REVISED OCTOBER 1, 1996
EMPLOYEE BENEFITS & OTHER EMPLOYMENT
MATTERS ALLOCATION AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS............................................ 1
Section 1.01 Definitions............................................ 1
Aggregate Spread................................................ 1
Choice Business................................................. 1
Choice Individual............................................... 2
Code ....................................................... 2
Collective Bargaining Agreement................................. 2
Commission...................................................... 2
Common Stock.................................................... 2
(i) Employer Common Stock......................... 2
(ii) Manor Care Common Stock....................... 2
(iii) Choice Common Stock........................... 2
Company Matching Contribution................................... 2
Conversion Award................................................ 2
Current Plan Year............................................... 2
Cut-off Date.................................................... 2
Distribution Agreement.......................................... 2
Distribution Date............................................... 2
Employee ....................................................... 3
(i) Choice Employee............................... 3
(ii) Terminee...................................... 3
(iii) Retained Employee............................. 3
ERISA ....................................................... 3
HMO ....................................................... 3
IRS ....................................................... 3
Manor Care...................................................... 3
Manor Care Closing Stock Price.................................. 3
Manor Care Medical Plan......................................... 3
Manor Care Stock Option......................................... 3
Plan ....................................................... 4
Post-Conversion Stock Price..................................... 4
Prior Plan Year................................................. 4
Profit Sharing Plan............................................. 4
(i) Manor Care, Inc. Retirement Savings and
Investment Plan............................... 4
(ii) Choice Hotels International, Inc. Retirement
Savings and Investment Plan................... 4
Qualified Beneficiary........................................... 4
(i)
(i) Manor Care Qualified Beneficiary.............. 4
(ii) Choice Qualified Beneficiary.................. 5
Retained Individual............................................. 5
Service Credit.................................................. 5
Subsidiary...................................................... 5
(i) Choice Subsidiary............................. 5
(ii) Retained Subsidiary........................... 5
Welfare Plans................................................... 5
Page
Section 1.02 Other Terms...................................... 5
Section 1.03 Certain Constructions............................ 5
Section 1.04 Schedules, Sections.............................. 6
Section 1.05 Survival......................................... 6
ARTICLE II EMPLOYEE BENEFITS..................................... 6
Section 2.01 Employment....................................... 6
(a) Allocation of Responsibilities on Distribution
Date............................................. 6
(b) Service Credits.................................. 6
(c) Funding Payment by Choice to Manor Care.......... 7
Section 2.02 Profit Sharing Plans............................. 7
(a) Manor Care, Inc. Retirement Savings and
Investment Plan.................................. 7
(b) Manor Care, Inc. Nonqualified Retirement
Savings and Investment Plan...................... 9
Section 2.03 Retirement Plans................................. 12
(a) Manor Care, Inc. Supplemental Executive Retirement
Plan............................................. 12
(b) Manor Care, Inc. Cash Accumulation Retirement
Plan.............................................. 13
(c) Manor Care, Inc. Deferred Compensation Plan....... 14
Section 2.04 Comprehensive Stock Plans......................... 16
(ii)
(a) Manor Care, Inc. Non-Employee Director Stock
Option and Deferred Compensation Stock Purchase
Plan.............................................. 16
(b) Manor Care, Inc. 1996 Non-Employee Director Stock
Compensation Plan................................. 16
(c) Manor Care, Inc. Stock Grant Plans................ 17
(d) Manor Care Stock Option Plans..................... 18
(e) Manor Care, Inc. 1995 Employee Stock Purchase
Plan.............................................. 19
(f) Effect of the Distribution on Awards Made Prior to
the Cut-off Date.................................. 19
(g) Effect of Post-Distribution Transfer on Conversion
Awards............................................ 23
Section 2.05 Existing Manor Care Stock Purchase Plan........... 23
Page
Section 2.06 Manor Care Welfare Plans and Short-Term
Disability Plan................................... 24
(a) Liability for Claims.............................. 24
(b) Continuation Coverage Administration.............. 24
(c) Continuation Coverage Claims...................... 25
(d) Continuation of Sponsorship of Manor Care Welfare
Plans............................................. 25
(e) Welfare Plan Payments by Choice to Manor Care..... 25
(f) Continuation of Sponsorship of Manor Care, Inc.
Short-Term Disability Plan........................ 26
Section 2.07 Choice Welfare Plans and Short-Term Disability
Plan.............................................. 26
(a) Establishment of Choice Welfare Plans............. 26
(b) Liability for Claims.............................. 26
(c) Continuation Coverage Administration.............. 26
(d) Continuation Coverage Claims...................... 27
(e) Establishment of Choice Hotels International, Inc.
Short-Term Disability Plan........................ 27
Section 2.08 Vacation Pay and Sick Leave Liabilities........... 27
(a) Division of Liabilities........................... 27
(b) Post-Distribution Transfers....................... 28
(iii)
Section 2.09 Employee Discounts............................... 28
Section 2.10 Preservation of Right To Amend or
Terminate Plans.................................. 28
Section 2.11 Reimbursement.................................... 29
Section 2.12 Payroll Reporting and Withholding................ 29
(a) Form W-2 Reporting............................... 29
(b) Forms W-4 and W-5................................ 29
(c) Garnishments, Tax Levies, Child Support
Orders, and Wage Assignments..................... 30
(d) Authorizations for Payroll Deductions............ 30
ARTICLE III LABOR AND EMPLOYMENT MATTERS........................... 30
Section 3.01 Separate Employers............................... 30
Section 3.02 Employment Policies and Practices................ 30
(iv)
Page
Section 3.03 Collective Bargaining Agreements.................... 31
Section 3.04 Claims.............................................. 31
(a) Scope............................................... 31
(b) Employment-Related Claims........................... 31
(c) Obligation to Indemnify............................. 31
(d) Pre-Distribution Claims............................. 32
(e) Distribution and Other Joint Liability
Claims.............................................. 32
(f) Post-Distribution Employment-Related
Claims.............................................. 32
Section 3.05 Funding of Union Plans.............................. 32
Section 3.06 Notice of Claims.................................... 33
Section 3.07 Assumption of Unemployment Tax Rates................ 33
Section 3.08 Intercompany Service Charge......................... 33
Section 3.09 WARN Claims......................................... 33
Section 3.10 Employees on Leave of Absence....................... 33
Section 3.11 No Third Party Beneficiary Rights................... 34
Section 3.12 Attorney-Client Privilege........................... 34
ARTICLE IV DEFAULT................................................... 34
Section 4.01 Default............................................. 34
Section 4.02 Force Majeure....................................... 34
ARTICLE V MISCELLANEOUS.................................... 34
Section 5.01 Relationship of Parties............................. 34
Section 5.02 Access to Information; Cooperation.................. 34
Section 5.03 Assignment.......................................... 35
Section 5.04 Headings............................................ 35
Section 5.05 Severability of Provisions.......................... 35
Section 5.06 Parties Bound....................................... 35
Section 5.07 Notices............................................. 35
(v)
Page
Section 5.08 Further Action...................................... 36
Section 5.09 Waiver.............................................. 36
Section 5.10 Governing Law....................................... 36
Section 5.11 Consent to Jurisdiction............................. 36
Section 5.12 Entire Agreement.................................... 36
Section 5.13 Commercially Reasonable Terms and
Conditions................................. 36
(vi)
EMPLOYEE BENEFITS & OTHER EMPLOYMENT MATTERS
ALLOCATION AGREEMENT
THIS EMPLOYEE BENEFITS & OTHER EMPLOYMENT MATTERS ALLOCATION AGREEMENT
("Agreement") is made and entered into as of
, 1996, by and between CHOICE HOTELS HOLDINGS, INC., (to be
renamed Choice Hotels International, Inc.) a Delaware corporation ("Choice"),
and MANOR CARE, INC., a Delaware corporation ("Manor Care").
R E C I T A L S
WHEREAS, pursuant to a Distribution Agreement (the "Distribution
Agreement") dated as of ____________, 1996, as implemented in documents executed
or delivered by Choice and Manor Care in connection with the closing thereunder,
Choice and Manor Care have agreed to enter into an Employee Benefits & Other
Employment Matters Allocation Agreement with the terms and conditions set forth
herein pursuant to which Choice and Manor Care will each assume 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 Manor Care on the
Distribution Date.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Manor Care and Choice agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. As used in this Agreement, the following
terms shall have the meanings indicated below:
Aggregate Spread: the difference between the exercise price of a Manor
Care Stock Option and the Manor Care Closing Stock Price, multiplied by the
number of shares covered by such Manor Care Stock Option remaining unexercised
on the Cut-off Date.
Choice Business: any business or operation of Manor Care or its
Subsidiaries which is, pursuant to the Distribution Agreement, to be conducted,
following the Distribution Date, by Choice or any Choice Subsidiary.
Choice Individual: any individual who (i) is a Choice Employee, or
(ii) is a beneficiary of any individual specified in clause (i).
Code: the Internal Revenue Code of 1986, as amended, or any successor
legislation.
Collective Bargaining Agreement: any collective bargaining agreement
or other labor agreement to which Manor Care or any of its subsidiaries or
affiliates was a party on or before the Cut-off Date.
Commission: the Securities and Exchange Commission.
Common Stock: the common stock of Manor Care or Choice, as more
specifically described below:
(i) Employer Common Stock: Manor Care
Common Stock in the case of Retained Employees and Choice Common
Stock in the case of Choice Employees; or
(ii) Manor Care Common Stock: the common
stock, par value $0.10 per share, of Manor Care after the
Distribution Date; or
(iii) Choice Common Stock: the common stock,
par value [$1] per share, of Choice after the Distribution Date.
Company Matching Contribution: the Company Matching Contribution of
Manor Care under the Manor Care, Inc. Retirement Savings and Investment Plan (as
provided in the Manor Care Retirement Savings and Investment Plan document) and
the Manor Care, Inc. Nonqualified Retirement Savings and Investment Plan, each
as may be supplemented in the sole and absolute discretion of the Manor Care
Board of Directors.
Conversion Award: an award of Common Stock or of an option to acquire
Common Stock made to a Choice Individual or a Retained Individual to reflect the
effect of the Distribution on awards of Manor Care Common Stock or Manor Care
Stock Options held on the Cut-off Date, in accordance with Section 2.04.
Current Plan Year: the plan year or fiscal year, to the extent
applicable with respect to any Plan, during which the Distribution occurs.
Cut-off Date: the date immediately preceding the Distribution Date.
Distribution Agreement: the agreement described in the first recital
of this Agreement.
Distribution Date: the date on which the Distribution occurs.
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Employee: an individual who on the Distribution Date, is identified as
being in any of the following categories:
(i) Choice Employee: any individual who is
an Employee of Choice or any Choice Subsidiary on the
Distribution Date; or
(ii) Terminee: any individual formerly
employed by Manor Care or any Subsidiary of Manor Care who terminated such
employment prior to the Distribution Date, including but not limited to any
Manor Care employee who has retired prior to the Distribution Date; or
(iii) Retained Employee: any individual who
remains an Employee of Manor Care or any Retained Subsidiary on
the Distribution Date.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended, or any successor legislation.
HMO: any health maintenance organization organized under 42 U.S.C.
ss.300a-9, or a state health maintenance organization statute that provides
medical services for Retained Individuals or Choice Individuals under any Plan.
IRS: the Internal Revenue Service.
Manor Care: Manor Care, Inc., a Delaware corporation.
Manor Care Closing Stock Price: the New York Stock Exchange closing
price per share for Manor Care Common Stock on the Distribution Date, trading
regular way, with a due bill for the special dividend of Choice Common Stock to
be made in connection with the Distribution.
Manor Care Medical Plan: any welfare plan maintained by Manor Care (or
to which Manor Care makes contributions) which provides medical benefits,
including medical benefits provided through an HMO, an indemnity program or a
point of service program.
Manor Care Stock Option: an option to purchase Manor Care Common Stock
pursuant to an option granted under the Manor Care, Inc. Non-Employee Director
Stock Option and Deferred Compensation Stock Purchase Plan, the Manor Care, Inc.
1995 Long Term Incentive Plan, the Manor Care, Inc. Key Executive Stock Option
Plan, or the Manor Care, Inc. Key Executive Stock Option Plan of 1993.
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Plan: any plan, policy, arrangement, contract or agreement providing
compensation benefits for any group of Employees or former employees or any
individual Employee or former employee, or the dependents or beneficiaries of
any such Employee or former Employee, whether formal or informal or written or
unwritten, and including, without limitation, any means, whether or not legally
required, pursuant to which any benefit is provided by an employer to any
Employee or former employee or the beneficiaries of any such Employee or former
employee. The term "Plan" as used in this Agreement does not include any
contract, agreement or understanding entered into by Manor Care prior to the
Distribution Date or by Manor Care or Choice after the Distribution Date by
relating to settlement of actual or potential employee related litigation
claims.
Post-Conversion Stock Price: the per share price of Choice Common
Stock or Manor Care Common Stock on the Distribution Date, based on the Manor
Care Closing Stock Price and the when-issued closing price of Choice Common
Stock on the New York Stock Exchange on the Distribution Date.
Prior Plan Year: a plan year or fiscal year or portion thereof, to the
extent applicable with respect to any Plan, ending on or prior to the Cut-off
Date.
Profit Sharing Plan: a salary reduction contribution plan maintained
pursuant to Sections 401(a) and 401(k) of the Code for Employees and their
beneficiaries, as specifically identified using one of the categories described
below:
(i) Manor Care, Inc. Retirement Savings and
Investment Plan: the Manor Care, Inc. Retirement Savings and
Investment Plan and Trust as in effect on the Distribution Date;
or
(ii) Choice Hotels International, Inc. Retirement
Savings and Investment Plan: the Choice Hotels International,
Inc. Retirement Savings and Investment Plan and Trust as in
effect on the Distribution Date.
Qualified Beneficiary: an individual (or dependent thereof) who either
(1) experiences a "qualified event" (as that term is defined in Code Section
4980B(f)(3) and ERISA Section 603) while a participant in any Welfare Plan, or
(2) becomes a "qualified beneficiary" (as that term is defined in Code Section
4980B(g)(1) and ERISA 607(3)) under any Welfare Plan, and who is included in any
one of the following categories:
(i) Manor Care Qualified Beneficiary: any
Retained Employee (or dependent thereof) who becomes a Qualified Beneficiary on
or after the Distribution Date under any Manor Care Welfare Plan; or any
Retained Employee (or dependent
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thereof) who, on or before the Cut-off Date, was a Qualified Beneficiary under
any Manor Care Welfare Plan.
(ii) Choice Qualified Beneficiary: Any Choice
Employee (or dependent thereof) who becomes a Qualified Beneficiary on or after
the Distribution Date but before January 1, 1997 under any Manor Care Welfare
Plan; or any individual (or dependent thereof) who, on or before the Cut-off
Date, was a Qualified Beneficiary under any Manor Care Welfare Plan and who
became a Choice Employee after the Distribution Date.
Retained Business: any business or operation of Manor Care or its
Subsidiaries which is, pursuant to the Distribution Agreement, to be conducted,
following the Distribution Date, by Manor Care or any Retained Subsidiary.
Retained Individual: any individual who (i) is a Retained Employee, or
(ii) is a beneficiary of any individual described in clause (i).
Service Credit: the period taken into account under any Plan for
purposes of determining length of service to satisfy eligibility, vesting,
benefit accrual and similar requirements under such Plan.
Subsidiary: any corporation, a majority of whose capital stock with
voting power, under ordinary circumstances, to elect directors is, at the date
of determination, directly or indirectly owned by any person as to which a
determination of subsidiary status is to be made, including each of the
following categories:
(i) Choice Subsidiary: all subsidiaries of
Choice as of the Distribution Date; or
(ii) Retained Subsidiary: any subsidiary of Manor
Care, except Choice and the Choice Subsidiaries.
Welfare Plans: any welfare plan providing medical, dental, life,
pre-paid legal services, accidental death & dismemberment or long-term
disability benefits as set forth in Exhibit A. The term "Welfare Plan" does not
include any short-term disability program.
Section 1.02 Other Terms. Any capitalized terms used herein but not
defined herein shall have the meaning set forth in the Distribution Agreement.
Section 1.03 Certain Constructions. References to the singular in this
Agreement shall refer to the plural and vice-versa and references to the
masculine shall refer to the feminine and vice-versa.
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Section 1.04 Schedules, Sections. References to a "Schedule" are,
unless otherwise specified, to one of the Schedules attached to this Agreement,
and references to a "Section" are, unless otherwise specified, to one of the
Sections of this Agreement.
Section 1.05 Survival. Obligations described in this Agreement shall
remain in full force and effect and shall survive the Distribution Date.
ARTICLE II
EMPLOYEE BENEFITS
Section 2.01 Employment.
(a) Allocation of Responsibilities on Distribution Date. On
the Distribution Date, except to the extent retained or assumed by Manor Care
under this Agreement or any other agreement relating to the Distribution, Choice
shall retain or assume, as the case may be, responsibility as employer for the
Choice Employees. On the Distribution Date, except to the extent retained or
assumed by Choice under this Agreement or any other agreement relating to the
Distribution, Manor Care shall retain or assume, as the case may be,
responsibility as employer for the Retained Employees. The assumption or
retention of responsibility as employer by Manor Care or Choice described in
this Section 2.01 shall not, of itself, constitute a severance or a termination
of employment under any Plan of severance maintained by Manor Care.
(b) Service Credits. (i) Distribution Date transfers. In
connection with the Distribution and for purposes of determining Service Credits
(but excluding accrual of benefits other than vacation leave and sick leave)
under any Plans, Manor Care shall credit each Retained Employee and Choice shall
credit each Choice Employee with such Employee's original hire date as reflected
in the Manor Care payroll system records as of the Cutoff Date. Such hire date
shall continue to be maintained as described herein for as long as the Employee
does not terminate employment.
(ii) Post-Distribution Date terminations.
Subject to the provisions of ERISA and to Section 2.08(b) (governing
post-Distribution transfers through May 31, 1998), Choice may, in the case of
Choice Employees, and Manor Care may, in the case of Retained Employees, each in
its sole discretion, make such decisions as it deems appropriate with respect to
determining Service Credits and vacation and sick leave balances for such
Employees who terminate employment from the other company after the Distribution
Date.
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(c) Funding Payment by Choice to Manor Care. Choice shall make a
payment to Manor Care in an amount equal to 2.1% of Choice's aggregate payroll
for all Choice Employees with respect to the time period beginning on the
Distribution Date and ending on December 31, 1996. Such payment shall be made to
Manor Care on a monthly basis no more than ten (10) days after the end of each
month ending after the Distribution Date through December 31, 1996. In
consideration of receipt of such payments, Manor Care shall (i) assume
responsibility for all funding obligations attributable to the Manor Care, Inc.
Cash Accumulation Retirement Plan and (ii) assume responsibility for the Company
Matching Contribution attributable to the Current Plan Year under the Manor
Care, Inc. Retirement Savings and Investment Plan, the Manor Care, Inc.
Nonqualified Retirement Savings and Investment Plan, the Choice Hotels
International, Inc. Retirement Savings and Investment Plan, and the Choice
Hotels International, Inc. Nonqualified Retirement Savings and Investment Plan.
It is also agreed that Choice will be responsible for any incremental costs
associated with the establishment of the Choice Hotels International, Inc.
Retirement Savings and Investment Plan and the Choice Hotels International, Inc.
Nonqualified Retirement Savings and Investment Plan.
Section 2.02 Profit Sharing Plans.
(a) Manor Care, Inc. Retirement Savings and Investment Plan.
(i) Continuation of Sponsorship of Manor Care,
Inc. Retirement Savings and Investment Plan. Effective as of the Distribution
Date, Manor Care shall continue sponsorship of the Manor Care, Inc. Retirement
Savings and Investment Plan for all Retained Employees and Terminees.
Participants in such Plan who are Retained Employees or Terminees shall have a
one-time election to convert Choice Common Stock credited to their accounts into
cash or into Manor Care Common Stock.
(ii) Establishment of Choice Hotels International,
Inc. Retirement Savings and Investment Plan. On or before January 1, 1997,
Choice shall take, or cause to be taken, all action necessary and appropriate to
establish and administer a new Plan named the Choice Hotels International, Inc.
Retirement Savings and Investment Plan and Trust and to provide benefits
thereunder after the date of the establishment of such Plan and Trust for all
Choice Individuals who, immediately prior to the Distribution Date, were
participants in or otherwise entitled to benefits under the Manor Care, Inc.
Retirement Savings and Investment Sharing Plan. Manor Care will fund the Company
Matching Contribution required with respect to the Current Plan Year in
consideration for the payment by Choice of the Funding Payment described in
Section 2.01(c), above. Participants in such Plan shall have a one-time election
to convert transferred
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Manor Care Common Stock into cash or into Choice Common Stock. The Choice Hotels
International, Inc. Retirement Savings and Investment Plan shall be intended to
qualify for tax-favored treatment under Sections 401(a) and 401(k) of the Code
and to be in compliance with the requirements of ERISA.
(iii) Transfer and Acceptance of Account Balances.
As soon as practicable after the date of the establishment of the Choice Hotels
International, Inc. Retirement Savings and Investment Plan, Manor Care shall
cause the trustees of the Manor Care, Inc. Retirement Savings and Investment
Plan to transfer to the trustee or other funding agent of the Choice Hotels
International, Inc. Retirement Savings and Investment Plan the amounts (in cash,
securities, other property or a combination thereof) representing the account
balances of all Choice Individuals, said amounts to be established as account
balances or accrued benefits of such individuals under the Choice Hotels
International, Inc. Retirement Savings and Investment Plan. Each such transfer
shall comply with Section 414(l) of the Code and the requirements of ERISA and
the regulations promulgated thereunder. Choice agrees to cause the trustees or
other funding agent of the Choice Hotels International, Inc. Retirement Savings
and Investment Plan to accept the plan-to-plan transfer from the Manor Care,
Inc. Retirement Savings and Investment Plan trustees, and to credit the accounts
of such Choice Individuals under the Choice Hotels International, Inc.
Retirement Savings and Investment Plan with amounts transferred on their behalf.
Notwithstanding the foregoing, Manor Care and Choice agree that if, subsequent
to such transfer of account balances to the Choice Hotels International, Inc.
Retirement Savings and Investment Plan, a subsequent audit or other review
establishes that additional funds should be transferred to the Choice Hotels
International, Inc. Retirement Savings and Investment Plan from the Manor Care,
Inc. Retirement Savings and Investment Plan or that funds should be returned
from the Choice Hotels International, Inc. Retirement Savings and Investment
Plan to the Manor Care, Inc. Retirement Savings and Investment Plan, both
parties shall take all appropriate steps to effectuate the required transfer
between the trusts maintained for such plans.
(iv) Manor Care to Provide Information. Manor
Care shall provide Choice, as soon as practicable after the date of the
establishment of the Choice Hotels International, Inc. Retirement Savings and
Investment Plan (with the cooperation of Choice to the extent that relevant
information is in the possession of Choice or a Choice Subsidiary, and in
accordance with Section 5.02), with a list of Choice Individuals who, to the
best knowledge of Manor Care, were participants in or otherwise entitled to
benefits under the Manor Care, Inc. Retirement Savings and Investment Plan on
the Cut-off Date, together with a listing of each participant's Service Credits
under such Plan and a listing of each account balance thereunder. Manor Care
shall,
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as soon as practicable after the Distribution Date and in accordance with
Section 5.02, provide Choice with such additional information in the possession
of Manor Care or a Retained Subsidiary (and not already in the possession of
Choice or a Choice Subsidiary) as may be reasonably requested by Choice and
necessary for Choice or the Choice Subsidiary to establish and administer
effectively the Choice Hotels International, Inc.
Retirement Savings and Investment Plan.
(v) Regulatory Filings. Choice and Manor Care
shall, in connection with the plan-to-plan transfer described in Section
2.02(a)(iii), cooperate in making any and all appropriate filings required by
the Commission or the IRS, or required under the Code or ERISA or any applicable
securities laws and the regulations thereunder, and take all such action as may
be necessary and appropriate to cause such plan-to-plan transfer to take place
as soon as practicable after the date of the establishment of the Choice Hotels
International, Inc. Retirement Savings and Investment Plan or otherwise when
required by law. Further, Choice shall seek a favorable IRS determination letter
that the Choice Hotels International, Inc. Retirement Savings and Investment
Plan, as organized, satisfies all qualification requirements under Section
401(a) of the Code, and the transfers described in Section 2.02(a)(iii) shall
take place as soon as practicable after the receipt of such favorable IRS
determination letter. Notwithstanding the foregoing, such transfers may take
place pending issuance of such favorable determination letter, upon receipt of
an opinion of counsel for Choice reasonably satisfactory to Manor Care that the
aforesaid Plan so qualifies, or that it can be made to so qualify by retroactive
amendment, and that any such retroactive amendment shall not decrease the
accrued benefit of any participant in such Plan. Manor Care agrees to provide to
Choice's counsel such information in the possession of Manor Care or any
Retained Subsidiary as may reasonably be requested by Choice's counsel in
connection with the issuance of such opinion, in accordance with Section 5.02.
Manor Care and Choice shall each make any necessary amendments on a retroactive
basis to the Manor Care, Inc. Retirement Savings and Investment Plan or the
Choice Hotels International, Inc. Retirement Savings and Investment Plan,
respectively, as required by the IRS to issue the favorable determination letter
described above.
(b) Manor Care, Inc. Nonqualified Retirement Savings and Investment
Plan.
(i) Continuation of Sponsorship of Manor Care,
Inc. Nonqualified Retirement Savings and Investment Plan. On the
Distribution Date, Manor Care shall retain (or shall cause a
Retained Subsidiary to assume) sole responsibility for all
liabilities and obligations under the Manor Care, Inc.
Nonqualified Retirement Savings and Investment Plan, including
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the obligation to make a Company Matching Contribution for Retained Employees
and Choice Employees with respect to the Current Plan Year, and Choice shall
have no liability or obligation with respect thereto, except to pay to Manor
Care the Funding Payment described in Section 2.01(c), above. Participants in
such Plan who are Retained Employees or Terminees shall have a one-time election
to convert Choice Common Stock credited to their accounts into cash or into
Manor Care Common Stock.
(ii) Establishment of Choice Hotels International,
Inc. Nonqualified Retirement Savings and Investment Plan. On or before January
1, 1997, Choice shall take, or cause to be taken, all action necessary and
appropriate to establish and administer a new nonqualified retirement savings
and investment plan named the Choice Hotels International, Inc. Nonqualified
Retirement Savings and Investment Plan and to provide benefits thereunder after
the date of the establishment of such Plan and Trust for all Choice Employees
who immediately prior to the Distribution Date, were participants in or
otherwise entitled to benefits under the Manor Care, Inc. Nonqualified
Retirement Savings and Investment Plan. However, the obligation to make a
Matching Company Contribution for Choice Employees with respect to the Current
Plan Year shall be assumed by Manor Care in consideration of the payment by
Choice of the Funding Payment described in Section 2.01(c) above. Participants
in such Plan shall have a one-time election to convert transferred Manor Care
Common Stock into cash or into Choice Common Stock.
(iii) Transfer and Acceptance of Account Balances.
As soon as practicable after the date of the establishment of the Choice Hotels
International, Inc. Nonqualified Retirement Savings and Investment Plan, Manor
Care shall cause the trustee of the "rabbi" trust relating to the Manor Care,
Inc. Nonqualified Retirement Savings and Investment Plan to transfer to a
separate "rabbi" trust to be established by Choice with respect to the Choice
Hotels International, Inc. Nonqualified Retirement Savings and Investment Plan
the amounts (in cash, securities, other property or a combination thereof)
representing the account balances of all Choice Individuals who had account
balances in the "rabbi" trust relating to the Manor Care, Inc. Nonqualified
Retirement Savings and Investment Plan on the Cut-off Date, said amounts to be
established as account balances or accrued benefits of such individuals in the
"rabbi" trust established with respect to the Choice Hotels International, Inc.
Nonqualified Retirement Savings and Investment Plan. In addition, each Choice
Individual for whom an account balance in the rabbi trust established on behalf
of the Manor Care, Inc. Nonqualified Retirement Savings and Investment Plan is
transferred to a rabbi trust established on behalf of the Choice Hotels
International, Inc. Nonqualified Retirement Savings and Investment Plan shall be
required to execute a waiver which acknowledges that all liabilities for
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benefits accrued under the Manor Care, Inc. Nonqualified Retirement Savings and
Investment Plan through the date immediately preceding the date of the
establishment of the Choice Hotels International, Inc. Nonqualified Retirement
Savings and Investment Plan shall be assumed by Choice, except that Manor Care
shall remain liable, for a period of thirty (30) months following the
Distribution Date, for such benefits to the extent such amounts are not paid
when due by Choice.
(iv) Manor Care to Provide Information. Manor
Care agrees to provide Choice (to the extent not already in Choice's
possession), as soon as practicable after the date of the establishment of the
Choice Hotels International, Inc. Nonqualified Retirement Savings and Investment
Plan, with a list of Choice Individuals who were, to the best knowledge of
Choice, participants in or otherwise entitled to benefits under the Manor Care,
Inc. Nonqualified Retirement Savings and Investment Plan on the Cut-off Date,
together with a listing of each participant's Service Credits under such Plan
and a listing of each account balance thereunder. Manor Care shall, as soon as
practicable after the Distribution Date, in accordance with Section 5.02 provide
Choice with such additional information in the possession of Manor Care or a
Retained Subsidiary and not already in the possession of Choice or a Choice
Subsidiary as may reasonably be requested by Choice and necessary in order for
Choice or a Choice Subsidiary to administer effectively the Choice International
Hotels, Inc. Nonqualified Retirement Savings and Investment Plan.
(v) Benefit Guarantees. On and after the
Distribution Date, a Retained Employee's and Terminee's right, if any, to
receive benefits under the Manor Care, Inc. Nonqualified Retirement Savings and
Investment Plan shall be the responsibility of Manor Care. However, the payment
of any benefits due under the Manor Care, Inc. Nonqualified Retirement Savings
and Investment Plan for the first thirty (30) months following the Distribution
Date shall be guaranteed by Choice, to the extent not otherwise paid by Manor
Care. On and after the date of the establishment of the Choice Hotels
International, Inc. Nonqualified Retirement Savings and Investment Plan, a
Choice Individual's right to receive benefits under the Choice Hotels
International, Inc. Nonqualified Retirement Savings and Investment Plan shall be
the responsibility of Choice. However, the payment of any benefits due under the
Choice Hotels International, Inc. Nonqualified Retirement Savings and Investment
Plan which are attributable to the transferred accrued benefits earned under the
Manor Care, Inc. Deferred Compensation Plan shall be guaranteed by Manor Care
for the first thirty (30) months following the Distribution Date, to the extent
not otherwise paid by Choice.
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Section 2.03 Retirement Plans.
(a) Manor Care, Inc. Supplemental Executive Retirement Plan.
(i) Continuation of Sponsorship of Manor Care,
Inc. Supplemental Executive Retirement Plan. On the Distribution Date, Manor
Care shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all liabilities and obligations under the Manor Care, Inc.
Supplemental Executive Retirement Plan, and Choice shall have no liability or
obligation with respect thereto, except as defined in Section 2.03(a)(ii) below.
Manor Care shall provide future benefits thereunder accruing after the Cut-off
Date for Retained Employees and Terminees who, on the Cut-off Date, were
participants in or otherwise entitled to benefits under the Manor Care, Inc.
Supplemental Executive Retirement Plan.
(ii) Establishment of Choice Hotels International,
Inc. Supplemental Executive Retirement Plan. Effective as of the Distribution
Date, Choice shall take, or cause to be taken, all action necessary and
appropriate to establish and administer a new supplemental executive retirement
plan named the Choice Hotels International, Inc. Supplemental Executive
Retirement Plan and to provide benefits thereunder after the Distribution Date
for all Choice Employees who immediately prior to the Distribution Date, were
participants in or otherwise entitled to benefits under the Manor Care, Inc.
Supplemental Executive Retirement Plan.
(iii) Transfer and Acceptance of Account Balances.
As soon as practicable after the Distribution Date, Manor Care shall transfer to
Choice an amount (in cash, securities, other property or a combination thereof)
representing the present value of the full accrued benefit of all Choice
Employees who had earned a benefit in the Manor Care, Inc. Supplemental
Executive Retirement Plan on the Cut-off Date, said amounts to be established as
the initial accrued benefits of such individuals under the Choice Hotels
International, Inc. Supplemental Executive Retirement Plan. Manor Care and
Choice shall take such steps as may be necessary to obtain releases of Manor
Care from Choice Employees whose accrued benefits are transferred from the Manor
Care, Inc. Supplemental Executive Retirement to the Choice Hotels International,
Inc. Supplemental Executive Retirement Plan in accordance with this Section. In
addition, each Choice Individual for whom an accrued benefit under the Manor
Care, Inc. Supplemental Executive Retirement Plan has been assumed by the Choice
Hotels International, Inc. Supplemental Executive Retirement Plan shall be
required to execute a waiver which acknowledges that all liabilities for
benefits accrued under the Manor Care, Inc. Supplemental Executive Retirement
Plan through the date immediately preceding the Distribution Date shall be
- 12 -
assumed by Choice, except that Manor Care shall remain liable, for a period of
thirty (30) months following the Distribution Date, for such benefits to the
extent such amounts are not paid when due by Choice.
(iv) Manor Care to Provide Information. Manor Care agrees to
provide Choice (to the extent not already in Choice's possession), as soon as
practicable after the Distribution Date, with a list of Choice Individuals who
were, to the best knowledge of Choice, participants in or otherwise entitled to
benefits under the Manor Care, Inc. Supplemental Executive Retirement Plan on
the Cut-off Date, together with a listing of each participant's Service Credits
under such Plan and a listing of such participant's accrued benefits thereunder.
Manor Care shall, as soon as practicable after the Distribution Date, in
accordance with Section 5.02 provide Choice with such additional information in
the possession of Manor Care or a Retained Subsidiary and not already in the
possession of Choice or a Choice Subsidiary as may reasonably be requested by
Choice and necessary in order for Choice or a Choice Subsidiary to administer
effectively the Choice International Hotels, Inc. Supplemental Executive
Retirement Plan.
(v) Benefit Guarantees. On and after the Distribution Date,
a Retained Employee's or a Terminee's right, if any, to receive benefits under
the Manor Care, Inc. Supplemental Executive Retirement Plan shall be the
responsibility of Manor Care. However, the payment of any benefits due under the
Manor Care, Inc. Supplemental Executive Retirement Plan for the first thirty
(30) months following the Distribution Date shall be guaranteed by Choice, to
the extent not otherwise paid by Manor Care. On and after the Distribution Date,
a Choice Individual's right to receive benefits under the Choice Hotels
International, Inc. Supplemental Executive Retirement Plan shall be the
responsibility of Choice. However, the payment of any benefits due under the
Choice Hotels International, Inc. Supplemental Executive Retirement Plan which
are attributable to the transferred accrued benefits earned under the Manor
Care, Inc. Deferred Compensation Plan shall be guaranteed by Manor Care for the
first thirty (30) months following the Distribution Date, to the extent not
otherwise paid by Choice.
(b) Manor Care, Inc. Cash Accumulation Retirement Plan. As of the
Distribution Date, Manor Care or a Retained Subsidiary shall assume or retain
sponsorship of and shall be solely responsible for all liabilities and
obligations in connection with the Manor Care, Inc. Cash Accumulation Retirement
Plan, and Choice and the Choice Subsidiaries shall have no such liability or
obligation, except for the payment to Manor Care of the Funding Payment
described in Section 2.01(c), above. Subject to the approval of the Board of
Directors of Manor Care, the
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Manor Care, Inc. Cash Accumulation Retirement Plan shall be frozen as to future
participation effective as of August 15, 1996 and shall be frozen as to future
benefit accruals as of December 31, 1996. Participants in the Manor Care, Inc.
Cash Accumulation Retirement Plan shall continue to earn Service Credits for
purposes of vesting. To the extent that additional contributions are required
for individuals who are participants in the Manor Care, Inc. Cash Accumulation
Retirement Plan on the Cut-off Date and who become Choice Employees, Manor Care
shall be solely responsible for all liabilities and obligations in connection
with such contributions.
(c) Manor Care, Inc. Deferred Compensation Plan.
(i) Continuation of Sponsorship of Manor Care,
Inc. Deferred Compensation Plan. On the Distribution Date, Manor Care shall
retain (or shall cause a Retained Subsidiary to assume) sole responsibility for
all liabilities and obligations under the Manor Care, Inc. Deferred Compensation
Plan, and Choice shall have no liability or obligation with respect thereto,
except as defined in Section 2.03(c)(ii) below. Manor Care shall provide future
benefits thereunder accruing after the Cut-off Date for Retained Employees,
individuals who are directors of Manor Care, and Terminees who, on the Cut-off
Date, were participants in or otherwise entitled to benefits under the Manor
Care, Inc. Deferred Compensation Plan.
(ii) Establishment of Choice Hotels International,
Inc. Deferred Compensation Plan. Effective as of the Distribution Date, Choice
shall take, or cause to be taken, all action necessary and appropriate to
establish and administer a new deferred compensation plan named the Choice
Hotels International, Inc. Deferred Compensation Plan and to provide benefits
thereunder after the Distribution Date for all Choice Employees who immediately
prior to the Distribution Date, were participants in or otherwise entitled to
benefits under the Manor Care, Inc. Deferred Compensation Plan, and for Choice
directors.
(iii) Transfer and Acceptance of Account Balances.
As soon as practicable after the Distribution Date, Manor Care shall transfer to
Choice the amounts (in cash, securities, other property or a combination
thereof) representing the account balances of all Choice Employees who had
account balances in the Manor Care, Inc. Deferred Compensation Plan on the
Cut-off Date, said amounts to be established as account balances or accrued
benefits of such individuals under the Choice Hotels International, Inc.
Deferred Compensation Plan. Manor Care and Choice shall take such steps as may
be necessary to obtain releases of Manor Care from Choice Employees whose
account balances are transferred from the Manor Care, Inc. Deferred Compensation
Plan to the Choice Hotels International, Inc. Deferred Compensation Plan in
accordance with this Section. In
- 14 -
addition, each Choice Individual whose account balance under the Manor Care,
Inc. Deferred Compensation Plan has been transferred to the Choice Hotels
International, Inc. Deferred Compensation Plan shall be required to execute a
waiver which acknowledges that all liabilities for benefits accrued under the
Manor Care, Inc. Deferred Compensation Plan through the date immediately
preceding the Distribution Date shall be assumed by Choice, except that Manor
Care shall remain liable, for a period of thirty (30) months following the
Distribution Date, for such benefits to the extent such amounts are not paid
when due by Choice.
(iv) Manor Care to Provide Information. Manor
Care agrees to provide Choice (to the extent not already in Choice's
possession), as soon as practicable after the Distribution Date, with a list of
Choice Employees who were, to the best knowledge of Manor Care, participants in
or otherwise entitled to benefits under the Manor Care, Inc. Deferred
Compensation Plan on the Cut-off Date. Manor Care shall, as soon as practicable
after the Distribution Date, in accordance with Section 5.02 provide Choice with
such additional information in the possession of Manor Care or a Retained
Subsidiary and not already in the possession of Choice or a Choice Subsidiary as
may reasonably be requested by Choice and necessary in order for Choice or a
Choice Subsidiary to administer effectively the Choice Hotels International,
Inc. Deferred Compensation Plans.
(v) Benefit Guarantees. On and after the
Distribution Date, a Retained Employee's, Terminee's or Manor Care director's
right to receive benefits under the Manor Care, Inc. Deferred Compensation Plan
shall be the responsibility of Manor Care. However, the payment of any benefits
due under the Manor Care, Inc. Deferred Compensation Plan for the first thirty
(30) months following the Distribution Date shall be guaranteed by Choice, to
the extent not otherwise paid by Manor Care. On and after the Distribution Date,
a Choice Individual's right to receive benefits under the Choice Hotels
International, Inc. Deferred Compensation Plan shall be the responsibility of
Choice. However, the payment of any benefits due under the Choice Hotels
International, Inc. Deferred Compensation Plan which are attributable to the
transferred accrued benefits earned under the Manor Care, Inc. Deferred
Compensation Plan shall be guaranteed by Manor Care for the first thirty (30)
months following the Distribution Date, to the extent not otherwise paid by
Choice.
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Section 2.04 Comprehensive Stock Plans.
(a) Manor Care, Inc. Non-Employee Director Stock Option and Deferred
Compensation Stock Purchase Plan.
(i) Continuation of Sponsorship of Manor Care,
Inc. Non-Employee Director Stock Option and Deferred Compensation Stock Purchase
Plan. On the Distribution Date, Manor Care shall retain (or shall cause a
Retained Subsidiary to assume) sole responsibility for all liabilities and
obligations under the Manor Care, Inc. Non-Employee Director Stock Option and
Deferred Compensation Stock Purchase Plan for all non-employee directors of
Manor Care after the Distribution Date through the issuance of Conversion
Awards, subject to the stock adjustment provisions described in Section
2.04(f)(iii) and Section 2.04(f)(iv) below and the election procedures described
in Section 2.04(f)(v) and (vi) below, and Choice shall have no liability or
obligation with respect thereto. Notwithstanding the above, on the Distribution
Date, any Director of Manor Care who becomes a member of the Board of Directors
of Choice as of the Distribution Date and who holds an option to acquire Manor
Care Common Stock under the Manor Care, Inc. Non-Employee Director Stock Option
and Deferred Compensation Stock Purchase Plan will receive a Conversion Award in
exchange for such Manor Care Stock Options (i) with respect to which the
Aggregate Spread shall equal the Aggregate Spread attributable to such Manor
Care Stock Options, and (ii) with respect to which the Aggregate Spread shall be
proportionately allocated between options to acquire Manor Care Common Stock and
options to acquire Choice Common Stock based upon the relative trading values of
Manor Care and Choice on the Distribution Date.
(ii) Establishment of Choice Hotels International,
Inc. Non-Employee Director Stock Option and Deferred Compensation Stock Purchase
Plan. Effective as of the Distribution Date, Choice shall take, or cause to be
taken, all action necessary and appropriate to establish and administer a new
non-employee director stock option and deferred compensation stock purchase plan
named the Choice Hotels International, Inc. Non-Employee Director Stock Option
and Deferred Compensation Stock Purchase Plan and to provide benefits thereunder
after the Distribution Date for all non-employee Choice directors.
(b) Manor Care, Inc. 1996 Non-Employee Director Stock Compensation
Plan.
(i) Continuation of Sponsorship of Manor Care, Inc. 1996
Non-Employee Director Stock Compensation Plan. On the Distribution Date, Manor
Care shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all liabilities and obligations under the Manor Care, Inc.
1996 Non- Employee Director Stock Compensation Plan for all non-employee
directors of Manor Care after the Distribution Date through the
- 16 -
issuance of Conversion Awards, subject to the stock adjustment provisions
described in Section 2.04(f) below, and Choice shall have no liability or
obligation with respect thereto.
(ii) Establishment of Choice Hotels International,
Inc. Non-Employee Director Stock Compensation Plan. Effective as of the
Distribution Date, Choice shall take, or cause to be taken, all action necessary
and appropriate to establish and administer a new non-employee director stock
compensation plan named the Choice Hotels International, Inc. Non-Employee
Director Stock Compensation Plan and to provide benefits thereunder after the
Distribution Date for all non-employee Choice directors.
(c) Manor Care, Inc. Stock Grant Plans.
(i) Continuation of Sponsorship of Manor Care,
Inc. Nursing Field Operations Stock Grant Plan for Key Management Employees. On
the Distribution Date, Manor Care shall retain (or shall cause a Retained
Subsidiary to assume) sole responsibility for all liabilities and obligations
under the Manor Care, Inc. Nursing Field Operations Stock Grant Plan for Key
Management Employees for all eligible key management employees eligible
thereunder after the Distribution Date, and Choice shall have no liability or
obligation with respect thereto.
(ii) Continuation of Sponsorship of Manor Care,
Inc. Restricted Stock Plan. On the Distribution Date, Manor Care shall retain
(or shall cause a Retained Subsidiary to assume) sole responsibility for all
liabilities and obligations under the Manor Care, Inc. Restricted Stock Plan for
Key Management Employees for all eligible key management employees eligible
thereunder after the Distribution Date, and Choice shall have no liability or
obligation with respect thereto. At such time as Manor Care stock is released
from restriction, Manor Care shall claim a compensation deduction for the
then-current value of such stock and shall cause the unrestricted shares of
Manor Care stock to be delivered directly to the Employee entitled to such
shares whether such Employee is currently employed by Manor Care or Choice.
(iii) Continuation of Sponsorship of Manor Care,
Inc. Hotel Franchise Operations Stock Grant Plan for Choice Hotels
International, Inc. Key Management Employees. On the Distribution Date, Manor
Care shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all liabilities and obligations under the Manor Care, Inc.
Hotel Franchise Operations Stock Grant Plan for Choice Hotels International,
Inc. Key Management Employees for all eligible key management employees eligible
thereunder after the Distribution Date, and Choice shall have no liability or
obligation with respect thereto. At such time as Manor Care stock is released
from restriction, Manor Care shall claim a compensation deduction
- 17 -
for the then-current value of such stock and shall cause the unrestricted shares
of Manor Care stock to be delivered directly to the Employee entitled to such
shares, whether or not such Employee is employed by Manor Care or Choice.
(d) Manor Care Stock Option Plans.
(i) Continuation of Sponsorship of Manor Care,
Inc. 1995 Long Term Incentive Plan and Establishment of Choice Hotels
International, Inc. Long Term Incentive Plan. On the Distribution Date, Manor
Care shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all liabilities and obligations under the Manor Care, Inc.
1995 Long Term Incentive Plan for all Retained Employees and Terminees who are
participants in such Plan on the Distribution Date through the issuance of
Conversion Awards, subject to the stock adjustment provisions described in
Section 2.04(f) below, and Choice shall have no liability or obligation with
respect thereto. In addition, Conversion Awards shall be issued to all Choice
Employees who were participants in such Plan on the Cutoff Date in accordance
with Section 2.04(f). Issuance of a Conversion Award shall be conditioned upon
the execution of an appropriate release by the Choice Employee to whom the
Conversion Award is conveyed, which release shall acknowledge that such Choice
Employee's options to purchase Manor Care Common Stock are cancelled in
consideration of receipt of the Conversion Award. Effective as of the
Distribution Date, Choice shall take, or cause to be taken, all action necessary
and appropriate to establish and administer a new long term incentive plan named
the Choice Hotels International, Inc. Long Term Incentive Plan and to provide
benefits thereunder after the Distribution Date for all Choice officers and key
employees.
(ii) Continuation of Sponsorship of Manor Care,
Inc. Key Executive Stock Option Plan. On the Distribution Date, Manor Care shall
retain (or shall cause a Retained Subsidiary to assume) sole responsibility for
all liabilities and obligations under the Manor Care, Inc. Key Executive Stock
Option Plan for all Retained Employees and Terminees who are participants in
such Plan on the Distribution Date through the issuance of Conversion Awards,
subject to the stock adjustment provisions described in Section 2.04(f) below,
and Choice shall have no liability or obligation with respect thereto. In
addition, Conversion Awards shall be issued to all Choice Employees who were
participants in such Plan on the Cut-off Date in accordance with Section
2.04(f). Issuance of a Conversion Award shall be conditioned upon the execution
of an appropriate release by the Choice Employee to whom the Conversion Award is
conveyed, which release shall acknowledge that such Choice Employee's options to
purchase Manor Care Common Stock are cancelled in consideration of receipt of
the Conversion Award.
- 18 -
(iii) Continuation of Sponsorship of Manor Care,
Inc. Key Executive Stock Option Plan of 1993. On the Distribution Date, Manor
Care shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all liabilities and obligations under the Manor Care, Inc.
Key Executive Stock Option Plan of 1993 for all Retained Employees and Terminees
who are participants in such Plan on the Distribution Date through the issuance
of Conversion Awards, subject to the stock adjustment provisions described in
Section 2.04(f) below, and Choice shall have no liability or obligation with
respect thereto. In addition, Conversion Awards shall be issued to all Choice
Employees who were participants in such Plan on the Cut-off Date in accordance
with Section 2.04(f). Issuance of a Conversion Award shall be conditioned upon
the execution of an appropriate release by the Choice Employee to whom the
Conversion Award is conveyed, which release shall acknowledge that such Choice
Employee's options to purchase Manor Care Common Stock are cancelled in
consideration of receipt of the Conversion Award.
(e) Manor Care, Inc. 1995 Employee Stock Purchase Plan.
(i) Continuation of Sponsorship of Manor Care,
Inc. 1995 Employee Stock Purchase Plan. On the Distribution Date, Manor Care
shall retain (or shall cause a Retained Subsidiary to assume) sole
responsibility for all liabilities and obligations under the Manor Care, Inc.
1995 Employee Stock Purchase Plan for all Retained Employees and Terminees who
are participants in such Plan on the Distribution Date, subject to the stock
adjustment provisions described in Section 2.04(f) below, and Choice shall have
no liability or obligation with respect thereto.
(ii) Establishment of Choice Hotels International,
Inc. Employee Stock Purchase Plan. Effective as of the Distribution Date, Choice
shall take, or cause to be taken, all action necessary and appropriate to
establish and administer a new stock purchase plan named the Choice Hotels
International, Inc. Employee Stock Purchase Plan and to provide benefits
thereunder after the Distribution Date for all Choice officers and key
employees.
(f) Effect of the Distribution on Awards Made Prior to the Cut-off
Date.
(i) Restricted Stock: After the Distribution
Date, the grantee of each restricted share of Manor Care Common
Stock awarded under the Manor Care, Inc. Nursing Field Operations
Stock Grant Plan for Key Management Employees, the Manor Care,
Inc. Restricted Stock Plan, the Manor Care, Inc. Hotel Franchise
- 19 -
Operations Stock Grant Plan for Choice Hotels International, Inc. Key Management
Employees, or the Manor Care, Inc. 1995 Long Term Incentive Plan as of the
Cut-off Date shall retain such share, and shall receive as part of the
Distribution one restricted share of Choice Common Stock for each such
restricted share of Manor Care Common Stock. The restricted shares of Choice
Common Stock received as part of the Distribution will be subject to
restrictions identical to those applicable to the underlying restricted shares
of Manor Care Common Stock. In the case of Choice Employees, future service for
Choice will be treated as service for Manor Care for purposes of determining
satisfaction of the restrictions attributable to the Manor Care Common Stock and
Choice Common Stock. Restricted shares of Choice Common Stock awarded as part of
the Distribution shall be released from restrictions at the same time and on the
same schedule as the shares of Manor Care Common Stock retained, under the terms
of the restrictions to which the grantee's initial award was subject.
(ii) Substitution of Stock Options: Subject to
the provisions of Section 2.04(f)(v) and (vi), below, on the Distribution Date,
each grantee of a nonqualified award of a Manor Care Stock Option who is a
Retained Employee or Terminee shall receive for each such award a Conversion
Award, consisting of an option to purchase shares of Manor Care Common Stock
equal in number to the number of shares covered by the Manor Care Stock Option,
adjusted, however, pursuant to Section 2.04(f)(iv), below. On the Distribution
Date, each grantee of a Manor Care Stock Option awarded as an incentive stock
option who is a Retained Employee or Terminee shall automatically receive in its
place a Conversion Award of an option to purchase shares of Manor Care Common
Stock equal in number to the number of shares covered by the Manor Care Stock
Option, adjusted, however, pursuant to Section 2.04(f)(iv) below. Subject to the
provisions of Section 2.04(f)(v) and (vi), below, on the Distribution Date, each
grantee of a nonqualified award of a Manor Care Stock Option who is a Choice
Employee shall receive for each such award a Conversion Award, consisting of an
option to purchase shares of Choice Common Stock equal in number to the number
of shares covered by the Manor Care Stock Option, adjusted, however, pursuant to
Section 2.04(f)(iv) below. On the Distribution Date, each grantee of a Manor
Care Stock Option awarded as an incentive stock option who is a Choice Employee
shall automatically receive in its place a Conversion Award of an option to
purchase shares of Choice Common Stock equal in number to the number of shares
covered by the Manor Care Stock Option, adjusted, however, pursuant to Section
2.04(f)(iv) below. Notwithstanding the above, on the Distribution Date, each
Manor Care Stock Option held by Stewart Bainum, Jr., whether issued as an
incentive stock option or as a nonqualified stock option award, shall be
exchanged for a Conversion Award (i) with respect to which the Aggregate Spread
shall equal the Aggregate Spread attributable to
- 20 -
such incentive stock option or nonqualified stock option award, as the case may
be, and (ii) with respect to which the Aggregate Spread shall be proportionately
allocated between options to acquire Manor Care Common Stock and options to
acquire Choice Common Stock based upon the relative trading values of Manor Care
and Choice on the Distribution Date.
(iii) Adjustment of Option Price: For purposes of
determining the adjusted option price of a Conversion Award replacing a Manor
Care Stock Option, the following formula shall be used to maintain the grantee's
Aggregate Spread on each outstanding grant of Manor Care Stock Options. The
Aggregate Spread on each such outstanding grant shall be maintained by setting
the adjusted option price to ensure that the difference between (1) the
aggregate total Post-Conversion Stock Price for each Conversion Award of an
option to acquire Manor Care Common Stock or Choice Common Stock, as the case
may be, and (2) the aggregate adjusted option exercise price for each such
Conversion Award, is equal to (3) the Aggregate Spread. In addition, the
adjusted option price of each Conversion Award of an option to acquire Manor
Care Common Stock or Choice Common Stock, as the case may be, shall be set to
maintain the ratio of the exercise price of each Manor Care Stock Option being
converted to the Post-Conversion Stock Price of the Common Stock purchasable
under the Conversion Award by ensuring that the aforesaid ratio shall equal the
ratio of (1) such adjusted option price for the Conversion Award to (2) the
Post-Conversion Stock Price of the Common Stock purchasable under the Conversion
Award (Manor Care Common Stock or Choice Common Stock, respectively).
(iv) Adjustment of Number of Shares Covered by
Options: In the case of Conversion Awards of nonqualified stock options or
incentive stock options to acquire shares of shares of Manor Care Common Stock
or Choice Common Stock, the total number of shares that may be acquired with
respect to each such company shall be adjusted as necessary to maintain the
Aggregate Spread and ratio described in Section 2.04(f)(iii).
(v) Special Election for Employees and Certain
Directors of Manor Care, Inc.: On or before the Cut-off Date, each holder of a
nonvested nonqualified option to acquire Manor Care Common Stock who is a direct
employee of Manor Care, Inc. or who is a non-employee Director of Manor Care who
does not become a member of the Board of Directors of Choice on the Distribution
Date shall make a one-time election with respect to such nonvested nonqualified
option, (1) to receive a Conversion Award which relates exclusively to nonvested
nonqualified options to acquire Common Stock of (i) Manor Care, in the case of a
non-employee Director and (ii) in all other cases, Common Stock of the entity
(Manor Care or Choice) of which such individual shall be an Employee on the
Distribution Date, or (2) to receive a Conversion Award with respect to which
(a) one-half of the
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Aggregate Spread relates to nonvested nonqualified options to acquire Common
Stock of (i) Manor Care, in the case of a non-employee Director and (ii) in all
other cases, Common Stock of the entity of which such individual shall be an
employee on the Distribution Date and (b) one-half of the Aggregate Spread is
proportionately allocated between nonvested nonqualified options to acquire
Manor Care Common Stock and nonvested nonqualified options to acquire Choice
Common Stock based upon the relative trading values of Manor Care and Choice on
the Distribution Date. A failure to make a timely election shall be deemed to
constitute an election to receive a Conversion Award of nonvested nonqualified
options relating solely to (i) Manor Care, in the case of a non-employee
Director and (ii) in all other cases, Common Stock of the entity of which such
individual shall become an Employee on the Distribution Date.
(vi) Special Election for Employees With Respect
to Vested Nonqualified Stock Options: On or before the Cut-off Date, each holder
of a vested nonqualified stock option to acquire Manor Care Common Stock who is
an Employeee or a non-employee Director of Manor Care who does not become a
member of the Board of Directors of Choice on the Distribution Date may make a
one-time election to specify the manner in which the Aggregate Spread
attributable to such vested nonqualified stock option shall be allocated between
a Conversion Award relating to vested nonqualified stock options to acquire
Manor Care Common Stock and a Conversion Award relating to vested nonqualified
stock options to acquire Choice Common Stock. With respect to an Employee who is
a holder of vested nonqualified stock options but who is not a direct employee
of Manor Care, Inc., such election shall relate to a selection between (1) a
Conversion Award which relates exclusively to vested nonqualified options to
acquire Common Stock of the entity for which such individual shall become an
Employee on the Distribution Date or (2) a Conversion Award pursuant to which
the Aggregate Spread is proportionately allocated between vested nonqualified
options to acquire Manor Care Common Stock and vested nonqualified options to
acquire Choice Common Stock based upon the relative trading values of Manor Care
and Choice on the Distribution Date. With respect to a holder of a vested
nonqualified stock option who is either a direct employee of Manor Care or who
is a non-employee Director of Manor Care who does not become a member of the
Board of Directors of Choice as of the Distribution Date, such election shall
relate to a selection between (1) a Conversion Award which relates exclusively
to vested nonqualified options to acquire Common Stock of (a) Manor Care, in the
case of a non-employee Director and (b) in all other cases, the entity for which
such individual shall become an Employee on the Distribution Date, (2) a
Conversion Award pursuant to which the Aggregate Spread is proportionately
allocated between vested nonqualified options to acquire Manor Care Common Stock
and vested nonqualified options to acquire Choice Common Stock based upon the
relative trading
- 22 -
values of Manor Care and Choice on the Distribution Date, or (3) a Conversion
Award pursuant to which (a) no less than fifty percent (50%) of the Aggregate
Spread relates to vested nonqualified options to acquire Common Stock of (i)
Manor Care, in the case of a non-employee Director and (ii) in all other cases,
the entity of which such individual shall become an Employee on the Distribution
Date and (b) the remaining amount of the Aggregate Spread relates to vested
nonqualified options to acquire Common Stock of (i) Choice, in the case of a
non-employee Director or (ii) in all other cases, the entity (Manor Care or
Choice, as the case may be) of which such individual does not become an Employee
as of the Distribution Date. A failure to make a timely election with respect to
such vested nonqualified stock options shall be deemed to constitute an election
to receive a single Conversion Award of vested nonqualified options relating
solely to (i) Manor Care, in the case of a non-employee Director and (ii) in all
other cases, Common Stock of the entity of which such individual does become an
Employee on the Distribution Date.
(g) Effect of Post-Distribution Transfer on Conversion Awards.
Conversion Awards made pursuant to this Section 2.04 of shares of or options in
Manor Care Common Stock or Choice Common Stock shall be administered with
respect to any provisions relating to continuing employment requirements to give
Service Credit for service with the party employing the grantee as of the
Distribution Date (Manor Care in the case of Retained Employees and Choice in
the case of Choice Employees). Solely with respect to such Conversion Awards
(and not with respect to new awards made after the Cut-off Date), for purposes
of determining whether a termination of employment has occurred under the terms
of any provision requiring continued employment, termination of employment
through May 31, 1998 shall not be deemed to occur if an Employee leaves the
service of one party to immediately begin employment with the other party (i.e.,
leaving Manor Care employment to work for Choice, or leaving Choice employment
to work for Manor Care); the business operation or business unit from which such
Employee terminates employment shall promptly notify the administrator of the
Comprehensive Stock Plan of each party of the occurrence of any termination
subject to the provisions of this Section 2.04(g). Whichever party is the new
employer shall inform the former employer of any termination of employment of
such transferred Employee. Any termination of employment other than as described
in the preceding sentence shall be treated by applying the applicable provisions
of the Comprehensive Stock Plan relating to terminations of employment without
the modifications described in this paragraph.
Section 2.05 Existing Manor Care Stock Purchase Plan. The Manor Care
Stock Purchase Plan shall continue in effect after the Distribution Date and
payroll deductions for all eligible Plan participants who are Retained Employees
shall continue at the
- 23 -
same levels after the Pre-Distribution Purchase Date until the earlier to occur
of: (i) final purchase of stock at the end of the Current Plan Year quarter in
which the Distribution Date occurs (the "Post-Distribution Purchase") or (ii)
the date the participant withdraws from said Plan. Choice shall assume all
obligations under said Plan with respect to Post-Distribution Purchases by
Choice Employees, who will have the right to acquire Choice Common Stock
substituted for their right to acquire Manor Care Common Stock. Retained
Employees will have the right to acquire Manor Care Common Stock in the
Post-Distribution Purchase. As soon as practicable after the Distribution Date,
Manor Care will transfer to the Choice Hotels International, Inc. Stock Purchase
Plan a cash amount equal to all contributions made to the Manor Care Stock
Purchase Plan by Choice Employees during the Current Plan Year quarter in which
the Distribution Date occurs, and such amounts will be used to purchase Choice
Common Stock on behalf of such Choice Employees after the end of the Current
Plan Year quarter in which the Distribution Date occurs.
Section 2.06 Manor Care Welfare Plans and Short-Term Disability Plan.
(a) Liability for Claims. Except as otherwise provided herein, as of
the Cut-off Date, Manor Care or a Retained Subsidiary shall assume or retain and
shall be responsible for, or cause its insurance carriers or HMOs to be
responsible for, all liabilities and obligations related to claims incurred
through December 31, 1996 in respect of any Employee (whether such claims are
asserted before or after December 31, 1996) under any Manor Care Welfare Plan
and shall be responsible for claims incurred after December 31, 1996 in respect
of any Retained Individual or Terminee under any Manor Care Welfare Plan, and
Choice and the Choice Subsidiaries shall have no liability or obligation with
respect thereto, except to make contributions to Manor Care in respect of such
coverage of Choice Individuals as provided below. Notwithstanding the foregoing,
with respect to the pre-tax medical and dependent care programs, Manor Care will
retain any funds remaining on January 1, 1997 to pay for any claims incurred
under such programs on or prior to December 31, 1996. After all such claims have
been paid, Manor Care shall be entitled to retain any remaining funds
attributable to the pre-tax medical and dependent care programs.
(b) Continuation Coverage Administration. As of the Distribution Date,
Manor Care or a Retained Subsidiary shall assume or retain and shall be solely
responsible for, or cause its insurance carriers or HMOs to be responsible for,
the administration of the continuation coverage requirements imposed by Code
Section 4980B and ERISA Sections 601 through 608 as they relate to any Manor
Care Qualified Beneficiary, and shall be responsible for the administration of
continuation coverage requirements for Choice Individuals through December 31,
1996,
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and Choice and the Choice Subsidiaries shall have no liability or obligation
with respect thereto.
(c) Continuation Coverage Claims. As of the Distribution Date, Manor
Care or a Retained Subsidiary shall assume or retain and shall be responsible
for, or cause its insurance carriers or HMOs to be responsible for, all
liabilities and obligations in connection with claims incurred or premiums owed
through December 31, 1996, whether asserted before or after December 31, 1996,
under any Manor Care Welfare Plan in respect of any Manor Care Qualified
Beneficiary or Choice Qualified Beneficiary and shall be responsible for claims
incurred or premiums owed after December 31, 1996 under any Manor Care Welfare
Plan in respect of any Manor Care Qualified Beneficiary, and Choice and the
Choice Subsidiaries shall have no liability or obligation with respect thereto.
(d) Continuation of Sponsorship of Manor Care Welfare Plans. As soon
as practicable after the date hereof and effective as of the Distribution Date,
Manor Care shall take, or cause to be taken, all action necessary and
appropriate to continue to administer the Manor Care Welfare Plans and to
provide benefits thereunder for all Retained Individuals and Manor Care
Qualified Beneficiaries who, immediately prior to the Distribution Date, were
participants in or otherwise entitled to benefits under the Manor Care Welfare
Plans and to provide benefits through December 31, 1996 to Choice Individuals.
Manor Care will assess Choice a monthly amount, described in Section 2.06(e)
below, to cover the projected costs of providing continued benefits to Choice
Individuals through December 31, 1996 under the Manor Care Welfare Plans. Choice
will provide Manor Care, as soon as practicable after the Distribution Date
(with the cooperation of Manor Care to the extent that relevant information is
in the possession of Manor Care or a Retained Subsidiary, and in accordance with
Section 5.02), with a list of individuals (and dependents thereof) employed by
Manor Care or any Retained Subsidiary who were, to the best knowledge of Choice,
participants in or otherwise entitled to benefits under the existing Manor Care
Welfare Plans immediately prior to the Distribution Date, together with a
listing of each such individual's Service Credits under such existing Plans and
a listing of each such individual's expenses incurred towards deductibles,
out-of-pocket limits, maximum benefit payments, and any benefit usage towards
plan limits thereunder.
(e) Welfare Plan Payments by Choice to Manor Care. Choice shall make
monthly payments to Manor Care in an amount equal to $216 multiplied by the
number of Choice Employees who are participants in a Manor Care Medical Plan
with respect to the time period beginning on the Distribution Date and ending on
December 31, 1996. Such payments shall be made to Manor Care on a monthly basis
no more than ten (10) days after the end of each
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month ending after the Distribution Date through December 31, 1996. In
consideration of receipt of such payments, Manor Care shall provide the services
and benefits described in Section 2.06. It is understood that Choice shall not
make any changes in any of the benefit structures attributable to the Manor Care
Welfare Plans and will not modify the procedures attributable to the
administration and implementation of the Manor Care Welfare Plans. It is also
agreed that Choice will be responsible for the funding of any costs attributable
to the design, implementation, enrollment, and administration of any Welfare
Plans established by Choice to provide coverage to Choice Employees subsequent
to December 31, 1996.
(f) Continuation of Sponsorship of Manor Care, Inc. Short-Term
Disability Plan. On the Distribution Date, Manor Care shall retain (or shall
cause a Retained Subsidiary to assume) sole responsibility for all benefit
payments due under the Manor Care, Inc. Short-Term Disability Plan with respect
to all Retained Employees and Terminees who are participants in such Plan on the
Distribution Date and Choice shall have no liability or obligation with respect
thereto.
Section 2.07 Choice Welfare Plans and Short-Term Disability Plan.
(a) Establishment of Choice Welfare Plans. As soon as practicable
after the date hereof and effective January 1, 1997, Choice shall take, or cause
to be taken, all action necessary and appropriate to establish the Choice
Welfare Plans and to provide benefits thereunder for all Choice Individuals who,
immediately prior to January 1, 1997, were participants in or otherwise entitled
to benefits under the Manor Care Welfare Plans. Each such individual shall, to
the extent applicable, for all purposes under the Plans established by Choice
(i) have coverage comparable to that provided immediately prior to the
Distribution Date and (ii) have no preexisting condition limitation imposed
other than that which is or was already imposed under the existing applicable
Manor Care Welfare Plans.
(b) Liability for Claims. As of January 1, 1997, Choice or a Choice
Subsidiary shall assume or retain and shall be responsible for, or cause its
insurance carriers or HMOs to be responsible for, all liabilities and
obligations in connection with claims incurred or premiums due on and after
January 1, 1997 in respect of any Choice Individual, and Manor Care and the
Retained Subsidiaries shall have no liability or obligation with respect
thereto.
(c) Continuation Coverage Administration. As of January 1, 1997,
Choice or a Choice Subsidiary shall assume or retain, as the case may be, and
shall be solely responsible for, or cause its insurance carriers or HMOs to be
responsible for,
- 26 -
the administration of the continuation coverage requirements imposed by Code
Section 4980B and ERISA Sections 601 through 608 as they relate to any Choice
Qualified Beneficiary after December 31, 1996, and Manor Care and the Retained
Subsidiaries shall have no liability or obligation with respect thereto.
(d) Continuation Coverage Claims. As of the January 1, 1997, Choice or
a Choice Subsidiary shall be solely responsible for, or cause its insurance
carriers or HMOs to be responsible for, all liabilities and obligations
whatsoever in connection with claims incurred or premiums due on and after
January 1, 1997 under any Choice Welfare Plans (or successor thereto) in respect
of any Choice Qualified Beneficiary, and Manor Care and the Retained
Subsidiaries shall have no liability or obligation with respect thereto. Each
Choice Qualified Beneficiary shall, to the extent applicable, for all purposes
under the Plans provided by Choice (i) have coverage comparable that provided to
him or her immediately prior to the Distribution Date and (ii) have no
preexisting condition limitation imposed other than that which is or was already
imposed under the applicable existing Plan.
(e) Establishment of Choice Hotels International, Inc. Short-Term
Disability Plan. Effective as of the Distribution Date, Choice shall take, or
cause to be taken, all action necessary and appropriate to establish and
administer a new short-term disability plan named the Choice Hotels
International, Inc. Short-Term Disability Plan and to provide benefits
thereunder after the Distribution Date for all Choice Employees, including
Choice Employees who had incurred a disability prior to the Distribution Date
and who were receiving benefits prior to the Distribution Date under the Manor
Care, Inc. Short-Term Disability Plan.
Section 2.08 Vacation Pay and Sick Leave Liabilities.
(a) Division of Liabilities. Effective on the Distribution Date,
Choice shall assume, as to the Choice Employees, and Manor Care shall retain, as
to the Retained Employees, all accrued liabilities (whether vested or unvested,
and whether funded or unfunded) for vacation leave and sick leave in respect of
employees of Manor Care as of the Cut-off Date. Choice shall be solely
responsible for the payment of such vacation leave and sick leave to Choice
Employees after the Cutoff Date, and Manor Care shall be solely responsible for
the payment of such vacation leave and sick leave to Retained Employees after
the Cut-off Date. Each party shall provide to its own Employees on the
Distribution Date the same vested and unvested balances of vacation leave and
sick leave as credited to such Employee on the Manor Care payroll system on the
Cut-off Date, and shall continue to accrue vacation leave and sick leave in
respect of each such Employee from the Distribution Date at
- 27 -
the same rate of accrual as accrued in respect of such individual by Manor Care
on the Cut-off Date.
(b) Post-Distribution Transfers. Through May 31, 1998, an Employee who
leaves the service of one party to immediately begin employment with the other
party (i.e., leaving Manor Care employment to work for Choice, or leaving Choice
employment to work for Manor Care) shall be provided by the new employer with
the same balance of vested and unvested vacation leave and sick leave hours as
had been accrued by the old employer through the termination date. The old
employer shall promptly notify the new employer in writing of the occurrence of
any termination subject to the provisions of this Section 2.08(b), and shall
make a payment to such new employer within thirty (30) days of the aforesaid
termination date in an amount equal to the value of the terminating Employee's
vested balance of vacation leave and sick leave accrued by the old employer
through such termination date, based on the Employee's final rate of pay with
the old employer. No payment shall be made by the old employer to the new
employer for any unvested leave balance.
Section 2.09 Employee Discounts. Employees of Choice shall be granted
discounts with Manor Care on the same terms and conditions as Manor Care
employee discounts, and employees of Manor Care shall be granted discounts with
Choice on the same terms and conditions as Choice employee discounts. Such
discounts shall be intended to qualify as a fringe benefit excludible from the
gross income of employees under Section 132(a) of the Code. This Agreement shall
constitute a reciprocal agreement between the parties within the meaning of
Section 132(h) of the Code, and the parties shall execute such further
documentation as may be required for tax purposes or as otherwise necessary to
effect such discounts. In accordance with Section 5.02, each party shall furnish
the other with such information as is necessary for the administration of the
aforesaid employee discount programs, including but not limited to information
on the utilization of the discounts by the employees of such other party. Each
party shall be solely responsible for any payroll taxes, excise taxes, corporate
income taxes or penalties attributable to the availability of discounts to or
utilization by its employees (whether or not such discounts qualify under
Section 132(a) of the Code), and the other party shall have no liability or
obligation with respect thereto.
Section 2.10 Preservation of Right To Amend or Terminate Plans. Except
as otherwise expressly provided in Article II, no provisions of this Agreement,
including, without limitation, the agreement of Manor Care or Choice, or any
Retained Subsidiary or Choice Subsidiary, to make a contribution or payment to
or under any Plan herein referred to for any period, shall be construed as a
limitation on the right of Manor Care or Choice or any Retained Subsidiary or
Choice Subsidiary to amend such Plan or terminate
- 28 -
its participation therein which Manor Care or Choice or any Retained Subsidiary
or Choice Subsidiary would otherwise have under the terms of such Plan or
otherwise, and no provision of this Agreement shall be construed to create a
right in any employee or former employee, or dependent or beneficiary of such
employee or former employee under a Plan which such person would not otherwise
have under the terms of the Plan itself.
Section 2.11 Reimbursement. Manor Care and Choice acknowledge that
Manor Care and the Retained Subsidiaries, on the one hand, and Choice and the
Choice Subsidiaries, on the other hand, may incur costs and expenses, including,
but not limited to, contributions to Plans and the payment of insurance premiums
arising from or related to any of the Plans which are, as set forth in this
Agreement, the responsibility of the other party hereto. Accordingly, Manor Care
(and any Retained Subsidiary responsible therefor) and Choice (and any Choice
Subsidiary responsible therefor) shall reimburse each other, as soon as
practicable, but in any event within thirty (30) days of receipt from the other
party of appropriate verification, for all such costs and expenses.
Section 2.12 Payroll Reporting and Withholding.
(a) Form W-2 Reporting. Choice and Manor Care hereby adopt the
"alternative procedure" for preparing and filing IRS Forms W-2 (Wage and Tax
Statements), as described in Section 5 of Revenue Procedure 84-77, 1984-2 IRS
Cumulative Bulletin 753 ("Rev. Proc. 84-77"). Under this procedure Choice as the
successor employer shall provide all required Forms W-2 to all Choice
Individuals reflecting all wages paid and taxes withheld by both Manor Care as
the predecessor and Choice as the successor employer for the entire year during
which the Distribution takes place. Manor Care shall provide all required Forms
W-2 to all Retained Individuals reflecting all wages and taxes paid and withheld
by Manor Care before, on and after the Distribution Date.
In connection with the aforesaid agreement under Rev. Proc. 84-77,
each business unit or business operation of Manor Care shall be assigned to
either Manor Care or Choice, depending upon whether it is a Retained Business or
Choice Business, and each Retained Individual or Choice Individual associated
with such business unit or business operation shall be assigned for payroll
reporting purposes to Manor Care or Choice, as the case may be.
(b) Forms W-4 and W-5. Choice and Manor Care agree to adopt the
alternative procedure of Rev. Proc. 84-77 for purposes of filing IRS Forms W-4
(Employee's Withholding Allowance Certificate) and W-5 (Earned Income Credit
Advance Payment Certificate). Under this procedure Manor Care shall provide to
Choice as the successor employer all IRS Forms W-4 and W-5 on
- 29 -
file with respect to each Choice Individual, and Choice will honor these forms
until such time, if any, that such Choice Individual submits a revised form.
(c) Garnishments, Tax Levies, Child Support Orders, and Wage
Assignments. With respect to Employees with garnishments, tax levies, child
support orders, and wage assignments in effect with Manor Care on the Cut-off
Date, Choice as the successor employer with respect to each Choice Individual
shall honor such payroll deduction authorizations and will continue to make
payroll deductions and payments to the authorized payee, as specified by the
court or governmental order which was filed with Manor Care.
(d) Authorizations for Payroll Deductions. Unless otherwise prohibited
by this or another agreement entered into in connection with the Distribution,
or by a Plan document, with respect to Employees with authorizations for payroll
deductions in effect with Manor Care on the Cut-off Date, Choice as the
successor employer will honor such payroll deduction authorizations relating to
each Choice Individual, and shall not require that such Choice Individual submit
a new authorization to the extent that the type of deduction by Choice does not
differ from that made by Manor Care. Such deduction types include, without
limitation, contributions to any Plan, U.S. Savings Bonds; scheduled loan
repayments to the Profit Sharing Plan; and Direct Deposit of Payroll, bonus
advances, union dues, employee relocation loans, and other types of authorized
company receivables usually collectible through payroll deductions.
ARTICLE III
LABOR AND EMPLOYMENT MATTERS
Notwithstanding any other provision of this Agreement or any other
Agreement between Choice and Manor Care to the contrary, Choice and Manor Care
understand and agree that:
Section 3.01 Separate Employers. On and after the Distribution Date
and the separation of Employees into their respective companies, Choice and
Manor Care will be separate and independent employers.
Section 3.02 Employment Policies and Practices. Subject to the
provisions of ERISA and Sections 2.01(b) on Service Credits and 2.04(e) and
2.08(b) governing post-Distribution transfers through May 31, 1998, Choice and
Manor Care may adopt, continue, modify or terminate such employment policies,
compensation practices, retirement plans, welfare benefit plans, and other
employee benefit plans of any kind or description, as
- 30 -
each may determine, in its sole discretion, are necessary and
appropriate.
Section 3.03 Collective Bargaining Agreements. With regard to
employees of Manor Care covered by a Collective Bargaining Agreement on the
Cut-off Date who become Choice Employees or Retained Employees, Choice and Manor
Care promise and covenant to each other not to take any action which disrupts or
otherwise negatively impacts the labor relations of the other. Choice and Manor
Care will diligently work to substitute the appropriate employer for Manor Care
in Collective Bargaining Agreements.
Section 3.04 Claims.
(a) Scope. This Section is intended to allocate all liabilities for
employment-related claims involving Manor Care or Choice including, but not
limited to, claims against either or both Manor Care and Choice and their
officers, directors, agents and employees, or against or by their various
employee benefit plans and plan administrators and fiduciaries. In the event of
any conflicting provision of any agreement including, but not limited to,
management agreements for hotel properties, this Section 3.04 shall control the
allocation of liabilities for employment-related claims.
(b) Employment-Related Claims. An employment-related claim shall
include any actual or threatened lawsuit, arbitration, ERISA claim, or federal,
state, or local judicial or administrative proceeding of whatever kind involving
a demand by or on behalf of or relating to Retained Individuals or Choice
Individuals, or by or relating to a collective bargaining agent of Employees, or
by or relating to any federal, state or local government agency alleging
liability against Manor Care or Choice, or against any employee health, welfare,
deferred compensation or other benefit plan and their respective officers,
directors, agents, employees, administrators, trustees and fiduciaries.
(c) Obligation to Indemnify. The duty of a party to indemnify, defend
and hold harmless the other party under this Section 3.04 shall include the
following obligations of the party having such duty: to provide a legal defense
and incur all attorneys fees and litigation costs which may be associated with
such a defense; to pay all costs of settlement or judgment where the
indemnifying party has the full duty to do so or to pay the full percentage of
the party's share when the duty is only a percentage of the full settlement or
judgment; and to hold harmless from all claims and costs which may be asserted
with or arising from the duty of the indemnifying party to defend and indemnify.
- 31 -
(d) Pre-Distribution Claims.
(i) Choice shall indemnify, defend and hold
harmless Manor Care from any employment-related claims of a Choice Individual
arising on or before the Cut-off Date.
(ii) Manor Care shall indemnify, defend and hold
harmless Choice from any employment-related claims of a Retained Individual
arising on or before the Cut-off Date.
(e) Distribution and Other Joint Liability Claims. Where
employment-related claims alleging or involving joint and several liability
asserted against Choice and Manor Care are not separately traceable to
liabilities relating to Choice Individuals or Retained Individuals, any
liability shall be apportioned between Choice and Manor Care in accordance with
the percentage that each party's Employees represents of the combined total
number of Employees of both parties, as described below. The percentage of the
liability assumed by Choice shall equal the ratio of (i) the total number of
Choice Employees on the Distribution Date, to (ii) the combined total number of
Choice Employees and Retained Employees on such date. The percentage of the
liability assumed by Manor Care shall equal the ratio of (i) the total number of
Manor Care Employees on the Distribution Date, to (ii) the combined total number
of Choice Employees and Retained Employees on such date. Each party will
indemnify, defend, and hold harmless the other to the extent of the indemnifying
party's apportioned percentage determined in accordance herewith.
(f) Post-Distribution Employment-Related Claims. Employment-related
claims arising after the Distribution and division of the Employees between the
parties and not relating to, arising from, or in connection with the
Distribution, will be the sole responsibility of Choice as to Choice Individuals
and of Manor Care as to Retained Individuals. Each Company will indemnify,
defend, and hold harmless the other from employment-related claims of the other
company.
Section 3.05 Funding of Union Plans. Without limitation to the scope
and application of Section 3.04, any claims by or on behalf of employees or
their collective bargaining agent or any federal, state or local governmental
agency for alleged under- funding of, or failure to make payments to, union
health, welfare and pension funds based on acts or omissions occurring on or
before the Distribution Date or arising from or in connection with the
Distribution, or resulting from actuarial recalculation by auditors of the union
plans and funds, will be the sole responsibility of each party as to its own
employees (i.e., Choice with respect to Choice Individuals, and Manor Care with
respect to Retained Individuals), and the responsible party will
- 32 -
indemnify, defend, and hold harmless the other from any such
claims.
Section 3.06 Notice of Claims. Without limitation to the scope and
application to each party in the performance of its duties under Section 3.04
and 3.05 herein, each party will notify in writing and consult with the other
party prior to making any settlement of an employee claim, for the purpose of
avoiding any prejudice to such other party arising from the settlement.
Section 3.07 Assumption of Unemployment Tax Rates. Changes in state
unemployment tax experience from that of Manor Care as of the Cut-off Date shall
be handled as follows. In the event an option exists to allocate state
unemployment tax experience of Manor Care, the Manor Care experience shall be
transferred to Choice if this results in the lowest aggregate unemployment tax
costs for both Manor Care and Choice combined, and the Manor Care experience
shall be retained by Manor Care if this results in the lowest aggregate
unemployment tax costs for Manor Care and Choice combined.
Section 3.08 Intercompany Service Charge. Legal, professional,
managerial, administrative, clerical, consulting, and support or production
services provided to one party by personnel of the other party, upon the request
of the first party or when such services are otherwise required by this
Agreement between Choice and Manor Care, shall be charged to the party receiving
such services on commercially reasonable terms to be negotiated (or in
accordance with the provisions of any applicable agreement between the parties).
Section 3.09 WARN Claims. Before and after the Distribution Date, each
party shall comply in all material respects with the Worker Adjustment and
Retraining Act ("WARN"). Manor Care shall be responsible for WARN claims
relating to Retained Individuals or the Employees who prior to the Distribution
Date were employed in a Retained Business. Choice shall be responsible for WARN
Claims relating to Choice Individuals or to Employees who prior to the
Distribution Date were employed in a Choice Business. Each party shall
indemnify, defend and hold harmless the other in connection with WARN Claims for
which the indemnitor is responsible and which are brought against the
indemnitees.
Section 3.10 Employees on Leave of Absence. After the Distribution
Date, Choice shall assume responsibility, if any, as employer for all Employees
returning to Choice or a Choice Business from an approved leave of absence who
prior to the Distribution Date were employed in a Choice Business. After the
Distribution Date, Manor Care shall assume responsibility, if any, as employer
for all Employees returning to Manor Care or a
- 33 -
Retained Business from an approved leave of absence who prior to the
Distribution Date were employed in a Retained Business.
Section 3.11 No Third Party Beneficiary Rights. Neither this Agreement
nor any other intercompany agreement between Choice and Manor Care is intended
to nor does it create any third party contractual or other common law rights. No
person shall be deemed a third-party beneficiary of the agreements between
Choice and Manor Care.
Section 3.12 Attorney-Client Privilege. The provisions herein
requiring either party to this Agreement to cooperate shall not be deemed to be
a waiver of the attorney/client privilege for either party nor shall it require
either party to waive its attorney/client privilege.
ARTICLE IV
DEFAULT
Section 4.01 Default. If either party materially defaults hereunder,
the non-defaulting party shall be entitled to all remedies provided by law or
equity (including reasonable attorneys' fees and costs of suit incurred).
Section 4.02 Force Majeure. Choice and Manor Care shall incur no
liability to each other due to a default 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 delay beyond each other's reasonable control.
ARTICLE V
MISCELLANEOUS
Section 5.01 Relationship of Parties. Nothing in this Agreement shall
be 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 set forth herein.
Section 5.02 Access to Information; Cooperation. Manor Care and Choice
and their authorized agents will be given reasonable access to and may take
copies of all information
- 34 -
relating to the subjects of this Agreement (to the extent permitted by federal
and state confidentiality laws) in the custody of the other party, including any
agent, contractor, subcontractor, agent or any other person or entity under the
contract of such party. The parties will provide one another with such
information within the scope of this Agreement as is reasonably necessary to
administer each party's Plans. The parties will cooperate with each other to
minimize the disruption caused by any such access and providing of information.
Section 5.03 Assignment. Neither party shall, without the prior
written consent of the other, have the right to assign any rights or delegate
any obligations under this Agreement.
Section 5.04 Headings. The headings used in this Agreement are
inserted only for the purpose of convenience and reference, and in no way define
or limit the scope or intent of any provision or part hereof.
Section 5.05 Severability of Provisions. Neither Manor Care nor Choice
intend to 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.
Section 5.06 Parties Bound. This Agreement shall inure to the benefit
of and be 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.
Section 5.07 Notices. All notices, consents, approvals and other
communications given or made pursuant hereto shall be in writing and shall be
deemed to have been duly given when delivered personally or by overnight courier
or three days after being mailed by registered or certified mail (postage
prepaid, return receipt requested) to the named representatives of the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice, except that notices of changes of address shall be
effective upon receipt):
(a) if to Manor Care
MANOR CARE, INC.
11555 Darnestown Road
Gaithersburg, MD 20878-3200
Attention: GENERAL COUNSEL
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(b) if to Choice
CHOICE HOTELS INTERNATIONAL, INC.
10750 Columbia Pike
Silver Spring, MD 20901
Attention: GENERAL COUNSEL
Choice agrees that, upon the request of Manor Care, Choice will give copies of
all of its notices, consents, approvals and other communications hereunder to
any lender to Manor Care or other person specified by Manor Care.
Section 5.08 Further Action. Choice and Manor Care each shall
cooperate in good 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.
Section 5.09 Waiver. Choice and Manor Care each agree that the waiver
of any default under any term or condition of this Agreement shall not
constitute a waiver of any subsequent default or nullify the effectiveness of
that term or condition.
Section 5.10 Governing Law. All controversies and disputes arising out
of or under this Agreement shall be determined pursuant to the laws of the State
of Maryland, regardless of the laws that might be applied under applicable
principles of conflicts of laws.
Section 5.11 Consent to Jurisdiction. The parties irrevocably submit
to the exclusive jurisdiction of (a) the Courts of the State of Maryland,
Montgomery County, or (b) any federal district court in the State of Maryland
where there is federal jurisdiction for the purpose of any suit, action or other
Court proceeding arising out of this Agreement.
Section 5.12 Entire Agreement. This Agreement and the Distribution
Agreement 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.
Section 5.13 Commercially Reasonable Terms and Conditions. The terms
and provisions of this Agreement are intended to reflect commercially reasonable
terms and conditions (including, but not limited to, pricing) that are at least
as favorable and as competitive to Choice as the terms and conditions Manor Care
would grant or require of third parties for substantially similar goods and
services.
- 36 -
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MANOR CARE, INC., a
Delaware corporation
By:/s/ James H. Rempe
Name:James H. Rempe
Title:Senior Vice President
and Secretary
CHOICE HOTELS HOLDINGS, INC., a
Delaware corporation
By:/s/ James A. MacCutcheon
Name:James A. MacCutcheon
Title:Executive Vice President
and Chief Financial Officer
and Treasurer
- 37 -
EXHIBIT A
HEALTH AND WELFARE PLANS
* Medical plans
* Dental Plan
* HMOs
* Group-Term Life
* Pretax Spending Accounts
* Hyatt Legal Services
* Long-term Disability
* Accidental Death & Dismemberment