National Co-Op Program Guidelines 12/18/02

Purpose u The purpose of this document is twofold: 1. To provide documentation of the agreed upon process that the Co-op Advisory Committee will follow 2. To provide a comprehensive summary of the National Co-op Program Guidelines that will serve as a solid reference for all regions and/or states

Co-op Advisory Committee Guidelines

Co-op Advisory Committee u Steering Committee Members: LicenseesCHI Anil Chagan, ELFA President Cindy Heverling Joe DiNunzio, IOC PresidentMelissa Kinsley Bruce Faltin, ROC PresidentDarren Leo Kevin AkashScott Oaksmith Michael AllenAsa Williams Ken Blair Anil Maniklal Sandya Patel Jim Paquette Harold Solomon

u CAC to meet face-to-face two times a year F Conference calls and webcasts as needed u CAC to work constructively and proactively to enhance program u CHI co-op team to leverage expertise from other departments as needed u Meeting minutes to be taken and to be forwarded within 72 hours to all CAC members and key CHI support people as warranted Co-op Advisory Committee Process

CAC Mission Statement u The co-op advisory committee exists to share “best practices,” establish guidelines and to continually seek opportunities to improve and streamline the co-op program. The goal is to deliver a quality program that offers real value to the franchisees

CAC Key Initiatives u To share “best practices” u To streamline financial reporting and to establish solid financial procedures u To improve tracking in order to project accurate ROI u To develop benchmarks for evaluating regional advertising effectiveness u To provide constructive and timely feedback

CAC Key Initiatives u To continue to foster teamwork among key constituents u To ensure consistent and accurate communication between the CAC, ELFA, IOC, ROC,co-op chairs, and owner’s council, as well as, participating hotels

National Co-op Program Guidelines

u “Rules of the Road” F All national co-op funding (marketing fund + licensee contributions) is to be used equally and to be managed to a zero budget annually Y At year end, if a region’s annual expenses fall short of member contributions and the CHI allocation, 50% of the unexpended funds will be returned to CHI and 50% will roll over into the specific regions account for the next year’s spending Y The above policy assumes that member contributions and the CHI allocation are evenly split. If the member contributions or CHI allocation is larger, the group committing the most money will be allocated a proportional amount of the unexpended fund balance Y If a Co-op’s property collection exceeds the CHI allocation and the matched allocation was entirely spent, all property contributions in excess of the Co-op budget roll over into the specific Co-op’s account National Co-op Guidelines

u “Rules of the Road” F All advertising must be in campaign and must be produced and approved by CHI Co-op Team F All final marketing/media plans are to be forwarded to CHI by Dec. 31, 2002 (moving forward by Nov. 1 annually) Y CHI to forward all final marketing plans to Ross Elmo, Tammie Matthews and Bruce Faltin F The co-op program will follow a December 1- November 30 fiscal year

u Roles and Responsibilities F ELFA, IOC, ROC Regional and State Co-op Leaders Y Set percentage of budget allocations with co-op members between Region and State and apprise CHI Rep and ROC, IOC or ELFA Executive Directors (as appropriate) of agreed upon split (by 9/30 annually) Y Develop and approve all media/marketing plans for the fiscal year with co-op members (by 10/31 annually) Y Co-sign all media contracts in conjunction with Advertising Dept. Y Ensure that financial guidelines and “rules of the road” are followed by all members of the co-op Y Ensure all co-op efforts follow all brand and campaign identity standards Y Ensure seamless communication with respective co-op group National Co-op Guidelines

u Roles and Responsibilities F Co-op Advertising & Marketing Services Y Assist co-ops in developing all media plans (detail to include publications and insertion dates for the year; media plan template to be created) and reviewing all marketing plans Y Facilitate clear and timely communication to the ELFA Directors, IOC Regional Chairs, ROC President, RVPs, FSDs : Y the annual National Co-op Allocation Y campaign updates Y National Promotions and media calendar Y promotion creative and templates

u Roles and Responsibilities F Co-op Advertising & Marketing Services Y Provide assistance in implementing all co-op marketing efforts Y Ensure all creative is produced within campaign and brand identity standards and within production budget Y Engage other resources as warranted for co-op marketing activities, i.e. sales blitzes, telemarketing, fulfillment National Co-op Guidelines

u Roles and Responsibilities F Franchise Services Y FSDs serve as “advisors” and do not vote or approve creative Y FSDs do not sign media contracts Y FSDs help to ensure all co-op efforts follow all brand identity and campaign standards

National Co-op Guidelines u Roles and Responsibilities F Finance Y CHI will remit the Co-Op Allocation ($1,700,000 for 2003) to the IOC on a quarterly basis ($425,000 per quarter) by the 15 th of January, April, July, and October Y Licensees (excluding Midscale Regions 1,4,5,6 and Midscale/Economy Region 9) will be billed quarterly for their member contributions by CHI Y Quarterly member contribution billing will take place on approximately the 15th of every January, April, July and October

National Co-op Guidelines u Roles and Responsibilities F Finance Y On a quarterly basis, CHI will remit member contributions collected to the IOC Executive Director based on the following schedule: Y January 15 th - Collections for the period October through December Y April 15 th – Collections for the period January through March Y July 15 th – Collections for the period April through June Y October 15 th – Collections for the period July through September

National Co-op Guidelines u Roles and Responsibilities F Finance Y IOC Executive Director to work cooperatively with CHI to produce monthly financial reports Y IOC Executive Director and CHI to cooperatively review all reports and facilitate resolution of any invoice discrepancies Y Financial reports need to show Regional vs. State spend Y IOC Executive Director to pay all invoices, to forward CHI monthly re-caps of all co-op invoices paid and to communicate co-op fund balance Y CHI to provide quarterly ROI tracking reports Y Ensure that financial guidelines are followed

National Co-op Guidelines u Operating Structure Y At the Regional Level: Y IOC Regional Chairs for mid-scale (regions 1-7) Y ELFA Directors and ROC for economy groups (regions 1-7) Y IOC Regional Chairs, ELFA Directors and ROC for multi-brand groups (regions 8-13) Y At the state level: Y Appointed by IOC RAB, ELFA and ROC Y State leaders serve on regional co-op boards Y State leaders need to obtain approval from IOC Regional Chairs and/or ELFA Directors on all money committed prior to commitment Y IOC Regional Chair and ELFA Director need to jointly sign media contracts

National Co-op Guidelines u Operating Structure F Marketing Plans/Final Budgets Y Regions/States are to send all marketing plans to CHI Advertising and Marketing Services Y CHI to ensure ELFA Executive Director, ROC, IOC Regional Chairs and IOC Executive Director each have copies Y For combined regions, the ELFA Director and IOC Regional Chair should be present at planning sessions

u Operating Structure F Media Contracts Y Midscale only groups require the signatures of the IOC Regional Chair and CHI Y Economy only groups require the signature of the ELFA Regional Director Y Combined regions require the signature of the IOC Regional Chair, ELFA Regional Director and CHI Y CHI to ensure IOC, ELFA and ROC have copies of signed contracts National Co-op Guidelines

u Operating Structure F Media Contract Approval Timeline Y Appropriate lead time is essential to ensure proper checks and balances Y To accomplish this, each group responsible for approving the contracts will be given 72 hours to turnaround a signed contract Y Please note: in the case of a combined region, regions will need to allow 9 business days for approvals Y CHI to ensure IOC Executive Director and ELFA Executive Director receive copies of signed contracts National Co-op Guidelines

u Financial Policy Y CHI Member Contribution Billing Y Licensees (excluding Midscale Regions 1,4,5,6 and Midscale/Economy Region 9) will be billed quarterly for their member contributions by Choice Hotels International (CHI) Y Quarterly billing will take place on approximately the 15th of every January, April, July and October Y A listing of properties to be billed for the quarter must be submitted to Mike Parlett of CHI from CHI’s Franchise Service Directors (FSD) or the Co-Op Chairperson by the 3 rd business day of January, April, July and October to be included in the billing cycle. Any property billings after this date will be held and billed in the next quarter’s billing National Co-op Guidelines

u Financial Policy Y CHI Member Contribution Collections Y CHI will provide cash collection services for member contributions to the program for those regions for which it has provided billing services. CHI will not provide past due collection services. Y If member contributions are not received after 90 days of the billing date, CHI will remove the accounts receivable from its books and collection of the outstanding amount will become the responsibility of the Co-Op Chairperson

National Co-op Guidelines u Financial Policy Y CHI Member Contribution Collections Y By the 15 th of January, April, July and October, CHI will provide the IOC Executive Director with a report detailing the following YTD collection activity by Region, State and Property: Y Year to Date billings for the current month Y Year to Date cash collections Y Year to Date receivable write offs for the current month Y Ending Accounts Receivable balance

National Co-op Guidelines u Financial Policy Y CHI Member Contribution Collection Y On a quarterly basis, CHI will remit member contributions collected to the IOC Executive Director based on the following schedule: Y January 15 th - Collections for the period October through December Y April 15 th – Collections for the period January through March Y July 15 th – Collections for the period April through June Y October 15 th – Collections for the period July through September

National Co-op Guidelines u Financial Policy Y CHI Member Contribution Collection Y The IOC Executive Director will distribute the quarterly member contribution report to each Co-op Chairperson Y On a quarterly basis, the IOC Executive Director will send to CHI a listing of member contributions collected by the IOC or the Co-op Chairpersons. The listing should include collections by state and region.

u Financial Policy Y Expense Payment (excluding production expenses) Y Effective January 2003, the IOC Executive Director will be responsible for processing and paying invoices (excluding production expenses) for every Co-Op Y The IOC Executive Director is to maintain details of expenses using an accounting software package or in spreadsheet form including: Y Region for which expense was paid Y State for which expense was paid Y Date invoice was received Y Date invoice was paid Y Amount of payment Y Description of expense (issue date, event date, etc.) National Co-op Guidelines

u Financial Policy Y Expense Payment (excluding production expenses) Y By the 15 th of each month, the IOC Executive Director will forward to CHI the expense detail described above for the previous month. The expense detail should also be accompanied by the appropriate support for each expense (copy of invoice and ads that ran) Y By the 15 th of each month, the IOC Executive Director will also forward to CHI copies of each regions’ bank account statement accompanied by properly prepared bank reconciliation. Y IOC will maintain separate bank accounts for each Co-Op to be used for co-op purposes only Y IOC Executive Director to maintain bonded status

National Co-op Guidelines u Financial Policy Y CHI National Co-op Allocation Y CHI will remit the Co-op Allocation ($1,700,000 for 2003) to the IOC on a quarterly basis ($425,000 per quarter) by the 15 th of January, April, July, and October Y The Co-op Allocation will be made timely provided CHI receives the monthly expense report filings and backup from the IOC, funds have been disbursed for IOC and CHI approved expenditures and each Co-op is managing the budget to ensure all funds collected are being spent Y CHI will manage the Production Expense Allocation in order to pay Arnold Worldwide and other production related expenses incurred by the Co-op fund

National Co-op Guidelines u Financial Policy Y Financial Reporting Y Assuming the expenses paid information is received by CHI on the 15 th of every month, and the IOC member contributions are received quarterly on the 15 th of every January, April, July and October, CHI will deliver quarterly financial reports to the IOC by the 30 th of January, April, July and October. This report will provide the following detail: Y Beginning cash balance Y Member contributions received Y CHI Allocation Paid Y Expenses paid Y Ending cash balance Y ROI analysis will also be provided with the monthly financial reporting to track the effectiveness of Co-Op programs

National Co-op Guidelines u Financial Policy Y Unexpended Funds Y At year end, if a region’s annual expenses fall short of member contributions and the CHI allocation, 50% of the unexpended funds will be returned to CHI and 50% will roll over into the specific regions account for the next year’s spending Y The above policy assumes that member contributions and the CHI allocation are evenly split. If the Member contributions or CHI allocation is larger, the group committing the most money will be allocated a proportional amount of the unexpended fund balance Y If a Co-op’s property collection exceeds the CHI allocation and the matched allocation was entirely spent, all property contributions in excess of the Co-op budget roll over into the specific Co-op’s account.

National Co-op Guidelines u Advertising Requirements Y Annual Plan due 11/30 in order to receive matching fund distribution throughout the year Y ALL updates to the plan must be forwarded to CHI Co-op Team to ensure accurate budgetary management and to provide back- up for invoicing Y Regions are to include a roster of participating properties for the co-op with the marketing plan submission. CHI to send to Phoenix to ensure properties are loaded in the system Y All ads “in campaign” Y Arnold Worldwide or CHI to provide all graphics, design, creative

National Co-op Guidelines u Advertising Requirements Y All marketing and advertising that use co-op funds must be approved by the Co-op Advertising and Marketing Team (includes: TravelClick, Sales Blitzes, Regional Websites) Y To ensure accuracy, regions and states need to fill out the Work Request form for every ad Y As a quality control step and to capture any new additions, a co- op property list is to be included on the WRF Y All Ads to have tracking mechanism Y Annual Plans due November 1 to CHI Advertising and Marketing Team

u Co-op Advertising and Marketing Travel F The following travel will be covered out of the National Marketing Fund for each of the 13 regions: Y 2 Regional or State Meetings—2 people Y Regional Meetings—2 people Y Annual Convention F All Travel must be approved by the IOC Regional Chair and the ELFA Regional Director F Additional state or regional trips that are above and beyond what is listed above, will be taken out of the allocated production funds National Co-op Guidelines

u Annual Budget Y $2,000,000 National Co-op Matching Fund allocated on a “rooms pro rata” basis by state Y $2,000,000 is split into Marketing Expenses ($1.7M) and Production Expenses ($300,000) Y Property contributions are set and collected equally by their respective co-op groups. Projected to be $2,000,000 in Y Regional and State programs determine allocation split between two (historically 60/40 split respectively—split to be conveyed to CHI, IOC Executive Director, ELFA Executive Director) Y Uncommitted National Co-op Matching funds return to the National Advertising Fund by November 1 st Y Fund (MF +PC) must be managed equally to a zero balance annually National Co-op Guidelines

u Production Budget National Co-op Marketing FundProperty Contributions Total Funds: $2,000,000 $2,000,000 Marketing Allocation: $1,700,000 $2,000,000 Production allocation: $300,000 TOTAL PRODUCTION: $300,000* *$300,000 to be deducted from the National Co-op Marketing Fund to facilitate production process *Unused production dollars to be reallocated towards additional media or marketing efforts by 10/30 National Co-op Guidelines

u CHI Contact List