-----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, REm9B6w40bZtRurnCaccNmCmJ/gE7lYuuvPexM9KARpcpmAjMm4Dl/X5YqDyxHUz diAhiJi2LWbLbcjXmarGBg== 0001021408-99-000774.txt : 19990505 0001021408-99-000774.hdr.sgml : 19990505 ACCESSION NUMBER: 0001021408-99-000774 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990504 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: 99609362 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, 1999 COMMISSION FILE NO. 1-11915 CHOICE HOTELS INTERNATIONAL, INC. 10750 COLUMBIA PIKE SILVER SPRING, MD. 20901 (301) 592-5000 Delaware 52-1209792 ------------------------ ------------------------- (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER) ------------------------------------------- (Former name, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ______ SHARES OUTSTANDING CLASS AT MARCH 31, 1999 - ----------------------- ------------------------ Common Stock, $0.01 par value per share 55,237,622 ============================================================================== CHOICE HOTELS INTERNATIONAL, INC. INDEX -----
PAGE NO. ------- PART I. FINANCIAL INFORMATION: Condensed Consolidated Balance Sheets - March 31, 1999 (Unaudited) and December 31, 1998 3 Consolidated Statements of Income - Three months ended March 31, 1999 and March 31, 1998 (Unaudited) 5 Consolidated Statements of Cash Flows - Three months ended March 31, 1999 and March 31, 1998 (Unaudited) 6 Notes to Consolidated Financial Statements (Unaudited) 7 Management's Discussion and Analysis of Results of Operations and Financial Condition 9 PART II. OTHER INFORMATION AND SIGNATURE 14
PART I. FINANCIAL INFORMATION CHOICE HOTELS INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, 1999 1998 ------------ ------------- ASSETS (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 4,536 $ 1,692 Receivables (net of allowance for doubtful accounts of $8,831 and $8,082, respectively) 26,425 28,117 Income taxes receivable and other 1,304 5,852 -------- -------- Total current assets 32,265 35,661 PROPERTY AND EQUIPMENT, AT COST, NET OF ACCUMULATED DEPRECIATION 35,623 32,845 GOODWILL, NET OF ACCUMULATED AMORTIZATION 66,238 66,749 FRANCHISE RIGHTS, NET OF ACCUMULATED AMORTIZATION 46,094 44,981 INVESTMENT IN FRIENDLY HOTELS, INC. 45,776 45,139 OTHER ASSETS 57,686 45,001 NOTE RECEIVABLE FROM SUNBURST HOSPITALITY 131,259 127,849 -------- -------- Total assets $414,941 $398,225 ======== ========
The accompanying notes are an integral part of these condensed consolidated balance sheets. CHOICE HOTELS INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, 1999 1998 ----------- ------------- (Unaudited) LIABILITIES & EQUITY CURRENT LIABILITIES Current portion long-term debt $ 17,646 $ 22,646 Accounts payable 13,013 16,216 Accrued expenses 16,501 19,606 -------- -------- Total current liabilities 47,160 58,468 -------- -------- LONG-TERM DEBT 284,327 256,564 DEFERRED INCOME TAXES AND OTHER LIABILITIES 38,145 26,683 -------- -------- Total liabilities 369,632 341,715 -------- -------- SHAREHOLDERS' EQUITY Common stock, $.01 par value 609 607 Additional paid-in-capital 45,406 43,432 Accumulated other comprehensive income 949 2,112 Treasury stock (76,501) (54,204) Retained earnings 74,846 64,563 -------- -------- Total shareholders' equity 45,309 56,510 ======== ======== Total liabilities & shareholders' equity $414,941 $398,225 ======== ========
The accompanying notes are an integral part of these condensed consolidated balance sheets. CHOICE HOTELS INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED ------------------ MARCH 31, MARCH 31, 1999 1998 --------- --------- (UNAUDITED) REVENUES Royalty fees $23,798 $20,844 Product sales 2,032 5,156 Initial franchise fees and relicensing fees 2,849 3,414 Partner service revenue 1,716 1,618 European hotel operations - 1,098 Other 410 1,041 ------- ------- Total revenues 30,805 33,171 ------- ------- OPERATING EXPENSES Selling, general and administrative 10,979 11,351 Product cost of sales 1,898 4,730 Depreciation and amortization 1,762 1,824 European hotel operations - 1,133 ------- ------- Total operating expenses 14,639 19,038 ------- ------- OPERATING INCOME 16,166 14,133 OTHER Gain on sale of stock (1,260) (1,766) Interest and dividend income (4,608) (2,720) Interest expense 4,762 4,658 ------- ------- Total other (1,106) 172 ------- ------- INCOME BEFORE INCOME TAXES 17,272 13,961 INCOME TAXES 6,995 5,815 ------- ------- NET INCOME $10,277 $ 8,146 ======= ======= WEIGHTED AVERAGE SHARES OUTSTANDING 55,886 59,742 ======= ======= DILUTED SHARES OUTSTANDING 56,508 60,970 ======= ======= BASIC EARNING PER SHARE $ 0.18 $ 0.14 ======= ======= DILUTED EARNINGS PER SHARE $ 0.18 $ 0.13 ======= =======
The accompanying notes are an integral part of these consolidated statements of income. CHOICE HOTELS INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED ------------------ MARCH 31, MARCH 31, 1999 1998 --------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 10,277 $ 8,146 Reconciliation of net income to net cash by operating activities: Depreciation and amortization 3,530 2,973 Provision for bad debts 408 553 Increase in deferred taxes 2,222 2,212 Non cash interest and dividend income (3,965) (2,720) Changes in assets and liabilities: Change in receivables 1,490 2,275 Change in current liabilities (5,533) (3,052) Change in income taxes receivable and other 4,719 (1,720) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 13,148 8,667 CASH FLOWS FROM INVESTING ACTIVITIES: Investment in property and equipment (6,281) (2,320) Repayments of Sunburst Hospitality advances, net 5,145 Other items, net (6,576) (1,325) -------- -------- NET CASH (UTILIZED) PROVIDED BY INVESTING ACTIVITIES (12,857) 1,500 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from mortgages and other long term debt 36,930 21,500 Principal payments of debt (13,137) (30,561) Purchase of treasury stock (22,297) (7,347) Proceeds from issuance of common stock 1,057 2,448 -------- -------- NET CASH PROVIDED (UTILIZED) BY FINANCING ACTIVITIES 2,553 (13,960) -------- -------- Net change in cash and cash equivalents 2,844 (3,793) Cash and cash equivalents, beginning of period 1,692 10,282 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,536 $ 6,489 ======== ========
The accompanying notes are an integral part of these consolidated statements of income. CHOICE HOTELS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The accompanying consolidated financial statements of Choice Hotels International, Inc. (the "Company") and subsidiaries have been prepared by the Company without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes the disclosures made are adequate to make the information presented not misleading. The consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 1998 and notes thereto included in the Company's Form 10-K, dated March 29, 1999. In the opinion of management, all adjustments (which include any normal recurring adjustments) considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of fiscal year performance because of seasonal and short-term variations. All intercompany transactions and balances between Choice Hotels International, Inc. and its subsidiaries have been eliminated. Certain reclassifications have been made to the prior year amounts to conform to current period presentation. 2. During the three months ended March 31, 1999, the Company's comprehensive income (consisting of net income plus foreign currency translation adjustments and unrealized gains on available for sale securities) exceeded net income by approximately $902,000. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION - -------------------------------------------------------------------------- The principal factors that affect the Company's results are: (i) growth in the number of hotels under franchise, (ii) occupancies and room rates achieved by the hotels under franchise, (iii) the number and relative mix of franchised hotels, and (iv) the Company's ability to manage costs. The number of rooms at franchised properties and occupancy and room rates at those properties significantly affect the Company's results because franchise royalty fees are based upon room revenues at franchised hotels. The key industry standard for measuring hotel operating performance is revenue per available room ("RevPAR") which is calculated by multiplying the percentage of occupied rooms by the average daily room rate realized. The variable overhead costs associated with franchise system growth are substantially less than incremental royalty fees generated from new franchisees; therefore, the Company is able to capture a significant portion of those royalty fees as operating income. The Company reported net income of $10.3 million, or $0.18 per diluted share, for the quarter ended March 31, 1999, compared to net income for the same period of 1998 of $8.1 million, or $0.13 per diluted share. The increase in net income for the period is attributable to an increase in franchise revenue as a direct result of the addition of new licensees to the franchise system, increases in the effective royalty rate achieved for the domestic hotel system and the control of the Company's selling, general and administrative costs. Franchise Revenues - ------------------ Management analyzes its business based on "net franchise revenue," which is total revenue excluding product sales and European hotel operations, and franchise operating expenses which are reflected as selling, general and administrative expenses. The Company's net franchise revenues were $28.8 million for the three months ended March 31, 1999 and $26.9 million for the three months ended March 31, 1998. Royalties increased $3.0 million to $23.8 million in 1999 from $20.8 million in 1998, an increase of 14.2%. The increase in royalties is attributable to a net increase of 14 franchisees during the period (representing an additional 749 rooms) an improvement in domestic RevPAR of 2.0% and an increase in the effective royalty rate of the domestic hotel system to 3.61% from 3.46%. Initial and relicensing fee revenue generated from domestic franchise contracts signed decreased to $2.8 million from $3.4 million in 1998 as a result of a decrease in total franchise agreements signed to 72, as compared to 100 for the first quarter 1998. The total number of domestic hotels online increased to 3,053 from 2,914 an increase of 4.8% for the period ending March 31, 1999. This represents an increase in the number of rooms open of 3.8% from 243,908 as of March 31, 1998 to 253,106 as of March 31, 1999. As of March 31, 1999, the Company had 598 hotels under development in its domestic hotel system representing 46,982 rooms. The total number of international hotels on line increased to 1,003 from 608 an increase of 65.0% as of March 31, 1999. International rooms open increased 41.5% from 51,029 as of March 31, 1998 to 72,220 as of March 31, 1999. The total number of international hotels under development increased to 180 from 125 an increase of 44.0% for the period ending March 31, 1999. The number of international rooms under development increased to 16,445 as of March 31, 1999 from 11,784 as of March 31, 1998, an increase of 39.6%. These increases are primarily attributable to the Company's June 1998 Strategic Alliance with Flag International Limited. The master franchise agreement with Flag Choice Hotels includes several countries including Australia, Papua New Guinea and Fiji. Franchise Expenses - ------------------ The cost to operate the franchising business is reflected in selling, general and administrative expenses. Selling, general and administrative expenses decreased approximately $0.4 million between years. As a percentage of total net franchising revenues, total selling, general and administrative expenses declined to 38.2% for the first quarter of 1999 as compared to 42.2% for 1998. The improvement in the franchising margins relates to the economies of scale generated from operating a larger franchisee base and cost control initiatives. Product Sales - ------------- Sales made to franchisees through the Company's group purchasing program decreased approximately $3.2 million (or 60.6%) to $2.0 million for the three months ended March 31, 1999 from $5.2 million for the three months ended March 31, 1998. The group purchasing program utilizes bulk purchases to obtain favorable pricing from third party vendors for franchisees ordering similar products. The Company acts as a clearing-house between the franchisee and the vendor, and orders are shipped directly to the franchisee. Product cost of sales decreased $2.8 million (or 59.9%) for the three months ended March 31, 1999. The product services margins decreased for the three months ended March 31, 1999 to 6.6% from 8.3% at March 31, 1998. This purchasing program is provided to the franchisees as a service and is not expected to be a major component of the Company's profitability. In the fourth quarter of 1998, the Company discontinued the group purchasing program as previously operated. Other - ------ For the three months ended March 31, 1999, and March 31, 1998 the Company recognized approximately $0.6 million and $0.4 million, respectively, in dividend income from its investment in Friendly and approximately $3.4 million and $2.3 million, respectively, of interest income from its subordinated term note to Sunburst Hospitality, Inc. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Net cash provided by operating activities was $13.1 million for the three months ended March 31, 1999, an increase of approximately $4.4 million from $8.7 million for 1998. At March 31, 1999, the total long-term debt outstanding for the Company was $302.0 million which includes approximately $17.6 million which matures in the next twelve months. In the first quarter of 1999, the Company has repurchased 5.9 million shares of its common stock at a total cost of $80.6 million. The Company has authorization from its Board of Directors to repurchase up to an additional 2.8 million shares. The Company believes that cash flows from operations and available financing capacity is adequate to meet the expected operating, investing, financing and debt service requirements for the business for the immediate future. Year 2000 Compliance - -------------------- The Company is engaged in an ongoing effort to evaluate and remediate the Year 2000 computer problem shared by virtually all companies and businesses. As part of this effort, a cross-functional Year 2000 Compliance Committee was established to manage and supervise the efforts to become compliant and a Year 2000 action plan has been developed. The Company has completed the first three phases of the plan, which include (i) making the Company's internal organizations aware of the Year 2000 issue and assigning responsibility internally, (ii) inventorying and initial testing of its proprietary software and (iii) inventorying and testing secondary internal systems (e.g. employee PCs). The Company is in the process of completing the remaining phases which include: (i) assessing the risk from third party vendors and franchisees (ii) contingency planning, and (iii) educating the franchise community. Throughout the process, remedial actions have been or will be taken as warranted. The Company's exposure to potential Year 2000 problems exists in two general areas: technological operations in the sole control of the Company, and technological operations dependent in some way on one or more third parties. With respect to the Company's internal systems, it has conducted Year 2000 compliance testing on all of its proprietary software, including its reservations and reservations support systems, its franchise support system and its franchisee property management support systems. The tests have indicated that, except for two DOS based systems, the proprietary software is Year 2000 compliant. The DOS version of ChoiceLINKS is not Year 2000 compliant and the DOS version of the Company's property management system is only compliant through December 31, 2000. The Company has communicated this to franchisees using these systems and has recommended that they migrate to the Windows based versions of these systems. The Company has also been in the process of replacing its hardware platforms for these systems and a number of smaller support systems and has kept them updated so that by the end of 1998, all of the Company's large system computers were than eighteen months old. Based on manufacturers specifications, the Company believes that these new hardware platforms are Year 2000 compliant. However, the company will have to update the operating systems for several of its servers. The Company has completed its process of conducting an inventory of third party software, including PC operating systems and word processing and other commercial software. For hardware or software systems which does not appear to be compliant, the Company is obtaining upgrades or replacement systems. The Year 2000 Compliance Committee is currently identifying third party vendors and service providers whose non-compliant systems could have a material impact on the Company and undertaking an assessment as to such parties' compliant status. These parties include airline global distribution systems (GDS), utility providers, telephone service providers, banks and data processing services. The GDS companies, which provide databases through which travel agents can book hotel rooms, have assured the Company in writing that they are compliant and the Company has conducted tests with three of the four major GDS companies. The Year 2000 Compliance Committee is in the process of assessing other third parties as to their compliance and the consequences in the event they are not compliant. As of February 1999, the Company has received responses from approximately one-half of its vendors. Such vendors have indicated that they are, or expect to be, Year 2000 compliant. Throughout 1999, the committee will continue to seek and assess responses from all of its material vendors. As of February 1999, the Company has devised contingency plans for its Phoenix, Arizona reservation center. These plans include access to alternative power sources and insuring the availability of key employees. Contingency plans for the Silver Spring, Maryland corporate headquarters and other Company locations will be developed throughout the second and third quarters of 1999. Costs of addressing potential Year 2000 problems have not been material to date. The value of employee time devoted to testing and development has been approximately $250,000. Total costs for replacement of hardware and operating systems are expected to be approximately $700,000. However, these replacements (as well as replacements undertaken in prior years) are being implemented primarily as part of the Company's ongoing technology updating, rather than specifically for Year 2000 compliance reasons. Based upon preliminary information gathered to date, Year 2000 compliance costs are not currently expected to have a material adverse impact on the Company's financial position, results of operations or cash flows. However, if the Company, its vendors or franchisees are unable to resolve such Year 2000 issues in a timely manner, it could result in a material financial risk, including loss of revenue, substantial unanticipated costs and service interruptions. The Company is not in a position to guarantee the performance of others with respect to their Year 2000 compliance or predict whether any of the assurances that others provide regarding Year 2000 compliance may prove later to be inaccurate or overly optimistic. 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. PART II OTHER INFORMATION - ------------------------- ITEM 1. LEGAL PROCEEDINGS ----------------- The Company is not party to any litigation, other than routine litigation incidental to the business of the Company. None of such litigation, either individually or in the aggregate, is expected to be material to the business, financial condition or results of operations of the Company. ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K ---------------------------------- (a) Exhibits Exhibit 27.01 - Financial Data Schedule - March 31, 1999 (b) The following reports were filed pertaining to the period ended March 31, 1999. 10.1 Fifth Amendment to Credit Agreement dated March 19, 1999 among Choice Hotels International, Inc., Chase Manhattan Bank as agent, and certain Lenders. 10.2 Amended and Restated Employment Agreement dated April 13, 1999 between Choice Hotels International, Inc. and Charles A. Ledsinger, Jr. 10.3 Amended and Restated Employment Agreement dated April 13, 1999 between Choice Hotels International, Inc. and Thomas Mirgon. 10.4 Second Amended and Restated Employment Agreement dated April 13, 1999 between Choice Hotels International, Inc. and Mark C. Wells. 10.5 Second Amended and Restated Employment Agreement dated April 13, 1999 between Choice Hotels International, Inc. and Michael J. DeSantis. SIGNATURE Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHOICE HOTELS INTERNATIONAL, INC. Date: April 1999 /s/ Charles A. Ledsinger, Jr. -------------- ----------------------------- By: Charles A. Ledsinger, Jr. President and Chief Executive Officer EX-10.1 2 EXHIBIT 10.1 Exhibit 10.1 ------------ FIFTH AMENDMENT dated as of March 19, 1999 (this "Amendment"), among CHOICE HOTELS INTERNATIONAL, INC., a Delaware --------- corporation (the "Borrower"), the undersigned financial -------- institutions party to the Credit Agreement referred to below (the "Lenders"), and THE CHASE MANHATTAN BANK, as agent for the ------- Lenders (in such capacity, the "Agent"). ----- A. Reference is made to the Competitive Advance and Multi-Currency Credit Facilities Agreement dated as of October 15, 1997, as amended (the "Credit Agreement") among the Borrower, the Lenders and the Agent. Capitalized - ----------------- terms used but not otherwise defined herein have the meanings assigned to them in the Credit Agreement. B. The Borrower has requested that the Lenders amend certain provisions of the Credit Agreement. The Lenders are willing to do so, subject to the terms and conditions of this Amendment. Accordingly, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. Amendment to Article 1. The definition of "Consolidated ----------------------- Net Worth" contained in Article I of the Credit Agreement is hereby amended as of the Effective Date to read in its entirety as follows: "Consolidated Net Worth" shall mean, as at any date of determination, ---------------------- the consolidated stockholders' equity of the Borrower and its consolidated Subsidiaries, as determined on a consolidated basis in accordance with GAAP consistently applied, but excluding the reduction in stockholders' equity resulting from Choice's cancelation on December 28, 1998 of a $17,000,000 receivable from Sunburst in return for the cancelation of Sunburst's option to acquire the MainStay Suites brand. To the extent any Default or Event of Default shall have occurred under Section 6.13 of the Credit Agreement that would not have occurred if the foregoing amendment had been effective on December 28, 1998, the undersigned Lenders hereby waive such Defaults or Events of Default. SECTION 2. Representations, Warranties and Agreements. The Borrower ------------------------------------------- hereby represents and warrants to and agrees with each Lender and the Agent that: (a) The representations and warranties set forth in Article III of the Credit Agreement are true and correct in all material respects with the same effect as if made on the Amendment Effective Date, except to the extent such representations and warranties expressly relate to an earlier date. (b) The Borrower has the requisite power and authority to execute, deliver and perform its obligations under this Amendment. (c) The execution, delivery and performance by the Borrower of this Amendment (i) have been duly authorized by all requisite action and (ii) will not (A) violate (x) any provision of law, statute, rule or regulation, or of the certificate or articles of incorporation or other constitutive documents or by-laws of the Borrower or any Subsidiary, (y) any order of any Governmental Authority or (z) any provision of any indenture, agreement or other instrument to which the Borrower or any Subsidiary is a party or by which any of them or any of their property is or may be bound, (B) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any such indenture, agreement for borrowed money or other agreement or instrument or (C) result in the creation or imposition of any Lien upon or with respect to any property or assets now owned or hereafter acquired by the Borrower. (d) This Amendment has been duly executed and delivered by the Borrower. Each of this Amendment and the Credit Agreement, as amended hereby, constitutes a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by (i) any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and (ii) general principals of equity. (e) As of the Amendment Effective Date, no Event of Default or Default has occurred and is continuing. SECTION 3. Conditions to Effectiveness. This Amendment shall become ---------------------------- effective on the date of the satisfaction in full of the following conditions precedent (the "Amendment Effective Date"): ------------------------ (a) The Agent shall have received duly executed counterparts hereof which, when taken together, bear the authorized signatures of the Borrower, the Agent and the Required Lenders. (b) All legal matters incident to this Amendment shall be satisfactory to the Required Lenders, the Agent and Cravath, Swaine & Moore, counsel for the Agent. (d) The Agent shall have received such other documents, instruments and certificates as it or its counsel shall reasonably request. SECTION 4. Credit Agreement. Except as specifically stated herein, ----------------- the Credit Agreement shall continue in full force and effect in accordance with the provisions thereof. As used therein, the terms "Agreement", "herein", "hereunder", "hereto", "hereof" and words of similar import shall, unless the context otherwise requires, refer to the Loan Agreement as modified hereby. SECTION 5. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY AND --------------- CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 6. Counterparts. This Amendment may be executed in any ------------- number of counterparts, each of which shall be an original but all of which, when taken together, shall constitute but one instrument. Delivery of an executed counterpart of a signature page of this Amendment by telecopy shall be effective as delivery of a manually executed counterpart of this Amendment. SECTION 7. Expenses. The Borrower agrees to reimburse the Agent for --------- its out-of-pocket expenses in connection with this Amendment, including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Agent. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date first above written. CHOICE HOTELS INTERNATIONAL, INC. by /s/ Michael J. DeSantis ------------------------- Name: Michael J. Desantis Title: Senior Vice President THE CHASE MANHATTAN BANK, individually and as Issuing Bank and Agent by /s/ Stephanie Parker --------------------------- Name: Stephanie Parker Title: Vice President BANK OF TOKYO - MITSUBISHI TRUST COMPANY by ---------------------------- Name: Title: CRESTAR BANK by /s/ Diane E. Bauman ---------------------------- Name: Diane E. Bauman Title: Vice President THE DAI-ICHI KANGYO BANK, LTD. by /s/ Bertram Tang ---------------------------- Name: Bertram Tang Title: Vice President & Group Leader FIRST NATIONAL BANK OF MARYLAND by /s/ Michael B. Stueck ---------------------------- Name: Michael B. Stueck Title: Vice President FIRST UNION NATIONAL BANK by /s/ Barbara K. Angel -------------------------- Name: Barbara K. Angel Title: Vice President THE FUJI BANK, LIMITED by /s/ Raymond Ventura --------------------------- Name: Raymond Ventura Title: Vice President & Manager GENERAL ELECTRIC CAPITAL CORP. by /s/ William E. Magee --------------------------- Name: William E. Magee Title: Duly Authorized Signatory THE INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH by /s/ William Kennedy ---------------------------- Name: William Kennedy Title: Vice President THE LONG TERM CREDIT BANK OF JAPAN, LTD., NEW YORK BRANCH by /s/ Junichi Ebihara ---------------------------- Name: Junichi Ebihara Title: Deputy General Manager MELLON BANK, N.A. by /s/ G.B. Mateer ---------------------------- Name: G.B. Mateer Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK by --------------------------- Name: Title: NATIONSBANK, N.A. by --------------------------- Name: Title: THE SANWA BANK, LIMITED, NEW YORK BRANCH by /s/ Dominic J. Sorresso --------------------------- Name: Dominic J. Sorresso Title: Vice President SUMMIT BANK by /s/ Edward Tessalone --------------------------- Name: Edward Tessalone Title: Vice President EX-10.2 3 AMENDED AND RESTATED EMPLOYMENT AGREEMENT EXHIBIT 10.2 ------------ AMENDED AND RESTATED EMPLOYMENT AGREEMENT -------------------- This Agreement ("Agreement") dated this 13th day of April, 1999 between Choice Hotels International, Inc. ("Employer"), a Delaware corporation with principal offices at 10750 Columbia Pike, Silver Spring, Maryland 20901, and Charles A. Ledsinger ("Employee"), amends and restates that employment agreement dated July 31, 1998 and sets forth the terms and conditions governing the employment relationship between Employee and Employer. 1. Employment. During the term of this Agreement, as hereinafter ---------- defined, Employer hereby employs Employee as President and Chief Executive Officer ("CEO"). Employee hereby accepts such employment upon the terms and conditions hereinafter set forth and agrees to faithfully and to the best of his ability perform such duties as may be from time to time assigned by Employer's Board of Directors, such duties to be rendered at the principal office of Employer, subject to reasonable travel. The Employer shall assign to Employee only those duties consistent with his position as President and CEO. The Employee, in his position as President and CEO, shall report directly to the Employer's Board of Directors and all senior executives of the Employer shall report either directly to Employee or indirectly through other senior executives. Employee also agrees to perform his duties in accordance with policies established by Employer's Board of Directors, which may be changed from time to time. At the Effective Date (defined below), Employee shall be appointed to the Employer's Board of Directors as a Class III director, as specified in the Restated Certificate of Incorporation of Employer. 2. Term. Subject to the provisions for termination hereinafter provided, ---- the term of this Agreement shall begin on July 31, 1998 ("Effective Date") and shall terminate five (5) years thereafter (the "Termination Date"). 3. Compensation. For all services rendered by Employee under this ------------ Agreement during the term thereof, Employer shall pay Employee the following compensation: (a) Salary. A base salary of Five Hundred Thousand Dollars ($500,000) ------ per annum payable in equal bi-weekly installments. Such base salary shall commence on the first date that Employee renders services to Employer, which is expected to be on or about August 31, 1998 (the "Commencement Date"). Such salary shall be reviewed by the Compensation Committee of the Board of Directors of Employer on the next annual review of officers and each annual review thereafter and may be increased at the discretion of Employer. (b) Incentive Bonus. Employee shall have the opportunity to earn up --------------- to a maximum of Sixty Percent (60%) per annum of the base salary set forth in subparagraph 3(a) above in Employer's bonus plans as adopted from time to time by Employer's Board of Directors. For the Employer's 1998 fiscal year, the Employee's bonus shall be calculated on a pro rata basis from the Effective Date. In addition, to compensate Employee for the loss of his bonus at St. Joe Corporation, the Employer shall pay Employee an amount equal to 60% of Employee's base salary earned during fiscal year 1998 while employed at St. Joe Corporation. The payment referred to in the preceding sentence shall be paid at the same time that Employer's fiscal year 1998 bonuses are paid. (c) Restricted Stock. At the Effective Date, Employer shall issue to ---------------- Employee restricted Choice Hotels common stock ("Common Stock") in an amount equal to $825,000 divided by the average of the high and low trading price of the Common Stock on the Effective Date (or the next trading day if there is no trading on the Effective Date) (the "Average Trading Price"). The restrictions on such shares shall lapse upon vesting, which shall occur in three equal annual installments beginning one year from the Effective Date. (d) Automobile. Employer shall provide Employee with an allowance for ---------- automobile expenses of $975 per month beginning on the Commencement Date. (e) Club Membership. Employer shall provide Employee with an --------------- appropriate corporate membership, including initial and annual fees, at a dining and/or recreational club at the choice of Employee for the purpose of business entertainment. (f) Stock Options. Employee shall be eligible to receive options ------------- under the Choice Hotels International, Inc. Long Term Incentive Plan ("LTIP"), or similar plan, to purchase Common Stock in accordance with the policy of the Choice Hotels Board as in effect from time to time. At the February 1999 Compensation Committee meeting, Employee shall be eligible to receive a pro rata award based on the number of days of Employee's employment in fiscal year 1998. Such pro rata award shall be calculated on the Employer's Stock Option Guidelines, subject to the approval of the Compensation Committee. Additionally, the Employee shall be granted, as of the Effective Date, options to purchase such number of shares of Common Stock as is equal to $7,500,000 divided by the Average Trading Price. A number of the options shall be incentive stock options granted under the LTIP, which number shall be the maximum number permitted under the LTIP and Section 422(d) of the Internal Revenue Code of 1986, as amended, but in no event more than 25% of the total number of options granted pursuant to this Section 3(f). The remainder of the options shall be nonqualified stock options. The options shall be exercisable at an amount per share equal to the Average Trading Price and shall vest in five equal annual installments beginning one year from the Effective Date. (g) SERP. At the Commencement Date, Employee shall participate in the ---- Choice Hotels International, Inc. Supplemental Executive Retirement Plan ("SERP"). (h) Other Benefits. Employee shall, when eligible, be entitled to -------------- participate in all other fringe benefits, including vacation policy, generally accorded the most senior executive officers of Employer as are in effect from time to time on the 2 same basis as such other senior executive officers. (i) Relocation Expenses. Employee shall be entitled to all benefits -------------------- under the Relocation Policy of Employer, as adopted in August 1996. 4. Extent of Services. Employee shall devote his full professional ------------------ time, attention, and energies to the business of Employer, and shall not during the term of this Agreement be engaged in any other business activity whether or not such business activity is pursued for gain, profit, or other pecuniary advantage; but the foregoing shall not be construed as preventing Employee from investing his assets in (i) the securities of public companies, or (ii) the securities of private companies or limited partnerships outside the lodging industry, if such holdings are passive investments of one percent or less of outstanding securities and Employee does not hold positions of officer, employee or general partner. Employee shall be permitted to serve as a director of companies outside of the lodging industry so long as such service does not inhibit his performance of services to the Employer. Employee shall not be permitted to serve as a director of any company within the lodging industry unless (i) the Corporate Compliance officer of the Employer has determined that there is no conflict of interest and (ii) such service does not inhibit his performance of services to the Employer. Employee warrants and represents that he has no contracts or obligations to others which would materially inhibit the performance of his services under this Agreement. 5. Disclosure and Use of Confidential Information. Employee recognizes ---------------------------------------------- and acknowledges that information about Employer's and affiliates' present and prospective clients, franchises, management contracts, acquisitions and personnel, as they may exist from time to time, and to the extent it has not been otherwise disclosed, is a valuable, special and unique asset of Employer's business ("Confidential Information"). Throughout the term of this Agreement and for a period of two (2) years after its termination or expiration for whatever cause or reason except as required by applicable law, Employee shall not directly or indirectly, or cause others to, make use of or disclose to others any Confidential Information. During the term of this Agreement and for a period of two years thereafter, Employee agrees not to solicit for employment, directly or indirectly, on his behalf or on behalf of any person or entity, other than on behalf of Employer, any person employed by Employer, or its subsidiaries or affiliates during such period, unless Employer consents in writing. In the event of an actual or threatened breach by Employee of the provisions of this paragraph, Employer shall be entitled to injunctive relief restraining Employee from committing such breach or threatened breach. Nothing herein stated shall be construed as preventing Employer from pursuing any other remedies available to Employer for such breach or threatened breach, including the recovery of damages from Employee. "Affiliate" as used in this Agreement means a person or entity that is directly or through one or more intermediates controlling, controlled by or under common control with another person or entity. 6. Notices. Any notice, request or demand required or permitted to be ------- given under this Agreement shall be in writing, and shall be delivered personally to the recipient or, if sent by certified or registered mail or overnight courier service to his residence in the case of Employee, or to its principal office in the case of the Employer, return receipt requested. Such 3 notice shall be deemed given when delivered if personally delivered or when actually received if sent certified or registered mail or overnight courier. 7. Elective Positions; Constructive Termination. -------------------------------------------- (a) Nothing contained in this Agreement is intended to nor shall be construed to abrogate, limit or affect the powers, rights and privileges of the Board of Directors or stockholders to remove Employee from the positions set forth in Section 1, with or without Cause (as defined in Section 10 below), during the term of this Agreement or to elect someone other than Employee to those positions, as provided by law and the By-Laws of Employer. (b) If Employee is Constructively Terminated (as defined in Section 7(c) below), it is expressly understood and agreed that Employee's rights under this Agreement shall in no way be prejudiced, and Employee shall be entitled to receive all forms of compensation referred to in Section 3 above, including bonuses (calculated based only on the actual payout of the EPS portion of the bonus as all Choice officers receive in a given year), but excluding ungranted stock options (but including the continued vesting of previously granted restricted stock and stock options). Employee upon removal shall not be required to mitigate damages but nevertheless shall be entitled to pursue other employment, and Employer shall be entitled to receive as offset and thereby reduce its payment, the amount received by Employee from any other active employment. As a condition to Employee receiving his compensation from Employer, Employee agrees to permit verification of his employment records and Federal income tax returns by an independent attorney or accountant, selected by Employer but reasonably acceptable to Employee, who agrees to preserve the confidentiality of the information disclosed by Employee except to the extent required to permit Employer to verify the amount received by Employee from other active employment. Employer shall receive credit for unemployment insurance benefits, social security insurance or like amounts actually received by Employee. (c) For purposes of Sections 7 and 11, "Constructively Terminated" shall mean (i) removal or termination of Employee other than in accordance with Section 10, (ii) failure of the Employer to place Employee's name in nomination for re-election to the Employer's Board, (iii) assignment of duties by the Employer inconsistent with Section 1, (iv) a decrease in Employee's compensation or benefits (unless a similar decrease is imposed on all senior executives), (v) a change in Employee's title or the line of reporting set forth in Section 1, (vi) a significant reduction in the scope of Employee's authority, position, duties or responsibilities, (vii) a significant change in Employer's annual bonus program which adversely affects Employee, or (viii) any other material breach of this Agreement by Employer provided Employer shall be given fourteen days advance written notice of such claim of material breach, which written notice shall specify in reasonable detail the grounds for such claim of material breach. Except in the case of bad faith, Employer shall have an opportunity to cure the basis for Constructive Termination during the fourteen day period after written notice. 8. Waiver of Breach. The waiver of either party of a breach of any ---------------- provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 4 9. Assignment. The rights and obligations of Employer under this ---------- Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Employer. The obligations of Employee hereunder may not be assigned or delegated. 10. Termination of Agreement. This Agreement shall terminate upon the ------------------------ following events and conditions: (a) Upon expiration of its term; (b) For Cause, which means gross negligence, wilful misconduct, wilful nonfeasance, a material breach of this Agreement, conviction following final disposition of any available appeal of a felony, or pleading guilty or no contest to a felony. Employee shall be entitled to fourteen (14) days advance written notice of termination, except where the basis for termination constitutes wilful conduct on the part of Employee involving dishonesty or bad faith, in which case the termination shall be effective upon the sending of notice. Such written notice shall specify in reasonable detail the grounds for Cause and Employee shall have an opportunity to contest or cure the basis for termination during the fourteen day period after written notice. (c) Subject to state and federal laws, if Employee is unable to perform the essential functions of the services described herein, after reasonable accommodation, for more than 180 days (whether or not consecutive) in any period of 365 consecutive days, Employer shall have the right to terminate this Agreement by written notice to Employee. In the event of such termination, all non-vested stock option and other non-vested obligations of Employer to Employee pursuant to this Agreement shall terminate. (d) In the event of Employee's death during the term of this Agreement, the Agreement shall terminate as of the date thereof. (e) Upon voluntary resignation of Employee not due to Constructive Termination, so long as Employee has given Employer thirty days prior written notice of such resignation. 11. Severance. --------- (a) If, within twelve months after a Change in Control, as defined in Section 11(b), the Employer terminates or Constructively Terminates Employee's employment other than in accordance with Section 10, the amount of Employee's severance pay will be 200% of his base salary at the rate in effect at the time of his termination or Constructive Termination, plus 200% of the amount of any full year bonus awarded to Employee in the prior year (or the maximum target bonus if no bonus was awarded in the prior year). If Employee's employment is terminated subject to this paragraph, the Employer will provide the Employee and his family health insurance coverage, including, if applicable, COBRA reimbursement, and will provide Employee disability insurance coverage under 5 the applicable Employer plans for a period of 12 months following termination or until Employee starts other full time employment, whichever is earlier. (b) A Change in Control of the Employer shall occur upon the happening of the earliest to occur of the following: 1. Any "person" as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (other than (i) the Employer, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Employer, (iii) any corporations owned, directly or indirectly, by the stockholders of the Employer in substantially the same proportions as their ownership of stock, (iv) Stewart Bainum, his wife, their lineal descendants and their spouses (so long as they remain spouses) and the estate of any of the foregoing persons, and any partnership, trust, corporation or other entity to the extent shares of common stock (or their equivalent) are considered to be beneficially owned by any of the persons or estates referred to in the foregoing provisions of this subsection 11(b) or any transferee thereof, or (v) the Baron Entities, unless such entities, in the aggregate, beneficially own more than 19,715,000 shares of the Employer's common stock) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Employer representing 33% or more of the combined voting power of the Employer's then outstanding voting securities; 2. Individuals constituting the Board on the Effective Date and the successors of such individuals ("Continuing Directors") cease to constitute a majority of the Board. For this purpose, a director shall be a successor if and only if he or she was nominated by a Board (or a Nominating Committee thereof) on which individuals constituting the Board on the Effective Date and their successors (determined by prior application of this sentence) constituted a majority. 3. The stockholders of the Employer approve a plan of merger or consolidation ("Combination") with any other corporation or legal person, other than a Combination which would result in stockholders of the Employer immediately prior to the Combination owning, immediately thereafter, more than sixty-five percent (65%) of the combined voting power of either the surviving entity or the entity owning directly or indirectly all of the common stock, or its equivalent, of the surviving entity; provided, however, that if stockholder approval is not required for such Combination, the Change in Control shall occur upon the consummation of such Combination. 4. The stockholders of the Employer approve a plan of complete liquidation of the Employer or an agreement for the sale or disposition by the Employer of all or substantially all of the Employer's stock and/or assets, or accept a tender offer for substantially all of the Employer's stock (or any transaction having a similar effect); provided, however, that if stockholder 6 approval is not required for such transaction, the Change in Control shall occur upon consummation of such transaction. (c) For purposes of Section 11(b), Baron Entities shall mean Baron Capital Group, Inc., BAMCO, Inc., Baron Capital Management, Inc., Baron Asset Fund and Ronald Baron. 12. Excise Taxes. ------------ (a) Anything in this Agreement to the contrary notwithstanding, if it shall be determined that any payment or distribution to the Employee or for the Employee's benefit (whether paid or payable or distributed or distributable) pursuant to the terms of this Agreement or otherwise (the "Payment") would be subject to the excise tax imposed by section 4999 of the Internal Revenue Code (the "Excise Tax"), then the Employee shall be entitled to receive from Choice an additional payment (the "Gross-Up Payment") in an amount such that the net amount of the Payment and the Gross-Up Payment retained by the Employee after the calculation and deduction of all Excise Taxes (including any interest or penalties imposed with respect to such taxes) on the payment and all federal, state and local income tax, employment tax and Excise Tax (including any interest or penalties imposed with respect to such taxes) on the Gross-Up Payment provided for in this Section, and taking into account any lost or reduced tax deductions on account of the Gross-Up Payment, shall be equal to the Payment; (b) All determinations required to be made under this Section, including whether and when the Gross-Up Payment is required and the amount of such Gross-Up Payment, and the assumptions to be utilized in arriving at such determinations shall be made by Accountants which Choice shall request provide the Employee and Choice with detailed supporting calculations with respect to such Gross-Up Payment at the time the Employee is entitled to receive the Payment. For the purposes of this Section, the "Accountants" shall mean Choice's independent certified public accountants. All fees and expenses of the Accountants shall be borne solely by Choice. For the purposes of determining whether any of the Payments will be subject to the Excise Tax and the amount of such Excise Tax, such Payments will be treated as "parachute payments" within the meaning of section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under section 280G(b)(3) of the Code) shall be treated as subject to the excise Tax, unless and except to the extent that in the opinion of the Accountants such Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax; for purposes of determining the amount of the Gross-Up Payment the Employee shall be deemed to pay Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Gross-Up Payment is to be made and to pay any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of the Employee's adjusted gross income); and 7 to have otherwise allowable deductions for Federal, state and local income tax purposes at least equal to those disallowed because of the inclusion of the Gross-Up Payment in the Employee's adjusted gross income. Any Gross-Up Payment with respect to any Payment shall be paid by Choice at the time the Employee is entitled to receive the Payment. Any determination by the Accountants shall be binding upon Choice and the Employee. As a result of uncertainty in the application of section 4999 of the Code at the time of the initial determination by the Accountants hereunder, it is possible that the Gross-Up Payment made will have been an amount less than Choice should have paid pursuant to this Section (the "Underpayment"). In the event that Choice exhausts its remedies and the Employee is required to make a payment of any Excise Tax, the Underpayment shall be promptly paid by Choice to or for the Employee's benefit. 13. Legal Fees. Employer shall reimburse the Employee for all reasonable ----------- attorneys fees incurred in connection with the negotiation and execution of this Agreement. 14. Registration Rights. The Employer shall use its reasonable best ------------------- efforts to register on Form S-8 the nonqualified options issued pursuant to Section 3(g) of this Agreement. All costs in connection with such registration shall be borne by the Employer. 15. Entire Agreement. This instrument contains the entire agreement of ---------------- the parties. It may be changed only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. This Agreement shall be governed by the laws of the State of Maryland, and any disputes arising out of or relating to this Agreement shall be brought and heard in any court of competent jurisdiction in the State of Maryland. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first set forth above. Employer: CHOICE HOTELS INTERNATIONAL, INC. By: ---------------------------------- Michael J. DeSantis Senior Vice President Employee: -------------------------------------- Charles A. Ledsinger 8 EX-10.3 4 AMENDED AND RESTATED EMPLOYMENT AGREEMENT EXHIBIT 10.3 ------------ AMENDED AND RESTATED EMPLOYMENT AGREEMENT -------------------- This Agreement ("Agreement") dated this 13th day of April, 1999 between Choice Hotels International, Inc. ( the "Employer"), a Delaware corporation with principal offices at 10750 Columbia Pike, Silver Spring, Maryland 20901, and Thomas Mirgon ("Employee"), amends and restates that employment agreement dated February 10, 1997 and sets forth the terms and conditions governing the employment relationship between Employee and Employer. 1. Employment. During the term of this Agreement, as hereinafter ---------- defined, Employer hereby employs Employee as Senior Vice President -- Administration. Employee hereby accepts such employment upon the terms and conditions hereinafter set forth and agrees to faithfully and to the best of his ability perform such duties as are consistent with his position, and which may be from time to time assigned by Employer, its Board of Directors or its designees, such duties to be rendered at the principal office of Employer or at such other place or places as Employer shall require. Employee also agrees to perform his duties in accordance with policies established by Employer's Board of Directors, which may be changed from time to time. 2. Term. Subject to the provisions for termination hereinafter provided, ---- the term of this Agreement shall begin as of March 3, 1997 ("Effective Date") and shall terminate five (5) years thereafter (the "Termination Date"). The Termination Date shall automatically be extended for successive one year terms unless either party gives written notice no less than nine (9) months prior to the Termination Date that it elects not to extend the Termination Date. 3. Compensation. For all services rendered by Employee under this ------------ Agreement during the term thereof, Employer shall pay Employee the following compensation: (a) Salary. A base salary of Two Hundred Thirty Thousand Dollars ------ ($230,000) per annum payable in accordance with Employee's standard payroll practices from time to time in effect. Such salary shall be reviewed on the first anniversary of the Effective Date and thereafter after the end of each fiscal year and may be increased at the discretion of Employer. (b) Incentive Bonus. Employee shall have the opportunity to earn up to a --------------- maximum of Fifty Percent (50%) per annum of the base salary set forth in subparagraph 3(a) above in Employer's bonus plans as adopted from time to time by Employer's Board of Directors. For the Employer's 1997 fiscal year, the Employee's bonus shall be calculated on a pro rata basis from the Effective Date. Additionally, the Employer shall pay the Employee a one- time cash payment of $50,000, payable in two installments, $25,000 payable within thirty days of the Effective Date and $25,000 payable within thirty days of the first anniversary of the Effective Date. (c) Automobile. Employer shall provide Employee with an allowance for ---------- automobile expenses of $850 per month subject to withholding of usual taxes. (d) Stock Options. Employee shall be eligible to receive options under the ------------- Choice Hotels International, Inc. 1996 Long Term Incentive Plan ("LTIP"), or similar plan, to purchase Common Stock in accordance with the policy of the Choice Hotels Board of Directors as in effect from time to time. Additionally, Employer shall recommend to the Compensation Committee and to the Board of Directors at its next regularly scheduled meeting that the Employee be granted, as of the date of such Board approval, or as of his first day of employment with Employer, whichever is later, in accordance with the LTIP, 30,000 non-qualified stock options and 10,000 incentive stock options. Any such award shall be subject to (i) the approval of the Board of Directors and (ii) Employee executing Employer's standard stock option agreement in effect from time to time. Employee shall be eligible for additional grants in accordance with the policies specified in the LTIP. (e) Other Benefits. Employee shall, when eligible, be entitled to -------------- participate in all other fringe benefits accorded headquarters employees of similar status by Employer as are in effect from time to time excluding incentive compensation or other programs not designed for a senior executive. (f) Relocation Expenses. Employee shall be entitled to all benefits under -------------------- the Relocation Policy of Employer, as adopted in November 1996. Notwithstanding Section VII of the Relocation Policy, Employer will reimburse Employee for the reasonable costs of temporary lodging for a period of 90 days from the Effective Date and two return trips (economy class) per month until the earlier to occur of (i) the expiration of one (1) year from the Effective Date or (ii) the sale of Employee's home in Florida. Notwithstanding the foregoing, if, despite Employee's reasonable efforts, he is unable to sell his primary residence in Florida within 90 days from the Effective Date, Employer will reimburse Employee the reasonable costs of temporary lodging for up to an additional 90 days. 4. Extent of Services. Employee shall devote his full professional ------------------ time, attention, and energies to the business of Employer, and shall not during the term of this Agreement be engaged in any other business activity whether or not such business activity is pursued for gain, profit, or other pecuniary advantage; but the foregoing shall not be construed as preventing Employee from investing in the securities of a company that is listed on a national securities exchange or is regularly traded by national securities dealers, if such holdings are passive investments of one percent (1%) or less of the market value of the outstanding securities of such company and Employee does not hold positions of director, officer, employee or general partner. Employee warrants and represents that he has no contracts or obligations to others which would materially inhibit the performance of his services under this Agreement. 5. Disclosure and Use of Information. Employee recognizes and --------------------------------- acknowledges that Employer's and affiliates' present and prospective clients, franchises, contracts, development and marketing plans, acquisitions, operating data, policies and personnel, as they may exist from time to time, are valuable, special and unique assets of Employer's business. Throughout the term of this Agreement and for a period of two (2) years after its termination or expiration for whatever cause or reason, Employee shall not directly or indirectly, or cause others to, (i) make use of or 2 disclose to others any information relating to the business of Employer that has not otherwise been made public, including but not limited to Employer's present or prospective clients, franchises, contracts, development and marketing plans, acquisitions, operating data and policies, or (ii) without Employer's prior written consent, offer employment to or employ on behalf of Employee or any other person, any person who at any time is or has been within the preceding one (1) year an employee of Employer or any parent, subsidiary or affiliate of Employer or induce such person, directly or indirectly, to leave his or her employment. In the event of an actual or threatened breach by Employee of the provisions of this paragraph, Employer shall be entitled to injunctive relief restraining Employee from committing such breach or threatened breach. Nothing herein stated shall be construed as preventing Employer from pursuing any other remedies available to Employer for such breach or threatened breach, including the recovery of damages from Employee. 6. Notices. Any notice, request or demand required or permitted to be ------- given under this Agreement shall be in writing, and shall be delivered personally to the recipient or, if sent by certified or registered mail or overnight courier service to his residence in the case of Employee, or to its principal office in the case of the Employer. Such notice shall be deemed given when delivered if personally delivered or when received if sent certified or registered mail or by overnight courier. 7. Elective Positions; Constructive Termination. -------------------------------------------- (a) Nothing contained in this Agreement is intended to nor shall be construed to abrogate, limit or affect the powers, rights and privileges of the Board of Directors or stockholders to remove Employee from the positions set forth in Section 1, with or without Cause (as defined in Section 10 below), during the term of this Agreement or to elect someone other than Employee to those positions, as provided by law and the By-Laws of Employer. (b) If Employee is Constructively Terminated (as defined in Section 7(c) below) it is expressly understood and agreed that Employee's rights under this Agreement shall in no way be prejudiced, Employee shall not, thereafter, be required to perform any services under this Agreement and Employee shall be entitled to receive all forms of compensation referred to in Section 3 above, including, without limitation, bonuses (calculated based only on the actual payout on the EPS portion of the bonus as all Choice officers receive in a given year) and the continued vesting through the term of this Agreement of stock options and restricted stock outstanding at the time of the Constructive Termination. However, Employee shall not be entitled to receive new stock option grants or rights to ungranted stock options. Employee upon removal shall not be required to mitigate damages but nevertheless shall be entitled to pursue other employment, and Employer shall be entitled to receive as an offset and thereby reduce its payment by the amount received by Employee from any other active employment. As a condition to Employee receiving his compensation from Employer, Employee agrees to permit verification of his employment records and income tax returns by an independent attorney or accountant, selected by Employer but reasonably acceptable to Employee, 3 who agrees to preserve the confidentiality of the information disclosed by Employee except to the extent required to permit Employer to verify the amount received by Employee from other active employment. Employer shall receive credit for unemployment insurance benefits, social security insurance or other like amounts payable during periods of unemployment actually received by Employee. (c) For purposes of Sections 7 and 11, "Constructively Terminated" shall mean (i) removal or termination of Employee other than in accordance with Section 10, (ii) a decrease in Employee's compensation or benefits (unless a similar decrease is imposed on all senior executive officers), (iii) a significant reduction in the scope of Employee's authority, position, duties or responsibilities, (iv) a significant change in Choice's annual bonus program which adversely affects Employee, or (v) any other material breach of this Agreement by Employer provided Employer shall be given fourteen days advance written notice of such claim of material breach, which written notice shall specify in reasonable detail the grounds for such claim of material breach. Except in the case of bad faith, Employer shall have an opportunity to cure the basis for Constructive Termination during the fourteen day period after written notice. 8. Waiver of Breach. The waiver of either party of a breach of any ---------------- provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 9. Assignment. The rights and obligations of Employer under this ---------- Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Employer. The obligations of Employee hereunder may not be assigned or delegated. 10. Termination of Agreement. This Agreement shall terminate upon the ------------------------ following events and conditions: (a) Upon expiration of its term. (b) For Cause, which means gross negligence, willful misconduct, willful nonfeasance, deliberate and continued refusal to carry out duties and instructions of the Employer's Board of Directors and Chief Executive Officer consistent with the position, material dishonesty, a violation or a willful breach of this Agreement or conviction of a felony involving moral turpitude, fraud or misappropriation of corporate funds. Employee shall be entitled to fourteen (14) days advance written notice of termination, except where the basis for termination constitutes wilful conduct on the part of Employee involving dishonesty or bad faith, in which case the termination shall be effective upon the sending of notice. Such written notice shall specify in reasonable detail the grounds for Cause and Employee shall have an opportunity to contest to the Board of Directors or cure the basis for termination during the fourteen day period after written notice. 4 (c) Subject to state and federal laws, if Employee is unable to perform the essential functions of the services described herein, after reasonable accommodation, for more than 180 days (whether or not consecutive) in any period of 365 consecutive days, Employer shall have the right to terminate this Agreement by written notice to Employee. In the event of such termination, all non-vested stock options and other non-vested obligations of Employer to Employee pursuant to this Agreement shall terminate. (d) In the event of Employee's death during the term of this Agreement, the Agreement shall terminate as of the date thereof. 11. Severance. --------- (a) If, within twelve months after a Change in Control, as defined in Section 11(b), the Employer terminates or Constructively Terminates Employee's employment other than in accordance with Section 10, the amount of Employee's severance pay will be 200% of his base salary at the rate in effect at the time of his termination or Constructive Termination, plus 200% of the amount of any full year bonus awarded to Employee in the prior year (or the maximum target bonus if no bonus was awarded in the prior year). If Employee's employment is terminated subject to this paragraph, the Employer will provide the Employee and his family health insurance coverage, including, if applicable, COBRA reimbursement, and will provide Employee disability insurance coverage under the applicable Employer plans for a period of 12 months following termination or until Employee starts other full time employment, whichever is earlier. (b) A Change in Control of the Employer shall occur upon the happening of the earliest to occur of the following: 1. Any "person" as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (other than (i) the Employer, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Employer, (iii) any corporations owned, directly or indirectly, by the stockholders of the Employer in substantially the same proportions as their ownership of stock, (iv) Stewart Bainum, his wife, their lineal descendants and their spouses (so long as they remain spouses) and the estate of any of the foregoing persons, and any partnership, trust, corporation or other entity to the extent shares of common stock (or their equivalent) are considered to be beneficially owned by any of the persons or estates referred to in the foregoing provisions of this subsection 11(b) or any transferee thereof, or (v) the Baron Entities, unless such entities, in the aggregate, beneficially own more than 19,715,000 shares of the Employer's common stock) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Employer representing 33% or more of the combined voting power of the Employer's then outstanding voting securities; 5 2. Individuals constituting the Board on the Effective Date and the successors of such individuals ("Continuing Directors") cease to constitute a majority of the Board. For this purpose, a director shall be a successor if and only if he or she was nominated by a Board (or a Nominating Committee thereof) on which individuals constituting the Board on the Effective Date and their successors (determined by prior application of this sentence) constituted a majority. 3. The stockholders of the Employer approve a plan of merger or consolidation ("Combination") with any other corporation or legal person, other than a Combination which would result in stockholders of the Employer immediately prior to the Combination owning, immediately thereafter, more than sixty-five percent (65%) of the combined voting power of either the surviving entity or the entity owning directly or indirectly all of the common stock, or its equivalent, of the surviving entity; provided, however, that if stockholder approval is not required for such Combination, the Change in Control shall occur upon the consummation of such Combination. 4. The stockholders of the Employer approve a plan of complete liquidation of the Employer or an agreement for the sale or disposition by the Employer of all or substantially all of the Employer's stock and/or assets, or accept a tender offer for substantially all of the Employer's stock (or any transaction having a similar effect); provided, however, that if stockholder approval is not required for such transaction, the Change in Control shall occur upon consummation of such transaction. (c) For purposes of Section 11(b), Baron Entities shall mean Baron Capital Group, Inc., BAMCO, Inc., Baron Capital Management, Inc., Baron Asset Fund and Ronald Baron. 12. Excise Taxes. ------------ (a) Anything in this Agreement to the contrary notwithstanding, if it shall be determined that any payment or distribution to the Employee or for the Employee's benefit (whether paid or payable or distributed or distributable) pursuant to the terms of this Agreement or otherwise (the "Payment") would be subject to the excise tax imposed by section 4999 of the Internal Revenue Code (the "Excise Tax"), then the Employee shall be entitled to receive from Choice an additional payment (the "Gross-Up Payment") in an amount such that the net amount of the Payment and the Gross-Up Payment retained by the Employee after the calculation and deduction of all Excise Taxes (including any interest or penalties imposed with respect to such taxes) on the payment and all federal, state and local income tax, employment tax and Excise Tax (including any interest or penalties imposed with respect to such taxes) on the Gross-Up Payment provided for in this Section, and taking into account any lost or reduced tax deductions on account of the Gross-Up Payment, shall be equal to the Payment; (b) All determinations required to be made under this Section, including 6 whether and when the Gross-Up Payment is required and the amount of such Gross- Up Payment, and the assumptions to be utilized in arriving at such determinations shall be made by Accountants which Choice shall request provide the Employee and Choice with detailed supporting calculations with respect to such Gross-Up Payment at the time the Employee is entitled to receive the Payment. For the purposes of this Section, the "Accountants" shall mean Choice's independent certified public accountants. All fees and expenses of the Accountants shall be borne solely by Choice. For the purposes of determining whether any of the Payments will be subject to the Excise Tax and the amount of such Excise Tax, such Payments will be treated as "parachute payments" within the meaning of section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under section 280G(b)(3) of the Code) shall be treated as subject to the excise Tax, unless and except to the extent that in the opinion of the Accountants such Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax; for purposes of determining the amount of the Gross-Up Payment the Employee shall be deemed to pay Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Gross-Up Payment is to be made and to pay any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of the Employee's adjusted gross income); and to have otherwise allowable deductions for Federal, state and local income tax purposes at least equal to those disallowed because of the inclusion of the Gross-Up Payment in the Employee's adjusted gross income. Any Gross-Up Payment with respect to any Payment shall be paid by Choice at the time the Employee is entitled to receive the Payment. Any determination by the Accountants shall be binding upon Choice and the Employee. As a result of uncertainty in the application of section 4999 of the Code at the time of the initial determination by the Accountants hereunder, it is possible that the Gross-Up Payment made will have been an amount less than Choice should have paid pursuant to this Section (the "Underpayment"). In the event that Choice exhausts its remedies and the Employee is required to make a payment of any Excise Tax, the Underpayment shall be promptly paid by Choice to or for the Employee's benefit. 13. Entire Agreement. This instrument contains the entire agreement ---------------- of the parties. It may be changed only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. This Agreement shall be governed by the laws of the State of Maryland, and any disputes arising out of or relating to this Agreement shall be brought and heard in any court of competent jurisdiction in the State of Maryland. 7 IN WITNESS WHEREOF, the parties have executed this Agreement on the date first set forth above. Employer: CHOICE HOTELS INTERNATIONAL, INC. By: ------------------------------ Michael J. DeSantis Senior Vice President Employee: ---------------------------------- Thomas Mirgon 8 EX-10.4 5 SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT EXHIBIT 10.4 ------------ SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT -------------------- This Agreement ("Agreement") dated this 13th day of April, 1999 between Choice Hotels International, Inc. ("Employer"), a Delaware corporation with principal offices at 10750 Columbia Pike, Silver Spring, Maryland 20901, and Mark Wells ("Employee"), amends and restates that employment agreement dated April 13, 1998 and sets forth the terms and conditions governing the employment relationship between Employee and Employer. 1. Employment. During the term of this Agreement, as hereinafter ---------- defined, Employer hereby employs Employee as Senior Vice President, Marketing. Employee hereby accepts such employment upon the terms and conditions hereinafter set forth and agrees to faithfully and to the best of his ability perform such duties as may be from time to time assigned by Employer's Board of Directors and Chief Executive Officer, such duties to be rendered at the principal office of Employer, subject to reasonable travel. Employee also agrees to perform his duties in accordance with policies established by Employer's Board of Directors, which may be changed from time to time. 2. Term. Subject to the provisions for termination hereinafter provided, ---- the term of this Agreement shall begin on May 18, 1998 ("Effective Date") and shall terminate five (5) years thereafter (the "Termination Date"). The Termination Date shall automatically be extended for successive one-year terms unless either party gives written notice no less than nine months prior to the Termination Date that it elects not to extend the Termination Date. 3. Compensation. For all services rendered by Employee under this ------------ Agreement during the term thereof, Employer shall pay Employee the following compensation: (a) Salary. A base salary of Two Hundred Seventy-Five Thousand ------ Dollars ($275,000) per annum payable in equal bi-weekly installments. Such salary shall be reviewed by the Compensation Committee of the Board of Directors of Employer at the next annual review of officers following the Effective Date and may be increased at the discretion of Employer. (b) Incentive Bonus. Employee shall have the opportunity to earn up --------------- to a maximum of Fifty Percent (50%) per annum of the base salary set forth in subparagraph 3(a) above in Employer's bonus plans as adopted from time to time by Employer's Board of Directors. For calendar year 1998, Employee shall be guaranteed a bonus of $137,500, payable in February, 1999. (c) Restricted Stock. On the Effective Date, Employer shall issue to ---------------- Employee shares of restricted Choice Hotels common stock ("Common Stock") equal in number to the product of $300,000 divided by the mean of the high and the low market price of the Common Stock on the Effective Date. The restrictions on such shares shall lapse upon vesting, which shall occur in five equal annual installments beginning on the first anniversary of the Effective Date. (d) Automobile. Employer shall provide Employee with an allowance for ---------- automobile expenses of $850 per month subject to withholding of usual taxes. (e) Stock Options. Employee shall be eligible to receive options ------------- under the Choice Hotels International, Inc. Long Term Incentive Plan ("LTIP"), or similar plan, to purchase Common Stock in accordance with the policy of the Employer's Board as in effect from time to time. Additionally, the Employee shall be granted, on the Effective Date, 65,000 options to purchase such number of shares of Common Stock. A number of the options shall be incentive stock options granted under the LTIP, which number shall be the maximum number permitted under the LTIP and Section 422(d) of the Internal Revenue Code of 1986, as amended, but in no event more than 25% of the total number of options granted pursuant to this Section 3(e). The remainder of the options shall be nonqualified stock options. The options shall be exercisable at an amount per share equal to the average of the high and low trading price of the Common Stock on the Effective Date and shall vest in five equal annual installments following the first anniversary of the Effective Date. (f) SERP. At the Effective Date, Employee shall participate in the ---- Choice Hotels International, Inc. Supplemental Executive Retirement Plan ("SERP"). (g) Other Benefits. Employee shall, when eligible, be entitled to -------------- participate in all other fringe benefits, including vacation policy, generally accorded the most senior executive officers of Employer as are in effect from time to time on the same basis as such other senior executive officers. (h) Relocation Expenses. Employee shall be entitled to all benefits -------------------- under the Relocation Policy of Employer, as adopted in April 1997 with the following additions: (1) Notwithstanding Section 2-A of the Relocation Policy, Employer will reimburse Employee for a period of up to six months from the Effective Date for return trips for Employee and Employee's spouse to and from Employee's Tennessee home. (2) Notwithstanding Section 2(VIII) of the Relocation Policy, Employer shall reimburse Employee for real estate commissions not to exceed 7% of the sales price. 4. Extent of Services. Employee shall devote his full professional ------------------ time, attention, and energies to the business of Employer, and shall not during the term of this Agreement be engaged in any other business activity whether or not such business activity is pursued for gain, profit, or other pecuniary advantage; but the foregoing shall not be construed as preventing Employee from investing his assets in (i) the securities of public companies, or (ii) the securities of private companies or limited partnerships outside the lodging industry if such holdings are passive investments of one percent or less of outstanding securities and Employee does not hold 2 positions of officer, employee or general partner. Employee shall be permitted to serve as a director of companies outside of the lodging industry so long as such service does not inhibit his performance of services to the Employer. Employee shall not be permitted to serve as a director of any company within the lodging industry unless (i) the Corporate Compliance officer of the Employer has determined that there is no conflict of interest and (ii) such service does not inhibit his performance of services to the Employer. Employee warrants and represents that he has no contracts or obligations to others which would materially inhibit the performance of his services under this Agreement. 5. Disclosure and Use of Information. Employee recognizes and --------------------------------- acknowledges that Employer's and affiliates' present and prospective clients, franchises, management contracts, acquisitions and personnel, as they may exist from time to time, are valuable, special and unique assets of Employer's business. Throughout the term of this Agreement and for a period of two (2) years after its termination or expiration for whatever cause or reason except as required by applicable law, Employee shall not directly or indirectly, or cause others to, make use of or disclose to others any information relating to the business of Employer that has not otherwise been made public, including but not limited to Employer's present or prospective clients, franchises, management contracts or acquisitions. During the term of this Agreement and for a period of two years thereafter, Employee agrees not to solicit for employment or contract for services with, directly or indirectly, on his behalf or on behalf of any other person or entity, any person employed by Employer, or its subsidiaries or affiliates during such period, unless Employer consents in writing. In the event of an actual or threatened breach by Employee of the provisions of this paragraph, Employer shall be entitled to injunctive relief restraining Employee from committing such breach or threatened breach. Nothing herein stated shall be construed as preventing Employer from pursuing any other remedies available to Employer for such breach or threatened breach, including the recovery of damages from Employee. 6. Notices. Any notice, request or demand required or permitted to be ------- given under this Agreement shall be in writing, and shall be delivered personally to the recipient or, if sent by certified or registered mail or overnight courier service to his residence in the case of Employee, or to its principal office in the case of the Employer. Such notice shall be deemed given when delivered if personally delivered or when received if sent certified or registered mail or overnight courier. 7. Elective Positions; Constructive Termination -------------------------------------------- (a) Nothing contained in this Agreement is intended to nor shall be construed to abrogate, limit or affect the powers, rights and privileges of the Board of Directors or stockholders to remove Employee from the positions set forth in Section 1, with or without Cause (as defined in Section 10 below), during the term of this Agreement or to elect someone other than Employee to those positions, as provided by law and the By-Laws of Employer. (b) If Employee is Constructively Terminated (as defined in Section 7(c) below) it is expressly understood and agreed that Employee's rights under this Agreement 3 shall in no way be prejudiced, Employee shall not, thereafter, be required to perform any services under this Agreement and Employee shall be entitled to receive all forms of compensation referred to in Section 3 above, including, without limitation, bonuses (calculated based only on the actual payout on the EPS portion of the bonus as all Choice officers receive in a given year) and the continued vesting through the term of this Agreement of stock options and restricted stock outstanding at the time of the Constructive Termination. However, Employee shall not be entitled to receive new stock option grants or rights to ungranted stock options. Employee upon removal shall not be required to mitigate damages but nevertheless shall be entitled to pursue other employment, and Employer shall be entitled to receive as an offset and thereby reduce its payment by the amount received by Employee from any other active employment. As a condition to Employee receiving his compensation from Employer, Employee agrees to permit verification of his employment records and income tax returns by an independent attorney or accountant, selected by Employer but reasonably acceptable to Employee, who agrees to preserve the confidentiality of the information disclosed by Employee except to the extent required to permit Employer to verify the amount received by Employee from other active employment. Employer shall receive credit for unemployment insurance benefits, social security insurance or other like amounts payable during periods of unemployment actually received by Employee. (c) For purposes of Sections 7 and 11, "Constructively Terminated" shall mean (i) removal or termination of Employee other than in accordance with Section 10, (ii) a decrease in Employee's compensation or benefits (unless a similar decrease is imposed on all senior executive officers), (iii) a significant reduction in the scope of Employee's authority, position, duties or responsibilities, (iv) a significant change in Choice's annual bonus program which adversely affects Employee, or (v) any other material breach of this Agreement by Employer provided Employer shall be given fourteen days advance written notice of such claim of material breach, which written notice shall specify in reasonable detail the grounds for such claim of material breach. Except in the case of bad faith, Employer shall have an opportunity to cure the basis for Constructive Termination during the fourteen day period after written notice. 8. Waiver of Breach. The waiver of either party of a breach of any ---------------- provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 9. Assignment. The rights and obligations of Employer under this ---------- Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Employer. The obligations of Employee hereunder may not be assigned or delegated. 10. Termination of Agreement. This Agreement shall terminate upon the ------------------------ following events and conditions: 4 (a) Upon expiration of its term; (b) For Cause, which means gross negligence, willful misconduct, willful nonfeasance, deliberate and continued refusal to carry out duties and instructions of the Employer's Board of Directors and Chief Executive Officer consistent with the position, material dishonesty, a violation or a willful breach of this Agreement or conviction of a felony involving moral turpitude, fraud or misappropriation of corporate funds. Employee shall be entitled to fourteen (14) days advance written notice of termination, except where the basis for termination constitutes wilful conduct on the part of Employee involving dishonesty or bad faith, in which case the termination shall be effective upon the sending of notice. Such written notice shall specify in reasonable detail the grounds for Cause and Employee shall have an opportunity to contest to the Board of Directors or cure the basis for termination during the fourteen day period after written notice. (c) Subject to state and federal laws, if Employee is unable to perform the essential functions of the services described herein, after reasonable accommodation, for more than 180 days (whether or not consecutive) in any period of 365 consecutive days, Employer shall have the right to terminate this Agreement by written notice to Employee. In the event of such termination, all non-vested stock options and other non-vested obligations of Employer to Employee pursuant to this Agreement shall terminate. (d) In the event of Employee's death during the term of this Agreement, the Agreement shall terminate as of the date thereof. 11. Severance. --------- (a) If, within twelve months after a Change in Control, as defined in Section 11(b), the Employer terminates or Constructively Terminates Employee's employment other than in accordance with Section 10, the amount of Employee's severance pay will be 200% of his base salary at the rate in effect at the time of his termination or Constructive Termination, plus 200% of the amount of any full year bonus awarded to Employee in the prior year (or the maximum target bonus if no bonus was awarded in the prior year). If Employee's employment is terminated subject to this paragraph, the Employer will provide the Employee and his family health insurance coverage, including, if applicable, COBRA reimbursement, and will provide Employee disability insurance coverage under the applicable Employer plans for a period of 12 months following termination or until Employee starts other full time employment, whichever is earlier. (b) A Change in Control of the Employer shall occur upon the happening of the earliest to occur of the following: 1. Any "person" as such term is used in Sections 13(d) and 14(d) of the 5 Securities Exchange Act of 1934, as amended (other than (i) the Employer, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Employer, (iii) any corporations owned, directly or indirectly, by the stockholders of the Employer in substantially the same proportions as their ownership of stock, (iv) Stewart Bainum, his wife, their lineal descendants and their spouses (so long as they remain spouses) and the estate of any of the foregoing persons, and any partnership, trust, corporation or other entity to the extent shares of common stock (or their equivalent) are considered to be beneficially owned by any of the persons or estates referred to in the foregoing provisions of this subsection 11(b) or any transferee thereof, or (v) the Baron Entities, unless such entities, in the aggregate, beneficially own more than 19,715,000 shares of the Employer's common stock) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Employer representing 33% or more of the combined voting power of the Employer's then outstanding voting securities; 2. Individuals constituting the Board on the Effective Date and the successors of such individuals ("Continuing Directors") cease to constitute a majority of the Board. For this purpose, a director shall be a successor if and only if he or she was nominated by a Board (or a Nominating Committee thereof) on which individuals constituting the Board on the Effective Date and their successors (determined by prior application of this sentence) constituted a majority. 3. The stockholders of the Employer approve a plan of merger or consolidation ("Combination") with any other corporation or legal person, other than a Combination which would result in stockholders of the Employer immediately prior to the Combination owning, immediately thereafter, more than sixty-five percent (65%) of the combined voting power of either the surviving entity or the entity owning directly or indirectly all of the common stock, or its equivalent, of the surviving entity; provided, however, that if stockholder approval is not required for such Combination, the Change in Control shall occur upon the consummation of such Combination. 4. The stockholders of the Employer approve a plan of complete liquidation of the Employer or an agreement for the sale or disposition by the Employer of all or substantially all of the Employer's stock and/or assets, or accept a tender offer for substantially all of the Employer's stock (or any transaction having a similar effect); provided, however, that if stockholder approval is not required for such transaction, the Change in Control shall occur upon consummation of such transaction. (c) For purposes of Section 11(b), Baron Entities shall mean Baron Capital Group, Inc., BAMCO, Inc., Baron Capital Management, Inc., Baron Asset Fund and Ronald Baron. 6 12. Excise Taxes. ------------ (a) Anything in this Agreement to the contrary notwithstanding, if it shall be determined that any payment or distribution to the Employee or for the Employee's benefit (whether paid or payable or distributed or distributable) pursuant to the terms of this Agreement or otherwise (the "Payment") would be subject to the excise tax imposed by section 4999 of the Internal Revenue Code (the "Excise Tax"), then the Employee shall be entitled to receive from Choice an additional payment (the "Gross-Up Payment") in an amount such that the net amount of the Payment and the Gross-Up Payment retained by the Employee after the calculation and deduction of all Excise Taxes (including any interest or penalties imposed with respect to such taxes) on the payment and all federal, state and local income tax, employment tax and Excise Tax (including any interest or penalties imposed with respect to such taxes) on the Gross-Up Payment provided for in this Section, and taking into account any lost or reduced tax deductions on account of the Gross-Up Payment, shall be equal to the Payment; (b) All determinations required to be made under this Section, including whether and when the Gross-Up Payment is required and the amount of such Gross-Up Payment, and the assumptions to be utilized in arriving at such determinations shall be made by Accountants which Choice shall request provide the Employee and Choice with detailed supporting calculations with respect to such Gross-Up Payment at the time the Employee is entitled to receive the Payment. For the purposes of this Section, the "Accountants" shall mean Choice's independent certified public accountants. All fees and expenses of the Accountants shall be borne solely by Choice. For the purposes of determining whether any of the Payments will be subject to the Excise Tax and the amount of such Excise Tax, such Payments will be treated as "parachute payments" within the meaning of section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under section 280G(b)(3) of the Code) shall be treated as subject to the excise Tax, unless and except to the extent that in the opinion of the Accountants such Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax; for purposes of determining the amount of the Gross-Up Payment the Employee shall be deemed to pay Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Gross-Up Payment is to be made and to pay any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of the Employee's adjusted gross income); and to have otherwise allowable deductions for Federal, state and local income tax purposes at least equal to those disallowed because of the inclusion of the Gross-Up Payment in the Employee's adjusted gross income. Any Gross-Up Payment with respect to any Payment shall be paid by Choice at the time the Employee is entitled to receive the Payment. Any determination by the Accountants shall be binding upon Choice and the Employee. As a result of uncertainty in the application of section 4999 of the Code at the time of the initial determination by the Accountants hereunder, it is possible that the Gross-Up Payment made will have been an amount 7 less than Choice should have paid pursuant to this Section (the "Underpayment"). In the event that Choice exhausts its remedies and the Employee is required to make a payment of any Excise Tax, the Underpayment shall be promptly paid by Choice to or for the Employee's benefit. 13. Legal Fees. Employer shall reimburse the Employee for all reasonable ----------- attorneys fees incurred in connection with the negotiation and execution of this Agreement. 14. Entire Agreement. This instrument contains the entire agreement of ---------------- the parties. It may be changed only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. This Agreement shall be governed by the laws of the State of Maryland, and any disputes arising out of or relating to this Agreement shall be brought and heard in any court of competent jurisdiction in the State of Maryland. 13. Compensation Committee Approval. Notwithstanding any other provision -------------------------------- to the contrary, this Agreement is subject to the approval of the Employer's Compensation Committee at its next meeting, which is expected to occur on or about April 13, 1998, and shall not be valid, binding and enforceable prior thereto. Prior to such approval, neither party hereto shall make any public announcement with respect to this Agreement or the employment of Employee by Employer. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first set forth above. Employer: CHOICE HOTELS INTERNATIONAL, INC. By: ------------------------------ Michael J. DeSantis Senior Vice President Employee: ---------------------------------- Mark Wells 8 EX-10.5 6 SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT EXHIBIT 10.5 ------------ SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT -------------------- This Agreement ("Agreement") dated this 13th day of April, 1998 between Choice Hotels International, Inc. ("Employer"), a Delaware corporation with principal offices at 10750 Columbia Pike, Silver Spring, Maryland 20901, and Michael J. DeSantis ("Employee"), amends that certain employment agreement dated April 29, 1998 and sets forth the terms and conditions governing the employment relationship between Employee and Employer. 1. Employment. During the term of this Agreement, as hereinafter ---------- defined, Employer hereby employs Employee as Senior Vice President, General Counsel and Secretary. Employee hereby accepts such employment upon the terms and conditions hereinafter set forth and agrees to faithfully and to the best of his ability perform such duties as may be from time to time assigned by Employer's Board of Directors and Chief Executive Officer, such duties to be rendered at the principal office of Employer, subject to reasonable travel. Employee also agrees to perform his duties in accordance with policies established by Employer's Board of Directors, which may be changed from time to time. 2. Term. Subject to the provisions for termination hereinafter provided, ---- the term of this Agreement shall begin on April 29, 1998 ("Effective Date") and shall terminate five (5) years thereafter (the "Termination Date"). The Termination Date shall automatically be extended for successive one-year terms unless either party gives written notice no less than nine months prior to the Termination Date that it elects not to extend the Termination Date. 3. Compensation. For all services rendered by Employee under this ------------ Agreement during the term thereof, Employer shall pay Employee the following compensation: (a) Salary. A base salary of One Hundred Seventy Thousand Dollars ------ ($170,000) per annum payable in equal bi-weekly installments. Such salary shall be reviewed by the Compensation Committee of the Board of Directors of Employer at the next annual review of officers following the Effective Date and may be increased at the discretion of Employer. (b) Incentive Bonus. Effective January 1, 1998, Employee shall have --------------- the opportunity to earn up to a maximum of Fifty Percent (50%) per annum of the base salary set forth in subparagraph 3(a) above in Employer's bonus plans as adopted from time to time by Employer's Board of Directors. (c) Automobile. Employer shall provide Employee with an allowance for ---------- automobile expenses of $850 per month subject to withholding of usual taxes. (d) Stock Options. Employee shall be eligible to receive options ------------- under the Choice Hotels International, Inc. Long Term Incentive Plan ("LTIP"), or similar plan, to purchase Common Stock in accordance with the policy of the Employer's Board as in effect from time to time. (e) Other Benefits. Employee shall, when eligible, be entitled to -------------- participate in all other fringe benefits, including vacation policy, generally accorded the most senior executive officers of Employer as are in effect from time to time on the same basis as such other senior executive officers. 4. Extent of Services. Employee shall devote his full professional ------------------ time, attention, and energies to the business of Employer, and shall not during the term of this Agreement be engaged in any other business activity whether or not such business activity is pursued for gain, profit, or other pecuniary advantage; but the foregoing shall not be construed as preventing Employee from investing his assets in (i) the securities of public companies, or (ii) the securities of private companies or limited partnerships outside the lodging industry if such holdings are passive investments of one percent or less of outstanding securities and Employee does not hold positions of officer, employee or general partner. Employee shall be permitted to serve as a director of companies outside of the lodging industry so long as such service does not inhibit his performance of services to the Employer. Employee shall not be permitted to serve as a director of any company within the lodging industry unless (i) the Corporate Compliance officer of the Employer has determined that there is no conflict of interest and (ii) such service does not inhibit his performance of services to the Employer. Employee warrants and represents that he has no contracts or obligations to others which would materially inhibit the performance of his services under this Agreement. 5. Disclosure and Use of Information. Employee recognizes and --------------------------------- acknowledges that Employer's and affiliates' present and prospective clients, franchises, management contracts, acquisitions and personnel, as they may exist from time to time, are valuable, special and unique assets of Employer's business. Throughout the term of this Agreement and for a period of two (2) years after its termination or expiration for whatever cause or reason except as required by applicable law, Employee shall not directly or indirectly, or cause others to, make use of or disclose to others any information relating to the business of Employer that has not otherwise been made public, including but not limited to Employer's present or prospective clients, franchises, management contracts or acquisitions. During the term of this Agreement and for a period of two years thereafter, Employee agrees not to solicit for employment or contract for services with, directly or indirectly, on his behalf or on behalf of any other person or entity, any person employed by Employer, or its subsidiaries or affiliates during such period, unless Employer consents in writing. In the event of an actual or threatened breach by Employee of the provisions of this paragraph, Employer shall be entitled to injunctive relief restraining Employee from committing such breach or threatened breach. Nothing herein stated shall be construed as preventing Employer from pursuing any other remedies available to Employer for such breach or threatened breach, including the recovery of damages from Employee. 6. Notices. Any notice, request or demand required or permitted to be ------- given under this Agreement shall be in writing, and shall be delivered personally to the recipient or, if sent by certified or registered mail or overnight courier service to his residence in the case of Employee, or to its principal office in the case of the Employer. Such notice shall be deemed given when delivered if personally delivered or when actually received if sent certified or registered mail or overnight courier. 7. Elective Positions; Constructive Termination -------------------------------------------- (a) Nothing contained in this Agreement is intended to nor shall be construed to abrogate, limit or affect the powers, rights and privileges of the Board of Directors or stockholders to remove Employee from the positions set forth in Section 1, with or without Cause (as defined in Section 10 below), during the term of this Agreement or to elect someone other than Employee to those positions, as 2 provided by law and the By-Laws of Employer. (b) If Employee is Constructively Terminated (as defined in Section 7(c) below) it is expressly understood and agreed that Employee's rights under this Agreement shall in no way be prejudiced, Employee shall not, thereafter, be required to perform any services under this Agreement and Employee shall be entitled to receive all forms of compensation referred to in Section 3 above, including, without limitation, bonuses (calculated based only on the actual payout on the EPS portion of the bonus as all Choice officers receive in a given year) and the continued vesting through the term of this Agreement of stock options and restricted stock outstanding at the time of the Constructive Termination. However, Employee shall not be entitled to receive new stock option grants or rights to ungranted stock options. Employee upon removal shall not be required to mitigate damages but nevertheless shall be entitled to pursue other employment, and Employer shall be entitled to receive as an offset and thereby reduce its payment by the amount received by Employee from any other active employment. As a condition to Employee receiving his compensation from Employer, Employee agrees to permit verification of his employment records and income tax returns by an independent attorney or accountant, selected by Employer but reasonably acceptable to Employee, who agrees to preserve the confidentiality of the information disclosed by Employee except to the extent required to permit Employer to verify the amount received by Employee from other active employment. Employer shall receive credit for unemployment insurance benefits, social security insurance or other like amounts payable during periods of unemployment actually received by Employee. (c) For purposes of this Section 7 and 11, "Constructively Terminated" shall mean (i) removal or termination of Employee other than in accordance with Section 10, (ii) a decrease in Employee's compensation or benefits (unless a similar decrease is imposed on all senior executive officers), (iii) a significant reduction in the scope of Employee's authority, position, duties or responsibilities, (iv) a significant change in Choice's annual bonus program which adversely affects Employee, or (v) any other material breach of this Agreement by Employer provided Employer shall be given fourteen days advance written notice of such claim of material breach, which written notice shall specify in reasonable detail the grounds for such claim of material breach. Except in the case of bad faith, Employer shall have an opportunity to cure the basis for Constructive Termination during the fourteen day period after written notice. 8. Waiver of Breach. The waiver of either party of a breach of any ---------------- provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 9. Assignment. The rights and obligations of Employer under this ---------- Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Employer. The obligations of Employee hereunder may not be assigned or delegated. 3 10. Termination of Agreement. This Agreement shall terminate upon the ------------------------ following events and conditions: (a) Upon expiration of its term; (b) For Cause, which means gross negligence, willful misconduct, willful nonfeasance, deliberate and continued refusal to carry out duties and instructions of the Employer's Board of Directors and Chief Executive Officer consistent with the position, material dishonesty, a violation or a willful breach of this Agreement or conviction of a felony involving moral turpitude, fraud or misappropriation of corporate funds. Employee shall be entitled to fourteen (14) days advance written notice of termination, except where the basis for termination constitutes wilful conduct on the part of Employee involving dishonesty or bad faith, in which case the termination shall be effective upon the sending of notice. Such written notice shall specify in reasonable detail the grounds for Cause and Employee shall have an opportunity to contest to the Board of Directors or cure the basis for termination during the fourteen day period after written notice. (c) Subject to state and federal laws, if Employee is unable to perform the essential functions of the services described herein, after reasonable accommodation, for more than 180 days (whether or not consecutive) in any period of 365 consecutive days, Employer shall have the right to terminate this Agreement by written notice to Employee. In the event of such termination, all non-vested stock options and other non-vested obligations of Employer to Employee pursuant to this Agreement shall terminate. (d) In the event of Employee's death during the term of this Agreement, the Agreement shall terminate as of the date thereof. 11. Severance. --------- (a) If, within twelve months after a Change in Control, as defined in Section 11(b), the Employer terminates or Constructively Terminates Employee's employment other than in accordance with Section 10, the amount of Employee's severance pay will be 200% of his base salary at the rate in effect at the time of his termination or Constructive Termination, plus 200% of the amount of any full year bonus awarded to Employee in the prior year (or the maximum target bonus if no bonus was awarded in the prior year). If Employee's employment is terminated subject to this paragraph, the Employer will provide the Employee and his family health insurance coverage, including, if applicable, COBRA reimbursement, and will provide Employee disability insurance coverage under the applicable Employer plans for a period of 12 months following termination or until Employee starts other full time employment, whichever is earlier. (b) A Change in Control of the Employer shall occur upon the happening of the 4 earliest to occur of the following: 1. Any "person" as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (other than (i) the Employer, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Employer, (iii) any corporations owned, directly or indirectly, by the stockholders of the Employer in substantially the same proportions as their ownership of stock, (iv) Stewart Bainum, his wife, their lineal descendants and their spouses (so long as they remain spouses) and the estate of any of the foregoing persons, and any partnership, trust, corporation or other entity to the extent shares of common stock (or their equivalent) are considered to be beneficially owned by any of the persons or estates referred to in the foregoing provisions of this subsection 11(b) or any transferee thereof, or (v) the Baron Entities, unless such entities, in the aggregate, beneficially own more than 19,715,000 shares of the Employer's common stock) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Employer representing 33% or more of the combined voting power of the Employer's then outstanding voting securities; 2. Individuals constituting the Board on the Effective Date and the successors of such individuals ("Continuing Directors") cease to constitute a majority of the Board. For this purpose, a director shall be a successor if and only if he or she was nominated by a Board (or a Nominating Committee thereof) on which individuals constituting the Board on the Effective Date and their successors (determined by prior application of this sentence) constituted a majority. 3. The stockholders of the Employer approve a plan of merger or consolidation ("Combination") with any other corporation or legal person, other than a Combination which would result in stockholders of the Employer immediately prior to the Combination owning, immediately thereafter, more than sixty-five percent (65%) of the combined voting power of either the surviving entity or the entity owning directly or indirectly all of the common stock, or its equivalent, of the surviving entity; provided, however, that if stockholder approval is not required for such Combination, the Change in Control shall occur upon the consummation of such Combination. 4. The stockholders of the Employer approve a plan of complete liquidation of the Employer or an agreement for the sale or disposition by the Employer of all or substantially all of the Employer's stock and/or assets, or accept a tender offer for substantially all of the Employer's stock (or any transaction having a similar effect); provided, however, that if stockholder approval is not required for such transaction, the Change in Control shall occur upon consummation of such transaction. (c) For purposes of Section 11(b), Baron Entities shall mean Baron Capital Group, 5 Inc., BAMCO, Inc., Baron Capital Management, Inc., Baron Asset Fund and Ronald Baron. 12. Excise Taxes. ------------ (a) Anything in this Agreement to the contrary notwithstanding, if it shall be determined that any payment or distribution to the Employee or for the Employee's benefit (whether paid or payable or distributed or distributable) pursuant to the terms of this Agreement or otherwise (the "Payment") would be subject to the excise tax imposed by section 4999 of the Internal Revenue Code (the "Excise Tax"), then the Employee shall be entitled to receive from Choice an additional payment (the "Gross-Up Payment") in an amount such that the net amount of the Payment and the Gross-Up Payment retained by the Employee after the calculation and deduction of all Excise Taxes (including any interest or penalties imposed with respect to such taxes) on the payment and all federal, state and local income tax, employment tax and Excise Tax (including any interest or penalties imposed with respect to such taxes) on the Gross-Up Payment provided for in this Section, and taking into account any lost or reduced tax deductions on account of the Gross-Up Payment, shall be equal to the Payment; (b) All determinations required to be made under this Section, including whether and when the Gross-Up Payment is required and the amount of such Gross-Up Payment, and the assumptions to be utilized in arriving at such determinations shall be made by Accountants which Choice shall request provide the Employee and Choice with detailed supporting calculations with respect to such Gross-Up Payment at the time the Employee is entitled to receive the Payment. For the purposes of this Section, the "Accountants" shall mean Choice's independent certified public accountants. All fees and expenses of the Accountants shall be borne solely by Choice. For the purposes of determining whether any of the Payments will be subject to the Excise Tax and the amount of such Excise Tax, such Payments will be treated as "parachute payments" within the meaning of section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under section 280G(b)(3) of the Code) shall be treated as subject to the excise Tax, unless and except to the extent that in the opinion of the Accountants such Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax; for purposes of determining the amount of the Gross-Up Payment the Employee shall be deemed to pay Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Gross-Up Payment is to be made and to pay any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of the Employee's adjusted gross income); and to have otherwise allowable deductions for Federal, state and local income tax purposes at least equal to those disallowed because of the inclusion of the Gross-Up Payment in the Employee's adjusted gross income. Any Gross-Up Payment with respect to any Payment shall be paid by Choice at the time the Employee is entitled to receive the Payment. Any determination by the 6 Accountants shall be binding upon Choice and the Employee. As a result of uncertainty in the application of section 4999 of the Code at the time of the initial determination by the Accountants hereunder, it is possible that the Gross-Up Payment made will have been an amount less than Choice should have paid pursuant to this Section (the "Underpayment"). In the event that Choice exhausts its remedies and the Employee is required to make a payment of any Excise Tax, the Underpayment shall be promptly paid by Choice to or for the Employee's benefit. 13. Entire Agreement. This instrument contains the entire agreement of ---------------- the parties. It may be changed only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. This Agreement shall be governed by the laws of the State of Maryland, and any disputes arising out of or relating to this Agreement shall be brought and heard in any court of competent jurisdiction in the State of Maryland. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first set forth above. Employer: CHOICE HOTELS INTERNATIONAL, INC. By: ______________________________ Thomas Mirgon Senior Vice President Employee: __________________________________ Michael J. DeSantis 7 EX-27 7 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-01-1999 MAR-31-1999 4,536 0 35,256 8,831 0 32,265 51,248 15,625 414,941 47,160 284,327 0 0 609 44,700 414,941 0 30,805 0 14,639 (5,868) 408 4,762 17,272 6,995 10,277 0 0 0 10,277 0.18 0.18
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