-----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, FwhLTuvL/F8ZZRegfkKbvoYDFCP4xVRkyRjzs0zk14hc9FEowOp/Edx2W68vaGHe TWMGZAYWMO91wv1m5gS8Eg== 0000928385-98-001626.txt : 19980812 0000928385-98-001626.hdr.sgml : 19980812 ACCESSION NUMBER: 0000928385-98-001626 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980811 SROS: NYSE 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: 98681942 BUSINESS ADDRESS: STREET 1: 10750 COLUMBIA PIKE CITY: SILVER SPRING STATE: MD ZIP: 20901 BUSINESS PHONE: 3019795000 MAIL ADDRESS: STREET 1: 10750 COLUMBIA PIKE CITY: SILVER SPRING STATE: MD ZIP: 20901 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 FOR 6/30/1998 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1998 COMMISSION FILE NO. 1-11915 CHOICE HOTELS INTERNATIONAL, INC. 10750 COLUMBIA PIKE SILVER SPRING, MD. 20901 (301) 979-5000 Delaware 52-1209792 - ------------------------ ---------------------- (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER) ------------------------------------------- (Former name, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- SHARES OUTSTANDING CLASS AT JUNE 30, 1998 - ----------------------- ------------------------ Common Stock, $0.01 par value per share 58,636,732 ---------- ================================================================================ CHOICE HOTELS INTERNATIONAL, INC. INDEX ----- PAGE NO. -------- PART I. FINANCIAL INFORMATION: Consolidated Balance Sheets - June 30, 1998 (Unaudited) and December 31, 1997....................... 3 Consolidated Statements of Income - Three months ended June 30, 1998 and June 30, 1997 and Six Months Ended June 30, 1998 and June 30, 1997 (Unaudited)..................... 5 Consolidated Statements of Cash Flows - Six months ended June 30, 1998 and June 30, 1997 (Unaudited).......... 6 Notes to Consolidated Financial Statements (Unaudited).................. 7 Management's Discussion and Analysis of Results of Operations and Financial Condition.................................... 9 PART II. OTHER INFORMATION AND SIGNATURE................................ 13 2 PART I. FINANCIAL INFORMATION CHOICE HOTELS INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, ASSETS 1998 1997 ------------ ------------ (UNAUDITED) CURRENT ASSETS Cash and cash equivalents $ 6,365 $ 10,282 Receivables (net of allowance for doubtful accounts of $5,394 and $7,608, respectively) 26,868 28,347 Other 12,476 9,904 Receivable from Sunburst Hospitality 19,921 25,066 -------- -------- Total current assets 65,630 73,599 PROPERTY AND EQUIPMENT, AT COST, NET OF ACCUMULATED DEPRECIATION 39,146 37,040 GOODWILL, NET OF ACCUMULATED AMORTIZATION 67,866 68,792 FRANCHISE RIGHTS, NET OF ACCUMULATED AMORTIZATION 47,578 48,819 INVESTMENT IN FRIENDLY HOTELS, PLC, NET 41,552 17,011 OTHER ASSETS 24,204 12,935 ASSETS HELD FOR SALE -- 10,752 NOTE RECEIVABLE FROM SUNBURST HOSPITALITY 122,368 117,447 -------- -------- Total assets $408,344 $386,395 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. 3 CHOICE HOTELS INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
June 30, December 31, 1998 1997 --------- ------------- (UNAUDITED) LIABILITIES & SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 10,041 $ 15,041 Accounts payable 24,149 26,452 Accrued expenses 16,302 20,702 Income taxes payable 6,754 6,007 -------- -------- Total current liabilities 57,246 68,202 -------- -------- LONG-TERM DEBT 283,678 267,780 DEFERRED INCOME TAXES AND OTHER 10,233 1,155 -------- -------- Total liabilities 351,157 337,137 -------- -------- SHAREHOLDERS' EQUITY Common stock, $.01 par value 604 598 Additional paid-in capital 51,561 47,907 Accumulated other comprehensive income 1,660 (8,316) Treasury stock (27,029) (189) Retained earnings 30,391 9,258 -------- -------- Total shareholders' equity 57,187 49,258 -------- -------- Total liabilities & shareholders' equity $408,344 $386,395 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. 4 CHOICE HOTELS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended ----------------- ------------------ June 30, June 30, June 30, June 30, 1998 1997 1998 1997 ------- ------- ------- -------- (Unaudited) (Unaudited) REVENUES Royalty fees $29,214 $26,913 $50,058 $45,171 Product sales 7,218 5,486 12,374 11,900 Initial franchise fees and relicensing fees 4,235 4,647 7,649 8,831 Other, including partner service revenue 3,769 3,659 6,427 7,198 European hotel operations - 4,855 1,098 8,588 ------- ------- ------- ------- Total revenues 44,436 45,560 77,606 81,688 ------- ------- ------- ------- OPERATING EXPENSES Selling, general and administrative 12,430 13,733 23,664 24,681 Product cost of sales 6,878 5,185 11,608 11,346 Depreciation and amortization 1,609 2,581 3,550 5,262 European hotel operations - 4,208 1,133 7,889 ------- ------- ------- ------- Total operating expenses 20,917 25,707 39,955 49,178 ------- ------- ------- ------- OPERATING INCOME 23,519 19,853 37,651 32,510 OTHER Interest expense 4,925 2,142 9,583 5,008 Interest and dividend income (3,240) - (5,960) - Gain from sale of investments (424) - (2,190) - ------- ------- ------- ------- Total other 1,261 2,142 1,433 5,008 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 22,258 17,711 36,218 27,502 INCOME TAXES 9,270 7,377 15,085 11,455 ------- ------- ------- ------- NET INCOME $12,988 $10,334 $21,133 $16,047 ======= ======= ======= ======= Weighted average shares outstanding 59,255 60,665 59,522 62,674 ======= ======= ======= ======= DILUTED SHARES OUTSTANDING 60,387 60,665 60,757 62,674 ======= ======= ======= ======= BASIC EARNINGS PER SHARE $0.22 $0.17 $0.36 $0.26 ======= ======= ======= ======= DILUTED EARNINGS PER SHARE $0.22 $0.17 $0.35 $0.26 ======= ======= ======= =======
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)
Six Months Ended ------------------ June 30, June 30, 1998 1997 -------- -------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 21,133 $ 16,047 Reconciliation of net income to net cash provided by operating activities: Depreciation and amortization 5,653 5,262 Provision for bad debts 553 486 Increase in deferred taxes and other 2,211 3,179 Non cash interest and dividend income (5,943) - Changes in assets and liabilities: Change in receivables 926 3,700 Change in inventories and other current assets (1,713) 542 Change in current liabilities (6,513) (1,414) Change in income taxes payable 747 2,014 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 17,054 29,816 -------- -------- CASH FLOW FROM INVESTING ACTIVITIES: Investment in property and equipment (5,593) (6,515) Repayments of Sunburst Hospitality advances, net 5,286 - Other items, net (8,393) - -------- -------- NET CASH UTILIZED BY INVESTING ACTIVITIES (8,700) (6,515) -------- -------- CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from long-term debt 118,959 - Repayment of long-term debt (108,061) (21,775) Purchase of treasury stock (26,840) - Proceeds from issuance of common stock 3,671 - Transfers to Parent, net - (1,045) -------- -------- NET CASH UTILIZED BY FINANCING ACTIVITIES (12,271) (22,820) -------- -------- Net change in cash and cash equivalents (3,917) 481 Cash and cash equivalents, beginning of period 10,282 2,973 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,365 $ 3,454 ======== ========
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 seven month period ended December 31, 1997 and notes thereto included in the Company's Form 10-K, dated March 31, 1998. In the opinion of management, all adjustments (which include any normal recurring adjustments) considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of fiscal year performance because of seasonal and short-term variations. All intercompany transactions and balances between Choice Hotels International, Inc. and its subsidiaries have been eliminated. Certain reclassifications have been made to the prior year amounts to conform to current period presentation. 2. In January 1998, the Company completed a transaction with Friendly Hotels, PLC ("Friendly")in which Friendly assumed the master franchise rights for Choice's Comfort, Quality and Clarion brand hotels throughout Europe (with the exception of Scandinavia) for the next 10 years. In exchange, the Company will receive from Friendly $8.0 million, payable in eight equal annual installments. As part of the transaction, Friendly acquired European hotels currently owned by the Company for a total consideration of approximately $26.2 million in convertible preferred shares and cash. In exchange for 10 hotels in France, two in Germany and one in the United Kingdom, the Company received $22.2 million in new unlisted 5.75 percent convertible preferred shares in Friendly at par, convertible into one new Friendly ordinary share for every 150p nominal of the preferred convertible shares. In addition, Friendly will pay the Company deferred compensation of $4.0 million in cash, payable by the fifth anniversary of completion or sooner dependent on the level of future profits of the hotels acquired. The European hotels included in this transaction have a carrying value, which included a cumulative translation adjustment of $(6.6) million, totaling approximately $19.9 million. The Company had a gain on the sale of $2.0 million, which has been deferred and is presented net of the Investment in Friendly Hotels, PLC in the accompanying consolidated balance sheets. 3. In May 1998, the Company issued $100 million senior unsecured notes (the "Notes"), bearing a coupon rate of 7.125%. The Notes will mature on May 1, 2008, with interest on the Notes to be paid semi-annually. The Company has used the net proceeds from the offering of approximately $99 million to repay amounts outstanding under the Company's $300 million revolving credit facility. 4. During the six months ended June 30, 1998, the Company's comprehensive income (consisting of net income plus foreign currency translation adjustments) exceeded net income by approximately $3 million. 5. During the second quarter of 1998, the Company changed its presentation of marketing and reservation fees such that the fees collected and associated expenses are reported net. The Company's franchise agreements require the payment of franchise fees which include marketing and reservation fees. These fees, which are based on a percentage of the franchisees' gross room revenues, are used exclusively to reimburse the Company for expenses associated with providing such franchise services as central reservation systems, national marketing, and media advertising. The Company is contractually obligated to expend the reservation and marketing fees it collects from franchisees in accordance with the franchise agreements; as such no income or loss to the Company is generated. All prior periods have been restated to conform to the new presentation. The total marketing and reservation fees received by the Company (previously reported as revenue) were $56.7 million and $43.8 million for the six months ended June 30, 1998 and June 30, 1997, respectively. Depreciation and 7 amortization charged to reservation and marketing expenses was $2.2 million and $1.2 million for the six months ending June 30, 1998 and June 30, 1997, respectively. Reservation fees and marketing fees not expended in the current year are carried over to the next fiscal year and expended in accordance with the franchise agreements. Shortfall amounts are similarly recovered in subsequent years. Excess or shortfall amounts from the operation of these programs are recorded as a payable or receivable from the particular fund. The shortfall amount recorded as a current receivable in other assets on the Company's balance sheet was $7.2 million and $1.7 million at June 30, 1998 and December 31, 1997, respectively. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION -------------------------------------------------------------------------- The principal factors that affect the Company's results are: (i) growth in the number of hotels under franchise, (ii) occupancy and room rates achieved by the hotels under franchise, (iii) the number and relative mix of franchised hotels, and (iv) the Company's ability to manage costs. The number of rooms at franchised properties and occupancy and room rates at those properties significantly affect the Company's results because franchise royalty fees are based upon room revenues at franchised hotels. The variable overhead costs associated with franchise system growth are substantially less than incremental royalty fees generated from new franchisees; therefore, the Company is able to capture a significant portion of those royalty fees as operating income. Comparison of Three Month Period Ended June 30, 1998 Operating Results and Three Month Period Ended June 30, 1997 Operating Results The Company reported net income of $13.0 million, or $0.22 per diluted share, for the second quarter ended June 30, 1998, compared to net income for the same period of 1997 of $10.3 million, or $0.17 per diluted share. The $0.22 per share includes approximately $0.01 resulting from a sale of certain investments held by the Company. Exclusive of this gain, diluted earnings per share increased 23.5% to $0.21 per share from $0.17 per share. The increase in net income for the period is attributable to an increase in franchise revenue as a direct result of the addition of new licensees to the franchise system, increases in the effective royalty rate achieved for the domestic hotel system and the control of the Company's selling, general and administrative costs. Franchise Revenues - ------------------ In operating the franchise business, the Company collects marketing and reservation fees and assessments from its franchisees. The Company is contractually obligated to disburse these fees for marketing and reservation activities to be provided on behalf of its franchisees. Therefore, the Company presents these fees and expenses on a net basis in the accompanying consolidated statements of income. The Company also provides certain services to its franchisees, specifically a group purchasing program, where the Company utilizes bulk purchasing power to obtain favorable pricing from third-party vendors for franchisees. This program is provided to the franchisees as a service and is not designed to be a major component of the Company's profitability. Management therefore analyzes its franchise business based on revenues net of marketing and reservation fees and product sales ("net franchise revenues"). Net franchise revenues include royalty fees, initial franchise fees and relicensing fees earned on contracts signed and other revenues, including partner service revenue. Net franchise revenues are dependent upon growth in the number of franchised properties as well as the underlying performance of the franchised hotels for continued growth. The key industry standard for measuring hotel operating performance is revenue per available room, ("RevPAR"), which is calculated by multiplying the percentage of occupied rooms by the average daily room rate realized. The Company's net franchise revenues were $37.2 million for the three months ended June 30, 1998 and $35.2 million for the three months ended June 30, 1997. Total net franchise revenues are computed as follows:
(In millions) Three Months Ended Three Months Ended June 30, 1998 June 30, 1997 ------------------- ------------------- Total franchise revenues $44.4 $40.7 Product sales (7.2) (5.5) ----- ----- Total net franchise revenues $37.2 $35.2 ===== =====
9 Royalties increased $2.3 million to $29.2 million in 1998 from $26.9 million in 1997, an increase of 8.6%. The increase in royalties is attributable to a net increase of 85 franchisees during the period representing an additional 6,500 rooms added to the system and an increase in the effective royalty rate of the domestic hotel system to 3.54% from 3.50%. Also, foreign fees for the three months ended June 30, 1998 increased $1.3 million from the three months ended June 30, 1997. Initial and relicensing fee revenue generated from domestic franchise contracts signed decreased to $4.2 million from $4.6 million in 1997. However, total franchise agreements signed in the second quarter 1998 were 198, as compared to 142 for the second quarter 1997. The decline in initial and relicensing fee revenue is attributable to certain incentives offered related to the Company's Sleep Inn brand. The total number of hotels open and under development, increased to 4,437 from 4,191 an increase of 5.9% for the period ending June 30, 1998. This represents an increase in the number of rooms open and under development of 4.6% from 357,451 as of June 30, 1997 to 373,919 as of June 30, 1998. Franchise Expenses - ------------------ The cost to operate the franchising business is reflected in selling, general and administrative costs. Selling, general and administrative expenses decreased approximately $1.3 million between years. As a percentage of total net franchising revenues, total franchising selling, general and administrative expenses declined to 33.3% for the second quarter of 1998 as compared to 38.9% for 1997. The improvement in the franchising margins relates to the economies of scale generated from operating a larger franchisee base and cost control initiatives. Product Sales - ------------- Sales made to franchisees through the Company's group purchasing program increased $1.7 million (or 30.9%) to $7.2 million for the three months ended June 30, 1998 from $5.5 million at June 30, 1997. The group purchasing program utilizes bulk purchases to obtain favorable pricing from third party vendors for franchisees ordering similar products. The Company acts as a "clearing-house" between the franchisee and the vendor, and orders are shipped directly to the franchisee. Product cost of sales decreased $1.7 million (or 32.7%) for the three months ended June 30, 1998. The product services margins decreased for the three months ended June 30, 1998 to 4.7% from 5.5% at June 30, 1997. This purchasing program is provided to the franchisees as a service and is not expected to be a major component of the Company's profitability. Other - ------ For the three months ended June 30, 1998, the Company recognized approximately $569,000 in dividend income from its investment in Friendly and approximately $2.7 million of interest income from its subordinated term note to Sunburst Hospitality, Inc. During the second quarter of 1998, the Company recognized approximately $424,000 from the sale of certain investments. 10 Comparison of Six Month Period Ended June 30, 1998 Operating Results and Six Month Period Ended June 30, 1997 Operating Results The Company reported net income of $21.1 million, or $0.35 per diluted share, for the six months ended June 30, 1998, compared to net income for the same period of 1997 of $16.0 million, or $0.26 per diluted share. The $0.35 per share includes approximately $0.02 resulting from a sale of certain investments held by the Company. Exclusive of this gain, diluted earnings per share increased 26.9% to $0.33 per share from $0.26 per share. The increase in net income for the period is primarily attributable to an increase in franchise revenue as a direct result of the addition of new licensees to the franchise system, improvements in the operating performance of franchised hotels and the control of the Company's selling, general and administrative costs. Franchise Revenues - ------------------ The Company's net franchise revenues were $64.1 million for the six months ended June 30, 1998 and $61.2 million for the six months ended June 30, 1997. Total net franchise revenues are computed as follows:
(In millions) June 30, 1998 June 30, 1997 -------------- -------------- Total franchise revenues $ 76.5 $ 73.1 Product sales (12.4) (11.9) ------ ------ Total net franchise revenues $ 64.1 $ 61.2 ====== ======
Royalties increased $5.0 million to $50.1 million in 1998 from $45.1 million in 1997, an increase of 11.1%. The increase in royalties is attributable to a net increase of 157 franchisees during the period representing an additional 12,077 rooms added to the system, an improvement in domestic RevPAR of 1.4% and an increase in the effective royalty rate of the domestic hotel system to 3.50% from 3.40%. Also, foreign fees increased $1.6 million for the six months ended June 30, 1998 from the six months ended June 30, 1997. Initial fee and relicensing fee revenue generated from domestic franchise contracts signed decreased to $7.6 million from $8.8 million in 1997. However, total franchise agreements signed in the six months ended June 30, 1998 were 368, as compared to 324 for the six months ended June 30, 1997. The decline in initial and relicensing fee revenue is attributable to certain incentives offered related to the Company's Sleep Inn brand. The total number of hotels open and under development increased to 4,437 from 4,191, an increase of 5.9% for the period ending June 30, 1998. This represents an increase in the number of rooms open and under development of 4.6% from 357,451 as of June 30, 1997 to 373,919 as of June 30, 1998. Franchise Expenses - ------------------ Selling, general and administrative expenses declined approximately $1 million between years. As a percentage of total net franchising revenues, total franchising selling, general and administrative expenses declined to 36.9% for the six months ended June 30, 1998 as compared to 40.4% for 1997. The improvement in the franchising margins relates to the economies of scale generated from operating a larger franchisee base, cost control initiatives and improvements in franchised hotel performance. Product Sales - ------------- Sales made to franchisees through the Company's group purchasing program increased $500,000 (or 4.2%) to $12.4 million for the six months ended June 30, 1998 from $11.9 million at June 30, 1997. The group purchasing program utilizes bulk purchases to obtain favorable pricing from third party vendors for franchisees ordering similar products. The Company acts as a "clearing-house" between the franchisee and the vendor, and orders are shipped directly to the franchisee. 11 Similarly, product cost of sales increased approximately $300,000 (or 2.7%) for the six months ended June 30, 1998. The product services margins increased for the six months ended June 30, 1998 to 6.2% from 4.7% at June 30, 1997. This purchasing program is provided to the franchisees as a service and is not expected to be a major component of the Company's profitability. Other - ------ For the six months ended June 30, 1998, the Company recognized approximately $1.0 million in dividend income from its investment in Friendly and approximately $4.9 million of interest income from its subordinated term note to Sunburst Hospitality, Inc. For the six months ended June 30, 1998, the Company recognized approximately $2.2 million from the sale of certain investments. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Net cash provided by operating activities was $16.7 million for the six months ended June 30, 1998, a decrease of approximately $13.1 million from $29.8 million for 1997. At June 30, 1998, the total long-term debt outstanding, including amounts due this year for the Company was $293.7 million. In May 1998, the Company consummated a $100 million senior unsecured note offering (the "Notes"), bearing a coupon rate of 7.125%. The Notes will mature on May 1, 2008, with interest on the Notes to be paid semi-annually. The Company has used the net proceeds from the offering of approximately $99 million to repay amounts outstanding under the Company's $300 million revolving credit facility. The Company believes that cash flow from operations and available financing capacity is adequate to meet the expected operating, investing, financing and debt service requirements for the business for the immediate future. YEAR 2000 COMPLIANCE - -------------------- The Company's reservations systems, its current software products offered for license to franchisees as well as its internal financial systems are being tested for year 2000 compliance. Although the testing of these systems is not yet complete, the Company does not believe any of the above elements will have a material impact on the Company's results of operations or financial condition. FORWARD-LOOKING STATEMENTS - -------------------------- The statements contained in this document that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. A number of important factors could cause the Company's actual results for future periods to differ materially from those expressed in any forward-looking statements made by, or on behalf of the Company. Certain statements contained in this Form 10-Q, including those in the section entitled "Management's Discussion and Analysis of Operating Results and Financial Condition," contain forward-looking information that involves risk and uncertainties. Actual future results and trends may differ materially depending on a variety of factors discussed in the "Risk Factors" section included in the Company's SEC filings, including the nature and extent of future competition, and political, economic and demographic developments in countries where the Company does business or in the future may do business. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to revise or update these forward-looking statements. 12 PART II OTHER INFORMATION ------------------------- ITEM 1. LEGAL PROCEEDINGS ----------------- The Company is not party to any litigation, other than routine litigation incidental to the business of the Company. None of such litigation, either individually or in the aggregate, is expected to be material to the business, financial condition or results of operations of the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits Exhibit 10.1 - Agreement and release dated June 16, 1998 between Choice Hotels International, Inc. and William R. Floyd. Exhibit 10.2 - Employment Agreement dated April 29, 1998 between Choice Hotels International, Inc. and Michael J. DeSantis. Exhibit 27.01 - Financial Data Schedule - June 30, 1998 (b) The following reports were filed pertaining to the period ended June 30, 1998. None. 13 SIGNATURE Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHOICE HOTELS INTERNATIONAL, INC. Date: August 10, 1998 /s/ Michael J. DeSantis --------------- ----------------------------- By: Michael J. DeSantis Senior Vice President, General Counsel & Secretary 14 EX-10.1 2 AGREEMENT AND RELEASE EXHIBIT 10.1 ------------ AGREEMENT AND RELEASE --------------------- This AGREEMENT AND RELEASE (the "Agreement and Release") is made and entered into as of June 16, 1998, by and between Choice Hotels International, Inc., a Delaware corporation ("Choice") and William R. Floyd ("Floyd"). 1. Termination of Employment. Floyd hereby voluntarily resigns as a member ------------------------- of the Board of Directors and as Chief Executive Officer and President of Choice, effective as of the date hereof (the "Resignation Date"). Except as otherwise provided herein, Floyd shall return to Choice any property owned by Choice, including any computer hardware or software, office equipment, credit cards, long distance telephone cards, keys to buildings, and non-public materials. 2. Benefits. In consideration of certain obligations of Floyd in this -------- Agreement and Release, Choice shall pay Floyd the following benefits after this Agreement and Release has been signed and witnessed by both Floyd and Choice: 2.1 Severance Pay. One year of pay from the Resignation Date (the ------------- "Pay Period"). The severance pay shall be equal to Floyd's base salary as of the Resignation Date and will not be subject to adjustments during the Pay Period. The pay will be made in biweekly payments according to the usual payroll cycle, less customary withholding for federal, state, and local taxes. It is mutually understood by the parties to this Agreement and Release that Floyd would not otherwise be entitled to any payment of benefits upon the termination of his employment with Choice, and that payment of any severance amounts by Choice is in consideration for the covenants made by Floyd set forth in this Agreement and Release. Floyd shall not be entitled to any bonus payment for fiscal year 1998. Except as provided for elsewhere in this Agreement and Release, the payment of the pay shall fully and completely extinguish all of Choice's obligations to Floyd, including without limitation, any severance, compensation (including deferred compensation, stock options, bonuses or commissions), health insurance premiums, vacation pay, sick pay, or any other obligations relating to Floyd's employment by Choice. 2.2 Unemployment Benefits. Floyd acknowledges that he has ---------------------- voluntarily resigned and agrees that he is not eligible for and will not file for unemployment benefits. 2.3 Stock Options. During the Pay Period, previously granted options ------------- to acquire Choice and Sunburst Hospitality Corporation ("Sunburst") common stock shall continue to vest on the vesting schedule provided for under the terms of those options, notwithstanding the termination of Floyd's employment with Choice and Floyd shall have the right to exercise such stock options, together with all options held by him to acquire Choice and Sunburst common stock which have already vested as of the date of this Agreement and Release during the Pay Period and for an additional 30 days thereafter (collectively, the "Option Exercise Period"). Choice agrees that Floyd shall be deemed continuously eligible by Choice throughout the Option Exercise Period for purposes of participation in such stock option plans; however, Floyd shall not be entitled to any future grants under the stock option plans. All previously granted options to acquire Choice and Sunburst common stock which vest after the Pay Period are forfeited and terminated as of the Resignation Date. Choice is separately delivering to Floyd with this Agreement and Release a Schedule listing all options held by him to acquire Choice and Sunburst common stock which have already vested as of the date of this Agreement and Release and all such options which are scheduled to vest during the Pay Period. 2.4 Restricted Stock. With respect to the restricted shares of Choice ----------------- common stock granted to Floyd on November 4, 1996, 14,245 shares of Choice and 4,748 shares of Sunburst shall vest on November 4, 1998 pursuant to the terms of the grant and shall be delivered to Floyd within five business days. Within five business days after the date this Agreement and Release is executed and delivered by Choice, the restricted shares of Choice and Sunburst common stock granted to Floyd on November 4, 1996 which vested on November 4, 1997 shall be distributed to Floyd. Choice represents that the resale of the restricted shares granted to Floyd is covered by an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), and Choice agrees that it shall keep that registration statement in effect until the earlier of the time at which Floyd no longer owns such shares or Floyd becomes eligible to sell such shares pursuant to Rule 144(k) under the Securities Act. The remainder of such restricted Choice and Sunburst shares and the restricted shares which would otherwise vest on November 4, 1999 are forfeited by Floyd and terminated as of the Resignation Date. 2.5 Car Allowance. During the Pay Period, Choice shall continue to -------------- pay Floyd the monthly automobile allowance to which he was entitled under his employment agreement with Choice. 2.6 Business Equipment. Floyd shall be entitled to retain the Choice ------------------ computer and fax machine currently located at Floyd's residence. In addition, during the Pay Period Choice shall reimburse Floyd for the cost of a dedicated computer telephone line and dedicated fax telephone line. 2.7 Payment of Legal Fees. Choice shall pay legal fees incurred by --------------------- Floyd in connection with his resignation and this Agreement and Release, in an amount not to exceed $27,500. 2.8 Payment of Business Expenses/Vacation Pay/Sick Pay. Choice will -------------------------------------------------- pay approved business expenses Floyd incurred through the Resignation Date according to Choice's policies. Choice will pay Floyd all earned but unused vacation pay through the Resignation Date, less customary withholding for federal, state, and local taxes. No vacation pay or sick leave shall be earned during the Pay Period. Choice will not pay Floyd for any unused sick pay hours. 2 2.9 Continuation of Company Benefits. During the Pay Period, Floyd -------------------------------- may continue to participate in all medical, dental, life insurance, and pre-tax spending plans in which he is currently participating, and Floyd consents to the customary deductions for such benefits from the payments described under Section 2.1 above. Optional deductions for items such as the fitness center, retirement plans, employee stock purchase plans and credit union will end with Floyd's last paycheck for regular hours worked through the Resignation Date. Floyd will be eligible for COBRA benefits at the end of the Pay Period. 2.10 Job References. Choice agrees to provide Floyd with a positive -------------- employment reference. 3. Complete Release by Floyd. Floyd agrees, in exchange for the benefits ------------------------- described above, to irrevocably and unconditionally release Choice and, as the case may be, its former parent, Sunburst Hospitality Corporation (formerly named Choice Hotels International, Inc.), and each of their directors and executive officers (as defined in Rule 405 under the Securities Act of 1933, as amended) (collectively, the "Choice Releasees"), of and from any and all manner of action or actions, cause or causes of action, in law or equity, suits, debts, liens, contracts, agreements, promises, liability, claims, demands, grievances, damages, loss, cost or expense, of any nature whatsoever, known or unknown, ---------------- fixed or contingent, which Floyd now has or may hereafter have against the Choice Releasees, or any of them, by reason of any matter, cause, or thing whatsoever from the beginning of time to the date hereof arising out of, based upon, or relating to the hire, employment, termination, remuneration (including any severance, salary, bonus, incentive or other compensation; vacation sick leave or medical insurance benefits; or any benefits from any employee stock ownership, profit-sharing and/or any deferred compensation plan under Section 401 of the Internal Revenue Code of 1954, as amended), from any and all claims or demands Floyd may have based on Floyd's employment with Choice or the separation from that employment ("Floyd Claims"). The Floyd Claims which Floyd is releasing include, but are not limited to, a release of any rights or claims Floyd may have under Title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment based on race, color, national origin, religion or sex; the Civil Rights Act of 1991; the Equal Pay Act, which prohibits paying men and women unequal pay for equal work; the Americans with Disabilities Act; the Family and Medical Leave Act; the Maryland Human Rights Act; the Montgomery County Human Rights Act; and any other federal, state or local laws or regulations prohibiting employment discrimination. This also includes a release by Floyd of any claims for wrongful discharge, compensation and benefits, expenses, bonuses, or any other employee rights or benefits, or any other actions sounding in tort or contract relating to Floyd's employment and termination from Choice. This release does not include a release of Floyd's right, if any, to retirement or profit-sharing benefits or deferred compensation arrangements under the standard programs of Choice nor release of his rights under this Agreement and Release. This Agreement and Release covers both Floyd Claims which Floyd knows about 3 and those he may not know about. Floyd assumes the risk of such unknown Floyd Claims which may exist at the time he signs this Agreement and Release and agrees that this Agreement and Release shall apply to any and all known and unknown Floyd Claims. 4. Complete Release by Choice. Choice agrees, in exchange for the -------------------------- promises of Floyd contained herein, to irrevocably and unconditionally release Floyd of and from any and all manner of action or actions, cause or causes of action, in law or equity, suits, debts, liens, contracts, agreements, promises, liability, claims, demands, grievances, damages, loss, cost or expense, of any nature whatsoever, known or unknown, fixed or contingent, which Choice now has ---------------- or may hereafter have against Floyd, by reason of any matter, cause, or thing whatsoever from the beginning of time to the date hereof arising out of, based upon, or relating to the employment or resignation of Floyd, from any and all claims or demands Choice may have based on Floyd's employment with Choice or the separation from that employment ("Choice Claims"). This also includes a release by Choice of any claims or any other actions sounding in tort or contract relating to Floyd's employment and termination from Choice. This Agreement and Release covers both Choice Claims which Choice knows about and those Choice may not know about. Choice assumes the risk of such unknown Choice Claims which may exist at the time Choice signs this Agreement and Release and agrees that this Agreement and Release shall apply to any and all known and unknown Choice Claims. 5. Future Lawsuits or Claims . Floyd and Choice each promises never to -------------------------- file a lawsuit, administrative proceeding or agency action asserting any claims which are released in Paragraph 3 or 4, respectively, of this Agreement and Release. Except to the extent otherwise required by law, each party further agrees not to assist any other person in bringing any action, claim or demand against the other party. 6. Non-Disparagement. Choice and Floyd agree that they respectively shall ----------------- not disparage the business reputation of the other party hereto and each shall not communicate to any person, corporation or entity any information which would cause injury to or tend to cause injury to the business reputation of the other. Public statements made by Choice and Floyd concerning one another shall be as mutually agreed. 7. Business Information of Choice/Non-Solicitation of Choice's Employees. --------------------------------------------------------------------- Floyd agrees not to directly or indirectly, or cause others to make use of or disclose to others any non-public information relating to the business of Choice and its affiliates, including, but not limited to, present or prospective operating and development plans, trade secrets, pricing information, contact lists, strategic plans or strategies, operating data or Choice policies. During the Pay Period, Floyd agrees not to (i) solicit for employment or contract for services with, directly or indirectly, on his behalf or on behalf of any other person or entity, any person employed by Choice, or its subsidiaries or affiliates during such period, unless Choice consents in writing. In the event of an actual or threatened breach by Floyd of the provisions of this paragraph, Choice shall be entitled to injunctive relief restraining Floyd from committing such breach or threatened 4 breach. Nothing herein stated shall be construed as preventing Choice from pursuing any other remedies available to Choice for such breach or threatened breach, including the recovery of damages from Floyd. 8. Non-Release of Future Claims. This Agreement does not waive or release ---------------------------- any rights or claims that Floyd may have under the Age Discrimination in Employment Act which arise after the date Floyd signs this Agreement and Release. 9. Consequences of a Violation of Promises. If either party breaks --------------------------------------- his/its promise in Paragraph 5 of this Agreement and Release and files a lawsuit, administrative proceeding or agency action based on claims that such party has released, such party will pay for all costs incurred by the other party (and, in the case of Choice, any related companies, or the officers, directors, employees or agents of any of them), including reasonable attorneys' fees, in defending against the breaching party's claim. All benefits described herein, including any pay and continued vesting and exercise of stock options, will cease and the release by Choice in Section 4 shall be null and void if Floyd breaches any of his promises in Sections 3, 5, 6 and 7. If Choice breaches any of its promises in Sections 4, 5, 6 and 7, the release by Floyd in Section 3 shall be null and void but Floyd will continue to receive all benefits due to him under this Agreement and Release. 10. Consultation; Revocation. Floyd acknowledges that he has consulted ------------------------ with an attorney of his own choice prior to executing this Agreement and Release. He may have a period of up to 21 days to consider this Agreement and Release. Floyd acknowledges that no deadlines of less than 21 days have been imposed on him to review or execute this Agreement and Release. In addition, should he choose to sign the Agreement and Release, he shall have a period of seven days to revoke such signature. Revocation can be made by delivering a written notice of revocation to the Senior Vice President, Human Resources, Choice Hotels International, Inc., 10750 Columbia Pike, Silver Spring, Maryland 20901. For this revocation to be effective, written notice must be received by the Senior Vice President, Human Resources no later than the close of business on the seventh (7th) day after Floyd signs this Agreement. If Floyd revokes this Agreement it shall not be effective or enforceable and Floyd will not receive the benefits described in Section 2. 11. Signing is Voluntary. Floyd acknowledges that he has had adequate -------------------- opportunity to review this Agreement and Release with an attorney, that Floyd understands its terms, that Floyd was not coerced into signing, and that Floyd signed this Agreement and Release knowingly and voluntarily. 12. Complete Defense. Floyd fully understands and agrees that this ---------------- Agreement and Release may be pleaded by Choice as a complete defense to any claim or entitlement which may be asserted by Floyd against Choice, for or on account of any matters waived in this Agreement and Release. 5 13. Non-Admission of Liability. Each party makes this Agreement and -------------------------- Release to avoid the cost of defending against any possible lawsuit. By making this Agreement and Release, neither Choice nor Floyd admits that it/he has done anything wrong. 14. Entire Agreement. This is the entire agreement between Floyd and ---------------- Choice. Neither Choice nor Floyd has made any promises to the other except those included or referred to in this Agreement and Release. 15. Choice of Law; Jurisdiction. This Agreement and Release shall be --------------------------- construed exclusively in accordance with the laws of the State of Maryland, without regard to the principles of conflicts of laws therein. In the event that a dispute arises under this Agreement and Release and legal action is instituted, the parties agree that such action shall be maintained exclusively in the Circuit Court for Montgomery County, Maryland. The parties hereby voluntarily submit to the jurisdiction of said court. FLOYD HAS HAD AN OPPORTUNITY TO CAREFULLY REVIEW AND CONSIDER THIS AGREEMENT WITH AN ATTORNEY, AND HE HAS HAD SUFFICIENT TIME TO CONSIDER IT. AFTER SUCH CAREFUL CONSIDERATION, HE KNOWINGLY AND VOLUNTARILY ENTERS INTO THIS AGREEMENT WITH FULL UNDERSTANDING OF ITS MEANING. PLEASE READ THIS AGREEMENT CAREFULLY. IT CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. CHOICE HOTELS INTERNATIONAL, INC. By: /s/ Michael J. DeSantis ------------------------------------------- Michael J. DeSantis, Senior Vice President ATTEST: /s/ Kevin Rooney - ----------------- (SEAL) WITNESS: /s/ William R. Floyd -------------------- William R. Floyd /s/ Nancy Peake - ---------------- 6 EX-10.2 3 EMPLOYMENT AGREEMENT EXHIBIT 10.2 ------------ EMPLOYMENT AGREEMENT -------------------- This Agreement ("Agreement") dated this 29th day of April, 1998 between Choice Hotels International, Inc. ("Employer"), a Delaware corporation with principal offices at 10750 Columbia Pike, Silver Spring, Maryland 20901, and Michael J. DeSantis ("Employee"), sets forth the terms and conditions governing the employment relationship between Employee and Employer. 1. Employment. During the term of this Agreement, as hereinafter defined, ---------- Employer hereby employs Employee as Senior Vice President, General Counsel and Secretary. Employee hereby accepts such employment upon the terms and conditions hereinafter set forth and agrees to faithfully and to the best of his ability perform such duties as may be from time to time assigned by Employer's Board of Directors and Chief Executive Officer, such duties to be rendered at the principal office of Employer, subject to reasonable travel. Employee also agrees to perform his duties in accordance with policies established by Employer's Board of Directors, which may be changed from time to time. 2. Term. Subject to the provisions for termination hereinafter provided, ---- the term of this Agreement shall begin on the date hereof ("Effective Date") and shall terminate five (5) years thereafter (the "Termination Date"). The Termination Date shall automatically be extended for successive one-year terms unless either party gives written notice no less than nine months prior to the Termination Date that it elects not to extend the Termination Date. 3. Compensation. For all services rendered by Employee under this ------------ Agreement during the term thereof, Employer shall pay Employee the following compensation: (a) Salary. A base salary of One Hundred Seventy Thousand Dollars ------ ($170,000) per annum payable in equal bi-weekly installments. Such salary shall be reviewed by the Compensation Committee of the Board of Directors of Employer at the next annual review of officers following the Effective Date and may be increased at the discretion of Employer. (b) Incentive Bonus. Effective January 1, 1998, Employee shall have --------------- the opportunity to earn up to a maximum of Fifty Percent (50%) per annum of the base salary set forth in subparagraph 3(a) above in Employer's bonus plans as adopted from time to time by Employer's Board of Directors. (c) Automobile. Employer shall provide Employee with an allowance for ---------- automobile expenses of $850 per month subject to withholding of usual taxes. (d) Stock Options. Employee shall be eligible to receive options ------------- under the Choice Hotels International, Inc. Long Term Incentive Plan ("LTIP"), or similar plan, to purchase Common Stock in accordance with the policy of the Employer's Board as in effect from time to time. (e) Other Benefits. Employee shall, when eligible, be entitled to -------------- participate in all other fringe benefits, including vacation policy, generally accorded the most senior executive officers of Employer as are in effect from time to time on the same basis as such other senior executive officers. 4. Extent of Services. Employee shall devote his full professional ------------------ time, attention, and energies to the business of Employer, and shall not during the term of this Agreement be engaged in any other business activity whether or not such business activity is pursued for gain, profit, or other pecuniary advantage; but the foregoing shall not be construed as preventing Employee from investing his assets in (i) the securities of public companies, or (ii) the securities of private companies or limited partnerships outside the lodging industry if such holdings are passive investments of one percent or less of outstanding securities and Employee does not hold positions of officer, employee or general partner. Employee shall be permitted to serve as a director of companies outside of the lodging industry so long as such service does not inhibit his performance of services to the Employer. Employee shall not be permitted to serve as a director of any company within the lodging industry unless (i) the Corporate Compliance officer of the Employer has determined that there is no conflict of interest and (ii) such service does not inhibit his performance of services to the Employer. Employee warrants and represents that he has no contracts or obligations to others which would materially inhibit the performance of his services under this Agreement. 5. Disclosure and Use of Information. Employee recognizes and --------------------------------- acknowledges that Employer's and affiliates' present and prospective clients, franchises, management contracts, acquisitions and personnel, as they may exist from time to time, are valuable, special and unique assets of Employer's business. Throughout the term of this Agreement and for a period of two (2) years after its termination or expiration for whatever cause or reason except as required by applicable law, Employee shall not directly or indirectly, or cause others to, make use of or disclose to others any information relating to the business of Employer that has not otherwise been made public, including but not limited to Employer's present or prospective clients, franchises, management contracts or acquisitions. During the term of this Agreement and for a period of two years thereafter, Employee agrees not to solicit for employment or contract for services with, directly or indirectly, on his behalf or on behalf of any other person or entity, any person employed by Employer, or its subsidiaries or affiliates during such period, unless Employer consents in writing. In the event of an actual or threatened breach by Employee of the provisions of this paragraph, Employer shall be entitled to injunctive relief restraining Employee from committing such breach or threatened breach. Nothing herein stated shall be construed as preventing Employer from pursuing any other remedies available to Employer for such breach or threatened breach, including the recovery of damages from Employee. 6. Notices. Any notice, request or demand required or permitted to be ------- given under this Agreement shall be in writing, and shall be delivered personally to the recipient or, if sent by certified or registered mail to his residence in the case of Employee, or to its principal office in the case of the Employer. Such notice shall be deemed given when delivered if personally delivered or within three days of mailing if sent certified or registered mail. 7. Elective Positions; Constructive Termination -------------------------------------------- (a) Nothing contained in this Agreement is intended to nor shall be construed to abrogate, limit or affect the powers, rights and privileges of the Board of Directors or stockholders to remove Employee from the positions set forth in Section 1, 2 with or without Cause (as defined in Section 10 below), during the term of this Agreement or to elect someone other than Employee to those positions, as provided by law and the By-Laws of Employer. Nothing in this Agreement is intended to nor shall be construed to abrogate, limit or affect the Employee's rights and privileges to terminate this Agreement. (b) If Employee is Constructively Terminated (as defined in Section 7(c) below) it is expressly understood and agreed that Employee's rights under this Agreement shall in no way be prejudiced, Employee shall not, thereafter, be required to perform any services under this Agreement and Employee shall be entitled to receive compensation referred to in Section 3 above, including, without limitation, the continued vesting through the term of this Agreement of stock options and restricted stock outstanding at the time of the Constructive Termination. However, Employee shall not be entitled to receive new stock option grants or rights to ungranted stock options. Employee upon removal shall not be required to mitigate damages but nevertheless shall be entitled to pursue other employment, and Employer shall be entitled to receive as an offset and thereby reduce its payment by the base salary and bonus received by Employee from any other employment. As a condition to Employee receiving his compensation from Employer, Employee agrees to permit verification of his employment records and income tax returns by an independent attorney or accountant, selected by Employer but reasonably acceptable to Employee, who agrees to preserve the confidentiality of the information disclosed by Employee except to the extent required to permit Employer to verify the amount received by Employee from other active employment. Employer shall receive credit for unemployment insurance benefits, social security insurance or other like amounts payable during periods of unemployment actually received by Employee. (c) For purposes of this Section 7, "Constructively Terminated" shall mean removal or termination of Employee other than in accordance with Section 10, assignment of duties by the Employer inconsistent with Section 1, a change in Employee's title or the line of reporting set forth in Section 1 or any other material breach of this Agreement by Employer provided Employer shall be given fourteen days advance written notice of such claim of material breach, which written notice shall specify in reasonable detail the grounds of such claim of material breach. Except in the case of bad faith, Employer shall have an opportunity to cure the basis for Constructive Termination during the fourteen day period after written notice. 8. Waiver of Breach. The waiver of either party of a breach of any ---------------- provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 9. Assignment. The rights and obligations of Employer under this ---------- Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Employer. The obligations of Employee hereunder may not be assigned or delegated. 3 10. Termination of Agreement. This Agreement shall terminate upon the ------------------------ following events and conditions: (a) Upon expiration of its term; (b) For Cause which means, including but not limited to, deliberate and continued refusal to carry out duties and instructions of the Employer's Board of Directors and Chief Executive Officer consistent with the position, material dishonesty, a violation or a willful breach of this Agreement, conviction of a felony involving moral turpitude, fraud or misappropriation of corporate funds or any willful acts or omissions inimical to or contrary to material policies of Employer not arbitrarily applied in the case of Employee. (c) Subject to state and federal laws, if Employee is unable to perform the essential functions of the services described herein for more than 180 days (whether or not consecutive) in any period of 365 consecutive days, Employer shall have the right to terminate this Agreement by written notice to Employee. In the event of such termination, all non-vested obligations of Employer to Employee pursuant to this Agreement shall terminate. (d) In the event of Employee's death during the term of this Agreement, the Agreement shall terminate as of the date thereof. 11. Entire Agreement. This instrument contains the entire agreement of ---------------- the parties. It may be changed only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. This Agreement shall be governed by the laws of the State of Maryland, and any disputes arising out of or relating to this Agreement shall be brought and heard in any court of competent jurisdiction in the State of Maryland. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first set forth above. Employer: CHOICE HOTELS INTERNATIONAL, INC. By: /s/ Thomas Mirgon ---------------------------------- Thomas Mirgon Senior Vice President Employee: /s/ Michael J. DeSantis -------------------------------------- Michael J. DeSantis 4 EX-27 4 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 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 6,365 0 32,262 5,394 371 65,630 54,097 14,951 408,344 57,246 283,678 0 0 604 56,583 408,344 0 77,606 0 39,955 1,433 553 9,583 36,218 15,085 21,133 0 0 0 21,133 0.36 0.35
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