EXHIBIT 99.05
EMPLOYEE BENEFITS ADMINISTRATION AGREEMENT
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THIS AGREEMENT (this "Agreement") is made and entered into as of October 15,
1997, by and between Choice Hotels Franchising, Inc. (to be renamed Choice
Hotels International, Inc.) a Delaware corporation ("Choice") and Choice Hotels
International, Inc. (to be renamed Sunburst Hospitality Corporation) a Delaware
corporation ("Sunburst").
R E C I T A L S
WHEREAS, pursuant to a Distribution Agreement (the "Distribution Agreement")
dated as of October 15, 1997, Sunburst and Choice have agreed to enter into
an employee benefits administration agreement with the terms and conditions set
forth herein; and
WHEREAS, in accordance with said Distribution Agreement, Sunburst and Choice
also have entered into an Employee Benefits & Other Employment Matters
Allocation Agreement (the Allocation Agreement") dated as of October 15, 1997,
pursuant to which Sunburst and Choice each assumed certain liabilities and
obligations, each generally with respect to its own employees, to adopt or
continue certain employee benefit, stock and retirement plans and programs
substantially equivalent to those provided by Sunburst on the Distribution Date;
and
WHEREAS, the personnel and systems formerly utilized in the maintenance and
administration of the aforesaid Sunburst employee plans and programs shall be
transferred to Choice; and
WHEREAS, Sunburst desires to retain Choice in the maintenance and
administration of Sunburst's employee plans and programs, and Choice desires to
render such assistance on an equitable, arms length basis for a fee;
NOW, THEREFORE, in consideration of the mutual covenants contained herein, and
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Sunburst and Choice agree as follows:
1. Definitions. As used in this Agreement, the following capitalized terms
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shall have the meanings indicated:
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"Accounting Services" means the services provided by Choice to or on behalf of
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Sunburst or any participant in any of the Plans, as provided under Section 2.1
and Exhibit B of this Agreement.
"Ancillary Agreement" shall have the meaning described in the Distribution
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Agreement.
"Benefit and Compensation Additional Consulting Services" means the services
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provided by Choice to or on behalf of Sunburst or any participant in any of
the Plans, as provided under Section 2.2 and Exhibit C of this Agreement.
"Claims" means any claims reported on or after the Distribution Date by any
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employee of the Hotel Operation Business (and/or covered dependents) for
coverage or benefits under the Retirement Plans, Medical/Dental Plans, Welfare
Plans, Deferred Compensation or the Stock Plans. "Claims" also includes any
claims by any beneficiary of a deceased employee. For purposes of this
definition, employee of the Hotel Operation Business includes any active,
disabled, former or retired employee (except a Retiree, Qualified Beneficiary
or an active, former or retired employee whose account balance under the
applicable Deferred Compensation Plan or the applicable Retirement Plan has
been transferred to a Choice deferred compensation plan or a Choice retirement
plan pursuant to the Distribution).
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as
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amended.
"COBRA Administration Services" means the services provided by Choice to or on
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behalf of Sunburst or any participant in any of the Medical/Dental Plans or
Qualified Beneficiary, as provided under Section 2.4 and Exhibit E of this
Agreement.
"COBRA Claims" means any claims reported on or after the Distribution Date by
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any Qualified Beneficiary for coverage or benefits under any Medical/Dental
Plan (or any predecessor thereto).
"COBRA Continuation Coverage" means the coverage following a Qualifying Event
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provided by Sunburst to a Qualified Beneficiary as required by COBRA.
"Compliance Services" means the services provided by Choice to or on behalf of
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Sunburst or any participant in any of the Plans, as provided under Section 2.5
and Exhibit F of this Agreement.
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"Deferred Compensation Plan(s)" means the deferred compensation plan(s) set
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forth in the attached Schedule A, as it may be amended from time to time with
the written consent of both parties to this Agreement.
"Determination Period" means any 12 months during which the premium for COBRA
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Continuation Coverage with respect to a Qualified Beneficiary must remain
fixed and may not be increased.
"Distribution" means the distribution to the holders of Choice Care Common
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Stock all the outstanding shares of Sunburst Common Stock.
"Distribution Agreement" mans the agreement described in the first recital of
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this Agreement.
"Distribution Date" means the date determined by the Board of Directors of
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Choice as the date on which the Distribution shall be effected.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
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from time to time.
"Fiduciary Services" means the services provided by Choice to or on behalf of
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Sunburst or any participant in any of the Plans, as provided under Section 2.6
of this Agreement.
"Health and Welfare Plans" means those plans listed on Schedule A herein.
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"HMO(s)" means health maintenance organization(s).
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"Hotel Operation Business" means any business or operation of Sunburst or its
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subsidiaries which is, pursuant to the Distribution Agreement, to be
conducted, following the Distribution, by Sunburst.
"Imprest Account(s)" means the account(s) established pursuant to Section 4.1
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of this Agreement.
"Medical/Dental Plan(s)" means the medical and dental plans as set forth in
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the attached Schedule A, as it may be amended from time to time with the
written consent of both parties to this Agreement.
"Plans" means the Sunburst Medical/Dental Plans, Welfare Plans, Retirement
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Plans, Deferred Compensation Plans, and Stock Plans set forth in the attached
Schedule A, as it
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may be amended from time to time with the written consent of both parties to
this agreement.
"Plan Administrator" means the administrator as defined in ERISA Section
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3(16)(A).
"Plan Administration Services" means the services provided by Choice to or on
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behalf of Sunburst or any participant in any of the Plans, as provided under
Section 2.3 and Exhibit D of this Agreement.
"Prime Rate" means the rate identified from time to time in the New York
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edition of the Wall Street Journal as being the prime rate of interest.
"Qualified Beneficiary" means any former or part-time employee of the Hotel
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Operation Business (or dependent thereof) who either experiences (or
experienced) a Qualifying Event while a participant in any Medical/Dental Plan
(or any predecessor thereto), or becomes (or became) a Qualified Beneficiary,
as that term is defined in Internal Revenue Code Section 4980B(g)(a) and ERISA
607(3), under any Medical/Dental Plan (or any predecessor thereto).
"Qualifying Event" means an event upon which a Qualified Beneficiary must be
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given the opportunity to elect COBRA Continuation Coverage as specified in
Internal Revenue Code Section 4980B(f)(3) and ERISA Section 603.
"Retirement Plans" means the retirement plans set forth in the attached
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Schedule A, as it may be amended from time to time with the written consent of
both parties to this Agreement.
"Services" means the Accounting Services, the Benefit and Compensation
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Additional Consulting Services, the COBRA Administration Services, the Plan
Administration Services, the Compliance Services and the Fiduciary Services,
all as described in Section 2 of this Agreement.
"Stock Plans" means the stock plans set forth in the attached Schedule A, as
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it may be amended from time to time with the written consent of both parties
to this Agreement.
"Welfare Plans" means the welfare plans set forth in the attached Schedule A,
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as it may be amended from time to time with the written consent of both
parties to this Agreement.
Any capitalized terms defined in the Distribution Agreement and used herein
shall have the meanings ascribed to them in the Distribution Agreement unless
otherwise defined herein.
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2.0 Duties of Choice. Upon the request of Sunburst, Choice shall:
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(a) Provide the Services to Sunburst with respect to the Plans;
(b) Provide such other services in connection with the Plans as shall be
mutually agreed upon by the parties to this Agreement (such other services and
costs thereof to be set forth as an addendum to this Agreement); and
(c) Arrange for the maintenance of all records used to perform the Services
(and any other services), including Claims and COBRA Claims files and records,
for six (6) calendar years following any year in which it performs Services
(or any other services) hereunder.
The Services (and any other services) shall be administered in accordance with
Choice's standard policies, procedures and practices in effect as of the date
hereof and as may be changed, and as more particularly described below; or as
otherwise specified in accordance with the terms thereof. In so doing, Choice
shall exercise the standards of care set forth in Section 6.0.
It is expressly understood that in providing the Services (any other services)
to Sunburst, Choice shall be a service provider and not a plan sponsor, as
defined in ERISA 3(16)(B), of any of the Plans, and shall have the right to
delegate its obligations hereunder to or contact with any other party to provide
such Services (or any other services). Furthermore, it is the intent of the
parties to this Agreement that Choice shall be an independent contractor in
providing the Services (any other services) under this Agreement, and not as
employee or agent of Sunburst. Choice agrees to provide such Services only if
it reasonably believes the service will not interfere with the conduct of the
business of Choice or pose an unreasonable burden.
2.1 Accounting Services. Upon the request of Sunburst, Choice shall provide
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the Accounting Services to Sunburst, as set forth in Exhibit B, to assist
Sunburst in meeting its accounting and financial reporting obligations under the
Plans.
2.2 Benefit and Compensation Additional Consulting Services. Upon the
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request of Sunburst, Choice shall provide Benefit and Compensation Consulting
Services, as set forth in Exhibit C, to Sunburst to assist Sunburst in updating
employee benefit plans and establishing competitive compensation practices.
2.3 Plan Administration Services. Upon the request of Sunburst, Choice shall
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provide the Plan Administration Services, as set forth in Exhibit D, to assist
in the administration of its Plans.
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2.4 COBRA Administration Services. Upon the request of Sunburst, Choice
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shall provide the COBRA Administration Services, as set forth in Exhibit E, to
assist Sunburst, the Plan Administrator and the Medical/Dental Plans in the
performance of their responsibilities under COBRA.
2.5 Compliance Services. Upon the request of Sunburst, Choice or its
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contractors shall provide the Compliance Services, as set forth in Exhibit F, to
assist Sunburst in fulfilling its disclosure and reporting obligations under
ERISA, the Internal Revenue Code and any other applicable federal or state law.
2.6 Fiduciary Services. Upon the request of Sunburst, Choice shall provide
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the Fiduciary Services, as set forth in Exhibit G, in its administration of
Claims for disability (including payment), retirement, stock and deferred
compensation benefits (and appeals of denied or disputed Claims with respect
thereto), and in its final review of appeals of denied or disputed Claims and
COBRA Claims under the Medical/Dental Plans. Choice shall obtain and maintain
customary such fiduciary insurance coverage. Other than the fiduciary services
set forth in Exhibit G, Choice is vested only with ministerial authority and
shall have no discretionary authority to make decisions as to policies,
interpretations, practices and procedures under any of the Plans (except to the
extent otherwise set forth in Exhibit G), but shall perform its duties and
functions under this Agreement within the framework of the terms of each of the
Plans and policies, interpretations, rules, practices and procedures made by
Sunburst. Except as otherwise specified in this Section 2.6, Choice is not a
fiduciary with respect to any of the Plans and shall not be considered the Plan
Administrator, fiduciary, or named fiduciary under any of the Plans, within the
meaning of those terms as defined in ERISA.
3.0 Duties of Sunburst. Except as provided in Section 2.6, Sunburst shall
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have the sole and primary responsibility as sponsor of the Plans for all
discretionary decisions and actions with respect thereto, for all financial and
other obligations arising therefrom, and for all funding and employer
contribution requirements under the terms of the Plans. In addition, Sunburst
shall, except to the extent expressly delegated to Choice:
(a) Provide Choice with assistance or authorizations to third parties
reasonably required for Choice to perform the Services and any other
services under this Agreement;
(b) Obtain and maintain qualification for all tax-qualified, tax-exempt or
otherwise tax-favored Plans;
(c) Request from Sunburst shareholders share authorizations sufficient to
meet awards under the Stock Plans;
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(d) For active employees participating in any of the Plans, collect
payroll deductions for each pay period for the amount of employee
contributions owed for the pay period and withhold applicable payroll
taxes under Sunburst's payroll system with respect to the Plans;
(e) Maintain all necessary records and documentation as required by law or
as needed for efficient administration of the Plans;
(f) Perform all necessary employee communications, including sending
notices required by law, determining eligibility and conducting enrollment
under the Plans;
(g) Complete required Securities and Exchange Commission registrations and
other filings required with respect to all Plans.
(h) Furnish Choice with any and all information in its possession
necessary to enable Choice to perform the Services under this Agreement.
(i) At the request of Choice, maintain the Imprest Account(s) with
sufficient funds to satisfy expenses of the Plans as they become due and
payable. Choice is not responsible for funding the Plans with any
contributions.
(j) Timely pay the Service Fees as they become due and payable.
4.0 Financial Provisions.
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4.1 Imprest Account(s). Sunburst will open and maintain an imprest
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account(s) against which Choice may write checks or initiate fund transfers to
cover all Claims and COBRA Claims payments and out-of-pocket expenses for
medical reports, "second opinions" obtained to evaluate claims, HMO premiums,
insurance company premiums, costs incurred for separately tracking Claims and
COBRA Claims, administrative contract fees paid to contractors for processing
Claims and COBRA Claims, toll-free phone service charged separately by claims
administrators, medical case management, hospital utilization review, claim
audits, outside legal fees and fees of other outside service providers, claim
settlement charges and expenses, and all other similar expenses that are
normally incurred in the administration of Claims and COBRA Claims.
4.2 Pricing and Payment for Services. Sunburst shall pay Choice for
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services requested and rendered hereunder as follows:
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(a) The charging mechanisms for rates or charges for each service shall
include (i) activity-based charges where the per unit price will be
multiplied by the variable number of units (for example, the number of
active associates times the per associate charge will determine the per
Accounting Period charge); (ii)fixed fee based charges, meaning a fixed
amount per Accounting Period for Choice to perform the service;
(iii) usage based charges for which Sunburst will pay according to actual
use of the service; (iv) time and materials charges; or (v) a variation or
a combination of any of the foregoing methods as agreed to by the parties.
(b) Except as provided in the Distribution Agreement, the Allocation
Agreement or any Ancillary Agreement, Sunburst shall pay any and all
additional costs and expenses which Choice may incur for the express
purpose of providing services to Sunburst.
(c) Sunburst shall pay Choice on a time and materials basis for all costs
incurred by Choice in converting Sunburst business information and records
from Choice services systems to either a third party provider or to
Sunburst.
(d) Sunburst shall pay Choice for all services provided hereunder within
thirty (30) days after receipt of an invoice therefor. Sunburst shall pay
fixed charges in advance on the first business day of the applicable
Accounting Period. Any payments not made by Sunburst to Choice when due
shall bear interest, computed daily from the date due to the date of
payment based on the annual percentage rate equal to the Prime Rate plus
two (2) percentage points, as same may vary from time to time.
5.0 Warranties and Limitations of Liability.
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(a) CHOICE DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING,
BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, WITH RESPECT TO THE SERVICES PROVIDED HEREUNDER. Choice
will use reasonable efforts to perform the Services provided hereunder in a
professional and workmanlike manner but the results of the Services are
furnished "as is."
(b) Choice's sole liability to Sunburst or any third party for
claims, notwithstanding the form of such claims (e.g. contract, negligence or
otherwise), arising out of errors or omissions in the Services provided or to be
provided by Choice hereunder which are caused solely by Choice shall be to
furnish correct information, payment, and/or adjustment in the Services provided
hereunder provided that Sunburst promptly advises Choice thereof.
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(c) Choice's sole liability to Sunburst or any third party for
claims, notwithstanding the form of such claims (e. g. contract, negligence or
otherwise), arising out of the unavailability of the Services provided hereunder
or the interruption in or delay in performing the Services provided hereunder
for any reason beyond Choice's reasonable control shall be to use all reasonable
efforts to make such services available, and/or to resume performing the
Services, as promptly as reasonably practicable. Choice will maintain the same
back-up procedures for Sunburst's information that Choice has for its own
information.
(d) CHOICE SHALL NOT BE LIABLE FOR ANY ERRORS, OMISSIONS, DELAYS, OR
LOSSES UNLESS CAUSED SOLELY BY ITS CRIMINAL CONDUCT, FRAUD, BAD FAITH OR GROSS
NEGLIGENCE. SUNBURST AGREES THAT IN NO EVENT WILL CHOICE BE LIABLE FOR
INCIDENTAL, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES. SUNBURST FURTHER
AGREES THAT IN NO EVENT WILL THE TOTAL AGGREGATE LIABILITY OF CHOICE FOR ANY AND
ALL CLAIMS, LOSSES, OR DAMAGES ARISING UNDER THIS AGREEMENT AND FOR THE SERVICES
PERFORMED HEREUNDER EXCEED THE VALUE OF SUNBURST'S PAYMENT FOR SAID SPECIFIC
SERVICE IN DISPUTE OVER ONE FOUR-WEEK ACCOUNTING PERIOD'S TIME.
(e) The forgoing provisions of this Section 5 set forth the full
extent of Choice's liability hereunder (monetary or otherwise) for any claim or
action, regardless of the form in which any such claim or action may be asserted
against Choice (e.g. contract, negligence or otherwise).
6.0 Indemnification: Standard of Care. Choice shall use the same care and
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skill in the performance of its duties under this Agreement as a similarly
situated provider of like services would exercise following commonly accepted
standards of prudence in the relevant industry engaged in the provision of such
services.
6.1 Choice Held Harmless. Sunburst will indemnify, defend and hold
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harmless Choice and its directors, officers and employees from Losses (as
defined below) resulting from or arising out of or in connection with Choice's
actions or failure to act where such action or failure to act is required by any
Sunburst employment, compensation or benefits policy or practice, other than
Losses for which Sunburst is indemnifiable by Choice under Section 6.2. The
term "Losses" shall include costs of any claim, lawsuit, settlement, judgment,
penalty, attorneys' fees, and other expenses in connection with the Plans. In
addition, Sunburst will indemnify Choice against any premium taxes or any other
fees or levies of any local, state or federal government (including sales, use
or similar taxes) assessed in connection with any of the Plans, and against any
income or payroll taxes, interest or penalties assessed against any participant
or beneficiary of any Plan or against Sunburst as a
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result of such participant or beneficiary recognizing income from benefits
payable under any Plan.
6.2 Sunburst Held Harmless. Choice will indemnify, defend and hold
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harmless Sunburst and its directors, officers and employees from Losses (other
than benefits due and payable under the terms of any Plan) resulting from or
arising out of or in connection with Choice's criminal conduct, fraud, bad faith
or gross negligence, unless the actions (or inaction) causing the Losses were
taken (or not taken) at the specific direction of Sunburst, its subsidiaries,
employees, or agents.
6.3 Notice and Defense. The party seeking indemnification must notify
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the other party promptly in writing of any claim that may result in Losses, and
give the indemnifying party the opportunity to assist in the defense of the case
(at the indemnifying party's cost and expense), and must provide all necessary
information and assistance for such defense. In addition, Choice will provide
all necessary information and assistance to Sunburst (at Sunburst's cost and
expense) in the defense of any Claims, COBRA Claims, or other actions brought
under any of the Plans which could result in Losses for which Sunburst is
primarily liable.
7.0 Access to Information: Cooperation. Subject to the requirements of
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Section 24.0, Sunburst and its authorized agents will be given reasonable access
to and may take copies of all information relating to the Claims and COBRA
Claims (to the extent permitted by federal and state confidentiality laws) in
Choice's and/or its subcontractor's custody, as applicable. The parties will
cooperate with one another to minimize the disruption caused by any such access.
8.0 Term. The term of this Agreement shall commence on the Distribution
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Date and shall remain in effect through the end of the first full Fiscal Year
immediately following the Distribution Date. Unless terminated pursuant to the
terms hereof, the Agreement shall automatically renew each Fiscal Year
thereafter for the extended term of said Fiscal Year and shall not extend beyond
30 months from the Distribution Date unless otherwise extended by the parties in
writing; provided, however, that Sunburst may terminate this Agreement or any
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services provided hereunder at any time for any reason or no reason by sending
written notice to Choice upon sixty (60) days' prior notice to Choice and
provided, further, in the event any service herein is dependent upon any
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Function as defined in that certain Corporate Services Agreement between the
parties and dated the date hereof, notice of termination shall be determined by
reference to the Corporate Services Agreement. This Agreement may also be
terminated in the event of a default (past the expiration of any applicable cure
period provided herein) in accordance with the provisions of this Agreement or
may be terminated by mutual
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agreement. In the event of any termination, Articles 4,5,6, and 15 shall survive
and remain in effect.
9.0 Default. If either party materially defaults hereunder, the non-
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defaulting party may terminate this Agreement effective immediately (subject to
the cure periods set forth herein below) upon written notice to the defaulting
party. The non-defaulting party shall be entitled to all remedies provided by
law or equity (including reasonable attorney's fees and costs of suit incurred).
The following events shall be deemed to be material defaults hereunder:
(a) Failure by either party to make any payment required to be made to the
other hereunder, which failure is not remedied within five (5) days after
receipt of written notice thereof; or
(b) Except as otherwise provided herein, failure by either party
substantially to perform in accordance with the terms and conditions of
this Agreement, which failure is not remedied within thirty (30) days
after receipt of written notice from the other party specifying the nature
of such default; or
(c) (i) Filing of a voluntary bankruptcy petition by either party;
(ii) filing of an involuntary bankruptcy petition against either party
which is not withdrawn within sixty (60) days after filing;
(iii) assignment for the benefit of creditors made by either party; or
(iv) appointment of a receiver for either party.
Notwithstanding the foregoing, the correction period provided for in
Sections 9.0(a) and 9.0(b) shall apply only if such failure is due to reasonable
cause and not willful neglect.
10.0 Force Majeure. Choice and Sunburst shall incur no liability to each
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other due to a failure to perform under the terms and conditions of this
Agreement resulting from fire, flood, war, strike, lock-out work stoppage or
slow-down, labor disturbances, power failure, major equipment breakdowns,
construction delays, accident, riots, acts of God, acts of United States'
enemies, laws, orders or at the insistence or result of any governmental
authority or any other event beyond each other's reasonable control. In
addition, Choice shall not be liable or deemed to be in default for any delay or
failure to perform hereunder resulting, directly or indirectly, from any cause
beyond Choice's reasonable control, including limitations upon the availability
of communications facilities or failures of other communications equipment or
failure of Sunburst to prepare data properly for input into the Corporate
Systems. However, nothing in this provision shall relieve Sunburst of any
liability for failure to make any payments required to be made under this
Agreement because Sunburst Employees are on strike or engaged in a lock-out,
work stoppage or slow-down, or labor disputes.
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11.0. Relationship of Parties. Nothing in this Agreement shall be
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deemed or construed by the parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
parties, it being understood and agreed that no provision contained herein, and
no act of the parties, shall be deemed to create any relationship between the
parties other than the relationship of independent contract administrator and
client.
12.0. Assignment. Subject to the provisions of Section 2.0, Neither
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party shall, without the prior written consent of the other, assign any rights
or delegate any obligations under this Agreement, such consent not to be
unreasonably withheld, conditioned or delayed; provided, however, such consent
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not to be required if the agreement is assigned to a wholly-owned subsidiary of
either party.
13.0 Headings. The headings used in this Agreement are inserted only for
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the purpose of convenience and reference, and in no way define or limit the
scope or intent of any provision or part hereof.
14.0 Severability of Provisions: Neither Choice nor Sunburst intend to
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violate statutory or common law by executing this Agreement. If any section,
sentence, paragraph, clause or combination of provisions in this Agreement is in
violation of any law, such sections, sentences, paragraphs, clauses or
combinations shall be inoperative and the remainder of this Agreement shall
remain in full force and effect and shall be binding upon the parties.
15.0 Parties Bound. This Agreement shall inure to the benefit of and be
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binding upon the parties hereto and their respective successors and permitted
assigns. Nothing herein, expressed or implied, shall be construed to give any
other person any legal or equitable rights hereunder.
16.0 Notices. All notices and other communications hereunder shall be in
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writing and shall be delivered by hand or shall be deemed to have been properly
made and given one (1) business day after being deposited with a reputable
overnight courier service such as Federal Express, Airborne Express or UPS Next
Day Air for next business day delivery or mailed by registered or certified mail
(return receipt requested) to the 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:
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To Choice:
Choice Hotels International, Inc.
10750 Columbia Pike
Silver Spring, MD 20901
Attention: General Counsel
To Sunburst:
Sunburst Hospitality Corporation
10750 Columbia Pike
Silver Spring, MD 20901
Attention: General Counsel
17.0 Further Action. Choice and Sunburst each shall cooperate in good
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faith and take such steps and execute such papers as may be reasonably requested
by the other party to implement the terms and provisions of this Agreement.
18.0 Waiver. Choice and Sunburst each agree that the waiver of any
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default under any term or condition of this Agreement shall not constitute any
waiver of any subsequent default or nullify the effectiveness of that term or
condition.
19.0 Governing Law. All controversies and disputes arising out of or
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under this Agreement shall be determined pursuant to the laws of the District of
Maryland, regardless of the laws that might be applied under applicable
principles of conflicts of laws, except to the extent preempted by ERISA or
other applicable federal laws.
20.0 Consent to Jurisdiction. The parties irrevocably submit to the
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exclusive jurisdiction of (a) the Courts of the State of Maryland in Montgomery
County, and (b) the United States District Court for the State of Maryland for
the purposes of any suit, action or other proceeding arising out of this
Agreement.
21.0 Entire Agreement. This Agreement and the Distribution Agreement
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constitute the entire understanding between the parties hereto, and supersede
all prior written or oral communications, relating to the subject matter covered
by said agreements. No amendment, modification, extension or failure to enforce
any condition of this Agreement by either party shall be deemed a waiver of any
of its rights herein. this Agreement shall not be amended except by a writing
executed by the parties.
22.0 Commercially Reasonable Terms and Conditions. Notwithstanding
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anything in this Agreement to the contrary, the terms and provisions of this
Agreement reflect and shall
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reflect commercially reasonable terms and conditions (including, but not limited
to, pricing) that in the reasonable judgment of Choice are at least as favorable
and as competitive to Sunburst as the terms and conditions Choice would grant or
require of third parties for substantially similar goods and services.
23.0 Representatives. Sunburst and Choice shall each appoint a managerial
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level individual (hereinafter "Representatives") to facilitate communications
and performance hereunder. Each party may treat an act of the Representative of
the other party as being authorized by such other party without inquiring behind
such act or ascertaining whether such Representative had authority to so act.
The initial Representatives are named on Exhibit A. Each party shall have the
right at any time and from time to time to replace its Representative by giving
notice in writing to the other party setting forth the name of (i) the
Representative to be replaced and (ii) the replacement, and certifying that the
replacement Representative is authorized to act for the party giving the notice
in all matters relating to this Agreement.
24.0 Confidentiality. Choice and Sunburst agree that the terms of this
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Agreement are confidential and further agree that this Agreement shall not be
released to any third parties, excluding such parties' counsel, agents or
lenders. However, one party may release this Agreement or such information to a
third party upon the prior approval of the other party (such approval not to be
unreasonably withheld, conditioned or delayed) upon court order, or as required
by any rules, regulations or laws. All confidential and proprietary information
which either party has obtained from the other shall be returned upon the
expiration or earlier termination of this Agreement. The provisions of this
paragraph shall survive expiration or earlier termination of this Agreement.
25.0 Expenses. Except as otherwise set forth in this Agreement or any
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Ancillary Agreement (as defined in the Distribution Agreement), the parties
shall bear their own costs and expenses in connection with the preparation,
execution, delivery and implementation of this Agreement and the consummation of
the transactions contemplated hereby.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Choice Hotels International, Inc., a
Delaware corporation
By: /s/ Edward A. Kubis
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Name: Edward A. Kubis
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Title: Senior Vice President
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Choice Hotels Franchising, Inc., a
Delaware corporation
By: /s/ Michael J. DeSantis
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Name: Michael J. DeSantis
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Title: Senior Vice President
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EXHIBIT A
REPRESENTATIVES
- Sunburst
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- Choice
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EXHIBIT B
ACCOUNTING SERVICES
B.0 General. The Accounting Services shall be limited to the following
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services:
B.1 Accounting Services for Health and Welfare Plans. Choice shall:
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(a) Arrange for the calculation, collection and remittance of
employee payroll deductions for each of the Health and Welfare
Plans, where required;
(b) Maintain financial records and prepare financial statements for
each of the Health and Welfare Plans, where needed;
(c) Arrange for the preparation of an independent certified public
accountant's report for each of the Health and Welfare Plans,
where needed;
(d) Prepare for Sunburst's review, signature and filing the Form
5500 for each of the Health and Welfare Plans, where needed;
(e) Review and reconcile bank and investment accounts for each of
the Health and Welfare Plans, where required;
(f) Reconcile billing statements and payments to HMOs and insurance
carriers with participant records;
(g) Reconcile claim reports;
(h) Initiate fund transfers in connection with the Health and
Welfare Plans;
(i) Assist in developing premium rates for Sunburst self-insured
Health and Welfare Plans;
(j) Beginning January 1, 1998, develop, recommend, and maintain
records showing employer contribution amounts under each of the
Health and Welfare Plans relating to the total cost of Health
and Welfare Plans for Sunburst to accrue on its books; and
17
B.2 Accounting Services for Retirement Plans. Choice shall:
----------------------------------------
(a) Establish, maintain and update a roster of participants in each
of the Retirement Plans;
(b) Maintain records of participant account balances or accrued
benefit, as applicable, for each of the Retirement Plans,
including records as to vesting;
(c) Coordinate the distribution of shares, cash and account
contributions under each of the Retirement Plans;
(d) Arrange for the calculation, collection and remittance of direct
employee contributions and employee payroll deductions for each
of the Retirement Plans, where required;
(e) Maintain financial records and prepare financial statements for
each of the Retirement Plans, where needed;
(f) Arrange for the preparation of an independent certified public
accountant's report for each of the Retirement Plans, where
needed;
(g) Prepare for Sunburst's review, signature, and filing of the Form
5500 for each of the Retirement Plans, where needed;
(h) Review and reconcile bank and investment accounts for each of
the Retirement Plans;
(i) Develop, recommend, and maintain records showing employer
contribution amounts under each of the Retirement Plans for
Sunburst to accrue on its books; and
(j) Manage the process of withholding applicable payroll taxes
otherwise payable by Sunburst, where required.
18
B.3 Accounting Services for Stock Plans. Choice shall:
-----------------------------------
(a) Establish, maintain and update a roster of participants in each
of the Stock Plans;
(b) Maintain records of participant account balances for each of the
Stock Plans, including records as to vesting;
(c) Coordinate the distribution of shares (and cash, where
applicable) under each of the Stock Plans;
(d) Arrange for the calculation, collection and remittance of stock
purchase proceeds or employee payroll deductions for each of the
Stock Plans where applicable;
(e) Maintain financial records and prepare financial statements for
each of the Stock Plans, where needed;
(f) Develop, recommend and maintain records showing employee
contribution amounts under each of the Stock Plans for Sunburst
to accrue on its books;
(g) Maintain for each of the Stock Plans share authorization,
issuance, cancellation, and forfeiture records; and
(h) Manage the process of withholding applicable payroll taxes
otherwise payable by Sunburst, where required.
19
B.4 Accounting Services for Deferred Compensation Plans. Choice shall:
---------------------------------------------------
(a) Establish, maintain and update a roster of participants in each
of the Deferred Compensation Plans;
(b) Maintain records of participant account balances for each of the
Deferred Compensation Plans, including records as to vesting;
(c) Coordinate the distribution of shares, cash and account
contributions under each of the Deferred Compensation Plans;
(d) Develop, recommend, and maintain records showing employer
contribution amounts under each of the Deferred Compensation
Plans for Sunburst to accrue on its books; and
(e) Manage the process of withholding applicable payroll taxes
otherwise payable by Sunburst, where required.
20
EXHIBIT C
BENEFIT AND COMPENSATION ADDITIONAL CONSULTING SERVICES
C.0 General. the Benefit and Compensation Additional Consulting Services
-------
shall be limited to the following services:
C.1 Benefit Additional Consulting Services for Health and Welfare Plans
-------------------------------------------------------------------
Choice shall:
Assist Sunburst annually to identify desired Additional Consulting
services and appropriate responsibility.
C.2 Benefit Additional Consulting Services for Retirement Plans. Choice
-----------------------------------------------------------
shall:
Assist Sunburst annually to identify desired Additional Consulting
services and appropriate responsibility.
C.3. Benefit Additional Consulting Services for Stock Plans. Choice
------------------------------------------------------
shall:
Assist Sunburst annually to identify desired additional consulting
services and appropriate responsibility.
C.4 Benefit Additional Consulting Services for Deferred Compensation
----------------------------------------------------------------
Plans. Choice shall:
Assist Sunburst annually to identify desired additional consulting
services and appropriate responsibility.
C.5 Compensation Additional Consulting Services for Sunburst. Choice
--------------------------------------------------------
shall:
Assist Sunburst annually to identify desired additional consulting
services and appropriate responsibility.
21
EXHIBIT D
PLAN ADMINISTRATION SERVICES
D.0 General. the Plan Administration Services shall be limited to the
-------
following services:
D.1 Plan Administration Services for Health and Welfare Plans. Choice
---------------------------------------------------------
shall:
(a) Assist in the preparation of enrollment and communication
materials for each of the Health and Welfare Plans;
(b) Coordinate the production, printing and distribution of
enrollment and communication materials for each of the Health
and Welfare Plans;
(c) Assist Sunburst to negotiate contracts with insurance carriers
and HMOs;
(d) Assist Sunburst to negotiate contracts with insurance carriers
and HMOs;
(e) Assist Sunburst to negotiate fees for "administrative services
only" contracts and premiums for insured Health and Welfare
Plans;
(f) Coordinate the competitive bidding process among prospective
service providers and evaluate resulting bids for Sunburst.
(g) Oversee Sunburst contracts with insurance carriers and HMOs;
(h) Arrange for plan eligibility information to be provided to
insurance carriers and HMOs;
(i) Coordinate independent audits of medical and dental claim
administrators;
(j) Coordinate recovery of claims advances involving third party
liability claims;
(k) Assist Sunburst in pursuing recovery of overpayments made by
medical and dental claim administrators;
22
(l) Coordinate the administration, review and evaluation of Health
and Welfare Claims in accordance with the terms of the Health
and Welfare Plans, standard policies, procedures and practices;
(m) Investigate Claims under the Health and Welfare Plans to the
extent deemed necessary in its best judgment;
(n) Arrange for the payment of Claims in accordance with the terms
of the Health and Welfare Plans, standard policies, procedures
and practices; and
(o) Obtain consents, approvals, and elections under the Health and
Welfare Plans as provided under the terms thereof.
23
D.2 Plan Administration Services for Retirement Plans. Choice shall:
-------------------------------------------------
(a) Assist in the preparation of enrollment and communication
materials for each of the Retirement Plans;
(b) Coordinate the production and printing of enrollment and
communication materials for each of the Retirement Plans;
(c) Coordinate the competitive bidding process among prospective
service providers and evaluate resulting bids for Sunburst;
(d) Coordinate the administration, review and evaluation of Claims
in accordance with the terms of the Retirement Plans, standard
policies, procedures and practices;
(e) Investigate Claims under the Retirement Plans to the extend
deemed necessary in its best judgment;
(f) Arrange for the payment of Claims in accordance with the terms
of the Retirement Plans, standard policies, procedures and
practices; and
(g) Obtain consents, approvals, and elections under the Retirement
Plans as provided under the terms thereof.
24
D.3 Plan Administration Services for Stock Plans. Choice shall:
--------------------------------------------
(a) Assist in the preparation of enrollment (where applicable),
nomination and communication materials for each of the Stock
Plans;
(b) Coordinate the production, printing and distribution of
enrollment (where applicable), nomination and communication
materials for each of the Stock Plans;
(c) Coordinate the competitive bidding process among prospective
service providers and evaluate resulting bids for Sunburst;
(d) Arrange for plan eligibility information to be provided to
awards administrators;
(e) Coordinate the administration, review and evaluation of awards
in accordance with the terms of the Stock Plans, standard
policies, procedures and practices;
(f) Investigate awards under the Stock Plans to the extent deemed
necessary in its best judgment;
(g) Arrange for the distribution of shares in accordance with the
terms of the Stock Plans, standard policies, procedures and
practices;
(h) Coordinate the exercise of stock options and the distribution of
shares and payments of dividends under the Stock Plans; and
(i) Obtain consents, approvals, and elections under the Stock Plans
as provided under the terms thereof.
25
D.4 Plan Administration Services for Deferred Compensation Plans. Choice
------------------------------------------------------------
shall:
(a) Assist in the preparation of enrollment and communication
materials for each of the Deferred Compensation Plans;
(b) Coordinate the production, printing and distribution of
enrollment and communication materials for each of the Deferred
Compensation Plans;
(c) Coordinate the competitive bidding process among prospective
service providers and evaluate resulting bids for Sunburst.
(d) Arrange for plan eligibility information to be provided to claim
administrators;
(e) Coordinate the administration, review and evaluation of Claims
in accordance with the terms of the Deferred Compensation Plans,
standard policies, procedures and practices;
(f) Investigate Claims under the deferred Compensation Plans to the
extent deemed necessary in its best judgment;
(g) Arrange for the payment of Claims in accordance with the terms
of the Deferred Compensation Plans, standard policies,
procedures and practices; and
(h) Obtain consents, approvals, and elections under the Deferred
Compensation Plans as provided under the terms thereof.
26
EXHIBIT E
COBRA ADMINISTRATION SERVICES
E.0 General. The COBRA administration Services shall be limited to the
-------
following services:
E.1 COBRA Administration Services for Medical/Dental Plans. Choice
------------------------------------------------------
shall:
(a) Send initial COBRA notices to Sunburst employees (and the
dependents thereof), as identified by Sunburst, who are enrolled
in the Medical/Dental Plans after the date of this Agreement;
(b) Send COBRA notices and election forms to Qualified Beneficiaries
who are identified by Sunburst or Choice, as appropriate, such
COBRA notices to include, among other things:
(1) Identification of the coverage on the date before the
Qualifying Event;
(2) The date the coverage ended;
(3) The reason the coverage ended;
(4) The right to elect COBRA Continuation Coverage;
(5) The duration of the COBRA Continuation Coverage;
(6) The duration of the grace period for payment of the initial
premium payment for COBRA Continuation Coverage; and
(7) The Determination Period;
(c) Receive and process duly executed COBRA election forms received
from Qualified Beneficiaries in accordance with the procedures
established by Sunburst.
(d) Send payment coupons to Qualified Beneficiaries who have elected
COBRA Continuation Coverage stating the amount of the monthly
COBRA premium payment as established by Sunburst, where
required;
27
(e) Receive and process amounts received as monthly COBRA premium
payments from Qualified Beneficiaries;
(f) Notify Qualified Beneficiaries of the extension of COBRA
Continuation Coverage from 18 months to 29 or 36 months or
termination of their COBRA Continuation Coverage, as appropriate,
under procedures established by Sunburst;
(g) Respond to telephone and written inquiries concerning COBRA
Continuation Coverage;
(h) Notify Qualified Beneficiaries of their right to convert to other
coverage, if applicable;
(i) Maintain an accounting of the COBRA premium payments to be
charged Qualified Beneficiaries;
(j) Assist Sunburst in developing COBRA premium payments to be
charged Qualified Beneficiaries;
(k) Coordinate the administration, review and evaluation of COBRA
Claims in accordance with the terms of the Medical/Dental Plan as
applicable, and stand policies, procedures and practices;
(l) Investigate the COBRA Claims to the extent deemed necessary in
its best judgment; and
(m) Arrange for the payment of COBRA Claims in accordance with the
terms of the appropriate Medical/Dental Plan, standard policies,
procedures and practices.
28
EXHIBIT F
COMPLIANCE SERVICES
F.0 General. the Compliance Services shall be limited to the following
-------
services:
F.1 Compliance Services for Health and Welfare Plans. Choice shall:
------------------------------------------------
(a) Assist Sunburst in the preparation of compliance and disclosure
documents pertaining to the Health and Welfare Plans, e.g., Plan
----
documents, Plan amendments, summary plan descriptions, summaries
of material modifications, and summary annual reports;
(b) Assist Sunburst in the preparation of forms and disclosures
required by the Internal Revenue Service, the Department of Labor
and other regulatory agencies;
(c) Make recommendations and propose necessary amendments to Plan
documents and procedures for compliance with the Plan documents,
administrative procedures, ERISA and other applicable laws and
regulations; and
(d) Assist Sunburst to prepare for and respond to any government
audit or enforcement action with respect to the Health and
Welfare Plans.
29
F.2 Compliance Services for Retirement Plans. Choice shall:
----------------------------------------
(a) Assist Sunburst in the preparation of compliance and disclosure
documents pertaining to the Retirement Plans, e.g., Plan
----
documents, Plan amendments, summary plan descriptions, summaries
of material modifications, and summary annual reports;
(b) Assist Sunburst in the preparation of application for tax exempt
status for its Retirement Plans;
(c) Assist Sunburst in the preparation of forms and disclosures
required by the Internal Revenue Service, the Department of Labor
and other regulatory agencies;
(d) Make recommendations and propose necessary amendments to Plan
documents and procedures for compliance with the Plan documents,
administrative procedures, ERISA and other applicable laws and
regulations; and
(e) Assist Sunburst to prepare for and respond to any government
audit or enforcement action with respect to the Retirement Plans.
30
F.3 Compliance Services for Stock Plans. Choice shall:
-----------------------------------
(a) Assist Sunburst in the preparation of compliance and disclosure
documents pertaining to the Retirement Plans, e.g., Plan
----
documents, Plan amendments, summary plan descriptions, summaries
of material modifications, and summary annual reports;
(b) Assist Sunburst in the preparation of forms and disclosures
required by the Internal Revenue Service, the Department of Labor
and other regulatory agencies;
(c) Make recommendations and propose necessary amendments to Plan
documents and procedures for compliance with the Plan documents,
administrative procedures, ERISA and other applicable laws and
regulations; and
(d) Assist Sunburst to prepare for and respond to any government
audit or enforcement action with respect to the Retirement Plans.
31
F.4 Compliance Services for Deferred Compensation Plans. Choice shall:
---------------------------------------------------
(a) Assist Sunburst in the preparation of compliance and disclosure
documents pertaining to the Deferred Compensation Plans, e.g.,
----
Plan documents, Plan documents, Plan amendments, summary plan
descriptions, summaries of material modifications, and summary
annual reports;
(b) Assist Sunburst in the preparation of forms and disclosures
required by the Internal Revenue Service, the Department of Labor
and other regulatory agencies;
(c) Make recommendations and propose necessary amendments to Plan
documents and procedures for compliance with the Plan documents,
administrative procedures, ERISA and other applicable laws and
regulations; and
(d) Assist Sunburst to prepare for and respond to any government
audit or enforcement action with respect to the Deferred
Compensation Plans.
32
EXHIBIT G
FIDUCIARY SERVICES
G.0 General. the Fiduciary Services shall be limited to the following
-------
services:
G.1 Fiduciary Services for Health and Welfare Plans. Choice shall have
-----------------------------------------------
the discretionary authority to:
(a) Administer and pay claims for disability benefits; and
(b) Review final appeals of denied or disputed Claims and COBRA
Claims under the Health and Welfare Plans in accordance with the
terms of the Health and Welfare Plans, standard policies,
procedures and practices and make final decisions with respect
thereto, subject to Sunburst's approval.
33
G.2 Fiduciary Services for Retirement Plans. Choice shall:
---------------------------------------
(a) Develop investment guidelines and evaluate money managers for
decision by the Retirement Committee;
(b) Review performance of each money manager selected and discuss
investment results and overall strategy with money manager;
(c) Hold periodic meetings with Sunburst's Retirement Committee and
prepare minutes of each meeting;
(d) Collect and implement participant direction regarding investment
selection;
(e) Arrange for the maintenance of custodial accounts for all
Retirement Plan assets;
(f) Develop procedures for and monitor asset transfers among funds;
(g) Reconcile plan assets to detailed participant accounts;
(h) Arrange for the allocation of monthly earnings to participant
accounts;
(i) Prepare financial statements in accordance with generally
accepted accounting principles for Retirement Plans and obtain
annual audit;
(j) Arrange for the performance of annual discrimination testing and
adjustment of participant accounts as instructed by the Plan
document;
(k) Administer Qualified Domestic Relations Orders, as defined in
Internal Revenue Code Section 414(p), plan loans, hardship
withdrawals, and beneficiary accounts;
(l) Have the discretionary authority to administer Claims for the
Retirement Plans; and
(m) Have the discretionary authority to review appeals of denied or
disputed Claims under the Retirement Plan in accordance with the
terms of the retirement plans, standard policies, procedures and
practices and make final decisions with respect thereto, subject
to Sunburst's approval.
34
G.3 Fiduciary Services for Stock Plans. Choice shall:
----------------------------------
(a) Have the discretionary authority to administer awards for the
Stock Plans; and
(b) Have the discretionary authority to review appeals of denied or
disputed Claims under the Stock Plans in accordance with the
terms of the Stock Plans, standard policies, procedures and
practices and make final decisions with respect thereto, subject
to Sunburst's approval.
35
G.4 Fiduciary Services for Deferred Compensation Plans. Choice shall:
--------------------------------------------------
(a) Have the discretionary authority to administer Claims for the
Deferred Compensation Plans; and
(b) Have the discretionary authority to review appeals of denied or
disputed Claims under the Deferred Compensation Plans in
accordance with the terms of the deferred compensation plans,
standard policies, procedures and practices and make final
decisions with respect thereto, subject to Sunburst's approval.
36
SCHEDULE A
HEALTH AND WELFARE PLANS
------------------------
. Medical plans
. Dental Plan
. Group-Term Life
. Pretax Spending Accounts
. Hyatt Legal Services
. Short-term Disability
. Long-term Disability
. Accidental Death & Dismemberment
. Vacation Benefit
. Sick Leave
37
RETIREMENT PLANS STOCK PLANS
---------------- -----------
Sunburst Hospitality Corporation Sunburst Hospitality Corporation
Retirement Savings and Investment Plan Employee Stock Purchase Plan
Sunburst Hospitality Corporation
Non-Qualified Retirement Savings and
Investment Plan
Sunburst Hospitality Corporation
Supplemental Executive Retirement Plan
38
DEFERRED COMPENSATION PLAN
--------------------------
Sunburst Hospitality Corporation
Deferred Compensation Plan
39