CHOICE HOTELS INTERNATIONAL INC /DE
10-Q, 1999-05-04
HOTELS & MOTELS
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<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549


                                   FORM 10-Q

         [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                                      OR

         [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


FOR THE QUARTER ENDED MARCH 31, 1999                 COMMISSION FILE NO. 1-11915


                       CHOICE HOTELS INTERNATIONAL, INC.
                              10750 COLUMBIA PIKE
                           SILVER SPRING, MD. 20901
                                (301) 592-5000


          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 MARCH 31, 1999
- -----------------------                             ------------------------
Common Stock, $0.01
par value per share                                        55,237,622


==============================================================================
<PAGE>
 
                       CHOICE HOTELS INTERNATIONAL, INC.

                                     INDEX
                                     -----


<TABLE> 
<CAPTION> 
                                                                        PAGE NO.
                                                                        -------
<S>                                                                     <C> 
PART I.  FINANCIAL INFORMATION:

   Condensed Consolidated Balance Sheets -

       March 31, 1999 (Unaudited) and December 31, 1998                     3
 
   Consolidated Statements of Income -
 
       Three months ended March 31, 1999 and March 31, 1998
 
       (Unaudited)                                                          5
 
   Consolidated Statements of Cash Flows -
 
       Three months ended March 31, 1999 and March 31, 1998 (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                                  14
</TABLE> 
<PAGE>
 
                        PART I.  FINANCIAL INFORMATION

                       CHOICE HOTELS INTERNATIONAL, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS)

<TABLE> 
<CAPTION>                       
                                             MARCH 31,        DECEMBER 31,   
                                               1999               1998       
                                            ------------      -------------  
           ASSETS                            (Unaudited)                     
<S>                                         <C>               <C>            
CURRENT ASSETS                                                               
                                                                             
  Cash and cash equivalents                   $  4,536          $  1,692     
                                                                             
  Receivables (net of allowance                                              
    for doubtful accounts of                                                 
    $8,831 and $8,082, respectively)            26,425            28,117     
                                                                             
  Income taxes receivable and other              1,304             5,852     
                                              --------          --------     
     Total current assets                       32,265            35,661     
                                                                             
                                                                             
PROPERTY AND EQUIPMENT, AT COST, NET OF                                      
  ACCUMULATED DEPRECIATION                      35,623            32,845     
                                                                             
GOODWILL, NET OF ACCUMULATED AMORTIZATION       66,238            66,749     
                                                                             
FRANCHISE RIGHTS, NET OF ACCUMULATED                                         
AMORTIZATION                                    46,094            44,981     
                                                                             
INVESTMENT IN FRIENDLY HOTELS, INC.             45,776            45,139     
                                                                             
OTHER ASSETS                                    57,686            45,001     
                                                                             
NOTE RECEIVABLE FROM SUNBURST HOSPITALITY      131,259           127,849     
                                              --------          --------     
                                                                             
       Total assets                           $414,941          $398,225     
                                              ========          ========      
</TABLE> 


The accompanying notes are an integral part of these condensed consolidated
                                balance sheets.
<PAGE>
 
                       CHOICE HOTELS INTERNATIONAL, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS)
 

<TABLE> 
<CAPTION> 
                                                   MARCH 31,   DECEMBER 31,
                                                     1999          1998    
                                                  -----------  -------------
                                                  (Unaudited)              
<S>                                               <C>          <C>         
LIABILITIES & EQUITY                                                       
                                                                           
CURRENT LIABILITIES                                                        
                                                                           
   Current portion long-term debt                   $ 17,646     $ 22,646   
   Accounts payable                                   13,013       16,216   
   Accrued expenses                                   16,501       19,606   
                                                    --------     --------   
                                                                            
       Total current liabilities                      47,160       58,468   
                                                    --------     --------   
                                                                            
LONG-TERM DEBT                                       284,327      256,564   
                                                                            
DEFERRED INCOME TAXES AND OTHER                                             
   LIABILITIES                                        38,145       26,683   
                                                    --------     --------   
                                                                            
       Total liabilities                             369,632      341,715   
                                                    --------     --------   
SHAREHOLDERS' EQUITY                                                        
                                                                            
       Common stock, $.01 par value                      609          607   
       Additional paid-in-capital                     45,406       43,432   
       Accumulated other comprehensive income            949        2,112   
       Treasury stock                                (76,501)     (54,204)  
       Retained earnings                              74,846       64,563   
                                                    --------     --------   
                                                                            
       Total shareholders' equity                     45,309       56,510   
                                                    ========     ========   
                                                                            
       Total liabilities & shareholders' equity     $414,941     $398,225   
                                                    ========     ========   
</TABLE> 
 

  The accompanying notes are an integral part of these condensed consolidated
                                balance sheets.
<PAGE>
 
                       CHOICE HOTELS INTERNATIONAL, INC.

                       CONSOLIDATED STATEMENT OF INCOME
              (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE> 
<CAPTION> 
                                                       THREE MONTHS ENDED
                                                       ------------------
                                                    MARCH 31,       MARCH 31,
                                                      1999             1998
                                                    ---------       ---------
                                                           (UNAUDITED)
 
<S>                                                 <C>             <C>  
REVENUES
 
Royalty fees                                              $23,798     $20,844
Product sales                                               2,032       5,156
Initial franchise fees and relicensing fees                 2,849       3,414
Partner service revenue                                     1,716       1,618
European hotel operations                                       -       1,098
Other                                                         410       1,041
                                                          -------     -------
       Total revenues                                      30,805      33,171
                                                          -------     -------
OPERATING EXPENSES
 
Selling, general and administrative                        10,979      11,351
Product cost of sales                                       1,898       4,730
Depreciation and amortization                               1,762       1,824
European hotel operations                                       -       1,133
                                                          -------     -------
       Total operating expenses                            14,639      19,038
                                                          -------     -------
OPERATING INCOME                                           16,166      14,133
 
OTHER
 
Gain on sale of stock                                      (1,260)     (1,766)
Interest and dividend income                               (4,608)     (2,720)
Interest expense                                            4,762       4,658
                                                          -------     -------
       Total other                                         (1,106)        172
                                                          -------     -------
INCOME BEFORE INCOME TAXES                                 17,272      13,961
INCOME TAXES                                                6,995       5,815
                                                          -------     -------
NET INCOME                                                $10,277     $ 8,146
                                                          =======     =======
WEIGHTED AVERAGE SHARES OUTSTANDING                        55,886      59,742
                                                          =======     =======
DILUTED SHARES OUTSTANDING                                 56,508      60,970
                                                          =======     =======
BASIC EARNING PER SHARE                                   $  0.18     $  0.14
                                                          =======     =======
DILUTED EARNINGS PER SHARE                                $  0.18     $  0.13
                                                          =======     =======
</TABLE> 



The accompanying notes are an integral part of these consolidated statements of
                                    income.
<PAGE>
 
                       CHOICE HOTELS INTERNATIONAL, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS
              (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE> 
<CAPTION>                               
                                                       THREE MONTHS ENDED
                                                       ------------------
                                                    MARCH 31,      MARCH 31,
                                                       1999          1998
                                                    ---------      ---------
                                                           (UNAUDITED)
<S>                                                 <C>          <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
Net income                                           $ 10,277    $  8,146
 
Reconciliation of net income to net cash
 by operating activities:
   Depreciation and amortization                        3,530       2,973
   Provision for bad debts                                408         553
   Increase in deferred taxes                           2,222       2,212
   Non cash interest and dividend income               (3,965)     (2,720)
 
Changes in assets and liabilities:
    Change in receivables                               1,490       2,275
    Change in current liabilities                      (5,533)     (3,052)
    Change in income taxes receivable
     and other                                          4,719      (1,720)
                                                     --------    --------
  NET CASH PROVIDED BY OPERATING ACTIVITIES            13,148       8,667
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
Investment in property and equipment                   (6,281)     (2,320)
Repayments of Sunburst Hospitality advances, net                    5,145
Other items, net                                       (6,576)     (1,325)
                                                     --------    --------
  NET CASH (UTILIZED) PROVIDED BY INVESTING
    ACTIVITIES                                        (12,857)      1,500
                                                     --------    --------
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
Proceeds from mortgages and other long term
 debt                                                  36,930      21,500
Principal payments of debt                            (13,137)    (30,561)
Purchase of treasury stock                            (22,297)     (7,347)
Proceeds from issuance of common stock                  1,057       2,448
                                                     --------    --------
  NET CASH PROVIDED (UTILIZED) BY FINANCING
    ACTIVITIES                                          2,553     (13,960)
                                                     --------    --------
 
Net change in cash and cash equivalents                 2,844      (3,793)
Cash and cash equivalents, beginning of period          1,692      10,282
                                                     --------    --------
 
CASH AND CASH EQUIVALENTS, END OF PERIOD             $  4,536    $  6,489
                                                     ========    ========
</TABLE> 


The accompanying notes are an integral part of these consolidated statements of
                                    income.
<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 year ended December 31, 1998 and notes
thereto included in the Company's Form 10-K, dated March 29, 1999. 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.  During the three months ended March 31, 1999, the Company's comprehensive
income (consisting of net income plus foreign currency translation adjustments
and unrealized gains on available for sale securities) exceeded net income by
approximately $902,000.
<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) occupancies 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 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 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.

The Company reported net income of $10.3 million, or $0.18 per diluted share,
for the quarter ended March 31, 1999, compared to net income for the same period
of 1998 of $8.1 million, or $0.13 per diluted 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
- ------------------

Management analyzes its business based on "net franchise revenue," which is
total revenue excluding product sales and European hotel operations, and
franchise operating expenses which are reflected as selling, general and
administrative expenses.

The Company's net franchise revenues were $28.8 million for the three months
ended March 31, 1999 and $26.9 million for the three months ended March 31,
1998.

Royalties increased $3.0 million to $23.8 million in 1999 from $20.8 million in
1998, an increase of 14.2%. The increase in royalties is attributable to a net
increase of 14 franchisees during the period (representing an additional 749
rooms) an improvement in domestic RevPAR of 2.0% and an increase in the
effective royalty rate of the domestic hotel system to 3.61% from 3.46%. Initial
and relicensing fee revenue generated from domestic franchise contracts signed
decreased to $2.8 million from $3.4 million in 1998 as a result of a decrease in
total franchise agreements signed to 72, as compared to 100 for the first
quarter 1998. The total number of domestic hotels online increased to 3,053 from
2,914 an increase of 4.8% for the period ending March 31, 1999. This represents
an increase in the number of rooms open of 3.8% from 243,908 as of March 31,
1998 to 253,106 as of March 31, 1999. As of March 31, 1999, the Company had 598
hotels under development in its domestic hotel system representing 46,982 rooms.
The total number of international hotels on line increased to 1,003 from 608 an
increase of 65.0% as of March 31, 1999. International rooms open increased 41.5%
from 51,029 as of March 31, 1998 to 72,220 as of March 31, 1999. The total
number of international hotels under development increased to 180 from 125 an
increase of 44.0% for the period ending March 31, 1999. The number of
international rooms under development increased to 16,445 as of March 31, 1999
from 11,784 as of March 31, 1998, an increase of 39.6%. These increases are
primarily attributable to the Company's June 1998 Strategic Alliance with Flag
International Limited. The master franchise agreement with Flag Choice Hotels
includes several countries including Australia, Papua New Guinea and Fiji.
<PAGE>
 
Franchise Expenses
- ------------------

The cost to operate the franchising business is reflected in selling, general
and administrative expenses. Selling, general and administrative expenses
decreased approximately $0.4 million between years. As a percentage of total net
franchising revenues, total selling, general and administrative expenses
declined to 38.2% for the first quarter of 1999 as compared to 42.2% for 1998.
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
decreased approximately $3.2 million (or 60.6%) to $2.0 million for the three
months ended March 31, 1999 from $5.2 million for the three months ended March
31, 1998. 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 $2.8 million (or 59.9%) for the three months
ended March 31, 1999. The product services margins decreased for the three
months ended March 31, 1999 to 6.6% from 8.3% at March 31, 1998. 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. In the fourth quarter of 1998,
the Company discontinued the group purchasing program as previously operated.

Other
- ------

For the three months ended March 31, 1999, and March 31, 1998 the Company
recognized approximately $0.6 million and $0.4 million, respectively, in
dividend income from its investment in Friendly and approximately $3.4 million
and $2.3 million, respectively, of interest income from its subordinated term
note to Sunburst Hospitality, Inc.

LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------

Net cash provided by operating activities was $13.1 million for the three months
ended March 31, 1999, an increase of approximately $4.4 million from $8.7
million for 1998. At March 31, 1999, the total long-term debt outstanding for
the Company was $302.0 million which includes approximately $17.6 million which
matures in the next twelve months.

In the first quarter of 1999, the Company has repurchased 5.9 million shares of
its common stock at a total cost of $80.6 million. The Company has authorization
from its Board of Directors to repurchase up to an additional 2.8 million
shares.

The Company believes that cash flows 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 is engaged in an ongoing effort to evaluate and remediate the Year
2000 computer problem shared by virtually all companies and businesses. As part
of this effort, a cross-functional Year 2000 Compliance Committee was
established to manage and supervise the efforts to become compliant and a Year
2000 action plan has been developed. The Company has completed the first three
phases of the plan, which include (i) making the Company's internal
organizations aware of the Year 2000 issue and assigning responsibility
internally, (ii) inventorying and initial testing of its proprietary software
and (iii) inventorying and testing secondary internal systems (e.g. employee
PCs). The Company is in the process of completing the remaining phases
<PAGE>
 
which include: (i) assessing the risk from third party vendors and franchisees
(ii) contingency planning, and (iii) educating the franchise community.
Throughout the process, remedial actions have been or will be taken as
warranted.

The Company's exposure to potential Year 2000 problems exists in two general
areas: technological operations in the sole control of the Company, and
technological operations dependent in some way on one or more third parties.
With respect to the Company's internal systems, it has conducted Year 2000
compliance testing on all of its proprietary software, including its
reservations and reservations support systems, its franchise support system and
its franchisee property management support systems. The tests have indicated
that, except for two DOS based systems, the proprietary software is Year 2000
compliant. The DOS version of ChoiceLINKS is not Year 2000 compliant and the DOS
version of the Company's property management system is only compliant through
December 31, 2000. The Company has communicated this to franchisees using these
systems and has recommended that they migrate to the Windows based versions of
these systems. The Company has also been in the process of replacing its
hardware platforms for these systems and a number of smaller support systems and
has kept them updated so that by the end of 1998, all of the Company's large
system computers were than eighteen months old. Based on manufacturers
specifications, the Company believes that these new hardware platforms are Year
2000 compliant. However, the company will have to update the operating systems
for several of its servers.

The Company has completed its process of conducting an inventory of third party
software, including PC operating systems and word processing and other
commercial software. For hardware or software systems which does not appear to
be compliant, the Company is obtaining upgrades or replacement systems.

The Year 2000 Compliance Committee is currently identifying third party vendors
and service providers whose non-compliant systems could have a material impact
on the Company and undertaking an assessment as to such parties' compliant
status. These parties include airline global distribution systems (GDS), utility
providers, telephone service providers, banks and data processing services. The
GDS companies, which provide databases through which travel agents can book
hotel rooms, have assured the Company in writing that they are compliant and the
Company has conducted tests with three of the four major GDS companies. The Year
2000 Compliance Committee is in the process of assessing other third parties as
to their compliance and the consequences in the event they are not compliant. As
of February 1999, the Company has received responses from approximately one-half
of its vendors. Such vendors have indicated that they are, or expect to be, Year
2000 compliant. Throughout 1999, the committee will continue to seek and assess
responses from all of its material vendors.

As of February 1999, the Company has devised contingency plans for its Phoenix,
Arizona reservation center. These plans include access to alternative power
sources and insuring the availability of key employees. Contingency plans for
the Silver Spring, Maryland corporate headquarters and other Company locations
will be developed throughout the second and third quarters of 1999.

Costs of addressing potential Year 2000 problems have not been material to date.
The value of employee time devoted to testing and development has been
approximately $250,000. Total costs for replacement of hardware and operating
systems are expected to be approximately $700,000. However, these replacements
(as well as replacements undertaken in prior years) are being implemented
primarily as part of the Company's ongoing technology updating, rather than
specifically for Year 2000 compliance reasons. Based upon preliminary
information gathered to date, Year 2000 compliance costs are not currently
expected to have a material adverse impact on the Company's financial position,
results of operations or cash flows. However, if the Company, its vendors or
franchisees are unable to resolve such Year 2000 issues in a timely manner, it
could result in a material financial risk, including loss of revenue,
substantial unanticipated costs and service interruptions.

The Company is not in a position to guarantee the performance of others with
respect to their Year 2000 compliance or predict whether any of the assurances
that others provide regarding Year 2000 compliance may prove later to be
inaccurate or overly optimistic.
<PAGE>
 
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.
<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 2.     EXHIBITS AND REPORTS ON FORM 8-K
            ----------------------------------

(a)  Exhibits

     Exhibit 27.01 - Financial Data Schedule - March 31, 1999


(b)  The following reports were filed pertaining to the period ended March 31,
     1999.

     10.1  Fifth Amendment to Credit Agreement dated March 19, 1999 among Choice
           Hotels International, Inc., Chase Manhattan Bank as agent, and
           certain Lenders.
     10.2  Amended and Restated Employment Agreement dated April 13, 1999
           between Choice Hotels International, Inc. and Charles A. Ledsinger,
           Jr.
     10.3  Amended and Restated Employment Agreement dated April 13, 1999
           between Choice Hotels International, Inc. and Thomas Mirgon.
     10.4  Second Amended and Restated Employment Agreement dated April 13, 1999
           between Choice Hotels International, Inc. and Mark C. Wells.
     10.5  Second Amended and Restated Employment Agreement dated April 13, 1999
           between Choice Hotels International, Inc. and Michael J. DeSantis.
<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: April 1999                          /s/ Charles A. Ledsinger, Jr.
      --------------                      -----------------------------
                                     By:  Charles A. Ledsinger, Jr.
                                          President and Chief Executive Officer

<PAGE>
 
                                         Exhibit 10.1
                                         ------------



                    FIFTH AMENDMENT dated as of March 19, 1999 (this
                                                                    
               "Amendment"), among CHOICE HOTELS INTERNATIONAL, INC., a Delaware
                ---------                                                       
               corporation (the "Borrower"), the undersigned financial
                                 --------                             
               institutions party to the Credit Agreement referred to below (the
               "Lenders"), and THE CHASE MANHATTAN BANK, as agent for the
                -------                                                  
               Lenders (in such capacity, the "Agent").
                                               -----   

          A.  Reference is made to the Competitive Advance and Multi-Currency
Credit Facilities Agreement dated as of October 15, 1997, as amended (the
                                                                         
"Credit Agreement") among the Borrower, the Lenders and the Agent.  Capitalized
- -----------------                                                              
terms used but not otherwise defined herein have the meanings assigned to them
in the Credit Agreement.

          B. The Borrower has requested that the Lenders amend certain
provisions of the Credit Agreement.  The Lenders are willing to do so, subject
to the terms and conditions of this Amendment.

          Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and receipt
of which are hereby acknowledged, the parties hereto hereby agree as follows:

          SECTION 1.  Amendment to Article 1.  The definition of "Consolidated
                      -----------------------                                 
Net Worth" contained in Article I of the Credit Agreement is hereby amended as
of the Effective Date to read in its entirety as follows:

          "Consolidated Net Worth" shall mean, as at any date of determination,
           ----------------------                                              
          the consolidated stockholders' equity of the Borrower and its
          consolidated Subsidiaries, as determined on a consolidated basis in
          accordance with GAAP consistently applied, but excluding the reduction
          in stockholders' equity resulting from Choice's cancelation on
          December 28, 1998 of a $17,000,000 receivable from Sunburst in return
          for the cancelation of Sunburst's option to acquire the MainStay
          Suites brand.

          To the extent any Default or Event of Default shall have occurred
under Section 6.13 of the Credit Agreement that would not have occurred if the
foregoing amendment had been effective on December 28, 1998, the undersigned
Lenders hereby waive such Defaults or Events of Default.

<PAGE>
 
          SECTION 2.  Representations, Warranties and Agreements.  The Borrower
                      -------------------------------------------              
hereby represents and warrants to and agrees with each Lender and the Agent
that:

          (a) The representations and warranties set forth in Article III of the
     Credit Agreement are true and correct in all material respects with the
     same effect as if made on the Amendment Effective Date, except to the
     extent such representations and warranties expressly relate to an earlier
     date.

          (b) The Borrower has the requisite power and authority to execute,
     deliver and perform its obligations under this Amendment.

          (c)  The execution, delivery and performance by the Borrower of this
     Amendment (i) have been duly authorized by all requisite action and (ii)
     will not (A) violate (x) any provision of law, statute, rule or regulation,
     or of the certificate or articles of incorporation or other constitutive
     documents or by-laws of the Borrower or any Subsidiary, (y) any order of
     any Governmental Authority or (z) any provision of any indenture, agreement
     or other instrument to which the Borrower or any Subsidiary is a party or
     by which any of them or any of their property is or may be bound, (B) be in
     conflict with, result in a breach of or constitute (alone or with notice or
     lapse of time or both) a default under any such indenture, agreement for
     borrowed money or other agreement or instrument or (C) result in the
     creation or imposition of any Lien upon or with respect to any property or
     assets now owned or hereafter acquired by the Borrower.

          (d)  This Amendment has been duly executed and delivered by the
     Borrower.  Each of this Amendment and the Credit Agreement, as amended
     hereby, constitutes a legal, valid and binding obligation of the Borrower,
     enforceable against the Borrower in accordance with its terms, except as
     enforceability may be limited by (i) any applicable bankruptcy, insolvency,
     reorganization, moratorium or similar laws affecting the enforcement of
     creditors' rights generally and (ii) general principals of equity.

          (e) As of the Amendment Effective Date, no Event of Default or Default
     has occurred and is continuing.

<PAGE>
 
          SECTION 3.  Conditions to Effectiveness.  This Amendment shall become
                      ----------------------------                             
effective on the date of the satisfaction in full of the following conditions
precedent (the "Amendment Effective Date"):
                ------------------------   

          (a) The Agent shall have received duly executed counterparts hereof
     which, when taken together, bear the authorized signatures of the Borrower,
     the Agent and the Required Lenders.
 
          (b) All legal matters incident to this Amendment shall be satisfactory
     to the Required Lenders, the Agent and Cravath, Swaine & Moore, counsel for
     the Agent.

          (d) The Agent shall have received such other documents, instruments
     and certificates as it or its counsel shall reasonably request.

          SECTION 4.  Credit Agreement.  Except as specifically stated herein,
                      -----------------                                       
the Credit Agreement shall continue in full force and effect in accordance with
the provisions thereof.  As used therein, the terms "Agreement", "herein",
"hereunder", "hereto", "hereof" and words of similar import shall, unless the
context otherwise requires, refer to the Loan Agreement as modified hereby.

          SECTION 5.  Applicable Law.  THIS AMENDMENT SHALL BE GOVERNED BY AND
                      ---------------                                         
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

          SECTION 6.  Counterparts.  This Amendment may be executed in any
                      -------------                                       
number of counterparts, each of which shall be an original but all of which,
when taken together, shall constitute but one instrument.  Delivery of an
executed counterpart of a signature page of this Amendment by telecopy shall be
effective as delivery of a manually executed counterpart of this Amendment.

          SECTION 7.  Expenses.  The Borrower agrees to reimburse the Agent for
                      ---------                                                
its out-of-pocket expenses in connection with this Amendment, including the
reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel
for the Agent.

<PAGE>
 
          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the date first
above written.


                                             CHOICE HOTELS INTERNATIONAL, INC.
                                            
                                               by
                                                  /s/ Michael J. DeSantis
                                                  -------------------------
                                                  Name:  Michael J. Desantis
                                                  Title: Senior Vice President


                                             THE CHASE MANHATTAN BANK,
                                             individually and as Issuing Bank
                                             and Agent
                                             
                                               by
                                                   /s/ Stephanie Parker
                                                  ---------------------------
                                                  Name:  Stephanie Parker
                                                  Title: Vice President


                                             BANK OF TOKYO - MITSUBISHI TRUST
                                             COMPANY
                                            
                                               by
                                                 ----------------------------
                                                 Name:
                                                 Title:
                                             

                                             CRESTAR BANK
                                            
                                               by
                                                   /s/ Diane E. Bauman
                                                  ----------------------------
                                                 Name:  Diane E. Bauman
                                                 Title: Vice President


                                             THE DAI-ICHI KANGYO BANK, LTD.
                                            
                                               by
                                                   /s/ Bertram Tang
                                                  ----------------------------
                                                 Name:  Bertram Tang
                                                 Title: Vice President & Group
                                                        Leader


                                             FIRST NATIONAL BANK OF MARYLAND
                                            
                                               by
                                                   /s/ Michael B. Stueck
                                                  ----------------------------
                                                 Name:  Michael B. Stueck
                                                 Title: Vice President

<PAGE>
 
                                             FIRST UNION NATIONAL BANK
                                            
                                               by
                                                   /s/ Barbara K. Angel
                                                  --------------------------
                                                 Name:  Barbara K. Angel
                                                 Title: Vice President


                                             THE FUJI BANK, LIMITED
                                            
                                               by
                                                   /s/ Raymond Ventura
                                                  ---------------------------
                                                 Name: Raymond Ventura
                                                 Title: Vice President & Manager


                                             GENERAL ELECTRIC CAPITAL CORP.
                                            
                                               by
                                                   /s/ William E. Magee
                                                  ---------------------------
                                                 Name:  William E. Magee
                                                 Title: Duly Authorized
                                                        Signatory


                                             THE INDUSTRIAL BANK OF JAPAN, 
                                             LIMITED, NEW YORK BRANCH
                                            
                                               by
                                                   /s/ William Kennedy
                                                  ----------------------------
                                                 Name: William Kennedy
                                                 Title: Vice President


                                             THE LONG TERM CREDIT BANK OF 
                                             JAPAN, LTD., NEW YORK BRANCH
                                            
                                               by
                                                   /s/ Junichi Ebihara
                                                  ----------------------------
                                                 Name: Junichi Ebihara
                                                 Title: Deputy General Manager


                                             MELLON BANK, N.A.
                                            
                                               by
                                                   /s/ G.B. Mateer
                                                  ----------------------------
                                                 Name:  G.B. Mateer
                                                 Title: Vice President

<PAGE>
 
                                             MORGAN GUARANTY TRUST COMPANY
                                            OF NEW YORK
                                             
                                               by
                                                 ---------------------------
                                                 Name:
                                                 Title:


                                             NATIONSBANK, N.A.
                                            
                                               by
                                                 ---------------------------
                                                 Name:
                                                 Title:
                                             

                                             THE SANWA BANK, LIMITED,
                                             NEW YORK BRANCH
                                            
                                               by
                                                   /s/ Dominic J. Sorresso
                                                  ---------------------------
                                                 Name:  Dominic J. Sorresso
                                                 Title: Vice President


                                             SUMMIT BANK
                                            
                                               by
                                                   /s/ Edward Tessalone
                                                  ---------------------------
                                                 Name: Edward Tessalone
                                                 Title: Vice President


<PAGE>
 
                                                                    EXHIBIT 10.2
                                                                    ------------

                              AMENDED AND RESTATED
                              EMPLOYMENT AGREEMENT
                              --------------------

     This Agreement ("Agreement") dated this 13th day of April, 1999 between
Choice Hotels International, Inc. ("Employer"), a Delaware corporation with
principal offices at 10750 Columbia Pike, Silver Spring, Maryland 20901, and
Charles A. Ledsinger  ("Employee"), amends and restates that employment
agreement dated July 31, 1998 and 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 President and Chief Executive
Officer ("CEO"). 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, such duties to be rendered at the principal office of
Employer, subject to reasonable travel.  The Employer shall assign to Employee
only those duties consistent with his position as President and CEO.  The
Employee, in his position as President and CEO, shall report directly to the
Employer's Board of Directors and all senior executives of the Employer shall
report either directly to Employee or indirectly through other senior
executives. 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.  At the Effective Date (defined below), Employee shall be
appointed to the Employer's Board of Directors as a Class III director, as
specified in the Restated Certificate of Incorporation of Employer.

     2.   Term.  Subject to the provisions for termination hereinafter provided,
          ----                                                                  
the term of this Agreement shall begin on July 31, 1998  ("Effective Date") and
shall terminate five (5) years thereafter (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 Five Hundred Thousand Dollars ($500,000)
              ------                                                            
          per annum payable in equal bi-weekly installments.  Such base salary
          shall commence on the first date that Employee renders services to
          Employer, which is expected to be on or about August 31, 1998 (the
          "Commencement Date").  Such salary shall be reviewed by the
          Compensation Committee of the Board of Directors of Employer on the
          next annual review of officers and each annual review thereafter and
          may be increased at the discretion of Employer.

          (b) Incentive Bonus.  Employee shall have the opportunity to earn up
              ---------------                                                 
          to a maximum of Sixty  Percent (60%) per annum of the base salary set
          forth in subparagraph 3(a) above in Employer's bonus plans as adopted
          from time to time by Employer's Board of Directors.  For the
          Employer's 1998 fiscal year, the Employee's bonus shall be calculated
          on a pro rata basis from the Effective Date. In addition, to
          compensate Employee for the loss of his bonus at St. Joe Corporation,
          the Employer shall pay Employee an amount equal to 60% of 
<PAGE>
 
          Employee's base salary earned during fiscal year 1998 while employed
          at St. Joe Corporation. The payment referred to in the preceding
          sentence shall be paid at the same time that Employer's fiscal year
          1998 bonuses are paid.

          (c) Restricted Stock. At the Effective Date, Employer shall issue to
              ----------------                                                
          Employee restricted Choice Hotels common stock ("Common Stock") in an
          amount equal to $825,000 divided by the average of the high and low
          trading price of the Common Stock on the Effective Date (or the next
          trading day if there is no trading on the Effective Date) (the
          "Average Trading Price"). The restrictions on such shares shall lapse
          upon vesting, which shall occur in three equal annual installments
          beginning one year from the Effective Date.

          (d) Automobile.  Employer shall provide Employee with an allowance for
              ----------                                                        
          automobile expenses of $975 per month beginning on the Commencement
          Date.

          (e) Club Membership.  Employer shall provide Employee with an
              ---------------                                          
          appropriate corporate membership, including initial and annual fees,
          at a dining and/or recreational club at the choice of Employee for the
          purpose of business entertainment.

          (f) 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 Choice Hotels Board as in effect from time to time.
          At the February 1999 Compensation Committee meeting, Employee shall be
          eligible to receive a pro rata award based on the number of days of
          Employee's employment in fiscal year 1998.  Such pro rata award shall
          be calculated on the Employer's Stock Option Guidelines, subject to
          the approval of the Compensation Committee.  Additionally, the
          Employee shall be granted, as of the Effective Date, options to
          purchase such number of shares of Common Stock as is equal to
          $7,500,000 divided by the Average Trading Price.  A number of the
          options shall be incentive stock options granted under the LTIP, which
          number shall be the maximum number permitted under the LTIP and
          Section 422(d) of the Internal Revenue Code of 1986, as amended, but
          in no event more than 25% of the total number of options granted
          pursuant to this Section 3(f).  The remainder of the options shall be
          nonqualified stock options. The options shall be exercisable at an
          amount per share equal to the Average Trading Price and shall vest in
          five equal annual installments beginning one year from the Effective
          Date.

          (g) SERP.  At the Commencement Date, Employee shall participate in the
              ----                                                              
          Choice Hotels International, Inc. Supplemental Executive Retirement
          Plan ("SERP").

          (h) 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 

                                       2
<PAGE>
 
          same basis as such other senior executive officers.

          (i)  Relocation Expenses.  Employee shall be entitled to all benefits
               --------------------                                            
          under the Relocation Policy of Employer, as adopted in August 1996.

     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 Confidential Information.  Employee recognizes
          ----------------------------------------------                      
and acknowledges that information about Employer's and affiliates' present and
prospective clients, franchises, management contracts, acquisitions and
personnel, as they may exist from time to time, and to the extent it has not
been otherwise disclosed, is a valuable, special and unique asset of Employer's
business ("Confidential Information").  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 Confidential Information.  During the term of this Agreement and for
a period of two years thereafter, Employee agrees not to solicit for employment,
directly or indirectly, on his behalf or on behalf of any person or entity,
other than on behalf of Employer, 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.  "Affiliate" as used in this Agreement
means a person or entity that is directly or through one or more intermediates
controlling, controlled by or under common control with another person or
entity.

     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 or
overnight courier service to his residence in the case of Employee, or to its
principal office in the case of the Employer, return receipt requested.  Such

                                       3
<PAGE>
 
notice shall be deemed given when delivered if personally delivered or when
actually received if sent certified or registered mail or overnight courier.

     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, 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.

     (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, and Employee shall be entitled to
receive all forms of compensation referred to in Section 3 above, including
bonuses (calculated based only on the actual payout of the EPS portion of the
bonus as all Choice officers receive in a given year), but excluding ungranted
stock options (but including the continued vesting of previously granted
restricted stock and 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 offset and thereby
reduce its payment, the amount received by Employee from any other active
employment.  As a condition to Employee receiving his compensation from
Employer, Employee agrees to permit verification of his employment records and
Federal 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 like amounts actually received by
Employee.

     (c)  For purposes of Sections 7 and 11, "Constructively Terminated" shall
mean (i) removal or termination of Employee other than in accordance with
Section 10, (ii) failure of the Employer to place Employee's name in nomination
for re-election to the Employer's Board, (iii) assignment of duties by the
Employer inconsistent with Section 1, (iv) a decrease in Employee's compensation
or benefits (unless a similar decrease is imposed on all senior executives), (v)
a change in Employee's title or the line of reporting set forth in Section 1,
(vi) a significant reduction in the scope of Employee's authority, position,
duties or responsibilities, (vii) a significant change in Employer's annual
bonus program which adversely affects Employee,  or (viii) 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 for 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.

                                       4
<PAGE>
 
     9.   Assignment.  The rights and obligations of Employer under this
          ----------                                                    
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of Employer.  The obligations of Employee hereunder may not be
assigned or delegated.

     10.  Termination of Agreement.  This Agreement shall terminate upon the
          ------------------------                                          
following events and conditions:

     (a)  Upon expiration of its term;

     (b) For Cause, which means gross negligence, wilful misconduct, wilful
     nonfeasance, a material breach of this Agreement, conviction following
     final disposition of any available appeal of a felony, or pleading guilty
     or no contest to a felony.  Employee shall be entitled to fourteen (14)
     days advance written notice of termination, except where the basis for
     termination constitutes wilful conduct on the part of Employee involving
     dishonesty or bad faith, in which case the termination shall be effective
     upon the sending of notice.  Such written notice shall specify in
     reasonable detail the grounds for Cause and Employee shall have an
     opportunity to contest or cure the basis for termination during the
     fourteen day period after written notice.

     (c) Subject to state and federal laws, if Employee is unable to perform the
     essential functions of the services described herein, after reasonable
     accommodation, 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 stock option and other 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.

     (e) Upon voluntary resignation of Employee not due to Constructive
     Termination, so long as Employee has given Employer thirty days prior
     written notice of such resignation.

     11. Severance.
         --------- 

     (a) If, within twelve months after a Change in Control, as defined in
     Section 11(b), the Employer terminates or Constructively Terminates
     Employee's employment other than in accordance with Section 10, the amount
     of Employee's severance pay will be 200% of his base salary at the rate in
     effect at the time of his termination or Constructive Termination, plus
     200% of the amount of any full year bonus awarded to Employee in the prior
     year (or the maximum target bonus if no bonus was awarded in the prior
     year).  If Employee's employment is terminated subject to this paragraph,
     the Employer will provide the Employee and his family health insurance
     coverage, including, if applicable, COBRA reimbursement, and will provide
     Employee disability insurance coverage under 

                                       5
<PAGE>
 
     the applicable Employer plans for a period of 12 months following
     termination or until Employee starts other full time employment, whichever
     is earlier.

     (b) A Change in Control of the Employer shall occur upon the happening of
     the earliest to occur of the following:

          1.  Any "person" as such term is used in Sections 13(d) and 14(d) of
     the Securities Exchange Act of 1934, as amended (other than (i) the
     Employer, (ii) any trustee or other fiduciary holding securities under an
     employee benefit plan of the Employer, (iii) any corporations owned,
     directly or indirectly, by the stockholders of the Employer in
     substantially the same proportions as their ownership of stock, (iv)
     Stewart Bainum, his wife, their lineal descendants and their spouses (so
     long as they remain spouses) and the estate of any of the foregoing
     persons, and any partnership, trust, corporation or other entity to the
     extent shares of common stock (or their equivalent) are considered to be
     beneficially owned by any of the persons or estates referred to in the
     foregoing provisions of this subsection 11(b) or any transferee thereof, or
     (v) the Baron Entities, unless such entities, in the aggregate,
     beneficially own more than 19,715,000 shares of the Employer's common
     stock) becomes the "beneficial owner" (as defined in Rule 13d-3 under the
     Exchange Act), directly or indirectly, of securities of the Employer
     representing 33% or more of the combined voting power of the Employer's
     then outstanding voting securities;

          2.  Individuals constituting the Board on the Effective Date and the
     successors of such individuals ("Continuing Directors") cease to constitute
     a majority of the Board. For this purpose, a director shall be a successor
     if and only if he or she was nominated by a Board (or a Nominating
     Committee thereof) on which individuals constituting the Board on the
     Effective Date and their successors (determined by prior application of
     this sentence) constituted a majority.

          3.  The stockholders of the Employer approve a plan of merger or
     consolidation ("Combination") with any other corporation or legal person,
     other than a Combination which would result in stockholders of the Employer
     immediately prior to the Combination owning, immediately thereafter, more
     than sixty-five percent (65%) of the combined voting power of either the
     surviving entity or the entity owning directly or indirectly all of the
     common stock, or its equivalent, of the surviving entity; provided,
     however, that if stockholder approval is not required for such Combination,
     the Change in Control shall occur upon the consummation of such
     Combination.

          4.  The stockholders of the Employer approve a plan of complete
     liquidation of the Employer or an agreement for the sale or disposition by
     the Employer of all or substantially all of the Employer's stock and/or
     assets, or accept a tender offer for substantially all of the Employer's
     stock (or any transaction having a similar effect); provided, however, that
     if stockholder 

                                       6
<PAGE>
 
     approval is not required for such transaction, the Change in Control shall
     occur upon consummation of such transaction.

     (c) For purposes of Section 11(b), Baron Entities shall mean Baron Capital
     Group, Inc., BAMCO, Inc., Baron Capital Management, Inc., Baron Asset Fund
     and Ronald Baron.

     12.  Excise Taxes.
          ------------ 

          (a) Anything in this Agreement to the contrary notwithstanding, if it
shall be determined that any payment or distribution to the Employee or for the
Employee's benefit (whether paid or payable or distributed or distributable)
pursuant to the terms of this Agreement or otherwise (the "Payment") would be
subject to the excise tax imposed by section 4999 of the Internal Revenue Code
(the "Excise Tax"), then the Employee shall be entitled to receive from Choice
an additional payment (the "Gross-Up Payment") in an amount such that the net
amount of the Payment and the Gross-Up Payment retained by the Employee after
the calculation and deduction of all Excise Taxes (including any interest or
penalties imposed with respect to such taxes) on the payment and all federal,
state and local income tax, employment tax and Excise Tax (including any
interest or penalties imposed with respect to such taxes) on the Gross-Up
Payment provided for in this Section, and taking into account any lost or
reduced tax deductions on account of the Gross-Up Payment, shall be equal to the
Payment;

          (b) All determinations required to be made under this Section,
including whether and when the Gross-Up Payment is required and the amount of
such Gross-Up Payment, and the assumptions to be utilized in arriving at such
determinations shall be made by Accountants which Choice shall request provide
the Employee and Choice with detailed supporting calculations with respect to
such Gross-Up Payment at the time the Employee is entitled to receive the
Payment.  For the purposes of this Section, the "Accountants" shall mean
Choice's independent certified public accountants.  All fees and expenses of the
Accountants shall be borne solely by Choice.  For the purposes of determining
whether any of the Payments will be subject to the Excise Tax and the amount of
such Excise Tax, such Payments will be treated as "parachute payments" within
the meaning of section 280G of the Code, and all "parachute payments" in excess
of the "base amount" (as defined under section 280G(b)(3) of the Code) shall be
treated as subject to the excise Tax, unless and except to the extent that in
the opinion of the Accountants such Payments (in whole or in part) either do not
constitute "parachute payments" or represent reasonable compensation for
services actually rendered (within the meaning of section 280G(b)(4) of the
Code) in excess of the "base amount," or such "parachute payments" are otherwise
not subject to such Excise Tax; for purposes of determining the amount of the
Gross-Up Payment the Employee shall be deemed to pay Federal income taxes at the
highest applicable marginal rate of Federal income taxation for the calendar
year in which the Gross-Up Payment is to be made and to pay any applicable state
and local income taxes at the highest applicable marginal rate of taxation for
the calendar year in which the Gross-Up Payment is to be made, net of the
maximum reduction in Federal income taxes which could be obtained from the
deduction of such state or local taxes if paid in such year (determined without
regard to limitations on deductions based upon the amount of the Employee's
adjusted gross income); and 

                                       7
<PAGE>
 
to have otherwise allowable deductions for Federal, state and local income tax
purposes at least equal to those disallowed because of the inclusion of the
Gross-Up Payment in the Employee's adjusted gross income. Any Gross-Up Payment
with respect to any Payment shall be paid by Choice at the time the Employee is
entitled to receive the Payment. Any determination by the Accountants shall be
binding upon Choice and the Employee. As a result of uncertainty in the
application of section 4999 of the Code at the time of the initial determination
by the Accountants hereunder, it is possible that the Gross-Up Payment made will
have been an amount less than Choice should have paid pursuant to this Section
(the "Underpayment"). In the event that Choice exhausts its remedies and the
Employee is required to make a payment of any Excise Tax, the Underpayment shall
be promptly paid by Choice to or for the Employee's benefit.

     13.  Legal Fees.  Employer shall reimburse the Employee for all reasonable
          -----------                                                          
attorneys fees incurred in connection with the negotiation and execution of this
Agreement.
 
     14.  Registration Rights.  The Employer shall use its reasonable best
          -------------------                                             
efforts to register on Form S-8 the nonqualified options issued pursuant to
Section 3(g) of this Agreement.  All costs in connection with such registration
shall be borne by the Employer.

     15.  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:
                                 ----------------------------------
                                    Michael J. DeSantis
                                    Senior Vice President

                              Employee:


                              --------------------------------------
                              Charles A. Ledsinger

                                       8

<PAGE>
 
                                                                    EXHIBIT 10.3
                                                                    ------------

                              AMENDED AND RESTATED
                              EMPLOYMENT AGREEMENT
                              --------------------

     This Agreement ("Agreement") dated this 13th day of April, 1999 between
Choice Hotels International, Inc. ( the "Employer"),  a Delaware corporation
with principal offices at 10750 Columbia Pike, Silver Spring, Maryland 20901,
and Thomas Mirgon ("Employee"), amends and restates that employment agreement
dated February 10, 1997 and 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 --
Administration.  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 are consistent with his position, and which may
be from time to time assigned by Employer, its Board of Directors or its
designees, such duties to be rendered at the principal office of Employer or at
such other place or places as Employer shall require.  Employee also agrees to
perform his duties in accordance with policies established by Employer's Board
of Directors, which may be changed from time to time.

     2.   Term.  Subject to the provisions for termination hereinafter provided,
          ----                                                                  
the term of this Agreement shall begin as of March 3, 1997  ("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 (9) 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 Two Hundred Thirty Thousand Dollars
         ------                                                       
     ($230,000) per annum payable in accordance with Employee's standard payroll
     practices from time to time in effect.  Such salary shall be reviewed  on
     the first anniversary of the Effective Date and thereafter after the end of
     each fiscal year and  may be increased at the discretion of Employer.

     (b) Incentive Bonus.  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.  For the Employer's 1997 fiscal
     year, the Employee's bonus shall be calculated on a pro rata basis from the
     Effective Date.  Additionally, the Employer shall pay the Employee  a one-
     time cash payment of $50,000, payable in two installments, $25,000 payable
     within thirty days of the Effective Date and $25,000 payable within thirty
     days of the first anniversary of the Effective Date.

     (c) Automobile.  Employer shall provide Employee with an allowance for
         ----------                                                        
     automobile expenses of $850 per month subject to withholding of usual
     taxes.
<PAGE>
 
     (d) Stock Options.  Employee shall be eligible to receive options under the
         -------------                                                          
     Choice Hotels International, Inc. 1996 Long Term Incentive Plan ("LTIP"),
     or similar plan, to purchase Common Stock in accordance with the policy of
     the Choice Hotels Board of Directors as in effect from time to time.
     Additionally, Employer shall recommend to the Compensation Committee and to
     the Board of Directors at its next regularly scheduled meeting that the
     Employee be granted, as of the date of such Board approval, or as of his
     first day of employment with Employer, whichever is later, in accordance
     with the LTIP, 30,000 non-qualified stock options and 10,000 incentive
     stock options.  Any such award shall be subject to (i) the approval of the
     Board of Directors and (ii) Employee executing Employer's standard stock
     option agreement in effect from time to time.  Employee shall be eligible
     for additional grants in accordance with the policies specified in the
     LTIP.

     (e)   Other Benefits.  Employee shall, when eligible, be entitled to
           --------------                                                
     participate in all other fringe benefits accorded headquarters employees of
     similar status by Employer as are in effect from time to time excluding
     incentive compensation or other programs not designed for a senior
     executive.

     (f)  Relocation Expenses.  Employee shall be entitled to all benefits under
          --------------------                                                  
     the Relocation Policy of Employer, as adopted in November 1996.
     Notwithstanding Section VII of the Relocation Policy, Employer will
     reimburse Employee for the reasonable costs of temporary lodging for a
     period of 90 days from the Effective Date and two return trips (economy
     class) per month until the earlier to occur of (i) the expiration of one
     (1) year from the Effective Date or (ii) the sale of Employee's home in
     Florida.  Notwithstanding the foregoing, if, despite Employee's reasonable
     efforts, he is unable to sell his primary residence in Florida within 90
     days from the Effective Date, Employer will reimburse Employee the
     reasonable costs of temporary lodging for up to an additional 90 days.

     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 in the securities of a company that is listed on a national securities
exchange or is regularly traded by national securities dealers, if such holdings
are passive investments of one percent (1%) or less of the market value of the
outstanding securities of such company and Employee does not hold positions of
director, officer, employee or general partner. 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, contracts, development and marketing plans, acquisitions, operating
data, policies 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, Employee shall not directly or indirectly, or
cause others to, (i) make use of or

                                       2
<PAGE>
 
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, contracts, development and marketing plans,
acquisitions, operating data and policies, or (ii) without Employer's prior
written consent, offer employment to or employ on behalf of Employee or any
other person, any person who at any time is or has been within the preceding one
(1) year an employee of Employer or any parent, subsidiary or affiliate of
Employer or induce such person, directly or indirectly, to leave his or her
employment. 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 or
overnight courier service 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 when received if sent certified or
registered mail or by overnight courier.

     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, 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.

     (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 all forms of compensation referred to
     in Section 3 above, including, without limitation, bonuses (calculated
     based only on the actual payout on the EPS portion of the bonus as all
     Choice officers receive in a given year) and 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 amount received by Employee from any
     other active 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, 

                                       3
<PAGE>
 
     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 Sections 7 and 11, "Constructively Terminated" shall
     mean (i) removal or termination of Employee other than in accordance with
     Section 10, (ii) a decrease in Employee's compensation or benefits (unless
     a similar decrease is imposed on all senior executive officers), (iii) a
     significant reduction in the scope of Employee's authority, position,
     duties or responsibilities, (iv) a significant change in Choice's annual
     bonus program which adversely affects Employee, or (v) 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 for
     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.

     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 gross negligence, willful misconduct, willful
     nonfeasance, 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 or conviction of a felony involving moral
     turpitude, fraud or misappropriation of corporate funds. Employee shall be
     entitled to fourteen (14) days advance written notice of termination,
     except where the basis for termination constitutes wilful conduct on the
     part of Employee involving dishonesty or bad faith, in which case the
     termination shall be effective upon the sending of notice.  Such written
     notice shall specify in reasonable detail the grounds for Cause and
     Employee shall have an opportunity to contest to the Board of Directors or
     cure the basis for termination during the fourteen day period after written
     notice.

                                       4
<PAGE>
 
     (c) Subject to state and federal laws, if Employee is unable to perform the
     essential functions of the services described herein, after reasonable
     accommodation, 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 stock options and other 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. Severance.
         --------- 

     (a) If, within twelve months after a Change in Control, as defined in
     Section 11(b), the Employer terminates or Constructively Terminates
     Employee's employment other than in accordance with Section 10, the amount
     of Employee's severance pay will be 200% of his base salary at the rate in
     effect at the time of his termination or Constructive Termination, plus
     200% of the amount of any full year bonus awarded to Employee in the prior
     year (or the maximum target bonus if no bonus was awarded in the prior
     year).  If Employee's employment is terminated subject to this paragraph,
     the Employer will provide the Employee and his family health insurance
     coverage, including, if applicable, COBRA reimbursement, and will provide
     Employee disability insurance coverage under the applicable Employer plans
     for a period of 12 months following termination or until Employee starts
     other full time employment, whichever is earlier.

     (b) A Change in Control of the Employer shall occur upon the happening of
     the earliest to occur of the following:

          1.  Any "person" as such term is used in Sections 13(d) and 14(d) of
     the Securities Exchange Act of 1934, as amended (other than (i) the
     Employer, (ii) any trustee or other fiduciary holding securities under an
     employee benefit plan of the Employer, (iii) any corporations owned,
     directly or indirectly, by the stockholders of the Employer in
     substantially the same proportions as their ownership of stock, (iv)
     Stewart Bainum, his wife, their lineal descendants and their spouses (so
     long as they remain spouses) and the estate of any of the foregoing
     persons, and any partnership, trust, corporation or other entity to the
     extent shares of common stock (or their equivalent) are considered to be
     beneficially owned by any of the persons or estates referred to in the
     foregoing provisions of this subsection 11(b) or any transferee thereof, or
     (v) the Baron Entities, unless such entities, in the aggregate,
     beneficially own more than 19,715,000 shares of the Employer's common
     stock) becomes the "beneficial owner" (as defined in Rule 13d-3 under the
     Exchange Act), directly or indirectly, of securities of the Employer
     representing 33% or more of the combined voting power of the Employer's
     then outstanding voting securities;

                                       5
<PAGE>
 
          2.  Individuals constituting the Board on the Effective Date and the
     successors of such individuals ("Continuing Directors") cease to constitute
     a majority of the Board. For this purpose, a director shall be a successor
     if and only if he or she was nominated by a Board (or a Nominating
     Committee thereof) on which individuals constituting the Board on the
     Effective Date and their successors (determined by prior application of
     this sentence) constituted a majority.

          3.  The stockholders of the Employer approve a plan of merger or
     consolidation ("Combination") with any other corporation or legal person,
     other than a Combination which would result in stockholders of the Employer
     immediately prior to the Combination owning, immediately thereafter, more
     than sixty-five percent (65%) of the combined voting power of either the
     surviving entity or the entity owning directly or indirectly all of the
     common stock, or its equivalent, of the surviving entity; provided,
     however, that if stockholder approval is not required for such Combination,
     the Change in Control shall occur upon the consummation of such
     Combination.

          4.  The stockholders of the Employer approve a plan of complete
     liquidation of the Employer or an agreement for the sale or disposition by
     the Employer of all or substantially all of the Employer's stock and/or
     assets, or accept a tender offer for substantially all of the Employer's
     stock (or any transaction having a similar effect); provided, however, that
     if stockholder approval is not required for such transaction, the Change in
     Control shall occur upon consummation of such transaction.

     (c) For purposes of Section 11(b), Baron Entities shall mean Baron Capital
     Group, Inc., BAMCO, Inc., Baron Capital Management, Inc., Baron Asset Fund
     and Ronald Baron.

     12.  Excise Taxes.
          ------------ 

          (a) Anything in this Agreement to the contrary notwithstanding, if it
shall be determined that any payment or distribution to the Employee or for the
Employee's benefit (whether paid or payable or distributed or distributable)
pursuant to the terms of this Agreement or otherwise (the "Payment") would be
subject to the excise tax imposed by section 4999 of the Internal Revenue Code
(the "Excise Tax"), then the Employee shall be entitled to receive from Choice
an additional payment (the "Gross-Up Payment") in an amount such that the net
amount of the Payment and the Gross-Up Payment retained by the Employee after
the calculation and deduction of all Excise Taxes (including any interest or
penalties imposed with respect to such taxes) on the payment and all federal,
state and local income tax, employment tax and Excise Tax (including any
interest or penalties imposed with respect to such taxes) on the Gross-Up
Payment provided for in this Section, and taking into account any lost or
reduced tax deductions on account of the Gross-Up Payment, shall be equal to the
Payment;

          (b) All determinations required to be made under this Section,
including 

                                       6
<PAGE>
 
whether and when the Gross-Up Payment is required and the amount of such Gross-
Up Payment, and the assumptions to be utilized in arriving at such
determinations shall be made by Accountants which Choice shall request provide
the Employee and Choice with detailed supporting calculations with respect to
such Gross-Up Payment at the time the Employee is entitled to receive the
Payment. For the purposes of this Section, the "Accountants" shall mean Choice's
independent certified public accountants. All fees and expenses of the
Accountants shall be borne solely by Choice. For the purposes of determining
whether any of the Payments will be subject to the Excise Tax and the amount of
such Excise Tax, such Payments will be treated as "parachute payments" within
the meaning of section 280G of the Code, and all "parachute payments" in excess
of the "base amount" (as defined under section 280G(b)(3) of the Code) shall be
treated as subject to the excise Tax, unless and except to the extent that in
the opinion of the Accountants such Payments (in whole or in part) either do not
constitute "parachute payments" or represent reasonable compensation for
services actually rendered (within the meaning of section 280G(b)(4) of the
Code) in excess of the "base amount," or such "parachute payments" are otherwise
not subject to such Excise Tax; for purposes of determining the amount of the
Gross-Up Payment the Employee shall be deemed to pay Federal income taxes at the
highest applicable marginal rate of Federal income taxation for the calendar
year in which the Gross-Up Payment is to be made and to pay any applicable state
and local income taxes at the highest applicable marginal rate of taxation for
the calendar year in which the Gross-Up Payment is to be made, net of the
maximum reduction in Federal income taxes which could be obtained from the
deduction of such state or local taxes if paid in such year (determined without
regard to limitations on deductions based upon the amount of the Employee's
adjusted gross income); and to have otherwise allowable deductions for Federal,
state and local income tax purposes at least equal to those disallowed because
of the inclusion of the Gross-Up Payment in the Employee's adjusted gross
income. Any Gross-Up Payment with respect to any Payment shall be paid by Choice
at the time the Employee is entitled to receive the Payment. Any determination
by the Accountants shall be binding upon Choice and the Employee. As a result of
uncertainty in the application of section 4999 of the Code at the time of the
initial determination by the Accountants hereunder, it is possible that the
Gross-Up Payment made will have been an amount less than Choice should have paid
pursuant to this Section (the "Underpayment"). In the event that Choice exhausts
its remedies and the Employee is required to make a payment of any Excise Tax,
the Underpayment shall be promptly paid by Choice to or for the Employee's
benefit.

     13.       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.

                                       7
<PAGE>
 
      IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.

                              Employer:

                              CHOICE HOTELS INTERNATIONAL, INC.


                              By: 
                                  ------------------------------
                                    Michael J. DeSantis
                                    Senior Vice President

 
                              Employee:


                              ----------------------------------
                              Thomas Mirgon

                                       8

<PAGE>
 
                                                                    EXHIBIT 10.4
                                                                    ------------

                          SECOND AMENDED AND RESTATED
                              EMPLOYMENT AGREEMENT
                              --------------------

     This Agreement ("Agreement") dated this 13th day of April, 1999 between
Choice Hotels International, Inc. ("Employer"), a Delaware corporation with
principal offices at 10750 Columbia Pike, Silver Spring, Maryland 20901, and
Mark Wells  ("Employee"), amends and restates that employment agreement dated
April 13, 1998 and 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, Marketing.
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 May 18, 1998  ("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 Two Hundred Seventy-Five Thousand
              ------                                                     
          Dollars ($275,000) 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.  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.  For calendar year
          1998, Employee shall be guaranteed a bonus of $137,500, payable in
          February, 1999.

          (c) Restricted Stock.  On the Effective Date, Employer shall issue to
              ----------------                                                 
          Employee shares of restricted Choice Hotels common stock ("Common
          Stock") equal in number to the product of $300,000 divided by the mean
          of the high and the low market price of the Common Stock on the
          Effective Date. The restrictions on such shares shall lapse upon
          vesting, which shall occur in five equal annual installments beginning
          on the first anniversary of the Effective Date.
<PAGE>
 
          (d) Automobile.  Employer shall provide Employee with an allowance for
              ----------                                                        
          automobile expenses of $850 per month subject to withholding of usual
          taxes.

          (e) 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.
          Additionally, the Employee shall be granted, on the Effective Date,
          65,000 options to purchase such number of shares of Common Stock.  A
          number of the options shall be incentive stock options granted under
          the LTIP, which number shall be the maximum number permitted under the
          LTIP and Section 422(d) of the Internal Revenue Code of 1986, as
          amended, but in no event more than 25% of the total number of options
          granted pursuant to this Section 3(e).  The remainder of the options
          shall be nonqualified stock options. The options shall be exercisable
          at an amount per share equal to the average of the high and low
          trading price of the Common Stock on the Effective Date and shall vest
          in five equal annual installments following the first anniversary of
          the Effective Date.

          (f) SERP.  At the Effective Date, Employee shall participate in the
              ----                                                           
          Choice Hotels International, Inc. Supplemental Executive Retirement
          Plan ("SERP").

          (g) 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 same basis as such other senior
          executive officers.

          (h)  Relocation Expenses.  Employee shall be entitled to all benefits
               --------------------                                            
          under the Relocation Policy of Employer, as adopted in April 1997 with
          the following additions:

               (1) Notwithstanding Section 2-A of the Relocation Policy,
               Employer will reimburse Employee for a period of up to six months
               from the Effective Date for return trips for Employee and
               Employee's spouse to and from Employee's Tennessee home.

               (2) Notwithstanding Section 2(VIII) of the Relocation Policy,
               Employer shall reimburse Employee for real estate commissions not
               to exceed 7% of the sales price.

     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 

                                       2
<PAGE>
 
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 or
overnight courier service 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 when received if sent certified or
registered mail or overnight courier.

     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, 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.

          (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 

                                       3
<PAGE>
 
          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 all forms of compensation referred to in
          Section 3 above, including, without limitation, bonuses (calculated
          based only on the actual payout on the EPS portion of the bonus as all
          Choice officers receive in a given year) and 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 amount
          received by Employee from any other active 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 Sections 7 and 11, "Constructively Terminated"
          shall mean (i) removal or termination of Employee other than in
          accordance with Section 10, (ii) a decrease in Employee's compensation
          or benefits (unless a similar decrease is imposed on all senior
          executive officers), (iii) a significant reduction in the scope of
          Employee's authority, position,  duties or responsibilities, (iv) a
          significant change in Choice's annual bonus program which adversely
          affects Employee, or (v) 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 for 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.

     10.  Termination of Agreement.  This Agreement shall terminate upon the
          ------------------------                                          
following events and conditions:

                                       4
<PAGE>
 
     (a)  Upon expiration of its term;

     (b) For Cause, which means gross negligence, willful misconduct, willful
     nonfeasance, 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 or conviction of a felony involving moral
     turpitude, fraud or misappropriation of corporate funds. Employee shall be
     entitled to fourteen (14) days advance written notice of termination,
     except where the basis for termination constitutes wilful conduct on the
     part of Employee involving dishonesty or bad faith, in which case the
     termination shall be effective upon the sending of notice.  Such written
     notice shall specify in reasonable detail the grounds for Cause and
     Employee shall have an opportunity to contest to the Board of Directors or
     cure the basis for termination during the fourteen day period after written
     notice.

     (c) Subject to state and federal laws, if Employee is unable to perform the
     essential functions of the services described herein, after reasonable
     accommodation, 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 stock options and other 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. Severance.
         --------- 

     (a) If, within twelve months after a Change in Control, as defined in
     Section 11(b), the Employer terminates or Constructively Terminates
     Employee's employment other than in accordance with Section 10, the amount
     of Employee's severance pay will be 200% of his base salary at the rate in
     effect at the time of his termination or Constructive Termination, plus
     200% of the amount of any full year bonus awarded to Employee in the prior
     year (or the maximum target bonus if no bonus was awarded in the prior
     year).  If Employee's employment is terminated subject to this paragraph,
     the Employer will provide the Employee and his family health insurance
     coverage, including, if applicable, COBRA reimbursement, and will provide
     Employee disability insurance coverage under the applicable Employer plans
     for a period of 12 months following termination or until Employee starts
     other full time employment, whichever is earlier.

     (b) A Change in Control of the Employer shall occur upon the happening of
     the earliest to occur of the following:

          1.  Any "person" as such term is used in Sections 13(d) and 14(d) of
     the 

                                       5
<PAGE>
 
     Securities Exchange Act of 1934, as amended (other than (i) the Employer,
     (ii) any trustee or other fiduciary holding securities under an employee
     benefit plan of the Employer, (iii) any corporations owned, directly or
     indirectly, by the stockholders of the Employer in substantially the same
     proportions as their ownership of stock, (iv) Stewart Bainum, his wife,
     their lineal descendants and their spouses (so long as they remain spouses)
     and the estate of any of the foregoing persons, and any partnership, trust,
     corporation or other entity to the extent shares of common stock (or their
     equivalent) are considered to be beneficially owned by any of the persons
     or estates referred to in the foregoing provisions of this subsection 11(b)
     or any transferee thereof, or (v) the Baron Entities, unless such entities,
     in the aggregate, beneficially own more than 19,715,000 shares of the
     Employer's common stock) becomes the "beneficial owner" (as defined in Rule
     13d-3 under the Exchange Act), directly or indirectly, of securities of the
     Employer representing 33% or more of the combined voting power of the
     Employer's then outstanding voting securities;

          2.  Individuals constituting the Board on the Effective Date and the
     successors of such individuals ("Continuing Directors") cease to constitute
     a majority of the Board. For this purpose, a director shall be a successor
     if and only if he or she was nominated by a Board (or a Nominating
     Committee thereof) on which individuals constituting the Board on the
     Effective Date and their successors (determined by prior application of
     this sentence) constituted a majority.

          3.  The stockholders of the Employer approve a plan of merger or
     consolidation ("Combination") with any other corporation or legal person,
     other than a Combination which would result in stockholders of the Employer
     immediately prior to the Combination owning, immediately thereafter, more
     than sixty-five percent (65%) of the combined voting power of either the
     surviving entity or the entity owning directly or indirectly all of the
     common stock, or its equivalent, of the surviving entity; provided,
     however, that if stockholder approval is not required for such Combination,
     the Change in Control shall occur upon the consummation of such
     Combination.

          4.  The stockholders of the Employer approve a plan of complete
     liquidation of the Employer or an agreement for the sale or disposition by
     the Employer of all or substantially all of the Employer's stock and/or
     assets, or accept a tender offer for substantially all of the Employer's
     stock (or any transaction having a similar effect); provided, however, that
     if stockholder approval is not required for such transaction, the Change in
     Control shall occur upon consummation of such transaction.

     (c) For purposes of Section 11(b), Baron Entities shall mean Baron Capital
     Group, Inc., BAMCO, Inc., Baron Capital Management, Inc., Baron Asset Fund
     and Ronald Baron.

                                       6
<PAGE>
 
     12.  Excise Taxes.
          ------------ 

          (a) Anything in this Agreement to the contrary notwithstanding, if it
shall be determined that any payment or distribution to the Employee or for the
Employee's benefit (whether paid or payable or distributed or distributable)
pursuant to the terms of this Agreement or otherwise (the "Payment") would be
subject to the excise tax imposed by section 4999 of the Internal Revenue Code
(the "Excise Tax"), then the Employee shall be entitled to receive from Choice
an additional payment (the "Gross-Up Payment") in an amount such that the net
amount of the Payment and the Gross-Up Payment retained by the Employee after
the calculation and deduction of all Excise Taxes (including any interest or
penalties imposed with respect to such taxes) on the payment and all federal,
state and local income tax, employment tax and Excise Tax (including any
interest or penalties imposed with respect to such taxes) on the Gross-Up
Payment provided for in this Section, and taking into account any lost or
reduced tax deductions on account of the Gross-Up Payment, shall be equal to the
Payment;

          (b) All determinations required to be made under this Section,
including whether and when the Gross-Up Payment is required and the amount of
such Gross-Up Payment, and the assumptions to be utilized in arriving at such
determinations shall be made by Accountants which Choice shall request provide
the Employee and Choice with detailed supporting calculations with respect to
such Gross-Up Payment at the time the Employee is entitled to receive the
Payment.  For the purposes of this Section, the "Accountants" shall mean
Choice's independent certified public accountants.  All fees and expenses of the
Accountants shall be borne solely by Choice.  For the purposes of determining
whether any of the Payments will be subject to the Excise Tax and the amount of
such Excise Tax, such Payments will be treated as "parachute payments" within
the meaning of section 280G of the Code, and all "parachute payments" in excess
of the "base amount" (as defined under section 280G(b)(3) of the Code) shall be
treated as subject to the excise Tax, unless and except to the extent that in
the opinion of the Accountants such Payments (in whole or in part) either do not
constitute "parachute payments" or represent reasonable compensation for
services actually rendered (within the meaning of section 280G(b)(4) of the
Code) in excess of the "base amount," or such "parachute payments" are otherwise
not subject to such Excise Tax; for purposes of determining the amount of the
Gross-Up Payment the Employee shall be deemed to pay Federal income taxes at the
highest applicable marginal rate of Federal income taxation for the calendar
year in which the Gross-Up Payment is to be made and to pay any applicable state
and local income taxes at the highest applicable marginal rate of taxation for
the calendar year in which the Gross-Up Payment is to be made, net of the
maximum reduction in Federal income taxes which could be obtained from the
deduction of such state or local taxes if paid in such year (determined without
regard to limitations on deductions based upon the amount of the Employee's
adjusted gross income); and to have otherwise allowable deductions for Federal,
state and local income tax purposes at least equal to those disallowed because
of the inclusion of the Gross-Up Payment in the Employee's adjusted gross
income.  Any Gross-Up Payment with respect to any Payment shall be paid by
Choice at the time the Employee is entitled to receive the Payment.  Any
determination by the Accountants shall be binding upon Choice and the Employee.
As a result of uncertainty in the application of section 4999 of the Code at the
time of the initial determination by the Accountants hereunder, it is possible
that the Gross-Up Payment made will have been an amount 

                                       7
<PAGE>
 
less than Choice should have paid pursuant to this Section (the "Underpayment").
In the event that Choice exhausts its remedies and the Employee is required to
make a payment of any Excise Tax, the Underpayment shall be promptly paid by
Choice to or for the Employee's benefit.

     13.  Legal Fees.  Employer shall reimburse the Employee for all reasonable
          -----------                                                          
attorneys fees incurred in connection with the negotiation and execution of this
Agreement.
 
     14.  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.

     13.  Compensation Committee Approval.  Notwithstanding any other provision
          --------------------------------                                     
to the contrary, this Agreement is subject to the approval of the Employer's
Compensation Committee at its next meeting, which is expected to occur on or
about April 13, 1998, and shall not be valid, binding and enforceable prior
thereto.  Prior to such approval, neither party hereto shall make any public
announcement with respect to this Agreement or the employment of Employee by
Employer.

      IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.

                              Employer:

                              CHOICE HOTELS INTERNATIONAL, INC.

                              By: 
                                  ------------------------------
                                    Michael J. DeSantis
                                    Senior Vice President

                              Employee:


                              ----------------------------------
                              Mark Wells

                                       8

<PAGE>
 
                                                                    EXHIBIT 10.5
                                                                    ------------
                          SECOND AMENDED AND RESTATED
                             EMPLOYMENT AGREEMENT
                             --------------------

     This Agreement ("Agreement") dated this 13th 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"), amends that certain employment agreement
dated April 29, 1998 and 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 April 29, 1998  ("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 same basis as such other senior
          executive officers.
<PAGE>
 
     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 or
overnight courier service 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 when actually received if sent
certified or registered mail or overnight courier.

     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, 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 

                                       2
<PAGE>
 
          provided by law and the By-Laws of Employer.

          (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 all forms of
          compensation referred to in Section 3 above, including, without
          limitation, bonuses (calculated based only on the actual payout on the
          EPS portion of the bonus as all Choice officers receive in a given
          year) and 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 amount received by Employee from any other active
          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 and 11, "Constructively
          Terminated" shall mean (i) removal or termination of Employee other
          than in accordance with Section 10, (ii) a decrease in Employee's
          compensation or benefits (unless a similar decrease is imposed on all
          senior executive officers), (iii) a significant reduction in the scope
          of Employee's authority, position,  duties or responsibilities, (iv) a
          significant change in Choice's annual bonus program which adversely
          affects Employee, or (v) 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 for 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 gross negligence, willful misconduct, willful
     nonfeasance, 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 or conviction of a felony involving moral
     turpitude, fraud or misappropriation of corporate funds. Employee shall be
     entitled to fourteen (14) days advance written notice of termination,
     except where the basis for termination constitutes wilful conduct on the
     part of Employee involving dishonesty or bad faith, in which case the
     termination shall be effective upon the sending of notice.  Such written
     notice shall specify in reasonable detail the grounds for Cause and
     Employee shall have an opportunity to contest to the Board of Directors or
     cure the basis for termination during the fourteen day period after written
     notice.

     (c) Subject to state and federal laws, if Employee is unable to perform the
     essential functions of the services described herein, after reasonable
     accommodation, 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 stock options and other 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. Severance.
         --------- 

     (a) If, within twelve months after a Change in Control, as defined in
     Section 11(b), the Employer terminates or Constructively Terminates
     Employee's employment other than in accordance with Section 10, the amount
     of Employee's severance pay will be 200% of his base salary at the rate in
     effect at the time of his termination or Constructive Termination, plus
     200% of the amount of any full year bonus awarded to Employee in the prior
     year (or the maximum target bonus if no bonus was awarded in the prior
     year).  If Employee's employment is terminated subject to this paragraph,
     the Employer will provide the Employee and his family health insurance
     coverage, including, if applicable, COBRA reimbursement, and will provide
     Employee disability insurance coverage under the applicable Employer plans
     for a period of 12 months following termination or until Employee starts
     other full time employment, whichever is earlier.

     (b) A Change in Control of the Employer shall occur upon the happening of
     the

                                       4
<PAGE>
 
     earliest to occur of the following:

          1.  Any "person" as such term is used in Sections 13(d) and 14(d) of
     the Securities Exchange Act of 1934, as amended (other than (i) the
     Employer, (ii) any trustee or other fiduciary holding securities under an
     employee benefit plan of the Employer, (iii) any corporations owned,
     directly or indirectly, by the stockholders of the Employer in
     substantially the same proportions as their ownership of stock, (iv)
     Stewart Bainum, his wife, their lineal descendants and their spouses (so
     long as they remain spouses) and the estate of any of the foregoing
     persons, and any partnership, trust, corporation or other entity to the
     extent shares of common stock (or their equivalent) are considered to be
     beneficially owned by any of the persons or estates referred to in the
     foregoing provisions of this subsection 11(b) or any transferee thereof, or
     (v) the Baron Entities, unless such entities, in the aggregate,
     beneficially own more than 19,715,000 shares of the Employer's common
     stock) becomes the "beneficial owner" (as defined in Rule 13d-3 under the
     Exchange Act), directly or indirectly, of securities of the Employer
     representing 33% or more of the combined voting power of the Employer's
     then outstanding voting securities;

          2.  Individuals constituting the Board on the Effective Date and the
     successors of such individuals ("Continuing Directors") cease to constitute
     a majority of the Board. For this purpose, a director shall be a successor
     if and only if he or she was nominated by a Board (or a Nominating
     Committee thereof) on which individuals constituting the Board on the
     Effective Date and their successors (determined by prior application of
     this sentence) constituted a majority.

          3.  The stockholders of the Employer approve a plan of merger or
     consolidation ("Combination") with any other corporation or legal person,
     other than a Combination which would result in stockholders of the Employer
     immediately prior to the Combination owning, immediately thereafter, more
     than sixty-five percent (65%) of the combined voting power of either the
     surviving entity or the entity owning directly or indirectly all of the
     common stock, or its equivalent, of the surviving entity; provided,
     however, that if stockholder approval is not required for such Combination,
     the Change in Control shall occur upon the consummation of such
     Combination.

          4.  The stockholders of the Employer approve a plan of complete
     liquidation of the Employer or an agreement for the sale or disposition by
     the Employer of all or substantially all of the Employer's stock and/or
     assets, or accept a tender offer for substantially all of the Employer's
     stock (or any transaction having a similar effect); provided, however, that
     if stockholder approval is not required for such transaction, the Change in
     Control shall occur upon consummation of such transaction.

     (c) For purposes of Section 11(b), Baron Entities shall mean Baron Capital
     Group, 

                                       5
<PAGE>
 
     Inc., BAMCO, Inc., Baron Capital Management, Inc., Baron Asset Fund
     and Ronald Baron.

     12.  Excise Taxes.
          ------------ 

          (a) Anything in this Agreement to the contrary notwithstanding, if it
shall be determined that any payment or distribution to the Employee or for the
Employee's benefit (whether paid or payable or distributed or distributable)
pursuant to the terms of this Agreement or otherwise (the "Payment") would be
subject to the excise tax imposed by section 4999 of the Internal Revenue Code
(the "Excise Tax"), then the Employee shall be entitled to receive from Choice
an additional payment (the "Gross-Up Payment") in an amount such that the net
amount of the Payment and the Gross-Up Payment retained by the Employee after
the calculation and deduction of all Excise Taxes (including any interest or
penalties imposed with respect to such taxes) on the payment and all federal,
state and local income tax, employment tax and Excise Tax (including any
interest or penalties imposed with respect to such taxes) on the Gross-Up
Payment provided for in this Section, and taking into account any lost or
reduced tax deductions on account of the Gross-Up Payment, shall be equal to the
Payment;

          (b) All determinations required to be made under this Section,
including whether and when the Gross-Up Payment is required and the amount of
such Gross-Up Payment, and the assumptions to be utilized in arriving at such
determinations shall be made by Accountants which Choice shall request provide
the Employee and Choice with detailed supporting calculations with respect to
such Gross-Up Payment at the time the Employee is entitled to receive the
Payment.  For the purposes of this Section, the "Accountants" shall mean
Choice's independent certified public accountants.  All fees and expenses of the
Accountants shall be borne solely by Choice.  For the purposes of determining
whether any of the Payments will be subject to the Excise Tax and the amount of
such Excise Tax, such Payments will be treated as "parachute payments" within
the meaning of section 280G of the Code, and all "parachute payments" in excess
of the "base amount" (as defined under section 280G(b)(3) of the Code) shall be
treated as subject to the excise Tax, unless and except to the extent that in
the opinion of the Accountants such Payments (in whole or in part) either do not
constitute "parachute payments" or represent reasonable compensation for
services actually rendered (within the meaning of section 280G(b)(4) of the
Code) in excess of the "base amount," or such "parachute payments" are otherwise
not subject to such Excise Tax; for purposes of determining the amount of the
Gross-Up Payment the Employee shall be deemed to pay Federal income taxes at the
highest applicable marginal rate of Federal income taxation for the calendar
year in which the Gross-Up Payment is to be made and to pay any applicable state
and local income taxes at the highest applicable marginal rate of taxation for
the calendar year in which the Gross-Up Payment is to be made, net of the
maximum reduction in Federal income taxes which could be obtained from the
deduction of such state or local taxes if paid in such year (determined without
regard to limitations on deductions based upon the amount of the Employee's
adjusted gross income); and to have otherwise allowable deductions for Federal,
state and local income tax purposes at least equal to those disallowed because
of the inclusion of the Gross-Up Payment in the Employee's adjusted gross
income.  Any Gross-Up Payment with respect to any Payment shall be paid by
Choice at the time the Employee is entitled to receive the Payment.  Any
determination by the 

                                       6
<PAGE>
 
Accountants shall be binding upon Choice and the Employee. As a result of
uncertainty in the application of section 4999 of the Code at the time of the
initial determination by the Accountants hereunder, it is possible that the
Gross-Up Payment made will have been an amount less than Choice should have paid
pursuant to this Section (the "Underpayment"). In the event that Choice exhausts
its remedies and the Employee is required to make a payment of any Excise Tax,
the Underpayment shall be promptly paid by Choice to or for the Employee's
benefit.

     13.  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: ______________________________
                                    Thomas Mirgon
                                    Senior Vice President

                              Employee:


                              __________________________________
                              Michael J. DeSantis

                                       7

<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>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-START>                             JAN-01-1999
<PERIOD-END>                               MAR-31-1999
<CASH>                                           4,536
<SECURITIES>                                         0
<RECEIVABLES>                                   35,256
<ALLOWANCES>                                     8,831
<INVENTORY>                                          0
<CURRENT-ASSETS>                                32,265
<PP&E>                                          51,248
<DEPRECIATION>                                  15,625
<TOTAL-ASSETS>                                 414,941
<CURRENT-LIABILITIES>                           47,160
<BONDS>                                        284,327
                                0
                                          0
<COMMON>                                           609
<OTHER-SE>                                      44,700
<TOTAL-LIABILITY-AND-EQUITY>                   414,941
<SALES>                                              0
<TOTAL-REVENUES>                                30,805
<CGS>                                                0
<TOTAL-COSTS>                                   14,639
<OTHER-EXPENSES>                                (5,868)
<LOSS-PROVISION>                                   408
<INTEREST-EXPENSE>                               4,762
<INCOME-PRETAX>                                 17,272
<INCOME-TAX>                                     6,995
<INCOME-CONTINUING>                             10,277
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    10,277
<EPS-PRIMARY>                                     0.18
<EPS-DILUTED>                                     0.18
        

</TABLE>


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