Exhibit 99.01
DISTRIBUTION AGREEMENT
BETWEEN
CHOICE HOTELS INTERNATIONAL, INC.
(TO BE RENAMED SUNBURST HOSPITALITY CORPORATION)
AND
CHOICE HOTELS FRANCHISING, INC.
(TO BE RENAMED CHOICE HOTELS INTERNATIONAL, INC.)
DATED AS OF
OCTOBER 15, 1997
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this 15th
day of October, 1997 between Choice Hotels International, Inc., a Delaware
corporation, to be renamed Sunburst Hospitality Corporation ("Choice") and
Choice Hotels Franchising, Inc., a Delaware corporation and wholly owned
subsidiary of Choice, to be renamed Choice Hotels International, Inc.
("Franchising").
RECITALS
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WHEREAS, Choice, directly and through subsidiaries, (i) acquires,
develops and owns hotels in the United States and engages in activities related
thereto (the "Real Estate Group Business"); (ii) owns and operates 14 hotels in
France, Germany and the United Kingdom and holds an equity ownership interest in
Friendly Hotel PLC, a corporation formed under the laws of the United Kingdom
(the "European Hotel Business") and (iii) franchises hotels under the Clarion,
Quality, Comfort, Sleep Inn, Rodeway, Econo Lodge and Mainstay brands (the
"Choice Brands") and provides various services for its franchisees to strengthen
the Choice Brands, including the operation of a national reservations system for
the Choice Brands and the conducting of advertising and marketing activities on
behalf of franchisees of the Choice Brands (the "Franchising Business").
WHEREAS, Choice conducts the Franchising Business through Franchising
and its Subsidiaries;
WHEREAS, the Board of Directors of Choice has determined that it is in
the best interest of Choice and the stockholders of Choice to separate the
Franchising Business and the European Hotel Business from the Real Estate Group
Business through the distribution (the
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"Distribution") to the holders of Choice Common Stock (as defined herein) all of
the outstanding shares of Franchising Common Stock (as defined herein).
WHEREAS, in order to effect such separation, Choice will transfer to
Franchising prior to the Distribution, the capital stock of the European Hotel
Subsidiary and certain other assets and liabilities relating principally to the
Franchising Business and the European Hotel Business, the Franchising Group and
the European Hotel Subsidiary not currently held by Franchising or a Franchising
Group Subsidiary and Franchising will transfer to Choice any assets and
liabilities relating principally to the Real Estate Group Business or the Real
Estate Group Subsidiaries not currently held by Choice or a Real Estate Group
Subsidiary, if any, (the "Preliminary Transfers").
WHEREAS, in connection with the Distribution, Choice and Franchising
have determined that it is necessary and desirable to set forth the
principal corporate transactions required to effect the Distribution, and to set
forth the agreements that will govern certain matters following the
Distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
I.
DEFINITIONS
Section 1.01. General.
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As used in this Agreement, the following terms shall have the following
meanings:
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Action: Any action, claim, suit, arbitration, inquiry, proceeding or
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investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
Affiliate: With respect to any specified Person, any other Person
---------
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, such specified Person. For purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the foregoing.
Notwithstanding the foregoing, (i) the Affiliates of Choice shall not include
Franchising, the Franchising Group Subsidiaries or any other Person which
otherwise would be an Affiliate of Choice solely by reason of Choice's ownership
of the capital stock of Franchising prior to the Distribution or the fact that
any officer or director of Choice or any of the Real Estate Subsidiaries shall
also serve as an officer or director of Franchising or any of the Franchising
Group Subsidiaries, and (ii) the Affiliates of Franchising shall not include
Choice, the Real Estate Group Subsidiaries, or any other Person which otherwise
would be an Affiliate of Franchising solely by reason of Choice's ownership of
the capital stock of Franchising prior to the Distribution or the fact that any
officer or director of Franchising or any of the Franchising Group Subsidiaries
shall also serve as an officer or director of Choice or any of the Real Estate
Group Subsidiaries.
Agent: ChaseMellon Shareholder Services, L.L.C., as distribution agent
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appointed by Choice to distribute the Franchising Common Stock pursuant to the
Distribution.
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Assumed Financing Obligations: The Financing Obligations of Choice
-----------------------------
and its Subsidiaries which are to be assumed by Franchising in connection with
the Distribution.
Choice Amended Certificate: The Amendment to the Restated Certificate
--------------------------
of Incorporation of Choice for the purpose of, among other things, changing the
name of Choice to "Sunburst Hospitality Corporation."
Choice Board: The Board of Directors of Choice as it is constituted
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prior to the Distribution Date.
Choice Common Stock: The common stock, par value $.01 per share, of
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Choice.
CMBS Properties: The properties set forth on Schedule 1.01(b) hereto.
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Commission: The Securities and Exchange Commission.
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Conveyancing and Assumption Instruments: Collectively, the various
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agreements, instruments and other documents to be entered into to effect the
Preliminary Transfers and the assignment of assets and the assumption of
Liabilities contemplated by this Agreement and the Related Agreements in the
manner contemplated herein and therein.agreements,
Distribution Date: The date determined by the Choice Board as the
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date on which the Distribution shall be effected, which Distribution Date is
contemplated by the Choice Board to occur on or about October 15, 1997.
Distribution Record Date: The date established by the Choice Board as
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the date for taking a record of the Holders of record of Choice Common Stock
entitled to participate in the Distribution, which Distribution Record Date has
been established as October 7, 1997,
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subject to the fulfillment on or before such date of certain conditions to the
Distribution as provided in Section 4.02.
Employee Benefits Administration Agreement: The Employee Benefits
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Administration Agreement between Franchising and Choice, which agreement shall
be entered into on or prior to the Distribution Date in substantially the form
attached hereto as Exhibit A.
Employee Benefits Allocation Agreement: The Employee Benefits and Other
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Employment Matters Allocation Agreement between Franchising and Choice, which
agreement shall be entered into on or prior to the Distribution Date in
substantially the form attached hereto as Exhibit B.
Exchange Act: The Securities Exchange Act of 1934, as amended.
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European Hotel Subsidiary: Quality Hotels of Europe, Inc., a Delaware
-------------------------
corporation and direct, wholly owned subsidiary of Choice.
Financing Obligations: All (i) indebtedness for borrowed money, (ii)
---------------------
obligations evidenced by bonds, notes, debentures or similar instruments, (iii)
obligations under capitalized leases and deferred purchase arrangements, (iv)
reimbursement or other obligations relating to letters of credit or similar
arrangements, and (v) obligations to guarantee, directly or indirectly, any of
the foregoing types of obligations on behalf of others.
Form 10: The Registration Statement on Form 10 under the Exchange Act
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with respect to the Franchising Common Stock.
Franchising Board: The Board of Directors of Franchising.
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Franchising Books and Records: The books and records (including
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computerized records) of Franchising and the Franchising Group Subsidiaries and
any other books and records
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of Choice's Subsidiaries which relate principally to the Franchising Group, are
necessary to conduct the Franchising Group Business, or are required by law to
be retained by Franchising or a Franchising Group Subsidiary, including, without
limitation, (i) all such books and records relating to Franchising Group
Employees, (ii) all files relating to any Action being assumed by Franchising as
part of the Franchising Group Liabilities, and (iii) original corporate minute
books, stock ledgers and certificates and corporate seals, and all licenses,
leases, agreements and filings, relating to Franchising, the Franchising Group
Subsidiaries or the Franchising Group Business (but not including the Choice
Books and Records, provided that Franchising shall have access to, and have the
right to obtain duplicate copies of, the Choice Books and Records which pertain
to the Franchising Group Business in accordance with the provisions of Article
VII).
Franchising Bylaws: The Restated Bylaws of Franchising, substantially
------------------
in the form of Exhibit C, to be in effect at the Distribution Date.
Franchising Certificate: The Restated Certificate of Incorporation of
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Franchising, substantially in the form of Exhibit D, to be in effect at the
Distribution Date.
Franchising Common Stock: The common stock, $.01 par value per share,
------------------------
of Franchising.
Franchising Group: Franchising and the Franchising Group Subsidiaries,
-----------------
collectively.
Franchising Group Assets: (i) All outstanding capital stock of the
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Franchising Group Subsidiaries; (ii) the Franchising Books and Records; (iii)
the rights of an insured under the Shared Policies; (iv) all of the assets
expressly to be retained by, or assigned or allotted to, Franchising or any of
the Franchising Group Subsidiaries under this Agreement or the
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Related Agreements; and (v) any other assets of Choice and its Subsidiaries used
principally in the Franchising Group Business.
Franchising Group Business: The Franchising Business and the European
--------------------------
Hotel Business, each as referenced in the recitals to this Agreement.
Franchising Group Employees: The meaning specified in the Employee
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Benefits Allocation Agreement.
Franchising Group Liabilities: (i) All of the Liabilities of the
-----------------------------
Franchising Group under, or to be retained or assumed by Franchising or any of
the Franchising Group Subsidiaries pursuant to, this Agreement or any of the
Related Agreements, including, without limitation, liabilities arising under the
securities or blue sky laws of the United States or of states or other political
subdivisions of the United States in connection with or related to, information
contained in or omitted from the Form 10 or the Proxy Statement; (ii) all
Liabilities constituting accounts payable of Choice and its Subsidiaries as of
the Distribution Date to the extent assumed by Franchising as provided in
Section 3.03; (iii) all Liabilities for payment of outstanding drafts of Choice
and its Subsidiaries existing as of the Distribution Date, other than drafts
drawn on Retained Cash Accounts; (iv) the Assumed Financing Obligations; (v) all
Liabilities of Franchising and the Franchising Group Subsidiaries, other than
Liabilities transferred to Choice or to any Real Estate Group Subsidiary in
connection with the Distribution; and (vi) all other Liabilities arising out of,
or in connection with, any of the Franchising Group Assets or the Franchising
Group Business; provided, however, that the Franchising Group Liabilities shall
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not include (i) any Financing Obligations of Choice or the Real Estate Group
Subsidiaries other than the Assumed Financing Obligations; and (ii) all claims,
losses, damages, demands, costs,
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expenses or Liabilities for any Tax (which shall be governed by Sections 5.06,
6.05 and 9.02 hereof and by the Tax Sharing Agreement).
Franchising Group Subsidiaries: All Subsidiaries of Franchising and the
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European Hotel Subsidiary.
GAAP: Generally accepted accounting principles.
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Holders: The holders of record of Choice Common Stock as of the
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Distribution Record Date.
Insurance Administration: With respect to each Policy (including Self
------------------------
Insurance Programs), shall include, but not be limited to, the accounting for
premiums retrospectively rated premiums, defense costs, adjuster's fees,
indemnity payments, deductibles and retentions as appropriate under the terms
and conditions of each of the Policies; and the reporting to primary and excess
insurance carriers of any losses or claims in accordance with Policy provisions,
and the distribution of Insurance Proceeds as contemplated by this Agreement.
Insurance Proceeds: Those moneys (i) received by an insured from an
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insurance carrier or (ii) paid by an insurance carrier on behalf of the insured,
in either case net of any applicable premium adjustment, retrospectively rated
premium, deductible, retention, cost or reserve paid or held by or for the
benefit of such insured.
Insured Claims: Those Liabilities that, individually or in the
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aggregate, are covered within the terms and conditions of any of the Policies,
whether or not subject to deductibles, co-insurance, uncollectability or
retrospectively rated premium adjustments, but only to the extent that such
Liabilities are within applicable Policy limits, including aggregates.
IRS: The Internal Revenue Service.
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IRS Ruling: The letter ruling issued by the IRS in response to the
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Ruling Request.
Liabilities: Any and all debts, liabilities and obligations, absolute
-----------
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, including all costs and expenses
relating thereto, and including, without limitation, those debts, liabilities
and obligations arising under any law, rule, regulation, Action, threatened
Action, order or consent decree of any governmental entity or any award of any
arbitrator of any kind, and those arising under any contract, commitment or
undertaking.
Manor Care: Manor Care, Inc., a Delaware corporation.
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Manor Care Agreements: Collectively, the (i) Employee Benefits and
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Other Matters Allocation Agreement dated as of November 1, 1996 between Choice
and Manor Care; (ii) Employee Benefits Administration Agreement dated as of
November 1, 1996 between Choice and Manor Care; (iii) Corporate Services
Agreement dated as of November 1, 1996 between Choice and Manor Care; (iv) Risk
Management Services Agreement dated as of November 1, 1996 between Choice and
Manor Care; and (v) Gaithersburg Lease Agreement dated as of November 1, 1996
between Choice and Manor Care.
Manor Care Distribution Agreement: The Distribution Agreement dated
---------------------------------
October 31, 1996, by and between Choice and Manor Care.
New Agreements: The Employee Benefits Allocation Agreement; Employee
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Benefits Administration Agreement; Noncompetition Agreement; Strategic Alliance
Agreement; Tax Sharing Agreement; and Tax Administration Agreement.
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Noncompetition Agreement: The Noncompetition Agreement between
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Franchising and Choice, which agreement shall be entered into on or prior to the
Distribution Date in substantially the form attached hereto as Exhibit E.
Omnibus Amendment and Guaranty: The Omnibus Amendment and Guaranty to
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be entered into among Manor Care, Choice and Franchising in connection with the
Distribution, substantially in the form attached hereto as Exhibit F.
Person: Any individual, corporation, partnership, association, trust,
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estate or other entity or organization, including any governmental entity or
authority.
Policies: Insurance policies and insurance contracts of any kind
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relating to the Franchising Group Business or the Real Estate Group Business as
conducted prior to the Distribution Date, including without limitation primary
and excess policies, comprehensive general liability policies, automobile,
aircraft, workers' compensation, property insurance, crime insurance and boiler
and machinery insurance policies and self-insurance and captive insurance
company arrangements, together with the rights and benefits thereunder.
Privileged Information: All information as to which Choice,
----------------------
Franchising or any of their Subsidiaries are entitled to assert the protection
of a Privilege.
Privileges: All privileges that may be asserted under applicable law
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including, without limitation, privileges arising under or relating to the
attorney-client relationship (including but not limited to the attorney-client
and work product privileges), the accountant-client privilege, and privileges
relating to internal evaluative processes.
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Proxy Statement: The Proxy Statement complying with Regulation 14A
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under the Exchange Act dated August 15, 1997 circulated to the stockholders of
Choice for purposes of soliciting proxies approving the Distribution and certain
related matters.
Real Estate Books and Records: The books and records (including
-----------------------------
computerized records) of Choice and the Real Estate Group Subsidiaries and any
other books and records of Choice's Subsidiaries which relate principally to the
Real Estate Group, are necessary to conduct the Real Estate Group Business or
are required by law to be retained by Choice or a Real Estate Group Subsidiary,
including, without limitation, (i) all such books and records relating to Real
Estate Group Employees, (ii) all files relating to any Action being retained or
assumed by Choice as part of the Real Estate Group Liabilities, and (iii)
original corporate minute books, stock ledgers and certificates and corporate
seals, and all licenses, leases, agreements and filings, relating to Choice, the
Real Estate Group Subsidiaries or the Real Estate Group Business (but not
including the Franchising Books and Records, provided that Choice shall have
access to, and shall have the right to obtain duplicate copies of, the
Franchising Books and Records in accordance with the provisions of Article VII).
Real Estate Group: Choice and the Real Estate Group Subsidiaries,
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collectively.
Real Estate Group Assets: The assets of Choice and the Real Estate
------------------------
Group Subsidiaries including, without limitation, (i) the capital stock of the
Real Estate Group Subsidiaries; (ii) the Choice Books and Records; (iii) the
rights of an insured under the Shared Policies; (iv) all of the assets expressly
to be retained by, or assigned or allocated to, Choice or any of the Real Estate
Group Subsidiaries under this Agreement or the Related Agreements; and (v) any
other assets of Choice and its Subsidiaries not constituting Franchising Group
Assets.
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Real Estate Group Business: The business conducted by the Real Estate
--------------------------
Group, as referenced in the recitals to this Agreement.
Real Estate Group Employees: The meaning specified in the Employee
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Benefits Allocation Agreement.
Real Estate Group Liabilities: (i) All of the Liabilities of Choice
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and the Real Estate Group Subsidiaries under, or to be retained or assumed by
Choice or any of the Real Estate Group Subsidiaries pursuant to, this Agreement
or any of the Related Agreements; (ii) any Financing Obligations of Choice and
its Subsidiaries not constituting Franchising Group Liabilities; (iii) all
Liabilities transferred to Choice or the Real Estate Group Subsidiaries in
connection with the Distribution; (iv) all claims, losses, damages, demands,
costs, expenses or Liabilities for any Tax (which shall be governed by Sections
5.06, 6.05 and 9.02 hereof and by the Tax Sharing Agreement); (v) all other
Liabilities arising out of, or in connection with, any of the Real Estate Group
Assets or the Real Estate Group Business; and (vi) to the extent not otherwise
provided for, all other Liabilities of Choice and its Subsidiaries not
constituting Franchising Group Liabilities.
Real Estate Group Subsidiaries: All Subsidiaries of Choice, except
------------------------------
Franchising and the Franchising Group Subsidiaries.
Related Agreements: All of the agreements, instruments, understandings,
------------------
assignments or other arrangements set forth in writing, which are entered into
in connection with the transactions contemplated hereby, including, without
limitation: the Conveyancing and Assumption Instruments, the Omnibus Amendment
and Guaranty, and the New Agreements.
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Retained Cash Accounts: The bank accounts set forth on Schedule 2.07
----------------------
hereto, which accounts are in the name of First Choice Properties Corporation.
Ruling Request: The private letter ruling request filed by Choice
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with the Internal Revenue Service on March 24, 1997, as supplemented and amended
from time to time, with respect to certain tax matters relating to the
Distribution.
Self Insurance Programs: Those self insured programs maintained by
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Choice prior to the Distribution for the benefit of its employees, properties
and Franchising businesses, including without limitation such programs that
utilize "fronted policies."
Shared Policies: All Policies, current or past, which are owned or
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maintained by or on behalf of Choice and Franchising or any of their
Subsidiaries or their respective predecessors which relate to the Real Estate
Group Business and the Franchising Group Business, including Self Insurance
Programs.
Strategic Alliance Agreement: The Strategic Alliance Agreement to be
----------------------------
entered into between Choice and Franchising substantially in the form attached
hereto as Exhibit G.
Subsidiary: With respect to any Person, (a) any corporation of which
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at least a majority in interest of the outstanding voting stock (having by the
terms thereof voting power under ordinary circumstances to elect a majority of
the directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned or controlled by such Person, by one or more
Subsidiaries of such Person, or by such Person and one or more of its
Subsidiaries, or (b) any corporate or non-corporate entity in which such Person,
one or more Subsidiaries of such Person, or such Person and one or more
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Subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, has an ownership interest and which is included in the
consolidated financial reports of such Person consistent with generally accepted
accounting principles.
Tax: The meaning set forth in the Tax Sharing Agreement.
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Tax Administration Agreement: The Tax Administration Agreement
----------------------------
between Choice and Franchising pursuant to which such parties will provide to
the other certain tax administration services after the consummation of the
Distribution, which agreement shall be entered into on or prior to the
Distribution Date in substantially the form attached hereto as Exhibit H.
Tax Sharing Agreement: The Tax Sharing Agreement between Choice and
---------------------
Franchising pursuant to which such parties will provide for the allocation of
certain tax liabilities after the consummation of the Distribution, which
agreement shall be entered into on or prior to the Distribution Date in
substantially in the form attached hereto as Exhibit I.
Section 1.02. Terms Defined Elsewhere in Agreement.
-------------------------------------
Each of the following terms is defined in the Section set forth opposite such
term:
Term Section
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Choice Recitals
Choice Brands Recitals
Choice Indemnitees 5.01
Choice Payables 3.03
Committee 9.14
Consents 4.01
Distribution Recitals
Dispute 9.14
Franchising Recitals
Franchising Business Recitals
Franchising Equity 3.03
Franchising Indemnities 5.01
Indemnifiable Loss 5.01
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Term Section
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Indemnifying Party 5.03
Indemnified Person 5.03
Information 7.02
Insurance Charges 8.03
Preliminary Transfers Recitals
Real Estate Group Recitals
Term Note 3.02
Third -Party Claim 5.04
Transaction Taxes 6.05
II.
TRANSFER OF ASSETS
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Section 2.01. Transfer of Assets to Franchising.
---------------------------------
Prior to the Distribution Date, Choice shall take or cause to be taken
all actions necessary to cause the transfer, assignment, delivery and conveyance
to Franchising or the Franchising Group Subsidiary designated by Franchising, of
all of Choice's and Real Estate Subsidiaries' right, title and interest in any
Franchising Group Assets held, on or prior to the Distribution Date, by Choice
or any Real Estate Group Subsidiary.
Section 2.02. Transfers of Assets from Franchising Group Subsidiaries
-------------------------------------------------------
to Choice or Real Estate Group Subsidiaries.
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Prior to the Distribution Date, Franchising shall take or cause to be
taken all actions necessary to cause the transfer, assignment, delivery and
conveyance to Choice or the Real Estate Subsidiary designated by Choice, of all
of Franchising's and the Franchising Group Subsidiaries' right, title and
interest in any Real Estate Group Assets held, on or prior to the Distribution
Date, by Franchising or any of the Franchising Group Subsidiaries.
Section 2.03. Transfers Not Effected Prior to the Distribution.
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To the extent that any transfers contemplated by this Article II shall
not have been fully effected on the Distribution Date, the parties shall
cooperate to effect such transfers as
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promptly as shall be practicable following the Distribution Date. Nothing herein
shall be deemed to require the transfer of any assets or the assumption of any
Liabilities which by their terms or operation of law cannot betransferred or
assumed; provided, however, that Choice and Franchising and their respective
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Subsidiaries and Affiliates shall cooperate in seeking to obtain any necessary
consents or approvals for the transfer of all assets and Liabilities
contemplated to be transferred pursuant to this Article II. In the event that
any such transfer of assets or Liabilities has not been consummated effective as
of the Distribution Date, the party retaining such asset or Liability shall
thereafter hold such asset in trust for the use and benefit of the party
entitled thereto (at the expense of the party entitled thereto) and retain such
Liability for the account of the party by whom such Liability is to be assumed
pursuant hereto, and take such other actions as may be reasonably required in
order to place the parties, insofar as reasonably possible, in the same position
as would have existed had such asset been transferred or such Liability been
assumed as contemplated hereby. As and when any such asset or Liability becomes
transferable, such transfer and assumption shall be effected forthwith. The
parties agree that, except as set forth in this Section 2.03, as of the
Distribution Date, each party hereto shall be deemed to have acquired complete
and sole beneficial ownership over all of the assets, together with all rights,
powers and privileges incidental thereto, and shall be deemed to have assumed in
accordance with the terms of this Agreement all of the Liabilities, and all
duties, obligations and responsibilities incidental thereto, which such party is
entitled to acquire or required to assume pursuant to the terms of this
Agreement.
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Section 2.04. Cooperation Re: Assets.
-----------------------
In the case that at any time after the Distribution Date, Franchising
reasonably determines that any of the Real Estate Group Assets are essential for
the conduct of the Franchising Group Business, or Choice reasonably determines
that any of the Franchising Group Assets are essential for the conduct of the
Real Estate Group Business, and the nature of such assets makes it impracticable
for Franchising or Choice, as the case may be, to obtain substitute assets or to
make alternative arrangements on commercially reasonable terms to conduct their
respective businesses, and reasonable provisions for the use thereof are not
already included in the Related Agreements, then Franchising (with respect to
the Franchising Group Assets) and Choice (with respect to the Real Estate Group
Assets) shall cooperate to make such assets available to the other party on
commercially reasonable terms, as may be reasonably required for such party to
maintain normal business operations. However, (i) the usage of such assets by
the other party shall not materially interfere with the use of such assets by
the party holding such assets, and (ii) such assets shall be required to be made
available only until such time as the other party may reasonably obtain
substitute assets or make alternative arrangements on commercially reasonable
terms to permit it to maintain normal business operations.
Section 2.05. No Representations or Warranties; Consents.
------------------------------------------
Each of the parties hereto understands and agrees that no party hereto
is, in this Agreement, in any Related Agreement, or otherwise, representing or
warranting in any way (i) as to the value or freedom from encumbrance of, or any
other matter concerning, any assets of such party or (ii) as to the legal
sufficiency to convey title to any asset transferred pursuant to this Agreement
or any Related Agreement. It is also agreed and understood that there are no
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warranties, express or implied, as to the merchantability or fitness of any of
the assets either transferred to or retained by the parties, as the case may be,
and all such assets shall be "as is, where is" and "with all faults" provided,
however, that the absence of warranties shall have no effect upon the allocation
of Liabilities under this Agreement. Each party hereto understands and agrees
that no party hereto is, in this Agreement, in any Related Agreement or
otherwise, representing or warranting in any way that the obtaining of any
consents or approvals, the execution and delivery of any amendatory agreements
and the making of any filings or applications contemplated by this Agreement,
any Related Agreement or otherwise will satisfy the provisions of any or all
applicable laws or judgments or other instruments or agreements relating to such
assets. Notwithstanding the foregoing, the parties shall use their good faith
efforts to obtain all consents and approvals, to enter into all reasonable
amendatory agreements and to make all filings and applications which may be
reasonably required for the consummation of the transactions contemplated by
this Agreement and the Related Agreements, and shall take all such further
reasonable actions as shall be reasonably necessary to preserve for each of the
Franchising Group and the Real Estate Group, to the greatest extent feasible,
the economic and operational benefits of the allocation of assets and
liabilities provided for in this Agreement. In case at any time after the
Distribution Date any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall take all such necessary or desirable action.
Section 2.06. Conveyancing and Assumption Instruments.
---------------------------------------
In connection with the Preliminary Transfers described in Article II and
Article III hereof, and the assignment of assets and the assumption of
Liabilities contemplated by any
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Related Agreements, the parties shall execute, or cause to be executed by the
appropriate entities, the Conveyancing and Assumption Instruments in such forms
as the parties shall reasonably agree. The transfer of capital stock shall be
effected by means of delivery of stock certificates and executed stock powers
and notation on the stock record books of the corporation or other legal
entities involved and, to the extent required by applicable law, by notation on
public registries.
Section 2.07. Cash Allocation; Cash Management.
--------------------------------
(a) Cash Allocation on the Distribution Date. The allocation between
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Choice and Franchising of all domestic and international cash bank balances,
short-term investments and outstanding checks and drafts of Choice and its
Subsidiaries recorded per the books of Choice and its Subsidiaries shall be in
accordance with the following:
(i) all cash received in, and deposits of cash, checks, drafts
or short-term investments made to, depository accounts, other than the
Retained Cash Accounts, as of the close of business on the
Distribution Date shall be remitted to Franchising; and
(ii) all cash in, and deposits of cash, checks, drafts or
short-term investments made to the Retained Cash Accounts, including
deposits held with respect to any Real Estate Group Asset, as of the
close of business on the Distribution Date shall remain with Choice
and the Real Estate Group Subsidiaries.
(b) Cash Management After the Distribution Date. All petty cash,
-------------------------------------------
depository and disbursement accounts of Choice (other than the Retained Cash
Accounts) on the
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Distribution Date shall be transferred to Franchising after the allocations are
made pursuant to this Section 2.07. Choice shall retain the Retained Cash
Accounts and shall establish and maintain a separate cash management system and
accounting records with respect to the Real Estate Group Business effective as
of 12:01 a.m. New York time on the day following the Distribution Date.
(c) For purposes of this Section 2.07, the parties contemplate that the
Franchising Group Business and the Real Estate Group Business, including, but
not limited to, the administration of accounts payable and accounts receivable,
will be conducted in the ordinary course of business and consistent with past
practice prior the Distribution Date.
(d) For purposes of this Section 2.07, any Dispute shall be resolved in
accordance with Section 9.14 hereof.
Section 2.08. Agreements Between Choice and Franchising.
-----------------------------------------
On or prior to the Distribution Date, Choice and Franchising shall
enter into the New Agreements.
Section 2.09. Agreements Between Choice and/or Franchising and
------------------------------------------------
Manor Care.
- ----------
On or prior to the Distribution Date, Choice and/or Franchising and
Manor Care, as appropriate, shall enter into the Omnibus Amendment and Guaranty.
III.
ASSUMPTION AND SATISFACTION OF LIABILITIES
------------------------------------------
Section 3.01. Assumption and Satisfaction of Liabilities.
------------------------------------------
Except as set forth in one or more of the Related Agreements, effective
as of and after the Distribution Date, (a) Franchising shall, and/or shall cause
the Franchising Group Subsidiaries to, assume, pay, perform and discharge in due
course all of the Franchising Group
21
Liabilities, and (b) Choice shall, and/or shall cause the Real Estate Group
Subsidiaries to, assume, pay, perform and discharge in due course all of the
Real Estate Group Liabilities.
Section 3.02 Intercompany Indebtedness.
-------------------------
On the Distribution Date, Franchising will loan to Choice $115,000,000
which will be evidenced by a subordinated note (the "Term Note") from Choice to
Franchising with an aggregate principal amount of $115,000,000 and a maturity
date of five years. The Term Note will accrue interest at a rate equal to 500
basis points above the interest rate on a 5-year U.S. Treasury Note, with such
rate to be fixed on the Distribution Date.
Section 3.03 Allocation of Accounts Payable
------------------------------
Franchising will be responsible for assuming all Liabilities
constituting accounts payable of Choice and its Subsidiaries as of the
Distribution Date (other than those relating to the CMBS Properties) (the
"Choice Payables"), so long as such assumption would not cause the shareholders'
equity of Franchising as of the Distribution Date (as determined in accordance
with GAAP) (the "Franchising Equity") to be less than $40,000,000. In the event
that such assumption would cause the Franchising Equity to be less than
$40,000,000, Choice shall retain Choice Payables to the extent necessary to
cause the Franchising Equity to be $40,000,000. The parties recognize that it
may not be possible to determine the Choice Payables and the Franchising Equity
on the Distribution Date. Accordingly, the parties will estimate Choice Payables
and Franchising Equity as of September 30, 1997, and, within 30 days of the
Distribution Date, agree upon a final determination of Choice Payables and
Franchising Equity. In the event that, based on such determination, either
Choice or Franchising assumed more than its proper share of Choice Payables on
the Distribution Date, the excess amount assumed by such
22
party shall be reflected as a receivable to such party and a payable by the
other party on the Distribution Date. Any such receivable/payable shall be paid
as soon as reasonably practicable.
IV.
THE DISTRIBUTION
----------------
Section 4.01. Cooperation Prior to the Distribution.
-------------------------------------
(a) Franchising and Choice shall cooperate in preparing, filing with the
Commission and causing to become effective any registration statements or
amendments thereof which are appropriate to reflect the establishment of, or
amendments to, any employee benefit plans and other plans contemplated by the
Employee Benefits Allocation Agreement.
(b) Franchising and Choice shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of states or
other political subdivisions of the United States in connection with the
transactions contemplated by this Agreement and the Related Agreements.
(c) Franchising and Choice shall use all reasonable efforts to obtain
any third-party consents or approvals necessary or desirable in connection with
the transactions contemplated hereby ("Consents") .
--------
(d) Franchising and Choice will use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary or desirable under applicable law, to consummate the transactions
contemplated under this Agreement and the Related Agreements.
Section 4.02. Choice Board Action; Conditions Precedent to the
------------------------------------------------
Distribution.
------------
The Choice Board shall, in its sole discretion, establish the Record
Date and the
23
Distribution Date and any appropriate procedures in connection with the
Distribution. In no event shall the Distribution occur unless the following
conditions shall have been satisfied:
(i) the transactions contemplated in Article II and Article III
shall have been consummated in all material respects;
(ii) the Franchising Board, comprised as contemplated by Section
6.01, shall have been elected by Choice, as sole stockholder of
Franchising, and the Franchising Certificate and Franchising Bylaws
shall have been adopted and shall be in effect;
(iii) the Ruling Request shall have been granted in form and
substance satisfactory to the Choice Board, in its sole discretion and
the representations made to the IRS therein shall be true in all
material respects;
(iv) the Form 10 shall have been declared effective by the
Commission;
(v) Franchising and Choice shall have entered into the Related
Agreements to which they are a party and each of the transactions
contemplated by the Related Agreements to be consummated on or prior
to the Distribution Date shall have been consummated;
(vi) all necessary regulatory approvals and consents of third
parties shall have been received;
(vii) Franchising shall have obtained, or Choice shall have
obtained for Franchising, insurance (or binders therefor) providing
24
coverage to Franchising similar to the coverage provided by insurance
in place prior to the Distribution Date; and,
(viii) financing arrangements with respect to Choice and
Franchising satisfactory to the Choice Board in its sole discretion
shall be in place.
provided, however, that (x) any such condition may be waived by the Choice Board
- -------- -------
in its sole discretion, and (y) the satisfaction of such conditions shall not
create any obligation on the part of Choice or any other party hereto to effect
the Distribution or in any way limit Choice's power of termination set forth in
Section 9.08 or alter the consequences of any such termination from those
specified in such Section.
Section 4.03. The Distribution.
----------------
On the Distribution Date, or as soon thereafter as practicable, subject
to the conditions and rights of termination set forth in this Agreement, Choice
shall deliver to the Agent a share certificate representing all of the then
outstanding shares of Franchising Common Stock owned by Choice, endorsed in
blank, and shall instruct the Agent to distribute to each Holder, on or as soon
as practicable following the Distribution Date, a certification, or if requested
by such Holder, a certificate, representing one share of Franchising Common
Stock for each share of Choice Common Stock so held. Franchising agrees to
provide all share certificates that the Agent shall require in order to effect
the Distribution.
25
V.
INDEMNIFICATION
---------------
Section 5.01. Indemnification by Choice.
-------------------------
Except as otherwise expressly set forth in a Related Agreement, Choice
shall indemnify, defend and hold harmless Franchising and each of the
Franchising Group Subsidiaries, and each of their respective directors,
officers, employees, agents and Affiliates and each of the heirs, executors,
successors and assigns of any of the foregoing (the "Franchising Indemnitees")
-----------------------
from and against any and all losses, Liabilities, damages and expenses
(including, without limitation, the reasonable costs and expenses of
investigation and reasonable attorney's fees and expenses in connection with any
or all such investigations or any and all Actions, or threatened Actions)
(collectively, "Indemnifiable Losses" and, individually, an "Indemnifiable
-------------------- -------------
Loss") incurred or suffered by any of the Franchising Indemnitees and arising
- ----
out of or due to the failure or alleged failure of Choice, any Real Estate Group
Subsidiary, or any of their Affiliates to pay, perform or otherwise discharge in
due course any of the Real Estate Group Liabilities or comply with the
provisions of Section 6.04. To the extent that counsel is provided to
Franchising under this Indemnification, such counsel shall be selected by Choice
and such counsel may include its in-house corporate counsel.
Section 5.02. Indemnification by Franchising.
------------------------------
Except as otherwise expressly set forth in a Related Agreement,
Franchising shall indemnify, defend and hold harmless Choice and each of the
Real Estate Group Subsidiaries, and each of their respective directors,
officers, employees, agents and Affiliates and each of the heirs, executors,
successors and assigns of any of the foregoing (the "Choice Indemnitees") from
------------------
and against any and all Indemnifiable Losses incurred or suffered by any of the
Choice Indemnitees
26
and arising out of or due to the failure or alleged failure of Franchising, any
Franchising Group Subsidiaries, or any of their Affiliates to pay, perform or
otherwise discharge in due course any of the Franchising Group Liabilities or
comply with the provisions of Section 6.04. To the extent that counsel is
provided to Choice under this Indemnification, such counsel shall be selected by
Franchising and such counsel may include its in-house corporate counsel.
Section 5.03. Insurance Proceeds.
------------------
The amount which any party (an "Indemnifying Party") is or may be
------------------
required to pay to any other Person (an "Indemnified Person") pursuant to
------------------
Section 5.01 or Section 5.02 shall be reduced (including, without limitation,
retroactively) by any Insurance Proceeds or other amounts actually recovered by
or on behalf of such Indemnified Person in reduction of the related
Indemnifiable Loss. If an Indemnified Person shall have received the payment
required by this Agreement from an Indemnifying Party in respect of an
Indemnifiable Loss and shall subsequently actually receive Insurance Proceeds,
or other amounts in respect of such Indemnifiable Loss as specified above, then
such Indemnified Person shall pay to such Indemnifying Party a sum equal to the
amount of such Insurance Proceeds or other amounts actually received.
Section 5.04. Procedure for Indemnification.
-----------------------------
(a) Except as may be set forth in a Related Agreement, if an Indemnified
Person shall receive notice or otherwise learn of the assertion by a Person
(including, without limitation, any governmental entity) who is not a party to
this Agreement or to any of the Related Agreements of any claim or of the
commencement by any such Person or its Affiliate of any Action with respect to
which an Indemnifying Party may be obligated to provide indemnification
27
pursuant to this Agreement (a "Third-Party Claim"), such Indemnified Person
-----------------
shall give such Indemnifying Party written notice thereof promptly after
becoming aware of such Third-Party Claim; provided, that the failure of any
--------
Indemnified Person to give notice as required by this Section 5.04 shall not
relieve the Indemnifying Party of its obligations under this Article V, except
to the extent that such Indemnifying Party is prejudiced by such failure to give
notice. Such notice shall describe the Third-Party Claim in reasonable detail,
and shall indicate the amount (estimated if necessary) of the Indemnifiable Loss
that has been or may be sustained by such Indemnified Person.
(b) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any Third-Party Claim, provided that the Indemnifying Party
must confirm in writing that it agrees that the Indemnified Person is entitled
to indemnification hereunder in respect of such Third-Party Claim. Within 30
days of the receipt of notice from an Indemnified Person in accordance with
Section 5.04(a) (or sooner, if the nature of such Third-Party Claim so
requires), the Indemnifying Party shall notify the Indemnified Person of its
election whether to assume responsibility for such Third-Party Claim (provided
that if the Indemnifying Party does not so notify the Indemnified Person of its
election within 30 days after receipt of such notice from the Indemnified
Person, the Indemnifying Party shall be deemed to have elected not to assume
responsibility for such Third-Party Claim), and such Indemnified Person shall
cooperate in the defense or settlement or compromise of such Third-Party Claim.
After notice from an Indemnifying Party to an Indemnified Person of its election
to assume responsibility for a Third-Party Claim, such Indemnifying Party shall
not be liable to such Indemnified Person under this
28
Article V for any legal or other expenses (except expenses approved in advance
by the Indemnifying Party) subsequently incurred by such Indemnified Person in
connection with the defense thereof; provided, that if the defendants in any
--------
such claim include both the Indemnifying Party and one or more Indemnified
Persons and in such Indemnified Persons' reasonable judgment a conflict of
interest between such Indemnified Persons and such Indemnifying Party exists in
respect of such claim, such Indemnified Persons shall have the right to employ
separate counsel and in that event the reasonable fees and expenses of such
separate counsel (but not more than one separate counsel reasonably satisfactory
to the Indemnifying Party) shall be paid by such Indemnifying Party. If an
Indemnifying Party elects not to assume responsibility for a Third-Party Claim
(which election may be made only in the event of a good faith dispute that a
claim was inappropriately tendered under Section 5.01 or 5.02, as the case may
be) such Indemnified Person may defend or (subject to the following sentence)
seek to compromise or settle such Third-Party Claim. Notwithstanding the
foregoing, an Indemnified Person may not settle or compromise any claim without
prior written notice to the Indemnifying Party, which shall have the option
within ten days following the receipt of such notice (i) to disapprove the
settlement and assume all past and future responsibility for the claim,
including reimbursing the Indemnified Person for prior expenditures in
connection with the claim, or (ii) to disapprove the settlement and continue to
refrain from participation in the defense of the claim, in which event the
Indemnifying Party shall have no further right to contest the amount or
reasonableness of the settlement if the Indemnified Person elects to proceed
therewith, or (iii) to approve the amount of the settlement, reserving the
Indemnifying Party's right to contest the Indemnified Person's right to
indemnity, or (iv) to approve and agree to pay the settlement. In the event the
Indemnifying
29
Party makes no response to such written notice from the Indemnity, the
Indemnifying Party shall be deemed to have elected option (ii).
(c) If an Indemnifying Party chooses to defend or to seek to compromise
any Third-Party Claim, the Indemnified Person shall make available to such
Indemnifying Party any personnel and any books, records or other documents
within its control or which it otherwise has the ability to make available that
are necessary or appropriate for such defense.
(d) Any claim on account of an Indemnifiable Loss which does not result
from a Third-Party Claim shall be asserted by written notice given by the
Indemnified Person to the applicable Indemnifying Party. Such Indemnifying Party
shall have a period of 15 days after the receipt of such notice within which to
respond thereto. If such Indemnifying Party does not respond within such 15-day
period, such Indemnifying Party shall be deemed to have refused to accept
responsibility to make payment. If such Indemnifying Party does not respond
within such 15-day period or rejects such claim in whole or in part, such
Indemnified Person shall be free to pursue such remedies as may be available to
such party under applicable law or under this Agreement.
(e) In addition to any adjustments required pursuant to Section 5.03, if
the amount of any Indemnifiable Loss shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnified Person to the
Indemnifying Party.
(f) In the event of payment by an Indemnifying Party to any Indemnified
Person in connection with any Third-Party Claim, such Indemnifying Party shall
be subrogated
30
to and shall stand in the place of such Indemnified Person as to any events or
circumstances in respect of which such Indemnified Person may have any right or
claim relating to such Third-Party Claim against any claimant or plaintiff
asserting such Third-Party Claim or against any other party that may be liable.
Such Indemnified Person shall cooperate with such Indemnifying Party in a
reasonable manner, and at the cost and expense of such Indemnifying Party, in
prosecuting any subrogated right or claim.
Section 5.05. Remedies Cumulative.
-------------------
The remedies provided in this Article V shall be cumulative and shall
not preclude assertion by any Indemnified Person of any other rights or the
seeking of any and all other remedies against any Indemnifying Party.
Section 5.06. After-Tax Indemnification Payments.
----------------------------------
Except as otherwise expressly provided herein or in a Related Agreement,
any indemnification payment made by any Indemnifying Party under this Article V
shall be computed by taking into account the value of any and all applicable
deductions, losses, credits, offsets or other items for Federal, State or other
Tax purposes attributable to the payment of the Indemnified Losses by the
Indemnified Person attributable to receipt of the indemnification payment.
Section 5.07. Survival of Indemnities.
-----------------------
The obligations of each of Franchising and Choice under this Article V
shall survive the sale or other transfer by it of any assets or businesses or
the assignment by it of any Liabilities, with respect to any Indemnifiable Loss
of the other related to such assets, businesses or Liabilities.
31
VI.
CERTAIN ADDITIONAL MATTERS
--------------------------
Section 6.01. Franchising Board.
-----------------
Franchising and Choice shall take all as officers and directors of
Franchising those persons named in the Form 10 (as may be altered or
supplemented prior to the date hereof by the Choice Board and the Franchising
Board) to constitute, effective as of the Distribution Date, the officers and
the directors of Franchising.
Section 6.02. Resignations; Choice Board.
--------------------------
(a) Franchising shall cause all of its directors and Franchising Group
Employees to resign, effective as of the Distribution Date, from all boards of
directors or similar governing bodies of Choice or any of the Real Estate Group
Subsidiaries on which they serve, and from all positions as officers or
employees of Choice or any of the Real Estate Group Subsidiaries in which they
serve, except that (i) Stewart Bainum, Stewart Bainum Jr., and Frederick V.
Malek each shall serve as a director of both Franchising and Choice and (ii)
Stewart Bainum, Jr. shall also serve as Chairman of the board of directors of
Franchising and of Choice. Choice shall cause all of its directors and the Real
Estate Group Employees to resign from all boards of directors or similar
governing bodies of Franchising or any of the Franchising Group Subsidiaries on
which they serve, and from all positions as officers or employees of Franchising
or any of the Franchising Group Subsidiaries in which they serve, except to the
extent specified in the preceding sentence.
Section 6.03. Certificate and Bylaws.
----------------------
(a) On or prior to the Distribution Date, Franchising shall adopt the
Franchising Certificate and the Franchising Bylaws, and shall file the
Franchising Certificate
32
with the Secretary of State of the State of Delaware. Choice shall provide all
necessary shareholder approvals for the Franchising Certificate prior to the
filing of the Franchising Certificate with the Secretary of State of the State
of Delaware.
(b) On or prior to the Distribution Date, Choice shall obtain all
necessary corporate approvals (including the approval by the holders of Choice
Common Stock) to the Choice Amended Certificate, and shall file the Choice
Amended Certificate with the Secretary of State of the State of Delaware.
Section 6.04. Certain Post-Distribution Transactions. Each of Choice
--------------------------------------
and Franchising shall, and shall cause each of their respective Subsidiaries to,
comply in all material respects with each representation and statement made, or
to be made, to any taxing authority in connection with the IRS Ruling or any
other ruling obtained, or to be obtained, by Choice and Franchising acting
together, from any such taxing authority with respect to any transaction
contemplated by this Agreement.
Section 6.05. Sales and Transfer Taxes.
------------------------
Choice and Franchising agree to cooperate to determine the amount of
sales, transfer or other taxes or fees, including, without limitation, all real
estate, patent, trademark and transfer taxes and recording fees payable in
connection with the transactions contemplated by the Agreement (the "Transaction
Taxes"). Choice agrees to file promptly and timely the returns for such
Transaction Taxes and Franchising will join in the execution of any such tax
returns or other documentation. Payment of all such Transaction Taxes shall be
the responsibility of Choice.
33
VII.
ACCESS TO INFORMATION AND SERVICES
Section 7.01. Provision of Corporate Records.
------------------------------
(a) Except as may otherwise be provided in a Related Agreement, Choice
shall arrange as soon as practicable following the Distribution Date, to the
extent not previously delivered in connection with the transactions contemplated
in Article II, for the transportation (at Franchising's cost) to Franchising of
the Franchising Books and Records in its possession, except to the extent such
items are already in the possession of Franchising or a Franchising Group
Subsidiary. The Franchising Books and Records shall be the property of
Franchising, but shall be available to Choice for review and duplication until
Choice shall notify Franchising in writing that such records are no longer of
use to Choice.
(b) Except as may otherwise be provided in a Related Agreement,
Franchising shall arrange as soon as practicable following the Distribution
Date, to the extent not previously delivered in connection with the transactions
contemplated in Article II, for the transportation (at Choice's cost) to Choice
of the Choice Books and Records in its possession, except to the extent such
items are already in the possession of Choice. The Choice Books and Records
shall be the property of Choice, but the Choice Books and Records that
reasonably relate to the Franchising Group Business shall be available to
Franchising for review and duplication until Franchising shall notify Choice in
writing that such records are no longer of use to Franchising.
Section 7.02. Access to Information.
---------------------
Except as otherwise provided in a Related Agreement, from and after the
Distribution Date, Choice shall afford to Franchising and its authorized
accountants, counsel and other designated representatives reasonable access
(including using reasonable efforts to give
34
access to persons or firms possessing information) and duplicating rights during
normal business hours to all records, books, contracts, instruments, computer
data and other data and information relating to pre-Distribution operations
(collectively, "Information") within Choice's possession insofar as such
-----------
access is reasonably required by Franchising for the conduct of its business,
subject to appropriate restrictions for classified or Privileged Information.
Similarly, except as otherwise provided in a Related Agreement, Franchising
shall afford to Choice and its authorized accountants, counsel and other
designated representatives reasonable access (including using reasonable efforts
to give access to persons or firms possessing information) and duplicating
rights during normal business hours to Information within Franchising's
possession, insofar as such access is reasonably required by Choice for the
conduct of its business, subject to appropriate restrictions for classified or
Privileged Information. Information may be requested under this Article VII for
the legitimate business purposes of either party, including without limitation,
audit, accounting, claims (including claims for indemnification hereunder),
litigation and tax purposes, as well as for purposes of fulfilling disclosure
and reporting obligations and for performing this Agreement and the transactions
contemplated hereby. The parties hereby agree that Franchising shall also grant
to Choice reasonable access to the computer systems maintained by Franchising
after the Distribution that contain data and other information reasonably
related to the Real Estate Group Assets or the Real Estate Group Business, for
purposes of review and retrieval of such data (including the generation of
reports containing such data).
Section 7.03. Production of Witnesses.
-----------------------
At all times from and after the Distribution Date, each of Franchising
and Choice shall use reasonable efforts to make available to the other, upon
written request, its and its
35
Subsidiaries' officers, directors, employees and agents as witnesses to the
extent that such persons may reasonably be required in connection with any
Action.
Section 7.04. Reimbursement.
-------------
Except to the extent otherwise contemplated in any Related Agreement, a
party providing Information or witnesses to the other party under this Article
VII shall be entitled to receive from the recipient, upon the presentation of
invoices therefor, payments of such amounts, relating to supplies, disbursements
and other out-of-pocket expenses (at cost) and direct and indirect expenses of
employees who are witnesses or otherwise furnish assistance (at cost), as may be
reasonably incurred in providing such Information or witnesses.
Section 7.05. Retention of Records.
--------------------
Except as otherwise required by law or agreed to in a Related Agreement
or otherwise in writing, each of Franchising and Choice may destroy or otherwise
dispose of any of the Information, which is material Information and is not
contained in other Information retained by the other, only after the tenth
anniversary of this Agreement, provided that, prior to such destruction or
disposal, (a) it shall provide no less than 90 or more than 120 days prior
written notice to the other, specifying in reasonable detail the Information
proposed to be destroyed or disposed of and (b) if a recipient of such notice
shall request in writing prior to the scheduled date for such destruction or
disposal that any of the Information proposed to be destroyed or disposed of be
delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such of the Information as
was requested at the expense of the party requesting such Information.
36
Section 7.06. Confidentiality.
---------------
Each of Choice and its Subsidiaries on the one hand, and Franchising and
its Subsidiaries on the other hand, shall hold, and shall cause its consultants
and advisors to hold, in strict confidence, all Information concerning the other
in its possession or furnished by the other or the other's representatives
pursuant to this Agreement (except to the extent that such Information has been
(i) in the public domain through no fault of such party or (ii) later lawfully
acquired from other sources by such party), and each party shall not release or
disclose such Information to any other person, except its auditors, attorneys,
financial advisors, rating agencies, bankers and other consultants and advisors,
unless compelled to disclose by judicial or administrative process or, as
reasonably advised by its counsel, by other requirements of law, or unless such
Information is reasonably required to be disclosed in connection with (x) any
litigation with any third-parties or litigation between the Real Estate Group
and the Franchising Group, (y) any contractual agreement to which the Real
Estate Group or the Franchising Group are currently parties, or (z) in exercise
of either party's rights hereunder.
Section 7.07. Privileged Matters.
------------------
Franchising and Choice recognize that legal and other professional
services that have been and will be provided prior to the Distribution Date have
been and will be rendered for the benefit of both the Real Estate Group and the
Franchising Group and that both the Real Estate Group and the Franchising Group
should be deemed to be the client for the purposes of asserting all Privileges.
To allocate the interests of each party in the Privileged Information, the
parties agree as follows:
37
(a) Choice shall be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which relates
solely to the Real Estate Group, whether or not the Privileged Information is in
the possession of or under the control of Choice or Franchising. Choice shall
also be entitled, in perpetuity, to control the assertion or waiver of all
Privileges in connection with Privileged Information that relates solely to the
subject matter of any claims constituting Real Estate Group Liabilities, now
pending or which may be asserted in the future, in any lawsuits or other
proceedings initiated against or by Choice, whether or not the Privileged
Information is in the possession of or under the control of Choice or
Franchising.
(b) Franchising shall be entitled, in perpetuity, to control the
assertion or waiver of all Privileges in connection with Privileged Information
which relates solely to the Franchising Group, whether or not the Privileged
Information is in the possession of or under the control of Choice or
Franchising. Franchising shall also be entitled, in perpetuity, to control the
assertion or waiver of all Privileges in connection with Privileged Information
which relates solely to the subject matter of any claims constituting
Franchising Group Liabilities, now pending or which may be asserted in the
future, in any lawsuits or other proceedings initiated against or by
Franchising, whether or not the Privileged Information is in the possession of
or under the control of Choice or Franchising.
(c) Franchising and Choice agree that they shall have a shared
Privilege, with equal right to assert or waive, subject to the restrictions in
this Section 7.07, with respect to all Privileges not allocated pursuant to the
terms of Sections 7.07(a) and (b). All Privileges relating to any claims,
proceedings, litigation, disputes, or other matters which involve both
Franchising
38
and Choice or in respect of which both Franchising and Choice retain any
responsibility or liability under this Agreement, shall be subject to a shared
Privilege .
(d) No party may waive any Privilege which could be asserted under any
applicable law, and in which the other party has a shared Privilege, without the
consent of the other party, except to the extent reasonably required in
connection with any litigation with third-parties or as provided in subsection
(e) below. Consent shall be in writing, or shall be deemed to be granted unless
written objection is made within twenty (20) days after written notice upon the
other party requesting such consent.
(e) In the event of any litigation or dispute between a member of the
Real Estate Group and a member of the Franchising Group, either party may waive
a Privilege in which the other party has a shared Privilege, without obtaining
the consent of the other party, provided that such waiver of a shared Privilege
shall be effective only as to the use of Information with respect to the
litigation or dispute between the Real Estate Group and the Franchising Group,
and shall not operate as a waiver of the shared Privilege with respect to third-
parties.
(f) If a dispute arises between the parties regarding whether a
Privilege should be waived to protect or advance the interest of either party,
each party agrees that it shall negotiate in good faith, shall endeavor to
minimize any prejudice to the rights of the other party, and shall not
unreasonably withhold consent to any request for waiver by the other party. Each
party specifically agrees that it will not withhold consent to waiver for any
purpose except to protect its own legitimate interests.
39
(g) Upon receipt by any party of any subpoena, discovery or other
request which arguably calls for the production or disclosure of Information
subject to a shared Privilege or as to which the other party has the sole right
hereunder to assert a Privilege, or if any party obtains knowledge that any of
its current or former directors, officers, agents or employees have received any
subpoena, discovery or other requests which arguably calls for the production or
disclosure of such Privileged Information, such party shall promptly notify the
other party of the existence of the request and shall provide the other party a
reasonable opportunity to review the Information and to assert any rights it may
have under this Section 7.07 or otherwise to prevent the production or
disclosure of such Privileged Information.
(h) The transfer of the Franchising Books and Records and the Choice
Books and Records and other Information between Choice and its Subsidiaries and
Franchising and its Subsidiaries is made in reliance on the agreement of
Franchising and Choice, as set forth in Sections 7.06 and 7.07, to maintain the
confidentiality of Privileged Information and to assert and maintain all
applicable Privileges. The access to information being granted pursuant to
Sections 7.01 and 7.02 hereof, the agreement to provide witnesses and
individuals pursuant to Section 7.03 hereof and the transfer of Privileged
Information between Choice and its Subsidiaries and Franchising and its
Subsidiaries pursuant to this Agreement shall not be deemed a waiver of any
Privilege that has been or may be asserted under this Agreement or otherwise.
VIII.
INSURANCE
---------
Section 8.01 Policies and Rights Included Within the Franchising
---------------------------------------------------
Group Assets.
-------------
Without limiting the generality of the definition of the Franchising
Group Assets or the effect of Section 2.01, the Franchising Group Assets shall
include any and all rights of an
40
insured party under each of the Shared Policies, specifically including rights
of indemnity and the right to be defended by or at the expense of the insurer,
with respect to all injuries, losses, liabilities, damages and expenses incurred
or claimed to have been incurred on or prior to the Distribution Date by any
party in or in connection with the conduct of the Franchising Group, to the
extent any claim is made against Franchising or any of its Subsidiaries and
which injuries, losses, liabilities, damages and expenses may arise out of
insured or insurable occurrences or events under one or more of the Shared
Policies; provided, however, that nothing in this clause be deemed to
-------- -------
constitute (or to reflect) the assignment of the Shared Policies, or
any of them, to Franchising.
Section 8.02. Policies and Rights Included Within the Real Estate
---------------------------------------------------
Group Assets.
------------
Without limiting the generality of the definition of the Real Estate
Group Assets or the effect of Section 2.01, the Real Estate Group Assets shall
include any and all rights of an insured party under each of the Shared
Policies, specifically including rights of indemnity and the right to be
defended by or at the expense of the insurer, with respect to all injuries,
losses, liabilities, damages and expenses incurred or claimed to have been
incurred on or prior to the Distribution Date by any party in or in connection
with the conduct of the Real Estate Group or, to the extent any claim is made
against Choice or any of its Subsidiaries and which injuries, losses,
liabilities, damages and expenses may arise out of insured or insurable
occurrences or events under one or more of the Shared Policies; provided,
--------
however, that nothing in this clause shall be deemed to constitute (or to
- -------
reflect) the assignment of the Shared Policies, or any of them, to Choice.
41
Section 8.03. Administration and Reserves.
---------------------------
(a) Notwithstanding the provisions of Article III, but subject to any
contrary provisions of any Related Agreement, from and after the Distribution
Date:
(i) The parties each recognize that Manor Care shall be
responsible for (pursuant to the Amended Risk Management Services
Agreement) the insurance administration of the Shared Policies;
provided, that the administration of the Shared Policies by
--------
Manor Care is in no way intended to limit, inhibit, or preclude any
right to insurance coverage for any Insured Claim of a named insured
under the Shared Policies including, but not limited to, Franchising
or any of its Subsidiaries or Affiliates;
(ii) Franchising shall be entitled to any reserves established
by Choice or any of its Subsidiaries, or the benefit of reserves held
by any insurance carrier, with respect to the Franchising Group
Liabilities; and
(iii) Choice shall be entitled to any reserves established by
Franchising or any of its Subsidiaries, or the benefit of reserves
held by any insurance carrier, with respect to the Real Estate Group
Liabilities.
(b) Insurance Premiums.
------------------
(i) Franchising shall have the right but not the obligation to
pay the premiums, to the extent that Choice does not pay premiums with
respect to Real Estate Group Liabilities (retrospectively-rated or
otherwise), with respect to Shared Policies as required under the
terms and conditions of the respective Policies, whereupon Choice
shall forthwith
42
reimburse Franchising for that portion of such premiums paid by
Franchising as are attributable to the Real Estate Group Liabilities.
(ii) Choice shall have the right but not the obligation to pay
the premiums, to the extent that Franchising does not pay premiums
with respect to Franchising Group Liabilities (retrospectively-rated
or otherwise), with respect to Shared Policies as required under the
terms and conditions of the respective Policies, whereupon Franchising
shall forthwith reimburse Choice for that portion of such premiums
paid by Choice as are attributable to the Franchising Group
Liabilities.
(c) Allocation of Insurance Proceeds. Insurance Proceeds received
--------------------------------
with respect to claims, costs and expenses under the Policies shall be paid to
Franchising with respect to the Franchising Group Liabilities and to Choice with
respect to the Real Estate Group Liabilities. Payment of the allocable portions
of indemnity costs of Insurance Proceeds resulting from the liability policies
will be made to the appropriate party upon receipt from the insurance carrier.
In the event that the aggregate limits on any Policies are exceeded, the parties
agree to provide an equitable allocation of Insurance Proceeds received after
the Distribution Date based upon their respective bona fide claims taking into
account their relative contributions towards premiums and the Insurance Proceeds
used by each party to satisfy Insured Claims. The parties agree to use their
best efforts to cooperate with respect to insurance matters.
(d) Notwithstanding anything contained herein, Franchising or an
appropriate Franchising Group Subsidiary assumes responsibility for and shall
pay to the appropriate insurance carriers or otherwise any premiums,
retrospectively rated premiums, defense costs,
43
indemnity payments, deductibles, retentions or other charges as appropriate
(collectively "Insurance Charges") whenever arising, which become due and
payable upon the terms and conditions of any applicable Policy in respect of any
Insured Claims against Franchising or a Franchising Group Subsidiary for charges
which relate to the period before the Distribution Date. In the event that
Franchising or a Franchising Group Subsidiary fails to pay any insurance charges
when due and payable, whether at the request of the party entitled to payment or
upon demand by Choice or a Real Estate Group Subsidiary, Choice or a Real Estate
Group Subsidiary may (but shall not be required to) pay such Insurance Charges
for and on behalf of Franchising or a Franchising Group Subsidiary and
thereafter Franchising or a Franchising Group Subsidiary shall forthwith
reimburse Choice or such Real Estate Group Subsidiary for such payment.
(e) Notwithstanding anything contained herein, Choice or an appropriate
Real Estate Group Subsidiary assumes responsibility for and shall pay to the
appropriate insurance carriers or otherwise any Insurance Charges whenever
arising, which become due and payable upon the terms and conditions of any
applicable Policy in respect of any Insured Claims against Choice or a Real
Estate Group Subsidiary for charges which relate to the period before the
Distribution Date. In the event that Choice or a Real Estate Group Subsidiary
fails to pay any Insurance Charges when due and payable, whether at the request
of the party entitled to payment or upon demand by Franchising or a Franchising
Group Subsidiary, Franchising or a Franchising Group Subsidiary may (but shall
not be required to) pay such Insurance Charges for and on behalf of Choice or a
Real Estate Group Subsidiary and thereafter Choice or a Real Estate Group
Subsidiary shall forthwith reimburse Franchising or such Franchising Group
Subsidiary for such payment.
44
Section 8.04. Agreement for Waiver of Conflict and Shared Defense.
---------------------------------------------------
In the event that Insured Claims of both Franchising and Choice exist
relating to the same occurrence, Franchising and Choice agree to jointly defend
and to waive any conflict of interest necessary to the conduct of that joint
defense. Nothing in this paragraph shall be construed to limit or otherwise
alter in any way the indemnity obligations of the parties to this Agreement,
including those created by this Agreement, by operation of law or otherwise.
IX.
MISCELLANEOUS
-------------
Section 9.01. Complete Agreement; Construction.
--------------------------------
This Agreement, including the Schedules and Exhibits and the Related
Agreements and other agreements and documents referred to herein, shall
constitute the entire agreement between the parties with respect to the subject
matter hereof and thereof and shall supersede all previous negotiations,
commitments and writings with respect to such subject matter. Notwithstanding
any other provisions in this Agreement to the contrary, in the event and to the
extent that there shall be a conflict between the provisions of this Agreement
and the provisions of the Related Agreements, then the Related Agreements shall
control.
Section 9.02. Tax Sharing Agreement; After-Tax Payments.
-----------------------------------------
(a) Other than as provided in this Section 9.02 and Sections 5.06 and
6.05, this Agreement shall not govern any Tax matter, and any and all claims,
losses, damages, demands, costs, expenses, liabilities, refunds, deductions,
write-offs, or benefits relating to Taxes shall be exclusively governed by the
Tax Sharing Agreement or the Tax Administration Agreement.
45
(b) If, at the time Franchising is required to make any payment to
Choice under this Agreement, Choice owes Franchising any amount under the Tax
Sharing Agreement, then such amounts shall be offset and the excess shall be
paid by the party liable for such excess. Similarly, if, at the time Choice is
required to make any payment to Franchising under this Agreement, Franchising
owes Choice any amount under the Tax Sharing Agreement, then such amounts shall
be offset and the excess shall be paid by the party liable for such excess.
Section 9.03. Expenses.
--------
Except as specifically provided in this Agreement or in a Related
Agreement, all costs and expenses incurred in connection with the preparation,
execution, delivery and implementation of this Agreement and with the
consummation of the transactions contemplated by this Agreement shall be paid by
the party incurring the expense. In addition, it is understood and agreed that
Franchising shall pay the legal, filing, accounting, printing and other
accountable and out-of-pocket expenditures in connection with the preparation,
printing and filing of the Form 10 and the Proxy Statement. For purpose of this
Section 9.03, any Dispute shall be resolved in accordance with Section 9.14
hereof.
Section 9.04. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland, without regard to the principles of conflicts of
laws thereof.
Section 9.05. Notices.
-------
All notices and other communications hereunder shall be in writing and
shall be delivered by hand or mailed by registered or certified mail (return
receipt requested) to the
46
parties at the following addresses (or at such other addresses
for a party as shall be specified by like notice) and shall be deemed given on
the date on which such notice is received:
To Franchising:
Choice Hotels Franchising, Inc.
10770 Columbia Pike
Silver Spring, Maryland 20901
Attention: General Counsel
To Choice:
Choice Hotels International,. Inc.
10750 Columbia Pike
Silver Spring, Maryland 20901
Attention: General Counsel
Section 9.06. Amendments.
----------
This Agreement may not be modified or amended except by an agreement in
writing signed by the parties.
Section 9.07. Successors and Assigns.
----------------------
This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns.
Section 9.08. Termination.
-----------
This Agreement may be terminated and the Distribution abandoned at any
time prior to the Distribution Date by and in the sole discretion of the Choice
Board without the approval of Franchising's or of Choice's stockholders. In the
event of such termination, no party shall have any liability to any other party
pursuant to this Agreement.
47
Section 9.09. Subsidiaries.
------------
Each of the parties hereto shall cause to be performed, and hereby
guarantees the performance of, all actions, agreements and obligations set forth
herein to be performed by any Subsidiary of such party which is contemplated to
be a Subsidiary of such party on and after the Distribution Date.
Section 9.10. No Third-Party Beneficiaries.
----------------------------
Except for the provisions of Article V relating to Indemnities, this
Agreement is solely for the benefit of the parties hereto and their respective
Subsidiaries and Affiliates and should not be deemed to confer upon third-
parties any remedy, claim, claim of action or other right in excess of those
existing without reference to this Agreement.
Section 9.11. Titles and Headings.
-------------------
Titles and headings to sections herein are inserted for the convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
Section 9.12. Exhibits and Schedules.
----------------------
The Exhibits and Schedules shall be construed with and as an integral
part of this Agreement to the same extent as if the same had been set forth
verbatim herein.
Section 9.13. Legal Enforceability.
--------------------
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof. Any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in
48
any other jurisdiction. Without prejudice to any rights or remedies otherwise
available to any party hereto, each party hereto acknowledges that damages would
be an inadequate remedy for any breach of the provisions of this Agreement and
agrees that the obligations of the parties hereunder shall be specifically
enforceable.
Section 9.14. Arbitration of Disputes.
-----------------------
(a) Any dispute, controversy or disagreement ("Dispute") between the
Parties related to the obligations of the parties under this Agreement in
respect to which an amicable resolution cannot be reached shall be submitted for
mediation to a committee made up of an equal number of non-common members of
each company's Board of Directors ("Committee"). If the parties are unable to
reach an amicable resolution of a Dispute within thirty days after submission to
the Committee, then, to the maximum extent allowed by law, the Dispute shall be
submitted and resolved by final and binding arbitration in Baltimore, Maryland
administered by JAMS-Endispute in accordance with JAMS-Endispute's rules of
practice then in effect or such other procedures as the parties may agree upon;
provided, however, that any party may seek injunctive relief and enforcement of
any award rendered pursuant to the arbitration provisions of this Section 9.14
by bringing a suit in any court of competent jurisdiction. Any award issued as a
result of such arbitration shall be final and binding between the parties
thereto and shall be enforceable by any court having jurisdiction over the party
against whom enforcement was sought and application may be made to such court
for judicial acceptance of the award and order of enforcement. The fees and
expenses of arbitration (including reasonable attorneys' fees) shall be paid by
the party that does not prevail in such arbitration.
49
(b) Attorneys' Fees. If any party to this Agreement brings an action
---------------
to enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including without limitation
reasonable attorneys' fees, incurred in connection with such action,
including any appeal of such action.
(c) Nothing contained in this Section 9.14 shall limit or restrict in
any way the right or power of a party at any time to seek injunctive relief in
any court and to litigate the issues relevant to such request for injunctive
relief before such court (i) to restrain the other party from breaching this
Agreement or (ii) for specific enforcement of this Section 9.14. The parties
agree that any legal remedy available to a party with respect to a breach of
this Section 9.14 will not be adequate and that, in addition to all other legal
remedies, each party is entitled to an order specifically enforcing this Section
9.14.
(d) The Parties hereby consent to the jurisdiction of the federal
courts located in the State of Maryland for all purposes under this Agreement.
(e) Neither party nor the arbitrators may disclose the existence or
results of any arbitration under this Agreement or any evidence presented during
the course of the arbitration without the prior written consent of both parties,
except as required to fulfill applicable disclosure and reporting obligations,
or as otherwise required by law.
Section 9.15. Prompt Payment.
--------------
Where the terms of this Agreement require payment of an amount "as
promptly as possible," "as soon as practicable," or "as soon as possible,"
following a specified event, occurrences or date, such payment shall be made
within five (5) business days of such event, occurrence or date.
50
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
CHOICE HOTELS INTERNATIONAL, INC.
By: /s/ Edward A. Kubis
------------------------------
Title: Senior Vice President
---------------------------
CHOICE HOTELS FRANCHISING, INC.
By: /s/ Michael J. DeSantis
------------------------------
Title: Senior Vice President
---------------------------
51
INDEX OF EXHIBITS
Exhibit A Employee Benefits Administration Agreement
Exhibit B Employee Benefits Allocation Agreement
Exhibit C Franchising Bylaws
Exhibit D Franchising Certificate
Exhibit E Noncompetition Agreement
Exhibit F Omnibus Amendment and Guaranty
Exhibit G Strategic Alliance Agreement
Exhibit H Tax Administration Agreement
Exhibit I Tax Sharing Agreement
52
SCHEDULE 1.01
CMBS Properties
---------------
Clarion Hotel Comfort Inn
3101 Airport Blvd. 1901 Palm Beach Lake Blvd.
Mobile, AL 36606 West Palm Beach, FL 33409
Comfort Inn - TurfParadise Comfort Inn
1711 West Bell Road 5990 Western Hills Drive
Phoenix, AZ 85023 Norcross, GA 30071
Rodeway Inn Airport E Comfort Inn University
1550 S. 52nd Street 2445 S. Acadian
Tempe, AZ 85281 Baton Rouge, LA 70808
Econo Lodge Comfort Suites
1520 N. 84th Drive 106 Bank Road
Tolleson, AZ 85353 Haverhill, MA 01832
Quality Inn Airport Quality Inn
5249 W. Century Blvd. 40455 Ann Arbor Road
Los Angeles, CA 90045 Plymouth, MI 48170
Quality Suites Comfort Inn
1050 E. Newport Center Dr. 1492 U.S. 31 North
Deerfield Beach, FL 33442 Traverse City, MI 49684
Comfort Suites Comfort Inn Westport
1040 E. Newport Center Dr. 12031 Lackland Road
Deerfield Beach, FL 33442 St. Louis, MO 63146
Quality Inn Southpoint Quality Inn and Suites - Crown Pl.
4660 Salisbury Road 2501 Sardis Road N
Jacksonville, FL 32256 Charlotte, NC 28227
Comfort Inn & Suites Quality Suites
5301 N.W. 36th 440 Capital Blvd.
Miami Springs, FL 33166 Raleigh, NC 27604
Comfort Inn Comfort Inn
830 Lee Road 5345 Broadmoor NW
Orlando, FL 32810 Canton, OH 44709
53
Comfort Inn Quality Inn Midvalley
9011 Fields Ertel Road 4465 S. Century Drive
Cincinnati, OH 45249 Salt Lake, UT 84123
Comfort Inn Quality Hotel
17550 Rosborough Drive 1190 N. Courthouse Road
Middleburg Hts, OH 44130 Arlington, VA 22201
Comfort Inn Quality Inn
1200 Mae Street 8008 West Broad Street
Hershey, PA 17036 Richmond, VA 23294
Quality Inn Comfort Inn Tysons
3509 Clemson Blvd. 1587 Springhill Road
Anderson, SC 29621 Vienna, VA 22182
Comfort Inn Airport Clarion Hotel
5055 N. Arco Lane 4453 Bonney Road
N. Charleston, SC 29418 Virginia Beach, VA 23462
Comfort Inn
499 Piney Grove Road
Columbia, SC 29210
Comfort Inn
2 Tanglewood Drive
Hilton Head, SC 29928
Comfort Inn
104 Texas Avenue South
College Station, TX 77840
Comfort Inn DFW Arpt
8205 Esters Blvd.
Irving, TX 75063
Sleep Inn
4801 E. Plano Pkwy.
Plano, TX 75093
Clarion Hotel
1981 N. Central Expwy.
Richardson, TX 75080
54
SCHEDULE 2.07
RETAINED CASH ACCOUNTS
----------------------
Entity Brand Location Bank Name Description
- ------ ----- -------- --------- -----------
1 Clarion Mobile, AL Compass Bank Local Hotel Depository Account
2 Comfort Inn Phoenix, AZ Bank One Arizona Local Hotel Depository Account
3 Rodeway Inn Phoenix (Tempe), AZ Wells Fargo Local Hotel Depository Account
4 Econo Lodge Phoenix (Tolleson), AZ Wells Fargo Local Hotel Depository Account
5 Quality Hotel Los Angeles, CA Bank of America Local Hotel Depository Account
6 & 7 Comfort Suites
& Quality Suites Deerfield Beach, FL Nationsbank Local Hotel Depository Account
8 Quality Inn Jacksonville, FL First Union Local Hotel Depository Account
National Bank of Florida Local Hotel Depository Account
9 Comfort Inn & Suites Miami, FL Nationsbank Local Hotel Depository Account
10 Comfort Inn Orlando, FL Nationsbank Local Hotel Depository Account
11 Comfort Inn West Palm Beach, FL Nationsbank Local Hotel Depository Account
12 Comfort Inn Atlanta (Norcross), GA Nationsbank Local Hotel Depository Account
13 Comfort Inn Baton Rouge, LA Unions Planters Local Hotel Depository Account
14 Comfort Inn Suites Boston (Haverhill), MA Fleet Bank Local Hotel Depository Account
15 Quality Inn Detroit (Plymouth), MI First of America Local Hotel Depository Account
16 Comfort Inn Traverse City, MI Old Kent Bank Local Hotel Depository Account
17 Comfort Inn St. Louis, MO Nationsbank Local Hotel Depository Account
18 Quality Inn & Suites Charlotte, NC Nationsbank Local Hotel Depository Account
19 Quality Suites Raleigh, NC Nationsbank Local Hotel Depository Account
20 Comfort Inn Canton, OH Key Bank Local Hotel Depository Account
21 Comfort Inn Cincinnati, OH First National Bank Local Hotel Depository Account
22 Comfort Inn Cleveland, OH Key Bank Local Hotel Depository Account
23 Comfort Inn Hershey, PA Fulton Bank Local Hotel Depository Account
24 Quality Inn Anderson, SC Nationsbank Local Hotel Depository Account
25 Comfort Inn Columbia, SC First Citizens Local Hotel Depository Account
26 Comfort Inn & Suites Hilton Head, SC Nationsbank Local Hotel Depository Account
27 Comfort Inn North Charleston, SC Nationsbank Local Hotel Depository Account
28 Comfort Inn College Station, TX Nationsbank Local Hotel Depository Account
29 Comfort Inn Dallas/Fort Worth (Irving), TX Nationsbank Local Hotel Depository Account
30 Sleep Inn Dallas (Plano), TX Nationsbank Local Hotel Depository Account
31 Clarion Dallas (Richardson), TX Nationsbank Local Hotel Depository Account
32 Quality Inn Salt Lake City, UT Zions Bank Local Hotel Depository Account
33 Quality Hotel Arlington, VA Nationsbank Local Hotel Depository Account
34 Quality Inn Richmond, VA Nationsbank Local Hotel Depository Account
35 Comfort Inn Tyson's Corner (Vienna), VA Nationsbank Local Hotel Depository Account
36 Clarion Virginia Beach, VA Nationsbank Local Hotel Depository Account
Bank Name Type of Account
--------- ---------------
Nationsbank Concentration Account
Nationsbank Investment Account
The additional accounts as outlined below have been established under the legal
entity of First Choice Properties Corporation, but are not currently active.
Bank Name Type of Account
--------- ---------------
Nationsbank Beltway Management Payables
Nationsbank Beltway Management Payroll
Nationsbank Beltway Management Quickchecks
55