<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
CHOICE HOTELS INTERNATIONAL, INC.
(Name of Registrant as Specified In Its Certificate)
CHOICE HOTELS INTERNATIONAL, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(4)
and 0-11.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:/1/
4) Proposed maximum aggregate value of transaction:
5) (Set forth the amount on which the filing fee is calculated and state
how it was determined)
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
CHOICE HOTELS INTERNATIONAL, INC.
10750 Columbia Pike
Silver Spring, Maryland 20901
-------------------------
NOTICE OF ANNUAL MEETING
To Be Held May 3, 2000
-------------------------
To the Stockholders of
CHOICE HOTELS INTERNATIONAL, INC.
The 2000 Annual Meeting of Stockholders of Choice Hotels International,
Inc., a Delaware corporation (the "Company"), will be held in the Chesapeake
Room at the Choice Hotels Learning Center, 10720 Columbia Pike, Silver Spring,
Maryland at 9:00 a.m. (E.S.T.) for the following purposes:
1. To elect three Class III directors to hold office for a three year term
ending at the 2003 Annual Meeting of Stockholders and until their
successors are elected and qualified;
2. To approve an amendment to the Choice Hotels International, Inc. Long-
Term Incentive Plan to increase the number of shares available for
issuance under the Plan; and
3. To transact other business properly coming before the Annual Meeting.
Stockholders who owned shares of our stock of record at the close of
business on March 10, 2000 are entitled to notice of, and to vote at, the
Annual Meeting or any adjournment(s) or postponement(s) thereof. Stockholders
are reminded that your shares of Choice Hotels common stock cannot be voted
unless you properly execute and return the enclosed proxy card or make other
arrangements to have your shares represented at the meeting. A list of
stockholders will be available for inspection at the office of the Company
located at 10750 Columbia Pike, Silver Spring, Maryland, at least 10 days prior
to the Annual Meeting.
By Order of the Board of Directors
CHOICE HOTELS INTERNATIONAL, INC.
Michael J. DeSantis
Secretary
March 29, 2000
Silver Spring, Maryland
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED
PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
<PAGE>
CHOICE HOTELS INTERNATIONAL, INC.
10750 COLUMBIA PIKE
SILVER SPRING, MARYLAND 20901
-------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 3, 2000
-------------------------
GENERAL INFORMATION
As a stockholder of Choice Hotels International, Inc., you have a right to
vote on certain matters affecting the company. This proxy statement discusses
the proposals you are voting on this year. Please read it carefully because it
contains important information for you to consider when deciding how to vote.
Your vote is important.
In this proxy statement, we refer to Choice Hotels International, Inc. as
"Choice Hotels" or the "Company".
The annual report (including certified financial statements) for the fiscal
year ended December 31, 1999, is being mailed with this proxy statement. The
annual report is not part of the proxy solicitation material.
The Board of Directors is sending proxy material to you and all other
stockholders on or about March 29, 2000. The Board is asking for you to vote
your shares by completing and returning the proxy card.
QUESTIONS AND ANSWERS
Q.Who can vote at the Annual Meeting?
A. Stockholders who owned Company common stock on March 10, 2000 may attend and
vote at the annual meeting. Each share is entitled to one vote. There were
53,408,415 shares of Company common stock outstanding on March 10, 2000.
Q.Why am I receiving this Proxy statement?
A. This proxy statement describes proposals on which we would like you, as a
stockholder, to vote. It also gives you information on these proposals, as
well as other information, so that you can make an informed decision.
Q.What is the proxy card?
A. The proxy card enables you to appoint Charles A. Ledsinger, Jr. and Jerry E.
Robertson as your representatives at the annual meeting. By completing and
returning the proxy card, you are authorizing Mr. Ledsinger and Mr.
Robertson to vote your shares at the meeting, as you have instructed them on
the proxy card. This way, your shares will be voted whether or not you
attend the meeting. Even if you plan to attend the meeting, it is a good
idea to complete and return your proxy card before the meeting date just in
case your plans change.
If a proposal comes up for vote at the meeting that is not on the proxy card,
Mr. Ledsinger and Mr. Robertson will vote your shares, under your proxy,
according to their best judgment.
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Q.What am I voting on?
A. We are asking you to vote on:
. the election of three directors, and
. an amendment to the Company's Long-Term Incentive Plan to increase the
number of authorized shares of common stock available for issuance
under the Plan.
The section appearing later entitled "Proposals To Be Voted On" gives you
more information on the nominees for election to our Board and the
amendment of the Long-Term Incentive Plan.
Q.How do I vote?
A. You may vote by mail.
You do this by completing and signing your proxy card and mailing it in the
enclosed, prepaid and addressed envelope. If you mark your voting
instructions on the proxy card, your shares will be voted as you instruct.
If you do not mark your voting instructions on the proxy card, your shares
will be voted:
. for the three named nominees for directors,
. for the proposal to increase the number of authorized shares available
for issuance under the Long-Term Incentive Plan.
You may vote in person at the meeting.
We will pass out written ballots to anyone who wants to vote at the
meeting. However, if you hold your shares in street name, you must request
a proxy from your stockbroker in order to vote at the meeting. Holding
shares in "street name" means you hold them in an account at a brokerage
firm.
Q.What does it mean if I receive more than one proxy card?
A. It means that you have multiple accounts at the transfer agent or with
stockbrokers. Please complete and return all proxy cards to ensure that all
your shares are voted.
Unless you need multiple accounts for specific purposes, we recommend you
consolidate as many of your transfer agent or brokerage accounts as
possible under the same name and address. By doing so, you should receive
better customer service.
Q.What if I change my mind after I return my proxy?
A. You may revoke your proxy and change your vote at any time before the polls
close at the meeting. You may do this by:
. signing another proxy with a later date, or
. voting at the meeting.
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Q.Will my shares be voted if I do not return my proxy card?
A. If your shares are held in street name, your brokerage firm, under certain
circumstances, may vote your shares.
Brokerage firms have authority under New York Stock Exchange rules to vote
customers' unvoted shares on some "routine" matters. The New York Stock
Exchange has determined that both of our proposals described later under
"Proposals to Be Voted On" are routine matters.
If you do not give a proxy to vote your shares, your brokerage firm may
either:
. Vote your shares on routine matters, or
. leave your shares unvoted.
When a brokerage firm votes its customers' unvoted shares on routine
matters, these shares are counted to determine if a quorum exists to
conduct business at the meeting. A brokerage firm cannot vote customers'
unvoted shares on non-routine matters. These shares are considered not
entitled to vote on non-routine matters, rather than as a vote against the
matters.
We encourage you to provide instructions to your brokerage firm by giving
your proxy. This ensures your shares will be voted at the meeting.
You may have granted to your stockbroker discretionary voting authority
over your account.
Your stockbroker may be able to vote your shares depending on the terms of
the agreement you have with your stockbroker.
A purchasing agent under a retirement plan may be able to vote a
participant's unvoted shares. If you are a participant in the Choice Hotels
Retirement Savings and Investment Plan, the plan's purchasing agent, under
certain circumstances, can vote your shares.
The purchasing agent can vote shares you hold under the plan if the
purchasing agent does not receive voting instructions from you. The
purchasing agent will vote your unvoted shares in the same proportion as
all other plan participants vote their shares.
Q.How many shares must be present to hold the meeting?
A. To hold the meeting and conduct business, a majority of the Company's
outstanding shares as of March 10, 2000 must be present at the meeting.
This is called a quorum.
Shares are counted as present at the meeting if the stockholder either:
. is present and votes in person at the meeting, or
. has properly submitted a proxy card.
Q.How many votes must the nominees have to be elected as directors?
A. We use the phrase "yes vote" to mean vote for a proposal.
The three nominees receiving the highest number of yes votes will be
elected as directors. This number is called a plurality.
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Q.What happens if a nominee is unable to stand for election?
A. The Board may reduce the number of directors or select a substitute
nominee. In the latter case, if you have completed and returned your proxy
card, Charles A. Ledsinger, Jr. and Jerry E. Robertson can vote your shares
for a substitute nominee. They cannot vote for more than three nominees.
Q. How many votes must the proposed amendment to increase the shares under the
Long-Term Incentive Plan have to pass?
A. To pass, the proposal must receive a yes vote from a majority of the
Company's shares outstanding as of March 10, 2000.
Q.How are votes counted?
A. You may vote either "for" or "against" each nominee. You may vote "for,"
"against" or "abstain" on the proposal related to the Long-Term Incentive
Plan.
If you abstain from voting on Long-Term Incentive Plan amendment, it has
the same effect as a vote against.
If you give your proxy without voting instructions, your shares will be
counted as a yes vote for each nominee and for the Long-Term Incentive Plan
amendment.
Voting results are tabulated and certified by our transfer agent,
ChaseMellon Shareholder Services LLC.
Q.Is my vote kept confidential?
A. Proxies, ballots and voting tabulations identifying stockholders are kept
confidential and will not be disclosed except as may be necessary to meet
legal requirements.
Q.Where do I find voting results of the meeting?
A. We will announce preliminary voting results at the meeting. We will publish
the final results in our quarterly report on Form 10-Q for the second
quarter of 2000. We will file that report with the Securities and exchange
Commission, and you can get a copy by contacting our Investor Relations
Hotline at (302) 592-5026 or the SEC at (800) SEC-0330 for the location of
its nearest public reference room. You can also get a copy on the Internet
through the SEC's electronic data system called EDGAR at www.sec.gov.
PROPOSALS TO BE VOTED ON
1.ELECTION OF CLASS III DIRECTORS
Nominees for directors this year are Barbara Bainum, Charles A. Ledsinger,
Jr. and Lawrence R. Levitan.
The Board recommends a vote for these nominees.
Each nominee is presently a director of the Company and has consented to
serve a new three-year term.
2. APPROVAL OF AN AMENDMENT TO THE CHOICE HOTELS LONG-TERM INCENTIVE PLAN TO
INCREASE SHARES AVAILABLE UNDER THE PLAN
We are asking stockholders to approve an amendment to increase the number
of shares of the Company's common stock available for issuance under the
Choice Hotels International, Inc. Long-Term Incentive Plan. The plan, which
was approved by the Board of Directors in October 1997, provides for awards to
key
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<PAGE>
employees (including officers) which may be in the form of restricted shares,
incentive stock options, nonqualified stock options, stock appreciation rights,
and performance shares.
The plan originally authorized the awarding of a maximum of 7.1 million
shares of Company common stock to eligible employees.
Effects of the Spinoff
The initial authorization of 7.1 million shares under the plan was intended
to be a sufficient number of shares to cover grants under the plan for five to
ten years. The grant by the Company of awards totaling 2.3 million shares from
November 1997 through December 1999 was consistent with this belief. However,
this calculation did not fully anticipate the effects of the spinoff of the
Company in November 1997 from Sunburst Hospitality Corporation (whose name was
Choice Hotels before the spinoff).
At the time of the spinoff, employees of "old" Choice Hotels (which included
Sunburst and Company employees) as well as Manor Care, Inc. held 5.4 million
options in "old" Choice Hotels. These options had been granted from time to
time over the ten years preceding the spinoff. At the time of the spinoff,
these options were converted into successor Sunburst and Company options. As a
result, the 5.4 million successor Company options had to be counted against the
7.1 million authorized shares of the Company's Plan.
As a result, the Board approved an amendment in September, 1999 to provide
for an increase of 1.9 million shares for issuance under the Plan. We are
asking stockholders to approve this increase.
The Board recommends a vote for this proposal.
BOARD OF DIRECTORS
Class III -- Nominees for Terms Expiring in 2003
Barbara Bainum, age 55, Director since 1996. President, and Director of the
Commonweal Foundation since December 1990, December 1984 and December 1994,
respectively; Director of Realty Investment Company, Inc. since July 1989 and
March 1982, respectively; Clinical Social Worker for Family Services Agency,
Gaithersburg, Maryland, since September 1994.
Charles A. Ledsinger, Jr., age 50, Director since 1998. President, Chief
Executive Officer and Director of the Company since August, 1998; President and
Chief Operating Officer of St. Joe Company from February 1998 to August 1998,
Senior Vice President and Chief Financial Officer of St. Joe Company from May
1997 to February 1998; Senior Vice President and Chief Financial Officer of
Harrah's Entertainment, Inc. from June 1995 to May 1997; Senior Vice President
and Chief Financial Officer of Promus Companies Incorporated from August 1990
to June 1995. Director: FelCor Lodging Trust, Inc., Friendly's Ice Cream
Corporation and TBC Corporation.
Lawrence R. Levitan, age 58, Director since 1998. Retired, Managing Partner,
Northeast and Southeast Regions and Managing Partner, Communications Industry
of Andersen Consulting from September 1995 to August 1997. Various positions
with Andersen Consulting since 1963.
Class I -- Term Expires in 2001
Gerald W. Petitt, age 54, Director from 1980 to 1996 and since 1997.
President and Chief Executive Officer of Creative Hotel Associates LLC since
November 1996; Co-Chairman of the Company from January 1995 to November 1996;
President from June 1990 to January 1995 and Chief Operating Officer from
December 1980 to January 1995; Director: Old Westbury Private Capital Fund LLC
and AAA Mid-Atlantic.
Jerry E. Robertson, Ph.D., age 67, Director from 1989 to 1996 and since
1997. Retired, Executive Vice President, 3M Life Sciences Sector and Corporate
Services from November 1986 to March 1994; Director of Manor Care, Inc. from
1989 to September 1998; Director: Coherent, Inc. and Steris Corporation.
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Raymond E. Schultz, age 66, Director since 1999. Chairman of RES
Investments, Inc. since January 1999; Chairman and Chief Executive Officer of
Promus Hotel Corporation from December 1997 to January 1999; President, Chief
Executive Officer and a director of Promus from April 1995 through December
1997. From 1993 to 1995 he served as President and Chief Executive Officer of
the Hotel Division of The Promus Companies Incorporated. Mr. Schultz is also a
director of TBC Corporation and Equity Inns, Inc.
Class II -- Terms Expire 2002
Stewart Bainum, Jr., age 53, Director from 1977 to 1996 and since 1997.
Chairman of the Board of the Company from March 1987 to November 1996 and since
October 1997; Chairman of the Board of Sunburst Hospitality Corporation
("Sunburst") since November 1996; Chairman of the Board of Manor Care, Inc.
since September, 1998; Chairman of the Board and Chief Executive Officer of
Manor Care, Inc. from March 1987 to September, 1998; Chief Executive Officer of
Manor Care and its subsidiary ManorCare Health Services, Inc. ("MCHS") from
March 1987 to September, 1998 and President from June 1989 to September, 1998;
Vice Chairman of the Board of Vitalink Pharmacy Services, Inc. ("Vitalink")
from December 1994 to September, 1998; Vice Chairman of the Board of Manor Care
and subsidiaries from June 1982 to March 1987; Director of Manor Care from
August 1981 to September 1998, of Vitalink from September 1991 to September,
1998, of MCHS from 1976 to September 1998.
James H. Rempe, age 70, Director since 1997. Retired, Senior Vice President,
General Counsel and Secretary of Manor Care from August 1981 to December 1998;
Senior Vice President, General Counsel and Secretary of the Company from
February 1981 to November 1996; Director of In Home Health Inc. from October
1995 to November, 1998 and Vitalink Pharmacy Services, Inc. from 1994 to
September 1998.
William L. Jews, age 47, Director since 2000. President and Chief Executive
Officer of CareFirst, Inc. since 1998; President and Chief Executive Officer of
Blue Cross Blue Shield of Maryland, Inc. until 1998; Director: Ryland Group,
Inc., National Blue Cross/Blue Shield Association, Crown Central Petroleum
Corp., Federal Reserve Bank of Richmond, Muni Mae, and Ecolab, Inc.
Number of Directors, Term and Responsibilities
Three directors are nominees for election this year. The remaining six
directors will continue to serve the terms consistent with their class, as
noted above. Our directors serve staggered terms. This is accomplished as
follows:
. each director serves a three-year term,
. the directors are divided into three classes,
. the classes are as nearly equal in number as possible, and
. the term of each class begins on a staggered schedule.
The Board currently has nine directors. At the beginning of 1999, the Board
had seven directors. During the fiscal year, Frederic V. Malek retired from the
Board of Directors. Three new directors have been appointed to fill vacancies:
Larry R. Levitan in February 1999, Raymond E. Schultz in April, 1999, and
William L. Jews in February, 2000. Mr. Rempe will retire from the Board at the
May 3, 2000 annual meeting. In fiscal year 1999, the Board held seven meetings
and each director, except for Barbara Bainum, attended all of the meetings of
the Board and all of the committees of the Board on which he or she served.
Barbara Bainum was unable to attend one telephonic Board meeting.
The Board is responsible for overseeing the overall performance of the
Company. Members of the board are kept informed of the Company's business
through discussions with the Chairman, the Chief Executive Officer and other
members of the Company's management, by reviewing materials provided to them
and by participating in board and committee meetings.
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Committees of the Board
The standing committees of the Board of Directors include the Audit
Committee, the Compensation/Key Executive Stock Option Plan Committee and the
Nominating and Corporate Governance Committee. The current members of the
standing committees are as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Meetings
Name of Committee held
and Members Functions of the Committee in 1999
- ----------------------------------------------------------------------------------
Compensation/Key Executive . administers the Company's stock option Four
Stock Option Plan plans and grant stock options
thereunder;
Jerry E. Robertson, Chair
Barbara Bainum
Raymond E. Schultz
. reviews compensation of officers and key
management employees;
. recommends development programs for
employees such as bonus and incentive
plans, pensions and retirement;
. reviews other employee fringe benefit
programs
. reviews succession plan and management
development
- ----------------------------------------------------------------------------------
Audit . confers with independent accountants and Two
internal auditors regarding scope of
Raymond E. Schultz, Chair examinations;
Lawrence R. Levitan
Gerald W. Petitt
. reviews reports of independent
accountants and internal auditors;
. reviews recommendations about internal
controls;
. recommends selection of independent
accountants to the Board
- ----------------------------------------------------------------------------------
Nominating & Corporate . administers the Company's Corporate One
Governance Governance Guidelines (see below);
Gerald W. Petitt, Chair
Jerry E. Robertson
James H. Rempe
. determines the size and composition of
the Board;
. recommends candidates to fill vacancies
on the Board;
. determines actions to be taken with
respect to directors who are unable to
perform their duties;
. sets the Company's policies regarding
the conduct of business between the
company and any other entity affiliated
with a director;
. determines the compensation of non-
employee directors
</TABLE>
- --------------------------------------------------------------------------------
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Corporate Governance Guidelines
The Corporate Governance Guidelines are a set of principles which provide a
benchmark of what is "good" corporate governance. The main tenets of the
Guidelines are:
. Create value for shareholders by promoting their interests
. Focus on the future: formulate and evaluate corporate strategies
. Duty of loyalty to the Company by Directors
. Annual CEO evaluation by independent directors
. Annual approval of 3-year plan and one-year operating plan
. Annual assessment of Board effectiveness by Nominating/Governance
Committee
. No interlocking directorships
. Directors are required to reach and maintain ownership of $100,000 of
Company stock
. Annual report of succession planning and management development by CEO
Compensation Committee Interlocks & Insider Participation
During 1999:
. none of the members of the Compensation Committee was an officer (or
former officer) or employee of the Company or any of its subsidiaries;
. none of the members of the Compensation Committee entered into (or
agreed to enter into) any transaction or series of transactions with the
Company or any of its subsidiaries in which the amount involved exceeded
$60,000;
. none of the Company's executive officers served on the compensation
committee (or another board committee with similar functions or, if
there was no such committee like that, the entire board of directors) of
another entity where one of that entity's officers served on the
Company's Board Compensation Committee or one of its executive officers
served as a director on the Company's Board; and
. none of the Company's executive officers was a director of another
entity where one of that entity's officers served on the Company's
Compensation Committee.
Compensation of Directors
We do not pay directors who are also officers of the Company additional
compensation for their services as directors. In 1999, compensation for non-
employee directors included the following:
. an annual retainer of restricted stock with a fair market value of
$30,000,
. $1,610 for each committee meeting attended,
. an option grant at the time of their initial election to purchase 5,000
shares of the Company's common stock,
. an option grant at each subsequent annual meeting to purchase 1,000
shares of the Company's common stock, and
. expenses of attending Board and committee meetings.
Non-employee directors may elect once a year to defer a minimum of 25% of
committee fees to be earned during the year. Any fees which are deferred are
used to purchase shares of the Company's common stock at the end of each fiscal
quarter. Such shares are distributed to the director at the time he or she
ceases services as a director.
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Upon Mr. Malek's retirement, the Board of Directors approved the accelerated
vesting of his awards under the Option Plan and the Stock Plan. The Board of
Directors has also approved the accelerated vesting of Mr. Rempe's awards under
the Option Plan and the Stock Plan upon his retirement following the Annual
Meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This table shows how much Company common stock is owned by (i) each director
of the Company, (ii) the Company's chief executive officer, the other four most
highly compensated executive officers, and one former officer, (iii) all
officers and directors of the Company as a group and (iv) all persons who are
expected to own beneficially more than 5% of the Company's common stock, as of
March 10, 2000. Unless otherwise specified, the address for each of them is
10750 Columbia Pike, Silver Spring, Maryland 20901.
<TABLE>
<CAPTION>
Shares of Common Stock Right to Restricted Percentage of
Name of Beneficial Owner Beneficially Owned(1) Acquire(2) Stock(3) Shares Outstanding
- ------------------------ ---------------------- --------- ---------- ------------------
<S> <C> <C> <C> <C>
Stewart Bainum, Jr...... 7,026,978(5)** 233,460 -- 13.16%
Barbara Bainum.......... 7,469,328(6)** 4,209 3,341 13.98%
Michael J. DeSantis..... 11,801 22,480 -- *
Charles A. Ledsinger,
Jr..................... 21,948 130,713 43,894 *
Lawrence R. Levitan..... -- -- 1,836 *
William L. Jews......... -- -- -- *
Thomas Mirgon........... 3,444 48,780 -- *
Raymond E. Schultz...... -- -- -- *
Steven Schultz.......... -- -- 27,064 *
Gerald W. Petitt........ 37,257(7) 547 3,341 *
James H. Rempe.......... 69,708 62,881 3,672 *
Jerry E. Robertson,
Ph.D................... 23,666(8) 4,941 3,341 *
Mark C. Wells(9)........ 3,750 -- -- *
All Directors and Named
Officers as a Group (15
persons)............... 9,238,722 562,071 86,489 18.32%
Bruce Bainum............ 9,074,935(10)** -- -- 16.99%
Roberta Bainum.......... 5,459,697(11) -- -- 10.22%
Stewart Bainum.......... 10,366,208(12)** 7,193 1,836 19.41%
Ronald Baron............ 19,633,776(13) -- -- 36.76%
</TABLE>
- --------
* Less than 1% of class.
** Because of SEC reporting rules, shares held by certain Bainum family
entities are attributed to more than one of the Bainums included in this
table because such named Bainums have shared voting or dispositive control.
Members of the Bainum family (including various partnerships, corporations
and trusts established by members of the Bainum family) in the aggregate
have the right to vote approximately 39.24% of the number of outstanding
shares of Company common stock.
1. Includes shares for which the named person:
. has sole voting and investment power,
. has shared voting and investment, or
. holds in an account under the Choice Hotels Retirement Savings and
Investment Plan or the Choice Hotels Nonqualified Retirement Savings and
Investment Plan, unless otherwise indicated in the footnotes.
Excludes share that:
. may be acquired through stock option exercises, or
. are restricted stock holdings.
2. Shares that can be acquired through stock option exercises through May 9,
2000.
3. Shares subject to a vesting schedule, forfeiture risk and other
restrictions.
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4. Percentages are based on 53,408,415 shares outstanding on March 10, 2000
(the "Record Date") plus, for each person, the shares which would be issued
assuming that such person exercises all options it holds which are
exercisable through May 9, 2000.
5. Includes 1,565,562 shares owned by the Stewart Bainum, Jr. Trust. Also
includes 3,567,869 shares held by Realty Investment Company, Inc.
("Realty"), a real estate management and investment company in which Mr.
Bainum, Jr. has shared voting authority; 1,779,628 shares owned by Mid
Pines Associates Limited Partnership ("Mid Pines"), in which Mr. Bainum,
Jr. is managing general partner and has shared voting authority and 112,200
shares owned by the Vintage, L.P., in which Mr. Bainum, Jr. is a
shareholder and director of the corporate general partner and shares voting
authority. Also includes 1,719 shares which Mr. Bainum, Jr. has the right
to receive upon termination of his employment with the Company pursuant to
the terms of the Choice Hotels International, Inc. Non-Qualified Retirement
Savings and Investment Plan ("Non-Qualified Savings Plan").
6. Includes 980 shares owned directly by Ms. Bainum and 2,008,651 shares owned
by the Barbara Bainum Trust. Also includes 1,779,628 shares owned by Mid
Pines, in which Ms. Bainum's trust is a general partner and has shared
voting authority, 3,567,869 shares owned by Realty, in which Ms. Bainum's
trust has voting stock and shares voting authority, 112,200 shares owned by
Vintage L.P., in which Ms. Bainum is a shareholder and director of the
corporate general partner and shares voting authority.
7. Includes 8,661 shares held in trust for minor children for which Mr. Petitt
is trustee. Beneficial ownership of such shares is disclaimed.
8. Includes 15,500 shares owned by the JJ Robertson Limited Partnership, of
which Mr. Robertson and his wife are the general partners with shared
voting authority, and 1,833 shares owned by the Jerry E. Robertson Living
Trust.
9. Mr. Wells resigned from the Company in January 2000.
10. Includes 94,500 shares owned directly by Mr. Bainum and 1,906,369 shares
owned by the Bruce Bainum Trust. Also includes 1,614,369 shares owned by
the Roberta Bainum Irrevocable Trust, of which Mr. Bainum is the trustee.
Also includes 1,779,628 shares owned by Mid Pines, in which Mr. Bainum is a
general partner and has shared voting authority, 3,567,869 shares owned by
Realty in which Mr. Bainum's trust has voting stock and shares voting
authority, and 112,200 shares owned by Vintage L.P., in which Mr. Bainum is
a shareholder and director of the corporate general partner and shares
voting authority. Mr. Bainum's address is 10770 Columbia Pike, Silver
Spring, Maryland, 20901.
11. Includes 1,779,628 shares owned by Mid Pines, in which Ms. Bainum is a
general partner and has shared voting authority, 3,567,869 shares owned by
Realty in which Ms. Bainum's trust has voting stock and shares voting
authority, and 112,200 shares owned by Vintage, L.P., in which Ms. Bainum
is a shareholder and director of the corporate general partner and shares
voting authority. Ms. Bainum's address is 10770 Columbia Pike, Silver
Spring, Maryland, 20901.
12. Includes 1,575 shares held directly by Mr. Bainum, 5,885,853 shares held
directly by the Stewart Bainum Declaration of Trust, of which Mr. Bainum is
the sole trustee and beneficiary; 3,567,869 shares held directly by Realty,
in which Mr. Bainum and his wife have shared voting authority; and 112,200
shares owned by Vintage, L.P., of which Mr. Bainum is Chairman of the Board
of the corporate general partner and shares voting authority. Also includes
798,711 shares held by the Jane L. Bainum Declaration of Trust, the sole
trustee and beneficiary of which is Mr. Bainum's wife.
13. As of March 10, 2000 based on information provided by Mr. Baron. Mr.
Baron's address is 450 Park Avenue, Suite 2800, New York, New York 10022.
Pursuant to a letter agreement dated January , 1998 between the Company,
Mr. Baron and entities under the control of Mr. Baron (together with Mr.
Baron, the "Baron Entities"), each Baron Entity covenanted not to (i)
acquire any additional shares of stock or security convertible into stock
of the Company; (ii) take any action or participate in any transaction
which may constitute an event of default under the Company's Credit
Facility or (iii) seek representation on the Board of Directors of the
Company.
10
<PAGE>
EXECUTIVE COMPENSATION
This table shows, for the last three fiscal years, compensation information
for the Company's Chief Executive Officer, the next four most highly
compensated executive officers and one former executive officer. We refer to
each of these officers as a "named officer". Compensation received by each
named officer prior to the October 15, 1997 spinoff(1) was paid by Former
Choice. Compensation received by the named officers after the spinoff was paid
by the Company.
- --------
1. Prior to becoming a separate, publicly-held company on October 15, 1997
pursuant to the Spinoff (as defined below), the Company was named Choice
Hotels Franchising, Inc. and was a wholly-owned subsidiary of Choice Hotels
International, Inc. ("Former Choice"). On October 15, 1997, Former Choice
distributed to its stockholders its hotel franchising business (which had
previously been conducted primarily by the Company) and its European hotel
ownership business pursuant to a pro rata distribution to its stockholders
of all of the stock of the Company (the "Spinoff"). At the time of the
Spinoff, the Company changed its name to "Choice Hotels International,
Inc.," and Former Choice changed its name to "Sunburst Hospitality
Corporation." For purposes of this proxy statement, we refer to the
Company's former parent corporation pior to the Spinoff are to "Former
Choice," and after the spinoff as "Sunburst."
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------------- ------------------------------------------------
Name and Principal Fiscal Restricted Stock Option All Other
Position Year(1) Salary Bonus Other(2) StockAwards($)(3) Shares(#)(4) Compensation(5)
------------------ ------- -------- -------- -------- ----------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles A. Ledsinger,
Jr.(6)................. 1999 $516,809 $249,565 $ 52,895 -- 55,000 --
President & Chief
Executive Officer 1998 159,633 -- 99,621 $825,000 598,563 --
Michael J. DeSantis..... 1999 187,694 83,269 28,306 -- 34,000 $2,498
Senior Vice President,
General Counsel 1998 166,538 36,750 -- -- 22,500 1,920
and Secretary 1997A 122,870 19,204 -- -- 40,000(7) --
1997B 99,530 3,477 -- -- -- --
Bruno Geny (8).......... 1999 239,731 103,200 -- -- 41,500 --
Senior Vice President,
International 1998 70,769 -- -- -- 30,000 --
Thomas Mirgon (9)....... 1999 249,795 119,663 -- -- 48,100 3,590
Senior Vice President,
Administration 1998 239,325 92,083 -- -- 22,500 --
1997A 188,423 51,315 169,624 -- 7,100(10) --
1997B 58,477 26,315 -- -- 40,000(11) --
Steven Schultz (12)..... 1999 187,500 53,730 -- 400,038 100,000 --
Executive Vice
President, Franchise
Operations
Mark C. Wells(13)....... 1999 282,962 137,500 -- -- 41,250 --
Senior Vice President,
Marketing 1998 167,115 -- 121,130 300,000 65,000 --
</TABLE>
- --------
1. On September 16, 1997, the Company changed its fiscal year end from May 31
to December 31. Accordingly, the summary compensation information presented
for the periods prior to 1998 is for the twelve months ended December 31,
1997 ("1997A") and the fiscal year ended May 31, 1997 ("1997B"). Summary
compensation data paid to the named officers during the period between
January 1, 1997 and May 31, 1997 are reflected in each of the 1997A and
1997B periods.
2. Other Annual Compensation for Mr. Ledsinger included: for 1999, $35,077 in
relocation expenses, and $11,700 in automobile allowance, and for 1998,
$95,571 in relocation expenses. For Mr. DeSantis, it included for 1999,
$10,200 in automobile allowance and $18,106 in miscellaneous expenses. For
Mr. Mirgon, it included for 1997, $160, 994 in relocation expenses and
$8,630 in automobile allowance. For Mr. Wells, it included for 1998,
$115,638 in relocation expenses. SEC regulations exclude from proxy
statement reporting requirements a named officer's perquisites if their
value in any year is less than (a) $50,000 or (b) 10% of the named officer's
annual salary and bonus in that year. Based on these regulations, we have
only reported perquisites noted above.
3. Mr. Ledsinger was granted 65,842 shares of restricted stock on August 31,
1998. The shares vest in three equal annual installments beginning on August
31, 1999. As of December 31, 1999, Mr. Ledsinger had 43,894 unvested shares
with a value of $754,428; Mr. Schultz had 27,064 unvested shares with a
value of $465,162; and Mr. Wells had 15,000 unvested shares with a value of
$257,812. Mr. Wells forfeited his unvested shares when he resigned from the
Company in January 2000.
11
<PAGE>
4. For Mr. Mirgon with respect to grants in 1997B and for all of the named
officers with respect to grants in 1997A, represents options to acquire
shares of Former Choice common stock. Because of the spinoff, the options to
purchase Former Choice common stock were converted to successor options to
purchase Company common stock and Sunburst common stock. In all cases,
however, the exercise prices were adjusted to maintain the same financial
value to the option holder before and after each of the spinoffs.
5. Represents amounts contributed in stock by Former Choice for 1997B, Former
Choice/Sunburst for 1997A and the Company for 1998 and 1999 under their
respective 401(k) Plan and Non-Qualified Savings Plan, which provide
retirement and other benefits to eligible employees, including the named
officers.
6. Mr. Ledsinger's employment as President and Chief Executive Officer
commenced August, 1998.
7. In connection with the spinoff, these options were converted into options to
purchase 44,946 shares of Company common stock at an exercise price of
$13.2008 and 5,000 shares of Sunburst common stock at an exercise price of
$7.835.
8. Mr. Geny's employment as Senior Vice President, International commenced
February 1998.
9. Mr. Mirgon's employment with the Company and Former Choice commenced March
3, 1997.
10. In connection with the spinoff, these options were converted into options
to purchase 7,878 shares of Company common stock at an exercise price of
$13.2008 and 888 shares of Sunburst common stock at an exercise price of
$7.835.
11. In connection with the spinoff, these options were converted into options
to purchase 44,946 shares of Company common stock at an exercise price of
$13.0043 and 5,000 shares of Sunburst common stock at an exercise price of
$7.7421.
12. Mr. Schultz's employment as Executive Vice President, Franchise Operations
commenced May 1999.
13. Mr. Wells' employment as Senior Vice President, Marketing commenced May
1998. Mr. Wells resigned in January 2000.
STOCK OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
Potential Realizable
Value of Assumed
Rate of Stock Price
Appreciation for
Individual Grants Option Term(2)
----------------------------------------------- ---------------------
Percentage of
Total Options
Number of Granted to all Exercise
Options Employees in Base Price Expiration
Name Granted(1) 1999 Per Share Date 5%(3) 10%(4)
---- ---------- -------------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Charles A. Ledsinger,
Jr..................... 55,000 7.6% $12.625 2/01/09 $ 436,425 $ 1,106,875
Michael J. DeSantis..... 34,000 4.7% $12.625 2/01/09 $ 269,790 $ 684,250
Bruno Geny.............. 41,500 5.8% $12.625 2/01/09 $ 329,302 $ 835,187
Thomas Mirgon........... 48,100 6.7% $12.625 2/01/09 $ 381,673 $ 968,012
Steven Schultz.......... 100,000 13.9% $14.78 5/17/09 $ 930,000 $ 2,356,000
Mark C. Wells........... 41,250 5.7% $12.625 2/01/09 $ 327,318 $ 830,156
</TABLE>
- --------
1. Options granted in 1999 were made under the 1997 Long-Term Incentive Plan.
These options:
. are generally granted 75% as nonqualified stock options and 25% as
incentive stock options (except as limited by tax law),
. are granted at an exercise price equal to 100% of the fair market value
of the common stock on the grant date,
. expire ten years from the date of grant, unless earlier terminated
because of certain events related to termination of employment, and
. vest in 20% increments on each anniversary of the grant date, subject
to the terms and conditions of the plan.
2. The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the Securities and Exchange Commission and therefore
are not intended to forecast future possible appreciation, if any, of the
stock price. Since options are granted at market price, a zero percent gain
in the stock price will result in no realizable value to the optionees.
3. A 5% per year appreciation in stock price from $12.625 per share yields
$20.56, and from $14.78 per share yields $24.08.
4. A 10% per year appreciation in stock price from $12.625 per share
yields$32.75, and from $14.78 per share yields $38.34.
12
<PAGE>
AGGREGATED OPTION EXERCISES IN 1999
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised
Options at December 31, 1999
-----------------------------
Value of Unexercised
Shares Acquired Value in-the-money Options--
on Exercise Realized Exercisable Unexercisable at December 29, 1999(1)
--------------- -------- ----------------------------- -------------------------
Name # $ # # Exercisable Unexercisable
---- --------------- -------- ----------------------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles A. Ledsinger,
Jr..................... -- -- 119,730 533,850 $557,563 $2,481,181
Michael J. DeSantis..... -- -- 22,480 78,926 $ 82,228 $ 304,819
Thomas Mirgon........... -- -- 25,670 97,854 $ 97,759 $ 392,459
Bruno Geny.............. -- -- 12,000 59,400 $ 0 $ 188,887
Steven Schultz.......... -- -- -- 100,000 $ 0 $ 240,750
Mark C. Wells........... -- -- 13,000 93,250 $ 15,483 $ 249,953
</TABLE>
- --------
1. The closing prices of Company common stock as reported by the New York Stock
Exchange on December 29, 1999 was $17.1875. The value is calculated on the
basis of the difference between the option exercise price and such closing
price multiplied by the number of shares of Company common stock underlying
the option.
Employment Agreements
The Company entered into an employment agreement with Stewart Bainum, Jr.,
providing for Mr. Bainum, Jr.'s employment as Chairman of the Company's Board
of Directors. The agreement has a term of three years commencing October 15,
1997. Either Choice or Mr. Bainum may terminate the agreement upon 30 days'
prior written notice on the first and second anniversary dates of the
agreement. The agreement provides for a base salary of $82,044 per annum for
services to the Company and a maximum bonus of 60% of Mr. Bainum, Jr.'s base
compensation based upon the performance of the Company. Effective February 1,
2000, the agreement was modified to provide Mr. Bainum, Jr. a set retainer of
$200,000 per year, with no bonus potential.
The Company entered into an employment agreement Charles A. Ledsinger. The
agreement has a term of five years from July 31, 1998 and provides for a base
salary of $500,000 per annum, subject to annual adjustments and a target bonus
of 60% of his base compensation, based on Company performance. Pursuant to the
employment agreement, Mr. Ledsinger was granted 65,842 shares of restricted
Company common stock and options to purchase 598,563 shares of common stock, of
which 39,900 of the options were incentive stock options granted under the Long
Term Incentive Plan. The remainder of the options were non-qualified stock
options. The agreement also contains a change of control provision which
provides for a severance payment equal to 200% of his base salary and 75% of a
prior year's bonus if he is terminated within twelve months of a change of
control of the Company.
The Company has entered into employment agreements with each of the officers
listed below. Each agreement is for a term of five years from the effective
date and provides for a specified base salary, which is subject to annual
adjustment, and an annual bonus up to a specified percentage of that officer's
base salary. The annual bonus is based on performance criteria. Each agreement
also contains a change of control provision which provides for a severance
payment equal to 200% of the officer's base salary and 75% of a prior year's
bonus if he is terminated within twelve months of a change of control of the
Company.
The following table provides the term and compensation payable under each
employment agreement.
<TABLE>
<CAPTION>
Current 2000
Base Target
Officer Effective Date Compensation Bonus
---------------- -------------- ------------ -----------
<S> <C> <C> <C>
Michael DeSantis April 29, 1998 $215,000 50% of Base
Thomas Mirgon March 3, 1997 $264,000 50% of Base
Steven Schultz May 17, 1999 $335,000 55% of Base
Joseph Squeri June 3, 1999 $230,000 50% of Base
Mark Wells May 18, 1998 -- 50% of Base
</TABLE>
13
<PAGE>
Retirement Plans
The Company has adopted the Choice Hotels International, Inc. Supplemental
Executive Retirement Plan (the "SERP"). Participants are the CEO and Senior
Vice Presidents and other officers who report directly to the CEO.
Participants in the SERP receive a monthly benefit for life based upon final
average salary and years of service. Final average salary is the average of the
monthly base salary, excluding bonuses or commissions, earned in a 60 month
period which produces the highest average out of the 120 months of employment,
prior to the first occurring of the early retirement date or the normal
retirement date. The nominal retirement age is 65, and participants must have a
minimum of 15 years of service. Participants may retire at age 60 and may elect
to receive reduced benefits commencing prior to age 65, subject to Board
approval. All of the Named Officers who are participants are age 55 or younger,
so that none of their compensation reported above would be included in the
final average salary calculation.
Assuming that the following officers continue to be employed by the Company
until they reach age 65, their credited years of service are as follows:
<TABLE>
<CAPTION>
Current Years Years of Service
Name of Individual of Service at Age 65
------------------ ------------- ----------------
<S> <C> <C>
Charles A. Ledsinger....................... 1 16
Thomas Mirgon.............................. 3 24
Michael J. DeSantis........................ 4 28
Steven Schultz............................. 0 12
Joseph Squeri.............................. 3 34
</TABLE>
The table below sets forth estimated annual benefits payable upon retirement
to persons in specified compensation and years of service classifications.
These benefits are straight life annuity amounts, although participants have
the option of selecting a joint and 50% survivor annuity or ten-year certain
payments. The benefits are not subject to offset for social security and other
amounts.
Years of Service/Benefit as
Percentage of Final Average Salary
<TABLE>
<CAPTION>
25 or
Remuneration 15/15% 20/22.5% more/30%
------------ ------- ------- -------
<S> <C> <C> <C>
$300,000 $45,000 $67,500 $90,000
350,000 52,500 78,750 105,000
400,000 60,000 90,000 120,000
450,000 67,500 101,250 135,000
500,000 75,000 112,500 150,000
600,000 90,000 135,000 180,000
</TABLE>
In October 1997, the Company established the Choice Hotels International,
Inc. Retirement Savings and Investment Plan (the "401(k) Plan"). The 401(k)
Plan is a defined contribution retirement, savings and investment plan
qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and includes a cash or deferred arrangement under Section 401(k)
of the Code. All employees age 21 or over and who have worked for the Company
for a twelve month period during which such employee completed at least 1,000
hours will be eligible to participate. Subject to certain non-discrimination
requirements, each employee will be able to contribute an amount to the 401(k)
Plan on a pre-tax basis up to 15% of the employee's salary, but not more than
the current Federal limit of $10,000. The Company will match contributions made
by its employees subject to certain limitations. The amount of the match will
be equal to a percentage of the amount of salary reduction contribution made on
behalf of a participant during the plan year based upon a formula that involves
the profits of the Company for the year and the number of years of service of
the participant. Amounts contributed by the Company pursuant to its 401(k) Plan
for Named Officers are included in the Summary Compensation Table under the
column headed "All Other Compensation."
14
<PAGE>
The Company also adopted the Choice Hotels International, Inc. Non-Qualified
Retirement Savings and Investment Plan ("Non-Qualified Savings Plan"). Certain
select highly compensated members of management of the Company will be eligible
to participate in the Non-Qualified Savings Plan. The Non-Qualified Savings
Plan is structured so as to provide the participants with a pre-tax savings
vehicle to the extent that pre-tax savings are limited under the 401(k) Plan as
a result of various governmental regulations, such as non-discrimination
testing. Amounts contributed by the Company under its Non-Qualified Savings
Plan for fiscal year 1999 for the Named Officers are included in the Summary
Compensation Table under the column headed "All Other Compensation."
The Company match under the 401(k) Plan and the Non-Qualified Savings Plan
is limited to a maximum aggregate of 6% of the annual salary of a participant.
Likewise, participant contributions under the two plans will not exceed the
aggregate of 15% of the annual salary of a participant.
THE FOLLOWING COMPENSATION COMMITTEE REPORT AND THE PERFORMANCE GRAPH THAT
APPEARS IMMEDIATELY AFTER SUCH REPORT SHALL NOT BE DEEMED TO BE SOLICITING
MATERIAL OR TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934 OR INCORPORATED
BY REFERENCE IN ANY DOCUMENT SO FILED.
In this section, we describe our executive compensation policies and
practices, including the compensation we pay our Chief Executive Officer and
the next four most highly compensated executive officers.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
During 1999, the Compensation/Key Executive Stock Option Plan Committee
consisted of Jerry E. Robertson and Barbara Bainum for the full year, Frederic
V. Malek through April 29, and Raymond E. Schultz from April 29. No member of
our committee during 1999 was an employee of the Company or any of its
subsidiaries. Each member qualifies as a non-employee director under Rule 16b-3
of the Securities and Exchange Act of 1934 and as an "outside director" as
defined in Section 162(m)(3) of the Internal Revenue Code.
The following philosophy and principles have been set forth as a framework
within which our committee operates.
Compensation Committee Philosophy and Guiding Principles
. Attract and retain talented management;
. Closely align management's interests and actions with those of
shareholders through the establishment of appropriate award vehicles;
. Reward employees for enhancing shareholder value through sustained
improvement in earnings per share;
. Position base pay at market so that the Company can vary total
compensation costs with financial results by means of variable pay; and
. Recognize the concept that executive officers individually, and as a
group, should have a significant ownership stake in the Company.
Executive Compensation Policies
Compensation Levels
Our committee relates total compensation levels for the Company's executive
officers to the total compensation paid to similarly situated executives based
on various independently published compensation
15
<PAGE>
surveys, primarily conducted and approved by independent consultants. Summary
data on companies of similar size in the service sector are used as the primary
comparison and companies in the hotel industry are used as a secondary
comparison. Total compensation is targeted to approximate the median of the
competitive market data and comparison companies. However, because of the
performance-oriented nature of the incentive programs, total compensation may
exceed market norms when the Company's targeted performance goals are exceeded.
Similarly, total compensation may lag the market when performance goals are not
achieved. Compensation for the Chief Executive Officers and other executive
officers was set in February 1999. For the twelve months ended December 31,
1999, compensation for the President and Chief Executive Officer was slightly
below the median while compensation for all of the other executive officers, as
a group, was at the median.
Policy with Respect to Qualifying Compensation for Deductibility
Section 162(m) of the Code imposes a $1 million ceiling on tax-deductible
compensation paid to the Chief Executive Officer and the next four most highly
compensated executive officers. Certain types of compensation are only
deductible if performance criteria are set and stockholders have approved the
compensation arrangements. The Company believes that while it is generally in
the best interest of stockholders to structure compensation plans so that
compensation is deductible under Section 162(m), there may be times when the
benefit of the deduction would be outweighed by other corporate objectives,
such as the need for flexibility.
In connection with Charles A. Ledsinger's employment agreement, Mr.
Ledsinger was granted 65,842 non-performance based restricted shares of Company
Common Stock which vest in three equal annual installments beginning July 31,
1999. At vesting, the fair market value of the stock will be compensation to
Mr. Ledsinger and included in calculating the $1 million ceiling. Additionally,
the employment agreement provides for options to purchase 498,563 shares of
Company Common Stock which were granted outside of the 1997 Incentive Plan and
which vest in five equal annual installments beginning July 31, 1999. Upon the
exercise of such options by Mr. Ledsinger during any fiscal year, his gain (the
difference between the fair market value on the date of exercise and the
exercise price) will be included in calculating the compensation for that
fiscal year for which the federal income tax deduction is disallowed. Our
Committee intends to monitor the Company's compensation programs with respect
to such laws.
Annual Compensation
The base salary pay practice as previously adopted by the Compensation
Committee is to target compensation at the 55th percentile of the market range
among the comparison groups for a particular position and to adjust as
appropriate for experience and performance.
Annual merit adjustments for the executive officers affecting compensation
paid in the twelve months ended December 31, 1999 were set in February 1999.
In 1997, the Committee revised its performance measurements for awards under
the annual cash bonus program to focus heavily on management's responsibility
to deliver earnings per share based on earnings per share from continuing
operations at established annual targets. For executive officers other than the
Chief Executive Officer, the measurements include specific performance
objectives directly accountable to the executive officer. These performance
objectives, where applicable, could include licensee/customer satisfaction and
RevPAR and would incorporate each executive officer's accountability for the
successful execution of key initiatives tied to achievement of the Company's
strategic plan. For the 1999 fiscal year, the awards under the annual cash
bonus program were based 75% on achieving increased earnings per share and 25%
on achieving performance objectives payable February 2000. For this period,
actual performance exceeded the goals for earnings per share.
Long- Term Incentives
The Company will award long-term incentives under the 1997 Incentive Plan.
The plan gives the Committee the latitude of awarding Incentive Stock Options,
non-qualified stock options, restricted stock, and
16
<PAGE>
other types of long-term incentive awards. The recommended awards were
developed by analyzing peer group average market data and the Company's past
practice. The Committee reviewed and approved a Stock Option Guide Chart for
the Company's executives which utilizes a market based salary multiple to
establish a competitive range of stock options from which executive awards
could be determined.
Compensation of the Chief Executive Officer
Mr. Ledsinger was appointed Chief Executive Officer and President in August
1998. His base salary is established by his rights under his employment
agreement, approved by the Committee. The base salary is reviewed each year by
the Committee and is subject to merit increases based primarily on his
achievement of performance objectives and the comparison to competitive market
data and the comparison companies. The performance objectives vary from year to
year but in general relate to such matters as positioning the Company for
growth, achieving the Company's strategic plan and other various financial
goals. Although no specific weights are assigned to any particular objective, a
greater emphasis is placed on corporate and personal performance than on
competitive practices within the industry. In February 1999, the Committee
approved a 5% annualized (3.75% pro rata) merit increase to Mr. Ledsinger's
base salary.
Under the annual cash bonus program, Mr. Ledsinger has the potential to be
awarded up to 60% of his base salary if bonus objectives are achieved. Unlike
the other executive officers, Mr. Ledsinger's bonus objectives are tied 100% to
earning per share. For the fiscal year ended December 31, 1999, actual
performance exceeded the goals for earnings per share.
THE COMPENSATION COMMITTEE
Jerry E. Robertson, Chairman
Barbara Bainum
Raymond E. Schultz
17
<PAGE>
PERFORMANCE GRAPH
The following graph compares the performance of Choice common stock with the
performance of the New York Stock Exchange Composite Index ("NYSE Composite
Index") and a peer group index (the "Peer Group Index") by measuring the
changes in common stock prices from October 16, 1997, plus assumed reinvested
dividends. The Commission's rules require that the Company select a peer group
in good faith with which to compare its stock performance by selecting a group
of companies in lines of business similar to its own. Accordingly, the Company
has selected a peer group that includes companies which are actively traded on
the New York Stock Exchange and the NASDAQ Stock Market and which are in the
franchising and/or hospitality industry. The common stock of the following
companies have been included in the Peer Group Index: Prime Hospitality
Corporation, Marriott International, Inc., Promus Hotel Corporation, Cendent
Corporation and Hilton Hotels Corp.
The graph assumes that $100 was invested on October 16, 1997, in each of
Choice common stock, the NYSE Composite Index and the Peer Group Index, and
that all dividends were reinvested. In addition, the graph weighs the
constituent companies on the basis of their respective capitalization, measured
at the beginning of each relevant time period.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
October December June December June December
1997 1997 1998 1998 1999 1999
------- -------- ----- -------- ----- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Choice Hotels 100 94.1 79.8 80.5 116.2 100.7
NYSE Composite Index 100 101.5 116.3 121.8 133.3 133.4
Peer Group 100 100.6 98.3 77.8 92.5 76.8
</TABLE>
18
<PAGE>
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Creative Hotel Associates LLC is a franchisee of the Company with Sleep Inns
in Ormond Beach, Florida and Albuquerque, New Mexico and a Comfort Inn and
Suites in Carbondale, Colorado. Robert C. Hazard, Jr. is Chairman of Creative
Hotel Associates LLP and Gerald W. Petitt is the President and Chief Executive
Officer. Total payments to the Company for fiscal year 1999 were $815,898. The
Company and Messrs. Hazard and Petitt have also entered into an agreement which
provides for no royalty fees for two selected hotels for each of them for a
period of five years. Mr. Petitt is a director of the Company and Mr. Hazard,
Jr. retired from the Board of Directors in August, 1998.
CareFirst BlueCross BlueShield is the Company's health care provider, acting
as third-party administration of the Company's health plan. William L. Jews, a
director of the Company, is the President and Chief Executive Officer of
CareFirst. In 1999, administration fees of $545,297 were paid by the Company to
CareFirst, while CareFirst paid to the Company $739,186 in stop/loss insurance
coverage.
On October 27, 1998, the Company entered into a Master Aircraft Lease
Agreement with Wilderness Investment Company, Inc. ("Wilderness"), a
corporation which is solely owned by Stewart Bainum. The lease permits the
Company to lease from time to time a Cessna Citation VI owned by Wilderness.
During fiscal year 1999, the Company incurred a total of $108,100 for aircraft
usage pursuant to the lease. Mr. Bainum, who is the father of Stewart Bainum,
Jr. and Barbara Bainum, retired from the Board of Directors in August 1998.
Pursuant to its relocation policy, the Company entered into a bridge loan
agreement with Charles A. Ledsinger in September 1998 in the amount of $754,000
for the purchase of his residence. The bridge loan was interest-free and was
repaid in March 1999. Also under its relocation policy, the Company purchased
Mr. Ledsinger Jr.'s previous residence.
Relationship with Sunburst
When the Company was spunoff from Sunburst in October, 1997, the Company and
Sunburst entered into certain agreements intended to govern the relationship
between the parties after the spinoff. In addition, Sunburst is the Company's
largest franchisee, with a portfolio of 83 hotels containing 11,351 rooms as of
December 31, 1999. The material terms of certain of these agreements and other
arrangements, entered into between the Company and Sunburst, including the
franchise agreements with respect to Sunburst's hotels, are described below.
Distribution Agreement
In connection with the spinoff, the Company and Sunburst entered into a
Distribution Agreement which provided for, among other things, the principal
corporate transactions required to effect the spinoff, the assumption by the
Company of all liabilities relating to its business and the allocation between
the Company and Sunburst of certain other liabilities, certain indemnification
obligations of Sunburst and Choice and certain other agreements governing the
relationship between the Company and Sunburst with respect to or in consequence
of the spinoff.
Subject to certain exceptions, the Company has agreed to indemnify Sunburst
and its subsidiaries against any loss, liability or expense incurred or
suffered by Sunburst or its subsidiaries arising out of or related to the
failure by the Company to perform or otherwise discharge liabilities allocated
to and assumed by the Company under the Distribution Agreement, and Sunburst
has agreed to indemnify the Company against any loss, liability or expense
incurred or suffered by the Company arising out of or related to the failure by
Sunburst to perform or otherwise discharge the liabilities retained by Sunburst
under the Distribution Agreement. The foregoing cross-indemnities do not apply
to indemnification for tax claims and liabilities, which are addressed in the
Tax Sharing Agreement described below.
To avoid adversely affecting the intended tax consequences of the spinoff,
each of the Company and Sunburst will agree to comply in all material respects
with each representation and statement made to any
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taxing authority in connection with the IRS tax ruling or any other tax ruling
obtained by the Company and Sunburst in connection with the spinoff.
Under the Distribution Agreement, each of the Company and Sunburst were
granted access to certain records and information in the possession of the
other, and requires the retention of such information in its possession for
specified periods and thereafter requires that each party give the other prior
notice of its intention to dispose of such information. In addition, the
Distribution Agreement provides for the allocation of shared privileges with
respect to certain information and requires each of the Company and Sunburst
to obtain the consent of the other prior to waiving any shared privilege.
In accordance with the Distribution Agreement, the Company agreed to assume
and pay certain liabilities of Sunburst, subject to the Company maintaining a
minimum net worth of $40 million, at the date of the spinoff. As of December
31, 1997 the Company reflected a $25 million receivable due from Sunburst on
its consolidated balance sheet. In 1998, net payments of approximately $8
million were collected from Sunburst in cash. On December 28, 1998, the
Company and Sunburst amended the Strategic Alliance Agreement (defined below)
entered into in connection with the spinoff. As part of that amendment, the
Company exchanged the remaining $17 million balance in return for, among other
things, the termination of Sunburst's option for the exclusive rights to the
MainStay Suites brand and a commitment from Sunburst to build a total of 25
MainStay Suites.
Strategic Alliance Agreement
At the time of the spinoff, the Company and Sunburst entered into a
Strategic Alliance Agreement pursuant to which: (i) Sunburst granted a right
of first refusal to the Company to franchise any lodging property that
Sunburst develops or acquires and intends to operate under franchise; (ii)
Sunburst has also agreed, barring a material change in market conditions, to
continue to develop Sleep Inns and MainStay Suites hotels so that it will have
opened a total of 14 Sleep Inns and 15 MainStay Suites hotels by October 15,
2001 (48 months of the spinoff ); (iii) The Company granted to Sunburst an
option, exercisable under certain circumstances, to purchase the brand names,
marks, franchise agreements and other assets of the MainStay Suites hotel
system; (iv) the Company and Sunburst agreed to continue to cooperate with
respect to matters of mutual interest, including new product and concept
testing for the Company in hotels owned by Sunburst; and (v) Sunburst
authorized the Company to negotiate with third party vendors on Sunburst's
behalf for the purchase of certain items. The Strategic Alliance Agreement
extends for a term of 20 years with rights of mutual termination on the fifth,
tenth and fifteenth anniversaries.
On December 28, 1998, Sunburst and the Company amended the Strategic
Alliance Agreement to: (i) cancel Sunburst's option to acquire the MainStay
Suites system; (ii) eliminate liquidated damages with respect to franchise
agreements entered into before December 12, 1998 (except for MainStay Suites
and Sleep Inn franchise agreements); (iii) cap liquidated damages for MainStay
Suites and Sleep Inn franchise agreement; (iv) change Sunburst's development
obligations to 13 Sleep Inns and 25 MainStay Suites by October 15, 2001; and
(v) provide certain other global amendments to Sunburst's franchise
agreements.
On February 29, 2000, Sunburst and the Company further amended the
Strategic Alliance Agreement to:
. eliminate the right of first refusal granted to the Company to franchise
any lodging property acquired by Sunburst;
. eliminate Sunburst's development obligations with respect to Sleep Inn;
. require Sunburst to spend no more on other development in any year than
it spends on MainStay Suites;
. prohibit Sunburst from selling or re-branding any MainStay Suite until
October 15, 2002 (except for certain agreed upon properties).
. restructure royalty fees
The parties also entered into a Put Call Agreement related to three
MainStay Suites properties for a period ending June 30, 2000. During this
period, the Company can "call" any property and purchase it at Sunburst's
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original cost (approximately $15 million for all three properties). At the end
of this period if the Company has not exercised its call, Sunburst may "put"
any or all of the properties to the Company.
Term Note
In connection with the spinoff, the Company loaned to Sunburst approximately
$115 million which was used by Sunburst to repay approximately $96 million
outstanding under its credit facility and to repay that portion of its
indebtedness under a note to MNR Finance Corp. allocated to Sunburst in
connection with the (approximately $37 million).
This loan is represented by a Term Note in an aggregate principal amount of
$115 million (the "Term Note"). The Term Note has a maturity of five years and
initially accrues interest monthly at an simple rate of 11% per annum though
October 14, 2000. At October 15, 2000, interest accrues at a rate of 11% per
annum compounded daily. Beginning in January 1999, the Company recorded
interest on the outstanding principal and accrued interest amounts at an
effective rate of 10.58%. The Term Note is subordinated to all senior debt of
Sunburst and contains certain restrictive covenants comparable to those
contained in Sunburst's senior credit facility (including restrictions on
Sunburst's ability to make certain investments, incur debt, pay dividends,
dispose of assets and create liens on its assets). In October 1999, a payment
of $187,405 was applied toward the principal balance of the Term Note.
Corporate Services Agreement
The Company and Sunburst entered into a Corporate Services Agreement which
provides that the Company will provide to Sunburst certain corporate support
services, including human resources, accounting, tax and computer systems
support, and Sunburst will provide to the Company certain services including
asset management and accounts payable processing. As of March 31, 1999, all
services provided by each party under the Corporate Services Agreement, except
for human resources and tax services provided by the Company, was terminated.
Tax services were terminated in July 1999 and human resources services on
December 31, 1999. During fiscal year 1999, the Company paid Sunburst $39,636
and Sunburst paid the Company $935,008 for services under the Corporate
Services Agreement.
Consulting Agreement
The Company and Sunburst entered into a Consulting Agreement in which
Sunburst will provide consulting and advisory services to the Company related
to financial issues affecting Sunburst. The term of the agreement commences
October 15, 1997 and terminates on November 1, 2001. Sunburst is entitled to an
annual retainer fee equal to 30% of the annual compensation (including base
salary, incentive bonus and fringe benefits) paid to James A. MacCutcheon by
Sunburst during such period. If Mr. MacCutcheon ceases to be employed by
Sunburst, the agreement can be terminated by either party, but if terminated by
Sunburst, then the Company shall pay Sunburst a termination fee equal to 30% of
any amount due by Sunburst to Mr. MacCutcheon under his employment agreement as
a result of his separation.
During fiscal year 1999, the Company paid Sunburst $157,806 pursuant to the
Consulting Agreement.
Tax Sharing Agreement
The Company and Sunburst have entered into a Tax Sharing Agreement for
purposes of allocating tax liabilities of Former Choice from before the spinoff
among the Company and Sunburst and their respective subsidiaries. In general,
Sunburst will be responsible for (i) filing consolidated federal income tax
returns for the Sunburst affiliated group and combined or consolidated state
tax returns for any group that includes a member of the Sunburst affiliated
group, including in each case the Company and its subsidiaries for the periods
of time that such companies were members of the applicable group and (ii)
paying the taxes relating to such tax returns to the applicable taxing
authorities (including any subsequent adjustments resulting from the
redetermination of such tax liabilities by the applicable taxing authorities).
The Company will reimburse Sunburst for the portion of such taxes that relates
to the Company and its subsidiaries, as determined based on their hypothetical
separate company income tax liabilities. The Company and Sunburst have agreed
to cooperate with each other, and to share information, in preparing such tax
returns and in dealing with other tax matters.
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Employee Benefits Allocation Agreement
In connection with the spinoff, the Company and Sunburst entered into an
Employee Benefits and Other Employment Matters Allocation Agreement (the
"Employee Benefits Allocation Agreement"). The Employee Benefits Allocation
Agreement provides for the allocation subsequent to the spinoff of employee
benefits, as they relate to employees who remained employed by Sunburst or its
subsidiaries ("Sunburst Employees") after the spinoff and employees who are
employed by the Company or its subsidiaries after the spinoff ("Choice
Employees"). Pursuant to the Employee Benefits Allocation Agreement, Sunburst
will continue sponsorship of the various Sunburst profit sharing plans, stock
plans and health and welfare plans with respect to Sunburst Employees. The
Company has established a number of plans which allow it to provide to its
employees substantially the same benefits currently provided to them as
employees of Former Choice. The Employee Benefits Allocation Agreement provides
for cross-guarantees between the Company and Sunburst with respect to the
payment of benefits under certain plans and for cross-indemnification for
employment-related claims arising prior to the spinoff.
The Employee Benefits Allocation Agreement also provided for the adjustment
of outstanding options to purchase shares of Sunburst common stock held by
Sunburst Employees, Choice Employees and employees of Manor Care who hold such
options as a result of the Former Choice spinoff . As a result of these
adjustments, the Company granted options to purchase approximately 5,222,474
shares of common stock to Choice Employees, Sunburst Employees and employees of
Manor Care.
Transitional Service Agreements
The Company and Sunburst have entered into a number of agreements pursuant
to which the Company provides, or will provide, certain continuing services to
Sunburst for a transitional period. Such services will be provided on market
terms and conditions. Subject to the termination provisions of the specific
agreements, Sunburst will be free to procure such services from outside vendors
or may develop an in-house capability in order to provide such services
internally. Management believes that these agreements are based on commercially
reasonable terms including pricing and payment terms. The primary transitional
services agreements are summarized below.
Pursuant to the Employee Benefits Administration Agreement, the Company
provides certain benefits, compensation and other services. Such other services
may include benefit plan administration and accounting, COBRA administration,
regulatory compliance and certain fiduciary services. Pursuant to the Tax
Administration Agreement, the Company provides certain sales, use, occupancy,
real and personal property tax return administration, audit and appeals
services for Sunburst.
Franchise Agreements
The Clarion, Comfort, Econo Lodge, Sleep Inn, Quality, MainStay Suites and
Rodeway marks are each owned by the Company. Each hotel property owned by
Sunburst is subject to a franchise agreement between the Company and Sunburst,
as franchisee (the "Franchise Agreements"). (The material terms of such
agreements are described below.) Total fees paid to the Company for
franchising, royalty, marketing and reservation fees, and product services for
fiscal year 1999 were $16 million.
Term
Each Franchise Agreement has an initial term of 20 years, except the
agreement for Tempe, Arizona which is a year to year agreement. The Franchise
Agreements have varying original dates, from 1982 through 1996. Certain
Franchise Agreements allow for unilateral termination by either party on the
5th, 10th, or 15th anniversary of the Franchise Agreement.
Termination by Sunburst
Sunburst (except with respect to one property as described below) may
terminate a Franchise Agreement if the Company defaults on its material
obligations under such Franchise Agreement and fails to cure such defaults
within 30 days following written notice. The Franchise Agreement with respect
to the Quality Hotel-Arlington (the "Non-Standard Franchise Agreement") does
not allow Sunburst to terminate such Franchise Agreement.
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Termination by Choice
The Company (except with respect to the Non-Standard Franchise Agreement)
may suspend or terminate a Franchise Agreement at any time, if, among other
things, Sunburst (a) fails to submit reports when due; (b) fails to pay amounts
due under such Franchise Agreement; (c) fails to pay its debts generally as
they become due; or (d) receives two or more notices of default for similar
reasons for any 12 month period. The Company (except with respect to the Non-
Standard Franchise Agreement) may terminate a Franchise Agreement immediately
upon notice to Sunburst if, among other things, (a) certain bankruptcy events
occur with respect to Sunburst; (b) Sunburst loses possession or the right to
possession of the Property; (c) Sunburst breaches transfer restrictions in the
related Franchise Agreement; (d) any action is taken to dissolve or liquidate
Sunburst; or (e) there is a threat or danger to the public health and safety in
the continued operation of the Property. If a Franchise Agreement is terminated
by the Company for any of the reasons discussed in the immediately preceding
two sentences, Sunburst is required to pay Special Interest equal to the
product of (i) the average monthly gross room revenue for the preceding 12
months, multiplied by (ii) the royalty fee percentage (more fully described
below), multiplied by (iii) the number of months unexpired under the term of
the related Franchise Agreement (in no event less than $21-$50 multiplied by
the specified room count).
The Non-Standard Franchise Agreement has termination provisions similar to
those in the other Franchise Agreements. The Company may terminate the Non-
Standard Franchise Agreement immediately upon notice to Sunburst if, among
other things, (a) certain bankruptcy events occur with respect to Sunburst; (b)
certain breaches of the related agreements are not remedied; (c) any action is
taken to dissolve or liquidate Sunburst; or (d) legal proceedings against
Sunburst are not dismissed within a certain period of time. Upon termination,
the Franchise Agreement for the Rodeway Inn-Phoenix (Tempe) calls for Special
Interest of the greater of (i) $50,000 and (ii) the sum of the previous two
years of fees paid by the licensee.
Fees
The Franchise Agreements require the payment of certain fees and charges,
including the following: (a) a royalty fee of between 1.93% to 5.0% of monthly
gross room revenues; (b) a marketing fee of between 0.7% and 2.5% plus $0.28
per day multiplied by the specified room count; and (c) a reservation fee of
0.88% to 1.75% of monthly gross room revenues (or 1% of monthly gross room
revenues plus $1.00 per room confirmed through Choice's reservation system).
The marketing fee and the reservation fee are subject to reasonable increases
during the term of the franchise if the Company raises such fees uniformly
among all its franchisees, generally. Late payments (i) will be a breach of the
Franchise Agreement and (ii) will accrue interest from the date of delinquency
at a rate of 1.5% per month or portion thereof.
In December 1998, the Company and Sunburst entered into an amendment which
provided that (i) Sunburst shall pay an application fee of $20,000 on all
future franchise agreements, and (ii) no royalties, marketing or reservation
fees shall be payable for a period of two years for the next ten franchise
agreements entered into after the amendment.
Certain Covenants
The Franchise Agreements impose certain affirmative obligations upon the
Company including: (a) to lend the Franchisor an operations manual; (b) to
utilize money collected from marketing and reservation fees to promote those
aspects of the franchise business; and (c) to periodically inspect the
Property. The Franchise Agreements also impose affirmative obligations upon
Sunburst including: (a) to participate in a specified reservation system; (b)
to keep and comply with the up-to-date version of the Company's rules and
regulations for properly running the specified franchise; (c) to prepare
monthly financial and other records; (d) to not interfere with the franchised
mark(s) and the Company's rights thereto; and (e) to maintain certain specified
insurance policies.
Assignments
Sunburst is prohibited from directly or indirectly selling, assigning,
transferring, conveying, pledging or mortgaging its interest in the Franchise
Agreement, or any equity interest in such franchise interests without the
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consent of the Company except that, among other things, certain percentages of
ownership interests in Sunburst may be transferred without the Company's
consent. The Company's consent to such transfers, will not be given unless,
among other things: (a) all monetary obligations due under the Franchise
Agreement are paid to the Company; (b) no defaults under the Franchise
Agreement remain uncured; (c) the transferee agrees in writing to upgrade the
related Property to the then-current standards; and (d) the transferee agrees
to remain liable for all obligations under the Franchise Agreement so
transferred.
The Company is permitted to assign all or any part of its rights or
obligations under the Franchise Agreements. However, the Franchise Agreements
(with the exception of the Non-Standard Franchise Agreement) do not permit the
Company to absolve itself from the obligations that it transfers under the
Franchise Agreement. Upon the assignment of the Company's obligations under the
Non-Standard Franchise Agreement, the Company will no longer be liable with
respect to the obligations it so transfers.
Potential Conflict
The ongoing relationship between the Company and Sunburst resulting from the
agreements and arrangements described above may potentially give rise to
conflict of interest between the Company and Sunburst. With respect to the
agreements between the parties, the potential exists for disagreements as to
the quality of the services provided by the parties and as to contract
compliance. Nevertheless, the Company believes that there will be sufficient
mutuality of interest between the two companies to result in a mutually
productive relationship.
In addition, Stewart Bainum Jr. serves as Chairman of the Boards of
Directors of both the Company and Sunburst. As a result of the spinoff, Mr.
Bainum, Jr., as well a certain other officers and directors of the Company and
of Sunburst, also own shares and/or options or other right to acquire shares in
each of the Company and Sunburst. Appropriate polices and procedures are
followed by the Board of Directors of the Company and Sunburst to limit the
involvement of Mr. Bainum, Jr. (and, if appropriate, relevant officers of such
companies) in conflict situations, including requiring them to abstain from
voting as directors of either the Company or Sunburst on certain matters which
present a conflict between the two companies.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") requires the Company's reporting officers and directors, and
persons who own more than ten percent of the Company's Common Stock, to file
reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission (the "Commission"), the New York Stock
Exchange and the Company. Based solely on the Company's review of the forms
filed with the Commission and written representations from reporting persons
that they were not required to file Form 5 for certain specified years, the
Company believes that all of its reporting officers, directors and greater than
ten percent beneficial owners complied with all filing requirements applicable
to them during the fiscal year ended December 31, 1999, except for the
following late filings: Jerry E. Robertson was two days late with respect to a
Form 4 filing and Gerald W. Petitt was three days late with respect to a Form 4
filing. Both of these incidents were due to a malfunction of the Company's
electronic filing system.
SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation. In addition to
solicitation by mail, the Company will request banks, brokers and other
custodian nominees and fiduciaries to supply proxy material to the beneficial
owners of Company common stock of whom they have knowledge, and will reimburse
them for their expenses in so doing; and certain directors, officers and other
employees of the Company, not specially employed for the purpose, may solicit
proxies, without additional remuneration therefor, by personal interview, mail,
telephone or telegraph.
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RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Since 1980, Arthur Andersen LLP has served as the Company's independent
public accounting firm. It is expected that representatives of Arthur Andersen
will be present at the annual meeting. They will be given an opportunity to
make a statement if they desire to do so, and it is expected that they will be
available to respond to appropriate questions.
PROCEDURES FOR STOCKHOLDER PROPOSALS AND NOMINATIONS
Under the Company's Bylaws, nominations for director may be made only by the
Board of Directors or a committee of the board, or by a stockholder entitled to
vote who has delivered notice to the Company not less than 60, nor more than
90, days before the first anniversary of the preceding year's annual meeting.
The Bylaws also provide that no business may be brought before an annual
meeting except as specified in the notice of meeting (which includes
stockholder proposals that the Company is required to set forth in its proxy
statement under SEC Rule 14a-8) or as otherwise brought before the meeting by
or at the direction of the board or by a stockholder entitled to vote who has
delivered notice to the Company (containing certain information specified in
the Bylaws) within the time limits described above for a nomination for the
election of a director. These requirements are separate and apart from, and in
addition to, the SEC's requirements that a stockholder must comply with in
order to have a stockholder proposal included in the Company's proxy statement
under SEC Rule 14a-8.
Stockholder Proposals for 2000 Annual Meeting
Stockholder proposals intended to be presented at the Company's 2001 Annual
Meeting of Stockholders must be received by the Company's Corporate Secretary
no later than March 5, 2001. Such proposals must meet the requirements set
forth in the rules and regulations of the SEC in order to be eligible for
inclusion in the Company's 2001 proxy materials.
OTHER MATTERS TO COME BEFORE THE MEETING
The Board of Directors does not know of any matters which will be brought
before the 2000 annual meeting other than those specifically set forth in the
notice of meeting. If any other matters are properly introduced at the meeting
for consideration, including, among other things, consideration of a motion to
adjourn the meeting to another time or place, the individuals named on the
enclose proxy card will have discretion to vote in accordance with their best
judgment, unless otherwise restricted by law.
By Order of the Board of Directors
Michael J. DeSantis
Secretary
Dated: March 29, 2000
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CHOICE HOTELS INTERNATIONAL, INC.
10750 Columbia Pike, Silver Spring, Maryland 20901
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 3, 2000
The undersigned hereby appoints JERRY E. ROBERTSON and CHARLES A. LEDSINGER, JR.
and each of them, the true and lawful attorneys and proxies, with full power of
substitution, to attend the Annual Meeting of Shareholders of Choice Hotels
International, Inc. (The "Company") to be held on May 3, 2000 at 9:00 a.m. at
the Company's Learning Center, Choice Centre, 10720 Columbia Pike, Silver
Spring, Maryland and at any adjournment thereof, and to vote all shares of
common stock held of record which the undersigned could vote, with all the
powers the undersigned would possess if personally present at such meeting, as
designated below.
All shares of Company common stock that are represented at the Annual Meeting by
properly executed proxies received prior to or at the Annual Meeting and not
revoked will be voted at the Annual Meeting in accordance with the instructions
indicated herein. If no instructions are indicated for Proposal One or Proposal
Two, such proxies will be voted in accordance with the Board of Directors'
recommendation as set forth herein with respect to such proposal(s).
CHOICE HOTELS INTERNATIONAL, INC., ANNUAL MEETING, MAY 3, 2000 AT 9:00 A.M.
DIRECTIONS TO CHOICE CENTRE
10770 Columbia Pike
Silver Spring, MD 20901
From Washington, DC - 16th Street North to Route 29 (Colesville Road). Pass
over the Beltway (495), at which point Colesville Road becomes Columbia Pike.
Choice Centre is on the left side approximately 2 miles past the Beltway.
From National Airport to Headquarters - Take George Washington Parkway
approximately 8 miles to the Beltway I-495 North. Go North and follow Beltway
as it curves East to (2nd Silver Spring Exit 30 North Colesville Road). Go
approximately 2 1/2 miles to Choice Hotels Headquarters on your left side.
From Dulles Airport to Headquarters - Use Dulles Free Access (stay off toll
road). Go East approximately 18 miles to I-495 North Beltway. Go North and
follow Beltway as it curves east to (2nd Silver Spring Exit 30 North Colesville
Road). Go approximately 2 1/2 miles to Choice Hotels Headquarters on your left
hand side.
From BWI to Headquarters - Take 195 west for 4 miles. The take I-95 south for
14 miles to Highway 198 west toward Burtonsville. Go west 3 miles to Route 29
(Colesville Road). Turn left on Route 29 (south) and go approximately 7 miles
to Choice Hotels Headquarters - next to Mobil gas station.
From Baltimore, MD - Take I-95 South to Highway 198 west toward Burtonsville.
Go west 3 miles to Route 29 (Colesville Road). Turn left on Rte. 29 (south) and
go approximately 7 miles to Choice Centre.
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR BOTH OF
THE PROPOSALS
<TABLE>
<S> <C>
1. PROPOSAL ONE: Election of three Directors. 2. PROPOSAL TWO: Amendment to Long-Term Incentive Plan
to increase the number of shares available for issuance under the Plan.
FOR all nominees WITHHOLD FOR AGAINST ABSTAIN
listed below AUTHORITY
[_] [_] [_]
(except as marked to vote for all nominees
to the contrary) Listed to the right
[_] [_]
</TABLE>
NOMINEES: Charles A. Ledsinger, Jr., Barbara Bainum and
Lawrence R. Levitan
(Instructions: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below)
------------------------------------------------
If you plan to attend the Annual Meeting of Shareholders, please mark the
following box and promptly return this Proxy Card.
<TABLE>
<S> <C> <C>
- ----------------------------- ------------------------------ Dated ------------------------------ 2000
Signature Signature
</TABLE>
(Signatures should correspond exactly with the name or names appearing above.
Attorneys, trustees, Executors, administrators, guardians and others signing in
a representative capacity should designate their full titles. If the signer is
a corporation, please sign the full corporate name by a duly authorized
officer.)
FOLD AND DETACH HERE
PROPOSAL ONE: To elect three directors to hold office until the 2003 Annual
Meeting and until their successors are elected and qualified.
PROPOSAL TWO: To amend the Choice Hotels International, Inc. Long-Term Incentive
Plan to increase by 1.9 million the number of shares available for awards under
the plan.
