<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1998 COMMISSION FILE NO. 1-11915
CHOICE HOTELS INTERNATIONAL, INC.
10750 COLUMBIA PIKE
SILVER SPRING, MD. 20901
(301) 979-5000
Delaware 52-1209792
- ------------------------ ----------------------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
-------------------------------------------
(Former name, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
SHARES OUTSTANDING
CLASS AT JUNE 30, 1998
- ----------------------- ------------------------
Common Stock, $0.01
par value per share 58,636,732
----------
================================================================================
<PAGE>
CHOICE HOTELS INTERNATIONAL, INC.
INDEX
-----
PAGE NO.
--------
PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheets -
June 30, 1998 (Unaudited) and December 31, 1997....................... 3
Consolidated Statements of Income -
Three months ended June 30, 1998 and June 30, 1997 and Six Months
Ended June 30, 1998 and June 30, 1997 (Unaudited)..................... 5
Consolidated Statements of Cash Flows -
Six months ended June 30, 1998 and June 30, 1997 (Unaudited).......... 6
Notes to Consolidated Financial Statements (Unaudited).................. 7
Management's Discussion and Analysis of Results of
Operations and Financial Condition.................................... 9
PART II. OTHER INFORMATION AND SIGNATURE................................ 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
CHOICE HOTELS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 6,365 $ 10,282
Receivables (net of allowance
for doubtful accounts of
$5,394 and $7,608, respectively) 26,868 28,347
Other 12,476 9,904
Receivable from Sunburst Hospitality 19,921 25,066
-------- --------
Total current assets 65,630 73,599
PROPERTY AND EQUIPMENT, AT COST, NET OF
ACCUMULATED DEPRECIATION 39,146 37,040
GOODWILL, NET OF ACCUMULATED AMORTIZATION 67,866 68,792
FRANCHISE RIGHTS, NET OF ACCUMULATED
AMORTIZATION 47,578 48,819
INVESTMENT IN FRIENDLY HOTELS, PLC, NET 41,552 17,011
OTHER ASSETS 24,204 12,935
ASSETS HELD FOR SALE -- 10,752
NOTE RECEIVABLE FROM SUNBURST HOSPITALITY 122,368 117,447
-------- --------
Total assets $408,344 $386,395
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE>
CHOICE HOTELS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- -------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 10,041 $ 15,041
Accounts payable 24,149 26,452
Accrued expenses 16,302 20,702
Income taxes payable 6,754 6,007
-------- --------
Total current liabilities 57,246 68,202
-------- --------
LONG-TERM DEBT 283,678 267,780
DEFERRED INCOME TAXES AND OTHER 10,233 1,155
-------- --------
Total liabilities 351,157 337,137
-------- --------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value 604 598
Additional paid-in capital 51,561 47,907
Accumulated other comprehensive income 1,660 (8,316)
Treasury stock (27,029) (189)
Retained earnings 30,391 9,258
-------- --------
Total shareholders' equity 57,187 49,258
-------- --------
Total liabilities & shareholders' equity $408,344 $386,395
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
4
<PAGE>
CHOICE HOTELS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------- ------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------- ------- ------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Royalty fees $29,214 $26,913 $50,058 $45,171
Product sales 7,218 5,486 12,374 11,900
Initial franchise fees and relicensing fees 4,235 4,647 7,649 8,831
Other, including partner service revenue 3,769 3,659 6,427 7,198
European hotel operations - 4,855 1,098 8,588
------- ------- ------- -------
Total revenues 44,436 45,560 77,606 81,688
------- ------- ------- -------
OPERATING EXPENSES
Selling, general and administrative 12,430 13,733 23,664 24,681
Product cost of sales 6,878 5,185 11,608 11,346
Depreciation and amortization 1,609 2,581 3,550 5,262
European hotel operations - 4,208 1,133 7,889
------- ------- ------- -------
Total operating expenses 20,917 25,707 39,955 49,178
------- ------- ------- -------
OPERATING INCOME 23,519 19,853 37,651 32,510
OTHER
Interest expense 4,925 2,142 9,583 5,008
Interest and dividend income (3,240) - (5,960) -
Gain from sale of investments (424) - (2,190) -
------- ------- ------- -------
Total other 1,261 2,142 1,433 5,008
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 22,258 17,711 36,218 27,502
INCOME TAXES 9,270 7,377 15,085 11,455
------- ------- ------- -------
NET INCOME $12,988 $10,334 $21,133 $16,047
======= ======= ======= =======
Weighted average shares outstanding 59,255 60,665 59,522 62,674
======= ======= ======= =======
DILUTED SHARES OUTSTANDING 60,387 60,665 60,757 62,674
======= ======= ======= =======
BASIC EARNINGS PER SHARE $0.22 $0.17 $0.36 $0.26
======= ======= ======= =======
DILUTED EARNINGS PER SHARE $0.22 $0.17 $0.35 $0.26
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements of
income.
5
<PAGE>
CHOICE HOTELS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
------------------
June 30, June 30,
1998 1997
-------- --------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 21,133 $ 16,047
Reconciliation of net income to net cash provided by
operating activities:
Depreciation and amortization 5,653 5,262
Provision for bad debts 553 486
Increase in deferred taxes and other 2,211 3,179
Non cash interest and dividend income (5,943) -
Changes in assets and liabilities:
Change in receivables 926 3,700
Change in inventories and other current assets (1,713) 542
Change in current liabilities (6,513) (1,414)
Change in income taxes payable 747 2,014
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,054 29,816
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Investment in property and equipment (5,593) (6,515)
Repayments of Sunburst Hospitality advances, net 5,286 -
Other items, net (8,393) -
-------- --------
NET CASH UTILIZED BY INVESTING ACTIVITIES (8,700) (6,515)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 118,959 -
Repayment of long-term debt (108,061) (21,775)
Purchase of treasury stock (26,840) -
Proceeds from issuance of common stock 3,671 -
Transfers to Parent, net - (1,045)
-------- --------
NET CASH UTILIZED BY FINANCING ACTIVITIES (12,271) (22,820)
-------- --------
Net change in cash and cash equivalents (3,917) 481
Cash and cash equivalents, beginning of period 10,282 2,973
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,365 $ 3,454
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements of
cash flows.
6
<PAGE>
CHOICE HOTELS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying consolidated financial statements of Choice Hotels
International, Inc. (the "Company") and subsidiaries have been prepared by the
Company without audit. Certain information and footnote disclosures normally
included in financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. The Company believes the
disclosures made are adequate to make the information presented not misleading.
The consolidated financial statements should be read in conjunction with the
consolidated financial statements for the seven month period ended December 31,
1997 and notes thereto included in the Company's Form 10-K, dated March 31,
1998. In the opinion of management, all adjustments (which include any normal
recurring adjustments) considered necessary for a fair presentation have been
included. Interim results are not necessarily indicative of fiscal year
performance because of seasonal and short-term variations. All intercompany
transactions and balances between Choice Hotels International, Inc. and its
subsidiaries have been eliminated. Certain reclassifications have been made to
the prior year amounts to conform to current period presentation.
2. In January 1998, the Company completed a transaction with Friendly Hotels,
PLC ("Friendly")in which Friendly assumed the master franchise rights for
Choice's Comfort, Quality and Clarion brand hotels throughout Europe (with the
exception of Scandinavia) for the next 10 years. In exchange, the Company will
receive from Friendly $8.0 million, payable in eight equal annual installments.
As part of the transaction, Friendly acquired European hotels currently owned by
the Company for a total consideration of approximately $26.2 million in
convertible preferred shares and cash. In exchange for 10 hotels in France, two
in Germany and one in the United Kingdom, the Company received $22.2 million in
new unlisted 5.75 percent convertible preferred shares in Friendly at par,
convertible into one new Friendly ordinary share for every 150p nominal of the
preferred convertible shares. In addition, Friendly will pay the Company
deferred compensation of $4.0 million in cash, payable by the fifth anniversary
of completion or sooner dependent on the level of future profits of the hotels
acquired. The European hotels included in this transaction have a carrying
value, which included a cumulative translation adjustment of $(6.6) million,
totaling approximately $19.9 million. The Company had a gain on the sale of $2.0
million, which has been deferred and is presented net of the Investment in
Friendly Hotels, PLC in the accompanying consolidated balance sheets.
3. In May 1998, the Company issued $100 million senior unsecured notes (the
"Notes"), bearing a coupon rate of 7.125%. The Notes will mature on May 1, 2008,
with interest on the Notes to be paid semi-annually. The Company has used the
net proceeds from the offering of approximately $99 million to repay amounts
outstanding under the Company's $300 million revolving credit facility.
4. During the six months ended June 30, 1998, the Company's comprehensive
income (consisting of net income plus foreign currency translation adjustments)
exceeded net income by approximately $3 million.
5. During the second quarter of 1998, the Company changed its presentation of
marketing and reservation fees such that the fees collected and associated
expenses are reported net. The Company's franchise agreements require the
payment of franchise fees which include marketing and reservation fees. These
fees, which are based on a percentage of the franchisees' gross room revenues,
are used exclusively to reimburse the Company for expenses associated with
providing such franchise services as central reservation systems, national
marketing, and media advertising. The Company is contractually obligated to
expend the reservation and marketing fees it collects from franchisees in
accordance with the franchise agreements; as such no income or loss to the
Company is generated. All prior periods have been restated to conform to the new
presentation.
The total marketing and reservation fees received by the Company (previously
reported as revenue) were $56.7 million and $43.8 million for the six months
ended June 30, 1998 and June 30, 1997, respectively. Depreciation and
7
<PAGE>
amortization charged to reservation and marketing expenses was $2.2 million and
$1.2 million for the six months ending June 30, 1998 and June 30, 1997,
respectively. Reservation fees and marketing fees not expended in the current
year are carried over to the next fiscal year and expended in accordance with
the franchise agreements. Shortfall amounts are similarly recovered in
subsequent years. Excess or shortfall amounts from the operation of these
programs are recorded as a payable or receivable from the particular fund. The
shortfall amount recorded as a current receivable in other assets on the
Company's balance sheet was $7.2 million and $1.7 million at June 30, 1998 and
December 31, 1997, respectively.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
--------------------------------------------------------------------------
The principal factors that affect the Company's results are: (i) growth in the
number of hotels under franchise, (ii) occupancy and room rates achieved by the
hotels under franchise, (iii) the number and relative mix of franchised hotels,
and (iv) the Company's ability to manage costs. The number of rooms at
franchised properties and occupancy and room rates at those properties
significantly affect the Company's results because franchise royalty fees are
based upon room revenues at franchised hotels. The variable overhead costs
associated with franchise system growth are substantially less than incremental
royalty fees generated from new franchisees; therefore, the Company is able to
capture a significant portion of those royalty fees as operating income.
Comparison of Three Month Period Ended June 30, 1998 Operating Results and Three
Month Period Ended June 30, 1997 Operating Results
The Company reported net income of $13.0 million, or $0.22 per diluted share,
for the second quarter ended June 30, 1998, compared to net income for the same
period of 1997 of $10.3 million, or $0.17 per diluted share. The $0.22 per share
includes approximately $0.01 resulting from a sale of certain investments held
by the Company. Exclusive of this gain, diluted earnings per share increased
23.5% to $0.21 per share from $0.17 per share. The increase in net income for
the period is attributable to an increase in franchise revenue as a direct
result of the addition of new licensees to the franchise system, increases in
the effective royalty rate achieved for the domestic hotel system and the
control of the Company's selling, general and administrative costs.
Franchise Revenues
- ------------------
In operating the franchise business, the Company collects marketing and
reservation fees and assessments from its franchisees. The Company is
contractually obligated to disburse these fees for marketing and reservation
activities to be provided on behalf of its franchisees. Therefore, the Company
presents these fees and expenses on a net basis in the accompanying consolidated
statements of income. The Company also provides certain services to its
franchisees, specifically a group purchasing program, where the Company utilizes
bulk purchasing power to obtain favorable pricing from third-party vendors for
franchisees. This program is provided to the franchisees as a service and is
not designed to be a major component of the Company's profitability. Management
therefore analyzes its franchise business based on revenues net of marketing and
reservation fees and product sales ("net franchise revenues").
Net franchise revenues include royalty fees, initial franchise fees and
relicensing fees earned on contracts signed and other revenues, including
partner service revenue. Net franchise revenues are dependent upon growth in
the number of franchised properties as well as the underlying performance of the
franchised hotels for continued growth. The key industry standard for measuring
hotel operating performance is revenue per available room, ("RevPAR"), which is
calculated by multiplying the percentage of occupied rooms by the average daily
room rate realized.
The Company's net franchise revenues were $37.2 million for the three months
ended June 30, 1998 and $35.2 million for the three months ended June 30, 1997.
Total net franchise revenues are computed as follows:
<TABLE>
<CAPTION>
(In millions)
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
------------------- -------------------
<S> <C> <C>
Total franchise revenues $44.4 $40.7
Product sales (7.2) (5.5)
----- -----
Total net franchise revenues $37.2 $35.2
===== =====
</TABLE>
9
<PAGE>
Royalties increased $2.3 million to $29.2 million in 1998 from $26.9 million in
1997, an increase of 8.6%. The increase in royalties is attributable to a net
increase of 85 franchisees during the period representing an additional 6,500
rooms added to the system and an increase in the effective royalty rate of the
domestic hotel system to 3.54% from 3.50%. Also, foreign fees for the three
months ended June 30, 1998 increased $1.3 million from the three months ended
June 30, 1997. Initial and relicensing fee revenue generated from domestic
franchise contracts signed decreased to $4.2 million from $4.6 million in 1997.
However, total franchise agreements signed in the second quarter 1998 were 198,
as compared to 142 for the second quarter 1997. The decline in initial and
relicensing fee revenue is attributable to certain incentives offered related to
the Company's Sleep Inn brand. The total number of hotels open and under
development, increased to 4,437 from 4,191 an increase of 5.9% for the period
ending June 30, 1998. This represents an increase in the number of rooms open
and under development of 4.6% from 357,451 as of June 30, 1997 to 373,919 as of
June 30, 1998.
Franchise Expenses
- ------------------
The cost to operate the franchising business is reflected in selling, general
and administrative costs. Selling, general and administrative expenses decreased
approximately $1.3 million between years. As a percentage of total net
franchising revenues, total franchising selling, general and administrative
expenses declined to 33.3% for the second quarter of 1998 as compared to 38.9%
for 1997. The improvement in the franchising margins relates to the economies of
scale generated from operating a larger franchisee base and cost control
initiatives.
Product Sales
- -------------
Sales made to franchisees through the Company's group purchasing program
increased $1.7 million (or 30.9%) to $7.2 million for the three months ended
June 30, 1998 from $5.5 million at June 30, 1997. The group purchasing program
utilizes bulk purchases to obtain favorable pricing from third party vendors for
franchisees ordering similar products. The Company acts as a "clearing-house"
between the franchisee and the vendor, and orders are shipped directly to the
franchisee.
Product cost of sales decreased $1.7 million (or 32.7%) for the three months
ended June 30, 1998. The product services margins decreased for the three
months ended June 30, 1998 to 4.7% from 5.5% at June 30, 1997. This purchasing
program is provided to the franchisees as a service and is not expected to be a
major component of the Company's profitability.
Other
- ------
For the three months ended June 30, 1998, the Company recognized approximately
$569,000 in dividend income from its investment in Friendly and approximately
$2.7 million of interest income from its subordinated term note to Sunburst
Hospitality, Inc. During the second quarter of 1998, the Company recognized
approximately $424,000 from the sale of certain investments.
10
<PAGE>
Comparison of Six Month Period Ended June 30, 1998 Operating Results and Six
Month Period Ended June 30, 1997 Operating Results
The Company reported net income of $21.1 million, or $0.35 per diluted share,
for the six months ended June 30, 1998, compared to net income for the same
period of 1997 of $16.0 million, or $0.26 per diluted share. The $0.35 per share
includes approximately $0.02 resulting from a sale of certain investments held
by the Company. Exclusive of this gain, diluted earnings per share increased
26.9% to $0.33 per share from $0.26 per share. The increase in net income for
the period is primarily attributable to an increase in franchise revenue as a
direct result of the addition of new licensees to the franchise system,
improvements in the operating performance of franchised hotels and the control
of the Company's selling, general and administrative costs.
Franchise Revenues
- ------------------
The Company's net franchise revenues were $64.1 million for the six months ended
June 30, 1998 and $61.2 million for the six months ended June 30, 1997.
Total net franchise revenues are computed as follows:
<TABLE>
<CAPTION>
(In millions)
June 30, 1998 June 30, 1997
-------------- --------------
<S> <C> <C>
Total franchise revenues $ 76.5 $ 73.1
Product sales (12.4) (11.9)
------ ------
Total net franchise revenues $ 64.1 $ 61.2
====== ======
</TABLE>
Royalties increased $5.0 million to $50.1 million in 1998 from $45.1 million in
1997, an increase of 11.1%. The increase in royalties is attributable to a net
increase of 157 franchisees during the period representing an additional 12,077
rooms added to the system, an improvement in domestic RevPAR of 1.4% and an
increase in the effective royalty rate of the domestic hotel system to 3.50%
from 3.40%. Also, foreign fees increased $1.6 million for the six months ended
June 30, 1998 from the six months ended June 30, 1997. Initial fee and
relicensing fee revenue generated from domestic franchise contracts signed
decreased to $7.6 million from $8.8 million in 1997. However, total franchise
agreements signed in the six months ended June 30, 1998 were 368, as compared to
324 for the six months ended June 30, 1997. The decline in initial and
relicensing fee revenue is attributable to certain incentives offered related to
the Company's Sleep Inn brand. The total number of hotels open and under
development increased to 4,437 from 4,191, an increase of 5.9% for the period
ending June 30, 1998. This represents an increase in the number of rooms open
and under development of 4.6% from 357,451 as of June 30, 1997 to 373,919 as of
June 30, 1998.
Franchise Expenses
- ------------------
Selling, general and administrative expenses declined approximately $1 million
between years. As a percentage of total net franchising revenues, total
franchising selling, general and administrative expenses declined to 36.9% for
the six months ended June 30, 1998 as compared to 40.4% for 1997. The
improvement in the franchising margins relates to the economies of scale
generated from operating a larger franchisee base, cost control initiatives and
improvements in franchised hotel performance.
Product Sales
- -------------
Sales made to franchisees through the Company's group purchasing program
increased $500,000 (or 4.2%) to $12.4 million for the six months ended June 30,
1998 from $11.9 million at June 30, 1997. The group purchasing program utilizes
bulk purchases to obtain favorable pricing from third party vendors for
franchisees ordering similar products. The Company acts as a "clearing-house"
between the franchisee and the vendor, and orders are shipped directly to the
franchisee.
11
<PAGE>
Similarly, product cost of sales increased approximately $300,000 (or 2.7%) for
the six months ended June 30, 1998. The product services margins increased for
the six months ended June 30, 1998 to 6.2% from 4.7% at June 30, 1997. This
purchasing program is provided to the franchisees as a service and is not
expected to be a major component of the Company's profitability.
Other
- ------
For the six months ended June 30, 1998, the Company recognized approximately
$1.0 million in dividend income from its investment in Friendly and
approximately $4.9 million of interest income from its subordinated term note to
Sunburst Hospitality, Inc. For the six months ended June 30, 1998, the Company
recognized approximately $2.2 million from the sale of certain investments.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operating activities was $16.7 million for the six months
ended June 30, 1998, a decrease of approximately $13.1 million from
$29.8 million for 1997. At June 30, 1998, the total long-term debt outstanding,
including amounts due this year for the Company was $293.7 million.
In May 1998, the Company consummated a $100 million senior unsecured note
offering (the "Notes"), bearing a coupon rate of 7.125%. The Notes will mature
on May 1, 2008, with interest on the Notes to be paid semi-annually. The
Company has used the net proceeds from the offering of approximately $99 million
to repay amounts outstanding under the Company's $300 million revolving credit
facility.
The Company believes that cash flow from operations and available financing
capacity is adequate to meet the expected operating, investing, financing and
debt service requirements for the business for the immediate future.
YEAR 2000 COMPLIANCE
- --------------------
The Company's reservations systems, its current software products offered for
license to franchisees as well as its internal financial systems are being
tested for year 2000 compliance. Although the testing of these systems is not
yet complete, the Company does not believe any of the above elements will have a
material impact on the Company's results of operations or financial condition.
FORWARD-LOOKING STATEMENTS
- --------------------------
The statements contained in this document that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995.
A number of important factors could cause the Company's actual results for
future periods to differ materially from those expressed in any forward-looking
statements made by, or on behalf of the Company.
Certain statements contained in this Form 10-Q, including those in the section
entitled "Management's Discussion and Analysis of Operating Results and
Financial Condition," contain forward-looking information that involves risk and
uncertainties. Actual future results and trends may differ materially depending
on a variety of factors discussed in the "Risk Factors" section included in the
Company's SEC filings, including the nature and extent of future competition,
and political, economic and demographic developments in countries where the
Company does business or in the future may do business.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to revise or update these forward-looking statements.
12
<PAGE>
PART II OTHER INFORMATION
-------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
The Company is not party to any litigation, other than routine litigation
incidental to the business of the Company. None of such litigation, either
individually or in the aggregate, is expected to be material to the business,
financial condition or results of operations of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
Exhibit 10.1 - Agreement and release dated June 16, 1998 between Choice
Hotels International, Inc. and William R. Floyd.
Exhibit 10.2 - Employment Agreement dated April 29, 1998 between Choice
Hotels International, Inc. and Michael J. DeSantis.
Exhibit 27.01 - Financial Data Schedule - June 30, 1998
(b) The following reports were filed pertaining to the period ended June 30,
1998.
None.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
CHOICE HOTELS INTERNATIONAL, INC.
Date: August 10, 1998 /s/ Michael J. DeSantis
--------------- -----------------------------
By: Michael J. DeSantis
Senior Vice President, General Counsel
& Secretary
14
<PAGE>
EXHIBIT 10.1
------------
AGREEMENT AND RELEASE
---------------------
This AGREEMENT AND RELEASE (the "Agreement and Release") is made and
entered into as of June 16, 1998, by and between Choice Hotels International,
Inc., a Delaware corporation ("Choice") and William R. Floyd ("Floyd").
1. Termination of Employment. Floyd hereby voluntarily resigns as a member
-------------------------
of the Board of Directors and as Chief Executive Officer and President of
Choice, effective as of the date hereof (the "Resignation Date"). Except as
otherwise provided herein, Floyd shall return to Choice any property owned by
Choice, including any computer hardware or software, office equipment, credit
cards, long distance telephone cards, keys to buildings, and non-public
materials.
2. Benefits. In consideration of certain obligations of Floyd in this
--------
Agreement and Release, Choice shall pay Floyd the following benefits after this
Agreement and Release has been signed and witnessed by both Floyd and Choice:
2.1 Severance Pay. One year of pay from the Resignation Date (the
-------------
"Pay Period"). The severance pay shall be equal to Floyd's base salary as of
the Resignation Date and will not be subject to adjustments during the Pay
Period. The pay will be made in biweekly payments according to the usual
payroll cycle, less customary withholding for federal, state, and local taxes.
It is mutually understood by the parties to this Agreement and Release that
Floyd would not otherwise be entitled to any payment of benefits upon the
termination of his employment with Choice, and that payment of any severance
amounts by Choice is in consideration for the covenants made by Floyd set forth
in this Agreement and Release. Floyd shall not be entitled to any bonus payment
for fiscal year 1998. Except as provided for elsewhere in this Agreement and
Release, the payment of the pay shall fully and completely extinguish all of
Choice's obligations to Floyd, including without limitation, any severance,
compensation (including deferred compensation, stock options, bonuses or
commissions), health insurance premiums, vacation pay, sick pay, or any other
obligations relating to Floyd's employment by Choice.
2.2 Unemployment Benefits. Floyd acknowledges that he has
----------------------
voluntarily resigned and agrees that he is not eligible for and will not file
for unemployment benefits.
2.3 Stock Options. During the Pay Period, previously granted options
-------------
to acquire Choice and Sunburst Hospitality Corporation ("Sunburst") common stock
shall continue to vest on the vesting schedule provided for under the terms of
those options, notwithstanding the termination of Floyd's employment with Choice
and Floyd shall have the right to exercise such stock options, together with all
options held by him to acquire Choice and Sunburst common stock which have
already vested as of the date of this Agreement and Release during the Pay
<PAGE>
Period and for an additional 30 days thereafter (collectively, the "Option
Exercise Period"). Choice agrees that Floyd shall be deemed continuously
eligible by Choice throughout the Option Exercise Period for purposes of
participation in such stock option plans; however, Floyd shall not be entitled
to any future grants under the stock option plans. All previously granted
options to acquire Choice and Sunburst common stock which vest after the Pay
Period are forfeited and terminated as of the Resignation Date. Choice is
separately delivering to Floyd with this Agreement and Release a Schedule
listing all options held by him to acquire Choice and Sunburst common stock
which have already vested as of the date of this Agreement and Release and all
such options which are scheduled to vest during the Pay Period.
2.4 Restricted Stock. With respect to the restricted shares of Choice
-----------------
common stock granted to Floyd on November 4, 1996, 14,245 shares of Choice and
4,748 shares of Sunburst shall vest on November 4, 1998 pursuant to the terms of
the grant and shall be delivered to Floyd within five business days. Within
five business days after the date this Agreement and Release is executed and
delivered by Choice, the restricted shares of Choice and Sunburst common stock
granted to Floyd on November 4, 1996 which vested on November 4, 1997 shall be
distributed to Floyd. Choice represents that the resale of the restricted
shares granted to Floyd is covered by an effective registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), and Choice agrees
that it shall keep that registration statement in effect until the earlier of
the time at which Floyd no longer owns such shares or Floyd becomes eligible to
sell such shares pursuant to Rule 144(k) under the Securities Act. The
remainder of such restricted Choice and Sunburst shares and the restricted
shares which would otherwise vest on November 4, 1999 are forfeited by Floyd and
terminated as of the Resignation Date.
2.5 Car Allowance. During the Pay Period, Choice shall continue to
--------------
pay Floyd the monthly automobile allowance to which he was entitled under his
employment agreement with Choice.
2.6 Business Equipment. Floyd shall be entitled to retain the Choice
------------------
computer and fax machine currently located at Floyd's residence. In addition,
during the Pay Period Choice shall reimburse Floyd for the cost of a dedicated
computer telephone line and dedicated fax telephone line.
2.7 Payment of Legal Fees. Choice shall pay legal fees incurred by
---------------------
Floyd in connection with his resignation and this Agreement and Release, in an
amount not to exceed $27,500.
2.8 Payment of Business Expenses/Vacation Pay/Sick Pay. Choice will
--------------------------------------------------
pay approved business expenses Floyd incurred through the Resignation Date
according to Choice's policies. Choice will pay Floyd all earned but unused
vacation pay through the Resignation Date, less customary withholding for
federal, state, and local taxes. No vacation pay or sick leave shall be earned
during the Pay Period. Choice will not pay Floyd for any unused sick pay hours.
2
<PAGE>
2.9 Continuation of Company Benefits. During the Pay Period, Floyd
--------------------------------
may continue to participate in all medical, dental, life insurance, and pre-tax
spending plans in which he is currently participating, and Floyd consents to the
customary deductions for such benefits from the payments described under Section
2.1 above. Optional deductions for items such as the fitness center, retirement
plans, employee stock purchase plans and credit union will end with Floyd's last
paycheck for regular hours worked through the Resignation Date. Floyd will be
eligible for COBRA benefits at the end of the Pay Period.
2.10 Job References. Choice agrees to provide Floyd with a positive
--------------
employment reference.
3. Complete Release by Floyd. Floyd agrees, in exchange for the benefits
-------------------------
described above, to irrevocably and unconditionally release Choice and, as the
case may be, its former parent, Sunburst Hospitality Corporation (formerly named
Choice Hotels International, Inc.), and each of their directors and executive
officers (as defined in Rule 405 under the Securities Act of 1933, as amended)
(collectively, the "Choice Releasees"), of and from any and all manner of action
or actions, cause or causes of action, in law or equity, suits, debts, liens,
contracts, agreements, promises, liability, claims, demands, grievances,
damages, loss, cost or expense, of any nature whatsoever, known or unknown,
----------------
fixed or contingent, which Floyd now has or may hereafter have against the
Choice Releasees, or any of them, by reason of any matter, cause, or thing
whatsoever from the beginning of time to the date hereof arising out of, based
upon, or relating to the hire, employment, termination, remuneration (including
any severance, salary, bonus, incentive or other compensation; vacation sick
leave or medical insurance benefits; or any benefits from any employee stock
ownership, profit-sharing and/or any deferred compensation plan under Section
401 of the Internal Revenue Code of 1954, as amended), from any and all claims
or demands Floyd may have based on Floyd's employment with Choice or the
separation from that employment ("Floyd Claims"). The Floyd Claims which Floyd
is releasing include, but are not limited to, a release of any rights or claims
Floyd may have under Title VII of the Civil Rights Act of 1964, which prohibits
discrimination in employment based on race, color, national origin, religion or
sex; the Civil Rights Act of 1991; the Equal Pay Act, which prohibits paying men
and women unequal pay for equal work; the Americans with Disabilities Act; the
Family and Medical Leave Act; the Maryland Human Rights Act; the Montgomery
County Human Rights Act; and any other federal, state or local laws or
regulations prohibiting employment discrimination. This also includes a release
by Floyd of any claims for wrongful discharge, compensation and benefits,
expenses, bonuses, or any other employee rights or benefits, or any other
actions sounding in tort or contract relating to Floyd's employment and
termination from Choice. This release does not include a release of Floyd's
right, if any, to retirement or profit-sharing benefits or deferred compensation
arrangements under the standard programs of Choice nor release of his rights
under this Agreement and Release.
This Agreement and Release covers both Floyd Claims which Floyd knows about
3
<PAGE>
and those he may not know about. Floyd assumes the risk of such unknown Floyd
Claims which may exist at the time he signs this Agreement and Release and
agrees that this Agreement and Release shall apply to any and all known and
unknown Floyd Claims.
4. Complete Release by Choice. Choice agrees, in exchange for the
--------------------------
promises of Floyd contained herein, to irrevocably and unconditionally release
Floyd of and from any and all manner of action or actions, cause or causes of
action, in law or equity, suits, debts, liens, contracts, agreements, promises,
liability, claims, demands, grievances, damages, loss, cost or expense, of any
nature whatsoever, known or unknown, fixed or contingent, which Choice now has
----------------
or may hereafter have against Floyd, by reason of any matter, cause, or thing
whatsoever from the beginning of time to the date hereof arising out of, based
upon, or relating to the employment or resignation of Floyd, from any and all
claims or demands Choice may have based on Floyd's employment with Choice or the
separation from that employment ("Choice Claims"). This also includes a
release by Choice of any claims or any other actions sounding in tort or
contract relating to Floyd's employment and termination from Choice.
This Agreement and Release covers both Choice Claims which Choice knows
about and those Choice may not know about. Choice assumes the risk of such
unknown Choice Claims which may exist at the time Choice signs this Agreement
and Release and agrees that this Agreement and Release shall apply to any and
all known and unknown Choice Claims.
5. Future Lawsuits or Claims . Floyd and Choice each promises never to
--------------------------
file a lawsuit, administrative proceeding or agency action asserting any claims
which are released in Paragraph 3 or 4, respectively, of this Agreement and
Release. Except to the extent otherwise required by law, each party further
agrees not to assist any other person in bringing any action, claim or demand
against the other party.
6. Non-Disparagement. Choice and Floyd agree that they respectively shall
-----------------
not disparage the business reputation of the other party hereto and each shall
not communicate to any person, corporation or entity any information which would
cause injury to or tend to cause injury to the business reputation of the other.
Public statements made by Choice and Floyd concerning one another shall be as
mutually agreed.
7. Business Information of Choice/Non-Solicitation of Choice's Employees.
---------------------------------------------------------------------
Floyd agrees not to directly or indirectly, or cause others to make use of or
disclose to others any non-public information relating to the business of Choice
and its affiliates, including, but not limited to, present or prospective
operating and development plans, trade secrets, pricing information, contact
lists, strategic plans or strategies, operating data or Choice policies. During
the Pay Period, Floyd agrees not to (i) solicit for employment or contract for
services with, directly or indirectly, on his behalf or on behalf of any other
person or entity, any person employed by Choice, or its subsidiaries or
affiliates during such period, unless Choice consents in writing. In the event
of an actual or threatened breach by Floyd of the provisions of this paragraph,
Choice shall be entitled to injunctive relief restraining Floyd from committing
such breach or threatened
4
<PAGE>
breach. Nothing herein stated shall be construed as preventing Choice from
pursuing any other remedies available to Choice for such breach or threatened
breach, including the recovery of damages from Floyd.
8. Non-Release of Future Claims. This Agreement does not waive or release
----------------------------
any rights or claims that Floyd may have under the Age Discrimination in
Employment Act which arise after the date Floyd signs this Agreement and
Release.
9. Consequences of a Violation of Promises. If either party breaks
---------------------------------------
his/its promise in Paragraph 5 of this Agreement and Release and files a
lawsuit, administrative proceeding or agency action based on claims that such
party has released, such party will pay for all costs incurred by the other
party (and, in the case of Choice, any related companies, or the officers,
directors, employees or agents of any of them), including reasonable attorneys'
fees, in defending against the breaching party's claim. All benefits described
herein, including any pay and continued vesting and exercise of stock options,
will cease and the release by Choice in Section 4 shall be null and void if
Floyd breaches any of his promises in Sections 3, 5, 6 and 7. If Choice
breaches any of its promises in Sections 4, 5, 6 and 7, the release by Floyd in
Section 3 shall be null and void but Floyd will continue to receive all benefits
due to him under this Agreement and Release.
10. Consultation; Revocation. Floyd acknowledges that he has consulted
------------------------
with an attorney of his own choice prior to executing this Agreement and
Release. He may have a period of up to 21 days to consider this Agreement and
Release. Floyd acknowledges that no deadlines of less than 21 days have been
imposed on him to review or execute this Agreement and Release. In addition,
should he choose to sign the Agreement and Release, he shall have a period of
seven days to revoke such signature. Revocation can be made by delivering a
written notice of revocation to the Senior Vice President, Human Resources,
Choice Hotels International, Inc., 10750 Columbia Pike, Silver Spring, Maryland
20901. For this revocation to be effective, written notice must be received by
the Senior Vice President, Human Resources no later than the close of business
on the seventh (7th) day after Floyd signs this Agreement. If Floyd revokes
this Agreement it shall not be effective or enforceable and Floyd will not
receive the benefits described in Section 2.
11. Signing is Voluntary. Floyd acknowledges that he has had adequate
--------------------
opportunity to review this Agreement and Release with an attorney, that Floyd
understands its terms, that Floyd was not coerced into signing, and that Floyd
signed this Agreement and Release knowingly and voluntarily.
12. Complete Defense. Floyd fully understands and agrees that this
----------------
Agreement and Release may be pleaded by Choice as a complete defense to any
claim or entitlement which may be asserted by Floyd against Choice, for or on
account of any matters waived in this Agreement and Release.
5
<PAGE>
13. Non-Admission of Liability. Each party makes this Agreement and
--------------------------
Release to avoid the cost of defending against any possible lawsuit. By making
this Agreement and Release, neither Choice nor Floyd admits that it/he has done
anything wrong.
14. Entire Agreement. This is the entire agreement between Floyd and
----------------
Choice. Neither Choice nor Floyd has made any promises to the other except
those included or referred to in this Agreement and Release.
15. Choice of Law; Jurisdiction. This Agreement and Release shall be
---------------------------
construed exclusively in accordance with the laws of the State of Maryland,
without regard to the principles of conflicts of laws therein. In the event
that a dispute arises under this Agreement and Release and legal action is
instituted, the parties agree that such action shall be maintained exclusively
in the Circuit Court for Montgomery County, Maryland. The parties hereby
voluntarily submit to the jurisdiction of said court.
FLOYD HAS HAD AN OPPORTUNITY TO CAREFULLY REVIEW AND CONSIDER THIS
AGREEMENT WITH AN ATTORNEY, AND HE HAS HAD SUFFICIENT TIME TO CONSIDER IT.
AFTER SUCH CAREFUL CONSIDERATION, HE KNOWINGLY AND VOLUNTARILY ENTERS INTO THIS
AGREEMENT WITH FULL UNDERSTANDING OF ITS MEANING.
PLEASE READ THIS AGREEMENT CAREFULLY. IT CONTAINS A RELEASE OF ALL KNOWN
AND UNKNOWN CLAIMS.
CHOICE HOTELS INTERNATIONAL, INC.
By: /s/ Michael J. DeSantis
-------------------------------------------
Michael J. DeSantis, Senior Vice President
ATTEST:
/s/ Kevin Rooney
- -----------------
(SEAL)
WITNESS: /s/ William R. Floyd
--------------------
William R. Floyd
/s/ Nancy Peake
- ----------------
6
<PAGE>
EXHIBIT 10.2
------------
EMPLOYMENT AGREEMENT
--------------------
This Agreement ("Agreement") dated this 29th day of April, 1998 between
Choice Hotels International, Inc. ("Employer"), a Delaware corporation with
principal offices at 10750 Columbia Pike, Silver Spring, Maryland 20901, and
Michael J. DeSantis ("Employee"), sets forth the terms and conditions governing
the employment relationship between Employee and Employer.
1. Employment. During the term of this Agreement, as hereinafter defined,
----------
Employer hereby employs Employee as Senior Vice President, General Counsel and
Secretary. Employee hereby accepts such employment upon the terms and conditions
hereinafter set forth and agrees to faithfully and to the best of his ability
perform such duties as may be from time to time assigned by Employer's Board of
Directors and Chief Executive Officer, such duties to be rendered at the
principal office of Employer, subject to reasonable travel. Employee also
agrees to perform his duties in accordance with policies established by
Employer's Board of Directors, which may be changed from time to time.
2. Term. Subject to the provisions for termination hereinafter provided,
----
the term of this Agreement shall begin on the date hereof ("Effective Date")
and shall terminate five (5) years thereafter (the "Termination Date"). The
Termination Date shall automatically be extended for successive one-year terms
unless either party gives written notice no less than nine months prior to the
Termination Date that it elects not to extend the Termination Date.
3. Compensation. For all services rendered by Employee under this
------------
Agreement during the term thereof, Employer shall pay Employee the following
compensation:
(a) Salary. A base salary of One Hundred Seventy Thousand Dollars
------
($170,000) per annum payable in equal bi-weekly installments. Such
salary shall be reviewed by the Compensation Committee of the Board of
Directors of Employer at the next annual review of officers following
the Effective Date and may be increased at the discretion of Employer.
(b) Incentive Bonus. Effective January 1, 1998, Employee shall have
---------------
the opportunity to earn up to a maximum of Fifty Percent (50%) per
annum of the base salary set forth in subparagraph 3(a) above in
Employer's bonus plans as adopted from time to time by Employer's
Board of Directors.
(c) Automobile. Employer shall provide Employee with an allowance for
----------
automobile expenses of $850 per month subject to withholding of usual
taxes.
(d) Stock Options. Employee shall be eligible to receive options
-------------
under the Choice Hotels International, Inc. Long Term Incentive Plan
("LTIP"), or similar plan, to purchase Common Stock in accordance with
the policy of the Employer's Board as in effect from time to time.
(e) Other Benefits. Employee shall, when eligible, be entitled to
--------------
participate in all other fringe benefits, including vacation policy,
generally accorded the most senior executive officers of Employer as
are in effect from time to time on the
<PAGE>
same basis as such other senior executive officers.
4. Extent of Services. Employee shall devote his full professional
------------------
time, attention, and energies to the business of Employer, and shall not during
the term of this Agreement be engaged in any other business activity whether or
not such business activity is pursued for gain, profit, or other pecuniary
advantage; but the foregoing shall not be construed as preventing Employee from
investing his assets in (i) the securities of public companies, or (ii) the
securities of private companies or limited partnerships outside the lodging
industry if such holdings are passive investments of one percent or less of
outstanding securities and Employee does not hold positions of officer, employee
or general partner. Employee shall be permitted to serve as a director of
companies outside of the lodging industry so long as such service does not
inhibit his performance of services to the Employer. Employee shall not be
permitted to serve as a director of any company within the lodging industry
unless (i) the Corporate Compliance officer of the Employer has determined that
there is no conflict of interest and (ii) such service does not inhibit his
performance of services to the Employer. Employee warrants and represents that
he has no contracts or obligations to others which would materially inhibit the
performance of his services under this Agreement.
5. Disclosure and Use of Information. Employee recognizes and
---------------------------------
acknowledges that Employer's and affiliates' present and prospective clients,
franchises, management contracts, acquisitions and personnel, as they may exist
from time to time, are valuable, special and unique assets of Employer's
business. Throughout the term of this Agreement and for a period of two (2)
years after its termination or expiration for whatever cause or reason except as
required by applicable law, Employee shall not directly or indirectly, or cause
others to, make use of or disclose to others any information relating to the
business of Employer that has not otherwise been made public, including but not
limited to Employer's present or prospective clients, franchises, management
contracts or acquisitions. During the term of this Agreement and for a period
of two years thereafter, Employee agrees not to solicit for employment or
contract for services with, directly or indirectly, on his behalf or on behalf
of any other person or entity, any person employed by Employer, or its
subsidiaries or affiliates during such period, unless Employer consents in
writing. In the event of an actual or threatened breach by Employee of the
provisions of this paragraph, Employer shall be entitled to injunctive relief
restraining Employee from committing such breach or threatened breach. Nothing
herein stated shall be construed as preventing Employer from pursuing any other
remedies available to Employer for such breach or threatened breach, including
the recovery of damages from Employee.
6. Notices. Any notice, request or demand required or permitted to be
-------
given under this Agreement shall be in writing, and shall be delivered
personally to the recipient or, if sent by certified or registered mail to his
residence in the case of Employee, or to its principal office in the case of the
Employer. Such notice shall be deemed given when delivered if personally
delivered or within three days of mailing if sent certified or registered mail.
7. Elective Positions; Constructive Termination
--------------------------------------------
(a) Nothing contained in this Agreement is intended to nor shall be
construed to abrogate, limit or affect the powers, rights and
privileges of the Board of Directors or stockholders to remove
Employee from the positions set forth in Section 1,
2
<PAGE>
with or without Cause (as defined in Section 10 below), during the
term of this Agreement or to elect someone other than Employee to
those positions, as provided by law and the By-Laws of Employer.
Nothing in this Agreement is intended to nor shall be construed to
abrogate, limit or affect the Employee's rights and privileges to
terminate this Agreement.
(b) If Employee is Constructively Terminated (as defined in Section
7(c) below) it is expressly understood and agreed that Employee's
rights under this Agreement shall in no way be prejudiced, Employee
shall not, thereafter, be required to perform any services under this
Agreement and Employee shall be entitled to receive compensation
referred to in Section 3 above, including, without limitation, the
continued vesting through the term of this Agreement of stock options
and restricted stock outstanding at the time of the Constructive
Termination. However, Employee shall not be entitled to receive new
stock option grants or rights to ungranted stock options. Employee
upon removal shall not be required to mitigate damages but
nevertheless shall be entitled to pursue other employment, and
Employer shall be entitled to receive as an offset and thereby reduce
its payment by the base salary and bonus received by Employee from any
other employment. As a condition to Employee receiving his
compensation from Employer, Employee agrees to permit verification of
his employment records and income tax returns by an independent
attorney or accountant, selected by Employer but reasonably acceptable
to Employee, who agrees to preserve the confidentiality of the
information disclosed by Employee except to the extent required to
permit Employer to verify the amount received by Employee from other
active employment. Employer shall receive credit for unemployment
insurance benefits, social security insurance or other like amounts
payable during periods of unemployment actually received by Employee.
(c) For purposes of this Section 7, "Constructively Terminated"
shall mean removal or termination of Employee other than in accordance
with Section 10, assignment of duties by the Employer inconsistent
with Section 1, a change in Employee's title or the line of reporting
set forth in Section 1 or any other material breach of this Agreement
by Employer provided Employer shall be given fourteen days advance
written notice of such claim of material breach, which written notice
shall specify in reasonable detail the grounds of such claim of
material breach. Except in the case of bad faith, Employer shall have
an opportunity to cure the basis for Constructive Termination during
the fourteen day period after written notice.
8. Waiver of Breach. The waiver of either party of a breach of any
----------------
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
9. Assignment. The rights and obligations of Employer under this
----------
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of Employer. The obligations of Employee hereunder may not be
assigned or delegated.
3
<PAGE>
10. Termination of Agreement. This Agreement shall terminate upon the
------------------------
following events and conditions:
(a) Upon expiration of its term;
(b) For Cause which means, including but not limited to, deliberate and
continued refusal to carry out duties and instructions of the Employer's
Board of Directors and Chief Executive Officer consistent with the
position, material dishonesty, a violation or a willful breach of this
Agreement, conviction of a felony involving moral turpitude, fraud or
misappropriation of corporate funds or any willful acts or omissions
inimical to or contrary to material policies of Employer not arbitrarily
applied in the case of Employee.
(c) Subject to state and federal laws, if Employee is unable to perform the
essential functions of the services described herein for more than 180 days
(whether or not consecutive) in any period of 365 consecutive days,
Employer shall have the right to terminate this Agreement by written notice
to Employee. In the event of such termination, all non-vested obligations
of Employer to Employee pursuant to this Agreement shall terminate.
(d) In the event of Employee's death during the term of this Agreement, the
Agreement shall terminate as of the date thereof.
11. Entire Agreement. This instrument contains the entire agreement of
----------------
the parties. It may be changed only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension,
or discharge is sought. This Agreement shall be governed by the laws of the
State of Maryland, and any disputes arising out of or relating to this Agreement
shall be brought and heard in any court of competent jurisdiction in the State
of Maryland.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
Employer:
CHOICE HOTELS INTERNATIONAL, INC.
By: /s/ Thomas Mirgon
----------------------------------
Thomas Mirgon
Senior Vice President
Employee:
/s/ Michael J. DeSantis
--------------------------------------
Michael J. DeSantis
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets, the consolidated statements of income and the
consolidated statements of cash flows and is qualified in its entirety by
reference to such financial statements and the notes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,365
<SECURITIES> 0
<RECEIVABLES> 32,262
<ALLOWANCES> 5,394
<INVENTORY> 371
<CURRENT-ASSETS> 65,630
<PP&E> 54,097
<DEPRECIATION> 14,951
<TOTAL-ASSETS> 408,344
<CURRENT-LIABILITIES> 57,246
<BONDS> 283,678
0
0
<COMMON> 604
<OTHER-SE> 56,583
<TOTAL-LIABILITY-AND-EQUITY> 408,344
<SALES> 0
<TOTAL-REVENUES> 77,606
<CGS> 0
<TOTAL-COSTS> 39,955
<OTHER-EXPENSES> 1,433
<LOSS-PROVISION> 553
<INTEREST-EXPENSE> 9,583
<INCOME-PRETAX> 36,218
<INCOME-TAX> 15,085
<INCOME-CONTINUING> 21,133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,133
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.35
</TABLE>
