-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EpvrpGQxxTv2kej/l6wOSNUCUjQLIvGOVFH24IdAnA43HcqAb1GPba/Rvunj9+ko kVft7P8GwpebjA4NsSBpfw== 0000950162-96-000539.txt : 19961017 0000950162-96-000539.hdr.sgml : 19961017 ACCESSION NUMBER: 0000950162-96-000539 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19961016 EFFECTIVENESS DATE: 19961016 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHOICE HOTELS HOLDINGS INC CENTRAL INDEX KEY: 0001018146 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: S-8 SEC ACT: 1933 Act SEC FILE NUMBER: 333-14203 FILM NUMBER: 96643932 BUSINESS ADDRESS: STREET 1: 10750 COLUMBIA PIKE CITY: SILVER SPRING STATE: MD ZIP: 20901 BUSINESS PHONE: 3015935600 S-8 1 FORM S-8 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1996 REGISTRATION NO. 333- =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-8 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 CHOICE HOTELS HOLDINGS, INC. (TO BE RENAMED CHOICE HOTELS INTERNATIONAL, INC.) (Exact name of registrant as specified in its charter) DELAWARE 52-1985619 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 10750 COLUMBIA PIKE 20901 SILVER SPRING, MARYLAND (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (301) 979-5000 CHOICE HOTELS INTERNATIONAL, INC. 1996 EMPLOYEE STOCK PURCHASE PLAN, NON-EMPLOYEE DIRECTOR STOCK OPTION AND DEFERRED COMPENSATION STOCK PURCHASE PLAN, 1996 NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN, 1996 LONG-TERM INCENTIVE PLAN (Full titles of the Plans) James H. Rempe Acting General Counsel and Secretary Choice Hotels Holdings, Inc. 10750 Columbia Pike Silver Spring, Maryland 20901 (301) 979-5000 (Name, address, including zip code, and telephone number, including area code, of agent for service)
CALCULATION OF REGISTRATION FEE - ----------------------------------------------------------------------------------------------------------------------------- TITLE OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE PER SHARE * AGGREGATE OFFERING PRICE* REGISTRATION FEE* REGISTERED - ----------------------------------------------------------------------------------------------------------------------------- Common Stock, par 3,390,000 shs $14.00 $47,460,000 14,382.00 value $.01 per share
* Estimated pursuant to Rule 457 solely for the purpose of calculating the registration fee based upon a bona fide estimate of the maximum market price of a share of Common Stock on the day trading commences on the New York Stock Exchange. PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT ITEM 3. DOCUMENTS INCORPORATED BY REFERENCE. The Registrant's Form 10, as amended (the "Form 10"), originally filed with the Securities and Exchange Commission (the "Commission") on July 11, 1996, containing audited financial statements for the fiscal year ended May 31, 1996 and unaudited financial statements for the fiscal quarter ended August 31, 1996, is hereby incorporated by reference in this Registration Statement and the description of the Registrant's Common Stock contained in the Form 10 is incorporated by reference in the Registration Statement. All documents subsequently filed by the Registrant with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference in this Registration Statement and to be a part hereof from the date of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Registration Statement. ITEM 4. DESCRIPTION OF SECURITIES. Not applicable. ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL. None. ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the General Corporation Law of the State of Delaware (the "DCGL") provides, in summary, that directors and officers of Delaware corporations such as the Registrant are entitled, under certain circumstances, to be indemnified against all expenses and liabilities (including attorneys' fees) incurred by them as a result of suits brought against them in their capacity as a director or officer, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, if they had no reasonable cause to believe their conduct was unlawful; provided, that no indemnification may be made against expenses in respect of any claim, issue or matter as to which they shall have been adjudged to -3- be liable to the corporation, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that despite the adjudication of liability but in view of all the circumstances of the case, they are fairly and reasonably entitled to indemnify for such expenses which such court shall deem proper. Any such indemnification may be made by the corporation only as authorized in each specific case upon a determination by stockholders or disinterested directors that indemnification is proper because the indemnitee has met the applicable standard of conduct. Article VII of the Registrant's By-laws entitles officers, directors and controlling persons of the Registrant indemnification to the full extent permitted by Section 145 of DGCL, as the same may be supplemented or amended from time to time. Article VII of the By-laws the Registrant provides: INDEMINFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS Section 1. Action, Other Than by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding of investigation, whether civil, criminal or administrative, and whether external or internal to the Corporation (other than a judicial action or suit brought by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or that, being or having been such a director, officer, employee or agent, he is or was serving at the request of the Corporation as director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (all such persons being referred to hereafter as an "Agent"), against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding, or any appeal thereof, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interest of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding -- whether by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent -- shall not, of itself, create a presumption that the person did not act in good faith and in manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, that he or she had reasonable cause to believe that his or her conduct was unlawful. Section 2. Action, by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed judicial action or suit brought by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was an Agent (as defined above) against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the defense, settlement or appeal of such action or suit if he -4- or she acted in good faith and in a manner he or she reasonable believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for gross negligence or misconduct in the performance of his or her duty to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or other such court shall deem proper. Section 3. Determination of Right of Indemnification. No indemnification under Section 1 or 2 of this Article VII (unless ordered by a court) shall be made by the Corporation if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote consisting of directors who were not parties to such action, suit or proceedings, even though less than a quorum or (ii) if there are no such directors or if such directors so direct, by independent legal counsel in a written opinion, or (iii) by the stockholders, that such person did not act in good faith and in a manner that such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal proceeding, that such person believed or had reasonable cause to believe that his or her conduct was unlawful. Section 4. Indemnification Against Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that an Agent has been successful on the merits or otherwise, including the dismissal of an action without prejudice or the settlement of an action without admission of liability, in defense of any action, suit or proceeding or in defense of any claim, issue or matter therein, or on appeal from any such proceeding, action, claim or matter, such Agent shall be indemnified against all expenses actually and reasonably incurred in connection therewith. Section 5. Advances of Expenses. Except as limited by Section 6 of this Article, expenses incurred in defending any civil, criminal, administrative or investigative action, suit or proceeding or investigation or any appeal therein shall be paid by the Corporation in advance of the final disposition of such matter, if the Agent shall undertake to repay such amount in the event that it is ultimately determined, as provided herein, that such person is not entitled to indemnification. Notwithstanding the foregoing, no advance shall be made by the Corporation if a determination is reasonably and promptly made by the Board of Directors by a majority vote of disinterested directors, or (if there are no such directors or such directors so direct) by independent legal counsel in a written opinion, that, based upon the facts known to the Board or counsel at the time such determination is made, such person did not act in good faith and in a manner that such person believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal proceeding, that such person believed or had reasonable cause to believe his or her conduct was unlawful. In no event shall any advance be made in instances where the Board of Directors or independent legal counsel reasonably determines that such person deliberately breached his duty to the Corporation or its shareholders. -5- Section 6. Right of Agent to Indemnification Upon Application; Procedure Upon Application. Any indemnification under Sections 1, 2, and 4, or advance under Section 5 of this Article, shall be made promptly, and in any event within ninety days, upon the written request of the Agent, unless with respect to applications under Sections 1, 2, or 5, a determination is reasonably and promptly be made by the Board of Directors by a majority vote of disinterested directors that such Agent acted in a manner set forth in such Sections as to justify the Corporation's not indemnifying or making an advance to the Agent. In the event there are no such disinterested directors, the Board of Directors shall promptly direct that independent legal counsel shall decide whether the Agent acted in the manner set forth in such Sections as to justify the Corporation's not indemnifying or making an advance to the Agent. The right to indemnification or advances as granted by this Article shall be enforceable by the Agent in any court of competent jurisdiction, if the Board or independent legal counsel denies the claim, in whole or in part, or if no disposition of such claim is made within ninety days. The Agent's expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. Section 7. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Article is held by a court of competent jurisdiction to be unavailable to an indemnitee in whole or part, the Corporation, shall, in such an event, after taking into account, among other things, contributions by other directors and officers of the Corporation pursuant to indemnification agreements or otherwise, and in the absence of personal enrichment, acts of intentional fraud or dishonesty or criminal conduct on the part of the Agent, contribute to the payment of Agent's losses to the extent that, after other contributions are taken into account, such losses exceed: (i) in the case of a director of the Corporation or any of its subsidiaries who is not an officer of the Corporation or any of such subsidiaries, the amount of fees paid to him or her for serving as a director during the 12 months preceding the commencement of the suit, proceeding or investigation; or (ii) in the case of a director of the Corporation or any of its subsidiaries who is also an officer of the Corporation or any of such subsidiaries, the amount set forth in clause (i) plus 5% of the aggregate cash compensation paid to said director for such office(s) during the 12 months preceding the commencement of the suit, preceding, or investigation; or (ii) in the case of an officer of the Corporation or any of its subsidiaries, 5% of the aggregate cash compensation paid to such officer for service in such office(s) during the 12 months preceding the commencement of such suit, proceeding or investigation. Section 8. Other Rights and Remedies. The indemnification provided by this Article shall not be deemed exclusive of, and shall not affect, any other rights to which an Agent seeking indemnification may be entitled under any Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors and administrators of such a person. All rights to indemnification under this Article shall be deemed to be provided by a contract between the Corporation and the agent who serves in such capacity at -6- any time while these bylaws and other relevant provisions of the general corporation law and other applicable law, if any, are in effect. Any repeal or modification thereof shall not affect any rights or obligations then existing. Section 9. Insurance. Upon resolution passed by the Board, the Corporation may purchase and maintain insurance on behalf of any person who is or was an Agent against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article. The Corporation may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such sums as may become necessary to effect indemnification as provided herein. Section 10. Constituent Corporations. For the purposes of this Article, references to "the Corporation" include all constituent corporations absorbed in a consolidation of merger as well as the resulting or surviving corporation, so that any person who is or was a director, officer, employee, or trustee of such a constituent corporation or who, being or having been such a director, officer, employee or trustee, is or was serving at the request of such constituent corporation as a director, officer, employee, trustee of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity. Section 11. Other Enterprises, Fines, and Serving at Corporation's Request. For purposes of this Article, references to "other enterprises" in Section 1 and 7 shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service by Agent as director, officer, employee, trustee or agent of the Corporation which imposes duties on, or involves services by, such Agent with respect to any employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referenced to in this Article. Section 12. Savings Clause. If this Article or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Agent as to expenses (including attorneys' fees) judgments, fines and amounts paid in settlement with respect to any action, suit, appeal, proceeding or investigation, whether civil, criminal or administrative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated, or by any other applicable law. -7- ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED. Not applicable. ITEM 8. EXHIBITS. The following exhibits are filed as part of this Registration Statement. Exhibit No. Description 4.1 Choice Hotels International, Inc. 1996 Employee Stock Purchase Plan. 4.2 Choice Hotels International, Inc. Non-Employee Director Stock Option and Deferred Compensation Stock Purchase Plan. 4.3 Choice Hotels International, Inc. 1996 Non-Employee Director Stock Compensation Plan. 4.4 Choice Hotels International, Inc. 1996 Long-Term Incentive Plan. 5 Opinion of James H. Rempe regarding the legality of the securities being registered. 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants. 23.2 Consent of James H. Rempe (included in Exhibit 5). 24 Powers of Attorney authorizing execution of Registration Statement of Form S-8 on behalf of certain directors of Registrant. ITEM 9. UNDERTAKINGS. (a) Rule 415 Offering. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement; (i) To include any prospectus required by Section 10 (a) (3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent -8- post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (a) (1) (i) and (a) (1) (ii) do not apply if the Registration Statement is on Form S-3 or Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Filings incorporating subsequent Exchange Act documents by reference. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13 (a) or Section 15(d) of the Exchange Act that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Request for acceleration of effectiveness or filing of registration statement on Form S-8. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in -9- connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. SIGNATURES The Registrant. Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it meets all of the requirements for filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Silver Spring, State of Maryland, on this day of October 1996. CHOICE HOTELS HOLDINGS, INC. By: /s/James H. Rempe ------------------------ Name: James H. Rempe Title: Acting General Counsel and Acting Secretary Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the date indicated. * Chairman of the Board and October 15, 1996 - --------------------------- Director Stewart Bainum, Jr. * Senior Vice President and October 15, 1996 - --------------------------- Chief Financial James A. MacCutcheon Officer (Principal Financial Officer) * Acting General Counsel and October 15, 1996 - --------------------------- Secretary James H. Rempe * By: /s/James H. Rempe ---------------------- James H. Rempe Attorney-in-fact INDEX TO EXHIBITS Exhibit Description 4.1 Choice Hotels International, Inc. 1996 Employee Stock Purchase Plan 4.2 Choice Hotels International, Inc. Non-Employee Director Stock Option and Deferred Compensation Stock Purchase Plan 4.3 Choice Hotels International, Inc. 1996 Non-Employee Director Stock Compensation Plan. 4.4 Choice Hotels International, Inc. 1966 Long-Term Incentive Plan 5 Opinion of James H. Rempe regarding the legality of the securities being registered. 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants 23.2 Consent of James H. Rempe (included in Exhibit 5). 24 Powers of Attorney EX-4.1 2 EMPLOYEE STOCK PURCHASE PLAN Exhibit 4.1 CHOICE HOTELS INTERNATIONAL, INC. 1996 EMPLOYEE STOCK PURCHASE PLAN SECTION ONE. PURPOSES. The 1996 Employee Stock Purchase Plan of Choice Hotels International, Inc. (the "Plan") is intended to provide a method whereby employees of Choice Hotels International, Inc. and its Subsidiaries (hereinafter referred to, unless the context otherwise requires, as the "Company") will have an opportunity to acquire a proprietary interest in the Company through the purchase of shares of Common Stock. Such stock ownership induces such employees to continue in the employ of the Company. The Plan also enables the Company to attract and retain such employees. It is the intention of the Company to have the Plan qualify as an "employee stock purchase plan" under Section 423 of the Code. The provisions of the Plan shall, accordingly, be construed as to extend and limit participation in a manner consistent with the requirements of that section of the Code. SECTION TWO. DEFINITIONS. (a) Agent. The term "Agent" shall have the meaning set forth in Section 13 hereof. (b) Board of Directors. The term "Board of Directors" shall mean the Board of Directors of the Company or any individual or committee to which the Board of Directors has delegated authority to act with respect to a specific activity. (c) Code. The term "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) Common Stock. The term "Common Stock" shall mean the $1.00 par value Common Stock of the Company. (e) Company. The term "Company" shall mean Choice Hotels International, Inc., a Delaware corporation. (f) Compensation. The term "Compensation" shall mean basic cash compensation, before any payroll deductions for taxes or any other purposes, including regular commissions paid by the Company or a Subsidiary to a -2- Participant in respect of the service of such Participant to the Company or a Subsidiary during an Offering Period increased by any amounts with respect to which the Participant has elected to defer or reduce remuneration for federal income tax purposes (i) under the Choice Hotels International, Inc. Retirement Savings and Investment Plan, (ii) under the Choice Hotels International, Inc. Nonqualified Retirement Savings and Investment Plan, or (iii) under any "cafeteria plan" (as described in Section 125 of the Code) maintained by the Company or a Subsidiary. Compensation shall not include any amounts paid to the Participant as (i) bonuses, (ii) overtime pay, (iii) any amounts paid during that Offering Period on account of the Participant under any other employee pension benefit plan (as defined in Section 3(2) of ERISA), and (iv) except as otherwise provided in the preceding sentence, any amounts which are not includible in the income of the Participant for federal income tax purposes. (g) Continuous Service. The term "Continuous Service" as of any date shall mean the period determined by the Company, on a uniform basis for employees similarly situated, to represent the then unbroken period of service of an employee as an employee of the Company or of a Subsidiary designed by the Board of Directors to participate in the Plan; provided, however, that in the case of such a Subsidiary, Continuous Service shall not include service prior to the date of its affiliation with the Company, unless the Board of Directors otherwise provides for recognition of such service. A break in Continuous Service shall be deemed to have occurred whenever an employee voluntarily or involuntarily ceases to be an employee. The transfer by an employee from one corporation to another corporation participating in the Plan shall not affect the Continuous Service of the employee. (h) Designated Subsidiary. The term "Designated Subsidiary" shall mean a Subsidiary designated by the Board of Directors to participate in the Plan. (i) ERISA. The term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. -3- (j) Market Price. The term "Market Price" shall mean the price at which the Agent purchases Common Stock in accordance with Section 13 hereof. (k) Nominee. The term "Nominee" shall have the meaning as set forth in Section 7 hereof. (l) Offering Date. The term "Offering Date" shall mean the first day of each January, April, July and October, commencing [__________] 1, 1996. (m) Offering Period. The term "Offering Period" shall mean a three-month period commencing with an Offering Date and ending with the following Purchase Date. (n) Option. The term "Option" shall mean the right of a Participant to acquire Common Stock pursuant to the provisions of the Plan. (o) Participant. The term "Participant" shall mean an eligible employee who has authorized payroll deductions for the purchase of Common Stock under the Plan in accordance with Section 4 hereof. (p) Purchase Date. The term "Purchase Date" shall mean the last trading day of each March, June, September, and December, commencing [_________], 1996 or if a pay period ends on the last day of a calendar quarter, the next trading day. (q) Retirement. The term "Retirement" shall mean termination of employment of a Participant on or after the sixty-fifth birthday of the Participant. (r) Subsidiary. The term "Subsidiary" shall mean a Subsidiary corporation of the Company as defined by Section 424(f) of the Code. (s) Wherever appropriate, words used in this Plan in the singular may mean the plural, the plural may mean the singular and the masculine may mean the feminine. SECTION THREE. ELIGIBILITY. All employees of the Company, or Designated Subsidiaries of the Company, who shall have completed one year of Continuous Service as of any Offering Date, -4- shall be eligible to participate in the Plan, provided that (i) no employee shall be eligible who, immediately after any Option is granted, owns stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary of the Company (applying the rules of Section 424(d) of the Code in determining stock ownership), (ii) no Director of the Company or of any Subsidiary, who is not an officer or other employee of any thereof, shall participate in the Plan and (iii) no employee shall be eligible whose customary employment is 20 hours or less per week or whose customary employment is for not more than five months in any calendar year. SECTION FOUR. METHOD OF PURCHASE. (a) On each Offering Date, each Participant shall be deemed to have been granted the right to purchase such number of shares of Common Stock as may be purchased, as provided herein, by a sum equal to (i) the amount of the Compensation of the Participant determined in accordance with the following Section during an Offering Period and (ii) the amount of the Participant's share of the contribution of the Company during such Offering Period. An eligible employee shall become a Participant in the Plan by authorizing payroll deductions for the purchase of Common Stock under the Plan prior to an Offering Date with instructions for the purchase of Common Stock under the Plan. At the time a Participant files his or her authorization, the Participant shall elect to have deductions made from his or her pay on each payday during the time he or she is a Participant at a rate not less than 2% and not in excess of 10% in whole percentages of his or her Compensation. All payroll deductions made for a Participant shall be credited to his or her account under the Plan. A Participant may not make any separate cash payment into such account. No interest will be paid on funds in the account of a Participant. A Participant shall be deemed to have continued his or her most recent election to participate in the Plan for the next Offering Period unless he or she notifies the Company on or before the twentieth day of the month preceding the -5- beginning of the next Offering Period that he or she elects not to participate in the Plan for the next Offering Period. Such notice may not be revoked. Similarly, a Participant may elect to increase or decrease the amount of his or her payroll deduction on or before the twentieth day of the month preceding the beginning of the next Offering Period, such increase or decrease to be effective at the beginning of the next Offering Period. On or before each Purchase Date, the Company shall contribute to the Agent an amount equal to ten-ninths (10/9ths) of all contributions of the Participants for such Offering Period (so as to have the effect of the Company contributing ten percent (10%) of the purchase price of the Common Stock). The Agent shall cause all the proceeds received from contributions of the Participant and the contribution of the Company to be applied to the open market purchase of Common Stock. The account of each Participant shall be credited with the number of shares of Common Stock equal to the sum of the contributions of the Participant and the share of the Participant of the contribution of the Company applied by the Agent to the purchase of Common Stock divided by the average price per share of Common Stock purchased by the Agent. Unless the Company otherwise directs, the Agent may, but shall not be obligated to allocate fractional shares of Common Stock for any Participant or purchase shares of Common Stock in odd lots. Upon termination of an account, any fractional shares in the Participant's account will be sold, and the proceeds therefrom shall be delivered to such Participant. In the event fractional shares are not allocated to the accounts of Participants under the Plan, any accumulated payroll deductions which would have been used to purchase fractional shares shall remain in the accounts of Participants. No interest will be paid on such funds in accounts of Participants and shall be deemed to be a payroll deduction of the next Offering Period. (b) No Participant shall have the right to purchase Common Stock under the Plan at a rate of more than $25,000 in value thereof in any calendar year, such value to be based on the fair market value per share of the Common Stock as -6- of the Offering Date on which a Participant becomes eligible to purchase Common Stock in such year under the terms of the Plan. (c) A Participant may not increase or reduce the amount of his or her payroll deduction during an Offering Period, provided, however, that a Participant may reduce the amount of his or her payroll deduction to zero at any time during the Offering Period in which case the employee may not participate again in the Plan until the following Offering Period. A Participant shall be deemed to have elected to purchase all of the shares which his or her authorized payroll deductions and share of the contribution of the Company would purchase on a Purchase Date. (d) If at any time the number of shares as to which Options have been granted shall exceed the remaining number of shares authorized for purchase under the Plan, the number of shares which may be purchased by each Participant shall be reduced proportionately. (e) At any time prior to a Purchase Date the Board of Directors may terminate the Plan without any obligation whatsoever to the Participants, other than to refund to each Participant, without interest, any sum accumulated for him or her by payroll deductions. SECTION FIVE. WITHDRAWALS. A Participant may withdraw funds in his or her account under the Plan only by withdrawal from the Plan; in the event of the withdrawal of the Participant, he or she shall not be eligible to participate in the Plan until the next Offering Date. SECTION SIX. TERMINATION OF EMPLOYMENT. Upon termination of the employment of a Participant for any reason, excluding death while in the employ of the Company or a Designated Subsidiary or Retirement, the Common Stock and/or cash credited to his or her account and not used to purchase shares will be returned to the Participant within 60 days after -7- the end of the then current Offering Period or as soon as administratively practicable thereafter. As an alternative to a distribution of Common Stock, a Participant may request that the Agent sell the Common Stock in the account of a Participant and forward the net proceeds to such person or persons. Upon termination of the employment of a Participant because of (i) death, or (ii) Retirement, his or her beneficiary (as defined in Section 9), or the Participant, as the case may be, shall have the right to elect, by written notice given to the Secretary of the Company prior to the expiration of the period of 30 days commencing with the date of the death of the Participant, or Retirement of the Participant, as the case may be, either (i) to withdraw all of the payroll deductions credited to the account of the Participant under the Plan or (ii) to exercise the Option of the Participant on the Purchase Date next following the date of the death of the Participant or Retirement of the Participant, as the case may be, for the purchase of the number of full shares of Common Stock which the accumulated payroll deductions in the account of the Participant at the date of the death of the Participant or Retirement of the Participant, as the case may be, and the proportionate share of the contribution of the Company, will purchase at the applicable Purchase Price, and any excess in such account will be returned to said beneficiary or Participant, as the case may be. In the event that no such written notice of election shall be duly received by the office of the Secretary of the Company, the beneficiary or Participant, as the case may be, shall automatically be deemed to have elected to withdraw the payroll deductions credited to the account of the Participant at the date of the death or Retirement of the Participant, as the case may be, and the same will be paid promptly to the said beneficiary or Participant after the end of the current Offering Period. In addition, upon termination of the employment of a Participant because of (i) death, or (ii) Retirement, the Common Stock and/or cash (except as -8- otherwise provided in this Section Six) shall be distributed to the Participant or to the person or persons entitled thereto under Section Nine within sixty (60) days after the end of the current Offering Period or as soon as administratively practicable thereafter. As an alternative to a distribution of Common Stock, a Participant or such person or persons entitled to receive the account of a Participant under Section Nine may request that the Agent sell the Common Stock in the account of a Participant and forward the net proceeds to the Participant or such person or persons. SECTION SEVEN. STOCK Subject to adjustment upon changes in capitalization of the Company as provided in Section 10, the maximum number of shares of Common Stock which shall be made available for purchase under the Plan is 1,000,000 shares. Shares purchased pursuant to an Option will initially be registered in the name of a Nominee designated by the Company, as custodian for the account of the Participant entitled thereto. Stock certificates will not be issued to Participants for shares held in the name of the Nominee, but all rights accruing to an owner of record of such shares (including voting rights) will belong to the Participant for whose account such shares are held. Notwithstanding the foregoing, each Participant may elect to have some or all of the full shares of Common Stock previously purchased and registered in the name of the Nominee on his or her behalf registered in the name of such Participant. Written notice of such an election must be given by the Participant to the Nominee, specifying the number of full shares of Common Stock to be registered in the name of such Participant. The specified number of shares of Common Stock will be transferred to and registered in the name of the notifying Participant as soon as administratively practicable. The Board of Directors may, in its discretion, require as a condition to the grant of the right to purchase hereunder that the shares of Common Stock -9- reserved for issuance upon the exercise of the Option shall have been duly authorized for trading on a national securities exchange and that either (i) a Registration Statement under the Securities Act of 1933, as amended, with respect to said shares shall be effective; or (ii) the Participant shall have represented in form and substance satisfactory to the Company that it is the intention of the Participant to purchase such shares for investment. SECTION EIGHT. NONASSIGNABILITY. Neither payroll deductions credited to the account of a Participant nor any rights with regard to the exercise of an Option or to receive Common Stock under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way by the Participant other than by will or the laws of descent and distribution. Any such attempted assignment, transfer, pledge, or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 5. SECTION NINE. DESIGNATION OF BENEFICIARY. A Participant may file a written designation of a beneficiary who is to receive any shares of Common Stock and/or cash in the event of the death of the Participant prior to the delivery of such shares or cash to Participant. Such designation of beneficiary may be changed by the Participant at any time by written notice to the Secretary of the Company. Within 30 days after the death of the Participant, the beneficiary may, as provided in Section 6, elect to exercise the Option of the Participant when it becomes exercisable on the Purchase Date next following the date of the death of the Participant. Upon the death of a Participant and upon receipt by the Company of proof of the identity and survivorship of a beneficiary validly designated by the Participant under the Plan, and notice of election of the beneficiary to exercise the Option, the Company shall deliver such Common Stock and/or cash to such beneficiary. In the -10- event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such death of a Participant, the Company shall deliver such Common Stock and/or cash to the executor or administrator of the estate of the Participant within 60 days after the end of the current Offering Period, or as soon as administratively practicable thereafter, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Common Stock and/or cash to the spouse or to any one or more dependents of the Participant as the Company may designate. No beneficiary shall, prior to the death of the Participant by whom he or she has been designated, acquire any interest in the Common Stock or cash credited to the Participant under the Plan. SECTION TEN. RECAPITALIZATION. In the event any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock split, stock dividend, combination of shares, rights offering, or extraordinary dividend or divestiture (including a spin-off), or any other change in the capital structure or shares of stock of the Company, the Board of Directors shall make adjustments, determine by the Board of Directors in its discretion to be appropriate, as to the number and kind of securities subject to this Plan and specified in Section Seven of this Plan and as to the number and kind of securities covered by each outstanding option, and, where applicable, the price per share thereunder. SECTION ELEVEN. RIGHTS AS A STOCKHOLDER. An employee shall have no rights as a stockholder with respect to any shares offered hereunder until completion of payment therefor. Participants will not be issued stock certificates unless requested. All Common Stock purchased under the Plan during an Offering Period will be held by the Nominee for at least two years from the Offering Date of the Offering Period. Common Stock may be -11- sold during this two-year period, but may not be transferred to another agent or nominee. Notwithstanding the foregoing, a Participant must sell a minimum of 50 shares of Common Stock each time he or she elects to sell Common Stock or such fewer whole shares of Common Stock in the account of the Participant upon termination of employment. SECTION TWELVE. STATUS OF PLAN FUNDS. All amounts held by the Company under the Plan shall be added to the general funds of the Company and shall be used for such purposes as the Company shall from time to time determine. The Company shall not be obligated to segregate such payroll deductions. SECTION THIRTEEN. ADMINISTRATION. The Plan shall be administered by the Board of Directors. The interpretation and construction of any provision of the Plan and the adoption of rules and regulations for administering the Plan shall be made by the Board of Directors. Determinations made by the Board of Directors with respect to any matter or provision contained in the Plan shall be final, conclusive and binding upon the Company and upon all Participants, their heirs or legal representatives. Any rule or regulation adopted by the Board of Directors shall remain in full force and effect unless and until altered, amended, or repealed by the Board of Directors. The Board of Directors may delegate to a committee any authority of the Board of Directors under this Plan. An Agent may be appointed by the Board of Directors to perform the functions and have the responsibilities assigned to the Agent in this Section 13 with respect to the purchase of Common Stock. The Board of Directors shall have the right to change the Agent at any time. Notwithstanding any other provision to the contrary contained herein, the Agent shall have all authority to determine the times of such purchases, the -12- prices at which such purchases are made, the manner of such purchases and the selection of brokers or dealers (which may include the Agent) to make such purchases. If Common Stock is purchased at varying Market Prices, an average price will be allocated to the account of each Participant. All costs and expenses incurred in administering the Plan shall be paid by the Company, excluding (i) costs associated with requests for the issuing of stock certificates to Participants or to the person or persons entitled to receive the same under Section 9 hereof, (ii) the costs of the sale of Common Stock and (iii) the costs associated with a Participant terminating or withdrawing from the Plan. SECTION FOURTEEN. AMENDMENT OR TERMINATION. Subject to Section 4(e), the Board of Directors may at any time terminate or amend the Plan, except any such action shall be subject to stockholder approval to the extent such stockholder approval is required pursuant to Section 423 of the Internal Revenue Code. SECTION FIFTEEN. NOTICES. All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been given when received by the Secretary of the Company. SECTION SIXTEEN. APPROVAL OF STOCKHOLDERS The effectiveness of this Plan is subject to its approval by the stockholders of the Company within 12 months after the date it is adopted by the Board of Directors. -13- SECTION SEVENTEEN. REGISTRATION AND QUALIFICATION OF THE PLAN UNDER APPLICABLE SECURITIES LAWS. No Option shall be granted under the Plan until such time as the Company has qualified or registered the shares which are subject to the Option under the applicable state and federal securities laws to the extent required by such laws. EX-4.2 3 NON-EMPLOYEE DIRECTOR STOCK OPTION EXHIBIT 4.2 CHOICE HOTELS INTERNATIONAL, INC. NON-EMPLOYEE DIRECTOR STOCK OPTION AND DEFERRED COMPENSATION STOCK PURCHASE PLAN Choice Hotels International, Inc. has adopted and established a non-qualified stock option plan for Non-Employee Directors in accordance with the following terms and conditions. The plan also provides Non-Employee Directors the ability to elect to defer compensation and purchase stock with director fees. SECTION ONE DESIGNATION AND PURPOSE OF THE PLAN A. DESIGNATION. This Plan is designated the "Choice Hotels International, Inc. Non-Employee Director Stock Option and Deferred Compensation Stock Purchase Plan". B. PURPOSE. The purpose of this Plan is to secure for the Company and its stockholders the benefits of the incentive inherent in increased ownership of Company Stock by Non-Employee Directors. It is expected that such ownership will provide such Non-Employee Directors with a more direct stake in the future welfare of the Company and encourage them to remain directors of the Company. It is also expected that the Plan will encourage qualified persons to become directors of the Company. C. GOVERNING LAW. This Plan shall be interpreted and enforced in accordance with the laws of the State of Maryland, without reference to its conflict of laws principles. SECTION TWO DEFINITIONS As used in this Plan, the following terms mean: A. "BOARD" means the Board of Directors of the Company. B. "COMPANY" means Choice Hotels International, Inc. C. "NON-EMPLOYEE DIRECTOR" means a member of the Board of the Company who is not an employee of the Company or any of its subsidiaries. D. "OPTION" means a non-qualified stock option granted to a Participant under this Plan. It also means any Option which remains after a Participant has exercised his Option with respect to part of the shares covered by an Option agreement. E. "PARTICIPANT" means any Non-Employee Director who is granted an Option as provided in this Plan. F. "PLAN" means this Non-Employee Director Stock Option and Deferred Compensation Stock Purchase Plan. G. "STOCK" and "COMPANY STOCK" mean the common stock of Choice Hotels International, Inc. H. Wherever appropriate, words used in this Plan in the singular may mean the plural, the plural may mean the singular and the masculine may mean the feminine. -2- PART A RULES RELATING TO STOCK OPTION PROGRAM SECTION THREE STOCK SUBJECT TO OPTION A. TOTAL NUMBER OF SHARES. The total number of shares of Stock which may be included in all Options granted to all Participants under this Part A is 150,000 shares. The maximum number of shares authorized may be increased from time to time by approval of the Board, and if required, pursuant to Rule 16b-3 of the Securities and Exchange Commission or its successors or the applicable rules of any stock exchange, the stockholders of the Company. Such Stock may be either authorized and unissued Stock or reacquired Stock. B. EXPIRED OPTIONS. If any Option granted under this Part A (i) is unexercisable, or (ii) is terminated, or (iii) expires or is canceled for any other reason, in whole or in part, the shares (or remaining shares) of Stock subject to that particular Option shall again be available for grant under this Part A. SECTION FOUR ADMINISTRATION OF THIS PART A This Part A shall be administered by the Board. The Board shall have all the powers vested in it by the terms of this Part A, such powers to include authority (within the limitation described herein) to prescribe the form of the agreement embodying awards of Options made under this Part A. Subject to the provisions of this Part A, the Board shall have the power to construe this Part A, to determine all questions arising thereunder, and to adopt and amend such rules and regulations for the administration of this Part A as it may deem desirable. Any decision of the Board in the administration of this Part A, as described herein, shall be final and conclusive. The Board may act only by a majority of its members in office, except that the members thereof may authorize any one or more of their number or the Secretary or any other officer of the Company to execute and deliver documents on behalf of the Board. SECTION FIVE SELECTION OF PARTICIPANTS Each Non-Employee Director shall be eligible to receive an Option in accordance with Section Six. Each Option granted under this Part A shall be evidenced by an agreement in such form as the Board shall prescribe from time to time in accordance with this Part A and shall comply with the terms and conditions set forth in Sections Six and Seven. Such an agreement shall incorporate the provisions of this Part A by reference. Notwithstanding any provision to the contrary contained herein, Options shall be granted under this Plan to persons, including without limitation, non-employee directors of Manor Care, Inc., its subsidiaries, and affiliated companies in substitution for prior Options under plans of Manor Care, Inc. in accordance with the Employee Benefits and Other Employee Matters Allocation Agreement between Manor Care, Inc. and the Company SECTION SIX GRANT OF OPTIONS AND LIMITATIONS ON EXERCISE A. INITIAL GRANT FOR INCUMBENT MEMBERS OF THE BOARD. Each Non-Employee Director as of [ ] shall receive an Option (a [ ] Option") to -3- purchase for five years 5,000 shares of Stock, subject to the terms and conditions herein; provided, however, Robert C. Hazard, Jr. and Gerald W. Petitt shall not receive a [ ] Option. B. INITIAL GRANT FOR NEW MEMBERS OF THE BOARD. Each Non-Employee Director (other than Robert C. Hazard, Jr. and Gerald W. Petitt) who is not a recipient of a [ ] Option, upon the date of his initial election or appointment as a director of the Company, shall receive an Option to purchase for five years 5,000 shares of Stock, subject to the terms and conditions herein. C. ANNUAL GRANT. As of each annual Stockholders Meeting of the Company thereafter, commencing in the calendar year subsequent to the calendar year in which an initial grant was awarded the Non-Employee Director pursuant to Sections Six A or B above, each Non-Employee Director shall receive an Option to purchase for five years 1,000 shares of Stock, subject to the terms and conditions herein. D. VESTING. The Option is not exercisable for a period of two years from the date of grant. Thereafter, an Option becomes exercisable (a) to the extent of one-third of the total number of shares subject to the option following the expiration of two years from the date of grant; (b) to the extent of an additional one-third following the expiration of three years from the date of grant; and (c) to the extent of an additional one-third following the expiration of four years from the date of grant. An Option is cumulative and any portion of an Option not exercised at the time it becomes exercisable may be exercised at any time thereafter prior to its termination date. E. LIMITATION. In no event may an Option be exercised by anyone after the expiration of five years from the date of grant. F. BOARD RETIREMENT. A Participant who ceases to serve on the Board after reaching age 65 and who has been a member of the Board for at least ten years prior to the date of retirement shall be permitted to exercise his entire Option notwithstanding the limitations of Section Six D above. G. INSUFFICIENT NUMBER OF SHARES. In the event that the number of shares of Stock available for future grant under this Part A is insufficient to make all grants required to be made on any date, then all Participants entitled to a grant on such date shall share ratably in the number of shares of Stock which may be included in Options granted to Participants under this Part A. SECTION SEVEN OPTION PRICES A. DETERMINATION OF OPTION PRICE. The Option price for Stock shall be equal to 100% of the fair market value of the Stock on the date of grant. B. DETERMINATION OF FAIR MARKET VALUE. The fair market value of the Stock on the date of granting an Option shall be the mean of the high and low prices at which the Stock was sold on the market on such date. In the event no such sales of Stock occurred on such date, the fair market value of the Stock shall be determined by the mean of the high and low prices at which the Stock was sold on the market on the next preceding date for which the Stock was so sold. SECTION EIGHT EXERCISE OF OPTION A. METHOD OF EXERCISING AN OPTION. Subject to the terms of a particular Option, a Participant may exercise it in whole or in part by written notice to -4- the Company's President or Secretary stating in such written notice the number of shares of Stock such Participant elects to purchase under his Option. B. NO OBLIGATION TO EXERCISE OPTION. A Participant is under no obligation to exercise an Option or any part thereof. C. PAYMENT FOR OPTION STOCK. Stock purchased pursuant to an Option agreement shall be paid in full at the time of purchase. Payment may be made (a) in cash, (b) by delivery to the Company of shares of Stock having an aggregate fair market value equal to the exercise price, or (c) a combination of (a) and (b). Upon receipt of payment and subject to paragraph E of this Section Eight, the Company shall, without transfer or issue tax to the Participant or other person entitled to exercise the Option, deliver to the Participant (or other person entitled to exercise the Option) a certificate or certificates for such shares. D. DELIVERY OF STOCK TO PARTICIPANT. The Company shall undertake and follow all necessary procedures to make prompt delivery of the number of shares of Stock which the Participant elects to purchase upon exercise of an Option granted under this Part A. Such delivery, however, may be postponed, at the sole discretion of the Company, to enable the Company to comply with any applicable procedures, regulations or listing requirements of any government agency, stock exchange or regulatory authority. E. FAILURE TO ACCEPT DELIVERY OF STOCK. If a Participant refuses to pay for Stock which he has elected to purchase under his Option, in accordance with the terms of payment, which had previously been agreed upon, his Option shall thereupon, at the sole discretion of the Board, terminate, and such funds previously paid for unissued Stock shall be refunded. Stock which has been previously issued to the Participant and been fully paid for shall remain the property of the Participant and shall be unaffected by such termination. SECTION NINE TRANSFERABILITY OF OPTIONS The Board may impose such restrictions on transferability of an Option, if any, as it may in its sole discretion determine. SECTION TEN PURCHASE FOR INVESTMENT A. WRITTEN AGREEMENT BY PARTICIPANTS. Unless a registration statement under the Securities Act of 1933 is then in effect with respect to the Stock a Participant receives upon exercise of his Option, a Participant shall acquire the Stock he receives upon exercise of his Option for investment and not for resale or distribution and he shall furnish the Company with a written statement to that effect when he exercises his Option and a reference to such investment warranty shall be inscribed on the Stock certificate(s). B. REGISTRATION REQUIREMENT. Each Option shall be subject to the requirement that, if at any time the Board determines that the listing, registration or qualification of the shares subject to the Option upon any securities exchange or under any state or Federal law is necessary or desirable as a condition of, or in connection with, the issuance of shares thereunder, the Option may not be exercised in whole or in part unless such listing, registration or qualification shall have been effected or obtained (and the same shall have been free of any conditions not acceptable to the Board). -5- SECTION ELEVEN CHANGES IN CAPITAL STRUCTURE OR SHARES In the event any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, or extraordinary dividend or divestiture (including a spin-off), or any other change in the capital structure or shares of the Company, the Committee shall make adjustments, determined by the Committee in its discretion to be appropriate, as to the number and kind of securities subject to this Plan and specified in Section Three of this Plan and as to the number and kind of securities covered by each outstanding Option and, where applicable, the price per share thereunder. SECTION TWELVE CORPORATE REORGANIZATION OR DISSOLUTION A. In the event of the dissolution or liquidation of the Company, any Option granted under this Part A shall terminate as of a date to be fixed by the Board, provided that not less than 15 days written notice of the date so fixed shall be given to each Participant and each such Participant shall have the right during such period to exercise his Option as to all or any part of the Stock covered thereby including Stock as to which such Option would not otherwise be exercisable by reason of an insufficient lapse of time. B. In the event of a Reorganization (as hereinafter defined) in which the Company is not the surviving or acquiring company, or in which the Company is or becomes a wholly owned subsidiary of another company after the effective date of the Reorganization, then: 1) If there is no plan or agreement respecting the Reorganization ("Reorganization Agreement") or if the Reorganization Agreement does not specifically provide for the change, conversion, or exchange of the Stock under outstanding and unexercised Options for securities of another corporation, then the Board shall take such action, and the Options shall terminate, as provided in paragraph A of this Section Twelve, or 2) If there is a Reorganization Agreement and if the Reorganization Agreement specifically provides for the change, conversion, or exchange of the Stock under outstanding and unexercised Options for securities of another corporation, then the Board shall adjust the shares under such outstanding and unexercised Options (and shall adjust the shares remaining under this Part A which are then to be available for grant under this Part A, if the Reorganization Agreement makes specific provisions therefor) in a manner not inconsistent with the provisions of the Reorganization Agreement for the adjustment, change, conversion, or exchange of such Options. The term "Reorganization" as used in this paragraph B of this Section Twelve shall mean any statutory merger, statutory consolidation, sale of all or substantially all of the assets of the Company, or sale, pursuant to an agreement with the Company, of securities of the Company pursuant to which the Company is or becomes a wholly owned subsidiary of another company after the effective date of the Reorganization. C. Adjustments and determinations under this Section Twelve shall be made by the Board, whose decisions as to what adjustments or determinations shall be made, and the extent thereof, shall be final, binding, and conclusive. -6- SECTION THIRTEEN TERMINATION OF SERVICE A. SEVERANCE. Subject to the provision of Paragraph B of this Section Thirteen, in the event a Participant ceases to be a Non-Employee Director, his Option terminates one month from the date of such cessation of service. Subject to the provisions of Paragraph F of Section Six, such Option shall be exercisable only to the extent the Participant was entitled to exercise the Option on the date of such cessation of service. B. DEATH. If a Participant dies prior to the full exercise of his Option, his Option to purchase Stock under such Option may be exercised to the extent, if any, that Participant would be entitled to exercise it at the date of Participant's death by the person to whom the Option shall pass by will or by the laws of descent and distribution within twelve months of Participant's death or the expiration of the term of the Option whichever date is sooner. SECTION FOURTEEN APPLICATION OF FUNDS All proceeds received by the Company from the exercise of Options shall be paid into its treasury and such proceeds shall be used for general corporate purposes. SECTION FIFTEEN PARTICIPANT'S RIGHTS AS A STOCKHOLDER A Participant has no rights as a stockholder with respect to any shares of Stock covered by his Option until the date a stock certificate is issued to him for such shares. Except as otherwise provided for in Section Eleven of this Part A, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. SECTION SIXTEEN AMENDMENT AND TERMINATION OF THIS PART A A. DISCRETION OF THE BOARD OF DIRECTORS. This Part A may be terminated or amended at any time and from time to time by the Board as the Board shall deem advisable including, but not limited to amendments necessary to qualify for any exemption or to comply with applicable law or regulations; provided, however, that this Part A shall not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code of 1986, as amended, or the regulations thereunder, or the Employee Retirement Income Security Act of 1974, as amended, or the regulations thereunder. No amendment of this Part A shall materially and adversely affect any right of any Participant with respect to any Option theretofore granted without such Participant's written consent. B. AUTOMATIC TERMINATION. This Part A shall terminate on September [ ], 2006. Options may be granted under this Part A at any time and from time to time prior to this Part A's termination. Any Option outstanding at the time this Part A is terminated shall remain in effect until said Option is exercised or expires. -7- PART B RULES RELATING TO DEFERRED COMPENSATION STOCK PURCHASE SECTION SEVENTEEN DEFERRAL OF FEES A Non-Employee Director may elect by written notice to defer payment on all or a portion of his fees (including Committee fees) for any year, subject to the following conditions: During the period of the active service (as hereinafter defined) of a Non- Employee Director, the Non-Employee Director agrees to serve the Company faithfully and, to the best of the ability of the Non-Employee Director, to perform such services and duties as shall be assigned to the Non-Employee Director by the Board. For purposes of this Part B, the period of the active service of the Non- Employee Director shall mean the period commencing with the date of election or appointment of the Non-Employee Director and expiring on the date on which occurs the termination of the service of the Non-Employee Director by reason of expiration of term or the date of resignation, removal or death of the Non- Employee Director, whichever shall occur first. Nothing contained herein shall be construed as conferring upon the Non-Employee Director the right to continue in the active service of the Company. SECTION EIGHTEEN ELECTION AND DEFERRED ACCOUNTS A. Prior to the thirty-first day of May of each year during the period of the active service of the Non-Employee Director, the Non-Employee Director may instruct the Company by delivery to it of written notice to withhold a specified percentage (not less than 25%) of any fees otherwise payable to the Non-Employee Director for services to be rendered in the following fiscal year (the "Deferred Amounts"). Such election shall be irrevocable with respect to such fiscal year. The Company shall establish a grantor "Rabbi Trust" and shall establish thereunder on behalf of the Non-Employee Director upon a deferral election a liability account which shall consist of a Stock Deferred Account and an Interest Deferred Account (each a "Deferred Account"). B(i) Stock Deferred Account (a) An agent (the "Agent") shall be appointed by the Board or any individual or committee to which the Board has delegated authority to act with respect to the appointment of the Agent to perform the functions and have the responsibilities assigned to the Agent in this Section Eighteen with respect to the purchase of Stock. The Board or such individual or committee shall have the right to change the Agent at any time. Except as provided in Section 18B(i)(b), the Company shall pay the compensation and expenses of the Agent. (b) Deferred Amounts shall initially be deposited to the Interest Deferred Account (the "Initial Deferred Amounts"). For each fiscal year of the Company, the Agent shall cause all Initial Deferred Amounts to be applied to the open market purchase of whole shares of Stock within fifteen days after December 1, February 28 and May 31 of such fiscal year. The Agent shall have all authority to determine the times of such purchases, the prices at which such purchases are made, the manner of such purchases and the selection of brokers or dealers (which may include the Agent) to make such purchases. All brokerage fees and commissions with respect to such purchases shall be deducted from the Initial -8- Deferred Amounts. The Agent shall credit each Stock Deferred Account with the number of whole shares of Stock equal to such account's Initial Deferred Amount applied by the Agent to the purchase of Stock divided by the average price per share purchased by the Agent. Initial Deferred Amounts representing a fraction of the purchase price of a share shall be credited to their respective Interest Deferred Account. Any shares of Stock held in a Stock Deferred Account shall be voted by the trustee of the "Rabbi Trust". (c) In the alternative, but only if and to the extent that the Company shall have instructed the Agent concurrent with or prior to the delivery to the Agent of the Initial Deferred Amounts, the Agent shall purchase whole shares of Stock directly from the Company and not in the open market. Each such purchase from the Company shall be at a price equal to the closing price of Stock on the market on the business day preceding the date such purchase is made. (d) During the period that such Stock Deferred Account is maintained, on each date on which the Company pays dividends on its Stock, the Interest Deferred Account shall be credited with an amount equivalent to the amount of dividends declared by the Company with respect to the Stock held in the Stock Deferred Account ("Dividend Equivalents"). (e) The total number of shares of Stock which may be purchased under this Part B is 80,000 shares. The maximum number of shares may be increased from time to time by approval of the Board, and if required, pursuant to Rule 16b-3 of the Securities and Exchange Commission or its successors or the applicable rules of any stock exchange, the stockholders of the Company. Such Stock may be either authorized and unissued shares or reacquired shares. (f) In the event of a change in the capital structure or shares of the Company as described in Section Eleven, the number and kind of securities specified in Section Eighteen of this Part B, and the number and kind of securities entered in a Stock Deferred Account shall be adjusted in a manner consistent with Section Eleven. B(ii) Interest Deferred Account All additions to the Interest Deferred Account will be invested in short- to mid-term fixed-income investments selected by the Company from time to time. There shall be credited to the Interest Deferred Account all gains, losses, and income attributable to such investments. SECTION NINETEEN ANNUAL STATEMENT The Company will provide an annual statement of the Deferred Accounts to each participant Non-Employee Director showing amounts of fees deferred and additional amounts credited to his Deferred Accounts in accordance with Section 18. SECTION TWENTY PAYMENT Upon the termination of active service of a Non-Employee Director, the Company shall pay such Non-Employee Director his Deferred Accounts in one lump sum payment as soon after his termination of active service as is administratively feasible unless such Non-Employee Director had previously made an election, at least sixty (60) days prior to the effective date of such termination of active service, to receive his Deferred Accounts in the form of -9- installment payments. At least sixty (60) days prior to his termination of active service, a Non-Employee Director may make an irrevocable election to receive his Deferred Accounts in the form of installment payments over a period of time designated by the Non-Employee Director but in no event to exceed twenty (20) years. In the event that the installment method of payment is selected, the Non-Employee Director will further designate whether installment payments are to be made on a monthly, quarterly, semi-annual or annual basis. During the period of installment distributions, the Interest Deferred Account will be credited with an earnings factor computed pursuant to the principles described in Section 18 B(ii), above. In the event that a Non-Employee Director dies after having made an installment election but prior to the receipt of all installment payments thereunder, the remaining payments will be made to the beneficiary by the Non- Employee Director designated for purposes of this Part B through the remaining duration of the elected installment period, unless the Non-Employee Director has provided in such installment election for a different form of payment to the beneficiary of the Non-Employee Director in the event of the death of the Non- Employee Director, in which event such different form of payment shall be made to the beneficiary of the Non-Employee Director. The computation of the amount of a lump sum payment or the amount of an installment payment shall be made by reference to the balance of the Deferred Account as of the date of the distribution. SECTION TWENTY-ONE DEATH OF NON-EMPLOYEE DIRECTOR Where the death of the Non-Employee Director occurs prior to making his election, payments of compensation deferred shall be made in such manner determined by the beneficiary. SECTION TWENTY-TWO DEATH OF NON-EMPLOYEE DIRECTOR AND BENEFICIARY If both the Non-Employee Director and his designated beneficiary should die, the total amount standing to the credit of the Non-Employee Director in the Deferred Accounts shall be determined as of the date of death of the designated beneficiary (including any additional amounts credited to such Account pursuant to Section Eighteen B(ii)) and shall be paid as promptly as possible in one lump sum to the estate of such designated beneficiary. SECTION TWENTY-THREE TAXES Payments will be made to the Non-Employee Director or beneficiary after deducting taxes required by federal and/or state governments, if any. SECTION TWENTY-FOUR ADMINISTRATION OF THIS PART B This Part B shall be administered by the Board, except as provided in Section 18. The Board shall have all the powers vested in it by the terms of Part B. Subject to the provisions of this Part B, the Board shall have the power to construe this Part B, to determine all questions arising thereunder, and to adopt and amend such rules and regulations for the administration of this Part B as it may deem desirable. Any decision of the Board in the administration of this Part B, as described herein, shall be final and conclusive. The Board may act only by a majority of its members in office, except that members thereof may authorize any one or more of their number or the Secretary or any other officer of the Company to execute and deliver documents on behalf of the Board. -10- SECTION TWENTY-FIVE UNSECURED GENERAL CREDITOR Nothing contained in this Part B and no action taken pursuant to the provisions of this Part B shall create or be construed to create a trust of any kind other than a grantor "Rabbi Trust", or a fiduciary relationship between the Company and the Non-Employee Director, his designated beneficiary or any other person. Any compensation deferred under the provisions of this Part B shall continue for all purposes to be a part of the general funds of the Company. To the extent that any person acquires a right to receive payment from the Company under this Part B, such right shall be no greater than the right of any unsecured general creditor of the Company. SECTION TWENTY-SIX NO ASSIGNMENT The right of the Non-Employee Director or any other person to the payment of deferred compensation or other benefits under this Part B shall not be assigned, transferred, pledged, or encumbered except by will or by the laws of descent and distribution. SECTION TWENTY-SEVEN SUCCESSORS AND ASSIGNS This Part B shall be binding upon and inure to the benefit of the Company and its subsidiaries, its successors and assigns and the Non-Employee Director and his heirs, executors, administrators and legal representatives. SECTION TWENTY-EIGHT CHANGE OF CONTROL In the event of a change of control of the Company, the Company shall immediately pay the Non-Employee Director his Deferred Accounts, including accrued interest. A "change of control" shall mean (i) a merger or consolidation in which the Company is not the surviving corporation or (ii) the acquisition of twenty-five percent or more of the voting securities of the Company by a person, group, or entity or (iii) the sale of all or substantially all of the assets of the Company or (iv) individuals who were members of the Board immediately prior to a meeting of the stockholders of the Company involving a contest for the election of Non-Employee Directors do not constitute a majority of the Board immediately following such election, unless that election of such new Non- Employee Directors was recommended to the stockholders by management of the Company. SECTION TWENTY-NINE AMENDMENT AND TERMINATION OF THIS PART B A. DISCRETION OF THE BOARD OF DIRECTORS. The Board of Directors may at any time terminate or amend this Part B. Except as herein provided, no such termination may affect Stock previously purchased. B. AUTOMATIC TERMINATION. This Part B shall terminate on [ ], 2006. EX-4.3 4 NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN EXHIBIT 4.3 CHOICE HOTELS INTERNATIONAL, INC. 1996 NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN Choice Hotels International, Inc. has adopted and established a stock compensation plan for Non-Employee Directors in accordance with the following terms and conditions. SECTION ONE DESIGNATION AND PURPOSE OF THE PLAN A. Designation. This Plan is designated the "Choice Hotels International, Inc. Non-Employee Director Stock Compensation Plan." B. Purpose. The purpose of this Plan is to increase the stock-based component of Non-Employee Director compensation so as to encourage stock ownership by Non-Employee Directors and to further align the interest of Non- Employee Directors and stockholders. SECTION TWO DEFINITIONS As used in the Plan, the following terms mean: A. "Award" means restricted stock granted hereunder. B. "Board" means the Board of Directors of the Company. C. "Company" means Choice Hotels International, Inc. D. "Custodial Account" means the account described in Section 7(A) herein. E. "Disability" means a permanent and total disability within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986 as amended. F. "Non-Employee Director" means a member of the Board of the Company who is not an employee of the Company or any of its subsidiaries. G. "Participant" means any Non-Employee Director who is granted an Award as provided in this Plan. H. "Plan" means this Non-Employee Director Stock Compensation Plan. I. "Retirement" means termination of service as a Director for either of the following reasons: (i) after attaining 65 years of age or (ii) failure to be re-elected as a Director by the shareholders of the Company at an Annual Meeting of Stockholders. J. "Stock" means the common stock of Choice Hotels International, Inc. SECTION THREE EFFECTIVE DATE, DURATION AND STOCKHOLDER APPROVAL The Plan shall be effective upon the approval of the Plan by a majority of the outstanding shares of Stock voted at the [ ] ("Stockholder Approval"). -2- SECTION FOUR ADMINISTRATION OF THIS PLAN This Plan shall be administered by the Board. The Board shall have all the powers vested in it by the terms of this Plan, such powers to include authority (within the limitation described herein) to prescribe the form of the agreement embodying Awards made under this Plan. Subject to the provisions of this Plan, the Board shall have the power to construe this Plan, to determine all questions arising thereunder, and to adopt and amend such rules and regulations for the administration of this Plan as it may deem desirable. Any decision of the Board in the administration of this Plan, as described herein, shall be final and conclusive. The Board may act only by a majority of its members in office, except that the members thereof may authorize any one or more of their number or the Secretary or any other officer of the Company to execute and deliver documents on behalf of the Board. SECTION FIVE GRANT OF AWARDS AND LIMITATION OF NUMBER OF SHARES SUBJECT TO AWARD A. Compensation in Common Stock. Subject to stockholder approval, effective as of [ ] and as of each annual meeting thereafter, each Non-Employee Director shall be granted a number of shares equal to $30,000 fair market value (as determined in accordance with Section 5(B) below) of Stock on the date of each annual meeting. Such Award shall be in lieu of all Board retainer and Board attendance fees. B. Determination of Fair Market Value. The fair market value of the Stock on the date of granting an Award shall be the mean of the high and low prices at which the Stock was sold on the market on such date. In the event no such sales of Stock occurred on such date, the fair market value of the Stock shall be determined by the mean of the high and low prices at which the Stock was sold on the market on the next preceding date for which the Stock was so sold. C. Fractions of Shares. Whenever under the terms of the Plan fractional shares would be required to be issued, the fractional shares shall be rounded up to the next full share. D. Total Number of Shares. Subject to any adjustment pursuant to Section 8, the total number of shares of Stock which may be awarded under this Plan is 240,000 shares. The maximum number of shares authorized may be increased from time to time by approval of the Board and, if required pursuant to Rule 16b- 3 of the Securities and Exchange Commission or its successors or the applicable rules of any stock exchange, the stockholders of the Company. To the extent that an Award lapses or the rights of the Participant to whom it was granted terminate, expire or are cancelled for any other reason, in whole or in part, shares of Stock (or remaining shares) subject to such Award shall again be available for the grant of an Award under the Plan. Shares delivered by the Company under the Plan may be authorized and unissued Stock, Stock held in the treasury of the Company or Stock purchased on the open market (including private purchases) in accordance with applicable securities laws. E. Insufficient Number of Shares. In the event that the number of shares of Stock available for future Awards under this Plan is insufficient to make all Awards required to be made on any date, then all Participants entitled to an Award on such date shall share ratably in the number of shares of Stock which may be included in Awards granted to Participants under this Plan. -3- SECTION SIX ELIGIBILITY Each Non-Employee Director shall be eligible to receive an Award in accordance with Section Five. Each Award granted under this Plan shall be evidenced by an agreement in such form as the Board shall prescribe from time to time in accordance with this Plan and shall comply with the terms and conditions set forth in Section 7. Such an agreement shall incorporate the provisions of this Plan by reference. SECTION SEVEN RESTRICTIONS ON SHARES A. Custodial Account. The shares shall be held by the Company, in trust, in a Custodial Account on behalf of the Participant until such time as the shares have vested pursuant to the terms of Section 7(B) of this Plan. Any amounts deferred under the provisions of this Plan shall continue for all purposes to be a part of the general assets of the Company. To the extent that Participant acquires a right to receive payment from the Company under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company. B. Vesting. The shares held by the Company, in trust, shall remain in the Custodial Account until vesting which shall occur (a) to the extent of one- third of the total number of shares, subject to an Award following the expiration of one year from the date of the Award, (b) to the extent of an additional one- third following the expiration of two years from the date of the Award, and (c) to the extent of an additional one-third following the expiration of three years from the date of the Award. Upon vesting, the shares shall be distributed to the Participant within a reasonable period of time not to exceed ninety (90) days from the date of vesting and the Custodial Account shall be terminated as to such shares. C. Forfeiture. Subject to Section 7(E) below, if the Participant ceases to be a Non-Employee Director for any reason prior to vesting, the Participant shall forfeit the shares, and the Custodial Account shall be terminated. Ownership of the forfeited shares shall revert back to the Company. D. No Assignment. The shares granted under the Plan, while held by the Company pursuant to the Custodial Account, shall not be transferred, assigned, pledged, or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment, or similar process. Upon any attempt to so transfer, assign, pledge, hypothecate, or otherwise dispose of the shares, or of any right or privilege conferred thereby, contrary to the provisions hereof, or upon the levy of any attachment or similar process upon such rights and privileges, the Participant shall forfeit the shares and ownership of the forfeited shares shall revert back to the Company. E. Death, Disability and Board Retirement. A Participant who ceases to serve on the Board by reason of (i) death, (ii) Disability, or (iii) Retirement, shall be vested in his or her entire Award notwithstanding the limitation of Section 7(B) above. -4- SECTION EIGHT CHANGES IN CAPITAL STRUCTURE In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, or extraordinary dividend or divestiture (including a spin-off), or any other change in the capital structure or shares of the Company, the Board shall make adjustments, determined by the Board in its discretion to be appropriate, as to the number and kind of securities subject to this Plan and specified in Section 5 of this Plan and as to the number and kind of securities covered by each outstanding Award and, where applicable, the price per share thereunder. SECTION NINE RIGHTS AS A STOCKHOLDER The Participant shall be entitled to give direction to the Company, as fiduciary, to vote the shares held by the Company on behalf of the Participant in the Custodial Account in accordance with the Participant's written instructions. Any cash or non-cash dividend payable with respect to shares held in the Custodial Account will remain in the Custodial Account subject to risk of forfeiture until such time as the shares with respect to which such cash or non-cash dividend, as the case may be, was declared is either distributed to the Participant or forfeited by the Participant. Notwithstanding anything to the contrary contained herein, no Stock or cash dividends shall be transferred by the Company to a Custodial Account prior to the date of Stockholder Approval, and no Non-Employee Director shall be entitled to any rights as a stockholder with respect to any Stock granted hereunder, including, without limitation voting rights until such Stock has been transferred to a Custodial Account. SECTION TEN TITLE Subject to Section 13 herein, the shares held by the Company shall be held in the name of the Participant. Such shares shall at all times remain in the Company Custodial Account until they have been (i) forfeited by the Participant, (ii) distributed to the Participant, or (iii) transferred to a grantor "Rabbi Trust" in accordance with the provisions of Section 13. SECTION ELEVEN RISK OF LOSS The Participant agrees to assume all risks in connection with any decrease in the value of the shares granted to the Participant placed into the Custodial Account for the benefit of the Participant. SECTION TWELVE NOTICE TO COMPANY The Participant shall notify the Company immediately if he or she elects to make an election under Section 83(b) of the Internal Revenue Code or upon the occurrence of any other event resulting in the value of the shares being included in the Participant's gross income prior to vesting. -5- SECTION THIRTEEN DEFERRAL A Participant, provided he or she has not made the election referred to in Section 12 herein, may elect by written notice to defer payment on all or a portion of the shares held in the Custodial Account prior to any vesting, subject to the following conditions: A. Such election shall be irrevocable. An election to defer payment shall be made at least sixty (60) days prior to any vesting for which the election to defer payment is made. The Participant may elect to defer the receipt of the shares held in the Custodial Account prior to any vesting for a period of time which ends no sooner than the earlier of (i) a date at least twenty-four (24) months from the date of any such vesting or (ii) cessation of service as a Non-Employee Director. During such deferral period, Participant shall not be entitled to (i) vote the shares granted to him or her for which a deferral has been elected, and (ii) currently receive cash dividends or non-cash dividends. B. The Company shall establish a grantor "Rabbi Trust" and shall establish thereunder on behalf of the Participant upon a deferral election a liability account (the "Deferred Compensation Account") which shall be credited with any shares, cash dividends, and non-cash dividends subject to such deferral election. Any shares transferred from the Custodial Account to the Deferred Compensation Account shall be retitled and held in the name of the trustee of the grantor "Rabbi Trust". C. There shall be credited to the Deferred Compensation Account an additional amount with respect to the cash dividends (i.e., in addition to the items credited pursuant to paragraph (B) hereof) equal to the earnings generated through the investment of the cash dividends by the trustee of the grantor trust. D. The Company will provide an annual statement of the Deferred Compensation Account to the Participant showing amounts credited to his or her account in accordance with paragraph (C). E. Nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a trust of any kind other than a grantor "Rabbi Trust", or a fiduciary relationship between the Company and the Participant, his or her designated beneficiary or any other person. Any amounts deferred under the provisions of this Plan shall continue for all purposes to be a part of the general assets of the Company. To the extent that Participant acquires a right to receive payment from the Company under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company. F. The right of the Company or any other person to the payment of deferred compensation or other benefits under this Plan shall not be assigned, transferred, pledged, or encumbered except by will or by the laws of descent and distribution. SECTION FOURTEEN GENDER Where applicable, words in the feminine shall include the masculine, words in the neuter shall include the masculine and feminine, and words in the singular shall include the plural, and vice versa. -6- SECTION FIFTEEN SUCCESSORS This Plan shall be binding upon and inure to the benefit of the Company and its subsidiaries, its successors and assigns and the Participant and his or her heirs, executors, administrators and legal representatives. SECTION SIXTEEN NO RIGHT TO CONTINUE AS A DIRECTOR Neither the Plan, nor the granting of an Award, nor any other action taken pursuant to Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that the Company will retain a Non-Employee Director for any period of time, or at any particular rate of compensation. Nothing in this Plan shall in any way limit or affect the right of the Board or the stockholders of the Company to remove any Non-Employee Director or otherwise terminate his or her service as a director of the Company. SECTION SEVENTEEN MISCELLANEOUS PROVISIONS A. Government and Other Regulations. The obligation of the Company to make payment of Awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by any government agencies as may be required. The Company shall be under no obligation to register under the Securities Act of 1933, as amended ("Act"), any of the shares of Stock issued, delivered or paid in settlement under the Plan. If Stock awarded under the Plan may in certain circumstances be exempt from registration under the Act, the Company may restrict its transfer in such manner as it deems advisable to ensure such exempt status. B. Governing Law. All matters relating to the Plan or to Awards granted hereunder shall be governed by the laws of the State of Maryland, without regard to its principles of conflict of laws. C. Titles and Headings. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles and headings, shall control. SECTION EIGHTEEN AMENDMENT AND TERMINATION This Plan may be terminated or amended at any time and from time to time by the Board as the Board shall deem advisable. No modification or amendment of this Plan shall, without the written consent of the Participant, materially and adversely affect his or her rights under this Plan. EX-4.4 5 LONG-TERM INCENTIVE PLAN EXHIBIT 4.4 CHOICE HOTELS INTERNATIONAL, INC. 1996 LONG TERM INCENTIVE PLAN SECTION ONE DESIGNATION AND PURPOSE OF PLAN The purpose of the Choice Hotels International, Inc. 1996 Long-Term Incentive Plan (the "Plan") is to increase the ownership of Company Stock by those officers, professional staff and other key employees who are mainly responsible for the continued growth and development and financial success of the Company and its subsidiaries. Such stock ownership gives such employees a proprietary interest in the Company which induces them to continue in its employ. The Plan also enables the Company to attract and retain such employees and reward them for the continued profitable performance of Choice Hotels International, Inc. SECTION TWO DEFINITIONS The following definitions are applicable herein: A. "Award" - Individually or collectively, Options, Stock Appreciation Rights, Performance Shares or Restricted Stock granted hereunder. B. "Award Period" - the period of time during which a Stock Appreciation Right which has not been granted pursuant to an Option may be exercised. The Award Period shall be set forth in the document issuing the Stock Appreciation Right to the selected Eligible Employee. C. "Board" - the Board of Directors of the Company. D. "Book Value" - the book value of a share of Stock determined in accordance with the Company's regular accounting practices as of the last business day of the month immediately preceding the month in which a Stock Appreciation Right is exercised as provided in Section Nine D. E. "Code" - the Internal Revenue Code of 1986, as amended. Reference in the Plan to any section of the Code shall be deemed to include any amendments or successor provisions to such section and any regulations promulgated thereunder. F. "Committee" - the Key Executive Stock Option Plan Committee appointed to administer the Plan pursuant to Section Four. G. "Company" - Choice Hotels International, Inc., including any present or future "subsidiary corporation" as such term is defined in Section 424(f) of the 1986 Internal Revenue Code, as amended. H. "Covered Employee" - an individual described in Section 162(m)(3) of the Code. I. "Date of Grant" - the date on which the granting of an Award is authorized by the Committee or such later date as may be specified by the Committee in such authorization. J. "Eligible Employee" - any person employed by the Company or a Subsidiary on a regularly scheduled basis who satisfies all of the requirements of Section Six. K. "Exercise Period" - the period or periods during which a Stock Appreciation Right is exercisable as described in Section Nine B. L. "Fair Market Value" - the fair market value of the Stock as determined in accordance with Section Eight D. M. "Incentive Stock Option" - an incentive stock option within the meaning of Section 422 of the Code. N. "Option" or "Stock Option" - either a nonqualified stock option or an Incentive Stock Option granted under Section Eight. It also means any Option which remains after a Participant has exercised his Option with respect to part of the shares covered by a Stock Option Agreement as described in Section Eight B. O. "Option Period" or "Option Periods" - the period or periods during which an Option is exercisable as described in Section Eight E. P. "Option Price" - the price, expressed on a per share basis, for which the Company Stock can be acquired by the holder of an Option pursuant to the exercise of such Option. Q. "Participant" - an Eligible Employee of the Company or a Subsidiary who has been granted an Option, a Stock Appreciation Right, a Performance Share Award or a Restricted Stock Award under this Plan. R. "Performance Share" - an Award granted under Section Ten. S. "Restricted Stock" - an Award granted under Section Seven. -2- T. "Stock" and "Company Stock" - the common stock of the Company. U. "Stock Appreciation Right" - an Award granted under Section Nine. V. "Subsidiary" - any corporation of which fifty percent (50%) or more of its outstanding voting stock or voting power is beneficially owned, directly or indirectly, by the Company. W. "Ten Percent Shareholder" - a Participant who, at the Date of Grant, owns directly or indirectly (within the meaning of Section 424(d) of the Internal Revenue Code) stock possessing more then ten percent (10%) of the total combined voting power of all classes of stock of the Company or a subsidiary thereof. X. Wherever appropriate, words used in this Plan in the singular may mean the plural, the plural may mean the singular and the masculine may mean the feminine. SECTION THREE EFFECTIVE DATE, DURATION AND STOCKHOLDER APPROVAL A. Effective Date and Stockholder Approval. Subject to the approval of the Plan by a majority of the outstanding shares of Stock, the Plan shall be effective as of [ ], 1996. B. Period for Grant of Awards. Awards may be made as provided herein for a period of ten (10) years after [ ],1996. SECTION FOUR ADMINISTRATION A. Appointment of Committee. The Board of Directors shall appoint one or more Key Executive Stock Option Plan Committees which shall consist of not less than two (2) members of such Board of Directors and which members shall be Non-Employee Directors as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (or such greater number of members which may be required by said Rule 16b-3). In addition, such Board of Directors shall designate a member of the Committee to act as Chairman of the Committee, and such Board of Directors may remove any member of the Committee at any time and appoint any director to fill any vacancy on the Committee. B. Committee Meetings. The Committee shall hold its meetings at such times and places as specified by the Committee Chairman. A majority of the Committee shall constitute a quorum. All actions of the Committee shall be taken by all -3- of the members of the meeting duly called by its Chairman; provided, however, any action taken by a written document signed by a majority of the members of the Committee shall be as effective as action taken by the Committee at a meeting duly called and held. C. Committee Powers. Subject to the provisions of this Plan, the Committee shall have full authority in its discretion to (i) designate the Participants to whom Awards shall be granted, (ii) determine the number of shares to be made available under each such Award, (iii) determine the period or periods in which the Participant may exercise such Award, (iv) determine the date when such Award expires, (v) determine the price for Stock under such Award, and (vi) determine the grounds of forfeiture of an Award. The Committee shall have all powers necessary to administer the Plan in accordance with its terms, including the power to interpret this Plan and resolve all questions arising thereunder. The Committee may prescribe such rules and regulations for administering this Plan as the Committee deems appropriate. SECTION FIVE GRANT OF AWARDS AND LIMITATION OF NUMBER OF SHARES SUBJECT TO AWARD The Committee may, from time to time, grant Awards to one or more Eligible Employees, provided that (i) subject to any adjustment pursuant to Section Eleven, the aggregate number of shares of Stock subject to Stock Options, Stock Appreciation Rights, Performance Share Awards or Restricted Stock Awards under this Plan may not exceed 7,100,000 shares; (ii) to the extent that a Stock Option, Stock Appreciation Right, Performance Share Award or Restricted Stock Award lapses or the rights of the Participant to whom it was granted terminate, expire or are cancelled for any other reason, in whole or in part, shares of Stock (or remaining shares) subject to such Award shall again be available for the grant of an Award under the Plan; and (iii) Shares delivered by the Company under the Plan may be authorized and unissued Stock, Stock held in the treasury of the Company or Stock purchased on the open market (including private purchases) in accordance with applicable securities laws. In determining the size of Awards, the Committee shall take into account the responsibility level, performance, potential, and cash compensation level of a Participant, and the Fair Market Value of the Stock at the time of Awards, as well as such other considerations it deems appropriate. SECTION SIX ELIGIBILITY Key employees of the Company and its Subsidiaries (including employees who are members of the Board, but excluding directors who are not employees) who, in the opinion of the Committee, are mainly responsible for the continued growth and -4- development and financial success of the business of the Company or one or more of its Subsidiaries shall be eligible to be granted Awards under the Plan. Subject to the provisions of the Plan, the Committee may from time to time select from such eligible persons those to whom Awards shall be granted and determine the nature and amount of each Award. No employee of the Company or its Subsidiaries shall have any right to be granted an Award under this Plan. A member of the Committee shall not be eligible for any Award hereunder. Notwithstanding any provision to the contrary contained herein, Options shall be granted under this Plan to persons, including without limitation, employees of Manor Care, Inc., its subsidiaries, and affiliated companies in substitution for prior Options under plans of Manor Care, Inc. in accordance with the terms of the Employee Benefits and other Employee Matters Allocation Agreement between Manor Care, Inc. and the Company. SECTION SEVEN RESTRICTED STOCK AWARDS A. Grants of Shares of Restricted Stock. An Award made pursuant to this Section Seven shall be granted in the form of shares of Stock, restricted as provided in this Section Seven. Shares of the Restricted Stock shall be issued to the Participant without the payment of consideration by the Participant. The shares of Restricted Stock shall be issued in the name of the Participant and shall bear a restrictive legend prohibiting sale, transfer, pledge or hypothecation of the shares of Restricted Stock until the expiration of the restriction period. The Committee may also impose such other restrictions and conditions on the shares of Restricted Stock as it deems appropriate. B. Restriction Period. At the time a Restricted Stock Award is made, the Committee may establish a restriction period applicable to such Award which shall not be more than ten (10) years. Each Restricted Stock Award may have a different restriction period, at the discretion of the Committee. In addition to or in lieu of a restriction period, the Committee may establish a performance goal which must be achieved as a condition to the retention of the Restricted Stock. The performance goal may be based on the attainment of specified types of performance measurement criteria, which may differ as to various Participants or classes or categories of Participants. Such criteria may include, without limitation, the attainment of certain performance levels by the individual Participant, the Company, a department or division of the Company and/or a group or class of participants. Any such performance goals, together with the ranges of Restricted Stock Awards for which the Participants may be eligible shall be set from time to time by the Committee and shall be timely -5- communicated to the Eligible Employees in advance of the commencement of the performance of services to which such performance goals relate. The total number of shares of Restricted Stock which may be granted to any single Covered Employee under this Plan during any calendar year shall be limited to 100,000. C. Forfeiture or Payout of Award. In the event a Participant ceases employment during a restriction period, or in the event performance goals attributable to a Restricted Stock Award are not achieved, subject to the terms of each particular Restricted Stock Award, and subject to discretionary action by the Committee as set forth below in Section Thirteen, a Restricted Stock Award is subject to forfeiture of the shares of stock which had not previously been removed from restriction under the terms of the Award. Any shares of Restricted Stock which are forfeited will be transferred to the Company. Upon completion of the restriction period and satisfaction of any performance-goal criteria, all restrictions upon the Award will expire and new certificates representing the Award will be issued without the restrictive legend described in Section Seven A. As a condition precedent to receipt of the new certificates, the Participant (or the designated beneficiary or personal representative of the Participant) will agree to make payment to the Company in the amount of any taxes, payable by the Participant, which are required to be withheld with respect to such shares of Stock. SECTION EIGHT STOCK OPTIONS A. Grant of Option. One or more Options may be granted to any Eligible Employee. Upon the grant of an Option to an Employee, the Committee shall specify whether the Option is intended to constitute a non-qualified stock option or an Incentive Stock Option. The total number of shares of Stock subject to Options which may be granted to any single Covered Employee under this Plan during any calendar year shall be limited to 100,000. B. Stock Option Agreement. Each Option granted under the Plan shall be evidenced by a written "Stock Option Agreement" between the Company and the Participant containing such terms and conditions as the Committee determines, including, without limitation, provisions to qualify Incentive Stock Options as such under Section 422 of the Code. Such agreements shall incorporate the provisions of this Plan by reference. The date of granting an Option is the date specified in the written Stock Option Agreement which is signed by the Participant and the Company. C. Determination of Option Price. The Option price for Stock shall be not -6- less than 100% of the fair market value of the Stock on the date of grant. Notwithstanding the foregoing, in the case of an Option which is designed to qualify as an Incentive Stock Option (as defined in Section 422 of the Code) which is granted to a Ten Percent Shareholder, the Option Price shall not be less than 110% of such fair market value. D. Determination of Fair Market Value. The fair market value of the Stock on the date of granting an Option shall be the mean of the high and low prices at which the Stock was sold on the market on such date. In the event no such sales of Stock occurred on such date, the fair market value of the Stock shall be determined by the Committee in accordance with applicable Regulations of the Internal Revenue Service. E. Term of Option. The term of an Option may vary within the Committee's discretion; provided, however, that the term of an Option shall not exceed ten (10) years from the date of granting the Option to the Participant, and, to this end, all Options granted pursuant to this Plan must provide that each such Option cannot be exercised after the expiration of ten (10) years from the date each such Option is granted. Notwithstanding the foregoing, in the case of any Option which is designed to qualify as an Incentive Stock Option (as defined in Section 422 of the Code) which is granted to a Ten Percent Shareholder, the term of such Option may not exceed five (5) years from the date of grant of such Option. F. Limitation on Exercise of Option. The Committee may limit an Option by restricting its exercise in whole or in part for specified periods. G. Method of Exercising an Option. Subject to the terms of a particular Option, a Participant may exercise it in whole or in part by written notice to the Secretary of the Company stating in such written notice the number of shares of Stock such Participant elects to purchase under his Option. H. No Obligation to Exercise Option. A Participant is under no obligation to exercise an Option or any part thereof. I. Payment for Option Stock. Stock purchased pursuant to an Option shall be paid in full at the time of purchase. Payment may be made (a) in cash, (b) with the approval of the Committee, by delivery to the Company of shares of Stock having an aggregate fair market value equal to the exercise price, or (c) a combination of (a) and (b). Payment may also be made, in the discretion of the Committee, by delivery (including by facsimile transmission) to the Company or its designated agent of an executed irrevocable Option exercise form together with irrevocable instructions to a broker-dealer to sell (or margin) a sufficient portion of the shares and deliver the sale (or margin loan) proceeds directly to the Company to pay for the exercise price. Upon receipt of payment and subject to paragraph J of this Section Eight, the Company shall, -7- without transfer or issue tax to the Participant or other person entitled to exercise the Option, deliver to the Participant (or other person entitled to exercise the Option) a certificate or certificates for such shares. J. Delivery of Stock to Participant. The Company shall undertake and follow all necessary procedures to make prompt delivery of the number of shares of Stock which the Participant elects to purchase upon exercise of an Option granted under this Plan. Such delivery, however, may be postponed, at the sole discretion of the Company, to enable the Company to comply with any applicable procedures, regulations or listing requirements of any government agency, stock exchange or regulatory authority. K. Failure to Accept Delivery of Stock. If a Participant refuses to pay for Stock which he has elected to purchase under his Option, in accordance with the terms of payment, which had previously been agreed upon, his Option shall thereupon, at the sole discretion of the Committee, terminate, and such funds previously paid for unissued Stock shall be refunded. Stock which has been previously issued to the Participant and been fully paid for shall remain the property of the Participant and shall be unaffected by such termination. L. Non-Transferability of Options. During the lifetime of a Participant, an Incentive Stock Option granted to him may be exercised only by him. It may not be sold, assigned, pledged or otherwise transferred except by will or by the laws of descent and distribution. In the case of Options which are not Incentive Stock Options, the Committee may impose such restrictions on transferability, if any, as it may in its sole discretion determine. M. Purchase for Investment (a) Written Agreement by Participants. Unless a registration statement under the Securities Act of 1933 is then in effect with respect to the Stock a Participant receives upon exercise of his Option, a Participant shall acquire the Stock he receives upon exercise of his Option for investment and not for resale or distribution and he shall furnish the Company with a written statement to that effect when he exercises his Option and a reference to such investment warranty shall be inscribed on the Stock certificate(s). (b) Registration Requirement. Each Option shall be subject to the requirement that, if at any time the Board determines that the listing, registration or qualification of the shares subject to the Option upon any securities exchange or under any state or Federal law is necessary or desirable as a condition of, or in connection with, the issuance of shares thereunder, the Option may not be exercised in whole or in part unless such listing, registration or qualification shall have been effected or obtained -8- (and the same shall have been free of any conditions not acceptable to the Board). N. Special Limitations on Exercise of Incentive Stock Options. The aggregate fair market value (determined at the time the Incentive Stock Option is granted) of the Stock with respect to which any Incentive Stock Option is first exercisable during any calendar year shall not exceed $100,000. SECTION NINE STOCK APPRECIATION RIGHTS A. Grant of Stock Appreciation Rights. Stock Appreciation Rights may be granted under the Plan in conjunction with an Option either at the time of grant or by amendment or may be separately awarded. Stock Appreciation Rights shall be subject to such terms and conditions not inconsistent with the Plan as the Committee shall impose. However, the total number of Stock Appreciation Rights which may be granted to a single Covered Employee under this Plan during any calendar year shall be limited to 100,000. B. Right to Exercise; Exercise Period. A Stock Appreciation Right issued pursuant to an Option shall be exercisable to the extent the Option is exercisable. A Stock Appreciation Right issued independent of an Option shall be exercisable pursuant to such terms and conditions established in the grant. C. Automatic Redemption of Unexercised Stock Appreciation Rights. If on the last day of the Option Period, in the case of a Stock Appreciation Right granted pursuant to an Option, or the specified Award Period, in the case of a Stock Appreciation Right issued independent of an Option, the Participant has not exercised such Stock Appreciation Right, then such Stock Appreciation Right shall be automatically redeemed by the Company for an amount equal to the payment that would otherwise have been made to the Participant if the Participant had chosen to exercise the Stock Appreciation Right on the last day of the Option Period or the specified Award Period, as the case may be. D. Rights Upon Exercise. An exercisable Stock Appreciation Right granted pursuant to an Option shall entitle the Participant to surrender unexercised the Option or any portion thereof to which the Stock Appreciation Right is attached, and to receive in exchange for the Stock Appreciation Right a payment (in cash or Stock or a combination thereof as described below) equal to the Fair Market Value of one share of Stock at the date of exercise minus the Option Price times the number of shares called for by the Stock Appreciation Right (or portion thereof) which is so exercised. With respect to the issuance of Stock Appreciation Rights which are not granted pursuant to an Option, the Committee shall specify upon the Date of the Grant of the Stock Appreciation Right whether the Stock Appreciation Right is a "regular" Stock Appreciation Right or a "book value" Stock Appreciation Right. Upon the exercise of a -9- regular Stock Appreciation Right, the Participant will receive a payment equal to the Fair Market Value of one share of Stock at the date of exercise minus the Fair Market Value of one share of Stock as of the Date of Grant of the Stock Appreciation Right times the number of shares called for by the Stock Appreciation Right (or portion thereof) which is so exercised. Upon the exercise of a book value Stock Appreciation Right, the Participant will receive a payment equal to the Book Value of one share of Stock at the date of exercise minus the Book Value of one share of Stock as of the Date of the Grant of the Stock Appreciation Right times the number of shares called for by the Stock Appreciation Right (or portion thereof) which is so exercised. The value of any Stock to be received upon exercise of a Stock Appreciation Right shall be the Fair Market Value of the Stock on such date of exercise. To the extent that a Stock Appreciation Right issued pursuant to an Option is exercised, such Option shall be deemed to have been exercised, and shall not be deemed to have lapsed. E. Transferability. The Committee may impose such restrictions on transferability of Stock Appreciation Rights, if any, as it may in its sole discretion determine. SECTION TEN PERFORMANCE SHARES A. Grant of Performance Share Units. Awards made pursuant to this Section Ten shall be granted in the form of Performance Shares, subject to such terms and conditions not inconsistent with the Plan as the Committee shall impose. Performance Shares shall be issued to the Participant without the payment of consideration by the Participant. Awards shall be based on the attainment of specified types and combination of performance measurement criteria, which may differ as to various Participants or classes or categories of Participants. Such criteria may include, without limitation, the attainment of certain performance levels by the individual Participant, the Company, a department or division of the Company and/or a group or class of Participants. Such criteria, together with the ranges of Performance Shares from which employees may be eligible shall be set from time to time by the Committee and shall be communicated to the Eligible Employees. The total number of Performance Shares which may be granted to any single Covered Employee under this Plan during any calendar year shall be limited to 100,000. B. Performance Period. The measuring period to establish the performance criteria set forth in a Performance Share Award shall be determined by the Committee. A Performance Share Award may initially provide, or the Committee may at any time thereafter, but no more frequently than once in any six (6) month period, amend it to provide, for waiver or reduction of the measuring period and, if appropriate, for -10- adjustment of the performance criteria set forth in the Performance Share Award, upon the occurrence of events determined by the Committee in its sole discretion to justify such waiver, reduction or adjustment. C. Form of Payment. Upon the completion of the applicable measuring period, a determination shall be made by the Committee in accordance with the Award as to the number of shares of Stock to be awarded to the Participant. The appropriate number of shares of Stock shall thereupon be issued to the Participant in accordance with the Award in satisfaction of such Performance Share Award. SECTION ELEVEN CHANGES IN CAPITAL STRUCTURE OR SHARES In the event any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, or extraordinary dividend or divestiture (including a spin-off), or any other change in the capital structure or shares of the Company, the Committee shall make adjustments, determined by the Committee in its discretion to be appropriate, as to the number and kind of securities subject to this Plan and specified in Section Five of this Plan and as to the number and kind of securities covered by each outstanding Award and, where applicable, the price per share thereunder; provided, however, that with respect to Incentive Stock Options, such adjustments shall be made in accordance with Section 424(h) of the Code unless the Committee determines otherwise. SECTION TWELVE CORPORATE REORGANIZATION OR DISSOLUTION A. Discontinuation of the Plan. The Plan shall be discontinued in the event of the dissolution or liquidation of the Company or in the event of a Reorganization (as hereinafter defined) in which the Company is not the surviving or acquiring company, or in which the Company is or becomes a wholly-owned subsidiary of another company after the effective date of the Reorganization and no plan or agreement respecting the Reorganization is established which specifically provides for the continuation of the Plan and the change, conversion, or exchange of the stock relating to existing Awards under this Plan for securities of another corporation. Upon the dissolution of the Plan in connection with an event described in this Paragraph A, all Awards shall become fully vested and all outstanding Options and Stock Appreciation Rights shall become immediately exercisable by the holder thereof. Any Options or Stock Appreciation Rights granted under the Plan may be terminated as of a date fixed by the Committee, provided that no less than fifteen (15) days written notice of the date so fixed shall be given to each Participant and each such Participant shall have the right during such period to exercise all or any portion of such Options or Stock Appreciation Rights. Any -11- Stock Appreciation Rights not so exercised shall be redeemed. B. Continuation of the Plan Upon a Reorganization. In the event of a Reorganization (as hereinafter defined) (i) in which the Company is not the surviving or acquiring company, or in which the Company is or becomes a wholly-owned subsidiary of another company after the effective date of the Reorganization, and (ii) with respect to which there is a reorganization agreement which undertakes to continue the Plan and to provide for the change, conversion or exchange of the Stock attributable to outstanding Awards for securities of another corporation, then the Plan shall continue and the Committee shall adjust the shares under such outstanding Awards (and shall adjust the shares remaining under the Plan which are then to be available for the grant of additional Awards under the Plan, if the reorganization agreement makes specific provisions therefor), in a manner not inconsistent with the provisions of the reorganization agreement and this Plan for the adjustment, change, conversion or exchange of such Awards. The term "Reorganization" as used in this Section Twelve shall mean any statutory merger, statutory consolidation, sale of all or substantially all of the assets of the Company, or sale, pursuant to an agreement with the Company, of securities of the Company pursuant to which the Company is or becomes a wholly-owned subsidiary of another company after the effective date of the Reorganization. C. Adjustments and Determinations. Adjustments and determinations under this Section Twelve shall be made by the Committee, whose decisions as to what adjustments or determinations shall be made, and the extent thereof, shall be final, binding, and conclusive. SECTION THIRTEEN RETIREMENT AND DISABILITY The Committee may, in its discretion, waive the forfeiture, termination, or lapse of an Award in the event of retirement or disability of a Participant (each as determined by the Committee, in its discretion). Exercise of such discretion by the Committee in any individual case, however, shall not be deemed to require, or to establish a precedent suggesting such exercise in any other case. SECTION FOURTEEN MISCELLANEOUS PROVISIONS A. Nontransferability. The Committee may impose such restrictions on the transferability of an Award, if any, as it may in its sole discretion determine. B. No Employment Right. Neither this Plan nor any action taken hereunder -12- shall be construed as giving any right to be retained as an officer or employee of the Company or any of its Subsidiaries. C. Tax Withholding. Either the Company or a Subsidiary, as appropriate, shall have the right to deduct from all Awards paid in cash any federal, state or local taxes as it deems to be required by law to be withheld with respect to such cash payments. In the case of Awards paid in Stock, the employee or other person receiving such Stock may be required to pay to the Company or a Subsidiary, as appropriate, the amount of any such taxes which the Company or Subsidiary is required to withhold with respect to such Stock. At the request of a Participant, or as required by law, such sums as may be required for the payment of any estimated or accrued income tax liability may be withheld and paid over to the governmental entity entitled to receive the same. The Committee may from time to time establish procedures for withholding of Stock. D. Fractional Shares. Any fractional shares concerning Awards shall be eliminated at the time of payment by rounding down for fractions of less than one-half and rounding up for fractions of equal to or more than one-half. No cash settlements shall be made with respect to fractional shares eliminated by rounding. E. Government and Other Regulations. The obligation of the Company to make payment of Awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by any government agencies as may be required. The Company shall be under no obligation to register under the Securities Act of 1933, as amended ("Act"), any of the shares of Stock issued, delivered or paid in settlement under the Plan. If Stock awarded under the Plan may in certain circumstances be exempt from registration under the Act, the Company may restrict its transfer in such manner as it deems advisable to ensure such exempt status. F. Severance. Subject to the provision of Paragraph B of this Section Fourteen, in the event a Participant's employment with the Company terminates, his rights under any Award which constitutes an Option or a Stock Appreciation Right terminate one (1) month from the date of such termination of employment. Such rights shall be exercisable only to the extent the Participant was entitled to exercise such rights under the Award on the date of such termination of employment. G. Death. If a Participant dies prior to the full exercise of his Option and/or Stock Appreciation Right, his Option to purchase Stock under such Option and/or Stock Appreciation Right may be exercised to the extent, if any, that Participant would be entitled to exercise it at the date of the death of the Participant by the person to whom the Option and/or Stock Appreciation Right shall pass by will or by the laws of descent and distribution within twelve (12) months of the death of the Participant or the expiration of the term of the Option and/or Stock Appreciation Right whichever date is sooner. -13- H. Limitation. In no event may an Option be exercised by anyone after the expiration date provided for in Section Eight of the Plan. I. Limits on Discretion. Anything in this Plan to the contrary notwithstanding, if the Award so provides, the Committee shall not have any discretion to increase the amount of compensation payable under the Award to the extent such discretion would cause the Award to lose its qualification as performance-based compensation for purposes of Section 162(m)(4)(C) of the Code and the regulations thereunder. J. Governing Law. All matters relating to the Plan or to Awards granted hereunder shall be governed by the laws of the State of Maryland, without regard to its principles of conflict of laws. K. Titles and Headings. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles and headings, shall control. SECTION FIFTEEN AMENDMENT OF PLAN A. Discretion of the Board. The Board may at any time and from time to time alter, amend, suspend or terminate the Plan in whole or in part, except (i) any such action affecting Options granted or to be granted under this Plan which are intended to qualify as Incentive Stock Options shall be subject to stockholder approval to the extent such stockholder approval is required pursuant to Section 422 of the Internal Revenue Code and (ii) no such action may be taken without the consent of the Participant to whom any Award shall theretofore have been granted, which adversely affects the rights of such Participant concerning such Award, except as such termination or amendment of the Plan is required by statute, or rules and regulations promulgated thereunder. B. Automatic Termination. This Plan shall terminate on [ ], 2006. Awards may be granted under this Plan at any time and from time to time prior to the termination of the Plan. Any Award outstanding at the time the Plan is terminated shall remain in effect until said Award is exercised or expires. -14- EX-5 6 OPINION OF JAMES H. REMPE EXHIBIT 5 October 15, 1996 Securities and Exchange Commission 450 5th Street, N.W. Washington, D.C. 20549 Re: Choice Hotels Holdings, Inc. (to be renamed Choice Hotels International, Inc.) Registration Statement on Form S-8 Gentlemen: I am Acting General Counsel of Choice Hotels Holdings, Inc. (the "Company") and have acted for the Company in connection with the preparation of the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended. The Registration Statement covers shares of the Company's Common Stock, $.01 par value, offered under the (i) Choice Hotels International, Inc. 1996 Employee Stock Purchase Plan, (ii) Choice Hotels International, Inc. Non-Employee Director Stock Option and Deferred Compensation Plan, (iii) Choice Hotels International, Inc. 1996 Non-Employee Director Stock Compensation Plan and (iv) Choice Hotels International, Inc. 1996 Long-Term Incentive Plan (the "Plans"). In connection with the rendering of the opinion set forth below, I have reviewed the records of the Company, the minutes of the meetings of the stockholders and directors of the Company and such other records and documents as was necessary in my judgment to so render the following opinion. Based on the foregoing, I am of the opinion that: 1. The Company is a corporation duly incorporated and existing under the laws of the State of Delaware; and 2. The shares of Common Stock of the Company offered to the holders under the exercise of options under the Plans, have been or will be legally issued, fully paid and nonassessable. I hereby consent to the filing of a copy of this opinion with the Commission as an exhibit to the Registration Statement referred to above. Very truly yours, s/James H. Rempe ---------------------------- James H. Rempe Acting General Counsel and Acting Secretary EX-23.I 7 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23(i) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our report dated June 28, 1996 included in Choice Hotels Holdings, Inc.'s Form 10/A-4 dated October 10, 1996 and to all references to our Firm included in this registration statement. /s/Arthur Andersen LLP ----------------------------- ARTHUR ANDERSEN LLP Washington, D.C. October 15, 1996 EX-24 8 POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints JAMES H. REMPE his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign Registration Statements or amendments (including post-effective amendments) thereto with respect to the registration under the Securities Act of 1933, as amended, of shares of Common Stock, $.01 par value, of Choice Hotels Holdings, Inc. delivered pursuant to the (i) Choice Hotels International, Inc. 1996 Employee Stock Purchase Plan, (ii) Choice Hotels International, Inc. Non-Employee Director Stock Option and Deferred Compensation Stock Purchase Plan, (iii) Choice Hotels International, Inc. 1996 Non-Employee Director Stock Compensation Plan, and (iv) Choice Hotels International, Inc. 1996 Long-Term Incentive Plan and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 15th day of October, 1996. /s/Stewart Bainum, Jr. -------------------------------- Stewart Bainum, Jr. Chairman of the Board and Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints JAMES H. REMPE his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign Registration Statements or amendments (including post-effective amendments) thereto with respect to the registration under the Securities Act of 1933, as amended, of shares of Common Stock, $.01 par value, of Choice Hotels Holdings, Inc. delivered pursuant to the (i) Choice Hotels International, Inc. 1996 Employee Stock Purchase Plan, (ii) Choice Hotels International, Inc. Non-Employee Director Stock Option and Deferred Compensation Stock Purchase Plan, (iii) Choice Hotels International, Inc. 1996 Non-Employee Director Stock Compensation Plan, and (iv) Choice Hotels International, Inc. 1996 Long-Term Incentive Plan and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 15th day of October, 1996 /s/James A. MacCutcheon ---------------------------- James A. MacCutcheon Director -----END PRIVACY-ENHANCED MESSAGE-----