Exhibit 99.03
NONCOMPETITION AGREEMENT
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THIS NONCOMPETITION AGREEMENT ("Agreement") is made and entered
into as of October 15, 1997, by and between Choice Hotels International, Inc., a
Delaware corporation which is to be renamed Sunburst Hospitality Corporation
("Choice"), and Choice Hotels Franchising, Inc., a Delaware corporation which is
to be renamed Choice Hotels International, Inc. ("Franchising"). As used in this
Agreement, the terms "Choice" and "Franchising" shall mean Choice and
Franchising, as the case may be, and their respective Subsidiaries and
Affiliates.
WHEREAS, prior to the Distribution Date (as defined below),
Franchising was a wholly owned subsidiary of Choice; and the Franchising
Business (as defined herein) and the Hospitality Business (as defined herein)
were operated by Choice, its divisions, subsidiaries or affiliates;
WHEREAS, on October 15, 1997 (the "Distribution Date"), the
common stock of Franchising was distributed (the "Distribution") on a pro rata
basis, to the stockholders of Choice;
WHEREAS, from the Distribution Date, Franchising is to continue
the Franchising Business formerly operated by Choice through Franchising, its
divisions, subsidiaries or affiliates;
WHEREAS, from the Distribution Date, Choice is to continue the
Hospitality Business; and,
WHEREAS, in order to effect the Distribution, Choice and
Franchising entered into a Distribution Agreement (the "Distribution Agreement")
dated as of October 15, 1997, which provides, in part, that Choice and
Franchising enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and in the Distribution Agreement and in the Related
Agreements entered into pursuant to or in connection with the Distribution, and
for other valuable consideration, the receipt and sufficiency of which are
hereby mutually acknowledged, Choice and Franchising agree as follows:
ARTICLE 1.
DEFINITIONS
1.1. Definitions. The following terms when used herein shall have
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the meaning set forth below:
"Choice" shall have the meaning set forth in the first paragraph
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of this Agreement.
"Classic Sports Business" shall mean the business of developing,
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owning and operating bar/restaurants with a sports theme in hotel properties
under the brand name Classic Sports-Food, Drink & Memories or a similar name.
"Competing Franchising Activity" shall mean a business activity
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that competes with, or is substantially similar to, the Franchising Business,
provided, however, that the Classic Sports Business shall not be deemed a
Competing Franchising Activity.
"Competing Franchising Business" shall mean a business that
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conducts any Competing Franchising Activity.
"Competing Hospitality Activity" shall mean a business activity
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that competes with, or is substantially similar to, the Hospitality Business;
provided, however, that the European Hotel Business shall not be deemed a
Competing Hospitality Activity.
"Competing Hospitality Business" shall mean a business that
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conducts any Competing Hospitality Activity.
"Effective Period" shall have the meaning set forth in Section
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2.1.
"European Hotel Business" shall mean (i) the business of owning
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and operating the fourteen [Comfort Inn] hotels set forth on Schedule A hereto,
which hotels are, on the Distribution Date, owned and operated by Franchising
and (ii) any ownership interest by Franchising in Friendly Hotels, PLC, a
corporation formed under the laws of the United Kingdom.
"Franchising Business" shall mean the business of franchising
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hotels under the Clarion, Quality, Comfort, Sleep Inn, Rodeway, Econo Lodge and
Mainstay Suites brands.
"Franchising" shall have the meaning set forth in the first
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paragraph of this Agreement.
"Hospitality Business" shall mean the business of owning and
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operating hotel properties.
"Person" shall mean any person, firm, corporation, general or
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limited partnership, association, or other entity.
"Preceding Period" shall mean, with respect to any acquisition or
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disposition, the last four completed fiscal quarters preceding the date on which
the acquisition or disposition is consummated.
"Strategic Alliance Agreement" shall mean the Strategic Alliance
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Agreement dated of even date herewith by and between Choice and Franchising, as
amended from time to time.
"Transfer" shall mean the sale, conveyance, disposal of or other
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transfer of ownership, title or other interest.
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.
ARTICLE 2.
TERM
2.1. Term. This Agreement shall remain in effect for a period
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commencing on the date hereof and automatically terminate without further
documentation on the fifth anniversary date of the Distribution Date; provided,
however, that, in the event that on the fifth anniversary date of the
Distribution Date the Strategic Alliance Agreement remains in effect, then this
Agreement shall, without further documentation, remain in effect and shall not
terminate until the date on which the Strategic Alliance Agreement ceases to be
in effect.
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ARTICLE 3.
NONCOMPETITION WITH RESPECT TO THE FRANCHISING BUSINESS
3.1. Certain Restrictions on Choice.
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A. Except as provided in Section 3.1.B herein, during the
Effective Period, Choice shall not conduct, directly or indirectly, any
Competing Franchising Activity, anywhere in the world.
B. Notwithstanding anything herein to the contrary, but
subject to the limitation set forth in Section 3.1.C., Section 3.1.A shall not
prohibit Choice from conducting the following activities:
(i) the continued operation and development of any
business operated as of the Distribution Date by Choice (including,
without limitation, the Classic Sports Business); or
(ii) activities that Choice is permitted or required
to conduct under the Strategic Alliance Agreement; or
(iii) the ownership of capital stock of a corporation
that conducts, directly or indirectly, any Competing Franchising
Activity, if (a) such capital stock is traded on a national or regional
stock exchange in the United States or Canada or is traded on the
National Association of Securities Dealers, Inc., Automated Quotation
System, and (b) Choice, directly or indirectly, is the beneficial owner
of not more than five percent (5%) of such corporation's outstanding
capital stock; or
(iv) the acquisition of any Person that conducts,
directly or indirectly, any Competing Franchising Activity, if (x) the
consolidated gross sales of such Person (including its consolidated
Subsidiaries and Affiliates) from Competing Franchising Activities for
the Preceding Period do not constitute more than twenty percent (20%) of
the aggregate consolidated gross sales (including sales from the
Competing Franchising Activities) of such Person (including its
consolidated Subsidiaries and Affiliates), or (y) neither the fair
market value of, nor the value, if any, attributed to the Competing
Franchising Activities in the acquisition agreement, is in excess of
Five Million Dollars ($5,000,000), as increased by the percentage
increase, if any, in the Consumer Price Index, All Urban Consumers,
United States during the term hereof (using 1996 as the base year).
C. During the Effective Period, Choice shall not, directly
or indirectly:
(i) acquire from any Person (other than Franchising)
any interest in a Competing Franchising Business unless, prior to such
acquisition, Choice offers to sell the Competing Franchising Activities
to Franchising at a price equal to the lesser of (a) the fair market
value of such Competing Franchising Activities, and (b) the value, if
any, attributed to the Competing Franchising Activities in the
acquisition agreement, and otherwise on the same terms and conditions on
which the Competing Franchising Business is being acquired by Choice.
Franchising shall have thirty (30) days after receiving notice of the
acquisition of the Competing Franchising Business to elect, by notice to
Choice, to purchase the Competing Franchising Activities on the terms
and conditions set forth in the notice. If Franchising does not elect to
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purchase the Competing Franchising Activities within the 30-day period,
Choice shall be entitled to own and operate such Competing Franchising
Activities, or such interest therein, subject to the restrictions on
Transfer set forth in Section 3.1.C.(ii). Notwithstanding the foregoing,
Choice shall not have to offer to sell, or sell, to Franchising any such
Competing Franchising Activities which, in the good faith judgment of
Choice, are not readily divisible from other activities, provided that
the gross sales from such non-divisible Competing Franchising Activities
for the Preceding Period do not exceed the greater of One Million
Dollars ($1,000,000) per year or five percent (5%) of the gross sales
for the Preceding Period of the Competing Franchising Business
(including all activities that do not constitute Competing Franchising
Activities). Thereafter, in the event that the gross sales from such
non-divisible Competing Franchising Activities for any calendar year
exceed the greater of One Million Dollars ($1,000,000) per year or five
percent (5%) of the gross sales of the Competing Franchising Business,
then all non-divisible Competing Franchising Activities shall be subject
to Choice's obligation to offer them for sale to Franchising, as set
forth above, to the maximum extent that Choice and Franchising, using
their best efforts and negotiating in good faith, can make such
Competing Franchising Activities divisible and transferable to
Franchising. The amount of One Million Dollars ($1,000,000) referenced
in this Section shall be increased by the percentage increase, if any,
in the Consumer Price Index, All Urban Consumers, United States during
the term hereof (using 1996 as the base year).
(ii) Transfer to any Person (other than Franchising)
any Competing Franchising Activities unless it first offers to sell such
Competing Franchising Activities to Franchising upon substantially the
same terms and conditions offered by a bona fide prospective purchaser
which is not an Affiliate of Choice. Franchising shall have thirty (30)
days after receiving notice of the proposed Transfer to elect, by notice
to Choice, to purchase the Competing Franchising Activities on the terms
and conditions set forth in the notice. If Franchising does not elect to
purchase the Competing Franchising Activities from Choice within the 30-
day period, Choice shall be entitled to Transfer such Competing
Franchising Activities to any Person which is not an Affiliate of Choice
on substantially the same terms and conditions as set forth in the
notice to Franchising. However, if no definitive agreement to Transfer
is executed within ninety (90) days after the expiration of the 30-day
period, Choice shall not thereafter Transfer such Competing Franchising
Activities to any Person (other than Franchising) without first offering
to sell it to Franchising as provided above. Notwithstanding the
foregoing, Choice shall not have to offer to sell, or sell, to
Franchising any such Competing Franchising Activities which, in the good
faith judgment of Choice, are not readily divisible from the other
activities otherwise permitted to be transferred by Choice without
compliance with this Section 3.1.C.(ii), provided that the gross sales
from such non-divisible Competing Franchising Activities for the
Preceding Period do not exceed the greater of One Million Dollars
($1,000,000) per year or five percent (5%) of the gross sales for the
Preceding Period of the Competing Franchising Business (including all
activities that do not constitute Competing Franchising Activities). The
amount of One Million Dollars ($1,000,000) referenced in this Section
shall be increased by the percentage increase, if any, in the Consumer
Price Index, All Urban Consumers, United States during the term hereof
(using 1996 as the base year).
The restrictions set forth in this Section 3.1.C are in addition to any
restrictions set forth in Section 3.1.B.
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ARTICLE 4.
NONCOMPETITION WITH RESPECT TO THE CHOICE BUSINESS
4.1. Certain Restrictions on Franchising.
A. Except as provided in Section 4.1.B herein, during the
Effective Period, Franchising shall not conduct, directly or indirectly, any
Competing Hospitality Activity, anywhere in the world.
B. Notwithstanding anything herein to the contrary, but
subject to the limitations set forth in Section 4.1.C., Section 4.1.A shall not
prohibit Franchising from conducting the following activities:
(i) the continued operation and development of any
business operated as of the Distribution Date by Franchising (including,
without limitation, the European Hotel Business); or
(ii) activities that Franchising is permitted or
required to conduct under the Strategic Alliance Agreement; or
(iii) the ownership of capital stock of a corporation
that conducts, directly or indirectly, any Competing Hospitality
Activity, if (a) such capital stock is traded on a national or regional
stock exchange in the United States or Canada or is traded on the
National Association of Securities Dealers, Inc., Automated Quotation
System, and (b) Franchising, directly or indirectly, is the beneficial
owner of not more than five percent (5 %) of such corporation's
outstanding capital stock; or
(iv) the acquisition of any Person that conducts,
directly or indirectly, any Competing Hospitality Activity, if (x) the
consolidated gross sales of such Person (including its consolidated
Subsidiaries and Affiliates) from the Competing Hospitality Activities
for the Preceding Period do not constitute more than twenty percent
(20%) of the aggregate consolidated gross sales (including sales from
the Competing Hospitality Activities) of such Person (including its
consolidated Subsidiaries and Affiliates), or (y) neither the fair
market value of, nor the value, if any, attributed to the Competing
Hospitality Activities in the acquisition agreement, is in excess of
Five Million Dollars ($5,000,000), as increased by the percentage
increase, if any, in the Consumer Price Index, All Urban Consumers,
United States during the term hereof (using 1996 as the base year).
C. During the Effective Period, Franchising shall not,
directly or indirectly:
(i) acquire from any Person (other than Choice) any
interest in a Competing Hospitality Business unless, prior to such
acquisition, Franchising offers to sell the Competing Hospitality
Activities to Choice at a price equal to the lesser of (a) the fair
market value of such Competing Hospitality Activities, and (b) the
value, if any, attributed to the Competing Hospitality Activities in the
acquisition agreement, and otherwise on the same terms and conditions on
which the Competing Hospitality Business is being acquired by
Franchising. Choice shall have thirty (30) days after receiving notice
of the acquisition of the Competing Hospitality Business to elect, by
notice to Franchising, to purchase the Competing Hospitality Activities
on the terms and conditions set forth in the notice. If Choice does not
elect to
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purchase the Competing Hospitality Activities within the 30-day period,
Franchising shall be entitled to own and operate such Competing
Hospitality Activities, or such interest therein, subject to the
restrictions on Transfer set forth in Section 4.1.C.(ii).
Notwithstanding the foregoing, Franchising shall not have to offer to
sell, or sell, to Choice any such Competing Hospitality Activities
which, in the good faith judgment of Franchising, are not readily
divisible from other activities, provided that the gross sales of such
non-divisible Competing Hospitality Activities for the Preceding Period,
do not exceed the greater of One Million Dollars ($1,000,000) per year
or five percent (5%) of the gross sales for the Preceding Period of the
Competing Hospitality Business (including all activities that do not
constitute Competing Hospitality Activities). Thereafter, in the event
that the gross sales from such non-divisible Competing Hospitality
Activities for any calendar year exceed the greater of One Million
Dollars ($1,000,000) per year or five percent (5%) of the gross sales of
the Competing Hospitality Business, then all non-divisible Competing
Hospitality Activities shall be subject to Franchising's obligation to
offer them for sale to Choice, as set forth above, to the maximum extent
that Choice and Franchising, using their best efforts and negotiating in
good faith, can make such Competing Hospitality Activities divisible and
transferable to Choice. The amount of One Million Dollars ($1,000,000)
referenced in this Section shall be increased by the percentage
increase, if any, in the Consumer Price Index, All Urban Consumers,
United States during the term hereof (using 1996 as the base year).
(ii) Transfer to any Person (other than
Choice) any Competing Hospitality Activities unless it first offers to
sell such Competing Hospitality Activities to Hospitality upon
substantially the same terms and conditions offered by a bona fide
prospective purchaser which is not an Affiliate of Franchising. Choice
shall have thirty (30) days after receiving notice of the proposed
Transfer to elect, by notice to Franchising, to purchase the Competing
Hospitality Activities on the terms and conditions set forth in the
notice. If Choice does not elect to purchase the Competing Hospitality
Activities from Franchising within the 30-day period, Franchising shall
be entitled to Transfer such Competing Hospitality Activities to any
Person which is not an Affiliate of Franchising on substantially the
same terms and conditions as set forth in the notice to Choice. However,
if no definitive agreement to Transfer is executed within ninety (90)
days after the expiration of the 30-day period, Franchising shall not
thereafter Transfer such Competing Hospitality Activities to any Person
(other than Choice) without first offering to sell it to Choice as
provided above. Notwithstanding the foregoing, Franchising shall not
have to offer to sell, or sell, to Franchising any such Competing
Hospitality Activities which, in the good faith judgment of Franchising,
are not readily divisible from the other activities otherwise permitted
to be transferred by Franchising without compliance with this Section
4.1.C.(ii), provided that the gross sales from such non-divisible
Competing Hospitality Activities for the Preceding Period do not exceed
the greater of One Million Dollars ($1,000,000) per year or five percent
(5%) of the gross sales for the Preceding Period of the Competing
Hospitality Business (including all activities that do not constitute
Competing Hospitality Activities). The amount of One Million Dollars
($1,000,000) referenced in this Section shall be increased by the
percentage increase, if any, in the Consumer Price Index, All Urban
Consumers, United States during the term hereof (using 1996 as the base
year). The restrictions set forth in this Section 4.1.C are in addition
to any restrictions set forth in Section 4.1.B.
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ARTICLE 5.
MISCELLANEOUS
5.1. Dispute Resolution. Any dispute, controversy or
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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 5.1 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.
5.2. Modification. This Agreement may only be amended, modified
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or supplemented in a written agreement signed by both parties hereto.
5.3. Waiver. No term or condition of this Agreement shall be
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deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision hereof, except by written instrument of the party
charged with such waiver or estoppel.
5.4. Governing Law. This Agreement shall be governed by, and
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construed in accordance with, the laws of the State of Maryland, regardless of
the laws that might be applied under applicable principles of conflicts of laws.
5.5. Headings. The headings of the sections of this Agreement
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are for convenience only and shall not affect the construction of this
Agreement.
5.6. Notices. All notices and other communications hereunder
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shall be in writing- and shall be delivered by hand 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:
To Choice:
Sunburst Hospitality Corporation
10770 Columbia Pike
Silver Spring, Maryland 20901
Attention: General Counsel
To Franchising:
Choice Hotels International, Inc.
10750 Columbia Pike
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Silver Spring, Maryland 20901
Attention: General Counsel
5.7. Assignment. Neither Party shall sell, assign, pledge or
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otherwise transfer its interest in this Agreement or any part thereof without
the prior written consent of the other Party, except to an entity succeeding to
substantially all of the business and operations of such Party. The transferring
Party shall remain liable for liabilities and obligations existing at the time
of such transfer. Subject to the foregoing, this Agreement shall bind and inure
to the benefit of the Parties' respective successors and permitted assigns.
5.8. Counterparts. This Agreement may be executed in two
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counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
5.9. Severability. Choice and Franchising agree that the period
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of restriction and the geographical area of restriction imposed upon the parties
are fair and reasonable and are reasonably required for the protection of each
of the parties hereto. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect as though the invalid portions were not a part
hereof. If the provisions of this Agreement relating to the area of restriction
or the period of restriction shall be deemed to exceed the maximum area or
period which a court having jurisdiction over the matter would deem enforceable,
such area or period shall, for purposes of this Agreement, be deemed to be the
maximum area or period which such court would deem valid and enforceable.
5.10. Entire Agreement. This Agreement, the Distribution
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Agreement, the Strategic Alliance Agreement, certain hotel franchising
agreements, and other agreements executed pursuant thereto, constitute the
entire agreement of the parties concerning the subject matter hereof.
5.11. Remedies. Choice and Franchising agree that irreparable
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damage would occur in the event any of the provisions of this Agreement were not
to be performed in accordance with the terms hereof, and that their remedy at
law for any breach of the other party's obligations hereunder would be
inadequate. Choice and Franchising agree and consent that temporary and
permanent injunctive relief may be granted in any proceeding which may be
brought to enforce any provision hereof without the necessity of proof of actual
damage.
5.12. Enforceability. The terms, conditions and promises
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contained in this Agreement shall be binding upon and shall inure to the benefit
of each of the parties hereto, their heirs, personal representatives, or
successors and assigns. Each of the parties hereto shall cause its subsidiaries
to comply with such party's obligations hereunder. Nothing herein, expressed or
implied, shall be construed to give any other Person any legal or equitable
rights hereunder.
5.13. Consent to Jurisdiction. Subject to Section 4.1 hereof,
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the parties irrevocably submit to the 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. The parties hereby irrevocably
designate, appoint and empower Prentice Hall Corporation System, Inc. as its
true and lawful agent and attorney-in-fact in its name, place, and stead to
receive on its behalf service of process in any action, suit, or proceeding with
respect to any matters as to which it has submitted to jurisdiction as set forth
in the immediately preceding sentence.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered, all as of the day and year first above
written.
CHOICE HOTELS INTERNATIONAL, INC.
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.
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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SCHEDULE A
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EUROPEAN HOTELS
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Property Title
Moulins, France Freehold
Perpignan, France Freehold
Lormont, France Leasehold
Montlucan, France Leasehold
Regnault, France Leasehold
Mousson, France Leasehold
Vierzon, France Leasehold
St. Catherin, France Leasehold
Reims, France Leasehold
Cherbourg, France Leasehold
Jena, Germany Leasehold
Peine, Germany Freehold
Troisdorf, Germany Freehold
Comfort Inn, Kensington, United Kingdom Freehold
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