-----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, QOZbZHO+4KPNW+DHiFAvKChaHNAjujOB9d8iqb0WwXXaG1CVKzxMuUrBcTfn72Zt PzZuXWBX28WIJCJf2r0m6Q== 0000928385-00-001578.txt : 20000516 0000928385-00-001578.hdr.sgml : 20000516 ACCESSION NUMBER: 0000928385-00-001578 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHOICE HOTELS INTERNATIONAL INC /DE CENTRAL INDEX KEY: 0001046311 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 521209792 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13393 FILM NUMBER: 635278 BUSINESS ADDRESS: STREET 1: 10770 COLUMBIA PIKE CITY: SILVER SPRING STATE: MD ZIP: 60563 BUSINESS PHONE: 3015925000 MAIL ADDRESS: STREET 1: 10770 COLUMBIA PIKE CITY: SILVER SPRING STATE: MD ZIP: 60563 FORMER COMPANY: FORMER CONFORMED NAME: CHOICE HOTELS FRANCHISING INC DATE OF NAME CHANGE: 19971118 FORMER COMPANY: FORMER CONFORMED NAME: CHOICE HOTELS INTERNATIONAL INC/ DATE OF NAME CHANGE: 19971022 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 2000 COMMISSION FILE NO. 1-11915 CHOICE HOTELS INTERNATIONAL, INC. 10750 COLUMBIA PIKE SILVER SPRING, MD. 20901 (301) 592-5000 Delaware 52-1209792 ------------------------ ------------------------- (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER) ------------------------------------------- (Former name, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- SHARES OUTSTANDING CLASS AT MARCH 31, 2000 - ----------------------- ------------------------ Common Stock, $0.01 par value per share 53,362,840 ---------- ============================================================================== CHOICE HOTELS INTERNATIONAL, INC. INDEX -----
PAGE NO. -------- PART I. FINANCIAL INFORMATION: Condensed Consolidated Balance Sheets - March 31, 2000 (Unaudited) and December 31, 1999 3 Consolidated Statements of Income - Three months ended March 31, 2000 and March 31, 1999 (Unaudited) 5 Consolidated Statements of Cash Flows - Three months ended March 31, 2000 and March 31, 1999 (Unaudited) 6 Notes to Consolidated Financial Statements (Unaudited) 7 Management's Discussion and Analysis of Operations and Financial Condition 8 Quantitative and Qualitative Analysis of Market Risk 10 PART II. OTHER INFORMATION AND SIGNATURE 11
2 PART I. FINANCIAL INFORMATION CHOICE HOTELS INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
March 31, 2000 December 31, 1999 --------------- ----------------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 9,226 $ 11,850 Receivables (net of allowance for doubtful accounts of $8,124 and $6,203, respectively) 25,465 30,035 Income taxes receivable and other 1,707 37 -------- -------- Total current assets 36,398 41,922 PROPERTY AND EQUIPMENT, AT COST, NET OF ACCUMULATED DEPRECIATION 58,166 58,255 GOODWILL, NET OF ACCUMULATED AMORTIZATION 64,195 64,706 FRANCHISE RIGHTS, NET OF ACCUMULATED AMORTIZATION 42,130 43,101 INVESTMENT IN FRIENDLY HOTELS, PLC 39,181 41,195 ADVANCES TO MARKETING AND RESERVATION FUNDS 52,739 32,807 OTHER ASSETS 39,172 40,819 NOTE RECEIVABLE FROM SUNBURST HOSPITALITY CORP. 145,636 141,853 -------- -------- Total assets $477,617 $464,658 ======== ========
The accompanying notes are an integral part of these condensed consolidated balance sheets. 3 CHOICE HOTELS INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
March 31, 2000 December 31, 1999 -------------- ----------------- (Unaudited) LIABILITIES & EQUITY CURRENT LIABILITIES Current portion of long-term debt $38,346 $44,646 Accounts payable 21,194 21,362 Accrued expenses 18,252 22,283 Income taxes payable - 1,367 --------- --------- Total current liabilities 77,792 89,658 --------- --------- LONG TERM DEBT 281,771 262,710 --------- --------- DEFERRED INCOME TAXES ($36,387 and $30,648, respectively) AND OTHER LIABILITIES 52,213 46,674 --------- --------- Total liabilities 411,776 399,042 --------- --------- SHAREHOLDERS' EQUITY Common stock, $.01 par value 615 614 Additional paid-in-capital 53,763 52,386 Accumulated other comprehensive income 780 1,205 Deferred compensation (1,718) (1,937) Treasury stock (118,125) (108,370) Retained earnings 130,526 121,718 --------- --------- Total shareholders' equity 65,841 65,616 --------- --------- Total liabilities & shareholders' equity $477,617 $464,658 ========= =========
The accompanying notes are an integral part of these condensed consolidated balance sheets. 4 CHOICE HOTELS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended March 31, 2000 March 31, 1999 -------------- --------------- (Unaudited) REVENUES Royalty fees $24,885 $23,798 Initial franchise and relicensing fees 3,348 2,849 Partner service revenue 2,298 1,716 Other 1,114 581 ------- ------- Total revenues 31,645 28,944 ------- ------- OPERATING EXPENSES Selling, general and administrative 12,228 10,979 Depreciation and amortization 2,683 1,762 ------- ------- Total operating expenses 14,911 12,741 ------- ------- OPERATING INCOME 16,734 16,203 OTHER Interest and dividend income (4,900) (4,703) Interest expense and other 5,470 4,799 Equity loss - Friendly Hotels, PLC 1,725 95 Gain on sale of stock - (1,260) ------- ------- Total other 2,295 (1,069) ------- ------- INCOME BEFORE INCOME TAXES 14,439 17,272 INCOME TAXES 5,631 6,995 ------- ------- NET INCOME $ 8,808 $10,277 ======= ======= WEIGHTED AVERAGE SHARES OUTSTANDING 53,390 55,886 ------- ------- DILUTED SHARES OUTSTANDING 54,262 56,508 ------- ------- BASIC EARNINGS PER SHARE $0.16 $0.18 ======= ======= DILUTED EARNINGS PER SHARE $0.16 $0.18 ======= =======
The accompanying notes are an integral part of these consolidated statements of income. 5 CHOICE HOTELS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
Three Months Ended March 31,2000 March 31, 1999 -------------- --------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $8,808 $10,277 Reconciliation of net income to net cash by operating activities: Depreciation and amortization 5,460 3,530 Provision for doubtful accounts 372 408 Increase in deferred income taxes 5,711 2,222 Non cash interest and dividend income (3,783) (4,060) Equity loss - Friendly Hotels, PLC 1,725 95 Changes in assets and liabilities: Change in receivables 4,300 1,490 Change in income taxes receivable and other (2,781) 4,719 Change in accounts payable and accrued expenses (4,199) (5,533) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 15,613 13,148 -------- -------- CASH FLOW FROM INVESTING ACTIVITIES: Investment in property and equipment (3,309) (6,281) Advances to marketing and reservation funds, net (19,931) (4,046) Other items, net 1,095 (2,530) -------- -------- NET CASH UTILIZED BY INVESTING ACTIVITIES (22,145) (12,857) -------- -------- CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from long term borrowings 34,700 36,930 Principal payments of long term borrowings (22,036) (13,137) Proceeds from exercise of stock options 998 788 Purchase of treasury stock (9,755) (22,297) Proceeds from issuance of common stock 1 269 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 3,908 2,553 -------- -------- Net change in cash and cash equivalents (2,624) 2,844 Cash and cash equivalents, beginning of period 11,850 1,692 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $9,226 $4,536 ======== ========
The accompanying notes are an integral part of these consolidated statements of cash flows. 6 CHOICE HOTELS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The accompanying consolidated financial statements of Choice Hotels International, Inc. (the "Company") and subsidiaries have been prepared by the Company without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes the disclosures made are adequate to make the information presented not misleading. The consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 1999 and notes thereto included in the Company's Form 10-K, dated March 30, 2000. In the opinion of management, all adjustments (which include any normal recurring adjustments) considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of fiscal year performance because of seasonal and short-term variations. All intercompany transactions and balances between Choice Hotels International, Inc. and its subsidiaries have been eliminated. Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. 2. Comprehensive Income - During the three months ended March 31, 2000, the Company's comprehensive income (consisting of net income plus/minus foreign currency translation adjustments and unrealized gains/losses on available for sale securities) was lower than net income by approximately $425,000. 3. Marketing and Reservation Funds - The Company presents marketing and reservation fees such that the fees collected and associated expenses are reported net. The total marketing and reservation fees received by the Company were $30.2 million and $28.0 million for the three months ended March 31, 2000 and 1999. Depreciation and amortization expense incurred by the marketing and reservation funds was $2.8 million and $1.8 million for the three months ended March 31, 2000 and 1999. Interest expense incurred by the reservation fund was $1.1 million and $0.6 million for the three months ended March 31, 2000 and 1999. Reservation fees and marketing fees not expended in the current year are carried over to the next fiscal year and expended in accordance with the franchise agreements. Shortfall amounts are similarly recovered in subsequent years. Excess or shortfall amounts from the operation of these programs are recorded as a payable or receivable from the particular fund. The Company advances capital as necessary to the marketing and reservation funds to support the development and ongoing operations of the franchise system. As of March 31, 2000, the Company's balance sheet includes a receivable of $52.7 million related to advances made to the marketing ($24.5 million) and reservation ($28.2 million) funds. As of December 31, 1999, the Company's balance sheet includes a receivable of $32.8 million related to advances made to the marketing ($12.5 million) and reservation ($20.3 million) funds. The $12 million increase in the marketing advance for the quarter ended March 31, 2000 was due to planned accelerated media spending early in the calendar year. The Company projects the marketing advance to decline over the remainder of the year to approximately $17.5 million from the current $24.5 million amount. The reservation advance is forecasted to increase approximately $20 million for the remaining nine months to $48 million. This increase is associated with the continued roll-out of property management and yield systems to franchisees. The Company has the ability under existing franchise agreements and expects to recover these advances through future marketing, reservation and technology fees. 4. Income Taxes - The income tax provision for the period is based on the effective tax rate expected to be applicable for the full year. The 2000 first quarter rate of 39% differs from the statutory rate primarily because of state income taxes. 5. Earnings Per Share - Basic earnings per share (EPS) amounts are computed by dividing earnings applicable to common shareholders by the average number of common shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive equivalents outstanding. 6. Reportable Segment Information - The Company has a single reportable segment encompassing its franchising business. Franchising revenues are comprised of royalty fees, initial franchise and relicensing fees, and partner services revenue and other. 7 Marketing and reservation fees and expenses are excluded from reportable segment information as such fees and associated expenses are reported net. The following table presents the financial information for the Company's franchising segment.
Three Months Ended March 31, 2000 (In thousands) Franchising Corporate & Other Consolidated ---------------------------------------------------------------------------- Revenues $31,645 $ - $31,645 Operating income (loss) 25,521 (8,787) 16,734 Three Months Ended March 31, 1999 Franchising Corporate & Other Consolidated ---------------------------------------------------------------------------- Revenues $28,944 $ - $28,944 Operating income (loss) 21,936 (5,733) 16,203
7. Put/Call Agreement - In March 2000, the Company and Sunburst Hospitality Corporation ("Sunburst")entered into a "put/call" agreement related to three MainStay properties for a period ending June 30, 2000. During this period, the Company can "call" any or all specified properties for purchase at Sunburst's original cost (approximately $16 million in the aggregate) and at the end of this period Sunburst may "put" any or all specified properties at such cost. If the put/call agreement is exercised, the Company would recognize a loss of approximately $5 million on the transaction based on the estimated current fair market value for the three MainStay properties. 8. Subsequent Event - In February 2000, the Company established Stay Connect, Inc. ("Stay Connect") which was initially a wholly-owned subsidiary. Stay Connect was formed to provide in-room internet solutions to the hospitality industry and related markets. In April 2000, Stay Connect issued Series A Convertible Preferred Stock to a third party, providing the third party an effective 20% ownership interest in Stay Connect in exchange for $5 million. Stay Connect is an early stage company with limited operating history. Stay Connect expects to incur losses in its first year of operations and will require significant capital to fund its future development and operations. Because the Company maintains a majority interest, it will consolidate the operating results, cash flows and balance sheet activity of Stay Connect in its financial statements. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION - -------------------------------------------------------------------------- The Company reported net income of $8.8 million, or $0.16 per diluted share, for the quarter ended March 31, 2000, compared to net income for the same period of 1999 of $10.3 million, or $0.18 per diluted share. The decrease in net income for the period is attributable to an equity loss of $1.7 million related to the Company's 5.3% interest in the common shares of Friendly Hotels, PLC ("Friendly"). The 1999 net income included a $1.3 million gain on the sale of stock. Franchise Revenues - ------------------ The Company's net franchise revenues were $31.6 million for the three months ended March 31, 2000 and $28.9 million for the three months ended March 31, 1999. Royalties increased $1.1 million to $24.9 million in 2000 from $23.8 million in 1999, an increase of 4.6%. The increase in royalties is attributable to a net increase of 90 franchised hotels during the twelve month period between March 31, 1999 and March 31, 2000 (representing an additional 6,725 rooms) and an increase in the effective royalty rate of the domestic hotel system to 3.75% from 3.61%. Initial and relicensing fee revenue generated from domestic franchise contracts signed increased to $3.3 million from $2.8 million in 1999 as a result of 156 franchise agreements signed in 2000, as compared to 130 for the first quarter of 1999. 8 Revenues generated from partner service relationships increased to $2.3 million in 2000 from $1.7 million in 1999. The total number of domestic hotels online increased to 3,143 from 3,053, an increase of 2.9% for the period ending March 31, 2000. This represents an increase in the number of rooms open of 2.7% from 253,106 as of March 31, 1999 to 259,831 as of March 31, 2000. As of March 31, 2000, the Company had 552 hotels under development in its domestic hotel system representing 42,993 rooms. The total number of international hotels online increased to 1,110 from 1,003, an increase of 10.7% as of March 31, 2000. International rooms open increased 10.7% from 72,220 as of March 31, 1999 to 79,913 as of March 31, 2000. The total number of international hotels and rooms under development was 176 and 17,493, respectively, as of March 31, 2000. International net franchise revenues represented $1.4 million and $2.0 million of the Company's total net franchise revenues for the quarters ended March 31, 2000 and 1999, respectively. Franchise Expenses - ------------------ The cost to operate the franchising business is reflected in selling, general and administrative expenses. Selling, general and administrative expenses increased 11.4% between years, partially related to increased variable expenses associated with new and relicensed franchise agreements. As a percentage of total net franchising revenues, total selling, general and administrative expenses remained constant for the first quarter of 2000 as compared to 1999. Other - ------ For the three months ended March 31, 2000 and March 31, 1999, the Company recognized approximately $3.8 million and $3.4 million, respectively, of interest income from its subordinated term note to Sunburst. The Company holds a common and preferred equity investment of approximately $39 million in Friendly. Friendly recently announced a loss of approximately $27 million, which was generated as a result of significant one-time, nonrecurring asset provisions, and also stated a negative balance on its accumulated distributable reserves. The Company accounts for its common equity in Friendly under the equity method of accounting. As a result, the Company recognized an equity loss of $1.7 million in its financial statements for the period ended March 31, 2000, representing the Company's 5.3% interest in Friendly's common shares. Under English law, Friendly cannot pay preferred or ordinary share dividends as long as the negative distributable reserve balance exists. Accordingly, Choice ceased to accrue dividends effective January 1, 2000 for the Friendly preferred shares until such time as Friendly is permitted under English law to declare and pay dividends. Until such dividends are paid, Choice has the right under the Friendly articles of association to vote at Friendly shareholder meetings as if it had exercised its conversion rights into ordinary shares, giving the Company 44% fully diluted voting rights in the shares. Given Friendly's current financial condition, the Company's increased voting rights and the strategic importance of franchising in Europe, the Company is in the process of reviewing its strategic options with respect to its investment in Friendly. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Net cash provided by operating activities was $15.6 million for the three months ended March 31, 2000, an increase of approximately $2.5 million from $13.1 million for 1999. The increase resulted from improved operating performance and stronger management of working capital. At March 31, 2000, the total long-term debt outstanding for the Company was $320.1 million, $38.3 million of which matures in the next twelve months. The Company made advances to the marketing and reservation funds totaling $19.9 million for the three months ended March 31, 2000. The advances are associated with a system-wide property and yield management systems implementation and the timing of expenditures associated with specific brand initiatives of the marketing fund. The Company has the ability under existing franchise agreements and expects to recover these advances through future marketing and reservation fees. The Company expects approximately $13.0 million of increases in advances to the marketing and reservation funds for the remainder of 2000 due to the continued property and yield management systems implementation and expenditures associated with specific brand initiatives. 9 The Company has repurchased 700,000 shares of its common stock at a total cost of $10.7 million as of April 20, 2000. The Company has authorization from its Board of Directors to repurchase up to an additional 5.6 million shares. In February 2000, the Company established Stay Connect which was initially a wholly-owned subsidiary. Stay Connect was formed to provide in-room internet solutions to the hospitality industry and related markets. In April 2000, Stay Connect issued Series A Convertible Preferred Stock to a third party, providing the third party an effective 20% ownership interest in Stay Connect in exchange for $5 million. Stay Connect is an early stage company with limited operating history. Stay Connect expects to incur losses in its first year of operations and will require significant capital to fund its future development and operations. The Company believes that cash flows from operations and available financing capacity is adequate to meet the expected operating, investing, financing and debt service requirements for the business for the immediate future. Year 2000 Compliance - -------------------- The Company has materially remedied the Year 2000 computer problem shared by virtually all companies and businesses. Initially, this Year 2000 problem was associated with two-digit date codes used in many computer programs and embedded chip systems. As an on-going effort, the Company continues to monitor its systems as well as third party vendors and franchisees. While the Company has not experienced any material non-compliance issues to date, it is not in a position to guarantee the performance of others with respect to their Year 2000 compliance or predict whether any of the assurances that others provide regarding Year 2000 compliance may prove later to be inaccurate or overly optimistic. FORWARD-LOOKING STATEMENTS - -------------------------- When used throughout this report, the words "believes," "anticipates," "expects," "intends," "estimates," "projects," and other similar expressions, which are predictions of or indicate future events and trends, identify forward- looking statements. Such statements are subject to a number of risks and uncertainties which could cause actual results to differ materially from those projected, including: competition within each of our business segments; business strategies and their intended results; the balance between supply of and demand for hotel rooms; our ability to obtain new franchise agreements; our ability to develop and maintain positive relations with current and potential hotel owners; the effect of international, national and regional economic conditions; the availability of capital to allow us and potential hotel owners to fund investments; our ability, and that of other parties upon which our businesses also rely, to modify or replace on a timely basis, their computer software and other systems in order to function properly prior to, in and beyond, the year 2000; and other risks described from time to time in our filings with the Securities and Exchange Commission, including those set forth under the heading "Risk Factors" in our Report on Form 10-Q for the Period ended June 30, 1999. Given these uncertainties, you are cautioned not to place undue reliance on such statements. We also undertake no obligation to publicly update or revise any forward-looking statement to reflect current or future events or circumstances. ITEM 3. QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISK ----------------------------------------------------- The Company is exposed to market risk from changes in interest rates and the impact of fluctuations in foreign currencies on the Company's foreign investments and revenues. The Company manages its exposure to this market risk through the monitoring of its available financing alternatives including in certain circumstances the use of derivative financial instruments. The Company's strategy to manage exposure to changes in interest rates and foreign currencies remains unchanged from 1997. Furthermore, the Company does not foresee any significant changes in exposure in these areas or in how such exposure is managed in the near future. At March 31, 2000 and December 31, 1999, the Company had $320.1 million and $307.4 million of debt outstanding at an effective interest rate of 6.6% on both dates, after the impact of interest rate swaps is taken into account. A hypothetical change of 10% in the Company's effective interest rate from quarter-end 2000 levels would increase or decrease interest expense by $1.5 million. The Company will refinance the $150 million variable rate term loan as it amortizes throughout the expected maturity dates. Upon expiration of the Credit Facility in 2002, the Company expects to refinance its obligations. For more information related to the Company's use of interest rate instruments, see Long-Term Debt and Notes Payable, Interest Rate Hedges and Fair Value of Financial Instruments in the Notes to the Consolidated Financial Statements in the Company's December 31, 1999 Form 10-K. The Company is also exposed to fluctuations in foreign currency relating to its preferred stock investment in Friendly that is denominated in British Pounds. The Company does not have any derivative financial instruments related to its foreign investments. 10 PART II OTHER INFORMATION - ------------------------- ITEM 1. LEGAL PROCEEDINGS ----------------- The Company is not party to any litigation, other than routine litigation incidental to the business of the Company. None of such litigation, either individually or in the aggregate, is expected to be material to the business, financial condition or results of operations of the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K --------------------------------- (a) Exhibits Exhibit 10.25 - Put/Call Agreement dated March 27, 2000 between Choice Hotels International, Inc. and Sunburst Hospitality Corporation. Exhibit 27.01 - Financial Data Schedule - March 31, 2000 (b) The following reports were filed pertaining to the period ended March 31, 2000. None 11 SIGNATURE Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHOICE HOTELS INTERNATIONAL, INC. Date: May 11, 2000 /s/ Charles A. Ledsinger, Jr. -------------------------------------- By: Charles A. Ledsinger, Jr. President and Chief Executive Officer 12 EX-10.25 2 PUT/CALL AGREEMENT EXHIBIT 10.25 PUT/CALL AGREEMENT ------------------ PUT/CALL AGREEMENT (the "Agreement"), dated as of March 27, 2000, by and between Sunburst Hospitality Corporation, a Delaware corporation ("Sunburst") and Choice Hotels International, Inc., a Delaware corporation ("Choice"). R E C I T A L S : - - - - - - - - A. Sunburst or its subsidiaries (collectively, "Sunburst") is the owner of the Assets (as hereinafter defined). B. Contemporaneously with the execution and delivery of this Agreement, Sunburst and Choice are entering into a certain second omnibus amendment agreement (the "Omnibus Amendment") dated February 29, 2000, pursuant to which Sunburst and Choice are amending certain provisions of the Transaction Documents (as defined in the Omnibus Amendment). C. In connection with the execution and delivery of the Omnibus Amendment, Sunburst desires to grant to Choice the Call Option (as hereinafter defined), Choice desires to grant to Sunburst the Put Option (as hereinafter defined) and Choice and Sunburst desire to acquire the Call Option and Put Option, respectively, in each case upon the terms and conditions set forth herein. A G R E E M E N T : - - - - - - - - - NOW THEREFORE, in consideration of the mutual agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: ARTICLE I PUT/CALL OPTIONS Section 1.1. Grant of Call Option; Exercise. (a) Upon all of ------------------------------ the terms, covenants and conditions set forth herein, Sunburst hereby grants to Choice the exclusive option to purchase (the "Call Option") the following Assets (collectively, the "Assets"): (i) all right, title and interest of Sunburst in and to that certain parcel of real property located in Pittsburgh, Pennsylvania and more particularly described in Schedule A-1 to this Agreement (such ------------ parcel, together with all buildings, improvements and other structures constituting real property or fixtures now or from time to time hereafter located on such parcel and all easements, rights and appurtenances belonging or appertaining thereto, the "Pennsylvania Property"); (ii) all right, title and interest of Sunburst in and to that certain parcel of real property located in Greer, South Carolina and more particularly described in Schedule A-2 to this Agreement (such parcel, ------------ together with all buildings, improvements and other structures constituting real property or fixtures now or from time to time hereafter located on such parcel and all easements, rights and appurtenances belonging or appertaining thereto, the "South Carolina Property"); (iii) all right, title and interest of Sunburst in and to that certain parcel of real property located in Brentwood, Tennessee and more particularly described in Schedule A-3 to this Agreement (such parcel, ------------ together with all buildings, improvements and other structures constituting real property or fixtures now or from time to time hereafter located on such parcel and all easements, rights and appurtenances belonging or appertaining thereto, the "Tennessee Property"; together with the Pennsylvania Property and the South Carolina Property, collectively, the "Properties"); (iv) all right, title and interest of Sunburst in and to all tangible and intangible assets of any kind or nature (other than those certain assets set forth in Schedule B-1 to this Agreement (such assets, the ------------ "Pennsylvania Excluded Assets")) relating to or used in connection with the Pennsylvania Property (such assets, the "Pennsylvania Other Assets"; together with the Pennsylvania Property, the "Pennsylvania Assets"); (v) all right, title and interest of Sunburst in and to all tangible and intangible assets of any kind or nature (other than those certain assets set forth in Schedule B-2 to this Agreement (such assets, the ------------ "South Carolina Excluded Assets")) relating to or used in connection with the South Carolina Property (such assets, the "South Carolina Other Assets"; together with the South Carolina Property, the "South Carolina Assets"); (vi) all right, title and interest of Sunburst in and to all tangible and intangible assets of any kind or nature (other than those certain assets set forth in Schedule B-3 to this Agreement (such assets, the ------------ "Tennessee Excluded Assets"; together with the Pennsylvania Excluded Assets and the South Carolina Excluded Assets, collectively, the "Excluded Assets")) relating to or used in connection with the Tennessee Property (such assets, the "Tennessee Other Assets"; together with the Tennessee Property, the "Tennessee Assets"); (b) The Call Option may be exercised by Choice within the Call Option Period (as hereinafter defined) with respect to any or all of the Pennsylvania Assets, the South Carolina Assets and the Tennessee Assets, in each case, taken as a whole. The Call Option shall be exercisable by Choice at any time during the period (the "Call Option Period") commencing on March 27, 2000 and expiring at 12:00 midnight New York time on June 30, 2000 by written notice delivered by Choice to Sunburst in the manner set forth in Section 10.9 hereof ------------ prior to the expiration of the Call Option Period. Such notice shall specifically state that Choice is exercising its Call Option with respect to the Pennsylvania Assets, the South Carolina Assets and/or the Tennessee Assets, in each case, taken as a whole (the Assets specifically described in such notice, the "Call Option Assets"). In the event Choice shall fail to exercise the Call Option on or before the expiration of the Call Option Period, the Call Option shall be null and void and of no further force or effect. Section 1.2. Grant of Put Option; Exercise. (a) Upon all of the ----------------------------- terms, covenants and conditions set forth herein, Choice hereby grants to Sunburst the exclusive option to require Choice to purchase (the "Put Option") the Pennsylvania Assets, the South Carolina Assets and/or the Tennessee Assets solely to the extent that Choice shall fail to exercise its Call Option with respect to any thereof. (b) The Put Option may be exercised by Sunburst within the Put Option Period (as hereinafter defined) with respect to any or all of the Pennsylvania Assets, the South Carolina Assets and the Tennessee Assets, in each case taken as a whole, solely to the extent that Choice shall fail to exercise its Call Option with respect to any thereof. The Put Option shall be exercisable by Sunburst at any time during the period (the "Put Option Period") commencing on July 1, 2000 and expiring at 12:00 midnight New York time on July 31, 2000, by written notice delivered by Sunburst to Choice in the manner set forth in Section 10.9 hereof prior to the expiration of the Put Option Period. Such - ------------ notice shall specifically state that Sunburst is exercising its Put Option with respect to the Pennsylvania Assets, the South Carolina Assets and/or the Tennessee Assets, in each case, taken as a whole (the Assets specifically described in such notice, the "Put Option Assets"; together with the Call Option Assets, as applicable, the "Purchased Assets"). In the event Sunburst shall fail to exercise the Put Option on or before the expiration of the Put Option Period, the Put Option and this Agreement shall be null and void and of no further force or effect. Such Put Option is subject to extension pursuant to Section 6.6 hereof. ARTICLE II PURCHASE PRICE Subject to the prorations provided for in Section 6.5 of this ----------- Agreement, the purchase price (the "Purchase Price") to be paid by Choice to Sunburst for the Pennsylvania Assets, the South Carolina Assets and/or the Tennessee Assets, as applicable, shall be the amount set forth in Schedule C ---------- hereto with respect to such Purchased Assets, in each case payable by wire transfer of immediately available funds at closing to an account designated by Sunburst prior to closing. ARTICLE III TITLE MATTERS Section 3.1. Title Commitments. Attached hereto as Schedules D-1, ----------------- ------------- D-2 and D-3 are the title insurance commitments (the "Title Commitments") issued - --- --- by Commonwealth Title Insurance Company and First American Title Insurance Company (collectively, the "Title Insurer"), showing the current state of title of the Pennsylvania Property, the South Carolina Property and the Tennessee Property, respectively. Choice hereby approves the state of title as shown in the Title Commitments, as such Title Commitments have been marked by Choice, except for any material matters which would be disclosed by a survey. The title exceptions shown in the Title Commitments, excluding the exceptions marked out thereon by Choice and any material matters which would be disclosed by a survey, are hereinafter called the "Approved Title Exceptions." Section 3.2. Title Insurance. Choice's fee title to each of the --------------- Properties being transferred pursuant to the exercise of either the Put Option or the Call Option (each such Property, a "Purchased Property", collectively, the "Purchased Properties") shall be insured at closing by an American Land Title Association ("ALTA") owner's extended coverage policy of title insurance to be issued by the Title Insurer in the amount and containing such endorsements as Choice may require (but such amounts not to exceed those specified in Schedule C) (collectively, the "Title Policy"), showing title vested in Choice - ---------- subject only to the following exceptions (collectively, the "Permitted Title Exceptions"): (i) Liens for real property taxes and special assessments, if any, to the extent not delinquent; and (ii) Approved Title Exceptions. Section 3.3. Liens. Sunburst agrees that it shall not create any ----- encumbrance, lien, charge or other matter which would affect or encumber title to any Property during the term of this Agreement. In the event that any matter other than any Permitted Title Exception affects title to any Property prior to closing and Choice objects thereto, Sunburst shall either: (i) promptly discharge such matter or otherwise cause such matter to be removed as an exception to the Title Policy issued on the Closing Date (as hereinafter defined) with respect to such Property or (ii) pay to the Title Insurer, in escrow, an amount sufficient to satisfy such matter and Sunburst shall proceed with resolving such matter. Section 3.4. Survey. Within thirty (30) days after the date of ------ this Agreement, Sunburst shall provide Choice with a survey for each Property (and all improvements thereon). Each survey shall: (i) be prepared by a surveyor or engineer licensed to perform surveys in the state in which the applicable Property is located; (ii) indicate all improvements on the applicable Property; (iii) be certified by the surveyor to Choice (or its designee); and (iv) be sufficiently detailed for the Title Insurer to delete the so-called standard survey exceptions from, and issue a comprehensive endorsement (or its equivalent) to the applicable Title Policy. Section 3.5. UCC Search. Sunburst, at is expense, shall ---------- provide Choice with a current Uniform Commercial Code search conducted in the appropriate state and local jurisdictions against each Property and against Sunburst, prepared by a reputable search firm. ARTICLE IV INSPECTIONS For a period of 45 days after Choice's written notice of the exercise of the Call Option, Choice shall have the right at Choice's sole cost and expense to enter onto any Property (either through its employees or designated agents and representatives) at reasonable times and in a reasonable manner after giving reasonable notice to Sunburst's Vice President, Extended Stay Hotel Operations for the purpose of making such inspections as Choice deems necessary or appropriate in connection with this Agreement. Sunburst shall give Choice full and free access to all its books, contracts, leases, commitments, documents, records and other information relating to the Assets and during such period Sunburst shall furnish Choice promptly with all financial and operating data and working papers and other information of Sunburst relating to the Assets. ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS Section 5.1. Choice's Representations, Warranties and Covenants. -------------------------------------------------- As an inducement to Sunburst to enter into this Agreement, Choice represents, warrants and covenants that: (i) Choice is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (ii) Choice has full corporate right, power and authority to enter into and perform its obligations under this Agreement and the other instruments and documents contemplated herein to be executed and performed by it; and (iii) The execution and delivery of this Agreement and such other instruments and documents and the consummation of the transactions contemplated hereby and thereby (a) have been duly authorized by all necessary action on the part of Choice, (b) do not require any consent or approval of or notice to any government authority or any other person, (c) will not result in the breach of the certificate of incorporation or by-laws of Choice or any material agreement or other material instrument to which Choice is a party or to which Choice or its assets are bound and (d) will not conflict with or result in the breach of any law, statute, regulation or requirement of any government authority or any judgment, writ, injunction or decree of any court or governmental agency to which Choice or its assets are subject. Section 5.2. Sunburst's Representations, Warranties and ------------------------------------------ Covenants. As an inducement to Choice to enter into this Agreement, Sunburst - --------- represents, warrants and covenants as follows: (i) Sunburst is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (ii) Sunburst has full corporate right, power and authority to enter into and perform its obligations under this Agreement and the other instruments and documents contemplated herein to be executed and performed by it including, without limitation, those conveying its right, title and interest in the Assets; (iii) The execution and delivery of this Agreement and such other instruments and documents and the consummation of the transactions contemplated hereby and thereby (a) have been duly authorized by all necessary action on the part of Sunburst, (b) do not require any consent or approval of or notice to any governmental authority or any other person, (c) will not result in the breach of the certificate of incorporation or by- laws of Sunburst or any material agreement or other material instrument to which Sunburst is a party or to which Sunburst or its assets are bound and (d) will not conflict with or result in the breach of any law, statute, regulation or requirement of any government authority or any judgment, writ, injunction or decree of any court or governmental agency to which Sunburst or its assets are subject; (iv) Sunburst has not made an assignment for the benefit of creditors, nor has Sunburst filed, or had filed against it, any petition in bankruptcy or insolvency; (v) Sunburst is not a "foreign person" within the meaning of section 1445 of the United States Internal Revenue Code of 1986, as amended, and the regulations issued thereunder; (vi) As of the Closing Date, Sunburst will have the right, power and authority to sell and convey the Assets to Choice and, other than this Agreement, Sunburst has not entered into any agreement granting to any person any option, right of first refusal or similar right with respect to the right, title and interests in the Assets held by Sunburst; (vii) Except as set forth in Exhibit A hereto: (a) there --------- are no litigation or governmental, administrative or arbitration proceedings or investigations pending or, to Sunburst's knowledge, threatened against Sunburst (solely as such affects the Assets) or any of the Assets, (b) there are no unsatisfied judgments, arbitration awards or judicial orders against Sunburst or any of the Assets and (c) there are no pending or, to Sunburst's knowledge, threatened complaints, charges, petitions or claims against Sunburst (solely as such affects the Assets) or any of the Assets; (viii) Except as disclosed in Exhibit A, Sunburst has not --------- received any written notice from any governmental authority with respect to any actual or threatened taking of any of the Assets or any portion thereof by the exercise of the right of condemnation or eminent domain; (ix) There is in full force and effect extended coverage casualty insurance insuring the Assets, for full replacement cost; Sunburst shall maintain such insurance coverage; (x) The Assets are in good working condition, order and repair, except reasonable wear and tear, and Sunburst shall preserve, protect and maintain its respective business and the Assets, and shall operate all aspects of its business consistently with established prior practice and in the ordinary course of its respective business and shall refrain from engaging in transactions, making alterations or additions, entering into agreements (whether written or oral) or selling, transferring or otherwise disposing of any of the Assets otherwise than in a manner consistent with established practice in the ordinary course of its respective business; and (xi) Sunburst, to the best of its knowledge, is in material compliance with each, and is not in material violation of any law, ordinance or governmental rule or regulation (including, without limitation, any and all applicable Environmental Laws (as hereinafter defined), and building and zoning ordinances) to which Sunburst's business (solely as it affects the Assets) or the Assets are subject; Sunburst has not failed to obtain any license, permit, certificate or other governmental authorization or inspection necessary to the ownership or use of the Assets or the conduct of Sunburst's business (solely as it affects the Assets); and Sunburst has not received any written communication that alleges that Sunburst is not in compliance with any Environmental Laws or other law, ordinance or governmental rule or regulation; it being understood that for the purposes of this Agreement, the term "Environmental Law" shall mean all applicable laws and regulations of any governmental authority applicable to the Assets and relating to (a) pollution or (b) the protection of employee health or (c) the environment (including ambient air, surface water, ground water, land surface, or subsurface strata), including laws and regulations relating to emissions, discharges, releases or threatened releases of any chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum and petroleum products. Section 5.3. Survival and Indemnity. The truth, accuracy, and ---------------------- completeness of each of the representations, warranties and covenants of Choice and of Sunburst herein set forth shall constitute a condition precedent to the obligations of Sunburst and Choice, respectively, hereunder. The parties hereto each agree to indemnify, defend and hold harmless the other from any claim, demand, liability, loss or cost (including reasonable attorneys' fees and costs) which the other may sustain because of any material breach of or inaccuracy in the respective representations, warranties and covenants of such party set forth in this Agreement. At closing, Choice and Sunburst shall deliver to each other a certificate which shall confirm that their respective warranties and representations contained in this Agreement are in all material respects true and correct as of the Closing Date. Such representations, warranties and covenants herein set forth shall survive the Closing Date for the period of the applicable statute of limitations. ARTICLE VI CLOSING Section 6.1. Closing Date. In the event the Call Option or the ------------ Put Option shall be exercised, the sale of the Purchased Assets shall be consummated on the date (the "Closing Date") which is 60 days after either (i) the date of the exercise of the Call Option by Choice or (ii) the date of the exercise of the Put Option by Sunburst; provided, however, that if such 60th day -------- ------- shall fall on a day which shall not constitute a Business Day (as hereinafter defined) then the Closing Date shall occur on the immediately succeeding Business Day. The closing of the sale of the Purchased Assets will take place at the offices of the escrow agent, with the exact time for closing to be designated by Choice by written notice to Sunburst. Section 6.2. Sunburst's Deliveries and Instruments. On the -------------------------------------- Closing Date, Sunburst shall deliver or cause to be delivered to Choice the following items (all documents shall be duly executed and, to the extent necessary, acknowledged by Sunburst): (i) Deed. With respect to each Purchased Property, a deed ---- in substantially the form attached as Exhibit B --------- hereto executed by Sunburst conveying such Purchased Property to Choice (each a "Deed", collectively, the "Deeds"), subject only to Permitted Title Exceptions along with transfer tax forms or affidavits with respect to each such Deed as may be required for recordation of each such Deed in the appropriate jurisdiction; (ii) Bill of Sale. A duly executed bill of sale in ------------- substantially the form as attached as Exhibit C --------- hereto (the "Bill of Sale") conveying all tangible personal property relating to the Purchased Properties. (iii) Assignment. An assignment agreement executed by ---------- Sunburst assigning to Choice all of Sunburst's rights and obligations under any contracts or other intangibles relating to the Purchased Properties, together with copies of documentation relating thereto; (iv) Title Insurance. A Title Policy for each Purchased --------------- Property in such form as described in Article III ----------- hereof, the cost of which will be shared equally by Sunburst and Choice; (v) Title Affidavits. Such affidavits and other ---------------- documents as may be reasonably requested by the Title Insurer to issue each Title Policy in accordance with the terms of the Title Commitments, as marked by Choice, with respect to each Purchased Property; (vi) Survey. To the extent not previously delivered to ------ Choice, the Surveys in such form as described in Article III hereof; ----------- (vii) Nonforeign Affidavit. An affidavit executed by -------------------- Sunburst confirming that Sunburst is not a foreign person within the purview of 26 U.S.C.(S) 1445 and the regulations issued thereunder; (viii) Evidencing Authority. Such resolutions, -------------------- certificates of good standing and incumbency certificates and other evidence of authority with respect to Sunburst as may be reasonably requested by Choice or the Title Insurer; (ix) Certificate. A certificate of Sunburst confirming ----------- the continued accuracy of the warranties and representation made by it in this Agreement in accordance with Section 5.2 hereof; and ----------- (x) Additional Documents. Such additional documents as -------------------- may be reasonably requested by Choice or the Title Insurer to consummate the sale of the Purchased Assets. Delivery of each of the foregoing shall be a condition precedent to Choice's obligation to consummate the purchase of the Purchased Asset. Section 6.3. Choice's Deliveries and Instruments. On the ----------------------------------- Closing Date, Choice shall deliver or cause to be delivered to Sunburst the following items (all documents shall be duly executed and, to the extent necessary, acknowledged by Choice): (i) Payment. The payment of the Purchase Price as ------- contemplated in Article II hereof with respect to the ---------- Purchased Assets; (ii) Assumption Agreement. An assumption agreement -------------------- executed by Choice assuming Sunburst's obligations and duties, prospectively from and after the Closing Date, under the contracts and intangibles, if any, which are the subject of Section 6.2(iii) hereof; ---------------- (iii) Title Affidavits. Such affidavits and other ---------------- documents as may be reasonably requested by the Title Insurer to issue each Title Policy in accordance with the terms of the Title Commitment, as marked by Choice, with respect to each Purchased Property; (iv) Evidence of Authority. Such resolutions, certificates --------------------- of good standing and incumbency certificates and other evidence of authority with respect to Choice, any nominee of Choice acting under this Agreement and the person or persons acting on behalf of Choice or Choice's nominee as might be reasonably requested by Sunburst or the Title Insurer; (v) Certificate. A certificate of Choice confirming the ----------- continued accuracy of the warranties and representations made by it in this Agreement in accordance with Section 5.3 hereof; and ----------- (vi) Additional Documents. Such additional documents as -------------------- may be reasonably requested by Sunburst or the Title Insurer to consummate the sale of the Purchased Assets to Choice. Section 6.4. Possession. Subject to Choice's fulfillment of its ---------- obligations under "6.3, Possession of the Purchased Assets shall be delivered by Sunburst to Choice on or before the close of business on the Closing Date free from all parties claiming rights to possession of or having claims against the Purchased Assets other than pursuant to contractual obligations approved or to be assumed by Choice or pursuant to this Agreement and the other documents relating thereto. If Sunburst shall fail so to deliver possession on the Closing Date, Sunburst shall be subject to eviction and shall be additionally liable to Choice for damages. Section 6.5. Prorations. All real estate taxes, assessments, ---------- utility charges, water and sewer charges, and other items reasonably subject to proration shall be prorated as of the Closing Date. Section 6.6 Extension of Put Option Period. If the Call Option --------- has been exercised and Choice or its assignee fails to close on the Purchase Asset on the Closing Date for any reason other than Sunburst's breach of or failure to comply with its obligations under this Agreement, then the Put Option Period for such Purchased Asset shall be extended to the later of thirty days from the Closing Date or October 31, 2000. ARTICLE VII ASSIGNMENT Neither this Agreement nor any of the rights hereunder may be assigned for any purpose whatsoever without the written consent of the parties hereto (which consent shall not be unreasonably withheld or delayed); provided, however, that -------- ------- if the Put Option or Call Option has been exercised with respect to a Purchased Asset(s), then Choice, upon notice to Sunburst prior to the Closing Date, may assign its right, title and interest under the following sections of this Agreement solely with respect to such Purchased Asset(s): Article II, Article III, Article IV, Article V, Article VI, Article VIII, Article IX and Article X; and assignee shall assume Choice's obligations under such sections. ARTICLE VIII CASUALTY AND CONDEMNATION Section 8.1. Waiver. Sunburst and Choice waive the provisions of ------ all applicable laws relating to the occurrence of a casualty or condemnation between the date hereof and the Closing Date, and Sunburst and Choice agree that notwithstanding the occurrence of any casualty or condemnation, the transactions contemplated by this Agreement shall be fully consummated in accordance with the terms hereof. Section 8.2. Obligation to Rebuild. In the event of any such --------------------- casualty or condemnation, on or prior to the Closing Date, then the Closing Date shall be delayed until such time as Sunburst has rebuilt or restored such affected Assets to substantially the same condition of such Assets prior to the casualty or condemnation. ARTICLE IX Default Section 9.1. Choice's Default. Choice agrees that any default by ---------------- Choice hereunder or any misrepresentation by Choice hereunder, which default or misrepresentation materially adversely affects the ability of Choice to perform its obligations under this Agreement or any of the other documents or instruments contemplated herein to be executed or performed by Choice, shall each constitute a default by Choice. Sunburst hereby agrees that the failure of Choice to consummate the transactions contemplated hereunder as a result of any court or governmental action, law, order or decree taken, enacted or declared after the date hereof and not initiated or consented to by Choice prohibiting or staying the consummation of the transaction contemplated hereunder shall not constitute a default by Choice hereunder. If any such action is brought against Choice, Choice shall use commercially reasonable efforts to defend such action and if any such order or decree is declared against Choice, Choice shall use commercially reasonable efforts to vacate or lift such order or decree. Section 9.2. Sunburst's Default. Sunburst agrees that any default ------------------ by Sunburst hereunder or a misrepresentation by Sunburst hereunder, which default or misrepresentation materially adversely affects the ability of Sunburst to perform its obligations under this Agreement or any of the other documents or instruments contemplated herein to be executed or performed by Sunburst, shall each constitute a default by Sunburst. Choice hereby agrees that the failure of Sunburst to consummate the transactions contemplated hereunder as a result of any court or governmental action, law, order or decree taken, enacted or declared after the date hereof and not initiated or consented to by Sunburst prohibiting or staying the consummation of the transaction contemplated hereunder shall not constitute a default by Sunburst hereunder. If any such action is brought against Sunburst, Sunburst shall use commercially reasonable efforts to defend such action and if any such order or decree is declared against Sunburst, Sunburst shall use commercially reasonable efforts to vacate or lift such order or decree. Section 9.03. Dispute Resolution. In the event either party shall ------------------ default under this Agreement or any other dispute or claim shall arise hereunder, such matter shall be resolved in accordance with the applicable provisions of Section 1.5 of the Omnibus Amendment. ----------- ARTICLE X MISCELLANEOUS Section 10.1. Entire Agreement. This Agreement, the Schedules and ---------------- Exhibits annexed hereto and the Omnibus Amendment contain the entire understanding of the parties hereto with respect to the subject matter hereof, and no prior or contemporaneous written or oral agreement or understanding pertaining to any such matter shall be effective for any purpose. Section 10.2. Time of Essence. Time is of the essence with --------------- respect to each provision of this Agreement. Section 10.3. Certain Fees and Expenses. Choice and Sunburst ------------------------- shall pay, in good funds, their respective closing costs and all other items required to be paid at closing, except as otherwise provided herein. The local transfer tax, if any, shall be paid at closing by Choice. Any sales and use tax that may accrue because of this transaction shall be paid when due by Sunburst. Section 10.4. Binding Effect. The provisions of this Agreement -------------- shall inure to the benefit of and be binding upon Sunburst and Choice and their respective successors and permitted assigns. Section 10.5. No Waiver. No waiver of any of the provisions of --------- this Agreement shall be deemed or shall constitute a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. Section 10.6. Assurances of Cooperation. The parties hereby ------------------------- covenant and agree that they shall at any time prior to and after the Closing Date and from time to time, execute, acknowledge and deliver, or shall cause to be done, executed, acknowledged and delivered all such further acts, documents and any other items as may reasonably be required by the other party in order to carry out fully and effectuate the transactions herein contemplated in accordance with the provisions of this Agreement. Section 10.7. Duplicate Original; Counterparts. This Agreement -------------------------------- may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Agreement may be executed in several counterparts, each of which counterpart shall be deemed an original instrument and all of which together shall constitute a single Agreement. Section 10.8. Modification in Writing. This Agreement may not be ----------------------- altered, amended, modified or changed except by an agreement in writing signed by the parties hereto or their respective successors in interest or permitted assigns. Section 10.9. Notices. All notices or other written ------- communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person with receipt acknowledged by the recipient thereof, (ii) one (1) Business Day after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the United States Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, addressed to the receiving party at its address set forth below or addressed as such party may from time to time designate by written notice to the other parties. For purposes of this Agreement, the term "Business Day" shall mean any day other than Saturday, Sunday or any other day on which banks are required or authorized to close in New York, New York. Any notice should be directed to the following addresses and either party by notice to the other may designate additional or different addresses for subsequent notices or communications: To Sunburst: Pam Williams, Esq. Sunburst Hospitality Corp. 10770 Columbia Pike Silver Spring, MD 20901 With a copy to: Kevin Hanley, Vice President Sunburst Hospitality Corp. 10770 Columbia Pike Silver Spring, MD 20901 To Choice: 10750 Columbia Pike Silver Spring, MD 20901 Attn: General Counsel Section 10.10. Appurtenant Agreement. The terms, covenants, --------------------- conditions and agreements contained herein shall be a burden and appurtenant to the Properties and shall run with the Properties. Section 10.11. Headings. The headings and captions contained in -------- this Agreement are solely for convenience of reference and shall not control or affect the meaning or construction of any provision hereof. Section 10.12. Governing Law; Severability. This Agreement shall --------------------------- be governed by, and shall be construed and enforced in accordance with, the laws of the state of Maryland without regard to principles of conflicts of laws. Any provision hereof which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. Section 10.13. Recording. A memorandum of this Agreement --------- ("Memorandum of Put/Call Agreement") in the form attached hereto as Exhibit D --------- shall be recorded in the office of the official records of the county or counties in which the Assets are located ("Recorder's Office"), as appropriate, contemporaneously with the execution of this Agreement. After the expiration of the Put Option Period, Choice shall record a release in the Recorder's Office. Section 10.14. Management of Purchased Assets. In the event ------------------------------ Choice shall exercise its Call Option or Sunburst shall exercise its Put Option, Sunburst and Choice hereby agree that Sunburst shall operate and manage the Purchased Assets pursuant to the provisions of a Management Agreement substantially in the form of Exhibit E annexed hereto. --------- Section 10.15. Brokerage. Sunburst and Choice each hereby --------- represent and warrant to the other that it has not dealt with any broker or finder or any other person who might be entitled to a fee in connection with the purchase and sale of the Assets and that no fee or commission is due to any broker, finder or other person in connection with this Agreement or the sale contemplated hereby. Sunburst and Choice each hereby indemnify the other and agree to hold the other harmless from and against any and all claims, demands, liabilities, losses, judgments, costs and expenses (including, without limitation, reasonable attorneys' fees) arising directly or indirectly out of any claim for a fee or commission due to any broker or finder arising out of facts which contravene the warranties stated in this Section 10.15. The representations, warranties and agreements contained in this Section 10.15 shall survive closing. IN WITNESS WHEREOF, Sunburst and Choice have caused this Agreement to be duly executed as of the day and year first above written. CHOICE HOTELS INTERNATIONAL, INC., a Delaware corporation By: /s/ Michael J. DeSantis -------------------------------- Name: Michael J. DeSantis Title: Senior Vice President SUNBURST HOSPITALITY CORPORATION, a Delaware corporation By: /s/ Donald J. Landry -------------------------------- Name: Donald J. Landry Title: Chief Executive Officer EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, THE CONSOLIDATED STATEMENTS OF INCOME AND THE CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO. 1,000 3-MOS DEC-31-1999 JAN-01-2000 MAR-31-2000 9,226 0 33,417 7,952 0 36,398 85,459 27,293 477,617 77,792 281,771 0 0 615 65,226 477,617 0 31,645 0 14,911 (3,175) 372 5,470 14,439 5,631 8,808 0 0 0 8,808 0.16 0.16
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