a contribution for the Plan Year has been made and allocated, the
Participating Company shall not be entitled to recover the contribution made
with respect to the Ineligible Participant regardless of whether or not a
deduction is allowable with respect to such contribution. In such event, the
amount contributed with respect to the Ineligible Participant shall constitute a
forfeiture for the Plan Year in which the discovery is made.
C. Nondiscrimination Rules Applicable to Salary Reduction Contributions.
--------------------------------------------------------------------
Notwithstanding any other provisions of the Plan, the Average Deferral
Percentage (as defined below) of the Highly Compensated Employees for a Plan
Year shall not exceed the greater of (i) one hundred and twenty-five percent
-------
(125%) of the Average Deferral Percentage of all the other Employees (the
"Remaining Employees") for such Plan Year, or (ii) a percentage amount which is
equal to the lesser of (a) the Average Deferral Percentage of the Remaining
Employees for such Plan Year plus two (2) percentage points or (b) two hundred
percent (200%) of the Average Deferral Percentage of the Remaining Employees for
such
-34-
<PAGE>
Plan Year. For purposes of this test (hereinafter the "Average Deferral
Percentage Test"), only Employees who are eligible to participate in the cash or
deferred arrangement under the Plan shall be counted.
In calculating each Employee's Average Deferral Percentage ratio, the
Salary Reduction Contributions made on behalf of such Employee shall be taken
into account only if they relate to Compensation that either (i) would have been
received by the Employee in the Plan Year but for the deferral election or (ii)
was attributable to services performed by the Employee in the Plan Year and
would have been received by the Employee within two and one-half (2-1/2) months
after the close of the Plan Year but for the deferral election. In addition, in
calculating each Employee's Average Deferral Percentage ratio, the Salary
Reduction Contributions made on behalf of such Employee shall be taken into
account for a Plan Year only if such contributions were allocated to the
Employee under the Plan as of a date within that Plan Year, which requirement
shall be deemed satisfied if the allocations are not contingent upon the
Employee's participation in the Plan or the performance of services on any date
subsequent to the end of the Plan Year and the contributions are actually paid
to the Trust no later than the end of the twelve (12) month period immediately
following the Plan Year to which the contributions relate. Notwithstanding the
foregoing, the Administrative Committee may, in its sole discretion, adjust the
percentage by which a Participant has elected to reduce his
-35-
<PAGE>
Compensation in order to enable the Plan to satisfy the nondiscrimination test.
If two (2) or more plans maintained by a Participating Company or an
Affiliated Company which contain qualified "cash or deferred arrangements" under
Section 401(k) of the Internal Revenue Code are aggregated for purposes of
Section 401(a)(4) or Section 410(b) of the Internal Revenue Code, all such cash
or deferred arrangements shall be treated as one cash or deferred arrangement
for purposes of this Average Deferral Percentage Test. If a Highly Compensated
Employee participates in two or more plans described in Section 401(a) of the
Internal Revenue Code which are maintained by a Participating Company or an
Affiliated Company and to which contributions subject to Section 401(k) of the
Internal Revenue Code are made, all such contributions shall be aggregated for
purposes of this Average Deferral Percentage Test. Finally, if any Highly
Compensated Employee who is either a Five-Percent Owner or in the group
consisting of the ten (10) Highly Compensated Employees paid the greatest
Compensation by the Participating Companies and the Affiliated Companies during
the Plan Year has a Family Member participating in this Plan, then any
compensation paid to such Family Member shall be aggregated with the
compensation of such Highly Compensated Employee and any Salary Reduction
Contributions made on behalf of such Family Member shall be aggregated with the
Salary Reduction Contributions made on behalf of such Highly Compensated
Employee for purposes of this Average Deferral Percentage Test.
-36-
<PAGE>
The amount of any Excess Contributions (as defined below) for a Plan Year
(together with any earnings or losses allocable thereto for the Plan Year) shall
be distributed to the Highly Compensated Employees based upon the respective
portions of the Excess Contributions attributable to each such Highly
Compensated Employee. The amount of the Excess Contributions to be distributed
to each such Highly Compensated Employee for a Plan Year shall be determined by
use of a leveling method, under which the Average Deferral Percentage ratio of
the Highly Compensated Employee with the highest ratio shall be reduced to the
extent necessary to enable the Plan to satisfy the Average Deferral Percentage
Test or to cause such Highly Compensated Employee's Average Deferral Percentage
ratio to equal the ratio of the Highly Compensated Employee with the next
highest ratio. This process shall be repeated until the Plan satisfies the
Average Deferral Percentage Test.
Any corrective distribution of Excess Contributions shall be made no later
than the last day of the Plan Year following the Plan Year for which such Excess
Contributions were made. The amount of any Excess Contributions to be
distributed to a Highly Compensated Employee for a Plan Year shall be reduced by
the amount of any Excess Deferrals (as defined in subparagraph (ii) of Paragraph
A of this Section Six) which were previously distributed to such Highly
Compensated Employee for his taxable year ending with or within such Plan Year.
D. Nondiscrimination Rules Applicable to Company Matching Contributions.
--------------------------------------------------------------------
Notwithstanding any other provisions of the Plan,
-37-
<PAGE>
the Average Contribution Percentage of the Highly Compensated Employees for any
Plan Year shall not exceed the greater of (i) one hundred and twenty-five
percent (125%) of the Average Contribution Percentage applicable to all other
Employees (the "Remaining Employee") for such Plan Year or (ii) a percentage
amount which is equal to the lesser of (a) the Average Contribution Percentage
of the Remaining Employees for such Plan Year plus two (2) percentage points or
(b) two hundred percent (200%) of the Average Contribution Percentage of the
Remaining Employees for such Plan Year. For purposes of this test (hereinafter
the "Average Contribution Percentage Test"), only Employees who are eligible to
participate in the cash or deferred arrangement under the Plan shall be counted.
If a Highly Compensated Employee participates in two (2) or more plans
described in Section 401(a) of the Internal Revenue Code which are maintained by
a Participating Company or an Affiliated Company and to which contributions
subject to Section 401(m) of the Internal Revenue Code are made, all such
contributions shall be aggregated for purposes of this Average Contribution
Percentage Test. In addition, if two (2) or more plans maintained by a
Participating Company or an Affiliated Company to which contributions subject to
Section 401(m) of the Internal Revenue Code are made are aggregated for purposes
of Internal Revenue Code Section 401(a)(4) or 410(b) (other than the average
benefits test under Section 410(b)(2)(A)(ii)), all such plans shall be treated
as one plan for purposes of this Average Contribution Percentage Test.
Furthermore, if any Highly
-38-
<PAGE>
Compensated Employee who is either a Five-Percent Owner or in the group
consisting of the ten (10) Highly Compensated Employees paid the greatest
Compensation by the Participating Companies and the Affiliated Companies during
the Plan Year has a Family Member (as defined in Paragraph C of this Section
Six) participating in this Plan, any compensation paid to such Family Member and
any Company Matching Contributions allocated to such Family Member shall be
aggregated with the compensation and the Company Matching Contributions of such
Highly Compensated Employee for purposes of this Paragraph D.
The amount of any Excess Aggregate Contributions for a Plan Year (together
with earnings or losses allocable to such contributions for such Plan Year)
shall be forfeited by the Highly Compensated Employees on whose behalf such
Excess Aggregate Contributions were contributed to the Trust, based upon the
respective portions of the Excess Aggregate Contributions attributable to each
such Highly Compensated Employee. The amount of the Excess Aggregate
Contributions for a Plan Year to be forfeited by each such Highly Compensated
Employee shall be determined by the use of a leveling method, under which the
Average Contribution Percentage ratio of the Highly Compensated Employee with
the highest ratio shall be reduced to the extent necessary to enable the Plan to
satisfy the Average Contribution Percentage Test for such Plan Year or to cause
such Highly Compensated Employee's ratio to equal the ratio of the Highly
Compensated Employee with the next highest Average Contribution Percentage
ratio. This process shall be repeated until the Plan
-39-
<PAGE>
satisfies the Average Contribution Percentage Test for such Plan Year.
Any Excess Aggregate Contributions (together with earnings or losses
thereon) which are forfeited under this Paragraph D shall be treated in the same
manner as forfeitures of Non-Vested Amounts under Paragraph C of Section
Fourteen of the Plan.
E. Additional Adjustments. In accordance with regulations issued by the
----------------------
Internal Revenue Service under Internal Revenue Code Sections 401(k) and 401(m),
the Administrative Committee may, in its sole discretion, treat some or all of
the Company Matching Contributions as being subject to the Average Deferral
Percentage Test described in Paragraph C, above, and may make such other
adjustments to the amounts contributed and allocated under the Plan as may be
necessary to comply with the multiple use test established under Treasury
Regulation Section 1.401(m)-2.
SECTION SEVEN
ALLOCATION TO PARTICIPANTS' ACCOUNTS
------------------------------------
A. Maintenance of Accounts. There shall be maintained on behalf of each
-----------------------
Participant a Company Contribution Account, a Salary Reduction Contribution
Account, and, if applicable, a Company Stock Account, a Voluntary Account and/or
a Rollover Account. The Participant's interest in his Company Contribution
Account shall be subject to the vesting schedule set forth in Paragraph A of
Section Fourteen. The Participant's interest in his Salary Reduction
Contribution Account, and, if applicable,
-40-
<PAGE>
his Company Stock Account, his Voluntary Contribution Account and/or his
Rollover Account shall be one hundred percent (100%) vested at all times.
B. Method of Allocating Salary Reduction Contributions. Subject to the
---------------------------------------------------
limitations of Paragraph D of this Section Seven, the Salary Reduction
Contributions for each Plan Year shall be allocated among the Salary Reduction
Contribution Accounts of all Participants who elected to reduce their
Compensation for such Plan Year pursuant to the provisions of Paragraph A of
Section Six. The amount to be allocated to each such Participant's Salary
Reduction Contribution Account for such Plan Year shall be equal to the amount
by which such Participant elected to reduce his Compensation for such Plan Year
pursuant to the provisions of Paragraph A of Section Six.
C. Method of Allocating Company Matching Contributions. Subject to the
---------------------------------------------------
limitations of Paragraph D of this Section Seven, the Company Matching
Contribution for each Plan Year shall be allocated among the Company
Contribution Accounts of all Eligible Participants (as defined in Paragraph B of
Section Six of the Plan) in an amount (not to exceed six percent (6%) of each
such Eligible Participant's Compensation) equal to a percentage of the amount by
which each such Eligible Participant elected to reduce his Compensation for such
Plan Year pursuant to the provisions of Paragraph A of Section Six, which
percentage shall be based upon the Eligible Participant's Years of Service in
accordance with the following schedule:
- 41 -
<PAGE>
Years of Service Matching Percentage
---------------- -------------------
1 to 5 years 25%
6 to 9 years 75%
10 or more years 100%
D. Limitation on Annual Additions.
------------------------------
(i) Notwithstanding any other provisions of the Plan, the sum of the
Annual Additions to a Participant's Accounts for any Limitation Year shall not
exceed the lesser of (i) Thirty Thousand Dollars ($30,000) or, if greater, one-
fourth (1/4) of the dollar limitation then in effect under Section 415(b)(1)(A)
of the Internal Revenue Code, or (ii) twenty-five percent (25%) of such
Participant's Limitation Year Compensation. The term "Annual Additions" to a
Participant's Accounts for any Limitation Year shall mean the sum of:
(a) All Participating Company contributions allocated to the
Participant's Accounts for the Plan Year ending with such Limitation Year; and
(b) If employee contributions are permitted under the Plan, the
amount of such Participant's employee contributions (excluding any Rollover
Amount) for the Plan Year ending with such Limitation Year.
(ii) In the event that it is determined that, but for the limitations
contained in subparagraph (i) of this Paragraph D, the Annual Additions to a
Participant's Accounts for any Limitation Year would be in excess of the
limitations contained herein, such Participant's allocable share of the Company
Matching Contribution shall be reduced to the extent necessary to
- 42 -
<PAGE>
bring such Annual Additions within the limitations contained in subparagraph (i)
of this Paragraph D.
(iii) If and to the extent that the amount of any Participant's share
of the Company Matching Contribution is reduced in accordance with the
provisions of subparagraph (ii) of this Paragraph D, the amount of such
reductions shall be maintained in a suspense account under the Trust
(hereinafter referred to as the "Suspense Account") to be allocated among
Participants in the next succeeding Plan Year, in accordance with the provisions
of Paragraph B of this Section Seven, as if such amount were part of the Company
Matching Contribution for such next succeeding Plan Year (and succeeding Plan
Years, as necessary). In addition, the following rules shall apply to any
Suspense Account established in accordance with this subparagraph (iii):
(a) No portion of the net income, loss, appreciation or
depreciation in the value of the Trust Fund may be allocated to such Suspense
Account.
(b) The maximum Company Matching Contribution for any Plan Year
in which a Suspense Account exists may not exceed the difference between:
(A) The maximum Company Matching Contribution which could
be allocated among all Eligible Participants for such Plan Year in accordance
with the provisions of this Section Seven,
Less
----
(B) The full amount of the Suspense Account.
- 43 -
<PAGE>
(c) In the event that the Plan is terminated at a time when a
Suspense Account exists and in the further event that the full amount of such
Suspense Account cannot be allocated among the Participants in the Plan as of
the date of the termination of the Plan due to the restrictions set forth in
this Section Seven, then, notwithstanding any other provision of this Plan or
the Trust Agreement to the contrary, the amount of such Suspense Account that
cannot be allocated among the Participants shall revert to the Participating
Companies.
E. Limitations on Annual Additions Due to Participation in Other Defined
---------------------------------------------------------------------
Contribution Plans. In the event that any Participant in this Plan is a
- ------------------
participant in any other Defined Contribution Plan (whether or not terminated)
maintained by a Participating Company or an Affiliated Company, the total amount
of Annual Additions to such Participant's accounts in all such Defined
Contribution Plans shall not exceed the limitations set forth in Paragraph D of
this Section Seven. If it is determined that as a result of the limitations set
forth in this Paragraph E the Annual Additions to a Participant's Accounts in
this Plan must be reduced, such reduction shall be accomplished in accordance
with the provisions of Paragraph D of this Section Seven.
F. Limitations on Annual Additions Due to Participation in Defined
---------------------------------------------------------------
Benefit Plans. In the event that any Participant in this Plan is a participant
- -------------
in one or more Defined Benefit Plans (whether or not terminated) maintained by a
Participating Company or an Affiliated Company, then for any Limitation Year the
sum of
- 44 -
<PAGE>
the Defined Benefit Plan Fraction for such Limitation Year and the Defined
Contribution Plan Fraction for such Limitation Year shall not exceed one (1.0).
If it is determined that as a result of the limitations set forth in this
Paragraph F the Annual Additions to a Participant's Accounts in this Plan must
be reduced, such reduction shall be accomplished in accordance with the
provisions of Paragraph D of this Section Seven.
G. Definitions Relating to Annual Additions Limitations. For purposes of
----------------------------------------------------
Paragraphs D, E, F and this Paragraph G of Section Seven, the following
definitions shall apply:
(i) "Retirement Plan" shall mean (a) any profit- sharing, pension or
stock bonus plan described in Sections 401(a) and 501(a) of the Internal Revenue
Code, (b) any annuity plan or annuity contract described in Sections 403(a) or
403(b) of the Internal Revenue Code, (c) any qualified bond purchase plan
described in former Section 405(a) of the Internal Revenue Code, and (d) any
individual retirement account, individual retirement annuity or retirement bond
described in Sections 408(a), 408(b) or former Section 409 of the Internal
Revenue Code.
(ii) "Defined Contribution Plan" shall mean a Retirement Plan which
provides for an individual account for each participant and for benefits based
solely on the amount contributed to the participant's accounts, and any income,
expenses, gains and losses, and any forfeitures of accounts of other
participants which may be allocated to such participant's account.
- 45 -
<PAGE>
(iii) "Defined Benefit Plan" shall mean any Retirement Plan which does
not meet the definition of a Defined Contribution Plan.
(iv) "Defined Benefit Plan Fraction," for any Limitation Year, shall
mean a fraction (a) the numerator of which is the projected annual benefit of
the Participant (the annual benefit to which such participant would be entitled
under the terms of the Defined Benefit Plan on the assumptions that he continues
employment until his normal retirement age as determined under the terms of such
Defined Benefit Plan, that his compensation continues at the same rate as in
effect in the Limitation Year under consideration until the date of his normal
retirement age and that all other relevant factors used to determine benefits
under such Defined Benefit Plan remain constant as of the current Limitation
Year for all future Limitation Years) under all Defined Benefit Plans maintained
by the Participating Companies and the Affiliated Companies, determined as of
the close of the Limitation Year, and (b) the denominator of which is the lesser
of (I) the product of the dollar limitation in effect under Section 415(b)(1)(A)
of the Internal Revenue Code for such Limitation Year multiplied by one and
twenty-five one-hundredths (1.25) or (II) the product of the Participant's
average compensation for his high three years multiplied by one and four tenths
(1.4).
(v) "Defined Contribution Plan Fraction," for any Limitation Year,
shall mean a fraction (a) the numerator of which is the sum of the Annual
Additions to the Participant's accounts
- 46 -
<PAGE>
under all Defined Contribution Plans maintained by the Participating Companies
and the Affiliated Companies in such Limitation Year, and (b) the denominator of
which is the sum of the lesser of the following amounts for such Limitation Year
and for all prior Limitation Years during which he performed service recognized
under such plans: (I) the product of the dollar limitation in effect under
Section 415(c)(1)(A) of the Internal Revenue Code for each such Limitation Year
times one and twenty-five one-hundredths (1.25) or (II) the product of twenty-
five percent (25%) of such Participant's Limitation Year Compensation for such
Limitation Year times one and four tenths (1.4).
(vi) "Limitation Year" shall mean the twelve (12) consecutive month
period ending on December 31 of each year.
(vii) "Limitation Year Compensation" shall mean the aggregate of all
wages, salaries, and other amounts paid for personal services rendered which are
received by an Employee from the Participating Companies and the Affiliated
Companies within a Limitation Year, to the extent that such amounts are
includible in gross income. Limitation Year Compensation shall not include
deferred compensation, stock options and other distributions which receive
special tax benefit. Limitation Year Compensation shall be calculated in
accordance with the provisions of Section 415(c)(3) of the Internal Revenue Code
and the regulations issued thereunder.
H. Change of Employee Status. If any Participant does not suffer a
-------------------------
Termination of Employment but ceases to be an Employee
- 47 -
<PAGE>
by reason of becoming (i) a nonresident alien or (ii) included in a unit of
employees covered by a collective bargaining agreement with regard to which
there has been good faith bargaining with respect to retirement benefits, then
unless the applicable collective bargaining agreement otherwise provides, during
the period that such Participant is not an Employee, (a) such Participant shall
not receive any further allocation of any contributions under the Plan, other
than an allocation of the Salary Reduction Contributions made on behalf on such
Participant for the period of time during which he was an Employee and an
allocation of the Company Matching Contribution for the Plan Year in which he
ceased to be an Employee if he completed one thousand (1,000) or more Hours of
Service with the Participating Companies during the portion of such Plan Year
prior to the date on which he so ceased to be an Employee, and (b) such
Participant's Accounts shall continue to share in the earnings or losses of the
Trust Fund. If any person who derives Compensation from the Company does not
become a Participant in the Plan because he is not an Employee and he
subsequently qualifies as an Employee, such person shall become eligible to
become a Participant in the Plan immediately upon such change of status if he
has then fulfilled the requirements for eligibility set forth in Section Three.
- 48 -
<PAGE>
SECTION EIGHT
EVALUATION OF TRUST FUND
------------------------
The Trustee shall evaluate the Trust Fund at fair market value as of the
close of business on the last day of the Plan Year. In making such evaluation,
the Trustee shall deduct all charges, expenses and other liabilities, if any,
contingent or otherwise, then chargeable against the Trust Fund and not
otherwise payable by the Participating Companies, in order to give effect to
income realized and expenses paid or incurred, losses sustained and unrealized
gains or losses constituting appreciation or depreciation in the value of Trust
investments since the last previous valuation. All such charges shall be
allocated among the Accounts of the Participants in an equitable manner based
upon the source and nature of such charges and the Investment Funds in which
each such Account has been invested. As soon as practicable after such
valuation, the Trustee shall deliver in writing to the Administrative Committee
and to the Board of Directors of the Sponsoring Company a valuation of the Trust
Fund, including a separate breakdown of each Participant's Accounts, together
with a statement of the amount of net income or loss (including appreciation or
depreciation in the value of Trust investments) since the last previous
valuation.
- 49 -
<PAGE>
SECTION NINE
PARTICIPANTS' ACCOUNTS
----------------------
A. Separate Accounts. A separate Company Contribution Account, a separate
-----------------
Salary Reduction Contribution Account, and, if applicable, a separate Company
Stock Account, a separate Voluntary Account, a separate Rollover Account and any
other account deemed necessary by the Administrative Committee shall be
maintained for each Participant. The amount contributed by a Participant or
allocated to such Participant shall be credited to his Accounts in the manner
set forth in Sections Six and Seven hereof. All payments to a Participant or his
Beneficiaries shall be charged against the respective Accounts of such
Participant.
B. Accounts of Participants Transferred to an Affiliated Company. If a
-------------------------------------------------------------
Participant is transferred to an Affiliated Company which has not adopted the
Plan, the amount in the Trust which is credited to his Accounts shall continue
to be governed by the provisions of the Plan and Trust.
C. Annual Adjustment of Participant's Accounts. Promptly after
-------------------------------------------
preparation of the Trustee's evaluation, as provided in Section Eight above, the
Accounts of each Participant shall be adjusted so that the amount of net income,
loss, appreciation or depreciation in the value of assets invested in an
Investment Fund shall be allocated equitably and exclusively to the
Participants' Accounts invested in such Investment Fund.
- 50 -
<PAGE>
D. Investment of Contributions.
---------------------------
(i) Participant-Directed Investments. In accordance with procedures
--------------------------------
established by the Administrative Committee, each Participant shall have the
opportunity, on or before each Investment Election Date, to make an Investment
Election with the Administrative Committee or its delegate. This election shall
be effective beginning on the Investment Election Date following its receipt by
the Administrative Committee or its delegate and shall continue in effect until
revoked or modified as of a subsequent Investment Election Date. Any such
modification or revocation of an Investment Election shall be effective on the
Investment Election Date following the receipt by the Administrative Committee
or its delegate of a new Investment Election. The following restrictions shall
apply to such investment elections:
(a) No election may be made in violation of any applicable investment
contract or other agreement establishing an Investment Fund;
(b) Transfers among the available Investment Funds may be made only in
whole percentage multiples of one percent (1%) of the balances therein; and
(c) Shares of Company Stock which have been allocated to a Participant's
Company Contribution Account or Company Stock Account may be liquidated or
otherwise converted into another form of investment. Any shares of Company
Stock which must be acquired by the Trust to effectuate an investment election
shall be purchased on the open market (or otherwise acquired in any other manner
as may be specified from time to time by the
- 51 -
<PAGE>
Administrative Committee) as soon as practicable after the next applicable
Valuation Date. Any dividends paid with respect to Company Stock shall be used
to purchase additional whole or partial shares of Company Stock as soon as
practicable after the next Valuation Date.
In addition, the Administrative Committee, in its sole discretion, may from
time to time establish special Investment Election Dates to provide the
Participants with additional opportunities to designate the manner in which
their Accounts shall be allocated among the then-available Investment Funds.
(d) The Administrative Committee shall establish a uniform and
nondiscriminatory set of procedures pursuant to which any Sunburst common stock
which is held in a Participant's Company Stock Account or Company Contribution
Account as a result of the transfer of assets from the Sunburst Plan to this
Plan is converted into Company Stock or cash. Any Sunburst common stock which is
not so liquidated shall be retained in the Participant's Company Stock Account
and Company Contribution Account. Such shares may not be liquidated prior to the
payment of benefits to such Participant from his Company Stock Account and
Company Contribution Account in accordance with the provisions of the Plan. Any
dividends payable with respect to Sunburst stock retained by the Plan shall be
reinvested in additional shares of Sunburst stock.
(ii) Administrative Committee Directed Investments. All Accounts
---------------------------------------------
(other than Company Stock Accounts) not subject to an Investment Election filed
with the Administrative Committee
-52-
<PAGE>
pursuant to subparagraph (i) above shall be invested in a money market fund or
other liquid or pooled fund investment vehicle selected by the Administrative
Committee.
E. Special Rules Regarding Sunburst Stock. It is anticipated that the
--------------------------------------
Company Stock Accounts and Company Contribution Accounts of Participants shall
initially be credited with shares of Sunburst stock as a result of the transfer
of assets from the Sunburst Nonqualified Retirement Savings and Investment Plan
and the Company Matching Contributions made with respect to the 1996 Plan Year.
The Administrative Committee shall establish a uniform and non-discriminatory
set of procedures pursuant to which a Participant may elect that all or any
portion of the Manor Care stock held in his Company Stock Account or Company
Contribution Account be liquidated and the proceeds therefrom reinvested among
the then-available investment funds. It is anticipated that such election period
shall occur in November and December of 1997. Sunburst stock which is not so
liquidated will be retained in the Participant's Company Stock Account and
Company Contribution Account. Such shares may not be liquidated prior to the
payment of benefits to such Participant from his Company Stock Account and
Company Contribution Account in accordance with the provisions of the Plan. Any
dividends payable with respect to Sunburst stock retained by the Plan will be
reinvested in additional shares of Sunburst stock.
-53-
<PAGE>
SECTION TEN
COMMON TRUST FUND
-----------------
The fact that for administrative purposes separate Accounts are maintained
for each Participant shall not be deemed to segregate for such Participant, or
to give such Participant any direct interest in, any specific assets in the
Trust Fund held by the Trustee. All such assets may be held and administered by
the Trustee as a commingled fund.
SECTION ELEVEN
DISABILITY BENEFITS
-------------------
A. Disability Retirement Benefits. If a Participant retires by reason of
------------------------------
a Total and Permanent Disability while in the employ of a Participating Company
or an Affiliated Company, his Company Contribution Account shall fully vest, and
he shall be entitled to receive benefits equal to the total amount in his
Accounts in the Plan as determined in accordance with the provisions of
Paragraph A of Section Fifteen hereof. Such benefits shall be paid at the time
and in the manner specified in Section Fifteen of the Plan.
B. Determination of Disability. The Administrative Committee shall
---------------------------
determine whether a Participant has suffered a Total and Permanent Disability
and its determination in that respect shall be binding upon the Participant. In
making its determination, the Administrative Committee may (i) require the
Participant to submit to medical examinations by doctors selected by the
Administrative Committee or (ii) rely upon a determination
-54-
<PAGE>
that the Participant is entitled to disability benefits payable under Title II
of the Social Security Act, 42 U.S.C. 301 et seq., or similar subsequent
section, as evidenced by a Certificate of Social Security Insurance Award. The
provisions of this Section Eleven shall be uniformly and consistently applied to
all Participants.
SECTION TWELVE
RETIREMENT BENEFITS
-------------------
If a Participant is employed by a Participating Company or an Affiliated
Company on his Retirement Date, his Company Contribution Account shall fully
vest at that time. If the Participant continues in a Participating Company's
employ after his Retirement Date, he shall continue to be eligible to elect to
have Salary Reduction Contributions made on his behalf under the Plan and to
share in the allocations of Company Matching Contributions under the Plan until
his actual retirement. Upon retirement on or after attaining his Retirement
Date, a Participant shall be entitled to receive benefits equal to the total
amount in his Accounts in the Plan as determined in accordance with the
provisions of Paragraph A of Section Fifteen hereof. Such benefits shall be paid
at the time and in the manner specified in Section Fifteen of the Plan.
-55-
<PAGE>
SECTION THIRTEEN
DEATH BENEFITS
--------------
A. Death Benefits. Upon the death of a Participant who is employed by a
--------------
Participating Company or an Affiliated Company at the time of his death, such
deceased Participant's Company Contribution Account shall fully vest, and his
Beneficiary shall be entitled to receive benefits equal to the total amount in
the deceased Participant's Accounts in the Plan as determined in accordance with
the provisions of Paragraph A of Section Fifteen hereof. Upon the death of a
Participant who is not employed by a Participating Company or an Affiliated
Company at the time of his death, such deceased Participant's Beneficiary shall
be entitled to receive benefits equal to the vested amount in the deceased
Participant's Accounts in the Plan as determined in accordance with the
provisions of Paragraph A of Section Fourteen. In either event, such benefits
shall be paid at the time and in the manner specified in Section Fifteen of the
Plan.
B. Designation of Beneficiaries. Subject to rules contained in the
----------------------------
following paragraph, each Participant may designate one or more Beneficiaries
and contingent Beneficiaries by delivering a written designation thereof over
his signature to the Administrative Committee. Again subject to the rules
contained in the following paragraph, a Participant may designate different
Beneficiaries at any time by delivering a new written designation over his
signature to the Administrative Committee. Any such designation shall become
effective only upon its receipt
-57-
<PAGE>
by the Administrative Committee. The last effective designation received by the
Administrative Committee shall supersede all prior designations. A designation
of a Beneficiary shall be effective only if the designated Beneficiary survives
the Participant.
Notwithstanding the above, if a Participant is married at the time of his
death, such Participant's surviving spouse shall be his Beneficiary, unless such
spouse has waived this right and consented to the Participant's designation of a
different Beneficiary. Any such spousal consent must be in writing, must
acknowledge the effect of the waiver, and must be witnessed by a notary public.
Any subsequent designation of a Beneficiary by the Participant shall require a
new spousal consent, unless the spouse's original consent expressly permits
future changes without additional spousal consent.
C. Failure of Participant to Designate. If a Participant fails to
-----------------------------------
designate a Beneficiary, or if no designated Beneficiary survives the
Participant, the Participant shall be deemed to have designated the following
Beneficiaries (if then living) in the following order of priority: (1) his
spouse, (2) his children, including adopted children and stepchildren, in equal
shares, (3) his parents, in equal shares, and (4) his estate.
D. Beneficiaries' Rights. Whenever the rights of a Participant are stated
---------------------
or limited in the Plan, his Beneficiaries shall be bound thereby.
-57-
<PAGE>
SECTION FOURTEEN
EMPLOYMENT TERMINATION BENEFITS
-------------------------------
A. Vesting Upon Termination of Employment. In the event of the
--------------------------------------
Termination of Employment of a Participant, such Participant shall be entitled
to receive (i) one hundred percent (100%) of the amounts (if any) in his Salary
Reduction Contribution Account, his Company Stock Account, his Voluntary
Account, and his Rollover Account, and (ii) the following percentage of the
amount in his Company Contribution Account, based upon the number of his Years
of Service prior to such Termination of Employment, as follows:
Years of Service Percentage
---------------- ----------
Less than 3 years None
3 years 20%
4 years 40%
5 years 60%
6 years 80%
7 or more years 100%
Such benefits shall be paid at the time and in the manner set forth in Section
Fifteen of the Plan.
B. Counting Years of Service. For purposes of this Section Fourteen, all
-------------------------
Years of Service (whether or not continuous) shall be taken into
account, except Years of Service which are disregarded as follows:
(i) In the case of any Participant who has a One-Year Break in
Service, Years of Service before such break shall not be taken into account
until such Participant has completed a Year of Service after such break.
-58-
<PAGE>
(ii) In the case of any Participant who has no vested amount in the
Plan attributable to Participating Company contributions, Years of Service
before any period of consecutive One-Year Breaks in Service shall not be taken
into account if the number of consecutive One-Year Breaks in Service equals or
exceeds the greater of (a) five (5) or (b) the aggregate number of Years of
Service before such break. Such aggregate number of Years of Service before such
break shall be deemed not to include any Years of Service not required to be
taken into account under this Paragraph B by reason of any prior breaks in
service.
(iii) In the case of any Participant who has five (5) or more
consecutive One-Year Breaks in Service, Years of Service after such break shall
not be taken into account for purposes of determining the vested amount in his
Company Contribution Account which accrued prior to such break.
C. Forfeiture of Non-Vested Amount. The excess of (i) the amount in the
Company Contribution Account of a Participant whose Termination of Employment
has occurred, over (ii) the vested amount in such Company Contribution Account
as determined in accordance with the vesting schedule set forth in Paragraph A
of this Section Fourteen (such difference being referred to herein as the "Non-
Vested Amount") shall be forfeited upon the earlier of (i) the Participant's
receipt of a distribution of his total vested Accounts under the Plan, or (ii)
his incurring his second (2nd) consecutive One-Year Break in Service following
such Termination of Employment. For this purpose, if such a Participant had no
vested Accounts in the Plan upon his
-59-
<PAGE>
Termination of Employment, he shall be deemed to have received a distribution of
zero dollars ($0) from the Plan upon his Termination of Employment, representing
a distribution of his total vested Accounts under the Plan.
If a Participant who has received a distribution of his total vested
Accounts under the Plan (i) is rehired by a Participating Company and performs
more than five hundred (500) Hours of Service in any Plan Year before incurring
five (5) consecutive One-Year Breaks in Service and (ii) repays the full amount
of his prior distribution within five (5) years of the date on which he is
rehired by the Participating Company, any previously forfeited Non-Vested Amount
shall be restored to his Company Contribution Account, and he shall continue to
earn future Years of Service for purposes of determining the vested amount in
such Account without regard to his cessation of employment. The funds needed to
restore such a Participant's Non-Vested Amount shall be drawn first from any
Account balances forfeited under the provisions of this Paragraph C or under the
provisions of Paragraph G of Section Fifteen during the Plan Year in which such
restoration is required. If such sources are not sufficient to fully restore the
previously forfeited Non-Vested Amount to the Participant's Company Contribution
Account, the Participating Company which rehired such Employee shall make a
special contribution earmarked to fund the remainder of the amount needed.
Subject to the immediately preceding paragraph and to the provisions of
Paragraph G of Section Fifteen, all Non-Vested
-60-
<PAGE>
Amounts which are forfeited during a Plan Year under this Paragraph C shall be
used to reduce the future cost of benefits by applying such forfeited Non-Vested
Amounts to the current or the following year's Company Matching Contribution
required under the Plan.
SECTION FIFTEEN
PAYMENT OF BENEFITS
-------------------
A. Retirement, Disability and Death Benefits. The Administrative
-----------------------------------------
Committee shall make distribution of the benefits payable to a Participant (or,
if applicable, his Beneficiary) upon such Participant's retirement on or after
attaining his Retirement Date or upon sustaining a Total and Permanent
Disability or upon such Participant's death while employed by a Participating
Company or an Affiliated Company. Such distribution shall be made as soon as
administratively feasible following the close of the Plan Year in which such
retirement, Total and Permanent Disability or death occurs, and shall be based
upon the balance in such Participant's Accounts as of the Valuation Date
coincident with or immediately preceding such distribution.
At the request of the Participant (or, if applicable, his Beneficiary), the
Administrative Committee shall make such distribution prior to the close of the
Plan Year in which such retirement, Total and Permanent Disability, or death
occurs. In such event, the benefit payable to the Participant (or, if
applicable, his Beneficiary) shall be based upon the balances in
-61-
<PAGE>
such Participant's Accounts as of the Valuation Date immediately preceding the
distribution, supplemented, where applicable, by an amount representing any
Salary Reduction Contributions contributed to the Plan on behalf of such
Participant subsequent to such Valuation Date and any Rollover Amounts
contributed to the Plan by such Participant subsequent to such Valuation Date.
Notwithstanding the foregoing, if the total benefits payable to a
Participant under this Paragraph A exceed Three Thousand Five Hundred Dollars
($3,500), such benefits may not be distributed to such Participant before he
reaches his Retirement Date unless he consents to an earlier distribution.
B. Employment Termination Benefits. The Administrative Committee shall
-------------------------------
make an employment termination benefit distribution to a Participant (or, if
applicable, his Beneficiary) as soon as administratively feasible following the
close of the Plan Year in which the Participant's Termination of Employment
occurs. The benefits payable to a Participant (or, if applicable, his
Beneficiary) upon such Participant's Termination of Employment shall be based
upon the vested amount (as provided in Paragraph A of Section Fourteen) in his
Company Contribution Account and the total amount in his other Accounts as of
the Valuation Date coincident with or immediately preceding the date on which
the distribution is made.
At the request of the Participant (or, if applicable, his Beneficiary), the
Administrative Committee shall, if administratively feasible, make such
distribution prior to the close of the Plan Year in which the Participant's
Termination of
-62-
<PAGE>
Employment occurs. In such event, the benefit payable to the Participant or
Beneficiary shall be based upon the vested amount (as provided in Paragraph A of
Section Fourteen) in such Participant's Company Contribution Account and the
total amount in his other Accounts as of the Valuation Date immediately
preceding the distribution, supplemented, where applicable, by an amount
representing any Salary Reduction Contributions contributed to the Plan on
behalf of such Participant subsequent to such Valuation Date and any Rollover
Amounts contributed to the Plan by such Participant subsequent to such Valuation
Date. In the event that an Employee incurs a Termination of Employment after the
attainment of age fifty-five (55), any distribution made to such Employee shall
be exempt from the ten percent (10%) additional tax on early distributions
imposed under Section 72(t) of the Internal Revenue Code.
Notwithstanding the foregoing, if the total vested benefits payable to a
Participant under this Paragraph B exceed Three Thousand Five Hundred Dollars
($3,500), such benefits may not be distributed to such Participant before he
reaches his Retirement Date unless he consents to an earlier such distribution.
In the event that a distribution is made pursuant to this Paragraph B to a
Participant who, at the time of such distribution, is not one hundred percent
(100%) vested in the amount in his Company Contribution Account, the following
rules shall apply:
(i) Establishment of Separate Ledger Account. The Administrative
----------------------------------------
Committee shall establish a separate ledger
-63-
<PAGE>
account (hereinafter referred to as the "Separate Account") for such Participant
as of the time of such distribution. The balance in such Participant's Company
Contribution Account immediately following such distribution shall be
transferred to this Separate Account and shall constitute the initial balance of
this Separate Account. For this purpose, all references to a Participant's
Company Contribution Account in the Plan shall be deemed applicable to such
Participant's Separate Account.
(ii) Subsequent Payments. In the event that after such distribution
-------------------
the former Employee is rehired by a Participating Company but then again incurs
a Termination of Employment at a time when such Participant is less than one
hundred percent (100%) vested in his Separate Account, then the nonforfeitable
portion of such Participant's Separate Account for purposes of Paragraph A of
Section Fourteen shall be an amount equal to:
(A) The vesting percentage set forth in Paragraph A of
Section Fourteen applicable to such Participant at the time of such subsequent
distribution,
Multiplied by:
-------------
(B) The sum of the present balance in the Separate Account
plus the sum of all prior distribution amounts,
Less:
----
The sum of all prior distribution amounts.
C. Methods of Payment of Benefits. Except as otherwise provided in this
------------------------------
Section Fifteen, the Administrative Committee shall make distribution of the
benefits payable under Paragraph A or B of this Section Fifteen in accordance
with the method of
-64-
<PAGE>
distribution set forth below selected by the Participant (or in the case of
death benefits, by the Participant's Beneficiary):
(i) Total Distribution. Benefits may be paid in the form of a total
------------------
distribution of the amount payable, in cash, to the Participant or Beneficiary
within one taxable year of such Participant or Beneficiary.
(ii) Annuity Payments. Benefits may be paid as an annuity for a fixed
----------------
number of years without regard to the duration of the life of the Participant or
Beneficiary. Any benefit in the form of annuity payments shall be provided by
the purchase of a nontransferable immediate or deferred payment annuity contract
from an insurance company selected by the Administrative Committee. Any annuity
contract so purchased shall be delivered to the Participant or Beneficiary.
(iii) Installment Payments. Benefits may be paid (a) in the form of
--------------------
approximately equal annual, semi-annual, quarterly, or monthly installments,
over a fixed period of time not to exceed twenty (20) years, or (b) in the form
of annual payments over a specified period of years, not to exceed twenty (20)
years, in an amount for each year equal to the value of the Participant's
Accounts as of the Valuation Date for such year multiplied by a fraction whose
numerator is one (1) and whose denominator is the number of years remaining in
such specified period of years.
At the election of a Participant or Beneficiary, the payment of any
benefits to the Participant in installments may be
-65-
<PAGE>
accelerated and the unpaid balance distributed to such Participant or
Beneficiary in a single distribution.
(iv) Limits on Deferred Payments. In the event that benefits are
---------------------------
distributed in the form of annuity payments or installment payments, such
benefits shall be paid in substantially equal periodic amounts over a period of
years such that the cost or present value of the payments to be made to the
Participant during his life expectancy is greater than one-half (1/2) of the
amount credited to his Accounts at the date such payments commence. In no event
may the Trustee pay to a Participant or Beneficiary interest only on his
benefits.
(v) Distribution of Company Stock. Notwithstanding the foregoing,
-----------------------------
the distribution of the benefits attributable to that portion of the
Participant's Company Stock Account and Company Contribution Account held in the
form of Company Stock shall be made (i) in cash if the aggregate number of
shares in such accounts is fifty (50) or less, or (ii) in cash or Company Stock
or both if the aggregate number of shares in such accounts is more than fifty
(50). Prior to making a distribution of benefits, the Administrative Committee
shall advise the Participant (or, if applicable, his Beneficiary) in writing of
the right to demand that that portion of the Participant's Company Stock Account
and Company Contribution Account held in the form of Company Stock be
distributed solely in Company Stock, if such accounts contain in the aggregate
greater than fifty (50) shares. If the Participant (or, if applicable, his
Beneficiary) fails to make such demand in writing within ninety (90) days
-66-
<PAGE>
after receipt of such written notice, the Administrative Committee shall direct
the Trustee to make distribution of that portion of the Participant's Company
Stock Account and Company Contribution Account held in Company Stock in such
form as the Administrative Committee, in its sole discretion, shall determine.
If a Participant (or, if applicable, his Beneficiary) demands that that
portion of the Participant's Company Stock Account and Company Contribution
Account held in the form of Company Stock be distributed solely in Company
Stock, and if such accounts contain in the aggregate greater than fifty (50)
shares, the distribution of such applicable portion of his Company Stock Account
and Company Contribution Account held in the form of Company Stock shall be made
entirely in whole shares or other units of Company Stock. Any cash balance in
the Participant's Company Stock Account shall be used to acquire for
distribution the maximum number of whole shares or other units of Company Stock
at the then fair market value. Any fractional unit of the unexpended balance
shall be distributed in cash. If Company Stock is not available for purchase by
the Trustee, then the Trustee shall hold such balance until Company Stock is
acquired and then make such distribution. If the Trustee is unable to purchase
the Company Stock required for distribution, it shall make distribution in cash
within one (1) year after the date the distribution was to be made, except in
the case of a retirement distribution, which shall be made within sixty (60)
days after
-67-
<PAGE>
the close of the Plan Year in which the Participant's retirement occurs.
D. Required Distributions. Notwithstanding any other provision of the
----------------------
Plan to the contrary, unless a Participant elects otherwise, or fails to submit
proper documentation, the distribution of his benefits under the Plan shall
begin no later than the sixtieth (60th) day after the close of the Plan Year in
which the latest of the following events occurs: (i) the Participant reaches his
Retirement Date, (ii) the ten (10) year anniversary of the date the Participant
commenced participation in the Plan occurs, or (iii) the Participant terminates
employment with the Participating Companies and all Affiliated Companies.
Also notwithstanding any other provision of the Plan to the contrary and in
accordance with the provisions of Section 401(a)(9) of the Internal Revenue
Code, the distribution of a Participant's benefits under the Plan shall commence
no later than April 1 of the calendar year following the calendar year in which
the Participant attains age seventy and one-half (70-1/2), regardless of whether
the Participant is still employed by a Participating Company or an Affiliated
Company at that time.
All benefit distributions must be paid over a period of time which does not
exceed the life expectancy of the Participant or the combined life expectancy of
the Participant and his Designated Beneficiary (as defined below). In the event
a Participant dies after distribution of his benefits has begun, but before the
----
Participant's full benefits have been distributed,
-68-
<PAGE>
the remaining portion of such benefits shall be distributed at least as rapidly
as under the method of distribution being used as of the date of his death. In
the event a Participant dies prior to commencement of the receipt of benefits,
--------
the death benefits attributable to such Participant shall be distributed within
five (5) years of the Participant's death, provided, however, that any portion
of the death benefits which is payable to (or for the benefit of) a Designated
Beneficiary may be distributed, commencing within one (1) year of the
Participant's death, over the life of such Designated Beneficiary (or over a
period not extending beyond the life of such Designated Beneficiary) and further
provided that if the Designated Beneficiary is the Participant's surviving
spouse, distribution need not begin earlier than the date on which the
Participant would have attained age seventy and one-half (70-1/2). For purposes
of this paragraph, the term "Designated Beneficiary" shall mean an individual
designated (or deemed to be designated under Paragraph C of Section Thirteen) as
a Beneficiary by the Participant.
E. Distribution of Small Account Balances. Notwithstanding any other
--------------------------------------
provision of the Plan to the contrary, if the total value of the vested Accounts
to be distributed to a Participant (or, if applicable, his Beneficiary) on
account of such Participant's retirement after attaining his Retirement Date or
after sustaining a Total and Permanent Disability, his death, or his Termination
of Employment is Three Thousand Five Hundred Dollars ($3,500) or less, the
Administrative Committee shall
-69-
<PAGE>
distribute such benefits to such Participant (or, if applicable, his
Beneficiary) in the form of a single payment of the total amount of such
benefits. Such payment shall be made no later than sixty (60) days after the
Valuation Date of the Plan Year within which such Participant so retires after
attaining his Retirement Date or after sustaining a Total and Permanent
Disability, dies or incurs a Termination of Employment, or as soon thereafter as
is administratively feasible. Such payment shall be in full discharge of all
obligations under the Plan with respect to such Participant or Beneficiary.
However, no distribution may be made pursuant to this Paragraph E after the date
benefit payments commence under the Plan without the written consent of the
Participant (or, if the Participant has died, his surviving spouse).
F. Loans to Participants. Pursuant to the procedures and limitations
---------------------
stated in that certain document entitled "Rules and Procedures Governing Plan
Loans to Participants," upon the written application of a Participant, the
Administrative Committee shall make a loan or loans to the Participant,
provided:
(i) that the total amount of any such loan to a Participant (when
added to the outstanding balance of all previous loans, if any, made to the
Participant by the Plan) shall not exceed the lesser of (a) Fifty Thousand
------
Dollars ($50,000) reduced by the excess (if any) of (I) the highest outstanding
balance of all previous loans, if any, made to the Participant by the Plan
during the one-year period ending on the
-70-
<PAGE>
day before the date the loan is made, over (II) the outstanding balance of all
previous loans, if any, made to such Participant by the Plan on the date the
loan is made, or (b) fifty percent (50%) of the total vested amount of the
Participant's Accounts at the time of the loan; and
(ii) that the amount of the loan shall not be less than Seven Hundred
Fifty Dollars ($750) or such other amount as the Administrative Committee may
determine in its sole discretion.
Interest shall be charged on such a loan at the prevailing rate of interest
at the time of making the loan which persons in the business of lending money
for loans would charge in similar circumstances.
Each such loan shall be secured by a portion of the Participant's vested
Accounts not otherwise used to secure loans to the Participant equal to the
amount of the loan; provided, however, that at the time the loan is made no more
than fifty percent (50%) of the total vested amount of the Participant's
Accounts may be used to secure loans to the Participant under the Plan. Each
such loan shall be considered an investment of the individual Accounts of the
Participant used to secure the loan.
Each loan made to a Participant pursuant to this Paragraph F shall be
subject to substantially level amortization over the term of the loan, with
payments due not less frequently than quarterly. Each loan by its terms shall be
required to be repaid within five (5) years of the date of the loan is made;
provided, however, that a "home loan" (as described in Section 72(p)(2)(B)(ii)
of the Internal Revenue Code) may, in the
-71-
<PAGE>
discretion of the Administrative Committee, be repaid over a reasonable period
of time in excess of five (5) years.
Each such loan shall be repaid through salary withholding or other means
approved by the Administrative Committee. In the event a Participant does not
repay all or any portion of such loan when the same becomes due and payable, in
addition to any legal remedies which the Administrative Committee may have, the
Administrative Committee shall, upon the occurrence of an event permitting a
distribution of the Participant's Accounts under this Plan, deduct the unpaid
amount of such loan from the Participant's Accounts in the Plan.
The Participant loan program established under this Paragraph F shall be
subject to the terms and conditions of the "Rules and Procedures Governing Plan
Loans to Participants." Such "Rules and Procedures Governing Plan Loans to
Participants" shall contain, at a minimum, the information required under
Department of Labor Regulations Section 2550.408b-1(d)(2). The terms and
conditions of the "Rules and Procedures Governing Plan Loans to Participants"
shall be established and approved by the Administrative Committee, which shall
have the authority to amend such terms and conditions from time to time. A copy
of the most recent "Rules and Procedures Governing Plan Loans to Participants"
shall at all times be maintained by the Administrative Committee or its
delegate.
G. Benefits of Persons Who Cannot Be Located. If the Administrative
-----------------------------------------
Committee determines in good faith that a Participant or Beneficiary entitled to
receive a benefit payment
-72-
<PAGE>
hereunder cannot be located, the Administrative Committee shall nevertheless
give written notice to such person of the fact that such benefit payment is
payable to him under the Plan. Such written notice shall be given by United
States mail to the person entitled to the benefit payment (according to the
records of the Plan) at the last known address of such person. In addition, the
Administrative Committee shall use such other means as are reasonably available
to it in order to ascertain the location of such person. If such Participant or
Beneficiary makes no claim for such benefit payment before the earlier of (i) a
period of two (2) years after the giving of such written notice or (ii) the
termination of the Plan, then the Administrative Committee shall declare a
forfeiture of the benefit otherwise payable to such person, provided such person
has not yet been located.
Notwithstanding the foregoing, if a claim for payment of such benefit is
thereafter made by the Participant or Beneficiary, such benefit shall be
reinstated and paid in full. If such a valid claim for payment of benefits is
subsequently made, the funds needed to pay such benefit shall be drawn first
from any amounts forfeited under the provisions of this Paragraph G or under the
provisions of Paragraph C of Section Fourteen during the Plan Year in which such
payment is required. If such sources are not sufficient to fully pay such
benefits, the Participating Company which last employed the Participant to whom
such benefits are attributable shall make a special contribution earmarked to
fund the remainder of the amount needed.
-73-
<PAGE>
Subject to the immediately preceding paragraph and to the provisions of
Paragraph C of Section Fourteen, all amounts which are forfeited during a Plan
Year under this Paragraph G shall be used to reduce the future cost of benefits
by applying such forfeited amounts to the current or following year's Company
Matching Contribution of the Participating Companies.
H. Pre-Retirement Distributions. A Participant may elect to withdraw all
----------------------------
or any portion of his Voluntary Account prior to his retirement, death, Total
and Permanent Disability or Termination of Employment. Only one such withdrawal
may be made during any Plan Year. Amounts withdrawn from a Participant's
Voluntary Account shall be distributed to the electing Participant within sixty
(60) days following the first day of the month following the election. No pre-
retirement distributions from a Participant's other Accounts in the Plan shall
be made for any reasons other than the Participant's death, Total and Permanent
Disability, or Termination of Employment.
I. Post-Age 59 1/2 Withdrawals. A Participant may withdraw any portion,
---------------------------
including earnings thereon, of his vested Accounts at any time on or after
attaining age 59 1/2, provided such Participant gives at least thirty (30) days
advance written notice to the Administrative Committee. After making an initial
post-age 59 1/2 withdrawal, a Participant may make additional withdrawals of any
remaining amounts in his vested Accounts upon giving the applicable thirty (30)
day advance notice at any time prior to his Termination of Employment.
-74-
<PAGE>
J. Distribution for Minor Beneficiary. In the event a distribution is to
----------------------------------
be made to a minor, then the Administrative Committee may, in its sole
discretion, direct that such distribution be paid to the legal guardian, or if
none, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian for such Beneficiary
under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted
by the laws of the state in which said Beneficiary resides. Such a payment to
the legal guardian or parent of a minor Beneficiary shall fully discharge the
Trustee, Participating Companies and Plan from further liability on account
thereof.
K. Hardship Withdrawals. A Participant who has not reached age fifty-nine
--------------------
and one-half (59-1/2) may withdraw an amount from his Salary Reduction
Contribution Account prior to Termination of Employment only if such Participant
displays, to the satisfaction of the Administrative Committee or its delegate,
that such withdrawal is necessary in light of a financial hardship, that the
amount requested to be withdrawn does not exceed the amount required to meet the
financial needs created by the hardship and that such an amount is not
reasonably available from the other resources of the Participant. The amounts
which may be withdrawn under this Paragraph K shall not include earnings and
gains on a Participant's Salary Reduction Contribution Account and may not
exceed the value of such Salary Reduction Contribution Account at the time of
withdrawal.
-75-
<PAGE>
The following expenses shall be deemed to constitute an immediate and heavy
financial need: (i) medical expenses incurred by the Participant, his spouse or
dependents; (ii) the purchase of a principal residence of the Participant
(excluding mortgage payments); (iii) the payment of tuition for the next
semester or quarter of post-secondary education for the Participant, his spouse,
children or dependents; and (iv) expenses needed to prevent the eviction of the
Participant from, or the foreclosure of the mortgage on, the Participant's
principal residence. A withdrawal shall be permitted under this Paragraph only
if the Participant has obtained all loans currently available under all plans
maintained by the Participating Company.
A Participant who has received a withdrawal pursuant to this Paragraph
shall not be permitted to make or receive Salary Reduction Contributions for
twelve (12) months after receipt of the hardship distribution, and his salary
reduction elections shall be suspended for such period. Furthermore, for the
calendar year following the withdrawal, the Maximum Reduction Amount for the
Participant shall be reduced by the amount of the Participant's Salary Reduction
Contributions for the calendar year during which the withdrawal occurred.
L. Eligible Rollover Distributions. Notwithstanding any provision of
-------------------------------
that Plan to the contrary that would otherwise limit a Distributee's election
under this Paragraph L, with respect to all distributions made from the Plan on
and after January 1, 1993, a Distributee may elect, at the time and in the
manner
-76-
<PAGE>
prescribed by the Administrative Committee, to have all or any portion of an
Eligible Rollover Distribution paid directly to an Eligible Retirement Plan
specified by the Distributee in a Direct Rollover.
As used in this Paragraph L, the following terms shall have the following
meanings:
(i) "Eligible Rollover Distribution" shall mean any distribution of all
or any portion of the balance to the credit of a Distributee under the Plan,
except that the term 'Eligible Rollover Distribution' shall not include any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) of
the Distributee or the joint lives (or joint life expectancies) of the
Distributee and the Distributee's designated beneficiary, any distribution that
is one of a series of substantially equal periodic payments (not less frequently
than annually) made for a specified period of ten (10) years or more, any
distribution to the extent such distribution is required under Section 401(a)(9)
of the Internal Revenue Code or the portion of any distribution that is not
includible in gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(ii) "Eligible Retirement Plan" shall mean an individual retirement
account described in Section 408(a) of the Internal Revenue Code, an individual
retirement annuity described in Section 408(b) of the Internal Revenue Code, an
annuity plan described in Section 403(a) of the Internal Revenue Code or a
-77-
<PAGE>
qualified trust described in Section 401(a) of the Internal Revenue Code, that
accepts the Distributee's Eligible Rollover Distribution. In the case of an
Eligible Rollover Distribution made to the surviving spouse of an Employee or
former Employee, the term 'Eligible Retirement Plan' shall mean an individual
retirement account described in Section 408(a) of the Internal Revenue Code or
an individual retirement annuity described in Section 408(b) of the Internal
Revenue Code.
(iii) "Distributee" shall mean an Employee or former Employee. In
addition, the term 'Distributee' shall mean the surviving spouse of an Employee
or former Employee, or the spouse or former spouse of an Employee or former
Employee who is an alternate payee under a qualified domestic relations order
(as defined in Section 414(p) of the Internal Revenue Code), with regard to the
interest of such surviving spouse, spouse or former spouse under the Plan.
(iv) "Direct Rollover" shall mean a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
SECTION SIXTEEN
RIGHT OF FIRST REFUSAL
----------------------
If any Participant, Beneficiary or any other person to whom shares of
Company Stock are distributed from the Plan (the "Selling Participant") shall,
at any time, desire to sell some or all of such shares (the "Offered Shares") to
a third party (the "Third Party"), the Selling Participant shall give written
notice of such desire to the Sponsoring Company and to the Administrative
Committee, which notice shall contain the number
-78-
<PAGE>
of shares offered for sale, the proposed terms of the sale, and the names and
addresses of both the Selling Participant and the Third Party. The Sponsoring
Company shall have a right of first refusal for a period of fourteen (14) days
from the date the Selling Participant gives such written notice to the
Sponsoring Company and to the Administrative Committee to acquire the Offered
Shares. The selling price and terms shall be the same as offered by the Third
Party.
If the Sponsoring Company does not exercise its right of first refusal
within the required fourteen (14) day period provided above, the Selling
Participant shall have the right, at any time following the expiration of such
fourteen (14) day period, to dispose of the Offered Shares to the Third Party;
provided, however, that (i) no disposition shall be made to the Third Party on
terms more favorable to the Third Party than those set forth in the written
notice delivered by the Selling Participant above, and (ii) if such disposition
shall not be made to a Third Party on the terms offered to the Sponsoring
Company, the Offered Shares shall again be subject to the right of first refusal
set forth above.
The closing pursuant to the exercise of the right of first refusal under
this Section Sixteen shall take place at such place agreed upon between the
Administrative Committee and the Selling Participant, but not later than ten
(10) days after the Sponsoring Company shall have notified the Selling
Participant of the exercise of the right of first refusal. At such closing, the
Selling Participant shall deliver certificates representing the
-79-
<PAGE>
Offered Shares duly endorsed in blank for transfer, or with stock powers
attached duly executed in blank with all required transfer tax stamps attached
or provided for, and the Sponsoring Company shall deliver the purchase price, or
an appropriate portion thereof, to the Selling Participant.
SECTION SEVENTEEN
STOCK CERTIFICATE LEGEND
------------------------
Certificates for shares distributed pursuant to the Plan shall contain the
following legend:
"The shares represented by this certificate are transferable only upon
compliance with the terms of the CHOICE HOTELS INTERNATIONAL, INC. RETIREMENT
SAVINGS AND INVESTMENT PLAN (the "Plan"), effective as of November 15, 1997,
which grants Choice Hotels International, Inc. a right of first refusal, a copy
of said Plan being on file in the office of Choice Hotels International, Inc."
SECTION EIGHTEEN
BENEFIT CLAIMS PROCEDURE
------------------------
A. Claims for Benefits. Any claim for benefits under the Plan shall be
-------------------
made in writing to the Administrative Committee. If such claim for benefits is
wholly or partially denied, the Administrative Committee shall, within ninety
(90) days after receipt of the claim, notify the Participant or Beneficiary of
the denial of the claim. Such notice of denial shall (i) be in writing, (ii) be
written in a manner calculated to be understood
-80-
<PAGE>
by the Participant or Beneficiary, and (iii) contain (a) the specific reason or
reasons for denial of the claim, (b) a specific reference to the pertinent Plan
provisions upon which the denial is based, (c) a description of any additional
material or information necessary to perfect the claim, along with an
explanation of why such material or information is necessary, and (d) an
explanation of the claim review procedure as set forth in this Section Eighteen.
B. Request for Review of Denial. Within sixty (60) days after the
----------------------------
receipt by a Participant or Beneficiary of a written notice of denial of the
claim, or such later time as shall be deemed reasonable taking into account the
nature of the benefit subject to the claim and any other attendant
circumstances, the Participant or Beneficiary may file a written request with
the Administrative Committee that it conduct a full and fair review of the
denial of the claim for benefits.
C. Decision on Review of Denial. The Administrative Committee shall
----------------------------
deliver to the Participant or Beneficiary a written decision on the claim within
sixty (60) days after the receipt of the aforesaid request for review. Such
decision shall (i) be written in a manner calculated to be understood by the
Participant or Beneficiary, (ii) include the specific reason or reasons for the
decision, and (iii) contain a specific reference to the pertinent Plan
provisions upon which the decision is based.
-81-
<PAGE>
SECTION NINETEEN
INALIENABILITY OF BENEFITS
--------------------------
A. In General. The right of any Participant or Beneficiary to any
----------
benefit or payment under the Plan or Trust or to any separate Account maintained
as provided by the Plan shall not be subject to voluntary or involuntary
transfer, alienation, or assignment, and, to the fullest extent permitted by
law, shall not be subject to attachment, execution, garnishment, sequestration,
or other legal or equitable process. In the event a Participant or Beneficiary
who is receiving or is entitled to receive benefits under the Plan attempts to
assign, transfer or dispose of such right, or if an attempt is made to subject
said right to such process, such assignment, transfer or disposition shall be
null and void.
B. Qualified Domestic Relations Orders. Notwithstanding Paragraph A,
-----------------------------------
benefits shall be payable to an individual other than a Participant in
accordance with the applicable requirements of a Qualified Domestic Relations
Order (as defined below) pursuant to the following provisions:
(i) The term "Qualified Domestic Relations Order" shall mean any
judgment, decree, or order (including approval of a property settlement
agreement) which relates to the provision of child support, alimony payments, or
marital property rights to a spouse, former spouse, child or other dependent of
a Participant, which creates or recognizes the existence of an alternative
payee's right to, or assigns to an alternate payee
-82-
<PAGE>
the right to, receive all or a portion of the benefits payable with respect to a
Participant under the Plan, and which meets the following requirements:
(a) Such order shall specify the name and last known mailing
address (if any) of the Participant and each alternate payee covered by the
order;
(b) Such order shall specify the amount or percentage of the
Participant's benefits to be paid by the Plan to each such alternate payee or
the manner in which such amount or percentage is to be determined;
(c) Such order shall specify the number of payments or period to
which the order applies;
(d) Such order shall specify each plan to which the order
applies;
(e) Such order shall not require the Plan to provide any type or
form of benefits or any option not otherwise provided under the Plan;
(f) Such order shall not require the Plan to provide increased
benefits (determined on the basis of actuarial value); and
(g) Such order shall not require the payment of benefits to an
alternate payee which are required to be paid to another alternate payee under
another order previously determined to be a Qualified Domestic Relations Order.
(ii) The Administrative Committee shall determine a set of
nondiscriminatory and reasonable procedures to determine the qualified status of
domestic relations orders and to administer
-83-
<PAGE>
distributions under such qualified orders in accordance with Section 414(p) of
the Internal Revenue Code.
(iii) To the extent that a Qualified Domestic Relations Order
provides that a former spouse is to be treated as the Participant's spouse for
purposes of the death benefits payable under this Plan, the Participant's
current spouse shall not be treated as the Participant's spouse for that
---
purpose.
SECTION TWENTY
INVESTMENT OF TRUST FUND
------------------------
At a meeting duly called for such purpose, the Administrative Committee
shall establish a funding policy and method consistent with the objectives of
the Plan and the requirements of Title I of ERISA. The Administrative Committee
shall meet at least annually to review such funding policy and method. In
establishing and reviewing such funding policy and method, the Administrative
Committee shall endeavor to determine the Plan's short-term and long-term
objectives and financial needs, taking into account the need for liquidity to
pay benefits and the need for investment growth.
SECTION TWENTY-ONE
AMENDMENT OF THE PLAN
---------------------
The Sponsoring Company may amend the Plan at any time, and from time to
time, pursuant to written resolutions of the Board of Directors of the
Sponsoring Company. No such amendment, however, shall have the effect of
reducing any then nonforfeitable percentage of benefits of any Participant as
-84-
<PAGE>
computed in accordance with the vesting schedule under Paragraph A of Section
Fourteen of the Plan. If the vesting schedule under Paragraph A of Section
Fourteen of the Plan is amended and such amendment would, at any time, decrease
the percentage of vested benefits which any Participant would have been entitled
to receive had the vesting schedule not been so amended, then each Participant
who is employed on the date such amendment is adopted, or the date such
amendment is effective, whichever is later, and who has three (3) or more Years
of Service as of the end of the period within which such Participant may make
the election provided for herein shall be permitted, beginning on the date such
amendment is adopted, to irrevocably elect to have his vested interest computed
without regard to such amendment. Written notice of such amendment and the
availability of such election must be given to each such Participant, and each
such Participant shall be granted a period of sixty (60) days after the later of
(i) his receipt of such notice, or (ii) the effective date of such amendment,
within which to make such election. Such election shall be exercised by the
Participant by delivering or sending written notice thereof to the
Administrative Committee prior to the expiration of such sixty (60) day period.
-85-
<PAGE>
SECTION TWENTY-TWO
PERMANENCY OF THE PLAN
----------------------
A. Right to Terminate Plan. The Participating Companies contemplate that
-----------------------
the Plan shall be permanent and that they shall be able to make contributions to
the Plan. Nevertheless, in recognition of the fact that future conditions and
circumstances cannot now be entirely foreseen, each Participating Company
reserves the right to terminate either the Plan or both the Plan and the Trust
with respect to such Participating Company, and the Sponsoring Company reserves
the right to terminate either the Plan or both the Plan and the Trust with
respect to all the Participating Companies.
B. Merger or Consolidation of Plan. The Plan may not be merged or
-------------------------------
consolidated with, nor may its assets or liabilities be transferred to, any
other plan, unless each Participant would (if the other plan then terminated)
receive a benefit immediately after the merger, consolidation, or transfer which
is equal to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation, or transfer (if the Plan had then
terminated).
SECTION TWENTY-THREE
DISCONTINUANCE OF CONTRIBUTIONS AND TERMINATION
-----------------------------------------------
A. Discontinuance of Contributions. Whenever a Participating Company
-------------------------------
determines that it is impossible or inadvisable for it to make further
contributions as provided in the Plan, the Board of
-86-
<PAGE>
Directors of the such Participating Company may, without terminating its
participation in the Trust, adopt an appropriate resolution permanently
discontinuing all further contributions by such Participating Company. A
certified copy of such resolution shall be delivered to the Administrative
Committee and the Trustee. Thereafter, the Administrative Committee and the
Trustee shall continue to administer all the provisions of the Plan which are
necessary and remain in force, other than the provisions relating to
contributions by such Participating Company. However, the Trust shall remain in
existence with respect to such Participating Company and all of the provisions
of the Trust Agreement shall remain in force.
B. Termination of Plan and Trust. If the Board of Directors of a
-----------------------------
Participating Company determines to terminate the Plan and Trust completely with
respect to such Participating Company, the Plan and Trust shall be terminated
with respect to such Participating Company as of the date specified in certified
copies of resolutions of such Board of Directors of the Participating Company
delivered to the Administrative Committee and the Trustee. If the Board of
Directors of the Sponsoring Company determines to terminate the Plan and Trust
completely with respect to all the Participating Companies, the Plan and Trust
shall be terminated with respect to all the Participating Companies as of the
date specified in certified copies of resolutions of the Board of Directors of
the Sponsoring Company delivered to the Administrative Committee and the
Trustee. Upon such termination or partial termination of the Plan and Trust,
-87-
<PAGE>
after payment of all expenses and proportional adjustment of the Accounts of the
Participants affected by such termination to reflect such expenses, profits or
losses of the Trust, and allocations of any previously unallocated funds to the
date of termination, the Participants affected by such termination shall be
entitled to receive the amount then credited to their respective Accounts in the
Plan. The Administrative Committee may make payment of such amount in cash or in
assets of the Trust Fund.
C. Rights to Benefits Upon Termination of Plan or Complete
-------------------------------------------------------
Discontinuance of Contributions. Upon the termination or partial termination of
- -------------------------------
the Plan or the complete discontinuance of contributions by a Participating
Company, the right of each Participant affected by such termination or such
discontinuance of contributions to the amount credited to his Accounts at such
time shall be nonforfeitable without reference to any formal action on the part
of any Participating Company, the Administrative Committee, or the Trustee.
SECTION TWENTY-FOUR
STATUS OF EMPLOYMENT RELATIONS
------------------------------
The adoption and maintenance of the Plan and Trust shall not be deemed to
constitute a contract between any Participating Company and its Employees or to
be consideration for, or an inducement or condition of, the employment of any
person. Nothing herein contained shall be deemed (i) to give to any Employee the
right to be retained in the employ of a Participating Company; (ii) to affect
the right of a
-88-
<PAGE>
Participating Company to discipline or discharge any Employee at any time; (iii)
to give a Participating Company the right to require any Employee to remain in
its employ; or (iv) to affect any Employee's right to terminate his employment
at any time.
SECTION TWENTY-FIVE
BENEFITS PAYABLE BY TRUST
-------------------------
All benefits payable under the Plan shall be paid or provided for solely
from the Trust, and the Participating Companies assume no liability or
responsibility therefor.
SECTION TWENTY-SIX
EXCLUSIVE BENEFIT OF TRUST FUND
-------------------------------
A. Limitation Upon Reversions. Except as provided in Paragraph B below,
--------------------------
the assets of the Trust Fund shall not inure to the benefit of the Participating
Companies and shall be held for the exclusive purposes of providing benefits to
Participants and their Beneficiaries and defraying reasonable expenses of
administering the Plan.
B. Mistake of Fact. In the event that all or any portion of a
---------------
contribution made to the Trust is based upon a mistake of fact, the excess
amount of the contribution attributable to the mistake of fact shall be returned
to the Participating Company making such contribution as promptly as
practicable, but in no event later than one (1) year after the payment of the
contribution.
-89-
<PAGE>
SECTION TWENTY-SEVEN
APPLICABLE LAW
--------------
The Plan and the Trust which is a part thereof shall be construed,
regulated, interpreted, and administered under and in accordance with the laws
of the State of Maryland, other than its laws respecting choice of law, to the
extent not preempted by ERISA.
SECTION TWENTY-EIGHT
INTERPRETATION OF THE PLAN AND TRUST
------------------------------------
It is the intention of the Participating Companies that the Plan and the
Trust established to implement the Plan shall comply with the provisions of
Sections 401 and 501 of the Internal Revenue Code, the requirements of ERISA,
and the corresponding provisions of any subsequent laws, and the provisions of
the Plan and Trust Agreement shall be construed to effectuate such intention.
SECTION TWENTY-NINE
ADOPTION OF PLAN BY AFFILIATED COMPANIES
----------------------------------------
Any Affiliated Company, whether or not presently existing, may, with the
approval of the Board of Directors of the Sponsoring Company, adopt the Plan and
Trust by means of appropriate corporate action of such Affiliated Company and by
executing such documents as the Board of Directors of the Sponsoring Company may
require in order for such Affiliated Company to become a party to the Trust. Any
such Affiliated Company which adopts the Plan and Trust as provided above shall
-90-
<PAGE>
thereafter be included within the meaning of the term "Participating Company"
when used in the Plan and Trust.
SECTION THIRTY
TOP-HEAVY CONTINGENCY PROVISIONS
--------------------------------
A. Application. The provisions of this Section Thirty-One are included in
-----------
the Plan pursuant to Section 401(a)(10)(B)(ii) of the Internal Revenue Code and
shall become applicable only if the Plan becomes a Top-Heavy Plan (as defined
below) under Section 416(g) of the Internal Revenue Code for any Plan Year.
B. Definition of Top-Heavy Plan. The determination as to whether the
----------------------------
Plan has become a Top-Heavy Plan for any such Plan Year shall be made as of the
last day of the immediately preceding Plan Year, or, in the case of the first
Plan Year, the last day of such Plan Year (the "Determination Date"), and the
Plan shall be a "Top-Heavy Plan" only if the aggregate of the Account balances
under the Plan for Key Employees (as defined below) exceeds sixty percent (60%)
of the aggregate of the Account balances under the Plan for all Participants.
For such purpose, the aggregate Account balances shall be computed and adjusted
pursuant to Section 416(g) of the Internal Revenue Code and the regulations
thereunder.
As used herein, the term "Key Employee" shall mean any Employee or former
Employee who at any time during the current Plan Year or any of the four (4)
preceding Plan Years meets the criteria under Section 416(i)(1) of the Internal
Revenue Code. A Key Employee shall include the following:
-91-
<PAGE>
(i) an officer of a Participating Company or an Affiliated
Company if such individual's annual Compensation from the Participating
Companies and all Affiliated Companies exceeds fifty percent (50%) of the dollar
limitation then in effect under Section 415(b)(1)(A) of the Internal Revenue
Code for such Plan Year;
(ii) an actual or constructive owner (using the attribution rules
of Section 318 of the Internal Revenue Code) of both more than a one-half of one
percent (1/2%) interest in the total ownership value of, and of one of the ten
(10) largest percentage ownership interests in value in, a Participating Company
or an Affiliated Company if such individual's Compensation from the
Participating Companies and all Affiliated Companies exceeds one hundred percent
(100%) of the dollar limitation then in effect under Section 415(c)(1)(A) of the
Internal Revenue Code for such Plan Year;
(iii) a Five-Percent Owner;
(iv) a "one-percent owner" (as defined in Section
416(i)(1)(B)(ii) of the Internal Revenue Code) of a Participating Company or an
Affiliated Company having an annual Compensation from the Participating
Companies and all Affiliated Companies of more than One Hundred Fifty Thousand
Dollars ($150,000); or
(v) the Beneficiary of any deceased Employee or former Employee
described in subparagraph (i), (ii), (iii) or (iv) above.
For purposes of subparagraph (i) above, no more than fifty (50) employees
(or, if lesser, the greater of three (3) employees
-92-
<PAGE>
or ten percent (10%) of all employees) shall be treated as officers. For
purposes of this Section Thirty, the term "compensation" shall mean
"compensation" as defined in Section 414(q)(7) of the Internal Revenue Code.
C. Consideration of Multiple Plans in Determining Top-Heavy Status of
------------------------------------------------------------------
Plan. All plans of the Participating Companies or the Affiliated Companies
- ----
which are included in a Required Aggregation Group or in a Permissive
Aggregation Group (both as defined below) with this Plan shall be considered
together in determining whether this Plan is a Top-Heavy Plan. Each plan of a
Participating Company or an Affiliated Company which is required to be included
in an aggregation group shall be treated as a Top-Heavy Plan if such group is a
Top-Heavy Group (as defined below). For these purposes, a "Required Aggregation
Group" shall mean (i) each plan of a Participating Company or an Affiliated
Company in which a Key Employee is a participant plus (ii) each other plan of a
Participating Company or an Affiliated Company which is required to exist in
order for the plans contained in (i) above to meet the nondiscrimination
requirements of Section 401(a)(4) or 410 of the Internal Revenue Code. A
"Permissive Aggregation Group" shall mean (i) a Required Aggregation Group plus
(ii) any other plan (or plans) of a Participating Company or an Affiliated
Company which is able to separately meet the nondiscrimination requirements of
Sections 401(a)(4) and 410 of the Internal Revenue Code and which the Sponsoring
Company elects to include within such group.
-93-
<PAGE>
An aggregation group (either permissive or required) shall be a "Top-Heavy
Group" only if the sum of (a) the present value of the cumulative accrued
benefits for Key Employees under all defined benefit plans included in such
group and (b) the total of the account balances for Key Employees under all
defined contribution plans included in such group exceeds sixty percent (60%) of
the accrued benefits and account balances determined for all employees covered
under such plans. For these purposes, account balances shall be computed and
adjusted pursuant to the principles of Section 416(g) of the Internal Revenue
Code. In determining the cumulative accrued benefits and account balances for
purposes of this top-heavy test:
(i) the present value of the cumulative accrued benefits of all
Key Employees shall be increased by the aggregate distributions made with
respect to each such individual under the plan during the previous five (5)
years (ending on the Determination Date). This subparagraph (i) shall also apply
to distributions under a terminated plan which would have been required to be
included in an aggregation group had it not been terminated;
(ii) the extent to which rollovers and transfers must be taken
into account shall be made in accordance with Section 416 of the Internal
Revenue Code and the regulations thereunder; and
(iii) the account balances and accrued benefits of (a) a
Participant who is not currently a Key Employee but who was a Key Employee in a
prior year or (b) a Participant who is a Key
-94-
<PAGE>
Employee but who has not performed any services for a Participating Company or
an Affiliated Company at any time during the five (5)-year period ending on the
Determination Date, shall be disregarded.
D. Minimum Benefits. For any Plan Year in which the Plan is a Top-
----------------
Heavy Plan, each Participant who is not a Key Employee (a "Non-Key Employee")
and who is employed on the last day of the Plan Year shall receive a minimum
allocation of Participating Company contributions (other than Salary Reduction
Contributions) to his Accounts under this Plan which, when combined with the
amount of any other Participating Company or Affiliated Company contributions
and/or forfeitures allocated to such Participant's accounts under any other
defined contribution plans maintained by the Participating Companies and the
Affiliated Companies shall be no less than the lesser of (i) three percent (3%)
of his Limitation Year Compensation (as defined in subparagraph (vii) of
Paragraph G of Section Seven of the Plan) during such Plan Year or (ii) a
percentage of such Participant's Limitation Year Compensation during such Plan
Year which is equal to the highest percentage of Limitation Year Compensation
which any Key Employee received in the form of Participating Company
contributions to his Accounts in this Plan for such Plan Year. A Participant who
is a Non-Key Employee need not complete one thousand (1,000) Hours of Service
during the Plan Year in order to receive such an allocation. Any contributions
made to a Non-Key Employee's accounts under this or any other defined
contribution plans maintained by the Participating Companies and the Affiliated
-95-
<PAGE>
Companies which are made on behalf of such Non-Key Employee pursuant to a cash
or deferred arrangement satisfying the requirements of Section 401(k) of the
Internal Revenue Code may not be used to satisfy this minimum allocation
requirement. Prior to January 1, 1994. For purposes of this Paragraph D, a
Participant's Limitation Year Compensation during any Plan Year shall not
include any amounts in excess of One Hundred and Fifty Thousand Dollars
($150,000), as adjusted for increases in the cost of living pursuant to Section
401(a)(17) of the Internal Revenue Code.
E. Special Vesting Rules. As of the first day of any Plan Year in
---------------------
which the Plan has become a Top-Heavy Plan, the vesting schedule contained in
Paragraph A of Section Fourteen shall be revised to provide for vesting in
accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Service Vested
---------------- ------
<S> <C>
Less than 2 years 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 or more years 100%
</TABLE>
In the event the vesting schedule is revised in accordance with this
Paragraph E and the Plan is later determined to no longer constitute a Top-Heavy
Plan, the vesting schedule shall revert to the schedule specified in Paragraph A
of Section Fourteen as to the effect of vesting arising from future Years of
Service, but any Participant who has three (3) or more Years of Service as of
the time of such change may irrevocably elect to
-96-
<PAGE>
have his vested interest computed without regard to such change in the vesting
schedule, in accordance with the principles set forth in Section Twenty-One of
the Plan.
F. Adjustment of Section 415 Limitations in Plan Years in Which the
----------------------------------------------------------------
Plan Is a Top-Heavy Plan. For any Plan Year in which the Plan is a Top-Heavy
- ------------------------
the reference to a factor of one and twenty-five one-hundredths (1.25) in
subparagraphs (iv) and (v) of Paragraph G of Section Seven of the Plan shall be
modified so as to constitute a reference to a factor of one (1.0). This
modification shall not be made, however, if (i) the Account balances
attributable to Key Employees do not exceed ninety percent (90%) of the total
Account balances under the Plan and (ii) the Participating Companies have chosen
to make the additional contribution specified in Section 416(h)(2)(A)(ii)(II) of
the Internal Revenue Code.
-97-
<PAGE>
EXHIBIT 4.2
-----------
CHOICE HOTELS INTERNATIONAL, INC.
NONQUALIFIED SAVINGS & INVESTMENT PLAN
13
<PAGE>
THE CHOICE HOTELS INTERNATIONAL, INC.
NONQUALIFIED RETIREMENT SAVINGS AND INVESTMENT PLAN
---------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION ONE PURPOSE OF PLAN.............................................. 1
A. Designation....................................................... 1
B. Purpose........................................................... 1
C. Voluntary Participation........................................... 1
SECTION TWO DEFINITIONS.................................................. 2
SECTION THREE REQUIREMENTS FOR ELIGIBILITY................................. 13
SECTION FOUR PARTICIPATION IN THE PLAN.................................... 15
SECTION FIVE ADMINISTRATION OF THE PLAN................................... 16
A. Responsibility for Administration of the Plan..................... 16
B. Appointment of Administrative Committee........................... 16
C. Delegation of Powers.............................................. 16
D. Records........................................................... 16
E. General Administrative Powers..................................... 17
F. Appointment of Professional Assistance and
Investment Manager................................................ 17
G. Actions by the Administrative Committee........................... 18
H. Discretionary Acts................................................ 18
I. Payment of Fees and Expenses...................................... 18
J. Plan Administrator................................................ 19
K. Allocation and Delegation of Administrative
Committee Responsibilities........................................ 19
SECTION SIX PARTICIPANTS' ACCOUNTS....................................... 19
A. Maintenance of Accounts........................................... 19
B. Accounts of Participant Transferred to an
Affiliated Company................................................ 20
C. Annual Adjustment of Participants' Accounts....................... 20
D. Investment of Contributions....................................... 21
E. No Right to Specific Assets....................................... 22
F. Special Rules Regarding Sunburst Stock............................ 23
SECTION SEVEN ALLOCATIONS TO PARTICIPANT'S ACCOUNTS........................ 24
A. Salary Reduction Contributions.................................... 24
B. Company Matching Contributions.................................... 26
SECTION EIGHT DISABILITY BENEFITS.......................................... 29
A. Disability Retirement Benefits.................................... 29
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
B. Determination of Disability...................................... 29
Page
----
SECTION NINE RETIREMENT BENEFITS.................................... 30
SECTION TEN DEATH BENEFITS......................................... 31
A. Death Benefits................................................... 31
B. Designation of Beneficiaries..................................... 31
C. Failure of Participant to Designate.............................. 32
D. Beneficiaries' Rights............................................ 32
SECTION ELEVEN EMPLOYMENT TERMINATION BENEFITS........................ 32
A. Vesting Upon Termination of Employment........................... 32
B. Counting Years of Service........................................ 33
C. Forfeiture of Non-Vested Amount.................................. 34
SECTION TWELVE PAYMENT OF BENEFITS.................................... 35
A. Retirement, Disability and Death Benefits........................ 35
B. Employment Termination Benefits.................................. 36
C. Distribution of Benefits......................................... 37
D. Benefits of Persons Who Cannot Be Located........................ 41
E. Distribution for Minor Beneficiary............................... 41
SECTION THIRTEEN BENEFIT CLAIMS PROCEDURE............................... 42
A. Claims for Benefits.............................................. 42
B. Request for Review of Denial..................................... 42
C. Decision on Review of Denial..................................... 43
SECTION FOURTEEN INALIENABILITY OF BENEFITS............................. 43
SECTION FIFTEEN AMENDMENT OF THE PLAN.................................. 44
SECTION SIXTEEN PERMANENCY OF THE PLAN................................. 44
SECTION SEVENTEEN STATUS OF EMPLOYMENT RELATIONS......................... 46
SECTION EIGHTEEN FUNDING................................................ 46
SECTION NINETEEN APPLICABLE LAW......................................... 47
SECTION TWENTY ADOPTION OF PLAN BY AFFILIATED
COMPANIES.............................................. 47
</TABLE>
-ii-
<PAGE>
THE CHOICE HOTELS INTERNATIONAL, INC.
NONQUALIFIED RETIREMENT SAVINGS AND INVESTMENT PLAN
---------------------------------------------------
Effective November 15, 1997, Choice Hotels International, Inc.
(formerly Choice Hotels Franchising, Inc.) (the "Sponsoring Company") hereby
establishes the Choice Hotels International, Inc. Nonqualified Retirement
Savings and Investment Plan (the "Plan") in accordance with the terms and
conditions set forth below. It is anticipated that the rabbi trust associated
with the Plan shall receive an infusion of assets from the rabbi trust
associated with the Sunburst Hospitality Corporation (formerly Choice Hotels
International, Inc.) Nonqualified Retirement Savings and Investment Plan (the
"Sunburst Plan") equal to the value of the accounts in the Sunburst Plan
attributable to all individuals who are employed by the Sponsoring Company on or
about November 15, 1997.
SECTION ONE
PURPOSE OF PLAN
---------------
A. Designation. The Plan is designated the "Choice Hotels International,
-----------
Inc. Nonqualified Retirement Savings and Investment Plan."
B. Purpose. The purpose of the Plan is to provide retirement, disability,
-------
death and employment termination benefits for a select group of management and
highly compensated employees of the Participating Companies and for the
beneficiaries of those employees.
<PAGE>
C. Voluntary Participation. An Employee who completes the eligibility
-----------------------
requirements set forth in Section Three of the Plan may voluntarily elect to
participate in the Plan by notifying the Administrative Committee as described
in Paragraph A of Section Seven.
SECTION TWO
DEFINITIONS
-----------
As used in the Plan:
A. "Accounts" shall mean a Participant's Company Contribution Account,
his Salary Reduction Contribution Account and if applicable, his Predecessor
Account and his Company Stock Account. The term "Accounts" shall also include
any additional accounts established by the Administrative Committee, in its sole
discretion.
B. "Administrative Committee" shall mean the person or persons or entity
appointed to administer the Plan in accordance with the provisions of Section
Five of the Plan. Notwithstanding the foregoing, "Administrative Committee" may
also include any individual or committee to which the Administrative Committee
has delegated authority to act with respect to a specific activity. The
Administrative Committee shall be the "named fiduciary," as referred to in
Section 402(a) of ERISA, with respect to the management, operation and
administration of the Plan.
C. "Affiliated Company" shall mean (i) a member of a controlled group of
corporations of which the Sponsoring Company
-2-
<PAGE>
is a member, as determined in accordance with Section 414(b) of the Internal
Revenue Code and the regulations issued thereunder, (ii) a trade or business
which is under common control with the Sponsoring Company, as determined in
accordance with Section 414(c) of the Internal Revenue Code and the regulations
issued thereunder, or (iii) a member of an affiliated service group of which the
Sponsoring Company is a member, as determined in accordance with Section 414(m)
of the Internal Revenue Code. In addition, "Affiliated Company" shall also
include any other entity designated by the Board of Directors in its sole
discretion in which any Participating Company owns an equity interest which
exceeds fifty percent (50%).
D. "Beneficiary" shall mean any person entitled to receive benefits which
are payable upon or after a Participant's death pursuant to Section Ten of the
Plan.
E. "Board of Directors" shall mean the Board of Directors of the
Sponsoring Company or any individual or committee to which the Board of
Directors has delegated authority to act with respect to a specific activity.
F. "Company Contribution Account" shall mean the account maintained for a
Participant reflecting Company Matching Contributions allocated to such
Participant pursuant to Paragraph B of Section Seven of the Plan, as adjusted
for earnings or losses thereon in accordance with the provisions of Section Six
of the Plan. In addition, a Participant's Company Contribution Account shall
include all amounts transferred on behalf of such
-3-
<PAGE>
Participant from the Participant's corresponding company contribution account,
if any, in the Sunburst Plan.
G. "Company Matching Contribution" shall mean the contributions made by
the Participating Company to each Participant's Company Contribution Account
pursuant to Paragraph B of Section Seven. With respect to the Plan Year
beginning November 15, 1997, each Participant eligible to receive an allocation
of Company Matching Contributions shall receive one hundred percent (100%) of
such allocation of Company Matching Contributions in the form of shares of
Company Stock.
H. "Company Stock" shall mean common stock issued by the Sponsoring
Company.
I. "Company Stock Account" shall mean the separate account maintained on
behalf of a Participant reflecting the Company Stock allocated to such
Participant's Company Stock Account, together with any cash or stock dividends
on such Company Stock. In addition, a Participant's Company Stock Account shall
include all amounts transferred on behalf of such Participant from the
Participant's corresponding company stock account, if any, in the Sunburst Plan.
J. "Compensation" shall mean basic cash compensation before any payroll
deductions for taxes or any other purposes, including regular commissions paid
by the Participating Companies to an Employee in respect of such Employee's
service to the Participating Companies during the Plan Year increased by any
amounts with respect to which the Employee has elected to defer
-4-
<PAGE>
or reduce remuneration for federal income tax purposes (i) under this Plan, (ii)
under the Choice Hotels International, Inc. Retirement Savings and Investment
Plan or (iii) under any "cafeteria plan" (as described in Section 125 of the
Internal Revenue Code) maintained by the Participating Companies. Compensation
shall not include any amounts paid to the Employee as (i) bonuses, (ii) overtime
pay, (iii) except as otherwise provided in the preceding sentence, any amounts
paid during that Plan Year on account of the Employee under this Plan or under
any other employee pension benefit plan (as defined in Section 3(2) of ERISA),
and (iv) except as otherwise provided in the preceding sentence, any amounts
which are not includible in the Employee's income for federal income tax
purposes.
K. "Effective Date" of the Plan shall mean November 15, 1997.
L. "Eligibility Computation Period" for each Employee shall mean a twelve
(12) consecutive month period beginning on the date such Employee first performs
an Hour of Service with a Participating Company or an Affiliated Company;
provided, however, that if the Employee does not complete one thousand (1,000)
or more Hours of Service during such twelve (12) month period, the Eligibility
Computation Period shall be the Plan Year, beginning with the Plan Year
immediately following the Plan Year within which the Employee first performs an
Hour of Service with a Participating Company or an Affiliated Company. If the
Employee has a One-Year Break in Service prior to becoming
-5-
<PAGE>
eligible to participate in the Plan and is subsequently rehired, his Eligibility
Computation Period shall be determined pursuant to this Paragraph beginning on
the date the Employee first completes an Hour of Service with the Participating
Company or the Affiliated Company immediately following his rehire.
M. "Eligible Participant" shall mean any Participant who (i) completed at
least one thousand (1,000) Hours of Service with the Participating Companies
during such Plan Year, (ii) was employed by a Participating Company on the last
day of the Plan Year, and (iii) elected, pursuant to Paragraph A of Section
Seven, to reduce his Compensation during such Plan Year. Notwithstanding the
foregoing, the Administrative Committee shall have the authority, in its sole
discretion, to waive the above-referenced one thousand (1,000) Hours of Service
requirement as to any Employee.
N. "Eligibility Year of Service" shall mean an Eligibility Computation
Period during which an Employee completes one thousand (1,000) or more Hours of
Service.
O. "Employee" shall mean any person employed by a Participating Company
who is or will be a "Highly Compensated Employee" (as defined in the Choice
Hotels International, Inc. Retirement Savings and Investment Plan) with respect
to a Plan Year. The term "Employee" shall not include nonresident aliens who do
not receive earned income (within the meaning of section 911(d)(2) of the
Internal Revenue Code) from the Participating Companies which constitute income
from sources within the United
-6-
<PAGE>
States (within the meaning of section 861(a)(3) of the Internal Revenue Code).
P. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time. References in the Plan to any Section of
ERISA shall include any successor provision thereto.
Q. "Five-Percent Owner" shall mean an individual who (i) owns (or is
considered as owning within the meaning of Section 318 of the Internal Revenue
Code) more than five percent (5%) of the outstanding stock of a Participating
Company or an Affiliated Company or stock possessing more than five percent (5%)
of the total combined voting power of all stock of a Participating Company or an
Affiliated Company provided such entity is a corporation or (ii) owns more than
five percent (5%) of the capital or profits interest in a Participating Company
or an Affiliated Company if such entity is not a corporation.
R. "Hour of Service" shall be determined from records maintained by the
Participating Companies and the Affiliated Companies and shall include the
following:
(i) Performance of Duties. Each hour for which an Employee is
---------------------
directly or indirectly paid, or entitled to payment, by a Participating Company
or an Affiliated Company for the performance of duties. Each such Hour of
Service shall be credited to the Eligibility Computation Period or the Plan
Year, as the case may be, in which the duties were performed.
-7-
<PAGE>
(ii) Back Pay. Each hour for which back pay (irrespective of
--------
mitigation of damages) has been either awarded or agreed to by a Participating
Company or an Affiliated Company. Each such Hour of Service shall be credited
to the Eligibility Computation Period or the Plan Year, as the case may be, to
which the agreement or award for back pay pertains rather than to the
Eligibility Computation Period or Plan Year, as the case may be, in which the
award, agreement or payment is made.
(iii) Non-Working Time Pay. Each hour for which an Employee is
--------------------
directly or indirectly paid, or entitled to payment, by a Participating Company
or an Affiliated Company on account of a period of time during which no duties
are performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), lay-off, jury duty or lease of absence. Each such Hour of Service
shall be computed and credited in accordance with Department of Labor Regulation
Section 2530.200b.
(iv) No Duplication. An Employee shall not be credited with any
--------------
Hour of Service under both clause (ii) above and clause (i) or (iii) above (as
the case may be) with respect to the same item.
(v) Maternity and Paternity Leave. Solely for purposes of
-----------------------------
determining whether an Employee has incurred a One-Year Break in Service, such
Employee shall be credited for up to five hundred and one (501) Hours of Service
in respect of any period of absence attributable to a maternity or paternity
leave,
-8-
<PAGE>
based upon the number of Hours of Service which otherwise normally would have
been credited to such Employee but for such absence or, in any case in which the
Plan is unable to determine the number of Hours of Service which would have
normally been so credited, then such Employee shall be credited with eight (8)
Hours of Service per day of absence. Any such Hours of Service attributable to a
maternity or paternity leave shall be credited in the Eligibility Computation
Period or the Plan Year, as the case may be, in which the maternity or paternity
absence begins if such crediting will prevent the Employee from incurring a One-
Year Break in Service in such Eligibility Computation Period or Plan Year.
Otherwise, such Hours of Service shall be credited in the Eligibility
Computation Period or the Plan Year, as the case may be, following the
Eligibility Computation Period or Plan Year in which the maternity or paternity
leave begins. For these purposes, a maternity or paternity leave of absence
shall include any time during which an Employee is absent from work for any
period: (a) by reason of the pregnancy of the Employee; (b) by reason of the
birth of a child of the Employee; (c) by reason of the placement of a child with
the Employee in connection with the adoption of such child by such individual;
or (d) for purposes of caring for such child for a period beginning immediately
following such birth or placement.
S. "Ineligible Participant" shall mean any Participant who (i) was not
employed by a Participating Company or an Affiliated Company on the last day of
the Plan Year, or (ii) did not elect,
-9-
<PAGE>
pursuant to Paragraph A of Section Seven, to reduce his Compensation.
T. "Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time. References in the Plan to any Section of the
Internal Revenue Code shall include any successor provision thereto.
U. "Investment Election" shall mean the form, filed with the
Administrative Committee, or its delegate, or such other procedure as may be
specified by the Administrative Committee at any time, and from time to time,
through which a Participant may designate the manner in which his Accounts
(other than his Company Stock Account) shall be allocated among the Investment
Funds.
V. "Investment Election Date" shall mean the first business day of each
month.
W. "Investment Fund" shall mean each fund, contract, or other arrangement
designated by the Administrative Committee as an Investment Fund in which
Participants may direct their Accounts to be invested.
X. "Sunburst Plan" shall mean the Sunburst Nonqualified Retirement
Savings and Investment Plan.
Y. "Net Profits" shall mean, with respect to any Fiscal Year that ends
within a Plan year with respect to which a determination of Net Profits is made,
the Sponsoring Company's consolidated net income or profit for such Fiscal Year
determined upon the basis of the Sponsoring Company's books of account in
-10-
<PAGE>
accordance with generally accepted accounting principles, without any reduction
for taxes based upon income, or for contributions made by the Sponsoring Company
to this Plan. "Net Profits" shall not include capital gains or losses or income
or loss which is determined to be a nonrecurring nature. Such determination
shall be made solely by the Administrative Committee.
Z. "One-Year Break in Service" shall mean an Eligibility Computation
Period or a Plan Year, as the case may be, during which an Employee does not
complete more than five hundred (500) Hours of Service.
AA. "Participant" shall mean an eligible Employee who becomes a
Participant in the Plan as provided in Section Four of the Plan.
BB. "Participating Company" shall mean the Sponsoring Company or any
Affiliated Company which adopts the Plan and Trust pursuant to the provisions of
Section Twenty of the Plan.
CC. "Plan" shall mean the Choice Hotels International, Inc. Nonqualified
Retirement Savings and Investment Plan as set forth in this document, and as
hereafter amended.
DD. "Plan Year" shall mean the twelve (12)-consecutive month period ending
on December 31.
EE. "Predecessor Account" shall mean the total amount transferred from a
Participant's predecessor account, if any, in the Sunburst Plan.
FF. "Retirement Date" of a Participant shall mean the Participant's sixty-
fifth (65th) birthday.
-11-
<PAGE>
GG. "Salary Reduction Contribution" shall mean the cumulative amount the
Participating Company contributes to the Trust each Plan year equal to the
amount by which a Participant elected to reduce his Compensation for such Plan
Year pursuant to Paragraph A of Section Seven.
HH. "Salary Reduction Contribution Account" shall mean the account
maintained for a Participant reflecting the Salary Reduction Contributions
allocated to such Participant pursuant to Paragraph A of Section Seven, as
adjusted by earnings or losses thereon in accordance with the provisions of
Section Six of the Plan. In addition, a Participant's Salary Reduction
Contribution Account shall include all amounts transferred on behalf of such
Participant from the Participant's corresponding salary reduction contribution
account, if any, in the Sunburst Plan.
II. "Sponsoring Company" shall mean Choice Hotels International, Inc.
JJ. "Termination of Employment" shall mean termination of employment with
the Participating Companies, whether voluntarily or involuntarily, other than by
reason of a Participant's death or his retirement after attaining his Retirement
Date or after sustaining a Total and Permanent Disability.
KK. "Total and Permanent Disability" shall mean physical and/or mental
incapacity of such a nature that it prevents a Participant from engaging in or
performing the principal duties of his customary employment or occupation on a
continuing or sustained basis.
-12-
<PAGE>
LL. "Valuation Date" shall mean the last day of each month or any other
date the Administrative Committee, in its sole discretion, shall select as a
Valuation Date.
MM. "Year of Service" shall mean a Plan Year during which an Employee
completes one thousand (1,000) or more Hours of Service. In addition, the Board
of Directors, in its sole discretion, may elect to grant Years of Service in
connection with a stock or asset acquisition to reflect employment periods prior
to the date of such stock of asset acquisition. "Years of Service," in the case
of an individual who transfers from the employment of Sunburst to the employment
of a Participating Company prior to June 1, 1998, shall also include all Years
of Service earned with respect to service performed on behalf of Sunburst
NN. Wherever appropriate, words used in the Plan in the singular may mean
the plural, the plural may mean the singular, and the masculine may mean the
feminine.
SECTION THREE
REQUIREMENTS FOR ELIGIBILITY
----------------------------
Any Employee (other than a Leased Employee) who was a participant in the
Sunburst Nonqualified Retirement Savings and Investment Plan on November 14,
1997 and who is employed by the Sponsoring Company on November 15, 1997 shall
automatically become a Participant in this Plan on November 15, 1997. Any other
Employee (other than a Leased Employee) shall be eligible to elect to have
Salary Reduction Contributions made on his
-13-
<PAGE>
behalf under the Plan and to share in the allocations of Company Matching
Contributions under the Plan as of the first day of the first full pay period of
the month following the date upon which such Employee has (i) completed an
Eligibility Year of Service and (ii) attained age twenty-one (21), provided such
Employee is employed by a Participating Company on such date. Notwithstanding
the above, the Administrative Committee shall have the authority, in its sole
discretion, to waive the Eligibility Year of Service requirement as to any
Employee. Any Employee who does not elect to have Salary Reduction Contributions
made on his behalf under the Plan as of the first day of the first full pay
period of the first month on which he is first eligible shall be allowed to make
a subsequent election to have Salary Reduction Contributions made on his behalf
as of the first business day of any subsequent month, provided that such
individual notifies the Administrative Committee no later than the twentieth
(20th) day of the month preceding the first applicable payroll period as of
which such election is intended to become effective, pursuant to such
notification procedures as the Administrative Committee may establish, from time
to time. Leased Employees shall not be eligible to participate in the Plan.
Any Participant who otherwise meets the requirements of this Section Three,
who suffers a Termination of Employment, and who is subsequently rehired by a
Participating Company, shall become eligible to elect to have Salary Reduction
Contributions made on his behalf under the Plan effective as of the date of his
rehire and to share in the allocations of the Company Matching
-14-
<PAGE>
Contributions under the Plan provided the individual meets the criteria of an
Eligible Participant for such Plan Year and
-15-
<PAGE>
provided further that the period of time between the individual's initial date
of Termination of Employment and the individual's date of rehire does not exceed
the greater of (a) five (5) years or (b) the period of the individual's
employment performed prior to the date of his initial Termination of Employment.
Notwithstanding the foregoing, a Participant who suffers a Termination of
Employment with vested Accounts in the Plan and who is not subsequently rehired
until the occurrence of a period of absence greater than (a) or (b) above shall
be treated as a new Employee for purposes of determining such individual's
eligibility to participate in the Plan.
SECTION FOUR
PARTICIPATION IN THE PLAN
-------------------------
Upon meeting the eligibility requirements of Section Three, each eligible
Employee shall be notified that he is eligible to participate in the Plan and
shall be provided with such information as is required by ERISA within the time
prescribed for providing such information. In addition, each Participant shall
be provided with a designation of beneficiary form with which he may designate
one or more Beneficiaries to receive benefits in the event of his death.
-16-
<PAGE>
SECTION FIVE
ADMINISTRATION OF THE PLAN
--------------------------
A. Responsibility for Administration of the Plan. The Administrative
---------------------------------------------
Committee shall be responsible for the management, operation and administration
of the Plan.
B. Appointment of Administrative Committee. The Board of Directors of
---------------------------------------
Directors of the Sponsoring Company shall appoint an Administrative Committee
consisting of at least one (1) but not more than seven (7) persons. The
Administrative Committee shall be responsible for the management, operation and
administration of the Plan. Any member of the Administrative Committee may
resign upon ten (10) days prior written notice to the Board of Directors of the
Sponsoring Company. The Board of Directors of the Sponsoring Company shall be
authorized to remove any member of the Administrative Committee at any time and
in its sole discretion to appoint a successor whenever a vacancy on the
Administrative Committee occurs.
C. Delegation of Powers. The Administrative Committee may appoint such
--------------------
assistants or representatives as it deems necessary for the effective exercise
of its duties in administering the Plan. The Administrative Committee may
delegate to such assistants and representatives any powers and duties, both
ministerial and discretionary, as it deems expedient or appropriate.
-17-
<PAGE>
D. Records. All acts and determinations with respect to the
-------
administration of the Plan made by the Administrative Committee and any
assistants or representatives appointed by it shall be duly recorded by the
Administrative Committee or by the assistant or representative appointed by it
to keep such records. All records, together with such other documents as may be
necessary for the administration of the Plan, shall be preserved in the custody
of the Administrative Committee or the assistants or representatives appointed
by it.
E. General Administrative Powers. The Administrative Committee shall
-----------------------------
have all powers necessary to administer the Plan in accordance with its terms,
including the power to construe the Plan and to determine all questions that may
arise thereunder. In the exercise of such powers under the Plan, the
Administrative Committee shall have discretionary authority to interpret the
terms of the Plan and to determine eligibility for and entitlement to Plan
benefits in accordance with the terms of the Plan. Any interpretation or
determination made pursuant to such discretionary authority shall be given full
force and effect, unless it can be shown that the interpretation or
determination was arbitrary and capricious.
F. Appointment of Professional Assistance and Investment Manager. The
-------------------------------------------------------------
Administrative Committee may engage accountants, attorneys, physicians and such
other personnel as it deems necessary or advisable. The functions of any such
persons engaged by the Administrative Committee shall be limited to the
-18-
<PAGE>
specific services and duties for which they are engaged, and such persons shall
have no other duties, obligations or responsibilities under the Plan. Such
persons shall exercise no discretionary authority or discretionary control
respecting the management of the Plan. The fees and costs of such services shall
be paid by the Participating Companies.
G. Actions by the Administrative Committee. All actions of the
---------------------------------------
Administrative Committee shall be taken pursuant to the decision of a majority
of the then members of the Administrative Committee.
H. Discretionary Acts. In the event the Administrative Committee
------------------
exercises any discretionary authority under the Plan with respect to a
Participant who is a member of the Administrative Committee, such discretionary
authority shall be exercised solely and exclusively by those members of the
Administrative Committee other than such Participant, or, if such Participant is
the sole member of the Administrative Committee, such discretionary authority
shall be exercised solely and exclusively by the Board of Directors of the
Sponsoring Company.
I. Payment of Fees and Expenses. The members of the Administrative
----------------------------
Committee and their assistants and representatives shall be entitled to payment
from the Participating Companies for all reasonable costs, charges and expenses
incurred in the administration of the Plan, including, but not limited to,
reasonable fees for accounting, legal and other services rendered, to the extent
incurred by the members of the
-19-
<PAGE>
Administrative Committee or their assistants and representatives in the course
of performance of their duties under the Plan. Notwithstanding any other
provision of the Plan, no person who receives full-time pay from the
Participating Companies shall receive compensation from the Plan, except for
reimbursement of expenses properly and actually incurred.
J. Plan Administrator. The Sponsoring Company shall be the
------------------
"administrator" (as defined in Section 3(16)(A) of ERISA) of the Plan. The Vice
President of Human Resources of the Sponsoring Company shall be the designated
agent for service of legal process.
K. Allocation and Delegation of Administrative Committee
-----------------------------------------------------
Responsibilities. The Administrative Committee may upon approval of a majority
- ----------------
of the members of the Administrative Committee, (i) allocate among any of the
members of the Administrative Committee any of the responsibilities of the
Administrative Committee under the Plan or (ii) designate any person, firm or
corporation that is not a member of the Administrative Committee to carry out
any of the responsibilities of the Administrative Committee under the Plan. Any
such allocation or designation shall be made pursuant to a written instrument
executed by a majority of the members of the Administrative Committee.
-20-
<PAGE>
SECTION SIX
PARTICIPANTS' ACCOUNTS
----------------------
A. Maintenance of Accounts. There shall be maintained on behalf of each
-----------------------
Participant a Company Contribution Account, a Salary Reduction Contribution
Account and, if applicable, a Predecessor Account. The Participant's interest in
his Company Contribution Account shall be subject to the vesting schedule set
forth in Paragraph A of Section Eleven. The Participant's interest in his Salary
Reduction Contribution Account shall be one hundred percent (100%) vested at all
times. The Participant's interest in the deferral account component of his
Predecessor Account shall be one hundred percent (100%) vested at all times and
the matching account component of his Predecessor Account shall become vested in
accordance with Section 2.7 of the Sunburst Supplemental Savings Plan as in
effect on December 31, 1991. All payments to a Participant or his Beneficiaries
shall be charged against the respective Accounts of such Participant.
B. Accounts of Participant Transferred to an Affiliated Company. If a
------------------------------------------------------------
Participant is transferred to an Affiliated Company which has not adopted the
Plan, the amounts which are credited to his Accounts shall continue to be
governed by the provisions of the Plan.
C. Annual Adjustment of Participants' Accounts. Promptly after the last
-------------------------------------------
day of each Plan Year, the Administrative Committee shall adjust the Accounts of
each Participant so that
-21-
<PAGE>
the amount of net income, loss, appreciation or depreciation in the value of the
amount invested in an Investment Fund shall be allocated equitably and
exclusively to the Accounts of the Participants invested in such Investment
Fund.
D. Investment of Contributions.
---------------------------
(i) Participant-Directed Investments. In accordance with procedures
--------------------------------
established by the Administrative Committee, each Participant shall have the
opportunity, on or before each Investment Election Date, to make an Investment
Election with the Administrative Committee or its delegate. This election shall
be effective beginning on the Investment Election Date following its receipt by
the Administrative Committee, or its delegate, and shall continue in effect
until revoked or modified as of a subsequent Investment Election Date. Any such
modification or revocation of an Investment Election shall be effective on the
Investment Election Date following the receipt by the Administrative Committee
of a new Investment Election. The following restrictions shall apply to such
investment elections:
(a) No election may be made in violation of any applicable investment
contract or other agreement establishing an Investment Fund;
(b) Transfers among the available Investment Funds may be made only in
whole percentage multiples of one percent (1%) of the balances therein; and
(c) Prior to January 1, 1997, no shares of Company Stock which have been
allocated to a Participant's Company Contribution
-22-
<PAGE>
Account or Company Stock Account may be liquidated or otherwise converted into
another form of investment except in the case of a distribution of benefits from
such Account. On and after January 1, 1997, shares of Company Stock which have
been allocated to a Participant's Company Contribution Account or Company Stock
Account may be liquidated or otherwise converted into another form of
investment. Any shares of Company Stock which must be acquired by the Trust to
effectuate an investment election shall be purchased on the open market as soon
as practicable after the next applicable Valuation Date. Any dividends paid with
respect to Company Stock shall be used to purchase additional whole or partial
shares of Company Stock as soon as practicable after the next Valuation Date.
In addition, the Administrative Committee, in its sole discretion, may from
time to time establish special Investment Election Dates to provide the
Participants with additional opportunities to designate the manner in which
their Accounts shall be allocated among the then-available Investment Funds.
(ii) Other Investments. All Accounts not subject to an Investment
-----------------
Election filed with the Administrative Committee pursuant to subparagraph (i)
above shall be invested in a money market fund or other liquid or pooled fund
investment vehicle selected by the Administrative Committee.
E. No Right to Specific Assets. The fact that for administrative
---------------------------
purposes Accounts are maintained for each Participant under the Plan shall not
be deemed to segregate for
-23-
<PAGE>
such Participant, or to give such Participant any direct interest in, any
specific assets of the Participating Companies except as otherwise provided in
Section Eighteen below.
F. Special Rules Regarding Sunburst Stock. It is anticipated that the
--------------------------------------
Company Stock Accounts and Company Contribution Accounts of Participants shall
initially be credited with shares of Sunburst stock as a result of the transfer
of assets from the Sunburst Retirement Savings and Investment Plan and the
Company Matching Contributions made with respect to the 1997 Plan Year. The
Administrative Committee shall establish a uniform and non-discriminatory set of
procedures pursuant to which a Participant may elect that all or any portion of
the Sunburst stock held in his Company Stock Account or Company Contribution
Account be liquidated and the proceeds therefrom reinvested among the then-
available investment funds. It is anticipated that such election period shall
occur in November and December of 1997. Sunburst stock which is not so
liquidated will be retained in the Participant's Company Stock Account and
Company Contribution Account. Such shares may not be liquidated prior to the
payment of benefits to such Participant from his Company Stock Account and
Company Contribution Account in accordance with the provisions of the Plan. Any
dividends payable with respect to Sunburst stock retained by the Plan will be
reinvested in additional shares of Sunburst stock.
-24-
<PAGE>
SECTION SEVEN
ALLOCATIONS TO PARTICIPANT'S ACCOUNTS
-------------------------------------
A. Salary Reduction Contributions. Each Plan Year, the Participating Company
------------------------------
employing a Participant who has elected to reduce his Compensation pursuant to
subparagraph (i) of this Paragraph A shall withhold from such Participant's
Compensation the Salary Reduction Contributions, as elected by such Participant.
(i) Compensation Reduction Election. (a) A Participant may elect
-------------------------------
to reduce his Compensation by an amount equal to the difference between the
amount of his Compensation which he elected to contribute to the Choice Hotels
International, Inc. Retirement Savings and Investment Plan and the actual
amount, if any, which he is allowed to contribute to the Choice Hotels
International, Inc. Retirement Savings and Investment Plan taking into account
the various limits and eligibility service requirements set forth in the Choice
Hotels International, Inc. Retirement Savings and Investment Plan; provided,
however, that the aggregate amount by which a Participant may elect to reduce
his Compensation under subparagraph (i)(a) of this Plan and under the Choice
Hotels International, Inc. Retirement Savings and Investment Plan shall be in
whole percentages of his Compensation and shall not exceed fifteen percent (15%)
of his Compensation for any Plan Year. Such contributions shall be made through
regular payroll
-25-
<PAGE>
deductions by notifying the Administrative Committee, no later than the
twentieth (20th) day of the month preceding the first applicable payroll period
as of which such election is intended to become effective, pursuant to such
notification procedures as the Administrative Committee may establish, from time
to time. Such election shall remain in effect for subsequent Plan Years until
suspended or revoked pursuant to subparagraph (ii) of this Paragraph A.
(b) In addition, a Participant may also elect to reduce his
Compensation by the amount, if any, paid to such Participant during the Plan
Year which is attributable to salary reduction contributions made by such
Participant to the Choice Hotels International, Inc. Retirement Savings and
Investment Plan. The Administrative Committee shall establish uniform and
nondiscriminatory procedures regarding the timing and manner in which such
additional Salary Reduction Contributions are made to the Plan.
(ii) Suspension of Reductions. A Participant may elect to suspend
------------------------
his Compensation reductions by notifying the Administrative Committee no later
than the twentieth (20th) day of the month preceding the first applicable
payroll period as of which such election is intended to become effective,
pursuant to such notification procedures as the Administrative Committee may
establish, from time to time. Any such suspension shall remain in effect until
the following month, at which time the Participant may recommence such
Compensation reductions. During
-26-
<PAGE>
such period of suspension, the Compensation reductions of such Participant shall
be suspended. A Participant may not make up suspended Compensation reductions.
The Compensation reductions of a Participant shall be suspended automatically
for any payroll period in which such Participant does not receive any
Compensation.
(iii) Method of Allocating Salary Reduction Contributions. Each
---------------------------------------------------
Participant who elected to reduce his Compensation during a Plan Year pursuant
to the provisions of this Paragraph A shall receive an allocation of Salary
Reduction Contributions to his Salary Reduction Contribution Account for such
Plan Year equal to the amount by which he elected to reduce his Compensation for
such Plan Year pursuant to the provisions of this Paragraph A.
B. Company Matching Contributions.
------------------------------
(i) Each Plan Year, each Eligible Participant (including any
Participant who fails to complete one thousand (1,000) Hours or Service with a
Participating Company but who has nevertheless been granted Eligible Participant
status by the Administrative Committee) shall receive an allocation to his
Company Contribution Account for such Plan Year in an amount (the "Company
Matching Contribution"), equal to a percentage of the amount of Salary Reduction
Contributions allocated to such Eligible Participant under Paragraph A(i)(a) and
A(i)(b) above for such Plan Year. In order to receive a Company Matching
Contribution with respect to a Salary Reduction Contribution,
-27-
<PAGE>
which is attributable to a refund of a prior salary reduction contribution made
by such Eligible Participant to the Sunburst Inc. Retirement Savings and
Investment Plan wh ich was refunded to the Participant due to nondiscrimination
rules or other limitations set forth in such plan, the Eligible Participant must
be employed by the Participating Company or an Affiliated Company on the date
such refund is made but need not have elected to make Salary Reduction
Contributions under Paragraph A with respect to the Plan Year within which such
refund is made. This percentage shall be based upon the Eligible Participant's
Years of Service in accordance with the following schedule:
Years of Service Matching Percentage
---------------- -------------------
1 to 5 years 25%
6 to 9 years 75%
10 or more years 100%
In addition, the Company Contribution Account of each Eligible Participant who
made a valid salary reduction contribution election with respect to the Choice
Hotels International, Inc. Retirement Savings and Investment Plan shall be
credited with an amount equal to any Company matching contributions made to the
Choice Hotels International, Inc. Retirement Savings and Investment Plan and
earnings thereon for the Plan Year to which such Eligible Participant's salary
reduction contribution election pertains which were forfeited or foregone due to
(a) the requirements of Internal Revenue Code Sections 401(k) or 401(m), (b) the
refund of salary reduction contributions previously made by such Eligible
Participant under the Choice Hotels
-28-
<PAGE>
International, Inc. Retirement Savings and Investment Plan, (provided that an
amount equal to the refund was contributed to this Plan), or (c) any other
limitations placed on the Eligible Participant's salary reduction contributions
under the Choice Hotels International, Inc. Retirement Savings and Investment
Plan. The aggregate amount of the Company Matching Contribution which may be
allocated to each Eligible Participant's Company Contribution Account for such
Plan Year under this Plan and under the Choice Hotels International, Inc.
Retirement Savings and Compensation. Notwithstanding the above, however, the
combination of the Company Matching Contribution made to this Plan for any Plan
Year when combined with Company Matching Contribution made with respect to such
Plan Year under the Choice Hotels International, Inc. Retirement Savings and
Investment Plan shall not exceed six percent (6%) of Net Profits of the
Sponsoring Company determined with respect to the fiscal year that ends within
such Plan Year. If the combined Company Matching Contributions would otherwise
exceed the six percent (6%) limitation, then the amount of available Company
Matching Contributions shall be pro-rated among the two plans based upon the
relative Company Matching Contributions otherwise due to both programs.
(ii) From time to time, the Administrative Committee may, in its sole
discretion, determine that the inclusion of an Employee in the Plan jeopardizes
the ability of the Plan to continue to satisfy the requirements under Section
3(36) of
-29-
<PAGE>
ERISA. In such an instance, the Administrative Committee may direct the
immediate distribution to such Employee of any vested amount in his Company
Contribution Account and Salary Reduction Contribution Account.
(iii) If, in any Plan Year, any person who should not have been
included as a Participant in the Plan is erroneously included and discovery of
such incorrect inclusion is not made until after a contribution for the Plan
Year has been made and allocated, the Participating Company shall not be
entitled to recover the contribution made with respect to the Ineligible
Participant regardless of whether or not a deduction is allowable with respect
to such contribution. In such event, the amount contributed with respect to the
Ineligible Participant shall constitute a forfeiture for the Plan Year in which
the discovery is made.
SECTION EIGHT
DISABILITY BENEFITS
-------------------
A. Disability Retirement Benefits. If a Participant retires by reason of
------------------------------
Total and Permanent Disability while in the employ of a Participating Company,
his Company Contribution Account shall fully vest, and he shall be entitled to
receive benefits equal to the total amount in his Accounts in the Plan as deter
mined in accordance with the provisions of Paragraph A of Section Twelve hereof.
Such benefits shall be paid at the time and in the manner specified in Section
Twelve of the Plan.
-30-
<PAGE>
B. Determination of Disability. The Administrative Committee shall
---------------------------
determine whether a Participant has suffered a Total and Permanent Disability
and its determination in that respect shall be binding upon the Participant. In
making its determination, the Administrative Committee may (i) require the
Participant to submit to medical examinations by doctors selected by the
Administrative Committee or (ii) rely upon a determination that the Participant
is entitled to disability benefits payable under Title II of the Social Security
Act, 42 U.S.C. 301 et. seq., or similar subsequent section, as evidenced by a
-- ---
certificate of Social Security Insurance Award. The provisions of this Section
Eight shall be uniformly and consistently applied to all Participants.
SECTION NINE
RETIREMENT BENEFITS
-------------------
If a Participant is employed by a Participating Company on his Retirement
Date, his Company Contribution Account shall fully vest at that time. If the
Participant continues in a Participating Company's employ after his Retirement
Date, he shall continue to be eligible to reduce his Compensation under the Plan
and to share in the allocations of Company Matching Contributions under the Plan
until his actual retirement. Upon retirement on or after attaining his
Retirement Date, a Participant shall be entitled to receive benefits equal to
the total amount in his Accounts in t he Plan as determined in accordance with
the provisions of Paragraph A of Section Twelve hereof.
-31-
<PAGE>
Such benefits shall be paid at the time and in the manner specified in Section
Twelve of the Plan.
SECTION TEN
DEATH BENEFITS
--------------
A. Death Benefits. Upon the death of a Participant who is employed by a
--------------
Participating Company at the time of his death, such deceased Participant's
Company Contribution Account shall fully vest, and his Beneficiary shall be
entitled to receive benefits equal to the total amount in the deceased Partici
pant's Accounts in the Plan as determined in accordance with the provisions of
Paragraph A of Section Twelve hereof. Upon the death of a Participant who is not
employed by a Participating Company at the time of his death, such deceased
Participant's Beneficiary shall be entitled to receive benefits equal to the
vested amount in the deceased Participant's Accounts in the Plan as determined
in accordance with the provisions of Paragraph A of Section Eleven. In either
event, such benefits shall be paid at the time and in the manner specified in
Section Twelve of the Plan.
B. Designation of Beneficiaries. Each Participant may designate one or
----------------------------
more Beneficiaries and contingent Benefici aries by delivering a written
designation thereof over his signature to the Administrative Committee. A
Participant may designate different Beneficiaries at any time by delivering a
new written designation over his signature to the Administrative Committee.
-32-
<PAGE>
Any such designation shall become effective only upon its receipt by the
Administrative Committee. The last effective designation received by the
Administrative Committee shall supersede all prior designa tions. A designation
of a Beneficiary shall be effective only if the designated Beneficiary survives
the Participant.
C. Failure of Participant to Designate. If a Participant fails to
-----------------------------------
designate a Beneficiary, or if no designated Beneficiary survives the
Participant, the Participant shall be deemed to have designated the following
Beneficiaries (if then living) in the following order of priority: (1) his
spouse, (2) his children, including adopted children and stepchildren, in equal
shares, (3) his parents, in equal shares, and (4) his estate.
D. Beneficiaries' Rights. Whenever the rights of a Participant are stated
---------------------
or limited in the Plan, his Beneficiaries shall be bound thereby.
SECTION ELEVEN
EMPLOYMENT TERMINATION BENEFITS
-------------------------------
A. Vesting Upon Termination of Employment. In the event of the
--------------------------------------
Termination of Employment of a Partici pant, such Participant shall be entitled
to receive (i) one hundred percent (100%) of the amount in his Salary Reduction
Contribution Account, (ii) one hundred percent (100%) of the amount in the
deferral account component of his Predecessor Account and (iii) the following
percentage of the amount in his Company Contribution Account,
-33-
<PAGE>
based upon the number of his Years of Service prior to such Termination of
Employment, as follows:
Years of Service Percentage
---------------- ----------
Less than 3 years None
3 years 20%
4 years 40%
5 years 60%
6 years 80%
7 or more years 100%
Such Participant's interest in the matching account component of his Predecessor
Account shall become vested in accordance with Section 2.7 of the Sunburst
Supplemental Savings Plan as in effect on December 31, 1991. Such benefits
shall be paid at the time and in the manner set forth in Section Twelve of the
Plan.
B. Counting Years of Service. For purposes of this Section Eleven, all
-------------------------
Years of Service (whether or not continuous) shall be taken into account, except
Years of Service which are disregarded as follows:
(i) In the case of any Participant who has a One-Year Break in
Service, Years of Service before such break shall not be taken into account
until such Participant has completed a Year of Service after such break.
(ii) In the case of any Participant who has no vested amount in his
Accounts in the Plan, Years of Service before any period of consecutive One-Year
Breaks in Service shall not be taken into account if the number of consecutive
One-Year Breaks in Service equals or exceeds the greater of (a) five (5) or (b)
the aggregate number of Years of Service before such break. Such
-34-
<PAGE>
aggregate number of Years of Service before such break shall be deemed not to
include any Years of Service not required to be taken into account under this
Paragraph B by reason of any prior breaks in service.
(iii) In the case of any Participant who has five (5) consecutive
One-Year Breaks in Service, Years of Service after such break shall not be taken
into account for purposes of determining the vested amount in his Company
Contribution Account which accrued prior to such break.
C. Forfeiture of Non-Vested Amount. The excess of (i) the amount in the
-------------------------------
Company Contribution Account of a Participant whose Termination of Employment
has occurred, over (ii) the vested amount in such Company Contribution Account
as determined in accordance with the vesting schedule set forth in Paragraph A
of this Section Eleven (such difference being referred to herein as the "Non-
Vested Amount") shall be forfeited upon the earlier of (i) the Participant's
receipt of a distribution of his total vested Accounts under the Plan or (ii)
his incurring his second (2nd) consecutive One-Year Break in Service following
his Termination of Employment.
If a Participant who has received a distribution of his total vested
Accounts under the Plan (i) is rehired by a Participating Company and performs
more than five hundred (500) Hours of Service in any Plan Year before incurring
five (5) consecutive One-Year Breaks in Service and (ii) repays the full amount
of his prior distribution within five (5) years of the
-35-
<PAGE>
date on which he is rehired by the Participating Company, any previously
forfeited Non-Vested Amount shall be restored to his Company Contribution
Account, and he shall continue to earn future Years of Service for purposes of
determining the vested amount in such Account without regard to his cessation of
employment. The funds needed to restore such a Participant's Non-Vested Amount
shall be drawn first from any Account balances forfeited under the provisions of
this Paragraph C or under the provisions of Paragraph D of Section Twelve during
the Plan Year in which such restoration is required. If such sources are not
sufficient to fully restore the previously forfeited Non-Vested Amount to the
Participant's Company Contribution Account, the Participating Company which
rehired such Employee shall make a special contribution to the rabbi trust to
fund the remainder of the amount needed.
SECTION TWELVE
PAYMENT OF BENEFITS
-------------------
A. Retirement, Disability and Death Benefits. The Administrative
-----------------------------------------
Committee shall make distribution of the bene fits payable to a Participant (or,
if applicable, his Beneficiary), pursuant to Paragraph C of this Section Twelve,
upon such Participant's retirement on or after attaining his Retirement Date or
after sus taining a Total and Permanent Disability or upon such Participant's
death while employed by a Participating Company. The amount of such distribution
shall be based upon the
-36-
<PAGE>
balance in such Participant's Accounts as of the Valuation Date coincident with
or immediately preceding such distribution, supplemented, where applicable, by
an amount representing any amounts withheld from such Participant's Compensation
under Paragraph A of Section Seven subsequent to such Valuation Date.
B. Employment Termination Benefits. The Administrative Committee shall
-------------------------------
make an employment termination benefit distribution to a Participant who has
incurred a Termination of Employment. The amount of such distribution shall be
based upon the vested amount (as provided in Paragraph A of Section Eleven) in
his Company Contribution Account and the total amount in his Salary Reduction
Contribution Account and his Predecessor Account as of the Valuation Date
coincident with or immediately preceding the date on which the distribution is
made, supplemented, where applicable, by an amount representing any amounts
withheld from such Participant's Compensation under Paragraph A of Section Seven
subsequent to such Valuation Date.
In the event that a distribution is made pursuant to this Paragraph B to a
Participant who, at the time of such distribution, is not one hundred percent
(100%) vested in the amount in his Company Contribution Account, the following
rules shall apply:
(i) Establishment of Separate Ledger Account. The Administrative
----------------------------------------
Committee shall establish a separate ledger account (hereinafter referred to as
the "Separate Account") for such Participant as of the time of such
distribution. The
-37-
<PAGE>
balance in such Participant's Company Contribution Account immediately following
such distribution shall be transferred to this Separate Account and shall
constitute the initial balance of this Separate Account. For this purpose, all
references to a Participant's "Company Contribution Account" in the Plan shall
be deemed applicable to such Participant's Separate Account.
(ii) Subsequent Payments. In the event that after such distribution
-------------------
the former Employee is rehired by a Participating Company but then again incurs
a Termination of Employment at a time when such Parti cipant is less than one
hundred percent (100%) vested in his Separate Account, then the nonforfeitable
portion of such Participant's Separate Account for purposes of Paragraph A of
Section Eleven shall be an amount equal to:
(A) The vesting percentage set forth in Paragraph A of Section
Eleven applicable to such Participant at the time of such subsequent
distribution,
Multiplied by:
-------------
(B) The sum of the present balance in the Separate Account
plus the sum of all prior distribution amounts,
- ----
Less:
----
The sum of all prior distribution amounts.
C. Distribution of Benefits. Upon a Participant's retirement on or after
------------------------
attaining his Retirement Date or after sustaining a Total and Permanent
Disability, his death, or his Termination of Employment, the Participating
Company which employed such Participant at such time shall pay such
Participant
-38-
<PAGE>
(or, if applicable, his Beneficiary) the benefits payable to him
under Paragraph A or B of this Section Twelve in one lump sum payment as soon as
administratively feasible after such event. However, if at least sixty (60) days
prior to his retirement, death or Termination of Employment, the Participant
made an irrevocable election to receive his benefits under the Plan in the form
of installment payments, such distribution shall instead be made in the form of
installment payments. If a Participant elects distribution in the form of
installment payments, he shall further designate the period of time (not to
exceed twenty (20) years) over which the installment payments are to be made and
whether such installment payments are to be made on a monthly, quarterly, semi-
annual or annual basis. During the period such installment payments are being
made, the remaining balances in the Participant's vested Accounts shall continue
to be credited with earnings or losses in accordance with the provisions of
Section Six of the Plan. If a Participant dies after having made an election to
receive his distribution in the form of installment payments but before the
receipt of all of the installment payments payable thereunder, the remaining
installment payments shall be paid to his Beneficiary for the remaining duration
of the elected installment period unless the Participant has provided in such
installment election for a different form of payment to his Beneficiary in the
event of the death of the Participant, in which event such different form of
payment shall be made to the Participant's Beneficiary. If a
-39-
<PAGE>
Participant dies after having elected to receive his distribution in the form of
installment payments but prior to receipt of any installment payments payable
thereunder, the benefits payable under Paragraph A or B of this Section Twelve
to such Participant's Beneficiary shall be paid in one lump sum payment as soon
as administratively feasible following such Participant's death.
The computation of the amount of any lump sum payment or the amount of any
installment payment shall be made by reference to the balances of the
Participant's vested Accounts as of the date of the distribution. A
Participating Company making any distribution hereunder shall withhold from the
distribution any applicable payroll taxes or required income taxes.
Notwithstanding the foregoing, the distribution of the benefits
attributable to that portion of the Participant's Company Stock Account and
Company Contribution Account held in the form of Company Stock shall be made (i)
in cash if the aggregate number of shares in such accounts is fifty (50) or
less, or (ii) in cash o r Company Stock or both if the aggregate number of
shares in such accounts is more than fifty (50). Prior to making a distribution
of benefits, the Administrative Committee shall advise the Participant (or, if
applicable, his Beneficiary) in writing of the right to demand that that portion
of the Participant's Company Stock Account and Company Contribution Account held
in the form of Company Stock be distributed solely in Company Stock, if such
accounts contain in
-40-
<PAGE>
the aggregate greater than fifty (50) shares. If the Participant (or,
if applicable, his Beneficiary) fails to make such demand in writing within
ninety (90) days after receipt of such written notice, the Administrative
Committee shall direct the Trustee to make distribution of that portion of the
Participant's Company Stock Account and Company Contribution Account held in
Company Stock in such form as the Administrative Committee, in its sole
discretion, shall determine.
If a Participant (or, if applicable, his Beneficiary) demands that that
portion of the Participant's Company Stock Account and Company Contribution
Account held in the form of Company Stock be distributed solely in Company
Stock, and if such accounts contain in the aggregate greater than fifty (50)
shares, the distribution of such applicable portion of his Company Stock Account
and Company Contribution Account held in the form of Company Stock shall be made
entirely in whole shares or other units of Company Stock. Any cash balance in
the Participant's Company Stock Account shall be used to acquire for
distribution the maximum number of whole shares or other units of Company Stock
at the then fair market value. Any fractional unit of the unexpended balance
shall be distributed in cash. If Company Stock is not available for purchase by
the Trustee, then the Trustee shall hold such balance until Company Stock is
acquired and then make such distribution. If the Trustee is unable to purchase
the Company Stock required for distribution, it shall make distribution in cash
within one (1) year after the date the
-41-
<PAGE>
distribution was to be made, except in the case of a retirement distribution,
which shall be made within sixty (60) days after the close of the Plan Year in
which the Participant's retirement occurs.
D. Benefits of Persons Who Cannot Be Located. If the Administrative
-----------------------------------------
Committee determines in good faith that a Participant or Beneficiary entitled to
receive a benefit payment hereunder cannot be located, the Administrative
Committee shall nevertheless give written notice to such person of the fact that
such benefit payment is payable to him under the Plan. Such written notice shall
be given by United States mail to the person entitled to the benefit payment
(according to the records of the Plan) at the last known address of such person.
In addition, the Administrative Committee shall use such other means as are
reasonably available to it in order to ascertain the location of such person. If
such Participant or Beneficiary makes no claim for such benefit payment before
the earlier of (i) a period of two (2) years after the giving of such written
notice or (ii) the termination of the Plan, then the Administrative Committee
shall declare a forfeiture of the benefits otherwise payable to s uch person,
provided such person has not yet been located.
E. Distribution for Minor Beneficiary. In the event a distribution is to
----------------------------------
be made to a minor, then the Administrative Committee may, in its sole
discretion, direct that such distribution be paid to the legal guardian, or if
none, to a parent of such Beneficiary or a responsible adult with whom the
-42-
<PAGE>
Beneficiary maintains his residence, or to the custodian for such Beneficiary
under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted
by the laws of the state in which said Beneficiary resides. Such a payment to
the legal guardian or parent of a minor Beneficiary shall fully discharge the
Participating Company and Plan from further liability on account thereof.
SECTION THIRTEEN
BENEFIT CLAIMS PROCEDURE
------------------------
A. Claims for Benefits. Any claim for benefits under the Plan shall be
-------------------
made in writing to the Administrative Committee. If such claim for benefits is
wholly or partially denied, the Administrative Committee shall, within ninety
(90) days after receip of the claim, notify the Par ticipant or Beneficiary of
the denial of the claim. Such notice of denial shall (i) be in writing, (ii) be
writ ten in a manner calculated to be understood by the Participant or
Beneficiary, and (iii) contain (a) the specific reason or reasons for denial of
the claim, (b) a specific reference to the pertinent Plan provisions upon which
the denial is based, (c) a description of any additional material or infor
mation necessary to perfect the claim, along with an explana tion of why such
material or information is necessary, and (d) an explanation of the claim review
procedure as set forth in this Section Thirteen.
-43-
<PAGE>
B. Request for Review of Denial. Within sixty (60) days after the receipt
----------------------------
by a Participant or Beneficiary of a written notice of denial of the claim, or
such later time as shall be deemed reasonable taking into account the nature of
the benefit subject to the claim and any other attendant circumstances, the
Participant or Beneficiary may file a written request with the Administrative
Committee that it conduct a full and fair review of the denial of the claim for
benefits.
C. Decision on Review of Denial. The Administrative Committee shall
----------------------------
deliver to the Participant or Bene ficiary a written decision on the claim
within sixty (60) days after the receipt of the aforesaid request for review.
Such decision shall (i) be written in a manner calculated to be understood by
the Parti cipant or Beneficiary, (ii) include the specific reason or reasons for
the decision, and (iii) contain a specific refer ence to the pertinent Plan
provisions upon which the decision is based.
SECTION FOURTEEN
INALIENABILITY OF BENEFITS
--------------------------
The right of any Participant or Beneficiary to any benefit or payment under
the Plan shall not be subject to voluntary or involuntary transfer, alienation,
or assignment, and, to the fullest extent permitted by law, shall not be subject
to attachment, execution, garnishment, sequestration, or other legal or
equitable process. In the event a Participant or Beneficiary who is receiving or
is entitled to receive benefits under the
-44-
<PAGE>
Plan attempts to assign, transfer or dispose of such right, or if an attempt is
made to subject said right to such process, such assignment, transfer or
disposition shall be null and void.
SECTION FIFTEEN
AMENDMENT OF THE PLAN
---------------------
The Sponsoring Company may amend the Plan at any time, and from time to
time, pursuant to written resolu tions of the Board of Directors of the
Sponsoring Company. No such amendment, however, shall have the effect of
reducing any then nonforfeitable percentage of benefits of any Participant as
computed in accordance with the vesting schedule under Paragraph A of Section
Eleven of the Plan. Notwithstanding the foregoing provisions of this Plan, the
Sponsoring Company may provide for distribution of some or all of the Accounts
established in connection with the Plan if the Sponsoring Company's chief legal
officer renders a written opinion that such distribution is required to enable
the Plan to qualify for exemption from the requirements of Parts 2-4 of Title I
of ERISA or as otherwise required by applicable law.
SECTION SIXTEEN
PERMANENCY OF THE PLAN
----------------------
Each Participating Company reserves the right to terminate the Plan with
respect to such Participating Company, and the Sponsoring Company reserves the
right to terminate the Plan with respect to all the Participating Companies.
-45-
<PAGE>
If the Board of Directors of a Participating Company determines to
terminate the Plan com pletely with respect to such Participating Company, the
Plan shall be terminated with respect to such Participating Company as of the
date specified in certified copies of resolutions of such Board of Directors of
the Participating Company delivered to the Administrative Committee. If the
Board of Directors of the Sponsoring Company determines to terminate the Plan
completely with respect to all the Participating Companies, the Plan shall be
terminated with respect to all the Participating Companies as of the date
specified in certified copies of resolutions of the Board of Directors of the
Sponsoring Company delivered to the Administrative Committee. Upon such
termination or partial termination of the Plan, after payment of all expenses
and proportional adjustment of the Accounts of the Participants affected by such
termination to reflect expenses, profits or losses, and allocations of any
previously unallocated amounts to the date of termination, the Participants
affected by such termination shall be entitled to receive the amount then
credited to their respective Accounts in the Plan. The Administrative Committee
shall make payment of such amounts in cash.
Upon the termination or partial termination of the Plan, the right of each
Participant affected by such termination to the amount credited to his Accounts
at such time shall be nonforfeitable without reference to any formal action on
the part
-46-
<PAGE>
of the Administrative Committee or the Participating Company employing such
Participant.
SECTION SEVENTEEN
STATUS OF EMPLOYMENT RELATIONS
------------------------------
The adoption and maintenance of the Plan shall not be deemed to constitute
a contract between any Participating Company and its Employees or to be
consideration for, or an inducement or condition of, the employment of any
person. Nothing herein contained shall be deemed (i) to give to any Employee the
right to be retained in the employ of a Participating Com pany; (ii) to affect
the right of a Participating Company to discipline or discharge any Employee at
any time; (iii) to give a Participating Company the right to require any
Employee to remain in its employ; or (iv) to affect any Employee's right to
terminate his employment at any time.
SECTION EIGHTEEN
FUNDING
-------
No assets of the Participating Companies shall be set aside, earmarked or
placed in trust or escrow for the benefit of any Participant to fund any
obligation of any Participating Company which may exist under this Plan;
provided, however, that the Participating Companies may establish a grantor
trust to hold assets to secure their obligations to the Participants under this
Plan if the establishment of such a trust does not result in the Plan being
"funded" for purposes of the Internal Revenue Code.
-47-
<PAGE>
Except to the extent provided through a grantor trust established under the
provisions of the preceding sentence, all payments to a Participant or
Beneficiary under this Plan shall be made out of the general revenue of the
Participating Company which employed the Participant to which such benefits were
attributable, and the right to such payments by the Participant or Beneficiary
shall be solely that of an unsecured general creditor of the relevant
Participating Company.
SECTION NINETEEN
APPLICABLE LAW
--------------
The Plan shall be construed, regulated, interpreted and administered under
and in accordance with the laws of the State of Maryland, other than its laws
respecting choice of law, to the extent not preempted by ERISA.
SECTION TWENTY
ADOPTION OF PLAN BY AFFILIATED COMPANIES
----------------------------------------
Any Affiliated Company, whether or not presently existing, may, with the
approval of the Board of Directors of the Sponsoring Company, adopt the Plan by
means of appropriate corporate action of such Affiliated Company and by
executing such documents as the Board of Directors of the Sponsoring Company may
require in order for such Affiliated Company to become a party to any trust
established in connection with the Plan. Any such Affiliated Company which
adopts the Plan as provided above shall
-48-
<PAGE>
thereafter be included within the meaning of the term "Participating Company"
when used in the Plan.
-49-
<PAGE>
EXHIBIT 5
---------
December 1, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
RE: Choice Hotels International, Inc.
Registration Statement on Form S-8
Gentlemen:
I am General Counsel of Choice Hotels International, Inc. (the "Company")
and have acted for the Company in connection with the preparation of the
Company's Registration Statement on Form S-8 filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended. The Registration Statement covers shares of the Company's Common
Stock, $.10 par value, offered under the Company's Retirement Savings &
Investment Plan (the "401(k) Plan") and Nonqualified Retirement Savings &
Investment Plan (the "Nonqualified Plan").
In connection with the rendering of the opinion set forth below, I have
reviewed the records of the Company, the minutes of the meetings of the
stockholders and directors of the Company and such other records and documents
as was necessary in my judgment to so render the following opinion.
Based on the foregoing, I am of the opinion that:
1. The Company is a corporation duly incorporated and existing under the
laws of the State of Delaware; and
2. The shares of Common Stock of the Company offered to the holders under
the exercise of options under the 401(k) Plan and the Nonqualified Plan, have
been or will be legally issued, fully paid and nonassessable.
I hereby consent to the filing of a copy of this opinion with the
Commission as an exhibit to the Registration Statement referred to above.
Very truly yours,
/s/ Michael J. DeSantis
Michael J. DeSantis
Senior Vice President
and General Counsel
<PAGE>
EXHIBIT 23(i)
-------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated June 24, 1997,
included in Choice Hotels International, Inc.'s Registration Statement on Form
10 dated September 18, 1997 and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Washington, D.C.
November 17, 1997
<PAGE>
EXHIBIT 24
----------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints MICHAEL J. DeSANTIS his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign Registration Statements or
amendments (including post-effective amendments) thereto with respect to the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock, $.10 par value, of Choice Hotels International, Inc. (the "Company")
delivered pursuant to the Company's Retirement Savings & Investment Plan and
Nonqualified Retirement Savings & Investment Plan and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute may lawfully do or cause to be done
by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th day
of November, 1997.
/s/ Stewart Bainum, Jr.
----------------------------------
Stewart Bainum, Jr.
Chairman and Director
<PAGE>
EXHIBIT 24
----------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints MICHAEL J. DeSANTIS his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign Registration Statements or
amendments (including post-effective amendments) thereto with respect to the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock, $.10 par value, of Choice Hotels International, Inc. (the "Company")
delivered pursuant to the Company's Retirement Savings & Investment Plan and
Nonqualified Retirement Savings & Investment Plan and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute may lawfully do or cause to be done
by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th day
of November, 1997.
/s/ Stewart Bainum
----------------------------------
Stewart Bainum
Director
<PAGE>
EXHIBIT 24
----------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints MICHAEL J. DeSANTIS his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign Registration Statements or
amendments (including post-effective amendments) thereto with respect to the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock, $.10 par value, of Choice Hotels International, Inc. (the "Company")
delivered pursuant to the Company's Retirement Savings & Investment Plan and
Nonqualified Retirement Savings & Investment Plan and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute may lawfully do or cause to be done
by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th day
of November, 1997.
/s/ William R. Floyd
----------------------------------
William R. Floyd
Director
<PAGE>
EXHIBIT 24
----------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints MICHAEL J. DeSANTIS his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign Registration Statements or
amendments (including post-effective amendments) thereto with respect to the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock, $.10 par value, of Choice Hotels International, Inc. (the "Company")
delivered pursuant to the Company's Retirement Savings & Investment Plan and
Nonqualified Retirement Savings & Investment Plan and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and purposes
as she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute may lawfully do or cause to be
done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 26th day
of November, 1997.
/s/ Barbara Bainum
----------------------------------
Barbara Bainum
Director
<PAGE>
EXHIBIT 24
----------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints MICHAEL J. DeSANTIS his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign Registration Statements or
amendments (including post-effective amendments) thereto with respect to the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock, $.10 par value, of Choice Hotels International, Inc. (the "Company")
delivered pursuant to the Company's Retirement Savings & Investment Plan and
Nonqualified Retirement Savings & Investment Plan and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute may lawfully do or cause to be done
by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th day
of November, 1997.
/s/ James H. Rempe
----------------------------------
James H. Rempe
Director
<PAGE>
EXHIBIT 24
----------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints MICHAEL J. DeSANTIS his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign Registration Statements or
amendments (including post-effective amendments) thereto with respect to the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock, $.10 par value, of Choice Hotels International, Inc. (the "Company")
delivered pursuant to the Company's Retirement Savings & Investment Plan and
Nonqualified Retirement Savings & Investment Plan and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute may lawfully do or cause to be done
by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th day
of November, 1997.
/s/ Robert C. Hazard, Jr.
----------------------------------
Robert C. Hazard, Jr.
Director
<PAGE>
EXHIBIT 24
----------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints MICHAEL J. DeSANTIS his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign Registration Statements or
amendments (including post-effective amendments) thereto with respect to the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock, $.10 par value, of Choice Hotels International, Inc. (the "Company")
delivered pursuant to the Company's Retirement Savings & Investment Plan and
Nonqualified Retirement Savings & Investment Plan and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute may lawfully do or cause to be done
by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th day
of November, 1997.
/s/ Gerald W. Petitt
----------------------------------
Gerald W. Petitt
Director
22
<PAGE>
EXHIBIT 24
----------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints MICHAEL J. DeSANTIS his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign Registration Statements or
amendments (including post-effective amendments) thereto with respect to the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock, $.10 par value, of Choice Hotels International, Inc. (the "Company")
delivered pursuant to the Company's Retirement Savings & Investment Plan and
Nonqualified Retirement Savings & Investment Plan and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute may lawfully do or cause to be done
by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th day
of November, 1997.
/s/ Frederic V. Malek
----------------------------------
Frederic V. Malek
Director
23
<PAGE>
EXHIBIT 24
----------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints MICHAEL J. DeSANTIS his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign Registration Statements or
amendments (including post-effective amendments) thereto with respect to the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock, $.10 par value, of Choice Hotels International, Inc. (the "Company")
delivered pursuant to the Company's Retirement Savings & Investment Plan and
Nonqualified Retirement Savings & Investment Plan and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute may lawfully do or cause to be done
by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th day
of November, 1997.
/s/ Jerry E. Robertson
----------------------------------
Jerry E. Robertson
Director
<PAGE>
EXHIBIT 24
----------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints MICHAEL J. DeSANTIS his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign Registration Statements or
amendments (including post-effective amendments) thereto with respect to the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock, $.10 par value, of Choice Hotels International, Inc. (the "Company")
delivered pursuant to the Company's Retirement Savings & Investment Plan and
Nonqualified Retirement Savings & Investment Plan and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute may lawfully do or cause to be done
by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th day
of November, 1997.
/s/ Joseph M. Squeri
-------------------------------------
Joseph M. Squeri
Vice President and Treasurer (Principal
Financial Officer and Principal Accounting
Officer)
